El 16 de agosto Scotiabank (SB) anunció el acuerdo de compraventa del Banco Dominicano del Progreso (BDP) por el 97.44% de las acciones, por una cifra estimada de USD $330 MM. Con esta compra Scotiabank se consolida como el tercer banco privado del país, con un 9% de los depósitos totales, el 10% de la cartera crediticia, y el 14% de las sucursales a nivel nacional.

Los cinco principales bancos múltiples de la República Dominicana (Top 5) siguen mostrando un alto nivel de rentabilidad en la primera mitad del 2018 (ROE antes de impuestos del 23.8%). Les acompaña un crecimiento económico superior al 6% que podría peligrar si los precios del petróleo siguen subiendo y el Banco Central Dominicano tiene que seguir aumentando la tasa de intermediación bancaria. El semestre cierra con la noticia de la compra de Banco del Pro-greso Dominicano por parte de ScotiaBank. Esta compra deja a tan solo 4 bancos con el 86% de los activos de la banca múltiple (75% de los activos del sistema financiero dominicano) y a otros 13 bancos con el 14% restante. Por tanto, las oportunidades de seguir creciendo inorgánicamente por parte de los cuatro grandes se reducen considerablemente, dada la limitada cuota de mercado de los demás bancos múltiples. Como veremos en el informe, Scotia se afianza en la cuarta posición aunque lejos todavía de BHDLeón y tendrá oportunidades de consolidación de sucursales dada la ubicación de las del Banco del Progreso.

On August 16th, the Federal Housing Administration (FHA) announced, among other things, a 30-day foreclosure moratorium extension for certain FHA-insured mortgages secured by properties located in Presidentially-Declared Major Disaster Areas (PDMDAs) in Puerto Rico and the U.S. Virgin Islands. This is the 4th moratorium extension since Hurricane Maria.

The local banking industry's profitability on a consolidated basis has rebounded strongly in the wake of Hurricanes Irma and Maria, reaching a Pre-Tax ROE of 17.4% in Q2 2018, making it the highest quarterly profitability level in a decade. The liquidity position of local banks, particularly of Popular, has experienced a material improvement, with total deposits reaching $54.1 billion as of the end of Q2 2018 from $48.8 billion in Q3 2017, a $5.3 billion or 10.9% increase. Hurricane-related private insurance claims paid out to policyholders and post-disaster federal assistance funds deposited in private banks have largely driven this surge in deposits. This newfound liquidity will need to be put to productive use, either through increased lending or investments. The unadjusted nonperforming loans ratio showed some improvement in Q2 2018, decreasing from 9.2% to 8.8%, temporarily appeasing concerns of a spike in delinquencies. Capital positions of banks continue exceedingly strong, reporting an industry-wide Tier 1 Risk-Based Capital Ratio of 21.5%. The deployment of excess capital through organic and inorganic growth opportunities (e.g. Popular's Reliable purchase), stock repurchases or dividend payments to shareholders must be strategically pondered. Moreover, in this revamped issue we analyze Post-Hurricane Maria foreclosure relief efforts and their impact on banks and the housing market.

On August 1st, Banco Popular announced the acquisition of Reliable, the Wells Fargo auto finance business in Puerto Rico. The agreement involves the purchase of ~$1.6B in retail auto loans and ~$360M in primarily auto related commercial loans. With this acquisition Popular becomes the leader of the Auto financing sector with a 49% auto loan market share and a 69% share in auto leasing.

The local banking industry as a whole registered a Pre-Tax ROE of 8.3% in Q1 2018, rebounding back to pre-hurricane levels, after dipping down to -0.6% in Q3 2017 and 1.6% in Q4 2017. All banks except Scotia posted positive Pre-Tax ROEs fluctuating from 7.6% to 11.1%. Other key banking indicators have also returned to pre-hurricane levels. The industry cost to income ratio reached 61.6% in Q1 2018 after a spike in Q4 2017 due to non-recurring, storm-related expenses. Capital adequacy metrics returned to an upward trajectory, reaching a Tier 1 Risk-Based Capital Ratio of 21.8%, providing a robust cushion for potential future losses and excess capital to acquire promising portfolios of assets for sale. On the other hand, concerns over the potential deterioration of asset quality have returned given the uptick in delinquency ratios. Moreover, in this issue, we provide a brief overview of the latest trends concerning International Banking and Financial Entities (IBEs/ IFEs). As of the end of Q1 2018, IBEs managed $50.6 billion in assets while IFEs managed 4.1 billion, jointly representing 39% of the total assets of Puerto Rico's financial sector, making them the 2nd largest player on the island's financial sector. Profitability and productivity of these entities have been on a healthy path since 2011.

More than eight months have transpired since Hurricanes Irma and Maria made landfall in Puerto Rico on September 6 and September 20 of 2017, respectively, and while some progress has been made despite myriad constraints, logistical challenges, diverse collective action problems, and a beleaguered pre-hurricane context, much remains to be done. Many local residents and organizations are still reeling from the catastrophic shock and ensuing adverse cascading effects caused by the superstorms, particularly those in more remote areas. Shortly following the hurricanes, in November 2017, V2A published the first of a series of special post-hurricane issues providing a brief overview of the pre-disaster context, lessons learned from past disaster events, expected macro and sectoral impacts of the 2017 hurricane season, and an analysis on what Puerto Rico could expect with respect to the inflow of post-disaster relief funds.1 In this critical juncture, eight months after impact, we deem it imperative to take stock of the progress made, explore the short-, medium-, and long-term outlook for the local economy and continue to survey emerging opportunities.

The local banking industry's profitability stayed in positive territory in year-end 2017, reaching an industry-wide Pre-Tax ROE of 4.6%, notwithstanding the challenging operating market conditions, characterized by an economy mired in a prolonged and deep contraction, a bankrupt government under Puerto Rico Oversight, Management and Economic Stability Act Title III court proceedings, and more recently, the devastation and ensuing cascading effects of Hurricanes Irma and María which severely disrupted the island's normal social and economic life. During the first half of 2017 local banks on a consolidated level posted Pre-Tax ROEs above 8.5%, dipping to -0.6% in Q3 2017 and 1.6% in Q4 2017. All banks, with the exception of Scotia which took the hit in Q4, incurred in high provision expenses in Q3 2017 due to anticipated hurricane-related losses, materially decreasing in Q4 2017. Despite this panorama, bank executives remain optimistic of the short-term outlook, pointing to the influx of funds from the federal government, insurance claims, and other sources propping up deposits, favorable trends in loan payment moratoriums, and construction sector lending op- portunities when rebuilding efforts pick up. Nevertheless, downside risks to economic and bank activity still loom large.

The local banking industry's profitability dove into negative territory in Q3 2017, posting a Pre-Tax ROE of -0.6%, after a modestly strong first half of the year. Most local banks, anticipating asset quality deterioration and loan losses in the aftermath of the historic 2017 Atlantic hurricane season, materially increased their loan loss provi-sions. Industry-wide credit provision expenses reached close to $300 million in Q3 2017, a roughly three-fold increase with respect to Q3 2016. Pre-hurricane asset quality had been showing improvement, but after Superstorms Irma and María, it is under threat given the adverse impact on economic activity, borrower's financial standing, and labor market conditions. Since the hurricanes hit in the latter part of Q3 2017, the quarter's cost to income ratio was not materially impacted. However, in Q4 2017, with the expected decrease in loan originations, missed loan payments, and subdued - Point of Sale - activity, income generating capacity will be restrained. On the upside, the exceedingly strong capital levels of local banks will help absorb potential post-disaster losses. This issue reviews the potential macro-impacts of the hyperactive 2017 hurricane season, as well as examines bank performance and financial condition in impacted areas post-Hurricane Katrina.