Panama Bank Lending Drops 7% on Housing, Construction Slump
Changes to mortgage subsidies and tax policy drove a 7% drop in new Panamanian bank credit, with construction lending collapsing and threatening job creation despite otherwise robust economic growth.
Panamanian banks disbursed $10.3 billion in new credit during the first five months of 2026, down 7.1 percent or $784 million from the same period a year earlier. The Superintendency of Banks reported that the decline was driven by a sharp pullback in public-sector financing, alongside a 3.8 percent cooling in private lending. Households and businesses are growing increasingly cautious.
Construction bore the brunt of the slowdown, with new lending to the sector plunging 24 percent to roughly $632 million. Preferential home loans, which offer subsidised interest rates, fell by about a third earlier in the year. The damage was heavily concentrated among first-time and lower-income buyers.
Two specific policy shifts are responsible for the housing finance squeeze. A revision to the mortgage-subsidy law unsettled lenders, while the expiry of a transfer-tax exemption on new homes significantly raised upfront buyer costs. Because banks do not typically finance these transfer taxes, the change immediately chills point-of-sale demand.
The banking regulator explicitly ruled out a credit supply problem. Liquid assets have risen and legal liquidity remains far above the required minimums. Instead, the Superintendency of Banks attributes the softer numbers to subdued borrower demand, steady debt repayments, and tighter sector-specific lending standards.
The credit contraction carries political weight for President José Raúl Mulino, who has anchored his job creation agenda on construction and housing. While the broader Panamanian economy continues to expand near 4 percent, this growth is largely powered by the Canal, ports, and logistics. A slump in construction often serves as a leading indicator of wider economic strain, particularly for the domestic sectors that employ ordinary citizens.
For foreign investors, the signal is mixed. Panama’s banking system remains well-capitalised and liquid, but the residential market is clearly cooling, which will pressure property prices and financing terms. Industry groups are now actively lobbying the government to restore the transfer-tax break to unblock housing demand.
