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Fitch Affirms Banreservas' IDRs at 'BB-'; Outlook Stable
June 26, 2017 / 6:26 PM / 6 months ago

Fitch Affirms Banreservas' IDRs at 'BB-'; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, June 26 (Fitch) Fitch Ratings has affirmed Banco de Reservas de la Republica Dominicana, Banco de Servicios Multiples' (Banreservas) Long-Term Issuer Default Ratings (IDRs) at 'BB-'. The Rating Outlook is Stable. A full list of rating actions follows at the end of this release. KEY RATING DRIVERS IDRS AND NATIONAL RATINGS Banreservas' IDRs and National scale ratings reflect Fitch's expectations of the support the bank would receive from its sole shareholder, the Dominican government (IDR 'BB-'/Stable Outlook), if needed. The Stable Outlooks on Banreservas' Long-Term IDRs are in line with those of the sovereign. VR Banreservas' asset concentrations highly influence its Viability Rating (VR). The bank's VR also considers comparatively weaker capitalization, structural improvements in profitability and a stabilization of private sector loan quality. Even though loan quality indicators have stabilized in recent years, asset concentrations still highly influence Banreservas' VR. Exposure to a highly speculative-grade sovereign is high, though it has remained around 3.5x equity since 3Q16, compared with 4.4x at YE15. Private sector loan concentrations could lead to volatility in loan quality metrics due to a high level of restructured loans. Private sector loan quality ratios have been in line with peers since 2014 due to charge-offs, restructurings and private-sector loan growth. In Fitch's view, despite some deterioration since the last review, loan quality ratios are well within acceptable levels for the bank's rating category. Banreservas' capitalization is tight relative to its rating category, particularly when considering its high asset concentrations. Although the bank's regulatory capital ratio is well above the minimum required, at 7%, its tangible common equity ratio is one of the weakest among peers (emerging market commercial banks with highly speculative-grade ratings) which is expected to continue given moderate growth expectations and profitability. The bank's ROAA remains low compared with similarly rated peers. Fitch expects this ratio to stabilize between 1.3% and 1.5% as investments in technology and the expansion of its distribution channels continue to wind down. Banreservas has a strong franchise and has been a refuge bank in times of systemic stress. The bank has the largest deposit market share in the Dominican Republic (18% of the financial system). Despite high deposit concentration, its deposit base has been stable over time. Fitch views Banreservas' liquidity as adequate for its market. Cash and cash equivalents covered 24% of deposits and short-term funding. SUPPORT RATING AND SUPPORT RATING FLOOR The bank's systemic importance, its role collecting funds for the government's single treasury account to pay debt obligations, and its role as a provider of domestic loans results in an equalization of its Support Rating Floor (SRF) with the sovereign's LT IDR of 'BB-'. Additionally, Fitch believes the government's willingness to support Banreservas should it be required is substantial given its 100% stake in the bank. However, the Dominican Republic's speculative-grade rating limits the sovereign's capacity of support, resulting in a Support Rating (SR) of '4'. SUBORDINATED DEBT Banreservas' outstanding subordinated debt includes an international issuance of USD300 million due 2023 and a domestic issuance of DOP10 billion due 2024. The bank's subordinated note ratings are one notch below its supported IDR and Long-Term National rating, reflecting one notch for loss severity, but no notches for incremental non-performance risk relative to the bank's IDR. In Fitch's view, given the "gone concern" characteristics of the security, the anchor rating is the IDR, even though there is no explicit government guarantee on the security. Although these subordinated bonds are included in the bank's regulatory capital calculation, Fitch views these instruments as debt rather than capital. RATING SENSITIVITIES IDRS AND NATIONAL RATINGS The bank's IDRs and National ratings are sensitive to a change in Fitch's assumptions as to support. Changes in the IDRs are also contingent on sovereign rating actions. There is limited upside for the bank's national ratings. VR A material reduction in asset concentrations and a stronger capital base could lead to an upgrade of the bank's VR. An unexpected deterioration in loan quality or profitability or sustained high disbursements of income to the government that pressures Banreservas' tangible common equity-to-tangible assets ratio to below 5.5% could trigger a downgrade of its VR. SUPPORT RATING AND SUPPORT RATING FLOOR The SR and SRF are potentially sensitive to any change in assumptions as to the propensity or ability of the Dominican government to provide timely support to the bank. This could arise in the event of a sovereign rating action. Currently, the Outlook on the Dominican Republic's LT Local and Foreign-Currency IDRs is Stable. . SUBORDINATED DEBT Banreservas' subordinated debt ratings are broadly sensitive to the same considerations that might affect the bank's IDR and LT National rating. Fitch has affirmed Banreservas' ratings as follows: --Long-Term Foreign and Local Currency IDRs at 'BB-'; Outlook Stable; --Short-Term Foreign and Local Currency IDRs at 'B'; --Viability Rating at 'b+'; --Support Rating at '4'; --Support Rating Floor at 'BB-'; --Long-term subordinated notes at 'B+' --Long-Term National rating at 'AA+(dom)'; Outlook Stable; --Short-Term National rating at 'F1+(dom)'; --National subordinated debt rating at 'AA(dom)'. Contact: Primary Analyst Theresa Paiz-Fredel Senior Director +1-212-908-0534 Fitch Ratings, Inc., 33 Whitehall Street New York, NY 10004 Secondary Analyst Larisa Arteaga Director +1-809-563-2481 Committee Chairperson Veronica Chau Rodriguez Senior Director +52 81 8399 9169 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here National Scale Ratings Criteria (pub. 07 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. 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Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. 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