Panama Investor Blog

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.
[email protected]

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.

Panama's public debt jumps 3.8 percent

According the ministry of economy and finance, the public debt has grown by 3.8% or over $400 million mostly due to increased borrowing from the IDB and the World bank. This puts Panama close to the $11 Billion dollar mark in debt before the significant borrowing for the canal expansion begins to take place. They have reduced debt with the IMF and expect to have the last of a $1.5 million paid in full this year. My bet is so it can apply for further loans from the organization.

Excerpt; Panama owes $287 million to the World Bank (WB) and another $933 million to the Inter-American Development Bank (IDB). During the past eight months, the country’s debts with these institutions have increased by $70.3 million and $42.2 million, respectively.

Fire Sale At Bear Stearns And Panic At The Fed

Hey, aren't these the same guys that financed the Trump Tower for $200 million? Now JP Morgan holds the paper. Lets just hope the feds can continue to salvage this financial house of cards.

Sunday evening,  JP Morgan Chase announced its purchase of  Bear Stearns at $2 per share after it had closed at $30 on March 14, and the Federal Reserve announced yet another emergency credit facility.

Shareholders of Bear Stearns     (nyse:       BSC -        news     -            people     ) were lucky to get anything for the firm. JP Morgan     (nyse:       JPM -        news     -            people     ) Chief Executive James Dimon, eager to get his hands on Bear Stearns' brokerage business, may ultimately have built the scaffolding for his own hanging.

Read the whole story on Forbes....

Panama banks overexposed on consumer loans

The economic danger in Panama lies in their banking exposure to local consumer debt more than to foreign speculators buying property in the city. Although the banking superintendent may take comfort in this fact, any down turn in real estate sales and and ultimately construction would mean high defaults on local consumer loans. In their zeal to spread the wealth, the banks have given many loans for cars and credit cards to anyone with a job and in an overheating market that can be dangerous. Here is what La Prensa has to say about it today.

Banks queried on loans

Banking officials are waving red flags about the level of consumer debt in Panama.

According to the Superintendencia de Bancos de Panama's (SBP) 2007 annual report, interest payments paid by consumers last year totalled more than $2.7 billion, which is about 45 percent of consumer earnings.

"The level of this indicator is far above the ideal, which is 25 percent," SBP President Olegario Barrelier said.

Also of concern is the pace of growth experienced by some segments of the credit market. Car loans, for example, have grown 37 percent annually over the last three years. The number is troubling because defaults on those loans doubled between 2005 and 2007, from 2.25 percent to 4.5 percent.

"I think someone is not doing their job here," Barrelier said. "We must apply more conservative policies in making loans."

The banking superintendent was much more positive in his assessment of the country's mortgage loans, saying that banks appeared to be staying away from financing real estate speculation.

He pointed to statistics which showed that the majority of loans issued by banks were for less than $62,500.

"It appears as though banks are not funding the buying of apartments for investment purposes,"  Barrelier said.

He said that this will make Panama's financial institutions much less vulnerable to potential problems if the country's real estate market experiences a drop in prices.

Panama Banking sector in good health

According to the superintendent of Banking in Panama, things are just fine.

Panama, February 27, 2008

Banking sector in good health

Marianela Ramsbott Palacios [email protected]

The superintendent of banks, Olegario Barrelier, said yesterday that the portfolio of credits to the construction and mortgages enjoys good health, thanks to the fact that the banks are handling those portfolios in a conservative way. For example, they are not financed to promoters of real estate projects with values superior to $1400 dollars per square meter in the metropolitan area.

They leave from the premise of which the projects of area reduced (90 to 110 meters) with high cost (2 thousands to 4 thousand dollars per meter) are made generally to speculate. "Like policy, they are not financing purchase of apartments for investment", he said.

62% of the total amount of mortgages that were granted in 2007 belong to houses which they benefit from the preferential interest, that is to say, which they are worth 62 thousand 500 dollars or less. But if one is moderate by clients, the relation is still greater: 90% of the total. T

he banks that lead the mortgage business are General Bank and HSBC, with a quota of the market of 31% and 28%, respectively. As far as the commercial credits, one stands out that the dilatoriness of the loans to the wholesale trade lowered of 9% in 2006 to 6% in 2007 and the one of the retail commerce it fell from 4% to 3% in the same lapse.

Panama banks real estate exposure considered high

Although the country has received a high rating by the agencies, Panama's banks are not in such a solid position according to this CNN Money story

While Panama's overall economic situation has improved, major banks face several structural challenges, including their important exposure to domestic real estate, relatively low potential for retail loan growth, and high loan-to-deposit ratios.

Major banks in Panama have loan-to-deposit ratios of more than 100 pct, which is a challenge in terms of funding and price flexibility, S&P noted.

Concerns over the banks' exposure to the fast-growing real estate because the sector, making the country's financial system vulnerable to a downturn in the real estate market.

Read the whole story here....

Fitch Assigns HSBC Bank (Panama) 'BBB+

The Rating Outlook is Stable.

HSBC Bank Panama's (HBPA) and Primer Banco del Istmo's (PBI) Issuer Default Ratings reflect the potential support from its ultimate parent - HSBC Holdings, rated 'AA' by Fitch - given its key role in HSBC's regional strategy; the IDRs are constrained by Panama's country ceiling. HBPA's and PBI's individual ratings reflect its strong local franchise, significant market share, improving revenue diversification and competitive position. They also factor in the challenges inherent in the ongoing merger between the two institutions, the harsh competitive environment, the narrowing margins and the slim capital base.

Read the rest of the story at  Tradingmarkets.com

Panama bank financing explained on video

For those who want to know what is required in order to get bank financing in Panama, this representative from Banco General gives you the skinny in English no less.

Click here for the video in English...

Click here for Spanish version...

Crossborder Finance Explodes

One of the main drawbacks to buying real estate in Panama is that the banking system is so slow and antiquated when it comes to making loans to foreigners that many just give up. I hear countless stories of the difficulties in just securing a 50% loan after getting a quick approval by a local bank. This may change in the next year as more private companies may start offering mortgages based on assets bank in  the buyers home country with the foreign property only needing a lien until the loan is paid off. Here is an article from the Latin Business Chronicle about how the opening up of the cross border financing has boosted sales in Mexico.

Excerpt; Thanks to new strong demand and new regulations, available mortgage financing from U.S. lendors in Mexico will reach $400 million this year. That's four times the amount last year, says Rogerio Basso, a Miami-based Latin America specialist for Ernst & Young’s hospitality and real estate advisory service.