Panama Equity Panama

Economic News: Banking Sector Innovation, 4th Canal Bridge + More

Taking a step back from the headlines first to look at general trends, September featured some interesting reports about Panama’s financial sector.

On the back of 18% growth in profits last year, Moody’s expects Panama’s banks to continue to experience solid earnings in 2018-19, despite rising funding and credit costs and the impact of expected US interest rate hikes. The report also includes some considerations on positive population trends that’ll underpin the formation of human capital, which will “favor the ongoing digitalization of banks’ processes and infrastructure, as well as the eventual development of technology intensive financial products (Fintech).” Food for thought, for sure.

Separately, COBIS published a regional survey on financial technology and innovation in Latin America’s banking sector. The report covers how technological advances, customer expectations for service, and changes in the regulatory landscape are all opening the door to disruptive innovation in financial services. Panama comes out top for investing the most in digital innovation, with banks spending just over 17% of their budgets on innovation. You can read the full report here.

On the infrastructure front, Panama approved a resolution declaring the construction of the Fourth Bridge over the Panama Canal to be a project of “public interest.” The move opens the door to concessioning the project, meaning that the Ministry of Public Works (MOP) would no longer be on the hook for paying for it. Instead, ENA, the state-owned highway operator, would be in charge of the concessions.

The financing mechanism isn’t set in stone yet — ENA will likely foot the bill for US$300 million, while the government will put in US$600 million, and the remaining US$600 million will come from the private sector. ENA’s part may be paid for via tolls on the country’s northern, southern and eastern highway corridors, but that’d mean renegotiating the bonds issued for each of those highways — a messy undertaking.

The US$1.42 billion contract to build the bridge was awarded to a consortium made up of China Communications Construction Company and China Harbour Engineering Company in July. The project entails designing and building a six-lane bridge over the Panama Canal, with two additional monorail lanes for Line 3 of the Metro. The bridge will connect the western part of the country with Panama City and the bridge will be able to accommodate post-Panamax vessels to navigate the Canal.

In tourism news, hotel occupancy rates are continuing on their downward spiral, with a 6% drop between January and June this year. Nightly prices are down across the board and the workforce is unfortunately feeling the pinch: 5,000 hotel workers have lost their jobs this year. The Tourism Authority blames the strong dollar for enticing visitors to look elsewhere — we’d tend to agree. But that’s not slowing Copa Airlines down from expanding its fleet, as it’s set to add 25 new super fuel efficient Boeing MAX 9s over the next few years, saving Copa 10-14% per seat.

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