Agreement No. 007-2020 Modifying Article 4 of Agreement No. 2-2020 on Exceptional Credit Risk Measures

Republic of Panama Banking Superintendence AGREEMENT No. 007-2020 (July 14, 2020)

"Modifying Article 4 of Agreement No. 2-2020 through which additional exceptional and temporary measures are established for compliance with the provisions contained in Agreement No. 4-2013 on credit risk"

THE BOARD OF DIRECTORS

In exercise of its legal powers, and

CONSIDERING:

That following the issuance of Law Decree No. 2 of February 22, 2008, the Executive Branch prepared a systematic ordering in the form of a single text of Law Decree No. 9 of February 26, 1998, and all its modifications, which was approved through Executive Decree No. 52 of April 30, 2008, hereinafter the Banking Law;

That in accordance with paragraphs 1 and 3 of Article 5 of the Banking Law, the objectives of the Banking Superintendence are to ensure the solidity and efficiency of the banking system; as well as to promote public confidence in the banking system;

That paragraph 5 of Article 11 of the Banking Law provides, within the technical attributions of the Board of Directors, the power to fix, in the administrative sphere, the interpretation and scope of legal or regulatory provisions in banking matters;

That through Agreement No. 4-2013 of May 28, 2013, provisions on the management and administration of credit risk inherent to the credit portfolio and off-balance sheet operations are established;

That as a result of the Coronavirus outbreak, worldwide, and in follow-up to the international recommendations of the World Health Organization and the Pan American Health Organization, the National Government through the Ministry of Health issued Executive Decree No. 64 of January 28, 2020, which adopts necessary measures that are indispensable and urgent, contained in the National Plan against the threat of an outbreak of the New Coronavirus (2019-nCoV); as well as extraordinary measures that are necessary to avoid the introduction and spread of this public health problem;

That in the face of the threat of an emergency situation in the territory due to the risk of spread of the coronavirus outbreak, the Cabinet Council through Cabinet Resolution No. 6 of January 28, 2020, declares the threat of high risk of spread of the outbreak of the New Coronavirus (2019-nCoV) in the national territory;

That subsequently, in order to expand Cabinet Resolution No. 6 of 2020 and double up on surveillance measures to contain the epidemic, the Cabinet Council through Cabinet Resolution No. 10 of March 3, 2020, elevates the threat of spread of the outbreak of the New Coronavirus (2019-nCoV) in the national territory to very high and issues other provisions;

That this health threat situation of the New Coronavirus (2019-nCoV) at the global level has affected collateral different sectors of the economy, among which the financial sector is included, so it is necessary to protect the financial stability of the Panamanian banking system;

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That the Banking Superintendence issued Agreement No. 2-2020 which establishes additional, exceptional, and temporary measures for compliance with the provisions contained in Agreement No. 4-2013, which allows banks to modify the originally agreed conditions of corporate and consumer loans, in order to provide economic relief to clients whose payment capacity is affected by the situation caused by COVID-19;

That Article 4 of Agreement No. 2-2020 establishes that banking entities will have a period of 120 days to evaluate the credits of those debtors whose cash flow or payment capacity has been affected by the COVID-19 situation or who present a delay of up to 90 days. It is also established that such credits may be subject to review of their terms and conditions, for which the bank may agree and/or grant grace periods maintaining the credit classification at the time of entry into force of the Agreement;

That on May 4, 2020, the Banking Association of Panama signed a public commitment to extend the moratorium until December 2020, through which the extension and incorporation of new financial relief measures are announced to support clients affected by COVID-19;

That the public commitment signed by the Banking Association of Panama establishes that the moratorium period is extended until December 2020 to those clients who during said period continue to be affected by the economic crisis caused by the COVID-19 pandemic, specifically to persons whose employment contract has been suspended or terminated, independent workers, and businesses whose activity has been affected by the sanitary measures established by the Executive Branch;

That taking into consideration that banks must evaluate each case individually, it is necessary to extend the 120-day period established in Agreement No. 2-2020, in order for banking entities to have a longer period to evaluate those debtors affected by COVID-19 and make the corresponding modifications;

That in working sessions of this Board of Directors, the need and convenience of modifying Article 4 of Agreement No. 2-2020 has been manifested, in order to extend the evaluation period for the granting of loans.

AGREES:

ARTICLE 1. Article 4 of Agreement No. 2-2020 of March 16, 2020, is hereby amended as follows:

ARTICLE 4. EVALUATION PERIOD FOR THE GRANTING OF LOANS. Banking entities will have until December 31, 2020, to reevaluate the credits of those debtors whose cash flow and payment capacity have been affected by the COVID-19 situation and who at the original time of their modification presented a delay of up to 90 days.

Likewise, banks may make modifications to those credits that have not been previously modified, whose cash flow and payment capacity have been affected by the COVID-19 situation and who do not present a delay of more than 90 days.

Such credits may be subject to review of their terms and conditions, for which the bank may agree and/or grant grace periods maintaining the classification of the credit at the time of entry into force of this Agreement, until such time as this Superintendence establishes the classification criteria and determination of provisions that will be applied to the modified credits.

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ARTICLE 2. VALIDITY. This Agreement will enter into force starting July 19, 2020.

Given in the city of Panama, on the fourteenth (14) day of the month of July of two thousand twenty (2020).

LET IT BE COMMUNICATED, PUBLISHED, AND COMPLIED WITH.

THE PRESIDENT THE SECRETARY Luis La Rocca Nicolás Ardito Barletta