December 11, 2014 / 10:07 PM / 4 years ago

Fitch Upgrades Banreservas and BHD Leon's Ratings Following Upgrade of Sovereign

(The following statement was released by the rating agency) NEW YORK, December 11 (Fitch) Following the upgrade of the Dominican Republic's sovereign rating, Fitch has upgraded the Issuer Default Ratings (IDRs) for two of the country's largest banks: Banreservas and BHD Leon to 'B+' from 'B'. The Rating Outlook is Stable for both banks. Fitch has also affirmed the short-term foreign and local currency IDRs, Viability Ratings, and support ratings for both banks. A complete list of rating actions follows at the end of this press release. On Nov. 21, 2014, Fitch upgraded the Dominican Republic's Long-term foreign and local currency IDRs to 'B+' from 'B' with a Stable Outlook. The upgrade reflects the country's resilience through adverse domestic and external conditions, a diversified service-based economic structure and competitive business climate that support medium-term growth and investment prospects For additional details, see 'Fitch Upgrades Dominican Republic IDRs to 'B+'; Outlook Stable', available in www.fitchratings.com. The positive rating actions reflect Fitch's recent upgrade of Dominican Republic's IDRs, as the banks' IDRs were constrained by the sovereign's IDRs. In addition Fitch expects the current improvement in the Dominican operating environment to benefit the financial profiles of the banks. KEY RATING DRIVERS Banreservas - IDRs, VR, SUPPORT AND SUBORDINATED DEBT The upgrade of Banco de Reservas de la Republica Dominicana, Banco de Servicios Multiples' (Banreservas) IDRs and Support Floor is in line with a similar action that Fitch took on the Dominican Republic's sovereign ratings, as the government is its sole shareholder and with the upgrade of the sovereign, the bank's IDRs are now considered support driven by Fitch. Fitch believes the government's willingness to support Banreservas should it be required is substantial given its 100% stake in the bank, the bank's strategic importance, and the bank's role as the government's main paying agent. However, the Dominican Republic's speculative grade rating could result in a limited capacity to provide such support, which underpins Banreservas' support rating of '4' and support floor of 'B+'. Fitch affirmed Banreservas' Viability Rating (VR)at 'b' due to the bank's low tangible common equity / tangible assets ratio, which was 6.8% at end-September 2014. This ratio is weak relative to both domestic and similarly rated international peers (emerging market commercial banks with a VR of 'b-', 'b', or 'b+'). In addition to the bank's weak capital position, the past historical volatility of loan quality ratios for private sector loan exposures was considered, jointly with Banreservas' prospects for further improvements in efficiency. The rating on Banreservas' subordinated notes has been upgraded by one notch after the upgrade of its supported IDR. Those securities are one notch below the IDR for loss severity, but zero 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. BHD Leon - IDRs, VR and SUPPORT The upgrade of Banco Multiple BHD Leon's (BHD Leon) IDRs is in line with a similar action that Fitch took on the Dominican Republic's sovereign ratings, as its ratings were constrained by the sovereign's IDRs. BHD Leon's Viability Rating (VR), or standalone creditworthiness, drives its Long-term IDR and national ratings. Despite the bank's systemic importance, the government's inconsistent history of banking sector support for private sector institutions and the sovereign's speculative grade rating result in a Support Floor of 'NF' and a Support Rating of '5'. The upgrade on the VR's captures the limitations previously imposed by the operating environment which limit the strength of the bank: a sound franchise, resilient profitability, adequate capitalization and improving funding base. However, the VR is still limited by the burden imposed by the operating environment. This includes a lack of long-term funding to match the increasing tenor of its loan portfolio and relatively low income diversification, compared to better rated banks in the region. RATING SENSITIVITIES Banreservas Changes in the IDRs are contingent on sovereign rating actions. An unexpected deterioration in asset quality or profitability and sustained high disbursements of income to the government that pressures Banreservas' tangible common equity/tangible assets ratio below 5.5% could trigger a downgrade of its VR. Since the implementation of several new initiatives under a new management team, Banreservas has improved its private sector loan quality ratios, as well as increased income diversification and efficiency levels. In addition, a future capital injection could help to overcome its historically weak capital base. If preserved in the medium term these factors could lead to an upgrade of its VR. BHD Leon Future positive changes in BHD Leon's ratings will depend on additional sovereign actions, 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. Fitch takes the following ratings actions: Banreservas: --Foreign and local currency IDRs upgraded to 'B+' from 'B'; Outlook Stable; --Short-term foreign and local currency IDRs affirmed at 'B'; --Viability Rating affirmed at 'b'; --Support Rating affirmed at '4'; --Support Floor revised to 'B+' from 'B'; --Long-term subordinated notes upgraded to 'B' from 'B-'. Banco Multiple BHD Leon --Foreign and local currency long-term IDR upgraded to 'B+' from 'B', Outlook Stable; --Foreign and local currency short term IDR affirmed at 'B'; --Viability Rating upgraded to 'b+' from 'b'; --Support Rating affirmed at '5'; --Support Floor Rating affirmed at 'NF'. Contact: Primary analyst Theresa Paiz Fredel +1-212-908-0534 Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 Secondary analyst Larisa Arteaga Director +1-809-563-2481 Committee Chairperson Alejandro Garcia Senior Director +1-52-81-8335-7179 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available on www.fitchratings.com and fitchca.com Applicable Criteria and Related Research: --'Global Financial Institutions Rating Criteria' (Jan. 31, 2014); --'Assessing and Rating Bank Subordinated and Hybrid Securities' (Jan. 31, 2014;) --'Fitch Upgrades Dominican Republic IDRs to 'B+'; Outlook Stable'; (Nov. 21, 2014). Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Assessing and Rating Bank Subordinated and Hybrid Securities Criteria 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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