Panamanian banks are moving closer in compliance with Basel III standards thanks to local regulators' efforts to increase capital and regulatory requirements, a development seen by Fitch Ratings as credit positive.

Following the adoption of Basel III-related liquidity rules in 2018, regulators will phase in the liquidity coverage ratio requirement through 2022. Fitch said most of its rated banks already meet the LCR requirement, with ratios above 100%.

The rating agency noted that LCR and high quality asset requirements are of particular importance in Panama, given the absence of a central bank and deposit insurance. Bank regulators will also establish a $500 million liquidity fund, to be managed by Banco Nacional de Panama.

Fitch also expects most banks, specifically the systemically important ones, to meet additional capital buffer requirements, which are still being defined. As of September 2018, the banking system's regulatory capital to risk-weighted assets ratio averaged 15.9%.

Despite the rise in regulatory requirements, Fitch believes Panama's banking industry will remain highly competitive. Consolidation among banks could rise as greater competition results in rising funding and operating costs, Fitch said.