Agreement No. 8 (2022) Modifying Article 2 of Agreement No. 3-2016 on Risk-Weighted Credit Assets and Counterparty Risk

Republic of Panama
Superintendency of Banks
AGREEMENT No. 008-2022
(August 2, 2022)
"Modifying Article 2 of Agreement No. 3-2016 on Risk-Weighted Credit Assets and Counterparty Risk, and Issuing Other Provisions"

THE BOARD OF DIRECTORS in the 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 paragraphs 1 and 2 of Article 5 of the Banking Law, the objectives of the Superintendency of Banks are to ensure the maintenance of the solidity and efficiency of the banking system; as well as to strengthen and foster the favorable conditions for the development of the Republic of Panama as an international financial center;

That in accordance with paragraphs 3 and 5 of Article 11 of the Banking Law, it is the technical competence of the Board of Directors to approve the general criteria for the classification of risk assets and the guidelines for the establishment 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 Superintendency of Banks must maintain capital funds equivalent to at least eight percent (8%) 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 (4%) 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 in accordance with paragraphs 4, 5, 6, and 7 of Article 2 of Agreement No. 3-2016, among the assets classified in Category 4 with a weighting of 35% and in Category 5 with a weighting of 50%, are mortgage-backed housing loans and other consumer or corporate loans with mortgage guarantees on residential or commercial real estate. On the other hand, among the assets classified in Category 6 with a weighting of 100%, are loans with mortgage guarantees, and in Category 7 with a weighting of 125%, are overdue financings not included in the aforementioned Categories, and those delinquent loans that are defined in the regulations issued by this Superintendency;

That through General Resolution of the Board of Directors SBP-GJD-0001-2022 of April 12, 2022, General Resolution of the Board of Directors No. SBP-GJD-0006-2021 is modified, in order to extend until August 1, 2022, the validity of the appraisal reports used for the constitution of guarantees on movable and immovable assets held in the bank's files, in compliance with the current regulations issued by the Superintendency of Banks;

That in working sessions of this Board of Directors, the need and convenience of modifying paragraphs 4, 5, 6, and 7 of Article 2 of Agreement No. 3-2016 has been highlighted, in order to establish new guidelines on the appraisal of the guarantee of assets classified in said paragraphs.

AGREES:

ARTICLE 1. MODIFICATION. Paragraph 4.1 of Category 4; paragraphs 5.3, 5.4, 5.5, 5.6, 5.7 of Category 5; paragraphs 6.9 and 6.10 of Category 6, and paragraph 7.4 of Category 7 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, 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 assets corresponding to each of these categories are indicated below:

…

4. Category 4 (Weighting 35%):
   4.1. Housing loans with mortgage guarantee granted to the final acquirer of such properties as their primary residence; provided that the loan amount does not exceed 80% of the value of the guarantee of the lowest value reflected in the appraisal report. Banks shall not consider in this category those credits that have a consumer nature and are linked to a mortgage guarantee.

To be eligible for this category, the bank must have the appraisal of the property performed by independent professionals, with a maximum age of six (6) years. Upon the expiration of the six (6) year period referred to in this paragraph, the bank must have the corresponding updated appraisal.

…

5. Category 5 (Weighting 50%):

…

5.3. Housing loans with mortgage guarantee granted to the final acquirer of such properties as their primary residence; where the loan amount exceeds 80%, and does not exceed 100% of the lowest value of the guarantee reflected in the appraisal report. Loans under these conditions will not require an updated appraisal.

5.4. Housing loans with mortgage guarantee granted to the final acquirer of such properties as a second residence; provided that the loan amount does not exceed 80% of the value of the guarantee of the lowest value reflected in the appraisal report and with a maximum age of ten (10) years.

Upon the expiration of the ten (10) year period referred to in this paragraph, the bank must have the corresponding updated appraisal.

5.5. Housing loans that meet the conditions of paragraph 4.1, except that the age of the appraisal is greater than six (6) years.

5.6. Other loans (consumer or corporate) with mortgage guarantee on commercial real estate, provided that the loan balance does not exceed 60% of the value of the mortgaged property and with a maximum appraisal age of five (5) years. Upon the expiration of the five (5) year period referred to in this paragraph, the bank must have the corresponding updated appraisal.

5.7. Other loans (consumer or corporate) with mortgage guarantee on residential real estate, provided that the loan balance does not exceed 70% of the value of the mortgaged property and with a maximum appraisal age of five (5) years. Upon the expiration of the five (5) year period referred to in this paragraph, the bank must have the corresponding updated appraisal.

…

6. Category 6 (Weighting 100%):

...

6.9. All loans with mortgage guarantee that do not meet the conditions previously established in categories 4 and 5 must be included in this category. Loans under these conditions will not require an appraisal, unless the credit facility is classified for the first time in the substandard category and subsequent categories. Likewise, overdue loans with mortgage guarantees originating from categories 4 and 5 of this Agreement shall be included in this category. The bank must ensure compliance with the rules established in Article 41 of Agreement 4-2013.

6.10. All delinquent loans, with the exception of mortgage-backed loans, which are defined in the regulations issued by this Superintendency, whose characteristics are described therein and in the aforementioned categories, shall be weighted at 100%. In the case of delinquent loans with mortgage guarantees, they shall remain classified in categories 4 and 5 as applicable.

…

7. Category 7 (Weighting 125%):

…

7.4. All overdue financings, excluding mortgage-backed loans, in accordance with the provisions of the Agreement on management and administration of inherent credit risk to the credit portfolio and off-balance sheet operations, are weighted in this category, excluding those included in category 8.
…”

ARTICLE 2. REPEAL. This Agreement repeals General Resolution of the Board of Directors SBP-GJD-0001-2022 of April 12, 2022.

ARTICLE 3. EFFECTIVENESS. The provisions of this Agreement shall take effect from the date of its promulgation.

Given in the city of Panama, on the second (2) day of the month of August of two thousand twenty-two (2022).

NOTIFY, PUBLISH, AND COMPLY.

THE PRESIDENT THE SECRETARY

Rafael Guardia Pérez Felipe Echandi Lacayo