Agreement No. 8-2025: Modification of Articles 39, 41, and 42 of Agreement No. 4-2013 on Credit Risk Management

Republic of Panama
Superintendency of Banks of Panama
AGREEMENT No. 8-2025
(August 5, 2025)

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 referred to as the Banking Law;

That in accordance with paragraphs 1 and 2 of Article 5 of the Banking Law, the objectives of the Superintendency of Banks are to ensure the solidity and efficiency of the banking system; as well as to foster favorable conditions for the development of Panama as an international financial center;

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

That it is the responsibility of the Board of Directors to define and establish criteria for credit risk management, including the processes and procedures to be observed in each of its phases;

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 were established;

That Articles 39, 41, and 42 of Banking Agreement No. 4-2013 establish valid guarantees for the calculation of the amount of specific provisions, the parameters for their valuation, and the present value of eligible guarantees as risk mitigants;

That through Cabinet Decree No. 1 of January 10, 2024, the signing of Loan Agreement No. 5793/OC-PN between the Republic of Panama, represented by the Ministry of Economy and Finance, and the Inter-American Development Bank, up to the amount of one hundred fifty million United States dollars with 00/100 (US$ 150,000,000.00), was authorized; published in the Official Gazette on January 11, 2024;

That in accordance with Loan Agreement No. 5793/OC-PN, the financing of natural or legal persons belonging to the economic segment of the Micro, Small, and Medium Enterprise (MSME) sector in the country is aimed at improving their productivity through a guarantee fund that facilitates access to medium and long-term credits and, in turn, provides intermediary financial institutions with additional security coverage on loans eligible for the Panama Guarantee Fund;

That in accordance with Loan Agreement No. 5793/OC-PN and its Single Annex, the beneficiaries of the guarantee fund are primarily Panamanian MSMEs, mainly those developing in the agricultural, commercial, and service sectors that have the necessary solvency to access credit but require complementing their guarantee packages with products from the Panama Guarantee Fund, which must meet the corresponding eligibility criteria;

That through Agreement No. 1-2014 of September 17, 2024, signed between the Ministry of Economy and Finance, as settlor, and the National Bank of Panama, as trustee, the terms are established;

That for this Superintendency of Banks, the project related to the regulatory entity of the banking sector within the Panamanian State is of great importance, consisting of ensuring that the international banking center remains solid and contributes to the growth of the various existing economic activities in sectors that make up the country;

That in working sessions of this Board of Directors, the need and convenience of modifying Articles 39, 41, and 42 of Agreement No. 4-2013 have been highlighted in order to recognize the Panama Guarantee Fund constituted through Loan Agreement No. 5793/OC-PN, signed between the Republic of Panama, represented by the Ministry of Economy and Finance, and the Inter-American Development Bank (IDB), as a credit risk mitigant guarantee.

AGREES:

ARTICLE 1. Article 39 of Agreement No. 4-2013 of May 28, 2013, is hereby amended as follows:

ARTICLE 39. GUARANTEES. For the calculation of the amount of specific provisions, guarantees on the following assets will be considered valid:

1. Pledged deposits in the bank itself or in other banks.
2. Fixed or variable income securities traded in an active market.
3. Sovereign debt of Panama.
4. Fixed or variable income securities that lack an active market but for which the estimation of fair value is feasible.
5. Sovereign debt traded in an active market.
6. Irrevocable stand-by letters of credit, guarantees, sureties, endorsements, and export/import letters of credit issued by banking entities.
7. Promissory notes with discount keys from the Social Security Fund (Caja de Seguro Social).
8. Residential real estate.
9. Commercial real estate.
10. Real estate land.
11. Real estate (land exclusively for agricultural purposes).
12. Automobiles.
13. Cattle.
14. Agricultural products fully identifiable by the bank.
15. Guarantee letters issued by the Micro, Small, and Medium Enterprise Authority (AMPYME) under the Micro and Small Enterprise Financing Program (PROFIMYPE), which are within the items backed by the Ministry of Economy and Finance (MEF).
16. Guarantees granted and backed by the Panama Guarantee Fund, constituted through Loan Agreement No. 5793/OC-PN of February 6, 2024, signed between the Republic of Panama, represented by the Ministry of Economy and Finance, and the Inter-American Development Bank.

ARTICLE 2. Article 41 of Agreement No. 4-2013 of May 28, 2013, is hereby amended as follows:

ARTICLE 41. VALUATION OF GUARANTEES. On the date that banking entities perform the valuation of assets given as guarantees as risk mitigants, they must take as a basis the predominant values in the market. The entities granting the financing must use a strictly conservative criterion (the lowest value reflected in the appraisal report), in the sense of calculating the liquidation value that would be obtained by alienating said assets. Such valuation must be carried out according to the type of asset in question, as described below:

1. Mortgage guarantee on real estate.
   a. In the case of loans granted for the purchase of new homes, the fair value of the real estate will be taken, which will be obtained from a technical appraisal or from references of similar sales in the project. Any second-hand housing must have an updated appraisal at the time of the constitution of the loan. b. Banking entities must request an appraisal when:
   b.1. When the credit is to be increased. b.2. When a credit facility is classified for the first time in the subnormal category or subsequent categories and does not have an appraisal with an age of less than one year, one must be requested. b.3. During the process of executing guarantees on real estate, these must be appraised with a maximum age of two years. This period could be reduced in the event of evidence of real estate price reductions.
   c. The valuation of the mortgage guarantee on real estate must be supported by an appraisal of the asset given as guarantee, carried out by an expert independent of the debtor and acceptable to the bank. However, the valuation of real estate (1) whose fair value is estimated to be lower than the maximum value approved for the preferential interest regime or (2) dedicated to agricultural production, may be carried out by the bank, provided it has appropriate and duly documented methodologies.
   d. For commercial real estate purposes, everything provided in letters b, c, and d shall apply. However, the appraisal must be renewed at least every 5 years. e. Any restructuring must be accompanied by an appraisal acceptable to the bank with an age of less than one year. In those cases where the bank has determined that there is deterioration in the loan guarantee, the valuation must be carried out immediately. f. When it comes to interim construction loans, guaranteed by the land and the value of improvements built on it, the value of the land will be considered initially, and the value of the guarantee will be increased considering the progress of the construction work, certified in writing by the site inspector independent of the debtor or the constructor and acceptable to the bank. g. Priority in the assignment of the value of assets in mortgages: Only second-degree or subsequent mortgages will be accepted as risk mitigants, when the preceding ones are registered in favor of the banking entity granting the financing or any of the companies in its economic group. The residual value of the guarantee must cover the entirety of the financing. The residual value will be considered that resulting from discounting from the market value established in the most recent appraisal, the amount of the balances of the credits guaranteed with the previous mortgages. Only assets given as guarantee as a second mortgage in other banks will be accepted, those assets listed in Article 42 of this Agreement, provided there is a residual value of the guarantee to which twenty (20) percentage points of the coefficient established in the table of Article 42 of this Agreement must be subtracted.

2. Mortgage guarantee on movable property:
   The valuation of the mortgage guarantee on movable property will be equivalent to the value established in the insurance policy covering the asset.

3. Pledged deposits:
   In pledged deposits, the lower value between the loan balance and the pledged deposit will be taken.

4. Pledge guarantees:
   a. Sovereign debt, as well as financial instruments of commercial and state entities, will be accepted at their fair value. b. The valuation of the guarantee on cattle must be supported by an appraisal or certification of the value of the asset given as guarantee, carried out by persons independent of the debtor and acceptable to the bank. However, the valuation of cattle may be carried out by the bank itself, provided it has appropriate and duly documented methodologies.
   c. In the case of agricultural and livestock pledges, second-ranking pledges will not be permitted.

5. Other guarantees:
   a. Stand-by letters of credit, guarantees, sureties, or endorsements, as well as irrevocable letters of credit issued by banking entities, insurance and reinsurance companies, and assignments on promissory notes with discount keys will be taken at the fair value of the guarantee. These guarantees will not be accepted, for the purposes of this Agreement, if they are issued in favor of the bank by an entity of its same group, to guarantee obligations of a third entity of the same group. b. Guarantee trusts will be considered as risk mitigants provided they include the assets established in Article 42.
   c. Promissory notes with discount keys for retirees and pensioners of the Social Security Fund will be accepted at the value of the balance of the obligation they are guaranteeing.
   d. Guarantee letters issued by the Micro, Small, and Medium Enterprise Authority (AMPYME) under the Micro and Small Enterprise Financing Program (PROFIMYPE), provided these guarantees are within the items backed by the Ministry of Economy and Finance (MEF).
   This guarantee may be accepted by banking entities accredited as Financing Entities (EFIN) before the Micro, Small, and Medium Enterprise Authority (AMPYME), provided that both the accredited Bank and EFIN, as well as the requesting client, have met all the conditions established by AMPYME. The percentage that covers the guarantee is the result of applying the limits established by the Micro, Small, and Medium Enterprise Authority (AMPYME). The guarantee is composed of the company classification, as well as by the economic activity defined by AMPYME. The guarantee granted by AMPYME is decreasing in proportion to the capital payments received, which will cover up to a maximum of 90% of the outstanding balance of the loan value. For the purposes of valuing guarantees as risk mitigants, it will be recognized in accordance with what is provided in Article 42 of Agreement No. 4-2013. e. Guarantees granted by the Panama Guarantee Fund on the credit portfolio of the Micro, Small, and Medium Enterprise (MSME) eligible for the Fund, will be considered risk mitigant guarantees, provided they are duly accepted by the executing body of the Panama Guarantee Fund and comply with the terms established in the Panama Guarantee Fund Regulations that allow maintaining their validity. For the purposes of valuing guarantees granted by the Panama Guarantee Fund as risk mitigants, they will be recognized in accordance with what is provided in Article 42 of this Agreement.

ARTICLE 3. Article 42 of Agreement No. 4-2013 of May 28, 2013, is hereby amended as follows:

ARTICLE 42. PRESENT VALUE OF GUARANTEES. For the calculation of specific provisions within the framework of international financial reporting standards and valuation prudential principles, it is necessary to take into account the time value of money and the uncertainty regarding the cash realization value of guarantees, as well as the costs of the recovery activity. For the above, and for the purposes of calculating the provisions established in Article 34, the present values established in the following table must be applied:

Guarantee	Present Value
1. Deposits in the bank itself or in other banks, whether pledged or given in trust.	100% of the guaranteed amount
2. Fixed or variable income securities traded in active markets.	70% of fair value
3. Sovereign debt of Panama.	90% of fair value
4. Fixed or variable income securities that lack an active market.	50% of fair value
5. Sovereign debt traded in an active market.	70% of fair value
6. Irrevocable stand-by letters of credit, guarantees, sureties, endorsements, and export/import letters of credit issued by banking entities.	90% of nominal value
7. Assignments on promissory notes with discount keys from the Social Security Fund.	85% of the promissory note balance value
8. Residential real estate.	70% of fair value
9. Commercial real estate.	60% of fair value
10. Real estate Land.	50% of fair value
11. Real estate (Land exclusively for agricultural purposes).	50% of fair value
12. Movable property (mortgages constituted on automobiles for personal use).	50% of fair value
13. Cattle.	75% of fair value
14. Agricultural products fully identifiable by the bank.	40% of fair value
15. Guarantee letters issued by the Micro, Small, and Medium Enterprise Authority (AMPYME) under the Micro and Small Enterprise Financing Program (PROFIMYPE), which are within the items backed by the Ministry of Economy and Finance (MEF).	50% of the amount guaranteed by AMPYME.
16. Guarantees granted and backed by the Panama Guarantee Fund, constituted through Loan Agreement No. 5793/OC-PN of February 6, 2024, signed between the Republic of Panama, represented by the Ministry of Economy and Finance, and the Inter-American Development Bank.	100% of the amount guaranteed by the Panama Guarantee Fund.

These coefficients are based on empirical evidence and financial analyses corresponding to non-stressed market situations. The coefficients may be reviewed and modified by the Superintendency of Banks, both due to the existence of new empirical evidence and because an increase in liquidity risk for the cash realization of guarantees is detected.

ARTICLE 4. VALIDITY. This Agreement will come into effect from its promulgation.

Given in the city of Panama, on the fifth (5) day of the month of August of two thousand twenty-five (2025).

NOTIFY, PUBLISH, AND COMPLY.

THE PRESIDENT, THE AD-HOC SECRETARY,

Adriana Raquel Carles
María de Lourdes Marengo