Agreement No. 011-2020 Modifying Article 2 of Agreement No. 3-2016 on Risk-Weighted Assets

Republic of Panama Superintendence of Banks AGREEMENT No. 011-2020 (of September 22, 2020) “By which Article 2 of Agreement No. 3-2016 is modified, which establishes norms for the determination of risk-weighted credit assets and counterparty risk.”

THE BOARD OF DIRECTORS

In exercise of its legal powers, and

CONSIDERING:

That following 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 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 what is provided in numerals 1 and 2 of Article 5 of the Banking Law, it is the objective of the Superintendence of Banks to ensure the maintenance of the solidity and efficiency of the banking system; as well as to strengthen and foster the conducive conditions for the development of the Republic of Panama as an international financial center;

That in accordance with numerals 3 and 5 of Article 11 of the Banking Law, it is a technical attribute of the Board of Directors to approve the general criteria for the classification of risk assets and the guidelines for the constitution of reserves for risk coverage, and to fix within the administrative scope, the interpretation and scope of legal or regulatory provisions in banking matters;

That in accordance with Article 70 of the Banking Law, every general license bank and international license bank whose origin supervisor is the Superintendence, must maintain capital funds equivalent to at least eight percent of the total of its assets and off-balance sheet operations that represent a contingency, weighted according to their risks, as well as primary capital equivalent to no less than four percent of its assets and off-balance sheet operations that represent a contingency, weighted according to their risks;

That through Agreement No. 3-2016 of March 22, 2016, modified by Agreement No. 8-2016, norms are established for the determination of risk-weighted credit assets and counterparty risk;

That the Banco Nacional de Panamá placed an issuance in the international bond markets for $1,000 million, with an over-demand of the order of $4,800 million, whose bond maturity is 10 years with a rate of 2.5%. The aforementioned issuance was carried out within the framework of the COVID-19 pandemic and is also considered the lowest rate obtained by a financial entity in the country;

That the main purpose of the issuance is to diversify the bank's sources of resources and improve the maturity profile of liabilities by obtaining long-term funds, which by definition provide greater stability to financial balances;

That in working sessions of this Board of Directors, the need and convenience of modifying Article 2 of Agreement No. 3-2016 has been manifested in order to incorporate into Category 2 (10% Weighting) of the asset classification by categories, the titles issued by the Banco Nacional de Panamá, for the purposes of their risk weighting.

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AGREES:

ARTICLE 1. Numeral 2.6 is added to Category 2 (10% Weighting) of Article 2 on the classification of assets by categories of Agreement No. 3-2016, as follows:

“ARTICLE 2. CLASSIFICATION OF ASSETS BY CATEGORIES. For the purposes of their risk weighting, in accordance with what is provided in Article 70 of the Banking Law, assets will be classified into the following categories whose risk percentage is indicated below:

Category Weighting 1 0% 2 10% 3 20% 4 35% 5 50% 6 100% 7 125% 8 150% 9 200% 10 250%

The following assets correspond to each of these categories:

1. Category 1: (Weighting 0%): …

2. Category 2 (Weighting 10%): 2.1. Demand deposits in banks established in Panama. These demand deposits include documents in the process of collection, deposited or included in clearing. 2.2. Demand deposits in banks established in other jurisdictions, provided these banks have an international rating from AAA to A-, and in a fully convertible currency according to the following table:

Code Currency Code Currency USD US Dollar GBP British Pound EUR Euro CHF Swiss Franc CAD Canadian Dollar SEK Swedish Krona NZD New Zealand Dollar DKK Danish Krone AUD Australian Dollar NOK Norwegian Krone JPY Japanese Yen

2.3. Loans granted to autonomous entities and public-private enterprises guaranteed in their entirety and explicitly, jointly and severally, and unconditionally by the Panamanian State and Instruments issued by autonomous entities and public-private enterprises guaranteed in their entirety and explicitly, jointly and severally, and unconditionally by the Panamanian State.

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2.4. Loans duly guaranteed by the pledge of deposits in other banks established in Panama, up to the guaranteed amount. 2.5. Interest receivable on these assets. 2.6. Bonds issued by the Banco Nacional de Panamá provided that these maintain an international credit rating no lower than BBB-.

3. Category 3 (Weighting 20%): …”

ARTICLE 2. VALIDITY. This Agreement shall enter into force from its promulgation.

Given in the city of Panama, on the twenty-second (22) day of the month of September of two thousand twenty (2020).

NOTIFY, PUBLISH, AND COMPLY.

THE PRESIDENT THE SECRETARY Luis Alberto La Rocca Nicolás Ardito Barletta