Financial Crime World

Panama’s Banking System Shows Resilience Amidst Economic Recovery

Economic Downturn and Government Support

Panama’s financial sector has emerged stronger than ever, with a robust banking system that boasts solid balance sheets and minimal exposure to complex financial instruments. Despite facing challenges during the COVID-19 pandemic, the country’s banks have consolidated their position, showing high liquidity and capital ratios.

The pandemic had a significant impact on Panama’s economy, with GDP growth dropping to -17.8% in 2020. However, the government introduced measures to mitigate the effects, including Law 156 of 2020, which provided a moratorium for bank customers affected by the pandemic. The Superintendency of Banks of Panama (SBP) also issued Agreement No. 2-2020, allowing banks to adjust loans due to COVID without considering them as restructuring credits.

Banking Sector Recovery

As the economy recovered, commercial activity picked up in Panama, and the banking sector has steadily consolidated its position. The SBP reported that as of June 2022, Panama’s banks showed high liquidity and capital ratios, with a liquidity ratio of 57.9%. Non-performing loans were at pre-pandemic levels, consistent with borrowers’ strong payment culture.

Challenges Ahead

Despite the progress made, the Superintendency of Banks of Panama is cautious about potential challenges ahead, citing increasing inflationary pressures and geopolitical tensions as well as the termination of government-backed financial relief measures. This may lead to a downturn in credit quality, resulting in an increase in loan losses and non-performing assets.

Compliance with International Norms

Panama has made significant efforts to improve its compliance with international norms and regulations, particularly with respect to tax matters. The country has implemented various laws and regulations, including:

  • Law 23 of 2015: Preventing money laundering, financing terrorism, and financing the proliferation of weapons of mass destruction
  • Law 52 of 2016: Requiring Panamanian companies to maintain accounting records
  • Law 70 of 2019: Modifying the Panamanian Criminal Code to include tax evasion as a crime
  • Law 129 of 2020: Creating the ultimate beneficial owner registry
  • Law 254 of 2021: Introducing amendments to the rules on exchange of tax information, prevention of money laundering, accounting for legal entities, and registration of beneficial owners

Fintech and Blockchain Development

Panama has been working on developing its fintech and blockchain sector, with the National Assembly approving Project Law No. 697. However, the project was partially vetoed by President Laurentino Cortizo due to perceived incompatibilities with international recommendations and structural changes required for regulatory entities.

Uncertainty Surrounding Fintech Regulation

The lack of specific regulation on fintech and blockchain technology provides uncertainty to investors, making it challenging for new players to enter the market.