Fitch Affirms Banco BHD and Related Entities' Ratings; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed Banco BHD (BHD) and its related entities' BHD Valores Puesto de Bolsa (BHD Valores) and BHD International Bank (Panama) - BHDIB ratings. The Rating Outlooks are Stable. A complete list of ratings actions is provided at the end of this press release.

KEY RATING DRIVERS BHD- IDRs, VRs, SUPPORT AND NATIONAL RATING

BHD's Viability Rating (VR), or standalone creditworthiness, drives its long-term Issuer Default Ratings (IDR) and national ratings. The bank's ratings do not consider any support, resulting in a Support Rating of '5' and a Support Floor of 'NF'.

The bank's operating environment, asset quality and funding highly influence its VR. Additionally, the bank's VR also considers its sound franchise resilient profitability, adequate capitalization, reserve cushion, and improving funding base. BHD's ratings are constrained by the sovereign's ratings.

BHD's franchise is well-known and strong locally. The bank has positioned itself as a highly competitive entity in the corporate business segment. BHD has also successfully increased its penetration in the fast growing and profitable retail segment, which has widened its deposit base and reduced funding costs.

BHD improved its sound asset quality and continued to outperform the Dominican market average in 2013. Nevertheless, this ratio remained relatively high compared with international peers (emerging market commercial banks with VR of 'b-/b/b+'). Past due loans declined to 1.67% of total loans at year-end 2013 (YE13) from 2.05% the year before, reflecting a nominal decline in impaired loans and increased net charge-offs as well as conservative credit origination policies and effective collection efforts.

BHD's financial performance has been consistently strong driven by high margins, sizable trading gains, adequate operating expense control and moderate to low credit costs. Fitch expects a favorable economic environment to result in higher and healthy loan growth. Nevertheless, higher operational costs and lower non-operating income related to the merger with Banco Multiple Leon (BML) could hinder the bank's profitability in 2014.

Besides sound profitability and retention of about 50% of its net income, the bank maintains ample reserve coverage thus creating a strong capital/reserves cushion against unexpected losses. Fitch core capital to risk-weighted assets ratio increased to 15.86%, slightly higher than the median of international peers.

BHD's successful franchise, distribution network, and reputation have allowed it to enjoy a well-diversified, stable and low-cost funding base. The bank's deposit mix has changed over time as demand deposits increased, while institutional funding has reduced its participation.

Following an agreement between Centro Financiero BHD (CFBHD) and Grupo Financiero Leon (GFL), the new entity, Centro Financiero BHD Leon (CFBHDL) will merge BML and BHD, where the latter will be the surviving entity. The brand 'Leon' will be integrated to the name of the merged bank 'Banco BHD Leon'. This merger is subject to regulatory and other approvals and is expected to be completed during the first half of 2014. Fitch expects the merger to benefit BHD with larger scale, important operational and financial synergies, stronger and more diversified revenue sources, as well as improved operating efficiency over the medium term.

KEY RATING DRIVERS BHD VALORES AND BHDIB - NATIONAL RATINGS

BHD Valores and BHDIB ratings reflect the operational and financial support provided by BHD and its sole shareholder CFBHDL. In Fitch's view, both entities are core for CFBHDL, as they are key and integral part of its business and provide some financial products to core clients. Furthermore, a clear commercial identification among these entities with BHD and CFBHDL, and the reputation risk at which they would be exposed in the case of eventual troubles at these entities results in a high probability of direct or indirect support by BHD and CFBHDL, should it be required.

RATING SENSITIVITIES - BHD

An upgrade of the sovereign's ratings could lead to an upgrade of BHD's ratings, if the bank sustains its current strong financial performance and adequate capitalization. Deterioration in the bank's capital metrics - such as Fitch core capital to risk-weighted assets ratio below 8% - together with asset quality deterioration and/or a disruptive merger process, could pressure creditworthiness.

RATING SENSITIVITIES - BHD VALORES AND BHDIB

An upgrade in BHD's ratings could lead to an upgrade of BHD Valores and BHDIB. A negative change in the capacity or propensity of CFBHDL to provide support could pressure creditworthiness.

PROFILE

BHD is the third largest commercial bank in the Dominican Republic, with a 12% market share of total financial system assets as of December 2013. BHD is 98% owned by CFBHD and is its largest subsidiary. Other subsidiaries of CFBHD are BHD Valores, a brokerage company with a growing investment banking business in the Dominican market; BHDIB, a bank which operates under an international license in Panama and offers USD denominated financial services to Dominicans; and other minor financial entities.

Fitch has affirmed the following ratings:

Banco BHD S.A.:

--Foreign and local currency long-term IDR at 'B'; Outlook Stable;

--Foreign and local currency short-term IDR at 'B';

--Viability Rating at 'b';

--Support at '5';

--Support Floor at 'NF';

--Long-term National rating at 'AA-(dom)'; Outlook Stable;

--Short-term National rating at 'F1+(dom)'.

BHD Valores Puesto de Bolsa, S.A.:

--Long-term National rating at 'AA-(dom)'; Outlook Stable;

--Short-term National rating at 'F1+(dom)';

--Short-term National senior unsecured debt rating at 'F1+(dom)'.

BHD International Bank (Panama), S.A:

--Long-term National rating at 'AA-(dom)'; Outlook Stable;

--Short-term National rating at 'F1+(dom)'.

Additional information is available at www.fitchratings.com and www.fitchdominicana.com.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria', Jan. 31, 2014;

--'Securities Firms Criteria', Jan. 31, 2014'.

--'2014 Outlook: Central America and the Dominican Republic (Dec. 16, 2013)'

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Securities Firms Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732556

2014 Outlook: Central America and the Dominican Republic

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725825

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=830186

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Theresa Paiz-Fredel
Senior Director
+1 212-908-0534
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Larisa Arteaga
Director
+1 809-563-2481
or
Committee Chairperson
Alejandro Garcia
Senior Director
+52 818 8399 9146
or
Media Relations, New York
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Theresa Paiz-Fredel
Senior Director
+1 212-908-0534
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Larisa Arteaga
Director
+1 809-563-2481
or
Committee Chairperson
Alejandro Garcia
Senior Director
+52 818 8399 9146
or
Media Relations, New York
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com