Superintendency of Banks Presents the Financial Stability Report

Wednesday, 10 May 2023

The economic performance demonstrates the Panamanian productive sector’s capacity to overcome difficult situations.
The report displays the impact of interest rate hikes.

Panama continues to consolidate itself in the process of economic and financial recovery. The data continue to show stable financial fundamentals, while the capital and liquidity buffers accumulated by financial system entities during recent years, because of prudential regulatory requirements, have contributed to the resilience of the financial system during the pandemic and have constituted important macroprudential policy tools.

The foregoing emerges from the Financial Stability Report (IEF) for the second half of 2022 presented by the Superintendency of Banks of Panama (SBP).

The semi-annual report, prepared by the Financial Stability Division of the SBP, states that risks related to the progression of the pandemic remain the most relevant for the financial system. According to analysts at this regulatory body, there is persistent uncertainty regarding its effects on the credit portfolio of the most vulnerable sectors whose income has suffered greatest impact, as well as the risk that concentration in sources of funding represents for some institutions.

“After more than 2 years since the outbreak of the Covid-19 pandemic, the economy presented an impressive recovery performance,” states the report.

It is worth noting that “the best economic performance was reported at the end of 2022, even though the Russia-Ukraine conflict persists, which has produced an international economic impact, as well as the inflationary expectations and the interest rate hikes established by the Fed.

This performance demonstrates the Panamanian productive sector’s capacity to overcome difficult situations and will contribute to obtaining reasonable economic growth figures for 2023.

According to the indicators analyzed in the Financial Stability Report, the indebtedness performance for both the corporate and retail banking sectors is high compared to the debt-to-GDP indicator.

In this regard, analysts state that the sectoral credit distribution shows the greatest allocation in retail banking, which puts significant pressure on the economic system, as it is the productive sector that sustains the financial viability of households and, at the same time, has lost credit participation on the consumer side.

On the other hand, the survey reveals an analysis of the impact of interest rate hikes on the market and the performance of the entities that make up the National Banking System (SBN), the performance of the real estate sector, and the impact of macroeconomic variables on the solvency index in response to market movements and the periodic interest rate hikes by the Fed and other central banks worldwide.

The Superintendent of Banks, Amauri A. Castillo, explained to the media that “the survey conducted demonstrates that the financial system, as a whole, would be resilient in the expected economic scenario, as well as in the face of potential severe domestic and international shocks.”

And added that as for the results of the liquidity sensitivity analysis, it is observed that the national banking system maintains appropriate resilience levels to face deposit outflows, that could happen in severe scenarios, where the percentage of availability would enable banks to absorb an important deposit withdrawal. According to the banking regulator, the resistance to liquidity shocks in most entities is sustained by the appropriate assets and liabilities by maturity, on the sufficiently diversified funding structure, and on the high-quality liquid assets that have been established to comply with the liquidity coverage ratio (LCR).

For further information on this report, please visit our website at (Statistics).

Informe estabilidad financiera