Banking and Financial Services

Panama international financial center has more than 100 banks from 32 countries. The legal framework is strong and banks are among the safest

With its skyscrapers glittering 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.

Lured by the ease of doing business, international and regional players have established operations in the country. Today, Panama’s banks are the envy of many of its US and European peers as they are ranked among the safest and best-run financial institutions. The sector suffered no systemic shocks or banking failures. There is a clear divide between the local retail banks (20), and the more internationally-focused, specialized foreign banks (80) that have set up in Panama and which have almost no interaction with the domestic economy. The country is also welcoming a new breed of financial institutions and is increasingly on the radar of non-banking finance companies in search of a regulatory framework suited to their needs.

From a Small Base

Panama has a small domestic market and its banks’ strategies have traditionally been tied to the local economy. However, the desire to establish Panama as a center for financial services in the early 1970s brought extra dynamism, ambition and pace to the sector’s development. The banking sector changed significantly, having been transformed from a tightly controlled publicly owned sector into one of liberalization and foreign ownership. Today, close to 100 banking institutions have a presence in Panama, offering a full set of banking services that range from retail and investment banking to trade finance and custody services.

High Marks

Financial intermediation grew 10.4% in 2015, according to estimates from the National Institute of Statistics and Census. The national banking system continues booming, both in attracting deposits and issuing loans of good quality (have not deteriorated low delinquency rates and maturity of the portfolio.

At the end of December 2015, the balance of the assets of the national banking system was $98522.7 million, ie $8539.1 million or 9.5% more than last year. This increase was the result of the expansion of its business: investment securities ($ 2046.3 million or 14.6% more) and grant financing ($ 6167.6 million or 11.1% more than balance), which have received support from $ 71324.0 million in terms of raised deposits ($ 4477.7 million or 6.7 extra%) as well as financing from other banks (liabilities) that have extended their working capital.

Successful Legal Framework

The International Banking Center began as a result of the advantages of the previous legislation, approved in 1970. This was replaced by different amendments, the last in 2008, by a new banking law that strengthened the Panama Banking Authority (PBA), 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 Basel II. The PBA and the Banking Association are in the analysis and discussion phase of the eventual and programmed adoption of the new Capital Agreement of Basle II.

The new banking law will maintain:

  • Fundamental elements of the banking confidentiality and the identity of account holders.
  • Panama has approved 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.

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 FATF and OECD 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.

Prudential Oversight

Strong financial sector oversight is a critical pillar in Panama’s success as a financial center and supports the robustness of its banking sector. Banking legislation is compliant with the Basel Core Principles. The presence of a single regulator, the Panama Banking Authority (PBA), which has built a reputation for being a meticulous, yet accessible, supervisory body, ensures that banks are closely monitored and fully compliant with regulations. While the PBA is cautiously selecting and screening new applicants, it has pointed out that the appetite for a banking license has been diminishing. In fact, most banking aspirants operate as non-banking financial services companies or have business models that do not require them to follow the strict rules that deposit-taking institutions are required to uphold.

Many of these companies have found a new home in Panama as the regulatory framework also caters for financial activities which do not require a full banking license. Credit card companies, payment service providers, payment gateways, card issuers, forex and others.

Among important considerations to justify choosing to set up in Panama´s International Banking Center are:

  1. Freedom from exchange controls and monetary restrictions, and use of the US$ dollar as currency.
  2. Political stability and respect to the principles and application of the laws.
  3. International banking, insurance and financial center. 
  4. Excellent legal framework allowing 100% foreign owned investments.
  5. Strategic geographical location with top container ports at both the Pacific and Atlantic oceans.
  6. Special laws for industrial parks, call centers, ecommerce and others facilitating trade and investment.
  7. Abundance of international transportation services and excellent telecommunications services.
  8. Availability of office, commercial, industrial and housing space.
  9. Cosmopolitan city offering excellent living conditions
  10. Simple visas, residence and work permit requirements.
  11. Availability of bilingual education.
  12. Availability of skilled, multilingual office and staff employees.

Panama tax laws establish different considerations depending if the source of the income is generated within or outside Panamanian territoryOn the tax side, Panama tax laws establish different considerations depending if the source of the income is generated within or outside Panamanian territory. Income produced from any source within the territory of the Republic of Panama is subject to income tax. The income tax of Panama is levied only upon net income derived from operations within the territory of the Republic of Panama. Foreign source income, in other words income generated outside the Panamanian jurisdiction, is 100% exempted. Specifically, income derived from the following activities is not considered as produced within the territory of the Republic of Panama, and therefore is tax exempt:

  • Booking  operations in another country from a bank established in Panama.
  • Directing from an office established in Panama, transactions which are executed, completed or effected outside Panama.
  • Distributing dividends or participations, when such are derived from income not produced within the jurisdictional territory of the Republic of Panama, including the activities producing income in parts a) and b) above.

In practical terms, an international bank with an office and employees based in Panama does not pay any income tax, if it only performs international operations from Panama.

Business Opportunities

In fact, the country’s constantly expanding international finance sector offers plenty of growth opportunities in areas such as ship finance, investment banking and custody services. Panama is also a land of opportunity for credit institutions looking compliant, yet flexible, domicile that provides access to the LatAm market. The emerging economies of the region have a high demand for infrastructure development, offering opportunities in the area of project finance. Panama’s professionals also believe that there is strong potential to attract more eCommerce payment business and payment factoring operations to the country and promote Panama as a location from where to service customers across the region.

Potential remains Strong

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, the Colon Free Zone, Insurance laws, Reinsurance and Captive Insurance, Capital Markets and Stock Exchange incipient but growing strongly, a modern Trust Law and, more recently, the new Panamanian Private Foundation, 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.

Banking & More

Panamanian banking has remained resilient due to its strong capital base and bank liquidity. In the wealth management sector, foundations and trusts have become a popular instrument for many transaction planners, and the country has begun the process of updating its trust law in order to cater for the demands of modern investors. It is hoped that a more streamlined and simplified trust regime will attract foreign, as well as domestic, clients to utilize the 120 multinational companies already operating on the country. The country’s corporate framework, which includes a fully compliant regime, as well as a respected and well-regulated legal system, makes Panama particularly desirable company domicile. A Panama company is equally suited as a vehicle for international business, investment or financial services, and can be used as a holding or trading company.

The BusinessPanama Group together with Pardini & Asociados, an international law firm with 35 years of experience, provides a convenient One Stop Shop offering you the following services:

  • Incorporation of banks, asset management and other services
  • Fiduciary management and administration of companies, trusts and foundations
  • Setting up of investment funds, partnerships, LLCs
  • Banking, trading and asset management intro services
  • Immigration & residence
  • Multi family office
  • Wealth management services

For more information, please contact us.

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