The decrease in interest income, associated with the slowdown in credit provisioning expenses, has impacted the accumulated net profits of the International Banking Center (IBC), which as of May 2021 registered USD 520.6 million, 15.4% less that that of May 2020, as revealed by the banking Activity Report of May 2021 issued by the Superintendency of Banks.
The report discloses that the financial system continues to show resilience and an overall sound position, with capital and liquidity indicators above the regulatory minimum. Thus, the provision and capital buffers, as well as higher capitalization of profits by banks, have been the main factors in maintaining solvency notwithstanding the crisis the country is experiencing.
The assets of the International Banking Center totaled USD 128.58 billion, which represents a decrease of USD 241 million, i.e. a year-on-year decline of 0.2% when compared to May 2020.
The main financial soundness indicators, which determine the financial sustainability of a bank, are the regulatory liquidity and solvency ratios, which are twice the legally required.
As for solvency, the most recent capital adequacy ratio on risk weighted assets stood at 16.2%, including capital requirements for credit, market and operating risks, in accordance with Basel III, which markedly exceeds the regulatory minimum of 8% required by the Banking Law. This increase can be explained both by the recapitalization of some entities and the reduction in the payment of dividends and the lower balance of risk-weighted assets. The latter is mainly explained by lower credit activity.
The liquidity of the National Banking system reached to 62.9%, higher than the regulatory minimum of 30%. Banking in Panama has maintained great liquidity levels since before the onset of the pandemic, which has been an important factor in coping with the effects of the complex situation we have had. The foregoing is partly explained by the fact that banks increased their liquidity reserves, because of the implementation of the Rule on Liquidity Coverage Ratio (LCR). The LCR and high-quality liquid assets (HQLA) are especially relevant given the absence of a central bank and deposit insurance.
Regarding the sources of bank financing, deposits registered an increase of USD 4.41 billion, i.e. 4.9%, which resulted from the performance of domestic deposits (+8.0%), specifically from customer deposits. The deposits of the International banking Center, as of May 2021, amounted to USD 94.49 [billion]. The report affirms that this performance is because of the confidence that both domestic and foreign depositors have on the stability of the banking system.
For further information on the variables explaining the results of this report, please visit our website www.superbancos.gob.pa / Financial & Statistical.
