Monday, November 29

Panamanian banking has weathered the pandemic and could absorb most of the potential losses, according to SBP


Panama’s financial system has remained resilient to the effects of the Covid-19 pandemic, reveals the report on banking activity as of September 2021 issued by the Superintendency of Banks of Panama (SBP).

It details that the most recent global capital ratio shows 16.43%, double the regulatory minimum of 8%. “This resistance is based on capital buffers and provisions, which have been strengthened as a result of the current regulation and which have been increasing since the beginning of the pandemic due to the constitution of provisions and the greater capitalization of profits, which would allow absorbing most of the potential losses”, Says the Report.

The report highlights, that in terms of liquidity, the Banking System reached 63.6%, also more than double what is established by regulation.

Currently, all banks in operation satisfactorily comply with regulatory standards regarding bank capital. and the provisions concerning liquidity ”, indicates the official document.

As stated in previous reports, In terms of legal liquidity, most banks maintain levels higher than those registered before the start of the pandemic, which responds to an integral strategy of taking care of the quality of the assets, generating reserves and increasing liquidity, guided by prudential principles promoted by this superintendency.

“The capital and liquidity buffers accumulated by the entities of the financial system in recent years, As a result of the prudential requirements of the regulatory framework, they have contributed to the resistance of the financial system during the pandemic, and have constituted important macroprudential policy tools for the SBP in the context of the health crisis “

The quantity and quality of capital together with liquidity requirements constitute three of the regulatory elements most important policies developed by the Basel Committee on Banking Supervision with the aim of maintaining financial stability.

The SBP has included in its regulatory framework the principles set forth by this body in these three components, but it has made important adaptations considering the particular risks and conditions of the local Panamanian economy and the operations of its International Banking Center.

“We note that banking in Panama maintains ample levels of liquidity since before the pandemic, which has been an important factor in dealing with the effects of a complex environment such as the one that has occurred since March 2020 ″, analyzes the SBP report. This is explained, in part, because 5 banking institutions increased their liquidity reserves, as a result of the application of the provisions of Agreement 2-2018 on the implementation of the Liquidity Coverage Index (LCR).

The SBP maintains that the requirements of LCR and high-quality liquid assets are especially relevant given the absence of a central bank and deposit insurance, which is why this provision has remained in force in the context of the COVID-19 contingency.

Regarding the level of risk presented by the local loan portfolio, the largest portion of the portfolio, portfolio without relief, registers 3% under the categories of higher risk (doubtful plus irrecoverable), or $ 1.347 million.

At this point, although the classification is identified with similar names, it is governed by regulatory parameters other than Agreement 4-2013. Thus, the modified portfolio maintains a different treatment and its categorization is contemplated under the General Resolution of the Board of Directors SBP-GJD-0003-2021. Under these parameters, the portfolio categorized as doubtful and irrecoverable amounts to $ 3,237 million or 25% of the modified portfolio.

Regarding credit risk mitigation tools, increased by the effect of the pandemic, cIt led to an increase in provisions to face possible deterioration and this is evidenced when we see the provisions registered the month prior to the declaration of the pandemic when a total of $ 1.393 million was reported in the SBN (General License), a figure that in today (September 2021) it amounts to $ 2,348 million.

This represents an increase of an additional $ 955 million or 69% more than the amounts recorded in February of the previous year.

As of September 2021, the assets of the International Banking Center totaled $ 131,200 million, which represents an increase of $ 833 million with respect to the same month of the previous year, that is to say an interannual increase of 0.6%.

Solvency

The capital adequacy ratio on risk-weighted assets was 16.43% at the end of the first half of 2021, andxhibiting even an improvement to the evaluation cutoff (which reached 15.95% during the same period of 2020), due to greater growth in effective equity in relation to regulatory requirements.

This represents twice the regulatory minimum of 8%. This increase can be explained both by the recapitalization of some entities, as well as by the reduction in the payment of dividends and the lower balance of assets subject to risk.

Currently, all banks in operation satisfactorily comply with the new regulatory standards regarding bank capital.

Vnote that the measurement of solvency is carried out under the Basel III standards pFor the composition of capital and under a standardized methodology for credit, market and operational risk assets. These results show that both the general license and international banks (to which the regulation applies) have demonstrated their commitment to ensuring the well-being of savers, by maintaining such robust capital levels.

Nevertheless, The SBP warns that going forward, the ability of banking entities to maintain or strengthen their 6 levels of solvency in the current situation will be important through different mechanisms (capitalization of profits, capital contributions, issuance or taking of subordinated debt, optimization of risk-weighted assets, among others).

Darsy Santamaria Vega

writing[email protected]



elcapitalfinanciero.com

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