IMF Executive Board Concludes 2023 Financial System Stability Assessment with Panama

IMF News, January 9, 2024

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The Financial Sector Assessment Program (FSAP) with Panama concluded on December 1, 2023 without convening formal discussion.
The Financial System Stability Assessment (FSSA) report was completed on November 9, 2023.
The report is based on joint IMF/World Bank FSAP missions to Panama in January–February and May–June 2023.
Press Release No. 24/03.

Main risks stem from potential external shocks, including:
- a resurgence in global macroeconomic uncertainty from regional conflicts,
- further rising interest rates in the United States,
- higher crude oil prices.
Banking-sector findings from stress testing:
- The banking sector, which dominates Panama’s financial system, appears to be well capitalized, liquid, and generally resilient against these risks according to a stress test that simulated a hypothetical, severe downturn scenario.
- Some pockets of weakness were revealed.
- Banks appear solid in terms of liquidity coverage.
- The system relies strongly on foreign correspondent bank support.

Oversight of the banking sector:
- The FSAP found oversight to be generally sound, contributing to Panama’s status as a relatively stable financial center in the region.
- Material weaknesses exist in some areas of banking sector oversight.
Crisis management and financial safety nets:
- The framework for crisis management and financial safety nets needs to be addressed and improved.

Strengthen the autonomy and focus of the Superintendency of Banks:
- Safeguard the autonomy of the Superintendency of Banks and ensure that its objectives focus on financial stability.
Capital framework enhancements:
- Strengthen the capital buffer framework for internationally active banks in alignment with the Basel III capital standards, including by introducing the capital conservation buffer and capital surcharges for domestic systemically important banks.
Macroprudential framework improvements:
- Improve bank stress testing.
- Develop a real estate price index.
- Establish additional borrower-based macroprudential policy toolkits.
Financial safety-net, resolution, and crisis-management measures:
- Create a deposit insurance system.
- Establish an official lender of last resort facility and emergency liquidity assistance.
- Adopt revised legislation on bank resolution.

Maintaining progress on AML/CFT reforms is a key priority.
Panama’s recent removal from the Financial Action Task Force’s grey list is welcome.
Risks from failure to consolidate recent progress:
- Failure to consolidate recent progress on the AML/CFT framework risks undermining international confidence in Panama’s financial sector.
Specific AML/CFT actions recommended:
- Address risks emerging from virtual assets.
- Improve the collection of and access to beneficial ownership information.
- Implement specific measures of control to prevent the misuse of nominee shareholders and directors.

The Financial Sector Assessment Program (FSAP), established in 1999, is a comprehensive and in-depth assessment of a country’s financial sector.
FSAPs provide input for Article IV consultations and thus enhance Fund surveillance.
FSAPs are mandatory for the 47 jurisdictions with systemically important financial sectors and otherwise conducted upon request from member countries.
The key findings of an FSAP are summarized in a Financial System Stability Assessment (FSSA).
The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.

IMF Executive Board Concludes 2023 Financial System Stability Assessment with Panama