On the Improve

The CBRD’s international reserves position improved after the April 2013 placement of a $1 billion sovereign international bond, which together with healthy 1H2013 private capital inflows ensured gross international reserves at $4.1 billion as of end-June. The CBRB effected restrictions on credit card rates over 1Q2013 to address rates as extreme as 82% per annum in the public interest. An IMF review from March 17, 2014 concluded that the Dominican financial system indicators were “broadly satisfactory.” Average capital adequacy ratios of the banking system as of December 2013 had slipped to 14.6% from 16.3% in April 2013, while the NPL ratio had also declined to 1.9% from just over 3% for the period.

BANCO POPULAR DOMINICANO

The top three banks in the Dominican Republic account for roughly a 60% market share, according to the IFC. Established in 1963, Banco Popular Dominicano, a subsidiary of local Grupo Popular, is the primary player in the local market, on roughly a one-third share in asset terms. It is the largest issuer of debit and credit cards, and boasts 200 branches and over 700 ATMs nationwide. In June of 2014, the bank introduced the Popular ProExporta platform in tandem with the Dominican Exporters Association (ADOEXPO) to extend financial products and services at beneficial rates to exporters. These include export factoring, where the bank itself collects and manages international accounts receivables. There is also a training component to foster better business practices in the international arena.

In terms of performance, for FY2013 total assets remained strong at Ps251.8 billion ($5.84 billion), up from Ps223.5 billion. Total deposits rose fractionally from Ps34.4 billion in 2012 to Ps35.7 billion ($827 million). Meanwhile, the net loan portfolio showed slower growth to Ps156.4 billion ($3.63 billion) from Ps143.9 billion YoY. Over 2013, the return on assets (ROA) stepped down a rung to 1.83% from 1.92%, while the return on equity (ROE) metric, at 20.19%, barely budged from the 20.18% print of 2012, both down from 22.40% in 2011. Provisions for NPLs declined to 197.12% coverage from 198.99% a year earlier.

BANCO BHD & BANCO LEÓN MERGER

Banco BHD is the nation’s second largest privately held bank at time of print, ahead of its merger with Banco León, currently the fourth largest privately held bank. The merger will bolster Banco BHD’s (merged entity to be renamed Banco BHD-León) current market ranking. The combined entity—in a deal set to conclude in 4Q2014—will have assets of over $4.33 billion rendering it the fifth-largest bank in Central America.

Banco BHD, with a robust retail and corporate segment offering is partially owned by the International Finance Corporation (IFC), which holds a 9% stake. The resulting synergy has resulted in stronger tier II capital over the years aimed at fostering the growth of local business, notably the SME segment. In 2011, the bank signed a $17.5 million financing facility with the Inter-American Development Bank (IDB) to increase its long-term corporate lending to SMEs. This was followed a year later by a $25 million subordinated loan secured from the IFC. The bank reported total assets of Ps132.1 billion ($3.06 billion) at end-2013, up 8.4% YoY, marking shallower growth than the 10% 2012 rise over 2011. The loan portfolio tended toward mortgages and commercial loans at Ps71 billion. The solvency ratio at 15.1%, exceeded the stipulated 10% threshold, while the NPL default rate was a mere 2.1%. Tough love vis-í -vis expenditure control led to profits of Ps3.5 billion and a return on equity of 25%.

Banco León, after a year of consolidation over 2012, has 68 branches, with an ATM network of around 18 points. Total assets were at Ps38.7 Billion ($894 million). Meanwhile, 1.5% ROA softened slightly over the year to 1% at end-2013, while ROE also declined from 16.1% to 10% as of December 2013. However, total deposits rose from Ps41.2 billion in 2012 to Ps42.1 billion in 2013, while provisions for NPLs rose from 113.7% in 2012 to 164.1% in 2013, affirming the bank’s more conservative stance.

SCOTIABANK

The sole foreign banking presence in the Republic with retail outlets, and one of Latin America’s most ubiquitous financial institutions, Scotiabank, with a branch network of close to 100, is the fourth largest bank in the Dominican Republic by total assets. It has risen from fifth, after growing more than two fold following its 2003 partial purchase of Banco Intercontinental (Baninter Bank), which had collapsed that year. Over 2012, the slow rise of Scotiabank’s total assets to $124.6 million confirmed bankers’ prudent policy in an election year. In 2013 total assets rose by 6.6% YoY from Ps49.8 billion to Ps53 billion ($1.2 billion) thanks to the rise in loan portfolio to Ps34.9 billion ($0.8 billion) from Ps32 billion.

MOBILE FINANCIAL SERVICES

Banking penetration was at just 29% as of mid-2012. Yet that of mobile was at around 90% in that year, which has led to the leveraging of mobile banking to increase financial system participation. According to digital security giant Gemalto, global transactions by mobile payment via NFC-enabled phones could exceed $426 billion in 2015. Citi’s mobile payment app Citi Mobile Direct is used by large consumer goods companies like C&D and Phillip Morris. In 2014 Banco Popular Dominicano and local telco Orange Dominicana launched Orange m-weight, a virtual pre-paid card for mobile banking transactions.

MICROBANKING

Credit and savings financial institutions are key financial institutions in the Dominican Republic. According to Mixmarket, in 2012, microfinance loans amounted to approximately Ps610 million.