Panama banks have begun to raise interest rates mainly for loans, and to a lesser extent for non-prime mortgages and personal loans.

The increase is the result of the impact on the financial system of the consecutive increase in interest rates by the Federal Reserve (FED) of the US which makes money more expensive not only in that country but also in dollarized markets and puts pressure on the cost of financing, says the Banking Association of Panama.

The FED has raised the referential interest rate nine times since January 2022, the last adjustment was on March 22.

The banking activity report of the Superintendency of Banks of Panama (SBP) for February, details that the interest rates have registered some adjustments this year.

The main increases have been in corporate loans and to a lesser extent in consumer loans such as credit cards, and personal and car loans, which have risen but at a lower percentage than corporate loans.

“Interest rates on wholesale and retail business loans increased to 1.08% and 0.44%, respectively. Other rates for the productive sector have increased by an average of 0.4%”, says the report.

The interest rate for household loans remained at levels similar to those of February 2022, increasing by an average of 0.06%. preferential housing loans have remained unchanged since 2019.

 In the case of deposit rates, particularly term deposits, since the fourth quarter of 2022, there have also been increases.

The interest rates of term deposits recorded increases above 100 bps (basic point), which is equivalent to 1% in the 1 to 6-month tranches.

Carlos Berguido, executive president of the Banking Association of Panama, said the results of the rate increase policy have shown mixed signals, since some of the factors that impact inflation have moderated, but others have not, so it is expected that FED policy will continue but at a  slower pace.

 In Panama, although there is not such a marked inflationary problem, the market is impacted by the upward measures of rates but the effect has reached Panama almost a year behind the US.

“Although some banks have already warned their clients about rate increases on their current loans, those who renew term deposits have received higher offers for the new terms. it is still premature to measure the impact.

The increase in interest rates decreed by the FED seeks to reduce inflation, by making money more expensive, to cool or reduce the demand for products and services. “The idea is that those who have money available to spend find it more attractive to save, to enjoy higher interest rates; and he who needs to borrow, thinks twice.