The Growth of Panama as Business hub: Banking sector in Panama Alvaro Aguilar-Alfu Lombardi Aguilar Group

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1 The Growth of Panama as Business hub: Banking sector in Panama Houston Baptist University MBA program May 17, 2017 Template 1

2 Just South of the Border 20 countries in North America (Mexico), Central America (from Guatemala to Panama), certain islands of the Caribbean and South America, Latin America now has a collective population of over 490 million. The GDP of many countries in Latin America grew. Brazil experienced 5.1 percent growth, Mexico 4 percent, Chile 5.9 percent and Argentina 8.5 percent. These four countries account for 83 percent of the gross domestic product of Latin America The strong growth was accompanied by declining inequality, poverty, and public debt levels. The net commodity exporters that is, the South American countries, which exhibited increasing commodity dependence and an export base highly concentrated in primary goods have grown, on average, 4.5 percent a year since But the rest of the region Mexico, Central America, and the Caribbean was much less buoyant, growing only about 2.5 percent a year.. 2

3 Where to do business? Population? Purchasing Power? Offer/Demand? Trained Workforce? Safety? Corruption? Friend or foe? Diversity? 3

4 Jaguar of the decade Panama s economy has seen rapid growth in recent years, with the last five years averaging 8.75% yearly increases in GDP (IMF, 2011). The current labor force boasts million with an unemployment rate of 4.4% The majority of labor is concentrated in the service sector with 64.4% of the population working in services. Bilateral investment protection treaties with U.S., Germany, U.K., Switzerland Real estate and construction surge (US$1.2 billion) Panama Canal Expansion (US$4 billion) Fueling growth is the development of Panama s infrastructure as an emerging country, specifically a project aimed at widening the Panama Canal which is expected to be completed in

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8 Panamá as financial center Income earned from international activities is exempt of income tax Interest earned from Panama bank accounts is exempt from 100 years using the U.S. Dollar No foreign currency restriction Economic and political independence preserve tax and corporate advantages Financial center with 100 banks, multiple trustees and insurers subject to quarterly government supervision Intersection of fiber optic cables routes between the Americas Double taxation agreements with Luxembourg, Cyprus (under negotiation), Italy, France and 12 countries Direct flights to capitals of the Americas, Amsterdam and Madrid 8

Dollarization Colombian peso and US Dollar in Main Street until 1904 Monetary Convention 1904 Monetary Convention called for Panama to keep silver in the US Federal Reserve Bank in NY in order to

9 Dollarization Colombian peso and US Dollar in Main Street until 1904 Monetary Convention 1904 Monetary Convention called for Panama to keep silver in the US Federal Reserve Bank in NY in order to issue the first $200,000 upon enactment of appropriate legislation by Panama 1941 Panama Central Bank issued currency for a few days US dollar bills enter through reexportation (Colon Free Zone) + services exports and are replaced at Fed by air 9

10 The Stats 10

11 2017 Stats 11

12 2017 Stats Flat. 12

13 Challenges for the future Low US interest rates means Panama banks cannot just deposit funds in the US or buy investment-grade bonds. Foreign depositors expect attractive interest rates or will go elsewhere Local creditworthy borrowers are limited and reducing operations with conclusion of Canal expansion Failure of Panama government to fight Panamapapers media onslaught reduces faith of foreign investors 2017 total assets and deposits exceeded 2016 by 3%, but deposits reduced 5% to 10% Dec 2016-Feb 2017 cause for concern 13

14 For more information Contact Alvaro Aguilar Aquilino de la Guardia St. Ocean Business Plaza, Piso 12, Ciudad de Panamá, Panamá Tel: Fax: P.O.Box laglex.com net May 17 HBU banking sector in Panama 14

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