Panama has experienced a new binge of banking consolidation driven by foreign entrants in the last two years. Stimulated by robust economic growth and the background buzz generated by the expansion of the Panama Canal and other large development projects, bankers are very optimistic about the future, and with good reason. There remains the troubling question of just how much growth, particularly in real estate, is being stimulated by rampant speculation and even some money laundering, and bankers say there is a small but real risk that growth will unleash inflation, but overall the picture is very positive.
The latest wave of banking consolidation has put foreigners back in pole position in Panama. That is not completely new: Panama was unique in central America for the high penetration of foreign banks, reflecting its status as a trading hub and open financial centre in the 1970s. Foreign presence grew steadily more marked and by the late 1980s, foreign banks controlled 65% of deposits. According to Raúl Alemán, general manager of domestic bank Banco General, Panamanian banks learnt to compete and were more aggressive just as foreign banks’ commitment fell off. That saw the needle swing back and domestic banks controlled 70% of the system until recently, he says. The legacy is an efficient and highly competitive banking system, which is the envy of the central American region.
