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Fitch: Panama Papers leak poses reputational risks to country's financial services industry

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Fitch: Panama Papers leak poses reputational risks to country's financial services industry

While the PanamaPapers ordeal has put Panama's offshore financial services industryunder scrutiny, the country's sovereign credit quality is still supported by itsdiversified, service-oriented economy, Fitch Ratings said.

However, the possibility of reputational damage ensuing from the scandal poses downsiderisks to Panama's investment and growth, the rating agency warned in a statement.

The extent of the leaks' impact to Panama's financial industryis still unclear, but apparent consequences have started to emerge, including France'sdecision to include thecountry back to its list of noncooperative states and territories, Fitch said.

The leaks also threaten to undo recent progress in curbing thisreputational risk, including the Financial Action Task Force's of the country from its "greylist," after citing the country's "significant progress" in enacting an anti-money launderinglaw.

"The Panamanian authorities' ability to counter reputationaldamage could depend on the nature and speed of their own policy response,"Fitch noted. Efforts to offset potential reputational risks include the plannedcreation of an independent commissionto examine working practices and propose measures to strengthen transparency, aswell as investigations of potential misconduct.

Panama's financial services contributed 7% to the country's 2015GDP and is more diversified than many other financial centers, Fitch said. "Robustprivate investment in Panama has been largely financed via foreign direct investment,reflecting solid economic fundamentals, and local bank lending funded by local deposits,"the rating agency added.

Panama's sovereign rating is supported by its strong and stablemacroeconomic performance, which is seen to result to a 6.1% real GDP growth in2016 and 6.4% in 2017, Fitch noted.