Agreement No. 10 (2020) Modifying Article 31 of Agreement No. 2-2018 on Liquidity Risk Management and the Short-Term Liquidity Coverage Ratio

Republic of Panama Banking Superintendence AGREEMENT No. 010-2020 (dated September 22, 2020) “Modifying Article 31 of Agreement No. 2-2018 establishing provisions on liquidity risk management and the short-term liquidity coverage ratio” 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 codification in the form of a single text of Law Decree No. 9 of 1998 and all its amendments, which was approved via Executive Decree No. 52 of April 30, 2008, hereinafter the Banking Law; That in accordance with items 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 items 3 and 5 of Article 11 of the Banking Law, it is within the technical competencies of the Board of Directors to approve the general criteria for classifying risk assets and the guidelines for establishing reserves for risk coverage, and to establish, within the administrative sphere, the interpretation and scope of legal or regulatory provisions in banking matters; That in accordance with Article 6 of the Banking Law, it is a function of the Banking Superintendence to ensure that banks maintain appropriate solvency and liquidity ratios to meet their obligations; That in accordance with 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 at all times maintain a minimum balance of liquid assets equivalent to the percentage of the total gross of its deposits in Panama or abroad, which the Banking Superintendence will periodically set; That in accordance with item 10 of Article 75 of the Banking Law, the Superintendence may determine other liquid assets as part of the assets comprising the liquidity basket of banks; That the Basel Committee has strengthened its liquidity framework by introducing minimum financial liquidity standards, developing the Liquidity Coverage Ratio (LCR), with the objective of ensuring that banks have sufficient high-quality liquid assets to withstand a significant stress episode over a full month and designed as a fundamental component of the supervisory approach to liquidity risk;

Agreement No. 010-2020 Page 2 of 3 That through Agreement No. 2-2018 of January 23, 2018, modified by Agreement No. 4-2018, provisions on liquidity risk management and the short-term liquidity coverage ratio are established; That the National Bank of Panama placed an issuance in international bond markets for $1,000 million, with an oversubscription of approximately $4,800 million, whose bond maturity is 10 years at 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 funding sources and improve the liability maturity profile 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 31 of Agreement No. 2-2018 have been highlighted in order to incorporate within the Level 2A assets of the high-quality liquid assets fund, the bonds issued by the National Bank of Panama. AGREES: ARTICLE 1. Item 4 is added to the characteristics of Level 2A assets contemplated in Article 31 of Agreement No. 2-2018, as follows: “ARTICLE 31. HIGH-QUALITY LIQUID ASSETS FUND. The high-quality liquid assets fund is composed of three levels: Level 1, Level 2A, and Level 2B. The characteristics of the assets in each of the levels are defined below.

Characteristics of Level 1 assets:

… Characteristics of Level 2A assets:

1. Marketable securities representing claims against, or guaranteed by, sovereigns, central banks, public sector entities, or the entities cited in item 3 of Level 1 of this article, provided they meet the following conditions: a. Receive an international rating from A+ to A-. b. Are traded in active markets, repo or spot, with a low level of transaction concentration. c. Have a proven track record as a reliable source of liquidity in repo and spot markets, even during periods of market stress. They do not represent a liability of any financial entity, nor of any entity belonging to a banking group.
2. Corporate bonds (including commercial paper) a. Must not be issued by any financial entity or any entity belonging to a banking group. b. Minimum international rating of AA-. c. Traded in active markets, repo or spot, with a reduced concentration level. d. Have a proven track record as a reliable source of liquidity in repo and spot markets, even during periods of market stress.

Agreement No. 010-2020 Page 3 of 3 3. Deposits held at the National Bank of Panama on demand and at term with a residual maturity of less than 30 days, free of encumbrances and not corresponding to clearing operations. 4. Bonds issued by the National Bank of Panama provided that they maintain an international credit rating not lower than BBB-. Characteristics of Level 2B assets: …" ARTICLE 2. EFFECTIVENESS. This Agreement shall enter into force upon its promulgation. Given in the city of Panama, on the twenty-second (22) day of the month of September of two thousand twenty (2020). COMMUNICATE, PUBLISH, AND COMPLY. THE PRESIDENT THE SECRETARY Luis Alberto La Rocca Nicolás Ardito Barletta