Banking on China

ICBC continues Latin American expansion with Panama branch.

The Industrial and Commercial Bank of China (“ICBC”) launched operations in Panama in early June, thus expanding its presence in Latin America to five countries in the region. ICBC obtained the licence to operate in Panama in June 2020 after registering a USD 50 million share capital. ICBC will be focused on institutional and financial clients.

In addition to ICBC, three additional Asian banks such as Bank of China Limited, Keb Hana Bank and Mega International Commercial Bank Co. Ltd. operate in the country. These banks are keen to tap into the financing opportunities offered by Panama’s investment projects. At the same time, the government plans to encourage to participate in public tenders for infrastructure projects.

An executive vice president at a Panamanian bank observed, “The arrival of ICBC (and other Asian banks) is really important for Panama. My understanding is that the aim is to finance the infrastructure projects of Chinese and other Asian companies both in Panama and in the region. A second purpose would be to finance commercial activities that Asian companies could start in Latin America. Regardless, the fresh capital and promotion of such companies to develop projects and promote new ventures, will be highly positive for the country.”

“The arrival of ICBC (and other Asian banks) is really important for Panama. My understanding is that the aim is to finance the infrastructure projects of Chinese companies.”

Executive vice president, Panamanian bank

According to Moody’s, banking liquidity in Panama has recently benefited from bank financing instruments, capital market issuances, higher deposits from private clients and savings to meet immediate liquidity needs. In addition to greater liquidity, the banking EVP sees ICBC lower cost of capital as a benefit, “Asian banks have a very low cost of capital and can lend at much lower rates than local banks. While they gain experience in terms of credit risks and the local market, they may choose to grant lines of credit to these local banks. At present, many Panamanian banks do not have lines of credit from international banks so this is a real opportunity.”

In terms of competition, a former director of a commercial bank in Panama did not see an immediate risk, “I doubt these banks will start financing mortgages, car purchases or credit cards in the first instance, the focus seems to be on infrastructure and financing the activities of Chinese and other Asian companies. Therefore, I do not believe their presence will be too disruptive for local banks.”

“I doubt these banks will start financing mortgages, car purchases or credit cards in the first instance. Therefore, I do not believe their presence will be too disruptive for local banks.”

Former director, commercial bank, Panama

The sheer scale of ICBC could have an impact on the competitive environment, according to the banking EVP, “A bank as large and as powerful as ICBC cannot enter a market without causing some unease among established banks, Panama is no exception. With very few exceptions, all the banks here are local and do not even remotely compare with ICBC in terms of scale. Whatever the next step is, we’re definitely going to feel it.”

Both Panamanian authorities and businesses have welcomed Chinese investments and interests in the country in recent years. In 2017, Panama established diplomatic relations with Beijing and Chinese investments poured in the country. These included a USD 1 billion deep-water port and logistics centre in the Margarita Island and the Panama Colón container port, among a dozen additional large projects. Thus, ICBC’s arrival is part of an increasing trend of Chinese and Asian interests in the country.

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