PANAMA: An Introduction to Banking & Finance

Panama has various attributes that positively differentiate it from the rest of its region and enhance its appeal, such as a fully institutionalized dollarisation, an absence of exchange controls or restrictions on the movement of capital, readily accessible credit with sophisticated lenders who are well-known both locally and internationally, and an active and modern capital market. Further, the country has an international banking system with over USD148.69 billion in assets as of April 2024, representing a year-on-year increase of 5.12%. The Panamanian banking system is home to more than 63 domestic and international lenders that boast solid balance sheets with little to no exposure to complex financial instruments originated abroad. 

From 2001 through 2013, Panama’s economy expanded by an average of 7.2% per year. However, this dropped to 4.9% in 2016, rose to 5.5% in 2017 and 2018, declined to 3% in 2019, and plummeted by an alarming Covid-19-driven 17.8% in 2020. GDP growth was 15.3% in 2021, 10.8% in 2022 and 7.3% in 2023, mainly supported by tourism, manufacturing and commerce. The World Bank predicted that the Panamanian economy would expand by 2.5% in 2024. However, a recent report by JP Morgan went against the World Bank’s forecast, raising the rate from 0.5% to 3.5%.

Presidential elections took place in Panama in May 2024, and President Jose Raul Mulino was inaugurated on 1 July. President Mulino has vowed that his administration will be pro-business, and there is consequently a positive sentiment in the market. The incoming administration will see important challenges, among them the need for fiscal responsibility and the tendering of several large infrastructure projects to address water supply and transportation issues.

At the end of the first quarter of 2024, the Superintendency of Bank of Panama reported that Panama’s banks continued to show high liquidity and capital ratios. As of April 2024, the liquidity of Panama’s banks reached 58.39%, primarily attributable to an increase in deposits, which puts lenders in a comfortable position to comply with regulatory requirements and at an advantage when it comes to facing market volatility. Furthermore, as of April 2024, the Panamanian Banking System’s local credit portfolio showed a balance of USD61.58 billion, an increase of 5.0% compared to April 2023.

We would also note that, in past years, Panama has made significant efforts to improve its compliance with international norms and regulations, particularly concerning the exchange of information on tax matters, and seeking to be excluded from “grey” or “black” lists. We would highlight the following laws and regulations. 

•  Law 23 of 2015, which establishes measures to prevent money laundering, financing of terrorism and financing of the proliferation of weapons of mass destruction, and identifies customer due diligence requirements and reporting obligations for all regulated (financial and non-financial) subjects.  

• Law 52 of 2016, which requires all Panamanian companies (including offshore companies) maintain accounting records. 

• Law 70 of 2019, which modifies the Panamanian Criminal Code to include “tax evasion” as a crime.  

• Law 129 of 2020, which creates the ultimate beneficial owner registry. This will be a registry managed and operated by the government, and all ultimate beneficial owners of Panamanian corporate vehicles will have to be identified and recorded. The registry will be under the administration of the Superintendence of Non-Financial Subjects (SSNF) to guarantee timely access of the relevant authorities to the information of the ultimate beneficial owner while also guaranteeing the confidentiality and security of the information in question.  

• Law 254 of 2021, which introduces amendments to the rules on: (a) exchange of tax information; (b) prevention of money laundering; (c) accounting for legal entities; and (d) registration of the beneficial owners of legal entities. 

Throughout the last several administrations, the government of Panama has declared that being removed from “grey” or “black” lists is a priority: in June 2023, the Financial Action Task Force (FATF) made the initial determination that Panama had “substantially completed” its action plan and warranted an on-site assessment to verify the implementation of its various commitments. If achieved, this would alleviate pressure on local financial institutions from their correspondent banks.  

An often-discussed aspect of banking and finance is the development of fintech and the incursion of blockchain technologies and cryptocurrencies. To date, there is no specific regulation on fintech, crypto or blockchain technology in Panama. The lack of regulation creates uncertainty for investors, making it difficult for new players to enter the market. Given the development of fintech, open banking and blockchain technology-based models, we expect to see more discussion with respect to the regulatory framework in Panama in the future.