Panama Investor Blog

Number of bad loans increases

Looks like the local banks are starting to see significant defaults on loans although according to the Multibank, they are not at levels to cause alarm. You would think otherwise based on the statistical data over the last year. I am impressed that $565 million represents only 2.5% of the total loans outstanding. That would indicate a total loan portfolio in excess of $200 billion.

La Prensa
The value of banks loans that have been classified as "delinquent" rose almost $200 million from May 2008 to the same month in 2009, according to a report from the Superintendency of Banks.

The bad loans totaled $565 million in May of this year, a 53 percent increase from the $370 million in May of last year. In May of 2008, the amount of loans in arrears was 1.7 percent of the total loan portfolio of the banking system, but that number has now increased to 2.5 percent.

Moreover, loans that are 3 months overdue now total $92 million, a 23 percent increase.

The delinquent accounts may be related to the economic slowdown in the country, job losses and high debt, said Mario De Diego, vice president of the Association of Banks. Another industry source, who preferred not to be named, said that the increases will probably force banks to be even more cautious in making loans.

For now, the figures are not a cause for alarm, "but we have to closely monitor these accounts and maintain a conservative credit policy," said Rafael Sánchez, manager of Multibank.

 

Panama yields to pressure concerning its lax banking laws

Although this is the headline from today's La Prensa, based on what is in the story and other sources I am not so sure they will have to give up too much. Sounds more to me like placating rather than real substance. As long as corporate share holder information is kept anonymous in Panama I don't have such a problem with tax treaties and other forms of so-called "transparency". We will have to watch these developments very closely.

From La Prensa; Panama said it would make certain adjustments to its banking system recommended by the Organization for the Cooperation and the Economic Development (OECD) and the G-20 Summit leaders, which have often criticized the country for being a fiscal paradise.

Though in a formal statement the country said it acknowledged that "times have changed" and that it will no longer be able to remain "isolated within the world," Vice Minister of Economy Frank de Lima said that the new administration intends to demonstrate that Panama is not a fiscal paradise and will demand recognition of the domestic tax system.

“We will ask for the Member States of the OECD that respect that concept, but that we are conscious that we must make changes in one way or another," explained the vice minister. One change, he said, would be to follow the route Switzerland has taken through the negotiation of treaties for a more transparen exchange of tax information.

De Lima contended that Panama can no longer risk being blacklisted or subjected to sanctions, as France and the United Kingdom have threatened.

Banks in the country have also consented to change their way of business. 

Federico Humbert, president of Banco General, said it is important that the banking community understand the economic impact of the OECD pressure and explained that it “would be irresponsible” not to take appropriate actions.

“We at Banco General have already adopted stricter measures to be able to eliminate the obsolete principle of the anonymous client that is protected in joint-stock companies," said Humbert. "We will be adapting other policies to better identify the client."

Here is another article from La Prensa that was in Spanish. It has a little more information.

Panama is ready to sign agreements to exchange tax information with the Organization for Economic Cooperation and Development (OECD) and thus avoid being subject to penalties or back to "blacklist" of countries that are considered "tax havens".

  The deputy economy minister, Frank De Lima, reported that there is still no official position, but "the path that could take" is the same as in Switzerland and other countries negotiating treaties for information exchange.

  "Panama is not a 'tax haven', businesses pay taxes under a concept of territoriality, but it is necessary to take decisions because we can not maintain the status quo," he said.

France, United Kingdom and other OECD member countries are advocating that sanctions be applied to so-called "tax havens".  If that happens, will affect about 80% of Panamanian exports and a significant percentage of the $ 7.9 billion of foreign deposits.

  For Federico Humbert, president of General Bank, are "unacceptable" statements "that provide an alternative simply does not do anything" and argued that the public is informed of the implications of these sanctions.

General Bank eliminated the opening of accounts at companies whose capital is issued in bearer shares, which is another issue that is in the sights of the OECD.

  Edward Morgan, one of the permanent Panamanian defenders of the tax system is not opposed to signing an agreement to avoid double taxation, but the exchange of tax information, which only takes colonies or countries that do not have a center as the financial Panama.  "It would be absurd and unworthy of signing a treaty of tax information would be one way in which the country did not win anything but lost," he said.

  Osvaldo Lau, tax consultant, believes that it is not transparent to protect those who have not complied with the laws of your country.  "We must have clear rules to give financial information on the country to ask, but where the legal route," he said.

SEE Panama is ready to change to the OECD

OECD blacklist of Panama threatens corporate share disclosure

The banking privacy issue continues to be a burr under the saddle of the G8 countries who are concerned that billions in taxes are being hidden away in Panama's numerous banks. It looks to me like Panama is left with little wiggle room as numerous sanctions are being threatened if Panama does not comply completely with the OECD requirements. This article from La Prensa says that the corporations and maritime industry are under threat by these requirements which would seem to indicate that pressures are mounting to force disclosure or corporate share ownership. This is a sad development and could spell disaster for a number of income sources the country currently enjoys at a time when it is all most needed.

Excerpts from La Prensa: The governments of the United Kingdom and France are determined to ensure that sanctions are applied to countries they consider "tax havens," including Panama.

Those countries pressed for the sanctions at the "G8" meetings yesterday. They have also been threatening to blacklist Panama and other countries through the Organization for Economic Cooperation and Development, a Paris-based group that, in part, tracks regulations that are enacted by offshore financial jurisdictions.

Bank loans fall by 3 percent

According to bankers, the drop in loans has more to do with credit tightening by the banks rather than demand. According to these numbers in La Prensa, even though over loans are down only 3% certain sectors are down by between 20-30%.

La Prensa

Banks issued $1.4 billion in new loans in January, a decrease of 3 percent or $40 million over the same period in 2008.

There was also a decrease in bank deposits, which fell $74 million compared to December. Loans to farmers experienced the largest decrease, falling by about 50 percent. There was also a 26.5 percent decrease in loans to livestock producers.

Industrial loans and construction loans were also down by 31.3 percent and 21.3 percent respectively, while personal loans fell by 10.6 percent.

The general manager of Banco de Bogotá, Fabio Riaño, said that the drop is due to “the prudent behavior of banks.”

Is Panama having a run on the banks?

I have received a number of emails from readers over the last few days asking if I have heard anything about banks possibly closing in Panama. Other than the number of emails asking me the question, I had not heard anything until today when the Panama Star came out with this article about the banks receiving significant withdrawals from account holders. I would bet these have more to do with the rumors than fact at this stage, but loss of confidence is all it take to really cause bank problems.

Excerpts:

More people are taking out their money from banks as they begin to lose confidence in Panamanian financial institutions

Panama Star PANAMA. The Panamanian banking system appears to be solid, but rumors about the financial global crisis and fraud scandals like the one that provoked the temporary closure of Stanford Bank are taking their toll.

Certain financial institutions such as the Banco General, have been affected by the negativity in the air and account holders have pulled out more money than usual over the last few days.

The Panama Bank Superintendent, Olegario Barrelier, giving declarations from the United States, after receiving e-mail and phone calls from all over the world, said emphatically that no Panamanian bank is at risk of becoming insolvent or is under suspicion.

Barrelier said that it was a worrying situation, because the Bank Superintendent has issued a number of press releases to calm down the account holders, but the releases have had no effect whatsoever.

Read the whole story here...

Banks see more than 50% increase in bad consumer loans

As the economy slows down in Panama the banks begin to see the effects of too much lending. As this article in La Prensa points out, loan defaults are on the rise and the banks are being advised to tighten credit and get their balance sheets in order. This may be much higher than reported because the last statistical data comes from December. Extrapolating the data from September to December of a .7% increase we could be seeing well over 5% today.

Excerpt: According to statistics, delinquent and past-due loans accounted for 2.4 percent of the total loan portfolio held by Panama's banks in June 2008. In September, that figure rose to 2.7 percent, and in December, it increased again, to 3.4 percent.

Read the article here.

Where is a safe place to put my money?

Almost everyday I 'm asked that question. Being a successful inventor, developer and blogger, many people think I might know something they don't about protecting my wealth. Well, the fact is that I do know something about it and I want to share it with you. I truly believe if you fail to take action to protect your wealth soon, you may lose whatever you have managed to accumulate.  I don't usually promote anything but me on my blog site, but the world economic situation is getting so dire that I feel remiss if I don't share this new discovery with my readers.

My answer on how to protect wealth, big or small, is to buy gold. Of course gold is not new, but the way you can buy, own and store it is. There are many reasons I can site about why gold is the safe place to protect your wealth, but the fact that gold is increasing steadily in value against all currencies should be good enough reason for now. I believe that all currencies will soon fail and only the precious metals will hold their value as they have done over the centuries. Gold buyers have been rewarded in the last few years with significant gains while all other forms of investment have faltered. Now more than ever I advise my family, friends and anyone who asks me, to buy gold and store it in a safe place.

Wheres a safe place? I have had some very wealthy friends who say that storing gold in any quantity is dangerous, expensive and difficult to liquidate, and in the past they were right. I have held pool accounts with various private companies and government mints over the years and it is a real pain to buy and sell. Today I find that the mints will not sell direct less than $500,000 and then it is kept in an unaudited and unallocated "pool account". If you want physical deliveries you can wait months and the transaction or minting fees are prohibitive.

But as gold has become a much sought after haven in recent years, entrepreneurs have come up with a convenient and safe way to buy, sell and store any portion of numbered gold bars OFFSHORE in one of three secure vaults that are audited daily. Now, I  buy gold on the London Exchange and store it in  a Swiss vault with a mere push of a button on the Internet at a very low transaction fees. When I need cash I just reverse the procedure and the money is wired to my bank account within just a few days. I can go online and view an audit of my gold held in storage that is allocated to my account with the serial numbers of the 400 ounce bar I own a part of.

The fact is I sleep better knowing my money is held in gold than in dollars, pesos, balboas or anything else I can wad up and stick in my pocket. I don't worry about the price of gold each day. I care more about the value of the dollar against the gold because it is a yardstick for how sick our economy really is.

If I can encourage you to do one thing right now, no matter how few or many dollars you might have, put some or all of it into gold. You will sleep better and really protect your wealth. And if you want to learn more about how I do it in a safe, secure and easy way, continue reading.

Bank confidence slipping?

Although as I wrote in an earlier post, consumer confidence is still high, this is apparently not the case for those involved in Panama's banking sector. On the face of it a emergency stimulus plan sounds like a good idea, a $1.1 billion dollar "first phase" stimulus plan is only put in place when things aren't going so well.

Excerpts: from Latin Herald Tribune:

President Martin Torrijos presented a $1.11 billion stimulus program intended to insulate Panama's economy from the worst effects of the global downturn.

Torrijos insisted the stimulus plan was not "a program of subsidies or financial bailout" but an initiative to "ensure stability and growth with the aim of maintaining the employment and economic activity achieved in recent years."

He also stressed that the stimulus package would not increase public debt.

The $1.11 billion for what Torrijos called the first phase of the program is to come from state-owned Banco Nacional de Panama, the Andean Development Corporation and the Inter-American Development Bank.

"Panama is better prepared than at any other time in his history to face a situation of this nature: ample and growing reserves in the BNP; liquidity levels in the banking system beyond what is required by law; a budget surplus for the last three years; public and private investment projects that will implemented in the coming months, including the canal expansion, and greater income for Panamanian consumers," Torrijos said.

He acknowledged, however, that the Central American nation could not completely escape the effects of the world recession. EFE

Panama Banks credit/deposit statistics

According to La Prensa, Panama’s banking sector experienced significant growth in both loans and deposits.

The total credit portfolio amounted to $31.1 billion, a growth of 20.8 percent compared to September 2007, while total deposits amounted to $37.5 billion, an increase of 24.1 percent. Credit to the private sector was $21.2 billion, a 19 percent increase from 2007.

Banking officials said that the most important statistic is that there does not appear to be any deterioration in the quality of the local banking portfolios.

How does the financial crisis affect Panama banks?

I have had a number of emails in recent weeks asking me about the stability of the banks in Panama. This report by the bank superintendent may help answer some but certainly not all of those questions. Although he expresses his concern regarding exposure to foreign buyers of condominiums, the relative exposure of $3 billion for 5400 units is fairly low when compared to their deposits. What he did not address (Which is really not his concern yet) is what happens to the other 30-40,000 units that have not received construction financing. The real risk to Panama banks is what will happen to the 50,000 construction workers who depend on those other buildings in order for them to make the payments on their low income houses, credit cards and cars that the banks have exposure to. That may not be known for another 6-12 months after these first units are delivered. IMO

This is a machine translation of the report to the National Assembly by the superintendent of banks on the financial risks to those institutions. Free zone credit lines, consumer credit cards, and condominiums sold to foreigners are of greatest concern according to the super.  The original Spanish version follows.

REPORT. SUPERINTENDENT REPORT TO FULL  NATIONAL ASSEMBLY.
Olegario Barrelier did a tally of how it might affect the banking system if we enter a global recession.

The total assets of the international banking system amount to $75 billion.
castillo@prensa.com

Panama sits in a strong position with the current financial crisis, which hopefully will finished before the $14 billion in liquidity is exhausted, in the event that the banks were unable to obtain funds abroad.

In addition, the Government could make a decision of state to resort to credit lines with international agencies or using local reserves, such as the Trust Fund, to support the banks.

This would be the worst case scenario in the event that the crises is draining the banking system, according to the Superintendent of Banks, Olegario Barrelier,  to questions from deputies in the plenary of the National Assembly.

The official said that previously the government has had open lines of credit with multilateral agencies, but there has been no need to use them and they are aware that the Ministry of Economy and Finance manages a contingency line of credit with the International Monetary Fund.

The banking system has exposure to $115 million in U.S. organizations concerned with the credit crisis, which when compared to the $51 billion dollars of total assets of the banking system or the $75 billion of the entire international banking center, "is very a low percentage". The official clarified that those investments were with the bankrupt investment bank Lehman Brothers, but it is unknown how much the loss is exactly.

IMPACT

With the level of local and foreign deposits, banks have the necessary capacity so that the loss does not diminish their overall credit. However, Barrelier mentioned that there are risks in several areas in the loan portfolios of foreign trade, consumption (including credit cards) and in the interim loans to construction.

FREE ZONE
For example, adversely affected economies of countries in the region that buy from the Colon Free Zone, could delay payments to commercial enterprises operating in the zone, and this in turn could affect the repayment of which gives them banking credit.

CREDIT CARDS
With credit cards, he said that the risk is minimal for the banking system as such, because the additional debt that consumers could receive is only $400 million, which is a relatively small amount with regard to total assets ($75 billion), but it is enormous with respect to consumers, who could borrow to buy things they do not need. (See my commentary on credit card debt)

CONSTRUCTION FINANCING
With regard to the sector participation in financing construction, he reported that there are developing projects worth approximately $4.3 billion, of which banks would be participating with a funding of $2.685 billion (62.3%). The danger, warns the Superintendency, is concentrated in 5488 housing units out of the 18,000 homes that are targeted at foreign buyers. "The vulnerability that we see is that if the economy in the countries of those buyers suffered a severe deterioration, it could be that some of them-or-many of them decide to abandon the purchase in Panama, in which case we could see a number of apartments that could depress the real estate market, "said Barrelier.  5448 apartments, represents nearly $3 billion being financed by foreign banks which are branches of their parent companies and the rest by 8 local institutions whose risk for the superintendency, "is relatively well dispersed." In the worst case, the assignment would be up to 3% of the assets of the national system.