Focus: Banking

Tough But Fair

Tough But Fair

Apr. 28, 2013

Adding to what was a stringent year for the Dominican Republic's banking sector was a 1% tax on financial assets, which should sunset in June 2013 after being in effect for two years. The BCRD's gross foreign reserves declined over the year by $539.9 million to $3.5 billion. Although 2012 was a leaner year for the finance sector, the results for 2013 seem more promising, with a 5% growth in credit reported over 1Q2013. The BCRD also began introducing new restrictions on credit card rates over 1Q2013, though such a measure may see some pressure put on net interest margins for the banks. With some credit card rates going as high as 82% per annum, the measure was seen as necessary to protect consumers.

The banking sector is regulated by the Superintendency of Banks, which counts 21 institutions as being active on the local scene, with another 17 savings and loans associations, although not all of these are active in the market. The banking sector as a whole employed 25,245 people at end-2012, up 5% on the 2011 result.

Banco Popular Dominicano leads the banking sector, accounting for around one-third of market share in terms of assets, and being the largest provider of debit and credit cards. Its branch network is the largest, having 198 offices and agencies as well as 727 ATMs spread across the country. In 2012, the bank reported total assets of $5.55 billion, up marginally on the $5.3 billion reported over 2011. Total deposits remained strong at $4.67 billion, up some 3.6% over 2011, though well down on the 14% growth it recorded in year-on-year terms over the 2010-2011 period. Its net loan portfolio showed stronger growth, up 13.7% to $3.57 billion, with loans to the SME sector showing the strongest performance. However, over 2012 the return on assets (ROA) continued to decline, moving down to 1.92% from the 2.05% recorded in 2011, while return on equity (ROE) also slid to 21.18% from 22.40% in 2011. Provisions for non-performing loans moved up slightly to 198.99% coverage.

Banco BHD remains one of the top five banks in the Dominican Republic, being strong in both the retail and corporate segment, where it is considered a champion for SME growth. The bank reported total assets of $3.05 billion at end-2012, up some 10% on the $2.77 billion recorded over 2011. The bank saw branch numbers grow slightly over 2012, from 91 to 93 branches, while the ATM network expanded aggressively from 282 points to 325. In terms of national coverage by branch and ATMs, Banco BHD has an even spread between services offered in Santo Domingo and in regional areas of the country. The bank is partially owned by the International Finance Corporation (IFC), which has a 9% shareholding. This relationship has helped to secure the bank tier II capital over the years aimed at promoting local business development, such as a $25 million subordinated loan secured in late 2012 from the IFC. The loan is expected to be leveraged to some $100 million in order to support local SME development.

Banco León saw a year of branch consolidation over 2012, with total numbers shrinking from 75 branches in 2011 to 66 by the end of 2012. Despite the branch consolidation strategy, overall employee numbers remained stable at 1,493, while its ATM network was little changed at 181 points, down slightly on the 182 terminals in operation at end-2011. The bank showed solid growth in terms of total assets, increasing by 8.1% over 2012 to $1.2 billion, up from $1.11 billion in 2011. ROA softened slightly over the year to 1.5% at end-2012, down from the 1.8% recorded in 2011, while ROE also declined from 19.3% to 16.1% over the same period. However, total deposits grew from $945.92 million in 2011 to $1.03 billion, while provisions for non-performing loans jumped from 64.4% in 2011 to 113.7% in 2012, showing the bank's more conservative approach. Its gross loan portfolio increased marginally from $584.88 million in 2011 to $609.45 million at end-2012. Bank León's Chairman, Alejandro Schewdhelm, attributed the bank's more conservative approach over 2012 to the US and Eurozone crisis, as well as the presidential elections and new fiscal reform policies.

As one of Latin America's most widely dispersed finance houses, Scotiabank is the fourth largest bank in the Dominican Republic by total assets. Over 2012, its total assets grew slowly from $122.7 million to $124.6 million, reflecting the cautious stance taken by bankers over an election year. Similar to other banks, Scotia consolidated its branch network over 2012, shifting from 81 branches nationwide to 73, with rural branches reduced by 10 branches, while metropolitan locations actually picked up by two branches. ATM coverage improved slightly from 90 points in 2011 to 93 in 2012, with metropolitan areas seeing stronger growth, much in line with the branch rebalancing the bank performed over 2012.

After a successful merger with Banco Capital in 2011, Banco del Progreso managed to also achieve a BBB rating from Feller Rate over the same year. Its total assets grew from $93.7 million in 2011 to $97.8 million at end-2012, giving it fifth place. Banco del Progreso is looking to improve its share of the retail market, especially through its links with American Express on the consumer credit side. Over 2011, the bank saw strong growth, with total assets rising a more generous 24.1%, while the gross loan portfolio jumped by 27.3%, much a result of the merger. As Mark Silverman, the bank's CEO & Board Member, put it, “The figures have positioned the bank to continue capturing a large share of the market." Banco Capital's absorption allowed Banco del Progreso to increase the size of its corporate window, better positioning it for growth in the SME segment.

Overall, 2012 was a slower year of growth for the banks, especially when considering the more spectacular growth seen in 2011. As the new Medina administration begins to better signal its economic targets, the banks will need to respond, especially in terms of providing credit for SMEs and improving the banking rate in the country on the retail side.