Panama shows the way in Top 75 central American banks

Central American banks rarely grab headlines or count among the world's biggest banks. Even the region's strongest bank by Tier 1 capital, Panama's Banco General, sits at number 567 of The Banker's global Top 1000 ranking. These institutions, however, should not be overlooked.

At a time when financial institutions' profitability has been eroded around the world, the leading central American banks have posted solid performances. For a start, all but three of the Top 75 remained in profit. Banco General not only tops the ranking - the group also shows $202m pre-tax profit, a healthy year-on-year 60% profit growth and 19% return on equity.

The largest money maker in the region was HSBC, with $327m. While HSBC, BAC International and Banco General included profits from branches abroad in their financial reporting, Costa Rica's Banco Nacional occupies the fourth largest income position purely due to its local earnings. The bank also ranks fifth by Tier 1 capital and assets.

The region's banks also score well in terms of efficiency ratios. Most posted healthy levels of return on assets (ROA), with Citibank's operations in Guatemala and Nicaragua, and Panama's Banesco recording ratios comfortably above 7%.

The difference between markets, levels of internationalisation and the impact of the financial crisis do not always allow for easy comparisons between banks across regions, but it is notable that the leaders of The Banker's global Top 1000 ranking, JPMorgan and Bank of America, only managed ROAs of 0.13% and 0.24%, respectively.

Panamanian strength

Besides hosting the most populous banking market, Panama also enjoys the largest pool of assets and the highest total pre-tax profits in the ranking. Bigger on average than its regional peers, Panama's banking system comprises 72 banks (30 offshore and 42 with a licence to take Panamanian deposits) - half of the region's total institutions. More than one-third of the Top 75 ranking is occupied by Panamanian banks, which also account for more than half of the ranking's total assets, Tier 1 capital and pre-tax profits. The country's total banking sector assets amounted to $48bn as at December 31, 2008 (the most recent full-year figures available), equivalent to about 300% of the nation's gross domestic product (GDP).

Panama has also emerged as a regional banking hub in addition to being an international banking centre: several central American banks with regional franchises have established their holding companies in the country. The Panamanian division of Colombia's largest bank, Bancolombia, ranks seventh in the Top 75 listing. Citibank also has a presence in the country, as does BAC Credomatic, central America's second biggest regional banking group, which includes the region's largest and oldest credit card-focused business and whose holding group occupies third position in the ranking.

Panama also presents good economic prospects. The country's economy is being helped by the $5.3bn canal expansion plan which was fully financed at the end of last year, and is expected to enjoy continued economic growth, although at a slower 3% GDP rate compared with 2008's forceful 9.2%.

Unsurprisingly, El Salvador, one of the smaller countries in the region, has one of the smallest banking markets. Its largest institution, however, is remarkably high in the rankings: Citibank (El Salvador), which sits in 10th position by Tier 1 capital. Moreover, efficient management and high income levels have pushed it up to fifth place by ROA and sixth by pre-tax profits.

Guatemala is another country that has done well in the ranking, with Banco Industrial and Banco de Desarollo Rural in sixth and eight positions, respectively. Measured by assets, they are a similar size, but display very different profit levels. In the pre-tax profits ranking, the smaller Banco de Desarollo occupies seventh position with $94.2m, 30% more than Banco Industrial's $62.7m, which relies on the largest deposit base and distribution network in the country.