2018 Performance of the International Banking Center

Ricardo G. Fernández D.Superintendent of Banks

March 20, 2019

Agenda

1. National economic context

2. 2018 Financial Results of the Banking Center

3. 2019 Regulatory roadmap

4. FATF Assessment Schedule

5. Financial System modernization

6. Institutional matters - SBP

6.0

4.1

3.63.4 3.2

2.5

GDP Outlook for 2019

Panama Peru Colombia Chile Uruguay Mexico

-3.8%

-3.2%

0.7%

1.8%

2.1%

2.6%

2.8%

3.1%

3.2%

3.6%

4.2%

7.3%

8.4%

-6.0

%

-4.0

%

-2.0

%

0.0

%

2.0

%

4.0

%

6.0

%

8.0

%

10

.0%

Hotels and restaurants

Fishing

Manufacturing industry

Primary sector

Other activities

Utilities (Electricity, gas and water)

Real estate activities

Mining and quarrying

Construction

Commerce

Financial intermediation

Transportation and telecommunications

Central government

Panama: International Banking Center2018 GDP Growth and 2019 Outlook

(in percentages)

GDP Growth 3.7%

Source: International Monetary FundSource: NISC Comptroller General of the Republic

0

1,000

2,000

3,000

4,000

5,000

6,000

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Net Foreign Investment(in millions of USD)

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

3.5

5.9 5.7

4.0

2.6

0.1 0.7 0.9 0.8

Perc

enta

ge

Consumer Price Index2010 - 2018

Panama160.1 PBS

5,548

Panama: International Banking CenterDomestic Macroeconomic Context

0

100

200

300

400

500

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Global EMBIDec. 2010 - 2018

Chile (A+) Colombia (BBB-) Mexico (BBB+) Panama (BBB) Peru (BBB+)Source: Credit Rating Agencies

Rating Stable

Moody’s Baa1

Fitch BBB

S&P BBB

Source: NISC Comptroller General of the Republic Source: NISC Comptroller General of the Republic

Panama: International Banking CenterProfit Statement

December 2018 (in millions of USD)

IBC Jan.-Dec.

2017Jan.-Dec.

201812-month Diff. (%)

Total Diff.

A. Interest Income 5,279 5,731 8.6% 452

Loans 4,508 4,809 6.7% 301

Deposits 190 264 38.8% 74

Investments 545 627 15.1% 82

Other Income 36 31 -14.2% -5

B. Operating Expenses 2,648 2,931 10.7% 282

Interest paid 2,434 2,703 11.0% 268

Commissions 214 228 6.6% 14

C. Net Interest Income 2,631 2,801 6.5% 170

D. Other Income 2,233 2,258 1.1% 25

E. Operating Income 4,864 5,058 4.0% 195

F. General expenses 2,581 2,609 1.1% 28

G. Profit before provisions 2,283 2,449 7.3% 166

H. Provisioning 501 597 19.2% 96

I. Profit for the period 1,782 1,852 3.9% 70

1.9% 1.9%

1.0Veces

1.1Veces

1,0

74

1,2

96

1,4

68

1,4

21

1,5

28

1,5

75

1,5

24

1,7

82

1,8

52

55% 54% 55% 56%

0%

10%

20%

30%

40%

50%

60%

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Dec

.10

Dec

.11

Dec

.12

Dec

.13

Dec

.14

Dec

.15

Dec

.16

Dec

.17

Dec

.18

Profit Efficiency

Profit vs Efficiency

Source: Superintendency of Banks of Panama

55% 54% 55% 56%51%

a < Ratio > Efficiency

ROA

2018 1.58%2017 1.49%

ROAA2018 1.65%2017 1.55%

ROE

2018 13.16%2017 12.92%

MIN

2018 2.61%2017 2.45%

Panama: International Banking CenterProfitability Ratios

December 2018 (in percentages)

Source: Superintendency of Banks of Panama

Panama: International Banking CenterAssets (in millions of USD)

December 2010-2018D

ec.1

0

Dec

.11

Dec

.12

Dec

.13

Dec

.14

Dec

.15

Dec

.16

Dec

.17

Dec

.18

Domestic Foreign

Source: Superintendency of Banks of Panama

48%

52%57%

43%

55%

45%

50%

51%

49%

50%

69 %USD 50,002 millions

71,842121,484

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Dec

-17

Dec

-18

Commerce Construction Industry Agriculture Other sectors

10%

6%4%5%

21%

12%

6%

4%

4%

Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18

Consumption credit USD 12,020

Personal loan 65%

Credit card 21%

Car loan 15%

1,781

2,482

7,757

Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18

Mortgages USD 16,984

Non-preferential law 65%

Preferential law 35%

Mortgage Commercial establishment

2,061

5,223

9,700

Panama: International Banking CenterDomestic Credit Portfolio by Activity

(in millions of USD)

620

806

3,782

833

2,267

3,707

USD 25,112

USD 12,707

27%

Total : USD 54.12 billion 5%

Corporate credit

Source: Superintendency of Banks of Panama

Panama: International Banking CenterClassification of Portfolio

December 2018

3.5%

1.2%

0.9%

0.8%

Special mention Substandard

Doubtful Unrecoverable

93.6% Standard

Classification of Credit Portfolio(in percentages)

Classification of Portfolio(in millions of USD)

2,900

3,705

Companies

1,121

1,316

Consumers

2017

2018

Source: Superintendency of Banks of Panama

Panama: International Banking CenterQuality of Portfolio

December 2018 (in millions of USD)

MortgageUSD 550 3.2%

MortgageUSD 334 1.9%

CommerceUSD 670.8%

ConstructionUSD 73 0.9%

Other SectorsUSD 435 1.0%

Delinquent NPL

USD 1,1241.43%

USD 1,2131.55%

* Other sectors includes: Industry, services, agriculture, financial and public sectors.

CommerceUSD 213 2.6%

ConstructionUSD 86 1.1%

Other sectorsUSD 581 1.3%

Source: Superintendency of Banks of Panama

IFRS 9(Expected loss)

1,284

Source: Superintendency of Banks of Panama

872933

833

0

200

400

600

800

1,000

1,200

1,400

Dec

-15

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6

May

-16

Jun

-16

Jul-

16

Au

g-1

6

Sep

-16

Oct

-16

No

v-1

6

Dec

-16

Jan

-17

Feb

-17

Mar

-17

Ap

r-1

7

May

-17

Jun

-17

Jul-

17

Au

g-1

7

Sep

-17

Oct

-17

No

v-1

7

Dec

-17

Jan

-18

Feb

-18

Mar

-18

Ap

r-1

8

May

-18

Jun

-18

Jul-

18

Au

g-1

8

Sep

-18

Oct

-18

No

v-1

8

Dec

-18

Regulatory IFRS

IAS 39 : Principle of

incurred losses

Objective evidence of deterioration

Panama: International Banking CenterRegulatory vs. IFRS 9 Provisioning

December 2015-2018 (in millions of USD)

15.2% 15.4% 15.8% 16.1% 16.1% 15.9% 16.1% 16.0% 16.1%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Dec

-18

Mar

-18

Jun

-18

Sep

-18

Dec

-18

Mar

-18

Jun

-18

Sep

-19

Dec

-19

IBC Minimum required (8%)

58.6% 58.6%

65.0%62.4% 61.4%

Dec

-14

Dec

-15

Dec

-16

Dec

-17

Dec

-18

IBC Minimum Required (30%)

Panama: International Banking CenterSolvency and Liquidity

December 2018 (in percentages)

Capital Adequacy Index Legal Liquidity Index

8% 30%

Source: Superintendency of Banks of Panama

The solvency index as of December 2018 is enough to cover market risk and operational risk requirements

4,086

2,638

2,1321,936 1,829 1,716 1,687 1,617 1,548 1,527 1,500

Panama: International Banking CenterDeposits (in millions of USD)

December 2018Domestic deposits

USD 52,666 million

Foreign depositsUSD 30,799 million

Demand

Time

Savings

Co

lom

bia

Ve

nez

ue

la

Ecu

ado

r

Pe

op

le’s

Re

p.

of

Ch

ina

Gu

atem

ala

Cay

man

Is

lan

ds

Co

sta

Ric

a

Can

ada

USA

Vir

gin

Is

lan

ds

Do

m. R

ep

.

63%Domestic

37% Foreign

USD 11,498

USD 28,752

USD 12,416

1.2 1.5 2.0

3.0

Dec

-15

Mar

-16

Jun

-16

Sep

-16

Dec

-16

Mar

-17

Jun

-17

Sep

-17

Dec

-17

Mar

-18

Jun

-18

Sep

-18

Dec

-18

BSN: FTD Interest Rates(in percentages)

1 MONTH 3 MONTHS 6 MONTHS 1 YEAR

Source: Superintendency of Banks of Panama

USD 83,465 million

Sector consolidation

Interest rate evolution

Commercial conflicts

Climate change

Macroeconomic performance

Competition for access to domestic funds

Over-indebtedness risk

Reputational risk

Risk Factors

Panama: International Banking CenterRisk Factors

Source: Superintendency of Banks of Panama

Conservation buffer

Stress-testing and capital self-assessment

Securitizations

Management, limits, provisions, stress-testing

Gradual capital requirement starting in

December 2019

2018 gradual implementation in

tranches of 25% per year

Panama: International Banking CenterRoadmap towards Basel III

Gradual capital requirement starting in

2019. Securitizations

Approved regulations 2019 Regulations

Source: Superintendency of Banks of Panama

Average adequacy

15.00%

Average adequacy

15.5%

8.0%

1.5%

2.5%

8.0%

1.5%

2.5%

Panama: National Banking SystemCapital Requirement Exercise

December 2018

Systemic Banks Non-systemic Banks

Conservation buffer

Average dynamic provision

Minimum adequacy

Buffers

12.0%

3.5%Additional regulatory

Conservation buffer

Average dynamic provision

Minimum adequacy

12.0%

3.0% Additional regulatory

BuffersSource: Superintendency of Banks of Panama

Panama: International Banking CenterAgenda with the Financial Action Task Force

February 2019

FATF plenary meeting: Decision on the face-to-face with ICRG

April 2019

Face-to-face with ICRG

March 20: submittal of template to ICRG

April 10: ICRG’s answer approved by co-chairs

April 18: Country’s answer to comments. Submittal of final version for ICRG assessment

June 2019

FATF plenary meeting: Decision on the country’s progress

✓ April assessment is on theeffectiveness of the ImmediateOutcomes rated moderated (6) andlow (3).

✓ Plenary’s decision is on the progress;not for immediate outcome changes.

✓ Country is still on intensified follow-up until we can prove progress onmutual assessments with the FSRB.

✓ Evidence of later progress maychange the status to periodic follow-up.

✓ Important identification andmanagement of critical aspects.

✓ FATF matters must be part of the NewGovernment’s transition agenda.

Source: Superintendency of Banks of Panama

Panama: International Banking CenterRTGS and Modernization of Payment Instruments

• Clearinghouse

• Telered

• Latinclear

• BNP Core Integration

• Tax collection

Phase I

• National cash reserve

• MEF (CUT) payments received through the Banking System

• Nonbanking financial institutions

Phase II

• RTGS optimization

• Autonomous entities

Phase III

• Bank Payment instruments

Phase IV

RTGS: Real time gross settlementSource: Superintendency of Banks of Panama

Panama: Financial Sector(in millions of USD)

2.5%

Insurance93.8%

1.4%

1.7%

0.7%Securities

Cooperatives

Finance

Banks

Total Assets USD 128,000 (pre)

Entities supervised by the Superintendency of

Banks

84 Banks

70Trust

companies

246Other

entities

Source: Superintendency of Banks and NISC

IBC Employees 26,416

IBC WagesUSD 930

Human talentSBP

478SBP employees

Training for technical areas 24,806 hours

75.6% Banking supervisor career

Laws and Regulations

Market Risk

Operational Risk

Interest rate risk (Banking Book)

Updating Rule on Investments based on

IFRS 9

Administrative management

Derivatives

LCR

100% income collection

1st International Congress planning

90.3% expense efficiency

ISTMO system implementation

Superintendent’s Management 2018

Reinforcement of Technical areas - AML

Supervisory processes

402Comprehensive examinations

53Trust companies

33 *Other supervised entities

34Special FECI

23Bank security

* Other supervised entities: Finance, leasing and factoring companies, money service businesses, and exchange bureaus

Banking Industry

E-Learning 30,297 participants

Other supervised entities: 27 Training seminars,

3,211 participants

Atoms: 28 Seminars

2015

2016-2017

2018Prudential

Compliance

2019

Money laundering• 4-2015• 5-2015• 7-2015• 9-2015• 10-2015

Money laundering• 6-2016• 7-2016• 1-2017• 3-2017• 8-2017

• Anticyclical buffer• Macro prudential

measures• Credit risk Money laundering

• 13-2018

Other reporting entities• 1-2018• 2-2018• 3-2018• 4-2018• 5-2018

• Capital requirement• Risk-weighted assets• Derivatives

• LCR• Market risk• Country risk• Operational risk

Panama: International Banking CenterSuperintendency of Banks

Summary of Regulations 2015-2019

Prudential

• Conservation buffers

• Stress-testing and Capital self-assessment

• Securitizations

• Securities investment - IFRS 9

• Interest rate banking book risk management

Compliance

• Regulations on Tax evasion

Source: Superintendency of Banks of Panama

Favorable macroeconomic and tax context

Sound, stable and secure banking system. Liquidity and solvency exceed the legally required percentages. Income vs. expenditure operating efficiency of 1.9 to 1 evidence of profit-generating capacity and equity increases.

Roadmap towards Basel III with clear progress in LCR, Capital requirements for credit, market and operational risk. Systemic buffer and stress-testing and capital self-assessment are part of the 2019 rules.

AML/CFT framework has strengthened the financial sector. Challenges to strengthen the identification of corporate-style structures

Modernization of the financial system and enhancement of financial inclusion.

Strengthening SBP’s institutional and budgetary autonomy. Supervision and regulation of payment instruments and clearance are short-term challenges.

Panama: International Banking CenterSummary

Thank you!