Impact of Regulatory Environment and Economic Cycles
January 7, 2022. Fortunately, prior to the COVID-19 outbreak Panama had mostly avoided the recent economic down-cycles in Latin America and beyond. From 2001 through 2013, Panama’s economy grew at an average of 7.2% per year. However, in recent years this dropped to 4.9% in 2016, rising to 5.5% in 2017 and 2018, dropping to 3% in 2019 and then an alarming COVID-19 downturn of -17.8%.
Not considering the continued health crisis worldwide and its economic repercussions, the International Monetary Fund is predicting a robust and perhaps overly optimistic positive growth of 12% for Panama in 2021, up from its former projected recovery of 4%. Consequently, the regulatory environment has so far not been affected in terms of the direction and trends in the loan market in Panama. That could still change, given that some of the industries most affected by the deceleration in growth and the COVID-19 crisis, such as new construction and development, are very dependent on financing.
Impact of the COVID-19 Pandemic
As in other jurisdictions, Panama has seen extensive and severe lockdowns, furloughs, closures, etc. This has, in turn, dried up the loan market while the economy continues to re-open. Banks have been cautious and will probably continue to monitor the situation closely, while restructuring existing credits, with particular emphasis in the hospitality and construction areas, and the consideration of regulatory changes in terms of reserves for non-performing loans, as well as liquidity ratios.
Alternative Credit Providers
The loan market in Panama has not seen significant growth in alternative credit providers. Panama’s well-established banking centre continues to be, by far, the main source of credit for local credit transactions.
Banking and Finance Techniques
Banking and finance techniques are evolving every day, mainly in connection with tax efficiencies, to reflect the investor base and needs of borrowers. In this respect, corporate financings are being structured by way of securities’ issuances, registered with the Superintendence of Capital Markets of Panama and listed with the Panama Stock Exchange.
Instead of granting traditional loans, banks are financing their major corporate clients by underwriting securities’ issuances, thereby providing their clients with innovative tax efficiencies.
Legal, Tax, Regulatory or Other Developments
There have not been, nor are there expected to be, any legal, tax, regulatory or other developments that have had, or would be expected to have, a significant impact on the loan market in Panama.
Developments in Environmental, Social and Governance (ESG) or Sustainability Lending
While there is an increasing trend for large Panamanian companies in strengthening the ESG policies and practices, sustainability lending, as concept, is not common in Panama.
Learn more in our Banking & Finance Guide prepared by Partners Arturo Gerbaud, Eloy Alfaro B. and Patricia Cordero – Originally published by Chambers & Partners. https://practiceguides.chambers.com/practice-guides/banking-finance-2021/panama