“Panama needs a bank with Panamanian capital,” says Federico Humbert, the conservative 74-year-old president of the country’s biggest bank, formed at the beginning of this year when Banco General and its local rival Banco Continental merged.
With a market share of more than 15 per cent (in terms of total assets) and more than 35 per cent in sectors such as mortgage finance, the new bank is big enough to hold its own amid the hectic rationalisation that has gripped Panama’s financial sector over the past few months.
Four deals in the latter part of last year have totally changed the competitive landscape. First, HSBC of the UK acquired Panama’s biggest bank – Banco del Istmo, better known as Banistmo – in a $1.8bn deal that was approved by regulators in October.
Then Citibank bought Grupo Financiera Uno, Latin America’s largest credit card issuer, for $1.1bn and shortly afterwards the US banking group added UBC International for a extra $1.5bn. Finally came the domestic response, which Mr Humbert says was necessary to ensure survival. “We had to do this so as to not to leave the scene,” he says.
Mr Humbert believes that national champions are necessary to avoid the kind of vulnerability suffered by countries such as Argentina, which saw most of its large banks fall into foreign hands in the 1990s.
But he understands the reasons for the flurry of international interest. Boosted by strong demand for its services based economy, Panama is growing quickly and the banking sector at a faster rate than the economy as a whole.
By the end of 2006 total consolidated assets in the banking sector reached $52.2bn, 16.4 per cent higher than a year previously. Loans reached $31.5bn, compared with $27.3bn a year previously.
Whereas offshore business used to dominate Panamanian banking, more than half bank assets are now domestic. Bankers say demand for loans to finance second homes in Panama City and inland resort towns from baby boomer retirees from the US, Canada and Spain has been surging.
The expansion of the Panama Canal will be a big boost for businesses clustered around the maritime sector and the free trade deal with the US, which the US Congress is soon expected to approve, will provide extra opportunities. What is more, Panamanian banking is profitable by international standards.
In 2006 the return on equity averaged 15.7 per cent, the banking superintendent told a conference last year. In addition, the quality of business across the industry has improved.
In a recent report, the superintendent said the principal characteristic of recent performance had been the expansion of lending to the private sector and the improvement in the quality of credit. The sector has also been helped by a big improvement in regulatory standards.
Several international organisations have praised improved supervision. In 2005, the International Monetary Fund said “strong supervision and regulation have helped preserve the soundness of the banking system which continues to be well capitalised, highly profitable and largely complaint with the Basle core principles [of capital adequacy]”.
In addition, the country’s removal from both the Oorganisation for Economic Co-operation and Development’s blacklist of tax havens and its Financial Action Task Force list of non-co-operating countries in the fight against money laundering, has boosted credibility.
Nevertheless, Mr Humbert is still a little concerned about standards. He describes the boom in the housing market as a “bubble”, and – only half-jokingly – alleges some of his competitors have so much lost touch with fundamentals that they are prepared to make long-term loans to pensioners.
A fan of government legislation that has offered subsidised mortgages for properties up to about $60,000, he also worries that his staff are being priced out of the local housing market.
“That is what they tell me constantly,” says Mr Humbert, who says he breakfasts with two randomly chosen members of staff every Thursday morning.
And Mr Humbert, who has been at the helm of Banco General for more than 30 years, knows that foreign banks have packed up and gone from Panama before. Between 1987 and 1989, as political stability deteriorated, 23 banks left the international banking sector.
“Japanese banks were here in numbers. German banks were here in Panama and now there are none. We have grown but I still know the clients by their first names,” he says.
