OREANDA-NEWS. Fitch Ratings has affirmed Banco de Reservas de la Republica Dominicana, Banco de Servicios Multiples' (Banreservas) Long-Term Issuer Default Ratings (IDRs) at 'B+', based on Banreservas' stable financial performance and profile. The Rating Outlook is Positive.

The Positive Outlooks on Banreservas's Long-Term IDRs are in line with those of the sovereign. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS

IDRS AND NATIONAL RATINGS AND SENIOR DEBT

Banreservas' IDRs, National scale ratings and senior debt rating reflect Fitch's expectations of the support the bank would receive from its sole shareholder, the Dominican government (IDR 'B+'/Positive Outlook), if needed.

Viability Rating (VR)

Banreservas' weak capitalization and asset concentrations highly influence its VR. The bank's VR also considers structural improvements in profitability and a stabilization of private sector loan quality.

Banreservas reinvested DOP1.7 billion of 2015 earnings (about 28% of net income) as planned, which lifted paid-in capital to a total of DOP10 billion by end-March 2016. The bank's regulatory capital ratio exceeds that of its domestic peers, though this in part reflects a high exposure to the Dominican public sector and lower risk-weighted assets as a result. However, Banreservas's tangible equity-to-tangible assets ratio will continue to lag that of its domestic and international peers (emerging market commercial banks with highly speculative-grade ratings) given moderate growth expectations and profitability.

The bank's main asset concentration, including loans and securities, is with a highly speculative-grade sovereign (4.4x equity at YE2015). Nevertheless, this exposure as a proportion of equity has declined since 2013. In addition, moderate private sector loan concentrations could lead to volatility in loan quality metrics.

Although Banreservas experienced some deterioration in the first quarter, since 2014, loan quality ratios have stabilized at a level similar to its peers. The bank's impaired loans-to-gross loans ratio increased to 1.4% at end-March 2016 from 0.9% at YE2014 due to one large exposure, though this ratio remains well below historical peaks. The increase in non-performing loans (NPLs) also led to lower reserve coverage of impaired loans despite higher provisioning expenses.

Even with still-high credit costs, Banreservas's return on average assets (ROAA) should remain stable in 2016 as investments in technology and the expansion of its distribution channels start to wind down. Over the medium term, bank management expects to maintain Banreservas's ROAA between 1.3% and 1.5% as the bank expands to the consumer and small and medium-sized enterprise (SME) segments, focuses on the cross-selling of its retail platform, and improves efficiency. Given the bank's current performance and prospects, Fitch believes this target is achievable.

SUPPORT RATING AND SUPPORT RATING FLOOR

The bank's systemic importance, its role collecting funds for the government's single treasury account to pay debt obligations, and its role as a provider of domestic loans results in an equalization of its Support Rating Floor with the sovereign's LT IDR of 'B+'. Additionally, Fitch believes the government's willingness to support Banreservas should it be required is substantial given its 100% stake in the bank. However, the Dominican Republic's speculative-grade rating limits the sovereign's capacity of support, resulting in a Support Rating of '4'.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

Banreservas' outstanding subordinated debt includes an international issuance of USD300 million due 2023 and a domestic issuance of DOP10 billion due 2024. The bank's subordinated note ratings are one notch below its supported IDR and National Long-Term rating, reflecting one notch for loss severity, but no 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. According to Fitch's methodology, the subordinated notes do not receive equity credit.

RATING SENSITIVITIES

IDRS, NATIONAL RATINGS AND SENIOR DEBT

The bank's IDRs, National ratings and senior debt ratings are sensitive to a change in Fitch's assumptions as to support. Changes in the IDRs are also contingent on sovereign rating actions.

VR

A material reduction in asset concentrations, a stronger capital base, as well as a more established track record of meeting strategic objectives, could lead to an upgrade of the bank's VR.

An unexpected deterioration in loan quality or profitability or sustained high disbursements of income to the government that pressures Banreservas's tangible common equity-to-tangible assets ratio to below 5.5% could trigger a downgrade of its VR.

SUPPORT RATING AND SUPPORT RATING FLOOR

The SR and SRF are potentially sensitive to any change in assumptions as to the propensity or ability of the Dominican government to provide timely support to the bank. This could arise in the event of a sovereign rating action. Currently, the Outlook on the Dominican Republic's Long-Term Local and Foreign-Currency IDRs is Positive.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

Banreservas's subordinated debt ratings are broadly sensitive to the same considerations that might affect the banks VR and National Long-Term rating.

Fitch has affirmed Banreservas's ratings as follows:

--Long-Term Foreign and Local Currency IDRs at 'B+'; Outlook Positive;

--Short-Term Foreign and Local Currency IDRs at 'B';

--Viability Rating at 'b';

--Support Rating at '4';

--Support Floor at 'B+';

--Long-term subordinated notes at 'B'

--National Long-Term rating at 'AA+(dom)'; Outlook Stable;

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

--National subordinated debt rating at 'AA(dom)'.