Banking Competition Back in Panama

Banking Competition Back in Panama

For Panama’s banks, it has long been a familiar refrain: the foreigners are coming. Raúl Alemán, chief executive of Banco General, Panama’s largest bank by assets, told LatinFinance that while good competitors are coming into the country, particularly from Colombia, his bank is undaunted by the shifting dynamics. Growth in the country should bring more.

“The international flavor has changed,” Alemán said. “It’s going to be more of a regional center. Those banks will support Colombian companies in the region. They are good banks, so competition is going to be as tough as it was with other international banks.”

Bancolombia in February paid $2.1 billion cash for HSBC’s Panama operations, in a deal that instantly made it the number two bank in a fast-growing market. Grupo Aval, owner of Banco de Bogotá, agreed this year to buy BBVA’s Panama operation for $646 million in cash and a dividend.

For years, international investors have been drawn to Central America’s most sophisticated banking sector. Vying for regional expansion, global banks entered the market in the middle of the last decade, including HSBC, which in 2006 snapped up Panamanian lender Banistmo. The global banks have since retreated in the face of tightening global regulation and more stringent capital requirements — but the foreign incursions have hardly let up.

Impressive economic growth should keep foreigners coming, Alemán said. Panama grew at 11% in 2011 and again in 2012, according to the World Bank, and is forecast to grow around 7% this year. The pace has varied in recent years — as low as 4% in 2009 — but Alemán expects that growth will smooth out in the next few years.

Panama is not alone in seeing banking M&A. Looking across Central America, Alemán said a regional acquisition by Banco General is not out of the question. Price, however, is a consideration. At the time of HSBC’s sale, analysts calculated the deal cost around three times net asset value and around 16 to 17 times earnings.

“We are looking at opportunities in the region,” Alemán said. “If a good opportunity comes that make sense to us we will do it.”

General already has representative offices in Central America and Mexico. Alemán singles out Guatemala, in particular, as a good, growing economy where the bank could expand.

“The Colombian banks have been raising the prices for operations,” Alemán said. “We feel they are too expensive.” LF

For the full interview with Alemán and other regional banking leaders, as well as a breakdown of the 2013 Banks of the Year winners, see the November/December edition of LatinFinance.