(Panama City-ANPanama) The quality of the assets of the four largest Panamanian banks will improve, helped by the economic recovery underway, the high level of guarantees that protect the portfolios of the banks and their adequate reserves, Moody’s assured in its most recent report. on the banking of Panama.
According to the firm, the positive trend for the asset quality metrics of Panamanian banks continues after a sharp deterioration between 2020-2021 during and after the severe economic contraction in Panama caused by the pandemic. It adds that rising inflation and still-high unemployment will keep the risk of unsecured consumer loans elevated, and weak sales in certain segments of the real estate market will continue to weigh on the performance of construction and commercial real estate projects. However, it ensures that banks have reduced their exposure to these segments and report enough capital and profitability to absorb an increase in credit deteriorations.
Moody’s maintains that sustained economic growth will support a recovery in asset quality metrics. Projected strong economic growth of 6.5% in 2022 and 4.1% in 2023 will support borrowers’ ability to repay. In addition, banks have increased loan loss reserves, which, together with high collateral coverage, will help absorb losses on loans for which borrowers have not fully recovered their repayment capacity.
It maintains that the risks are greater in unsecured exposures to individuals and loans to the construction and commercial real estate segment. Some 54% of domestic loans are to retail borrowers who are more vulnerable to rising inflation and a still weak labor market, although for mortgages these risks will be mitigated in part by collateralizing the loans. The lagged effects of the 2020 contraction led to a slowdown in real estate sales, magnifying the risk of construction loans. However, the four largest Panamanian banks focus primarily on owner-occupied housing for low- to middle-income families, a segment less exposed to oversupply than more expensive properties. In addition, banks have reduced their exposures to construction in the last 12 months.
According to the rating agency, the capital is backed by stable earnings generation, which provides an adequate cushion against the risks of the assets. Capitalization will remain ample to support loan growth at all times.
Banco General reports the highest capitalization and profitability among its peers, followed by Banconal. Banistmo and Global Bank which have lower levels of capital, partly due to more moderate profits, but their capitalization is adequate.
The firm which indicated that they expect the level of loan delinquencies at the largest Panamanian banks to gradually decline over the next 12 to 18 months from the peak levels reached in 2021. The improvement will be supported by a continued economic rebound along with the good risk management practices of banks.
“We forecast that Panama’s economy will expand 6.5% in 2022 and 4.1% in 2023. The country’s medium-term growth outlook is less bright than it was in the ten years prior to the pandemic (average annual real GDP growth was 6.2% in 2010-19), but economic activity is above pre-pandemic levels supported by the expanded capacity of the Panama Canal and continued investment in the country, both of which will help bolster Panama’s position. Panama as a regional logistics center, as well as to expand mining production.
In 2020-2021, Banco Nacional’s asset quality was more resilient than its peers thanks to its increased focus on lending to employees and public sector entities, as well as financial institutions, all segments less affected by the crisis. economic contraction in 2020. As a result, the bank did not have to grant as many loan deferrals as other banks in the system and maintains one of the lowest levels of loans that are not being serviced.
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