BG's ratings reflect its strong local franchise and market share, strengthened competitive position, consistent strategy, dependable performance through the financial crisis, good portfolio quality and sufficient capital. They also factor in its moderate asset concentration, the uncertainty over the real estate and construction sectors and increasingly competitive landscape.

BG is located in Panama which, as a long-standing dollarized economy, lacks a central bank or lender of last resort. Banco Nacional de Panama, the largest state controlled bank, could only provide temporary liquidity loans if needed. In Fitch's view, external support for BG, although possible, can not be relied upon.

Should portfolio quality decline beyond reasonable levels, performance weaken or capitalization deteriorate, the ratings could experience downward pressure; however, Fitch considers these events unlikely in the short term.

In 2007 BG swiftly merged with Banco Continental (BC) integrating customers, employees and products in less than nine months. BG emerged well positioned to compete with local and regional players. BG's strong performance during 2009 was driven by decreasing funding costs which, coupled with a more profitable portfolio mix, countered the impact of slower growth and volatile investment performance. Non-interest revenues remained flat as did credit cost; hence efficiency and profitability improved with an ROAE of 20.45% and an ROAA of 2.47% at September 2009.

BG's loan portfolio is now more diversified, less concentrated and exhibits an outstanding asset quality (PDLs were 0.7% at September 2009). Adequate reserves cover PDLs, but the level of related party lending - which has historically performed well - remains somewhat high compared to its peers. Deposits are broad-based, well diversified and show a healthy growth contributing to reduce borrowings and to lower funding cost. Slower growth resulted in improved capital levels (the BIS capital ratio stood at 18.3% at September 2009) that should not decline below 15% in the future.

In the short term, margins are expected to remain stable while BG resumes growth. Then, in late 2010, growing funding costs and competitive pressures should pressure margins in spite of growth into retail banking. However, infrastructure projects should spur growth while costs should remain relatively stable thus improving efficiency. BG's asset quality could decline moderately and pressure profitability via provisions, and therefore profitability could see a decline before recovering. BG's ample capital base should allow it to withstand such decline.

Banco General became Panama's second largest private bank - with the largest market share in local deposits (about 26% at June 2009) and loans (20%) - through a consistent strategy of strong organic growth and strategic acquisitions and cemented its position by merging with BC in September 2007. BG holds about 14% of the system's assets and is controlled by BG Financial Group Inc.

Additional information is available at 'www.fitchratings.com'.

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