IMF Highlights the Soundness of the Panamanian Financial Sector in its Latest Assessment

Tuesday, 05 March 2024

The International Monetary Fund (IMF) concluded its mission in Panama, presenting its conclusions on the national economy in the organization’s traditional Article IV report.

In its press release, the IMF technical staff stated that, concerning the strengthening of the financial sector's resilience, aggregate capital and liquidity buffers in the Panamanian banking sector are well above the required minimums, and banks comply with regulatory requirements.

It is also highlighted that, in the absence of a lender of last resort and deposit insurance, Panama has relied on banks’ self-insurance through capital and liquidity buffers, as well as financing from foreign sources, to contain risks to financial stability.

The report notes that banks should continue to maintain strong liquidity and capital buffers, and regulators should closely monitor developments. This is particularly important in the coming period, given that profitability may have peaked and loan portfolios may increasingly be affected by tightening financial conditions and slowing economic growth.

Monitoring and containment of risks will benefit from further development of supervisors’ analytical capabilities, the reestablishment of additional borrower-based macroprudential tools, and the improvement of data collection, particularly on borrowers’ financial conditions and the real estate market.

IMF technicians suggest that regulators should continue to work through the Financial Coordinating Council (CCF) to advance the information exchange plan, jointly assess risks across all segments of the financial system and the economy, and coordinate actions. Likewise, efforts to address cybersecurity risks must be intensified, and the banks’ financial safety net must continue to be strengthened.

The report details progress made in establishing the capital buffer, in accordance with Basel III standards, thanks to the adoption of the capital conservation buffer rule last year.

Similarly, the IMF maintains that these efforts should continue through the gradual introduction of capital surcharges for domestic systemically important banks (D-SIBs). Additionally, they suggest it is urgent for Panama to resume the reform of the bank resolution framework and establish prudential requirements for banks to develop recovery plans. Moreover, it would be an important step forward to enact a payment systems law that assigns responsibility for supervising these systems to the Superintendency of Banks of Panama (SBP).