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 67 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 (44), and the more internationally-focused, specialized foreign banks (21) 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.

High Marks

The International Banking Center (IBC) generated a net profit of USD 808 million at the end of May 2018. The efficiency index of the IBC, within the period that covers May, continues presenting a positive trend. The first semester of 2018 has been favored by diversified income.

The return on assets (ROA) for the International Banking Center registered 1.64% for May 2018. While the same indicator for the National Banking System (only general license banks) also registered 1.51%. These indicators are consistent with the growth of profits and assets.

The improvement on the benefit has improved the return on equity (ROE) within the National Banking System. The ROE, which measures the return of shareholders for each dollar invested, registered 13.61% for the International Banking System, while the National Banking System 13.21%.

The results has enabled banks to continue strengthening their solvency position, which allows them to meet regulatory requirements at levels that reach almost double the minimum requirements. These indicators also show the solid capacity of the financial intermediation entities to generate income, which allows them to expand, maintain a competitive position in the market, as well as replenish and increase their patrimonial funds.

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 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.

Siendo esto lo más reciente, podría a lo mejor borrarse los dos párrafos anteriores.

Panama has performed several regulatory changes for the stability of their system, related to accounting, risk and prevention of money laundering, financing of terrorism and financing of the proliferation of weapons of mass destruction. These changes are part of a set of measures adopted by the Panama Banking Authority as part of an agenda to improve the quality of capital, the measurement of risks to which agents are exposed, and an update of International Standards. of Financial Information and to get the Republic of Panama out of discriminatory lists or from non-cooperative countries. Currently, the SBP has already approved market risk regulations, operational risk, short-term coverage ratio (LCR), derivative instruments, among others, some of which are already in the process of implementation according to the schedule developed by the SBP.

The International Monetary Fund (IMF) made a visit in regards the of review of Article IV from May 21 to June 1, 2018. The IMF noted that the International Banking Center of Panama remains solid, well capitalized and profitable. The agency also stated that local authorities continue to promote policies to improve banking regulation and supervision, including the implementation of measures 3 of Basel III, as well as providing important recommendations in view of the need to continue strengthening the financial system and tax transparency.

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.

On 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.

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 provides a convenient One Stop Shop offering you the following services:

  • Incorporation of banks and trust companies
  • 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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