Fitch downgraded key Panamanian banks following the Republic's recent assessment and negative valuation of the financial Operating Environment

PANAMA - In Brief 11 Feb 2021 by Marco Fernandez

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As the result of the February 3 downgrade of Panama's Sovereign risk by Fitch Ratings from BBB to BBB-, the agency downgraded yesterday five important Panamanian banks - including the state-owned Banco Nacional de Panama (BNP). Banco General, the largest private bank in the country, dropped two notches to BBB- but still retained its investment grade category (IG). BNP moved down from BB to BBB-, in tandem with the Republic. But Global Bank, Credicorp Bank, and MMG Bank lost their IG category by dropping one notch, now rated as BB+, as they are now "fallen angels". The foreign banks with operations in Panama retained the IG, but the ratings were also damaged. The leitmotif of this new action is that banks are piggy-backing on the depression of economic activity (estimated between -17-7% from Fitch and -18.2% in our most recent estimate) and - more importantly for us - on the weak Operating Environment (OE) of the financial system.As we commented previously, health authorities (not the economic authorities) declared in Panama the toughest lockdown of people and the economy in the region, shutting down around 55% of GDP since April (according to the GSP report for December). Uncertainty prevailed during that period because slight improvements in the contagion numbers led to timid openings of a handful of activities, which induced more contagions. Thus the "zwing-zwang" became the norm rather than the exception and continues as we write this report. The private sector is complaining about the lack of commitment by the government to re-open the economy, but to no avail. Still, the epidemiolocal results were among the worst in the world, measured by deaths per capita. The Re...