Gustavo Villa Jr., Director, Economic Studies, Superintendency of Banks. Photo by Seeta T. Shaw Roath

Panama’s banking system is rapidly expanding, with new banks from different parts of the globe opening branches. The country is said to have the most modern and prosperous international financial center in Latin America. Banking transactions characterize the major portion of the financial services sector.

Gustavo Villa, Director of Economic Studies, Superintendency of Banks of Panama (SBP) said, “In Panama there are 41 banks with general license, authorized to do businesses inside and outside of this country; 33 with international license that allows them to do businesses from their national countries, and 10 banks with license of representation; that is, they can only represent their clients, not execute business in Panama.” Villa added that Panama has banks from the United States, the United Kingdom, Spain, and other Latin American and European countries.

“Our aim continues to be the stimulation of an economic environment that is favorable to local and international private investment, establishing an international banking center that is attractive to an increasingly competitive and globalized world, with a view to a prominent global positioning.

“Our comprehensive banking law (Decree No. 9) meets the standards of leading financial centers around the world for transparency and regulation, and conforms to the statutes of the Basel Commission,” said Villa, who indicated that the Panama banking center, employing over 15, 000 people and with assets of over $62 billion, remains the mainstay of the country’s economic development.

Itzel Solis Medina, Head, Unit for the Prevention of Illegal use of the Banking System and Fiduciary Business, SBP. Photo by Seeta T. Shaw Roath

Itzel Solis Medina, head of the Unit for the Prevention of the Illegal Use of the Banking System of SBP, indicated that Panama received the distinction of being the first country in the region to “collaborate with the IMF, World Bank, and the GAFIC in the development seminars of qualification, with the methods of international organizations of the first world for the use of economic evaluations.”

The Panamanian Government, with the support of the Inter-American Development Bank (IDB) has implemented a “Program for the Improvement of the Transparency and Integrity of the Financial System.” The aim of this program is to further fortify the responsible institutions to prevent and investigate activities of money laundering.

Enhanced communication flow, training programs, and technological advancements are strengthening the capabilities of government institutions responsible for addressing the prevention and detection of financial malpractices and possible financing of terrorist activities.

Training programs, focused on improved methodologies, were provided for both private and public sector employees.

Medina indicated that the SBP had analyzed the banking system in Panama to determine the applicability of the Basel II and established that Panama has modern regulations that are “largely compliant with the international standards and principles for effective bank supervision. We however, decided that it was necessary to reinforce and perform certain modifications to the regulatory framework according to the stipulations of the new Capital Accord, Basel II. Designing an assessment method and criteria for credit, operating, and market risks are one of the main foci.”

Photo by Seeta T. Shaw Roath

The SBP has been working on the technical aspects of Basel II, increasing its efforts as the close of 2007 approaches and planning to continue into 2008. New measures according to the new accord are being put in place. The SBP, in its regulatory capacity, has redefined its goals and set priorities along the projected timeline so as to implement measures intended to streamline its supervision in a manner that is consistent with Basel II and serves to manage banking risks. Basel II represents an update of the 1988 Capital Accord (Basel I) and mandates a higher level of stability and transparency. Under this accord, the SBP is required to issue new agreements, setting more specialized rules of supervision and a new method for calculating equity requirements that are related to risks. The SBP indicates that the financial institutions in Panama are meeting these challenges at an even pace.
In the case of credit risk measurement, the new Capital Accord proposes a methodology that is characterized by using risk weights based on external ratings issued by accredited rating companies. In 2008, local and international banking entities in Panama will be required to make their ratings public.