Agreement No. 004-2018 Modifying Article 35 of Agreement No. 002-2018 on Liquidity Risk Management and Short-Term Liquidity Coverage Ratio

Republic of Panama
Banking Superintendence
AGREEMENT No. 004-2018
(of April 3, 2018)
"By which Article 35 of Agreement No. 002-2018 on the management of liquidity risk and the short-term liquidity coverage ratio is modified"

THE BOARD OF DIRECTORS in the exercise of its legal powers, and

CONSIDERING:

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

That in accordance with the provisions of paragraphs 1 and 2 of Article 5 of the Banking Law, the objectives of the Banking Superintendence are to ensure the maintenance of the solidity and efficiency of the banking system; as well as to strengthen and foster the conditions conducive to the development of the Republic of Panama as an international financial center;

That in accordance with paragraph 1 of Article 6 of the Banking Law, the Superintendence must ensure that banks maintain appropriate solvency and liquidity coefficients to meet their obligations;

That in accordance with the provisions of Article 72 of the Banking Law, the Superintendence may take into consideration and value other risks for the determination of the capital adequacy ratio;

That Article 73 of the Banking Law provides that every bank with a general license and every bank with an international license whose home supervisor is the Banking Superintendence must maintain at all times a minimum balance of liquid assets equivalent to the percentage of the total gross of their deposits in Panama or abroad, which the Banking Superintendence periodically fixes;

That in accordance with paragraph 10 of Article 75 of the Banking Law, the Superintendence may determine other liquid assets as part of the assets that make up the liquidity basket of banks;

That the Basel Committee on Banking Supervision has carried out essential reforms to achieve a more resilient banking sector, for which it has developed the Liquidity Coverage Ratio (LCR), whose objective is to promote the short-term resilience of the liquidity risk profile of banks;

That by Agreement No. 002-2018 of January 23, 2018, provisions on the management of liquidity risk and the short-term liquidity coverage ratio were established;

That in working sessions of this Board of Directors, the need and convenience of modifying Article 35 of Agreement No. 002-2018 has been brought to light, in order to include a paragraph in the total cash inflows that must be considered for the calculation of the short-term liquidity coverage ratio.

Agreement No. 004-2018

AGREES:

ARTICLE 1. Article 35 of Agreement No. 002-2018 is hereby amended as follows:

ARTICLE 35. TOTAL CASH INFLOWS. Total cash inflows is the sum of the following paragraphs:

1. 100% of all interest receipts, in the 30-day period, corresponding to contractual obligations of assets that are up to date on payments, and of which there are no reasons to expect default in the next 30 days.

2. 0% of the balance of secured credit operations, maturing in the 30-day period, and backed by Level 1 assets.

3. 15% of the balance of secured credit operations, maturing in the 30-day period, and backed by Level 2A assets.

4. 25% of the balance of secured credit operations, maturing in the 30-day period, and backed by Level 2B securitization bonds.

5. 50% of the balance of secured credit operations, maturing in the 30-day period, and backed by Level 2B assets, which are neither shares nor securitization bonds.

6. 50% of the balance of retail customer (natural persons) and micro and small enterprise financing credit operations, maturing in the 30-day period.

7. 100% of cash inflows from derivative inflows, in the 30-day period.

8. 100% of any cash inflow from asset operations with medium and large enterprises, maturing in the 30-day period.

9. 100% of demand and time deposits with a residual maturity equal to or less than 30 days, held in financial entities of other jurisdictions, with an international rating from AAA to A- or equivalent international rating.

10. 80% of demand and time deposits with a residual maturity equal to or less than 30 days held in financial entities of other jurisdictions, with an international rating from BBB+ to BBB- or equivalent international rating.

11. 100% of demand and time deposits with a residual maturity less than 30 days held in local banks with a local rating from AAA to A- or its equivalent rating.

12. 50% of demand and time deposits with a residual maturity less than 30 days held in local banks with a local rating from BBB+ to BBB- or its equivalent rating.

13. 100% of any other cash inflow, projected in the 30-day period, with the obligation to specify the nature of this inflow.

ARTICLE 2. EFFECTIVENESS. This Agreement shall enter into force as part of the Agreement it modifies on July 1, 2018.

Given in the city of Panama, on the third (3) day of the month of April of two thousand eighteen (2018).

LET IT BE COMMUNICATED, PUBLISHED, AND COMPLIED WITH.

THE PRESIDENT THE SECRETARY, Ad-Hoc
Louis-Jean Montague Belanger Luis Alberto La Rocca