1. NS4540 Winter Term 2017 Panama: Offshore Banking Sector
Panama Key issues 2016 Inclusive Growth in Panama

2. Overview I
Offshore banking accounts for a large share of Panama’s international banking center (CBI)
As offshore financial centers (OFC) have come under heightened scrutiny due to international initiatives to strengthen financial integrity, improve transparency and fight tax evasion
As of December 2015 Panama’s CBI consists of 92 banks:
51 of which have general banking license,
27 international licenses, and
14 are representative offices of foreign banks

3. Overview II
General license banks considered the national banking system (NBS) or the “onshore” sector
Can conduct all types of banking operations in Panama and abroad.
The international-license banks are the “offshore” sector
Are not allowed to conduct domestic banking operations
Can only collect deposits from non-residents and allocate credits abroad
The resident representative offices only allowed to promote the business activities of their foreign-owned parent banks
They cannot have any banking operations

4. Overview III
Recent initiatives to strengthen financial integrity, improve transparency and fight tax evasion have raised the operating costs of many financial centers
Many involved in increased scrutiny
G-20
FATF
Global Forum on Tax Transparency
FSB and
Others
Banks increasingly required to intensify their efforts at ensuring adherence to information-sharing standards

5. OBS in Panama I OBS in Panama is a large portion of the banking sector
Total assets of Panama’s banking center at end of December was $118.5 or about 227% GDP
Offshore segments constitutes roughly one fifth of the banking center with assets of $20 billion or 38% of GDP

6. OBS in Panama II
The offshore segment has evolved broadly in line with the rest of the banking sector
Banking sector has grown at roughly same rate as Panama’s GDP over the last decade
The global financial crisis has a small impact limited to a short interval in 2009
Banking center has doubled in size since 2009
Offshore banks’ assets followed a roughly similar trend with the CBI although their share of GDP declined from 50% in 2010 to 40% in 2015

7. OBS in Panama III
Linkages of OBS with the rest of Panama’s financial system are very limited
While offshore banks can conduct interbank transactions with the onshore banks, scope of such transactions very limited
Only 1.3% of offshore banks’ assets are held in Panama, many of them in the form of deposits at local banks
At the same time, domestic liabilities represent only about 0.3% of offshore banks’ total liabilities.

8. OBS Effects on the Real Economy I
OBS can
Create jobs in the domestic economy.
Through improved training of local workforce to meet requirements of international-license banks can lead to higher human capital
Increase demand for housing and accommodation
Support diffusion of modern technology and knowhow and
Facilitate FDI inflows in the local economy
Many hard to quantify – focus on
Employment
Local expenditures and
Government revenue

9. OBS Effects on the Real Economy II
OBS accounts for a stable share to total banking center employment
Recent years offshore banks have accounted for jobs in the Panamian economy
However the offshore banking segment has been significantly less labor- intensive compared to the onshore part
While offshore banks account for a fifth of CBI assets they only employ about 3.5% of CBI’s workforce
Employment in the offshore banking sector

10. OBS Effects on the Real Economy III
Local expenditures
OBS accounted for about $55 million in local expenditures in or 0.1% of GDP
While the nominal value of wages, administrative and general expenses almost doubled from 2010 to 2015, it share remained around 0.1% of the domestic economy.

11. OBS Effects on the Real Economy IV
OBS revenue contribution
Offshore banks exempted from profit taxes they pay a number of fees and taxes
Overall these amounted to about $6 million in 2015 or 0.1% of total government revenues

12. Assessment
While offshore banking accounts for a sizeable portion of Panama’s banking center, its linkages to the rest of the financial center are very limited
Different picture where offshore financial centers in the smaller Caribbean economies accounts for up to a tenth of the local economy and often close to half of all public revenues
Areas not quantifiable may contribute much more –
Offshore financial services,
spillovers from offshore banking to FDI, and
tourism.