Fitch: Peer Review for Large Dominican Banks and Related Entities

NEW YORK--()--Fitch Ratings has completed its peer review for three private sector banks and their related entities as well as one state-owned bank in the Dominican Republic. The rating actions are listed at the end of this commentary.

The four banks included in this peer review are among the largest banks in their market and had assets between USD7.2 billion and USD1.2 billion, with operations primarily in the Dominican Republic. The Issuer Default Ratings (IDRs) of Banco Popular Dominicano (BPD) and Banco BHD S.A.(BHD) and Banco de Reservas de la Republica Dominicana, Banco de Servicios Multiples (BANRESERVAS) are driven by their Viability Ratings (VRs), or stand-alone intrinsic financial strengths. Banco Multiple Leon's (BML) IDRs factor in potential extraordinary institutional support.

Based on 2013 financial statements, asset quality indicators remained stable or improved at all the banks covered in this review, driven by moderate loan growth and a strengthening local economy. However, asset quality indicators at Dominican banks were weaker than international peers (emerging market commercial/universal banks with a 'b' category VR). Given better economic conditions in the Dominican Republic, Fitch believes asset quality indicator trends will be sustained in 2014.

While BML's profitability declined, it remained flat at the other private sector banks in 2013. Asset growth and better efficiency increased BANRESERVAS' profitability during this same period. Fitch expects a stronger domestic economy to strengthen the banks' financial performance over the next year due to accelerating growth and improvements in loan quality.

Fitch's preferred measure of capitalization is its Fitch Core Capital/Weighted Risks ratio. However, in light of the banks' material exposure to the sovereign, banks' tangible common equity/total assets ratios were used for comparison purposes.

By this measure, BHD had the strongest capitalization, while BANRESERVAS had the weakest among large Dominican banks at year-end 2013 (YE2013). BHD's capitalization was in line with domestic peers and exceeded that of similarly rated peers at YE2013. By contrast, BPD, BML and BANRESERVAS all had weaker capitalization than both the system average and international peers. However, even with accelerating asset growth Fitch expects bank capitalization to remain stable or improve in 2014 as internal capital generation increases.

As is common to other emerging market banks, all of the Dominican banks included in this review have a large negative mismatch between short-term assets and liabilities. A high proportion of these banks' securities holdings were issued by the Dominican government. Fitch notes these can be of limited liquidity in a stress scenario, given the shallow domestic debt market. This contractual maturity gap is somewhat mitigated by high deposit reserve requirements, deposit stability at the largest banks, and the availability of credit lines from other financial institutions.

The rating actions below follow a periodic review of these four banks. Fitch will publish the main findings of this review in a report 'Peer Review: Dominican Banks', which will be available at www.fitchratings.com. Fitch concludes that the large Dominican banks are well positioned to take advantage of the local economy's accelerating growth.

For further details on the particular key rating factors and rating sensitivities of each of these entities, as well as for regulatory information, please view individual rating action commentaries, published today and available in Fitch's websites at www.fitchratings.com and www.fitchca.com.

The international and national ratings affirmed as part of this peer review were as follows:

BPD

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

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

--Long-term National subordinated debt at 'A+(dom)'

BHD

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

--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)'; Stable Outlook;

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

BML

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

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

--Viability Rating at 'b-';

--Support at '4';

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

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

--Long-term National subordinated debt at 'A+(dom)'.

BANRESERVAS

--Foreign and local currency IDRs at 'B'; Stable Outlook;

--Short-term foreign and local currency IDRs at 'B';

--Viability Rating at 'b';

--Support Rating at '4';

--Support Floor at 'B';

--Long-term subordinated notes at 'B-';

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

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

In addition, Fitch has affirmed the banks' related entities ratings as follow:

Popular Bank Ltd. Inc y Subsidiaria (Popular Bank)

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

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

--Long-term national rating at 'BB+(pan)'; Stable Outlook;

--Short-term national rating at 'B(pan)'.

BHD International Bank (Panama):

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

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

BHD Valores Puesto de Bolsa SA:

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

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

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

Valores Leon S.A:

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

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

--Long-term National senior unsecured debt rating at 'AA-(dom)'.

Additional information is available on www.fitchratings.com.

Applicable Criteria and Related Research:

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

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

--'Fitch Affirms Dominican Republic's Ratings at 'B'; Outlook Stable; (Nov. 26, 2013).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

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

2014 Outlook: Central America and the Dominican Republic

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

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Contacts

Fitch Ratings
Theresa Paiz Fredel (Primary Analyst for BPD, BHD, BML, Banreservas)
Senior Director
+1-212-908-0534
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Larisa Arteaga (Primary Analyst for BHDIB, BHD Valores, VL)
Director
+1-809-563-2481
or
Sergio Pena (Primary Analyst for Popular Bank)
Associate Director
+571-326-9999
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Theresa Paiz Fredel (Primary Analyst for BPD, BHD, BML, Banreservas)
Senior Director
+1-212-908-0534
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Larisa Arteaga (Primary Analyst for BHDIB, BHD Valores, VL)
Director
+1-809-563-2481
or
Sergio Pena (Primary Analyst for Popular Bank)
Associate Director
+571-326-9999
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com