Interview: Robert Williams
Is the June 2015 deadline going to leave sufficient time for Panama to adopt the Financial Action Task Force’s (FATF) legal framework?
ROBERT WILLIAMS: After being included in the FTAF’s grey list, Panama presented a plan of action built upon six pillars: (1) adequately criminalising money laundering and terrorist financing; (2) establishing and implementing an adequate legal framework for freezing terrorist assets; (3) establishing more effective measures for customer due diligence to enhance transparency; (4) establishing a fully operational and effective financial intelligence unit; (5) establishing suspicious transaction reporting requirements for financial institutions; and (6) ensuring effective legal mechanisms for international co-operation. The government is focusing on those pillars that have to do with determining what can be considered money laundering.
Furthermore, the Superintendency of Banks of Panama is in the process of drafting a bill to regulate bearer shares to close regulatory gaps and extend greater transparency to the final beneficiary figure. Combined, these two actions will help Panama to be in a good position to be taken off the FATF’s grey list.
Meeting the deadline should not be a matter of too much concern. However, showing willingness to change may be. The process will not be free of challenges, such as the internal consequences that the measures will have on each sector, as well as opposition from actors on all sides. Resistance to the changes being implemented is, nevertheless, not as strong as it was in 2013, which shows a higher level of acceptance by the public.
Does the lack of a lender of last resort in the country reduce the likelihood of financial bubbles, or make the potential consequences more dire?
WILLIAMS: It is possible to have a lender of last resort and yet be incapable of protecting the system from financial bubbles. An example of this is the US. In Panama, the absence of such an institution pushes banks to be more cautious, because they know that if they suffer any major fault, there will not be a higher institution able to rescue them. In a country where the economy has been dollarised for more than 100 years, a central bank would have an extremely limited role. Panama’s financial system has shown resilience and the ability t o resist internal and external shocks. It is a system with very high levels of liquidity, comprising more than 96 banks and in excess of 40 banks with a commercial licences. One of the largest banks in the system would have to fail for it to have a real effect on the entire sector. If a smaller bank fails, it is likely that it would merge or be acquired by a larger competitor.
Private sector credit is equivalent to 90% of GDP. Does this make banks too vulnerable to default?
WILLIAMS: In my view, the debt level of the average Panamanian household is high. The country has benefited from high growth levels in recent years, even during the global financial crisis of 2008-09. Foreign direct investment (FDI) has also grown, resulting in high liquidity, which adds pressure to banks. Since interest rates do not reflect the real risk in the market, the risk of a sharp increase or a liquidity shock would bring higher debt costs. Nevertheless, if there is a soft landing in the increase of interest rates, banks will begin to control their credit policies, which will allow for household debt to be controlled. On the other hand, the country would not be prepared for a hard landing.
Deposits at the International Banking Centre and into the National Banking System grew by over 12% in 2014. What do you expect for 2015?
WILLIAMS: Deposits will continue to grow by 10-14%, since opportunities to invest in the country will continue to spur growth, as in 2014. The government has announced that it will continue to implement megaprojects (the Panama City metro, the development of Colon, etc.), which will require injecting FDI and other funds into the system. One way or another, this will benefit banks and growth in deposits will continue in 2015.
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