Banks project a rapid improvement in the economy, despite its slow growth
Santo Domingo.- Credit projections within the financial sector are experiencing an approximate 16% increase, indicating significant activity in productive sectors despite the relatively low economic growth observed in the country in 2023. The rising trend in financing has led Rosanna Ruiz, the executive president of the Dominican Association of Multiple Banks (ABA), to suggest that the country might return to its potential economic growth range of 4.5% to 5.5% sooner than anticipated, spanning the remainder of the year and into 2024.
Ruiz, in discussions with journalists specializing in economics, emphasized that the Central Bank’s estimates are on target. However, she highlighted the credit behavior as a key indicator reflecting the progress in various economic sectors, including MSMEs, construction, and real estate.
Although economic activity grew by 2.9% year-on-year in July, with an accumulated growth of 1.4% in the first seven months, the government revised its growth outlook for 2023 downward. The revision lowered the projected growth rate from 4.25% to 3%, attributing the adjustment to economic uncertainty on both the international and local fronts.
Julio Lozano, Director of Economic Studies at ABA, discussed the behavior of credits and mentioned that the Bank Credit Expectations Index (IEC) reached 55.1 in the second quarter of the year, indicating positive statistics for loan demand in the financial sector. Lozano noted that the change in the Central Bank’s monetary policy is beginning to be felt, allowing for reductions in monetary interest rates.
Regarding the gradual process of implementing these changes, executives stated that adjustments to passive and active rates will be applied directly, with possible effects to be observed as early as November. This transfer process aims to harmonize rates to avoid imbalances in the financial system.
The ABA is working on initiatives to facilitate easier access to formal banking for Micro, Small, and Medium Enterprises (MSMEs). They are collaborating with the Dominican Confederation of Micro, Small and Medium Enterprises (Codopyme) on a pilot plan involving 1,000 MSMEs, focusing on education and analysis to create more specialized projects.
During discussions, Ruiz also emphasized the need for a comprehensive tax reform in the country, explaining that simpler and lower tax structures can help reduce tax evasion and encourage formal economic activity. She expressed the ABA’s opposition to a general rule proposed by the General Directorate of Internal Taxes (DGII), which designates certain entities as withholding and collection agents for various taxes, citing potential negative impacts on formality and incentives.