According to Moody’s, Banco General’s BCA baa2 assertion reflects the disciplined asset quality and recurring profit generation supported by its broad and diversified banking franchise in Panama, which, in turn, historically secures a historically strong capital position.
The baa2 BCA also recognizes the bank’s broad and constant access to basic deposits in Panama, where the bank has a 28% market share, guaranteeing the bank adequate levels of liquidity throughout economic cycles.
The risk rating agency explained that the deterioration of the bank’s 90-day problem loan index to 1.5% of gross loans at the end of 2020, from 1.2% in 2018, reflected the strong 17.9% economic contraction of the Panamanian economy caused for the coronavirus pandemic (COVID-19) in 2020.
However, Banco General has a granular loan portfolio, which will help mitigate continued pressures if the economy remains below pre-pandemic levels in 2021.
It adds that the strong capitalization of Banco General as measured by Moody’s, adjusted tangible ordinary capital (TCE) over risk-weighted assets (RWA) of 17.9% as of December 2020, is a key strength for the BCA.
In 2020, the increase in the equity ratio was supported by a modest 1% loan growth in 2019, followed by a 4% contraction in the loan portfolio in 2020.
However, “as Banco General resumes lending in 2021, we expect the capital ratio to remain high relative to its peers, supported by the bank’s recurring internal capital structure of the generation and loan book,” says the rating agency.
The bank’s historically strong profitability was affected by business volumes, lower interest rate levels and strong increases in provision expense costs in 2020.
In 2020, net income to tangible assets decreased to 1.7% from a three-year average of 2.5% between 2017 and 2019.
Additionally, Banco General maintains a low cost of financing, ongoing efforts around cost controls, and a gradual and sustainable increase in business activities, which will likely contribute to earnings in 2021.