Panama Financing 101

By: Laurie Cooper

Financing in Panama is relatively easy to understand considering that Panama is an international finance center, a development fueled by its banking system that has come to be known as the "Switzerland of Latin America" for its modernity and stability. Moreover, financing in Panama is convenient for foreigners as it is a dollarized economy (the only country authorized to use the US dollar at its par value), thus eliminating conversion and valuation risks. Many international banks have set up regional headquarters, as well as offshore centers in Panama City, due to a growing demand by international investors to move their asset portfolios under Panama's jurisdiction, which offers many tax and asset protection benefits.

Financing in Panama most often means going to the extensive international banking network, which makes it a matter of finding the right bank to suit your needs. However, banks in Panama require that an account be opened or is existing before bank financing can begin. Be warned that Panama banks are very vigilant about opening an account, with a stringent process requiring numerous documents, a face-to-face personal interview, and a sizable initial deposit (as much as $5,000), Documents requirements to complete among many others.

The best reasons accepted in opening a bank account in Panama include purchase of real estate, business establishment, and a legitimate project. As can be expected, financing in Panama differs from bank to bank depending on specific policies being implemented by the bank. Here is a Panama financing 101 for you. The average terms and conditions for mortgage financing in Panama are 60 to 70 percent of the fair market value or the purchase price, whichever is lowest, or in the cases of those with two years' residency, as much as 89.99 percent financing. Loan rates range between 5 to 7 percent, with FECI of 1 percent per annum. Borrowing period can be up to 30 years depending on borrowers' age and net worth for residential purchase, with only 1½ years for construction. As to chattel security, there should be first mortgage over the property. The insurance, which must be issued by a Panamanian insurance company is generally paid for by the borrower, and endorsed to the bank that gets a 1 percent bank commission. As with opening a bank account, financing in Panama requires numerous identification documents such as passport, financial documents like trade reference letters, employment information like salary slips, and property information like deed title; the borrower meets with a bank officer at least once. These requirements might seem at complete odds with the strict bank secrecy laws, but they are meant to assure client transparency with the bank while ensuring the protection of the bank's interest.

Panama is an international finance center because of many reasons such as bank secrecy laws, investment stability, equal rights and protection among foreigners and Panamanians alike, relative tax freedom, dollarized economy, and a democratic government, among others. These are factors that make financing in Panama a convenient and a wise decision, a second best alternative to actually living there.

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