Banreservas: A pillar of support for the Dominican economy

Banreservas’ award-winning response to the crisis has provided vital relief to its most vulnerable customers and played a crucial role in the implementation of the government’s mitigation measures – all while keeping staff wellbeing as a priority.

The bank sees its mission as to enhance the prosperity and wealth of all Dominicans. The government-owned bank is proud of its history of supporting the population through times of trouble, and rarely can Dominicans have needed the bank so pressingly as when the Covid-19 pandemic broke earlier in the year.

With a state of emergency declared, lockdowns across the country, a worldwide recession looming and the international tourism industry collapsing, Banreservas was quickest off the mark in responding to the crisis and alleviating the financial strain its clients were facing.

The bank earned plaudits for acting decisively with initiatives such as payment relief on personal and business loans, lower fees, and innovations in digital banking – as well as designing the infrastructure for the government’s plans to distribute financial support to those most in need.

Indeed, in July, Euromoney magazine awarded Banreservas its 2020 Excellence in Leadership award for Latin America, as well as Best Bank in the Dominican Republic, in recognition of the bank’s business management, support for its clients, innovation and backing for productive sectors.

“Given the current state of emergency in the Dominican Republic, the bank has seen an opportunity to connect and serve customers and employees in a more genuine way,” says Samuel Pereyra Rojas, chief executive officer at Banreservas.

“Therefore, Banreservas continues to evaluate different ways of contributing to the wellbeing of Dominicans, while incentivizing the sustainability of the national economic system, as well as implementing best practices for optimal performance of its employees.”

Since the pandemic began, more than one million customers have been able to use Banreservas’ services, and the bank has granted more than $134.5 million of loans.

Crucial to the bank’s ability to respond swiftly was its advantageous starting point – both in terms of its financial solidity and having a broad reach. Banreservas accounts for a third of the Dominican Republic’s banking assets, and is a market leader in lending and deposits.

At Ba3/BB- with Moody’s and Fitch Ratings, the bank’s credit rating is in line with the government, its parent. The bank posted net profits of RD$9.25 billion ($158 million) in 2019 – surpassing its own targets, and an all-time record.

Even as Banreservas continues its expansion in the retail segment, which now comprises 36% of total loans, the loan book has not only retained its quality ratios, but improved them. Fitch Ratings notes that Banreservas’ 90-day past-due loans ratio improved from 1.5% in 2018 to 1.4% by the end of 2019.

The expansion in the retail sector comes as part of an important shift in Banreservas’ business model in recent years, with the private sector now taking an 80% share of the bank’s loans and deposits. And the changing composition of the portfolio – with the institution now number one in personal loans and boasting the fastest-growing mortgage book in the country – has been called a “reflection of the bank’s commitment to the population”, by Pereyra Rojas.

Although – like every financial institution, not only in the Dominican Republic but across the globe – asset quality is likely to see some deterioration in 2020 due to an exceptionally weak operating environment, Banreservas has taken important measures to ease the burden on its customers.

Fitch Ratings said earlier in the year that deferment payment measures for loans in difficulties as a result of the crisis could “relieve some asset quality and loan-loss reserves pressures”.

Indeed, Banreservas granted grace periods on mortgage, vehicle, consumer and commercial SME loans, extending the terms of financing for three months. Clients that were already facing delays when the crisis hit were also able to benefit from these measures. Small and medium-sized enterprises were additionally offered automatic renewals on their credit lines.

Furthermore, credit card customers were also given vital support measures, with monthly interest rates reduced to 1% for three months, minimum payment requirements eliminated, seven-day grace periods granted on payment deadlines, and various fees – including for cash advances and replacement cards – also removed.

Banreservas also stepped up to the challenge when Dominican authorities took important steps to safeguard the economic wellbeing of the country as the pandemic hit, playing a pivotal role in the implementation of several of these measures.

When the central bank released reserves into the economy in an effort to keep liquidity flowing, Banreservas led the commercial banking sector in offering lower interest rates on loans and increasing the coverage of commercial and retail clients.

In order to preserve liquidity for certain micro, small and medium-sized companies, Banreservas worked with the president’s office to design a process that would allow early payment of bills to companies that supply the state.

The government also used Banreservas’ expertise and systems to implement its support programme for furloughed workers, known as FASE. During the pandemic, Banreservas has also created an app to confirm the validity of cheques from the National Treasury – a process that previously required a phone call to the treasury. This has reduced waiting times and improved security levels.

In recent years, Banreservas has made significant progress in harnessing financial technology to make strides on financial inclusion. Therefore, when the government sought help in supporting those sectors of the population most in need, the bank was ideally positioned to make the most of its skills and experience.

Most notably, the Dominican social security administrator (ADESS) designed a subsidy programme, Quédate en Casa (Stay at Home), intended to cover the basic food necessities of more than 700,000 families in extreme poverty.

To ensure that people did not need to leave home nor crowd together to claim their subsidy, ADESS could not rely on traditional payment methods and required an innovative solution. There was a further complication: given not all beneficiaries had mobile phones or internet data, the system could not depend on a mobile device.

Within just two weeks, Banreservas stepped up to the challenge by conceiving, designing and implementing a payment method – in partnership with Visa – that allowed people to use their national identity cards as virtual credit cards. Each eligible beneficiary of the programme was given a validation code, which enabled use as an electronic wallet that could receive credit twice a month and allow the person to purchase food and non-alcoholic drinks.

Some 10,356 merchants were integrated into the system, allowing the government to provide $187 million of assistance via more than 2 million transactions.

“This solution allows beneficiaries to access the subsidies in a secure and reliable way to purchase food in a network of merchants,” says Pereyra Rojas.

As Banreservas transformed itself to tackle the crisis, it made sure to keep its staff not just healthy, but also happy. Some 65% of the workforce has been working from home, and the bank has provided 100% coverage for the cost of its employees’ Covid-19 tests and any hospitalizations.

Furthermore, the bank has provided its staff with psychological assistance throughout the crisis, offering consultations, coaching sessions, webinars and tips for dealing with this difficult time.

Indeed, in all its communications with staff and customers since March, the bank has presented a clear motto: “We are with you in moments of truth.”

For the Dominican Republic, this could also be a moment of truth. In recent years, the country has been one the fastest expanding economies in Latin America, averaging annual GDP growth of 6.2% in the past half decade. This year, the country will not escape the global recession, and the government’s debt levels and fiscal deficit are likely to increase significantly.

However, in no small part thanks to the support provided by Banreservas, there is reason to believe that the Dominican economy will show its mettle and continue to be one of the strongest growth stories in Latin America from next year.

Bank of America analysts said in late July that they believed markets were “underestimating” the country’s economic resilience, predicting that the government would be able to “stabilize its debt as soon as 2021” and that debt levels will remain “moderate”. The US bank expects Dominican GDP to shrink by 6% in 2020 but to rebound to growth of 4.8% in 2021.

Banreservas is expected to play a fundamental role in getting the Dominican Republic’s economy back on track, thanks to its ability to support sectors that generate employment, such as tourism, industry and exports.

As it prepares to celebrate its 80th birthday in 2021, Banreservas’ role as the bank of the Dominican people has never been so important.