Construction Sector Survey as of June 2014...The high growth rate in the construction sector in...

Construction Sector Survey

as of June 2014

Financial Studies Division

Superintendency of Banks of Panama

September 2014

Ref. No.: SG-TRAD-201400666 Prepared by: S. Lara Date: September 12, 2014

Agenda

I. Some considerations on the Construction Sector.

II. Performance of the NBS Construction Sector Portfolio.

III. Construction Sector Survey Results.

IV. Appendix.

2 Ref. No.: SG-TRAD-201400666 Prepared by: S. Lara Date: September 12, 2014

I. Some considerations on the Construction Sector


The high growth rate in the construction sector in Panama in recent years has increased its weight in the economy. Consequently,

during the first quarter of 2014, construction represented 15% of GDP and 11.6% of employment.

15.0%

6%

7%

8%

9%

10%

11%

12%

13%

14%

15%

16%

2007

2008

2009

2010

2011

2012

2013

2014*

Co

nst

ruct

ion G

DP

/GD

P

Panama: Construction Weight in the GDP

4

11.6

0

2

4

6

8

10

12

14

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

Panama: Construction Weight in Employment

Source: SBP with NISC data

* Data through 1Q 2014 Source: SBP with NISC data


Construction activity (buildings and civil works) has been strong in recent years, becoming one of Panama’s growth engines.

Construction was one of the sectors that led supply side growth, growing 16.1%. In the first half of 2014, construction contributed

2.2 percentage points (37.9%) to GDP growth.

5,8

-1,3

0,7

0,8

0,9

2,2

4,1

4,4

4,7

7,7

12,3

16.1

22,8

-5,0 0,0 5,0 10,0 15,0 20,0 25,0

PIB

Electricidad, gas y agua

Hoteles y restaurantes

Actividades primarias

Industrias manufactureras

Comercio

Enseñanza privada

Intermediación financiera

Actividades inmobiliarias

Transporte, almacenamiento y

comunicaciones

Minería

Construcción

Pesca

GDP Growth – IQ 2014

-1,0

0,0

1,0

2,0

3,0

4,0

5,0

6,0

7,0

8,0

IT 2013 IT 2014

Sector’s contribution to GDP Variation

Construcción Actividades inmobiliarias

Intermediación financiera Transporte, almacenamiento y comunicaciones

Gobierno General Otras actividades

Suministro de electricidad, gas y agua Hoteles y restaurantes

Industrias manufactureras Agricultura, ganadería, caza y silvicultura

Pesca Comercio

7.6

5.8 3.1 p.p.

(41.4%)

2.2 p.p.

(37.9%)

5 Source: SBP with NISC data Source: SBP with NISC data

Certain assumptions observed in the literature on the sector’s behavior are confirmed, especially the volatility of sector activity and

the “overreaction” of the sector to the aggregate economic activity cycle. The transfer coefficient between the cycles of global and

sector economic activity is analyzed in greater detail below.

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

19

96q

1

19

97q

1

19

98q

1

19

99q

1

20

00q

1

2001q1

20

02q

1

20

03q

1

20

04q

1

20

05q

1

20

06q

1

20

07q

1

20

08q

1

20

09q

1

20

10q

1

20

11q

1

20

12q

1

20

13q

1

Economic Cycles and Sector Cycles*

IQ 1996 – IIIQ 2014

Construcción PIB (eje der.)

Source: SBP’s Financial Studies Division.

* Cyclic component estimated using a Hodrick and Prescott filter. 6

The transfer coefficient shows that for each percentage point increase (or decrease) in the economy, the construction sector

increases (decreases) by 1.84. This is in line with the findings of the data analysis; i.e. that sector cycles overreact to the economic

cycle. How much? Estimates indicate that the sector cycle is on average 84% more pronounced than the aggregate cycle.

Dependent variable: Log. Construction GDP

Variable Coefficient Std. Error Statistical t Prob.

Log. GDP 1.84 0.08 22.23 0.00

C -10.00 0.68 -14.65 0.00

AR(1) 0.47 0.11 4.21 0.00

MA(2) 0.34 0.12 2.83 0.01

R-squared 0.978366 Mean dependent var 5.128572

Adjusted R-squared 0.977383 S.D. dependent var 0.60148

S.E. of regression 0.090457 Akaike info criterion -1.912441

Sum squared resid 0.540042 Schwarz criterion -1.783956

Log likelihood 70.93544 Hannan-Quinn criter. -1.861405

F-statistic 994.9191 Durbin-Watson stat 2.007609

Prob(F-statistic) 0

7

Source: SBP’s Financial Studies Division


Some indicators show that the sector might be slowing down at the same rate as the rest of the economy. However, this data must

be viewed cautiously, because other indicators show positive signs, indicating a recovery over the coming months.

26,4

23,1

34,4

38,1

16,1

0

5

10

15

20

25

30

35

40

20

13q1

20

13q2

20

13q3

20

13q4

20

14q1

Construction GDP Growth

(% Variation, y/y)

8 Source: SBP with NISC data

-25.8%

-16,7%

-100%

-50%

0%

50%

100%

150%

200%

ene-

12

mar

-12

may

-12

jul-

12

sep

-12

nov

-12

ene-

13

mar

-13

may

-13

jul-

13

sep

-13

nov

-13

ene-

14

mar

-14

may

-14

Concrete and Cement Production

January 2008 – June 2014

Producción de concreto premezclado (en metros cúbicos)

Cemento gris (en toneladas métricas)

Source: SBP with NISC data

Contractor willingness to start new projects led to a significant increase in construction permits of 20.8% through July 2014.

Construction permits are a pretty good indicator for the sector, because most registrations are translated into new construction after

a delay of 1 and 4 quarters.

9 Source: SBP with NISC data * Variable average

918 956

1.156

0

200

400

600

800

1.000

1.200

1.400

2012 2013 2014

Value of Construction, Additions and Repair Work* January 2009 – July 2014

(in thousands of US$)

Source: SBP with NISC data.

0

20.000

40.000

60.000

80.000

100.000

120.000

140.000

160.000

180.000

200.000

ene-

09

may

-09

sep

-09

ene-

10

may

-10

sep

-10

ene-

11

may

-11

sep

-11

ene-

12

may

-12

sep

-12

ene-

13

may

-13

sep

-13

ene-

14

may

-14

Value of Construction, Additions and Repair Work* January 2009 – July 2014

(in thousands of US$)

Total Residencial No residencial

Occupancy Permits: District of Panama

Year: 2013

District 2009 2010 2011 2012 2013

Panama 6,240 6,413 9,052 6,759 6,800

Chorrera 621 640 1,978 1,385 2,481

Arraijan 1,281 1,573 811 1,675 1,675

David 575 249 608 663 974

Colon 194 244 276 284 962

Anton 348 587 665 512 829

Chitre 290 351 540 490 620

Dolega 184 693 536

Penonome 277 310 610 300 403

Aguadulce 100 147 186 200 183

Boquete 134 80 94 108 164

Santiago 316 301 215 216 109

Township Houses Apartments Total

Las Cumbres 1,444 32 1,476

Ancon 60 792 852

Tocumen 841 0 841

Pacora 762 0 762

Juan Diaz 185 382 567

San Francisco 7 450 457

Rio Abajo 0 304 304

Bethania 3 296 299

Bella Vista 1 298 299

Pueblo Nuevo 3 273 276

Parque Lefevre 5 243 248

Ernesto Cordoba 216 0 216

Pedregal 139 0 139

24 de Diciembre 49 0 49

Chilibre 10 0 10

Mañanitas 2 0 2

Alcalde Diaz 2 0 2

Calidonia 1 0 1

Total 3,730 3,070 6,800

Occupancy Permits: District of Panama

Years: 2009 - 2013

Source: SBP with CONVIVIENDA data.

Source: SBP with CONVIVIENDA data.

10

Through July, the Panama Tourism Authority (PTA) approved operating permits to open new hotels (33), representing a US$102.8

million investment in hospitality construction. A greater number of rooms could impact hotel occupancy rates.

40

45

50

55

60

65

70

75

4.000

5.000

6.000

7.000

8.000

9.000

10.000

11.000

ene-

09

jul-

09

ene-

10

jul-

10

ene-

11

jul-

11

ene-

12

jul-

12

ene-

13

jul-

13

ene-

14

Rooms and Hotel Occupancy

Habitacionales al final del período % ocupación habitacional (eje der.)*

Source: SBP with data from NISC.

* Seasonally adjusted data.

11

Most construction sector materials have increased, except for imported goods, in line with the prices of international commodities

and other industrial goods, which have tended to stabilize after the high increases of recent years.

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

jul-

08

ene-

09

jul-

09

ene-

10

jul-

10

ene-

11

jul-

11

ene-

12

jul-

12

ene-

13

jul-

13

ene-

14

Var

iati

on

% (

y/y

)

Variation of Construction Costs

Cemento gris (Saco de 94 Lbs)

Hormigón premezclado (metro

cúbico)Bloque de cemento Nº 4 (ciento)

Arena (yarda)

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

jul-

08

ene-

09

jul-

09

ene-

10

jul-

10

ene-

11

jul-

11

ene-

12

jul-

12

ene-

13

jul-

13

ene-

14

Va

ria

tio

n %

(y

/y)

Variation of Construction Costs

Varilla de acero de 1/2" (tramo de 30 pies)

Cable eléctrico Stranded Nº 12 (pie)

Carriola Nº 4 (pie)

Zinc Nº 26 ondulado galvanizado (pie)

12 Source: SBP with data from NISC. Source: SBP with data from NISC.

With regard to salaries and wages, in May 2014 a four-year agreement was reached whereby there would be a wage adjustment of

approximately 35% over four years (2014 – 2017), an annual increase of 9%. For the purposes of important projects in the country,

the increase will be around 11% (Clause 133).

0

50

100

150

200

250

0

200

400

600

800

1.000

1.200

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

Dif

fere

nce

wit

h m

inim

um

wag

e (U

S$

)

Mon

thly

Sal

ary (

US

$)

Wages and Salaries

Diferencial Peón (convención colectiva) Albañil calificado (convención colectiva) Obrero construcción (código de trabajo)

13 Source: SBP with data from CAPAC.

II. Performance of the NBS Construction Sector Portfolio


15

3,995.4

19.6%

0%

10%

20%

30%

40%

50%

60%

0

500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

4.500

ene-

06

jul-

06

ene-

07

jul-

07

ene-

08

jul-

08

ene-

09

jul-

09

ene-

10

jul-

10

ene-

11

jul-

11

ene-

12

jul-

12

ene-

13

jul-

13

ene-

14

Loans to the Construction Sector

January 2006 – June 2014

In millions US$

Crédito Interino de Construcción Crecimiento (var. %, a/a) - Eje der.


National Banking System

Main Banks of the Construction Sector

As of June 30, 2014 (in millions of US$)

Balances Housing

Construction

Commercial

Construction Infrastructure

Other

Construction Total

Banco General,

S.A. 425.16 83.4 24.69 444.63 977.88

Banistmo, S.A. 191.73 98.91 98.23 412.33 801.2

Global Bank

Corporation 225.97 107.51 124.83 62.35 520.65

Multibank, Inc. 23.37 4.75 2.49 168.81 199.42

Banesco, S.A. 43.81 56.38 8.16 69.4 177.74

Other Banks 352.82 320.64 163.63 481.41 1,318.50

Total Construction 1,262.85 671.58 422.04 1,638.93 3,995.40


As of June 2014, the Construction Sector’s HHI shows a total of 1,124, which, while it is slightly higher than the rest of the

segments, shows a moderate concentration level. Ratios between 1,000 and 1,500 points are considered to reflect a moderate

market concentration in the US legal system. Over 2,500 points, the market is considered too concentrated .

17

1,124

0

500

1.000

1.500

2.000

2.500

ene-0

2

ene-0

3

ene-0

4

ene-0

5

ene-0

6

ene-0

7

ene-0

8

ene-0

9

ene-1

0

ene-1

1

ene-1

2

ene-1

3

ene-1

4

Herfindahl Index (HHI)

January 2002 - June 2014



Quality of the Construction Portfolio

As of June 30, 2014

in millions of US$

18

Balances Current Current/

Total Past Due

Past Due/

Total Delinquent

Delinquent/

Total Total

Housing

Construction 1,223.20 96.90% 33.9 2.70% 5.8 0.50% 1,262.90

Commercial

Construction 671.2 99.90% 0.1 0.00% 0.2 0.00% 671.6

Infrastructure 418.2 99.10% 1.1 0.30% 2.7 0.60% 422

Other

Construction 1,621.90 99.00% 6.9 0.40% 10.1 0.60% 1,638.90

Total………. 3,934.50 98.50% 42.1 1.10% 18.9 0.50% 3,995.40


III. Construction Sector Survey Results


Type of Housing Units

Single family homes 9,964

Apartments 5,959

Total new housing 15,923

20

Housing under Construction: As of June 2014


Single Family Homes

Analysis of Uninitiated Projects: as of June 2014

Location Number of

Projects

Number of

Houses

Average Size in

Square Meters

Ancon 1 51 225

Arraijan

Chitre – Herrera

19

2

1,617

299

133

62

Chorrera – Panama

3

312

93

David – Chiriquí

Penonome – Cocle

1

3

39

118

68

157

Panama – Beaches

Panama City

2

10

124

300

351

91

Total………. 41 2,860


22

Number of

apartments to

be delivered in

2014.

Number of

apartments to

be delivered in

2015.

Number of

apartments to

be delivered in

2016.

Number of

apartments to

be delivered

after 2016.

Total New

Apartments

under

Construction

Total Pre-sold

801 1,518 1,999 1,641 5,959 2,193

Apartments under Construction

As of June 2014


23

18%

15%

12%

10%

10%

8%

7%

7%

3%

3% 3% 2% 2%

Juan Diaz

Rest of the Country

San Francisco

Bella Vista

Pedregal

Parque Lefevre

Pueblo Nuevo

Rio Abajo

Las Cumbres

Mateo Iturralde

Betania

Amelia D. de Icaza

Pacora

** The rest of the Country: Beaches in Cocle, Beaches in Panama, San Carlos, Chorrera,

Chitré Herrera.

Distribution of Projects by Location

(in percentages)

24

Apartments under Construction by Bank

*In preparing the table by bank, there is one project financed by multiple banks.

• Banco Aliado

• Global Bank

Banks Projects Apartments

Banco General 19 1,838

GLOBAL* 8 1,196

Banco Aliado* 4 845

Banesco 5 513

The Bank of Nova Scotia 3 500

Multibank 7 322

Banistmo S.A. 2 176

Capital Bank 2 130

Universal 5 125

Metrobank 1 124

Balboa Bank & Trust, Corp. 2 84

Banco Davivienda 1 45

Banvivivenda 1 38

Prival Bank 1 23

Total 61 5,959


Data Survey Results: Commercial Locales 2014

Commercial Locales

2014

Total cost of the projects 2.54 billion

To be financed by banks 882 million

Number of loans approved by banks as domestic credit for

commercial locales (pre-sale) 1,564

Number of loans approved by banks as foreign credit for commercial

locales (pre-sale) 164


Comments on the Commercial Locale sub-sector

• Ninety percent (90%) of loans approved by banks are granted as

domestic loans.

• Outside the province of Panama, commercial locales are focused

mainly on Chiriqui, Colon and Veraguas.


27

Type of

Construction

Number of

Projects

Total Cost

(US$ MM )

Amount to be

Financed

(US$ MM)

Disbursements to

Date

Fuel storage 1 0.255 0.204 0.66

Hotels 7 241 40 23

Malls 13 433 178 152

Schools 1 2 2 2

Tourism

development 8 224 122 92

Improvements of

food processing

facilities 1 2 2 2

TOTAL 31 902 344 272

Survey Data Results: Other Construction 2014


Comments on the Other Construction subsector

• The construction of 7 hotels, of which 6 are located in the province of Panama and

another in Chiriqui, is highlighted.


29

Type of

Infrastructure

Number of

Projects

Total Cost

(US$ MM)

Amount to be

financed by

Banks

(US$ MM)

Payments to

Date

(US$ MM) Balance Owed

Construction of infrastructure for lots 2 12 3 2 1

Transportation Infrastructure 2 376 12 6 6

Residential Infrastructure 39 301 136 3 0

Other Infrastructure 2 6 5 4 4

Total 45 695 156 15 11

Survey Data Results: Infrastructure 2014


Comments on the Infrastructure subsector

• Around 11 banks report this item.

• Mainly focused on housing infrastructure projects.

• Some of these projects are destined for beach residences/villas.


Appendix


Granger Causality Test between the Economic Cycle and the Sector Cycle

Null Hypothesis Statistical Probability Interpretation

Economic cycle does not influence

sector cycle 3.17988 0.0482

There is causality from the

economy to the sector

Sector cycle does not influence

economic cycle 1.19305 0.3099

There is no causality from

the sector to the economy

Overall GDP does not influence sector

GDP 5.58746 0.0058

There is causality from the

economy to the sector

Sector GDP does not influence overall

GDP 2.29496 0.109

There is no causality from

the sector to the economy

32



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