OREANDA-NEWS. April 06, 2015. Banco de Reservas de la Republica Dominicana's (Banreservas) recent announcement that it would increase the bank's paid-in capital in accordance with the approval of the law to modify Article 4 of Law No. 6133 (Organic Law of Banreservas) last December could benefit the bank's standalone creditworthiness as measured by its Viability Rating (VR) over the medium-term, according to Fitch Ratings. Fitch notes that the capital increase has no immediate credit impact, although, along with an important increase of reserves for impaired loans over the past three years, this will contribute to an improvement in the bank's loss absorption capacity.

Besides the DOP2.800 million reinvestment of 2014 earnings (about 40% of net income), Banreservas still has the authorization to increase paid-in capital by an additional DOP1.700 million, which would lift paid-in capital to a total of DOP10.000 million by 2016. If asset growth is sustained at the bank's five-year average of 15% in 2015, Fitch forecasts that Banreservas' tangible equity/tangible assets ratio will continue to lag that of its domestic and international peers (emerging market commercial banks with highly speculative-grade ratings). However, Fitch will assess capitalization in conjunction with the overall risk profile of the bank's balance sheet. Private-sector impaired loan quality indicators have improved under a new management team and are now comparable to those of its peers, though levels of restructured loans remain high.

Fitch affirmed Banreservas' VR at 'b' on Dec. 11, 2014, due to the bank's low capitalization, as measured by its tangible common equity to tangible assets ratio, relative to domestic and international peers. As noted during Banreservas' last review, in addition to a stronger capital base, sustained improvements in private-sector loan quality, income diversification and efficiency could be positive for the bank's creditworthiness.

Fitch currently rates Banreservas as follows:

--Foreign and local currency Issuer Default Ratings (IDRs) of 'B+'; Outlook Stable;
--Short-term foreign and local currency IDRs of 'B';
--Viability Rating of 'b';
--Support Rating of '4';
--Support Floor of 'B+';
--Long-term subordinated notes of 'B'.