CariCRIS lowers its ratings for Dominica Agricultural, Industrial and Development Bank

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CariB   (Regional Scale Foreign Currency)

CariB   (Regional Scale Local Currency)

TRINIDAD / ROSEAU – Caribbean Information and Credit Rating Services Limited (CariCRIS), has lowered the ratings on the US $10 million debt issue (notional) of the Dominica Agricultural, Industrial and Development Bank (DAID or the Bank) to CariB (Foreign and Local Currency Ratings) on the regional rating scale. These ratings indicate that the level of creditworthiness of this notional debt obligation, adjudged in relation to other debt obligations in the Caribbean is weak.

CariCRIS has also assigned a negative outlook on the ratings. The negative outlook is based on our expectation that the bank’s profitability will likely remain under pressure in FY2021, as the Bank and the Dominican economy struggle to cope with the effects of hurricane Maria, and the ongoing negative impact of the coronavirus (COVID-19) pandemic. Though the impact of these risks is tilted to the downside, a level of mitigation is provided to the bank through its government shareholding and supportive lenders.

The downgrade is driven by the continued deterioration of DAID’s loan portfolio credit quality, as well as the bank’s declining financial performance. Additionally, while DAID has made some progress in the implementation of various facets of its Enterprise Risk Management (ERM) policy, these changes are being implemented at a slow rate. DAID operates in a small, open economy with material financial system risks, whose attempts economic recovery from the prolonged effects of hurricane Maria has been hampered by the coronavirus (COVID-19) pandemic. The bank, however, remains the sole provider of development financing in Dominica, enjoying a tax-exempt status, government-guaranteed loans and waiver of annual dividend payments from the GOCD.

Rating sensitivity factors

Factors that could lead to an improvement in the Ratings/Outlook include:

  • An upgrade to the sovereign credit rating of the GOCD;
  • Improvement in the NPL ratio to less than 16 percent;
  • Adherence to the EIB’s revised financial covenants.

Factors that could lead to a lowering of the Ratings/Outlook include:

  • A change in the sovereign credit rating of the GOCD;
  • Sustained NPL ratio of 45 percent or more over for the next 12 – 15 months;
  • Further delay in the full implementation of the Bank’s Enterprise Risk Management Framework;
  • Any loss of major funding lines without identification of a suitable alternative;
  • A decline in TNW coverage of net NPLs to less than 1 time over the next 12 – 15 months;
  • A fall in the bank’s capital adequacy ratio to less than 25 percent over the next 12 – 15 months.

Source: CariCRIS

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