Just over a decade ago, the Dominican economy was in ruin. Following rapid growth fuelled by manufacturing, tourism and funds sent home from citizens abroad, the misguided bailout of Banco Intercontinental in 2003 caused government debt to double and the currency to collapse. A drastic overhaul was needed in order to restore macroeconomic stability and confidence in the financial sector, as well as taming the spiralling interest and inflation rates.
Despite such overbearing challenges, this is exactly what has been achieved in the years that have followed. A series of hard-hitting financial reforms and the close coordination between monetary and fiscal policies have ushered in a new period of economic growth and a revitalisation in all sectors, including the banking industry.
Since the crisis, the financial sector has undergone considerable development through the implementation of robust policies that have addressed fundamental weaknesses and greatly improved performance (see Fig. 1). As a result of such reforms, the finance industry in the Dominican Republic is now flourishing, while its continued growth is driven by the country’s largest private and capital bank, Banco Popular Dominicano (BPD). World Finance had the opportunity to speak with BPD’s Executive Vice President of International Businesses and Private Banking, Luis E Espínola, about the economic challenges that have been impressively overcome in recent years, and the future of the Dominican financial sector.
Since the crisis, the financial sector has undergone considerable development through the implementation of robust policies that have addressed fundamental weaknesses
Transforming the industry
New regulations, such as additional capital requirements, have been implemented effectively since 2003, thereby creating a stronger regulatory framework. Enhanced transparency in the eyes of the general public has been a key step, which has been supported via independent regulatory institutions and the introduction of relevant banking requirements. The publishing of monthly and annual financial statements, as well as detailed information on the loan portfolios of various financial intermediaries, have further improved the levels of transparency within the sector and contributed to its healthy development. Therefore, the financial system has been able to develop more competitively through a model of risk-based supervision, which features high levels of liquidity and solvency, as well as greater international openness. “These measures have contributed to the healthy development of the financial sector, in line with the steady growth and improved fiscal management that the country has experienced in recent years”, said Espínola.
Given the impressive turnaround achieved, various steps have been taken in order to prevent the economic crisis from reoccurring, namely enhanced financial regulations have been applied to compliance and risk assessment management. “The principles of the Basel Accords were also adopted so as to enhance the standing of Dominican Republic’s financial sector within the international system”, Espínola continued. Furthermore, market risk is now highly regulated by ensuring equal treatment to all entities, regardless of capital origin.
The periodic review of contingency plans is also employed in order to address the shortage of funds of financial intermediaries. “Regular stress tests and reviews of the Board of Directors’ meeting minutes really help to monitor internal decisions”, Espínola explained. Moreover, the adoption of the Regulation on Corporate Governance for Financial Entities and the User Protection Regulation of Financial Services have both played central roles in strengthening confidence in the financial system, improving internal management and promoting financial education.
The Monetary and Financial Law has made a considerable impact to the consolidation of the financial sector, while also facilitating the monitoring of markets and improving market indicators. “One of the greatest achievements is the improvement of the loan portfolio’s quality, which by the end of 2014 had a default rate of 1.3 percent”, said Espínola. “While in the business side of the industry, companies are now looking for solutions that will help them to streamline operations, mitigate risk and lower their costs. Banco Popular Dominicano has adapted and successfully put into motion a portfolio of products that accommodates the changing times.”
Integrating app development
Technology is central to the continued development of the country’s financial sector, and is used as a tool by BPD in order to promote enhanced customer satisfaction and financial inclusion. “Our institution has been at the forefront of technological innovation locally. We were the first to develop and introduce a fully functional smartphone app that allows customers to make transactions and find offers available in stores, restaurants and other businesses”, Espínola explained.
The map-based app, which has an augmented reality view and geo positioning, has become widely popular in the country. In 2014, it had approximately 950,000 transactions – a 300 percent increase from previous years. Then there is BPD’s recent partnership with PayPal, which allows customers to make transfers from their PayPal account to their BPD account. “With this service we have encouraged our SMEs to market their products and services online locally and worldwide.”
In the corporate sector, the organisation has implemented several cash management products that have received wide acclaim. The Smart Safe is an example of one of BPD’s most successful products, consisting of an electronic vault installed within an office that accepts cash deposits and immediately reflects the availability of cash on a customer’s account.
In addition to its support of the private sector and local markets, BPD has developed several products that strive to serve disadvantaged and low-income groups: “We have programmes to help clients to plan a future and save funds in order to achieve their goals”, said Espínola. “Through our latest programme [called] ‘Tu Casa’, we can help our customers to plan their savings and achieve specific amounts in a designated account for long-term mortgages. With this service BPD seeks to support families that otherwise would never afford a roof over their heads. We also have savings accounts with no service charges and very low minimum balances available for low-income clients.”
Financial inclusion is one area that BPD strives to promote through such policies: “Financial inclusion is more than just a philanthropic subject. It is also an opportunity for our institution”, added Espínola. Working with over 952 banking sub-agents has enabled BPD to reach communities that would otherwise not have access to any banking services.
One of the main challenges which continues to face the Dominican Republic’s banking sector, both at a local and regional level, is the use of technology in order to achieve greater financial inclusion. “It has also been challenging to meet the ever changing consumer demands, especially of newer generations who are accustomed to using sophisticated technology constantly in their everyday lives”, said Espínola. In order to offset evolving customer needs and preferences, in recent years BPD has invested heavily in various platforms, which has brought the institution to the forefront of banking technology in the country. “This year, we have been in a position to launch several initiatives that will help us to complete our goal of being the most innovative institution in the Dominican Republic.”
Strength in numbers
BPD is focused on strengthening the sustainability of all business segments; to this end, the institution continues to endorse financial educational programmes and to invest in technology platforms that can develop new channels of financial inclusion. This includes more options via BPD’s online banking services, which will enable customers to conveniently fulfil their banking needs. “We have allocated many resources to our newly launched web page, which has a very user friendly interface and is designed to allow current and new customers to solicit most of our products and services online – without making a phone call or visit one of our branches.” After being launched this February, the website has already received over 8,000 credit card applications, almost 7,000 loan applications and just over 3,000 requests for new accounts.
Targeting the youth is a vital aspect of BPD’s business model. “The web page and the mobile app we launched back in 2013 are great assets when approaching a young segment that appreciates the comfort of mobility and are looking for simple and efficient approaches to their banking. Through this app, our financial education campaign and our collaboration with several universities to support entrepreneurship programmes, we plan to bring in the new generation and grow with them”, Espínola explained. “We are also focusing on increasing our market penetration in the youth and young adult segments, and expanding in the tourism and export industries.”
Meeting customer needs remains at the forefront of the bank’s strategy, and as such BPD has invested significantly into developing existing and new products that accomplish smarter, safer and more efficient ways for clients to manage their accounts and make requests. For example, corporate clients are offered products that focus on asset management and enable them to handle their cash and account payables in much easier and more efficient ways. Moreover, a programme called ProExporta has been launched for export-focused industries, which offers a full portfolio of services, along with regular educational seminars in order to support newly-established SMEs.
“The ProExporta initiative was recognised by the Association of Exports of the Dominican Republic for being the biggest supporter of this growing industry”, said Espínola. Another programme, which is successfully supporting SMEs in the country is Impulsa Popular. Since it was established in 2012 it has provided assistance in all types of financing, account and cash management, as well as other services and educational seminars. By offering such involved and resourceful support, BPD is helping to drive one of the most important segments of the Dominican economy, and as a result, such programmes and initiatives help propel the country’s continued growth.
This year is proving to be another successful period for BPD and a fine example of its innovative strategies and holistic approach. It’s alliance with PayPal, the deployment of deposit accepting ATMs and nationwide Smart Safes, together with the launch of a new website are all part of a proactive strategy that the institution has set for the coming years. “Banco Popular Dominicano will increase its presence in a younger market, which is in the forefront of the entrepreneurship movement. We are also working to develop products that will fit the needs of these individuals and encourage them to establish a relationship with our institution that will help them succeed.”
One bank may have caused the country’s economic collapse, but in just over a decade, another has come to its rescue. Achieving what many would have considered impossible, BPD has become a pillar of Dominican Republic’s economy and enduring fiscal growth.
