Article Courtesy from Business Panama

International Banking Center

by Nicolás Ardito- Barletta

The modern city center of Panama City is full of the towers and offices of national and foreign banks. With their first-floor offices, banks are the principal expression of the international financial center of Panama. Over 80 international and Panamanian institutions make up the country’s banking enclave. Among them are many of the largest and most prestigious banks of North America, Japan, Europe and Latin America. Thanks to its strategic geographic position, taken advantage of by the inter-oceanic Canal and other means of transport and communication, the Panamanian economy has a high percentage of international, business and professional services, transport, insurance, tourism and banking. The banking sector not only represents a dynamic international economic activity, it is also an important complement to the export of Panamanian services. Thus the Colon Free Trade Zone, the second largest in the world, which re-exports products to Latin America, is strengthened and made more efficient with the support of international banking located in the country, which in turn grows symbiotically and diversifies, thanks to the activity of the Free Zone.

The banking center is supervised and regulated by the Banking Superintendence, a public entity in charge of awarding banking licenses and inspecting the system. Today there are 50 banks with a general license to do banking business inside Panama and abroad, 20 with an international license that do business outside Panama, 10 with a license of representation that can represent but cannot do business in the country

With financial assets of 36.831 million dollars, the banking center does business with the whole world, and primarily with Latin America. Regional and sub-regional offices make diverse transactions with depositors and borrowers from almost all the countries of Latin America and the Caribbean. Its greatest expansion was achieved in 1982, before the financial crisis of Latin America, when it had 49. billion dollars in assets. The crisis of the region reduced them to less than 27 billion in 1987 and the national political crisis, in two stages, brought them down to 15 billion in 1989. Since then, the political and democratic normalcy of the country has contributed to the recovery of the banking sector. In the light of a new economic outlook in the region, the center is diversifying its range of international services for its clients. The banking law of February 26, 1998 replaced the National Banking Commission (a mixed entity of control and supervision) with the Banking Superintendence, with greater autonomy and supervision. Adopting the Basle principles, it tightened up the inspection and regulation of the banking sector and stimulated the consolidation of banks.

The formation of Panama´s international banking center has from its beginnings been steered by the particular characteristics of the country´s monetary and fiscal system and by aspects inherent in banking legislation since 1970. From its beginnings Panama has functioned without a central bank, maintaining parity between the balboa – the symbolic national currency- and the dollar, and permitting its free circulation, with a financial system open to international transactions and a fiscal system that does not tax profits produced by Panamanian companies abroad.

These aspects make the country a very attractive place in which to locate international business. With respect to banking, the law of 1970 took advantage of these conditions and established a legal framework that promoted the creation of an international banking center in Panama under the supervision of the National Banking Commission, today replaced by the Banking Superintendence. This policy created a notable success for the country because it coincided with the increase in the "eurodollar" market created by the large quantity of dollars that entered the international system from the end of the 1960´s.

The banking center has generated multiple benefits for Panama. As an export service it provides the economy with foreign exchange and employment created by the indirect and indirect activity for international banking. As a financial center it links Panama very closely to international financial centers, which transmit international liquidity to finance attractive local businesses when conditions are favorable. In fact, the financial integration with the world provides a very stable monetary and financial environment. As a banking center it complements all the international economic activities of the country, for example the Free Zone, by making them more streamlined, and thus permits them to be more competitive and efficient. An appreciable quantity of Latin American exports are financed from Panama´s banking center. Created under Panamanian initiative, the Latin American Export Bank (Bladex) located in Panama and owned by central banks of the Latin American region, both state and private banks, and also of the main extra-regional banks and international shareholders, is a significant underpinning for financing the international trade of Latin American countries. In addition, many of the banks located in Panama increasingly participate in the financing of the region´s international trade.

The growth of the banking center in the last 29 years has stimulated the creation of many purely "Panamanian" banks that today finance the majority of the banking operations of the local economy of Panama and that have begun successful incursions into international banking. Eighteen banks with Panamanian capital have diversified their functions and service the different sectors of Panama´s economy. Private banking is complemented with some government banks that fulfil a prime function in the management of the State´s finances, in banking to promote industrial and agricultural production, and in mortgage banking to foster housing construction. The National Bank of Panama is the third largest after Banistmo and Bladex . In addition to receiving the government´s deposits, it participates as a bank for commercial credit and for promotion, and as administrator of the Chamber of Inter-Bank Compensation for local banking. The Savings bank is a highly prestigious state bank that channels the savings of thousands of Panamanians towards the construction of housing for low and middle-income families.

The National Banking Commission managed the concession of licenses and the functioning of the banking system strictly. Panama, as much through the intermediation of the government as by the Banking Association (a private entity), has made a notable effort, with growing success, to control the pernicious distortion of the banking system caused by intents to "launder" money from the illegal marketing of drugs. The Association, which represents the country´s entire banking sector, approved a Code of Good Conduct to self-regulate the system, and applies it to its members. The national government has taken its own measures (such as the closure of the First Inter-American Bank in 1985), restrictions on cash deposits, adhesion to a Mutual Legal Assistance Treaty with the United States (similar to those which this country has with Mexico, Spain, Switzerland, Bahamas and the Cayman Islands), and the tightening of banking supervision to control these illegal activities and other abuses which can damage the functioning of the banking center. Decree -Law 9 of February, 1998 strengthened the capacity of the system. Even so, the task is difficult and complex and efforts are being intensified to prevent the use of the banking system for such purposes. Panama collaborates with all international systems to control this cancer of modern society.

The liberalization of Latin America´s economies, greater monetary stability in the region, the consolidation and "fusion" of banks in the developed nations, and substantial changes in international banking transactions that new banking and communications technologies stimulate, create new challenges and transformations for Panama´s International Banking Center. The flexibility of the system, protected by the new law, steers these transformations towards new forms of banking. In addition, new developments in international services at the banks of the Canal, such as ports maritime and industrial businesses, tourism and communications, provide new opportunities for international banks in the country.

The international banking center benefits the economy of the country and provides a valuable service to the Latin American region and to the world. Its simple yet firmly-applied rules have nurtured an environment in which banking complements transport and services in the Panamanian economy. The constant challenge for Panama is to maintain an ethos of freedom and openness so that such businesses prosper, and put into practice the rules and controls that prevent illegal business and corruption of the system. With the efforts of a national consensus, Panama will continue to win the fight.

Article Courtesy of Business Panama
The American Chamber of Commerce (AMCHAM)
and Deal Inc.
 

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