2009 was a year of conservative bank management dictated by the carryover of the U.S. banking scare. Though the Panamanian banking system had very low direct exposure to toxic loan or investment paper and did not face a structural crisis, the result was a year of slow growth due in large part to a conservative management distracted by the nature of Panama’s monetary system. This conservative management style is largely attributed to Panama’s lack of a lender of last resort that might put liquidity into the system in case of stress. This prudence carried over into the first quarter of 2010 and is likely to shape the dynamics of the system for the rest of the year. New hiring will be a small part of any projections for the sector.
The Banking system
Slow growth will be the theme for 2010. In 2009 the combined annual growth of total assets was only 1.2% to US$77,142B. Liquidity was a very high, but stable 69.5% of total. Excess liquidity is invested in safe instruments, mostly off shore. Consequently, combined profits for 2009 decreased by 22.4% year over year. This is the result of a decrease in interest income from interbank deposits of 71%, in investments of 9% and decreases in other income of 20%. This while general expenses rose 5%. The decreases in income resulted primarily from the decline in international interest rates. Deposits increased slightly over 2008 by 5.8% to US$50,062B with a small shift from foreign deposits in favor of local time deposits, mostly repatriations to this safe haven. The unimpaired loan portfolio decreased slightly from 96.7% in December 2007 to 95.8% in 2009.
Posts Tagged ‘Panama’
Panama Update
Wednesday, May 5th, 2010Eye On Panama
Thursday, January 21st, 2010Panama is hot. Not only the climate but the economy is being bolstered on several fronts.The Canal is being widened, a metro system is being built and construction continues unabatedly. They are even building two off shore islands. Panama is looking very attractive to bank’s looking to service their clients without feeling like they are under a microscope, as Panama’s compliance regulations are solid, but not heavy-handed. What about the “tax haven” stigma?
Panama is not a “tax haven” country. It’s tax structure is territorial in that only income earned in Panama by residents is taxable in Panama. The OECD countries, and others, choose to disapprove of this arrangement on the unspoken grounds that this gives Panama a tax advantage over the G20 by drawing banking assets from foreigners to this venue where the interest is not taxable putting the OECD countries at a disadvantage.
For Panama to shed the stigma of being (wrongly) considered a tax haven and come closer to a trade promotion agreement with the US, it must reach agreements with the most aggrieved countries in terms of double taxation agreements that permit Panamanian taxes, if any, to be taken as a credit in other jurisdictions. Panama has no such agreements today. It is also necessary to protect especially those Panamanian business sectors that have special tax status or tax exemption on profits such as the Colon Free Trade Zone and other special duty free processing zones. Panama wishes to make clear that because special entities have special tax status, this does not make Panama a tax haven. One of the factors working against Panama’s beneficial tax rate structure is a subjective one: the EU countries in particular press for an increase in income tax rates to equalize or level a perceived disparity between Panama’s rates and EU rates to make the so-called tax havens less attractive to their nationals for tax avoidance purposes.
According to the OECD, countries are divided among those that have substantially implemented the internationally agreed tax standards (white list countries), those countries that have committed but have not yet substantially implemented and “other financial centers” (grey list countries), and those that have made no progress in implementing the internationally agreed tax standards (black list countries).
Panama’s economy grew by 2.4% in 2009 and it is expected to keep growing with the service sector comprising 80% of the growth. This includes the Panama Canal, banking, and the Colon Free Trade Zone. Panama is a good place to do business and lots of banks have it on their radar screen…so we will be keeping an eye it as well.