A resilient and capable institution leading the way to economic stability and growth

Héctor Valdez Albizu, Central Bank Governor
Héctor Valdez Albizu, Central Bank Governor

With timely measures and strategic management, they have managed to turn the country into one of the region’s most attractive business destinations.

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Published: Thu 27 Jan 2022, 8:00 AM

The Dominican Republic has one of the biggest, most resilient growth economies in Latin America. Behind the country’s average 6% yearly growth, and its low and stable inflation, stands the Central Bank and his governor for almost 24 years, Mr. Hector Valdez Albizu. “The main achievement of this institution has been preserving macroeconomic stability”, says Mr. Valdez, acknowledging the rocky patches too, particularly the major 2003’s economic crisis that costed the country around 20% of its GDP. As a testament to its resilience, the Central Bank managed not only to recover but to profit from it. They approved 18 regulations of the Monetary and Financial Law to strengthen prudential norms, and from 2004 onward the regulation and supervision of the Dominican financial system improved significantly and the economy returned to growth and stability.

In 2020, to mitigate the effects of the COVID-19 crisis, the Central Bank responded quickly by taking monetary flexibilization measures. They reduced the monetary policy rate at 150 basic points to its historic minimum of 3.0% yearly, lowering the active interest rate from 14% to 9.5%; implemented a liquidity provision program of approximately 5.0% of GDP that channeled 92 thousand loans and offered debt restructuring through financial intermediaries; froze risk classifications for debtors and provisions in levels prior to the pandemic; and secured the disbursement of US$650 million through the International Monetary Fund’s Quick Financing, to benefit the most vulnerable sectors and preserve the greatest number of companies and jobs.

These measures brought an accelerated recovery of the economy, and since June 2021 there is a gradual return of the resources through the liquidity provision program. The banks continue to present high levels of solvency (19.1%); until July 2021, a high profitability (23.5% ROE and 2.3% ROA) and low arrear coefficients (1.6%); private loans and deposits kept growing at around 10% and 12% respectively, showing this sector has actually surpassed the numbers during the pandemic.

On the other hand, the Dominican Republic is one of the region’s first receptors of FDI, reaching USD $3 billion in 2019. While in 2020 it lowered to USD $2,55 billion, 2021’s fast economic recovery and the numerous incentives available have set high expectations. There are several laws that hold tax incentives and provide juridic protection for investors in alignment with SDGs’ goals; and many sectors offer interesting FDI opportunities like tourism, the free trade zones, mining, and the film industry.

Nowadays, growth has been revised upwards to reach 11% in 2021, and nominal GDP is expected around US$91,5 billion, surpassing pre-pandemic nominal production levels, with one of the region’s best projected growth of 5.0-5.5%. Furthermore, as the country looks towards Middle Eastern markets new business opportunities are to be expected for the exportation of agricultural and consumer products like tropical fruits and cigarettes, which have been expanding their presence in this region, as well as new possibilities for joint ventures, like the clean energy power plants and port infrastructures that are currently being developed following this model.

Since taking office, Mr. Hector Valdez Albizu and his team have managed to take the country’s economy forward from debt and zero reserves in 2003 to their current USD $13 billion. “One of the biggest wins in my administration has been keeping the macroeconomic stability of the country, and succeeding in financial and currency management. I feel very proud of keeping the economy growing with an autonomous Central Bank”, assures Mr. Valdez.

Propelling innovation, solvency and efficiency in the Dominican Republic’s banking industry

ABA aims to have a completely digitized banking industry by optimizing digital financial services for loans and investments
ABA aims to have a completely digitized banking industry by optimizing digital financial services for loans and investments

ABA’s focus on technology, efficiency and best practices has actively contributed to the country’s excellent financial indicators and macroeconomic stability.

“Our main goal is to have a banking industry with solvency and strength, one that is indispensable for the economic stability of the Dominican Republic”, says Mrs. Rosanna Ruiz, President of the Association of Multiple Banks of the Dominican Republic, ABA, which brings together the country’s seventeen commercial and multi-service banks, and has made the Dominican banking industry one of the strongest in the region. Their latest indicators don’t lie. A default rate of 1.5%, a solvency rate of 20%, ROA and ROE at record levels, and over 20% of net worth growth in the last fourteen months.

While ABA’s stabilizing capacity was put to the test throughout 2020’s COVID crisis, remaining operational on all its payments and financial services, as well as restructuring and refinancing 50% of its loan portfolio to relief vulnerable sectors, the majority of ABA’s programs have a long-term vision. On the one hand, ABA aims to have a completely digitized banking industry by optimizing digital financial services for loans and investments, and working on the virtualization of their passive accounts. They are innovating their procedures and making them more cost-efficient with a monetary authority website that will allow the banks to send reports directly to a digital platform shared with the Central Bank and the Superintendency of Banks.

ABA is also focusing on legislation to find new ways to promote financial inclusion and support SMEs, their mutual loan guarantee association law will allow SMEs to access formal credit in better financial conditions. Similarly, ABA has reached agreements with the Ministry of Education to encourage a nationwide culture of savings with resources like the online ABA classroom, to provide first-rate lessons and free webinars given by international facilitators. Additionally, they are working with local universities on a financial education subscription group so students can be certified, get their first job in the banking industry and reduce staff turnover.

ABA is also promoting inter-institutional agreements with the public sector around money laundering prevention, and is establishing an association of financial intermediaries to reach a monolithic position regarding regulatory, fiscal, and public policy matters. Moreover, been part of the Sustainable Banking Network since 2018 and supported by the International Finance Corporation (IFC), ABA is working towards the adoption of the World Bank’s Green Protocol as a guide of environmentally sustainable practices for Dominican banks.

In 2022, ABA is holding several events that will help attract investors and promote networking like Felaban’s Latin American Foreign Trade Congress (CLACE). ABA is confident all their innovative efforts will continue to bring positive results. As Mrs. Ruiz proudly states, “we have macroeconomic stability in a time when the whole world is unstable. That says a lot about our investment potential and the strength of our financial system.”

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