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Fitch Affirms Ratings of Banco BHD and Related Entities.

NEW YORK -- Fitch Ratings has affirmed the ratings of the Dominican-based Banco BHD (BHD) and its related entities BHD Valores Puesto de Bolsa (BHD Valores), Banco de Ahorro y Credito PyME BHD (PyME BHD), and the Panamanian-based BHD International Bank (Panama)-BHDIB. A complete list of ratings actions is provided at the end of this press release.

BHD's Viability Rating reflects its sustained high profitability level, good liquidity and asset quality management, and sound capital base. The ratings also incorporate BHD's weak efficiency ratios and a less diversified income structure compare to regional peers. A volatile operating environment and fierce competition are challenges to preserving the bank's good financial performance.

BHD is one of the main players in the Dominican banking system. However, in the event the bank experiences difficulties, support, although possible, cannot be relied on given the Dominican Republic's low credit ratings.

The Rating Outlook on BHD's long-term Issuer Default Rating (IDR) is Positive. Fitch could upgrade BHD's long-term IDR if the Positive Outlook on the Dominican Republic's (DR) sovereign rating materializes and the bank maintains its financial performance with good asset quality growth and healthy results as observed in recent years. In contrast, a change in the Outlook of the sovereign and/or deterioration in the bank's overall capitalization or liquidity position could result in a revision of BHD's Outlook to Stable.

Despite the challenging operating environment and recent rapid loan growth, BHD's loan quality metrics have remained relatively stable and are better than local market averages, based on bank's knowledge of its customers and enhanced credit risk tools and policies. Although loan quality metrics may slightly deteriorate, Fitch expects these ratios to continue comparing favorably to domestic peers. In Fitch's opinion, the bank has pursued very conservative provisioning policies, allowing the bank to post consistently ample loan loss reserve coverage.

BHD's capitalization ratios compare better than the market average. As of end 2011, the Fitch core capital to risk weighted assets ratio equaled 16.19%, higher than the market average and comparable with the median of adequately capitalized banks in the region. However, risk weighted assets are highly benefit by the large share of Dominican Central Bank instruments in the balance.

As with the rest of the banking system, BHD's performance was affected by an unexpected new tax on net financial assets of 1% in force since mid-2011, and higher inflation that pressured operational costs. However, given BHD's adequate interest margin management, strong asset quality metrics, and higher non recurrent gains, the bank maintained its ROAA close to 3% in 2011, which dropped only slightly compared to 2010. Under the absence of new fiscal measures by the government, Fitch forecasts that BHD's profitability will continue at similar levels in 2012, without posting non recurrent income.

Fitch expects BHD to preserve its good liquidity levels shown over recent years, backed by a diversified funding base and a liquid investment portfolio, fairly concentrated in public debt (87% were central bank instruments and mostly short-term maturity) and bank deposits.

The ratings for BHD Valores, PyME BHD and BHDIB also reflect the operational and financial support provided by BHD and its sole shareholder Centro Financiero BHD (CFBHD). In Fitch's view, a clear commercial identification among these entities with BHD and CFBHD, and the reputation risk at which they would be exposed in the case of eventual troubles at these entities results in a high probability of direct or indirect support by BHD and CFBHD, should it be required. A positive action on BHD's ratings will result in an upgrade of BHD Valores, PyME BHD and BHDIB national ratings.

BHD is the third largest commercial bank in the Dominican Republic, with a 12% market share of total system assets as of December 2011. BHD is 98% owned by CFBHD and is its largest subsidiary, with about 90% of combined assets and 73% of net income before eliminations as of December 2011. Other subsidiaries of CFBHD are BHD Valores, a brokerage company with a growing investment banking business in the Dominican market; PyME BHD, a bank specializing in small business loans in the Dominican Republic which will be absorbed by BHD in the short term; BHDIB, a bank which operates under an international license in Panama and offers USD denominated loans to Dominicans funded with deposits in the same currency; and other minor financial entities.

Fitch has affirmed the following ratings:

Banco BHD:

--Long-term foreign and local currency IDRs at 'B'; Positive Outlook;

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

--Viability Rating at 'b';

--Support at '5'; --Support Floor at 'NF';

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

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

BHD Valores Puesto de Bolsa:

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

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

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

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

Banco de Ahorro y Credito PyME BHD:

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

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

BHD International Bank:

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

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

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Additional information is available at 'www.fitchdominicana.com', 'www.fitchcentroamerica.com' and 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria', Aug. 16, 2011;

--'2012 Outlook: Central America and the Dominican Republic', Dec. 19, 2011.

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649171

2012 Outlook: Central America and the Dominican Republic

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=661043

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
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