Fitch Affirms Banco BHD and Related Entities' Ratings; Stable Outlook

Thu May 16, 2013 3:46pm EDT

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(The following statement was released by the rating agency) NEW YORK, May 16 (Fitch) Fitch Ratings has today affirmed Banco BHD (BHD) and its related entities' BHD Valores Puesto de Bolsa (BHD Valores) and BHD International Bank (Panama) - BHDIB ratings. The Rating Outlook is Stable. A complete list of ratings actions is provided at the end of this press release. KEY RATING DRIVERS BHD- IDRs, VRs, SUPPORT AND NATIONAL RATING BHD viability rating (VR) drives its long-term Issuer Default Rating (IDR). The bank's VR reflects its reliable strategy, resilient profitability, healthy asset quality, adequate capitalization and low liquidity risk. The ratings also consider BHD's weak efficiency ratios and a less diversified income structure compared to regional peers. Furthermore, BHD's ratings are constrained by the sovereign's ratings. In Fitch's view, an improvement in the Dominican operating environment could enhance the bank's financial profile. Like other banks in Dominican Republic, BHD's profitability declined slightly as sizable trading gains and a resilient net interest margin did not cover higher operational costs affected by the earning assets tax of 1%. Nevertheless, the bank's annualized ROAA reached 2.95% in 2012, comparing favorably with domestic peers. Economic deceleration, in part due to the negative effects of the recently approved fiscal reform, is a challenge to preserving the bank's good financial performance. In Fitch's view, BHD's business mix, resilient interest margin, moderate credit growth and continued efforts to improve efficiency levels, will underpin the bank's resilient profitability ratios over the medium term, based on the strength of its balance and the management experience. BHD's loan quality metrics have remained relatively stable and better than local market averages, based on the bank's customer knowledge and enhanced credit risk tools and policies. Although loan quality metrics slightly deteriorated in 2012 reflecting the deterioration of the small and medium enterprise (SME) portfolio, Fitch expects asset quality ratios to continue comparing favorably to domestic peers. In Fitch's opinion, the bank has pursued very conservative provisioning policies, allowing it to post consistently ample loan loss reserve coverage. BHD's capital ratios remain adequate in light of the bank's risk profile, based on sound profitability and moderate cash dividend payouts. In Fitch's opinion, the Fitch core capital to risk-weighted assets ratio should stabilize around 16%, in line with the bank's average level over the past few years. Additionally, this ratio is higher than the market average and comparable with the median of similarly rated (VR of 'b-/b/b+') international peers. Furthermore, Fitch views this level as conservative considering the bank's comparably higher loan loss reserve coverage. Fitch expects BHD to preserve its good liquidity levels shown over recent years, backed by a diversified funding base and a liquid investment portfolio. While BHD's liquidity profile is sufficient for its market, Fitch cautions that the majority of the bank's liquid holdings are in Dominican public sector instruments. 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. KEY RATING DRIVERS - BHD Valores and BHDIB- NATIONAL RATING BHD Valores and BHDIB ratings reflect the operational and financial support provided by BHD and its sole shareholder Centro Financiero BHD (CFBHD). In Fitch's view, both entities are core for CFBHD, as they are key and integral part of its business and provide some financial products to core clients. Furthermore, 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. RATING SENSITIVITIES - BHD An upgrade of the sovereign's ratings could lead to an upgrade of BHD's ratings, if the bank sustains its current strong financial performance and adequate capitalization. Deterioration in the bank's capital metrics - such as Fitch core capital to risk-weighted assets ratio below 8% - together with asset quality deterioration could pressure creditworthiness. RATING SENSITIVITIES - BHD VALORES and BHDIB An upgrade in BHD's ratings could lead to an upgrade of BHD Valores and BHDIB. A negative change in the capacity or propensity of CFBHD to provide support could pressure creditworthiness. PROFILE BHD is the third largest commercial bank in the Dominican Republic, with a 12.5% market share of total system assets as of December 2012. BHD is 98% owned by CFBHD and is its largest subsidiary. Other subsidiaries of CFBHD are BHD Valores, a brokerage company with a growing investment banking business in the Dominican market; BHDIB, a bank which operates under an international license in Panama and offers USD denominated financial services to Dominicans; and other minor financial entities. PyME BHD, a bank specializing in small business loans in the Dominican Republic, was merged with BHD during 2012. Considering the aforementioned factors, Fitch has affirmed the following ratings: Banco BHD: --Foreign and local currency long-term IDR at 'B'; Stable Outlook; --Foreign and local currency short term IDR at 'B'; --Viability Rating at 'b'; --Support at '5'; --Support Floor at 'NF'; --Long-term National rating at 'AA-(dom)'; Stable Outlook; --Short-term National rating at 'F1+(dom)'. BHD Valores Puesto de Bolsa: --Long-term National rating at 'AA-(dom)'; Stable 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)'. BHD International Bank (Panama): --Long-term National rating at 'AA-(dom)'; Stable Outlook; --Short-term National rating at 'F1+(dom)'. Following BHD's merger with its related entity Pyme BHD, Fitch has affirmed and withdrawn the following ratings: Banco de Ahorro y Credito PyME BHD: --Long-term National rating at 'AA-(dom)', rating withdrawn; --Short-term National rating at 'F1+(dom)', rating withdrawn. Contact: Primary Analyst Theresa Paiz-Fredel Senior Director +1-212-908-0534 Fitch Ratings, Inc. One State Street Plaza New York, NY 10004 Secondary Analyst Larisa Arteaga Director +1-809-563-2481 Committee Chairperson Rene Medrano Senior Director +503 2516-6610 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available at www.fitchratings.com and www.fitchdominicana.com. Applicable Criteria and Related Research: --'Global Financial Institutions Rating Criteria', Aug. 15, 2012; --2013 Outlook: Central America and the Dominican Republic', Dec. 13, 2012. Applicable Criteria and Related Research Global Financial Institutions Rating Criteria here 2013 Outlook: Central America and the Dominican Republic here Additional Disclosure Solicitation Status 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 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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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