Fitch expects banks to prioritize credit quality

Credit rating agency Fitch Ratings expressed caution in this regard Panama’s banking center and how the next government that will emerge on July 1st will face the fiscal challenges.

In a report quoted by journalist Leonel Ibarra from Central American magazine Strategy & Businessthe risk assessment agency expects Panamanian banks to face significant challenges in 2024 with defensive strategies that prioritize asset quality and financial profile stability over growth.

“The main challenges for banks are related to the economic slowdown, i.e high financing costs and permanent pressures on credit quality stemming from the post-pandemic recovery of clients,” the report said.

This election year also awaits us change of government in Panama and how the next administration will deal with fiscal problems, the Social Security Fund (CSS) pension crisis, mine closures and the Panama Canal drought.

Fitch does not foresee credit stabilization in the short termwhile profitability could weaken, due to an increase in financing costs.

It refers to the fact that it is The default system reached 2.7% in September 2023which was more than 2.5% the previous year.

The recovery of profitability encouraged improvement in net interest marginstogether with work efficiency and reduction of loan impairment chargesconsidering the additional reserves that many banks set aside in previous years.

In the 2023 results report, published last week, Bank management recorded a 4.6% growth in the loan portfolio.which includes an increase of 6.3% in foreign loans and 3.4% in domestic loans.

He credit for personal consumption recorded a growth of 4.5 percent and mortgage loans increased by 3.8%, which supports the improvement of the labor market and general economic activity.

However, the Superintendency warned of a potential economic slowdown which could negatively affect these sectors, which is why it suggests the need for exhaustive and proactive monitoring “in order to identify and mitigate possible credit risks in a timely manner”.

Fitch examined his GDP growth forecast for Panama in 2024 at 1.5% of 4.5%, while they predict that the slowdown in credit growth will continue.