The Cayman Islands Chamber of Commerce conducted its fourth trade mission to Panama last month. The first one, back in 2006, was instrumental in Cayman National Bank establishing an effective representative office in Panama.
When Cayman National Bank’s Senior Vice President – Latin America Carlos Guzman first came to Panama in 2006 as a delegate of the trade mission organised by the Cayman Islands Chamber of Commerce, he kept an open mind.
“I didn’t know what I was going to find,” he said, sitting in the conference room of the small, but modern Cayman National Bank representative office in Panama City.
Like most of the delegates on that first trade mission to Panama, Guzman took the group tours to the Colon Free Trade Zone and Expocomer Trade Show, but he also made time to privately meet with some financial industry professionals.
After he returned to Cayman and reported back about his findings, Cayman National Bank saw the business opportunity in Panama and decided to open a representative office there. This office doesn’t take deposits or conduct normal banking business there, but serves as a referring branch for its operations here in Cayman.
Guzman, who had worked in Cayman two times for a total of seven years, packed up his bags and moved his family to Panama City in January, 2007. Less than two months later, when the second trade mission came to Panama, Cayman National Corporation founder Peter Tomkins and former Cayman National Bank Chairman Benson Ebanks were both on hand to see the opening of the bank’s office there.
However, it wasn’t until February 2008 – just before the Chamber of Commerce’s third trade mission – that a the necessary licence was obtained to allow Cayman National to operate in Panama.
While he was waiting for the licence approval, Guzman got to know Panama and the professionals there. That year and then the first year after the licence was approved were difficult.
“I spent the first two years knocking on doors of lawyers and accountants and doing presentations,” he said. He also joined various professional organisations like the Panama Bankers’ Association, the Panama British Bankers’ Association, and the local chapter of the Society of Trust and Estate Practitioners, as well as two of the local Chamber of Commerce chapters.
When talking to many business professionals in Panama, particularly the lawyers, Guzman was somewhat surprised when he heard the same reservations repeatedly.
“The reception from the Panamanian lawyers wasn’t good at first,” he said. “They didn’t have a good perception of what Cayman was. They had a vision about Cayman… not being well regulated.”
Since many of the Panamanian lawyers Guzman spoke to didn’t even know where the Cayman Islands were and they seemed to think of the jurisdiction as less than above-board, Guzman put together packets of information that not only included a Caribbean map, but which also showed Cayman’s importance – and acceptance – as an offshore financial centre.
With time, Guzman won the lawyers, and others, over and business started being referred to the office.
Ironically, Guzman has heard similar suspicions as those expressed by the Panamanian lawyers about Cayman from financial industry professionals in Cayman about Panama. Having lived and worked in Panama for more than five years now, Guzman said he has found no evidence of a weakly regulated jurisdiction there. In fact, Panama is so conservative and cautious in some aspects of its financial services industry that opportunity is created for Cayman National Bank.
A key element of Panama’s financial industry is incorporations and one of the primary sources of business Guzman refers to Cayman is for bank accounts for newly incorporated Panamanian companies.
“These new companies need bank accounts and it normally takes at least six months to open a company account here in Panama,” Guzman said. “Panamanian banks are very careful and very conservative.”
Now that the Panamanian lawyers have a better understanding of Cayman, they will refer the clients of these newly incorporated companies to Guzman, who then refers them to Cayman National Bank here to open up an corporate account. This process only takes one to two weeks, even with all of the standard due diligence/Know-Your-Customer requirements, Guzman said.
In addition, Guzman said another source of referrals comes from Panamanian companies that conduct various forms of business outside of Panama as well as inside. He said that because Panama has a territorial tax system, transactions done by Panamanian companies outside the jurisdiction are not taxable.
“So there are many local businesses that need to have banking accounts outside of the country,” he said.
Guzman noted that because of some of the troubles experienced by big banks during the financial crisis, some people now prefer dealing with small, well-established banks like Cayman National.
Another opportunity for Cayman National Bank that has opened up as a result of its office in Panama City is aimed at the Cayman Islands market.
“It’s a Panamanian lending programme that provides mortgages to Caymanians if they want to buy real estate in Panama,” Guzman said, noting that the mortgage is held through a trust formed in Panama for that specific purpose.
Panama is increasingly seen as a retirement destination and partially for that reason has already attracted more than 50,000 Americans to the country. Sky-rise condominium complexes have shot up all over Panama City and there is no end in sight. In addition, a large luxury housing development called Santa Maria has been started about halfway between Panama City’s airport and city centre. Cayman National Bank believes some Caymanians will want to buy real estate in Panama.
“There will be a part of the population in Cayman that can’t afford to retire in Cayman,” Guzman said.
Guzman – who is originally from Mexico – already has permanent residency in Panama. In another three to four years, he will have his Panamanian passport.
Guzman said he likes living in Panama very much, as do his wife and two young children.
Panama has boomed while he has been there, despite the financial crisis. The GDP growth last year was a phenomenal 10.6 per cent, he said.
Last year, American developer Donald Trump opened Trump Ocean Club, a hotel and condominium that is Latin America’s tallest building. Guzman said the Hilton also opened last year and that two other branded major hotels, the Hard Rock Hotel and the Waldorf Astoria, are slated to begin construction this year.
The government is also funding huge infrastructure projects, including the expansion of the Panama Canal, a subway system in Panama City and a project to drill for oil in some of the country’s jungles.
In addition, Panama is solidifying its position as an international financial centre in Latin America, meaning opportunities for Cayman National will continue to grow. Guzman said he wants to see the office grow as well.
Right now, the office is only manned by Guzman and one assistant. However, he said the original idea was that once the representative office in Panama was firmly established, Guzman would start visiting other Latin American countries in effort to bring in more business. He’s hoping that sometime this year, the office will warrant additional employees and Cayman National will give him approval to hire someone to oversee just the Panama office.
“Then I will start to do some travelling,” he said.