Canal Not the Only Growing Opportunity for Panama

The canal aside, Panama has other prospects, although the government reported that GDP growth dialed back in 2014 to 6.2%, down from 2013’s 8.4%. Infrastructure projects have slowed, while exports to Colombia and Venezuela were down, contributing to the slowdown. Still, the country is looking forward to better times, with its Copa Airlines placing a $6.6 billion order for 61 new 737 single-aisle jetliners from Boeing as it works on upgrading its fleet.

And it may not be a billion-dollar deal, but U.K. developer Solarcentury Holdings Ltd. is building a $17.8 million solar park in Panama’s Cocle province. The 9.9 megawatt Divisa project is set to use 33,000 solar panels, supplied by China’s Trina Solar Ltd, and will sell power into the spot market. In addition, Solar Power Inc., backed by China’s LDK Solar Co., has also announced that it plans to build at least 100 megawatts’ worth of solar projects in Panama in a joint venture within the country.

Panama is actually expecting slightly slower growth this year than last—its president, Juan Carlos Varela, said in reports before an Americas summit in April that the economy should grow at a rate of 6% in 2015—but it’s also trying to cut its deficit. Varela, whose government campaigned on doing just that, said that he expects the 2014 deficit of 4.1% to be cut in half in 2015.

The country is pushing in other ways to improve its position, and one of those ways is through banking regulation. Fitch Ratings pointed out that the steps already taken by Panama’s banks to bring their capital rules more in line with Basel III requirements is an improvement, although they haven’t quite gotten there yet.

Panama is the first country in Central America, said Fitch, “to incorporate select Basel III rules into their banking regulations.” Mexico and Brazil have preceded it, putting in a more complete set of rules, but Panama is following in their footsteps. A three-year phase-in of new Basel III rules is set to begin in January of 2016 and will complete, Fitch said, in 2019.

The ratings agency said in research that “[t]he new rules should strengthen local banks’ capacity to absorb losses and maintain higher quality capital, particularly for banks with high-risk appetites within the Panamanian banking system.” While banks with greater reliance on hybrid instruments will feel the new regulations more than others, Fitch said,”[T]he new standards are providing banks greater discretion to limit coupon payments on certain hybrids, which strengthens the equity attributes of these instruments.”

More changes lie ahead, particularly since thus far Panama has chosen not to “include Basel III’s capital conservation buffer or a countercyclical buffer, which together would materially strengthen capital at local banks,” Fitch said. “The lack of such provisions makes Panama’s current approach an incomplete adoption of Basel III rules.”