What Happened
People in Panama with credit cards, personal loans, auto loans or mortgages should not expect lower borrowing costs in the near term. Bankers say the current environment makes another cut in U.S. interest rates less likely, which keeps pressure on local lending rates.
The warning comes as conflict in the Middle East has pushed up fuel prices and added uncertainty to the global economy. That combination raises inflationary pressure on goods and services and reduces the odds that the U.S. Federal Reserve will move rates down again soon.
In Panama, lending costs often track U.S. monetary policy, making the Federal Reserve a key reference point for the local financial system.
Why Rates Are Likely to Stay Elevated
Carlos Berguido, executive president of the Panama Banking Association, said expectations for lower rates have faded because of the war in the Middle East and the disruption to oil flows in the region. He said the resulting rise in fuel prices is feeding inflation and changing the outlook for the months ahead.
Berguido said the evolution of the conflict involving the United States, Israel and Iran will help determine how the global economy behaves. A quick end to the fighting could offer some relief, while a prolonged conflict would extend uncertainty and the economic consequences for countries such as Panama.
He added that the Panamanian banking system remains solid and that there are no signs of alarm, but he sees little room for interest rates to fall in the short or medium term.
What Borrowers Are Paying Now
Current lending rates in Panama remain high across consumer and commercial products. Credit cards averaged 22.07% at the end of December, according to banking regulator data, although some banks charge 24% or even 28% depending on the product and repayment terms.
Personal loans closed last year at an average rate of 8.92%, auto loans at 7.93% and the non-subsidized reference mortgage rate at 6.24%. For business lending, commercial rates range from 7.51% for wholesale businesses to 8.03% for retail. Average rates stand at 7.74% for industry, 7.41% for construction, 6.81% for agriculture and 6.64% for livestock.
By February, consumer credit balances reached $15.12 billion. Mortgage lending rose 1.69% to $21.53 billion, and commercial credit grew 2.85% to $13.59 billion. Within consumer lending, auto loans led growth at 11.38%, followed by credit cards at 8.14%, while personal loans, which make up 66.2% of the segment, grew 3.44%.
Bankers Push Back on Rate Caps
The Panama Banking Association also warned against proposals such as Bill 552, now before the National Assembly’s Commerce Committee, which seeks to set caps on interest rates. Berguido and the association argue that such limits would reduce credit supply and restrict access to financing for people who can currently obtain it.
Ernesto Antonio Boyd García de Paredes, chairman of the association’s board, said rate caps have hurt other economies and cited Costa Rica as an example, saying that more than 700,000 credit cards disappeared after controls were imposed there.
The banking sector is asking lawmakers to reconsider the proposal and weigh its impact on the country’s credit market, which has a balance of $64.16 billion in the national banking system. Deposits in the International Banking Center, including general and international license banks, total $118.20 billion.