(Worldfinance.com) As a financial hub of the Americas, Panama continues to consolidate its position as an international financial centre. Panama is often called “bridge of the world, heart of the universe”. Its privileged location determined the construction of the Panama Canal, which some refer to as ‘the eighth wonder of the world’. This great feat of engineering was completed almost 100 years ago, opening in 1914, and connects the Pacific and Atlantic oceans through the Isthmus of Panama. It took 250,000 people from all corners of the globe more than 10 years to build, and the financial cost to the US totalled an estimated $375m.
The US operated the canal from its inception until handing it over to the Panama Canal Authority (ACP) in 1999. Since then, Panamanians have been running the canal with the intention of producing the maximum sustainable benefit for its geographical position.
The canal revolutionised global trade, facilitating the transport of goods from West to East (and vice-versa), reducing the time and distance required to ship items from South America to North America, from Asia to the US, and from the US west coast to the east coast. It places a country of 3.5 million people at the epicentre of global commerce, allowing Panama to rank 40th in the world and second in Latin America in global economic competitiveness according to the World Economic Forum’s 2012-13 report.
Indeed, Panama’s GDP per capita is $9,500, well above its Central American neighbours.
In its present state, the canal consists of two sets of locks that can accommodate Panamax ships (with a capacity of almost 5,000 TEU; TEU being the cargo capacity of a standard container, 6.1 metres long and 2.44 metres wide) transporting almost every type of good. The locks function as a water elevator. They hold the water at a certain level and open or close to make the levels even.
The most frequently transported items on cargo ships in 2012 were petroleum, grains, coal and petrochemicals, but the list of goods moved through the canal is huge. Container ships and dry bulk vessels are the most frequent users, each accounting for 25 percent of canal traffic. Tankers account for another 18 percent of traffic, followed by vessels with refrigerated items. Passenger ships, like cruise ships, are two percent of traffic; they capitalise on the thrill of passing through the canal’s locks.
Development and progression
As global commerce has increased, the canal has reached capacity, and expansion is required. In 2006, Panama’s voters approved a referendum that permitted the ACP to move forward with a third set of locks. The project will widen and deepen the existing canal and add two locks, doubling the canal’s cargo capacity. The $5.25bn project is expected to be completed by 2015.
While there is probably a long way to go for Panama to become a developed economy, economic policy consistency and growth over the years has put our country at the vanguard of economic development since coming out of our internal political crisis in the 1980s. Today, the impact of the canal’s expansion on Panama’s economy will be important. Indeed, Panama’s economy has been booming in recent years, in line with the expansion project, increased logistics, and major growth in real estate, financial services and construction.
According to the 2012-13 World Economic Forum report, Panama ranks second in the world in the affordability of financial services and fourth in availability of financial services. It is no coincidence that the Panamanian Banking Centre has more than 90 banks, including those with general, international and representation office licenses. With consolidated assets of more than $90bn (as of March 2013), a fully dollarised economy for over 100 years, and an investment-grade credit rating, the centre offers definite advantages for the business of international banking in and out of Panama.
Having said that, there is no doubt that Credicorp Bank is ‘where the world meets’. Established in 1992, Credicorp Bank was opened for business at the Colon Free Zone in 1993, and is now ranked among the biggest banks in Panama. Today, it operates 27 banking offices nationwide and a representative office in Bogota, Colombia, and provides a comprehensive line of banking services and products to consumer and commercial customers.
Credicorp Bank is fully owned by Credicorp Group (CCG), which is in turn controlled by a well-known local group (74.88 percent) which also has interests in the Colon Free Trade Zone, construction, real estate development, media and energy. Besides Credicorp Bank, CCG consolidates Unicorp Bank Overseas (offshore banking), Compañía Internacional de Seguros (an insurance company), as well as another 11 companies in complementary regulated financial services, real state and energy. CCG’s consolidated assets add up to $1.5bn (financial year 2012), with Credicorp Bank accounting for 69 percent of total consolidated assets and 45 percent of consolidated profits before eliminations.
Retail banking and expansion
Since its inception, Credicorp Bank has focused on retail banking growth, and most of its growth was initially organic. In recent years, the bank has diversified into mortgage lending, credit cards and commercial lending, in part through strategic purchases. The bank’s strategy has been very consistent over the past few years, with a conservative risk profile. Credicorp Bank maintains a balanced portfolio with mortgage, consumer and corporate financing. For its corporate loans, the bank leverages on the insight of the Colon Free Zone trading activity to maintain good asset quality.
Credicorp Bank will continue to grow mainly in the local market, but will also start a gradual expansion outside Panama though its representative office in Bogota, Colombia. The current loan portfolio composition is unlikely to change, and lending parameters will remain conservative to maintain the current asset quality metrics. In Panama, loan growth will be concentrated in the middle-income segment for consumer and mortgage credit, and in the commercial segment for corporate loans. The bank also has some interest in selective activities in the construction and agricultural segments.
In terms of its funding base, Panama’s current liquidity conditions will allow the bank to keep deposits as its main funding source; however, Credicorp Bank also has access to credit lines with multilateral institutions as a complement to its funding diversification strategy. The bank is part of Credicorp Group, which includes an insurance company, a brokerage house, a trust company and an offshore bank for wealth management.
Credicorp has taken advantage of Panama’s double-digit growth, reporting a net income of $18.83m for the fiscal year ending June 2012, up 14.6 percent compared to 2011. The bank’s return on average assets (ROAA) was 1.72 percent (financial year ending June 2012), almost at the same level of the ROAA of the country’s banking system (1.74 percent), and return on average equity accounted for 17.96 percent, 8.13 percent above the national banking industry (see Fig. 1). As expected for banks in a dollarised economy, Credicorp Bank maintains an adequate liquidity position. For the quarter ending March 2013, the monthly average liquidity ratio reached 57.2 percent – an average much higher than the 30 percent required by law.
We saw continuing volume growth in our personal and commercial loan portfolio as a result of the economic boost and lowest unemployment rate in the region (four percent). Credicorp is confident in its ability to convert new and existing customers into multi-product relationships. The management’s focus on organisational efficiency is a continuing commitment to sustainable, profitable growth with a disciplined
management of expense.
Looking forward, Credicorp has an advantageous business mix and a well-known backbone behind its main shareholders Credicorp Group, which, combined with our strength in personal and commercial banking, will result in the perfect formula to support future growth. We are confident that the value we create for customers will translate into financial performance for the bank.