The stressed repayment capacity of borrowers and impaired corporate loans of specific clients have raised non-performing assets to 2.8% as of March 31, 2024, compared to 2.0% in 2019.
According to the S&P Global Ratings report "Latin America - Banking Panorama by Country", Panamanian banks will face significant challenges in the quality of their assets over the next two years, with expectations that it will remain below historical levels.
According to S&P Global Ratings financial analyst Ricardo Grisi Rodriguez, borrowers' stressed repayment capacity and impaired corporate loans from specific clients have raised non-performing assets to 2.8% as of March 31, 2024, up from 2.0. % in 2019.
Grisi indicated that this deterioration is a consequence of the end of aid programs, high levels of unemployment and the increase in the informal economic sector since the beginning of the pandemic.
Regarding economic factors and lack of financial support, Grisis explained that the adverse economic conditions in Panama could continue to undermine the quality of banks' assets.
“Panama does not have a creditor of last resort, a central bank or an effective deposit insurance system to support struggling financial institutions. However, the government has used the National Bank of Panama to provide liquidity to the financial sector, corporations and SMEs,” the analyst added.
On the other hand, he indicated that Panama's economy is projected to grow around 2.7% in 2024, significantly less than the 7.3% in 2023, so this slowdown in economic growth could put pressure on the growth of the banking system and add to fiscal challenges. of the government of President José Raúl Mulino.
He highlighted that these challenges include slower revenue growth, low tax collection, and the expected loss of tax revenue following the closure of Minera Panamá.
“These economic obstacles could limit credit growth and reduce the confidence of companies and households, which would further pressure the operational and business conditions of banks, keeping non-performing assets high,” Grisis said.
Finally, the S&P Global Ratings financial analyst mentioned that although banks' profitability is expected to remain stable, the weakened asset quality could increase provisions for credit losses, thus limiting the banking system's net results.
