Panama's International Banking Center (CBI)

The International Banking Center of Panama (CBI) was formally created in 1970 by Cabinet Decree No. 238, which
reformed the Banking Regimen and created the National Banking Commission as the supervisory entity. The Decree
No. 238 was in force until 1998, when it was replaced by the Law Decree No. 9, which replaced the National Banking
Commission with the Superintendent of Banks. In December 2006, there were 87 banks in the Center – of which 42,
including the two official banks, possessed General Licenses, 38 possess International Licenses, and 7 possess
Representation Licenses. During 2006, 4 new banks were established with General Licenses, 4 new banks with
International Licenses and 1 bank with a Representation License.

Three types of banking licenses exist: General, which permits banks to engage in both local and foreign transactions;
International, which permits banks to only engage in foreign transactions, though they can participate in the national
interbanking market; and Representation, for offices of foreign banks that wish to promote their services and make visits
to active and potential clients, in Panama as well as the region.

The Law No. 10 of 2002 establishes norms for the microfinancing system and outlines the authorization for the
organization and functioning of Microfinance Banks, such as financing entities whose principal objective is the
channeling of resources to micro and small borrowers, whose activities are located in both urban and rural areas.
These banks are regulated by the Superintendent of Banks, and 75% of their total lending portfolio should be
composed of credits with personal guarantees that do not exceed one percent of their net wealth, and in loans with
real guarantees that do not exceed three percent of the Bank’s net wealth. For these purposes, it is understood that a
Microcompany is the individual or corporation that constitutes an economic entity generating a gross income or
annual invoicing in the amount of $25,000 or less, and a Small Business is the individual or corporation that
constitutes an economic entity generating gross income or annual invoicing in the amount of $25,000 to $100,000.
The Mircofinance Banks should be able to count on a paid capital of at least US$3 million.

The General Licensed banks are known as the National Banking System, including the two official banks – Banco
Nacional de Panama and la Caja de Ahorros - and the multinational Banco Latinoamericano de Exportaciones
(BLADEX).

Recognized for some time as the region’s most important International Banking Center, and together with the Panama
Canal, the Anonymous Corporation Law, the Admiralty Law and Ship Registry, the Colon Free Zone, Insurance,
Reinsurance and Captive Insurer Laws, a capital market and Stock Market that is young, but growing strongly, a modern
Escrow Law, and more recently, the new Panamanian Private Foundation, and the new Trans-isthmus Railroad, make
Panama a true International Service Center. All these facets contribute to Panama’s century-old tradition as being a
route and crossing of nations, permitting Panama to carry on and develop this service sector for the economy and
international commerce.

The expansion of the Panama Canal, a project with an estimated cost of US$5.25 billion, will permit the passage of
large ships known as Postpanamax, which cannot currently pass through. Excavation has already begun, and the
project should be done, according to schedule, in seven years. Therefore, the new locks should initiate operations in
2014, interestingly 100 years after the first transit took place in 1914.

The CBI came into existence with the advantages provided by the former legislation approved in 1970, and was
replaced by a new banking law in 1998 that created a new Superintendent of Banks, with complete autonomy and
independence, and significant power to engage in strict supervision, including the consolidated supervision of foreign
banks. The Superintendent of Banks incorporated among other norms the capital requirements based on the active
adjustments according to risk, in accordance with the Basel Rules. Already in process, including an analysis and
discussion among the Superintendent and the Association, is the eventual adoption of the New Capital Accord from
Basel II, part of whose resolutions are being incorporated into the current regulation, with the rest being incorporated
over time, such as requiring that all banks have a classification.

The new Law possesses all the fundamental elements, such as banking confidentiality and maintaining depositor
identity, and continues to enforce the Encoded Account Law. This, however, is not an obstacle for Panama to have a
set of laws, decrees, agreements and regulations to prevent money laundering, which has converted the system into
one of the world’s most strict, also serving as a model for other countries.  

The distinguishing benefits, and in some cases unique, of Panama, not only for banking business, but also for
commercial and financial constitutions, national and international, such as the absence of a central bank, a monetary
authority, and paper money, and the use of the North American dollar as legal tender, has contributed to sheltering the
Panamanian CBI from the effects of financial crises that have depressed almost all markets and financial systems of the
world and those of the large Latin American countries. The CBI has always been extremely stable, and various local
banks have responded by issuing financial instruments over the medium term into international markets. Currently,
international firms and analysts classify the Panamanian CBI as a SAFE HAVEN (“Paraiso de Seguridad”). The Central
“Financial Integration” and its permanent establishment have kept Panama from entering into periods of credit
restriction (“credit crunch”). Credit has always been available, even during financial crises that have affected countries
in the region.

The future of the CBI: Currently enjoying, in general terms, highly satisfactory classifications from international
agencies and institutions, including the International Monetary Fund, the CBI offers a reliable place and safe haven for
deposits and banking and financial activities, including wealth administration or private banking, an activity that more
and more banks are incorporating, with the incorporation of Exchange Houses (Casa de Valores), to extend to a
substantial and growing market in Latin America of “High Net Worth Individuals”. The banks established in Panama
able to provide all types of banking, financial and fiduciary services through their corresponding branches, both
traditional and unconventional, to national and foreign investors, especially in areas and opportunities that are being
created with the reversion of real estate and facilities in the old Canal Zone and the reversion of the Panama Canal,
which will now permit Panama to optimize their economic and commercial use, and to increase their contribution to
the national economy and well-being of the population. A clear example is the extraordinary development of the
transfer of containers in the five large ports operated by private companies.

The International Banking Center of Panama is ready and prepared for the growth that accompanies globalization,
particularly amongst the Americas, and in Panama’s case fueled by the free trade agreements already in place and in
negotiation. Along with other sectors of the financial system, such as insurance and reinsurance companies and
Panama’s small but dynamic capital market, the CBI has the capacity to attend to practically any need and to provide
any service to investors interested in the new investment areas and opportunities that Panama has to offer, including
foreign buyers interested in real estate – both apartments and single family homes for retirement or temporary use –
tourism, port activity and the transfer of containers, industrial activities on the shores and in the area surrounding the
Panama Canal, high tech businesses, such as call and data centers and warehousing in the Technology Park of the
City of Knowledge.

In recent years, the tourism sector has undergone an extraordinary boom, with the investment of millions of dollars in
new tourist facilities all over the country, including both beach and highland areas. Furthermore, the residential real
estate sector has been booming as well, with investments that have already reached one billion dollars, principally in
apartments. The demand for real estate in Panama is both local and foreign, including North American retirees and
Europeans, most notably Spaniards and Italians that are looking for a second residence or vacation home. Recently,
the demand has been growing in neighboring countries in Latin American that consider Panama an ideal place to
establish oneself and invest.

Fiduciary Business. The Superintendent of Banks also supervises fiduciary business and grants the respective licenses.

Translated by Mona Sutherland from http://www.asociacionbancaria.com/centro.htm