The Dominican financial sector has been resilient to the effects of the pandemic of COVID-19, as evidenced by the health of the loan portfolio and the capitalization, liquidity and solvency indicators.
This is reflected in the Quarterly Performance Report of the financial system as of December 31, 2020, released this Thursday by the Superintendency of Banks (SB).
The document highlights that the system’s loan portfolio ended the year with a 3.9% year-on-year growth, reaching RD $ 1.26 trillion, equivalent to 28% of GDP.
This nominal growth in the context of the crisis is explained by the increase in three of the four items that make up the portfolio: consumer loans (excluding credit cards) grew 10.6%, mortgages 6.3%, and commercial loans, 2.2%. The credit cards item was the exception, with a 12% drop.
Throughout 2020, the financial sector channeled RD $ 25,657 million to the real economy, playing a relevant role in the efforts to return to economic growth.
Despite the good performance of the credit portfolio, its expansion was lower than the 10.1% average of the last five years, due to the economic slowdown derived from the months of confinement.
Default and coverage
In December 2020, the delinquency rate had increased slightly compared to a year ago, going from 1.55% to 1.94%. By type of entity, multiple banks presented the lowest delinquencies (1.85%), followed by AA&P (2.39%), savings and credit banks (3.0 9%) and credit corporations (3.6%).
The SB emphasizes that the index remains well below its historical levels in times of crisis, citing 2003 as a reference, when the delinquent portfolio rose to 14.27%.
Likewise, the past due portfolio (equity) increased by 29%, significantly higher than the 7.1% of the previous cycle. The supervisory body emphasizes that this indicator is also at healthy levels.
In this context, it states that the percentage of provision coverage increased from 162% to 204%, surpassing the 200% threshold for the first time in the last two decades and considerably improving the banking position to face portfolio deterioration risks. .
For a more in-depth diagnosis of the portfolio situation, the SB calculated stressed delinquency, an indicator that incorporates, in addition to overdue portfolio, that which is in judicial collection, credit cards with arrears of 31 to 60 days, restructured loans and write-offs and awards for the last 12 months.
This index went from 4.3% to 6.7% between December 2019 and the same period in 2020.
Assets, equity and solvency
The total assets of the Dominican financial system amounted to RD $ 2.38 billion at the end of December 2020, 52.9% of GDP, experiencing an absolute increase of RD $ 383,221 million and a nominal growth rate of 19.2%.
The financial system’s net worth maintained growth, with an interannual increase of RD $ 38,951 million (17.7%), higher than the average of the last five years, which has been 11.2%.
In effect, the net worth of the financial system amounted to RD $ 258,731 million.
At the end of 2020, the solvency was 21.1%, registering a capital surplus of RD $ 138,434 million. This index is at a level significantly higher than the minimum of 10% required by the Monetary and Financial Law No. 183-02, reflecting the financial strength of the entities to face unexpected losses.
Profitability, liquidity and capitalization
With regard to profitability, the data shows that ROE decreased 3.5 percentage points, from 19.1% in December 2019 to 15.6% in December 2020, while ROA stood at 1.8% for a decrease of 53 basis points with compared to December 2019.
In absolute terms, as of December 31, 2020, earnings before income taxes amounted to RD $ 37,830 million, reflecting a reduction of RD $ 4,688 million compared to the previous year.
Of the total financial income, 74.3% came from interest and commissions for credits, 19.2% from interest from investments and 6.4% from investment gains.
On the one hand, the profitability of financial intermediation entities has been positively impacted by the increase in operating efficiency, measured by the cost / income ratio. This variable went from 68.1% in 2019 to 63.3% in December 2020, for an improvement of 4.8 points during the last year.
At the same time, profitability moderated, in part, as a result of the historical increase in provisions, by RD $ 15.8 billion compared to December 2019, for a variation of 79.3%.
The liquidity of the banks continues to be high, more than enough to satisfy the demand of the economy. The availability of the system amounted to RD $ 431,490 million, registering an increase of RD $ 145,276 million (50.8%), compared to December 2019.
“Currently, the liquidity, capitalization and coverage position of the system guarantees its ability to play a decisive role in the reactivation of the Dominican economic apparatus,” says the Superintendency of Banks.
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