CREDIT AND LOAN REPORTING SYSTEMS IN PANAMA

Transcription

1 WESTERN HEMISPHERE CREDIT AND LOAN REPORTING INITIATIVE CENTER FOR LATIN AMERICAN MONETARY STUDIES FIRST INITIATIVE THE WORLD BANK CREDIT AND LOAN REPORTING SYSTEMS IN PANAMA CREDIT & LOAN REPORTINGWestern Hemisphere 2011

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4 WESTERN HEMISPHERE CREDIT AND LOAN REPORTING INITIATIVE

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6 WESTERN HEMISPHERE CREDIT AND LOAN REPORTING INITIATIVE Credit and Loan Reporting Systems in Panama 2011 CENTER FOR LATIN AMERICAN MONETARY STUDIES FIRST INITIATIVE THE WORLD BANK

7 First English Edition, 2011 Published also in Spanish All rights reserved Centro de Estudios Monetarios Latinoamericanos, 2011 Durango 54, México D. F., ISBN Printed and made in México Impreso y hecho en México The opinions expressed in this paper are those of the authors and do not necessarily coincide with the position of the Center for Latin American Monetary Studies (CEMLA), FIRST Initiative or the World Bank. The authors are solely responsible for any errors of omission or commission.

8 Foreword In August 2004, following a request from the central banks of Latin America and the Caribbean, the World Bank and the Centro de Estudios Monetarios Latinoamericanos (CEMLA), with the financial support of the FIRST Initiative, launched the Western Hemisphere Credit and Loan Reporting Initiative (WHCRI). The objective of the Initiative is to describe and assess the credit and loan reporting systems of the Western Hemisphere with a view to identifying possible improvements in their efficiency and integrity. As part of the project structure, in August 2004 an International Consultative Committee (ICC) comprised of experts in various fields was established. In addition to CEMLA and the World Bank, the institutions participating in the ICC include multilateral institutions such as the Inter-American Development Bank (IADB), the International Finance Corporation (IFC) and the International Monetary Fund (IMF) and central banks such as the Bank of Canada, Banco de España and the Federal Reserve Bank of New York. To assure quality and effectiveness, the Initiative includes two important components. First, all studies are conducted with the active participation of country officials and the project builds upon the existing work undertaken in the respective country. Second, the Initiative draws upon international and national expertise on the subject, through the ICC, in order to provide guidance, advice and alternatives to current practice. The Initiative has undertaken a number of activities in response to requests by central banks from Latin America and the Caribbean. These include: the preparation of public reports containing a systematic in-depth description of each country s credit and loan reporting systems; the delivery of a confidential recommendations report to the authorities of each country; the organization of ICC meetings to review country studies and provide input for future work; the organization of workshops focusing on topics of specific interest; the creation of a web page ( to present the Initiative s products and other information of interest in the field of credit reporting; and the promotion of working groups to ensure continuity in project activities. CEMLA acts as the Technical Secretariat of the Initiative, with the main objective of making this process sustainable and extending activities to all countries within the Hemisphere. To this end, the Initiative has helped strengthen CEMLA s in-house expertise and broadened knowledge and the transfer of know-how across the Region. The efforts of the Working Groups coordinated by CEMLA shall maintain the structure created under the Initiative and will provide a permanent forum for the countries in the Region to discuss, coordinate and lend a collective impetus to work in the field of bank credit and loan reporting systems. This report, Credit and Loan Reporting Systems in Panama, is one of the public documents in the series and it has been prepared by a multinational team in collaboration with representatives from the Ministerio de Economía y Finanzas. Javier Guzmán Calafell Director General CEMLA Pamela Cox Vicepresident, ALC World Bank Janamitra Devan Vicepresident, Private and Financial Sector World Bank vii

9 Acknowledgements This report is based on the findings of a mission which visited Asuncion in May The report was prepared by members of an international team that included Corina Arteche Serra, Jane Hwang and Fredes Montes (World Bank), Matías Gutiérrez Girault (Consultant) and Raúl Morales (CEMLA). The multinational team worked in cooperation with the local team comprised of staff from the Ministerio de Economía y Finanzas (MEF, ministry of economy and finance) and the Superintendencia de Bancos de Panamá (SBP, superintendency of banks of Panama). viii

10 Table of Contents 1. ECONOMIC AND FINANCIAL MARKETS BACKGROUND Main Reforms in Recent Years Banking Sector Recent Reforms Current Structure Other Major Credit-Granting Institutions in the Financial and Non-financial Sector Leasing Companies Other Non-Bank Financial Firms The Current Credit Market Key Issues in Business Finance Key Issues in Consumer Finance Major Trends in Credit Reporting INSTITUTIONAL ASPECTS Legal Framework Privacy Bank Secrecy Consumer Protection and Quality Assurance The Role of Financial Institutions Credit Reporting Agencies Banking Sector Others The Role of the Authorities Ministerio de Economía y Finanzas Superintendencia de Bancos de Panamá Autoridad de Protección al Consumidor y Defensa de la Competencia Page ix

11 2.3.4 Ministerio de Comercio e Industrias Banco Nacional de Panamá PRIVATE CREDIT REPORTING FIRMS Antecedents Asociación Panameña de Crédito Control and Governance Information Sources Users Services Pricing Policy Procedures and Policies to Insure Information Quality Procedures and Policies for Risk Management Rights of Individuals and Firms to Access Information and Resolve Disputes Information Disclosure Policies PUBLIC FINANCIAL INFORMATION REGISTRIES Antecedents Central de Riesgos de la Superintendencia de Bancos Main Objectives of the Registry Information Sources Users Services Procedures and Policies to Insure Information Quality Procedures and Policies for Risk Management Information-Disclosure Policies INTERACTION WITH OTHER COMPONENTS OF THE FINANCIAL INFRASTRUCTURE Payments Systems and Instruments Page x

12 Page 5.2 Registro de Garantías Others Dirección General de Ingresos Caja de Seguro Social Registro Civil APPENDIX: Statistical Tables LIST OF ABBREVIATIONS List of Tables Table 1. Composition of GDP by Economic Sector Table 2. Macroeconomic indicators Table 3. Main Reforms to the Panamanian Banking System Table 4. Composition of the Banking System Table 5. Regulatory Framework for Panama s Credit Reporting System Table 6. APC Ownership Structure.. 19 Table 7. APC Reporting Institutions Table 8. Fees for APC Membership and Services by Number of Inquiries Table 9. Central de Riesgos Registries List of Figures Figure 1. Gross Domestic Product at Constant Prices.. 1 Figure 2. Panama: External Sector Indicators. 2 Figure 3. Consumer Price Index and Inflation Rate. 2 Figure 4. Main Account Balances of SBN Institutions. 6 Figure 5. National Banking System Performance Indicators 6 Figure 6. Panama: Leasing Companies.. 7 xi

13 Page Figure 7. Financial Entities Registered in the MICI. 8 Figure 8. Evolution of Loans to the Private Sector and Non-Performing Loan Rate.. 9 Figure 9. Credit Granted by Financial Sector Institutions. 9 Figure 10. Evolution of Consumer Loans. 10 List of Charts Chart 1. Sample APC Credit Report Chart 2. Sample APC Score. 23 xii

14 1 ECONOMIC AND FINANCIAL MARKETS BACKGROUND Panama s economy has been dollarized since Nevertheless, a monetary conversion mechanism based on the nation s currency (balboa) is used. This means that transactions between economic agents can be denominated in US dollars (USD) or balboas (PAB). The Panamanian economy has performed favorably during recent years, registering average annual GDP growth figures of around 8% ( ). However, just as in other countries of the region, the unfavorable external environment had a negative impact on Panama s economy in 2009, slowing economic growth to 3.2% (figure 1). FIGURE 1. GROSS DOMESTIC PRODUCT AT CONSTANT PRICES constant prices in billions of balboas (left) and annual variations percentage (right) Annual variation GDP SOURCE: Elaborated with data provided by Instituto Nacional de Estadística y Censo. % However, according to figures from the Instituto Nacional de Estadística y Censo (INEC, national institute of statistics and census), in 2010 the GDP grew 7.5%. Such result was much higher than the average growth recorded by the region as a whole and was in contrast to several countries which actually exhibited negative behavior. In addition, after experiencing difficulties due to climatic factors, the primary sector also began to recover. As can be seen in table 1, the composition of GDP has not undergone any major changes during the last few years. The services sector is the main driver of the economy, TABLE 1. COMPOSITION OF GNP BY ECONOMIC SECTOR Participation in percentage Primary Sector Industrial Sector and Construction Commerce and Services Sector SOURCE: Own elaboration with data provided by INEC

15 followed by the industrial sector and construction. The primary sector has a relatively small weight, contributing with 5.7% to Panama s economy. Regarding the behavior of the external sector, although Panama does not face financing difficulties, the deficit in the trade balance increased in 2010, registering similar levels to those observed in previous years as illustrated in figure 2. Thus, in 2010 merchandise exports amounted to USD 11,330.4 million, while merchandise imports were USD 15,945.8 million. Meanwhile, foreign direct investment has remained relatively stable over the last five years. FIGURE 2. PANAMA: EXTERNAL SECTOR INDICATORS Billions of USD p Trade Balance Exports Imports FDI SOURCE: Own elaboration with data provided by Instituto Nacional de Estadística y Censo. N OTE: p stands for preliminary figures. As for price behavior, inflation rose throughout the decade, reaching 8.7% in 2008, almost double the average level observed during the six preceding years. This result mainly obeyed to increases in prices of foods and transport, among others. However, as can be seen in figure 3, the situation improved substantially in 2009 and 2010 with annual inflation rates close to three percent. FIGURE 3. CONSUMER PRICE INDEX AND INFLATION RATE Consumer price index, 2002 = 100 (left) and annual inflation in percentage (right) % 130 CPI Inflation SOURCE: Own elaboration with data provided Instituto Nacional de Estadística y Censo

16 TABLE 2. MACROECONOMIC INDICATORS GDP (annual growth rate) Imports (in millions of 8, , , , , ,945.8 USD) Exports (in millions of 7, , , , , ,330.4 USD) Current account balance (as percentage of GDP) Average consumer price index (annual growth rate) Interbank interest rate Exchange rate (nominal end of period) na na na na na na SOURCE: Own elaboration with data provided by INEC and SBP. NOTE: The following notation conventions are used throughout this report: na shows that data is unavailable. 1.1 MAIN REFORMS IN RECENT YEARS In 2004, fiscal reform was approved in Panama designed mainly to establish advanced income tax payments for individuals and firms, calculated at a rate of 1.4% of gross income from sales for all companies except small businesses. This advanced payment was meant to function as a minimum tax in order to improve collection of taxes on firms revenues. However, due to the impact of this reform the Ministerio de Economía y Finanzas (ministry of economy and finance) decided to revise its implementation. Later, in 2009, Panama s government submitted to its legislature a series of changes to the fiscal regime emphasizing tax exemptions for some import and export activities specifically designed to bolster focalization and the application of taxes. This reform had been approved at the time of writing this report. Meanwhile, the regime of Panama s Caja de Seguro Social (CSS, social security agency) was reformed in This body suffered from operational difficulties amounting to 120% of GDP which led to approval of a new law aimed at making financing this public agency viable. More recently, the Ministerio de Economía y Finanzas implemented a program named Plan Estratégico de Gobierno (Resolución No. 163, December 2009), which included an economic and social plan stipulating the programming of public investment and improved financial planning. The Plan Estratégico de Gobierno includes criteria for allocating public resources to priority areas of the economy based on the fiscal reform promoted by Panama s government

17 1.2 BANKING SECTOR Recent Reforms Panama s banking sector has grown significantly over the last few years and in order to respond to the market and ensure compliance with international norms and best practices, the Superintendencia de Bancos de Panamá (SBP, superintendency of banks of Panama) has reformed the banking sector s legal and regulatory framework. In general, the reform of the Ley Bancaria (through Decreto Ley No. 52, 2008) strengthened the SBP s regulatory and supervisory powers basing itself on four main pillars: a) increase the reach of regulation and oversight to include all institutions and activities which, according to the SBP, could represent a potential risk for the banking sector; b) improve transparency and the protection of bank customers; c) establish new mechanisms and procedures for recovering savings in cases of bankruptcy; d) improve human resources by creating the career of banking supervisor. Some of these modifications to the financial system are shown in table 3. TABLE 3. MAIN REFORMS TO THE PANAMANIAN BANKING SYSTEM General regulations and guidelines for the SBP Definitions, licenses and operations of the banking business Confidentiality: The SBP s role is stipulated and strengthened. The SBP is given greater involvement in the oversight and control of banking institutions. It is established as the body responsible for the transparency of banking transactions. Banking business definitions are restricted and outlined. Bank operating licenses are clearly identified, thereby establishing their capacity for offering financial intermediation services. Right to banking confidentiality. Transfer of the obligation for maintaining the confidentiality of data in information processing bodies such as credit bureaus. Review of the nature of information which should be treated as public. SOURCE: Own elaboration with data provided by Superintendencia de Bancos de Panamá. The Superintendencia de Bancos also strengthened several aspects related to the oversight of Panama s banking system during These legal actions included: Adjusting regulations for savings and time deposits (Acuerdo No , October 22, 2009). Establishing obligation bonds for calculating the legal liquidity index (Resolución General No. JD , July 6, 2009), which was added to existing guarantees

18 Norms for calculating capital funds for high credit risks (Acuerdo No , June 9, 2009). Regulations on the content, form and frequency of the information banks must provide to the SBP (Resolución General No , October 28, 2009). Risk concentration limits applicable to economic groups and their related parts (Acuerdo ). Regulations on the disposal of property acquired by banking institutions (Acuerdo ). Acuerdo updating regulations on idle goods. Regulations on integral risk management, banking inspection, and guidelines on the integrity and veracity of financial statements (Acuerdos , ) Current Structure Panama s banking system has become more important in recent years, not only at the local but also the regional level. Panama is a financial center composed of banking institutions regulated under the Ley Bancaria (banking law), which authorizes them to practice the financial business. The national banking system (NBS), i. e. the group of banking entities with general license and firms that are authorized to grant credit to individuals and businesses in Panama, consists of 49 institutions, 47 of which are private banks with general license and two are state owned (official banks). Panamanian regulations allow for the operation of offshore banks. These institutions together with the NBS make up the Centro Bancario Internacional (international banking center). Besides the NBS, there are more than 500 institutions operating as financial intermediaries, including microcredit firms and financial companies, among others. These institutions which play an important role in the access to consumer credit are regulated by the Ministerio de Comercio e Industrias (MICI, ministry of commerce and industry). TABLE 4. COMPOSITION OF THE BANKING SYSTEM By the institution s capital ownership Banks with general license Private Public SOURCE: Own elaboration with data provided by Superintendencia de Bancos de Panamá

19 FIGURE 4. MAIN ACCOUNT BALANCES OF NBS INSTITUTIONS Interannual variation in percentage Assets Deposits Liquid Assets Equity 0.2 I II III IV I II III IV I II III IV I II III IV I II III IV I II III SOURCE: Own elaboration with data provided by Superintendencia de Bancos de Panamá. IV The NBS is supervised by the Superintendencia de Bancos de Panamá. There are both domestic and foreign private banks. The latter accounted for 53.1% of the banking system s total assets at December The liquidity maintained by banks in Panama is set out by the banking regulations which state that at least 30% of their total assets must be liquid. However, in practice banking institutions have a liquidity index of above 60% (including liquid assets and investments). The performance of national banking system during recent years has been characterized by significant expansion in the volume of assets and deposits, registering average annual growth rates of 13.5% and 15.3%, respectively, while net worth has grown at an average annual rate of 19%. The high level of liquidity held by banking institutions is also noteworthy. After the international financial crisis had affected different regions of the world, the performance of Panamanian banks remained positive, although it grew at slower rates than those observed between 2005 and FIGURE 5. NATIONAL BANKING SYSTEM PERFORMANCE INDICATORS Net profit/ equity ( ROE) and capital/ total assets ( CAP), in percentages 22 ROE CAP 10 I II III IV I II III IV I II III IV I II III IV I II III IV I II III SOURCE: Own elaboration with data provided by Superintendencia de Bancos de Panamá. IV

20 The national banking system indicators show financial soundness and a positive performance during the last six years. Banks average profitability was 15.68% with a maximum level of 21.13% (2008Q1) and a minimum of 11.35% (2009Q4). These profits were accompanied by very stable capital solvency during the same period, reflected in an average capital to total assets ratio of 12.95%. The capital solvency coefficient was 12.11% in 2010, which, although below the average observed during the previously referred period, is higher than international requirements and practices. 1.3 OTHER MAJOR CREDIT-GRANTING INSTITUTIONS IN THE FINANCIAL AND NON-FINANCIAL SECTORS Leasing Companies Leasing enables firms and individuals in Panama to sign contracts which considerably reduce the initial cost of financing their investment projects or production chains. In Panama, the Ministerio de Comercio e Industrias is responsible for authorizing and auditing leasing companies. There are currently 115 companies authorized to offer leasing contracts under the regulations of Decreto Ejecutivo No , which sets out the mechanisms for lessees and lessors. Among the institutions in the leasing business are financial groups and commercial banks which have a division specializing in such services. FIGURE 6. PANAMA: LEASING COMPANIES % Autorized by the Ministerio de Comercio e Industrias SOURCE: Own elaboration with data provided by MICI. Leasing companies have mainly increased their presence during the last two years (figure 7). However, according to MICI, these companies credit portfolios declined by around 5% in 2009 as compared to the preceding year

21 1.3.2 Other Non-Bank Financial Firms Among non-bank financial companies offering credit are firms dedicated to the furniture business, as well as other small companies. These financial firms generally start to grant credit after they receive authorization from the MICI to set themselves up as financial companies and offer credit options to their customers. Although 90% of financing to the private sector is provided by banking institutions, non-bank financial firms have increased their share of consumer credit. FIGURE 7. FINANCIAL ENTITIES REGISTERED IN THE MICI Participation in percentage Financial entities Pawnshops a Financial leasing SOURCE: Own elaboration with data provided by MICI. N OTE: a Does not include remittance service providers. Among the non-bank entities authorized by the MICI to carry out financial activities are pawnshops, furniture stores and foreign exchange houses. Pawnshops have strengthened their relative presence in the Panamanian market, while the number of financial and leasing firms has remained stable. 1.4 THE CURRENT CREDIT MARKET The behavior of loans granted by NBS authorized banks to the private sector has recently been characterized by relatively constant growth accompanied by prudent management of portfolio quality reflected in low delinquency rates and sound balance-sheets. Figure 8 shows two distinct periods of expansion: sustained expansion from 2005 to the first quarter of 2008 (annualized quarterly growth of 17.7%) and fluctuating growth from the second quarter of 2008 to the end of 2010 (average expansion of 7.7%). As for the quality of the credit portfolio, a reduction in the delinquency rate can be seen with this index declining from 2.23 to 1.40% between 2005 and Later between 2008 and 2010 the delinquency rate falls to 1.08%. Furthermore, the level

22 of capital provisions over past due loans remained above 100% (121.3%) during the last six years, reflecting appropriate credit risk management by banks and good debtor behavior regarding their repayment capacity. During the contraction of the loan portfolio, consumer (personal) credit totaled USD 5,207 million, business (commercial) financing was USD 6,570 million and the mortgage portfolio amounted to USD 6,806 million, figures equal to 28%, 34% and 38% of the total portfolio, respectively. The consumer, mortgage and business loan portfolios maintained their relative shares of the total portfolio. FIGURE 8. EVOLUTION OF LOANS TO THE PRIVATE SECTOR AND NON-PERFORMING LOAN RATE Total portfolio in millions of USD (left) and delinquency rate in percentage (right) Total loans NPL I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV SOURCE: Own elaboration with data provided by Superintendencia de Bancos de Panamá. FIGURE 9. CREDIT GRANTED BY FINANCIAL SECTOR INSTITUTIONS % Participation of the portfolio by type of loan in percentage Commercial Mortgage Personal SOURCE: Own elaboration with data provided by Superintendencia de Bancos de Panamá. Most mortgage, business and construction financing is covered by commercial banks, while a substantial segment of consumer credit is provided by non-bank financial institutions such as entities known as financieras and other non-financial companies, including trading houses and pawnshops

23 1.4.1 Key Issues in Business Finance Corporate loans in Panama have expanded considerably, particularly in response to private firms need to finance construction, external trade and services. Commercial banks are the main source of business financing. In spite of the contraction registered in 2009, credit channeled to business activities has grown 15% on average during the last five years. Thus, at the end of 2010, the corporate loans portfolio had expanded 78% as compared to its level in Key Issues in Consumer Finance Financing to individuals has also increased and has been fundamental in fostering domestic demand. As shown in figure 10, taking into account the NBS as a whole, consumer loans represent around 28% of total credit to the private sector. Within the latter share, 72% is personal loans, 15% is associated to credit cards, 11% is for automobile purchase and less than 2% is for microcredit. % FIGURE 10. EVOLUTION OF CONSUMER LOANS Participation of the total consumer portfolio by type of loan Personal Automobile Credit Card Microfinance SOURCE: Own elaboration with data provided by Superintendencia de Bancos de Panamá. In spite of the small share of microcredit in the total consumer credit portfolio, this type of loan has grown considerably in recent years, increasing 83% between 2006 and 2010, followed by automobile loans and loans granted through credit cards. 1.5 MAJOR TRENDS IN CREDIT REPORTING Panama s credit reporting system mainly consists of a private registry named Asociación Panameña de Crédito (APC, Panamanian credit association), a public registry run by the Superintendencia de Bancos de Panamá. The system also includes a significant number of public agencies and enterprises providing and using individuals and

24 firms credit references for taking decisions on the allocation of bank loans and credit or for the provision of services such as mobile phones. The sole credit bureau (APC) is responsible for collecting information on the market. Most firms with business activities as well as all financial institutions with loan portfolios provide this information. Meanwhile, the public registry (the SBP s credit registry) stores and uses all the information provided by the national banking system, functioning as a support for monitoring and safeguarding the soundness of Panama s financial system, overseeing banks credit exposure and banking supervision in general. The public currently does not have access to this information, although information from the SBP and APC, as well as a large amount of data from government organizations is publicly available. Credit bureaus are supervised by the MICI

25 2 INSTITUTIONAL ASPECTS 2.1 LEGAL FRAMEWORK The Sistema Bancario Nacional as well as internationally represented and licensed banks that make up the Centro Bancario Internacional, are regulated by the Ley de Bancos (Decreto Ley 52/2008 which modifies Decreto Ley 9/1998). The Ley de Bancos (bank law) lays the legal foundation for the authority of the Superintendencia de Bancos de Panamá to oversee all banking business. The Law recognizes banks as institutions practicing the banking business, i.e. collecting deposits from the public or other financial institutions or other means authorized by the Superintendencia de Bancos, and using these resources to grant loans, make investments or any other intermediary operation defined by the SBP. As for the legal and regulatory framework encompassing credit reporting systems, there are various regulations serving as a legal framework for the operation of private credit bureaus and public credit registries. In first place are the specific regulations on credit information registries approved in 2002 (Ley 24/2002) and amended in 2006, which serve as a basis for system participants to operate. Besides the Ley del Historial Crediticio (credit history law), there are other regulations regarding the development and functioning of credit information systems as shown in table 5. TABLE 5. REGULATORY FRAMEWORK FOR PANAMA S CREDIT REPORTING SYSTEM Relevant Law or Regulation Acto Legislativo 1/2004 Political Constitution (Articles 42-44) Ley 6/2002 Ley sobre Transparencia y Habeas Data (Transparency and Habeas Data Law) Ley 24/2002 Ley del Historial Crediticio (Credit History Law) Decreto Ley 2/2008 Ley de Bancos (Bank Law) Ley 25/1996 Ley de Protección al Consumidor (Consumer Protection Law) Ley 45/2007 Código de Comercio (Commerce Code, article 89) Decreto de Gabinete 238/1970 Regulation on Bank Secrecy Ley 26/2008 Código Penal (Penal Code) SOURCE: Own elaboration The Ley del Historial Crediticio stipulates that authorized credit reporting agencies (credit bureaus) are obliged to preserve and ensure the confidentiality, authenticity,

26 timeliness and security of debtors personal information contained in their registries. Ley 24/2002 also obliges private bureaus to properly manage the storage, and transmission of data collected from credit granting institutions in order for them to clearly reflect a customer s credit relationship with one or more financial institutions as well as their general level of indebtedness Privacy Panama s legal framework sets forth regulations on matters of individuals and firms data. Articles 42, 43 and 44 of the Constitución Política (political constitution) establish the legal protection of individuals data as an individual guarantee protecting their right to privacy in line with Panamanian law as well as international standards and agreements. The Constitución Política explicitly states (Article 42): every individual has the right to access personal information held in public and private databases, and request its rectification and protection as well as its removal, as stipulated by the Law. Such information may only be collected for specific ends and with the consent of the data subject or by order of the competent authority in accordance with the Law... The Constitución Política also states that individuals privacy and intimacy is in accordance with the needs of the State; given that its main responsibility is enforce the law. Article 17 of the Constitution states that public agencies can access individuals information and data, especially when it is suspected that criminal behavior or illegal practices are involved. In addition, the law of Habeas Data (Ley 6/2002) was passed in This Law grants individuals the right to request and receive the information held by the authorities and any other institutions in a truthful and timely manner (Article 2). The referred law also lays down the confidentiality of data (Article 1) deserving sensitive and confidential treatment, particularly that held by the State or any other public institution regarding individuals private information such as their psychological-medical condition, information on the private lives of individuals, family affairs, marital activities or sexual orientation, their penal history and any other information not considered suitable for public access. Meanwhile, chapter V of Ley 6/2002 lays down the right to promote Habeas Data, guaranteeing the right of access to information stipulated by said law Bank Secrecy Bank secrecy is a legal norm restricting the collection and distribution of credit information and other related data for use in the processing and sale of credit reports. In Panama these regulations are set out in article 74 of Decreto de Gabinete No

27 238/1970 which specifically forbids the distribution of any type of information related with bank debtors. Decreto Ley 52/2008 which modifies Decreto Ley 9/1998 reforming banking legislation, establishes the right to bank confidentiality (Article 111) and states that banks cannot distribute information on their customers or their operations unless they consent to it. Information can only be distributed without a customer s prior consent under the following circumstances: When the information is requested by an authority in accordance with the law. When they are provided in compliance with laws for the prevention of money laundering and related crimes. When rating agencies require it for risk analysis. Information held by the SBP on individual bank customers deserves strict confidentiality in accordance with the Ley de Bancos (Article 110) and can only be distributed at the request of a competent authority in line with current legal norms. However, reports that are by nature public and those related with money laundering and financing illegal activities are exempt from this law. Information which for reasons of SBP supervision must be shared with foreign overseers according to articles 64 and 65 of the current Ley de Bancos also exempt from the provisions of Article 110. As a result of bank secrecy, the operation of credit bureaus is subject to debtor consent, not only in terms of personal information but also for data relating to businesses Customer Protection and Quality Assurance The Ley de Protección del Consumidor, amended in 2007, lays down the general framework for consumer rights in Panama and includes questions relative to competition. Among this law s regulations it is important to mention the following: Credit information agencies obligation to inform the debtor on the characteristics of the services offered. The debtor should have access to different supplementary services allowing them to choose the appropriate services and be able to use them properly. The protection of debtors economic interests should be guaranteed, particularly regarding the existence of incorrect information on the products offered. The debtor has the right to defend their interests against public information agencies through legal processes, among others

28 Under the terms of Ley 45/2007, consumers have the right to complain about credit reporting agency non-compliance with the aid of the authorities and authorized consumer protection agencies. Regarding debtor information held by the SBP, under current Ley de Bancos regulations it is not possible for consumers to access their data and correct any errors even though the Habeas Data law allows individuals to access information held by any public agency. Meanwhile, Ley 24/2002 stipulates that debtor information stored in a registry must be accurate and up to date in order to reflect the real situation in the financial system. Article 4 of the credit history law states that data held in registries public or private must reflect any payments, deposits and cancellations in individuals financial obligations besides any other data resulting from the treatment of information in order to facilitate its understanding and analysis. Ley 24/2002 also lays down mechanisms for resolving extrajudicial disputes which are available for use by customers. Thus, private credit reporting firms currently allow customers to access their own data in order to know their personal information and verify if it is correct. 2.2 THE ROLE OF FINANCIAL INSTITUTIONS Credit Reporting Agencies In Panama, agencies authorized to offer credit reporting services (credit bureaus) are also responsible for ensuring the quality of information and its proper coverage, allowing complete debtor profiles to be generated. The powers and obligations of credit bureaus regarding matters of access and treatment of financial system debtors personal information are set out in Ley 24/2002. This law (Ley 24/2002) also includes several bans on the processing of private information in accordance with that stipulated by the Constitución Política. The law allows the credit reporting industry to operate in Panama and currently outlines the services credit bureaus can offer. This law was amended in 2006 (Ley 14/2006) to include regulations on credit ratings Banking Sector Institutions in the national banking system are obliged to provide the Superintendencia de Bancos with information on system debtors in the form and frequency set out in the law in order for the SBP to keep its register up to date

29 Meanwhile, institutions in the banking business are obliged to maintain internal control and loan portfolio risk management systems. These regulations are set out in the Ley de Bancos (Title III, chapter X). As for debtor information, each financial institution is responsible for the data it provides to credit bureaus. Due to bank secrecy regulations, information sharing requires the debtor s consent for their information to be given to credit reporting agencies. Credit granting institutions are both providers and users of information sold by credit reporting agencies Others There are auxiliary firms within Panama s financial system which are relevant to its credit reporting system. Credit card issuers not set up as financial institutions are among the firms feeding credit reporting agencies. Trading houses and department stores offering products on credit also make agreements with credit bureaus to provide and consult information on a reciprocal basis. 2.3 THE ROLE OF THE AUTHORITIES Ministerio de Economía y Finanzas The Ministerio de Economía y Finanzas (MEF, ministry of economy and finance) is the body in Panama responsible for the government s public finances. After the Ministerio de Hacienda y Tesoro (ministry of finance and treasury) and the Ministerio de Planeación y Política (ministry of planning and economic policy) were integrated, the MEF became the body in charge of increasing the integrity of financial and budgetary management in Panama. It also continued to define and coordinate the nation s economic, fiscal and social policies. In accordance with its internal regulations (DS-AL 013, November 2000), the MEF is responsible for economic policy development and formulation, as well as the strategy, design and implementation of general State decrees Superintendencia de Bancos de Panamá As the main regulator of Panama s financial system, the SBP is responsible for safeguarding the stability of the banking system, overseeing banks and where applicablethe economic groups they form part of, granting and cancelling bank licenses, decreeing special measures for banks, as well as authorizing bank mergers. The Superintendencia de Bancos de Panamá is governed by its Junta Directiva (board of directors) whose functions include the approval of prudential standards, interpreting legal and regulatory decrees on banking issues and advising Panama s Government on the development of the Panamanian banking system

30 Given the growth of banking activity in Panama and in order to bolster its supervisory powers, the Superintendencia amended the banking regime to allow for proper levels of bank efficiency, security and competition, as well as comply with international standards. This modification can be seen in the Ley de Bancos. The Superintendencia de Bancos collects and uses information on firms and private individuals who are financial system debtors. All institutions regulated by the Ley de Bancos periodically provide their information to the SBP Autoridad de Protección al Consumidor y Defensa de la Competencia The Autoridad de Protección al Consumidor y Defensa de la Competencia (Acodeco, authority for consumer protection and the defense of competition) is a decentralized public institution attached to the Ministerio de Comercio e Industrias. Its main aim is to watch over consumer rights and the process of free economic competition, promoting the efficient functioning of goods and services markets in Panama. In its role as consumer protection agency the Acodeco deals with issues related to all types of products and services, including the services provided by credit reporting agencies. However, its responsibilities do not include protecting consumers of financial services. Instead the SBP is in charge of providing consumer protection in matters related to bank and financial services. In accordance with Ley 24/2002 (amended by Ley 14/2006), the Acodeco is responsible for overseeing and penalizing credit reporting agencies which infringe on consumer rights Ministrerio de Comercio e Industrias The Ministerio de Comercio e Industrias 1 is in charge of planning, coordinating and managing activities which foster the creation, development and expansion of commerce, industry, financial activities and the leverage of resources in Panama. Since its creation it has worked on planning strategies for implementing activities aimed at encouraging the development of Panama s manufacturing and services sectors. Regarding matters of credit reporting, Ley 24/2002 stipulates that the MICI is the body responsible for authorizing and overseeing the functioning of agencies in charge of distributing credit histories. It also states that the MICI, through its powers of supervision and inspection, should guarantee that credit reporting agencies comply with consumer information security, quality and reliability standards. In addition, the MICI is empowered to penalize agencies which break the Law. 1 The Ministerio de Comercio e Industrias was set up by Decreto de Gabinete Number 225,

31 2.3.5 Banco Nacional de Panamá Banco Nacional de Panamá (BNP) is a state owned commercial bank. In accordance with its Ley Orgánica (charter, Decreto Ley 4/2006) the BNP is the State financial institution responsible for providing the credit necessary for the development of the nation s economy. The BNP is authorized to open an account to any bank operating in Panama. This account is used for settling interbank market operations, transfers through correspondent banks and in general it functions as a commercial bank current account at a central bank. The BNP is subject to the supervision of the Superintendencia de Bancos de Panamá for controlling its activities as a financial intermediary. Meanwhile, the Contraloría General de la República (comptroller general of the republic) is responsible for overseeing the operation of the BNP due to the fact that it is in charge of managing the financial resources of government bodies. Banco Nacional de Panamá also operates the banking system s clearing house

32 3 PRIVATE CREDIT REPORTING FIRMS 3.1 ANTECEDENTS Panama s credit reporting system mainly consists of a credit bureau which began operating in 1957 and was set up with the aim of providing information to its members. The development of the credit market has meant that at present it is not only banking institutions that grant credit but there are also other firms offering financing to their customers. These entities also make substantial use of credit reporting services as a tool for granting loans. 3.2 ASOCIACIÓN PANAMEÑA DE CRÉDITO Control and Governance The Asociación Panameña de Crédito (APC, Panamanian credit association) was founded as a non-profit organization composed of banking, financial and business institutions, as well as any economic agent complying with the credit bureau s statutes and the corresponding legal provisions. The APC credit bureau was founded in 1957 by mainly non-bank creditors furniture store owners- working in the retail market. The APC currently has 731 associates and includes institutions such as banks and cell phone companies, among others. TABLE 6. APC OWNERSHIP STRUCTURE Economic Group Percentage ownership by type of member economic group (%) Insurance companies 1 Commercial Banks 6 Cooperatives 8 Financial companies 11 Telephony and Communications 3 Others 70 Total 100 SOURCE: APC As can be seen in table 6, the bureau s government structure is mostly composed of credit granting institutions, basically businesses followed by non-bank financial

33 institutions and cooperatives. Its Board has nine members representing the type of institutions it is composed of Information Sources The Asociación Panameña de Crédito is the sole credit bureau operating in Panama. It currently receives information from over 700 credit granting institutions. The volume of credit bureau members has allowed for a gradual increase in the information collected, particularly that for businesses which has risen 21% in the last five years, while the total number of reporting institutions has grown 15 percent. In the case of the financial sector, around 50% of information comes from non-bank financial entities, followed by cooperatives and then, despite the increase in the number of such institutions since 2005 to the present, by banks. TABLE 7. APC REPORTING INSTITUTIONS Financial sector Commercial Banks Non- bank financial companies Cooperatives Others (e.g. microfinance companies) Non-financial non-bank sector Private (e.g. commercial and telecommunications companies) Others (other types of private contributor) SOURCE: APC Users Only credit granting institutions are affiliated and provide information to the APC. They are authorized to consult the private database registry with prior agreement from the consumer. Consumers can also consult their credit history in an internet portal run by the APC or go to the bureau s offices to make individual inquiries Services The services provided by the APC credit bureau are used as a credit rating tool. They are used by credit granting institutions for authorizing loans due to the fact that they

34 show debtors credit behavior, reflecting their degree of indebtedness and their level of responsibility concerning their financial obligations. The Sistema de Referencias de Crédito (credit reference system) credit report is a document produced by the APC showing an individual debtor s personal information and credit history. This product is prepared and updated using information from financial sources, mainly in the banking sector, as well as from other credit granting institutions affiliated to the Asociación Panameña de Crédito. As chart 1 shows, a credit report contains different sections of debtor information: Section 1 shows a general description of the debtor along with their available personal information. Section 2 contains a series of the individual s active obligations by loan type, amount and current balance. Section 3 describes active loans and obligations one by one, showing the lending institutions, type of relationship, loan start and finish date, amounts, balances and days in arrears. Section 4 contains details of cancelled loans showing the creditor, contract start and finishing dates, the type of relationship with the debtor, and spaces for observations and amounts. Section 5 allows the customer to include clarifications regarding references appearing in the credit report (e.g. justifications for cancellations or non-payment). Section 6 shows the number of inquiries made concerning the debtor s profile over the last 12 months. Section 7 describes the fields making up the credit history identifier, setting out the relationship between days past due and a debtor s payment behavior during the last 24 months

35 CHART 1. SAMPLE APC CREDIT REPORT SOURCE: APC Another product offered by the bureau is the APC Score. This credit rating tool is aimed at bureau associates rather than individual customers, and is a report generated from a statistical model which estimates probable debtor behavior based on their payment history. This service allows the probability that a potential customer will go 90 days past due on debt payments within a period of 12 months

36 CHART 2. SAMPLE APC SCORE SOURCE: APC * Probability of going >90 days past due within a period of 12 months. Another function of this service is to arrange debtors in order of non-payment probability according to a percentage scale. If a debtor is rated zero the probability of nonpayment is higher, while the percentage score increases as a debtor s payment capacity improves. An example of how the APC Score is presented can be seen in chart 2. The tool shows a debtor s personal details and their score according to the non-payment probability model. It also includes an estimate of the likelihood that the debtor will go 90 days past due with loan payments within the first 12 months. Finally, the private registry offers a tool named APC Alerta. This is a service that generates online notifications delivered in the form of a report containing updates on the credit references of a list of customers. Just like APC Score it is a tool created for information providing affiliates. The product offers the possibility of monitoring a customer portfolio under variable update frequency criteria and its main aim is to identify behavior patterns in advance when non-payment is likely. This product mainly functions through the private registry s internet portal and allows service criteria to be defined based on a user s inquiry requirements. To complete its range of services aimed at credit granting institutions, APC also offers other tools for monitoring debtors. One of these is group inquiry which allows inquiries to be processed en masse by selecting them under special criteria. Another tool is the collection matrix, allowing collection strategies to be defined according to the segment of the user s customer portfolio, addressing not only delinquency patterns but also customer risk