Panamanian banking: Moody’s maintains stable outlook

Moody’s risk assessment agency said this Monday that it maintains a stable outlook for the Panamanian banking system (Baa3) given the forecast that “solid performance” of banks will compensate for the sharp slowdown in the country’s economic growth in 2024.

The behavior of Panamanian banks, which have solid capital and low risk appetite, will also neutralize the effectprevious political noise until the presidential elections on May 5, as well as the weakening of consumer and business confidence, according to the report of the rating agency.

The economic slowdown, evidenced by growth estimated at 2.5% for this year compared to 7.3% in 2023, will affect the recovery of portfolio quality, but banks’ lower risk appetite and strong capitalization will help contain risks, Moody’s said. .

The rating company predicts that interest income from panama banking will fall due to low expected business volume over the next 12 months, and high rates will keep financing costs high, hurting system profits.

Adjustments to provisions for loan losses in a weakened economy will also affect the final results in 2024 of Panamanian banks, whose profits increased by 42.6% in 2023, compared to the previous year, according to data published by the Superintendency of Banks of Panama (SBP). local press.

“We expect the loan portfolio to grow moderately by 5% in the period 2024-2025, with different trends among banks. However, the risks caused by external imbalances are contained in panama economy, therefore, there is no currency risk arising from its long-term commitment to dollarization,” Moody’s said.

He specified that deposits will continue to represent the main source of funding, with the net portfolio representing around 90% of client deposits as of December 2023.

“Moderate loan growth will limit the need to access debt markets in 2024. Therefore, market risks are more limited in Panamanian banks and supported by high holdings of government securities, but interest spreads may be affected by growing investor concerns about Panama’s credit quality,” he said.

The rating agency has warned that fiscal pressures will affect the government’s ability to support the banking system, but it assumes “full support of state authorities to the National Bank of Panama (Baa3/Baa3 stable, baa3) and Caja de Ahorros SA (Baa3 stable, ba2), if necessary, given that their obligations have an express guarantee. “There is no state support that would ensure privately owned banks an advantage in the rating.”