Agreement No. 003-2022: Modification of Article 2 of Agreement No. 3-2016 on Risk-Weighted Assets

Republic of Panama Banking Superintendence AGREEMENT No. 003-2022 (of April 19, 2022) "By which Article 2 of Agreement No. 3-2016, which establishes norms for the determination of risk-weighted credit assets and counterparty risk, is modified"

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 the provisions of items 1 and 2 of Article 5 of the Banking Law, it is the objective of the Banking Superintendence 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 items 3 and 5 of Article 11 of the Banking Law, it is the 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, and its modifications, norms are established for the determination of risk-weighted credit assets and counterparty risk;

That through Article 2 of Agreement No. 3-2016, the classifications of assets by categories are established, for the purposes of their risk weighting;

That item 1 Category 1 (0% weighting) of Article 2 of Agreement No. 3-2016, includes within this category instruments issued or guaranteed by multilateral organizations and loans guaranteed by instruments issued or guaranteed by such multilateral organizations; as well as by any other multilateral development organizations approved by this Superintendence;

That in accordance with the guidelines established by Basel, credits against Multilateral Development Banks (MDBs) expressly approved by the Banking Superintendence of Panama are entitled to a risk weighting of 0%, among which the European Bank for Reconstruction and Development (EBRD) is included;

Agreement No. 003-2022 Page 2 of 3

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 include the European Bank for Reconstruction and Development (EBRD) as a multilateral organization approved by this Superintendence for the purposes of its classification in Category 1 of assets with a 0% credit risk weighting.

AGREES:

ARTICLE 1. Items 1.4 and 1.8 of Category 1 (0% weighting) of Article 2 of Agreement No. 3-2016, are hereby amended as follows:

"ARTICLE 2. CLASSIFICATION OF ASSETS BY CATEGORIES. For the purposes of their risk weighting, in accordance with the provisions of Article 70 of the Banking Law, assets shall be classified into the following categories, the risk percentage of which 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 (0% Weighting): 1.1. Available funds held in cash. 1.2. Loans granted exclusively to the Panamanian State and Instruments issued by the Panamanian State. 1.3. Instruments issued or explicitly, jointly, and unconditionally guaranteed by governments with an international rating from AAA to AA-. 1.4. Instruments issued or guaranteed by the International Monetary Fund (IMF), the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Inter-American Development Bank (IDB), the European Investment Bank (EIB), the Asian Development Bank (ADB), the African Development Bank (AfDB), the International Fund for Agricultural Development (IFAD), the Andean Development Corporation (CAF), the European Bank for Reconstruction and Development (EBRD), and by any other multilateral development organizations approved by this Superintendence. 1.5. The amount of investments in equity instruments of non-financial entities, included in the accounting consolidation perimeter and which has been deducted from consolidated common equity tier 1 capital, according to the application of item 9 of Article 9 of Agreement No. 1-2015, which establishes norms on Capital Adequacy. 1.6. The amount of significant holdings in the capital of banking, financial, and insurance entities, not included in the consolidation perimeter, which have been deducted from regulatory capital funds according to capital adequacy reports (from the individual bank, the bank and subsidiaries, and the banking group), in accordance with the application of item 10 of Article 9 of Agreement No. 1-2015, which establishes norms on Capital Adequacy. 1.7. Loans duly guaranteed by the pledge of deposits in the same bank up to the guaranteed amount. 1.8. Loans guaranteed by Instruments issued or guaranteed by the International Monetary Fund (IMF), the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Inter-American Development Bank (IDB), the European Investment Bank (EIB), the Asian Development Bank (ADB), the African Development Bank (AfDB), the International Fund for Agricultural Development (IFAD), the Andean Development Corporation (CAF), the European Bank for Reconstruction and Development (EBRD), and by any other multilateral development organizations approved by this Superintendence. 1.9. Gold and silver at their market value. 1.10. Any asset whose amount has been deducted from regulatory capital, in accordance with the provisions of Article 9 of Agreement No. 1-2015, which establishes norms on Capital Adequacy. 1.11. Interest receivable on these assets.

2. Category 2 (10% Weighting): …"

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

Given in the city of Panama, on the nineteenth (19) day of the month of April of two thousand twenty-two (2022).

LET IT BE COMMUNICATED, PUBLISHED, AND COMPLIED WITH.

THE PRESIDENT THE SECRETARY Rafael Guardia Pérez Felipe Echandi Lacayo