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Dominican Republic Banking and Financial Services
The Dominican Republic had a diversified, dynamic
financial
system in the 1980s, which had undergone rapid expansion
throughout the post-Trujillo era. In the late 1980s, more
than
400 financial enterprises, representing 17 types of
institutions,
made up the country's financial services sector, which
contributed 7 percent of GDP in 1988. The financial system
in the
1980s included the Dominican Central Bank (Banco Central
de la
República Dominicana--BCRD); see
Dominican Republic - Monetary and Exchange-Rate Policies
, this ch.),
commercial banks, savings and loan
institutions, private development finance companies (or
financieras), mortgage banks, state banks, and
assorted
other establishments.
The financial system grew rapidly after 1961, as the
private
sector gained greater access to credit, new forms of
finance
became available, and Dominicans created new institutions
to meet
their growing credit needs. The number of formally
regulated
financial institutions rose from 7 in 1960 to 31 in 1970,
and to
78 by 1985. These institutions had a total of 263 branch
offices.
Much of the growth in the 1970s and the 1980s involved
consumer
finance companies and larger financieras, which
underwrote
medium-term and long-term loans for priority economic
sectors.
The financial sector experienced a crisis in the first
half of
the 1980s because of the poor macroeconomic climate, but
increased government regulation as part of a 1985
stabilization
program eased some of the system's problems. Despite high
inflation and unusually high interest rates, many new
commercial
banks and related services were founded in the late 1980s.
Twenty-four commercial banks made up the core of the
private
financial system in 1989. Commercial banks controlled
about 64
percent of the financial system's total assets, and over
40
percent of commercial bank funds were deposited in one
bank, the
Reserve Bank (Banco de Reservas de la República
Dominicana).
Although it served as the main fiscal agent of the
government,
the Reserve Bank also operated as a commercial bank. Banks
were
largely Dominican-owned, especially after several foreign
banks
sold most of their portfolios to local banks in 1984 and
1985
because of the unfavorable economic climate. Nonetheless,
Chase
Manhattan and Citibank, from the United States, and the
Bank of
Nova Scotia, from Canada, maintained local operations in
the late
1980s. Banks provided a full range of services, and they
were the
only institutions offering checking accounts. The
Superintendency
of Banks, within the Secretariat of State for Finance,
regulated
the banks in conjunction with the Central Bank.
Commercial bank loans to productive sectors favored
manufacturing, which received 34 percent of bank credit in
1987;
followed by agriculture, 19 percent; services, 8 percent;
and
construction, 6 percent. The remainder financed exports,
imports,
and consumer purchases.
The growth in investment in the priority areas of
assembly
manufacturing and tourism increased the private-sector
share of
total domestic credit, beginning in 1984, despite tight
credit
conditions. Large corporations dominated access to bank
credit,
often irrespective of their credit worthiness or need for
credit,
mainly because of their superior "connections." Besides
their
assets in the domestic banking system, Dominicans held an
estimated US$1 billion in accounts overseas, mainly in the
United
States.
Savings and loan associations and mortgage banks were
the
main sources of household finance. Seventeen savings and
loan
associations served the nation in 1989, up from only
twelve in
1970. These associations, established since 1962,
contained 19
percent of the financial system's assets and catered
mostly to
middle-income home-buyers, but they also offered passbook
savings, certificates of deposit, and collateralized
loans. The
National Housing Bank (Banco Nacional de la Vivienda--BNV)
regulated the savings and loan institutions by imposing
perfamily lending ceilings. Fourteen mortgage banks, holding
about
10 percent of the financial system's assets, served mostly
upperincome homeowners. The most prominent of these
institutions was
the Dominican Mortgage Bank (Banco Hipotecario
Dominicano--BHD).
Unlike the savings and loans, however, mortgage banks also
financed the short-term needs of builders and medium-term
and
long-term commercial construction. Both the Central Bank
and the
BNV regulated mortgage banks, but they imposed less
stringent
regulations than those applied to the savings and loan
associations. Lower-income homebuyers obtained credit via
the
National Housing Institute and household finance companies
(sociedades inmobiliarias).
The very popular financieras, the equivalent of
private development finance companies, controlled 6
percent of
national assets, and they were an important vehicle for
the
financing of medium-term and long-term investment in
priority
sectors. The number of financieras had grown from
eight in
1970 to twenty-five by 1989. Established in 1966,
financieras issued stocks and funded bonds,
guaranteed by
government financial institutions, to mobilize capital in
major
development projects in agribusiness, industry,
transportation,
and tourism. In addition, they supplied technical
assistance to
borrowers, and they served as guarantors of the
liabilities of
others. As many as 300 consumer finance companies, also
called
financieras, providing short-term consumer credit
throughout the countryside, were largely unregulated.
Increased
government regulation of the small financieras,
particularly in the area of currency speculation, forced
many to
close in the late 1980s.
Three state banks played a relatively minor role in the
financial system. These included the BNV, which provided
some
housing-related finance, and the Industrial Finance
Corporation,
which played a smaller role than its name suggested. The
Agricultural Bank of the Dominican Republic (Banco
Agrícola de la
República--Bagricola), by contrast, was an important
creditor.
Through its thirty branch offices, Bagricola covered most
of the
countryside in an attempt to serve small farmers. It faced
an
uphill battle, as both public sector and private sector
credit
policies favored urban activities. The bank declined in
importance during the early 1980s because of a high level
of
unpaid debt, but it rebounded in the late 1980s as it
became more
autonomous and, for the first time, mobilized capital
through
savings accounts.
A wide range of other financial enterprises, providing
a
broad array of financial services, also existed in the
Dominican
Republic. Many of these organizations served the large
informal
sector. The Dominican Development Foundation and the
Association
for Microenterprise Development were successful lenders to
microenterprises and unincorporated businesses. Rural
credit
unions, in existence for decades, also served rural
borrowers and
savers. Money lenders abounded as well. Monetary
authorities
closed down some seventy exchange banks in 1988 as part of
foreign exchange reforms; it remained unclear in 1989
whether
that was to be a permanent policy. Fifty insurance
companies,
half of which were locally owned, underwrote policies in
the late
1980s, under the supervision of the Superintendency of
Insurance.
Data as of December 1989
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