Agreement No. 001-2021 Modifying Articles 5 and 7 of Agreement No. 1-2015 on Capital Adequacy Standards for Banks and Banking Groups

Republic of Panama Banking Superintendence AGREEMENT No. 001-2021 (March 23, 2021) "By which Articles 5 and 7 of Agreement No. 1-2015, which establishes the Capital Adequacy Standards applicable to banks and banking groups, are modified"

THE BOARD OF DIRECTORS in the 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 ordering 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 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 favorable conditions for the development of the Republic of Panama as an international financial center;

That in accordance with paragraph 1 of Article 11 of the Banking Law, it is a technical attribute of the Board of Directors to approve general norms for the identification, regulation, and consolidated supervision of banks and banking groups;

That in accordance with paragraph 5 of Article 11 of the Banking Law, it is a technical attribute of the Board of Directors to establish, within the administrative scope, the interpretation and scope of legal or regulatory provisions in banking matters;

That in attention to what is provided in paragraph 3 of Article 91 of the Banking Law, banks must send to the Superintendence within the deadline and form prescribed by this Superintendence, any information with the frequency determined by this Superintendence;

That through Agreement No. 1-2015 of February 3, 2015, modified by Agreement No. 13-2015, the Capital Adequacy Standards applicable to banks and banking groups are established;

That in working sessions of this Board of Directors, the need and convenience of modifying Articles 5 and 7 of Agreement No. 1-2015 has been manifested, in order for banking entities to present to this Banking Superintendence the prospectuses of any financial instrument that requires inclusion as Additional Tier 1 capital and/or Tier 2 capital.

AGREES:

ARTICLE 1. Article 5 of Agreement No. 1-2015 is hereby amended as follows:

ARTICLE 5. ADDITIONAL TIER 1 CAPITAL. Additional Tier 1 capital is composed of the following elements:

1. Instruments issued by the regulated entity that meet the characteristics for their inclusion in Additional Tier 1 capital and that are not included as Ordinary Tier 1 capital.
2. Issuance premiums resulting from instruments included in Additional Tier 1 capital.
3. Instruments issued by consolidated subsidiaries of the regulated entity that are held by third parties, that meet the characteristics for their inclusion in Additional Tier 1 capital, and that are not included in Ordinary Tier 1 capital.
4. The regulatory adjustments applied to the calculation of Additional Tier 1 capital contemplated in Article 9 of this Agreement.

PARAGRAPH. The regulated entity must receive prior authorization from this Superintendence to include financial instruments in Additional Tier 1 capital. In this regard, every application must be accompanied by the prospectus of the corresponding financial instrument and an additional document evidencing compliance with the characteristics described in Article 6 of this Agreement.

ARTICLE 2. Article 7 of Agreement No. 1-2015 is hereby amended as follows:

ARTICLE 7. TIER 2 CAPITAL. Tier 2 capital is composed of the following elements:

1. Instruments issued by the regulated entity that meet the criteria for their inclusion in Tier 2 capital and are not included in Tier 1 capital.
2. Issuance premiums resulting from instruments included in Tier 2 capital.
3. Instruments issued by consolidated subsidiaries of the regulated entity and held by third parties that meet the criteria for their inclusion in Tier 2 capital and that are not included in Tier 1 capital.
4. Reserves constituted for future losses, not identified in the present, may be classified in Tier 2 capital. Provisions assigned to the impairment of identified assets evaluated individually or collectively are excluded. The aforementioned reserves shall not exceed a maximum of 1.25 percentage points of risk-weighted credit assets. In this paragraph, reserves constituted in the form of dynamic provisions as established in Agreement No. 4-2013 are excluded.
5. The regulatory adjustments applied to the calculation of Tier 2 capital contemplated in Article 9 of this Agreement.

PARAGRAPH. The regulated entity must receive prior authorization from this Superintendence to include financial instruments in Tier 2 capital. In this regard, every application must be accompanied by the prospectus of the corresponding financial instrument and an additional document evidencing compliance with the characteristics described in Article 8 of this Agreement.

ARTICLE 3. EFFECTIVENESS. This Agreement shall take effect from its promulgation.

Given in the city of Panama, on the twenty-third (23) day of the month of March of two thousand twenty-one (2021).

LET IT BE COMMUNICATED, PUBLISHED, AND COMPLIED WITH.

THE PRESIDENT, THE SECRETARY, Luis Alberto La Rocca Nicolás Ardito Barletta