Liquidity, Liquidity, Liquidity

Profitability drops as asset liquidity increases, but liquidity is what ensures the life of the banking business and their customers' money.

Tuesday, May 26, 2009

Panamanian banks have not used the extra funds that the financial incentive program (PEF) made available to them in order to stimulate lending. In addition, it must be considered that said funds are very expensive, and they have simply not been needed.

With a liquidity of 65%, the Panamanian banking system maintains a cautious attitude that has reduced their profitability some 33% when a comparison is made between the first quarters of 2008 and 2009. Banking customers also have a cautious attitude; actors in an economy that is bearing the global crisis better than others in the region.

In an interesting and well-founded analysis of this issue by Yolanda Sandoval and Edith Castillo D. in an article in, they stated: "Having enough capacity to convert liquid assets makes banks technically more powerful in times of global crisis. It allows them not to have to depend on foreign funds and it gives their customers a sense of security. It's like sending a message that there is enough money to meet all the responsibilities that the bank has, and it is what has happened in Panama."

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