Agreement No. 005-2022 Modifying Article 6 of Agreement No. 6-2021 on Provisions for Modified Special Mention Credits

Republic of Panama Banking Superintendence AGREEMENT No. 005-2022 (May 17, 2022) "By means of which Article 6 of Agreement No. 6-2021 is modified, which establishes the parameters and guidelines for the determination of provisions applicable to credits in the Modified Special Mention category, and other provisions are issued"

THE BOARD OF DIRECTORS

In exercise of its legal powers, and

CONSIDERING:

That as a result of the issuance of Decree-Law No. 2 of February 22, 2008, the Executive Branch prepared a systematic arrangement in the form of a Single Text of Decree-Law 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 paragraphs 1 and 3 of Article 5 of the Banking Law, the objectives of the Banking Superintendence are to ensure the solidity and efficiency of the banking system; as well as to promote public confidence in the banking system;

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

That through Agreement No. 2-2021 of June 11, 2021, new parameters and guidelines applicable to modified credits granted by banking entities as a consequence of the economic effects of COVID-19 were established, and the existence of the credit classification category known as "Modified Special Mention" was recognized, within which modified credits up to June 30, 2021 are included;

That through Agreement No. 6-2021 of December 22, 2021, the parameters and guidelines for the determination of provisions applicable to credits in the Modified Special Mention category were established, and other provisions were issued;

That through Article 6 of Agreement No. 6-2021, it is established that starting from January 2022, banking entities will suspend the recognition of interest for income purposes for modified credits that have had a significant increase in risk with respect to their initial recognition and that, in addition, present objective evidence of incurred loss;

That in working sessions of this Board of Directors, the need and convenience of modifying Article 6 of Agreement No. 6-2021 has been highlighted, with the aim that banking entities can apply an alternative process for the recording of interest receivable as established in said article.

Agreement No. 005-2022 Page 2 of 2

AGREES:

ARTICLE 1. Article 6 of Agreement No. 6-2021 of December 22, 2021, is hereby amended as follows:

"ARTICLE 6. INTEREST RECEIVABLE. Starting from January 2022, banking entities will suspend the recognition of interest, for income purposes, in the accounts of interest receivable and earned interest for modified credits that have had a significant increase in risk with respect to their initial recognition and that also present objective evidence of incurred loss (impaired credits), and those loans included in the modified special mention, modified doubtful, and modified uncollectible categories, to which General Resolution of the Board of Directors No. SBP-GJD-0003-2021 refers.

Until the Superintendence expresses itself regarding the modified portfolio that presents the characteristics indicated in the previous paragraph, the provisions of General Resolution of the Board of Directors SBP-GJD-0003-2013 shall not be applicable; the bank must maintain interest receivable starting from January 1, 2022, in off-balance-sheet accounts, being able to recognize them as income only when they are effectively paid by the debtor.

PARAGRAPH. In cases where, for operational aspects, the banking entity cannot apply the recording scheme in off-balance-sheet accounts for the interest receivable of the modified credits mentioned in this article, banks may recognize as income the interest receivable that accumulates in the portfolio of said credits, provided that at the same time a provision clearly identified with the respective interest for 100% of its value is recognized. These provisions will be gradually reversed as the client pays the respective interest.

This treatment must be contained in the respective accounting manuals of the banking entities and communicated to the operational areas that perform these records. For such purposes, the bank must create internal auxiliary tables with said records (including debtor name and operation number), which allow this Superintendence to perform the corresponding verifications and inquiries.

Banking entities must ensure that they make disclosures of this information to the public in their Audited and Interim Financial Statements, so they must make the respective coordination with their External Audit Firm."

ARTICLE 2. EFFECTIVENESS. This Agreement shall begin to govern from its promulgation.

Given in the city of Panama, on the seventeenth (17) day of the month of May of two thousand twenty-two (2022).

LET IT BE COMMUNICATED, PUBLISHED, AND COMPLIED WITH.

THE PRESIDENT, THE SECRETARY, Rafael Guardia Pérez Felipe Echandi Lacayo