OREANDA-NEWS. With risks on the rise, competition pressuring profitability, and limited ability to absorb losses, Panamanian banks face a negative sector outlook according to a new Fitch Ratings report.

"Risks in the Panamanian banking system are on the rise, but the impact on the banks' balance sheets is expected to be gradual due to the still favorable operating environment", said Rolando Martinez, Director, Fitch Ratings.

Past due loans will increase at a slow but steady pace, but due to the wide diversity of banks and the seasoning of consumer loans granted at less stringent standards, some small banks face higher risks.

Banks with low profitability and tight capital continue to see limited loss absorption capacity.

Customer deposits should remain stable with competition to attract deposits increasing costs, pushing banks to seek a greater proportion of wholesale funding.

Liquidity should remain adequate, though some investments might lose value if international interest rates rise.

"The industry has limited upside potential in the short term, with any improvement unlikely until pressure on interest margins, profitability, and asset quality is reduced," said Rene Medrano, Senior Director, Fitch Ratings.