Latin Finance - November 2008 - 42

of the 2008 General Still Commands t has been over a year since Panama’s Banco General completed integration with Banco Comercial, creating a national champion with $7.2 billion in assets, 21% of the system’s private loans and 25% of local deposits. With HSBC still working to fully consolidate Banistmo, General still has a dominant position – for now. It is on this strength that the institution retains the title of LatinFinance Bank of the Year for Panama. “It will be a tougher market going ahead, and costs are going to go up,” says Raul Alemán, General’s executive vice president and general manager. Like most banks in the region, Panama’s did not suffer subprime losses, but they are exposed to the ensuing economic slump. Alemán says the biggest negative impact has been on institutional lending, although that only accounts for 12% of General’s business. Profitability is rising, with ROA and ROE at 3.25% and 30.45% as of mid-year, according to the banking regulator. This compares to 2.4% and 19.3%, respectively, at the end of 2007. To fend off competition from powerful immigrants like HSBC and Citi, General must leverage a strong retail lending position to focus on project lending. S&P notes that despite a leading market position, the bank is too concentrated in residential mortgages and construction. Alemán expects continued opportunity going forward in the hotel and tourism sectors, with demand for hotel rooms and vacation residences still strong. Before the October meltdown, Fitch expected Panama to grow at 8% this year, down from just above 11% last year. But as the developed world continues to deteriorate, Alemán’s hopes may be thwarted on the demand side. “We’re also looking at other businesses related to the banks, like insurance companies, private banking as segments of opportunity,” says Alemán. Much of the upside should come from project financing, the banker adds. However, slower economic expansion means that I Panama Best Bank – Banco General the remainder of this year and 2009 might not be the time for the big projects. Alemán says new transactions will likely be smaller than the $366 million bond financing it led last year to support AES’s 223 megawatt Changuinola hydroelectric plant. General is gearing up for mining projects, hydroelectric generation, port expansions and other government projects, including expansion to Panama City’s airport. “There should be some project finance opportunities with some of the subcontractors working on the Panama Canal opportunity, says Alemán canal expansion,” Alemán says of the hemisphere’s biggest infrastructure project, and the largest opportunity for lenders. Banco General does not foresee lending directly to the canal, as multilateral agencies should meet most, if not all, of the needs. Securing funds will trickier after the global crisis, which sparked an exodus from emerging markets. General raised $160 million through a syndicated loan from Unicredit and BNP in June. The Libor plus 75 basis points and 85 basis points it is paying on tranches of two and three years, respectively, will not be available in the foreseeable future. Alemán is working with the IFC to get medium-term financing. He expects more opportunity for borrowing will come directly from multilateral banks in the next few years. General meanwhile filed with local regulators in October for its first perpetual bond, to be launched in local markets before the end of the year, says Alemán. It can issue as much as $200 million, he explains, but the size remains to be determined. The total will likely be sold in small installments, the banker adds. It remains to be seen how much yield investors will demand, and whether that makes sense for General. Meanwhile, holding company BG Financial Group has filed to list shares on the local market, a move which would increase both its own stature and that of the exchange as it tries to become a regional hub. However, the market downturn has suspended that plan, along with every other IPO in the region. “At this moment we have a very strong capital base,” says Alemán. “There is no need for any more shares in the market.” General is also looking to expand modestly cross-border. It upgraded its representative office in Costa Rica this year to a general license presence, and is staffing and moving into a new headquarters early next year. This is still a small operation, Alemán explains, and will focus on corporate clients. Diminutive operations in Colombia and Mexico also provide corporate and trade finance to Panamanian clients with operations in Central America. “Our strategy in Central America is basically to cater to the big corporations that have operations throughout the different countries,” Alemán concludes. LF 42 LATINFINANCE November 2008

Latin Finance - November 2008

Table of Contents for the Digital Edition of Latin Finance - November 2008