Financial Intermediation and its future

One of the main engines of our economy, and even of any economy in the world, is financial intermediation, led by the banking sector. In Panama, since 1970, with the promulgation of new banking law, the system was modernized and Panama became a regional banking center, where the best banks in the world could be installed, even though we had a totalitarian regime established by the military coup. 1968 (a total incongruity).

In fact, with the worst of all, Noriega, the system accepted two banks that belonged to the drug cartels of the time, under the approval of the officials on duty and the boss of the "A" Avenue garrison. Even so, all the banks stayed in the banking system, and nobody said anything about Panama. For those with a short memory, many (if not the vast majority) of the documents that were "discovered" with the theft of what was later misnamed the "Panama Papers" belonged to this black era (not even opaque ) from Panama.

Even so, the banking system of Panama has been growing apart from these dark days (I must clarify, the vast majority of bankers were good bankers), and since 1990 we have seen how it has grown in a correct way, which is also in better products and services for customers. Panama has an enviable banking system, which respond to the needs of the times, and even when products and services that are already offered in the most developed countries are lacking, Panama continues to be at the forefront of the region, competing with the largest countries in the same.

Now, after the pandemic and the strict quarantine in which we have had to be by the decision of the government, the conditions of the banking system have radically changed. Clients, natural and legal, have been affected by the lack of work/business, which affects everyone's cash flow, and therefore, results in clients not being able to assume some or all their commitments.

The possibility was raised from the assembly of forcing the banks to take forced actions, while the Executive decided to negotiate with the Banking Association. Panama does not have a monetary policy, as it does not have a Central Bank, however, through the National Bank, it can take actions to make resources available to banks so that they can move forward, if necessary, as it happened in 2008 with Martin Torrijos (resources that were not used at that time). But the Superintendence of Banks of Panama does exercise some control over them and can soften measures so that, on the credit side, banks can alleviate the situation for customers.

There are measures that should not be forced on banks that include the following that the Assembly of Deputies wants to force on local banks:

•       Impose a maximum on the interest rate that banks and finance companies want to charge on loans (including commissions and other charges)

•       Impose a so-called moratorium, forgiving capital and interest

•       Lower APC debt forgiveness from 7 to 3 years, reducing the number of years of clients' credit bad (or even good) history

All these proposals seem to be good for customers, to the detriment of the banks "which have already made a lot of money", as the deputies who defend these initiatives say. What they do not understand, or do not want to understand, is that what these initiatives will do is make the banking system go bankrupt en-masse and disappear. I would like to know if the Members have any idea what this would mean?

What we must do is reach a consensus with the banks, where the banks, finance companies, and Credit Unions should be able to refinance debts - longer term and lower interest rates. For this, it will be necessary for the regulators to agree to this, for a peremptory period, issuing the necessary agreements to soften the credit and collection policies that do not affect their reserves and capital. Now, this only serves those who still manage a certain degree of income, however, those who are without work or without some type of entrepreneurial initiative, then if they are totally unprotected and, unless the government decides to create some type financial relief for these types of clients (which I doubt), this more than clients if it will be totally affected (at least until income comes in).

This was a time of "war", where the economy was the main affected by a pandemic that took us by surprise and has not yet been controlled. No one is to blame for this bad situation. To recover we need time and jobs, and whoever does not understand this is on the way to the cliff.

Post Covid19 life will change radically, the use of technology will be essential for all businesses, and especially for financial services. Whoever does not adapt will tend to disappear. Although I find it very difficult for banks to open new branches, since technology allows us to carry out almost all transactions without the need to go to any branch: online banking, direct deposits, opening accounts, requesting loans, making transfers, Among others, mergers and acquisitions have been ending the consumer banking supply, and now we are at the mercy of few banks, so it is necessary to open other options.

Obviously, the first option would be to look for more international banks, initially top-tier, not first-timers. That said, we must also consider those new banks, little known in these directions, that have stood out in European banking and that we could attract Panama. The other issue that has remained on the table is the creation of banks such as Fintech, which can result in a considerable reduction in costs for clients due to the automation of processes and cost savings for banks.

In this sense, local banks can be encouraged, especially technological ones, especially if they can bank more Panamanians. The Superintendence of Banks must do everything possible to get more Panamanians to get into the banking industry, but maintain the rules for foreigners, where the necessary documentation is requested to maintain good control of KYC (know your client), and that the bad habit of It is said that the so-called "offshore" companies do not have to make an income tax declaration.

You must bank as many people as possible. The acceptance of banking by this segment of the market helps you see their real income and you can lend them based on this - if they have not yet been formalized. And this banking, in a way, helps informal entrepreneurs to become formal more quickly.

Where are the opportunities for the banking system going to be:

•       Personal loans - to refinance debts for a longer time

•       Car loans - the car is necessary for this country, with an initial payment you ensure some commitment, long terms

•       Credit Cards - they will be able to be sold, however, it will not be a boom, and until unemployment is controlled - formal and informal, it implies some additional risk.

•       Mortgage loans - in the segment to homes with costs less than $ 180,000 will move a lot

•       Personal loans secured by mortgages - it could be the boom. Here you have to work to really solve the cash flow problems of the clients, with the term, and interest (the asset lowers your risk in some way), and on the other hand, the assembly could declare that the interest on these loans could be declared as deductible from Income Tax.

This is the time to sell savings accounts to the unbanked. The pandemic taught everyone the need to have an account, with easy electronic access to receive and pay bills. Fintech may be the solution, but Superintendence of Banks still do not offer a correct alternative for Fintech businesses and until this happens, banks have to find how to scrape the pot of 4.5 million inhabitants to increase the number of clients and their number of accounts with the bank, make them grow.

Panama can revive this sector, and it is not that it is dead, but that we can become an even bigger player in the financial sector. This does not mean that we do not have clear and enforceable rules of the game, but that we also seek new participants for a market in a US $ economy, something that is not easily found in the world. We can also grow the stock market, to be a regional stock market, and to learn the commodity market, which is becoming more and more valuable in the world and in high demand.

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