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METROBANK, S. A. AND SUBSIDIARIES

(Panama, Republic of Panama)

Consolidated Financial Statements

As of December 31, 2015

(With Independent Auditors’ Report)

(FREE ENGLISH LANGUAGE TRANSLATION FROM SPANISH VERSION)

METROBANK, S. A. AND SUBSIDIARIES (Panama, Republic of Panama) Table of Contents Independent Auditors’ Report Consolidated Statement of Financial Position Consolidated Statement of Profit or Loss Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to Consolidated Financial Statements

KPMGApartado Postal 81 6-1089Panamá 5, República de Panamá

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

(FREE ENGLISH LANGUAGE TRANSLATION FROM SPANISH VERSION)

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholder ofMetrobank, S. A.

We have audited the accompanying consolidated financial statements of Metrobank, S. A. andSubsidiaries, which comprise the consolidated statement of financial position as at December 31,2015, the consolidated statements of profit or loss, comprehensive income, changes in equity andcash flows for the year then ended, and notes, comprising a summary of significant accountingpolicies and other explanatory information.

M a n ag e m enf 's Respo n s i b i I ity for th e Co n sol i d ated F i n an c i al Statem e nts

Management is responsible for the preparation and fair presentation of these consolidated financialstatements in accordance with lnternational Financial Reporting Standards, and for such internalcontrol as management determines is necessary to enable the preparation of consolidated financialstatements that are free from material misstatement, whether due to fraud or error.

Au d itors' Respon si b il ity

Our responsibility is to express an opinion on these consolidated financial statements based on ouraudit. We conducted our audit in accordance with lnternational Standards on Auditing. Thosestandards require that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements are free from materialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the consolidated financial statements. The procedures selected depend on our judgment, includingthe assessment of the risk of material misstatement of the consolidated financial statements, whetherdue to fraud or error. ln making those risk assessments, we consider internal control relevant to theentity's preparation and fair presentation of the consolidated financial statements in order to designaudit procedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the entity's internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of accounting estimates madeby management, as well as evaluating the overall presentation of the consolidated financialstatements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basisfor our audit opinion.

KPMG, una sociedad c¡v¡l panameña, y f¡rma de la red de firmas miembros independiente deKPMG. afiliadas a KPI\¡G lnternational CooDerative ("KP¡rG lnternat¡onal"). una entidad suiza

Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Metrobank, S. A. and Subsidiaries as at December 31, 2015, and of its consolidated financial performance and its consolidated cash flows for the year then ended, in accordance with International Financial Reporting Standards. Other Matter The consolidated financial statements of Metrobank, S. A. and Subsidiaries, as of and for the year ended December 31, 2014, were audited by other auditors, who expressed an unqualified opinion in their report dated February 25, 2015. KPMG (SIGNED) February 29, 2016 Panama, Republic of Panama

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METROBANK, S. A. AND SUBSIDIARIES(Panama, Republic of Panama)

Consolidated Statement of Financial Position

December 31, 2015

(Expressed in Balboas)

Notes 2015 2014AssetsCash and cash equivalents 11,480,126 6,862,225 Deposits with banks:

Demand deposits - local 12,251,619 7,267,858 Demand deposits - foreign 85,962,146 68,904,017 Time deposits - local 6,402,771 37,803,483 Time deposits - foreign 6,585,000 2,000,478

Total deposits with banks 111,201,536 115,975,836 Total cash, cash equivalents and deposits with banks 7 122,681,662 122,838,061

Securities available for sale 8 226,032,663 220,974,643

Loans: 6,9Internal sector 660,616,274 633,233,805 External sector 150,240,106 94,717,656

810,856,380 727,951,461 Less:

Allowance for loan losses 3,109,795 5,195,874 Unearned and discounted interest, insurance premium and commissions 29,227,048 28,599,236

Loans, net 778,519,537 694,156,351

Property, furniture, equipment and improvements, net 10 9,841,569 10,377,097

Accrued interests receivable 3,957,192 3,586,465 Customers liabillities under acceptances 173,400 746,223 Prepaid expenses 1,704,756 2,104,308

Goodwill 11 10,134,152 10,134,152 Deferred income tax 615,032 1,122,046 Assets held for sale 13 3,539,611 4,035,217 Other assets 12 2,718,261 2,976,971 Total other assets 22,842,404 24,705,382

Total assets 1,159,917,835 1,073,051,534

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

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Notes 2015 2014Liabilities and equityLiabilities:Deposits from customers:

Demand deposits - local 83,288,068 106,289,929 Demand deposits - foreign 5,885,178 7,620,564 Savings deposits - local 97,615,645 100,352,372 Savings deposits - foreign 20,800,248 24,431,185 Time deposits - local 659,875,894 576,274,131 Time deposits - foreign 66,518,234 59,970,715

Demand deposits form banks - local 207,938 210,420 Time deposits from banks - foreign 8,001,083 24,033,000 Total deposits from customers and banks 6 942,192,288 899,182,316

Borrowings 7,14 36,480,765 17,517,306 Securities sold under repurchase agreements 8,15 27,500,000 27,500,000

Other liabilities:Cashier's and certified checks 2,560,458 4,525,383 Accrued interests payable 6 5,454,959 4,457,292 Acceptances outstanding 173,400 746,223 Deferred income tax 21 1,174,931 1,174,931 Other liabilities 16 9,464,180 9,703,951

Total other liabilities 18,827,928 20,607,780 Total liabilities 1,025,000,981 964,807,402

Equity:Common shares 17 85,000,000 65,000,000 Valuation reserve for securities available for sale 8 (362,793) 2,649,163 Regulatory reserves 20, 22 13,815,405 8,665,901Retained earnings 36,464,242 31,929,068

Total equity 134,916,854 108,244,132

Commitments and contingencies 19

Total liabilities and equity 1,159,917,835 1,073,051,534

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Notes 2015 2014

Interest and commission income:Interest on: 6

Loans 47,999,721 41,763,923 Deposits with banks 152,060 105,498 Securities 10,424,100 8,954,822

Loan commissions 5,323,191 4,841,868 Total interest and commission income 63,899,072 55,666,111

Interest expenses:Deposits 6 32,660,526 27,600,603 Borrowings 1,213,548 1,321,858

Total interest expenses 33,874,074 28,922,461

Net interest and commission income 30,024,998 26,743,650

Provision for loan losses 9 1,676,333 2,588,215 Net interest and commission income, after provisions 28,348,665 24,155,435

Other income (expenses):Other commissions earned 18 4,524,726 4,126,653 Gain on sale of securities, net 8 1,413,088 676,433Dividends earned 2,832 5,075 Other income 18 3,559,643 5,298,522 Commission expenses (1,498,164) (1,470,407)

Total other income, net 8,002,125 8,636,276

General and administrative expenses:Salaries and other employee benefits 6 10,860,050 10,622,226 Fees and professional services 6 1,870,122 1,579,365 Depreciation and amortization 10, 12 1,712,903 1,654,407 Rental 1,123,899 1,012,153 Advertising and publicity 1,106,678 1,136,027 Maintenance and repairs 452,120 456,171 Software support 983,758 935,905 Electricity, water and communications services 507,430 547,860 Donations, contributions and subscriptions 126,130 177,539 Transportation 403,181 365,801 Office supplies 185,662 185,672 Insurance 142,104 106,086 Taxes 1,582,306 1,103,459 Others 1,277,726 778,403

Total general and administrative expenses: 22,334,069 20,661,074

Net income before income tax 14,016,721 12,130,637 Income tax, net 21 (1,560,025) (1,012,687) Net income 12,456,696 11,117,950

The consolidated statement of profit or loss should be read along with the accompanying notes which are an integral part of the consolidated financial statements.

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Consolidated Statement of Profit or Loss

For the year ended December 31, 2015


Consolidated Statement of Comprehensive Income



Note 2015 2014

Net income 12,456,696 11,117,950

Other comprehensive income (loss):Items that are or may be reclassified to the consolidated statement of profit or loss:

Net realized gain transferred to profit or loss (1,413,088) (676,433) Net changes in fair value of securities available for sale (1,598,868) 4,507,623 Other comprehensive income (loss), net 8 (3,011,956) 3,831,190

Total comprehensive income 9,444,740 14,949,140

The consolidated statement of comprehensive income should be read along with the accompanying notes which are an integral part of the consolidated financial statements.

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Consolidated Statement of Changes in Equity



Valuationreserve for Surplus

Common securities available Asset of credit Total regulatoryNotes shares for sale management assets reserve reserves earnings Total equity

Balance at December 31, 2013 65,000,000 (1,182,027) 0 0 0 4,915,166 4,915,166 26,977,569 95,710,708

Net income 0 0 0 0 0 0 0 11,117,950 11,117,950

Other comprehensive income (loss):Regulatory provisions on asset management 0 0 90,627 0 0 0 90,627 (90,627) 0Dynamic provision 0 0 0 0 8,209,649 0 8,209,649 (8,209,649) 0Credit regulatory reserve 0 0 0 0 0 (4,557,114) (4,557,114) 4,557,114 0Regulatory reserve for foreclosed assets 0 0 0 7,573 0 0 7,573 (7,573) 0Net realized gain transferred to profit or loss 0 (676,433) 0 0 0 0 0 0 (676,433)Net changes in fair value of securities available for sale 8 0 4,507,623 0 0 0 0 0 0 4,507,623

Total other comprehensive income (loss) 0 3,831,190 90,627 7,573 8,209,649 (4,557,114) 3,750,735 (3,750,735) 3,831,190Total comprehensive income 0 3,831,190 90,627 7,573 8,209,649 (4,557,114) 3,750,735 7,367,215 14,949,140

Transactions attributable to shareholder:Dividends paid 17 0 0 0 0 0 0 0 (2,200,000) (2,200,000)Complementary tax 0 0 0 0 0 0 0 (215,716) (215,716)

Total transactions attributable to shareholder 0 0 0 0 0 0 0 (2,415,716) (2,415,716)

Balance at December 31, 2014 17 65,000,000 2,649,163 90,627 7,573 8,209,649 358,052 8,665,901 31,929,068 108,244,132

Net income 0 0 0 0 0 0 0 12,456,696 12,456,696

Other comprehensive income (loss):Regulatory provisions on assets management 0 0 22,284 0 0 0 22,284 (22,284) 0Dynamic provision 0 0 0 0 5,472,245 0 5,472,245 (5,472,245) 0Credit regulatory reserve 0 0 0 0 0 (348,941) (348,941) 348,941 0Regulatory reserve for foreclosed assets 0 0 0 3,916 0 0 3,916 (3,916) 0Net realized gain transferred to profit or loss 0 (1,413,088) 0 0 0 0 0 0 (1,413,088)Net changes in fair value of securities available for sale 8 0 (1,598,868) 0 0 0 0 0 0 (1,598,868)

Total other comprehensive income (loss) 0 (3,011,956) 22,284 3,916 0 (348,941) 5,149,504 (5,149,504) (3,011,956)

Total comprehensive income 0 (3,011,956) 22,284 3,916 0 (348,941) 5,149,504 7,307,192 9,444,740

Transactions attributable to shareholder:

Issuance of common shares 17 20,000,000 0 0 0 0 0 0 0 20,000,000

Dividends paid 17 0 0 0 0 0 0 0 (2,500,000) (2,500,000)Complementary tax 0 0 0 0 0 0 0 (272,018) (272,018)

Total transactions attributable to shareholder 20,000,000 0 0 0 0 0 0 (2,772,018) 17,227,982

Balance at December 31, 2015 17 85,000,000 (362,793) 112,911 11,489 8,209,649 9,111 13,815,405 36,464,242 134,916,854

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

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provision

Regulatory reserves

Foreclosed Dynamic Retained


Consolidated Statement of Cash Flows



Notes 2015 2014

Cash flows from operating activities:Net income 12,456,696 11,117,950Adjustments to reconcile net income to net cash from operating activities:

Depreciation and amortization 10, 12 1,712,903 1,654,407Provision for loan losses 9 1,676,333 2,588,215Impairment on assets held for sale 13 495,606 0Gain on sale of securities 8 (1,413,088) (676,433)Loss on sale and disposal of furtiture and equipment 12,437 12,307Income tax 21 1,053,011 1,306,189Deferred income tax 21 507,014 (293,502)Net interest and commission income (30,024,998) (26,743,650)

Changes in operating assets and liabilities:Time deposits with banks with original maturities greater than 3 months 7 (500,203) 900,000Loans (86,039,519) (73,853,012)Other assets 850,053 (3,268,350)Deposits from customers 43,009,972 139,279,276Other liabilities (2,489,421) (404,734)

Cash generated from operation:Interest received 64,559,382 55,615,502Interest paid (32,876,407) (28,060,739)

Income taxes paid (768,286) (1,370,751)

Net cash flows from operating activities (27,778,515) 77,802,675

Investing activities:Purchases of securities available for sale 8 (100,711,370) (101,959,432)Sale of securities available for sale 8 76,872,380 39,523,315Redemptions of securities availables for sale 8 16,151,064 10,227,153Sale of properties and equipments 101,013 59,522Acquisition of property, equipments and intangible assets 10, 12 (1,482,615) (2,143,803)

Cash flows from investing activities (9,069,528) (54,293,245)

Financing activities:Borrowings paid (20,191,311) (35,081,437)New borrowings received 39,154,770 26,633,613Payments of securities sold under repurchase agreements 0 (4,573,750)Complementary tax (272,018) (215,716)Dividends paid on common shares 17 (2,500,000) (2,200,000)Issuance of common shares 17 20,000,000 0

Cash flows from financing activities 36,191,441 (15,437,290)

Net (decrease) increase in cash and cash equivalents (656,602) 8,072,140

Cash and cash equivalents at beginning of year 122,738,061 114,665,921

Cash and cash equivalents at end of year 7 122,081,459 122,738,061

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

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METROBANK, S. A. AND SUBSIDIARIES (Panama, Republic of Panama) Notes to the Consolidated Financial Statements December 31, 2015 (Expressed in Balboas)

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(1) General Information Metrobank, S. A., was established on May 14, 1991 and started operations on September, 1991 and operates in the Republic of Panama with a general license granted by the Superintendence of Banks of Panama (“the Superintendence”), that allows it to perform banking business activities indistinctly in Panama or abroad. Metrobank, S. A. and its subsidiaries will be referred to collectively as the “Bank”.

The Bank is a 100% subsidiary of Metro Holding Enterprises, Inc. The Bank owns or controls the following subsidiaries:

Activity Country of

Incorporation Controlling

Interest 2015 2014 Metroleasing, S. A.

Financial leasing movable property.

Panama

100%

100%

Eurovalores, S. A.

Financial intermediation services and other related services.

Panama

100%

100%

Financiera Govimar, S. A.

Consumer loans.

Panama

100%

100%

Corporación Govimar, S. A.

Consumer loans, subsidiary of Financiera Govimar, S. A.

Panama

100%

100%

Metrotrust, S. A.

Trust business.

Panama

100% 100%

Metrofactoring, S. A.

Factoring business.

Panama

100%

100%

Banking operations in Panama are regulated and supervised by the Superintendence of Banks of Panama (hereinafter "the Superintendence") according to the law established by Decree Law No. 2 of February 22, 2008 and the rules for its implementation. Metroleasing, S. A., operations are regulated by the Direction of Financial Enterprises of the Ministry of Commerce and Industry pursuant to Law No. 7 of July 10, 1990. Eurovalores, S. A., is regulated by the Superintendence of Securities Market of Panama according to the laws established in Law Decree No.1 of July 8, 1999, which was amended by Decree Law No.67 of September 1, 2011. Also, in accordance with Agreement 4-2011 of June 27, 2011 issued by the Superintendence of Securities Market of Panama amended by Agreement 8-2013 of September 18, 2013, brokerage houses must meet capital adequacy standards, solvency ratio, capital funds, liquidity ratio and credit risk concentrations.

METROBANK, S. A. AND SUBSIDIARIES (Panama, Republic of Panama) Notes to the Consolidated Financial Statements

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(1) General Information, continued The operations of Financiera Govimar, S. A. and Corporacion Govimar, are regulated by the Direction of Financial Enterprises of the Ministry of Commerce and Industry according to Decree Law No. 42 of July 23, 2001, amended by Law No. 33 of June 26, 2002. Its main source of business constitute consumer loans granted mainly to retirees and pensioners, employees of the central government, independent and semi-independent entities. Metrotrust, S. A. operations, are regulated by the Superintendence of Banks of Panama through Law No.1 of January 5, 1984 and Executive Decree No.16 of October 3, 1984. The main office of the Bank is located at Punta Pacífica, Isaac Hanono Misri street, Metrobank Tower, Panama City.

(2) Basis of Preparation (a) Statement of Compliance

The Bank’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). These consolidated financial statements were authorized by the Audit Committee and approved by the Board of Directors for its issuance on February 29, 2016.

(b) Basis of Measurement These consolidated financial statements have been prepared on the historical cost basis or amortized cost, except for securities available for sale, which are measured at fair value; and assets classified as held for sale, which are measured at the lower of its carrying value and its fair value less costs to sell. The Bank initially recognizes all financial assets on its settlement date.

(c) Functional and Presentation Currency These consolidated financial statements are presented in balboas (B/.). The balboa is the monetary unit of the Republic of Panama, which is at par and freely exchangeable with the Dollar of the United States of America (US$). The Republic of Panama does not issue its own paper currency, and in lieu, the Dollar (US$) of the United States of America is used as legal tender and is considered the functional currency of the Bank.


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(3) Summary of Significant Accounting Policies The accounting policies detailed below have been consistently applied by the Bank for all the periods presented in these consolidated financial statements. (a) Basis of Consolidation

(a.1) Subsidiaries The Bank has control on a subsidiary when is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to use its power to affect its returns. The financial statements of subsidiaries described in Note 1, are included in the consolidated financial statements from the date on which it obtains control until the date when control ceases. Income and expenses of subsidiaries acquired or disposed during the year are included in the consolidated statement of profit or loss from the effective date of the acquisition or until the effective date of disposal, as appropriate.

(a.2) Investment Entities and Separate Vehicles

The Bank manages and administers assets held in trust funds and other investment vehicles to support investors. The financials statements of these entities do not form part of these consolidated financial statements except when the Bank has control over the entity.

(a.3) Structured Entities

A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, for example when any voting rights relate to administrative tasks only, and key activities are directed by contractual agreement. In assessing whether the Bank has control over such investees in which it has an interest, and therefore determine whether the structured entity is consolidated, several factors of the investee are evaluated, such as the purpose and design of the investee; its practical ability to direct relevant activities of the investee; the nature of its relationship with the investee; and the size of its exposure to the variability of returns of the investee. The financials statements of these structured entities do not form part of these consolidated financial statements, except when the Bank has control over the entity.

(a.4) Transactions Eliminated on Consolidation

All assets, liabilities, equity, income, expenses and cash flows relating to transactions between subsidiaries of the Bank are eliminated in preparing the consolidated financial statements.

(b) Fair Value Measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, or in its absence, the most advantageous market to which the Bank has access at that date. The fair value of a liability reflects its non-performance risk.


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(3) Summary of Significant Accounting Policies, continued When applicable, the Bank measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is considered as active, if the transactions of these assets or liabilities take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Bank uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. The best evidence of the fair value is a quoted market price in an active market. In the case that the market for a financial instrument is not considered active, a valuation technique is used. The decision of whether a market is active may include, but is not limited to, consideration of factors such as the magnitude and frequency of trading activity, the availability of prices and the magnitude of offers and sales. In markets that are not active, the guarantee to get that the price of the transaction provides evidence of fair value or to determine the adjustments to transaction prices that are necessary to measure the fair value of the instrument, requires additional work during the valuation process. The fair value of a demand deposit is not lower than the amount payable as required, discounted since the first date payment might be required. The Bank recognized transfers between levels of the fair value hierarchy at the end of the period during which the change occurred.

(c) Cash and Cash Equivalents For purposes of the consolidated statement of cash flows, cash equivalents include demand deposits and time deposits with banks with original maturities of three months or less.

(d) Investment Securities Investment securities are initially measured at fair value plus, incremental transaction costs and subsequently accounted for depending on the classifications maintained in accordance with the characteristics of the instrument and the intention for which their acquisition was determined. The classification used by the Bank is detailed as follows:

Securities available for sale This category includes securities acquired with the intention of holding them for an undetermined period of time, which may be sold in response to needs for liquidity, changes in interest rates, currency exchange rates or market prices of stocks. These investments are measured at fair value and changes in value are recognized directly in the consolidated statement of comprehensive income using an valuation reserve account until they are sold or redeemed (derecognition) or has been determined that a security has been impaired; in this case the cumulative gain or loss previously recognized in the consolidated statement of comprehensive income are reclassified to the results of operations in the consolidated statement of profit or loss.


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(3) Summary of Significant Accounting Policies, continued Impairment of securities available for sale The Bank reviews at each reporting date, if there is any objective evidence of impairment in investment securities. For equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment. If there is an objective evidence of impairment for financial assets available for sale, cumulative losses are removed from equity and recognized in the consolidated statement of profit or loss. If in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase is objectively related to an event occurring after the impairment loss was recognized in the consolidated statement of profit or loss, the impairment loss will be reverse through the consolidated statement of profit or loss. Unquoted equity securities whose fair value cannot be measured reliably are carried at cost.

(e) Loans Loans receivable are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are generally originated by to provide funds to a debtor as a loan. Loans are stated at their principal outstanding amount pending collection, less insurance premiums, unearned interest and commissions and the allowance for loan losses. Unearned interest and commissions are recognized as income through the duration of the loan by using the effective interest rate method. Finance leases are mainly comprised of vehicles lease arrangements, which are reported as part of the loan portfolio at their present value. The difference between the gross amount receivable and the present value of the receivable amount, is recorded as unearned interests, which is amortized to operating income by using a method that shows a periodical return rate. Factoring consists of the purchase of invoices, which are presented at their principal amount of collection. Discounted bills receivable, net of amounts retained and interest collected in advance are presented as part of the loan portfolio.

(f) Allowance for Loan Losses At each reporting date, the Bank reviews loan or loan portfolio, to determine whether there is any indication that those assets have suffered an impairment loss. The amount of loan losses determined during the period is recognized as a provision expense in the consolidated statement of profit or loss and increases the allowance for loan losses. The allowance is presented deducted from loans receivable in the consolidated statement of financial position. When a loan is determined to be uncollectible, the unrecoverable amount is charged to the allowance account referred above. Subsequent recoveries of loans previously charged-off as uncollectible are credited to the allowance account.


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(3) Summary of Significant Accounting Policies, continued Impairment losses are determined through two methods which indicate if there is any objective evidence of impairment, i.e. individually, for loans individually significant and collectively, for loans that are not individually significant. - Individually Assessed Loans

Impairment losses on individually assessed loans are determined based on an assessment of each particular exposure. If there is not objective evidence of impairment for a significant individual loan, this is included in a group of loans with similar characteristics and impairment is collectively assessed. Impairment loss is calculated comparing the present value of expected future cash flows, discounted at the original effective interest rate of the loan, versus its current carrying value and the amount of any loss is recognized as an allowance for loan losses in the consolidated statement of profit or loss. The carrying value of impaired loans is decreased through the use of the allowance for loan losses account.

- Collectively Assessed Loans For purposes of a collective assessment for impairment, the Bank principally uses statistical methods with a formula approach based on historical loss rate experience, the opportunity of recoveries and the actual loss incurred and make an adjustment if current economic and credit conditions are such that it is likely that the actual losses are higher or lower than those suggested by historical trends. Roll rates, loss rates and the expected future recoveries terms are regularly benchmarked against actual loss experience, in order to assure that they are still appropriate.

- Reversal due to impairment If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed by decreasing the allowance for loan losses. The amount of any reversal is recognized in the consolidated statement of profit or loss.

- Renegotiated or Restructured Loans Are loans that due to difficulties in the repayment ability of the debtor, a variation on the original terms of the loan (balance, term, payment plan, fee or guarantees) has been formally documented, and the result of the evaluation of its current condition does not allow them to be reclassified as normal. These loans once, are restructured should be maintained for a period of six (6) months, in the risk classification it was classified before the loan was restructured, regardless of any improvement in its condition of the debtor subsequent restructuring.

(g) Properties, Furniture, Equipment and Improvements

Properties, furniture, equipment and improvements comprise buildings, furniture and improvements used by branches and offices. All properties, furniture, equipment and improvements are stated at historical cost less accumulated depreciation and amortization. Historical cost includes expenditure that is directly attributable to the acquisition of the assets.


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(3) Summary of Significant Accounting Policies, continued Subsequent costs are included in the asset’s carrying amount or are recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance are recognized to the consolidated statement of profit or loss during the financial period in which they are incurred. The depreciation expense of computer equipment is charged to results of current operations, using the straight-line method over an estimated useful life. The useful lives of assets are as follows: Depreciation and amortization expenses of properties, furniture and office equipments and improvements are charged to current operations using the straight-line method over the estimated useful life of each asset. Land is not depreciated. The estimated useful lives of the assets are summarized as follows:

- Properties and improvements Up to 30 years - Furniture and office equipment 3 - 10 years - Vehicles 3 - 5 years

The useful life of assets is reviewed and adjusted if appropriate, at each reporting date. Properties and equipment are reviewed for impairment whenever events or changes in circumstances that indicate that the carrying amount may not be recoverable. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s amount carrying amount is greater than its estimated recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use.

(h) Intangible Assets (h.1) Intangible Assets

Intangible assets consist of software and licenses of computer programs with a defined life, acquired by the Bank and that are recorded at cost of acquisition or internal development, less accumulated amortization and impairment losses. Amortization is charged to operating results on a straight-line method over the estimated useful life of the acquired software from the date it is available for use life. The estimated useful life of software is three to five years.

(h.2) Goodwill Goodwill represents the excess of the purchase price over the fair value of the net assets acquired, resulting from the acquisition of a business by the Bank. All goodwill is allocated to one or more cash-generating units of an entity and is tested for impairment at that level. The impairment test requires that the fair value of each cash-generating unit be compared with its carrying amount. Goodwill is presented at cost less accumulated losses for impairment. The losses due to impairments, if any, are reflected in the consolidated statement of profit or loss.


16

(3) Summary of Significant Accounting Policies, continued Goodwill is not amortized, but is tested for impairment at least once a year and when there is indication of impairment.

(i) Assets classified as held for sale Non-current assets, or disposal groups comprising of asset and liabilities, including foreclosed assets held for sale, are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. Immediately before being classified as held for sale, assets or disposal groups will be measured again in conformity with the Bank’s accounting policies. Based on that classification, the lowest value between its carrying amount and its fair value less costs of sales shall be recognized. An impairment loss shall be recognized by virtue of reductions in the beginning value of the Bank’s assets. Impairment losses are recognized in the consolidated statements of profit or loss.

(j) Deposits and Borrowings Received These instruments result from the funds received by the Bank and are initially measured at fair value, net of transaction costs. Subsequently they are measured at amortized cost, using the effective interest rate method, except for liabilities that the Bank decides to measure at fair value through profit or loss. The Bank classifies capital instruments as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instruments.

(k) Securities Sold under Repurchase Agreements

Securities sold under repurchase agreements are short term financing transactions guaranteed with securities, in which the Bank has the obligation to repurchase the securities sold on a future date and at a price. The difference between the sale price and the future purchase price is recognized as an interest expense under the effective interest rate method. The securities submitted as collateral will remain recorded in the consolidated statement of financial position, as the counterparty has no right of ownership over securities unless there is a breach of contract by the Bank.

(l) Financial Guarantees Financial guarantees are contracts that commits the Bank to make specific payments on behalf of its customers, to reimburse the beneficiary of the guarantee, in the event that the client fails to make payment when due in accordance with the terms and conditions of the contract. Liabilities arising from financial guarantees are initially recognized at fair value; which is amortized trough out the term of the financial guarantee. Subsequently, the guarantee is carried at the highest amount between the amortized amount and the present value of expected future payments. Financial guarantees are included in the consolidated statement of financial position within other liabilities.


17

(3) Summary of Significant Accounting Policies, continued (m) Income and Interest Expense

Income and interest expense are recognized in the consolidated statement of profit or loss for all financial instruments using the effective interest rate method. The effective interest rate method is the rate that exactly discounts future cash flows receivable or payable estimated over the expected life of the financial instrument to the net carrying amount of the financial asset or liability. The calculation includes all fees paid or received between the parties, the transaction costs and any premium or discount.

(n) Income Fees and Commission Generally, fees and commissions on short-term loans, letters of credit and other banking services are recognized as income under the cash basis method due to their short-term maturity. Income recognized on a cash basis method does not significantly differ from income that would have been recognized under the accrual method.

Fees and commissions on medium and long term transactions are deferred and amortized to income using the effective interest rate method over the life of the loan. Commissions on loans are included as loan commissions in the consolidated statement of profit or loss.

(o) Dividend Dividends are recognized in the consolidated income statement of profit or loss when the entity has the rights to receive the payment established.

(p) Revenue Recognition for Leases

Lease income is recognized at the time the lessee has the right to use the leased asset. Lease contracts are valid when the following elements occur:

Consent of the parties; Object certain that is subject of the contract; Cause of the obligation to be established; and There is a writing contract.

(q) Trust Operations Assets held in trust or fiduciary function are not considered part of the Bank’s assets, and therefore such assets and their corresponding income are not included in these consolidated financial statements. The Bank shall administrate the trust funds in conformity with contractual arrangements and separately from its own equity.

The Bank charges a commission for administrating the trust funds, which is paid by the trustees on the basis of the amount maintained in the trust funds or as agreed between the parties. These commissions are recognized in income according to the terms of the trust agreements whether monthly, quarterly or annually on an accrual basis.

(r) Income Tax Estimated income tax is the income tax payable on the taxable income for the year, using tax rates enacted at the consolidated statement of financial position date, and any adjustment to tax from previous years.


18

(3) Summary of Significant Accounting Policies, continued Deferred income tax represents the amount of income tax payable and/or receivable in future years resulting from temporary differences between carrying values of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, measured at the tax rates that are expected to be applied to the temporary differences when they are reversed, based on the laws that have been enacted or substantively enacted at the reporting date. These temporary differences are expected to be reversed in future dates. If it is determined that the deferred tax may not be realized be in future years, it would be totally or partially reduced.

(s) Foreign Currency

Foreign currency transactions are recorded at the exchange rates prevailing at the date of the transaction. Assets and liabilities held in foreign currency are translated into the functional currency at the rate prevailing exchange rate at the reporting date. Gains or losses from foreign currency translation are reflected in the accounts of other income or other expenses in the consolidated statement of profit or loss.

(t) Comparative information

Certain comparative information for 2014 has been modified to adapt its presentation to the consolidated financial statements of 2015.

(u) New International Financial Reporting Standards (IFRS) and interpretations not yet

adopted At the date of the consolidated financial statements are standards, amendments and interpretations which are not effective for the period ended on December 31, 2015 and therefore; have not been applied in preparing of these consolidated financial statements. Among the changes we have:

The final version of IFRS 9 Financial Instruments (2014) supersedes any previous

versions of IFRS 9 (2009, 2010 and 2013), and forms part of the comprehensive project to supersede IAS 39. Among the most significant effects of this Standard are: - IFRS 9 contains new requirements for the classification and measurement of

financial assets. Among other aspects, this Standard includes two primary measurement categories for financial assets: amortized cost and fair value. IFRS 9 eliminates the categories previously implemented by IAS 39 corresponding to held-to-maturity investments, available-for-sale investments, loans and receivables.

- Removal of profit or loss volatility caused by changes in the credit risk of liabilities measured at fair value, which implies that gains obtained from the entity’s own credit risk impairment in this type of obligations is no longer recognized in profit or loss for the period, but in equity.

- A substantially amended approach for hedge accounting, with enhanced disclosures in relating with risk management.


19

(3) Summary of Significant Accounting Policies, continued - A new impairment model, based on “expected losses” which will require greater

and timely recognition of expected credit losses. IFRS 9 is effective for annual reporting periods beginning on or after January 1, 2018, with early adoption permitted. Given the nature of the Bank’s financial operations, the adoption of this standard is expected to have a pervasive impact on the consolidated financial statements which is currently being assessed by management.

IFRS 15 Revenue from Contracts with Customers. IFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. It will supersede the following revenue Standards and Interpretations upon its effective date including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. IFRS 15 is effective for reporting periods beginning on or after January 1, 2018 with early adoption permitted. The Bank is evaluating the potential effect of the application of IFRS 15 on its consolidated financial statements.

Also, on January 13, 2016, the International Accounting Standards Board (IASB) published a new Standard, IFRS 16, Leases, which replaces the current IAS 17 Leases. IFRS 16 eliminates the current operating/finance lease dual accounting model for lessees. Instead, there is a single, on-balance sheet accounting model, similar to current finance lease accounting. Leases are measured at the present value of future lease payments and are presented as either leased assets (right-ofuse asset) or along with property, furniture and equipment. IFRS 16 is effective for entities that apply IFRS for annual periods beginning on or after January 1, 2019. Earlier application is permitted for entities that apply IFRS 15, Revenue from Contracts with Customers, at or before the date of initial application of IFRS 16. At the date of the consolidated financial statements, the Bank has not assessed the impact that the adoption of this standard will have on the consolidated financial statements.


20

(4) Financial Risk Management The activities of the Bank are exposed to a variety of financial risks and those activities include the analysis, evaluation, acceptance and administration of certain degree of risk or combination of risks. Taking risks is essential to the financial business, and operational risks are inevitable consequence of being in the business. Therefore, the objective of the Bank is to achieve an appropriate balance between risk and return and minimize the potential adverse effects on the financial return of the Bank. The activities of the Bank are mainly related with the use of financial instruments, and as such, the consolidated statement of financial position is mainly composed of financial instruments, therefore the Bank is exposed to the following risks in the use of them: Credit risk Liquidity risk Market risk Operational risk

The Board of Directors of the Bank has the responsibility to establish and overlook the policies of financial instruments risk management. For this purpose, it has appointed committees in charge of the periodic management and overlook of the risks to which the Bank is exposed. These committees are: Audit Committee Asset and Liability Committee (ALCO) Risk Committee Prevention of Money Laundering Committe Credit Committee Human Resources Committee Senior Management Committee Technology Committee

In addition, the Bank and its subsidiary Eurovalores, S. A., are subject to the regulations of the Superintendence of Banks of Panama and the Superintendence of Securities Market of Panama, respectively, related to concentration, liquidity and capitalization risks, among others. (a) Credit Risk

Is the risk of a financial loss for the Bank, that may take place if a client or a counterparty of a financial instrument fails to meet their contractual obligations, and it arises mainly from loans to customers and investment in securities. For purposes of risk management, the Bank considers and consolidates all elements of credit risk exposure, debtor risk, country risk, sector or industry risk. The credit risk that arises from maintaining securities is managed independently, but informed as a component of credit risk exposure.


21

(4) Financial Risk Management, continued The respective committees appointed by the Bank’s Board of Directors, periodically overlooks the financial condition of the debtors and issuers of debt securities, that involves a credit risk for the Bank. The Credit Committee is comprised of members of the Board of Directors, credit management staff, and representatives of the business areas. This Committee is in charge of developing changes to credit policies, and to present them to the Bank’s Board of Directors. The Bank has established certain procedures to manage credit risk, summarized as follows:

Formulating of credit policies Credit policies are issued or reviewed as recommended by any member of the Credit Committee or by the credit vice presidents, as well as control areas, who must make written suggestions in writing, considering the following factors:

Changes in market conditions Risk factors Changes in laws and regulations Changes in financial conditions and credit availability Other relevant factors at the moment All changes in policies or the issuance of new policies must be approved by the Risk Committee, whom in turn submits them to the Board of Directors for approval, issuing a memorandum of instructions for disclosure and subsequent implementation: Establishment of authorization limits Approval limits for credits are established depending on the amount that it represents to the Bank’s equity. These levels are recommended by the Credit Committee, whom in turn submits them for the approval of the Bank’s Board of Directors.

Exposure limits In order to limit the exposure, maximum limits have been established for an individual debtor or economic group, based on the Bank’s Capital funds. Concentration limits In order to limit concentration per activity or industries, exposure limits have been approved based on capital distribution and the strategic orientation that wants to be given to the loan portfolio. Furthermore, the Bank has limited its exposure to different geographies through the country risk policy, in which it has defined countries where it would like to have exposure based on the Bank’s strategic plan; also, credit and investment exposure limits have been implemented in such countries, based on their credit assessment of each of them. Maximum limits by counterparty In regards to counterparty exposure, limits have been defined based on risk rating of the counterparty, as a proportion of the Bank’s capital.


22

(4) Financial Risk Management, continued Impairment and provision rating policies The internal and external systems are centralized more in projecting credit quality since the beginning of the loan and investment activities. Conversely, impairment provisions are recognized for financial reporting purposes only for losses that have been incurred at the date of the consolidated statement of financial position with objective evidence of impairment.

The following table analyzes the Bank’s loan and investment portfolios that are exposed to credit risk and the corresponding assessment:

Loans receivable Investment in debt securities 2015 2014 2015 2014 Maximum exposure Carrying value 778,519,537 694,156,351 225,894,397 220,832,246

At amortized cost Grade 1: Standard 792,309,735 721,103,577 0 0 Grade 2: Special mention 15,128,757 791,193 0 0 Grade 3: Sub-standard 719,238 356,320 0 0 Grade 4: Doubtful 1,627,613 1,279,781 0 0 Grade 5: Loss 1,071,037 4,420,590 0 0 Gross amount 810,856,380 727,951,461 0 0 Allowance for impairment loss (3,109,795) (5,195,874) 0 0 Unearned interest, insurance premium and

commissions (29,227,048) (28,599,236) 0 0 Carrying value, net 778,519,537 694,156,351 0 0

Available-for-sale securities Level 1: Low risk 0 0 225,894,397 220,832,246 Carrying value 0 0 225,894,397 220,832,246 Allowance for impairment loss 0 0 0 0 Carrying value, net 0 0 225,894,397 220,832,246

Neither past-due nor impaired Grade 1 792,309,735 721,103,577 0 0 Grade 2 13,938,805 0 0 0 Grade 3 58,665 0 0 0 Total 806,307,205 721,103,577 0 0 Past due but not impaired 60 days 1,759,979 1,204,476 0 0 61 90 days 975,190 589,150 0 0 Over 90 days 1,079,895 1,145,530 0 0 Total 3,815,064 __2,939,156 0 0 Individually Impaired Grade 3 18,648 0 0 0 Grade 4 207,741 203,872 0 0 Grade 5 507,722 3,704,856 0 0 Total 734,111 3,908,728 0 0 Allowance for impairment Individual 538,113 3,715,279 0 0 Collective 2,571,682 1,480,595 0 0 Total allowance for impairment 3,109,795 5,195,874 0 0 Off-balance sheet operations Grade 1: Low risk Letters of credit “stand by” 9,714,160 12,090,511 0 0 Sureties and endorsements 3,854,363 11,359,363 0 0 Promissory notes of payment 20,020,416 33,815,319 0 0 Grade 3: Sub-standard Letters of credit “stand by” 0 165,480 0 0 Promissory notes of payment 0 59,980 0 0 33,588,939 57,490,653 0 0


23

(4) Financial Risk Management, continued In the previous table, are detailed the factors of greatest risk exposure and information of the loan portfolio and investments in debt securities, and the assumptions used for these disclosures are as follows: Impairment of loans and investments in debt securities:

Management determines if there is objective evidence of impairment on loans and investments in debt securities, based on the following criteria established by the Bank: - Breach of contract, such as a default or delinquency in interest or principal

payments; - Cash flow difficulties experienced by the borrower - Non-compliance with agreed contractual terms and conditions; - Initiation of bankruptcy procedures; - Decline in the borrower's competitive position; and - Impairment of collateral value.

Past due but not impaired: Are considered past due but nor impaired, i.e. without incurred losses, loans and investments in debt securities that have a level of guarantees and/or sufficient sources of payment to cover the carrying amount of the loan and investment.

Restructured/Renegotiated Loans:

Renegotiated loans are those which have been led to a restructuring due to any impairment in the debtor’s financial condition and when the Bank considers to grant any variation with respect to the credit original terms (balance, term, payment plan, rate and collaterals). These loans once they are restructured, are maintained in the same risk category that they have before the restructuring, notwithstanding if the debtor’s capacity improves after Bank’s restructuring (See note 23).

Charge–off policy The Bank periodically reviews its impaired loan portfolio to identify those credits that require to be charged-off due to uncollectibility of the balance and up to the amount not covered by any collateral. For unsecured consumer loans, charge-offs are carried out based on the accrued level of delinquency. In the case of residential mortgage and consumer loans, the charge-off is recognized for the estimated part of the carrying value that is not covered by the loan collateral.


24

(4) Financial Risk Management, continued The following detail analyzes securities available for sale that are exposed to credit risk and its corresponding evaluation based on their investment rating:

Investments

in debt securities

2015 Investment grade 157,707,186 Standard monitoring 12,657,072 Unrated 55,530,139

225,894,397 2014

Investment grade 143,323,511 Unrated 77,508,735

220,832,246 The previous table, details the factors of greatest credit risk exposure of investments in debt securities. To manage financial risk exposures of investments in debt securities, the Bank uses the indicators of external risk rating agencies, as detailed below: Investment grade External qualification With investment grade AAA, AA, AA+, AA-, A, A+, A-, BBB+, BBB, BBB- Standard monitoring BB+, BB, BB-, B+, B, B- Special monitoring CCC to C Unrated -

Deposits with banks:

At December 31, 2015, the Banks maintains deposits with banks for B/.111,201,536 (2014: B/.115,975,836). Deposits with banks are maintained with banks and others financial institutions with at least a credit risk rating between BBB+ and AA+, based in Moody´s, Standard and Poor’s, Fitch Ratings Inc. and Equilibrium.


25

(4) Financial Risk Management, continued Collaterals and their financial effect The Bank maintains collaterals to reduce credit risk, in order to ensure the collection of its financial assets exposed to credit risk. The table below shows the main types of collaterals taken with respect to the different types of financial assets:

% percentage of portfolio that is collaterized

Guarantee type

2015 2014

Loans receivables

62%

56%

Cash, property, equipment and others

collaterals Residential Mortgage Loans The following table presents the ratio of the mortgage loans portfolio with respect to the value of the collateral ("Loan To Value" - LTV). The LTV is calculated as a percentage of the gross loan amount with respect to the value of the collateral. The gross amount of the loan does not include any impairment loss. The collateral value for mortgages, is based on the original value of the collateral at disbursement date and which is generally not updated:

2015 2014 Residencial Mortgage Loans: % LTV Less than 50% 3,883,012 3,191,551 51% - 70% 5,335,133 4,992,766 71% - 90% 8,936,870 6,976,685 91% - 100% 3,034,710 1,350,397 Total 21,189,725 16,511,399

Assets received as collateral Details on financial and non financial assets that the Bank obtained during the year by taking possession of collateral held as security against loans as well as call made on credit enhancements are shown below:

2015 2014 Participation trust 0 4,035,217

The Bank's policy is to perform or execute the sale of these assets in order to cover owed balances. In general terms, it is not the Bank's policy to use non-financial assets for its own operations, but to maintain these guarantees as held for sale in the short term.


26

(4) Financial Risk Management, continued Risk concentration of financial assets with credit risk disclosure The Bank monitors the credit risk concentration by sector and geographic location. The analysis of the credit risk concentration at the date of the consolidated statement of financial position is detailed as follows:

Loans Investment in debt

securities 2015 2014 2015 2014 Concentration by sector:

Corporate 672,286,830 602,358,376 141,165,980 135,281,679 Consumer 124,712,724 114,345,066 0 0 Government 13,856,826 11,248,019 84,728,417 85,550,567

810,856,380 727,951,461 225,894,397 220,832,246

Loans Investment in debt

securities 2015 2014 2015 2014 Geographic concentration: Panama 660,616,274 633,233,805 187,946,026 195,673,888 Latin America and the

Caribbean 123,815,005 71,754,855 12,657,072 2,214,777 United States of America 9,874,009 4,912,500 21,955,309 17,346,153 Others 16,551,092 18,050,301 3,335,990 5,597,428 810,856,380 727,951,461 225,894,397 220,832,246

Letters of credit and

“stand by” Sureties and

endorsements Promissory notes of

payment 2015 2014 2015 2014 2015 2014 Concentration by sector: Corporate 9,414,160 11,905,991 3,416,863 10,867,084 13,193,930 23,972,481 Consumer 300,000 350,000 437,500 492,279 6,826,486 9,902,818 9,714,160 12,255,991 3,854,363 11,359,363 20,020,416 33,875,299 Geographic concentration: Panama 9,714,160 12,255,991 3,854,363 11,359,363 20,020,416 33,875,299 9,714,160 12,255,991 3,854,363 11,359,363 20,020,416 33,875,299

The geographical concentration of loans, letters of credit, "stand by", sureties and endorsements and promissory notes of payment is based on the location of the debtor and in the case of investments, the geographic concentration is based on the issuer’s location.

(b) Liquidity Financing Risk Liquidity risk is the risk that the Bank is unable to meet all of its obligations related to its financial liabilities when they reach their maturity date and to replace funds when they are withdrawn. The consequence may be the failure to meet its obligations to repay deposits and commitments to lends.


27

(4) Financial Risk Management, continued Risk Management Process of Liquidity Risk The risk management process of liquidity risk, as is done in the Bank, includes: Manage and monitor future cash flows in order to ensure that cash supply

requirements can be met. This includes replacement of funds as they mature or is borrowed by customers. The Bank maintains an active presence in international markets;

Maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against any unforeseen interruption of cash flow;

Monitoring liquidity reports against internal and regulatory policies; Managing the concentration and maturity profile of its obligations.

The Asset and Liability Committee (ALCO) reviews the management process detailed above. The monitoring and reporting, prepared by management, becomes a tool to measure and forecast cash flow needs for the next day, week and month respectively, as these are key periods for liquidity management. The starting point for those projections is an analysis of the contractual maturities of financial liabilities and the expected collection date of the financial assets. Management also monitors medium-term assets, the level and type of debt obligation, the use of overdraft facilities and the impact of contingent liabilities, such as “stand by” letters of credit, and guarantees. Exposure to Liquidity Risk The key measure used by the Bank to manage liquidity risk is the net liquid asset ratio over customer’s deposits. Net liquid assets are cash and cash equivalents and debt securities, for which there is an active and liquid market less any other deposit received from banks, debt securities issued, other borrowings and commitments due during the following month. A similar, but not identical measurement is used to measure liquidity limits set by the Bank in compliance with the liquidity limit established by the Superintendence of Banks of Panama with respect to liquidity risk measurement.


28

(4) Financial Risk Management, continued The following is a detail of the ratios of net liquid assets over deposits due to customers of the Bank as of the date of the consolidated financial statements:

2015

2014

At end of year 62.26% 60.49% Average for the year 60.15% 55.58% Maximum for the year 68.87% 62.70% Minimum for the year 51.76% 46.24%

The Bank is exposed to daily demands on its available cash resources from overnight deposits, current accounts, time deposits, loan payments and collateral margin requirements and cashsettled. The Bank does not maintain cash resources to meet all of these needs as experience shows that a minimum level of reinvestment of the funds that are maturing can be projected with a high level of precision. The Board sets limits on the minimum proportion of funds available to meet those requirements and the minimum level of interbank facilities.


29

(4) Financial Risk Management, continued The following table analyzes the assets and liabilities of the Bank grouped by the maturity based on the remaining period from the date of the consolidated statement of financial position regarding the contractual maturity date:

Current Noncurrent

2015 Up to 1 year

1 to 3 years

3 to 5 years

Over 5 years

Without maturity

Carrying value

Assets:

Cash and cash equivalents 11,480,126 0 0 0 0 11,480,126 Demand deposits 98,213,765 0 0 0 0 98,213,765 Time deposits 12,987,771 0 0 0 0 12,987,771 Loans 292,673,957 166,867,405 226,561,256 124,753,762 0 810,856,380 Securities available for sale 10,498,248 18,009,235 56,427,104 140,959,810 138,266 226,032,663 Total assets 425,853,867 184,876,640 282,988,360 265,713,572 138,266 1,159,570,705 Liabilities:

Demand deposits 89,173,246 0 0 0 0 89,173,246 Saving deposits 118,415,893 0 0 0 0 118,415,893 Time deposits 453,413,978 260,550,929 11,335,221 1,094,000 0 726,394,128 Deposits from banks 8,209,021 0 0 0 0 8,209,021 Borrowings 24,980,765 11,500,000 0 0 0 36,480,765 Securities sold under repurchase

agreements 27,500,000

0 0 0 0 27,500,000 Total liabilities 721,692,903 272,050,929 11,335,221 1,094,000 0 1,006,173,053 Commitments and contingencies 33,052,598

536,341 0 0 0 33,588,939

Net liquidity margin (328,891,634) (87,710,630) 271,653,139 264,619,572 138,266 119,808,713

Current Noncurrent

2014 Up to 1 year

1 to 3 years

3 to 5 years

Over 5 years

Without maturity

Carrying value

Assets:

Cash and cash equivalents 6,862,225 0 0 0 0 6,862,225 Demand deposits 76,171,875 0 0 0 0 76,171,875 Time deposits 39,803,961 0 0 0 0 39,803,961 Loans 323,021,812 115,577,978 171,829,278 117,522,393 0 727,951,461 Securities available for sale 2,269,821 23,344,872 20,624,574 174,592,979 142,397 220,974,643 Total assets 448,129,694 138,922,850 192,453,852 292,115,372 142,397 1.071,764,165 Liabilities:

Demand deposits 113,910,493 0 0 0 0 113,910,493 Saving deposits 124,783,557 0 0 0 0 124,783,557 Time deposits 385,043,264 227,644,614 22,792,968 764,000 0 636,244,846 Deposits from banks 24,243,420 0 0 0 0 24,243,420 Borrowings 15,602,860 1,914,446 0 0 0 17,517,306 Securities sold under repurchase

agreements 15,000,000

12,500,000 0 0 0 27,500,000 Total liabilities 678,583,594 242,059,060 22,792,968 764,000 0 944,199,622 Commitments and contingencies 57,115,653

375,000 0 0 0 57,490,653

Net liquidity margin (287,569,553) (103,511,210) 169,660,884 291,351,372 142,397 70,073,890


30

(4) Financial Risk Management, continued The table below shows the undiscounted cash flows of financial liabilities of the Bank based on its closest possible maturity. The expected cash flows of these instruments may vary significantly relating to the following analysis:

2015

Carrying

Value

Gross Nominal Amount

Inflow/(Outflows)

Up to 1

Year

1 to 3 Years

3 a 5 Years

Over 5 Years

Liabilities: Deposits from customers 942,192,288 (981,183,175) (680,225,178) (286,033,857) (13,495,622) (1,428,518) Borrowings 36,480,765 (37,321,634) (25,240,412) (12,081,222) 0 0 Securities sold under

repurchase agreements 27,500,000 (27,749,729) (27,749,729) 0 0 0 Total liabilities 1,006,173,053 (1,046,254,538) (733,215,319) (298,115,079) (13,495,622) (1,428,518) Commitments and contingencies

0

(33,588,939)

(33,052,598)

(536,341)

0

0

2014

Carrying

Value

Gross Nominal

Amount Inflow/(Outflows)

Up to 1

Year

1 to 3 Years

3 a 5 Years

Over 5 Years

Liabilities: Deposits from customers 899,182,316 (934,033,266) (657,346,779) (247,081,061) (28,576,365) (1,029,061) Borrowings 17,517,306 (17,704,807) (15,699,745) (2,005,062) 0 0 Securities sold under

repurchase agreements 27,500,000 (28,074,505) (15,193,681) (12,880,824) 0 0 Total liabilities 944,199,622 (979,812,578) (688,240,205) (261,966,947) (28,576,365) (1,029,061) Commitments and contingencies 0

(57,490,653)

(57,115,653)

(375,000)

0

0

To manage the liquidity risk arising from financial liabilities, the Bank maintains liquid assets such as cash and cash equivalents and securities with investments grade for which an active market exists. These assets can be sold to meet liquidity requirements.

(c) Market risk

It is the risk that the value of a Bank’s financial asset is reduced as a result of changes in interest rates, foreign currency exchange rates, changes in the price of stocks or the effect of other financial variables beyond Bank’s control. The objective of market risk management is to manage and supervise market risk exposures, in order that they are maintained within the acceptable parameters optimizing the risk return. Risk management policies establish compliance with limits per financial instrument, limits as to the maximum amount of loss requiring the closure of the positions causing such loss and the requirement that, otherwise approved by the Board of Directors, all the assets and liabilities should be substantially denominated in US dollars or in Balboas. Market Risk Management: The Bank’s investment policies provide for the compliance with limits for the total amount of the investment portfolio, individual limits per type of assets, institution, issuer and/or issuance and maximum terms.


31

(4) Financial Risk Management, continued Additionally, the Bank has established maximum limits for market risk losses for its investment portfolio that might be caused by fluctuations in the interest rates, credit risk and fluctuation in market value of the investments. The policies and structure of limits to investment exposure included in the Investments Manual are established and approved by the Bank’s Board of Directors based on the recommendations of the Committees of Assets and Liabilities (ALCO) and Risk; such recommendations consider the portfolio and assets forming part thereto. Below you will find a detail of the breakdown and analysis of each type of market risk.

Foreign Exchange Rate Risk:

It is the risk that the value of a financial instrument fluctuates as consequence of the variations of the foreign currency exchange rates, and other financial variables, as well as the reaction of market participants to political and economic events. The sensitivity analysis for the foreign exchange rate risk is mainly considered in measurement of the position within a specific currency. The analysis consists of verifying how much would represent the position in the functional currency over the currency being translated; thus generating the combination in the foreign exchange risk. The following table shows the currency exposure of the Bank:

2015

Euro expressed in

Balboas

Others currencies*expressed in

Balboas

Total Exchange rate 1.09 Assets Cash and equivalents 114,342 0 114,342 Deposits with banks 593,309 15,401 608,710 Total assets 707,651 15,401 723,052 Liabilities Deposits from customers 471,217 0 471,217 Total liabilities 471,217 0 471,217 Net position in the consolidated statement of financial position 236,434 15,401 251,835


32

(4) Financial Risk Management, continued

2014

Euro expressed in

Balboas

Others currencies*expressed in

Balboas

Total Exchange rate 1.22 Assets Cash and equivalents 119,565 0 119,565 Deposits with banks 5,715 0 5,715 Total assets 125,280 0 125,280 Liabilities Deposits from customers 0 0 0 Total liabilities 0 0 0 Net position in the consolidated statement of financial position 125,280 0 125,280 * Other currencies include Swiss Franc and Pound Sterling

(d) Interest rate risk:

Are the risks that future cash flows and the value of a financial instrument change due to fluctuations in the market interest rates. The Bank’s net interest margin may change as a result of unexpected changes in interest rates. In order to mitigate this risk, the Risk Department has set limits to exposure to interest rate risks that might be assumed, which are approved by the Board of Directors. Compliance with these limits is monitored by the Assets and Liabilities Committee (ALCO) and the Risk Committee.

For interest rate risk management, the Bank has defined an interval ranging sensitivity to monitor assets and financial liabilities. The estimate of the effect of the interest change per category is made under the assumption of increase or decrease of 50 basis points (bp) in financial assets and liabilities. The table presented below reflects the impact on applying such variations in the interest rate.

Sensitivity in the projected net interest income

201550bp of increase

50bp of decrease

As of December 31 182,035 (207,779)

201450bp of increase

50bp of decrease

As of December 31 72,362 (34,884)


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(4) Financial Risk Management, continued

Sensitivity of net equity due to interest rate fluctuation:

2015

50bp of increase

50bp of decrease

As of December 31 (4,679,244) 4,802,837

2014 50bp of increase

50bp of decrease

As of December 31 (6,494,728) 5,943,344

The following table summarizes the Bank’s exposure to interest rate risks. The Bank’s assets are included in the table at their carrying values, classified by categories, based on the earlier of contractual repricing date or maturity dates.

2015 Up

1 month 1 to 3

months 3 months to 1 year

1 to 5 years

Over 5 years

Non-Interest bearing

Total

Financial assets: Deposits with banks 78,578,421 585,001 100,202 0 0 31,937,912 111,201,536 Investiments securities 496,791 4,340,438 7,451,137 72,646,222 140,959,809 138,266 226,032,663 Loans 37,611,061 77,430,656 177,632,240 393,428,661 124,753,762 0 810,856,380 Total financial assets 116,686,273 82,356,095 185,183,579 466,074,883 265,713,571 32,076,178 1,148,090,579 Financial liabilities: Saving deposits 118,415,893 0 0 0 0 0 118,415,893 Time deposits 39,502,867 98,326,122 315,584,989 271,886,150 1,094,000 0 726,394,128 Deposits from banks 8,209,021 0 0 0 0 0 8,209,021 Borrowings 4,950,001 168,037 19,862,727 11,500,000 0 0 36,480,765 Securities sold under

repurchase agreements 15,000,000 12,500,000 0 0 0 0 27,500,000 Total financial liabilities 186,077,782 110,994,159 335,447,716 283,386,150 1,094,000 0 916,999,807 Total interest rate sensitivity (69,391,509) (28,638,064) (150,264,137) 182,688,733 264,619,571 32,076,178 231,090,772

2014 Up

1 month 1 to 3

months 3 months to 1 year

1 to 5 years

Over 5 years

Non-Interest bearing

Total

Financial assets: Deposits with banks 95,435,208 8,300,478 100,000 0 0 12,140,150 115,975,836 Investiments securities 1,843,288 1,251,337 1,008,426 42,136,216 174,592,979 142,397 220,974,643 Loans 34,161,883 83,775,479 205,084,450 287,407,256 117,522,393 0 727,951,461 Total financial assets 131,440,379 93,327,294 206,192,876 329,543,472 292,115,372 12,282,547 1,064,901,940 Financial liabilities: Saving deposits 124,783,557 0 0 0 0 0 124,783,557 Time deposits 43,387,764 78,593,848 263,061,652 250,437,582 764,000 0 636,244,846 Deposits from banks 24,243,420 0 0 0 0 0 24,243,420 Borrowings 6,576,655 0 9,026,206 1,914,445 0 0 17,517,306 Securities sold under

repurchase agreements 15,000,000 12,500,000 0 0 0 0 27,500,000 Total financial liabilities 213,991,396 91,093,848 272,087,858 252,352,027 764,000 0 830,289,129 Total interest rate sensitivity (82,551,017) 2,233,446 (65,894,982) 77,191,445 291,351,372 12,282,547 234,612,811


34

(4) Financial Risk Management, continued Prices risk:

It is the risk that the value of a financial instrument fluctuates as a consequence of the changes in market prices, independently if they are caused by specific factors relative to the particular instrument or its issuer, or for factors that affect all negotiable instruments in the market.

The Bank is exposed to price risk of equity instruments classified as available for sale or as securities at fair value through profit or loss. To manage the price risk arising from investments in equity instruments, the Bank diversifies its portfolio as per established limits.

(e) Operational risk

It is the risk of potential direct or indirect losses related to the Bank’s processes, personnel, technology and infrastructure, and of external factors that are not related to credit, market and liquidity risks such as those from legal and regulatory requirements and of the behavior of generally accepted corporate standards. The objective of the Bank is to manage operational risk in order to avoid financial losses and damages to the reputation of the Bank. The Bank had established an Integral Risk Management Policy and Administration approved by the Risk Committee, General Management and the Audit Committee of the Board of Directors. The Risk Committee measures liquidity risk, market risk, credit risk and operational risk. The structure of operational risk management has been developed to provide a segregation of responsibilities among owners, executors, control areas and those areas responsible for ensuring compliance with policies and procedures. Business units and services of the Bank assume an active role in identifying, measuring, monitoring and controlling operational risk and are responsible for understanding and managing these risks within their daily activities. The implementation of this risk management structure has made the Bank adopt a methodology for evaluating business processes based on risk, which consist on identifying the key areas and processes in relation to strategic objectives, identifying risks inherent to the business and laying out the cycle of the process to identify mitigating risks and controls. This is supported by technological tools to document, quantify and monitor the risks identified in the different processes through risk matrices. The internal audit department through its programs ensures compliance with the procedures and controls identified and together with the Risk Management Department monitors the severity of the risks. This methodology has as a main objective to add the maximum fair value in each of the organization’s activities, reducing the possibility of failure and losses. To establish this methodology, the Bank has allocated resources to strengthen the internal control and organizational structure allowing independence between business, risk control and accounting areas.


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(4) Financial Risk Management, continued This includes a proper operating segregation in the recording, reconciliation and transaction authorization, which is documented through defined policies, processes and procedures that include control and security standards. In relation to human resources, existing policies of recruitment, evaluation and personnel retention have been strengthened, thus achieving highly qualified personnel with profesional experience, which has to meet various induction processes in different positions, training plans and certification of understanding and acceptance about behavior policies and business standards established in the Bank’s Code of Ethics. The Bank has made a significant investment in adapting the technology platform in order to be more efficient in the different business processes and to reduce risk profiles. To achieve that, security policies have been strengthened and a policy for technology risk management has been established.

(f) Capital risk management The Bank manages its capital to ensure: Compliance with requirements established by the Superintendence of Banks of

Panama. Maintain a capital base, strong enough to support its business performance. The Bank, as an entity regulated by the Superintendence of Banks of Panama, is required to maintain a total capital ratio measured on the basis of risk weighted assets. The capital adequacy and the use of regulatory capital are monitored by the Bank’s Management based on guidelines and techniques developed by the Superintendence of Banks of Panama. Requests for information are sent to the regulators on a quarterly basis The Bank analyzes their regulatory capital by applying the rules of the Superintendence of Banks of Panama established for General License Banks, based on the Agreement No. 005-2008 of October 1, 2008 and amended by the Agreement 4-2009 of July 9, 2009. The Panamanian Banking Law requires General License Banks to maintain a minimum paid capital of B/.10,000,000, an equity of at least 8% of risk weighted assets, including financial instruments outside the consolidated statement of financial position. For these purposes, assets must be considered net of the respective allowances or reserves and with the considerations specified in the Agreement established by the Superintendence of Banks of Panama. .


36

(4) Financial Risk Management, continued The Bank maintains a regulatory capital position that is composed as follows:

2015 2014Primary capital (Tier 1) Common shares 85,000,000 65,000,000 Retained earnings 36,464,242 31,929,068 Dynamic provision 13,681,894 8,209,649 Other regulatory adjustments – Goodwill (10,134,152) (10,134,152) Total regulatory capital 125,011,984 95,004,565 Total risk weighted assets

800,005,057

719,807,275

Capital ratios Total of regulatory capital (Tier 1) expressed as a percentage of risk weighted assets: 15.63% 13.20%

(5) Use of Estimates and Judgments in the Application of Accounting Policies

Bank’s Management makes estimates and judgements that affect the reported amounts of assets and liabilities within the next fiscal year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. (a) Losses on loans impairment:

The Bank reviews its loan portfolio to evaluate impairment at least on a monthly basis. In determining if an impairment loss should be recorded in the consolidated statement of profit or loss, the Bank makes judgments and decisions as to whether there is observable information that indicates that there has been an adverse change in the payment status of borrowers in a group, or in national or local economic conditions that correlate with defaults on assets. Bank’s Management uses estimates based on the experience of historical losses for assets with similar credit risk characteristics and objective evidence of similar impairment to those in the portfolio when its future cash flows scheduled. The methodology and assumptions used to estimate the amount and the time of the future cash flows are reviewed regularly to reduce any difference between loss estimates and the current loss experience.

(b) Impairment of securities available for sale: The Bank determines that securities available for sale are impaired when there is a significant or prolonged decline in fair value below its cost. This determination of what is significant or prolonged requires judgment. In making a judgment, the Bank evaluates among other factors, the normal volatility in security price. In addition, the impairment can be appropriate when evidence of impairment exists in the financial condition of the issuer, performance of the sector or industry, changes in technology, and financial and operative cash flows.


37

(5) Use of Estimates and Judgments in the Application of Accounting Policies, continued (c) Determination of control over investees:

Control indicators listed in Note 3 (a) are subject to management’s is judgment and may have a significant effect on Bank’s interests or shares in structured entities and investment funds. - Investment companies and Separate Instruments

The Bank acts as administrator of assets in favor of third parties through investment companies and separate instruments. When evaluating if the Bank controls those investment funds, we have considered the following factors such as the reach of its authority to make decisions on behalf of the investee, the rights maintained by third parties, the consideration vested in conformity with the consideration agreements and its exposure to return fluctuations. Accordingly, the Bank has concluded that it acts as investment agent for all cases and therefore, it does not consolidate these investment companies and separate instruments.

(d) Impairment of goodwill: The Bank shall determine if goodwill is impaired annually or when there is any evidence of impairment. Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the directors to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value.

(e) Income tax: The Bank is subjected to income tax payment. Significant estimates are required to determine the provision for income taxes. There are many transactions and calculations for which the determination of the last tax is uncertain during the normal course of business. The Bank recognizes the obligations based on anticipated tax audits. Whenever the final tax result differs from the amounts initially determined, such differences shall have an effect on provision for income taxes and deferred tax for the period in which the determination was made.


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(6) Balances and Transactions with Related Parties The consolidated statement of financial position and the consolidated statement of profit or loss include balances and transactions with related parties, which are summarized as follows:

2015 Directors and

Key Executives Related

Companies

Total Assets: Loans 8,337,630 20,964,581 29,302,211 Accured interest receivable 86,212 58,115 144,327 Liabilites: Deposits: Demand 500,337 2,295,678 2,796,015 Saving 969,387 1,855,409 2,824,796 Time 4,840,678 22,055,946 26,896,624 Interest payable 39,827 168,056 207,883 Interest income: Loans 380,559 809,940 1,190,499 Interest expenses: Deposits 209,806 525,714 735,520 General and administrative expenses: Director’s allowances (meetings) 329,600 0 329,600 Salaries and other benefits – short term 4,109,534 0 4,109,534

2014 Directors and

Key Executives Related

Companies

Total Assets: Loans 7,775,260 22,050,220 29,825,480 Accured interest receivable 95,276 28,469 123,745

Liabilities: Deposits: Demand 449,465 3,504,901 3,954,366 Saving 1,347,693 747,945 2,095,638 Time 5,088,697 11,043,844 16,132,541 Interest payable 21,440 89,434 110,874 Interest income: Loans 454,747 966,626 1,421,373 Interest expenses: Deposits 256,683 309,482 566,165 General and administrative expenses: Director’s allowances (meetings) 332,300 0 332,300 Salaries and other benefits – short term 3,655,365 0 3,655,365


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(6) Balances and Transactions with Related Parties, continued The terms of transactions with related parties are substantially similar to those granted to unrelated third parties. Loans to related companies as of December 31, 2015 amounted to B/.20,964,581, with an interest rate in a range between 4% to 13%; and have various maturities until 2020 (2014: B/.22,050,220 with an interest rate range between 4% to 13%). Loans to directors, key executives and employees during the period ending on December 31, 2015 were of B/.8,337,630, at an interest rate between 4% to 18% (2014: B/.7,775,260 at an interest rate range between 4% to 24%); with various maturities until 2044. The loan balances with related parties, directors and key executives that are cash collateralized are B/.5,657,314 (2014: B/.5,735,945) and balances collaterized with mortgages amounted to B/.18,256,653 (2014: B/.14,156,794).

(7) Cash, Cash Equivalents and Deposits with Banks The cash, cash equivalents and deposits with banks are detailed as follows:

2015 2014

Cash and cash equivalents

11,480,126 6,862,225 Demand deposits with banks 98,213,765 76,171,875 Time deposits with banks 12,987,771 39,803,961 Total cash and deposits with banks 122,681,662 122,838,061 Less: interest bearing deposits with banks with

original maturities over 90 days and pledged deposits

600,203 100,000 Cash and cash equivalents in the consolidated

statement of cash flows 122,081,459 122,738,061 As of December 31, 2015, the bank had deposits of B/.500,000 (2014: B/.500,000), provided to guarantee contracted commitments. The interest rates on time deposits ranged from 0.13% to 0.75% (2014: 0.07% to 0.30%).


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(8) Securities Avalilable for Sale The securities avalilable for sale are presented as follows:

2015 2014

Local stocks 138,266 142,397Foreign Corporate Bonds 37,698,255 24,898,380Local Corporate Bonds 103,467,726 110,373,241Bonds and Notes of the Republic of Panama 84,457,578 85,272,041Negotiable Certificates of Participation 20,723 28,548United States of America Treasury Bills 250,115 260,036

Total 226,032,663 220,974,643 The annual interest rate on securities available for sale are fixed and during the year ranged from 0.63% to 8.24% (2014: from 0.50% to 6.75%). The movement of securities available for sale as of December 31, 2015 and 2014 is summarized as follows:

2015 2014 Balance at the beginning of the year 220,974,643 165,091,578Additions 100,711,370 101,959,432Sales and redemptions (91,610,356) (49,074,035)Net realized gain transferred to profit or loss (1,413,088) (676,433)Amortization of premiums and discounts (1,031,038) (833,522)Net changes in fair value (1,598,868) 4,507,623Balance at end of the year 226,032,663 220,974,643

For the year ended on December 31, 2015; the Bank sold securities available for sale for B/.75,459,292 (2014: B/.38,846,882). These sales generated a net gain of B/.1,413,088 (2014: B/.676,433). At December 31, 2015; as indicated in Note 15, investments in securities available for sale for B/.36,750,000 (2014: B/.36,000,000) are collaterized of securities sold under repurchase agreements for B/.27,500,000 (2014: B/.27,500,000).


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(9) Loans The loan portfolio by product is summarized as follows:

2015 2014Internal sector: Consumer 99,676,175 94,647,287 Home mortgage 21,189,725 16,511,399 Agricultural 17,386,472 18,440,620 Commercial 274,873,194 307,687,721 Industrial 44,985,975 40,297,776 Construction 73,298,393 57,192,228 Services 68,571,946 36,543,201 Mining and quarrying 522,172 1,046,488 Financial leases 40,915,045 39,090,702 Others 19,197,177 21,776,383Total internal sector 660,616,274 633,233,805

2015 2014 External sector: Consumer 60,290 60,347 Commercial 652,482 595,121 Agricultural 14,700,000 0 Industrial 54,990,536 28,965,833 Construction 15,323,077 11,181,592 Services 29,796,431 30,108,413 Others 34,717,290 23,806,350Total external sector 150,240,106 94,717,656Total loans 810,856,380 727,951,461 Less: Allowance for loan losses 3,109,795 5,195,874 Unearned insurance premiums 5,244,952 5,850,131 Unearned interest and commissions 23,982,096 22,749,105Total loans, net 778,519,537 694,156,351

The movement of the allowance for loan losses is detailed as follows:

2015 2014 Balance at the beginnig of the year 5,195,874 3,343,122Provision charged to expenses 1,676,333 2,588,215Recoveries 246,826 220,114Loans charge-off (4,009,238) (955,577)Balance at the end of the year 3,109,795 5,195,874


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(9) Loans, continued As of December 31, 2015, Bank's management has established a specific reserve of B/.538,113 (2014: B/.3,715,279) based on the estimated losses on classified loans, considering the estimated value of existing collaterals. It has also established a collective reserve of B/.2,571,682 (2014: B/.1,480,595) so that the total reserve amounts to B/.3,109,795 (2014: B/5,195,874) The loan portfolio includes financial leases receivable which maturities are detailed as follows:

2015 2014Financial leases mínimum payments Up to 1 year 16,824,404 16,065,690 From 1 to 5 years 28,609,513 27,618,647 Over 5 years 84,130 1,345 Total of minimum payments 45,518,047 43,685,682 Less: unearned revenue 4,603,002 4,594,980 Total financial leases 40,915,045 39,090,702

(10) Property, Furniture, Equipment and Improvements

Property, furniture, equipment and improvements of the consolidated statement of financial position are detailed as follows:

2015

Building

Land Improvements

Furniture and Equipment Vehicles

Total

Cost Balance at the beginning of year 5,420,460 32,695 4,721,334 4,548,293 697,562 15,420,344 Additions 0 0 365,839 384,631 300,000 1,050,470 Sales and disposals 0 0 0 (139,379) (299,015) (438,394) Balance at end of year 5,420,460 32,695 5,087,173 4,793,545 698,547 16,032,420 Accumulated depreciation Balance at the beginning of year (837,692) 0 (1,345,000) (2,506,851) (353,704) (5,043,247) Expense for the year (180,682) 0 (442,017) (703,048) (146,801) (1,472,548) Sales and disposals 0 0 0 126,893 198,051 324,944 Balance at end of year (1,018,374) 0 (1,787,017) (3,083,006) (302,454) (6,190,851) Net balance 4,402,086 32,695 3,300,156 1,710,539 396,093 9,841,569

2014

Building

Land Improvements Furniture and

Equipment Vehicles

Total Cost Balance beginning of year 5,520,460 32,695 3,774,082 4,019,807 742,730 13,989,774 Additions 0 0 970,101 919,047 102,421 1,991,569 Reclassifications 0 0 0 6,000 0 6,000 Sales and disposals 0 0 (22,849) (384,561) (147,589) (554,999) Balance at the end of the year 5,420,460 32,695 4,721,334 4,548,293 697,562 15,420,344 Accumulated depreciation Balance at beginning of year (657,011) 0 (957,451) (2,132,422) (297,062) (4,043,946) Expense for the year (180,681) 0 (404,429) (735,431) (161,930) (1,482,471) Sales and disposals 0 0 16,880 361,002 105,288 483,170 Balance at end of year (837,692) 0 (1,345,000) (2,506,851) (353,704) (5,043,247) Net balance 4,582,768 32,695 3,376,334 2,041,442 343,858 10,377,097


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(11) Goodwill As of December 31, 2015, the goodwill for B/.10,134,152 (2014: B/.10,134,152) was originated by the acquisition of the financial assets and liabilities of Financiera Govimar, S. A., Corporación Universal de Crédito, S. A., Financiera Rapid Cash, S. A. y First Union Corporation on April 11, 2008. As of December 31, 2015, Management has determined that there is no impairment of this goodwill.

(12) Others Assets

Other assets are summarized as follows:

2015 2014 Severance funds 802,572 673,636Intangibles assets (software and licenses) 573,996 382,206Insurances receivable 434,431 242,566Guarantee deposits 317,601 344,363Accounts receivable 221,106 964,150Advances for the purchases of assets 155,541 152,539Employees accounts receivable 5,774 9,177Others assets 207,240 208,334Total 2,718,261 2,976,971

The movement of the software and licenses is detailed as follows:

2015 2014

Balance at the beginning of year 382,206 401,908Additions 432,145 152,234Expense for the yaer (240,355) (171,936)Balance to end of year 573,996 382,206

(13) Assets Available for Sale

As of December 31, 2015, the Bank together with other financial institutions, holds a trust participation of 8.6027% in the equity of a power plant operator classified as other assets held for sale in the amount of B/.3,539,611 (2014: B/.4,035,217). During 2015, an impairment loss of B/.495,606 was recorded in the consolidated statement of profit or loss, because the fair value less costs to sell of the asset held for sale was lower than its carrying amount. These assets were the result of the execution of the guarantee of a loan and are recorded at the carrying value plus the associated costs.


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(14) Borrowings Borrowings are detailed as follow:

2015 2014

Financial Liability

Annual nominalinterest rate Due date

Carrying Value

CarryingValue

Line of credit

2.07% January 2016 4,950,000 4,950,000

Line of credit 3.29% to 3.30% June 2016 10,000,000 0 Line of credit To 2.74% March 2016 1,500,000 2,662,474 Line of credit 1.56% to 1.78% August 2015 0 5,522,318 Line of credit To 2.74% March 2016 1,000,000 1,000,000 Line of credit

3.25% to 4.75%

Various until September 2017 19,030,765

3,382,514

Total 36,480,765 17,517,306

(15) Securities Sold Under Repurchase Agreements As of December 31, 2015, the Bank had obligations arising from securities sold under repurchase agreements for B/.27,500,000 (2014: B/.27,500,000) with maturities on February and August 2016 and average annual interest rate of 2.52%. These obligations are guaranteed by securities available for sale for B/.36,750,000 (2014: B/.36,000,000). (See Note 8).

(16) Others Liabilities

Other liabilities are detailed as follows:

2015 2014 Other debtors 2,422,486 2,820,232Loans payments and ACH transfers pending compensation 1,508,173 665,441Severance liabilities 1,479,977 2,080,888Other reserves 1,374,202 1,588,087Income tax payable 948,025 1,228,274Payroll taxes 735,252 433,117Others 996,065 887,912Total 9,464,180 9,703,951


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(17) Common Shares Common shares are detailed as follows:

2015 2014

Shares quantity Amount

Shares quantity

Amount

Issued and paid-in shares: Balance at the end of the year 85,000 85,000,000 65,000 65,000,000

An increase of the share capital of B/.20,000,000 through the issue of 20,000 new shares with a par value of B/.1,000 each was approved in Minute of Shareholders in a meeting held on December 24, 2015. The authorized capital in common shares is represented by 85,000 issued and outstanding shares (2014: 65,000 shares). During the year ended on December 31, 2015, dividends were paid on common stock amounting to B/.2,500,000 (2014: B/.2,200,000).

(18) Other Commissions Earned and Other Income Other commissions earned and other incomes are presented below:

2015 2014 Other commissions earned: Acquires and point of sale 1,497,092 857,676Transfers, money orders and cashier checks 1,005,713 1,071,024Advisory fees 333,595 697,263Custody and administration of securities 386,231 294,973Letters of credit 346,601 310,317Collections 7,452 132,086Debit cards and electronic banking 119,024 106,921Minimum balance - checking account 75,373 72,560Issuance of check 48,435 47,140Trust administration 35,660 39,740Returned checks 9,360 8,468Others 660,190 488,485Total other commissions earned 4,524,726 4,126,653

Other income: Income from good experience 2,317,419 2,853,767 Income from advisory and referrals 540,841 1,942,275 Gain on currency exchange 400,244 246,779 Lease of safe deposit boxes 50,645 47,103 Notarial documents 0 9,197 Other 250,494 199,401Total others income 3,559,643 5,298,522


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(19) Commitments and Contingencies Commitments The Bank maintains financial instruments outside the consolidated statement of financial position with credit risks that arise from the normal course of business and which involve elements of credit and liquidity risk. Such financial instruments include commercial letters of credit, endorsement and sureties and promissory notes of payment, which are summarized as follows:

2015 2014 Letters of credit and "stand by" 9,714,160 12,255,991 Endorsement and sureties 3,854,363 11,359,363 Promissory notes of payment 20,020,416 33,875,299 Total 33,588,939 57,490,653

Letters of credit, endorsement and sureties and promissory notes of payment and loan include exposure to some credit loss in the event of default by the customer. The Banks’ credit policies and procedures to approve credit commitments and financial guarantees are the same as those for granting loans recorded on the consolidated statement of financial position. Guarantees issued have fixed maturity dates, and most of them expire without being drawn upon, and therefore, they generally do not represent a significant liquidity risk. With respect to the letters of credit, most are used; however, the majority are at-sight and paid immediately.

Promissory notes of payment are a commitment in which the Bank agrees to make a payment once certain conditions are met, which have an average maturity of six (6) months and are mainly used for disbursements of mortgage loans. The Bank does not anticipate losses as a result of these transactions. Contingencies The Bank maintains with third parties, commitments emanating from lease contracts of operating premises, which expire at various dates during the next few years. The value of annual lease payments of the contracts for the next five years is as follows:

Years Amount

2016 942,716 2017 869,479 2018 812,526 2019 540,820 2020 519,511

As of December 31, 2015, rent expense amounted to B/.1,043,501 (2014: B/.953,136). As of December 31, 2015, the Bank is not involved in any litigation that is likely to cause a significant adverse effect on the consolidated financial position or consolidated results of operations of the Bank.


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(20) Trust Administration and Assets Under Custody As of December 31, 2015, the subsidiary Metrotrust, S. A. held in trust management, contracts on behalf and at the risk of clients with a carrying amount of B/.57,580,005 (2014: B/.63,270,444). Considering the nature of these services, Management believes that there are no risks to Metrotrust, S. A. The following table describes the types of structured entities in which the subsidiary Metrotrust, S. A. held a participation, but acts as a sponsor of it. Metrotrust, S. A., is considered as a sponsor of a structured entity when it facilitates its establishment:

Type of

structured entity Nature and purpose

Interest held by Metro Trust, S. A.

Guarantee Trust

Created in support of third parties for financing secured by transderred assets. These vehicles are financed through assets pledged as security third parties.

None

As of December 31, 2015, Metrotrust, S. A. maintains commissions on trust management for B/.35,660 (2014: B/.37,155). The Bank provides its customers services as an administrator of securities through one of its subsidiaries, Eurovalores, S. A., which manages securities accounts. As of December 31, 2015, the carrying amount of assets under custody amounted to B/.282,277,900 (2014: B/.226,568,135). As stated by Agreement No. 004-2011 of Superintendence of the Securities Market of Panama, as of December 31, 2015, Eurovalores, S. A. (a consolidated subsidiary) maintains a regulatory reserve on assets management for B/.112,911 (2014: B/.90,627).

(21) Income Tax

The income tax returns filed by the Bank are subject to examination by local tax authorities for the last three years, including the year ended December 31, 2015, in accordance with current tax regulations. The current tax legislation is territorial in nature, which levies no income tax profits or revenues generated from foreign sources. In addition, revenue are exempt from income tax, among others, the following: those derived from interests that are earned or paid on savings accounts, term deposits or of any other nature that are held in banking institutions in Panama; of interest earned on bonds or other securities registered with the Superintendence of Securities and which have been placed through a stock exchange established properly in Panama; the gain on the sale of securities registered with the Superintendence of Securities Market and traded on a regulated market; interest earned on investment securities and debentures.


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(21) Income Tax, continued In Panama, pursuant to in Article 699 of the Tax Code, modified by Article 9 of Law No. 8 of March 15, 2010, legal entities will pay income tax based on the following rates: The income tax for legal entities in the Republic of Panama, is calculated based on the rate of 25%. In addition, legal entities whose taxable income exceeds one million five hundred thousand dollars (B/.1,500,000) per year will pay income tax on whichever is greater of: (a) The net taxable income calculated by the established method (traditional), and (b) The net taxable income resulting from applying four point sixty-seven (4.67%) to the total

taxable income. Law 52 of August 28, 2012, reinstated the payment of estimated income tax from September 2012. According to that law, the estimated income tax should be paid in three equal amounts during the months of June, September and December of each year. Income tax expense is detailed as follows:

2015 2014 Income tax, current 1,274,927 1,308,186 Income tax, adjustment (221,916) (1,997)Income tax, deferred 507,014 (293,502)Income tax, net 1,560,025 1,012,687

As of December 31, 2015, the average effective income tax rate is 11.1% (2014: 8.4%). The deferred income tax asset and liability registered by the Bank is detailed as follows:

2015 2014 Deferred income tax – asset: Allowance for loan losses 615,032 1,122,046 Deferred income tax - liability: Tax effect on goodwill 1,174,931 1,174,931


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(21) Income Tax, continued The deferred tax asset is recognized based on the deductible fiscal differences considering its past operations and the projected taxable income, which is influenced by management’s estimates. Based on actual and projected results, Bank’s management considers that there will be sufficient taxable income to absorb the deferred income taxes assets and liabilities previously described. The estimated income tax the tax calculation using traditional and alternative tax calculation is presented below:

Traditional tax calculation: For Metrobank, S. A., Metroleasing, S. A., Eurovalores, S. A., Metrotrust, S. A., Metrofactoring, S. A., Financiera Govimar, S. A. and Corporación Govimar, S. A.:

2015 2014 Net income before income tax 14,016,721 12,130,637 Foreign, exempt and non taxable income, net (32,497,79) (19,258,81)Losses carried over from previous years (267) (39,259)Non deductible costs and expenses 23,581,050 12,127,126 Net taxable income 5,099,709 4,959,693 Current income tax traditional 25% 1,274,927 1,239,923

Alternative calculation of income tax

2014 For: Financiera Govimar, S. A. Total gross income 9,367,712 Less: total non taxable income 3,520,815 Total taxable income (100%) 5,846,897 Less: 95.33% 5,573,847 Net taxable income (4.67%) 273,050 Alternative income tax 68,263 Total current income tax 1,308,186

As of December 31, 2015, the Bank maintains a cumulative tax losses for B/.267 (2014: B/.39,259). Accumulated tax losses may be used by 20% every year, up to five years, provided that they not exceed 50% of taxable income. These accumulated losses available are distributed as follows:

Year

Tax loss to be used per year

2016 267 2017 267 2018 267


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(22) Fair Value of Financial Instruments The fair value of financial assets and financial liabilities traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments, the Bank determines fair values using other valuation techniques. For financial instruments that are not frequently traded and have limited availability of pricing information, fair value is less objective, and its determination requires a certain degree of judgment, that depends on liquidity, concentration, market uncertainty factors, pricing assumptions and other risks affecting the specific instrument. The Bank measures fair values using the following levels of hierarchy which reflects the significance of the inputs used in making the measurements: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that

the Bank can access at the measurement date. Level 2: inputs other than quoted prices included in Level 1 that are observable, either

directly (i.e. as prices) or indirectly (i.e., determined based on prices). This category includes instruments valued using quoted market prices in active markets for similar instruments, quoted prices for identical or similar instruments in markets that are considered less than active, or other valuation techniques in which significant data inputs are directly or indirectly observable from market data.

Level 3: This category includes all instruments for which the valuation techniques include

unobservable inputs and have a significant effect on the fair value measurement. This category includes instruments that are valued based on quoted prices for similar instruments for which significant unobservable adjustments or assumptions reflect the difference between the instruments.

Other techniques include net present value valuation models and discounted cash flows models, comparisons to similar instruments for which observable market prices are available and other valuation models. Inputs and assumptions used in valuation techniques include risk-free referential rates, credit spreads and other assumptions used in estimating discount rates. The objective of applying valuation techniques is to estimate the price at which an orderly transaction would take place to sell the asset or transfer the liability between market participants at the measurement date in current market conditions.


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(22) Fair Value of Financial Instruments, continued The fair value and carrying amounts of financial assets and liabilities is as follows: 2015 2014 Carrying Fair Carrying Fair Value Value Value Value Financial assets: Demand deposits 98,213,765 98,213,765 76,171,875 76,171,875 Time deposits 12,987,771 12,987,771 39,803,961 39,803,961 Investments in securities 225,995,869 225,995,869 220,930,023 220,930,023 Loans, net 778,519,537 782,010,001 694,156,351 697,177,420 1,115,716,942 1,119,207,406 1,031,062,210 1,034,083,279 Financial liabilities: Demand deposits – customers

and interbanks 89,381,184 89,381,184 114,120,913 114,120,913 Saving deposits 118,415,893 118,415,893 124,783,557 124,783,557 Time deposits – customers and

interbanks 734,395,211 733,264,371 660,277,846 658,456,611 Borrowings 36,480,765 36,395,522 17,517,306 17,502,808 Securities sold under repurchase agreements 27,500,000 27,500,000 27,500,000 27,500,000 1,006,173,053 1,004,956,970 944,199,622 942,363,889 The table below analyzes financial instruments measured at fair value on a recurring basis. These instruments are classified into different levels of fair value hierarchy based on the data inputs and valuation techniques used

2015 Level 1 Level 2 Level 3 Total Securities available for sales: Local stocks 38,895 83,300 0 122,195Foreign Corporate Bonds 12,139,287 25,558,968 0 37,698,255Local Corporate Bonds 0 0 103,467,726 103,467,726Bonds and Notes of the Republic of Panama 0 84,457,578 0 84,457,578United States of America Treasury Bills 0 250,115 0 250,115Total securities available for sales

measured at fair value 12,178,182 110,349,961 103,467,726 225,995,869

2014 Level 1 Level 2 Level 3 Total Securities available for sales: Local stocks 45,150 81,175 0 126,325Foreign Corporate Bonds 24,898,380 0 0 24,898,380Local Corporate Bonds 0 0 110,373,241 110,373,241Bonds and Notes of the Republic of Panama 69,798,310 15,473,730 0 85,272,040United States of America Treasury Bills 0 260,037 0 260,037Total securities available for sales

measured at fair value 94,741,840 15,814,942 110,373,241 220,930,023


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(22) Fair Value of Financial Instruments, continued As of December 31 2015, the Bank holds securities in equity shares for B/.36,794 (2014: B/.44,620), recorded at acquisition cost. These investments are held at cost because no prices are available in active markets and there is no other reliable way to determine fair value. Bank’s management estimates that the acquisition cost approximates fair value. As of December 31, 2015, there were transfers from Level 1 to Level 2 by B/.33,021,818. As of December 31, 2015, there were no transfers from Level 2 to Level 1. The following table presents the movement of financial instruments measure at fair value on a recurring basis classified in Level 3:

2015 2014 Balance at the begining of the year 110,373,241 52,284,814Additions 9,441,000 44,623,020Sales (4,393,032) 0Redemptions (10,537,569) (9,377,153)Reclasifications from Level 2 0 21,765,250Reclasifications to Level 2 0 (81,175)Amortization of premiums (369) (1,573)Change in fair value, net (1,415,545) 1,160,058Balance at the end of the year 103,467,726 110,373,241

The following table describes the valuation techniques and inputs used for financial instruments measured at fair value, on a recurring basis:

Financial Instrument Valuation technique and inputs used Level Corporate bonds

Discounted cash flows using a discount rate made up to the risk-free rate and market risk-free rate of the Republic of Panama, for an instrument with a similar remaining maturity.

3

Bonds and Notes of the Republic of Panama. Foreign Corporate Bonds

Quoted prices observable from the market.

2


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(22) Fair Value of Financial Instruments, continued The table below describes the valuation techniques and significant unobservable inputs used in recurring fair value measurements classified within Level 3:

Financial Instrument

Valuation Technique

Significant Unobservable Inputs

Weighted (Average)

Range Fair Value Measurement

Sensitivity to Unobservable Inputs

Corporate bonds

Discounted cash flow

Adjusted discount rate at the date of the last transaction valued bonus

0.001% - 0.855% (0.281%)

An increase or (decrease) in unobservable data input alone would lead a lower (higher) fair value measurement.

Bank’s management believes that changing any unobservable data input listed in the table above, to reflect reasonable and potential alternate assumptions would not result in significant changes in the estimated fair value. The Bank’s Board of Directors has determined the outsourcing of service providers for estimating the fair value of financial assets measured at fair value on a recurring an non recurring basis classified in Level 3 of the fair value hierarchy . The table below analyzes the fair values of financial instruments not measured at fair value on a recurring basis. These instruments are classified into different levels of fair value hierarchy based on the data inputs and valuation techniques used.

2015 Total Level 2 Level 3

Financial assets: Demand deposits 98,213,765 98,213,765 0 Time deposits 12,987,771 12,987,771 0 Loans 782,010,001 0 782,010,001 Total financial assets 893,211,537 111,201,536 782,010,001 Financial liabilities: Demands deposits 89,381,184 89,381,184 0 Saving deposits 118,415,893 118,415,893 0 Time deposits 733,264,371 0 733,264,371 Borrowings 36,395,522 0 36,395,522 Securities sold under repurchase agreements 27,500,000 0 27,500,000 Total financial liabilities 1,004,956,970 207,797,077 797,159,893


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(22) Fair Value of Financial Instruments, continued

2014 Total Level 2 Level 3 Financial assets: Demands deposits 76,171,875 76,171,875 0 Time deposits 39,803,961 39,803,961 0 Loans 697,177,420 0 697,177,420 Total financial assets 813,153,256 115,975,836 697,177,420 Financial liabilities: Demand deposits 114,120,913 114,120,913 0 Saving deposits 124,783,557 124,783,557 0 Time deposits 658,456,611 0 658,456,611 Borrowings 17,502,808 0 17,502,808 Securities sold under repurchase agreements 27,500,000 0 27,500,000 Total financial liabilities 942,363,889 238,904,470 703,459,419

The valuation techniques and significant inputs used in the financial assets and liabilities not measured at fair value, classified in the fair value hierarchy as Level 2 and 3, are described below: Demand and time deposits with Banks, savings deposits from customers, and securities sold under repurchase agreements; its fair value represents the amount receivable/or to be paid at the reporting date, because of its short-term nature. Loans: The fair value of loans represents the discounted amount of estimated future cash flows estimated to be received. Provided future cash flows are discounted at current market rates offered by the Bank, to determine its fair value. Time deposits received from customers and borrowings: discounted future cash flows using current market rates for financing new debts with similar remaining maturities.

(23) Major Applicable Laws and Regulations General Laws and Regulations (a) Banking Law

Banking operations in the Republic of Panama, are regulated and supervised by the Superintendence of Banks of the Republic of Panama, pursuant to the regulations established in Executive Decree No.52 of April 30, 2008, which adopted the sole text of Decree Law 9 of February 26, 1998, as amended by Decree Law No. 2 of February 22, 2008, whereby establishing the banking system in Panama and creates the Superintendence of Banks and its regulations.


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(23) Major Applicable Laws and Regulations, continued For purposes of compliance with the prudential norms issued by the Superintendence of Banks of Panama, the Bank will prepare an estimate of the regulatory credit reserve. If the regulatory calculation is greater than the corresponding estimate determined under IFRS, the excess reserve is recognized in a regulatory equity reserve.

(b) Finance Companies Law

The operations of finance companies in the Republic of Panama are regulated by the Ministry of Commerce and Industry through the Direction of Financial Enterprises according to legislation established under Decree Law No.42 of July 23, 2001.

(c) Financial Leases Law

The operations of financial leases in Panama are regulated by the Ministry of Commerce and Industry through the Direction of Financial Enterprises according to legislation established under Decree Law No.7 of July 10, 1990.

(d) Securities Laws

Brokerage operations in Panama are regulated by the Superintendence of Securities Market according to legislation established in Law Decree No.1 of July 8, 1999 as amended by Law No.67 of September 1, 2011 that established the system of coordination and cooperation between financial Control Authorities and creates the Superintendence of Securities. The powers of the Superintendence of Securities include, among others: approve, suspend and cancel public offerings; issue, suspend, revoke and cancel licenses of securities exchanges, central securities depositories, brokerages, investment advisors, key executives, stockbrokers, analysts and investment managers; establish rules of good business conduct and ethical standards; and prescribe the form and content of financial statements and other information. On 2013, the Superintendence of Securities Markets of Panama issued Agreement No.008-2013 that modifies some rules that are included in Agreement No.004-2011, relating to Capital Adequacy, Total Minimum Required Capital, Solvency Ratio, Liquidity and Credit Risk Concentration, that must be followed by Brokerage Houses in Panama.

(e) Trust Law Trust operations in Panama are regulated by the Superintendence of Banks of Panama according to regulations established under Law No.1 of January 5, 1984.

(f) Foreclosed Assets

For regulatory purposes the Superintendence sets at term of (5) years, from the date of registration in the Public Register, the deadline to alienate property acquired in settlement of unpaid loans. If after that term the Bank has not sold the acquired property, it shall conduct an independent appraisal of the property to determine if its value has decreased, by applying in such case the provisions of IFRS.


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(23) Major Applicable Laws and Regulations, continued Likewise, the Bank should create a reserve in equity, through the appropriation in the following order of: a) undistributed earnings; b) profits for the period, to which the following value of the foreclosed property will be transferred:

First year: 10% Second year: 20% Third year: 35% Fourth year: 15% Fifth year: 10%

The above reserves will be held until the effective transfer of the acquired such property and shall not be considered as a regulatory reserve for purposes of calculating the equity ratio. As of December 31, 2015, by requirements of Agreement No. 003-2009 the Bank maintains a regulatory reserve for foreclosed assets in equity of B/.11,489 (2014: B/.7,573). Regulatory standards issued by the Superintendency of Banks who began their effect during 2014 and that have an effect on the accounting records General Resolution of the Board of Directors SBP-GJD-003-2013 dated July 9, 2013,

which establishes the accounting treatment for differences arisen between prudential standards issued by the Superintendence of Banks and International Financial Reporting Standards (IFRS), so that: 1) the accounting records and financial statements be prepared in conformity with IFRS as required by Agreement No.006-2012 dated December 18, 2012 and 2) in the event that the calculation of a provision or reserve in conformity with prudential standards applicable to banks presenting specific accounting aspects in addition to those required by IFRS, results to be higher than the corresponding calculation as per IFRS, the excess of the provision or reserve under prudential standards shall be recognized in a regulatory reserve in equity. This General resolution entered into effect for accounting periods ending on or after December 31, 2014.

Subject to prior approval of the Superintendence of Banks, banks shall be able to, partially or totally reverse the established provision, based on justifications duly evidenced and presented to the Superintendence of Banks.

Agreement No. 004-2013, dated May 28, 2013, which sets forth the rules for credit risk

management and administration inherent to the loan portfolio and off-balance sheet operations, including general classification criteria of credit facilities for the purpose of determining the specific and dynamic provisions to cover the Bank´s credit risk. Additionally, this Agreement establishes certain required minimum disclosures that are aligned with IFRS disclosure requirements for credit risk management and administration. This Agreement derogates Agreement No.006-2000 dated June 28, 2000 and any addendum thereto, Agreement No.006-2002 dated August 12, 2002 and Article 7 of Agreement No.002-2003 dated March 12, 2003. This Agreement entered into effect on June 30, 2014.


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(23) Major Applicable Laws and Regulations, continued Specific Provisions Agreement No.004-2013 establishes that specific provisions are generated by any objective and concrete evidence of impairment. These provisions shall be recorded for credit facilities classified in the risk categories referred as: special-mention, substandard, doubtful or loss, both for individual or collective credit facilities. Effective December 31, 2014, banks shall calculate and maintain at all times the amount of the specific provisions determined by the methodology specified in this Agreement, which takes into account the outstanding balance of each credit facility classified in one of the categories subject to provision mentioned in the previous paragraph; the present value of each collateral available as risk mitigating, for each type of collateral as required by this Agreement; and a table of weightings applied to the net balance exposed to loss of such credit facilities. In case of a surplus in the specific provisions, calculated according to this Agreement, on the provision calculated under IFRS, this surplus shall be accounted for as a regulatory reserve in equity, increasing or decreasing allocations to or from retained earnings. The balance of the regulatory reserves will not be considered as capital funds for purposes of calculating certain prudential indices or ratios mentioned in the Agreement.

The table below summarizes the classification of the loan portfolio of the Bank based on the Agreement No. 004-2013 issued by the Superintendency of Banks of Panama:

2015 2014 Loans Allowances Loans Allowances Individual impairment analysis: Special Mention 15,128,757 1,253,044 791,193 113,629 Sub standard 719,238 288,715 356,320 124,640 Doubful 1,627,613 477,945 1,279,781 728,386 Loss 1,071,037 755,338 4,420,590 4,344,009 Gross amount 18,546,645 2,775,042 6,847,884 5,310,664 Collective impairment analysis: Standard 792,309,735 0 721,103,577 0 Total 810,856,380 2,775,042 727,951,461 5,310,664

Agreement No.008-2013 defines as overdue any credit facility whose failure to pay the contractual amounts agreed, presents a delinquency over 90 days. This period shall be calculated from the date set for compliance with payments. The operations with a single payment at its maturity date and overdrafts, are considered overdue when its lack of payment exceeds 30 days from the date on which the obligation was determined to be paid.


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(23) Major Applicable Laws and Regulations, continued The classification of the Bank’s loan portfolio by maturity profile is presented below:

2015 2014 Current Past - due Overdue Total Current Past - due Overdue Total Corporate loans

684,006,370

185,898

1,951,388

686,143,656

609,152,383

332,510

4,121,503

613,606,396

Consumer loans

123,137,296

736,250 839,178

124,712,724

111,517,579

1,827,111

1,000,375

114,345,065

Total

807,143,666

922,148 2,790,566

810,856,380

720,669,962

2,159,621

5,121,878

727,951,461

The balance of restructured loans as of December 31, 2015 amounted to B/.14,107,056 (2014: B/.4,305,190). Furthermore, based on Agreement No.008-2014, recognition of interest income based on past due days in paying principal and / or interest and the type of credit transaction is suspended according to the following criteria: a) For consumer and commercial loans, if it is overdue in more than 90 days; and b) For mortgage loans for housing, if its overdue in more than 120 days. The Bank’s loans in status of non-accrual of interest amounts to B/.1,312,809 (2014: B/.4,305,190). Dynamic provision Agreement No. 004-2013 sets forth that a dynamic provision is a reserve established to meet future requirements of specific provisions, which is ruled by prudential criteria inherent to the banking regulation. The dynamic provision is constituted on a quarterly basis on credit facilities without specific provision assigned, that is, on credit facilities classified as normal. This Agreement regulates the methodology to calculate the amount of the dynamic provision, which considers a maximum and minimum percentage restriction applicable to the amount of provision determined on credit facilities classified as normal. The dynamic provision is an equity item that increases or decreases through allocations from or to retained earnings. The credit balance of this dynamic provision forms part of the regulatory capital but does not replace nor offset capital adequacy requirements established by the Superintendence. As of December 31, 2015, the balance of the dynamic provision amounts to B/.13,681,894 (2014: B/.8,209,649). According to the requirements of Agreement No.004-2013, the subsidiary Metroleasing, S. A. has a regulatory reserve of B/.9,111. (2014: Metrobank, S. A. of B/.358,052) representing the excess of regulatory credit reserves over the balance of credit reserves recognized under IFRS.

2015 2014 Regulatory loans allowance 9,111 358,052

metrobank, s. a. and subsidiaries (panama, … · cash flows for the year then ended, ... due to...

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