Latin Finance - May/June 2010 - 53

Caribbean dominican republic lending

Banks Get Busy
by Taina Rosa ommercial lending in the Dominican Republic saw steady growth through the global financial crisis and official data reveals the upward trend continues. As the global and local economy recovers, local bankers’ optimism grows, boosted by low rates and sturdy demand. “We see a lot from projects in the public and private sectors, specifically in infrastructure and tourism. This will guarantee that we can grow our loan portfolio by 20% this year,” says Carmina Pellerano, vice president of corporate banking at Banco BHD. BHD’s loan portfolio grew to 40.6 billion pesos in February, the latest data available, from 34.7 billion pesos in December 2008. Meanwhile, Christopher Paniagua, Banco Popular’s vice president of risk management, expects his institution’s loan portfolio to grow by 15%. As of February it stood at 95.1 billion pesos, up from 84.7 billion pesos in December 2008. Demand for loans, he says, is being driven by an improving economic outlook, which drives companies to restart investment plans that were put on hold. Data from the banks superintendent shows that as of February, the commercial loan portfolios of the 12 largest banks in the Dominican Republic had grown to 218.6 billion pesos ($6 billion), up from 214.9 billion pesos in December 2009 and 187.8 billion pesos in December 2008. The superintendent forecasts that growth this year could reach 15%-17%. Moreover, lending generally is on the rise as interest rates are low and the economy shows signs of improving. Consumer loans rose to 68.5 billion pesos in February from 68.0 billion pesos in December 2009 and 65.3 billion pesos 12 months earlier, according to data from the banks superintendent. Meanwhile, mortgage loans amounted to 40.7 billion pesos in February, up from 39.4 billion pesos in 2009, and 33.4 billion pesos in December 2008. Between December 2008 and February 2010, Banco León saw the most expansion in its loan portfolio of the Dominican Republic’s four largest banks. While León’s total loan portfolio expanded 17.3%, BHD’s grew 17.0%, Banco de Reservas’ rose 15.4% and Popular Dominicano’s gained 12.3%. León president Carlos Guillermo León says incorporation of Darby Probanco Holdings, a unit of Franklin Templeton Investments, as a shareholder contributed to the growth. Darby > invested $12 million in the financial institution to help it extend credit to companies. “The Dominican Republic’s banking system was mostly

The Dominican Republic’s banking system survived the global financial crisis with only minor scratches. Credit demand and supply are expected to rise.
spared the traumas felt in other markets because it does not aggressively invest in exotic products such as collateralized mortgage obligations and other derivative instruments,” says Paniagua. He adds that lending criteria in the country are very strict. The Dominican Republic learned tough lessons from past meltdowns. “In 2003-04, when the country suffered one of its worst financial crises in 40 years, measures were taken to strengthen the supervision of banks. This prepared us for the crisis of 2008,” explains Pellerano. “During this financial crisis, the flow of credit to the market was not interrupted even though exports, tourism inflows and remittances were adversely impacted by the recession in the US and Europe,” she adds. Pellerano says the international crunch provided an opportunity for domestic lenders. “When credit from suppliers and international banks ran out, the local banking system was able to satisfy that demand,” she explains. “That helped our loan portfolio grow 19% between 2008 and 2009,” Pellerano says. Another factor aiding Dominican banks is a 200 basis point reduction in rates to 4% in April, from 6% in February 2009. The local banking association says that as of December 2009, interest rates on commercial loans dropped 10.4 percentage points, compared to the previous year, to average 13.09%. Enrique Ramírez, vice president of Banco Popular explains that before basis rates fell, the average interest on a peso-denominated commercial loan at his bank was around 22%. Afterwards, that average dropped to around 14%-16%. Maturities have remained about the same, at 3-4 years. At BHD, Pellerano says average interest rates dropped from about 20.0%. in the middle of the crisis to 13.5% by the end of 2009 for 180-day loans. “But we’ve had deals with interest rates as low as 8.0% for loans with tenors of under two months,” she says, adding that tenors have not changed. The IFC notes a modest reduction in the low end of loan spreads to 300-550 basis points in March, from 325 basis points at the tight end in January. “This change reflects an improved economic outlook for the Dominican Republic,” says Salem Rohana, the IFC’s representative for the Dominican Republic and Haiti, speaking in late March. LF

May/June 2010

LatinFinance 53

Latin Finance - May/June 2010

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