For banks, Panama’s exit from gray lists is an “imperative”

RIO DE JANEIRO, BRAZIL – The slow economic recovery of Panama in the midst of the crisis derived from the pandemic is beginning to be felt in the banking sector, which has “positive” perspectives but understands as an “imperative” to get the country out of the gray lists and to maintain the rules of the game that allow free interest rates.

The gray lists “affect the whole country”, but its impact “is felt first in the banking sector, it enters the country through the banking sector”, said in an interview with Efe agency, the executive president of the Panama Banking Association (ABP), Carlos Berguido.

Panama remains on the Financial Action Task Force (FATF) lists and the European Union (EU) for deficiencies in the fight against money laundering. The authorities assure that there have been important legislative and technical advances in the matter in the last years, but these are being ignored.

Berguido acknowledged that these advances fall short, that “there is a lack of will”, but he was convinced that “whatever time it takes, as a country we will rise to this challenge because we will understand that this list is very harmful to Panama because it scares away investment, it makes the investment that is already there leave, with all that this means in terms of employment and welfare”.

For the banking system, he added, remaining on the gray lists means “the possibility of losing the connecting vessels with the international banking system, which is the one that gets us deposits and financing”.

“It is an imperative, we have to do as a country everything necessary to get off the lists and stay off them”, because “they affect the reputation” of Panama, which was already “hit by the infamy that was the Panama papers”, the scandal of offshore companies that broke out in 2016 and made many correspondent banks leave the country.

THERE ARE SIGNS OF CREDIT RECOVERY

Panama’s gross domestic product (GDP) collapsed 17.9% in 2020 and 8.5% in the first quarter of this year, while unemployment more than doubled to 18.5% and informality exceeded 52%.

This scenario was reflected in the banking sector with a drop of 45% in profits and 4.4% in the loan portfolio in 2020, and 32% and 3.1%, respectively, in the first quarter of 2021.

These adverse results did not affect the solvency and liquidity of the system, composed of 68 institutions, thanks to “prudent regulations”, according to the Superintendency of Banks.

Berguido affirmed that “a new awakening is already noticeable” for example, “in the new housing loans that were granted in June, since they equaled the figure of February 2020, the month before the beginning of the pandemic, which, indeed, it had already been slowing down.”

Moreover, this improvement in loans has to do with “those steps that are being taken towards the reopening of the economy, which, yes, it is true that it is going slowly, but it is going, ” and “the negotiation with debtors who took advantage of the moratorium on their credits and who have agreed with the bank’s conditions to honor them has been substantially improving,” he added.

“The willingness to lend (of the banks) is there, what we need is that the economy does not stop again, that we let it go, that the market mechanisms are allowed to pick up the pace again,” Berguido said.

In this sense, the executive president of the Banking Association warned that a legislative proposal that seeks to fix interest rates would be “disastrous for the desired economic recovery”, calculated between 8% and 12% this year by international organizations.

Fixed interest rates in a country with an economy anchored to the dollar and without a central bank, as is Panama’s, “is dangerous, it takes away a lot of our attractiveness as a financial center because it disables us to exercise intermediation”, warned Berguido, who recalled that this issue is already a “lesson learned” in the 1980s.