Chapter

Panama

Author(s):
International Monetary Fund
Published Date:
June 1985
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Panorama of modern Panama

Courtesy Photo Library of Organization of American States

Financial System of Panama

Introduction

The milestones in Panama’s financial legislation are (i) the Monetary Convention of 1904,1 (ii) the enactment in 1904 of a law to establish the National Bank, (iii) two laws aimed at establishing a central bank (1913 and 1941), and (iv) two laws regulating the financial system (1941 and 1970).

Once a country elects a particular monetary system, this choice limits the list of financial policies available to the authorities as well as influencing the operations of its financial institutions. In Panama the choice of currency decisively influenced the nature of its financial system and set the parameters for the financial legislation that followed.

With the establishment of the Republic of Panama in 1903, one priority of the authorities was to furnish the country with a national currency. This meant substituting a new currency for the Colombian peso circulating at that time. Accordingly, the commissioners of the new Panamanian Government met with W. H. Taft, then U.S. Secretary of War and acting supervisor and director of the Isthmian Canal Commission, to discuss the matter. In a note addressed to the Special Fiscal Commissioners of the Republic of Panama, dated June 20, 1904, which was to give rise to the Monetary Convention of 1904, Mr. Taft said that:

The Isthmian Canal Commission … is vitally interested in the maintenance in the Canal Zone of a stable currency, based upon the gold standard.

I conceive it to be of common benefit to the Republic and to the Isthmian Canal Commission that the currency used in the Republic and in the Canal Zone should be the same.…

The note went on to specify, among other things, that:

Assuming that legislation will be enacted substantially to the foregoing effect, I agree on behalf of the Isthmian Canal Commission and by direction of the President of the United States:

First. That the Isthmian Canal Commission will make the gold and silver coins of the Republic of Panama legal tender within the Canal Zone, by appropriate legislation.

Second. That it will employ such gold and silver coin of the Republic in its disbursements in the Canal Zone and in the Republic, as the Canal Commission shall find practicable and convenient.

A week later, by Law No. 84 of June 28, 1904, Panama’s National Convention authorized the legal circulation of the gold U.S. dollar in the Republic and established for the new balboa a one to one parity with the U.S. gold dollar. In addition, this law provided for conditions to guide the issuance of silver coins and their gold guarantee. It also provided for the conversion of Colombian silver coins in circulation. Finally, it allowed the Executive to approve a monetary convention with the U.S. Government on the basis of this law and the stipulations of the Washington agreement of June 20. On December 6, 1904, the President of the Republic signed Decree No. 74 approving the Washington agreement. This decree set out limits on the issuance of silver coins and provided for a gold guarantee of them.

On the basis of the background just described, economic analysis leads to the conclusion that the U.S. dollar would inevitably take the place of Panamanian currency. Indeed, as the Panamanian authorities could only issue gold or silver currency, and the issuance of silver coinage had to be guaranteed by gold to be deposited in the United States, and as all coins had to be minted in the United States before they could be transported to Panama, the cost of issuing an independent Panamanian currency would have been substantial. It was more economical to use U.S. currency instead. As a result, while over the years several denominations of silver balboas were minted, U.S. dollar notes and coins have consistently furnished most of Panama’s circulating medium.

It can be argued, at least from a theoretical point of view, that this outcome may have been beneficial for the country. Indeed, the theory of optimum currency areas, in one of its versions, suggests that for a small open economy changes in exchange rates will operate only inefficiently, at best, to bring about external equilibrium. Panama, lacking a national currency, could not resort to this “suboptimal” adjustment policy.

In summary, the Monetary Convention may have had distinct advantages from an economic standpoint. Balanced against these considerations, however, is the corollary that the arrangements entered into afforded the monetary authorities little scope to pursue an independent monetary policy.

Structure of Banking System, 1903–40

With the matter of a national currency thus settled,2 for many years the authorities saw no need for a general law to regulate banking activities. 3 Since, during most of the period under consideration, the banking system consisted of only two government-owned banks and two foreign-owned banks, there was some justification for this view. Given the existing monetary system there was little the authorities could regulate effectively. As a result, they limited themselves to establishing a maximum interest rate policy (Law No. 4 of 1935) and to assuring the economic soundness of the government banks by requiring security for their loans and establishing quantitative limits on the amounts that they might lend to any one person or firm. In order to attract funds into the economy, the authorities facilitated the foreign operations of the banks by exempting foreign deposits from the legal reserve requirements applicable to local deposits.

National Bank of Panama

The first national financial institution in the country was established by the Government in June 1904. This was the Mortgage and Secured Loans Bank of the Republic (Banco Hipotecario y Prendario de la Republica). Since, at the time of its establishment, the country had not yet decided on the monetary system to follow, a mortgage bank was considered to be the safest type of institution to create, having in mind the possibility of default during a period of uncertainty and the consequential overriding need for good collateral. The bank was funded with local capital. Its operations were restricted by ceilings on interest rates that it could charge on its loans, as well as by a limit on the amount of credit that it could make available to any single borrower.

By Law No. 6 of 1911, the National Assembly renamed the Mortgage and Secured Loans Bank of the Republic the National Bank (Banco Nacional). It also doubled the bank’s capital to B 250,000 and increased the range of its operations. Now it was allowed to make loans for commercial and agricultural purposes. More important still, it was authorized to receive checking and savings deposits. Today the bank performs both public and private banking functions and also acts as a development bank. On the one hand, it is the depository of a portion of the legal reserves required of the commercial banks. On the other hand, it operates as a commercial bank itself. Despite the general growth of the banking sector, or perhaps because of it, the National Bank’s liabilities to the private sector have declined relatively. As a proportion of the banking system’s liabilities to the private sector, the National Bank’s liabilities declined from 38 per cent in 1950 to 15 per cent in 1970, and to only 10 per cent in 1980.4

Other financial institutions

The National Bank was not alone in the country. The International Banking Corporation (which would become the Citibank of New York) had been operating in Panama since 1904. Accordingly, when Law No. 45 of 1911 followed shortly after the enactment of Law No. 6 of 1911, its provisions, while dealing in the main with the National Bank, also went beyond in order to provide the authority for the Executive to audit and control other credit institutions as well.

Law No. 19 of 1913 authorized the establishment of the Bank of Panama (Banco de Panama). While some believe that the bank might eventually have evolved into a central bank, in the form in which it was proposed it could only have performed as a bank of issue carrying out few of the tasks generally assigned to a central bank. As envisaged in the law, the bank would have been a private company authorized to accept deposits from the public and to make commercial and mortgage loans. It would also have become the financial agent of the Government and would have been authorized to issue currency notes.

The Bank of Panama never opened its doors for business, which is not surprising given the manner in which its activities were to be hampered by restrictions and obligations imposed by Law No. 19. First, currency issued by the bank would not have been legal tender for all purposes. It would have carried this status only when given in payment of taxes or for the purchase of government property. Second, the bank would have been required to extend a permanent line of credit to the Government at a fixed interest rate. Third, the bank would have enjoyed no assurance of a monopoly on the issuance of currency. The Executive served notice that it had reserved the right to grant to other banks the same privileges that had been made available to the Bank of Panama.

Law No. 37 of 1917 enabled the Government to achieve some degree of control over the volume of credit. For the first time banks were required to hold reserve requirements against deposits. However, the law was promptly amended to exempt foreign deposits. The exemption may be interpreted as an effort by the authorities not to tax the foreign financing of the banks in order that they might attract foreign savings to finance domestic economic activity.

Several financial institutions catering to the needs of particular sectors of the economy were established in the 1920s. Thus, the National Bank for Agricultural Credit (Banco Nacional de Crédito Agrícola) was intended to service the agricultural sector, while the National Pawnshop (Monte de Piedad) was intended to make loans to low-income families. In the face of mounting liquidity problems, however, these financial institutions did not survive for very long.

Savings Bank

The national Savings Bank (Caja de Ahorros) was established in June 1934, when the world economy was still struggling to emerge from the Great Depression. Its operations were restricted to receiving savings deposits, and to making loans secured by first mortgages or other suitable forms of collateral. The maximum rate of interest it could charge was 6 per cent. Legal reserve requirements equivalent to 15 per cent of its deposits, as well as any cash that it required for its operations, would be deposited with the National Bank. As noted previously, these deposits reflect a practice that continues to this day, the effect of which is to bolster the liquidity position of the National Bank.

Subsequently, the Savings Bank’s law was modified, enabling it to hold up to 25 per cent of its deposits outside the National Bank, either in domestic or foreign banks, as long as such funds are related to lines of credit for its program of financing mortgage and construction credit.

Recognition of tightness in the credit market resulted in legislation that provided the banks with authority to raise their interest rates. Law No. 4 of 1935 not only increased the maximum rates that the banks might charge, but established differential ceilings: 7 per cent for commercial loans and 9 per cent for civil obligations. Refinement of regulation was not limited to loans. By Law No. 44 of 1938, a differential was introduced into the legal reserve requirements: 20 per cent for demand deposits and 10 per cent for time deposits.

With the improvement in the economy’s overall liquidity, it was decided to reduce the maximum interest rates that banks could charge on loans. Accordingly, Law No. 77 of 1941, which restructured both the National Bank and the Savings Bank, reduced the maximum interest rates on bank loans to 6 per cent thus eliminating the differentials that had been established in 1935. This law also reduced the reserve requirements that the Savings Bank had to hold with the National Bank.

The advent of World War II provided a boon to the Panamanian economy. Expenditures arising from mounting traffic through the Panama Canal and from the stationing of additional military personnel in the Canal Zone increased sharply. The resulting flow of funds into the Panamanian economy led both to an upturn in general economic activity and to a substantial increase in the liquidity of the banking system. This development in the monetary field was promptly reflected in new financial legislation.

First General Banking Law

Law No. 101 of 1941 was the first wide-ranging banking law introduced in Panama. In it the authorities sought to define banking operations and the nature of different types of banks that would be allowed to operate in the system. Accordingly, the law (a) enumerated which institutions would be considered banks; (b) established differential minimum capital requirements for the different types of banks—B 250,000 for commercial and savings banks and B 100,000 for mortgage banks; (c) provided a detailed list of operations allowed each type of bank; and (d) mandated that the banking system would be supervised by the Comptroller General’s office, whose duty would be to request specified information from the banks at least four times a year. The law did not provide for a panoply of monetary and credit policy instruments. Two instruments that did find inclusion in the law were differential reserve requirements and a local asset ratio. The latter required investment in local assets of a minimum proportion of a bank’s domestic deposit liabilities. Its purpose was to lock funds into the domestic economy. Since it was recognized that both the reserve requirement and the local asset ratio in effect operate so as to tax banking activity, provision was made for limiting their application.

If the success of a banking law were to be measured by the entry of new private banks in response to it, Law No. 101 could not be judged an unqualified success: the next two entries of banks into the system occurred in 1948 and 1955.

A second attempt was made to establish a rudimentary central bank. Decree Law No. 6 of 1941 authorized the creation of the Central Bank of Issue of the Republic of Panama (Banco Central de Emisión de la República de Panama). It was primarily intended to serve as a bank of issue. Several improvements over the earlier attempt were incorporated in the law. Thus, the currency would have unlimited legal tender, the costs of its issuance (as well as the administrative costs of the bank) would be borne by the Government and implicitly it would have a monopoly of the currency issue in Panama. Nevertheless, the strict cover requirements on currency issued were such as to eliminate the seigniorage, i.e., the profitability of issuing currency. In the end, this attempt proved no more successful than its forerunner.

Post-World War II Period: Emphasis on Economic Development

In the aftermath of World War II, the developed as well as the developing countries’ economic policies focused on economic growth. In Panama this was reflected in the establishment of a number of institutions to further the development of the economy. This drive reached its climax in 1953, with Law No. 3 establishing the Institute for Economic Development (Instituto de Fomento Economico). This institution, a sort of development bank, was funded with the assets of three banks: the Agricultural and Industrial Bank (established 1941), the Urbanization and Rehabilitation Bank (established 1946), and the Bank of the Central Provinces (established 1946). A subsidy from the Government was forthcoming.

The Institute was divided into three departments: the Commercial Banking Department, the Development Department, and the Rehabilitation Department. Its stated objective was to plan, increase, diversify and rationalize production and the national economy. To this end, it would devote its energies to all sectors of the economy and would provide banking services where its authorities found them unsatisfactory. Interest on its loans was made subject to a 6 per cent ceiling.

The broad range of duties assigned to the Institute burdened its administrative capability. Accordingly, when the National Bank was reorganized in 1956, jurisdiction over the Bank of the Central Provinces was transferred from the Institute to the National Bank. Subsequently, those functions deriving from the Urbanization and Rehabilitation Bank were transferred to the Institute for Housing and Urban Development (Instituto de Vivienda y Urbanismo) and the industrial promotional functions were transferred to the Ministry of Agriculture, Commerce, and Industry. The remaining agricultural functions were split between the Bank for Agricultural Development (Banco de Desarrollo Agropecuario) and the Institute for Agricultural Marketing (Instituto de Mercadeo Agropecuario).

Expansion and Diversification of Financial System: 1960–69

The decade that began in 1960 was characterized by acceleration in the growth rate of the economy sustained in part by increasing inflows of foreign capital. These flows originated mainly from the international financial institutions. The Inter-American Development Bank was the pioneering institution and others soon followed. The surge in financial activity brought in its wake a substantial increase in the number of banks. The entry of 12 banks, representing an increase of 200 per cent in this period, gave a clear indication of the rapid development of the financial sector.

Rapid expansion of the economy, in turn, produced an increase in the demand for credit that exceeded the supply of funds. The excess demand for credit found recognition in two different ways: (i) through an adjustment in the interest rate structure as well as (ii) in the establishment of new institutions specially designed to handle the credit problems of particular sectors of the economy.

In order to increase the flow of funds into the banking system, interest rates were allowed to rise on deposits as well as on loans. Banks made both savings and time deposits more attractive by offering preferential interest rates and, for the first time, began to tap a different class of savings by offering a new instrument, the certificate of deposit. The National Bank was authorized, in 1962, to increase to 9 per cent the interest rate on its loans.

The demand for credit originated principally in two different sectors of the economy. One sector was composed of low-income recipients; the other, the burgeoning construction industry. New legislation was the response to the needs of both sectors.

By Law No. 88 of 1960 the Bank for Popular Credit (Banco de Crédito Popular) was established to make loans to low-income families. This group had perhaps suffered most by the general nonobservance of the maximum interest rates that had been mandated by the usury law (Law No. 4 of 1935). Henceforth, they would have an independent source of funds until the absorption of this bank by the National Bank.

The period under consideration was marked by an impressive boom in construction. The construction industry had traditionally been financed by government institutions such as the Savings Bank, the Social Security Fund (Caja de Seguro Social), and the Institute for Housing and Urban Development. Meanwhile private purchasers of homes started to utilize the newly established savings and loan associations to finance their acquisitions. In order to deal with the problems associated with the financing of new construction, it was now thought propitious to introduce legislation that would facilitate the granting and holding of mortgages while simultaneously extending a measure of government supervision to the activities of the savings and loan associations.

Law No. 50 of 1963 established the Institute for the Promotion of Insured Mortgages (Instituto de Fomento de Hipotecas Aseguradas). To encourage mortgage lending and to widen the market for mortgages, the Institute was authorized to insure loans secured by eligible mortgages. In addition, the Institute was authorized to grant loans to savings and loan associations, to request information on their activities, and to levy a 10 per cent legal reserve requirement on their liabilities to the private sector. When the Institute was reorganized in 1965 by Decree Law No. 14, the interest rate ceiling on its loans to savings and loan associations was raised from 7 to 9 per cent in recognition of the general increase in interest rates. Subsequently it became the National Mortgage Bank (Banco Hipotecario Nacional).

It is convenient for purposes of analysis to study the growth in the banking system by dividing the decade into two periods. The first period, from 1960 through 1963, saw the entry into the system of only one new bank. In contrast, the remaining period between 1964 and 1970 registered the entry of 11 new banks, representing a large increase when it is recalled that in the preceding 60 years only 7 banks in all had been established.

It may be significant that the second period of growth in the banking system occurred after the resolution of a political crisis in 1964, which, among other things, had resulted in a run on the banking system. Once the differences between Panama and the United States over the Canal Zone had subsided, the U.S. Agency for International Development (aid) announced plans to establish a private development bank. The Industrial Development Company (Desarrollo Industrial S.A.) was inaugurated with capital of B 11.6 million, of which B 9.6 million was provided by the aid, while the remainder was raised through the issuance of shares on the domestic market. As a symbol of understanding between the two countries, the creation of this institution may well have contributed to a climate of confidence that ushered in the ensuing expansion of the banking system.

The rapid expansion of the banking system impressed upon the authorities the need to establish an appropriate legal framework and the requisite institutions to guarantee the smooth functioning of the system. One step in this direction was for the authorities to assume responsibility for providing the clearinghouse services which had previously been supplied by the banks themselves. This step was taken in 1967 by Decree Law No. 157. Of greater importance were the consultations carried out by the authorities in the late 1960s centering on the reform and improvement of the existing banking legislation. Those consulted included not only the private banks but also banking experts provided by the International Monetary Fund. These efforts were crowned in July 1970 by the issuance of Cabinet Decree No. 238, which reformed the banking system and established the National Banking Commission.5

Cabinet Decree No. 238 of 1970

The National Banking Commission was initially established as an agency of the Ministry of Finance and Treasury, but subsequently became an adjunct of the Ministry of Planning and Economic Policy. Its objectives are twofold: (a) to ensure the soundness and efficiency of the banking system so as to promote conditions conducive to stability and growth in the national economy, and (b) to foster conditions favorable to the development of Panama as an international financial center. The Commission is composed of seven members. Three members are from the official sector, namely, the Minister of Finance and Treasury (chairman), the General Manager of the National Bank, and the Director General of the Planning and Administration Department. Four members are appointed by the Executive Branch from the private sector. Of these, three must be bank representatives of Panamanian nationality selected from among candidates proposed by the Banking Association, while the fourth must not be a bank official. The importance of this composition of the Commission cannot be underestimated in underscoring the cooperation with the private banking sector upon which the system is premised. A quorum comprises five commissioners. While it is provided that most decisions are to be adopted by simple majority, the law specifies a number of important occasions when a higher majority is required. The tenure of the commissioners is secure insofar as they can be removed only for the specific causes stated in the law and, then, only at the request of five of their colleagues.

The Commission is empowered to consider and grant applications for licenses to engage in banking business. It must act on an application within 90 days of its receipt and, in the event of refusal, must state its reasons therefor. It has power to cancel licenses, to rule on mergers and consolidations, and to take possession of a bank in certain stated circumstances. The latter power, which must be exercised only with the affirmative vote of five commissioners, may be invoked in respect of a bank that is in unsound condition or whose business is being conducted unlawfully, or that has refused to submit the required accounting records or has obstructed inspection by the Commission. The law provides that, generally, the only appeal that may be taken against resolutions of the Commission must be one for reconsideration by the Commission itself.

Three classes of licenses are issued by the Commission. The first type is a general license which may be issued to banks organized abroad that wish to do banking business in Panama and to banks organized in Panama that wish to do banking business there and abroad. The second type of license is issued to banks organized in Panama that confine their activities to transactions abroad. Finally, a third type of license is granted to banks organized under foreign law that permits them to establish representative offices in Panama. Once licensed, a bank may open a new branch without prior authorization from the Commission but such authorization is required before it closes one or changes its location.

The class of license that a bank is granted determines which of the provisions of the law are applicable to it. In this way a division is made between banks that carry on banking business in Panama, to which strict provisions apply, and those that confine their activities to transactions abroad, which are largely exempt from the substantive provisions of the Decree. Another basic distinction that runs through the law for the same reason is that between local deposits and foreign deposits, the former being the subject of a number of monetary instruments which, by their terms, exempt the latter. It is clear from these divisions, that the authorities sought to bifurcate the law in order to promote both objectives of the Commission. On the one hand, the development of Panama as an international financial center would be fostered by permitting wide latitude of operation for banks that confined their activities to external transactions. On the other hand, the Commission would strive to promote the inherent soundness of the domestic banking system. It should be noted that the two goals do not necessarily conflict. In view of Panama’s dependence on a foreign currency, promotion of the first objective operates to attract funds needed from abroad which may then find their way into the domestic economy, thereby ensuring the availability of a source of currency and credit.

One example of the division between domestic and international regulations may be seen in the capital requirements. While banks engaging in banking business in Panama (general license) must have paid-up capital of B 1 million, those banks organized under Panamanian law that engage exclusively in banking business abroad (international license) are required to have a much smaller capital of only B 250,000. It should be noted that the law does not require a foreign banking applicant to organize a subsidiary corporation under Panamanian law. That applicant may, if it prefers, choose to conduct its business in Panama through a branch of its home office. However, if the latter option is selected, the applicant will not find a financial saving in the amount of initial funds that it will have to bring into the country. The law postulates a concept of “assigned capital” for the branch that is required to be kept equal in amount to the capital stock that would be required of a subsidiary. It should be further noted in this connection that, in addition to the initial capital required on the occasion of the establishment of a new bank, the law also mandates the maintenance of a capital reserve fund which, together with the amount of the capital, must not fall below 5 per cent of earning assets. The capital cushion is thus expected to grow in proportion to the growth of the bank.

The difference between domestic and foreign operations finds expression in the provisions governing the collection and payment of interest. The law first exempts banks from the rigid and outdated ceiling of the usury law (Law No. 4 of 1935). It then, by implication, distinguishes between local loans and credit facilities, on the one hand, which cover funds used or invested within the country, and those that are used or invested abroad. The latter are freely allowed to mirror the rates prevailing on the international markets so as not to work a competitive disadvantage on banks established in Panama that operate abroad, compared with banks operating in the same markets from bases outside Panama. As for local loans and credit facilities, in practice, these too are allowed to reflect the international rates so that funds may be attracted for use in Panama from abroad. Nevertheless, the interest rate that may be charged on local loans and funds may be regulated, but only if five members of the National Banking Commission vote in favor of such regulation.

Even as the law distinguishes between interest chargeable by banks on local, as opposed to foreign, loans and credit, it sets up an analogous distinction in respect of deposits. While the law expressly permits banks to pay interest at such rates as they may elect on both foreign deposits and on local time deposits, it expressly forbids the payment of interest on local sight deposits. Provision is made with the affirmative vote of five members of the National Banking Commission to permit the establishment of ceilings on interest payable in respect of savings deposits, and these ceilings shall establish a differential of not less than 1 percentage point in favor of rates payable by mortgage banks in order to assure such banks of an adequate source of funds.

A requirement that banks maintain a legal reserve may be justified on two grounds. On the one hand, if flexible, it provides the monetary authorities with an instrument to regulate credit. On the other hand, it may operate as a security for depositors. An undesirable consequence of such a requirement is that assets complying with the requirement are unlikely to earn as high a yield as they would if employed in the ordinary credit operations of the banks. Under the law, the National Banking Commission is authorized to vary the requirements between 5 and 25 per cent of total local deposits, differentiating, if it chooses to do so, between different categories of these deposits. Foreign deposits are not subject to the requirement. Inasmuch as they are thus exempt from the “economic tax” that is required of local deposits, their free flow into Panama is encouraged. Not less than 30 per cent of the legal reserve must consist of vault cash in the tills of the banks. This requirement attempts to assure that each bank has on hand the requisite cash in the absence of a central bank issuing its own currency that might otherwise serve as a lender of last resort. The remainder of the legal reserve requirement must be held as sight deposits with the National Bank or in the form of short-term treasury bills. A different composition for the remainder may be prescribed on the affirmative vote of five members of the National Banking Commission.

One way of ensuring that domestic savings will be employed in the domestic economy is to set up a local assets ratio. This instrument has been incorporated into the law, its application being limited only to local deposits. In accordance with the appropriate provision, the National Banking Commission is authorized to prescribe the percentage of local deposits that must be held by banks in the form of assets in Panama.

As previously indicated, the National Banking Commission is authorized to set differentials in the interest rates that may be paid on savings deposits in order to encourage the flow of these funds into the mortgage banks. Another instrument that the authorities have at their command to ensure the availability of funds for mortgages is that of directed credit. The law mandates that banks operating in Panama that receive savings deposits, other than the mortgage banks themselves, must invest at least 50 per cent of these deposits in mortgage loans on real estate situated in Panama.

As has been noted, a number of provisions in the law have been designed to assure a flow of funds from abroad. The authorities were not content, however, to rely on removing handicaps on and obstacles to that flow. What if, despite the incentives offered, the flow did not materialize or even, in the event of a financial crisis, reversed itself? To guard against the latter danger, a new instrument was devised: the stand-by credit. This instrument has, of course, analogies in the world of commercial banking and international finance. In the context of banking law, however, at the time of its introduction it was virtually unique. The applicable provisions require every bank engaged in banking business in Panama, as a condition of remaining licensed, to be the beneficiary of a stand-by credit in U.S. dollars from a foreign bank or, in the case of a branch, from its main office abroad. The stand-by must be of an amount not less than 10 per cent of the bank’s total earning assets, determined semiannually. (In comparison with the minimum required capital of a bank, it is therefore likely to be quite substantial.) The National Banking Commission is authorized to negotiate, on behalf of any bank that is unable to obtain or renew a stand-by credit, with the other banks in Panama in order to put together a short-term credit to that bank from the pro rata contributions of the others.

The stand-by credits are to be invoked in the event that withdrawals occur during a six-month period that exceed 10 per cent of total deposits used or invested in Panama. In this event, the National Banking Commission is authorized to require banks to draw on their credits and hold the proceeds for use in Panama.

A series of prohibitions and limitations is set out in the law. A bank may not transfer profits or declare a dividend unless it has amortized or provided reserves sufficient for the amortization of all deferred expenses, losses incurred, and deficiency in capital. Subject to certain exceptions, a bank is forbidden to make loans to any single borrower in excess of an amount related to its deposits, capital, and reserves. A bank may not grant or obtain loans secured by its own shares. It may not grant unsecured loans in excess of 15 per cent of the sum of the capital and the capital reserve to its directors, or in excess of certain other amounts to its employees. A bank’s power to acquire or lease real estate is restricted. Finally, subject to certain exceptions, a bank may not acquire shares or participations in any other enterprise in excess of 25 per cent of the sum of its capital and capital reserves.

All banks must appoint certified public accountants to act as external auditors and report to their principals, as well as to the National Banking Commission, on the state of the accounts and whether they accurately reflect operations. In addition to balance sheets and profit and loss statements, which must be made available to the National Banking Commission annually, banks are required to provide the Commission with more frequent statements and analyses of their credit facilities and other assets. The National Banking Commission, in turn, is required to inspect each bank at least every two years. If the inspection reveals that the bank’s operations are being conducted in an unlawful or negligent manner, the National Banking Commission may require the bank to assist and oversee the remedial action.

One matter that required careful consideration was the scope of bank examination. The problem here is the delicate line that must be drawn between the need of the authorities to supervise the operations of the banks (in part for the protection of the depositors) as opposed to the need to preserve the confidentiality of the relations between the banks and their customers. In the end, the authorities decided to impose strict limits on the examinations, which may be overcome only by court order. The law provides, moreover, that the National Banking Commission is prohibited from investigating the personal affairs of any bank client. Information obtained by the National Banking Commission may not be revealed to any person or authority unless so required by court order and reports submitted to it containing confidential data may be published only in the form of consolidated data.

A word should be said about coded bank accounts. These are permitted by Law No. 18 of 1959, which authorizes banks and other credit institutions to operate such accounts in cash or securities. Coded checking accounts may be operated on the basis of a previously furnished signature and an assigned number. Secrecy must be observed in respect of coded accounts concerning their existence, amount, and the identity of their owners. Information concerning these matters is to be furnished only in connection with criminal proceedings. Interest paid on the accounts is reported on a global basis to the fiscal authorities without specifying the amount paid to each depositor. Unauthorized disclosure is subject to fine, imprisonment, or both.

A banking law is not complete unless it contains provisions that prescribe the circumstances and manner in which a failing or fraudulent bank may be seized and thereafter either restored to its owners, reorganized, or liquidated, as may be appropriate. The Panamanian law contains detailed provisions on this complicated subject that have been employed efficiently and with dispatch to weed out such institutions and protect the public from the calamities of unregulated bank failure. In this connection, a schedule of preferences is set out to determine an equitable priority between competing claimants to a bank’s assets in the event that these prove insufficient to satisfy all. It is of interest to note that in this eventuality, local deposits are to be repaid first.

Evaluation

Since the enactment of Cabinet Decree No. 238 of 1970, there has been a remarkable growth in the Panamanian banking system. Foreign deposits increased at a phenomenal average annual rate of 65 per cent in 1970–80, from US$218.0 million to US$19.5 billion. (This compares with an annual average rate of growth of 12 per cent in the period 1950–69.) The net impact of this on the domestic economy was a substantial increase in the domestic exposure in Panama of the commercial banks. This exposure, as measured by the increase in the banks’ net foreign short-term liabilities (which had been limited in the period 1950–60 to US$28.0 million and in 1961–70 to US$66.0 million), jumped in 1971–80 to US$933.0 million. The resulting net capital inflow enabled the Panamanian banking system to expand credit to both the private and public sectors at a faster rate.

Indeed, the Central Government, which in the period 1949–68 had been a net creditor of the banking system, was able to increase its borrowing from the banking system from US$10 million in 1970 to US$291.0 million in 1980. Likewise, the banking system was able to increase credit to the private sector in the period 1970–80 at an annual average rate of 22 per cent from US$282 million in 1970 to US$2.1 billion at the end of 1980. This represented a substantial acceleration in the banking system’s expansion of credit to the private sector, which in the period 1951–70 had increased at an average annual rate of 14 per cent.

A correlation of the growth in the banking system with the enactment of the new banking law has been noted by a number of observers. While other factors, such as the simultaneous growth in world liquidity coupled with political instability in other countries in the area, cannot be ruled out as having in some measure contributed to this growth, the statistics presented above appear to lend some support to the correlation.

Decree No. 741

[December 6, 1904]

The President of the Republic, exercising the powers conferred on him by Article 13 of Law No. 84 of 1904 on currency,

decrees:

Art. 1. The Convention concluded in Washington on June 20 of this year between the Secretary of War of the United States of America and the Fiscal Commissioners of the Republic of Panama, contained in the two following communications, is approved in all its parts:

June 20, 1904

  • To Messrs.

    • Ricardo Arias and

      • Eusebio A. Morales

        • Special Fiscal Commissioners of the Republic of Panama

Gentlemen:

I understand that there is now pending in the Convention of the Republic of Panama, exercising legislative power for the Republic, a Bill to establish a monetary standard and to provide for the coinage necessary in the Republic. The Isthmian Canal Commission, whose action, by direction of the President of the United States, I am authorized to supervise and direct, is vitally interested in the maintenance in the Canal Zone of a stable currency, based upon the gold standard.

I conceive it to be of common benefit to the Republic and to the Isthmian Canal Commission that the currency used in the Republic and in the Canal Zone should be the same. I am informed that the Convention of the Republic has under consideration a measure which in substance provides:

I. That the monetary unit of the Republic shall be a gold peso of the weight of one gram, 672 milligrams, and of nine hundred one-thousandths fineness, divisible into one hundred cents, to be issued as and when considered by the Republic necessary or convenient for its requirements.

II. That the present gold dollar of the United States of America, and its multiples, shall also be legal tender in the Republic of Panama for its nominal value, as equivalent to one gold peso of the Republic.

III. That fractional silver coins shall be issued by the Republic, of various denominations, all to be of an alloy composed of nine hundred one-thousandths of pure silver and one hundred one-thousandths of copper, the declared value of the same bearing a ratio to the same weight of gold of approximately one to thirty-two, and that such fractional silver currency shall be legal tender in all transactions.

IV. That the silver to be coined shall be in fractional denominations of the gold peso or dollar, and, except as hereinafter specifically provided, shall be coined only in exchange or conversion of the Colombian silver peso and fractional currency now legally in circulation in the Republic, and that the amount thus converted shall not exceed $3,000,000 of such Colombian silver pesos.

V. That after July 1st, 1905, there shall be coined and issued by the Republic such additional amount of fractional silver currency to the limit in the aggregate in value of one million, five hundred thousand pesos or gold dollars, equivalent to three million half-dollar pieces, as may be deemed by the Secretary of War of the United States necessary or advisable in the construction of the Isthmian Canal and as may be requested by him of the Executive Power of the Republic.

VI. The Republic of Panama, in order to secure the legal parity and equivalence with the gold standard of such fractional silver coins, shall create a Reserve Fund by deposit with a responsible banking institution in the United States, of a sum in lawful currency of the United States equivalent to fifteen per centum of the nominal value of the silver fractional currency issued by the Republic, and as the same is issued, together with an amount equal to the seigniorage on the silver coins issued at the request of the Secretary of War as aforesaid, less all necessary costs of coinage and transportation.

VII. That after conference with the Isthmian Canal Commission or its representatives or fiscal agents, the Republic of Panama will take such steps with respect to exchange by drafts upon its reserve fund as will tend to prevent the disturbance of the legal parity of the silver fractional currency of the Republic of Panama with the gold standard.

VIII. That the Republic of Panama shall cause its coinage to be executed at the mints of the United States.

Assuming that legislation will be enacted substantially to the foregoing effect, I agree on behalf of the Isthmian Canal Commission and by direction of the President of the United States:

First. That the Isthmian Canal Commission will make the gold and silver coin of the Republic of Panama legal tender within the Canal Zone, by appropriate legislation.

Second. That it will employ such gold and silver coin of the Republic in its disbursements in the Canal Zone and in the Republic, as the Canal Commission shall find practicable and convenient.

Third. The Isthmian Canal Commission shall cooperate with the Republic of Panama to maintain the parity of the fractional silver coinage of the Republic of Panama with the gold standard by sale of drafts upon its funds at reasonable rates and on terms which will tend to prevent the disturbance of such parity.

Fourth. It is mutually agreed that nothing herein contained shall be construed to restrict the right of the Republic to reduce its silver currency after the opening of the canal to commerce, to such an amount as it may deem advisable and thereupon to reduce and withdraw, pro rata, the reserve fund corresponding to the reduction of the amount of silver coinage outstanding.

Will you please confirm your accord with the foregoing?

Very respectfully,

Wm. H. Taft

Secretary of War

June 20, 1904

Hon. Wm. H. Taft,

  • Secretary of War,

    • Washington, D.C.

Sir:

Pursuant to the powers conferred upon us by the general directions of the Government of the Republic of Panama, and subject to the enactment by the Republic of the necessary legislation, we hereby declare our complete accord with the Convention embodied in your communication of this date and agree to the same as therein set forth.

We are, dear sir,

Very truly yours,

Ricardo Arias Eusebio A. Morales

Special Fiscal Commissioners of the Republic of Panama

Art. 2. The minting of the fractional silver coinage of the Republic shall be restricted: (1) to the amount necessary for effecting the conversion of Colombian silver currency pursuant to Law No. 84 of this year; however, this minting may not exceed three million pesos ($3,000,000); (2) from next June 1 further mintings and issues shall be effected up to three million pesos ($3,000,000) in Panamanian currency, equivalent to one million, five hundred thousand bal-boas (B 1,500,000.00) at the request of the Secretary of War of the United States, in such time and amounts as he may stipulate.

Art. 3. To guarantee parity between the new gold and silver coins having legal tender in the Republic, there shall be deposited in a banking institution of the United States 15 per cent of the nominal value of each minting, with a further amount equal to the seigniorage produced by the second minting, less costs of coinage and transportation of the money to this Republic. These deposits shall be made as and when the minted coins are issued.

{The signatory clause is omitted.}

Cabinet Decree No. 2381

[July 2, 1970]

Reorganizing the banking system and establishing the National Banking Commission

The Provisional Junta of Government

decrees:

Preliminary Title

chapter i. scope of application and definitions

Art. 1. This cabinet decree shall apply to banks which are established in accordance with the laws of Panama and which engage in banking business in Panama or abroad, and to banks established abroad engaging in banking business in Panama.

Paragraph: Only juridical persons may engage in the banking business.2

Art. 2. For the purposes of this cabinet decree, the terms listed below shall be understood in the following sense:

  • (a) “Bank”: any juridical person engaging in banking business, except savings and loan associations, authorized in accordance with the law;

  • (b) “Banking business”: principally, the operation of obtaining financial resources from the public by the acceptance on deposit of money demandable with or without notice, or by any other means authorized by the applicable law, and the use of such resources, for the account and at the risk of the bank, for loans, investments, or any other operation authorized by law or by banking practice;

  • (c) “Establishment”: any office, branch, or agency of a bank carrying out any or all of the activities or business of banking;

  • (d) “Commission”: the National Banking Commission;

  • (e) “Commissioners”: the members of the National Banking Commission;

  • (f) “Demand deposits”: all deposits that must be paid upon request;

  • (g) “Time deposits”: all deposits that are not payable upon demand. These fall into two categories: fixed time deposits and savings deposits;

  • (h) “Local deposits” are:

    • (1) deposits payable to natural persons residing in Panama;

    • (2) deposits payable to juridical persons organized in accordance with Panamanian law and earning taxable income in Panama, with the sole exception of juridical persons whose income is derived from areas outside Panamanian territory; and

    • (3) deposits payable to foreign juridical persons with branches authorized to operate in Panama under the effective control of the Panamanian branch;

  • (i) “Foreign deposits”: all deposits other than “local deposits;”

  • (j) “Unsecured credit facilities”: credit facilities granted without real guarantee, or credit facilities secured by real guarantee, the value of which is less than the amount owed;

  • (k) “Assigned capital”: the part of the paid-up capital stock that any bank established abroad will appropriate, channel, or use, through its establishments, in its banking business in Panama;

  • (l) “Earning assets”: loans and investments which are located in the economy within the Republic of Panama;

  • (m) “Capital reserve”: the reserve constituted with funds from profits earned or from other sources, which are accumulated for the purpose of strengthening the Bank’s financial position;

  • (n) “Representatives’ offices”: offices which are established for the purpose of acting as banks’ representatives and which do not effect banking business in their own behalf;

  • (o) “Mortgage banks”: banks with loan portfolios not less than seventy-five per cent (75%) of which is composed of mortgage loans with maturities of not less than five (5) years;

  • (p) “Stand-by credit”: credit granted to banks engaged in the banking business in Panama by another bank located abroad, or, in the case of branches or agencies of foreign banks, by its main branch. The terms and conditions established by the Commission shall be stipulated in such credit;

  • (q) “Interest”; the amount(s) which in any form or under any name are collected or paid with money.

Title I. The National Banking Commission

chapter i. general provisions

Art. 3. The National Banking Commission is hereby created as an agency of the Ministry of Planning and Economic Policy.

Art. 4. The objectives of the Commission, in addition to the others assigned to it by this cabinet decree, shall be:

  • (a) To ensure that the soundness and efficiency of the banking system are maintained, in order to promote monetary and credit conditions suitable to the permanent stability and growth of the national economy.

  • (b) To strengthen and foster conditions favorable to the development of Panama as an international financial center.

chapter ii. its organization

Art. 5. The Commission shall be composed of seven (7) members with voting and speaking rights, namely:

  • (a) The Minister of Planning and Economic Policy, who shall preside;

  • (b) The Minister of Finance and the Treasury;

  • (c) The General Manager of the National Bank of Panama;

  • (d) Three (3) bank representatives, who shall be Panamanian citizens, residents of the Republic, and bank officials. They shall be appointed by the Executive Branch from three (3) lists each of which contains the names of three persons. These lists shall be submitted by the Banking Association of Panama;

  • (e) One member, appointed by the Executive Branch, who may not be a bank director, official, or staff member.

Art. 6. The Commission shall have a Technical Secretariat headed by a Secretary and staffed as necessary in order to fulfill its duties. The Secretary shall attend the meetings of the Commission, with the right to speak only.

The staff, accounts, files, and property of the Technical Secretariat of the Commission shall be transferred to the Ministry of Planning and Economic Policy.

Art. 7. The alternates for the Minister of Planning and Economic Policy, the Minister of Finance and the Treasury, and the General Manager of the National Bank shall be, respectively, the Deputy Minister of Planning and Economic Policy, the Deputy Minister of Finance and the Treasury, and the General Manager of the Savings Bank.

Art. 8. Each bank representative shall have an alternate, who shall be chosen in the same manner as his principal.

Art. 9. The commissioner chosen in accordance with Article 5(e) shall have an alternate, who shall be chosen in the same manner as his principal.

Art. 10. The commissioners and their alternates shall be appointed ad honorem by the Executive Branch for a period of three (3) years.

Transitional paragraph. The periods of office of the first commissioners proposed by the Banking Association of Panama, and of their alternates, shall be one, two, and three years, respectively, so that the term of one of the commissioners and of his alternate expires each year. The term to be assigned to each of them shall be decided by lot at the Commission’s first meeting.

Art. 11. The commissioners may only be removed by the Executive Branch at the request of five (5) commissioners, if:

  • (a) They are permanently incapacitated for the performance of their duties;

  • (b) They are declared bankrupt or are in a manifest state of insolvency;

  • (c) They are convicted of a crime against morality or the public faith; or

  • (d) They no longer fulfill the requirements established for their election. In case of removal of any of the commissioners, the vacancy shall be filled by his alternate until such time as a new principal is elected and appointed for the rest of the term of office of the removed commissioner.

Art. 12. During their temporary absences, and during their permanent absences until a new appointment is made, commissioners shall be replaced by their alternates.

Art. 13. The commissioners mentioned in Article 5(d) shall not be competent in matters considered by the Commission and concerning the bank of which they are officials.

Art. 14. The duties of the Commission, in addition to those conferred upon it by this cabinet decree, are the following:

  • (a) To meet at least every two months and, also, whenever convened by the Chairman of the Commission or upon the request of not less than three commissioners;

  • (b) To resolve matters submitted to it by the Chairman, the Secretary, or any of its members;

  • (c) To issue the resolutions to which this cabinet decree refers;

  • (d) To cooperate with the Executive Branch in preparing regulations for implementation of the provisions of this cabinet decree, and to issue its own by-laws, subject to the approval of the Executive Branch;

  • (e) To recommend to the Executive Branch the appointment of subordinate personnel required by the Commission for due fulfillment of its duties; and

  • (f) To make administrative decisions regarding the interpretation and scope of the banking laws.

Art. 15. The decisions of the Commission shall be adopted by simple majority, except in the special cases mentioned in this cabinet decree.

At least five (5) commissioners must be present in order to form a quorum.

Title II. The Banking System

chapter i. authorizations

Art. 16. With the exception of official banks, no person may engage in banking business before obtaining due authorization from the Commission, which shall issue the appropriate license.

Three (3) kinds of licenses shall be issued, namely:

(1) A license to be granted to banks established in accordance with foreign law, to operate in Panama, and to banks established in accordance with Panamanian law, to engage in the banking business, whether in Panama or abroad;

(2) A license to be granted to banks established in accordance with Panamanian law which, from an office established in Panama, engage exclusively in transactions that are completed or consummated, or that produce their effects, abroad.

(3) A license to be granted to banks established in accordance with foreign law that wish exclusively to establish representatives offices in Panama.

Art. 17. Upon entry into effect of this cabinet decree, current licenses to engage in the banking business shall be considered valid for a one (1) year period, which may be extended, when the Commission deems justified, for not more than one additional year. Within this period, holders of such licenses must comply with the provisions of Articles 30 and 31 in order to be eligible to receive a license in accordance with this cabinet decree. The above notwithstanding, banks established in accordance with Panamanian legislation, in which at least 75 per cent of the shares or equity capital is owned by natural persons of Panamanian nationality or by foreigners with at least five (5) years residence in Panama, shall have five (5) years to comply with the provisions of the aforementioned Articles 30 and 31 of this cabinet decree.

Art. 18. With the exception of national institutions or groups engaging exclusively in philanthropic or charitable activities, no person other than an authorized bank may, without the Commission’s license, use the word “bank,” or any of that word’s derivates in any language, in its firm or trade name, description or title on billheads, stationery, notices, advertisements, or in any other manner to indicate that it engages in banking business.

Paragraph. Notaries are forbidden to authorize legal papers or copies thereof, documents, declarations or instruments peculiar to their office, and authentications of firms that contravene this article. The same prohibition applies to the Public Register with regard to their registration. Upon entry into effect of this cabinet decree, companies already registered, which were established in conformity with the laws of Panama or authorized to engage in business in the Republic, the trade or firm name of which contravenes the provisions of this article, shall have a period of 90 days in which to dissolve voluntarily, obtain a license from the Commission to engage in banking business, or amend their charter in order to change their trade or firm name. Upon expiry of this period, the Commission shall instruct the Director General of the Public Register to make a marginal note beside the registration of any company that has not complied with the aforesaid provisions, indicating that that company is automatically dissolved or that its authorization to do business in Panama is canceled, according to whether it is a Panamanian or a foreign company.

Art. 19. Whenever it is known, or there is justified reason for believing, that a natural or juridical person is engaging in the banking business in violation of the provisions of this cabinet decree, the Commission shall be empowered to examine that person’s books, accounts, and documents in order to determine whether or not it has infringed or is infringing upon any provision of this cabinet decree. Any refusal to produce such books, accounts, or documents shall be considered presumption of fact of engaging in banking business without a license, in which case the Commission shall be authorized to instruct the Public Register to make the marginal note mentioned in the preceding article, and to impose the appropriate penalties.

Art. 20. As regards new banks to be established in accordance with the laws of Panama, the Commission shall issue a temporary permit for a ninety (90) day period, in order that, pending receipt of the proper license, the organizational structure of the company using the word “bank” or any of its derivatives may be entered in the Public Register. Upon expiry of this period, if all requirements for issuance of the license have not been fulfilled, the Commission shall instruct the Director General of the Public Register to make the marginal note mentioned in Article 18.

Art. 21. Applications for the license to engage in banking business must be made to the Commission in writing, enclosing:

  • (a) An authenticated copy of the enterprise’s charter and by-laws, with the amendments to these, if any. If these documents were drawn up in a foreign language, the corresponding translations, done by legally authorized persons, must also be included.

  • (b) A copy of the balance sheet, with closing date not more than ninety (90) days prior to the date of the application, duly certified by a firm of certified public accountants.

  • (c) A certified check in favor of the National Treasury in the amount of B 500, in the case of a bank established under the laws of Panama, and of B 1,000 in the case of a bank established abroad, in order to defray the costs of the investigation mentioned in Article 23 of this cabinet decree.

  • (d) Any other requirement that may be established by law or by the Commission.

Art. 22. Whenever the Commission instructs the Director General of the Public Register to make the marginal note mentioned in Articles 18, 19, and 20, the Commission shall publish such instruction for three (3) consecutive days in a daily newspaper widely circulated throughout the Republic and once in the Gazeta Oficial.

Art. 23. When considering an application for a license, the Commission shall make, or order to be made, such investigations as it may deem necessary to verify the authenticity of the documents submitted, the financial situation and antecedents of the applicant, the reputation and experience of its officials, the adequacy of its capital, and any other information necessary for proper implementation of this cabinet decree.

Art. 24. Within ninety (90) days of receipt of the application, the Commission must issue or refuse the license, by resolution with statement of reasons, and shall personally advise the applicant of its decision.

Art. 25. Banks established abroad must appoint at least two (2) General Agents, both natural persons residing in Panama, one of whom, at least, must be a Panamanian citizen, so that at no time shall representation be lacking.

Art. 26. The Commission shall cancel the license of any bank that:

(1) Ceases to engage in banking business, or

(2) Does not initiate operations within six (6) months following issuance of the license. The Commission may also, by resolution adopted with the majority vote of five (5) Commissioners, cancel the license of any bank failing to comply with any of the provisions of this Cabinet Decree. Before canceling the license, the Commission shall personally inform the bank of its intention to cancel, with statement of the reasons therefor, and the bank shall have a period of twenty-one (21) calendar days, counting from the date of notification, to show cause why its license should not be canceled, submitting such evidence previously existing as it considers relevant. Upon expiry of this period, the Commission, by resoluton with statement of reasons, shall decide the appropriate measures.

Art. 27. Once the resolution canceling the license has been executed, the Commission shall immediately proceed to:

(1) Inform the Director General of the Public Register of the measure, so that he may make the necessary marginal note; and

(2) Publish the resolution in a newspaper of general circulation for three (3) consecutive days and once in the Gazeta Oficial.

Art. 28. No bank may open a new establishment without notifying the Commission. If a bank considers it necessary to close, or change the location of, an existing establishment, it must obtain the prior authorization of the Commission, for the sole purpose of enabling the Commission to verify that the closing is carried out in an orderly fashion, and in a way that protects the interests of the depositors of that establishment.

Art. 29. Without the prior authorization of the Commission no bank engaging in the banking business in Panama may merge or consolidate, nor may it sell all or part of its assets in Panama when such action would be equivalent to a merger or consolidation.

chapter ii. capital

Art. 30. All banks engaging in the banking business in Panama must have a paid-up capital stock, or assigned capital, as the case may be, of not less than one million balboas (B 1,000,000).

The paid-up or assigned capital must consist of unencumbered assets maintained at all times within the Republic of Panama.

Paragraph 1. All banks established in accordance with the laws of Panama and engaging exclusively in the banking business abroad must at all times maintain in Panama, in unencumbered assets of such kinds as the Commission may authorize, a sum of not less than two hundred fifty thousand balboas (B 250,000), in order to guarantee due fulfillment of their obligations.

Paragraph 2. All banks established in accordance with the laws of Panama, in which at least 75 per cent of the shares are owned by natural persons of Panamanian nationality or by foreigners with more than five years’ continuous residence in Panama, may initiate operations with a paid-up capital of two hundred fifty thousand balboas (B 250,000). This capital must be periodically augmented, until the minimum capital mentioned in this article has been attained, within a maximum period often (10) years.

The capital increases shall be no less than:

  • (a) Forty thousand balboas (B 40,000) a year during the first five (5) years; and

  • (b) Seventy-five thousand balboas (B 75,000) a year during the last five years.

Any shortfall shall be made up before expiry of the period stipulated above.

Art. 31. All banks engaging in the banking business in Panama must maintain a capital reserve fund to ensure that their total paid-up or assigned capital, as the case may be, plus the said capital reserve, is at no time less than five (5) per cent of their earning assets.

No bank shall declare, credit, or pay dividends, or distribute or transfer any part of its profits, before it has formed the reserve mentioned in this article.

Art. 32. All banks shall hold assets in Panama equivalent to a percentage of their local deposits. This percentage shall be fixed by the Commission in accordance with the national economic or financial situation. It shall be equal for all banks and shall not exceed one hundred per cent (100%) of the said deposits.

Paragraph: Upon entry into effect of this cabinet decree, and until the Commission decides otherwise, the percentage referred to in this article shall be eighty-five per cent (85%).

Art. 33. Banks other than mortgage banks, which operate in Panama and receive local savings deposits, shall be obliged to invest at least fifty per cent (50%) of these deposits in mortgage loans on real property situated in the Republic of Panama, at terms of not less than ten years, or in interest-bearing certificates, securities, or bonds issued by the National Mortgage Bank.

In consultation with the Ministry of Housing, the Commission shall periodically determine what proportion of the aforementioned 50 per cent shall be used for loans for government-subsidized housing or for interest-bearing certificates, securities, or bonds issued by the National Mortgage Bank.

The Commission shall determine the terms and conditions under which banks other than mortgage banks shall adapt their operations to the provisions of this article.

Paragraph: Banks are prohibited from investing their savings deposits in their own certificates, securities, or bonds.

chapter iii. stand-by credits

Art. 34. To be able to keep its license, every bank must be the beneficiary of a stand-by credit in U.S. dollars, granted it by a foreign bank or, in the case of a foreign bank’s branch office (approved by the Commission), by its own main office abroad, in an amount of no less than ten per cent (10%) of the bank’s total earning assets as at the preceding December 31 or June 30, as the case may be. Nevertheless, the Commission may require review thereof on any other date. The terms and conditions of this credit shall be laid down by the Commission.

If for any reason any bank of the system is unable to obtain or renew the stand-by credit discussed in Articles 34 and 35, the Commission shall be authorized to negotiate with the bank concerned and the other banks in the national banking system to have the latter grant the former a special short-term credit to which all the other banks of the system shall contribute in proportion to the minimum amount of the stand-by credit to which each is committed. Before being entitled to receive this special credit, the bank in question must prove that it was unable to obtain or renew the above-mentioned stand-by credit.

Art. 35. The stand-by credit shall be used by the beneficiary bank if sums are withdrawn from the national banking system in excess of ten per cent (10%) of its total deposits used or invested in Panama within a period of six (6) months. The Commission may in this case require the banks to use these credits in whole or in part and to hold the proceeds thereof in Panama. Each bank, at its own discretion, shall decide upon the use of the funds thus obtained.

If any bank in the system encounters difficulties with respect to liquidity as a result of decreasing deposits, the Commission shall be authorized to negotiate with the bank concerned and the other banks in the national banking system, to have the latter grant the former a special short-term credit to which all the other banks of the system shall contribute in proportion to the minimum amount of the stand-by credit to which each is committed.

Before being entitled to receive this special credit, the bank in question must exhaust its own stand-by credit.

chapter iv. legal reserve

Art. 36. Each bank must maintain a legal reserve consisting of cash assets of no less than five (5), and no more than twenty-five (25), per cent of the sum total of its local deposits. The Commission shall periodically fix the legal reserve requirement within these minimum and maximum limits and shall advise each bank in writing of the amount required.

Art. 37. Not less than 30 per cent of the legal reserve must consist of currency having legal tender in Panama, held by each bank.

The remainder may consist of sight deposits at the National Bank of Panama or of National Treasury bills bearing interest at an annual rate not exceeding three (3) per cent, and with maturities not exceeding ninety (90) days. The Commission must be able to verify such deposits.

Paragraph 1. Upon entry into force of this cabinet decree and until such time as the Commission decides otherwise, the legal reserve shall be twelve per cent (12%) for sight deposits and six per cent (6%) for time deposits, and the minimum percentage of this reserve which must consist of currency having legal tender in Panama shall be thirty per cent (30%).

Paragraph 2. The banks shall have a period of thirty (30) days, counting from the date of entry into force of this cabinet decree, to comply with the provisions of this article.

Paragraph 3. The Commission may authorize that the remainder, up to seventy per cent (70%), consist of other assets, provided that this authorization is adopted with the affirmative vote of five (5) of the Commission members. There must be sufficient liquidity in respect of these assets to meet the legal reserve requirements.

Art. 38. The legal reserve requirements shall be uniform for all banks, but the Commission may prescribe different reserves for the various categories of deposits.

Art. 39. Banks must submit a report to the Commission, within the period, in the form, and with such frequency as the latter may specify, for the purpose of ensuring due fulfillment of the provisions of this chapter.

Art. 40. The Commission shall give all banks failing to comply with the provisions of this chapter three (3) working days’ notice to correct such noncompliance. Upon expiry of this time limit, if the fault has not been corrected, the Commission shall impose upon the bank a fine equivalent to two (2) per cent of the amount of the reserve’s deficiency, and shall allow the bank fifteen (15) calendar days to correct such deficiency.

Art. 41. If a bank repeatedly violates or fails to comply with the provisions of this chapter upon expiry of the fifteen (15) days mentioned in the preceding article, the Commission shall be empowered to cancel that bank’s license or to follow, where applicable, the procedure provided for in Chapter XI.

chapter v. bank liquidity

Art. 42. All banks engaging in the banking business in Panama must at all times maintain a minimum balance of liquid assets equivalent to the percentage, fixed periodically by the Commission, of the gross amount of their deposits. This percentage shall not exceed thirty-five per cent (35%), except in respect of mortgage banks, for which this percentage shall not exceed twelve per cent (12%). Other than this exception, the percentage shall be equal for all banks.

Paragraph. If a bank operating in Panama receives loans or deposits from its main office, branch, subsidiary, or affiliate abroad, such loans or deposits shall not be included when the gross total of its deposits is calculated to determine the percentage of liquidity.

Art. 43. Changes in the liquidity percentage requirement must be complied with within such time as the Commission may specify, which shall not be less than thirty (30) calendar days. Upon entry into effect of this cabinet decree, and until such time as the Commission decides otherwise, the applicable liquidity percentage requirement shall be ten per cent (10%) for mortgage banks and thirty per cent (30%) for all other banks. Banks currently authorized to operate shall have a period of ninety (90) days, counting from the effective date of this cabinet decree, to comply with these liquidity percentage requirements.

Art. 44. For purposes of the preceding articles, “liquid assets” shall be held to mean such assets as are described below, provided they are freely transferable and unencumbered by any charge or lien whatsoever:

  • (a) Gold or currency having legal tender in Panama;

  • (b) Net balances held at the Clearing House in the Republic of Panama;

  • (c) Net balances at any bank in Panama, withdrawable on demand or at notice not exceeding 186 days, and liabilities payable in Panama upon demand or at not more than 186 days’ notice;

  • (d) Treasury bills and other paper issued by the State with maturities of not more than one year;

  • (e) Net balances—up to a maximum of 30 per cent of the liquidity percentage requirement—in any foreign bank approved by the Commission, payable upon demand or at notice not exceeding 186 days in currencies which, in the opinion of the Commission, are freely convertible and transferable;

  • (f) Unmatured bills of exchange bearing the signatures of at least two solvent persons as drawer and drawee, and payable within 186 days in any location and any currency approved by the Commission in accordance with the criteria set forth under item (e) above;

  • (g) Treasury notes issued by a foreign government or by international financial organizations in accordance with the criteria set forth under item (e) of this article, up to a maximum of 5 per cent of the liquidity percentage requirement;

  • (h) Such other assets as the Commission may authorize by the majority vote of five (5) of its members.

Paragraph. Subject to the above-mentioned percentage limitations and any other requirements laid down in this cabinet decree, the distribution of the various kinds of liquid assets discussed in this article shall be at the discretion of each bank.

Art. 45. The Commission shall penalize violations of the provisions of this chapter with a fine of not less than B 1,000 nor more than B 10,000.

Art. 46. A bank shall be presumed to have infringed the provisions of this chapter and of the preceding chapter if it fails to submit, within the required time limit, such documents and reports as the Commission may periodically request for the purpose of verifying whether the bank is complying with the provisions of Articles 36, 37, 42, and 43.

chapter vi. bank interest

Art. 47. The provisions of Law No. 4 of 1935 shall not be applicable to banks authorized in accordance with this cabinet decree.3

When necessary for the achievement of the objectives referred to in Article 4, the Commission, by resolution adopted with five (5) of its members voting in favor, may fix the maximum interest rate that banks may collect directly or indirectly on the local loans or credit facilities which they grant, that is to say, which are invested or used in the economy within the Republic of Panama. Interest shall be calculated on balances owing.

Art. 48. All banks may pay such interest as they deem fit on their foreign deposits and on their time local deposits. However, in order to establish a differential between the interest rate mortgage banks may pay on local “savings deposits” and that payable by the other banks, the Commission must hand down a resolution, adopted with the affirmative vote of five (5) of its members, fixing the maximum interest rate payable by both types of bank on such “local savings deposits,” with a minimum difference which at no time may be less than one per cent (1%) in favor of the mortgage banks. Interest may not be paid on local sight deposits.

Paragraph. For the purposes of this article, the Commission shall determine the maximum amount under which a time deposit shall be considered a “savings deposit.”

Art. 49. The Commission shall penalize violations of the provisions of this chapter with a fine of not less than B 1,000 nor more than B 10,000, without prejudice to the obligation of refunding excess interest collected.

chapter vii. documents and reports

Art. 50. Within the three (3) months following the close of each fiscal year, banks established in Panama, in respect of all their operations, and banks established abroad, in respect of operations effected by their establishments in Panama, must submit to the Commission the corresponding balance sheets and profit and loss accounts, which shall bear the signature of the bank’s Legal Representative or General Agent. The financial statements referred to in this article shall be submitted and audited in such form as the Commission may prescribe.

Art. 51. Banks shall exhibit throughout the year, in a conspicuous place in each of their establishments in Panama, a copy of their latest audited balance sheet, and shall publish it in a newspaper of general circulation in the Republic within three (3) months of the close of each fiscal year.

chapter viii. prohibitions and limitations

Art. 52. No bank shall declare, credit, or pay any dividend, or distribute or transfer all or part of its profits, until amortization, or the establishment of reserves sufficient for total amortization, of all its deferred expenses, including initial expenses, organization expenses, share selling commissions, brokerage, losses incurred, and any other expenditure item not represented by tangible assets of the bank, or as long as there is a shortage in its capital.

Art. 53. Banks are forbidden to grant loans or credit facilities to any individual natural or juridical person, or to issue any guarantee, or contract any other liability in respect of such person, in a total amount that at any time exceeds five (5) per cent of the bank’s deposits, capital, and reserves.

The limitation provided in this article shall not apply to transactions which:

(1) Consist of the negotiation of (a) bills of exchange made out or notes issued in good faith against real guarantee or upon bank acceptances, or (b) other commercial paper authorized by the Commission and owned by the person discounting them at the bank with endorsement in blank without recourse.

(2) Are secured either by bankers’ avals or collateral deposits, or by real guarantees duly ensured in their total value and having an ascertainable value on the market or otherwise having a value as security, as determined in good faith by an official of the bank, in an amount exceeding the amount of the liabilities they guarantee by at least fifteen (15) per cent.

(3) Represent loans to the State, to its autonomous or semi-autonomous agencies, or to municipalities, or are guaranteed by the Government or any foreign nation approved by the Commission.

Art. 54. Banks are forbidden to:

(1) Grant or obtain loans or credit facilities secured by their own shares.

(2) Grant unsecured loans or credit facilities in an amount exceeding fifteen (15) per cent of their capital and capital reserve to:

  • (a) One or more of their directors, whether granted jointly or severally;

  • (b) Any juridical person of which one or more of the directors is a director or official or a guarantor of the loan or credit facility;

  • (c) Any juridical person or association of persons in which the bank concerned, or one or more of its directors or officials, jointly or severally holds a controlling interest.

(3) Grant loans or credit facilities without guarantee or independent surety, to any of their employees in a total amount which exceeds the annual wages, salaries, or other emoluments of the employees concerned.

Art. 55. In the application of the prohibitions laid down in Articles 53 and 54, the Commission may determine whether the interests of a group of natural or juridical persons are so interrelated that they should be regarded as a single person. However, a bank shall not be deemed to have violated the provisions of those articles merely because the group’s indebtedness exceeds the applicable limits at the time it is computed, provided the bank takes the necessary steps to wipe out any part of such indebtedness that exceeds the limit within such time as the Commission may indicate.

Art. 56. Banks are forbidden to acquire or hold shares or participations in any other kind of enterprise, unless such holdings are in trust, in excess of twenty-five (25) per cent of the bank’s paid-up or assigned capital plus its capital reserves, except such participations or shares as the bank may acquire in collecting amounts due it, in which case such participations or shares must be liquidated at the earliest opportunity in keeping with the bank’s economic interests, as determined by the Commission, which may stipulate a deadline for this purpose.

Art. 57. The provisions of the preceding article shall not prevent the purchase or sale of shares upon the order and in behalf of a customer.

Nor shall they prevent, subject to the Commission’s authorization, the purchase or sale of shares of any corporation established for the purpose of insuring bank deposits, fostering the development of a money or securities market in Panama, or improving the system for financing economic development.

Art. 58. Banks are forbidden to purchase, acquire, or lease real estate for themselves, except:

  • (a) When necessary for carrying out their operations or for the housing or recreation of their personnel;

  • (b) When they acquire land in order to construct any kind of housing, or real estate development with the intention of selling it, provided that the sale is effected within the period of time mentioned in Article 56;

  • (c) Under exceptional circumstances, with the Commission’s prior authorization.

Paragraph. However, banks that have accepted real estate as guarantee for their loans may, in case of nonpayment, acquire such real estate with the intention of selling it at the earliest opportunity in keeping with the bank’s economic interests, as determined by the Commission.

Art. 59. Any bank that has participated in any transaction incompatible with the provisions of this chapter, prior to entry into effect of this cabinet decree, must submit a statement of such transactions to the Commission within three (3) months of entry into effect of the same, and must finally liquidate all such transactions within the following three (3) years, unless the Commission grants extensions in view of exceptional circumstances.

Art. 60. While in a state of insolvency, banks are forbidden to receive deposits, nor may they receive any other resources from anyone not having been previously informed by the bank of such state of insolvency. No officer, director, or official who has or should have knowledge of such insolvency shall accept or authorize the receipt of deposits or resources in violation of the provisions of this article.

Art. 61. The Commission shall impose a fine of not less than one thousand balboas (B 1,000) nor more than ten thousand balboas (B 10,000) for violations of the provisions of this chapter.

chapter ix. inspection of banks

Art. 62. All banks must send the Commission, in such form as the latter may prescribe:

(1) Not later than the twentieth (20th) day of each month, a statement showing the assets and liabilities of their establishments in Panama at the close of business on the last working day of the preceding month; and,

(2) Before the last working day of the month following the quarterly periods ending on March 31, June 30, September 30, and December 31, a statement containing an analysis of the credit facilities and other assets held by their establishments in Panama at the close of business of each quarter.

Paragraph. Without prejudice to the foregoing, the Commission is empowered to ask any bank, or any firm operating in Panama in which the bank has a majority participation or effective control, for the documents and reports concerning the operations and activities of its establishments.

Art. 63. If the reports submitted to it under the preceding article are of a confidential nature in accordance with the provisions of Article 74, the Commission may only publish consolidated data with aggregate figures.

Art. 64. The Commission must inspect each bank at least once every two (2). years, in order to determine whether the bank’s financial condition is solvent and whether in the course of its operations it has complied with the provisions of this cabinet decree. These inspections shall include establishments and firms in Panama in which the banks have majority participation or effective control. The total cost of the inspection and related expenses shall be paid by the bank being inspected.

Art. 65. When requested in writing, every bank shall be required to submit, to any inspector authorized by the Commission to examine the bank’s operations, all books, minutes, cash, securities owned by the bank, documents and vouchers, and the reports and documents concerning its operations. However, in order to protect the interests of the bank’s customers and to ensure the discretion required for their operations, the examination on the part of the Commission’s inspectors may not include deposit accounts of any kind, or securities held in safekeeping, or safe-deposit boxes, or documents connected with credit operations between customers and the bank, except by court order, in accordance with Article 89 of the Commercial Code.

Art. 66. Any refusal on the part of the bank to submit to the inspection as provided for in the preceding article shall be penalized by the Commission with a fine that shall not exceed B 1,000, without prejudice to application of the provisions of Article 26 of this cabinet decree. If any document or report submitted should prove to be in any way false, the Commission shall impose upon the bank a fine of not less than one thousand balboas (B 1,000) nor more than ten thousand balboas (B 10,000), without prejudice to other applicable penalties.

Art. 67. If, in the opinion of the Commission, the inspection reveals that the bank’s operations are being conducted in an unlawful or negligent manner, or that its capital has been impaired, or that it is in an insolvent condition, the Commission shall require the bank immediately to take such necessary steps to rectify the deficiencies as the former may specify for this purpose, and may appoint a person with the proper training and experience to advise the bank on the steps it must take in order to rectify the deficiency. The Commission shall fix his remuneration, which shall be paid by the bank.

Art. 68. Every bank must at its own expense annually appoint certified public accountants whom the Commission considers to be professionally qualified and whose duty it shall be to make a report on the fiscal year, to the shareholders or partners of each bank established in Panama, and to the head office in the case of a bank established abroad. In this report these auditors shall state whether, in their judgment, the balance sheet and the profit and loss account are complete and accurate, and whether they are a true and correct reflection of the bank’s operations.

The report of the certified public accountants shall be read, together with the report of the bank’s Board, at the annual meeting of shareholders or partners of each bank established in Panama, and shall be transmitted to the head office of each bank established abroad. A copy of the report shall be sent to the Commission.

Art. 69. If a bank fails to make the appointment as provided in the preceding article, the Commission shall make the appointment in question, and shall fix the remuneration to be paid to the certified public accountants thus appointed. This remuneration shall be paid for by the bank.

Art. 70. No certified public accountant or firm of certified public accountants in which any of the partners or employees is or has been an employee, director, or official of a bank, or is or becomes a shareholder or partner of a bank, may act as an auditor of that bank.

Art. 71. Without prejudice to the provisions of the Commercial Code and other laws in effect, any person who holds the office of director or official of a bank, and all other persons responsible for the administration of a bank, shall cease to hold office:

(1) If declared bankrupt or insolvent; or

(2) If convicted of any offense against public property or trust.

Such persons may not again hold such offices or positions in any bank without the Commission’s express authorization.

Art. 72. No person who has been a director or official, or taken part in the management, of a bank that has been in forced liquidation may act as a director of official or take part in the management of another bank without the Commission’s express authorization.

Art. 73. The Commission shall be immediately informed of any civil or criminal proceedings initiated in respect of the violation of any provision of this cabinet decree committed by a bank or other person.

Art. 74. The Commission is prohibited from investigating, or ordering an investigation of, the personal affairs of any bank client. The information obtained by the Commission in the exercise of its duties may not be revealed to any person or authority unless courts require it to do so in accordance with the laws in effect, or unless such information consists of consolidated data with aggregate figures. Violation of this rule shall be penalized in accordance with the provisions of Article 101 of this cabinet decree.

Paragraph. The Commission may not publish any information furnished it under this cabinet decree, unless it has obtained the written consent of the bank or client concerned prior to such publication.

Art. 75. Official banks are in all cases subject to the inspection and supervision of the Office of the Comptroller General of the Republic in the terms of the Constitution and the Law. Therefore, the provisions of Articles 64 and 68 of this cabinet decree shall not apply to official banks.

chapter x. voluntary liquidation

Art. 76. Before proceeding to liquidate or dissolve, all banks must obtain the authorization of the Commission, which shall grant such authorization if the bank is solvent, that is, if it has sufficient liquid assets to reimburse its depositors and repay its creditors.

Art. 77. Once the authorization has been granted, the bank shall forthwith cease to do business, and shall have only the powers necessary to effect the liquidation, collect its claims, reimburse its depositors, pay its creditors, and wind up its affairs.

Art. 78. Within thirty (30) days after the authorization has been granted, the bank must mail to each depositor, creditor, person interested in the funds that the bank holds as trustee, lessor of a safe-deposit box, or depositor of assets in safekeeping, a notice of liquidation, which shall contain such information as the Commission may specify. This notice shall also be posted in a visible place on the premises of each of the bank’s establishments, and shall be published in such form as the Commission may direct.

Art. 79. Authorization for liquidation shall not prejudice the right of a depositor or creditor to payment in full of the amount of his claim, or the right of a holder of funds or other assets to have such assets returned to him. All legitimate claims of creditors and depositors must be paid, and all the funds and other assets held by the bank for any other reason shall be returned to their owners within such time as the Commission may prescribe when authorizing the liquidation.

Art. 80. The assets may not be distributed among the shareholders or partners until all claims of depositors and creditors have been satisfied in accordance with the liquidation procedure approved by the Commission.

The bank shall turn over to whomever the Commission designates an amount sufficient to satisfy any disputed claims. This person shall hold the said amount until the courts hand down a decision with respect to the claims.

Art. 81. Upon completion of liquidation, the bank shall turn over the amount needed to cover any unclaimed funds or claims to whomever the Commission designates. All unclaimed assets and securities, and a certified inventory thereof, shall also be turned over to whomever the Commission designates. The funds thus deposited shall be transferred to the State at the end of five (5) years and, with the prior approval of the Commission, the assets and securities may be sold by the depositary upon expiry of the first year, and upon expiry of the fifth year the proceeds from such sale shall be transferred to the State if not claimed by the owners.

Paragraph. The provisions of this article shall be understood without prejudice to the right granted under Article 103.

Art. 82. In the course of voluntary liquidation, the liquidators shall be obliged to:

(1) Submit to the Commission, as often as the latter may specify, such reports as it may request regarding the course of the liquidation; and

(2) Inform the Commission as soon as it is considered that their realizable assets will not be sufficient to reimburse the depositors and to pay the creditors.

chapter xi. intervention, reorganization, and forced liquidation

Art. 83. The Commission, by resolution with statement of reasons approved with five (5) of its members voting in favor, may intervene in a bank, taking possession of its assets and taking over its management as provided in Article 85, in any of the following cases:

  • (a) If its capital or capital reserve falls short or is otherwise in an unsound condition;

  • (b) If its business is being conducted in an unlawful negligent, or fraudulent manner;

  • (c) If it can no longer safely pursue its business;

  • (d) If it has refused, after proper demand, to submit the accounting records of its operations, or has in any way obstructed inspection of the bank;

  • (e) If the bank’s assets are not sufficient to meet all its liabilities; or

  • (f) If the Commission deems it advisable, because completion of the voluntary liquidation has been unduly delayed.

Art. 84. When effecting the intervention, the Commission shall order that a notice to that effect be fixed on the bank’s premises, indicating the time at which it became effective, which shall in no case be prior to posting of the notice.

Art. 85. When the Commission decides to intervene in a bank, it shall appoint such supervisor(s) as it deems necessary, exclusively to exercise administration and control of the same, with such powers as the Commission specifies, which shall include the following:

  • (a) To stop or limit payment of the bank’s obligations;

  • (b) To employ the necessary auxiliary personnel;

  • (c) To execute any document in behalf of the bank;

  • (d) To initiate, defend, and conduct in the bank’s behalf any action or proceedings to which it may be a party.

As soon as intervention has taken place, the supervisor(s) shall prepare an inventory of the bank’s assets and liabilities, and send a copy to the Commission, which shall make it available to the interested parties if they so request.

Art. 86. The resolution ordering intervention in a bank entails the power to order its reorganization, request its forced liquidation, or desist from intervention, for which the Commission shall have sixty (60) calendar days counting from the date on which the notices mentioned in Article 84 were posted, or, if the appeal provided for in the following article is filed, sixty (60) days from the date on which judgment is handed down.

Art. 87. The bank affected shall be entitled to appeal the resolution ordering the intervention only to the executive courts having full jurisdiction. The term for filing such appeal shall be thirty (30) working days, counting from the date on which the notice provided in Article 84 is posted.

The court may in no case temporarily suspend the effects of the decreed intervention, but in order that the Commission may give instructions for the reorganization or request the forced liquidation of the bank concerned, judgment must have been handed down in respect of the pending appeal.

Art. 88. When the Commission intervenes in a bank, it shall be understood that the statutory term of any claim or right of action on the part of the bank, and the time limits in any action or proceedings to which the bank may be a party, are suspended for up to six (6) months.

Art. 89. If, before expiry of the deadline established in Article 86, the Commission decides that reorganization of the bank is in order, it shall, after hearing the opinion of the bank concerned, prepare the plan for reorganization and publish it for three (3) consecutive days in a newspaper of general circulation in the Republic.

Art. 90. No asset of the bank shall be subject to attachment, lien, or withholding while the bank is in the intervention or reorganization process.

Art. 91. With the Commission’s authorization, the supervisors may obtain loans in behalf of the bank and pledge the bank’s assets as security.

Art. 92. All necessary expenses occasioned by intervention, reorganization, or liquidation shall be defrayed from the assets of the bank.

Art. 93. No reorganization plan shall be drawn up that does not comply with the following requisites:

  • (a) It must be feasible and fair for all the depositors, creditors, shareholders, or partners, as the case may be;

  • (b) It must ensure the dismissal of any director, official, or employee who, because of his negligent, fraudulent, or unlawful action, is responsible for the existence of conditions making reorganization necessary;

  • (c) Any contemplated merger or consolidation must conform to the requirements of this cabinet decree and other legal provisions in force.

Art. 94. Whenever, in the course of reorganization, circumstances arise that render the plan unfair or its execution undesirable, the Commission may modify the plan or request liquidation of the bank, as set forth below.

Art. 95. If the Commission decides that it is in order to request the liquidation of a bank, it shall notify that bank’s legal representative personally, and shall advise its shareholders or partners, depositors, and creditors, by publishing the resolution in which such decision was made for three (3) consecutive days in a newspaper of general circulation, and shall file a request for dissolution and liquidation of the bank with the competent court, in accordance with the legal provisions in effect.

Art. 96. Once the liquidation is requested, the Commission shall have notice of such request for liquidation sent by mail, using the address appearing on the bank’s books, to each depositor, creditor, lessee of a safe-deposit box, or bailor of property. A copy of the notice shall be posted in a visible place in the bank’s establishments. Together with the notice, a statement must be sent indicating the amount shown on the bank’s books to be the claim of the depositor or creditor.

Art. 97. Safe-deposit boxes, the contents of which have not been removed thirty (30) days subsequent to the date of the court’s decision ordering the liquidation, shall be opened by the competent court and the contents and unclaimed assets at the bank shall be subject to the procedure established in Article 81.

chapter xii. miscellaneous provisions

Art. 98. The classification of each bank, referred to in Article 1010 of the Tax Code, shall be effected by the Commission in accordance with the criteria it shall establish for this purpose.

Art. 99. The Commission, after informing the public, shall declare days on which no bank may effect operations with the public. These days shall not necessarily coincide with national holidays.

Art. 100. The Commission shall fix the days of the week and the hours during which the banks shall be open to the public.

The Commission, when it deems justified, may authorize exceptions to the general rule.

Art. 101. All persons who submit information in violation of this cabinet decree, or who violate any of the provisions thereof for which no specific sanction has been indicated, shall be held liable for a fine of B 500 to B 1,000, which shall be imposed by the Commission, without prejudice to the other appropriate civil and penal liabilities.

Art. 102. All banks must inform the Commission of any assets, funds, or securities in their possession which remain inactive for five (5) years and belong to persons whose whereabouts are unknown. The Commission, after verifying this fact, shall order the net value of the assets to be transferred to the National Treasury.

Art. 103. The State shall be obliged to restore the funds mentioned in the preceding article to the owners, provided they are claimed within ten (10) years following the date on which they were transferred, but they shall be restored without interest.

Art. 104. Without prejudice to the provisions of the Tax Code, all establishments of a bank in Panama shall be considered a single bank for the purposes of this cabinet decree.

Title III

final provisions

Art. 105. With the exception of the provisions of Article 87, the only appeal recourse that may be had against the resolutions handed down by the Commission is an appeal for reconsideration, through government channels, to the Commission itself, for which purpose the party concerned shall have a period of five (5) working days counting from the date on which it is notified of such resolution.

Art. 106. In all cases of voluntary or forced liquidation of a bank, its liabilities, including deposits, must be paid off in accordance with the order of priorities established by the laws in effect. The foregoing notwithstanding, if the special credit mentioned in Artcle 35 has been delivered to the bank being liquidated, that credit shall have preference over any other of the bank’s current liabilities.

As regards deposits, the order of priority shall be the following:

  • (a) Local deposits of natural or juridical persons domiciled within the territory under the jurisdiction of the Panamanian authorities shall be paid first;

  • (b) When the local deposits have been refunded, consideration shall be given to and refund made, as far as possible, of deposits which physically entered the territory of the Republic of Panama and the bank’s premises and which belong to persons domiciled abroad; and

  • (c) If any balance remains after these refunds are made, it shall be distributed among the owners of deposits which come from foreign countries and which have not physically entered the territory of Panama.

Art. 107. Banks in which an intervention has been made and which are in the process of liquidation when this cabinet decree enters into force shall be governed by Law No. 101 of July 8, 1941 and its amendments or supplements.

Art. 108. Banks wishing to adhere to a fiscal period other than that of the calendar year, approval of which has been granted by the Ministry of Finance and Treasury, must notify the Commission of such authorization.

Art. 109. Only the provisions of Chapters V, VII, VIII, and IX of Title II shall be applicable to official banks, provided that these provisions do not conflict with the laws governing such banks. The foregoing notwithstanding, Chapters IV and VI, and Articles 99 and 100 of Chapter XII, shall at all times apply to official banks.

Art. 110. This cabinet decree revokes Law No. 101 of July 8, 1941 in its entirety, and all other legal provisions that may be contrary to it.

Art. 111. This cabinet decree shall enter into force from the date of its publication in the Gazeta Oficial.

{The signatory clause is omitted.}

Law No. 181

[January 28, 1959]

Whereby regulations are enacted on coded bank accounts

The National Assembly of Panama

decrees:

Art. 1. Banking enterprises and other credit institutions legally established in the territory of the Republic may operate coded current or deposit accounts, which shall be governed by the pertinent provisions of the Code of Commerce, as amended by the within law.

Art. 2. The coded banking account is a contract whereby a person, whether natural or juridical, maintains on deposit with a bank cash or securities or a credit, and such bank agrees to meet the orders of payments of said depositor up to the amounts of cash or delivery of securities that he may have deposited, or of the credit granted to him, and to observe strict secrecy as to the existence of the account, its balance and the identity of the depositor.

The interests which under the provisions of a bank account contract may be earned by the depositor are an integral part of the account for all legal purposes.

Art. 3. It is not necessary that the name of the drawer appear on the checks and payment orders drawn against coded current bank accounts or on orders for delivery of securities. The bank shall be required to pay such checks and orders of payment provided that the usual signature previously furnished by the customer and the number assigned to the account appear thereon.

Art. 4. Managers, officers, officials and other employees of banking institutions, whether national or foreign, who reveal or disclose to persons alien to the institution and to the handling of these accounts any information with reference to the existence, balance or identity of the customer of a coded bank account shall be punished with imprisonment of from thirty (30) days to six (6) months, fines of from one thousand balboas (B 1,000) to ten thousand balboas (B 10,000), or both.

Art. 5. The information on coded current bank accounts referred to in the preceding article may be revealed by managers and other employees of banking institutions to investigating officers, judges and magistrates who hear criminal proceedings, and who shall hold the information in strict reserve in the event that such information is not conducive to clarifying the punishable facts under investigation.

In the cases in which public functionaries, whether of a judicial or administrative category, other than those mentioned in this article, request from banking institutions any information or the attachment or embargo of coded bank accounts, including probate proceedings, the bank shall not furnish the information, nor withhold the funds or securities deposited in coded accounts, and shall reply to the request stating that it is not possible to furnish any information, even in the cases where there exist the account or the funds or securities covered by the request.

Art. 6. The managers, officers and other functionaries of banking enterprises handling coded current bank accounts shall be subject to the penalties provided for in Article 4 of the within law, even in the cases in which they disclose information on said accounts to officials or employees of the Legislative Organ, the Executive Organ, the Ministry of Finance and Treasury, the Independent Agencies of the State, the Office of the Comptroller General of the Republic, or the Judicial Organ, other than in the exceptions relative to criminal proceedings stipulated in the preceding article.

Art. 7. The provisions of Article 17 of Law No. 101 of 1941, as amended by Law No. 47 of 1954, shall not apply to coded bank accounts.

Art. 8. Banking institutions which by law are required to report to the Department of Internal Revenue of the Ministry of Finance and Treasury on the amounts of interest paid to depositors of coded accounts, shall do so globally, that is, without specifying the amount paid to each depositor.

Art. 9. In the event of the demise of one of the persons authorized to draw against a joint account, the survivors may continue drawing against same.

Proviso: A joint account is that against which more than one person may draw.

Art. 10. The power to withdraw funds from coded bank accounts does not cease upon the demise of the grantor of such power.

Art. 11. All provisions contrary to this law are hereby repealed.

Art. 12. This law shall become effective upon its publication in the Gazeta Oficial.

{The signatory clause is omitted.}

Law No. 20 1

[April 22,1975]

Reorganizing the National Bank of Panama2

The National Legislative Council

decrees:

Chapter I

purposes and objectives

Art. 1. The National Bank of Panama, established by Law No. 74 of 1904, Law No. 27 of 1906, and Law No. 6 of 1911, is an autonomous agency of the State having its own capital. Further, it is an official bank with independent juridical personality and is autonomous and independent as regards its internal system and administration, subject solely and exclusively to the surveillance of the Executive under the conditions established in this law. It shall be the State’s preeminent financial organization and shall have, in addition to the objectives expressly stated in this law, the purpose of engaging, within the official sector, in the business of banking as defined in the law and seeking to obtain the financing necessary to the development of the national economy.

Art. 2. The National Bank of Panama is regulated primarily by this law and complementarily by Cabinet Decree No. 238 of July 2, 1970, whereby the banking system is reorganized and the National Banking Commission is established, under the conditions stipulated in Article 109 of said Cabinet Decree.

Art. 3. The State is responsible for all liabilities of the National Bank of Panama.3

Art. 4. The minimum capital stock of the National Bank of Panama shall be ten million balboas (B 10,000,000.00), of which the State initially provided the sum of one million balboas (B 1,000,000.00).

The capital stock of the National Bank of Panama may be changed depending on the institution’s reserve funds. Such funds shall be constituted from the profits earned by the National Bank of Panama on its operations.

Art. 5. The National Bank of Panama shall not charge the State any amount whatsoever for cash office services or for any other kind of banking service it renders to the State.

Nevertheless, the National Bank of Panama may charge public law juridical persons, State and semipublic enterprises, and municipalities for special services provided them, even if such services are not expressly mentioned in this law.

Art. 6. The National Bank of Panama shall at all times be exempt from the payment of any national, municipal or other tax, duty, or assessment, and in any judicial or administrative proceedings to which it may be a party it shall enjoy all the privileges that the laws of procedure accord to the State.

The exemptions and privileges specified in this provision do not extend to the personnel in the Bank’s service.

Art. 7. All authorities of the Republic shall give effective assistance to the General Manager and other officials of the National Bank of Panama when asked to do so in matters connected with the institution.

Art. 8. Public law juridical persons, semipublic or State enterprises, and municipalities shall be required to keep their moneys on deposit with the National Bank of Panama.

Art. 9. The General Manager of the National Bank of Panama shall send to the Comptroller General of the Republic a daily cash balance sheet [and,] 4 each month, a cumulative general balance sheet. The General Manager shall submit each year to the Executive a report on the activities of the Bank.

Art. 10. The check clearing system and the clearinghouse of the national banking system shall function under the direction and responsibility of the National Bank of Panama. To this end, the National Bank of Panama shall regulate by decision of its Board of Directors the operations and functions of the check clearing system and the clearinghouse, whereupon Executive Decree No. 157 of October 17, 1967 and any other complementary provisions on this subject shall be deemed superseded.

Chapter II

administration of the bank

Art. 11. The management, direction and administration of the National Bank of Panama shall be the responsibility of a General Manager and a Board of Directors composed of five (5) members, all of whom shall be appointed by the Executive.

The Board of Directors shall have a Secretary, whose functions shall be those stipulated in the law and such others as may be established by the Board.

The General Manager shall place at the disposal of the Board of Directors such administrative personnel and other facilities as may be necessary for it to perform its assigned functions.

Art. 12. To be a member of the Board of Directors or General Manager of the Bank one must have been engaged in commercial or industrial activities, in executive positions, for at least five (5) of the last ten (10) years or be knowledgeable in economics or finance.

Art. 13. The Board of Directors shall have the following duties and powers:

  • (a) To meet at least once a month and whenever convened by the General Manager or at the request of at least three (3) directors.

  • (b) To set the salary and representation allowance of the General Manager.

  • (c) To establish guidelines for the proper operation of the Bank in all its aspects, and especially as regards its administrative, economic and legal affairs, in conformity with the economic development policy established by the Executive. To this end, it shall prescribe such by-laws as may be necessary for the proper functioning of the Bank.

  • (d) To approve the Bank’s organizational structure and its functions as proposed by the General Manager, which will be revised when deemed necessary in view of the expansion of the Bank.

  • (e) To approve the establishment and closing of branches and agencies as proposed by the General Manager.

  • (f) To approve or disapprove operations proposed to the Bank in an amount exceeding five hundred thousand balboas (B 500,000). Operations not exceeding five hundred thousand balboas (B 500,000) shall be decided upon by Credit Committees, whose functions and procedures shall be regulated by the Board of Directors.

    Credit operations requested of the Bank by the State, public law juridical persons, State or semipublic enterprises, or municipalities may be decided upon by the General Manager, subject to authorization by the Executive.

  • (g) To empower the General Manager to contract for the construction or repair of facilities and for the purchase, sale or leasing of property belonging to the Bank on behalf of the Bank and without public competitive bidding, when the Bank’s interests so justify in the judgment of the Board.

  • (h) To take cognizance of operations effected in amounts greater than two hundred and fifty thousand balboas (B 250,000) but smaller than five hundred thousand balboas (B 500,000). The General Manager of the Bank shall inform the Board of Directors of such operations in the first meeting following the date of each such operation.

  • (i) To approve the expenditure budget.

  • (j) Such other duties and powers as may be established by law.

Art. 14. The members of the Board of Directors shall be paid a fee of fifty balboas (B 50) each for each meeting they attend.

Art. 15. Approval of resolutions and decisions by the Board of Directors requires a majority vote of the members of the Board and the favorable opinion of the General Manager of the Bank, except in special cases in which a larger number of directors’ votes is required in accordance with this law.

Art. 16. The General Manager can be suspended from office only by an unappealable judicial sentence for criminal offenses. He may also be suspended by the Executive at the request of the Board of Directors in the cases mentioned in the following article.

Art. 17. In the event that the General Manager acts beyond his legal authority in a manner which may give rise to liability for the Bank, or effects operations without due authorization from the Board of Directors when such authorization is necessary, the Board of Directors shall order the appropriate investigation to be made and may, by vote of at least four (4) of its members, request the Executive to suspend the General Manager. The General Manager shall be temporarily suspended as from the date on which the Board of Directors sends the request for suspension to the Executive.

If the Executive, after studying the case filed by the Board of Directors and making such investigations as it may deem advisable, considers the Board of Directors’ request justified, it shall order by Executive Decree the suspension of the General Manager, who shall be permanently removed from office as from the date of the decree.

Art. 18. The General Manager is the legal representative of the Bank, and actions he performs and contracts he enters into in the name of the Bank shall be binding on the Bank, without prejudice to the responsibilities specified in this law.

Art. 19. In cases of temporary or occasional absence of the General Manager, an official designated by the General Manager with the approval of the Board of Directors shall act in his stead. In case of permanent absence of the General Manager, he shall be replaced temporarily by an official designated by the Board of Directors pending a new appointment by the Executive.

Art. 20. The office of General Manager of the National Bank of Panama is incompatible with the exercise of any other remunerated public office or position except those which by virtue of other laws he performs as General Manager of the Bank and that of professor in an establishment of higher education.

Art. 21. The General Manager of the National Bank of Panama shall be authorized:

  • (a) To decide on operations proposed to the Bank in amounts not exceeding two hundred and fifty thousand balboas (B 250,000) in the case of collateralized credit facilities and in amounts not exceeding one hundred thousand balboas (B 100,000) in the case of unsecured credit facilities.

  • (b) To determine the size of operations or credit facilities that may be authorized by Bank officials. In no case may these ceilings exceed those established by law for the General Manager.

Art. 22. The Bank shall insure the performance of the General Manager and of all its officials and subordinate employees by contracting comprehensive or group insurance, whose premiums shall be covered by the Bank.

Art. 23. The National Bank of Panama shall also have an external audit department, which shall be directly responsible to the Office of the Comptroller General of the Republic and whose function shall be to audit, inspect, and verify its operations. This department shall be headed by an auditor appointed by the Comptroller General of the Republic.

Art. 24. The National Bank of Panama shall have as many officers and employees as necessary for its proper functioning; they shall be freely appointed, transferred and removed by the General Manager, and their salaries shall be set by the General Manager.

The General Manager may not appoint as a subordinate any relative of his within the fourth degree of consanguinity or within the second degree of affinity, or his spouse.

Art. 25. Neither the General Manager of the Bank nor any other officer or employee of the Bank may bind himself as guarantor or joint debtor to the National Bank of Panama while occupying his position.

Chapter III

operations and facilities of the bank

Art. 26. The National Bank of Panama shall be authorized to perform the following operations:

  • (a) Grant secured and unsecured credit facilities.

  • (b) Discount negotiable credit, securities and documents.

  • (c) Purchase and sell drafts and bills of exchange or promissory notes issued or payable in the Republic or abroad.

  • (d) Act on commission and as agent, and accept in deposit all kinds of property capable of being deposited.

  • (e) Accept money for deposit in current accounts, savings accounts, term accounts, numbered accounts, and in any other fashion in which moneys can be accepted in accordance with banking custom and practice.

  • (f) Act as trustee or proxy.

  • (g) Purchase and sell real estate and movable property for the use or benefit of the Bank; receive property as grants, by assignment, or in payment of liabilities incurred toward the Bank, whether or not such property is encumbered in favor of the Bank.

  • (h) Approve overdrafts.

  • (i) Grant all kinds of commercial, personal and other credit.

  • (j) Issue letters of credit.

  • (k) Furnish its bank guarantee.

  • (I) Act as custodian and transporter of moneys and other valuables.

  • (m) Carry out collection operations.

  • (n) Invest moneys in public law or private law juridical persons in an amount not greater than ten per cent (10%) of the Bank’s assets.

  • (ñ) Trade in State obligations and foreign currencies, but not speculate in securities.

    The Bank shall use prevailing market quotations as the basis for all transactions in currencies or foreign securities.

  • (o) Incur liabilities in the Republic or abroad.

  • (p) In general, conduct all operations permitted to the business of banking in accordance with the law or banking practice.

Art. 27. In every document dealing with an operation for which the prior authorization of the Board of Directors is necessary, the date of the meeting at which such operation was authorized shall be recorded.

Art. 28. Antichresis must be agreed as an accessory to the mortgage guarantee in all cases of mortgage-guaranteed credit facilities. In every mortgage-guaranteed credit facility it shall also be stipulated that the debtor waives executory process.

Art. 29. Mortgage-guaranteed credit facilities may be granted for up to 90 per cent of the commercial value of the property guaranteeing them.

For loans guaranteed by collateral, the amount of the credit facility shall not exceed the commercial value of the property pledged at the time of the operation. Whenever the value of property pledged to the Bank is smaller than the amount lent or owed, the General Manager shall require the debtor, and the debtor shall be obliged, to improve the guarantee, and if he should fail to do so the obligation shall be considered due and steps shall be taken toward its immediate collection.

Art. 30. The General Manager shall cause to be inspected, whenever he deems it appropriate, property pledged to the Bank in guarantee of liabilities to the Bank. If at any time the value of such property is found to have decreased to the point that it no longer guarantees the payment of the obligation, the General Manager shall require the debtor, and the debtor shall be obliged, to improve the guarantee or to furnish others, and if he should fail to do so the debt shall be considered due and steps shall be taken toward its immediate collection.

Such inspections may be conducted by Bank officials or by private persons who are expert in the field. In any event, the cost of such inspections shall be borne by the debtor involved.

Art. 31. Every mortgage-guaranteed credit facility granted by the National Bank of Panama and involving improved real property shall entail the obligation on the part of the debtor to maintain insurance on such improvements and to assign any indemnification for loss to the Bank. The amount and type of insurance shall be established in each specific instance in the document containing the credit facility.

The Bank shall be entitled to insure the property or renew the policy in the event that the debtor does not do so, but in this case any amount spent by the Bank for the purpose shall be charged to the debtor and shall accrue interest at the same rate as the principal. Such amounts and interest thereon shall be payable upon request.

Art. 32. Property acquired by the Bank in payment of obligations to it may be sold in accordance with the Bank’s best interest. Such sales shall be made at the commercial market price after an independent appraisal. If there is more than one prospective purchaser, the Bank shall make the sale to the one offering the highest price.

Art. 33. At the request of the Executive, the National Bank of Panama shall coordinate the credit policies of State financial and credit institutions to achieve a more effective utilization of their resources and shall take part in the negotiation and contracting of loans and in the placement of bonds in which the State, any other public law juridical person or any State or semipublic enterprise is a party.

Art. 34. The administration of the Bank’s property and the administration of its debtors’ property which it exercises by antichresis, attachment, power of attorney or any other reason, may be handled by the Bank itself or by third parties who are expert in the field.

Chapter IV

executory collection

Art. 35. The General Manager of the Bank is hereby granted summary jurisdiction for collection of liabilities to the Bank that have fallen due. This authority may be delegated to such Bank officials as the General Manager may determine.

Art. 36. The General Manager of the Bank may empower any lawyer to collect the Bank’s claims, but in such cases the action must be brought before ordinary courts.

Art. 37. In collection proceedings instituted by the National Bank of Panama by summary jurisdiction, there shall be such legal costs as the Bank’s Board of Directors may determine.

The Bank may acquire property of its debtors at auction for the account of the liabilities to be paid. In such processes the date of the auction shall be publicly announced and may not be less than five (5) days after the date of posting or publication of the notice.

Art. 38. Claims of the National Bank of Panama which have been acknowledged by a writ of execution issued by ordinary courts or by executory judges by virtue of summary jurisdiction and which have not been paid may be sent by the National Bank of Panama to the Directorate General of Revenue for collection. The proceeds of the collection of such claims shall be paid to the National Treasury.

In such cases, the Directorate General of Revenue will not issue the Certificate of Compliance referred to in Article 739 of the Tax Code until the debt has been paid in full.

Art. 39. If the party involved does not personally prove that he has fully paid the National Bank of Panama in connection with a case of the type referred to in the preceding article, the deeds and contracts mentioned in Article 739 of the Tax Code may not be authorized, permitted or admitted by the relevant public or private officials.

Art. 40. For purposes of the preceding article, the parties involved will prove that they have fully paid the National Bank of Panama in connection with a case of the type referred to in Article 39 hereof by means of a certificate to be issued by the Directorate General of Revenue.

Art. 41. The provisions of Articles 740, 741, 743, 744, 745, and 746 of the Tax Code shall be applicable for purposes of collection of the claims referred to in Article 39 hereof.

Chapter V

retirement

Art. 42. Employees and former employees of the National Bank of Panama shall be entitled to retire when this law comes into force, subject to the following conditions:

That the employee has been employed by the Bank for at least twenty-eight (28) years; or that upon the entry into force of this law he be sixty (60) years of age and have been employed by the Bank for at least twenty (20) consecutive years.

Art. 43. An employee requesting retirement in accordance with the preceding article shall be paid, for life, seventy-five per cent (75%) of the last salary earned, which in no case may be greater than five hundred balboas (B 500).

Art. 44. Employees of the National Bank of Panama who leave the Bank’s employ because of total permanent physical disability, fully confirmed by a medical certificate and accepted as factual by the Board of Directors of the Bank, shall also retire on seventy-five per cent (75%) of the last salary earned, which in no case may be greater than five hundred balboas (B 500), provided they have been employed by the institution for at least ten (10) consecutive years.

Art. 45. The amount of the retirement pensions allowed in Articles 43 and 44 hereof shall be paid in its entirety by the Social Contributions Complementary Fund created by Law No. 16 of 1975, as provided in Article 31 of Law No. 15 of March 31, 1975.

Art. 46. Employees of the National Bank of Panama who request retirement may opt for the benefits granted them by Law No. 20 of April 22, 1975 or for the benefits provided by the Social Contributions Complementary Fund created by Law No. 16 of 1975, provided they meet the conditions and requirements established in the respective law.

Art. 47. The employees of institutions incorporated into the National Bank of Panama under this law may avail themselves, taking into account the years of service with said institutions, of the retirement and pension benefits which are the subject of this chapter.

Art. 48. This law supersedes Law No. 11 of February 7, 1956.

Art. 49. This law shall come into force upon its publication.

{The signatory clause is omitted.}

Law No. 131

[January 25, 1973]

Creating the Agricultural Development Bank 2

The National Legislative Council

decrees:

Title I

purpose and functions

Art. 1. A government enterprise named the Agricultural Development Bank is hereby created. It shall have legal personality, its own capital, and autonomy in its internal rules, subject to the guidance of the Executive Branch through the Ministry of Agricultural Development and to supervision by the Comptroller General of the Republic. Its purpose shall be to provide funding for agricultural development programs and agriculturally related industrial projects. The Bank shall arrange credit assistance for producers in the agricultural sector with limited resources and for organized groups of such producers, with emphasis on small and medium-scale producers, as provided in Article 115 of the Political Constitution.

Art. 2. The Minister of Agricultural Development shall be the legal representative of the Bank.

Art. 3. The nation shall be liable jointly and severally for the liabilities of the Agricultural Development Bank.3

Art. 4. The Agricultural Development Bank shall be exempt from payment of taxes, levies, and assessments and shall enjoy the same privileges as the nation in legal proceedings to which it is a party.

Art. 5. The Agricultural Development Bank shall carry out the credit policies of the Ministry of Agricultural Development and shall have the following functions:

  • (a) To provide financing, duly supervised by officials of the sector, for agricultural and agriculturally related industrial activities to

    • 1. farmer and cooperative organizations;

    • 2. small and medium-scale producers in the agricultural sector;

    • 3. agriculturally related industrial projects encouraged by the Ministry of Agricultural Development;

    • 4. municipalities and local boards conducting agricultural, agriculturally related industrial, or fisheries activities;

    • 5. any other individuals or legal entities engaged in activities compatible with the economic policies of the Ministry of Agricultural Development.

  • (b) To issue securities of any kind and to float them on the domestic or foreign financial market.

  • (c) To borrow from multinational, foreign, or domestic financial institutions for the purposes set forth in this law.

  • (d) To assume the financial liabilities to multinational, international, foreign, or domestic credit institutions of government agencies that have actually transferred all or part of their assets to the Bank.

  • (e) Any other functions set forth in this law and other functions which may be set forth in the future.

  • (f) To contribute to the capital of farm enterprises, cooperatives, local boards, and agriculturally related industrial enterprises, with the right to participate in their management.

  • (g) To receive collections in respect of outstanding borrowing from the Inter-American Development Bank (IDB), for which payment of principal and interest will be assumed by the nation.

  • (h) To effect any other banking operations authorized by Executive Decree.

  • (i) To grant, upon the authorization of the Cabinet Council, guarantees for agricultural, livestock-raising, and agriculturally related industrial activities, to small farmers and to associations and federations of such farmers.

Title II

organization

Art. 6. The Agricultural Development Bank shall be administered by an Executive Committee and a General Manager.

Art. 7. The Executive Committee shall be composed of five (5) Commissioners and their Alternates:

  • (a) the Minister of Agricultural Development, who shall be its Chairman;

  • (b) the Minister of Commerce and Industry;

  • (c) the General Manager of the National Bank;

  • (d) a representative of the independent agricultural producers; and

  • (e) a representative of the organized producers.

Art. 8. The Alternates of the Minister of Agricultural Development, the Minister of Commerce and Industry, and the General Manager of the National Bank shall be the Vice Minister of Agricultural Development, the Vice Minister of Commerce and Industry, and the Manager of the National Bank of Panama selected by the General Manager of that Bank, respectively. The Representatives of the producers and rural organizations and their Alternates shall be appointed by the Executive Branch.

Art. 9. The General Manager of the Agricultural Development Bank shall attend Executive Committee meetings in an advisory capacity and shall be the Committee’s Secretary.

Art. 10. The Executive Committee shall establish the internal rules of the Agricultural Development Bank, determine its staff structure, and assign the various salaries.

Art. 11. The General Manager of the Agricultural Development Bank must be a Panamanian, be at least 25 years of age, be proficient in economics and finance, and be knowledgeable in banking or have held executive positions in agriculture for at least five (5) years.

The General Manager shall be appointed by the President of the Republic.

Art. 12. In the temporary or occasional absence of the [General]4 Manager, an official of the Bank selected by the Executive Committee shall serve in his stead. In the permanent absence of the General Manager, the official selected by the Executive Committee shall temporarily act in his stead, pending a new appointment by the President of the Republic.

Art. 13. The functions of General Manager are incompatible with those of any other compensated public or private position or office, except for those of university teaching.

Art. 14. The Chairman of the Executive Committee may delegate the legal representation of the Bank to the General Manager or to another official.

This delegation of functions may be revoked at any time by the Chairman of the Executive Committee, and in making decisions the delegate shall state that he is doing so by delegation. Delegated functions may in no case be delegated onward.

Failure to comply with the requirements set forth in this article shall cause the acts of the delegate to be invalid.

Title III

resources and operations of the bank

Art. 15. The Agricultural Development Bank shall have the following resources:

  • (a) the interest on its credit operations;

  • (b) subsidies and allocations granted to it by the National Government;

  • (c) property or claims acquired by it on any basis;

  • (d) proceeds from the securities it issues and from its borrowing;

  • (e) other income from its operations;

  • (f) funds transferred to it by the Ministry of Agricultural Development out of the surpluses referred to in Article 14 of Law No. 12 of January 25, 1973 and from the sale of land; and

  • (g) the property and assets of the Economic Promotion Institute, including those of the Real Estate Department and except for those of its Promotion Office. Immovable property transferred to the Agricultural Development Bank as provided for in the preceding paragraph shall be registered in the Public Registry in the name of the Agricultural Development Bank. This provision shall have retroactive effect as from January 25, 1973.

Art. 16. The General Manager of the Agricultural Development Bank shall have summary jurisdiction, the exercise of which he may delegate to any official of the Bank.

Art. 17. This law shall take effect upon its approval.

{The signatory clause is omitted.}

Law No. 10 1

[January 25, 1973]

Creating the National Mortgage Bank 2

Title I

purpose and functions

Art. 1. A government enterprise called the National Mortgage Bank is hereby created. It shall possess legal personality, its own capital, and autonomy in its internal rules, subject to the guidance of the Executive Branch through the Ministry of Housing and to supervision by the Comptroller General of the Republic, and shall have the purpose of providing financing for national housing programs designed to give effect to the right guaranteed by Article 109 of the Constitution.

Art. 2. The Minister of Housing shall be the legal representative of the Bank.

Art. 3. The nation is liable jointly and severally for the liabilities of the National Mortgage Bank.3

Art. 4. The National Mortgage Bank shall be exempt from payment of taxes, levies, and assessments and shall enjoy the same privileges as the nation in legal proceedings to which it is a party.

Art. 5. The National Mortgage Bank shall carry out the policies of the Ministry of Housing in the area of housing and shall have the following functions:

  • (a) to grant credit and discount facilities to qualifying institutions pursuant to the criteria established by the Ministry of Housing;

  • (b) to guarantee payment of mortgage loans made by qualified institutions, and to charge a fee for such guarantees;

  • (c) to issue notes, mortgage bonds, or other types of securities on the basis of its portfolio, and to place those securities on the domestic or foreign financial market;

  • (d) to borrow from multinational, foreign, or domestic financial institutions for the purposes set forth in this law;

  • (e) to assume the financial liabilities to multinational, international, foreign, or domestic credit institutions of government agencies that have actually transferred all or part of their assets to the Bank;

  • (f) to discount, purchase, or commit itself to purchase or discount credits or claims held by public or private juridical persons or individuals, provided such credits are guaranteed by mortgages and antichresis and provided they are based on housing investment plans previously approved by the National Mortgage Bank;

  • (g) to pay or guarantee payment of liabilities contracted by borrowers in connection with loans made for the purchase of housing under investment plans previously approved by the National Mortgage Bank.

    • Subitem. The Executive Committee shall, by resolution, determine the requirements, amounts, periods, terms, and conditions of the investment plan or plans under which the National Mortgage Bank shall contract liabilities pursuant to the powers stipulated in Article 5(f) and (g), and shall give prior approval to any contract binding the National Mortgage Bank.

    • Contracts entered into by the National Mortgage Bank pursuant to the powers stipulated in Article 5(f) and (g) shall be exempt from the stamp tax, the stamped paper tax, the notary fee tax, and other taxes.

  • (h) any other powers set forth in this law and other powers which may be set forth in the future.

Title II

organization

Art. 6. The National Mortgage Bank shall be administered by an Executive Committee and a General Manager.

Art. 7. The Executive Committee shall consist of four Commissioners and their Alternates:

  • (a) the Minister of Housing, who shall be Chairman;

  • (b) the Minister of Planning and Economic Policy;

  • (c) the Minister of Labor and Welfare;

  • (d) the General Manager of the National Bank of Panama.

Art. 8. The alternates of the Minister of Housing, the Minister of Planning and Economic Policy, the Minister of Labor and Welfare, and the General Manager of the National Bank shall be the Vice Minister of Housing, the Vice Minister of Planning and Economic Policy, the Vice Minister of Labor and Welfare, and the Manager of the National Bank of Panama selected by the General Manager of that Bank, respectively.

Art. 9. The General Manager of the National Mortgage Bank shall attend Executive Committee meetings in an advisory capacity and shall be the Committee’s Secretary.

Art. 10. The Executive Committee shall establish the internal rules of the National Mortgage Bank, determine its staff structure, and assign the various salaries.

Art. 11. The General Manager of the National Mortgage Bank must be a Panamanian, at least 25 years of age, proficient in economics and finance, and knowledgeable in banking or have held executive positions in commerce or industry for at least five (5) years.

The General Manager shall be freely appointed and may be freely removed by the President of the Republic.

Art. 12. In the temporary or occasional absence of the General Manager, an official of the Bank selected by the Executive Committee shall serve in his stead.

In the permanent absence of the General Manager, the official selected by the Executive Committee shall temporarily act in his stead, pending a new appointment by the President of the Republic.

Art. 13. The functions of General Manager are incompatible with those of any other compensated public or private position or office, except for those of university teaching.

Art. 14. The Chairman of the Executive Committee may delegate the legal representation of the Bank to the General Manager or another official.

This delegation of functions may be revoked at any time by the Chairman of the Executive Committee, and in making decisions the delegate shall state that he is doing so by delegation. Delegated functions may in no case be delegated onward.

Failure to comply with the requirements set forth in this article shall cause the acts of the delegate to be invalid.

Title III

assets and operations of the bank

Art. 15. The National Mortgage Bank shall have the following resources:

  • (a) the fees paid for the Bank’s guarantees of loans made by qualifying government or private mortgage institutions;

  • (b) subsidies and allocations granted to it by the National Government for the execution of its programs;

  • (c) property acquired by it on any basis;

  • (d) proceeds from notes, mortgage bonds, and other types of securities issued by it on the basis of its portfolio, and from borrowing;

  • (e) the income from its operations and other resources with which it is endowed by the law.

Art. 16. The President of the National Mortgage Bank shall have summary jurisdiction, which he may delegate to other officials of the Bank.

Art. 17. This law shall take effect upon its approval.

{The signatory clause is omitted.}

Law No. 87 1

[November 23, 1960]

Enacting the Charter of the Savings Bank 2

The National Assembly of Panama

decrees:

Chapter I

general provisions

Art. 1. The Savings Bank, established by Executive Decrees Nos. 54 of June 15, 1934 and 27 of February 23, 1939, and reorganized by Law No. 77 of June 20, 1941, shall continue to exist and operate in accordance with the provisions of this law and be known as the Savings Bank.

Art. 2. The Savings Bank shall be an autonomous government institution, having its own legal status and being internally self-governing and self-managing, subject only to the supervision and inspection of the Executive under the terms set forth in this law.

Art. 3. The nation shall bear secondary liability for all obligations of the Savings Bank.3

Art. 4. The Savings Bank shall maintain its Head Office in Panama City; it may, however, establish branches or agencies therein or in any other part of the Republic.

Art. 5. The existing capital of the Savings Bank is one million eight hundred thousand balboas (B 1,800,000) of which the State has provided one hundred fifty thousand balboas (B 150,000) with the remainder being taken in stages from the Reserve Fund of the Savings Bank itself. Whenever said Reserve Fund exceeds three hundred thousand balboas (B 300,000), the capital shall be increased by the Board of Directors in the amount of one hundred fifty thousand balboas (B 150,000), which shall be taken from the Reserve Fund.

Art. 6. The Savings Bank shall at all times be exempt from paying any tax, levy, or charge, and all its proceedings shall enjoy all the privileges that the law accords to the government.

The exemptions and privileges established by this provision shall not extend to the personnel of the Savings Bank.

Art. 7. All authorities of the Republic shall lend effective support to the General Manager and other officials of the Savings Bank, when they so request, in matters relating to the institution.

Art. 8. During the first ten (10) days of each ordinary session of the National Assembly, the General Manager shall submit to that body a detailed report on the transactions and progress of the institution, and shall propose measures which he regards as desirable both with respect to its improved operation and administration and to the development of the national economy.

Chapter II

administration

Art. 9. The management, direction and administration of the Savings Bank shall be entrusted to a General Manager, who will be appointed by the Executive with the approval of the National Assembly, and to a Board of Directors, comprised of five (5) Principal Directors who together with their Alternates will be appointed by the Executive with the approval of the National Assembly.

Art. 10. The General Manager and the Principal and Alternate Directors on the Savings Bank’s Board of Directors must be of Panamanian nationality, at least twenty-five (25) years of age, knowledgeable about economics and finance, possess banking expertise, and have been engaged in executive positions in banking, commercial or industrial activities for no less than five (5) years.

Art. 11. The General Manager of the Savings Bank or whoever acts in his stead shall be the legal representative of the institution. With the approval of the Board of Directors, the General Manager may both confer powers and delegate responsibilities to the institution’s Managers and Assistant Managers.

Art. 12. The term of office of the General Manager and of the Directors and Alternate Directors of the Board of Directors shall be four (4) years. They may be re-elected to their offices. Appointments to fill vacancies shall be made for the remainder of the term.

Art. 13. Except where otherwise provided for in this law, decisions by the Board of Directors shall be taken by majority vote provided, however, that if the General Manager is opposed the vote of four (4) Directors shall be required.

Art. 14. The Board of Directors shall have the following duties and powers:

  • (a) meet at least once a month upon convocation by the General Manager or at the request of three Directors;

  • (b) determine the salary and representation allowance of the General Manager;

  • (c) approve the establishment of branches proposed by the General Manager;

  • (d) decide on all matters submitted to it by the General Manager or any of the Directors;

  • (e) approve the expenditure budget; and

  • (f) such other duties and powers as may be provided for by law.

Art. 15. Members of the Board of Directors shall each receive twenty balboas (B 20) as compensation for every meeting they attend.

Art. 16. With the approval of the Board of Directors, the General Manager shall prescribe the by-laws of the Savings Bank.

Art. 17. The Savings Bank shall insure the performance of the General Manager and his subordinates by taking out a global or group policy for an amount to be determined by the General Manager with the approval of the Board of Directors; premiums shall be paid with Savings Bank funds.

Art. 18. The duties of the General Manager are incompatible with those of any other employment or remunerated public office and with engaging in trade or the management or intervention in the administration of any other business or enterprise whatever, with the exception of those which, by virtue of this law, he discharges as General Manager of the Savings Bank.

Art. 19. The General Manager may be removed from office solely for mismanagement, incompetence or conduct which brings discredit to the institution. The Board of Directors must petition the Executive for removal of the General Manager, stipulating the reasons for its action.

Art. 20. Within the first fifteen (15) days of each month, the General Manager shall submit to the Board of Directors a report setting forth the following:

  • (a) total deposits at the end of the preceding month;

  • (b) interest accrued but not paid;

  • (c) number of depositors;

  • (d) money invested in mortgages;

  • (e) money invested in collateral loans;

  • (f) expenditure for the month;

  • (g) other receipts for the month;

  • (h) number and amount of mortgages with interest arrears;

  • (i) number and amount of mortgages with principal repayment arrears;

  • (j) other information required to enable the Board of Directors to take stock of the movements and operations of the Savings Bank during the preceding month.

Art. 21. The Savings Bank shall also have as many Managers, Assistant Managers, and other employees as are required for its smooth operation; they shall be freely appointed and dismissed by the General Manager. The General Manager shall not appoint as a subordinate any of his relatives within the fourth degree of relationship by consanguinity or the second degree of relationship by affinity, or his spouse.

Art. 22. If the General Manager is temporarily or occasionally absent, the Board of Directors shall appoint a Manager to act in his stead. If the General Manager is permanently absent, the Manager appointed by the Board of Directors shall provisionally act in his stead until the Executive designates a successor for the remainder of the term.

Art. 23. With the approval of the Board of Directors, the General Manager shall draw up the rules and regulations under which the Savings Bank will grant loans.

Art. 24. The Savings Bank shall retain an attorney appointed by the General Manager. His remuneration shall be determined by the Board of Directors. The institution’s attorney must be of Panamanian nationality, hold a law degree, have had five (5) years of professional experience or have held a certificate of competence for more than twenty (20) years and been professionally active during that time. The attorney shall be Secretary to the Board of Directors and shall have such responsibilities as may be assigned to him by the General Manager with the approval of the Board of Directors.

Chapter III

operations

Art. 25. The Savings Bank may perform the following operations:

  • (a) accept savings account deposits in accordance with such categories as may be established by the general management with the approval of the Board of Directors;

  • (b) issue mortgage certificates;

  • (c) issue savings bonds guaranteed by its capital and other assets;

  • (d) administer real estate for natural or juridical persons or the government;

  • (e) administer loans on real estate of natural or juridical persons or the government;

  • (f) grant loans with mortgage and antichretic guarantee on income-producing urban or suburban property located anywhere in the Republic;

  • (g) grant loans with mortgage and antichretic guarantee for the construction of residential housing, including residential buildings owned as apartments or stories (horizontal property);

  • (h) accept deposit accounts with itself as security for up to 90 per cent of the amount of loans granted by itself and as security for obligations contracted with the National Lottery. Obligations secured by these accounts shall receive preferential payment. In the event of a court-ordered or administrative attachment or seizure, the Savings Bank shall deduct the full amount guaranteed, plus interest, from the balance of the account tendered as security, and keep at the disposal of the relevant authority the amount subject to seizure or attachment;

  • (i) acquire movable property and real estate pledged to the Savings Bank as security for obligations contracted with said Bank, for total or partial payment of such obligations;

  • (j) acquire movable property and real estate for its own use;

  • (k) lease safe-deposit boxes;

  • (l) issue savings stamps;

  • (ll) apply for and obtain money on loan domestically and abroad, for which the joint guarantee of the Savings Bank and the government may be given after authorization is obtained from the Executive;

  • (m) finance projects which involve real estate development and the construction of qualified housing;

  • (n) acquire land for development and construction of qualified housing;

  • (ñ) administer trusts;

  • (o) make real estate appraisals and evaluations;

  • (p) sell travelers checks; and

  • (q) effect any operation permitted in the banking industry, pursuant to the law and banking practices.

Paragraph: The Savings Bank may issue mortgage certificates up to an amount equal to the value of the collateral and mortgage loans, respectively, which it holds on its own behalf. Such mortgage certificates shall be government securities, exempt from all taxes both as to principal and interest, and may be used by banks, credit institutions and insurance companies as part of the deposits or investments which the law requires them to maintain in the Republic. The Board of Directors of the Savings Bank shall fix the interest to be paid on mortgage certificates, the manner of payment, their denominations, maturities, redemption and all other matters concerning the issue of such securities.

Art. 26. Loans against shares and bonds shall be based on the market value of such instruments and only against national securities or those of entities established in the country whose securities have been issued for at least five (5) years and which have not defaulted on dividend payment.

Art. 27. No more than eighty (80) per cent of the market value shall be lent on national bonds or sixty (60) per cent on other securities.

Art. 28. The Savings Bank shall not lend more than a total of five (5) per cent of the face value of a company’s entire issue of bonds or shares.

Art. 29. The Savings Bank shall accept savings account deposits for such minimum and maximum amounts as may be determined by the Board of Directors on the recommendation of the General Manager.

Art. 30. Any minor may open a savings account for himself in the Savings Bank and make deposits in it. If he is less than fourteen (14) years of age, he may not make withdrawals from the account unless accompanied by a parent or guardian. If he is older than fourteen (14) but less than eighteen (18) years of age, he may make withdrawals on his own, provided the Savings Bank has written authorization from the parent or guardian. If he is over eighteen (18) years of age he may freely make withdrawals, unless the Savings Bank should have written instructions to the contrary from the minor’s parent or guardian.

If a savings account is opened by a minor in person, no other individual may make withdrawals from that account against the minor’s will, duly notified to the Savings Bank’s General Manager.

The above provisions shall apply solely to savings accounts opened by minors in person. If an account is opened by the parent or guardian of a minor or by anyone else in the name of the minor, the person who opens the account shall exclusively be entitled to make withdrawals as long as the minor remains under age, unless said person gives written notification to the contrary.

Art. 31. The Board of Directors of the Savings Bank, on the recommendation of the General Manager, shall be empowered to set the rate of interest to be paid on savings account deposits and the ways in which such interest is to be calculated and compounded.

Art. 32. A passbook shall be issued to each depositor; his deposits and withdrawals shall be noted in it.

Art. 33. In order to withdraw funds deposited with the Savings Bank, thirty (30) days’ advance notice must be given in writing. The General Manager may, however, agree to the withdrawal of such funds without requiring this formal notification.

Art. 34. In order to withdraw funds which have been deposited with the Savings Bank, the depositor must establish his identity and present the passbook issued to him.

Art. 35. If a passbook is lost, a duplicate may be issued to its owner. In it shall be noted the balance of the account in favor of the depositor. The original passbook shall be voided de facto, and this shall be noted in the duplicate.

Art. 36. The Board of Directors of the Savings Bank, on the recommendation of the General Manager, shall be empowered to establish the percentages of the assessed valuations of properties securing its loans up to which it will make such loans in the case of borrowers’ own residences, commercial properties, and qualified dwellings, as well as the criteria identifying the latter dwellings.

Art. 37. In order for mortgage-secured loans to be made, collateral property must first be appraised. The appraisal, made at the expense of the interested party, will be carried out by the Savings Bank and must be approved by the General Manager. The General Manager, with the approval of the Board of Directors, shall establish rules governing the appraisal procedure to be followed by the Savings Bank.

Art. 38. Credit operations shall be decided on by groups of officials to be known as “Credit Committees,” whose membership, organization, and operations shall be determined by a regulation proposed by the General Manager and approved by the Board of Directors.

Art. 39. If the transaction involves more than thirty thousand balboas (B 30,000), it must be approved by the General Manager and by unanimous vote of the Board of Directors. In no case may such a transaction exceed seventy-five thousand balboas (B 75,000) for a single individual, company, or spouse, even if separate guarantees are given.

Art. 40. The first five thousand balboas (B 5,000) deposited in the Savings Bank may not be seized or attached except for alimony or in connection with the commission of a crime. Any seizure or attachment ordered in violation of the provisions of this article shall be lifted at the request of the party concerned or of the Savings Bank itself.

Art. 40A. The first five thousand balboas (B 5,000) of the minimum annual balances of individuals’ savings account deposits with the Savings Bank shall be exempt from inheritance tax. These five thousand balboas (B 5,000) or less may be paid directly by the Savings Bank without further formality or legal procedure to the person named by the account holder as beneficiary for such purposes upon proof of identity and of the account holder’s demise. Beneficiaries shall be named by the account holder or holders in the presence of Savings Bank officials on forms provided by the institution.

If the principal did not name a beneficiary, payment shall be made to his proven inheritors, either directly or upon court order. It shall be understood that if the sum of the minimum balances of one or more savings accounts belonging to the same person exceeds five thousand balboas (B 5,000), it shall be exempt from inheritance tax up to said amount and shall be paid only up to the equivalent of said amount.

Paragraph: The exemption provided for in this article shall supplement the prescription on inheritance taxes contained in the Tax Code.

Art. 41. The principal of mortgage-secured loans made by the Savings Bank shall be repaid in monthly installments as determined by the Credit Committees, taking into account the provisions of Article 42. Nonpayment of three (3) monthly installments shall render the obligation immediately due and payable.

Art. 42. No mortgage loans shall be made for a period exceeding five (5) years. Nevertheless, extensions for periods of five (5) years each may be granted, up to a maximum of four (4) such extensions, provided the party concerned is up-to-date with his interest and principal payments and the collateral has not deteriorated. Extensions shall be granted by the Credit Committees.

Art. 43. Where it deems appropriate, the Savings Bank shall have an inspection made of properties mortgaged to guarantee payment of obligations contracted with said Bank.

If it is found at any time that the value of the mortgaged real estate has dropped for whatever reason to the point of no longer covering on that date the percentage of the amount owing which, pursuant to Article 36, served as the basis for the loan, the General Manager shall request that the debtor increase the security. Should the latter fail to do so, the debt shall be considered due and its immediate collection undertaken.

Art. 44. All loan agreements with mortgage security entered into by the Savings Bank shall oblige the debtor to insure the mortgaged property and to endorse the relevant policy or policies to the Savings Bank. The amount and type of insurance, which in no case shall be less than the value of the relevant improvements, shall be determined in the loan agreement; if it is not, it shall be established by the General Manager of the institution.

The Savings Bank shall insure the property or renew the policy or policies should the debtor fail to do so. Any amounts which the Savings Bank has to disburse to this end shall be charged to the debtor and shall earn interest at the same rate as that stipulated in the loan agreement. Such amounts and their interest shall be payable upon notice from the Bank.

In the event of total or partial loss of whatever kind, the Bank shall collect the insurance indemnity and apply it to the debt. The Board of Directors, in concert with the General Manager, may establish rules for collecting insurance on mortgage loans.

Art. 45. It shall be stipulated in all mortgage contracts that the Bank has the right to take charge of the administration of the mortgaged property whenever the debtor defaults on the payments he is contractually obliged to make. Nevertheless, an antichresis may be agreed upon as an accessory to the mortgage guarantee, with the Bank, where it deems appropriate, being entitled to leave the debtor responsible for management.

Art. 46. All mortgage contracts shall also provide that the debtor renounces executory process.

Art. 47. The interest rate on Savings Bank loans shall be set by the Board of Directors and shall not exceed nine (9) per cent per annum. Should, however, a law of the Republic authorize collection of higher interest, the Board of Directors shall be empowered to raise the interest rate in accordance with such new law. Interest shall be payable in monthly installments. Failure to pay three (3) monthly installments shall cause the entire debt to become immediately due and payable. Any borrower from the Savings Bank must pay the costs involved in appraisals, credit investigation and examination of the proposed collateral, drafting of memoranda and for other services in connection with studying his loan application, as determined by the Board of Directors on the recommendation of the General Manager.

Art. 48. The Savings Bank shall keep its deposits in current accounts with the National Bank of Panama. Nevertheless, should the Bank deem it advisable, and with prior authorization from the Board of Directors, up to twenty-five (25) per cent of its deposits may be kept in other banks, either domestic or foreign, where such deposits are required in connection with lines of credit extended to the Savings Bank.

Art. 49. The Savings Bank shall maintain a cash reserve in order to guarantee its deposits. The amount shall be determined from time to time by the Board of Directors and must in no case be less than ten (10) per cent of total deposits.

Art. 50. Business of the Savings Bank in those parts of the country where it does not have offices shall be handled by the National Bank in accordance with arrangements to be worked out between the two institutions.

Art. 51. Any loan instrument prepared by the Savings Bank shall specify that the institution may assign the credit at any time without necessarily giving the debtor prior notice.

Art. 52. Neither the General Manager nor the employees of the Savings Bank may in any way act as guarantor or surety for third parties.

Art. 53. The Savings Bank shall not lend to the General Manager, the Directors, or their spouses.

Art. 54. The General Manager shall be granted summary jurisdiction for ensuring settlement of obligations undertaken toward the Bank.

Art. 55. Whenever summary jurisdiction is resorted to, the legal proceedings shall be held in the offices of the Savings Bank or the relevant branch.

Art. 56. The General Manager of the Savings Bank or the Managers of its branches may empower any attorney to collect the Bank’s debts; in such cases, however, proceedings must be held in the courts.

Art. 57. Collections under summary jurisdiction shall not entail court costs. Debtors shall pay only the expenses incurred by the Savings Bank in the proceedings.

The provisions of this article shall apply to collections made in accordance with Article 58 of this law.

Art. 58. In suits brought against debtors of the Bank, the latter may acquire goods of the debtor at auction and credit them to the debt being claimed.

Art. 59. The Savings Bank may only purchase real estate for its own use and for that of official bodies. It shall not speculate in securities; nevertheless, it may deal in government bonds.

Art. 60. Those instances in which the Savings Bank acquires property as full or partial payment of obligations entered into in its favor shall not be affected by the provisions of the previous article. Real estate acquired by the Savings Bank in accordance with the provisions of this article shall be sold through competitive bidding announced in three (3) consecutive notices appearing in one of the area’s most widely circulating daily newspapers, and in the Gazeta Oficial, at least ten (10) days in advance.

The Board of Directors shall establish the terms for the bidding, but in no case may the minimum acceptable bid in the first auction be less than the amount for which the Bank acquired the property. Sale will be made to the highest bidder, provided his bid is not lower than the minimum acceptable bid. Should no bidders come forth, the Board of Directors, acting by a majority and with the General Manager’s agreement, may arrange for new auctions to be held using the same public announcement procedure and such terms as it shall determine.

Real estate which the Bank acquires pursuant to the provisions of this article may be sold by the General Manager, with the approval of the Board of Directors, to whomever offers to buy it at a price not below its commercial value on the market. If there are several buyers, it will be sold to whichever offers the highest price.

Art. 61. Employees and former employees of the Savings Bank shall be entitled to retire upon entry into force of this law, provided the employee has worked for the Bank for at least twenty-eight (28) years or, upon entry into force of this law, is sixty (60) years old and has worked for the Bank for at least twenty (20) consecutive years.

Art. 62. A Savings Bank employee who requests retirement in accordance with the previous article, will be paid for the remainder of his life seventy-five (75) per cent of the last salary earned, which in no case shall exceed five hundred balboas (B 500). This pay will be entirely disbursed by the Bank as long as the employee or former employee has not reached the age where he qualifies for old-age pension from the Social Security Fund. When the employee or former employee qualifies for this pension, the Bank will contribute the amount needed to make up the salary he retired with.

Art. 63. Savings Bank employees who retire from service owing to complete and permanent physical disability, fully supported by a medical certificate and confirmed by the Board of Directors, shall also be retired with seventy-five (75) per cent of the last salary earned, which in no case shall exceed five hundred balboas (B 500), provided they have served the institution for at least ten (10) consecutive years.

Art. 64. Pay for employees who retire because of the above physical disability shall be comprised of the disability pension paid to them by the Social Security Fund and of the amount needed to make up the salary they retired with, which amount will be contributed by the Savings Bank.

Art. 65. After retiring from service and entering the category of retired or pensioned persons, beneficiaries shall continue paying their monthly contribution to the Social Security Fund as insured persons, as will the Savings Bank as employer, in accordance with the law; and any retired or pensioned individual who fails to do this shall lose his pension entitlement.

Art. 66. The following are hereby revoked: Executive Decree No. 54 of June 15, 1934; Executive Decree No. 27 of February 23, 1939; Articles 72 through 113 of Law No. 77 of 1941, and Articles 6, 7, 34, 42, 43, 44, 45, and 51 of the same law (these are the only provisions of that law which were still in force); Article 5 of Law No. 132 of 1943; Article 1 of Decree-Law No. 31 of 1942; Article 1 of Decree-Law No. 42 of 1947; Law No. 6 of 1948; Article 82 of Law No. 11 of 1956, and Articles 6, 7, 28, 40, 41, 42, 43, 49, 71, 72, 73, 74, 75, and 76 of that same law, but only as they apply to the Savings Bank, since they will remain in force with respect to the National Bank. All other provisions which conflict with this law are also hereby revoked.

Art. 67. This law shall enter into force upon its publication.

{The signatory clause is omitted.}

Cabinet Decree No. 247 1

[July 16, 1970]

Whereby the National Securities Commission 2 is established, the sale of stocks in the Republic of Panama is regulated and measures to protect minority stockholders are adopted

The Provisional Government Council

decrees:

Title I

the national securities commission

Art. 1. The National Securities Commission is hereby established as a unit operating under the Ministry of Commerce and Industry, with its own juridical personality and autonomy in regard to its organization and internal management, subject to the supervision and inspection of the Executive Branch and the Office of the Comptroller General of the Republic, pursuant to the terms stipulated in this cabinet decree.

Art. 2. The National Securities Commission will have the following attributes:

  • (a) To verify the accuracy of the information to be furnished by the companies as established in this cabinet decree and in the cabinet decree on mutual funds.

  • (b) To authorize, prohibit or suspend the public sale of stocks or securities in accordance with the provisions of this cabinet decree.

  • (c) To coordinate with the chambers of commerce, industrialist unions and similar organizations the most effective and expeditious means of issuing securities in the area and to promote securities exchange transactions consistent with growth and development of the economy.

  • (d) To rule on applications submitted to it in compliance with the provisions of this cabinet decree and of the cabinet decree on mutual funds.

  • (e) To issue the necessary licenses to sales agents for mutual funds and securities and to revoke such licenses in accordance with the provisions of this cabinet decree.

  • (f) To ensure that the mutual fund companies established or to be established in the country comply with their obligations as stipulated in this cabinet decree and in the cabinet decree on mutual funds.

  • (g) To ensure that the authorized distributors of mutual funds established or to be established in the country comply with all of their obligations as stipulated in this cabinet decree and in the cabinet decree on mutual funds.

  • (h) To examine, at least once a year, the financial statements to be presented by companies selling stocks, securities or mutual funds in accordance with this cabinet decree.

  • (i) To ensure compliance with all current legal provisions by those engaged in the various activities envisaged in this cabinet decree and in the cabinet decree on mutual funds.

Art. 3. The National Securities Commission will be composed of the following five (5) members:

  • (a) the Minister of Commerce and Industry, or such public official as he may designate, who will preside;

  • (b) the Manager of the National Bank, or such person as he may designate;

  • (c) one member prominent in banking, who must have at least five (5) years of experience in this activity in the Republic of Panama;

  • (d) one member prominent in industry, who must have at least five (5) years of experience in manufacturing production in the Republic of Panama;

  • (e) one member prominent in commerce, who must have at least five (5) years of experience in this activity in the Republic of Panama.

The members of the National Securities Commission referred to in sections (c), (d), and (e) of this article will be appointed by the Executive Branch for a term of three (3) years.

Paragraph: The original appointments of the members of the National Securities Commission referred to in sections (c), (d), and (e) of this article will be made for terms of one (1), two (2) and three (3) years, respectively; as these original terms expire, subsequent appointments will be made for terms of three (3) years.

Art. 4. Compliance with the policy established by the National Securities Commission and implementation of any decision made by that Commission shall be the responsibility of an Executive Director appointed by the Executive Branch.

Art. 5. The Executive Director must be a Panamanian citizen of legal age with a university degree in a field relating to the matters regulated by this cabinet decree, such as finance, economics, business administration or law, or equivalent experience of not less than five (5) years.

Art. 6. Companies subject to the regulations outlined in this cabinet decree are those offering their own stocks, mutual funds or any other securities for sale to the public, within the national territory, by means of the usual advertising media; by mail, cable, telephone or telegraph; through distributors, sales agents, brokers or intermediaries, or by any other means which, in the opinion of the National Securities Commission represents offer, distribution or sale to undetermined persons or potential buyers.

Paragraph: The following securities shall remain outside the scope of this cabinet decree:

(1) Direct verbal offers communicated privately or by letter by the issuing company or its promoters to no more than ten (10) persons within a period of one (1) year.

(2) Insurance or endowment policies or compounding certificates issued by companies subject to the supervision of the Insurance Superintendency.

(3) Securities issued by the National Government, its autonomous or semiautonomous governmental agencies, or interministerial bodies.

(4) Commercial paper or negotiable instruments issued for normal business transactions.

(5) Securities issued by nonprofit religious, social, educational, charitable and fraternal bodies which have established that legal personality has been appointed to them.

Art. 6A. Any company offering its securities to the public must make its offers in an informative prospectus duly approved by the National Securities Commission and of which the investor must have cognizance before the sale is completed.

Those offers deemed worthy of exemption by the National Securities Commission shall not be subject to this requirement.

Art. 7. Companies wishing to offer their own stocks or other securities for sale to the public within the national territory must request authorization for this purpose, through an attorney, from the National Securities Commission, which requests shall be accompanied by the following documents:

  • (a) the power of the attorney who will handle the authorization before the National Securities Commission;

  • (b) a public document containing the partnership agreement or charter of the requesting company and its amendments and proof of the registration of such papers in the Public Registry;

  • (c) a certificate from the Public Registry stating the names of the directors and principal officers of the company, if the latter was constituted in accordance with the laws of the Republic;

  • (d) a copy of the draft informative prospectus to be issued by the company, which shall comply with the rules and regulations of the National Securities Commission on such matters;

  • (e) a resolution of the board of directors or of the competent corporate body, authorizing the sale of the securities, their number and price, including any deductions that may be applicable; the names of the persons empowered to countersign all arrangements implied in the offer; and a specimen of the securities whose sale is proposed;

  • (f) a copy of the most recent financial statements, which may date from more than four (4) months before the date of the application, duly certified by an independent certified public accountant;

  • (g) profit and loss statements for the last fiscal year and the two fiscal years immediately preceding it, duly certified by an independent certified public accountant;

  • (h) depending on the kind of company, business or securities offered, the National Securities Commission shall require such additional information as it may consider necessary or of interest to investors.

Transitional Paragraph: Depending on the size of the issue and of the assets of the applicant company, the National Securities Commission may accept, during the next two years, profit and loss statements for the two (2) years preceding the last fiscal year, as required in item (g) without the due certification by an independent certified public accountant.

Paragraph 1: New companies must comply with the provisions of items (a), (b), (c), (d), (e), (f), and (h).

Paragraph 2: If the company was constituted in accordance with the laws of a foreign country, the certification referred to in items (f) and (g) may be issued by an accountant not authorized to exercise his profession in the Republic, in which case it must be accompanied by documents from the competent official authorities in the country where the company operates authenticating the qualifications of the accountant certifying the respective balance sheets.

Art. 8. Once the authenticity of the documentation referred to in the preceding article has been established and during the month following submission of the application, the National Securities Commission shall decide on the submitted application. Within that period, the Commission may request from the company additional information to supplement the documentation or require such corrections or changes as may be appropriate, and the company shall have a period of ten (10) days following such request to comply therewith. During this time, the deadline for the Commission’s decision shall be regarded as suspended. The resolution approving the sale of the securities shall state that authorization does not imply that the Commission recommends investment in such securities, nor will a favorable or unfavorable opinion be issued on the prospects of the business. Companies which request authorization to offer securities to the public shall, once they have obtained such authorization, be deemed to be registered companies and comply with the provisions in this cabinet decree applying to such companies in addition to fulfilling their obligations as companies offering their securities to the public.

Art. 8A. The National Securities Commission may, after giving notice to and hearing the interested parties, deny, suspend or cancel the sale of securities or the registration of any company if it is established that before or after a company is registered with the Commission it has been involved in any of the following deeds or omissions:

  • (1) if the documents or information submitted to the National Securities Commission or to investors contains untrue or inaccurate statements;

  • (2) if information or documents were withheld from the National Securities Commission or from the public and the Commission deems said material to be necessary or complementary in order to give a full idea of the business;

  • (3) if it is established that any of its directors, officials, partners or any other person linked to the company’s management has been sentenced for, within the ten (10) years prior to registration with the National Securities Commission, or is indicted or sued for offenses involving fraud, deceitful representations or other offenses against the public trust in his conduct as investor, director or entrepreneur.

In addition to imposing fines, the Commission may bring legal action against the persons directly responsible for the omissions, falsehoods or inaccuracies referred to in this article.

Art. 9. Recourse against decisions prohibiting or suspending the sale of stocks will consist of reconsideration or repeal, regular appeal and appeal to the administrative court with plenary jurisdiction.

Art. 10. When the National Securities Commission authorizes the sale of stocks, the authorization for such sale will cover a period of not less than one (1) nor more than two (2) years. In the event that the Commission should fail to resolve the matter within the month referred to in Article 8, the sale may be carried out within a period of one (1) year from the end of that month. Upon expiration of the terms within which the stocks may be sold, the company concerned may not continue their sale without again complying with the requirements of this cabinet decree.

Art. 11. Any company which is not required to comply with the rules set forth in Articles 6 and 7 of this cabinet decree may request the National Securities Commission to open a file under its name so that interested parties may obtain information on the business in which the company is engaged and its past record. To this end, the company shall submit the appropriate application to the National Securities Commission, accompanied by the documents mentioned in items (a), (b), (c), (d), (f), (g), and (h) of Article 7 of this cabinet decree.

Said company shall be required to comply with the provisions laid down for registered companies in this cabinet decree and shall enjoy the same tax privileges.

Title II

securities sales agents

Art. 12. Securities sales agents are those natural or juridical persons engaged in serving as intermediaries between the companies issuing and offering for public sale their own securities or the securities of other companies and the persons investing their money in such securities. Those classified as juridical persons will operate through the conduct of natural persons holding the proper license.

Art. 13. Once this cabinet decree enters into effect, only those natural persons holding the proper license in their own name or in representation of juridical persons and who are duly empowered for the purpose by a company authorized to offer securities for public sale may serve as securities sales agents.

Art. 14. The license mentioned in the preceding article will be issued by the National Securities Commission upon receipt of an application that satisfies the following requirements:

  • (a) The applicant must be a Panamanian citizen by birth or naturalization or a foreigner with not less than five (5) years of continuous residence in the country.

  • (b) The applicant must be of legal age and full legal standing; he must not have been convicted of any crime against property or have any infectious or contagious disease.

  • (c) A bond of one thousand balboas (B 1,000) must have been posted and maintained, in favor of the national government, in cash or in bonds of the government or its decentralized agencies or of an insurance company in order to safeguard the government against penalties imposed pursuant to this cabinet decree and against any damage that may be caused to private parties in the exercise of their activities.

  • (d) A certificate issued by the Administrative Secretary of the National Securities Commission must be presented stipulating that the applicant has passed the examination referred to in Article 16 of this cabinet decree.

Art. 15. The Administrative Secretary will designate a date or dates for the examination of securities sales agent candidates as he deems advisable, whenever he has received requests for examination from ten (10) or more candidates.

Art. 16. The examination referred to in the preceding article will be written and will cover:

  • (a) Basic knowledge of securities and mutual funds.

  • (b) Current legal provisions concerning securities and mutual funds.

  • (c) General concepts with regard to the economic system and securities operations.

Art. 17. The Administrative Secretary will issue a certificate to the candidates who pass the examination. An examination fee of ten balboas (B 10) will be charged. The candidate will enclose a certified or manager’s check made out to the National Treasury for that amount with the examination request.

Art. 18. The certificates will be issued in duplicate, with the original delivered to the candidate and the copy filed in the office of the National Securities Commission.

Art. 19. The certificates will be countersigned by the Minister of Commerce and Industry, or the officer of that ministry to whom the minister delegates this function, and registered with the National Securities Commission, which may issue as many copies as are requested. National stamps for a value of ten balboas (B 10) will be affixed to such copies.

Art. 20. The National Securities Commission will furnish monthly to the companies offering securities or mutual funds for public sale or to their authorized distributors the names of the securities sales agents qualified to operate as such.

Art. 21. At the justified request of an interested party, the National Securities Commission may revoke the license of a securities sales agent. Causes for such action will be improper appropriation, in whole or in part, of installments corresponding to sales contracts for securities or mutual funds or the procurement of business by means of bribery, fraud or fraudulent schemes. The sales agent whose license has been revoked may have recourse to the Ministry of Commerce and Industry through the National Securities Commission, which will issue a reasoned opinion.

Title III

inspection of companies

Art. 22. The National Securities Commission shall supervise the management of registered companies, mutual fund companies and companies which sell shares to the public without authorization, and of authorized distributors and sales agents, and shall ensure that they comply with the provisions of this cabinet decree and its respective regulations and with the provisions of the cabinet decree on mutual funds.

Art. 23. In order to verify that financial statements comply with the legal provisions of its officers and employees, the National Securities Commission may inspect and examine registered companies and mutual fund companies and their authorized distributors; perform audits; require presentation of accounting books and of the documents, records and correspondence justifying each entry or account; verify portfolio investments; and examine the records of agencies of the company. The right of examination extends to any subsidiary of the company or affiliate in which the company examined has invested more than twenty per cent (20%) of its portfolio.

The National Security Commission may delegate this function to auditors of the Ministry of Finance and the Treasury.

Art. 24. The National Securities Commission shall also be empowered to establish standards for the accounting and financial reports of companies offering securities or mutual funds for public sale. It may further require them periodically to present balance sheets and financial statements, statistical sales charts and accounts and reports in general, in order to provide an exact idea of the business of the companies, their investments, and their relationships with affiliate and subsidiary companies.

The National Securities Commission shall further have full power to regulate advertising and advertising standards and any other information connected with the buying and selling of securities by companies and distributors authorized to offer securities to the public and by companies which are not authorized to offer their securities to the public but which wish to use the mass communications media to impart to the public an appraisal, quotation or valuation of their securities.

Art. 25. Within the first four (4) months of their financial years, registered companies shall, through their legal representatives, submit to the National Securities Commission and send to all their registered shareholders or investors, their financial statements for the immediately preceding year, duly audited by an independent certified public accountant, together with a detailed statement of investments made and obligations undertaken in the course of said period.

Furthermore, registered companies shall submit to the National Securities Commission and send to their shareholders and investors at intervals to be determined by the National Securities Commission, a report containing a profit and loss statement on transactions to date and a report on investments made and obligations undertaken during the period covered.

Depending on the type of company or business involved, the National Securities Commission may require that the details it considers necessary appear both in annual reports and in periodic reports.

Art. 26. Any company which applies for authorization to offer securities or mutual funds for sale to the public, either directly or through authorized distributors, shall publish in two widely read local newspapers, once in each and on two different business days, a copy of the balance sheets and financial statements it submitted to the National Securities Commission within thirty (30) days of such submission to the Commission for authorization.

Art. 27. Any decrease in the deposits or bonds referred to in this cabinet decree or in the cabinet decree on mutual funds for whatever reason must be replenished within an absolute term of forty-five (45) calendar days from the date of such decrease. After that time, if the deposit or bond has not been replenished, the National Securities Commission will cancel the corresponding authorization or license.

Title IV

penalties

Art. 28. A fine equivalent to 100 per cent of sales made shall be imposed jointly on directors or employees of a company who are involved in the offer of securities of said company if the latter is not duly authorized in accordance with this cabinet decree.

If it cannot be established that sales were made although there were public offers, the Commission shall be empowered to impose a fine of one thousand balboas (B 1,000) to ten thousand balboas (B 10,000) in the same manner as provided in the preceding paragraph.

Art. 29. Natural or juridical persons acting, in the capacity of distributors or sales agents, to transact or intervene in the sale of securities on behalf of companies not authorized to engage in such business in Panama will be subject to the same penalty as that established in the preceding article. If such person is a sales agent for securities authorized by the Commission, the violation referred to in this article shall also entail revocation of his license.

Art. 30. Without prejudice to other lawful penalties, the National Securities Commission shall be empowered to impose fines of one hundred balboas (B 100) to one thousand balboas (B 1,000) for any violation of or noncompliance with the provisions of this cabinet decree, its regulations or instructions it has lawfully issued, for which no special sanction has been provided for in this decree. If the offense is repeated, the fine shall be from one thousand balboas (B 1,000) to five thousand balboas (B 5,000). Resolutions imposing fines may be appealed to the Ministry of Commerce and Industry.

The National Securities Commission shall be empowered to invalidate, upon request by an interested party, such portions of a sales contract for securities as contain clauses that violate legal provisions concerning securities, security regulations, or lawful instructions issued by the Commission.

Art. 31. Any employee of the National Securities Commission who improperly divulges information obtained in the performance of his duties with reference to securities or mutual fund companies, their authorized distributors or sales agents will be penalized by a fine of from fifty balboas (B 50) to two hundred balboas (B 200) and immediate dismissal from his post, without prejudice to the penalties established in the Penal Code.

Art. 32. Any person may report to the National Securities Commission any violation of the provisions of this cabinet decree. In the event of such report, the person making it will receive fifty per cent (50%) of the monies received from the fine levied on the natural or juridical person penalized.

Art. 33. All fines referred to under this title and other penalties provided for in this cabinet decree will, unless otherwise stipulated, be imposed by the National Securities Commission and received by the National Treasury. The pertinent resolutions may be appealed to the Minister of Commerce and Industry.

Title V

protection of minority stockholders

Art. 34. In order for any business or contract between a company and one or more of its directors or one or more of its officers or in which one or more of the persons mentioned have a direct or indirect interest to be binding on the company, it must be submitted for approval or disapproval by the Board of Directors of the company. Each resolution of the Board of Directors in such case will be reported to the next Stockholders Meeting, which, if it should disapprove of the action taken by the Board of Directors, will decide whether or not to institute the relevant legal action against the directors or officers of the Board of Directors who voted in favor of the resolution.

Paragraph: The content of this article does not imply that the stockholders individually are prohibited from making use of any right or taking any action authorized by law.

Art. 35. The stocks of a company that are owned by another company in which the former is the majority stockholder will have no voting rights at any Stockholders Meeting nor will they be considered as stocks issued and in circulation for purposes of constituting a quorum.

Art. 36. In order to report a person who represents the company for crimes against property prejudicial to the company, such as improper appropriation, fraud and others, which, according to procedural law, must be reported by the party affected, the holders of at least five per cent (5%) of the stocks in circulation may constitute themselves as representatives of the company for that purpose as follows: they will request the Board of Directors to grant them the status of special representative of the company in order to make the corresponding report. If the Board of Directors should deny the request or fail to reach a decision within the ten (10) calendar days following such request, the stockholders concerned may proceed to make the corresponding report. In this case, they must confirm their status as stockholders by presenting the proper certificates and the fact that they have made the request by presenting a copy of the same and of the certified receipt proving that it was mailed or delivered in person.

Art. 37. The provisions of Articles 34, 35, and 36 above shall apply to joint-stock companies registered with the National Securities Commission and to those whose shares are sold on the market, even if such companies do not offer their own shares to the public.

Art. 38. Article 418 of the Commercial Code, which was reinstated by Law No. 9 of 1946, will read as follows:

“Art. 418. Every stockholder will have the right to protest any resolutions adopted by the General Stockholders Meeting that run counter to the law, to the partnership agreement or charter or to the statutes by filing, within an absolute term of thirty (30) days, a claim for nullity with the competent judge, who, if he considers the matter to be urgent, may suspend implementation of the resolution until such time as the claim has been decided. In no case will such suspension occur if the stockholder files his claim in plenary rather than summary proceedings.”

Art. 39. Article 420 of the Commercial Code, which was reinstated by Law No. 9 of 1946, will read as follows:

“Art. 420. The General Stockholders Meeting will be called by the Board of Directors, by the persons duly authorized for this purpose under the law, the charter or the statutes, or by the competent circuit judge. Judicial convocation will be invoked only when so requested by one or more stockholders whose holdings represent at least one twentieth of the capital stock, provided the charter or the statutes do not concede this right to stockholders with a smaller representation. The request covered by this article will be resolved by plenary judgment.”

Art. 40. Judicial convocation will be announced by means of a notice to be published on three consecutive days in two widely circulated newspapers in the place of domicile of the company or in Panama City; the Meeting will be held not less than ten nor more than twenty days following the third publication.

Art. 41. Article 444 of the Commercial Code, which was reinstated by Law No. 9 of 1946, will read as follows:

“Art. 444. The directors will incur no personal responsibility for the obligations of the company but will be accountable individually or jointly, as the case may be, to the company and to third parties for the effective disbursement of payments appearing as made by the partners, for the actual existence of dividends approved, for sound accounting management and in general for the fulfillment or nonfulfillment of the mandate or violation of the laws, charter, statutes or resolutions of the General Stockholders Meeting. Directors who in due course protested the decision of the majority or who were not in attendance for justified cause will not be held responsible. Accountability may be exacted only by decision of the General Stockholders Meeting.”

Art. 42. Article 531 of the Commercial Code, which was reinstated by Law No. 9 of 1946, will read as follows:

“Art. 531. When no decision has been reached by the partners in a partnership or limited copartnership or by the General Meeting in a stock company, the judge may, at the request of any of the partners or stockholders and following confirmation of the existence of cause for dissolution as established by law, declare liquidation and appoint receivers in accordance with the company charter, if it so provides. This article will be applicable only when the company has been dissolved pursuant to law.”

Art. 43. The Executive Branch will regulate operation of the National Securities Commission in accordance with the provisions of this cabinet decree.

general provisions

Art. 44. Capital gains obtained by natural or juridical persons from the sale of bonds, shares and other securities referred to in item (e) of Article 701 of the Tax Code as amended by Cabinet Decree No. 33 of February 12, 1970 shall not be considered taxable income if the negotiated shares were issued by a company registered with the National Securities Commission, if at least twenty-five (25) per cent of their assets is invested within the national territory, and if said persons are not intermediaries in securities trading.

If the companies are registered pursuant to Cabinet Decree No. 247 of July 16, 1970, the transactions shall be exempt from said tax provided at least seventy-five (75) per cent of such companies’ investments are made within the national territory.

Art. 44A. The annual interest paid on bonds, financial paper, mortgage bonds and other debt instruments which are redeemable or mature no less than three (3) years from their date of issue and which are registered with the National Securities Commission shall be subject to a single annual tax of five (5) per cent which shall be withheld by the juridical person who pays it. Once the withholding has been made, the holder of the bonds, mortgage bonds or other debt instruments need not include in his income declaration the interest thus received.

Bonds, securities and other debt instruments registered with the National Securities Commission and convertible into common voting shares of the issuing company or its affiliates shall be taxed in the same way and under the same conditions, even if such securities have a maturity or redemption term of less than three (3) years.

Paragraph: Once the tax referred to in this article has been withheld, it shall be paid into the National Treasury, with a sworn statement on forms which will be provided by the General Directorate of Revenue of the Ministry of Finance and the Treasury, within ten (10) days of the date of withholding.

Failure to withhold, payment after the stipulated term, and false declarations shall be penalized in accordance with the Tax Code.

Art. 45. All provisions contradicting this cabinet decree are hereby revoked.

Art. 46. This cabinet decree will enter into effect upon its proclamation.

Art. 47. If an enterprise offers securities or mutual funds for public sale without being duly authorized in accordance with the legal provisions in force, and its domicile and that of its legal representatives are unknown, the National Securities Commission shall be duly empowered to serve it notice by means of a summons, which shall be published on two consecutive days in a local newspaper calling for the party concerned to appear within three (3) business days of the last publication. Publication need not be made in the Gazeta Oficial.

Art. 48. In the event that the person summoned does not appear before expiration of the period mentioned in the preceding article, the National Securities Commission, without taking further steps, may impose on the enterprise concerned such penalty as it may deem appropriate pursuant to the provisions of Cabinet Decrees No. 247 and No. 248 of July 16, 1970. Notification of the resolution in this case shall take effect in the manner provided for the summons, it being understood that the relevant resolution shall be enforceable forty-eight (48) hours from its last publication.

Art. 49. In addition to the other functions set forth in this cabinet decree, the National Securities Commission shall be empowered to determine the administrative interpretation and scope of the legal provisions dealing with securities and mutual funds.

{The signatory clause is omitted.}

Cabinet Decree No. 248 1

[July 16, 1970]

Whereby the operation of companies known as mutual funds, their distributors and sales agents are regulated

The Provisional Government Council

DECREES:

Title I

mutual fund companies

Art. 1. The companies subject to the regulations contained in this cabinet decree are those already established or to be established in the future that are engaged in the activity commonly known as mutual funds, that is, which, through the issue of their own stocks, bonds, documents, securities or certificates of participation or investment or by any other means engage in obtaining monies from the general public, within the national territory, in either lump-sum payments or installments, for the purpose of investing them in the acquisition of stocks, bonds or securities of any type or in real property, inside or outside of the Republic.

Art. 2. For the effects of this cabinet decree, a company will be understood to be engaged in obtaining monies from the general public when, for the purpose mentioned in Article 1, it

  • (a) publishes or announces through the press, radio or television; or

  • (b) offers its stocks, bonds, documents, securities or certificates of participation or investment by means of mail, cable, telephone or telegraph or any other medium of communication; or

  • (c) circulates printed advertising publicity, descriptive pamphlets or prospectuses on the stocks, bonds, documents, securities or certificates of participation or investment offered or sends communications or requests to prospective purchasers, or

  • (d) makes offers through authorized distributors or sales agents; or

  • (e) employs any other means which, in the opinion of the National Securities Commission, signifies the offer, distribution or sale to undetermined persons or prospective purchasers.

Art. 3. The operations described in the preceding article may be undertaken only by the juridical persons constituted or to be constituted for this purpose in accordance with the legislation of the Republic of Panama or of a foreign state, provided they are authorized to that effect by the National Securities Commission.

Art. 4. Mutual fund companies will cause to appear on all their publicity their firm or trade designation or name, as the case may be, accompanied by an indication of the fact that they are engaged in the business of mutual funds.

Art. 5. Mutual fund companies may not undertake the following operations in the national territory:

  • (a) Purchase of stocks, securities or bonds by payment of only part of their price, securing the unpaid balance of that price by means of a loan guaranteed by pledge of the securities so acquired.

  • (b) Sale of stocks, bonds or securities which they do not own at the time of the sale.

  • (c) Purchase of stocks or securities of companies that are not authorized by the National Securities Commission to sell their stocks or securities.

  • (d) Guarantee to a company of the placement of its securities or stocks in the market.

  • (e) Purchase of more than forty per cent (40%) of the stocks, bonds or securities issued by a single natural or juridical person. This prohibition is not applicable to certificates or bonds of the national government or its decentralized agencies or to the purchase of real property.

Title II

national mutual fund companies

Art. 6. For the effects of this cabinet decree, national companies will be defined as those constituted in accordance with the laws of the Republic of Panama that maintain their books and accounting records within the national territory.

Art. 7. The paid-in corporate capital of a national mutual fund company will be at least two hundred thousand balboas (B 200,000).

Art. 8. National mutual fund companies will post annually with the National Securities Commission a bond equivalent to ten per cent (10%) of the stocks, securities or bonds they have sold in the national territory, which bond will in no case amount to less than fifty thousand (B 50,000) and will consist of cash, checks issued or certified by local banks, insurance policies (guarantee bonds) or government bonds. This bond will guarantee the payment of any claims that might be filed against the company by its own stockholders or by third persons and any penalties that might be imposed pursuant to this cabinet decree.

Art. 9. Prior to commencing operations, national mutual fund companies will formulate, through an attorney, a request for authorization to the National Securities Commission, accompanied by the following documents:

  • (a) Public document containing the corporate charter and statutes of the requesting company and their amendments and proof of the registration of such papers in the Public Registry.

  • (b) Certificate of the Public Registry stating the names of the directors and principal officers of the company.

  • (c) Sworn notarized statement by the president and treasurer of the requesting company to the effect that, according to the stock ledger and books of account, the company has a paid-in corporate capital of at least two hundred thousand balboas (B 200,000).

  • (d) Proof that the bond described in Article 8 has been posted.

  • (e) The advertising plans, programs and prospectuses, as well as the specimen stocks, bonds, documents, securities or certificates with which the company will initiate its operations.

  • (f) The tables of investments and deductions applicable to programs for acquisition of the stocks, bonds, documents, securities or certificates of participation or investment. It is understood that these tables will contain at least the following information:

    • Amount of the brokerage or any other fee to be charged directly or indirectly by the authorized distributors or their sales agents or any other intermediary of the requesting company.

    • Charges for administrative services and brokerage payable to the persons described in Title IX of this cabinet decree.

    • Any other deductions to be made from the sums received by the requesting company.

    • The net remainder that will actually be credited to the price of the stocks, bonds, documents, securities or certificates, as the case may be.

  • (g) The forms, annexes and contracts to be utilized by the requesting company for the purposes of Title VII of this cabinet decree.

Paragraph: A period of four (4) months is granted to national companies established in Panama for obtaining the respective authorization from the National Securities Commission.

Art. 10. The National Securities Commission will study the documents presented and, if it finds them to be consistent with this cabinet decree, will issue the authorizing resolution with a statement of its reasons. Otherwise, it will refuse authorization by means of a resolution also including a statement of its reasons.

Art. 11. After obtaining the required authorization, the requesting company will apply for the corresponding commercial license, enclosing with the application a true and faithful copy of the resolution issued by the National Securities Commission.

Title III

foreign mutual fund companies

Art. 12. For the effects of this cabinet decree, foreign companies will be defined as those constituted in accordance with the laws of foreign states and those constituted in Panama that do not maintain their books and accounting records within the national territory.

Art. 13. Foreign mutual fund companies constituted in accordance with the laws of foreign states may not offer for sale their stocks, bonds, documents, securities or certificates of participation or investment either directly or through distributors without having secured authorization for offices or agencies in the Republic, pursuant to the provisions of Section Ten of Law No. 32 of February 26, 1927, on stock companies.

Art. 14. The paid-in corporate capital of a foreign mutual fund company offering or proposing to offer its stocks in Panama directly or through authorized distributors will be at least five million balboas (B 5,000,000) or the equivalent in the national currency of the country of origin.

Art. 15. Foreign mutual fund companies will post annually with the National Securities Commission a bond equivalent to ten per cent (10%) of the stocks, securities or bonds they have sold in the national territory, which bond will in no case amount to less than two hundred and fifty thousand balboas (B 250,000) and will consist of cash, checks issued or certified by local banks, insurance policies (guarantee bonds) or government bonds. This bond will guarantee the payment of any claims that might be filed against the company by its own stockholders or by third persons and any penalties that might be imposed pursuant to this cabinet decree.

Art. 16. Before they can sell their stocks in the national territory, foreign mutual fund companies must formulate, through an attorney, a request for authorization to the National Securities Commission, accompanied by the following documents:

  • (a) Public document containing the corporate charter and statutes of the requesting company and their amendments and proof of the registration of such papers in the Public Registry.

  • (b) Certificate issued by the public agency responsible for the control and supervision of mutual fund companies, where available, in the place of domicile of the applicant stating that the company has the legal capacity necessary for the conduct of mutual fund operations and that it has the paid-in corporate capital required by Article 14.

  • (c) Copy of the laws, by-laws and all legal provisions governing this type of company in the country of origin, where available, duly authenticated by the Panamanian Consul.

  • (d) Proof that the bond described in Article 15 has been posted.

  • (e) The advertising plans, programs and prospectuses, as well as the specimen stocks, bonds, documents, securities or certificates to be utilized by the company in its operations.

  • (f) The tables, forms, annexes, contracts and other documents described in subsections (e) and (f) of Article 9 of this cabinet decree.

  • (g) True and faithful copy of the distribution contract signed by the foreign mutual fund company with its authorized distributor for the Republic of Panama, in the event that distribution and sale are not carried out directly by the company itself.

  • (h) Certified and true and faithful copy of the balance sheets of the foreign mutual fund company for the past two (2) years.

  • (i) Declaration of the investment policy followed by the company.

  • (j) Document containing the power of attorney granted to the legal representative of the applicant in the Republic, who will be fully authorized to represent the company in legal, administrative and judicial matters, duly registered in the Public Registry.

Paragraph: A period of four (4) months is granted to foreign companies established or to be established in Panama for obtaining the respective authorization from the National Securities Commission.

Art. 17. The National Securities Commission will study the documents presented and, if it finds them to be consistent with this cabinet decree, will issue the resolution referred to in Article 10.

Title IV

obligation to invest in panama

Art. 18. Both national and foreign companies must invest in Panama part of the monies they collect within the national territory. The National Securities Commission is authorized to stipulate the amount of this national investment, which will not be less than twenty-five per cent (25%), and to alter that amount by sixty (60) days’ advance notice to the mutual fund companies, with the understanding that the new percentage will not be applied retroactively.

The investment referred to in this article may be made in:

  • (a) stocks of national companies engaged or proposing to engage, within the territory of the Republic, in industrial, mining, construction, craft, transportation or service activities on a commercial scale;

  • (b) state securities;

  • (c) real property located in the national territory;

  • (d) mortgages or mortgage certificates on real property located in the national territory.

At the request of the mutual fund company, the National Securities Commission may authorize up to one third (⅓) of the investment in fixed-term deposits in the Savings Bank of Panama.

Transitory Paragraph: Unless the National Securities Commission stipulates otherwise, the amount of the local investment will be equal to 35% of the monies collected within the national territory.

Art. 19. When the bond to be posted by the mutual fund companies consists of cash, state bonds or checks issued or certified by local banks, such bond will be considered as national investment for the purposes of this title.

Art. 20. Within the three (3) months following the close of each fiscal year, the mutual fund companies and their distributors, if any, will present to the National Securities Commission a sworn statement setting forth the total amount of monies collected in the national territory during the previous year and the amount of their local investments.

The National Securities Commission will be authorized to request information in addition to that presented by the companies and to make any investigation it deems advisable in order to ensure faithful compliance with this title, which function it may delegate to the Ministry of Finance and the Treasury.

Title V

authorized distributors of mutual fund companies

Art. 21. Only those national or foreign natural or juridical persons authorized by the National Securities Commission to perform such activity in accordance with the provisions of this cabinet decree may engage in the distribution of mutual funds.

A period of four (4) months is granted to natural or juridical persons engaged or proposing to engage in the distribution and sale of mutual funds for obtaining the respective authorization from the National Securities Commission.

Art. 22. A single natural or juridical person duly authorized for the purpose may distribute and sell simultaneously stocks or securities of various mutual fund companies, provided that each of those companies has obtained the necessary authorization from the National Securities Commission referred to in this cabinet decree.

Authorized distributors will conduct their distribution operations in the name and on behalf of the mutual fund companies and will act as their agents in sales contracts signed with third parties, as established in Article 30.

Art. 23. When the authorized distributor for one or more mutual fund companies is a juridical person, it will, by means of a public document registered in the Public Registry, accredit a permanent agent with full authority to represent the distributor company as plaintiff or defendant in both judicial and extrajudicial proceedings.

Art. 24. In order to verify financial statements, the National Securities Commission may, through its officers and employees, inspect and examine authorized distributors of mutual funds, conduct appraisals and audits, require presentation of the accounting books and of the documents and files justifying each entry or account, confirm portfolio investments and examine the records of the company agencies. The right of examination extends to any subsidiary or affiliate in which the company examined has invested more than twenty per cent (20%) of its portfolio.

The National Securities Commission may delegate this function to auditors of the Ministry of Finance and the Treasury.

Title VI

mutual fund sales agents or brokers

Art. 25. Mutual fund sales agents are those natural persons engaged in serving as intermediaries between mutual fund companies or their authorized distributors and persons investing their money in stocks or other securities of these companies.

Art. 26. Following the entry into force of this cabinet decree, only those natural persons who hold the proper license, which will be issued by the National Securities Commission in accordance with the provisions of the cabinet decree establishing that Commission, and who are duly authorized by a national mutual fund or by an authorized distributor of a foreign mutual fund company may act as mutual fund sales agents.

Art. 27. Mutual fund sales agents may not grant discounts to or share commissions or any other advantages they may derive from the placement of mutual fund stocks with any of the following persons:

  • (a) The investor signing the mutual fund contract.

  • (b) Any person who is not licensed as a mutual fund sales agent.

  • (c) Employees of mutual fund companies.

Art. 28. A period of four months from the entry into force of this cabinet decree is granted to mutual fund sales agents currently operating as such for compliance with the requirements established herein.

Art. 29. Cause for revocation of the license of a mutual fund sales agent will be improper appropriation, in whole or in part, of the amounts corresponding to stocks or securities sold or the retention of such amounts beyond the time usually required for their receipt by the mutual fund companies or their authorized distributors.

Title VII

mutual fund sales contract

Art. 30. The mutual fund sales contract will be recorded in a private document which will contain:

  • (a) The name of the mutual fund company concerned.

  • (b) The name and domicile of its distributor in the Republic of Panama, if any.

  • (c) The plan to which the contract signed belongs.

  • (d) The amount of the installment selected by the investor and the terms of payment, in the case of periodic payment programs, or the total amount to be invested, in the case of lump-sum payment programs.

  • (e) The place and date of signature of the contract, which will be signed by the legal representative of the mutual fund company or of the authorized distributor of the company, as the case may be, and the investor.

  • (f) A statement to the effect that the investor has received a prospectus describing the obligations of the company, its investment policy, its most recent financial statement and his own liquidation and conversion privileges.

  • (g) A full and detailed account of the procedure for liquidation of stocks of the investor.

  • (h) A table showing any commissions or discounts to be charged to or deducted from the amounts actually paid in by the investor.

Title VIII

right of liquidation

Art. 31. Any person who is the owner of stocks, documents, bonds or other securities issued by a mutual fund company may, in accordance with the procedure established in the sales contract of each company, request the liquidation of all or part of his securities. In such case, the company will pay in cash within a period of not more than thirty (30) days an amount equivalent to the market value of the securities presented for liquidation, after making the discounts referred to in subsection (h) of the preceding article.

Paragraph: Market value of the securities presented for liquidation will be defined as the market value or stock market quotation prevailing on the day on which the stock certificate is received with the request for liquidation at the main offices of the mutual fund company in the Republic of Panama.

Title IX

consulting contracts

Art. 32. The mutual fund companies may sign with natural or juridical persons contracts for administration or consulting services in connection with the investment of its funds, with the understanding, however, that in no case may the annual fees of administrator or consulting companies exceed one per cent (1%) of the total investments subject to such administration or consultation. These fees will be paid annually on the basis of the financial statements presented by the companies to the National Securities Commission.

Art. 33. A true and faithful copy of each administration or consulting services contract will be presented at the offices of the National Securities Commission upon formulation of the request described in Titles II and III of this cabinet decree, or, if none should then be available, at the time such contract enters into force.

Title X

penalties

Art. 34. Companies which engage in the business of mutual funds without due authorization pursuant to this cabinet decree will be penalized by a fine equivalent to one hundred per cent (100%) of the value of the sale or sales transacted.

Art. 35. Natural or juridical persons acting, in the capacity of distributors or sales agents, to transact or intervene in the sale of mutual fund stocks on behalf of companies not authorized to engage in such business in Panama will be subject to the same penalty as that established in the preceding article.

Art. 36. Mutual fund companies, distributor companies and sales agents paying commissions, brokerage or fees of any type not mentioned in the reports referred to in Articles 9 and 16 of this cabinet decree that make such payment in any amount to natural or juridical persons not authorized to receive it will be penalized by a fine equivalent to twice the amount of the commission, brokerage or fee so paid. The fine for a second offense will be ten times the amount of such commission, brokerage or fee.

Art. 37. Any mutual fund company which refuses to furnish reports to the National Securities Commission or that furnishes false or inaccurate reports will be penalized by a fine of five thousand balboas (B 5,000) to ten thousand balboas (B 10,000), in addition to any other penalty that may be applicable in accordance with this cabinet decree.

Art. 38. Any natural or juridical person violating any of the provisions of this cabinet decree will be liable to a fine of one hundred balboas (B 100) to one thousand balboas (B 1,000), unless the decree stipulates a specific penalty for the violation concerned. The fine for a second offense will be one thousand balboas (B 1,000) to five thousand balboas (B 5,000).

Art. 39. Any person may report to the National Securities Commission any violation of the provisions of this cabinet decree. In the event of such report, the person making it will receive fifty per cent (50%) of the monies received by the National Treasury from the fine levied on the natural or juridical person penalized.

Art. 40. All fines referred to under this title and other penalties provided for in this cabinet decree will, unless otherwise stipulated, be imposed by the National Securities Commission and received by the National Treasury. The pertinent resolutions may be appealed to the Minister of Commerce and Industry.

Title XI

voluntary liquidation

Art. 41. In order to effect its liquidation or dissolution, any company selling securities or mutual funds to the public must obtain prior authorization from the National Securities Commission, which will so authorize when the company is solvent, that is, when its liquid assets are sufficient to reimburse its investors and pay its creditors.

Art. 42. Once authorization has been granted, the company will immediately cease operations, and its powers will be confined to those needed to carry out the liquidation, collect its credits, reimburse its investors, pay its creditors and settle its business.

Art. 43. Within the thirty (30) days following such authorization, the company will remit by mail to each investor, creditor or party interested in the funds held by the company a notice of the liquidation which will contain such information as the National Securities Commission may indicate. This notice will also be posted in a prominent place on the premises of each establishment of the company and published as stipulated by the Commission.

Art. 44. The liquidation authorization will not prejudice the right of investors or creditors to receipt in full of the amount of their credits or the right of other owners of record to return of their assets. All legitimate credits of creditors and investors will be paid and all other assets retained by the company for any reason returned to their owners within the term established by the Commission in authorizing the liquidation.

Art. 45. No distribution of assets among the stockholders may take place until all credits of investors and creditors have been satisfied pursuant to the plan of liquidation approved by the Commission.

In the case of credits in litigation, the company will deposit an amount sufficient to cover such credits with the National Bank, which will hold this sum until such time as a legal decision is reached.

Art. 46. If any unclaimed funds or credits should remain upon completion of its liquidation, the company will deliver to the National Bank the amount necessary to cover this item. The unclaimed assets will be deposited with the National Bank of Panama. The funds so deposited will be transferred to the State at the end of five (5) years. In turn, the assets and securities may be sold by their depositary, with the approval of the Commission, after the end of the first year. The proceeds from their sale will be transferred to the State at the end of the fifth year, unless claimed by the owners.

Art. 47. The State is obliged to make restitution to the owner of the funds described in the preceding article, provided they are claimed within the ten (10) years following the date of their transfer; such restitution will not include interest payments.

Art. 48. During the course of the voluntary liquidation, the liquidators will be obliged to:

  • 1. furnish to the Commission, on a schedule to be determined by the latter, such reports as it may request on the progress of the liquidation, and

  • 2. report to the Commission as soon as they perceive that their liquid assets will not be sufficient to reimburse the investors and pay the creditors.

Title XII

intervention, reorganization, and forced liquidation

Art. 49. The Commission may, by a reasoned resolution approved by a majority vote of its members, intervene in a company, taking control of its assets and assuming their administration pursuant to the terms stipulated in Article 51, in any of the following cases:

  • (a) If its capital has declined or lacks solidity.

  • (b) If it is conducting its operations illegally, negligently or fraudulently.

  • (c) If its continued operation is uncertain.

  • (d) If it refuses to present the accounting records of its operations as duly requested or has in any way obstructed inspection of the company.

  • (e) If the assets of the company are not sufficient to cover all of its liabilities.

  • (f) If the Commission deems such a step to be advisable because of undue delay in terminating voluntary liquidation.

Art. 50. In carrying out the intervention, the Commission will order a notice to be posted on the premises of the company announcing this action and stating the time when it will enter into effect, which will in no case be prior to such posting.

Art. 51. When the Commission decides to intervene in a company, it will appoint the receiver or receivers it deems necessary to exercise exclusive administration and control of the company, with such powers as the Commission may authorize, which will include the following:

  • (a) Suspension or limitation of the payment of obligations.

  • (b) Employment of the auxiliary personnel necessary.

  • (c) Execution of any document in the name of the company.

  • (d) Initiation, defense or prosecution in the name of the company of any action or procedure to which it may be a party.

Once the intervention has been effected, the receiver or receivers will take an inventory of assets and liabilities and forward a copy thereof to the Commission, which will make it available to any interested parties that may so request.

Art. 52. The resolution ordering intervention of a company entails the authority to order its reorganization, request its forced liquidation or desist from the intervention, for which purpose the Commission will be allowed sixty (60) calendar days from the date of posting of the notices described in Article 50, or, if the appeal described in the following article should have been filed, sixty (60) days from the corresponding ruling.

Art. 53. The sole recourse against the resolution authorizing intervention available to the company concerned will consist of appeal to the Executive Branch, which will be considered without suspension of execution and without prejudice to an appeal to the administrative court with plenary jurisdiction. A period of thirty (30) working days from the date of posting of the notice described in Article 50 will be allowed for filing such appeal.

The Supreme Court may in no case provisionally suspend the effects of the intervention decreed, but the pending appeal must have been ruled on in order for the Commission to order reorganization or request forced liquidation of the company concerned.

Art. 54. When the Commission intervenes in a company, the prescribed terms of all rights or actions to which the company is entitled, as well as the terms of lawsuits or procedures to which the company is a party, will be understood to be suspended for up to six (6) months.

Art. 55. If, within the period established in Article 52, the Commission should decide to proceed with reorganization of the company, it will, after hearing the opinion of the company concerned, prepare a reorganization plan which will be published for three (3) consecutive days in a widely circulated national newspaper.

Art. 56. No asset of the company will be subject to seizure, attachment or retention during the period of intervention or reorganization.

Art. 57. With the authorization of the Commission, the receivers may obtain loans in the name of the company and pledge its assets in guarantee.

Art. 58. All necessary expenditures incurred by the intervention, reorganization or liquidation will be charged to the assets of the company.

Art. 59. No reorganization plan will be prepared that does not meet the following requirements:

  • (a) It is feasible and equitable for all investors, creditors, stockholders or partners, as the case may be.

  • (b) It guarantees the dismissal of any director, officer or employee responsible for the situation leading to the reorganization through his negligent, fraudulent or unlawful acts.

  • (c) Any merger or consolidation proposed is consistent with the requirements of this cabinet decree and other current legal provisions.

Art. 60. When, because of situations arising in the course of reorganization, the plan becomes inequitable or inadvisable to implement, the Commission may revise it or request liquidation of the company as stipulated subsequently.

Art. 61. If the Commission should deem it desirable to request liquidation of a company, it will so notify the legal representative of the company in person; inform its stockholders or partners, investors and creditors by publication of the authorizing resolution for three (3) consecutive days in a widely circulated newspaper, and request dissolution and liquidation of the company from the competent court in accordance with current legal provisions.

Art. 62. Once the liquidation has been requested, the Commission will mail to each investor and creditor of the company at the address appearing in the company books a notice of the liquidation request. A copy of the notice will be posted in a prominent place in the establishments of the company. A statement showing the amount credited to the investor or creditor in the company books will accompany the notice.

Art. 63. In every case of voluntary or forced liquidation of a mutual fund company, its obligations to its investors will be settled in accordance with the order of priority established by current legislation.

With regard to credits of investors, payments will be made in the following order:

  • (a) First payment will be made to local investors, that is, to natural or juridicial persons domiciled in territory under the jurisdiction of the Panamanian authorities.

  • (b) Once reimbursement has been made to local investors, investments that entered from outside of the territory of the Republic, belonging to persons domiciled abroad, will be considered and reimbursed to the extent possible.

Art. 64. This cabinet decree will enter into effect upon its proclamation.

{The signatory clause is omitted.}

Mr. Hernandez, at present an economist with the Central American Division in the Western Hemisphere Department of the International Monetary Fund, was at the time this introduction was written with the Grand Columbian Division. He holds degrees in economics from the Universidad Nacional de Buenos Aires (Argentina) and the University of Chicago (U.S.A.).

This Convention may be found in Treaties and Other International Agreements of the United States of America,1176–1949, Vol. 10 (Washington, 1972), at pp. 681–683.

The Constitution of Panama 1972 provides:

“Article 230. The power of issuing currency belongs to the State, which may transfer it to official banks of issue, in the manner prescribed by law.

“Article 231. There shall be no paper money of compulsory tender in the Republic.”

But see Article 232 of the Constitution of Panama 1972. This may be found in Constitutions of the Countries of the World, eds. Blaustein and Flanz, Vol 11 (New York, 1979).

International Monetary Fund, International Financial Statistics Yearbook, 1981.

It should be noted that in the same year two other significant financial loans were enacted: Cabinet Decree No. 247 of July 16, 1970 establishing the National Securities Commission and Cabinet Decree No. 248 of July 16, 1970 concerning mutual funds.

Done at Panama City, December 6, 1904 and published in Gazeta Oficial, No. 67 of 1904.

This law, Reformase el régimen bancario y crease la Comisión Ban carta Nacional, effective July 2, 1970, was published in Gaceta Oficial, Vol. LXVI, No. 16.640 of July 6, 1970. The version published incorporates amendments made by Law No. 20 of February 28, 1973, and Law No. 104 of October 4, 1973.

The preceding paragraph was declared unconstitutional by a Supreme Court decision of December 28, 1977.

Law No. 4 of January 2, 1935, provides in Article 2:

“Seven per cent per annum (7%) is fixed as maximum interest for commercial obligations and nine per cent (9%) for civil obligations.

“A higher rate of interest shall be regarded as usurious and the court shall reduce it even though the debtor does not plead the exception of usury. A waiver of this right shall not be valid, nor shall any agreement preventing the debtor from exercising it.”

Issued in Panama on January 26, 1959.

Published in Gazeta Oficial No. 17832 of May 5, 1975. This law superseded Law No. 11 of February 7, 1956 and was, in turn, amended by Law No. 17 of April 9, 1976 and Law No. 76 of September 19, 1978. The amendments are incorporated in the version published here.

Banco Nacional de Panamá.

The responsibility of the State is referred to in Article 232 of the Constitution. That article provides:

“The law shall establish and regulate official and semiofficial banks which shall function as autonomous institutions under the supervision of the State, and shall determine its ancillary responsibilities in connection with the liabilities contracted by these institutions. The law shall regulate the banking system.”

Editor’s addition.

Done at Panama City on January 25, 1973, and amended by Law No. 86, September 20, 1973, and Law No. 19, January 29, 1974.

Banco de Desarrollo Agropecuario.

The responsibility of the State is referred to in Article 232 of the Constitution. That article provides:

“The law shall establish and regulate official and semiofficial banks which shall function as autonomous institutions under the supervision of the State, and shall determine its ancillary responsibilities in connection with the liabilities contracted by these institutions. The law shall regulate the banking system.”

Editor’s addition.

Done at Panama City on January 25, 1973, and amended by Law No. 103, October 4, 1973, and Law No. 69, December 15, 1975.

Banco Hipotecario Nacional.

The responsibility of the State is referred to in Article 232 of the Constitution. That article provides:

“The law shall establish and regulate official and semiofficial banks which shall function as autonomous institutions under the supervision of the State, and shall determine its ancillary responsibilities in connection with the liabilities contracted by these institutions. The law shall regulate the banking system.”

Done at Panama City on November 21, 1960, and amended by Cabinet Decree No. 208, July 8, 1969, and Law No. 58, December 13, 1979.

Caja de Ahorros.

The responsibility of the State is referred to in Article 232 of the Constitution. That article provides:

“The law shall establish and regulate official and semiofficial banks which shall function as autonomous institutions under the supervision of the State, and shall determine its ancillary responsibilities in connection with the liabilities contracted by these institutions. The law shall regulate the banking system.”

Given in Panama City on July 16, 1970, amended by Cabinet Decree No. 30, February 24, 1972.

Comisión Nacional de Valores.

Given in Panama City on July 16, 1970.

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