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Panama’s biggest banks Capital($m) Capital/asset (%) Assets ($m) Bladex 543 10.9 4980 Banco Nacional de Panama 506 14.5 3493 Banco General 143 8.8 1621 Banco del Istmo 121 9.1 1335 Pribanco 98 8.8 1118 Banco Continental 71 9.3 765 Caja de Ahorros 96 14.7 655 Bancomer 39 7.3 532 Bipan 39 10.1 387 Source: Superintendencia de Bancos Geography throws Panama in with Central America, but the country is different from its northern neighbours in several important respects (and technically speaking does not form part of Central America). First, it is a large offshore financial centre where banks can set up business easily, pay no income tax and are able to maintain client confidentiality. This means that although the suburbs of Panama City look little different from those of any Central American city with their low-rise housing, narrow streets and former US school buses painted with vivid designs, the centre of the city is packed with skyscrapers.
Panama is the place that Latin Americans have long visited to indulge in activities they are not permitted to carry out at home, including not only private banking but also gambling and other leisure activities. Its permissive reputation, along with the fact that the country is a major shipping centre and home to the world’s most important canal, has given the country a much more cosmopolitan flavour than any in Central America proper.
The other obvious difference is monetary policy. Panama uses the dollar as its official currency. The government sometimes remembers to call it the balboa – a fig leaf to monetary sovereignty – but everyone else in the country calls it the dollar. Dollarization has given the country low inflation and has allowed companies and individuals to borrow much more easily than anywhere else in Latin America, at maturities of up to 10 years – and more for mortgages.
What Panama does have in common with Central America – and the rest of Latin America – is a history of economic protectionism and state ownership. However, over the past decade the state’s retreat from the economy has been rapid. The government has sold majority stakes in many state companies including electricity and telephone utilities and two businesses that are of great importance in Panama, horse racing and casinos.
Progress on reform may now slow following the surprise election last month of Mireya Moscoso as the country’s next president. But she must work with an opposition congress and is unlikely to carry out any policies that seriously jeopardize the country’s economic performance. “Her only commitments which worry some people are to raise minimum salaries and to keep the water company in state hands,” says Jorge Rosanía, general manager of the Panama operation of Lafise, a brokerage and corporate finance house. “But these things are not crucial for the economy and I don’t think we will see any big changes.”
Privatization has not so far been used to bolster the stock market, which remains underdeveloped. Unlike its counterparts in Central America, Panama’s stock market is mainly a private market where local companies raise debt. Only in 1997 did the government begin to sell its own paper in the domestic market in an effort to create a deeper market.
According to Felipe Chapman, executive vice-president and general manager of the stock exchange, the market’s average maturities are between five and seven years and the main buyers are local banks and insurance companies.
Equity remains a small part of the market but is much more important than on Central American exchanges. The market capitalization of the 30 companies listed on the exchange stands at some $3.6 billion, with daily turnover of around $500,000, compared with $3.4 million for the exchange as a whole. “Our strategy is to increase listings by promoting the liquidity of the market,” says Chapman. “That will come in part from stronger regulation – and parliament is now discussing a new securities law – and partly through strengthening our systems. We now have the legislation in place which will allow us to create a central depository and we will have installed an electronic trading system by the end of the year.”
But for the foreseeable future it will be banking, not the capital markets, that dominate finance in Panama. A new banking law approved in 1998 is designed to strengthen the banking system without endangering the conventions of secrecy that form part of Panama’s attraction as a financial centre. The law has established a new bank regulator with greater autonomy. It prevents banks from having more than 25% of their credit portfolio concentrated in one customer and it raises minimum capital requirements from $1 million to $10 million.
Panama’s banking sector is much larger than all of Central America combined. Total banking assets in 1998 were worth just under $37 billion according to regulator the Superintendencia de Bancos. Most banks, both Panamanian and foreign, have capital in excess of 8%. The largest bank by both assets and capital is Banco Latinoamericano de Exportaciones (Bladex), followed by the state-owned Banco Nacional de Panama.
