By: Kimberly Ramkhalawan
August 30, 2022
CariCRIS has reaffirmed the ratings currently assigned to the US $10m debt issue (notional) of Dominica Agricultural, Industrial and Development Bank (DAID or the Bank) at CariB (Foreign and Local Currency Ratings) on the regional rating scale. A stable outlook was assigned.
These ratings indicate that the level of creditworthiness of this notional debt obligation, adjudged in relation to other debt obligations in the Caribbean isweak.
CariCRIS has maintained a stable outlook on the ratings, based on its expectation that there will be continued improvements in the Bank’s asset quality. The improvement is underpinned by the gradual easing of COVID-19 related movement restrictions in the Commonwealth of Dominica and an associated improvement in economic activity. This is expected to result in the Bank’s improved financial performance and improved asset quality. Additionally, the level of support that is being provided to the Bank through its Government shareholding and supportive lenders also supports the outlook.
CariCRIS says key strengths in rating drivers were dependent on it being a Sole provider of development financing in Dominica, enjoying a tax-exempt status, government guaranteed loans and waiver of annual dividend payments from the GOCD
While its risk drivers listed include a weak asset quality, a continued weak financial performance, it notes that the bank also operates exclusively in a small, open economy with material financial system risks. It adds that its ERM and policy updates are progressing, but at a slow rate, notwithstanding this, it shares that improvements have been reported in all fronts.
In explaining the Weak B rating, CariCRIS says DAID’s Enterprise Risk Management (ERM) framework and policy changes continue to be below average, though some progress has been made in FY2021, but continues to trail behind its regional peers in the implementation of a risk management framework. Notwithstanding this, the Bank has fully implemented the recommendations of the
Institutional Strengthening and Capacity Building Audit7 that was done in 2014, and all but one administrative position has been filled. DAID continues to develop and implement new policies and procedures to support its operations. Over the next 12 to 15 months, the Bank expects to make some progress toward the full development and implementation of its ERM system to improve risk reporting and allow for better monitoring and responses to key organizational risks.
CariCRIS however believes that the projected improvement in Dominica’s economic activity in 2022 will support the stability of DAID’s operations, financial sector soundness and employment. The Bank is expected to continue increasing its efforts towards the recovery of its non-performing loans which should support an overall improvement in its portfolio quality.
Its adds that DAID’s financial risk profile has remained relatively unchanged over the last 12 months. DAID maintained adequate capitalisation in FY2021. For the year, the Bank’s Tangible Net Worth (TNW) improved by 4.7% to EC $ 81.2 million when compared to EC $77.6 million in the prior financial year
The management risk profile of DAID did not change over the financial year. DAID’s leadership team continues to be supported by a 9-member Board of Directors (BOD). The Bank is currently recruiting for 3 senior management roles11 following the retirement of the personnel holding these positions. Notwithstanding these existing vacancies, there remains continuity in executing the functions of the various roles by existing Senior Officers experienced in these areas. These roles are expected to be filled within the next 12 to 15 months. The Bank continues to enhance its overall approach and attitude to risk management, albeit at a very slow pace. Additionally, there continues to be some progress in the enhancement of its information systems toward improving cyber security and business continuity.