On the viability of agricultural development banks : Banco Agricola de la Republica Dominicana

An unfavorable macroeconomic environment has penalized the bank"s earnings while agricultural sector policies have penalized the bank"s customers. Government and international donor targeting of credit to high-risk and default- prone clientele have further weakened incentives for the bank to incorporate internal administrative procedures and practices to protect its financial viability. This review of BAGRICOLA"s recent performance begins with an examination of the Dominican Republic"s deteriorating macroeconomic environment, increasing fiscal and current account deficits, and highly fragmented financial markets. The report then assesses BAGRICOLA"s own financial status, which is characterized by operating losses, and a growing number of delinquent loans, exacerbated by erosion of the real value of its outstanding portfolio due to inflation. Systematic analysis of BAGRICOLA"s nonperforming loan portfolio underscores the inappropriate and misleading delinquency and default indicators used by the bank and the role of the government and international donors in aggravating this problem. The final section presents guidelines for the bank, the government, and donors to allow BAGRICOLA a reasonable set of options for gaining greater financial viability. (Author abstract, modified)