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With its skyscrapers glinting in the intensely bright sun, the center of modern Panama City resembles a miniature Manhattan. Panama has the most modern and successful international banking center in Latin America. The International Banking Center (IBC) offers investors over 100 Banks from more than 32 countries around the world, especially from Asia, Europe and the Americas. Some of these banks carry out their operations to and from Panama, as a consequence of the favorable banking environment.

The IBC focuses on efficiency, reliability regulation of the banking center, supervision, security of the system, free flow of capital, historical background records, application of international standards and best practices that have made it one of the strongest banking centers in the region.

At the end of December 2013, the banking center of Panama reflected a continued dynamism in the banking supported by its strength both in financial indicators such as adequate levels of solvency. The assets of the banking center at the end of 2013 amounted to USD 97 billion 928 million, which represents an increase of 9.1% compared to 2012, in numbers released by the Superintendence of Banks of Panama.

The domestic credit increased 10.4%, which is consistent with the growth of the Panamanian economy, for which a positive performance is expected of 8.5% in 2014.

The credit was driven by portfolios of mortgage loans (13.5 % more), consumer (13.5%) and interim construction financing (23.9 %).

Meanwhile, the quality indicators of the portfolio reflect "an improving trend", with a total delinquency increased from 3.4 % in 2010 to 2.4 % in 2014. Liquidity, meanwhile, remains at levels close to 60 % in the Banking System.

Banks that increased their growth during this period were: Banco General, Global Bank, Citibank and Multibank. HSBC sold its Latin America assets to Bancolombia, in Panama its branches were renamed Banistmo. The portfolio of clients of HSBC was transferred to Banistmo.

The IBC has more than 18,000 employees, with a payroll that exceeds the USD 200 million a year, and an investment in fixed assets such as buildings, equipment and furniture totaling more than USD 450 million.

The Panamanian banking system has several strengths, from the organizational point of view:

  • An economic environment that will continue to foster a positive business climate, despite the global crisis.
  • Conservative credit management policies in areas of high exposure.
  • Liquidity of its system which will continue to fuel the credit cycle.
  • An asset adequacy that remains sound and strong.

International Banking Center of Panama

Since 2008 Panama has a new Banking Law, l it gives the Superintendency of Banks more power. It focuses mainly on three aspects:

  • Increased national and international monitoring
  • Customer Protection
  • Strengthening the regulator.

Among the aspects related to monitoring points are highlighted as an extension of supervision by the Superintendence of Banks does the banking groups consolidated their operations in Panama. It also includes regulatory powers to holding companies that consolidate operations in Panama, an oversight they call "reasonable" non-banking corporation or financial that may be at risk of infection on Banking Group in Panama.

On the issue of banking consumer protection among other things, authority to settle claims up to USD 20,000 that cannot be settled between banks and consumer banks. It accelerates the process of bank resolution and ensures prompt payment to depositors under $ 10,000 through the sale of liquid assets available.

As the entity is increased independence and autonomy in administrative and budgetary management and administrative career includes the banking supervisor.

It is known as the National Banking System banks General License, including the two official banks - Banco Nacional de Panama and Caja de Ahorros (the Savings Bank), and the multinational Latin American Export Bank (BLADEX).

Panama is been recognized as the most important international banking center in the region, and along with the Panama Canal, the Companies Act, the Merchant Shipping Act and Registration of Ships, the Colon Free Zone, insurance laws, reinsurance and captive insurance, capital market and stock exchange incipient but growing strongly, a modern Trust Law and, more recently, the new Panamanian Private Foundation, and the new Isthmus Railway, make Panama a true Center of International Services. This is all part of a tradition several centuries as a route and crossroads of nations and allowing Panama to continue and develop this mission to serve the economy and world trade.

The International Banking Centre began as a result of the advantages of the previous legislation, approved in 1970. This was replaced in 1998 by a new banking law that created the Superintendence of Banks, an institution with complete autonomy, independence and ample powers to practice a strict supervision, including the consolidated supervision of the foreign banks. The law also incorporated other statutes, those of adequacy of capitals based on the average assets according to the risk, further to the guides of Basilea. The Superintendence and the Association are in the analysis and discussion phase of the eventual and programmed adoption of the new Capital Agreement of Basle II. A section of these dispositions is being incorporated to the existing regulation and the rest will be adopted slowly.

The new banking law will maintain:

  • Fundamental elements of the banking confidentiality and the identity of account holders.
  • Continue in force the Numbered Account Law. This is not an obstacle for Panama to have a series of laws, decrees, agreements and regulations for the prevention of Money laundering. Due to its strict dispositions, it serves as a model for other countries.

Panama has unique advantages for banking, financial and commercial businesses, due to the absence of a central bank, a monetary authority and paper currency. Another fundamental characteristic is the use of the North American dollar as the currency legal tender, which has contributed to strengthen the Panamanian IBC from the financial crisis.

Recent Transactions

Mayor merger agreements have been key for the financial market, and will bring new opportunities for the country.

For the period 2014, a temporary permit was granted to Saxo Capital Markets Panama S.A., a corporation established according to the laws of the Republic of Panama and a wholly owned subsidiary of SAXO BANK A/S, established in the Kingdom of Denmark. Also, a license application by Inperib Trust Corp. is under review by the Banks Superintendence. Additionally, Banisi, S.A. transferred the total of shares to Banisi Holding, S.A.,

For the period of 2013, financial institutions such as Lombard Odier & CIE (Bahamas) Ltd., Universal and International Trust Corp., Alianza Fiduciaria (Panama), S.A., Capital & Assets Fiduciary Services, Inc., Del Istmo Trust Corp., Central Trust, Inc., BANCO DELTA, S.A. (BMF), BSI Bank (Panama), S.A. and Lovill Trust, S.A. had requested licenses to operate in Panama.

Mayor transactions were made in 2013. Bam Financial Corporation (“BFC”) transferred 40% of the shares of Grupo Agromercantil, S.A. to Bancolombia (Panama), S.A., who also acquired the shares 100% of HSBC Bank (Panama), S.A.

The entry of new institutions is a faithful sample of the competitiveness of the banking and recognition of safety and quality of supervision and regulation of the Panamanian banking system. The Banking Center has experienced a dynamic in the mergers and acquisitions bank. During this period, several requests were approved mergers and acquisitions of banks, and to transfer the shares of banks and companies forming part of the bank's economic group.

Transparency and regulation

The Latin-American Federation of Banks (Federacion Latinoamericana de Bancos - FELABAN) has considered of main importance to make a collection of the totality of the existing legislation regarding money laundering of assets in Latin-American countries members of the Federation. 
The Panama’s banking law meets the standards of leading financial centers around the world for transparency and regulation. The regulations have been made to assist the region and beyond in the areas relevant to improving the competitiveness of the domestic banking system.

The organism that has coordinated with most success the international initiatives against money laundering is the Work Group of Financial Action regarding Money Laundering (Grupo de Trabajo de Accion Financiera sobre el Lavado de Dinero - GAFI).

In 1989, the increasing worry that awoke the threat of Money laundering to the international financial institutions and the banking system, moved the leaders of the Group of Seven (which include the heads of state of Germany, Canada, United Status, France, Great Britain, Italy and Japan) to establish the FATF. This new intergovernmental work group, with the capacity to set policies, was assigned the responsibility of examining techniques and tendencies of money laundering, the previous national and international action and determines additional measures against money laundering. To date, the members of the FATF are two organizations: the European Commission and the Cooperation Council of the Gulf -- and 29 countries and territories: Argentina, Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Greece, Holland, Hong Kong, Ireland, Iceland, Italy, Japan, Luxembourg, Mexico, Norwegian, New Zealand, Portugal, United Kingdom, United Status, Singapore, Spain, Sweden, Switzerland and Turkey.

In 1990, to establish a worldly structural frame of the efforts against Money laundering, the FATF issued The Forty Recommendations. Today, this collection, which included the measures, is the main international norm against Money laundering. The Forty Recommendations and the Interpretation Notes cover the criminal justice system and application of the law, the financial system and its regulation and the international cooperation. The recommendations establish principles of action and provide to the countries the flexibility to apply them according to their circumstances and particular laws. Although it is not a mandatory international convention, many countries have acquired a political compromise to fight Money laundering by means of the application of the recommendations.

Moreover, Panama has turned into one of the leading countries supporting the FATF and OECD movement to implement measures in international financial centers to cope with capital laundering and terrorist financial activities. Tighter controls have been put on banks to report all deposits and withdrawals of more than USD 10,000, identically as done in the United States.

Bankers’ awareness that Panama has to clean up its image is also making them more thorough about checking the credentials of new customers. The “know your customer” policy includes tighter reference requirements and origin of funds. Nevertheless, banking secrecy continues in place.

Panama's Stock Exchange

Banking CenterIn addition, Panama is one of the most secure international offshore centers in the world. The Panama Stock Exchange is one of the fastest-growing in the region. Since beginning operations in 1990, the local securities market suffered a positive transformation that allowed the widening of the market and increased the number of intermediaries in the first decade of operations.

2013 was a year of significant corporate debt for the Panama Stock Exchange. The total trading value was USD 5,018,890,997, which dominated trading in corporate debt USD 3,100,251,400.83. Corporate and mortgage mainly USD 2,515,438,233.86 and secondly marketable securities trade USD 554,210,966.97 bonds.

The private sector occupied 74% of total market negotiations predominated trading in debt instruments represented by 65.80 %, the bonds being the most traded instruments. The remaining 7.85 % was traded on the stock market, having a superiority of the negotiations in fund shares.

Among the new debt issuers during 2013 are: Tocumen International Airport - USD 650 million, AES Changuinola - USD 470 million, Arrow Capital Corp USD - 150 million, Lion Hill Capital - USD 145 million, Real Estate Investments Arrocha - USD 100 million , Financial Services Panama USD 50 million, Canal Industrial Group - USD 25 million, totaling 23 new issuers.

The total contribution of the government during 2013 decreased by 78% since the total volume issued by the government this year was USD 522,334,166.60 vs 2,483,758,393.40 in 2012.

Recurrent issuers were also highlighted during 2013, which sees this market as an excellent financing alternative, such as Multibank - USD150 million, Credicorp Bank - USD  150 million, Banco Panameño de la Vivienda - USD 100 million, Elektra Noreste – USD 80 million, Empresas Melo – USD 80 million, Metro Leasing - USD 50 million, Aliado Leasing - USD 30 million, among others.

In 2013, the composition of the negotiations in the primary market was 85% in the private sector, versus the 15% of the public sector, while in 2012 was 49% and 51% respectively. Similarly, in the secondary market, participation of instruments of the private sector increased to 49%, compared with 36% in 2012. Therefore, the shares of public sector decreased from 64% in 2012 to 51% in 2013.

Investment Opportunities

There are diverse opportunities for investment capital financing, insurance and re-insurance in the financial sector.

In 2013, the current account registered a deficit of US$4.81 billion, equivalent to 11.7% of GDP, compared to a 10.6% deficit registered in 2012. The result is explained mainly by increases in the deficits in the Goods and Income portfolios of 3.2% and 21.6%, respectively, compared to 2012, according to the Superintendence of Banks of Panama.

The Republic of Panama maintains a firm commitment to fight and maintain a proactive and efficient role against money laundering and the financing of terrorism and organized crime through its different governmental bodies and in close cooperation with other jurisdictions.

Panama’s banking system has effectively achieved the following, among others factors:

  • International Standards
  • International cooperation
  • Modern legislation
  • Competitive advantages.

As a necessary complement of the above, important legislation has been passed by the Panama Legislative Assembly and sanctioned by the President and resulted in relevant Cabinet Decrees being issued by the Executive power. These regulations, listed below, are not only in effect, but have also provided assistance throughout the region and beyond.

  • Law 41 of October 2, 2000, which defines the crime of money laundering with regard to the predicate offenses: qualified fraud, illegal arms trafficking of humans, kidnapping, extortion, embezzlement, corruption of public officers, acts of terrorism, international theft, trafficking of vehicles and drug trafficking.
  • Law 42 of October 2, 2000, which establishes as "accountable persons" in the observance of due diligence for banks, trust companies, currency exchange offices, money transfer service providers, non-bank loan companies, savings and loan cooperatives, securities exchanges, securities clearing houses, securities firms, securities brokers and investment managers.
  • Law 45 of June 4, 2003, by which Chapter VII to Title XII of the Second Book of the Penal Code is added therein under the heading of Financial Crimes, fraud, illegal money transfers, concealing, deleting and counterfeiting accounting books and related documents. Disclosure of classified information, omitting or denying information, price discrimination, signing of fraudulent agreements, collecting financial means without proper authorization, among other types of crimes with their respective sanction.
  • Executive Decree No. 78 of June 5, 2003, which modifies the name of the Financial Analysis Unit (FAU) to Financial Analysis Unit for the Prevention of Money Laundering and the Financing of Terrorism and extends its duties and responsibilities to assets related to the financing of terrorism.
  • Law No. 48 of June 26, 2003, which regulates the operations of money remittance companies.
  • Law No. 50 of July 2, 2003, by which Chapter VI, denominated Terrorism, is added to Title VII of Book II of the Penal Code and sets forth other provisions, This Law defines the crimes of terrorism and the financing of terrorism, turning both into autonomous crimes in our legislation.

Decree Law No. 2 (February 22 of 2008) amending Decree Law 9 of 1998, which reforms the banking system creating the Superintendence of Banks establishing the entity’s functions and objectives regarding banking institutions and any person engaging in banking business in or from Panama. Besides it defines licensing conditions and terms which are commonly in banking activity, such as productive assets, foreign bank, Panamanian bank, banking standard-form contract, and others. It also defines functions of the Superintendence Board of Directors and the figure of the Director, administrative matters and regulation and supervision rates for the banking industries.

This proven commitment by the Republic of Panama against money laundering and financing of terrorism includes both the public and private sector, guarantees that Panama shall continue in this crucial endeavour and fully understands the importance of international coordination and cooperation.

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