Panamanian banks are extremely conservative with their mortgage loans. Mortgage loans are always highly documented and the bank’s loan committee personally analyzes each and every loan. The banks require borrowers to put 30% down payments, complete and sign mortgage applications, provide substantial documentation to prove income sources (tax returns, bank statements, letters from employers, etc.), and the bank does their own independent appraisals on the property used as collateral. In addition, the banks in Panama impose price limitations on what they will finance. For example, if a buyer is purchasing a unit for $2,500 per square meter, the banks will only finance up to $1,500 per square meter, plus the buyer has to put up a 30% down payment. This limits the risk of the bank, so if the bank has to foreclose, they can sell the property quickly through a judicial foreclosure. In addition, the buyers must purchase a life insurance policy to cover the total value of the loan. Fire and mortgage insurance are also required, so the banks run very little risk. Unless the borrower has an excellent long term relationship with the bank, banks will generally only issue one loan per applicant, for personal residence purposes only, which limits speculators.
2. Panama banks are very conservative in financing real estate development projects. The banks will generally only finance from 50% to 70% of the construction value. The banks will not finance the land or any soft costs. In addition, the banks require the developers to pre-sell up to 60% prior to the loan disbursements being made. Not only is the land collateral on the loan, but the owners / directors of the development companies must provide financial statements of all their personal assets and personally sign off all their personal assets as a guarantee on the construction loan. This is a big incentive to ensure that developers will be responsible.
3. Panama banks do not sell their loans. Panamanian banks issue and service their own loans. Banks do not sell their loans as securities, or sell their loans to other banks. In addition, banks do not work with mortgage brokers the same way that they do in the USA. Mortgage brokers do not collect residual incomes from bank loans here. The mortgage brokers generally charge the borrower a flat one time fee or a small percentage of the loan amount at the closing, and that's it.
4. Panama banks are highly liquid. Because Panama does not impose taxes on interest income or foreign (non-Panamanian) income, it is considered a “tax haven”, which is why millions of people from around the world deposit their savings in Panamanian banks. In addition, with the Panama Canal shipping industry, and the huge free trade zones located here, thousands of international businesses located here run billions of dollars in shipping and import-export transactions through Panamanian banks. Plus, Panamanian banks pay better interest rates on savings accounts and time deposits in US Dollars than the US banks do.
5. The banks in Panama did not invest in the USA sub-prime securities, so they were not affected by the sub-prime debt crisis.
6. Panama banks are booming. Panama’s Superintendent of Banking recently reported that Panama banks net accumulated assets increased by 24.5% in August 2008 compared to the same period of the previous year. External interbank deposits increased by 40% over the past 12 months.
7. Panama’s economy is strong. The infrastructure is growing with the Panama Canal expansion, new refineries, oil pipelines, new hydroelectric plants, more highways, a new free zone constructed in the former U.S. air force base in Howard, etc. All of these investments are bringing international buyers to Panama purchasing real estate and starting new businesses. The political problems in Venezuela, Bolivia, Ecuador, Nicaragua and throughout Latin America are forcing wealthy business people from those countries to Panama to live, invest, and do business. Retirees from the USA, Canada, and Europe are moving to Panama because their countries are too expensive to retire in. The IMF has predicted that Panama will be the fastest growing economy in Latin American in 2009.
8. Although inflation reached a record high of 8% in 2008 due primarily to high fuel costs, the local Panamanian economy grew at a rate of almost 10% in 2008, and economists expect 2009 to be almost the same.
9. Employment in Panama is at records highs. The current rate of 6.4% compared to an 8.8% rate in 2007 shows a strong local economy.
In conclusion, Panama will feel the effects of the global crisis and recessions in the USA and Europe, but it is positioned to handle the crisis well and weather the storm.________________________________________PANAMA’S BANKS REMAIN
2. Panama banks are very conservative in financing real estate development projects. The banks will generally only finance from 50% to 70% of the construction value. The banks will not finance the land or any soft costs. In addition, the banks require the developers to pre-sell up to 60% prior to the loan disbursements being made. Not only is the land collateral on the loan, but the owners / directors of the development companies must provide financial statements of all their personal assets and personally sign off all their personal assets as a guarantee on the construction loan. This is a big incentive to ensure that developers will be responsible.
3. Panama banks do not sell their loans. Panamanian banks issue and service their own loans. Banks do not sell their loans as securities, or sell their loans to other banks. In addition, banks do not work with mortgage brokers the same way that they do in the USA. Mortgage brokers do not collect residual incomes from bank loans here. The mortgage brokers generally charge the borrower a flat one time fee or a small percentage of the loan amount at the closing, and that's it.
4. Panama banks are highly liquid. Because Panama does not impose taxes on interest income or foreign (non-Panamanian) income, it is considered a “tax haven”, which is why millions of people from around the world deposit their savings in Panamanian banks. In addition, with the Panama Canal shipping industry, and the huge free trade zones located here, thousands of international businesses located here run billions of dollars in shipping and import-export transactions through Panamanian banks. Plus, Panamanian banks pay better interest rates on savings accounts and time deposits in US Dollars than the US banks do.
5. The banks in Panama did not invest in the USA sub-prime securities, so they were not affected by the sub-prime debt crisis.
6. Panama banks are booming. Panama’s Superintendent of Banking recently reported that Panama banks net accumulated assets increased by 24.5% in August 2008 compared to the same period of the previous year. External interbank deposits increased by 40% over the past 12 months.
7. Panama’s economy is strong. The infrastructure is growing with the Panama Canal expansion, new refineries, oil pipelines, new hydroelectric plants, more highways, a new free zone constructed in the former U.S. air force base in Howard, etc. All of these investments are bringing international buyers to Panama purchasing real estate and starting new businesses. The political problems in Venezuela, Bolivia, Ecuador, Nicaragua and throughout Latin America are forcing wealthy business people from those countries to Panama to live, invest, and do business. Retirees from the USA, Canada, and Europe are moving to Panama because their countries are too expensive to retire in. The IMF has predicted that Panama will be the fastest growing economy in Latin American in 2009.
8. Although inflation reached a record high of 8% in 2008 due primarily to high fuel costs, the local Panamanian economy grew at a rate of almost 10% in 2008, and economists expect 2009 to be almost the same.
9. Employment in Panama is at records highs. The current rate of 6.4% compared to an 8.8% rate in 2007 shows a strong local economy.
In conclusion, Panama will feel the effects of the global crisis and recessions in the USA and Europe, but it is positioned to handle the crisis well and weather the storm.________________________________________PANAMA’S BANKS REMAIN
STRONG
Reuters news service recently reported that Panama’s Superintendant for Banking, Olegario Barrelier, said liquidity in Panama's banking sector stands at around 58 percent of deposits, with manageable exposure to international markets pounded by the U.S. credit crisis.
According to Mr. Barrelier: "At the moment our banks are good, very good. They are healthy, they are liquid, capital is nearly double what is required. They are being financed by local deposits and are not dependent on external financial markets."
Panama is home to over 90 international banks’ making it one of Latin America’s largest banking centers. HSBC, CitiGroup, and Spain’s BBVA are among Panama’s biggest international banks.
Panama has no central bank, no Federal Reserve, or lender of last resort as in other countries requiring the banks to stay highly liquid. That is why Panama banks have a 58% loan to holdings ratio making them strong. The problem with the U.S. banks is that they loaned too much (especially mortgages) and had to beg for billions of dollars in federal aid to stay afloat. Even then, several large U.S. banks either closed or were swallowed by other banks.
While Mr. Barrelier admits that the global economic crisis will affect Panama, it will be more of a slowdown of the local economy rather than damage to the country’s financial system.
Since January Panama banks have been encouraged to tighten credit in order to cool the expanding annual inflation which is nearly 10 percent. This is more a reflection of the declining U.S. dollar which Panama’s monetary system is based on.
Panama’s economy is expected to grow by 9.5 percent this year.
Reuters news service recently reported that Panama’s Superintendant for Banking, Olegario Barrelier, said liquidity in Panama's banking sector stands at around 58 percent of deposits, with manageable exposure to international markets pounded by the U.S. credit crisis.
According to Mr. Barrelier: "At the moment our banks are good, very good. They are healthy, they are liquid, capital is nearly double what is required. They are being financed by local deposits and are not dependent on external financial markets."
Panama is home to over 90 international banks’ making it one of Latin America’s largest banking centers. HSBC, CitiGroup, and Spain’s BBVA are among Panama’s biggest international banks.
Panama has no central bank, no Federal Reserve, or lender of last resort as in other countries requiring the banks to stay highly liquid. That is why Panama banks have a 58% loan to holdings ratio making them strong. The problem with the U.S. banks is that they loaned too much (especially mortgages) and had to beg for billions of dollars in federal aid to stay afloat. Even then, several large U.S. banks either closed or were swallowed by other banks.
While Mr. Barrelier admits that the global economic crisis will affect Panama, it will be more of a slowdown of the local economy rather than damage to the country’s financial system.
Since January Panama banks have been encouraged to tighten credit in order to cool the expanding annual inflation which is nearly 10 percent. This is more a reflection of the declining U.S. dollar which Panama’s monetary system is based on.
Panama’s economy is expected to grow by 9.5 percent this year.
Panama has a history of low inflation. Between the years 1955 to 2000 Panama’s annual inflation rate only averaged 2.4%. During the 1990’s inflation only averaged around 1% per year. The past 30 years annual average inflation has only been 1.4% making which was much lower than the United States and other major countries.
Panama’s economic growth over the past several years will continue inspite of the global economic meltdown. In 2007 Panama had one of the fastest growing economies in the world increasing by 11.2% from the previous year. Panama’s GDP is expected to grow by 9.5% this year. Our annual GDP growth rate was 8.6% during the past four years. The Panama Canal generated more than $1 Billion in toll revenues in the 2006 fiscal year.
To Summarize, Panama’s banks are strong with high liquidity. Couple that with Panama’s economic growth nearly balances a slightly higher inflation rate. Combine all of this with the history of Panama’s low inflation and economic growth and you get a country with enough economic strength to be able to weather the current global economic storm.
IN CONCLUSION, Inspite of the mortgage and banking crisis in the United States causing giant U.S. banks to close or being bought out, Panama’s banks and economy are weathering the financial storm.
