CREDIT PARADISE

Are you in the shopping season? Do you desire a new home? Making your dreams true was never this easy. At least this is what local banks seem to be claiming.

Banks are in a mission to obtain the largest quantity of clients in the mortgage section, pushing for credit expansion.

More than 19,000 mortgages were approved last year, surpassing 3,526 million dollars in commercial credits, which meant a growth of 55%.

The growth is caused mostly by the Preferential Interest Law, which promotes the purchase of residences with a value of up to $62,500.

With interest rates of 3.2% to 4% below the current interest rate, the Law 65 of October 29, which is in act until 2008, promotes the construction of housing designed in mind for Panama’s middle class.

Likewise, housing valued up to $16,000 will be benefit with a 2% preferential rate, which has opened the frame of options for those who earn minimum wage.

The biggest part of the banking target is precisely in these segments, which represent a total of 60% of all mortgages given in 2004. In 2005 the market continues showing a strong growth of 12.3%.

The most important factor is that these Banks try “hook you” in part of their growing strategy. In the 30 term you have for your mortgage – you are offered other financing options such as improvement loans, debt consolidation and capital investment, which permits prolonged relationships with customers.

(Villa Camila - Azuero - Pedasi - Panama)

In Panama, the initial mortgage market expansion began after Banks were liberated in the early 70s. Today the stable Panamanian economy has allowed for a long term mortgage market.

Also, international Banks are taking the initiative of getting into the market and try to win more clients and lower interest rates.

Another factor which has improved the mortgage growth is the elimination of the guarantor, which used to be indispensable to obtain a credit.

According to Juan Luis Moreno Villalaz, economic advisor for el Ministerio de Economía y Finanzas, the most representative feature of the Panamanian banking market is the direct discount from an employee’s salary to pay for the mortgage. This tradition dates back several decades and it includes public and private institutions. Even retirees can get discounts from their Social Security or pension checks.

The dollar is another point in our favor because it allows the participation of international Banks, which generates a large amount of financial funds. With the balance strongly in our favor, bankers consider Panama to be the mortgage paradise of Latin America.

Nora de Lobo, Consumer manager from BAC Panama, stresses the importance her bank sees in the mortgage segment. De Lobo comments “we are starting out in the preferential interest rate market, which will allow for us to expand our product and service variety in this ever growing economic segment.”

With this strategy BAC – which has an interest rate starting at 4.75% annually up to 25 years and is projected to grow more than 50% at the closing of 2005.

Banistmo, considering the first bank of the country, also continues with the same strategy. In the first couple of months this year, the bank has given more the 1,300 loans. At the end of the year they predict more than 100 million dollars lend to clients wishing to purchase a home.

It is predicted that by the end of 2005, Banistmo will have a mortgage portfolio of over 550 millions.

In the meanwhile, BBVA, which started in the mortgage market in 2001, has a portfolio close to 100 million, which makes it the fifth largest bank.

“This is very satisfying because we have understood our clients’ needs and with them in mind we’re offering them the necessary service” said BBVA’s manager, Felix Perez Parra.

BBVA began in the credit market with homes worth over $62,500, which means that the interest rates were not subsidized by the government. However since 2004 the bank gives mortgage credits of preferential rates to 90% of their clients.

The attractive mortgage market is tied to the changes made by the US Federal Reserve which went from 3% to 3.25% according to the Open Markets Committee. However, the FED has stated that their movements will be moderated.