banco general, s. a. gonsolidated financial statements 31,2016€¦ · (panama, republic of panama)...

BANCO GENERAL, S. A.AND SUBSIDIARIES

(Panama, Republic of Panama)

Gonsolidated Financial Statements

December 31,2016

(With lndependent Auditors' Report Thereon)

"This document had been prepared with theknowledge that its contents shall be made

available to the investing and general public"

(FREE ENGLISH LANGUAGE TRANSLATIONFROM SPANTSH VERSTON)

BANCO GENERAL, S. A. AND SUBSIDIARIES(Panama, Republic of Panama)

Table of Contents

I ndependent Auditors' Report

Consolidated Statement of Financial PositionConsolidated Statement of lncomeConsolidated Statement of Comprehensive lncomeConsolidated Statement of Changes in EquityConsolidated Statement of Cash FlowsNotes to Consolidated Financial Statements

ïo the Board of Directors and ShareholdersBanco General, S. A.

Opinion

KPMGApartado Postal 81 6-1 089Panamá 5, República de Panamá

We have audited the consolidated financial statements of Banco General, S. A. and subsidiaries("the Bank"), which comprise the consolidated statement of financial position as of December 31,2016, the consolidated statements of income, comprehensive income, changes in equity and cashflows for the year then ended, and notes, comprising a summary of sígnificant accounting policiesand other explanatory information.

ln our opinion, the accompanying consolidated financial statements present fairly, in all materialrespects,thefinancial positionof theBankasof December31,2016, anditsfinancial performanceand its cash flows for the year then ended in accordance with lnternational Financial ReportingStandards (IFRS).

Basr's for Opinion

We conducted our audit in accordance with lnternational Standards on Auditing (lSAs). Ourresponsibilities under those standards are described further in the Auditors' Responsibilities for theAudit of the Consolidated Financial Statements section of our report. We are independent of theBank in accordance with the lnternational Ethics Standards Board for Accountants' Code of Ethicsfor Professional Accountants (IESBA Code) together with the ethical requirements that are relevantto our audit of the consolidated financial statements in the Republic of Panama. We have fulfilledour other ethical responsibilities in accordance with these requirements and the IESBA Code. Webelieve that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour opinion.

Key Audit Matters

Key audit matters are matters that, based on our professional judgment, have been of mostsignificance in our audit of the consolidated financial statements of the current period. Weaddressed these key audit matters in the context of our audit of the consolidated financialstatements as a whole and in forming our opinion, we do not express a separate opinion over thesematters.

INDEPENDENT AUDITORS' REPORT

Teléfono: (507) 208-0700Fax: (507)263-9852lnternet: wwv.kpmg.com

KPMG, una sociedad c¡vil panameña, y fìrma de Ia red de fìrmas miembros independiente deKPMG. afil¡adas a KP¡.¡G lnternational Coooerative I"KPMG lnternational"). una entidâd suiza

Allowance for loan /ossesSee Nofes 3(h), 7 and 30 to the consolidated financial statements

Key audit matter

The allowance for loan losses isconsidered as one of the most significantmatters because it requires the use ofjudgments and subjective assumptionsmade by management. The loanportfolio's gross amount represents 66%of the Bank's total assets. The allowancefor loan losses is comprised of allowancesfor individually assessed loans andcollectively assessed loans.

The specific impairment allowance isdetermined by an assessment of case-by-case exposure, which is based onjudgments and estimates made bymanagement when an event ofimpairment has occurred and the presentvalue of expected future cash flows isuncertain. This represents a challengefrom an audit perspective with respect toloans because projected or expectedfuture cash flows include estimates of timeand cash flows derived from the sale ofthe loan's collateral.

The collective impairment allowance isdetermined according to the groups inwhich loans are segregated based onsimilar credit risk characteristics. ln eachgroup, an estimate of probability of defaultand the potential loss derived by thedefault are used to determine thecollective allowance. This represents achallenge from an audit perspective due tocomplex models and judgments bymanagement used for the calculation.

How the key matter was addressed during the audit

Our audit procedures included:

. Tests of control on delinquency on paymentscalculation, client internal credit risk rating, clientrisk evaluation, and methodology and modelevaluation.

. Review of clients' loan files and assessment ofthe estimated allowance prepared by risk officialswere performed over a sample of corporate andcommercial loans with specific provisions, thoseincluded in a watch list, and clients that showedchanges in credit risk rating with respect to theprevious period.

. Assessment by specialists of the individualallowance model, which includes review of thecalculation of cash flows that consider collateraland the clients' contractual payments.

. Assessment of credit risk rating of commercialloans and delinquency of the different types ofconsumer loans.

. Assessment of the collective allowance modeland recalculation of the allowance. As well astests on sovereign risk allowance model and theinputs used for its estimation.

. Assessment of management's assumptionsrelating to the current economic and creditconditions, that could change the level of actualhistoric loss, based on our experience andknowledge of the industry.

Val uation of investmentsSee Nofes 3(b), 6 and 30 to the consolidated financial statements

Key audit matter

lnvestments at fair value through profit orloss, and available-for-sale represent25o/o of total assets as at December 31,2016. The Bank uses external serviceorganizations that provide prices used tovalue those investment portfolios and italso uses internal valuation models forsome investments to which pricesprovided by an external serviceorganization are not available.

The internal valuation models for theseinvestments involve judgment on behalfof management and the use of someinputs that are not readily available inactive markets. Furthermore, thevaluation of investments, of which pricesare provided by an external serviceorganization, require additional effortfrom auditors to assert their valuation.

Judgment applied to the estimation ofthe fair value of an investment, whensome valuation inputs are notobservable (i.e. investments in Level 3of the fair value Hierarchy), issignificant. As at December 31, 2016,investments classified in Level 3represent 27o/o of total investmentsmeasured at fair value and 7o/o of totalassets.

How the key matter was addressed during the audit

Our audti procedures included:

. Test of relevant controls in the processes ofidentification, measurement, valuation, riskmanagement, and assessment of methodology,judgments and inputs used by the Bank indetermining fair value.

. Valuation tests of Level 1 instruments through thecomparison with fair value applied by the Bankwith public and observable market data.

. Assessment of fair value models and inputs usedin the valuation of Level 2 instruments; for whichwe compared observable market inputs againstindependent sources and readily availableexternal market data.

. Type 2 reports (ISAE 3402) were obtained, whichcontain an independent opinion on the internalcontrol implemented by the service organizationthat provide prices used in the valuation ofinvestment portfolio. We also, assessed thecomplementary user controls, indicated in thesereports, that are applied by the Bank.

Responsrbilities of Management and Ihose Charged with Governance for the ConsotidatedFinancial Statements

Management is responsible for the preparation and fair presentation of the consolidated financialstatements in accordance with IFRS, and for such internal control as management determines isnecessary to enable the preparation of the consolidated financial statements that are free frommaterial misstatement, whether due to fraud or error.

ln preparing the consolidated financial statements, management is responsible for assessing theBank's ability to continue as a going concern, disclosing, as applicable, matters related to goingconcern and using the going concern basis of accounting unless management either intends toliquidate the Bank or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Bank's financial reportingprocess.

Auditors'Responsib ilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financialstatements as a whole are free from material misstatement, whether due to fraud or error, and toissue an auditors' report that includes our opinion. Reasonable assurance is a high level ofassurance, but is not a guarantee that an audit conducted in accordance with lSAs will alwaysdetect a material misstatement when it exists. Misstatements can arise from fraud or error and areconsidered material if, individually or in the aggregate, they could reasonably be expected toinfluence the economic decisions of users taken on the basis of these consolidated financialstatements.

As part of an audit in accordance with lSAs, we exercise professional judgment and maintainprofessional skepticism throughout the audit. We also:

. ldentify and assess the risks of material misstatement of the consolidated financialstatements, whether due to fraud or error, design and perform audit proceduresresponsive to those risks, and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatement resultingfrom fraud is higher than for one resulting from error, as fraud may involve collusion,forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design auditprocedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the Bank's internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness ofaccounting estimates and related disclosures made by management.

Conclude on the appropriateness of management's use of the going concern basis ofaccounting and, based on the audit evidence obtained, whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the Bank's abilityto continue as a going concern. lf we conclude that a material uncertainty exists, we arerequired to draw attention in our auditors' report to the related disclosures in theconsolidated financial statements or, if such disclosures are inadequate, to modify ouropinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditors' report. However, future events or conditions may cause the Bank to cease tocontinue as a going concern.

Evaluate the overall presentation, structure and content of the consolidated financialstatements, including the disclosures, and whether the consolidated financial statementsrepresent the underlying transactions and events in a manner that achieves fairpresentation.

Obtain sufficient and appropriate evidence related to the financial information of theentities and business activities within the Bank to express an opinion about theconsolidated financial statements. We are responsible for the direction, supervision andexecution of the Bank's audit. We are solely responsible for the auditors' report.

4

We communicate with those charged with governance regarding, among other matters, the plannedscope and timing of the audit and significant audit findings, including any significant deficiencies ininternal controlthat we identify during our audit.

We also provided to those charged with corporate governance a declaration of compliance with therelevant ethical requirements regarding independence and we communicated all relations and othermatters that we consider could reasonably affect our independence and, when applicable, theappropriate safeg uards.

Among the matters that have been communicated to those charged with corporate governance, wedetermined the ones that have been the most significant throughout the audit of the consolidatedfinancial statements during the current period and are, consequently, the key audit matters. Wehave described these matters in the auditor's report except if legal dispositions or requirementsprohibit the public disclosure of the matter, or in extreme rare circumstances, we determine thematter should not be communicated in our report because we could reasonably expect the adverseconsequences of doing so outweigh the benefits of public interest of such communication.

The partner in charge of the audit who has prepared this independent auditor's report is Ricardo A.CarvajalV.

KPMG (StcNED)

Panama, Republic of PanamaJanuary 26,2017


Consolidated Statement of Financial Position

December 31,2016

(Expressed in Balboas)

Assets

Cash and cash items

Deposits with banks:Demand deposits with local banksDemand deposits with foreign banksTime deposits with local banksTime deposits with foreign banks

Total deposits with banksTotal cash, cash items and deposits with banks

Securities and other financial assets at fair value through profit or lossSecurities and other financial assets available-for-saleSecurities held{o-maturlty, net

LoansLess:

Allowance for loan lossesUnearned commissions

Loans, net

lnvestments in associates

Premises and equipment, net of accumulateddepreciation and amortization

Customer liabilities under acceptancesSecurities and other financial assets sold pending settlemenlAccrued interest receivableDeferred tax assetsGoodwill and other intangible assets, netForeclosed assets, netOther assets

Note

255,676,459 190,835,505

2016

87,314,190142,416,258200,405,275

81,963,479

Total assets

2015

666

512,099,202767,775,661

58,656,926147,676,O25192,523,954113,996,586512,853,491703,688,996

95'1,513,3172,713,410,744

70,375,704

The consolidated statement of financial position should be read along with the accompanying noteswhich are an integral paft of the consolidated financial statements.

1,090,670,2202,964,842,191

59,368,381

10,769,010,278 9,752,224,570

128,917,36735,511,085

10,604,581,826

8

9

10

2411

12

18,590,561

195,541,895

45,567,270365,660,394

58,571,60830,280,85864,342,7503,872,569

146,157,317

112,27s,16432,091,368

9,607,858,038

17,393,915

153,876,O77

36,414,438253,987,600

54,565,17325,348,25466,960,1372,552,588

151,422,483

'16,415,823,501 14,809,367,464

Liabilities and Eouitv

Liabilities:Deposits:

Local:DemandSavingsTime:

CustomersBanks

Foreign:DemandSavingsTime:

CustomersTotal deposits

Securities sold under repurchase agreements

Borrowings and placements

Perpetual bonds

Acceptances outstandingSecurities and other financial assets purchased pending settlementAccrued interest payableLiabilities from insurance operationsDeferred tax liabilitiesOther liabilitiesTotal liabilities

Equity:Common sharesLegal reserveCapital reservesRetained earningsTotalequity

Commitments and contingencies

Total liabilities and equity

Note 2016

2,s50,027,0023,142,495,967

4,878,846,81297,362,194

89,583,184137,532,031

176,838,51411,072,685,704

273,299,978

1,950,624,340

217,680,000

45,567,270490,615,466

89,718,13414,956,8423,594,249

424,895,67614,583,637,659

500,000,000177,719,22133,286,812

1,121,179,8091,832,185,842

2015

2,368,082,8782,950,156,426

4,477,163,564113,187,242

83,623,438164,727,647

163,582,41510,320,523,610

13

15

16

10

172414

238,006,349

1,595,931,814

217,680,000

36,414,438310,714,O15

78,130,36013,968,2383,408,914

373,521,228

25

13,188,298,966

500,000,000157,231,585(24,704,599)988,541,512

1,621,068,498

16,415,823,501 14,809,367,464


Consolidated Statement of lncome

For the year ended December 31, 2016


lnterest and commission income:lnterest:

LoansDeposits with banksSecurities and other financial assets

Commissions on loansTotal interest and commission income

lnterest expenses:DepositsBorrowings and placements

Total interest expensesNet interest and commission income

Provision for loan losses, netProvision for securities impairmentProvision for foreclosed assets, netNet interest and commission income,

after provisions

Other income (expenses):Fees and other commissionslnsurance premiums, netGain (loss) on financial instruments, netOther income, netCommission expenses and other expenses

Total other income, net

General and administrative expenses:Salaries and other employee expensesDepreciation and amortizationPremises and equipment expensesOther expenses

Total general and administrative expensesOperational net income

Equity participation in associatesNet income before income taxlncome tax, netNet income

Note 2016

634,590,2955,141,335

124,546,59944,118,606

808,396,835

2015

189,332,041

571,052,6984,212,257

108,606,347

7

612

64.494.051253,826,092554,570,743

45,532,12836,293

752,600

41,937,423725,808,725

The consolidated statement of income should be read along with the accompanying notes which are anintegral pañ of the consolidated financial statements.

I

'174,833,861

44,392,753

508,249,722

219,226,614

21

22

506,582,1 1 1

29,236,51924,742

3'16,808

179,744,48222,498,0504,638,647

18,079,609(72,253,123)152,707,665

477,004,042

161 ,873,19917,687,706(4,081,095)21,580,990

(65,942,725\131,118,075

11

157,090,55318,961 ,05718,743,57160,100,437

254,895,618406,061,769

8,040,022

24

146,004,95116,892,07016,670,14060,890,251

240,457,412

414,101,79148.713.736

365,388,055

367,664,705

5,568,833373,233,538

44.567.295328,666,243


Consolidated Statement of Comprehensive lncome

For the year ended December 31,2016


Net income

Other comprehensive income (expense)Items that are or may be reclassified to profit or loss:

Valuation of securities and other financial assets:Change in fair value of securities available-for-saleTransfer to profit or loss for sales of securities available-for-sale

Change in fair value of hedging instruments 28Other comprehensive income (expense), netTotal comprehensive income

The consolidated statement of comprehensive income should be read along with theaccompanying notes which are an integral pa¡t of the consolidated financial statements

Note 2016

365,388,055

56,521,380787,858

2015

328,666.243

57 ,991,411682.173

423,379,466

(39,460,664)(1,331,045)

60,050(40,731,659)287,934,584


Gonsolidated Statement of Changes in Equity

For the year ended December 3'1, 20'16


Capital reserves

Commonshares

Legalreserve

lnsurancereserve

1,000,000500,000,000 109,751,996

Valuation ofsecurities and other

financial assets

15,092,203

Valuationfor hedginginstruments

(65,143)

Retainedearninqs

908,717,594

Totalequitv

1,534,496,650Balance as of December 31,2014

Net income

Other comprehensive income (expense)

Items that are or may be reclassified to profit or loss:


Change in fair value of hedging instrumentsTotal other comprehensive (expense) income, netTotal comprehensive incomeTransactions with owners:Dividends paid on common sharesComplementary taxTransfer from retained earningsTotal transactions with owners

Balance as of December 31, 2015

Net income

Other comprehensive incomeItems that are or may be reclassified to profit or loss:


Change in fair value of hedging instrumentsTotal other comprehensive income, netTotal comprehensive incomeTransactions with owners:Dividends paid on common sharesComplementary taxTransfer from retained earningsTotal transactions with ownersBalance as of December 31, 2016

0

0

0

0

0

0

(39,460,664)(1,331,045)

0

0

0

60,05060,050

328,666,243 328,666,243

(39,460,664)(1,331,045)

60.050

0

0

0(40,791,709)

328,666,243

(200,000,000)(1,362,736)

(47,479,589)(248,842,325)

988,541,512

(40,731,65e)287,934,584

(200,000,000)(1,362,736)

0(201,362,736)

1,621,068,498

0

0

0

47,479,589

(40,791,709) 60,050

0

0

0

0

0

0

0

0

0

0

00

0

0

0

47,479,589

500,000,000 157,231,585 1,000,000 (25,699,506) (5,0e3)

365,388,055 365,388,055

0

0

0

56,521,380787,858

0 682.173

0

0

00

0

56,52'1,380787,858682,173

000UU'

57,309,238re 682,173 0---365388FS5-

(210,963,500)(1,2e8,622)

(20,487,6361(232,749,758)

57,991,411

--mqs@(210,e63,500)

(1,298,622)0

(212,262,122)1,832,185,842

0

0

0

0

0

20,487,63620,487,636

682,1 /3

0

0

0

0

0

0

00

0

500,000,000 177,719,221 1,000,000 31 609.732 J_J21fl3_999_

The consolidated statement of changes in equity should be read along with the accompanying notes which are an integral part of the consolidated financial statements

10

677,080

BANCO GENERAL, S, A. AND SUBSIDIARIES(Panama, Republic of Panama)

Consolidated Statement of Cash Flows

For the year ended December 31 , 201 6


Operating activities:Net incomeAdjustments to reconcile net income to net cash provided

from operation act¡vities:Provision for loan losses, netProvision of provision for securities impairmentProvision for impairment of foreclosed assets, nelUnrealized loss on secur¡ties and other fìnancial assetsUnrealized gain on derivative instrumentsLoss (gain) on sale of securities and other financial assetsRealized gain on derivative instrumentsForeign exchange, netGain on sale of premises and equipmentDeferred income taxDepreciation and amorlizationAmortizat¡on of intangible assetEquity participation in associateslnterest incomelnterest expense

Changes in operating assets and liabilities:Time deposits with banksSecur¡ties and other financial assets at fa¡r value through profìt or lossLoansUnearned commissionsTax credit from preferential interest loansOther assetsDemand depositsSavings accountsTime depositsLiabilities under insurance operationsOther liabilities

Cash provided by operating activities:lnterest receivedlnterest paid

Dividends receivedTotalGash flows from operating activ¡ties

lnvesting act¡vities:Purchases of securities and olher financial assets available-for-saleSale and redemptions of securities and other financial assets available-for-saleRedemptions of securities held{o-matur¡tylnveslments in associatesSale of premises and equipmentPurchases of premises and equipment

Cash flows from investing activities

Financing activities:Proceeds from borrowings and placementsRepayment and redemptions of bonds and other obligat¡onsSecurities sold under agreements to repurchaseD¡vidends paid on common sharesComplementary tax

Cash flows from f¡nanc¡ng activ¡ties

Net increase (decrease) ¡n cash and cash equivalentsCash and cash equivalents at beginning of yearCash and cash equivalents at end of year

Note 2016 2015

365,388,055 328,666,243

7

þ1221

21

21

21

222224I

11

45,532,128 29,236,51936,293 24,742

752,600 316,8082,034,700 10,784,287

(63,870) (270,662)l,039,357 (453,209)(7,648,834) (5,e79,321)(3,358,0s2) (1,469,775)

(1 13,387) (86,950)(4,747,269) (1,092,764)18,961 ,057 16,892,0702,617,387 2,617,387(8,040,022) (5,568,833)

(764,278,229) (683,871,302)253,826,092 219,226,614

(10,907,981) (17,650,606)(132,809,080) (166,279,735)

(1,045,675,633) (1,019,750,077)3,419,717 2,474,925

(33,760,531) (31,705,s44)(74,341,236) (117,447,767)187,903,870 100,690,502165,143,925 284,307,269399,114,299 309,087,611

988,604 2,387,289237,059,836 160,262,804

760,271,794 678,438,686(242,238,318) (208,829,976)

1 ,937 ,451 1 ,706,818(247,343,312) (442,042,590)118,044,743 (113,376,347)

(3,881,437,360) (2,722,219,658')3,678,566,760 2,312,346,819

10,971 ,030 14,235,1146,843,376 4,590,932

117,706 160,618(60,631,194) (46,067,980)

(245,569,682) (436,9s4,155)

The consolidated statement of cash flows should be read along with the accompanying noteswhich are an integral part of the consolidated financial statements.

11

22

892,134,724(534,462,608)

35,293,629(210,963,500)

(1,298,622\180,703,623

53,1 78,684552,231,540

___6otj/1922!_

789,034,384(221j20,023)

62,445,349(200,000,000)

(1,362,736)428,996,974

(121,333,528)673,565,068552,231 ,540


Notes to the Gonsolidated Financial Statements

December 31,2016


lndex of Notes to the Consolidated Financial Statements:

1. General lnformation 17. Liabilities from lnsurance Operations

Basis of Preparation

3. Summary of SignificantAccounting Policies

Balances and Transactionswith Related Parties

Cash and Cash Equivalents

lnvestment Securities andOther FinancialAssets

4.

5.

6.

7. Loans

B. lnvestments in Associates

9. Premises and Equipment

10. Securities and Other FinancialAssets Sold and PurchasedPending Settlement

11. Goodwill and lntangibleAssets, Net

18. Concentration of FinancialAssets andLiabilities

19. Segmentlnformation

20. Equity

21.

22.

12.

13.

Gain (Loss) on Financial lnstruments, Net

Other lncome, Net

Personnel Benefits

lncome Tax

Foreclosed Assets, Net

Securities Sold UnderRepurchase Agreements

Other Financial Liabilities atFair Value

Borrowings and Placements

23.

24.

25.

26.

14

15.

Commitments and Contingencies

lnvestment Entities and Separate Vehicles

16. Perpetual Bonds

27. Structured Entities

28.

29.

Derivative Financial I nstruments

Fair Value of Financial lnstruments

30. Financial lnstruments Risk Management

31 Critical Accounting Estimates andJudgments in Applying Accounting Policies

Main Applicable Laws and Regulations32.

12



December 31,2016


(f ) General lnformationBanco General, S. A. was incorporated under the laws of the Republic of Panama in 1954 andstarted operations in 1955. The Bank operates under a general license granted by theSuperintendence of Banks of Panama which allows it, to engage in the banking businessindistinctly in Panama or abroad. Banco General, S. A. and its subsidiaries will be referred tocollectively as "the Bank".

The Bank provides a wide variety of financial services, mainly, corporate, mortgage andconsumer banking, management of investments and pension, retirement and severancefunds.

ïhe Bank has representation offices in Colombia. México, El Salvador, Guatemala and Peruwhich began operations in 2015.

Grupo Financiero BG, S. A. owned 60.170/o (2Q15: 60.120/o) by Empresa General delnversiones, S.A.), owns 100% of the common shares issued and outstanding of BancoGeneral, S. A.

Banco General, S. A. owns 100% of the following subsidiaries which form part of theconsolidation:

. Finanzas Generales, S. A. and subsidiaries: finance leases, loans and factoring operationsin Panama. This owns the following subsidiaries:. BG Trust, lnc.: trust management in Panama.. Vale General, S. A.: management and merchandising of food tickets in Panama.

o $. G. lnvestment Co., lnc.: securities brokerage, assets management and brokeragecompany in Panama.

. General de Seguros, S. A.: insurance and reinsurance in Panama.

. Overseas Capital Markets, lnc. and subsidiaries: holding company in Cayman lslands.This owns the following subsidiaries:. Banco General (Overseas), lnc.: international banking business in Cayman lslands.. Commercial Re. Overseas, Ltd.: international reinsurance in British Virgin lslands.

. BG Valores, S. A.: securities brokerage, asset management and brokerage company inPanama.

o Banco General (Costa Rica), S. A.: Banking business in Costa Rica.o ProFuturo Administradora de Fondos de Pensiones y Cesantía, S. A.: management of

pension and retirement, severance and investment funds in Panama.

On August 10,2015, the dissolution of the company Fondo General de Capital, S. 4., whichwas 100% subsidiary of Overseas Capital Market, lnc., was registered under the deed No.9028.

13


Notes to the Consolidated Financial Statements

As at December 31,2015, the subsidiary Finanzas Generales, S.4., acquired the companiesBG Trust, lnc. and Vale General, S. A., which were owned by the subsidiary B. G. lnvestment,Co., lnc., at acquisition cost. The results of these companies were presented in theconsolidated income statement of B. G. lnvestment, Co., lnc., and the balances of assets,liabilities and equity were incorporated in the consolidated statement of financial position ofFinanzas Generales, S. 4., as of that date. This transaction was accounted for as acquisitionof entities under common control.

As of December 31,2016, the Bank had 4,457 (2015:4,273) permanent associates. Themain office is located at Urbanization Marbella, Aquilino de la Guardia Avenue, Tower BancoGeneral, Panama City, Republic of Panama.

(21 Basis of Preparation(a) Statement of Compliance

The consolidated financial statements have been prepared in accordance withlnternational Financial Reporting Standards (IFRS) as issued by the lnternationalAccounting Standard Board (IASB).

These consolidated financial statements were reviewed by the Audit Committee andauthorized for issue by the Board of Directors on January 26,2017.

(b) Basrs of MeasurementThe consolidated financial statements have been prepared on a historical cost basisexcept for the assets and liabilities at fair value, available-for-sale securities andderivative financial instruments, which are measured at fair value; and the foreclosedassets, which are measured at the lower of its carrying value and its fair value less coststo foreclose.

The Bank initially recognizes loans, account receivables and deposits on the date onwhich they originated. All other financial instruments (including assets designated at fairvalue through profit or loss) are recognized on the trade date, which is the date on whichthe Bank becomes a party to the contractual provisions of the instrument.

(c) Functional and Presentation CurrencyThe consolidated financial statements are expressed in balboas (B/.), the monetary unitof the Republic of Panama, which is at par and freely exchangeable with the UnitedStates dollar (US$) The Republic of Panama does not issue its own paper currencyand, in lieu, the dollar ($) of the United States of America is used as legal tender andfunctional currency.

14



(3) Summary of Significant Accounting PoliciesThe Bank has consistently applied the accounting policies as set out below to all periodspresented in these consolidated financial statements:

(a) Basrs of Consolidation- Subsidiaries

The Bank controls a subsidiary if it is exposed to, or has right to, variable returnsfrom its involvement with the subsidiary and has the ability to affect those returnsthrough its power over the subsidiary. The financial statements of subsidiariesmentioned in Note 1 are included in the consolidated financial statements from thedate on which control commences until the date when control ceases.

- lnvestment Entities and Separate VehiclesAn investment entity and a separate vehicle is used when the Bank manages andadministers assets held in trust and other investment vehicles as collateral forinvestors. The financials statements of these entities are not consolidated, exceptwhen the Bank has control over the entity.

- Structured EntitiesA structured entity is an entity that has been designed so that voting or similar rightsare not the dominant factor in deciding who controls the entity, for example when anyvoting rights relate to administrative tasks only, and key activities are directed bycontractual agreement. ln assessing whether the Bank has power over suchinvestees in which it has an interest, the Bank considers factors such as the purposeand design of the investee; its practical ability to direct the relevant activities of theinvestee; the nature of its relationship with the investee; and the size of its exposureto the variability of returns of the investee. The financials statements of theseentities are not consolidated, except when the Bank has control over the entity.

- lnvestments in AssocrafesAn associate is an entity over which it has significant influence, but has no control orjoint control, over the fínancial or operational policies. lt is presumed that it hassignificant influence when it owns between 20o/o and 50% of the voting power in theinvestee.

lnvestments in associates and interests are accounted for using the equity method.Under this method, such investments are initially recognized at cost, which includetransaction costs.

The consolidated financial statements include the Bank's share of the profít or lossand other comprehensive income of equity-accounted investees, after anyadjustment to conform to the Bank accounting policies, from the date it hassignificant influence until the date on which significant influences ceases.

15



The investor's share of losses of an equity-accounted investee is recognized onlyuntil the carrying amount of the Bank's equity interest in the investee is reduced tozero. After the investor's interest is reduced to zero, a liability is recognized only tothe extent that the Bank has an obligation to fund the investee's operations or hasmade payments on behalf of the investee.

- Balances and Transactions Eliminated on ConsolidationThe consolidated financial statements includes the assets, liabilities, equity, incomeand expenses of Banco General, S. A. and subsidiaries detailed in note 1.Significant intercompany balances and transactions are eliminated.

(b) Fair Value MeasurementFair value is the price that would be received for selling an asset or paid to transfer aliability in an orderly transaction between market participants at the measurement date(exit price).

The evidence of the fair value of a financial instrument at initial recognition is normallythe transaction price (entry price).

The fair value of an instrument is measured using the quoted price in an active marketfor that instrument. A market is regarded as active if transactions for the asset orliability take place with sufficient frequency and volume to provide pricing informationon an ongoing basis. lf there is no quoted price in an active market, then the Bankuses valuation techniques that maximize the use of relevant observable inputs andminimize the use of unobservable inputs. The chosen valuation technique incorporatesall of the factors that market participants would take into account in pricing thetransaction.

The fair value of financial instruments is determined using quoted prices in activemarkets, several electronic information systems, custodians, market makers, pricesfrom a third party pricing services, investment management companies and banks. lnaddition, for some cases the fair value measurement is determined using valuationtechniques, mainly discounted cash flows at the appropriate discount rate for thatinstrument. Equity securities whose fair value cannot be measure reliably are carriedat cost.

(c) Cash and Cash EquivalentsFor the purpose of the consolidated statement of cash flows, cash equivalents includedemand deposits and time deposits with banks that have an original maturity of threemonths or less.

(d) SecunÏres Purchased Under Rese// AgreementsSecurities purchased under ressell agreements are short-term funding transactionsguaranteed with securities, in which the Bank acquires the securities at a discountedmarket price and agrees to resell them at a future date at a specified price. Thedifference between the purchase price and value of the future sale is recognized asincome under the effective interest rate method.

16



Securities received as collateral are not recognized in the consolidated financialstatements, except in cases of default by the counterparty, which gives to the Bank theright to keep the securities.

The market price of these securities is monitored on a daily basis and additionalcollateral is obtained, if necessary, to protect the Bank from credit risk exposure.

(e) lnvestment Securifies and Other FinancialAssefslnvestment securities and other financial assets are classified at their trade date, andinitially measured at fair value plus, for an item not at fair value through profit or loss,transaction costs that are directly attributable to its purchase or acquisition.Subsequently are recognized based on management's ability and intent to sell or to holdthem until their maturity date. The categories used are detailed as follows:

Securities and Other FinancialAssefs at Fair Value through Profit or Loss:- Trading SecurTres and Other FinancialAssefs

This category includes those securities and other financial assets acquired forthe purpose of generating a profit from short term fluctuations in the market valueof the instrument. These securities and other financial assets are reported attheir fair value and changes in fair value are recognized in the consolidatedstatement of income.

- Other SecunTres and Financral,Assefs at Fair ValueThis category includes those securities and other financial assets acquired withthe intention of holding them for an undetermined period of time and for which aquoted price in an active market is available. These securities and other financialassets are measured at their fair value and changes in valuation are recognizedin the consolidated statement of income.

Secunlres a n d Oth e r F i n a n c i a I Assefs Av a i I a b I e -for-SaleThis category includes the securities and other financial assets acquired with theintention of holding them for an undetermined period of time. These securities andother financial assets are measured at their fair value and changes in valuation arerecognized in equity accounts.

Secunlies H e I d 1o- M at u ritySecurities held{o-maturity are financial assets that the Bank has the intention andability to hold until maturity. These securities consist mainly of debt instruments andare carried at their amortized cost.

17

BANCO GENERAL, S.,A. AND SUBSIDIARIES(Panama, Republic of Panama)


lmpairment of lnvestment Securities and Other FinancialAssefs- Available-for-Sale

Periodically, the Bank assesses whether there is objective evidence that itsinvestment securities or other financial assets are impaired. ln the case ofinvestment securities and other financial assets classified as available-for-sale,a significant or prolonged decline in the fair value of the security below its cost,downgrade in its risk rating below B+, defaulted payments, debt restructuring orsimilar events, are considered in determining whether the assets are impaired. lfany such evidence exists for available-for-sale financial assets, the cumulativeloss is removed from equity and recognized in the consolidated statement ofincome.

lf, in a subsequent period, the fair value of investment securities and otherfinancial assets classified as available-for-sale increases and the increase canbe objectively related to an event occurring after the impairment loss wasrecognized in profit or loss the impairment loss is reversed through theconsolidated statement of income.

- Securities Held-to-MaturityThe value of any security is reduced to its fair value for any material loss due toa non{emporary impairment, by establishing a specific allowance for securitiesagainst the results of operations of the year.

(f) Derivative Financial lnstrumentsDerivatives are accounted for at fair value in the consolidated statement of financialposition, w¡th transaction costs recognized in profit or loss when incurred, andsubsequently accounted as either fair value hedge or cash flow hedge, when held forrisk management purposes, or as trading when the instrument does not qualify for hedgeaccounting.

- Fair value hedgeDerivative instruments accounted for using the fair value method are instruments thathedge the exposure to change in the fair value of: (a) assets or liabilities or anidentified porlion of the value of assets or liabilities recognized in the consolidatedstatement of financial position, (b) a firm commitment or a forecasted transactionwhich is almost certain to occur. Changes in the value of these instruments using thefair value method are recognized in the consolidated statement of income.

For an available-for-sale hedged asset, changes in fair value should be recognizeddirectly in equity. Starting on the date that the available-for-sale asset becomes ahedged item, the changes in fair value should be charged through the consolidatedstatement of income and the revaluation balance accounted in the equity reserveshould remain recorded until these assets are sold or redeemed.

18



A hedged asset or liability othen¡rise carried at amortized cost is adjusted by thechange in fair value that is attributable to the changes in interest rates. Amortizationfor these hedged assets and liabilities should begin when they cease to be adjustedfor changes in their fair value, based on a recalculated effective interest rate. lf thehedged asset carried at amortized cost suffers a permanent impairment, the loss iscalculated based on the difference between the carrying value after fair valueadjustments of the hedged asset attributable to the risk being hedged and thepresent value of the estimated cash flows discounted at the adjusted effectiveinterest rate.

- Cash flow hedgesDerivative instruments under the cash flow method are instruments that hedge theexposure to variability in the cash flows of an asset or liability recognized in theconsolidated statement of financial position affecting net income. The effectiveportion of changes in the fair value of the hedging instrument is recognized directly inequity, while the ineffective portion of changes in the fair value is recognized in theconsolidated statement of income.

- Derivative without hedge accountingDerivative instruments that do not qualify for hedge accounting are classified asassets or liabilities at fair value and are recognized in the consolidated statement offinancial position at their fair value. Changes in the fair value of these derivatives arerecognized in the consolidated statement of income.

Loans and InterestLoans are reported at their principal amounts outstanding. lnterest income on loans isrecognized in profit or loss using the effective interest method.

The financial leases portfolio is reported as part of the loan portfolio and recorded underthe financial method, which presents these financial leases at the present value of thecontracts. The difference between the contract's total amount and the leased propertycost is recorded as unearned interest and is credited to interest income on loans duringthe life of the lease contract period using the effective interest rate method.

Factoring operations, net of guarantee deposits and interest discounted in advance, arereported as part of the loan portfolio.

Allowance for Loan LossesAt the consolidated statement of position date, it is assessed whether there is objectiveevidence that a loan or portfolio of loans is impaired. The allowance method is used toaccount for that impairment. The amount of loan losses determined during the period isrecognized as a provision expense in the results of operations and is credited to theallowance for loan losses

(g)

(h)

19



The allowance is presented as a deduction from loans receivable in the consolidatedstatement of financial position. The Bank periodically reviews its impaired portfolio toidentify those loans that require to be charged off against the allowance for loan losses.Recoveries of loans previously charged off as non-recoverable, are credited to theallowance balance.

lmpairment losses are determined following two methodologies to assess whetherobjective evidence of impairment exists:

- lndividual/y Assessed Loanslmpairment losses on individually assessed loans are determined by an evaluation ofthe exposures on a case-by-case basis. This procedure is applied to all loans,whether individually significant or not. lf it is determined that no objective evidenceof impairment exists for an individual loan, it is included in a group of loans withsimilar credit characteristics and collectively assessed for impairment.

The impairment loss is calculated by comparing the present value of the expectedfuture cash flows, discounted at the original effective interest rate of the loan, to itscurrent carrying value, and the amount of any loss is charged as a loss provision inthe consolidated statement of income. The carrying amount of impaired loans isreduced through the use of an allowance account.

- Collectively Assessed LoansFor the purpose of a collective evaluation of impairment, loans are grouped on thebasis of similar credit risk characteristics. Those characteristics are relevant to theestimation of future cash flows for groups of similar assets by being indicative of thedebtors' ability to pay all amounts due according to the contractual terms of theassets being evaluated.

Future cash flows in a group of loans that are collectively evaluated for impairmentare estimated on the basis of the contractual cash flows of the assets in the group,historical loss experience for assets with credit risk characteristics similar to those inthe group and Management's experienced judgment as to whether the currenteconomy and credit conditions are such that the actual level of inherent losses islikely to be greater or less than the suggested historical experience.

- Reversal of lmpairmentlf, in a subsequent period, the amount of the impairment loss decreases and thedecrease can be related objectively to an event occurring after the impairment wasrecognized, the previously recognized impairment loss is reversed by reducing theloan impairment allowance account. The amount of any reversal is recognized in theconsolidated statement of income.

Premises and EquipmentPremises and equipment are stated at cost, less accumulated depreciation andamortization. The improvements are capitalized when they increase the useful life of theasset, while minor repairs and maintenance expenses which do not extend the useful lifeor improve the asset are charged directly to expenses when incurred.

20

(i)



Depreciation and amortization expenses are charged to current operations using thestraight-line method over the estimated useful life of each asset, except for land, which isnot depreciated, as follows:

- Buildings 30 - 50 years- Licenses and internal development projects 3 - 5 years- Furniture and equipment 3 - 5 years- lmprovements 5 - 15 years

(j) Goodwill and lntangrble AssefsGoodwillWhen an acquisition of a significant part of the equity of another company or a significantacquisition of a business occurs, goodwill represents the poñion of the cost ofacquisition in excess of the fair value of the net assets acquired. Goodwill is recognizedas an asset in the consolidated statement of financial position and is tested annually forimpairment. When it is determined that impairment exists, the difference between thecarrying value of the goodwill and its fair value is recorded as an expense in theconsolidated statement of income.

lntangible AssefsThe intangible assets acquired are recognized at cost less accrued amodization andimpairment losses and are amortized using the straight-line method over a useful life of20 years. lntangible assets are subject to annual review for impairment or when thereare events or changes in circumstances that indicate that the carrying value may not berecoverable.

(k) Foreclosed AssefsForeclosed assets are recognized at the lower of the outstanding principal of theguaranteed loan and the estimated realizable value of the acquired asset.

The Bank uses the allowance method in providing for significant impairment losses onforeclosed assets. The impairment provision is recognized in the consolidated statementof income and the allowance for losses is presented as a deduction from the carryingvalue of foreclosed assets.

(l) lmpairmentofNon-FinancialAssefsThe carrying value of non-financial assets is reviewed at the consolidated statement offinancial position date to determine whether there is evidence of impairment. lf suchimpairment exists, the asset's recoverable amount is estimated and an impairment lossis recognized equivalent to the difference between the asset's carrying value and itsestimated recoverable amount. The impairment loss of an asset is recognized as anexpense in the consolidated statement of income.

21



(m) Secunïres Sold Under Repurchase AgreementsSecurities sold under repurchase agreements are short{erm funding transactionsguaranteed with securities, in which the Bank is obligated to repurchase the securitiessold at a future date at a specified price. The difference between the selling price andthe value of the future purchase is recognized as interest expense under the effectiveinterest rate method.

Securities given as collateral are still recognized in the consolidated financialstatements; as the counterparty has no right of property of these securities, unless thereis a default by the Bank.

(n) Deposifs Due to Depositors and Borrowings and PlacementsDeposits due to depositors and borrowings and placements are initially measured at fairvalue. Subsequently, these are measured at their amortized cost using the effectiveinterest rate method.

(o) Other Financial Liabilities at Fair ValueThis category includes financial liabilities measured at fair value and the changes invaluation are recognized in the consolidated statement of income.

(p) Financial GuaranteesFinancial guarantees are contracts that require the Bank to make specific payments onbehalf of customers, to reimburse the beneficiary of the guarantee, in the event that theclient fails to make payments when due in accordance with the terms and conditions ofthe contract.

Liabilities for financial guarantees are initially recognized at fair value; this initial value isamortized over the life of the financial guarantee. Financial guarantees are included inthe consolidated statement of financial position within other liabilities.

(q) lnterest lncome and Expenselnterest income and expense are recognized in the consolidated statement of income forall financial instruments using the effective interest method.

The 'effective interest rate' is the rate that exactly discounts the estimated future cashpayments and receipts through the expected life of the financial instrument to thecarrying amount of the financial asset or financial liability. The calculation of theeffective interest rate includes transaction costs and fees paid or received that are anintegral part of the effective interest rate.

Ø Commission lncomeGenerally, the commission on short-term loans, letters of credit and other bankingservices are recognized as income on a cash basis due to their short-term maturity.lncome recognized on a cash basis is not significantly different from the income thatwould be recognized under the accrual method.

22



Commission income on medium and long{erm loans, net of certain direct loanorigination costs, is deferred and amortized using the effective interest rate method overthe average life of the loan.

(s) lnsuranceOperationsUnearned premiums and reinsurers' participation in unearned premiums are calculatedusing the daily quota method.

Estimated claims pending settlement are represented by claims incurred but not settledat the consolidated statement of financial position date, whether reported or not and itincludes the related claim management expenses, internal and external, and anappropriate prudential margin.

Fees paid to insurance agents and taxes paid on premiums are deferred in theconsolidated statement of financial position as acquisition costs deferred in accordancewith their relation with the unearned premiums net of reinsurers' participation.

Premiums issued in advance are credited in the consolidated statement of financialposition in accordance with their maturity date. The portion corresponding to the currentyear is recorded as premium income at the anniversary dates and the rest of thepremiums, relating to future years, are maintained in the consolidated statement offinancial position as premiums issued in advance.

(t) Trust OperationsAssets held in trust or where the Bank has a fiduciary function are not considered part ofthe Bank, consequently, such assets and their corresponding income are not included inthe consolidated financial statements. The Bank is required by contractual agreementsto manage the assets held in trust independently from its own equity.

Fees received in relation with the trust operations are recognized in the fees and othercommissions item of the consolidated statement of income.

(u) lncome TaxEstimated income tax is calculated on the net taxable income, using tax rates enacted atthe consolidated statement of financial position date, and any adjustment to the incometax of prior years.

Deferred income tax represents the amount of income tax payable and/or receivable infuture years resulting from temporary differences between the carrying amounts ofassets and liabilities for financial repoding purposes and the amounts used for taxationpurposes, using the tax rates enacted at the consolidated statement of financial positiondate. These temporary differences are expected to be reversed in future years.

Deferred tax assets or liabilities are reduced to the extent that it is no longer probablethat the related tax effect will be realized.

23



(v) Share-Based Compensation Plan and Restricted Share Option PlanThe Board of Directors of Grupo Financiero BG, S. A. authorized a grant to keyexecutives, hereinafter "participants" the following plans:

- Option to purchase shares of Grupo Financiero BG, S. A. and its holding company- Restricted Share Option Plan of Grupo Financiero BG, S. A.

The fair value of options granted to the participants is recognized as an administrativeexpense against the balance due to Grupo Financiero BG, S. 4., and its holdingcompany. The fair value of the options on the grant date is recognized as an expense ofthe Bank, during the vesting period. The total amount to be expensed over the vestingperiod is determined by reference to the fair value of the options on the grant date.

The fair value of the restricted sharerecognized in the Bank's consolidatedduring the year.

Segment Repoñing(w)A business segment is a component of the Bank whose operating results are reviewedregularly by management to make decisions about resources allocated to each segmentand assess its performance, and for which financial information is available.

Foreign Currency Tran saction sTransactions in foreign currency are recorded at the exchange rates in effect at thetransaction date. Assets and liabilities held in foreign currency are converted into dollarsat the exchange rate in effect at the consolidated statement of financial position date andthe income and expense accounts are converted at the average yearly exchange rate.

Gains and losses from foreign currency conversion are reflected in other income or otherexpenses in the consolidated statement of income.

New lnternational Financial Reporting Standards (IFRS) and lnterpretations Not AdoptedA number of new standards and amendments to standards are not yet effective forannual periods ending December 31,2016; consequently they have not been applied inpreparing these consolidated financial statements. The most significant are shownbelow:

. The final version of the IFRS I Financial lnstruments (201a) replaces the previousversion of the IFRS I (2009, 2010, and2013) and completes the IAS 39 replacementproject. The most important effeci of this Standard are shown below:

- New requirement on the classification and measurement of financial assets.IFRS 9 contains two principal classification categories for financial assets - i.e.measured at amortized cost and fair value. The existing IAS 39 categories ofheld-to-maturity, available-for-sale, loans and receivables are removed.

(x)

option annually granted to the participants isstatement of income as an employee expense

U)

24



- Remove the profit or loss volatility caused by the change in own credit risk of theentity in liabilities measured at fair value; the change in this impairment in thecredit risk of the entity are no longer recognized in the result of the period.

- New general hedge accounting requirements, with improved disclosures inrelation with the risk management.

- A new impairment model, based on expected credit loss which will requiregreater and timely recognition of the expected credit losses.

IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018,with early adoption permitted.

. IFRS 15 Revenue from Contracts with Customers. This Standard establishes acomprehensive framework for determining whether, how much and when revenue isrecognized. lt replaces existing revenue recognition guidance, including IAS 18Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer LoyaltyProgrammes

IFRS 15 is effective for annual reporting periods beginning on or after 1 January2018, with early adoption permitted.

. IFRS 16 Leases. This standard replaces IAS 17 Leases; it eliminates theclassification of leases, instead all leases are treated in a similar way to financeleases and measured at the present value of the lease's future payments. The IFRS16 is effective from January 1,2019. The Bank may choose early adoption of IFRS16 but only if it also applies IFRS 15 - Revenue from Contracts with Customers.

Given the nature of the Bank's operations, it is expected that these standards may resultin changes on the Bank's consolidated financial statements. The Bank's management iscurrently in the process of evaluating the potential effect of these standards.

25



(4) Balances and Transactions with Related PartiesThe consolidated statement of financial position and the consolidated statement of incomeinclude balances and transactions with related parties, which are summarized as follows:

Assets:lnvestment securities and other financialassets

Loans



DemandSavingsTime

Perpetual bonds


lnterest income:Loanslnvestment securities and other financial

assets

lnterest expense:DepositsBorrowings and placements

Other income:Equity participation in associatesDividends

General and administrative expenses:Directors'feesBenefits to key management personnel

Directors and RelatedManaqement Companies

___________o 25ô85q400

_ßf,91ß54 _95J55A84

__0 _18É90"5q1

1,302,223 90,853,8504,310,328 94,196,8201.108,841 212.818.835

_ßJ21-392 3928ô9.5!5

___________o _____________0

___1Æ-525 _15J02953

2016Affiliated

Companies

-49*632831

__________o

_____________0

131,O91,92745,479

0

Total

306"488331

102"553"438

_l€.590*5Ê1

223,248,O0098,552,627

213.927,676535J28303

_90*0oq000

39ß47287

__3"684218

J5J13AA7

_-8J56B!3__5"850"000

___8.040-422__1-052-033

____153*800_a-641.27ß

___i1121ß

___________o

_____51$14___________o

___________0

0

__3J73"500

_12*È19t05€

__i389*ã81

__&049.922__l*o5z-033

_____________0

l3L13Z¡106

_90*000"000

_23328"809

0

___153-800_4.601-21ß

_2ß24'383

_______16388*_5-850J00

__*_____i_________o

______o0

26



Assets:lnvestment securities and other financialassets

Loans



DemandSavingsTime

Perpetual bonds


lnterest income:Loanslnvestment securities and other fìnancial

assets

lnterest exþense:DepositsBorrowings and placements

Other income:Equity participation in associatesDividends

General and administrative expenses:Directors'feesBenefits to key management personnel

Directors andManaqement

J2ßL99i

_________0

2,158,0223,873,2111.277.419

_2308*052

___________o

___125-525

___ÆÊ261

__*_____0

____3ß-M9___________o

__0_________!

___146*80!_3*936*552

RelatedCompanies

168J93¿53

_99*35e.067

_17J93*EL5

72,392,83194,503,024

227.582.477394'428332

____*_______0

_2ß?p.¿79

__3j3i-r36

__s*050fi9

**6t806.736___,___!

__t*568-833__*800J66

___*_______0o

2015Affiliated

Companies

_48ß12J23

__ap40þ24

_,,____!

104,310,0822,360,169

0196ß19251

_90J00J00

-SJ71/r09

__251.024

_2-5ø61_LB

__17t086__rê50*040

__*_0_____________0

______o0

The benefits to key management personnel include salaries and other expenses forB,1.4,397,298 (2015: 8i.3,686,081) and opt¡ons to purchase shares for B,1.203,980 (2015:B.1.250,471).

The conditions granted in transactions with related parties are substantially similar to thosegranted to third parties not related to the Bank.

Total

z1t_zoL3L6

aLLs!3.684

_r¿393.Er5

178,860,935100,736,404228,859,896508t52235

_9!,000.000

__3"611A64

__4A4s421

__92224897

_ßß62"292__5,850*000

__5.568-833____¡€6.16€

___14ô300__383ô"552

27



(5) Gash and Cash EquivalentsCash and cash equivalents are detailed as follows for purposes of reconciliation with theconsolidated statement of cash flows:

Cash and cash itemsDemand deposits with banksTime deposits with original maturities of three months

or lessCash and cash equivalents in the consolidated

statement of cash flows

(6) lnvestment Securities and Other Financial Assetslnvestment securities and other financial assets are summarized as follows:

Securities and Other Financial Assets at Fair Value through Profit or LossThe portfolio of securities and other financial assets at fair value through profit or lossamounted to B/.1,090,670,220 (2015. B/.951 ,513,317) and was comprised of tradingsecurities and other securities at fair value through profit or loss, as follows:

Trading Securities and Other Financial AssetsTrading securities at fair value are detailed as follows:

Local Corporate Bonds and Fixed lncome FundsForeign Variable lncome Mutual Funds

Total

The Bank sold trading securities and otherfinancial assets for an amount of 8/.617,228,668(2015: 8/.603,631 ,456). These sales generated a net gain of B,1.4,368,744 (2015:B.1.3,205,123).

2016

255,676,459 190,835,505229,730,448 206,332,951

120,003.317 155,063,084

6þ5A10-224 552-231,54e

2015

2016

11 ,548 1 ,813,70918,325 500,00029.873 2.313.709

2015

28



Other Securities and Financial Assets at Fair ValueThe other securities and financial assets at fair value are detailed as follows:

2016

LocalTreasury BillsLocal Corporate Bonds and Fixed lncome FundsBonds issued by the Republic of PanamaLocal Corporate SharesBonds issued by US Government and AgenciesForeign Commercial Paper, Treasury Bills and Mutual FundsMortgage Backed Securities (MBS) and Collateralized Mortgage

Obligations (CMOs)Asset Backed SecuritiesForeign Fixed lncome FundsForeign Variable lncome Mutual Funds

Total

The Bank sold other securities and financial assets at fair valueB,1.3,929,046,479 (2Q15: B.1.2,963,320,760). These sales generated a net(2015. B,1.900,472).

Securities and Other Financial Assets Available-for-SaleThe portfolio of securities and other financial assets available-for-sale are detailed as follows:

2016 2015

Local Commercial Paper and Treasury BillsLocal Corporate Bonds and Fixed lncome FundsLocal BorrowingsBonds issued by the Republic of PanamaLocal Corporate SharesBonds issued by US Treasury and AgenciesForeign Commercial Paper and Treasury BillsMortgage Backed Securities (MBS) and

Collateralized Mortgage Obligations (CMOs)Asset Backed Securities (ABS)Foreign Corporate Bonds and Fixed lncome

FundsForeign BorrowingsOther Government BondsForeign Corporate Shares and Variable lncome

Mutual FundsTotal

55,790,50363,320,6442,252,105

32,836,5699,130,926

362,178,703

499,067,15215,107,06950,939,913

16,763rueoÊagz

20'15

75,083,72461,086,2792,721,911

30,328,94613,443,399

279,000,422

445,641,1223,395,746

38,279,964218,095

949.199.608

FairValue

The Bank sold securities and other financial assets available-for-sale for an amount ofBl .1 ,999,410,629 (2015: Bl.1 ,414,963,441). These sales generated a net loss of B/.3,120,056(2015. B/.3,652,386).

14,087,508965,856,84143,633,760

106,019,9305,830,982

29,244,216191 ,693,062

907,094,03386,883,763

536,984,9580

77,415,652

AmortizedCost

14,029,248938,033,964

43,187,121104,790,447

3,132,03729,301,945

191 ,789,515

909,717,56487,066,891

534,245,0120

77,796,060

for angain of

amount ofB.t.186,152

FairValue

9,624,515 9,640,000901,102,275 922,935,91165,295,452 64,778,10393,697,100 92,296,2725,514,545 2,830,512

47,976,526 48,170,715138,849,694 138,894,828

831,287,473 830,204,04542,082,397 42,304,900

491,411,007 499,413,954764,750 752,814

85,707,141 86,740,161

97.486 142.655 97,869 148,0352pÊ4ß42J91 2,9jj,æ2A59 2JJ3ALOf,44 2J39-119259

AmortizedCost

29



The Bank holds corporate shares that amounted to B,1.2,225,694 (2015:B,1.1,924,029), whichare carried at their acquisition cost since the Bank was not able to reliably determine their fairvalue. The Bank conducts annual reviews to validate that the value of these securities andother financial assets have not suffered permanent impairment for which there is a need toadjust the value of the security and other financial asset. The equity shares, that are held atcost, do not have an active market and the entity does not intend to dispose them. During2016 the Bank acquired corporate shares that amounted to 8/.361 ,260 (2015. B,1.23,412), andhad sales for the amount of B/.59,595 (2015: 8i.2,035).

Securities Held-to-Matu rityThe portfolio of securities held-to-maturity amounted to 8i.59,458,802 (2015: B,1.70,429,832)less a valuation allowance of Bl .90,421 (2015 B,1.54,128), due to the permanent impairment ofsome securities.

Securities held-to-maturity are detailed as follows:

Local Corporate BondsBonds issued by the Republic of PanamaMortgage Backed Securities (MBS) and

CollateralizedMortgageObligations(CMOs) 21,513,340 22,775,665Asset Backed Securities (ABS) 284,632 260,439

Total 59,458-802 _09-002102

The movement of the valuation allowance for investment securitiesfollows:

2016Amortized Fair

Cost Value

1 1,329,535 10,750,30326,331,295 35,815,995

The payment of capital and interest of the 99% of portfolio of MBS held by the Bank isguaranteed lOQo/o by the following agencies: Government National Mortgage Association(GNMA), which is an agency of the Federal Government of the United States and counts onthe explicit guarantee of the same, Federal National Mortgage Association (FNMA) or FederalHome Loan Mortgage Association (FHLMC), who rely on AAA ratings provided by Moody'sand Fitch, on its counterparty debt. The guarantee and primary source of payment of the MBSguaranteed by the aforementioned agencies is a set of residential mortgages on houses thatmust fulfill policies of credit that are required by these programs. Similarly, B1o/o of the CMOportfolio of the Bank is guaranteed 10Qo/o by GNMA, FNMA or FHLMC.

The average life of the portfolio of MBS and CMOs is MBS 2.75 and CMOs 1.54 years (2015.MBS 2.50 and CMOs 1.45 years).

30

Balance at beginning of yearProvision registered to expenseBalance at end of year

2015AmoÉized Fair

Gost Value

13,278,601 11,807 ,71726,272,857 36,648,570

30,392,619 32,397 ,901485,755 480,703

70.429.832 8'1.334.891

held to maturity is as

2016

54,12836,293

_9pÆ1

2015

29,38624,74254,129



The Commercial Paper, Treasury Bills and Mutual Funds portfolio includes cash collateralaccounts for B,1.43.4 million (2015 B,1.28.7 million) that collateralize derivatives operations.

The Bank has in place a documented procedure for the establishment of fair value and theresponsibilities of the different areas involved in this process, which has been approved by theAssets and Liabilities Committee, Risk Committee of Board of Directors, and the Bank'sBoard of Directors.

Ïhe Bank uses price providers for most of the prices of assets and liabilities at fair value whichare processed by the department of Operations and validated by the area of management andcontrol of the treasury and risk department.

The Bank uses internal valuation methodologies for certain assets and liabilities at fair valueclassified in Level 3 of the fair value hierarchy. The calculation of fair values using internalmethodologies is performed by the area of administration and control of the treasury andvalidated by the risk department.

The lnternational Financial Reporting Standards (IFRS), for purposes of presentation of thefinancial statement, have established a fair value hierarchy that categorizes into three levelsthe variables used in valuation techniques to measure fair value. The hierarchy is based onthe transparency of the inputs used in measuring the fair values of financial assets andfinancial liabilities at their valuation date. The three levels are defined as follows:

Level 1: Inputs that are quoted market prices (unadjusted) in active markets accessible to theBank, for identical instruments.

Level 2: lnputs other than quoted prices included within Level 1 that are observable eitherdirectly (i.e. as prices) or indirectly (i.e derived from prices). This category includesinstruments valued using: quoted market prices in active markets for similar instruments;quoted prices for identical or similar instruments in markets that are considered less thanactive; or other valuation techniques in which all significant inputs are directly or indirectlyobservable from market data.

Level 3: lnputs that are unobservable. This category includes all instruments for which thevaluation technique includes inputs not based on observable data and the unobservableinputs have a significant effect on the instrument's valuation. This category includesinstruments that are valued based on quoted prices for similar instruments for whichsignificant unobservable adjustments or assumptions are required to reflect differencesbetween the instruments.

31



The classification of the valuation of fair value is determined on the basis of the lowest levelinput that is significant to the fair value measurement in its entirety. The relevance of avariable should be evaluated with respect to the entire fair value measurement.

Fair Value Measurement of Securities and Other Financial Assets at Fair Value throuoh Profif or Loss

Local Treasury BillsLocal Corporate Bonds and Fixed lncome FundsBonds issued by the Republic of PanamaLocal Corporate SharesBonds issued by US Government and AgenciesForeign Commercial Paper, Treasury Bills and Mutual

FundsMortgage Backed Securities (MBS) and Collateralized

Mortgage Obligations (CMOs)Asset Backed Securities (ABS)Foreign Fixed lncome FundsForeign Variable lncome Mutual Funds

Total

Local Treasury BillsLocal Corporate Bonds and Fixed lncome FundsBonds issued by the Republic of PanamaLocal Corporate SharesBonds issued by US Government and AgenciesForeign Commercial Paper, Treasury Bills and Mutual

FundsMortgage Backed Securities (MBS) and Collateralized

Mortgage Obligations (CMOs)Asset Backed Securities (ABS)Foreign Fixed lncome FundsForeign Variable lncome Mutual Funds

Total

2016

55,790,50363,332,1922,252,105

32,836,5699,130,926

362,178,703

499,067,1521 5,I 07,06950,939,913

35,088l-090-620¿20

2015

75,083,72462,899,988

2,721,91130,328,94613,443,399

279,000,422

445,641,1223,395,746

38,279,964718,095

951.äL3-317

Level 1

0000

9,130,926

111,169,887

0000

120,300s13

Level 1

0000

10,484,289

1 13,916,836

000

124'J91-125

Local Commercial Paper and Treasury BillsLocal Corporate Bonds and Fixed lncome FundsLocal BorrowingsBonds issued by the Republic of PanamaLocal Corporate SharesBonds issued by US Government and AgenciesForeign Commercial Paper and Treasury BillsMortgage Backed Securities (MBS) and Collateralized

Mortgage Obligations (CMOs)Asset Backed Securities (ABS)Foreign Corporate Bonds and Fixed lncome FundsBonds issued by Other GovernmentsForeign Variable lncome Mutual Funds

Total

Level 2

00

2,252,10500

251 ,008,816

498,163,4881 5,1 07,069

0911

766,532J!9

Level 2

Fair Value Measurement of Securities and Other Financial Assets Available for Sale

Level 3

55,790,50363,332,192

032,836,569

0

0

903,6640

50,939,91334.177

203É37J18

Level 3

75,083,72462,899,988

2,721,91130,328,946

0

0

00

38,279,964517,613

2L9ß32J4Ê

Level 3

14,087,508833,017,94543,633,760

03,669,013

00

00

9,06011,907,321

090ô324*602

0000

2,959,110

165,083,586

445,641,1223,395,746

0200.482

6az280-ù10

2016

14,087,508965,856,84143,633,760

106,019,9303,674,930

29,244,216191 ,693,062

907,094,03386,883,763

536,984,95877,415,652

27.8442,9ß2þ1ßAg7

32

Level I Level 2

000 132,838,896000 106,019,930

5,917 026,132,580 3,'111,636

5,777 ,O39 1 85,916,023

0 907,094,0330 86,883,7630 536,975,8980 65,508,3310 27.844

_31*gL5*536 2p24'3¿o'354



Local Commercial PaperLocal Corporate Bonds and Fixed lncome FundsLocal BorrowingsBonds issued by the Republic of PanamaLocal Corporate SharesBonds issued by US GovernmentForeign Commercial Paper and Treasury BillsMortgage Backed Securities (MBS) and Collateralized

Mortgage Obligations (CMOs)Asset Backed Securities (ABS)Foreign Corporate BondsForeign BorrowingsBonds issued by Other GovernmentsForeign Variable lncome Mutual Funds

Total

Fair Value Measurement of Securities and Other Financial Assets Available for Sale2015 Level 1 Level 2

9,624,515901,102,275

65,295,45293,697,100

3,660,15847,976,526

138,849,694

831,287,47342,082,397

491,411,007764,750

85,707,14128,227

2J1JA8ÊJI5

0000

5,21247,976,52610,920,800

000000

5BBO2J38

December 31,2015Gain recognized in incomeGain recognized in equityPurchasesAmortization, sales and redemptionsTransfer out of level 3December3l,2016

Total gains related to ínstruments held atDecember3l,2016

December 31,2014Loss recognized in incomeLoss recognized in equityPurchasesAmortization, sales and redemptionsDecember 31 ,20'15

Total losses related to instruments held atDecember 31,2015

Chanoes in the Fair Value Measurement of the Level 3 hierarchv

0117,852,265

093,697,100

00

127,928,894

831,287,47342,082,397

491,411,007764,750

73,161,70028,227

1-71ß21ißß

Level 3

9,624,515783,250,010

65,295,4520

3,654,94600

0000

12,545,4410

814.370'3ß4

lnvestment Securities andOther Financial Assets

Fair Valuethrough Profít

or Loss

209,832,1464,140,257

0156,815,076

(164,756,250)Q.194,211\

203S32J18

___3J3¡¿01

The Bank recogn¡zes transfers between levels of the fair value hierarchy as of the end of thereporting period during which the change has occurred.

During 2016, due to changes in valuation techniques using quoted market prices for localfixed income securities at fair value through profit or loss, there were transfers from level 3 to2 of the fair value hierarchy.

33

Available-for-Sale Total

874,370,364 1,094,202,51032,589 4,172,846

46,384,655 46,384,655120,348,721 277,163,797

(134,811,722) (2s9,567,972)0 (2.194,211)

906,324.602 lJ10J1_Ê1-625

--45rß8¡l-Z ---49224,518

1 55,649,969 776,451 ,791 932,1 01 ,760(5,723,460) (117,290) (5,840,750)

0 (19,057,580) (1e,057,580)289,953,347 323,276166 613,229,513

(230,047,710) (206.182.723\ (436,230,433)209-L32,149 __874J70JÊt 1*0&1,202*510

__rc*093¿äÐ J1¿90¿82Ð J240ø,084)



The table below sets out information about significant unobservable inputs used in measuringfinancial instruments categorized as Level 3 in the fair value hierarchy.

Significant Fair value measurementType of financial Valuation unobservable Range of estimates for sensitivity to

instruments technique input unobservable input unobservable inputs

Corporate Shares Dividend discount Equity risk Minimum 6.100/o Minimum 6.22% lf equity risk premiumsmodel and premium Maximum 8.35% Maximum 8.54% increase the price decreasesDividend model free and vice versacash flow (DCF)

Growth rate of Minimum (6.700/0) Minimum (8.65%) lf the growth increases theassets, Max¡mum 25.95% Maximum 46.820/o Price increases and viceliabilities, equity, versaprofits anddividends

Fixed lncome Discounted cash flow Credit spreads Minimum 0.78% Minimum 0.32% lf the credit spreads increaseMaximum 6.940/o Maximum 8.55% the price decreases and viceAverage 2.68% Average 4.15% versa

The main valuation techniques, assumptions and inputs used to measure the fair value offinancial instruments are as follows:

lnstrument Valuation technique lnputs Level

Local Fixed lncome Quoted prices in active markets Observable quoted prices 2-3

Discounted cash flows Benchmark interest rateLiquidity risk premiumsCredit spreads

Local Corporate Shares Quoted prices in active markets Quoted prices in active markets 1-3

Dividend discount model Benchmark interest rateDiscount free cash flows model, which are Equity risk premiumcompared with the stock prices Growth rate of assets, liabilities,

equity, profits and dividends

Fore¡gn Fixed lncome Quoted prices in active markets Quoted prices in active markets 1-2-3

Quoted prices in active markets for similar Observable quoted pricesinstruments

Bid and ask prices from market participants Prices from a broker

Discounted cash flows Credit spreadsBenchmark interest rateLiquidity risk premiums

Agency MBS / CMOs Discounted cash flows Features of collateral 2TBA's priceTreasury yieldYield curvesPrepayment speedsMarket analysis

2016 2015

34



Private MBS / CMOs and ABS Discounted cash flows Features of collateralTreasury yieldYield curvesExpected cash flow and lossesMarket assumptions related to

discount rates, prepayments,losses and recoveries

Foreign Corporate Shares Quoted prices in active markets Quoted prices in active markets

lnvestment vehicles Net asset value Net asset value

lnstrument

The Bank considers that its methodologies for valuation of the investment securities classifiedas level 3 are appropriate; however, the use of different estimates of the unobservablevariable could lead to different measurements of fair value. For investment securitiesclassified in level 3, adjustments in the credit spread (in the case of fixed income) and in theequity risk premium (in the case of the corporate shares) of +50bp and -50bp would result inthe following favorable and unfavorable impacts in the statement of income and in the equityof the Bank:

2016

Valuation technique

Fixed lncomeCorporate Shares

Total

lnputs

2015Fair Value Available for sale

Effect of profit or loss Effect in equitvFavorable (Unfavorable) Favorable (Unfavorable)

Fixed lncome 392,538 (437,645) 14,991,744 (14,936,511)Corporate Shares 2.266.684 (1 .891 ,172\ 65,894 (64,01 1)Total 2.659.222 Q32B-L1A 15"052-æe ß5*00!*522)

For investments and other financial assets pledged to secure repurchase agreements, seenote 13.

Level

2

Fair ValueEffect of profit or loss

Favorable (Unfavorable) Favorable (Unfavorable)

282,499 (277,728) 10,396,015 (12,269,321)2,259,800 (1,881,004) 65,522 (63,065)2-54229 AJ_58.732t LAAil*537 í2332386)

1

2-3

Available for saleEffect in equitv

35



l7l LoansThe composition of the loan portfolio is summarized as follows:

Local loans:Residential mortgagesPersonal, auto and credit cardsCommercial mortgagesLines of credit and commercial loanslnterim financingFinancial leases, netFactoring operations, netOther secured loansOverdrafts

Total local loans

Foreign loans:Residential mortgagesPersonal, auto and credit cardsCommercial mortgagesLines of credit and commercial loanslnterim financingOther secured loansOverdrafts

The movement of the allowance for loan

2016

3,405,347,4771 ,513,915,6911,644,394,0441,534,366,420

780,854,834123,196,450

1,691,079157 ,411 ,158

Totalforeign loansTotal

2015

3,043,017,2331,342,808,3491,502,431,5001,553,207,506

615,271,219109,896,105

1,924,017144,433,185154,071.044

8,466,960,158

229,542,17511,802,951

184,659,559707,569,46147,840,62038,966,94964,882.699

1,285,264,4129.752.224.570

Balance at beginning of yearProvision charged to expensesRecoveries of written-off loansLoans written-offBalance at end of year

The Bank's loan portfolio is composed 52% (2015: 51o/o) o't residential and commercialmortgage loans backed by residential units and commercial or industrial buildings.

9,317,246,172

251,639,94015,367,333

276,621,751825,717,596

017,310,71765 107.869

156 079 020

Æffilosses is summarized as follows:

2016

112,275,16445,532,12918,197,914

(47,087,839)128ß11-367_

2015

106,034,52529,236,51913,102,247

(36,0e8,127)112.275.164

36



The loan portfolio distributionreal estate and chattels, andis detailed as follows:

Mortgages on real estateChattel mortgagesDepositsOther guarantiesUnsecuredTotal

in accordance with the type of guarantee, mainly mortgages oncollaterals on deposits and securities and corporate guaranties,

2016 2015(in thousands)

For loans pledged to secure borrowings, see note 15.

The Bank recognized a tax credit that amounted to 8/.33,760,531 (2015: B/.31 ,705,944),originating from the annual benefit awarded when granting mortgage loans with preferentialinterest for the first fifteen (15) years of life of the loan.

This benefit is equivalent to the difference between the income that the Bank would haveearned from the mortgage loans had the Bank used the market reference interest rate in effectfor that year, and the interest income actually earned from each of the preferential mortgageloans.

Financial leases, NetThe balance of financial leases, net, and the maturity schedule of the minimum payments aresummarized as follows:

7,064,936738,067310,8653Q4,529

2,350.61310J69*01_0

Minimum payments up to 1 yearMinimum payments from 1 to 6 years

Total minimum paymentsLess unearned interestTotal financial leases, net

(8) lnvestments in AssociatesThe investments in associates are detailed as follows:

6,293,184651,504347,726299,603

2.160,207gJ_52_n4

Associates

Telered, S. A.Proyectos de lnfraestructura, S. A. Real estate investorsProcessing Center, S.A. Credit card processingFinancial Warehousing of Latin Administrator of trust fundsAmerica

37

Activitv

Processing of electronic transactions

2016

53,686,48284.472.954

138,159,436(14.972,986)123J€6350

2015

EquityParticipation2016 2015 2016

400/o 40% 6,784,6193go/o 38% 6,005,82349% 49% 3,692,259

38% 38% 2,107,8601'8é90"561

49,090,62474.222,930

123,313,554(13,417.449\

1_09É96J1_05

2015

6,707,2896,046,3662,946,936

1,693,3241z393gr-5



The summary of financial information of investments in associates is detailed as follows:

201 6

Associates

Telered, S. A.Proyectos de

lnfraestructura, S. A.Processing Center, S. A,F¡nancial Warehousing of

Latin America

Financiallnformation

Date

30-nov-201 6

31-dic-201630-nov-201 6

30-nov-201 6

Financ¡allnformation

Date

30-nov-201 5

3'1-dic-201530-nov-201 5

30-nov-201 5

Associates

Telered, S. A.Proyectos de

lnfraestructura, S. A.Processing Center, S. A.Financial Warehousing of

Latin America

Assets

39344J12

L5J42.5-36l.â.B_È3..23!.

_7*4ÆÆe

(9) Premises and Equ¡pmentPremises and equipment are summarized as follows:

L¡abilit¡es

1ß-52t*aß4 ?Z&llÂ88

-.-- -o 1þJ4ZllÉ

5,201_989 ß-qU-241

2.0A2.84i L_@É9:2

2015

LandCosl:

At beginning of year 36,142,044Additions 0Sales and disposals 0At end of year 36.142.044

Accumulated depreciationand amortization:At beginning of year 0Expense of the year o

Sales and disposal o

At end of yearNet balance 3ÊJ42.044

Assets

u-o23JA7

15,415Jt0l_3¿80339

lJí"4ß

Equitv

L¡abil¡ties

lncome

35.509572 L6*SA?30A

39nß47:_____âE=1gJ?2pþ3 J1-25L0.ld:

12 54J9z 2L3ßßß44

_ _0 1s,-415.1s6,JJß6-592 3*99X,47

2ßÊ5.ota J,4@419

Expenses

Equitv

20,16Licenses and lnternal

Buildinqs developmentproiects

Net Profit Equity(Loss) ParticiÞat¡on

9"þgg2 _4*0oo.z0z

3p2¿3-40 .--991,6ôZAÁ1tß42 238Êß72

æ¿as :@=JZ_6

Net Profit Equitylncome ExDenses (Loss) Part¡c¡pation

æBZZJqq 2i_026J22 6*eotur13 2"s&0,485

gar4Éll ,___,_ 66e 3,013.ô16 1,-L523ee12f,2&24a rcJ5O-8æ 2_571-4Zt 12ll_908

-3-142J31 JAA5,4A7 lß27_O94 _224_ùV

Cost:At beginning of yearAdditionsSales and disposalsAt end of year

Accumulated depreciationand amortization:At beginning of yearExpense of the yearSales and disposalAt end of year

Net balance

94,609,1 8634,137,841

0

128.747.027

25,469,4271 ,808,1 13

0

27.277.540101t6tu182

Buildinqs

69,963,70324,687,081

41,59894,609,1 86

23,684,9141,796,992

12,47925.469,42769J39J59

61,427,02620,517,7891 0,369,71471.575,101

Land

34,431 ,0431,719,029

8,02836,142,044

00

0

3ÊJA2þ44

Furniture andEquipment

89,067,6644,207,6653,924.768

89,350,561

57,933,3758,689,2793,923.792

62,698,86226-6t1-699

Furniture andEquipment

79,365,67613,725,5724,023,584

89,067,664

53,664,9648,275,4754.007,064

57,933,37531,r3L289

53,123,1045,827,390

10,366,37148,584.123

22p9ABZ8

20'|'5

Licenses

56,484,5824,942,444

0

61,427,026

48,122,1675,000,937

53,123.104_8J03*922

lmprovements

40,148,3271,767,8995,332.671

36.583,555

30,992,2642,636,2755.332,671

28,295,868_8287ßA7

lmprovements

39,247,9231 ,043,165

142,76140,148.327

29,296,3581,818,666

122.76030,992,264_9J56j63

Total

321,015,79560,631 ,1 9419.627,'t53

362.398,288

167,518,17018,961,05719.622.834

166,856,393195J41*895

Total

279,492,92746,117,2914.215,971

321.394,247

154,768,40316,892,0704,142,303

167,518,170153ß75ß7f

38



The Bank maintains, as part of the carrying value of Buildings, an amount of 8/"67,657,205(2015: B.1.34,295,586) related to expenditures of constructions in progress.

Some figures from 2015 were modified to serve as a comparative basis with the period 2016.

(10) Securities and Other Financial Assets Sold and Purchased Pending SettlementThe Bank recognizes each sale and purchase of financial instruments on a trade-date basis;the settlement of the transaction generally occurs within three to thirty working days followingthe trade date. The period between the trade date and the settlement date varies dependingon the type of financial instrument traded and the regulations in effect at the market where thenegotiation occurred.

Securities and other financial assets pending settlement amounted to 8/.365,660,394 (2015:B,1.253,987,600) for sales of securities and otherfinancial assets and 8/.490,615,466 (2A15:B,1.310,714,015) for purchases of securities and other financial assets.

(ll) Goodwilland lntangible Assets, netThe following table summarizes the goodwill generated from the acquisition of the followingentities:

Date of Yo

Companv acquisition Equitv Acquisition Balance

Banco General, S. A. March 2004 ProFuturo-Administradora de Fondosde Pensiones y Cesantías, S. A. 17% 679,018

Banco General, S. A. March 2005 BankBoston, N.A. - Panama (assets,deposits and certain bankingoperations) 1o0o/o 12,056,144

ProFuturo - Administradora de Fondos de March 2005 Purchase of trust fund for portfoliosPensiones y Cesantías, S. A. 10O% 861,615

Banco General, S. A. March 2007 Banco Continental de Panama, S. A.and subsidiaries (banking andfiduciary activities) 100% 27,494,722

4109t499

The movement of goodwill and intangible assets is summarized as follows:

201 6lntangible

Goodwill assets TotalCost:Balance at the beginning and end of year 41,Q91,499 47,462,084 88,553,583

Accum ulated amortizat¡on :

Balance at beginning of year 0 21,593,446 21,593,446Expense of the year 0 2,617,387 2,617,387Balance at the end of year 0 24,210.833 24,210,833Net balance at the end of year 4109l*499 æ-251251 64ß42J59

39

BANCO GENERAL, S.A. AND SUBSIDIARIES(Panama, Republic of Panama)


2015lntangible

Goodwill assets TotalCost:Balance at the beginning and end of year 41,091,499 47,462,084 88,553,583

Accumu lated amortization :

Balance at beginning of yearExpense of the yearBalance at the end of yearNet balance at the end of year

To test for impairment of goodwill or other intangible assets, a valuation of several assets(contracts, portfolios) or businesses acquired by the Bank is made annually to determine if therecoverable amount of an asset or business is greater than the carrying amount. ln assessingvalue in use, the Bank mainly uses a discounted future cash flows model or alternativevaluation models including multiples of earnings and equity, as the case may be.

No impairment losses on goodwill or intangibles assets were recognized during 2016. Thevaluation used by discounting the future cash flows generated for assets or businessesacquired resulted that the present value of these exceeds the carrying amount.

To carry out the valuation of assets and businesses acquired, expected net cash flows ofassets or businesses were projected for periods between six and ten years and include aperpetuity growth or multiple of cash flows at the end of the period were assigned to estimateterminal cash flow. The growth rates in assets or businesses fluctuate based on the nature ofeach, and the current range is between 0% and 10%, while the perpetual growth rate isbetween 0% and 5%.

o To determine the growth rates of assets or business reference growth, performance, andactual historical metrics of relevant assets or businesses, future prospects, anticipatedmacroeconomic growth of the country, business segments or evaluated business wereused, as well as the Bank's business plans and expected growth rates in general, as wellas for specific business evaluation.

o To calculate the present value of future cash flows and determine the value of the assetsor business being evaluated, the Bank's estimated average cost of capital was used as adiscount rate for the periods referred to, when the business unit is assessed by the Bank;when discounting cash flows of assets or units with a different profile than that of the Bank,the applicable cost of capital to that unit is used. The Bank's capital cost is based on theaverage interest rates of long-term AAA dollar instruments, the country risk premium andreturn premium applicable for capital investments. The cost of capital used fluctuatesbetween 10.3o/o and 2oo/o and changes over time.

0 18,976,059 18,976,0590 2,617,387 2,617,3870 21.593.446 21,593.446

4_L0e'L499 25*868*038 66*960J32

40



The key assumptions described above may change as economic and market conditionschange. The Bank estimates that reasonable possible changes under these assumptions donot affect the recoverable amount of the business units or decreases them below the carryingamount.

The amortization expense is presented in the consolidated statement of income as otherexpenses.

(121 Foreclosed Assets, NetThe Bank holds foreclosed assets, amounting to B.1.5,173,051 (2015:B,1.3,250,276), less areserve of Bl.1 ,300,482 (2015: 8/.697,688).

The movement of the reserve for foreclosed assets is summarized as follows:

2016 2015

Balance at beginning of yearProvisions charged to expensesReversal of provisionForeclosed assets soldBalance at end of year

(13) Securities sold under repurchase agreementsThe Bank held obligations from securities sold under repurchase agreements which amountedto B.1.273,299,978 (2015: 8/.238,006,349), with various maturities until January 2016 (2Q15.February 2016) at an annual interest rates between 0.95% and 1 .160/o (2015: between 0.610/oand 0.80%), the average interest rate of these securities was 1 .04o/o (2015: 0.68%). Thesesecurities were secured by investment securities for B.1.279,539,162 (2015.B,1.243,018,308).

(la) Other Financial Liabilities at Far Valueln the account of other liabilities, the Bank maintains financial liabilities of debt instruments atfair value arising from short sales in Mortgage Backed Securities (MBS) amounted toB,1.45,040,193 and Bonds issued by US Government amounted to B/.13,635,835, classified aslevel 2 in the fair value hierarchy (2015: MBS to B.1.87,447 ,202) and bonds issued by the USgovernment classified in Level 1 of the fair value hierarchy for the amount of B/.13,635,835(2015: Bi.0).

See the description of the main valuation methods, assumptions and variables used forestimating the fair value and levels of these liabilities in note 6.

697,688 666,314921,648 510,714

(169,048) (193,906)(149,806) (285,434)

l-30ft182 _692*688

41



(f 5) Borrowings and PlacementsThe Bank issued bonds payable and other borrowings, as follows:

Corporate bonds with maturities in 2016, at an interest rate of 3 monthLibor plus a margin

Corporate bonds with maturities in 2016, at an annual interest rate of4%

Corporate bonds with maturities in 2018, at an annual interest rate of1.6250/o, issued in CHF 180MM

Corporate bonds with maturities in 2018, at an annual interest rate of2.51%

Corporate bonds with maturities in 2019, at an annual interest rate of2.76%



Borrowing with maturity in 2016, at an interest rate of 3 and 6 monthLibor plus a margin

Borrowing with maturity in 2017, at an interest rate of 3, 6 and 12month Libor plus a margin



Borrowing with maturity in 2O2O, at an interest rate of 6 month Liborplus a margin

Borrowing with maturity in 2022, at an interest rate of 6 month Liborplus a margin



Borrowing under USAID (guarantor) program with maturity in 2025, ata fixed annual interest rale of 7 .650/o

Total borrowings and placements

2016

0

0

176,713,136

5,200,000

25,000,000

75,000

2,680,000

0

221,260,621

799,790,000

295,875,000

106,222,222

63,461,538

50,000,000

200,000,000

4,346,823

1*950*62L310

2015

3,000,000

37,965,000

179,692,726

0

0

75,000

0

415,244,384

111,683,487

600,590,000

60,000,000

108,000,000

75,000,000

0

0

4.681.217

ffi95t93r8l4

42



The funds obtained under the USAID Housing Program resulted from the Bank's participationin the Housing Program No.525-HG-013 with the Agency for lnternational Development of theUnited States of America (USAID), which involves the financing of low cost housing by foreigninvestors. These borrowings have a maturity of thirty (30) years, and a grace period of ten(10) years for repayment of principal. These borrowings are guaranteed by USAID. ln turn,the Bank must keep these borrowings secured by mortgage loans pledged on behalf ofUSAID that amounted to B.1.5,433,529 (2015: 8/.5,851 ,521), representing 1.25 times theamount of the borrowed funds.

The Bank is the residual beneficiary of the liquid assets of Banco General DPR FundingLimited, a special purpose entity, through which a funding operation was executed in 2012and two in 2016, collateralized with future cash flows of remittances received (MT103),amounted to B'1.100,000,000, B/.200,000,000 and B/.50,000,000 respectively. The Bank mustmaintain on Money Market deposit an amount equal to the next quarterly payment ofprincipal, interest and expenses, which is presented within the category of investments. Thebalance of the financing is B/.295,000,000 (2015: B/.60,000,000).

The borrowings detailed above was agreed to following term and type of fees: 7 years withcapital repayments from the second year and an interest rate of 3 month Libor plus a margin(2012),8 years with capital repayments from the third year and an interest fixed rate (2016)and 7 years with capital repayments from the second year and an interest rate of 3 monthLibor plus a margin (2016).

ln June 2014, the Bank issued bonds in the Swiss market for CHF 180,000,000 with a couponof 1.6250/o and a maturity date of June 18, 2018.

During 2015, the Bank obtained financing of B/.500,000,000 with a maturity period of threeyears, quarterly interest payments at a variable interest rate based on Libor 3 months plusmargin and capital payment at maturity. The loan was syndicated among commercial banks inthe United States, Asia, Middle East and Latin America.

During 2016, the Bank obtained midterm financing for the amount of 8/.206,000,000 withquarterly interest payments at a rate of 3 month Libor plus margin and principal payment atmaturity. These are syndicated loans among commercial banks of United States, Asia, MiddleEast and Latin America.

The Bank had no default events and is in compliance as to principal, interest or othercontractual clauses relating to its borrowings and placements.

43



(16) Perpetual BondsUnder Resolution No.366-08 of November 24, 2008, issued by the Superintendence ofSecurities Markets of the Republic of Panama, Banco General, S. A. is authorized to offerthrough Public Offering, Perpetual Bonds with a face value of up to 8i.250,000,000. Thebonds will be issued in nominative, registered form, with no coupons, in one series, indenominations of B/.10,000 and integral multiples of B/.1,000, with no specific maturity orredemption date. Also, they can be redeemed by the lssuer, at its discretion either totally orparlially, starting on the fifth year after the issuance date and at any interest payment day afterthat first redemption date. The bonds will earn a 6.5%o interest rate and the interest will bepaid quarterly. The Bank, under some circumstances described in the informative prospectus,may suspend interest payment without being considered in default. The bond's repayments issubordinated to all the existing and future preferential borrowings of the issuer, and are onlybacked by the general credit worthiness of Banco General, S. A.

The balance of perpetual bonds is B,1.217,680,000 (2015: B,1.217 ,680,000).

(17ì- Liabilities from Insurance OperationsLiabilities from insurance operations amounted to B/.14,956,842 (2015: 8i.13,968,238) andare comprised of unearned premiums and estimated insurance claims incurred. Themovement of the reserves for insurance operations is summarized as follows:

Unearned PremiumsBalance at beginning of yearlssued premiumsEarned premiumsBalance at end of year

Reinsurers participationUnearned premiums, net

lnsurance Claims lncurred, EstimatedBalance at beginning of yearlncurred claimsPaid claimsBalance at end of year

Reinsurer participationlnsurance claims incurred, net estimated

Total insurance claims reserves

2016

18,267,67436,1 64,1 89

ß6,294,157)18,137,706

(4,609.138)13,528.568

2,063,8956,548,105

(6,743,031)1,868,969

(440,695)1,428,274

14ß5Êß4

2015

16,617,13635,299,640

(33,649,102)18,267,674

(5,964,960)12,302,714

4,305,5997,677,737

(9,919,441)2,063,895

(398,371)1,665,524

13*908238

44

BA¡ICO GENERAL, S. A. AND SUBSIDIARIES(Panama, Republic of Panama)


(18) Concentration of Financial Assets and LiabilitiesThe geographical concentration of the most significant financial assets and liabilities is thefollowing:

Assets:Deposits with banks:

Demand depositsTime deposits

Securities and other financial assets at fair valuethrough profit or loss

Securities and other financial assets available-for-saleSecurities held-to-maturity, netLoans

Total

Liabilities:Deposits

DemandSavingTime

Securities sold under repurchase agreementsBorrowings and placementsPerpetual bondsOther liabilities/sold short securities

Total


Panama

8,799,034199,245,799

134,867,4811,135,413,190

37,660,8309.317.246,172

1o*833-232J06

2,498,265,6203,201 ,606,5424,853,727,027

0110,621,667217,680,000

0

rc-B4L900.856

_1272-8i1*0A

Assets:Deposits with banks:

Demand depositsTime deposits

Securities and other financial assets at fair valuethrough profit or loss

Securities and other financial assets available-for-saleSecurities held-to-maturity, netLoans

Total

Liabilities:Deposits

DemandSavingTime

Securities sold under repurchase agreementsBorrowings and placementsPerpetual bondsOther liabilities/sold short securities

Total


Latin Americaand the

Caribbean

78,747,1931,159,476

104,689,977204,753,557

01.451 .732,726I_B4L0B2_929

122,464,07367,224,631

290,735,0263,283,593

30,000,00000

s73J07'323

_Å2ç8295


Caribbean

56,520,953209,471

87,977,139239,205,377

01,285,013,501l_668_92tu141

120,075,57578,234,547

264,039,0300

10,000,00000

472349J52

_9955,814

201 6United States of

America andOthers

142,184,22181,963,479

851,112,7621,624,675,444

21 ,707,55131.380

2J21ß14ß37

18,880,49311,r96,8258,585,467

270,016,3851,810,002,673

058,676,028

2J11'357ß71

______________0

2015United States of

America andOthers

147,469,431113,996,586

711,411,6571,398,986,020

30,824,247250,911

2,492ßiA_852

12,685,8111 1 ,1 35,7989,378,090

238,006,3491,489,058,481

087.447.202

ß4aJ1J37

0

Total

229,730,448282,368,754

1,090,670,2202,964,842,191

59,368,3811 0,769,010,27815.39s,999272

2,639,61 0,1863,280,027,9985,153,047,520

273,299,9781,950,624,340

217,680,00058,676,028

te5z*900-050

tzgtJù5319

Panama

2,342,567192,314,483

152,124,5211,075,219,347

39,551,4578,466.960,1 5B

9_92BJr2é33

2,318,944,9303,025,513,7284,480,5r 6,101

096,873,333

217,680,000

1O;t3g52B-092

1J38.489-108

Total

206,332,951306,520,540

951,513,3172,713,410,744

70,375,7049,752.224.570

14ß00ß1fß2ç

2,451 ,706,3163,114,884,0734,753,533,221

238,006,3491,595,931,814

217,680,00087.447.202

12_459.588p75

_1J48444,922

45



(19) Segment lnformationThe Bank's management prepared the following segment information based on the bank'sbusinesses for its financial analysis:

Banking andfinancialactivities

lnterest and commission income 805,349,060lnterest and provision expenses 302,031,834Other income, net 123,723,620General and administrative expenses 228þ61 ,578Depreciationandamortizationexpense 18,698,044Equity participation in associates 8,040,022Net income before income tax 387,721 ,246lncome tax 45,034.812Net income --342ß86Ái4

Total assetsTotal liabilities

Banking andfinancialactivities

lnterest and commission income 722,890,335lnterest and provision expenses 250,204,419Other income, net 106,378,984Generalandadministrativeexpenses 216,517,413Depreciationandamortizationexpense 16,636,926Equity participation in associates 5,568,833Net income before income tax 351 ,479,394lncome tax 41 .735.747Net income ---399J43-ç47

201 6lnsurance Pension and

and retirement fundreinsurance management Eliminations Total

4,372,438 560,058 1,884,7210 0 1,884,721

18,334,074 10,658,862 8,8912,451 ,156 4,830,718 8,891

22,130 240,883 0000

20,233,226 6,147,319 02.223,653 1,455.271 0

lôp09J73 _4-692&19 ____________O

20ß-311A42 2J*981-925 l!7p53-O36:49249pl4 ___s85És3 _89340874

1S2S5A7L1ßÊ14ß2L2l.7-838

Total assetsTotal liabilities

The composition of the secondary segment based on geographical distribution is described asfollows:

2016

2015lnsurance Pension and

and retirement fundreinsurance manaqement Eliminations Total

Total income, netNonfinancial assets

0014,934,916 9,804,5962,222,354 4,825,996

26,396 228,74800

16,621 ,076 5,1 33,0681,676,078 1.155.470

_taß44ß98 _3*927J98

3,934,910

808,396,835300,147,113152,707,665235,934,561

18,961 ,0578.040.022

414,101,79148.713,736

__365388*055

1tuÍ5_BæJqL14.1q4032659

14ß9ß272-51_51iJ-1ß'¿94ß87

Total income, netNonfinancial assets

383,216

1&L136J00_45.089-986

1,399,7361,399,736

421421

00000

Panama

*-ß1ßA7fß2L__25iA92JlÊ

11-149.124 88j90S71 14j09,36?164__f92ß14 Z5j9Ê¡21 r3J-88*298*966

725,808,725248,804,6831 31 ,1 1 8,075223,565,342

16,892,0705,568,833

373,233,53844.567.295

__-?28_ô06243


Caribbean

_97-991]ß4_6J91-929

Panama

__7192srs05__213ß95J1ß

2015Latin America United States of

and the America andCaribbean Others

-99-213*631 ---4199OJ197__sj4tu138 _-____________0

United States ofAmerica and

Others

___13,665_317*____________!

46

Total

-9ß9J44ß22_259É84315

Total

_-B62J95.633_22!.eß62lj.



(20) EquityThe authorized share capital of Banco General, S. A. is represented by 10,000,000 shareswithout par value (2015 10,000,000 shares); of which there are 9,787,108 shares issued andoutstanding (2015. 9,787 ,108 shares).

The Bank maintains legal reserve amounting to B/.177,719,221 (2015.B,1.157,231,585), whichis detailed below by company:

Banco General, S. A.Finanzas Generales, S. A.General de Seguros, S. A.Banco General (Overseas), lnc.Banco General (Costa Rica), S. A.

Total

(2f ) Gain (Loss) on Financial Instruments, NetThe net gain (loss) on financial instruments included in the consolidatedsummarized as follows:

2016

Unrealized loss on securities and other financialassets

Unrealized gain on derivative instruments(Loss) gain on sale of securities and other financial

assetsRealized gain on derivative instruments

Total gain (loss) on financial instruments, net

Detail of gain (loss) on sale of securities and other financial assets, net is disclosed in Note 6.

(22) Other lncome, netOther income, net included in the consolidated income statement, is summarized as follows:

2016

134,215,433 115,755,1532,810,061 2,129,592

25,656,594 24,310,7079,480,047 9,490,0475,557.086 5,557,086

111_J1921 157-231,585

2015

DividendsForeign exchange fluctuations, netVarious banking servicesGain on sale of fixed assets, netFiduciary servicesOther income

Total other income, net

income statement is

2015

(2,034,700) (10,784,287)63,870 270,662

(1,039,357) 453,2097,648,834 5,979.3214-038t042 øJ8l_095)

2016

1,937,4513,358,0325,801,309

1 13,387162,134

6,707,29618.079.609

47

2015

1 ,706,8181,469,7759,098,679

86,950160,655

9,058,1 132l*580p90



(231 Personnel BenefitsContributions made by the Bank corresponding to associate benefits are recognized assalaries and other employee expenses in the consolidated statement of income.

Share-based Compensation PlanThe total options granted by the Bank to its key participant executives to purchase sharesfrom the controlling company of Grupo Financiero BG, S. A. is 472,Q00 (2015 : 472,000). Theoptions outstanding are 114,794 (2015. 147,850), which have an average exercise price ofB,1.72.18 (2Q15:B.1.65.20). The total expense relating to the options granted to theparticipants, based on their fair value, amounted to B.1.13,491 (2015. B,1.13,491). This plan willbe in effect up to the year 2021.

The balance of options granted by the Bank to its key participant executives to purchaseshares from Grupo Financiero BG, S. A. is 3,848,160 (2015: 3,723,395). The optionsoutstanding are 1,544,995 (2015. 1,618,363), which have an average exercise price ofB,1.51.32 (2015. 8/.50.07). The total expense relating to the options granted to theparticipants, based on their fair value, amounted to B/.1,450,598 (2015 B/.1,393,554). Thisplan will be in effect up to the year 2022.

Restricted Share PlanOn October2QlO, the Board of Directors of Grupo Financiero BG, S. A. approved to grant upto 325,000 common share of its authorized share capital in order to be awarded under theRestricted Share Plan for participants, which applies for the period 2010-2015. On December2016, the Board of Directors of Grupo Financiero BG, S. A. approved the plan's extensionuntil all restricted common shares are distributed.

The number of shares to be granted will be determined annually by the CompensationCommittee of the Board of Grupo Financiero BG, S. A. based on the performance of the Bankand the participants.

The shares to be conferred to the participants are awarded at the average price of the monthpreceding the grant quoted in the Stock Exchange of Panama.

Once vested the restricted shares, the participant may dispose of them as follows: 50% fromthe first year and 50% from the second year.

As the restricted share plan is a voluntary plan it may be discontinued by the Board ofDirectors of Grupo Financiero BG, S. A. at any time.

ln 2016, 45,834 (2015: 45,173) shares were granted under the restricted share plan andrecognized as an expense of B,1.2,916,252 (2015:B.1.2,836,201). The reconciliation of thebalance for these shares is as follows:

Shares at the beginning of yearShares issuedBalance at end of year

48

2016

82,528(45,834)36.694

2015

127,701(45,173)82.528



Retirement PlanThe Bank maintains a closed retirement plan, which was amended prior approval by theBoard of Directors in 1998, this plan is under independent administration by a fiduciary agent.

The contribution to the retirement plan was B/.134,568 (2015. 8i.134,568) and thedisbursements to former employees who are covered under the retirement plan amount toB/. 1 79,338 (2015: B/. 1 92,669).

(241 lncome Taxlncome tax returns of companies incorporated in the Republic of Panama, are subject toexamination by local tax authorities for the last three years.

ln accordance with current tax regulations, companies incorporated in Panama are exemptfrom income taxes on profits derived from foreign operations, interest earned on deposits withlocal banks and from investment securities issued by the Government of Panama and thesecurities listed with the Superintendence of Securities Market and traded through thePanama stock exchange and from loans to local government and its autonomous and semi-autonomous institutions.

Companies incorporated in the following jurisdictions are subject to income tax rates imposedby local tax authorities respectively:

The companies incorporated in Cayman lslands and British Virgin lslands are not subject tothe payment of income tax, due to the nature of their foreign operations.

The income tax is B,1.53,114,421 QA15.B.1.44,989,893) on a financial profit generated by thecompanies incorporated in the Republic of Panama 8/.357,806,370 (2015: B/.313,547,830).The average effective income tax rate for the year ended December 31,2016 was 15% (2015:14To). The income tax rate applicable according to current legislation in the Republic ofPanama is of 25o/o (2015. 25o/o) or the alternative calculation, whichever is greater.

lncome tax is detailed as follows:

Gountrv

PanamaCosta Rica

Estimated income taxPrior year income tax adjustmentsDeferred income tax

Tax rate

25o/o

30o/o

2016

53,333,200127,805

Ø,747,269)AßJI3J&

49

2015

45,337,923322,136

(1,092,764)44*567-295



The reconciliation between financial incomedetailed as follows:

Financial income before income taxForeign, exempt and non taxable income, netNon deductible costs and expensesNet taxable income

The income tax paid during 2016 was B,1.8,711,737 (2015:B.1.27,849,067).

The detail of deferred income tax asset and liability, recorded by the Bank, is as follows:

before income tax and net taxable income is

Deferred income tax - asset:Allowance for loan lossesAllowance for other real estate ownedFixed assets depreciationTotal deferred income tax - asset

Deferred income tax - liability:Allowance for losses on financial leasesAllowance for other real estate ownedFinancial lease operationsDeferred commission expenseTotal deferred income tax - liability

Based to the actual and projected results, management of the Bank and its subsidiariesconsiders that there will be sufficient taxable income to absorb the deferred taxes detailedabove.

(25) Commitments and Contingenciesln the normal course of business the Bank holds commitments and contingencies which arenot reflected in the consolidated statement of financial position that involve certain levels ofcredit and liquidity risks.

Guarantees issued on behalf of customers, letters of credit and promissory notes includecertain exposure to credit loss in the event of non-compliance by the customer, net ofcollateral guarantees securing these transactions. The Bank's policies and procedures toapprove these commitments are similar to those for extending loan facilities recorded withinthe Bank's assets.

ln the opinion of the Bank's management no losses will result from these commitments onbehalf of customers.

2016

357,806,370 313,547,830(232,356,433) (212,363,229)

87,007.746 78,774,972212.457.683 179.959.573

2015

2016

30,222,339 25,695,93658,519 55,317

0 (402.999)30280*85e 25ßÆ254

(515,085) (515,085)(5,688) (3,928)

3,743,247 3,636,263371.775 291,664

_3*æ424e _3J08p14

2015

50

BANCO GENERAL, S. A. A¡ID SUBSIDIARIES(Panama, Republic of Panama)


Off balance sheet commitments, by maturity are summarized as follows:

Letters of credit 197,666,761 30,614,005Financial guarantees 56,886,726 21,546,878Mortgage disbursement commitment 974,390,949 0

Total 1,228.944,436 52.160,883

Letters of credit 102,084,893 22,900,825Financialguarantees 59,159,754 2,108,824Mortgagedisbursementcommitment 962,190,626

rotal 1JXA3þAi 25*009*049

Credit Quality Analvsis of Commitments and ContingenciesThe table below presents information about the credit qualitycontingencies held by the Bank:

0-1vear

20161-5vears

Carrying amounl

0-1vear

Letters of creditGrade 1: StandardGrade 2: Special mentionGrade 3: Sub-standardGrade 4: DoubtfulGrade 5: LossGross amount

Financial guaranteesGrade 1: StandardGrade 2: Special mentionGrade 3: Sub-standardGrade 4: DoubtfulGrade 5: LossGross amount

Total

228,280,76678,433,604

974,390,9491.281.105.319

Maximum

20151-5

vears Total

124,985,71861,268,578

962,190,6261.148A4Aß22

Mortqaqe disbursement commitmentGrade 1: StandardGrade 2: Special mentionGrade 3: Sub-standardGrade 4: DoubtfulGrade 5: LossGross amount

2016

1.281,105,3't9

222,768,8134,443,460'1,068,493

00

22B2B9Jßø

78,055,585301,72176,298

00

_78*433,601

968,842,5003,442,5721,102,281

643,596360,000

974J90,949

of commitments and

2015

1,148.444.922

123,561,4341,424,284

000

124ß85J1ß

60,503,079601,601163,898

00

_612ô8"5Z8

956,153,3793,940,6971,407,670

631,89156,989

962J90*026

51



The Bank is not involved in any litigation that in management's opinion may result in amaterial adverse effect to the Bank, to its consolidated financial position or to its consolidatedfinancial performance.

(26) lnvestment Entities and Separate VehiclesThe Bank managed trust contracts at client's own risk which amounted to B,1.2,250,086,012(2015:B'1.2,144,371,984), and had the custody of securities in investment accounts at client'sown risk which amounted to 8/.8,946,364,598 (2015:B.1.7,944,855,873). Given the nature ofthese services, the Bank's management considers that there are no significant risksattributable to the Bank.

At December 31 , 2016 the Bank does not hold assets under discretionary management.

(27) Structured EntitiesThe table below describes the structured entity designed by the Bank:

Type of structuredentitv

- lnvestment funds

At December 31, 2016, the funds managed at client's own risk amount 8/.390,082 ,236 (2015:8/.359,758,773); income fees for administration and custody amount B,1.4,255,961 (2015.B.1.4,143,082), and are shown in Fees and other commissions in the consolidated statement ofincome.

The Bank has no contractual obligation to provide financial or other support to thisunconsolidated structured entity.

(28) Derivative Financial InstrumentsThe Bank uses interest rate swap contracts to reduce interest rate risk of both financial assetsand financial liabilities. The Bank reduces the credit risk of these contracts by using solidfinancial institutions as counterparties. These contracts are recorded in the consolidatedstatement of financial position at fair value using the fair value hedge or cash flow hedgemethod, in other assets and other liabilities.

For fixed income portfolios under management of third parties, the Bank sometimes makesuse of derivatives on fixed income instruments and currencies under preset limits andparameters. These derivatives are recorded at fair value in the consolidated statement offinancial position.

To offer an alternative to investors through a 13.49% (2015:14.10%)diversifìed portfolio while the capital ispreserved.

Nature and purposelnterest heldbv the Bank

52

BANCO GENERAL, S. A. AND SUBSID¡ARIES(Panama, Republic of Panama)


A summary of the maturities and accounting method of the interest rate swaps is as follows:

2016

Cash flowFair valueDerivatives for tradingTotal

Remaining maturityNotional Value

Up to More thanI vear 1 vear

1,250,000 100,000,0000 7,250,000

562.222,715 731,320.561562412J1_5 __838*570é61

Remaining maturityNotional Value

Up to More than

Cash flowFair valueDerivatives for tradingTotal

At December 31 , 2016, the Bank holds derivatives contracts with a notional value ofB,1.1,402,043,276 (2015: B,1.1,388,752,773), of which B.1.527,441,432 (2015: 8i.835,661,464)were managed by third part¡es. Of these derivatives managed by third part¡es,B.1.278,567,249 (2015: 8/.616,228,552) are ¡ntended to manage the duration and the interestrates risk of such portfolios.

The Bank recogn¡zed the amount of 8/.682,173 (2015: 8/.60,050), in the consolidatedstatement of changes in equity as a result of changes in fair values of hedging derivativefinancial instruments.

The net impact of the derivative instruments on the interest expense on borrowings in theconsolidated statement of income was Bi.(13,296) (2015: B/.79,818).

The three levels of fair value hierarchies for derivative instruments are defined as follows:

Fair Value Measurement of Derivatives

I vear 1 vear Total Assets

0 3,750,000 3,750,000 00 7,250,000 7,250,000 0

785.224.366 592.528.407 1.377.752.773 650,8817ß5Æ4,36ß ô03528.402 1ßßBJ52Jß ôå0*BB1

Total

101 ,250,0007,250,000

1,293.543,276ua2ß43Æ6

20,15

Assets

683,8710

2,905,8103Æ89-681

Fair Value

Liabilities

5611,314,209

28,497.48529.812.255

Financial assets at fair value through gain or lossFinancial liabilities at fair value through gain or

loss

Fair Value

Financial assets at fair value through gain or lossFinancial liabilities at fair value through gain or

loss

Liabilities

11,3811,615,952

24.O73.27425J00-ô02

2016

_3*189*ô81 _,_______!

æß12.255 ________!

Level 1

2015

___650É81

25J00.602

53

Level 2

Level 1

_3*589S81

æßi2255

Level 2

___650É81

Level 3

__________o

-______*,,0

Level 3

0

25JO0-607



The main valuation techniques, assumptions and inputs used to measure the fair value ofderivatives are as follows:

Derivative

Organized Market

Over the Counter (OTC) Discounted cash flow

See note 6, for the description of these levels.

(29) Fair Value of Financial lnstrumentsThe following assumptions, where practical, have been made by Management to estimate thefair value of financial assets and liabilities not measured at fair value:

(a) Securities and other financialassefsFor securities and others financial assets, the fair value measurement is determinedusing quoted prices in active markets, prices from a third party pricing service, broker,custodian, investment management companies and banks. ln addition, for some casesthe fair value measurement is determined using valuation techniques mainly discountedcash flows to the appropriate discount rate for that instrument. The main valuationtechniques are presented in note 6.

(b) Demand deposifs from customers/savings deposrïs from customers/securities so/d underag reements to rep u rch aseFor these financial instruments described above, the carrying value approximates theirfair value due to their short-term nature.

Valuation Technique

Quoted prices

lnputs Level

Observable quoted prices in 1-2active markets

Yield curves 2Yield foreign exchangeCredit spreadsVolatility

(c) LoansThe fair value of the loan portfolio was determined by discounting the future cash flowsat an interest rate that represents: (i) current market rates, and (ii) the future expectedinterest rates, for a term that takes into account the expected anticipated prepayments inthe loan portfolio.

(d) Time deposits from customers and banks/borrowings and placements/perpetual bondsThe fair value of these financial instruments was determined by discounting the futurecash flows at an interest rate that reflects: (i) current market rates, and (ii) the futureexpected interest rates, for a term that shows the remaining life of these instruments.

Fair value estimates are made at a specific date based on relevant market estimates andinformation about the financial instruments. These estimates do not reflect any premium ordiscount that could result from the offer to sell a specific financial instrument at a given date.These estimates are subjective in nature and involve uncertainties and significant judgment;therefore, these estimates cannot be determined with precision. Changes in the assumptionsor criteria could significantly affect the estimates.

54



The following table summarizes the carrying value and fair value of those significant financialassets and liabilities not presented on the Bank's consolidated statement of financial positionat fair value:

Assets:Time depositsSecurities held-to-maturity, netLoans, net

Liabilities:DepositsSecurities purchased under resellagreements, borrowings andplacements

The table below summarizes the fair value hierarchy of financial instrumentsmeasured at fair value on the Bank's consolidated statement of financial position

2016 Level I Level 2Assets:

Time depositsSecurities held-to-maturity, netLoans, net

Book Value

282,368,754 282,867,667 306,520,54059,368,381 69,602,402 70,375,704

10.604,581,826 10,593,456,350 9.607,858,038

11,072,685,704 1 1 ,084,86'1 ,769 10,320,523,610

2.441 ,604.318 2,396,934,326 2,051 ,6'18,16313,514¿90-022 1ÍMetZ96*O95 12372J41;]13

2016

Liabilities:DepositsSecurities sold

agreements,placements

Fair Value Book Value

Assets:Time depositsSecurities held{o-maturity, netLoans, net

Liabilities:DepositsSecurities sold under repurchaseagreements, borrowings andplacements

under repurchaseborrowings and

282,867,667 069,602,402 0

10.593,456,350 010gr5p2q49 _____________0

2015Fair Value

307,212,41681,334,891

9.621,735,38410*0l!28e6gtt

10,330,860,189

2.002.481.90412-3333t2.093

which are not:

Level 3

11,084,861,769 0

2,396,934,326 013.481.796.095 0

2015 Level I

307,212,416 081,334,891 0

9.621,735,384 010.010.282.691 0

10,330,860,189 0

See note 6, for the description of these levels.

058,852,099

0

*ô8É5¿099

282,867,66710,750,303

10,593,456,35010.945.926.419

2.002,481,904 0 2,002,481,90412J33342J93 __O ___________0 12J33342J93

____________o

Level 2

069,527,174

0

_69*527,114

0 11,084,861,769

2,396,934,32613*48'1290*095

Level 3

307,212,41611,807,717

9,621.735,384_9p40J50élz

55

0 10,330,860,189



(30) Financial lnstruments Risk ManagementA financial instrument is any contract that originates a financial asset in one enterprise and afinancial liability or equity instrument in another enterprise. The Bank's consolidatedstatement of financial position is primarily composed of financial instruments.

Financial instruments expose the Bank to various types of risks. The Bank's Board ofDirectors has approved a Risk Management Policy to identify each significant risk the Bank isexposed to. ln order to manage and monitor the several risks faced by the Bank, the Board ofDirectors has created the Credit Risk Committee of the Board of Directors, to oversee theliquidity, market, interest rate, exchange rate and counterparty risk. Likewise, the Board ofDirectors has established executive Committees, which are composed of key executives thatmonitor several risks faced by the Bank. These committees engage in prudently monitoring,controlling and managing these risks, by establishing policies and limits for each one of theserisks. There is also an Audit Committee, composed by members of the Bank's Board ofDirectors that oversees the establishment of appropriate internal controls for the presentationof the Bank's financial information.

The main risks identified by the Bank are credit, counter-party, market, liquidity and financing,operational and capital management risks which are described as follows:

(a) Credit Riskls the risk that the debtor or issuer of a financial asset owned by the Bank does not fullyand timely comply with any required payment, in conformity with terms and conditionsagreed upon when the respective financial asset was acquired or originated by the Bank.

To mitigate the credit risk, risk management policies establish limits by country, industry,and debtor. The Credit Committee appointed by the Board of Directors, periodicallywatches over the financial condition of debtors and issuers of financial instruments in theconsolidated statement of financial position of the Bank.

56

BANCO GENERAL, S. A. AND SUBSID¡ARIES(Panama, Republic of Panama)


Credit Qualitv AnalvsisThe table below sets out information about the credit quality of loans and the allowancefor impairmenVloss held by the Bank against those assets:

Loans2016 2015

(in thousands)Maximum exoosure

Carrying amountAt amortized cost

Grade 1: StandardGrade 2: Special mentionGrade 3: Sub-standardGrade 4: DoubtfulGrade 5: LossGross amountAllowance for impairmentUnearned commissionsNet carrying amount

Loans with reneqotiated termsGross carrying amountlmpaired amountAllowance for impairmentNet carrying amount

Grade 1

Total

1_0J09*ùt_0

10,299,349304,96290,00829,95144.740

10,769,010128,91735,511

10.604.582

92,02292,0226,673

____85349

Neither oast due nor imnaired

31 - 60 days61 - 90 days91 - 120 days121 - 180 daysïotal

Past due but not imoaired

9Jn224

9,415,507209,740

66,79130,59929,587

9,752,224112,27532,091

9.607.858

64,04164,0415,765

___58"n-ø

Grade2Grade 3Grade 4Grade 5Total

lndividualCollectiveTotal

lndividuallv impaired

Some figures from2015 were modified to serve as a comparative basis with the 2016period.

57

10,299,349'10.299.349

0000

________o

127,09750,323

9,03719,716

__20oll_3

12,524116,393

-12ßß11

Allowance for imoairment

9,4'15,0819-4t5p8_1

10710814467

____ 42ø

102,30332,013

7,1 89r6,659

__fiu€4

13,16299,1 1 3

_112"U5



The allowance for loan losses of the Bank includes B/.4,793,000 (2015: B/.3,098,000) tocover country risk, in its portfolio of foreign loans.

The aging of the loan portfolio delinquency is presented as follows:

2016Banco General,

S. A. Subsidiaries

CurrentFrom 31 to 90 daysMore than 90 days (capital or interest)More than 30 days past due (capital)

Total

CurrentFrom 31 to 90 daysMore than 90 days (capital or interest)More than 30 days past due (capital)

Total

9,436,285,262206,203,45192,885,501

6,855,7339.742.229.947

Banco General,S. A. Subsidiaries

1,018,866,9265,091,0722,922,333

0

8,519,087,477174,316,66972,420,384

8.703,835EJtAþ28ßß5

l*026J80331-

2015

10,455,152,188211,294,52395,707,834

6,855,7331BJ€É*019-Uß

Total

971,111,2924,645,1101,939,803

0wl*69ß_n5

Total

9,490,198,769178,961,77974,360,187

8,703,8359.752.224.570

58



The following table analyzes the credit quality of the investments and other financialassets and impairment reserves held by the Bank, excluding corporate shares andmutual funds for B/.38,800,125 (2015. B/.36,659,455), which are not subject to creditrisk:

Maximum exposureCarrying amount

At amortized costAAAAA+ tO ABBB+ tO BBB-BB to B-NRGross amountlmpairment amountNet carrying amount

Available for saleAAAAA+ to AA-BBB+ tO BBB-BB+BB to B-Less than B-NRCarrying amount

Fair value through profit or lossAAAAA+ to AA-BBB+ to BBB-BB+BB to B-Less than B-NRCarrying amount

lnvestment and OtherFinancial Assets

2016 2015

4.076.171.088 3.698.694.438

21,509,045 30,454,92798,390 189,631

28,860,560 29,364,2478,859,355 10,261 ,880

131,452 159.14759,458,802 70,429,832

90,421 54.12859,368,381 70,375.704

1,049,852,944 904,107,530414,646,715 355,376,07378,782,567 88,485,353

586,905,797 530,176,531225,828,105 232,486,300600,968,354 594,873,989

68,750 92,2941,860,491 2,200,260

2,958.913,723 2,707,798,330

The analysis has been based on the highest ratings assigned amongst Fitch Ratings lnc.,Moody's and Standard and Poor's. ln the case of local investments that do not have aninternational rating, the Bank uses an internal rating, which is consistent with internationalrisk ratings.

59

755,044,56044,350,28360,425,80168,559,189

1,555,86362,761,76263,812,401

657,678,66345,722,68632,313,90386,838,017

434,63754,374,82041,409,498

1,694,052920,466,2761,057,798,563

1.288.704



Time deposits with banksThe time deposits with banks are held with central banks and financial institutioncounterparties that are rated at least between AAA to BBB-, based on Standard & Poor's,Moody's and Fitch Ratings lnc. ratings, amount lo B,1.281,209,278 (2015. B/.306,520,540).

Factors of major influence in the credit risk of the Bank and the assumptions used for thisdisclosure are as follows:

. lmpairment of loans and investments and other financialassefs and deposits with banks:lmpairment of loans, investments and other financial assets and deposits with banks isdetermined by comparing the carrying value of the asset to its estimated recoverableamount. At December 31, 2016 the Bank has no impaired deposits.

o Unimpaired delinquent loans and investments and other financialassefs;Loans and investments and other financial assets that hold enough level of collateraland/or sources of repayment to cover the carrying value of such loan or investment andother financial asset are considered delinquent but not impaired, that is, with no lossesincurred.

. Resfructured loans:Restructured loans are those that due to deterioration in the borrower's financialposition, a significant variation in the original terms (balance, term, payment schedule,rate and guarantees) have been formally documented, due to material difficulties in thepayment capacity of the debtor, and the result of the assessment of their currentcondition does not permit their reclassification as standard.

. lmpairment reserves:The Bank has established reserves to cover losses incurred on loans and investmentsand other financial assets portfolios.

(a) LoansThe allowance for loan losses is calculated on an individual basis for loans that areindividually significant; and on a collective basis for loans that are not individuallysignificant, as well as for loans that present no impairment when assessedindividually.

(b) lnvestments and other financial assefsThe reserve for permanent impairment of investments carried at amortized cost iscalculated individually based on their fair value as established by the investment andother financial assets policies and credit risk of the Bank. ln the case of instrumentsavailable for sale, the estimated loss is calculated individually based on its marketvalue and I or individual analysis of the investment based on its estimated cashflows.

60



. Charge-off policy:The Bank periodically reviews its impaired corporate portfolio to identify those creditsthat are required to be charged off due to uncollectibility of the balance and up to theamount not covered by any collateral. For unsecured consumer loans, charge-offs arecarried out based on the accrued level of delinquency. ln the case of secured housingand consumer loans, the charge-off is recognized for the estimated portion of thecarrying value that is not covered by the loan collateral.

Collateral held and other credit enhancementsThe Bank holds collateral and other credit enhancements against certain of its creditexposures.

The table below sets out the principal types of collateral held against different types offinancial assets.

Loans

lnvestment and otherfinancial assets

Residential mortgage lendingThe table below stratify credit exposures from mortgage loans to retail customers by ranges ofloan-to-value ratio (Lrv). LTV is calculated as the ratio of the gross amount of the loan to thevalue of the collateral. The gross amounts exclude any impairment allowance. The value ofthe collateral for residential mortgage loans is based on the collateral value at origination, andgenerally it is not updated.

% of exposure that is subject tocollateral reouirements

2016

78.17%

53.22%

Residential mortgages loans:Less than 50%51o/o - 70o/o

71%o - 90o/o

More than 90%Total

2015

77.85%

52.21o/o

Tvpe of collateral

Cash, Properties,Equipment, and Others

Cash, Properties, andEquipment

2016

571,969,171860,189,430

1,749,600,611475,227,105

3.656.986.317

2015

509,098,431743,380,579

1,550,734,624469.345.774

3-U2-5594p8

61



Concentration of Credit RiskThe Bank monitors the credit risk concentration by sector and geographic location. Theanalysis of credit risk concentration is the following:

Concentration bv Sector:CorporateConsumerGovernment and Government Agencies 0Other Sectors 394,395

10,209*0'10

Geoqraphical Goncentration :

Panama 9,317 ,246 8,466,960 1,307 ,941 1,266,895Latin America and the Caribbean 1,451,733 1,285,013 309,444 327,183United States of America and Other 31 251 2.497,496 2.141,222

10J69Jl! 9-JA2.224 4Jl4,8u 3J35300

The geographic concentration of loans is based on the debtor's location, and location ofinvestments is based on the issuer's location.

(b) Counterpafty RiskIt is the risk that counterpady does not comply with the settlement of a purchase or saleof securities or other instruments traded in financial markets.

Risk management policies set counterparty limits that determine, at every moment, themaximum amount of net exposure of unsettled transactions that the Bank could havewith a counterparty. The Assets and Liabilities Committee is responsible for identifyingthose acceptable counterparties taking into consideration the counterparty's history withrespect to the fulfillment of obligations, as well as indications of its capability and positionto comply with their obligations.

(c) Market Riskls the risk that the value of a financial asset of the Bank is reduced as a result ofchanges in interest rates, foreign currency exchange rates, stock prices, and the impactof other financial variables that are out of the Bank's control.

Management of market risk:Policies and global limits of exposure to investments, provided in the lnvestment Manual,are established and approved by the Board of Directors of the Bank based on Assetsand Liabilities Committee's recommendation; they take into consideration the portfolioand the assets that comprise it.

Loans2016 2015

(in thousands)

5,186,8325,187,783

lnvestments and otherfinancial assets2016 2015(in thousands)

4,722,699 2,287,995 1,989,7594,628,764 0 0

0 1,826,886 1,745,541400,761 0 0

9J52_n4 4J14ß8L 3J35300

62



The Bank's investment policies provide for the compliance of limits by total amount ofthe investment portfolio, individual limits by type of asset, by institution, by issuer and/orissue and maximum term for portfolio; for each portfolio the instruments to be includedand their credit risk rating are specified.

ln addition, the Bank has established maximum limits for market risk losses in itsinvestment and other financial assets portfolio that may be caused by movements ininterest rates, credit risk and fluctuations in the market values of equity investments.

Currently, the investment policy of the Bank does not contemplate investments incommodities.

The Assets and Liabilities Committee approves the use of derivatives as part of itsstrategy to manage the financial assets and liabilities of the Bank. lt is the responsibilityof the Treasury Unit of the Bank, to carry out interest rate derivative transactions basedon the policies and approvals adopted by the Assets and Liabilities Committee as well asfuture monitoring to existing positions.

Exposure to market risk:The portfolio of trading securities of the Bank has the sole purpose of holding aninventory of securities to meet the demands of investment clients. lnvestment policies ofthe Bank do not comprise an investment portfolio with the purpose of generating short-term gains.

The composition and analysis of each type of market risk is presented as follows:

. Exchange rate risk:ls the risk that the value of a financial instrument fluctuates as a consequence offluctuations in foreign currency exchange rates, and other financial variables, as wellas the market participants' reactions to political and economic events. For purposesof accounting standards, this risk does not originate in financial instruments that arenon-monetary items, or in financial instruments denominated in the functionalcurrency.

Currently, foreign exchange exposure is low considering that the Bank's policy is notto hold foreign exchange position, unless their intention is to cover client's needs andthose arising from portfolios managed by third parties which have maximumexposure limits, according to those established by Bank's Board of Directors.

63



Exchange rate

AssetsCash and cash itemslnvestments and other

fìnancial assetsLoansOther assets

L¡abilit¡esDepositsObligations and placementsOther liabilit¡es

Net position

The table below sets out the Bank's maximum exposure to foreign currencies. Theassets and liabilities are presented at their carry¡ng amount, except derivatives whichare presented at their nominal value within other assets/other liabilities.

Costa Rican BritishEuros, colones, Pounds,

expressed expressed expressedin USD in USD in USD

1.05

52í ,858

37,628,6030

25.627.99863J78é5fr

00

64,440.38264,J49-382

__(661-923)

Euros,expressed

¡n USD

1.09

548.1 I

7,911,667

914,13112,695,7902.351.620

23*823208

'16,554,2406,075,920

95.405?2J25-565

JJ47-ç43

Costa RicanColones,

expressedin USD

531.94Exchange rate

AssetsCash and cash itemslnvestments and other

fìnancial assetsLoansOther assets

LiabilitiesDepositsObligations and placementsOther liab¡lities

Net position

1.23

287,808

14,097,1220

14,853.521MsBA5I

00

29.539,57123"5i9-571,

__{30r-120)

BritishPounds,

expressedin USD

1.47

2016Japanese Mexican

Yen, Pesos, cHF'

expressed expressed "il',Ë;Î'in USD in USD.

116.96

37,I I 5,056

13,252,328 50,892,59100

26.022.300 1.269.88076,389j84 _52J70-063

20.73

7.592

459,153 7 ,508,261

23,438,193 3,478,077 22,839,8550 14,772,115 0

27,640j50 2,158.898 24.944,3145l-534196 n*st-351 48-ü4-A7j.

0 I 9,969,1 56 00 5,870,339 0

52.124.230 72.019 48,263.20052J2423A 25ß11-514 4B-?ß2eA

_J586J34) j.995-Bia -J7t9ßA)

76,433.965 51,067.755_76-433-965 'il-AE7-7Ã5

___J442BI __l-l_02308

2015Japanese Mexican

Yen, Pesos,expressed expressed

¡n USD in USDi

1Z2.SO 17.21

1.O2

1,971 ,059

00

183,595,692185*566J51

0176,713,136

0fiß.aßßÊ

__8¿ffi-Êr5

CHF,expressed

in USD.

0.94

Othercurrencies,expressed

in USD. Total

00

00

126,121

00

13.289.972_13,41_6-093

00

18,265,845_1ßt?Â5ß45

t4-849f,_52)

Othercurrencies,expressed

¡n USD*

229p01 19,876

*Other currenc¡es include Australian Dollar, lndonesian Rupiah, Korean Won, Chinese Yuan,Taiwanese Dollar, Singapur Dollar, Philippine Peso, Soufh African Rand, Colombian Peso,Canadian Dollar, Guatemalan Quetzal, Russran Ruble and Brazilian Real.

During June 2014, the Bank issued a CHF 180,000,000 bond with a 1.61250/o o'f

coupon rate and maturity on June 18, 2018. ln order to hedge the risk of foreigncurrency exposure in Swiss Francs ("CHF") related with this issuance, the Bankentered into a future contract to purchase CHF 180,000,000 with settlement date onJune 18, 2018; this future contract is measured at its fair value in the consolidatedstatement of position with the fair value changes included in the consolidatedstatement of income.

64

47,941,161

116,784,77512,695,790

267,010,983444A32Jß9

16,554,240182,789,056239.842.923439J!6219

__5.246499

0 31,145,23100

5j26,070l-14!p4q ilJ52ß22

0 0 0 0 19,969,1560 0 179,692,725 0 185,563,064

7.663.074 31 .240,845 106,840 5,137.997 144.608.205_tÂß3Ã7A 31249ß4s 179J99,565 lJ3¿997 359J4p,¿2â

a5t-12Ð __JBZ92$ lÍL159!85 (4871*58$ -3J,52A22

7,691 24,420 166,412 8,415,714

2,096,652 0 82,998,0080 0 14,772,115

190,837,578 250,707.010192*951t650 _lÂL4U 356j92j47

Total



lnterest rate risk of the cash flows and the fair value:The interest rate risk of the cash flows and the interest rate risk on fair value are therisks of fluctuation of both the future cash flows and the value of a financialinstrument due to changes in market interest rates.

The net interest margin of the Bank may vary as a result of unanticipated movementsin interest rates.

ln order to mitigate this risk, the Bank's management has defined exposure limits tothe interest rate risk.

The table below summarizes the Bank's exposure based on the re-pricing terms ofthe interest rates of financial assets and liabilities:

Assets:Deposits w¡th banksSecurities and other f¡nancial

assetsLoansTotal

Liabilities:DepositsSecurities sold under

repurchased agreementsBorrowings, placements and

perpetual bondsTotal

Total interest sensibility gap

Up to3 months

183,258,283

1,206,383,40310.021.972,2191.1,4f*613-9!5

5,1 10,538,760

273,299,978

1.221.009.817__6-004*q48-ää5

_4-806J65-?50

Up to3 months

208,914,483

992,395,5729.1 01 .582.062

10302-8-92,117_

4,834,795,167

238,006,349

1.031,207.133,gx!3,a!9s49

,41.98-.883.468

From 3 to 6months

20,200,464

276,770,589306.192.221

,_6o3*rc927é

716,677,453

0

307.030.780L0æ*2q8233

1420-54495Ð

From 3 to 6months

29,696,1 31

1 93,897,776304.122.188

_s27-Zß_495

716,329,727

0

343,514.999L059*AL+726

{532-128-ù31)

Assets:Deposits with banksSecurities and other f¡nancial

assetsLoansTotal

Liabilities:Depos¡tsSecurities sold under

repurchased agreementsBorrowings, placements and

perpetual bondsTotal

Total interest sensibility gap

From 6 monthsto I vear

78,910,007

378,OO0,522153,972.637

__Â10.ee3Jqq

1,107 ,246,313

0

10.682.5161.111_92eAZ2

JéAZ*045$63)


67,909,926

333,068,506106.631 .865

_-592,419294

1,032,007,526

0

37 .170.1341_069*177*660

$$éa4lçq)

2016From 'l yearto

5 vears

0

1 ,1 90,1 27,608243,614,826

J4i3J,t2Æ4

2,165,177,530

0

299.628.8412*454ß!3'34

(1,031-0ô3,937)

2015From I year to

5 vears

ñ

1,229,798,602214,274.785

1,444,O73,387

1,849,299,497

0

1 81,292.036

Z,pglSgléAA

646"Í4,Í6)

From 5 to 10vears

0

664,342,90226,1 90.1 79

690.533-O8l

1,578,444

0

112.272.386

1fqq$Égs

5L6,542257

From 5 to l0vears

0

708,890,91 31 9,550,374

72A4!J*287

1,687,752

0

2.747.512_-a4352ß4

7ApX6p23

ln order to assess the interest rate risks and their impact on the fair value of financialassets and liabilities, the Bank's Management performs simulations to determine thesensibility on financial assets and liabilities.

More than l0vears

0

168,471,5161 7.068.1 9ô

185.5.X9J12

36,470

0

217,680.000

41tßÆA132J1ßJS8)

More than 10vears

0

111,230,1856,063.296

ttfzsxag1

262,596

217.680,000

-211ß42-59Ê

í_a0*ùr9,-1jr5)

Total

282,368,754

3,884,096,54010,769.010,278

v&?þÆ582

9,101,254,970

273,295,978

2.1 68.304.3404r.2ff59288

1392"ô102&{

Total

306,520,540

3,5ô9,281,5549.752.224,570

ß_62e*026*ô64

8,434,382,265

238,006,349

1 ,813,61 1 ,81410180_o0a-428,

_3J42*026"236

65



The Bank has defined a standard scenario for the management of interest rate risk andto monitor the sensitivity of the financial assets and liabilities. Standard scenarios thatare considered on a monthly basis include a 100 basis point (bp) parallelfall or rise in allyield curves. The following is an analysis of the Bank's sensitivity to an increase ordecrease in market interest rates.

Sensitivitv of the net interest income

At 31 DecemberAverage for the yearMaximum for the yearMinimum for the year


2016

6,251,1235,464,2996,351,3274,589,926

100bpincrease


(d) Liquidity and Financing Risk

Sensitivitv in nrofit or Iess for investment at fair value

2015 2016

100pbincrease

2016 2015

(18,705,750) (12,848,455)(14,124,829) (12,522,962)(18,705,750) (13,864,875)(11,870,686) (10,448,756)

6,135,0436,525,4667,423,2596,102,341

Consists in the risk that the Bank cannot meet all its obligations as a result of, amongother reasons, unexpected withdrawals of funds by depositors, the deterioration of thequality of the loan portfolio, the devaluation of securities, the excessive concentration ofliabilities in one padicular source, a gap between assets and liabilities, a shortage ofasset liquidity, or the mismatch of long-term asset financing with short{erm liabilities.

Liquidity risk management:Risk management policies establish a liquidity limit in order to determine the amount ofthe Bank's assets that should be maintained in highly liquid instruments; as well asfinancing limits, leverage limits and maturity limits.

100bpdecrease

(3,211,5'15) (3,612,703)(3,003,128) (4,937,264)(3,647,091) (6,03e,024)(2,174,662) (3,612,703)

2015

l00pbincrease

2016 2015

Sensitivitv in other comprehensive income

l00pbdecrease

2016 2015

14,479,150 10,206,7858,774,391 9,733,527

14,479,150 12,104,0175,425,189 7,209,894

(84,229,682) (78,295,630) 90,278,724 80,134,911(85,689,234) (76,145,244) 85,781,225 76,132,932(88,331,222) (79,122,090) 90,278,724 80,134,911(82,423,763) (70,836,083) 81,138,205 70,e50,412

l00pbdecrease

2016 2015

66



The Bank is exposed to daily calls on its available cash resources due to withdrawals ofdemand and savings deposits, maturity of time deposits and borrowings, draw downs onloans and guarantees.

Liquidity is monitored on a daily basis by the Treasury Unit of the Bank and simulationsof massive withdrawals are carried out periodically to determine the capacity of the Bankto deal with such crisis scenarios with the available liquidity levels. All policies andprocedures for liquidity management are subject to review and approval by the Assetsand Liabilities Committee.

The table below summarizes the Bank's assets and liabilities grouped by their residualmaturities with respect to the contractual maturity date:

Assets:Cash and cash itemsDeposits with banksSecur¡t¡es and other

f¡nancial assets, netLoans, netOther assetsTotal assets

Liabilities:DepositsSecurities sold under

repurchased agreementsBorrowings, placements

and perpetual bondsOther liabilit¡esTotal l¡ab¡lities

Net liquidity gap

2016Up to From 3 to 6 From 6 months From I year From 5 to 10 More than 10 W¡th no

3 months months to I vear to 5 vears vears vears Maturitv

255,676,459 0413,988,732 25,600,463

363,228,961 280,251,079 441,264,7871,157 ,660,477 967,642,600 1 ,145,203,515415,917.168 5.358.599 140.073.759

?*wÆ1;LW LU&ßþ2J41 1¿ss-052,06-a

6,428,214,225

273,299,978

113,802,126704,667.440

J"llgpqlJ9g

14*s13.511ß12)

Up to3 months

1 90,835,505415,247,434

400,359,2971J25,687 ,534

307,01 7,0332*443J4ô.8!3

6,076,574,661

238,006,349

1 00,035,908530.834.886

6j45.454-8!4

{4Þ02ê05,0!1)

Assets:Cash and cash itemsDeposits with banksSecurities and other

financial assets, netLoans, netOther assetsTotal assets

L¡abilit¡es:DepositsSecur¡tres sold under

repurchased agreementsBorrow¡ngs, placements

and perpetual bondsOther liabilltiesTotal l¡ab¡l¡t¡es

Net liquidity gap

0072,510,007 0

715,237,452

0

32,968,2812.756.786

_750*962-519

_^527-890,222

From 3 to 6months

032,346,131

180,431 ,813836,642,580

2.122,5461*051-e{í}J70

740,305,048

0

208,503,731322.461

94eJr1-,248

1023Í*e30

1,657,589,597 962,076,985 371,755,679 57,300,265 4,133,471,3536,524,745,909 566j94/97 243,134,828 0 10,604,581,826

'139,881 78.076 348.427.178 909,994.661

9,J9?Æ9.?91 =1JeeÉ49ÉÞC _6r4ie4'5!z _+0þJ4A43 16-415*823J01

1,109,897,905 2,817,721,208 1,578,444

000

129,524,471 1,537,818,371 1 36,51 I,091 0113.173.468 14.382.157 0 0

1.352J95Â{4 4.369*921¿X6 Æ ___3â47_A

_44ßA5Ê224 3il2-153-6å1 139026!-023. 614-85$37

00


0ô5,259,926

382,262,106955,803,41 0144.584.67 4

1*54ZgL0-tL6

00

201 5From 1 yearto 5 vears

00

1,558,683,4635,910,718,624

598.0307AL0-00uL17

Total

0 255,676,4590 512,099,202

ln management's opinion, there are in the investment portfolio of the Bank, highly liquidinvestments and other financial assets (with AAA to BBB- rating) for 8/.2,860,962,768(2015: B,1.2,395,941,044), that management estimates are readably convertible intocash, in a period no longer than a week.

67

36,470

0

1,028,038,722 2,473,654,831 1,687,752

000

227,602,791 1,039,659,179 20,130,20593.364.147 15.795,381 7.214.496

1-349*005*660 3-529-1O9J91 :29-ff¿443

-198.904J156 3*940*890.72ô 7-54a,L47,LL4

From 5 to 10 More than 10ygarg yc3!9.

0 11,072,685,704

0 273,299,978

217,680,000 2,168,304,340234.367 .786 1.069.347 .637

-L52,A47Jßâ 14,583.æ7*A59

{46,3203431 _1*8i2J85ß42

W¡th noMaturitv Total

0 190,835,5050 512,853,491

53,999,242 3,752,693,6800 9,607,858,038

284.087.049 745.126,750338,086,291 t4-809J67-464

0 10,320,523,610

1,007,865,769 169,091,990569,607,858 205,398,032

6.717.4181,577,473,627 3|ü.2A7449

00

00

262,596

0 0 238,006,349

0 217,680,000 1,813,611,8140 168,625.822 816,157.193

:Jo3,tgg .AqO-qAþ".822 $¿Qg¿99,999

33o.e{4,.844 (4C¿19JCU 1,621,06,8,498

BANCO GENERAL, S. A, AND SUBSIDIARIES(Panama, Republic of Panama)


Exposure to liquidity risk:The Bank uses the index of primary liquid assets to total deposits plus borrowings tomeasure and monitor its targeted liquidity levels. The primary liquid assets are definedas assets that may be exchanged into cash in a term equal or less than 90 days. TheBoard of Directors has approved that the following assets be classified as primaryliquidity: cash, cash items, deposits due from banks, securities purchased under resellagreements in which the underlying value is liquid and highly graded, mutual funds ofshort-term securities, US Government Treasury Bills, foreign commercial paper withminimum credit risk rating o'l A2lP2lF2 and liquid bonds and syndicated loans withminimum credit risk rating of BBB- and an active secondary market.

The liquidity index of the Bank, primary liquid assets to total deposits and borrowings,measured at the consolidated statement of financial position date, is detailed as follows:

At end of yearAverage for the yearMaximum for the yearMinimum for the year

(e) Operational RiskOperational risk is the risk that losses may occur due to failure or insufficiency ofcontrols in internal processes, persons and systems or external events. This definitionincludes the legal risk associated with these factors.

The Bank has designed a model of operational risk management under a decentralizedmanagement through risk managers in the areas.

The Operational Risk Management model, addresses within its key functions:o Definition of strategies and implementation of business continuity plans of the bank

critical processes. ldentification and assessment of risks. Report of incidents and loss events. Evaluation and followup of risk mitiganting actions. Assessment of the operational risk in the Bank's new initiativeso Continuous training

The following areas manage operational risk within their functions. Operational Risk Unit. Risk Management of lnformation Technology. lnformation Security. Prevention and Fraud Control. Corporate Security

2016

26.00%26.02%26.58o/o

25.66%

2015

2538%25.97%26.680/o25.38%

68



As part of the corporate governance model, strategy, methodology and monitoringactions plans defined to events and risks measured as critical and higher are reported tothe Executive Committee of Operational Risk and in turn to the Risk Committee of theBoard quarterly.

The lnternal Audit Department reviews and validates compliance with defined policiesand methodologies and that these follow the existing regulations, the results of thisreview are presented to the Corporate Audit Committee.

(f) CapitalManagementFor purposes of calculating the capital adequacy the Bank's capital is analyzed into twotiers based on the Basel Accord l: primary capital (Tier l) and secondary capital (Tier ll).The primary capital includes ordinary share capital, share premium, and retainedearnings. Primary capital is reduced by the amount of goodwill and other intangibleassets. The Bank's secondary capital consists of the reserve for loan losses up to 1.25o/o

of risk weighted assets and the Bank's subordinated debt.

According to the management's interpretation of the Basel Accord l, the capital ratiosrisk-weighted assets held by Bank are as follows:

Gapital ratiosTotal capital as a percentage of assets based on risk

weighted assets

Total Tier 1 as a percentage of assets based on riskweighted assets

2016

16.62%

13.90%

2015

16.66%

13.74%

69



The Bank presents the consolidated capital funds ofaccordance with the requirements of the Superintendenceare detailed as follows:

Regular Primary Capital (Tier 1)Common sharesLegal reserveOther items comprehensive incomeRetained earningsLess: goodwill and intangible assetsTotal

Additional Primary Capital (Tier 1)Subordinated debt - perpetual bondsTotalTotal primary capital

Secondary Capital (Tier 2)Subordinated debt - perpetual bondsTotal

Total capital

Risk-weighted assets

Capital ratiosTotal capitalTotal primary capital

its risk-weighted assets inof Banks of Panama, which

AgreementsNo.1-2015

(31) CriticalAccounting Estimates and Judgments in Applying Accounting PoliciesThe Bank's Management has made a number of estimates and assumptions relating to thereporting of assets, liabilities, results of operations, commitments and contingencies, based onhistorical experience and other factors, including expectations of future events that arebelieved to be reasonable under the circumstances. Changes in the assumptions or criteriacould significantly affect the estimates.

(a) lmpairmenf /osses on loans:The Bank reviews its loan portfolio at each consolidated statement of financial positiondate to determine if there is objective evidence of impairment in a loan or loan portfoliothat should be recognized in the results of the year.

The Bank makes its best judgment as to whether there is any observable data indicatingthat there is a measurable impairment in a loan portfolio using estimates based onhistorical loss experience for loans with similar characteristics at the moment offorecasting the future recoverable flows of these operations.

70

2016

500,000,000178,391,26432,286,812

1,121 ,179,809

No.5-2008

20'15

500,000,000158,231 ,585

_l-z6zÉ05J35

217,680,000217.680.000

_l*985J1€5J135

0

64.342.750

0988,541,512

_l*529*812p60

00

J5Z9Ér2p60

66.960.137

0

_l-985J€5J35 _1-lg-492-960

10,684,527,402 10,444,406,442

___2r7$80p00217.680.000

18.580/o18.58o/o

17.21%15.13%



(b) Fair value of derivative instruments:The fair value of derivative instruments that are not quoted in active markets aredetermined by using valuation techniques to determine their fair value.

Models are reviewed before they are used and are calibrated to ensure that outputsreflect actual data and comparative fair values of market prices of similar instruments.

To the extent where it is practical, models use only observable data as variables in themodel, although certain variables such as counterparty credit risk, volatility measuresand correlations require management to make some estimates.

(c) lmpairment of investment securities and other financialassefs:The Bank determines that investment securities and other financial assets are impairedwhen there has been a significant and prolonged decline in their fair value below its costor its rating was reduced below B+, there is payment default, bankruptcy, the debt hasbeen restructured or similar events that change in a material way, the original terms andconditions of instruments.

(d) GoodwillimpairmentThe Bank reviews the carrying amounts of its non-financial assets to determine whetherthere is any indication of impairment. Value in use is based on the estimated future cashflows, discounted to their present value using a pre{ax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to the asset.

(32) Major Applicable Laws and Regulations(a) Banking Law in the Republic of Panama

Banking operations are regulated and supervised by the Superintendence of Banks ofPanama, according to the procedures established by Executive Decree No.52 of April30, 2008, adopting the single text Decree Law g of February 26, 1998, as amended byDecree Law No. 2 of February 22, 2008, whereby establishing the banking system inPanama and creates the Superintendence of Banks and the rules that govern it.

Liquidity RatioThe percentage of liquidity ratio reported by Banco General S. A. to the regulator, underthe parameters of the Agreement No.4-2008, was 38.90% (2015: 37 .860/o).

CapitalAdequacyThe Law mandates general license banks to maintain a paid social capital or assignedcapital not lower than ten million balboas (B/.10,000,000) and capital funds of no lessthan 8% of its risk-weighted assets, including off balance sheet operations.

The Bank presents consolidated capital funds of its risk-weighted assets ofapproximately 18.58% in accordance with Agreements No.1-2015 and No.3-201 6 (2015:17.21o/o according Agreement No.5-2008), issued by Superintendence of Banks ofPanama.

71



Agreement No.1-2015 establishes applicable capital adequacy standards for banks andbank groups it came into effect on January 1,2016 Agreement No.3-2016 establishesstandards for determining risk-weighted assets by credit and counterparty risks cameinto effect on July 1, 2016.

Regulatory AllowancesThe accounting treatment for the recognition of losses on loans, investment securitiesand other real estate owned in conformity with prudential standards enacted by theSuperintendence of Banks of Panama, differs in some aspects from the accountingtreatment provided by lnternational Financial Reporting Standards, specifically IAS 39and IFRS 5. The Superintendence of Banks of Panama mandates that general licensebanks apply these prudential standards.

Loans and Loan AllowancesSpecific provisionsThe Agreement No.4-2013 indicates that specific reserves are originated when there isobjective evidence of impairment. Those provisions and their specific percentages mustbe created due to a credit risk classification under the following risk categories: specialmention 20%, substandard 50%, doubtful 80%, or unrecoverable 100o/o. They apply toboth individual loans and loan portfolios.

Banks must calculate and maintain, as a minimum, the specific reserves determined bythe criteria established in this Agreement at all times. The basis for reserve calculationis the difference between the amount of the loan classified in any of the categoriessubject to reserve, and the amount of the collateral mitigating any possible loss. Theweighted values for collateral are also detailed in this Agreement.

lf, under lnternational Financial Reporting Standards (IFRS), there is a surplus in thespecific reserve required by this Agreement, it will be registered in a regulatory reserveof equity credited to the retained earnings account. The regulatory reserve will not beconsidered capital funds for the purpose of the capital adequacy index, concentrationlimits for a sole borrower or related parties, or any other prudential relationshipmentioned in the Agreement.

The following table summarizes the classification of the loan portfolio and allowance forloan losses of Banco General, S.4., based on the Agreement No.4-2013:

201 6(in thousands)

Special Sub-Standard mention standard Doubtful Loss Total

Corporate loansConsumer loans

Total

Specific Reserve

4,508,858 '192,358 50,712 5,359 24,985 4,782,2724.909.824 108,364 38,115 24,110 19,045 5,099,4589*418.682 39L722 38-827 29-469 44*030 9*e81730

__________0 _23"551 J2283 12Æ8 _15J60 ___63*8B2

72




Total

Specific Reserve

Some figures from 2015 were modified toperiod.

SpecialStandard mention

According with the Agreement No.4-2013, loans whose payments of capital, interest orexpenses are more than 90 days in arrears from the date of required payment will beclassified as delinquent. Those days will be calculated from the date the bank is entitledto call in from the client on the date of noncompliance. Single-payment transactions andoverdrafts will be considered delinquent when the payment is over 30 days in arrearsfrom the date of payment.

At December 31, 2016, the balance of delinquent and past due loans by major category,based on the Agreement No.4-2013 is as follows:

2016(in thousands)

4,199,872 135,610 34,007 7,3674.385.412 71.019 31.506 22,729qé€ë¿q4 206-629 -65J13 30-096

_________0 J9.442

2015(in thousands)

Sub-standard Doubtful

1J.42 l*740 _1-92D ___49,89{

serve as a comparative basis with the 2016


Total

Loss Total

16,262 4,393,11812,758 4.523.42429ß2A 8$ß-542


Total

Furthermore, based on Agreement No.8-2014, recognition of interest income on thebasis of days late in paying principal and/or interest and the type of credit operation issuspended according to the following:

a) For consumer and business loans, if overdue more than 90 days, andb) To mortgage housing loans, if overdue more than 120 days.

Total loans of Banco General, S. A. in the state of non-accrual of interest isB,1.75,619,947 (2015 B,1.67,587,690). Total interest income not recognized on theseloans is B/.4,890,194 (2015: B/.3,768,927).

73

Current

4,738,540 15,678 28,054 4,782,2724,836,329 189,626 73,503 5,099,4589.574.869 205.304 101.557 9.881.730

2015(in thousands)

Gurrent Past Due Delinquent Total

4,353,182 18,452 21,484 4,393,1 1B

4,304,686 158,966 59.772 4.523,4248*052*868 1ll-418 '8-1-256 8-916*542

Past Due Delinquent



Dynamic ProvisionThe Agreement No.4-2013 indicates that the dynamic provision is a reserve provided toface possible future needs for specific provisions. They are governed by prudentialcriteria in the banking regulation. Dynamic reserves are established on a quarterlybasis, over the loans classified as normal.

The dynamic reserve is a capital account that is paid or credited to the retained earningsaccount. The credited balance of the dynamic reserve is part of the regulatory capital,but cannot be used in satisfying current or future capital adequacy requirementsestablished by this Superintendence. The balance of the Bank's dynamic reserve isdetailed as follows:

Banco General, S. A.Finanzas Generales, S. A.Banco General (Overseas), lnc.Banco General (Costa Rica), S. A.

Total

The current Agreement establishes that the dynamic reserve will not be lower than1.25o/o, nor greater than 2.50o/o of the risk-weighted asset applied to the loan facilitiesclassified as normal.

The calculation of the dynamic reserve is shown or follows:

Component IRisk-weighted assets (credit facilities-normal category)Multiplied by coefficient Alfa (1.50%)

Resuff

Component 2Quarterly variation in risk-weighted assetsMultiplied by coefficient Beta (5.00%)

Result

Less (more):Component 3The amount of the variation in the balance of specific

reserves during the quarter

Dynamic ReserveNegative variation between the current quarter vs

previous quarter dynamic reserve.Total dynamic reserve

Restrictions:The dynamic reserve cannot be less than 1.25% of the

risk-weighted assets on the loans classified under thenormal category

The dynamic reserve cannot be greater than 2.5% of therisk-weighted assets of the loans classified under thenormal category

74

2016

133,877,4762,810,0619,480,0474,580,865

150.748.449

2015

115,432,3252,128,5929,480,0474,580,865

131Æ1.82s

201 6

8,225,095,191

123.376,428

279,513,326

13,975,666

2015

7,089,204,992

106,338,075

206,397,584

10,319,879

3,476,405

133,875,689

16,872,760ß4J48A49

(9,493,892)

126,151,846

5,469,983131.621.829

102.813.690

205.627.380

__€8*615J62

177.230j25



Other Real Estate OwnedThe Agreement No.3-2009 enacted by the Superintendence of Banks of Panama,through which updates the provisions on transfer of immovable property, set at five (5)year period to dispose of real estate acquired in settlement of unpaid loans.

Other real estate owned is recognized at the lower of the carrying amount of theoutstanding loans or the estimated realizable value of the properties. The agreementprovides that the provision of foreclosed properties is gradually within the range of 10o/o

from the first year of enrollment up to 90% by the fifth year of award, through theestablishment of a reserve asset. The table below sets out the progressive provisioning:

Banco General, S. A. has other real estate owned of 8i.3,368,073 (2015: 8/.2,368,311)and a provision of B,1.572,Q31 (2015:B,1.544,094). The provision was estimated basedon Agreements No.1-2000 and No.3-2009 for B.1.234,074 and B,1.337,957 respectively(20 1 5. Bl .221, 266 a nd Bl .322,828 respectively).

Off Balance Sheet OperationsManagement has made the classification of off balance sheet operations and estimatedthe reserve requirement by Banco General, S. A. based on Agreement No.4-2013,enacted by the Superintendence of Banks of Panama, as shown below:

20'16(in thousands)

Years

FirstSecondïhirdFourthFifth

Minimum reservepercentaqe

1Qo/o

20o/o

35o/o

15%10o/o

Letters of creditBanking guarantee and promissory

notesTotal

Reserve required

Letters of creditBanking guarantee and promissory

notesTotal

Reserve required

SpecialStandard Mention

206,313

1,039,0391245ß52

0

4,443

Sub-Standard Doubtful Loss

3.461 1.102_7*994 _2J11

______0 ______o

2015(in thousands)

Standard

107,472

1,008,385Llrt5-857

____0

1,069

Special Sub-Mention Standard

0

644__644

0

1,424

3.941

-5J65

0

0 211,825

360 1.044,606___3ô0 1-25çA37

__*__0 ________0

0

1,408ll108

0

Total

75

Doubtful

0

632*__ßi2

0

Loss Total

0 108,896

575f

0

1,014,4231J233L9

0


Notes to the Consolidated Flnancial Statements

lnvestmentsBanco General, S. A. considered for the classification of its investment portfolio theAgreement No.7-2000, enacted by the Superintendence of Banks of Panama. lnaddition, Agreement No.7-2000 requires the establishment of provisions for possibleinvestment losses based on certain risk elements stipulated therein. The Bankmaintains a reserve for valuation of securities and the provisions to this reserve arepresented as provision expense in the consolidated statement of income.

(b) Banking Law in Costa RicaThe subsidiary Banco General (Costa Rica), S. A. is regulated by Act of NationalBanking System, Act of Costa Rica Central Bank, National Council of Financial SystemSupervision (CONASSIF) and General Superintendence of Financial lnstitutions(suGEF).

(c) Banking Law in Caiman lslandsThe operations of Banco General (Overseas), lnc. is regulated by the Bank andFiduciary lnstitutions law of May 15, 1989, which was last reformed on October 11,2013, issued by the Caiman lslands Government.

(d) Financing Companies LawThe operations of financing companies in the Republic of Panama are regulated by theOffice of Financial Entities of the Ministry of Commerce and lndustry according tolegislation established under Law No.42 of July 23, 2001.

(e) FinancialleasesLawThe operations of financial leases in Panama are regulated by the Office of FinancialEntities of the Ministry of Commerce and lndustry according to legislation establishedunder Law No.7 of July 10, 1990.

(f) lnsurance and Reinsurance Lawlnsurance and reinsurance operations in Panama are regulated by the Superintendenceof lnsurance and Reinsurance of Panama, according to legislation established under thelnsurance Law No.12 of April 3,2012 and Reinsurance Law No.63 of September 19,1 996.

(g) lnsurance Law in British Virgin lslandsThe operations of Commercial Re Overseas Limited are regulated by the insurance lawof the February 7 ,2008 promulgated by the British Virgin lslands legislature and bystatutory instrument 2009 No.62 denominated "2009 lnsurance Regulations".

(h) Securities LawBrokerage operations in Panama are regulated by the Superintendence of MarketSecurities according to legislation established in Law Decree No.1 of July 8, 1999 asreformed by Law No.67 of 1 of September, 2011.

76



The operations of the brokerage houses are regulated by to the Agreement No.4-2011,modified by any dispositions through the Agreement No.8-2013 and AgreementNo.3-2015, established by the Superintendence of Market Securities, which indicatesthat they are obliged to comply with capital adequacy rules and modalities.

(i) Fiduciary LawFiduciary operations in Panama are regulated by the Superintendence of Banksaccording to legislation established under Law No.1 of January 5, 1984.

77

banco general, s. a. gonsolidated financial statements 31,2016€¦ · (panama, republic of panama)...

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