Interview: Raúl Alemán
How do you assess current banking supervision?
RAUL ALEMÁN: Since 1997, when the new banking law was approved, the Superintendency of Banks ( Superintendencia de Bancos de Panamá, SBP) has been working independently and adopting regulations to build a strong sector. More recently, this has involved greater supervision based on risks and using the same approach followed by other financial centres. This is new and is based on the model of corporate governance that private companies are installing. Currently, the SBP is emphasising comprehensive risk management, taking into account liquidity, investments and credit portfolios. This has extended to updating regulations with the new model of dynamic reserves, allowing banks to increase reserves when the economy is doing well.
Can rural banking services be provided electronically rather than by physical offices?
ALEMÁN: Current trends show that offices are vital to attracting retail banking clients. After “catching” the customer physically, banks tend to deal with their transactions electronically. The best way is via electronic channels, and banks now offer services 24 hours a day, 365 days a year.
While these new services imply higher investments, and ultimately higher entry barriers to the market, the new law allows for non-banking correspondents to make small payments through local shops more easily, which therefore reduces the dependency on having to establish full banking branches.
What niches hold promise for retail banking?
ALEMÁN: Panama still suffers from a housing deficit, so mortgages will continue to be a profitable business for banks, growing at around 8% per year. There is a rising demand not only for first homes, but also for second residences, mostly in beach locations. If we add very low unemployment, expected GDP growth of 5%- 7% and a dollar with low interest rates, mortgage demand will continue to rise. The banking sector does nevertheless need to be extremely disciplined in controlling the debt capacity of Panamanian families, as the interest rate depends on decisions taken in the US.
What is your outlook for corporate banking opportunities, and what are the advantages of having a financial centre in Panama?
ALEMÁN: One interesting segment is logistics and warehousing projects, which includes within airports and inside company facilities. Hospitality, meanwhile, is a sector in which it is not worth banks investing or financing due to over-investment in recent years. Occupancy rates and room prices are both low. The main advantage of having a strong local bank is that it means the sector is not 100% exposed to foreign ownership and decision-making, something that is important in times of crisis. El Salvador is a prime example, where all the banks were sold to foreign investors and when a crisis arrived, foreigners were taking decisions affecting credit availability. Panama is balancing between local, regional and global banks.
For Panama to establish an international financial centre, having a dollarised economy brings a number of advantages, although its growth is somehow dependent on foreign capital flows caused by market movements and decisions taken in foreign institutions. Due to our solid regulations and strong supervision we can deal with this and manage risks appropriately.
How can the Latin American banking segment handle more trade relationships?
ALEMÁN: Sooner or later Brazilian banks will start looking for opportunities in the north of the continent, including Panama, particularly as trade flows and alliances between countries grows. Due to the increase in supervision costs and the high number of banks with a local licence, currently at 47, Panama is likely to experience greater consolidation. There are interesting consolidation opportunities in the sector, especially with middle and small banks that hold a general licence.
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