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Fitch estimates that the Dominican economy will fall 5% and anticipates credit deterioration

The rating firm believes that the easing measures for banks postpone the increase in delinquencies…..

Risk rating agency Fitch Ratings estimates that the Dominican economy will decline 5% this year due to the effect of the COVID-19 pandemic, while forecasting a deterioration in bank credit.

In a virtual meeting, the international firm pointed out that the factors that most affect the forecast are a possible increase in the spread of the new coronavirus, as well as dependence on the tourism sector and on family remittances “which are a channel that transmits the shock economic growth in the region, “said Carlos Morales, director of Sovereign Ratings at Fitch Ratings.

He added that the change of government, which will take place on August 16, will be taken for the purposes of improvements or deterioration of the economic outlook according to the fiscal result observed after the crisis, or if there is a fiscal impulse that may deteriorate even plus the government’s position, but not because of the political change itself.For her part,  Larisa Arteaga, head of the Fitch Ratings Division for the Dominican Republic, Ecuador and Bolivia, said that the Dominican banks came to the pandemic with “a very solid financial profile, supported by a very strong economy that has mitigated the impact of the crisis. ”

Additionally, he said, authorities and regulators have applied measures to facilitate banking liquidity, which contributed to the expansion of private credit in the first half. However, in contrast, credit through credit cards has contracted by 10% in that period, which reveals the impact of the crisis by COVID-19 on the families’ pocket.

This, Arteaga considered, will end up hitting the quality of the bank’s loan portfolio. “The first signs of deterioration are evident,” he said, although he acknowledged that regulatory measures are applied that allow debt restructuring without consequences.

He added that the deterioration of the loan portfolios “has been moderate, but will worsen at the end of the year or at the beginning of 2021.”

The head of Fitch said that the measures applied as regards flexibilities for banks give relief, but only delay the increase in delinquencies.

He recalled that 30% of the portfolio is supported by consumer credit, which is being impacted given the lower level of income of Dominican households.

“As there is more poverty and unemployment, clearly people have less ability to pay off their debts. This is going to increase delinquencies and we are already seeing it,” he said.

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