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Capital Markets in the Dominican Republic

Tapping the Potential for Development

image of Capital Markets in the Dominican Republic

This report presents a detailed analysis of the Dominican Republic’s financial system and offers a series recommendations to develop the country’s capital markets. The country has recently made big advances in the development of its capital markets, achieving high solvency in the banking sector, improving  the institutional framework for the management of public debt and experiencing steady growth in the value of both the private bond market and the assets of pension funds. However, the level of financing directed to the economy is still small, given the country’s level of development, and there are important structural challenges that need to be addressed. Both the Central Bank and the Finance Ministry issue public debt, each with different purposes, and there appears to be little coordination between the two organs in terms of rate of returns and maturity of the issued bonds. The primary market of private bonds suffers from a long and complicated issuing process that stems from coordination and communication problems among the different regulators. The bond secondary market lacks key aspects of market infrastructure. Finally, institutional investors invest mostly on public debt instruments and bonds issued by finance sector firms.

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Characteristics and challenges of the financial system

OECD Development Centre

The Dominican financial system has weathered the current international crisis thanks to its sound management of fiscal and monetary policies and the improved framework for regulation and supervision of financial intermediaries. The main challenge is to increase banking penetration by guaranteeing the solvency of the financial system. While high interest rates make it tougher for businesses to obtain credit, deposit rates are negative in real terms. It would be advisable to continue improving the regulatory framework, for instance by implementing stress-testing criteria, counter-cyclical rules for provisions and improvements in systemic risk management. Likewise, in order to improve the information and assessment of risks inherent to the financial system, it would be advisable for the Central Bank to draw up a financial stability report.

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