Banks turn to home lending to put excess liquidity to work

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Thursday, June 24, 2010

For the first time in recent memory, Panamanian banks are dedicating more lending to mortgages than to corporate credit, a phenomenon that owes itself to the great amount of liquidity in the system and to corporations' reluctance to borrow at the moment, ratings agency Equilibrium analyst Ernesto Bazan told BNamericas.

"There is a lot of liquidity and the corporate sectors haven't shown much appetite for credit," Bazan said. "What's left is that they're targeting low-risk sectors, which includes mortgages."

Panama's national banking system (SBN) had US$6.37bn in mortgage loans on their books as of end-April, up 12% from April 2009, according to numbers from Panama's banking regulator SBP.

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SBN's corporate loan book on the other hand was worth US$5.52bn through the end of April, down 5.5% year-on-year.

"Panama is a country of commerce, and corporate credit was always number one," Bazan said. "But now since last year, mortgages have taken the top position."

EASY CREDIT AND HOUSING DEFICIT

Bazan said several factors are contributing to a boom in mortgage lending, even as SBN's overall credit portfolio remains basically flat. First, a housing deficit means demand for housing is high, while terms in Panama are extremely attractive to borrowers.

Thirty-year mortgages are the norm, and often borrowers are able to get a loan with down payments worth 10% or less of the value of the property. Interest rates average 5.5-6%, and the government subsidizes mortgages worth less than US$80,000.

In addition, Bazan said banks are turning to mortgages as a safe way to put their excess liquidity to work, since in Panama banks can take payments directly from borrowers' wages, and since mortgages are always backed by collateral.