NEW DECREE OF THE SUPERINTENDENCY OF BANKS

THE BANK DOES NOT LEND YOU MONEY TO MAKE YOUR DREAMS COME TRUE; IT LENDS YOU MONEY TO MONETIZE YOUR IMPATIENCE AND TURN YOUR DREAMS INTO DEBT

The recent decree issued by the Superintendency of Banks of Panama once again brings to the forefront a fundamental issue in modern economics: the relationship between bank credit, consumers, and indebtedness.

Credit can be a valuable tool for purchasing a home, developing a business, investing, or improving our quality of life. However, it can also become a long-term financial burden when decisions are made impulsively and without analyzing the true cost of money.

The Bank’s Business Is Money

A bank's primary business is not to sell you a house, a car, or any other asset. Its fundamental business is to intermediate and manage money, assume financial risk, and generate returns from the credit it extends.

When a bank lends you money, it is not financing your dreams for free. It is entering into a financial transaction in which it expects to recover the principal and generate a return through interest, commissions, and other charges permitted under applicable law.

Therefore, while the customer thinks:
“I want this now.”

The bank thinks:
“How much is the money I am lending you worth today, and how much will I recover over the life of the loan?”

Monetizing Impatience
One of the major businesses of the financial system is precisely monetizing the consumer’s time and impatience.

You want to purchase today something you cannot yet afford with your current income. The bank allows you to bring that consumption forward, but in exchange, you commit a portion of your future income.

The result can be simple:

• A present desire becomes a future obligation.
• And that obligation has a price: the financial cost of credit.
• Before Asking How Much the Bank Will Lend You, Ask How Much You Will Ultimately Pay
• A financial consumer should not focus solely on the monthly payment.
• The consumer should analyze:
• The total amount financed.
• The interest rate.
• Commissions and related charges.
• The term of the loan.
• The total financial cost.
• The collateral or guarantees required.
• The consequences of default.
• And, fundamentally, how much money will have been paid by the time the obligation is fully repaid.

An apparently affordable monthly payment can conceal a substantial financial commitment when the loan extends over 10, 20, or 30 years.

The Bank’s True Asset Is Debt

From an economic perspective, a bank transforms a future promise to pay into a financial asset.

For the consumer, however, that same transaction represents an obligation that must be serviced with future income.
Therefore, credit should be used rationally and not simply as a tool to satisfy immediate desires.

MOLINA & CO. CONCLUSION

Bank credit is not inherently bad. Irresponsible indebtedness can be.

The financial system performs an essential function in the economy: it channels resources, finances investments, facilitates consumption, and enables individuals and businesses to undertake projects before they have accumulated all the necessary capital.

But consumers must understand one fundamental rule:

THE BANK GIVES YOU MONEY TODAY; YOU GIVE THE BANK A PORTION OF YOUR FUTURE.

Before signing a loan agreement, do not ask only:

How much will the bank lend me?

Ask:

HOW MUCH WILL THIS MONEY REALLY COST ME, AND HOW MUCH OF MY FUTURE AM I COMMITTING IN ORDER TO HAVE IT TODAY?

MOLINA & CO.
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