BANCO GENERAL, S. AND SUBSIDIARIES of...(Panama, Republic of Panama) Consolidated Statement of Financial Position December 31, 2015 (Expressed in Balboas) Assets Note 2015 2014 Cash

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

Gonsolidated Financial Statements

December 31,2015

(With lndependent Auditors' Report Thereon)

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

available to the investing and general public"

(FREE ENGLISH LANGUAGE TRANSLATIONFROM SPANTSH VERSTON)

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

ïable of Contents

I ndependent Auditors' Report

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

KPMGApartado Postal 816-1 089Panamá 5, República de Panamá

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

(FREE ENGLISH LANGUAGE TRANSLATION FROM SPANISH VERSIONI

INDEPENDENT AUDITORS' REPORT

The Board of DirectorsBanco General, S. A.

We have audited the accompanying consolidated financial statements of Banco General, S. A. andsubsidiaries (hereinafter "the Bank"), which comprise the consolidated statement of financialposition as at December 31, 2015, and the consolidated statements of income, comprehensiveincome, changes in equity and cash flows for the year then ended, and notes, comprising asummary of significant accounting policies and other explanatory information.

M a n ag e m enf 3 Respo n si b i I ity fo r th e F i n a n c i a I Sfafemenús

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

Au d itors' Re spon si bil 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 anddisclosures in the consolidated financial statements. The procedures selected depend on ourjudgment, including the assessment of the risk of material misstatement of the consolidatedfinancial statements, whether due to fraud or error. ln making those risk assessments, we considerinternal control relevant to the entity's preparation and fair presentation of the consolidated financialstatements in order to design audit procedures that are appropriate in the circumstances, but not forthe purpose of expressing an opinion on the effectiveness of the entity's internal control. An auditalso includes evaluating the appropriateness of accounting policies used and the reasonableness ofaccounting estimates made by management, as well as evaluating the overall presentation of theconsolidated financial statements.

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

KPMG, una sociedad c¡vil panameña, y fima de la red de firmas miembros independiente deKPMG, afiliadas a KPI\4G lnternational Cooperative ("KPMG lnternational"), una ent¡dad suiza

Opinion

ln our opinion, the consolidated financial statements present fairly, in all material respects, theconsolidated financial position of Banco General, S. A. and subsidiaries as of December 31,2015,and their financial performance and consolidated cash flows for the year then ended, in accordancewith lnternational Financial Reporting Standard.

KPMG (SrGNËD)

February 1,2016Panama, Republic of Panama


Consolidated Statement of Financial Position

December 31, 2015

(Expressed in Balboas)

Assets Note 2015 2014

Cash and cash items 190,835,505 205,404,162

Deposits with banks:

Demand deposits with local banks 58,656,926 59,468,333

Demand deposits with foreign banks 147,676,025 210,641,832

Time deposits with local banks 192,523,954 195,385,122

Time deposits with foreign banks 113,996,586 136,472,469Total deposits with banks 512,853,491 601,967,756

Total cash, cash items and deposits with banks 703,688,996 807,371,918

Valores comprados bajo acuerdos de reventa

Securities and other financial assets at fair value 6 951,513,317 791,535,827

Securities and other financial assets available-for-sale 6 2,713,410,744 2,350,065,265

Securities held-to-maturity, net 6 70,375,704 84,635,560

Loans 7 9,752,224,570 8,755,430,373Less:

Allowance for loan losses 112,275,164 106,034,525Unearned commissions 32,091,368 29,616,443

Loans, net 9,607,858,038 8,619,779,405

Investments in associates 8 17,393,915 16,416,014

Premises and equipment, net of accumulated

depreciation and amortization 9 153,753,057 124,569,362

Customer liabilities under acceptances 36,414,438 36,562,561

Securities and other financial assets sold pending settlement 10 253,987,600 143,423,165

Accrued interest receivable 54,565,173 49,132,557

Deferred tax assets 24 25,348,254 23,971,430

Goodwill and other intangible assets, net 11 66,960,137 69,577,524

Foreclosed assets, net 12 2,552,588 2,240,821

Other assets 151,545,503 113,649,208

Total assets 14,809,367,464 13,232,930,617

The consolidated statement of financial position should be read along with the accompanying notes

which are an integral part of the consolidated financial statements.

3

Liabilities and Equitv

Liabilities:Deposits:

Local:DemandSavingsTime:

CustomersBanks

Foreign:DemandSavingsTime:

CustomersTotal deposits

Securities sold under repurchase agreements

Borrowings and placements

Perpetual bonds

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

Equity:Common sharesLegal reserveCapital reservesRetained earningsTotal equity

Commitments and contingencies

Total liabilities and equity

163,582,415 177,O71,07710,320,523,610

Note 201 5

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

4,477,163,564113,187,242

83,623,438164,727,647

2014

2,210,704,8262,684,386,976

4,082,300,027185,474,506

140,310,988146,189,828

13

15

16

'10

238,006,349

1,595,931,814

217,680,000

36,414,438310,714,01578,130,36013,968,2383,408,914

9,626,438,228

175,561 ,000

1,029,551,634

217,680,000

36,562,56'1212,388,717

67,733,72211,580,9493,124,854

317,812,3021 1,698,433,967

172414

20

25

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

1,621,068,498

500,000,000109,751,996

16,027,060908,717,594

1,534,496,650

14,809,367,464 13,232,930,617


Consolidated Statement of lncome

For the year ended December 31, 2015


lnterest and commission income:lnterest:

LoansDeposits with banksSecurities and other financial assets

Commissions on loansTotal interest and commission income

lnterest expenses:DepositsBorrowings and placements

Total interest expensesNet interest and commission income

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

after provisions

Other income (expenses):Fees and other commissionslnsurance premiums, net(Loss) gain on financial instruments, netOther incomeCommission expenses and other expenses

Total other income, net

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

Total general and administrative expensesOperational net income

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

Note

7

612

20'15

571,052,6984,212,257

108,606,34741,937 ,423

2014

513,313,2823,862,133

103,465,72341,192,624

725,808,725 661,833,762

174,833,86144,392,753

160,481,85836.357.889

219,226,614 196,839,747506,582,111

29,236,51924,742

316,808

464,994,015

28,761,48719,833

(305,724\

436,518,419477,004,042

21

22

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

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

152,209,83314,275,029

683,48824,398,442

(62,373,084)129,193,708

146,004,95116,810,61716,670,140

135,984,36915,664,22615,345,342

11

24

60,971.704 55,784,119240,457,412 222,778,056367,664,705

5,568,833

342,934,071

6,982,534373,233,538

44,567,295328,666,243

349,916,60537,083,829

312,832,776

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

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

Consolídated Statement of Comprehensive lnconre

For the year ended December 31, 201 5


Net income

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

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

Change in fair value of hedging instrumentsOther comprehensive expense, netTotal comprehensive income

Note 2015 2014

328,666,243 312,832,776

(39,460,664) (7,1e9,961)(1,331,045) (2,119,602)

28 60,050 298,508(40,731,659) (9,021,055)

287 ,934,584 303,811,721

The consolidated statement of comprehensive income should be read along with theaccompanying notes which are an integral parf of the consolidated financialsfafemenfs

BANCO GENERAL, S.A. AND SUBSIDIARIES

(Panama, Republic of Panama)

Consolidated Statement of Changes in Equity

For the year ended December 31, 2015


Valuation of Valuation

Common Legal Insurance securities and other for hedging Retained Total shares reserve reserve financial assets instruments earnings equity

Balance as of December 31, 2013 500,000,000 23,075,970 1,000,000 24,411,766 (363,651) 852,973,746 1,401,097,831

Net income 0 0 0 0 0 312,832,776 312,832,776

Other comprehensive income (expense)

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

Valuation of securities and other financial assets:

Change in fair value of securities available-for-sale 0 0 0 (7,199,961) 0 0 (7,199,961)

Transfer to profit or loss for sales of securities available-for-sale 0 0 (2,119,602) 0 0 (2,119,602)

Change in fair value of hedging instruments 0 0 0 0 298,508 0 298,508

Total other comprehensive expense, net 0 0 0 (9,319,563) 298,508 0 (9,021,055)

Total comprehensive income 0 0 0 (9,319,563) 298,508 312,832,776 303,811,721

Transactions with owners:

Dividends paid on common shares 0 0 0 0 0 (170,280,000) (170,280,000)

Complementary tax 0 0 0 0 0 (132,902) (132,902)

Transfer from retained earnings 0 86,676,026 0 0 0 (86,676,026) 0

Total transactions with owners 0 86,676,026 0 0 0 (257,088,928) (170,412,902)

Balance as of December 31, 2014 500,000,000 109,751,996 1,000,000 15,092,203 (65,143) 908,717,594 1,534,496,650

Net income 0 0 0 0 0 328,666,243 328,666,243

Other comprehensive income (expense)

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

Valuation of securities and other financial assets:

Change in fair value of securities available-for-sale 0 0 0 (39,460,664) 0 0 (39,460,664)

Transfer to profit or loss for sales of securities available-for-sale 0 0 (1,331,045) 0 0 (1,331,045)

Change in fair value of hedging instruments 0 0 0 0 60,050 0 60,050

Total other comprehensive expense, net 0 0 0 (40,791,709) 60,050 0 (40,731,659)Total comprehensive income 0 0 0 (40,791,709) 60,050 328,666,243 287,934,584

Transactions with owners:

Dividends paid on common shares 0 0 0 0 0 (200,000,000) (200,000,000)

Complementary tax 0 0 0 0 0 (1,362,736) (1,362,736)

Transfer from retained earnings 0 47,479,589 0 0 0 (47,479,589) 0

Total transactions with owners 0 47,479,589 0 0 0 (248,842,325) (201,362,736)

Balance as of December 31, 2015 500,000,000 157,231,585 1,000,000 (25,699,506) (5,093) 988,541,512 1,621,068,498

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.

7

Capital reserves


Consolidated Statement of Cash Flows

For the year ended December 31 , 201 5


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

from operation activities:Provis¡on for loan losses, netProvision of provision for securities impairmentProvision (eversal) for impa¡rment of foreclosed assetsUnrealized loss on securities and other fìnancial assetsUnrealized (gain) loss on der¡vative instrumentsGain on sale of secur¡ties and other financial assetsRealized gain on derivative ¡nstrumentsFore¡gn exchange, netGain on sale of premises and equipmentDeferred income taxDepreciation and amortizationAmortization of ¡ntangible assetEquity participation in associateslnterest incomelnterest expense

Changes in operating assets and liabilities:T¡me depos¡ts with banksSecurities and other fìnancial assets at fair valueLoansUnearned commissionsTax credit from preferential ¡nterest loansOther assetsDemand depositsSavings accountsTime depositsLiabilities under insurance operationsOther liabilities

Cash provided by operating activities:lnterest receivedlnterest paid

Dividends rece¡vedTotalCash flows from operating act¡vities

lnvesting activ¡ties:Purchases of secur¡ties and other f¡nancial assets available-for-sale, net of redempt¡onsSale of securities and other fìnancial assets ava¡lable-for-salePurchases of securities held{o-matur¡ty, net of redemptionslnvestments in assoc¡atesSale of premises and equipmentPurchases of premises and equ¡pment

Cash flows from investing activities

Financing activit¡es:Proceeds from borrowings and placementsRepayment and redemptions of bonds and other obligationsSecur¡ties sold under agreements to repurchaseDividends paid on common sharesComplementary tax

Cash flows from financing activities

Net (decrease) increase in cash and cash equivalentsCash and cash equivalents at beginn¡ng of yearCash and cash equivalents at end ofyear

The consol¡dated statement of cash flows should be read along with the accompanying noteswhich are an integral paft of the consol¡dated financial statements.

Note

7b

12

21

21

21

21

24o

11

201 5

328,666,243

29,236,51924,742

316,80810,784,287

(270,662)(453,20s)

(5,979,321)(1,469,775)

(86,950)(1,0s2,764)16,810,6172,617.387

(5,568,833)(683,871,302)219,226,614

(17,650,606)(166,279,735)

(1 ,019,790,077)2,474,925

(31,705,944)(117,447 ,767)100,690,502284,307,269309,087,611

2,387,289160,344,257

678,438,686(208,829,e76)

1,706,818

2014

312,832,776

28,761 ,48719,833

(305,724)5,667,1344,167,062

(s,875,231)(6,642,453)(2,161,626)

(31 5,871 )(1,794,960)15,664,2262,617,388

(6,982,534)(620,641 ,138)196,839,747

(9,976,833)(100,063,440)(969,271 ,041)

3,551,076(28,365,513)(30,341,686)187,465,041326,458,644249,989,425

'1 ,193,834147,717,584

614,805,762(191 ,355,422)

1,374,95022(442,042,590) (185,800,279)(1 r 3,376,347) 127,032.497

(1,824,836,280)1,414,963,441

14,235,1144,590,932

160,618(46,067,980)

(811,773,632)599,866,759

22,018,2183,420,406

512,51 1

(29,007,7O4)

(121,333,528) 120,334,968673,565,068 553,230,100

___952 231_ê!g_ _gzgÉg!!99_

(436,954,r55) (214,963,442)

789,034,384(221J20,023)

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

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

551,068,332(288,804,724)116,415,207

(170,280,000)(132,902)

208,265,913

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

Notes to the Consolidated Financial Statements

December 31,2015


lndex of Notes to the Consolidated Financial Statements:

1. General lnformation 17. Liabilities from lnsurance Operations

2. Basis of Preparation 18. Concentration of FinancialAssets andLiabilities

3. Summary of Significant 19. Segment lnformationAccounting Policies

4. Balances and Transactions 20. Equitywith Related Parties

5. Cash and Cash Equivalents 21. (Loss) Gain on Financial lnstruments, Net

6. lnvestment Securities and 22. Other lncomeOther Financial Assets

7. Loans 23. Personnel Benefits

8. lnvestments in Associates 24 lncome Tax

9. Premises and Equipment 25. commitments and contingencies

10. Securities and Other Financial 26. lnvestment Entities and Separate VehiclesAssets Sold and PurchasedPending Settlement

11. Goodwill and lntangible 27. Structured EntitiesAssets, Net

12. Foreclosed Assets, Net 28. Derivative Financial lnstruments

13. Securities Sold Under 29. Fair Value of Financial lnstrumentsRepurchase Agreements

14. Other Financial Liabilities at 30. Financial lnstruments Risk ManagementFair Value

15. Borrowings and Placements 31. CriticalAccounting Estimates andJudgments in Applying Accounting Policies

16. Perpetual Bonds 32. Main Applicable Laws and Regulations



December 31,2015


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

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

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

Grupo Financiero BG, S. A. owned 60.120/o (2014.60.19%) by Empresa General delnversiones, S. A.), owns 100% of the common shares issued and outstanding of BancoGeneral, S. A.

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

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

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

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

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

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

. Banco General (Costa Rica), S. A.: Banking business in Costa Rica.

. Profuturo Administradora de Fondos de Pensiones y Cesantía, S. A.: management ofpension and retirement, severance and investment funds in Panama.

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

10

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


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

As of December 31,2015, the Bank had 4,273 (2014.4,078) permanent associates. Themain office is located at Urbanization Marbella, Aquilino de la Guardia Avenue, Tower BancoGeneral, Panama City, Republic of Panama.

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

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

These consolidated financial statements were reviewed by the Audit Committee onJanuary 26, 2016 and authorized for issue by the Board of Directors on February 1,2016.

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

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

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

11


Notes to the Gonsolidated Financial Statements

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

(a) Basrs of Consolidation- Subsrdrarþs

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

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

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

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

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

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

12

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


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

- Balances and Transactions Eliminated on ConsolidationThe consolidated financial statements includes the assets, liabilities, equity and theoperations of Banco General, S. A. and subsidiaries detailed in Note 1. Significantintercompany balances and transactions are eliminated.

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

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

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

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

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

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

13

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


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

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

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

- Securities and Other FinancialAssefs at Fair Value:- Trading Secunúres and Other FinancialAssefs

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

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

- Securities and Other FinancialAssefs Available-for-SaleThis category includes the securities and other financial assets acquired with theintention of holding them for an undetermined period of time. These securitiesand other financial assets are measured at their fair value and changes invaluation are recognized in equity accounts.

- SecuritiesHeld-to-MaturitySecurities held-to-maturity are financial assets that the Bank has the intentionand ability to hold until maturity. These securities consist mainly of debtinstruments and are carried at their amortized cost.

14



(f)

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

At each repoñing date, the Bank assesses whether there is objective evidencethat investment securities or other financial assets are impaired. ln the case ofinvestment securities and other financial assets classified as available-for-sale,a significant or prolonged decline in the fair value of the security below its cost,deterioration in its risk rating below B+, defaulted payments, debt restructuringor similar events, are considered in determining whether the assets areimpaired. lf any such evidence exists for available-for-sale financial assets, thecumulative loss is removed from equity and recognized in the consolidatedstatement of income.

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

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

Deriv ative Financial I nstrumentsDerivatives are accounted for at fair value in the consolidated statement of financialposition, with transaction costs recognized in profit or loss when incurred, andsubsequently accounted as either fair value hedge or cash flow hedge, when held forrisk management purposes, or as trading when the instrument does not qualify for hedgeaccounting.

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

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

15

BANCCI GENERAL, S. A. AND SUBS¡DIARIES(Panama, Republic of Panama)


(s)

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

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

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

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

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

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

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

(h)

16

BANCO GENERAL, S. A. AND SUBS¡DIARIES(Panama, Republic of Panama)


(i)

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

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

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

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

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

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

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

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

17



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

- Buildings 30 - 50 years-Vehicles 3- Syears- Furniture and equipment 3 - 5 years- lmprovements 5 - 15 years

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

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

(k) Foreclosed ÁssefsForeclosed assets acquired through loan foreclosures are stated at the loweroutstanding principal of the guaranteed loan and the estimated realizable valueacquired asset.

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

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

of theof the

18



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

Securities given as collateral are still recognized in the financial statements; as thecounterparty has no right of properly of these securities, unless there is a default by theBank.

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

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

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

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

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

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

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

19

BANCO GENËRAL, S. A. AND SUBS!DIARIES(Panama, Republic of Panama)


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

ls) lnsuranceOperationsUnearned premiums and reinsurers' participation in unearned premiums are calculatedusing the monthly quota method.

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

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

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

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

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

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

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

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

(t)

(u)

20

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


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

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

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

The fair value of the restricted share option annually granted to the participants isrecognized in the Bank's consolidated statement of income as an employee expenseduring the year.

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

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

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

U) New lnternational Financial Reporting Standards (IFRS) and lnterpretations Not AdoptedA number of new standards and amendments to standards are not yet effective forannual periods ending 31 December 2015; consequently they have not been applied inpreparing these consolidated financial statements. The most significant are shownbelow:

o The final version of the IFRS I Financial lnstruments (2014) replaces the previousversion of the IFRS I (2009, 2010, and 2013) and completes the IAS 39 replacementproject. The most important effect of this Standard are shown below:

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

21

BANCO GENERAL, S, A. AND SUBS¡DIARIES(Panama, Republic of Panama)


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

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

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

IFRS I is effective for annual reporting periods beginning on or after 1 January 201 8,with early adoption permitted.

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

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

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

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

22



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

Assets:lnvestment securities and other fìnancialassets

Loans

I nvestments in associates


DemandSavingsTime

Commitments and continqencies

lnterest income:Loanslnvestment securities and other fìnancial

assets

lnterest expense:Deposits

Other income:Equity participation in associatesDividends received

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

Directors andManagement

__0_12A4ß9i

_,,____ a

2,158,0223,873,2111,277.419

_2308*652

_J2Sß25

__J6ß*?51

*__,*____0

___1á909

____i__,______0

___14ô80!*_3-936*552

2015Related

Companies

108J93253

_99358*067

l7j93*Er5

72,392,83194,503,024

227.582.477394'31ßß32

__2þ25-4fA

__3.93lj136

_6.656fi9

_3-?.97..443

_ff68j33_____B66J66

_____**____00

AffiliatedCompanies

_4ßß12J23

__aß4aß24

_________0

104,310,0822,360,169

0l_06s70*2ãt

__6*8rum9

-2,56ÊJa8

_____8J98

_____________0

___,__,__o

_______0__________0

Total

21fJ95.31ß

ltl1503*684

17-393,915

178,860,935100,736,404228,859,896508-452235

__9-_61zJ64

_4A4L421

_s222ß9J

__332lj1.ã0

__t*56&833-,_-&66"166

____a46SOA_3,936é52

23

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


Assets:lnvestment securities and other financialassets

Loans

lnvestments ìn associates


DemandSavingsTime

Commitments and continqencies

lnterest income:Loans 236.345lnvestment securities and other fìnancialassets 0

57,188,788 101,505,063 160,211,41997 ,763,822 503,937 103,318,776

147.620.462 0 148.248.473302 13ß12 102J09.O00 4tt-71&6Ê8

*_2 41-906 __rJ.10_000 _fi-r4fa75

Directors andManaqement

___0_5054-657

0

1,517,5685,051 ,017

628,011_2J96t596

3555"569

_____13-885

_j*_________o

2014Related

Companies

1€9j9L621

_f8251*362

_16"4l6Jl4

AffiliatedComþanies

_51_990.432

_-6-0æ354

0

Total

22L.AB2ßL3

*89*339372

16-416.ü4

lnterest expense:Deposits

Other income:Equity participation in associatesDividends received

:3A47Jgþ

_5.918É73

______________0

0

__2J84309 __,44i95 _2.6A2J92

___6p8¿534 ___0 _-6.982S34____656*561 __________çt2 *___S5SJ6I

__103J65 __3,98tu60

_2J23ß43 _i,642å0

______o __la7ß09__________! _3*899*652

General and administrative expenses:

3ff:l",:ìJur:imanasementpersonner ==#

The benefits to key management personnel include salar¡es and other expenses for8/.3,686,081 (2014: 8/.3,556,197) and options to purchase shares for B,1.25Q,471 (2014'.B,t.343,455).

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

Due to updates in policy, some figures from 2014 were modified to serve as a comparativebasis.

24



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

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

Securities and Other Financial Assets at Fair ValueThe portfolio of securities and other financial assets at fair value amounted to 8/.951,513,317(2014.B,1.791,535,827) and was comprised of trading securities and other securities at fairvalue, as follows:

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

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

lessCash and cash equivalents in the consolidated

statement of cash flows

Local Commercial PaperLocal Corporate Bonds and Fixed lncome FundsBonds issued by the Republic of PanamaForeign Variable lncome Mutual Funds

Total

2015 2014

190,835,505 205,404,162206,332,951 270,110,165

155,063,084 198,050,741

55¿23ié40 623i65_068

2015 2014

0 978,1761,813,709 2,040,299

0 1,745,794500,000

2313Jee 4Jß4-268

The Bank sold trading securities and other financial assets for an amount of 8/.603,631,456(2014'.B,1.408,210,899). These sales generated a net gain of B,1.3,20s,123 (2014:B,1.2,501,052).

25



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

2015

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

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

Total

The Bank sold other securities and financial assetsB,1.2,963,320,760 (2014: B/.3,208,891,61 9). These sales(2014. B/.190,814).

2014

75,083,724 '18,706,565

61,086,279 64,642,9042,721,911 0

30,328,946 30,823,46713,443,399 17 ,402,426

0 61,500,000279,000,422 210,535,327

445,641,122 342,700,2613,395,746 3,745,228

38,279,964 36,690,591218,095 24,790

949J199-608 786Jlt_55e

at fair value for an amount ofgenerated a net gain of B,1.90Q,472

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

20'15 2014Fair

Value

0138,849,694

AmortizedCost

FairValue

AmortizedCost

Local Commercial PaperLocal Corporate Bonds and Fixed lncome FundsLocal BorrowingsBonds issued by the Republic of PanamaLocal Corporate SharesBonds issued by US TreasuryForeign Securities Purchased under Resale

AgreementsForeign Commerclal Paper and Treasury BillsMortgage Backed Securities (MBS) and

Collateralized Mortgage Obligations (CMOs)Asset Backed SecuritiesForeign Corporate BondsForeign BorrowingsOther Government BondsForeign Corporate Shares and Variable lncome

Mutual FundsTotal

9,624,515 9,640,000 8,604,381 8,565,000901j02275 922,935,91 1 836,929,060 838,245,99165,295,452 64,778,103 9,396,287 9,285,38993,697,100 92,296,272 120,612,614 118,294,2035,514,545 2,830,512 5,324,401 2,839,841

47,976,526 48,170,715 300,105 300,106

0 4,900,000 4,900,000138,894,828 83,487 ,194 83,504,002

831,287,473 830,204,045 762,746,344 754,407,54542,082,397 42,304,900 21 ,774,989 21,712,038

491 ,411,007 499,413,954 455,443,521 452,677,833764,750 752,814 3,704,465 3,808,221

85,707,141 86,740,161 36,741,375 36,298,525

97.869 148,035 100.529 134.3682JliA19J44 2J39J19]5A 2*350t065265 2334.913þß2

The Bank sold securities and other financial assets available-for-sale for an amount ofB,1.1,414,963,441 (2014. B/.599,866,759). These sales generated a net loss of 8i.3,652,386(2014 . net gain of B/. 1 , 1 83,365).

26



The Bank holds corporate shares that amounted to B.1.1,924,029 (2014:B,1.1,902,652), whichare carried at their acquisition cost since the Bank was not able to reliably determine their fairvalue. The Bank conducts annual reviews to validate that the value of these securities andother financial assets have not suffered permanent impairment for which there is a need toadjust the value of the security and other financial asset. The equity shares, that are held atcost, do not have an active market and the entity does not intend to dispose them. During2015 the Bank acquired corporate shares that amounted to P,|.23,412 (2014: B/.0), and hadsales for B/.2,035 (2O14. 81 .194,943).

Securities Held-to-Matu rityThe portfolio of securities held-to-maturity amounted to P,l.70,429,832 (2014. B/.84,664,946)less a valuation allowance of B,1.54,128 (2014: 8/.29,386), due to the permanent impairment ofsome securities.

Securities held{o-maturity are detailed as follows:

2015Amortized

Cost

13,278,60126,272,857

30,392,619485,755

70.429,832

AmortizedCost

2014Fair

ValueFair

Value

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

Mortgage Obligations (CMOs)

valuation allowance for investment securities

15,085,822 15,306,53126,219,382 38,120,198

42,662,266 45,890,241697.476 718.326

B4-ô64s16 $A!3s290

held to maturity is as

11,807,71736,648,570

32,397,901480,703

_8133489rAsset Backed Securities

Total

The movement of thefollows:

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

2015

29,38624,74254,128

2014

9,55319,83329380

The payment of capital and interest of the 99o/o of portfolio of MBS held by the Bank isguaranteed lOOo/o by the following agencies: Government National Mortgage Association(GNMA, which is an agency of the Federal Government of the United States and counts onthe explicit guarantee of the same), Federal National Mortgage Association (FNMA) orFederal Home Loan Mortgage Association (FHLMC), who rely on AAA ratings provided byMoody's and Fitch, on its counterparty debt. The guarantee and primary source of payment ofthe MBS guaranteed by the aforementioned agencies is a set of residential mortgages onhouses that must fulfill policies of credit that are required by these programs. Similarly, 82% o'f

the CMO portfolio of the Bank is guaranteed 1O0o/o by GNMA, FNMA or FHLMC.

The average life of the portfolio of MBS and CMOs is MBS 2.50 and CMOs 1.45 years (2014:MBS 1.95 and CMOs 1.35 years).

27

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


The Commercial Paper, Treasury Bills and Mutual Funds portfolio includes cash collateralaccounts for B,1.28.7 million (2014. B/.19.6 million) that collateralize derivatives operations.

As at the end of 2014, foreign securities purchased under resale agreements for the amountof B/.66,400,000, were guaranteed by foreign securities for 8/.67,691,602.

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

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

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

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

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

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

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

28



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

Fair Value Measurement of Securities and Other Financial Assets at Fair Value

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

FundsMortgage Backed Securities (MBS) and Collateralized

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

Total

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

FundsMortgage Backed Securities (MBS) and Collateralized

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

Total

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

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

Total

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

2015

75,083,72462,899,988

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

279,000,422

445,641,1223,395,746

38,279,964718,095

9fl-5ß-3rz

2014

19,684,74166,683,202

1,745,79430,823,46717,402,42661,500,000

210,535,327

342,700,2613,745,228

36,690,59'124,790

791-535ß27

9,624,515901,102,27565,295,45293,697,100

3,660,15847,976,526

138,849,694

831,287 ,47342,082,397

491,411,O07764,750

85,707,14128.227

zJll-A$çf,t5

29

124*491J25

Level 1

0000

14,467,3160

34,874É62

0000

49ß41-718

Level 1

0000

10,484,289

1 13,916,836

0000

0000

5,21247,976,52610,920,800

000000

58-902t38

Level 2

0000

2,959,110

165,083,586

445,641,1223,395,746

0200.482

ôü280*tr6

Level 2

0000

2,935,11061,500,000

175,660,865

342,700,2613,745,228

02,616

é86544ne1

0117,852,265

093,697,100

00

127,928,894

831,287 ,47342,082,397

491,411,007764,750

73,161,70028.227

1.778.213.813

Level 3

75,083,72462,899,988

2,721,91130,328,946

0

0

00

38,279,964517.613

2A9Æ2J46

Level 3

19,684,74166,683,202

1,745,79430,823,467

00

0

00

36,690,59122.174

155.649.969

Level 3

9,624,515783,250,010

65,295,4520

3,654,94600

0000

12,545,4410

874j79ß64


Notes to the Consotidated Financial Statements

Fair Value Measurement of Securities and Other Financial Assets Available for Sale2014 Level 1 Level 2

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

Mortgage Obligations (CMOs)Asset Backed SecuritiesForeign Corporate BondsForeign BorrowingsBonds issued by Other GovernmentsForeign Variable lncome Mutual FundsTotal

8,604,381836,929,060

9,396,287120,612,614

3,467,979300,1 05

4,900,00083,487,194

762,746,34421,774,989

455,443,5213,704,465

36,741,37554.299

2348Jß2ßL3

00U

06,050

300,1 050

2,713,091

000000

_3-019*2f6

098,011,099

0116,177,200

00

4,900,00080,774,103

762,746,34421,774,989

455,443,521720,650

28,089,37154.299

1568.691-576

Level 3

8,604,381738,9't7,961

9,396,2874,435,4143,461,929

000

000

2,983,8158,652,004

0nß.451-791

Ghanqes in the Fair Value Measurement of the Level 3 hierarchv

December 31,2014Loss recognized in incomeLoss recognized in equityPurchaseAmortization, sales and redemptionsDecember 31,2015

Total losses related to instruments held atDecember 31,2015

December 31,2013Loss recognized in incomeLoss recognized in equityPurchaseAmortization, sales and redemptionsTransfer to level 3December 31,2014

Total losses related to instruments held atDecember 31,2014 __{2-050J82) __f19J21-90$ _121Å722er)

hierarchy as of the end of theThe Bank recognizes transfers between levels of the fair valuereporting period during which the change has occurred.

During the year ended December 31, 2014, due to changes in the in the source ofinformation, there were transfers from level 2 to 3 of the fair value hierarchy.

lnvestment Securities andOther Financial Assets

Available-for-Fair Value Sale Total

155,649,969 776,451,791 932,101,760(5,723,460) (117,zs]) (5,840,7s0)

0 (1e,057,580) (1e,057,580)289,953,347 323,276j66 613,229,513

(230.047,710) Q06.182.723\ (436,230,433)209J32J46 _ß7437_9-3ß4 l-084¿02*110

J6.093"25Ð J17-907-82Ð _lzt-ogloeÐ

157,968,239 766,211,794 924,190,033(1,803,3s0) (120,265) (1,923,615)

0 (20,816,528) (20,816,528)88,142,99s 161,811,143 249,954,138

(88,657,915) (152,918,14s) (241,576,060)0 22.283.792 22.283.792

155Ê19J69 7lß451.754 93211o1760

30

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


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

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

lnstruments Technique input unobservable input unobservable inputs2015 2014

Corporate Shares Dividend discount Equity risk Minimum 6.22% Minimum 5.49o/o lf equity risk premiumsmodel and premium Maximum 8.54% Maximum 9.54% increase the price decreasesDividend model free and vice versacash flow (DCF)

Growth rate of Minimum (8.65%) Minimum (6.52%) lf the growth ¡ncreases theassets, Maximum 46.82% Maximum 32.94o/o Price increases and viceliabilities, equity, versaprofits anddividends

Fixed lncome Discounted cash flow Credit spreads Minimum O.32% Minimum 0.51% lf the credit spreads increaseMaximum 8.55% Maximum 13.27% the price decreases and viceAverage 4.15o/o Average 3.95% versa

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

lnstrument

Local Fixed lncome

Valuation Technique

Discounted cash flows

lnputs Level

Benchmark interest rate 2-3Liquidity risk premiumsCredit spreads

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

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

equity, profits and dividends

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

Quoted prices in active markets for similar Observable quoted pricesinstruments

Bid and ask prices from market participants Prices from a broker

Discounted cash flows Credit spreadsBenchmark ¡nterest ratelnterest ratesLiquidity risk premiums

Features of collateral 2TBA's priceTreasury yieldYield curvesPrepayment speedsMarket analysis

Agency MBS / GMOs Discounted cash flows

31

BANCO GENERAL, S. A. AND SUBSIDIAR!ES(Panama, Republic of Panama)


lnstrument

Private MBS / CMOs and ABS

Foreign Corporate Shares

lnvestment vehicles

Fixed lncomeCorporate SharesTotal

Valuation Technique

Discounted cash flows

Quoted prices in active markets

Net asset value

lnputs

Features of collateralTreasury yieldYield curvesExpected cash flow and lossesMarket assumptions related todiscount rates, prepayments,losses and recoveries

Quoted prices in active markets

Net asset value

Level

1

a1

The Bank considers that its methodologies for valuation of the investment secur¡ties classifiedas level 3 are appropriate; however, the use of different estimates of the unobservablevariable could lead to different measurements of fair value. For investment secur¡tiesclassified in level 3 by Banco General, S. 4., adjustments in the cred¡t spread (in the case offixed income) and in the equity risk premium (in the case of the corporate shares) of +50bpand -50bp would result in the following favorable and unfavorable impacts in the statement ofincome and in the equity of the Bank:

2015

Favorable

392,5382,266.6842.659,222

(Unfavorable)

(437,645)fi.891,172\trc2a.ul)

Fair ValueEffect of profit or loss

Available for saleEffect in equitv

Favorable (Unfavorable)

14,991,744 (14,936,511)65,894 (64,01 1)

15*057*638 fi5_000522)

2014

Fixed lncomeCorporate SharesTotal

For investments andnote 13.

Fair ValueEffect of profit or loss


164,253 (186,937)2,583,970 (2.128.377\zJ4B223 Q'3ß'3]!l

other financial assets pledged to secure

Available for saleEffect in equitv


12,280,893 (12,458,910)64,500 (62,593)

12345J93 fl2-52lj03)

repurchase agreements, see

32



(71 LoansThe composition of the loan portfolio is summarized as follows:

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

Total local loans

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

Totalforeign loansTotal

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

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

20'15

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

615,271,219109,896,105

1,824,017144,433,195154,071,044

8,466.960,158

229,542,17511,802,951

184,659,558707,569,46147,840,62038,966,94964,882,699

1.285.264,4129J52_n4E!

201s

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

(36,098.127)112-U_5Jß4

2014

2,600,290,4921,217,674,6631 ,391 ,333,1701,461,957,791

449,526,973106,546,910

2,052,693142,274,255149.549.592

7,521.096,409

203,291,9968,399,730

194,495,092724,350,965

15,361 ,62050,810,27037,635,391

1,234,333,9648.755.430 373

2014

100,015,20628,761,48710,684,357

(33,426,525)

1!6J&L525

Ïhe Bank's loan portfolio is composed 51o/o (2014 50%) of residential and commercialmortgage loans backed by residential units and commercial or industrial buildings.

33



The loan portfolio distribution in accordance with the type of guarantee, mainly morlgages onreal estate and chattels, and collaterals on deposits and securities and corporate guaranties,is detailed as follows:

2015 2014(in thousands)

Mortgages on real estateChattel mortgagesDepositsOther guarantiesUnsecuredïotal

For loans pledged to secure borrowings, see note 15.

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

Total minimum paymentsLess unearned interestTotal financial leases, net

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

The Bank recognized a tax credit that amounted to B/.31,705,944 (2014. 8/.28,365,513),originating from the annual benefit awarded when granting morlgage loans with preferentialinterest for the first fifteen (15) years of life of the loan.

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

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

2015 2014

6,293,184651,504347,726299,603

2,160,2079J52J24

49,090,62474.222,930

123,313,554fi3.417,449)109.896.105

5,320,964630,436309,327201,928

2,293.7758J55J30

Associates

Telered, S. A.Proyectos de lnfraestructura, S. A.Processing Center, S.A.Financial Warehousing of LatinAmerica

Activitv

Processing of electronic transactionsReal estate investorsCredit card processingAdministrator of trust funds

EquityParticipation2015 2014

4oo/o

3B%

49%

38o/o

40o/o

38o/o

49o/o

38%

47,889,99471,690.706

1 19,579,600(13.032,6e0)

j !6s4691!

2015 2014

6,707,289 7,0'18,7656,046,366 5,926,1892,946,936 1,735,028

1,693.324 1.736,03217"393*gt5 lS. lS*ûL4

34

BANCO GENERAL, S. A. AND SUBSIDIAR¡ES(Panama, Republic of Panama)


Assoc¡ates

Telered, S. A.Proyectos de

lnfr-aestructura, S. A.Processing Center, S. A.Financial Warehousing ol

Lat¡n Americâ

Associates

Telered, S. A.Proyectos de

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

Latin America

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

201 5F¡nancial

lnformationDate Assets

30-nov-2015 944?L131

31-dic-2015 15,415;1,9630-nov-2015 ß7eOAæ

30-nov-2015 ¿!!1"219

2014F¡nancial

lnformat¡onDate

30-nov-2014

31-dic-201430-nov-20 1 4

30-nov-201 4

Liabilit¡es

Premises and Equ¡pmentPremises and equipment are summar¡zed as follows:

Liabilities

12654,197

___0 15,415,19t6

JJ3ß-592 5_993Jd

l_865*017 -4ße_499

&-È12995 23_49r_063

_ ,__ 0 l5J0i-"Ír-o8284987 _3J20.466

2-AZ9A92 _4J4eJ59

Equitv

21*3.6!-944

Vehicles

2,503,474651,813365,564

2,789,723

1,907,432418,055365.554

1.959,933__i29J90

l_o14j55 :_:__ 669JZ_728247 1qfiq826

3142_531 J*815*4it

Expenses

2g-Ê6L192 20_849J30

,2J2ß-476 ____3ßav*?a,gê :qÉ$Jæ

r-æ!"gzg t_.Å15¿91

lncome

29.927.535

2015Furniture and

Equipment

133,0'17,64317,966,8923,658,020

147.326.515

99,705,72012,776,9043,641.510

108.841 ,114*38-48tur0L

2014Furniture and

Equipment

125,434,5068,963,3331 .380,196

133,017,643

89,039,1431 1 ,981 ,106

1,314.52999.705.720333_1tL923

Net Profit Equ¡ty(Loss) Participation

q9!t411 e.c.8!Æé

t-ot!-@ !É2.349zgl*Ql L2]4peg

Jj2z*Oea =J24p52

Net Prof¡t EquitylLoss) Participat¡on

5-ff¿q67 @15Þ¿920"1_0e ?Å94,5312,401-1!9 1250j91

11,19é94 -_3e4-*tÂ

Expenses

23.0?çJ22

Assets

3¿1E9Jg9

1.11-Ol*5rtQL1-8!5-3t3

-s21f-561

(e)

Cost:At beginning of yearAdditionsSales and disposalsAt end of year

Accumulated depreciation :

At beginning of yearExpense ofthe yearSales and disposalAt end of year

Net balance

Cost:At beginning of yearAdditionsSales and disposalsAt end of year

Accumulated depreciation:At beginning of yearExpense ofthe yearSales and disposalAt end of year

Net balance

Land

34,431,0431,719,029

8,02836.142.044

00

0

036't42.044

34,421 ,644140,359130,960

34.431,043

0

0

0

0

34.431*943

Buildinqs

69,963,70324,687,081

41,59894.609,186

23,684,9141,796,992

12.47925.469,427

_69it39,259

lmprovements

39,247,9231,043,165

142.76140.148.327

29,296,3581,818,666

122.76030.992,264_9156-063

Total

279,163,78646,067,980

4.215.971321.015,795

154,594,42416,81 0,61 7

4.142.303167.262,738153"753_052

Land Buildinqs

53,687,86916,275,834

0

69.963,703

21 ,974,7391,710,175

023.684.9144Ê27ßf,ß9

Vehicles

2,466,1 38243,205205,869

2.503.474

1,758,972354,316205.856

1.907.432_196.042

35

lmprovements

35,862,9503,384,973

039.247.923

27,677,7291 ,618,629

0

29,296,358_9j5r-565

Total

251 ,873,10729,007,704

1,717.025279J63.786

140,450,58315,664,226

1.520,385154,594,4241.z1569J62



The Bank maintains as part of furniture and equipment, software licenses with a cost of8/.60,974,323 (2014. 8/.56,168,767) and an accumulated amodization of 8/.52,878,885(2014.B.1.47,944,214);in addition, as part of the carrying amount of Buildings is included anamount of B,1.34,295,586 (2014: B/.10,995,595) related to expenditures in the course ofconstruction.

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

Securities and other financial assets pending settlement amounted to 8/.253,987,600 (2014'.B.1.143,423,165) for sales of securities and other financial assets and B/.310,714,015 (2014.B,1.212,388,717) for purchases of securities and other financial assets.

(11) Goodwill and lntangible Assets, netThe following table summarizes the goodwill generated from the acquisition of the followingentities:

Companv

Banco General, S. A.

Banco General, S. A.

ProFuturo - Administradora de Fondos dePensiones y Cesantías, S. A.

Banco General, S, A.

Date ofacquisition

March 2004

March 2005 BankBoston, N.A. - Panamá (assets,depos¡ts and certain bankingoperations)

March 2005 Purchase of trust fund for portfolios

%Equity Acquisition

ProFuturo-Administradora de Fondosde Pensiones y Cesantias, S. A. 17%

Balance

679,0'18

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

GoodwillCost:Balance at the beginning and

Accum ulated amortization :

Balance at beginning of yearExpense of the year

end of year 41,091,499

0 19,976,059 19,976,0590 2.617.387 2,617.3870 21.593,446 21.593.446

4l*0e't-499 25S08*638 66€00J32

March 2007 Banco Continental de Panamá, S. A.and subsidiaries (banking andfiduciary activities) 100%o

100% 12,056,144

100% 861 ,615

27.494.7224l.0gl.!199

2015lntangibleassets Total

47,462,084 99,553,593

Balance at the end of yearNet balance at the end of year

36



Goodwill

2014lntangible

assetsCost:Balance at the beginning and end of year 41,091,499 47 ,462,084

Accum ulated amortization :

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

Total

88,553,583

0 16,358,671 16,359,6710 2,617 ,388 2.617.3880 18,976,059 18,976,059

4l-0e'1r199 ¿8-486p25 æfl1-szL

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

No impairment losses on goodwill or intangibles assets were recognized during 2015. Thevaluation used by discounting the future cash flows generated for assets or businessesacquired resulted that the present value of these exceeds the carrying amount.

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

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

To calculate the present value of future cash flows and determine the value of the assetsor business being evaluated, the Bank's estimated average cost of capital was used as adiscount rate for the periods referred to, when the business unit is assessed by the Bank;when discounting cash flows of assets or units with a different profile than that of the Bank,the applicable cost of capital to that unit is used. The Bank's capital cost is based on theaverage interest rates of long{erm AAA dollar instruments, the country risk premium andreturn premium applicable for capital investments. The cost of capital used fluctuatesbetween 10.3% and 20o/o and changes over time.

37

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


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

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

(12l- Foreclosed Assets, NetThe Bank holds foreclosed assets, amounting to B,1.3,250,276 (2014:B,1.2,907,135), less areserve of 8/.697,688 (2014: 8/.666,314).

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

2015 2014

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

(13) Securities sold under repurchase agreementsThe Bank held obligations from securities sold under repurchase agreements whìch amountedto 8/.238,006,349 (2014: B/.175,561,000), with various maturities until February 2016 (2014.February 2015) at an annual interest rates between 0.61o/o and 0.80% (2014. between 0.37o/oand 0.55%), the average interest rate of these securities was 0.68% (2014: O.34o/o). Thesesecurities were secured by investment securities 'for B,1.243,018,308 (2014: B,1.179,1 17,580).

(14) Other Financial Liabilities at Far Valueln the account of other liabilities, the Bank maintains financial liabilities of debt instruments atfair value arising from short sales in Mortgage Backed Securities (MBS) classified as level 2 inthe fair value hierarchy which amounted to B,1.87 ,447 ,202 (2014: F,t.59,259,204).

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

666,314 1,046,523510,714 40g,g2g(193,906) (714,653)Q85,434) (74,485)

__692*088 __660314

38



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

2015 2014

Corporate bonds with maturities in 2016, at an interest rate of 3 monthLibor plus a margin 3,000,000 3,000,000

Corporate bonds with maturities in 2016, at an annual interest rate of4% 37,965,000 37,965,000

Corporate bonds with maturities in 2018, at an annual interest rate of1.6250/o, issued in CHF 180MM 179,692,726 181,226,906

Corporate bonds with maturities in 2021, at an interest rate of 3 monthLibor plus a margin 75,000 75,000

Borrowing with maturity in 2015, at an interest rate of 3,6 and 12month Libor plus a margin 0 169,666,666

Borrowing with maturity in 2016, at an interest rate of 3,6 and 12month Libor plus a margin 415,244,384 324,034,058

Borrowing with maturity in 2017, at an interest rate of 3 and 6 monthLibor plus a margin 111,683,487 73,591,077

Borrowing with maturity in 2018, at an interest rate of 3 and 6 monthLibor plus a margin 600,590,000 77.000.000

Borrowing with maturity in 2019, at an interest rate of 3 month Liborplus a margin 60,000,000 75,000,000



Borrowing under USAID (guarantor) program with maturity in 2025, ala fixed annual interest rate of 7.65% 4,681.217 4,992.927

Total borrowings and placements l*595-931914 1*029J51S34

The funds obtained under the USAID Housing Program resulted from the Bank's partic¡pationin the Housing Program No.525-HG-013 with the Agency for lnternational Development of theUnited States of America (USAID), which involves the financing of low cost hous¡ng by foreigninvestors. These borrowings have a maturity of thirty (30) years, and a grace period of ten(10) years for repayment of prlncipal. These borrowings are guaranteed by USAID. ln turn,the Bank must keep these borrowings secured by morlgage loans pledged on behalf ofUSAID that amounted to 8i.5,851,521 (2014. B,1.6,241,159), represent¡ng 1.25 times theamount of the borrowed funds.

39



The Bank is the residual beneficiary of the liquid assets of Banco General DPR FundingLimited, a special purpose entity through which a funding operation was executed in 2012,collateralized with future cash flows of remittances received (MT103), amounted toB/.'100,000,000. The Bank must keep on deposit an amount equal to the next quafterlypayment of principal, interest and expenses. The balance of the financing is 8/.60,000,000(201 4. B/. 75, 000, 000).

Ïhe borrowing detailed above was agreed to 7 years with capital repayments from the secondyear and an interest rate of 3 month Libor plus a margin through an interest rate swapcontract.

ln June 2014, the Bank issued bonds in the Swiss market for CHF 180,000,000 with a couponof 1 .625% and a maturity date of June 18, 2018.

During 2015, the Bank obtained financing of 8/.500,000,000 with a maturity period of threeyears, quarterly interest payments at a variable interest rate based on Libor 3 months plusmargin and capital payment at maturity. The loan was syndicated among commercial banks inthe United States, Asia, Middle East and Latin America.

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

(16) Perpetual BondsUnder Resolution No.366-08 of November 24, 2008, issued by the Superintendence ofSecurities Markets of the Republic of Panama, Banco General, S. A. is authorized to offerthrough Public Offering, Perpetual Bonds with a face value of up to 8/.250,000,000. Thebonds will be issued in nominative, registered form, with no coupons, in one series, indenominations of B/.10,000 and integral multiples of B,1.1,000, with no specific maturity orredemption date. Also, they can be redeemed by the lssuer, at its discretion either totally orpartially, starting on the fifth year after the issuance date and at any interest payment day afterthat first redemption date. The bonds will earn a 6.50/o interest rate and the interest will bepaid quarterly. The Bank, under some circumstances described in the informative prospectus,may suspend interest payment without being considered in default. The bond's repayments issubordinated to all the existing and future preferential borrowings of the issuer, and are onlybacked by the general credit worthiness of Banco General, S. A.

The balance of perpetual bonds is B,1.217,680,000 (2014'. P,l.217 ,680,000).

40



(171 Liabilities from lnsurance OperationsLiabilities from insurance operations amounted to B/.13,968,238 (2014, B/.11,580,949) andare comprised of unearned premiums and estimated insurance claims incurred. Themovement of the reserves for insurance operations is summarized as follows:

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

Reinsurers participationUnearned premiums, net

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

Reinsurer participationlnsurance claims incurred, net estimated

Total insurance claims reserves

2015

16,617,13635,299,640(33.649,102)18,267,674

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

4,305,5997,677,737(9,919,441)2,063,895

(398.371)1.665.524

13,968.238

2014

14,153,00631 ,863,176(2e.3ee,046)16,617,136

(5,912,709)10,704,427

2,298,5147,343,339

(5,336,253)4,305,599

ß,429,077)876,522

1l.5g0p4g

41

Assets:Deposits with banks:

Demand depositsTime deposits

Securities and other financial assets at fair valueSecurities and other financial assets available-for-saleSecurities held{o-maturity, netLoans

Total

Liabilities:Depos¡ts

DemandSavingTime

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

Total

Commitments and contingencies

Assets:Deposits with banks:Demand depositsTime deposits

Securities and other financial assets at fair valueSecurities and other f¡nancial assets available-foÊsaleSecurities held-to-maturity, netLoans

Total

Liabilities:Deposits

DemandSavingTime

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

Total

Comm¡tments and contingencies



(18) Goncentrat¡on of FinancialAssets and LiabilitiesThe geographical concentration of the most significant financial assets and liabilities is thefollowing:

201 5United

States ofAmerica and

Others

147,469,431'1 13,996,586711,411,657

1,398,986,02030,824,247

250,9112A92ÆßßA

12,685,81 1

1 1 ,135,7989,378,090

238,006,3491,489,058,481

087.447.202

1,ß47-7tt_J31

__0

UnitedStates of

America andOthers

210,410,140136,472,469584,799,1 73

1,148,171,41943,330,356

134,8512J2331ßA98

52,864,7779,915,983

11,430,225175,561,000914,277,576

059,259.204

rJ23-308.765

0

Panama

2,342,5671 92,314,483152J24,521

1,075,219,34739,551,457

8,466,960.1 589*928J12J33

2,318,944,9303,025,513,7284,480,51 6,1 01

096,873,333

217,680,0000

loJl39J28!92

-l-1381189J!¡

Panama

9,261,566195,362,36498,793,124

980,851,79041,305,204

7,521.096.4098É46*670,452

2,169,455,6752,745,001,0494,187,866,431

0101,040,000217,680,000

0_9*421-0A3J55

l-069.82L128

Latin Americaand the

Caribbean

56,520,953209,471

87,977,139239,205,377

01,285.013,5011*668.926j4t

120,O75,57578,234,547

264,039,0300

10,000,0000

0472349J52

__9-q55-814

2014


Caribbean

50,438,45922,758

107,943,530221 ,042,056

01 .234, 1 99.1 1 3

1fl3,e$.st6

128,695,36275,659,772

245,548,9540

14,234,0580

__4ÊLßB_440

____&512-319

Total

206,332,951306,520,540951,513,317

2,713,410,74470,375,704

9.752,224.57014J00*32L826

2,451 ,706,3163,114,884,0734,753,933,221

238,006,3491 ,595,931 ,814

217,680,00087.447.202

12359é88j25

=LJABA44ß22

Total

270,1 1 0,1 65331,857,591791 ,535,827

2,350,065,26584,635,560

8,755.430.373r2.583j3tz81

2,351,015,8142,830,576,8044,444,845,610

175,561,0001,029,551,634

217,680,00059.259,204

1tL10&190J66

_l-028386.!18

42



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

Banking andfinancialactivities

lnterest and commission income 722,890,335lnterest and provision expenses 250,204,419Other income, net 106,378,984Generalandadministrativeexpenses 216,598,866Depreciationandamortizationexpense 16,555,473Equity participat¡on in associates 5,568,833

2015Pension and

ret¡rement fundlnsurance manaqement Eliminations Total

3,934,910 383,216 1,399,736 725,808,7250 0 1,399,736 248,804,683

14,934,916 I,804,596 421 1 31 ,1 1 8,0752,222,354 4,825,996 421 223,646,795

26,396 228,748 0 16,810,6170 5,568,833

Net income before income taxlncome taxNet income

Total assetsTotal liabilities

Net income before income taxlncome taxNet income

Total assetsTotal liabilities

Total income, netNonfinancial assets

Total income, netNonfinancial assets

351 ,479,39441 .735.747

=='3a9ë3-642

1Aß9Ê272s1513¿181104187

Banking andfinancialactivities

332,074,42634,698,364

___297_31_6_952

ßJÆA22QAy-aoßJA7*377

267,3670

2015United


Others

*__43p9&192_____i

2014United


Others

___39.9225590

373,233,53844.567.295

__i2e*660.243

862,280 661,833,762862,280 225,315,343

75 129,193,70875 207,1 1 3,830o 15,664,2260 6.982,534

349,916,60537.083,829

_32Åi2JfS

67_1ßAJA7 13232j30_61747ftÅß89 AL69U3a96Z

16,621,076 5,133,068 01.676,078 1.155,470 0

r4,944j98 -3*977J98 * ________0

l&L136J00 1L|A9J2S 88J90*6ZL 14809J67Éer_45*0

999999999999999 9¡6 __J92ß14 25,898,821 13;ß8298966

2014Pension and

retirement fundlnsurance manasement Eliminatíons letal

lnterest and commission income 658,916,323lnterest and provision expenses 226,177,623Other income, net 108,386,044General and administrative expenses 200,586,563Depreciationandamortizationexpense 15,446,289Equity participation in associates 6,982.534

12,070,635 8,737 ,1042,128,186 4,399,1 56

35,1 50 182,78700

13,419,651 4,422,528 01,340,566 1.044.899 0

*12J29*085 3311ß?3 ____________0

1SiA25A49 13.267-7JL_38J96_223 ___669_00€

3,512,3520

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

Panama

__r19291J05__213ß95.715

Panama

_67ÊJ58J83--IAÊß7AAB2


Caribbean

_99213$313Jl1A8


Caribbean

_ßi_J24ßÊ2_6.984905

Total

_.862j95*633

-2?ßJl3J94

Total

r98Jl!_0û11.53.055.387

43

BANCO GENERAL, S.A. AND SUBSIDIAR¡ES(Panama, Republic of Panama)


(20) EquityThe authorized share capital of Banco General, S. A. is represented by 10,000,000 shareswithout parvalue (2014.10,000,000 shares); of which there are 9,787,108 shares issued andoutstanding (2014. 9,787 ,108 shares),

The Bank maintains legal reserve amounting to B/.157,231,585 (201 4'. P,l.109,751,996), whichis detailed below by company:

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

ïotal

(21) (Loss) Gain on Financial lnstruments, NetThe net (loss) gain on financial instruments included in the consolidated incomesummarized as follows:

201 5

2015 2014

115,755,153 72,418,O342,128,592 2,024,774

24,310,707 23,182,8459,480,047 7,140,1925,557,086 4,986.161

15223X585 10e.751,ee6

Unrealized loss on securities and other financialassets (10,784,287) (5,667,134)

Unrealized gain (loss) on derivative instruments 270,662 (4,167,062)Gain on sale of securities and other financialassets 453,209 3,875,231Realized gain on derivative instruments 5,979,321 6.642,453

Total (loss) gain on financial instruments, net (4081*095) __6e3J[Sg

The detail of the item "(loss) gain on sale of securities and others financial assets" is disclosedin Note 6.

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

2015

1 ,706,9191,469,7759,098,679

96,950160,655

9,058,1 13

zl_st0p90

statement is

2014

2014

1,374,9502,161,626

10,377,867315,971163,964

10.004,26424.398.442

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

Total other income

44



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

Share-based Compensation PlanÏhe total options granted by the Bank to its key participant executives to purchase sharesfrom the controlling company of Grupo Financiero BG, S. A. is 472,000 (2014:472,000).Theoptions outstanding are 147,850 (2014:113,100), which have an average exercise price ofB,1.65.20 (2014. B/.53.33). The total expense relating to the options granted to theparticipants, based on their fair value, amounted to B/.1 3,491 (2014'. B,1.13,491). This plan willbe in effect up to the year 2021.

The balance of options granted by the Bank to its key participant executives to purchaseshares from Grupo Financiero BG, S. A. is 3,723,395 (2014: 3,575,270). The optionsoutstanding are 1,618,363 (2014:1,976,832), which have an average exercise price ofB/.50.07 (2014.B,1.45.31). The total expense relating to the options granted to theparticipants, based on their fair value, amounted to B/.1,393,554 (2014. B/.1,859,783). Thisplan will be in effect up to the year 2022.

Restricted Share PlanOn October2010, the Board of Directors of Grupo Financiero BG, S. A. approved to grant upto 325,000 common share of its authorized share capital in order to be awarded under theRestricted Share Plan for participants, which applies for the period 2010-2015.

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

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

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

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

ln 2015, 45,173 (2014. 48,363) shares were granted under the restricted share plan andrecognized as an expense of 8/.2,836,201 (2014:B,1.2,423,201). The reconciliation of thebalance for these shares is as follows:

2015 2014

Shares at the beginning of yearShares issuedBalance at end of year

127,701 176,064ø5.173) (48,363)

__u_528 1n-ZO7

45



Retirement PlanThe Bank maintains a closed retirement plan, which was amended prior approval by theBoard of Directors in lgg8, this plan is under independent administration by a fiduciary agent.

The contribution to the retirement plan was B/.134,568 (2014. B/.'134,568) and thedisbursements to former employees who are covered under the retirement plan amount toB/. 1 92,669 (201 4 . Bt .217 ,266) .

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

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

lncome tax returns of companies incorporated in the Republic of Costa Rica are subject to30% income tax rate and to examination by local tax authorities for the last three years.

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

The income tax is B/.44,989,893 (2014: B,1.37,377,183) on a financial profit generated by thecompanies incorporated in the Republic of Panama B,1.313,547,830 (2014:B'1.284,584,255).The average effective income tax rate for the year ended December 31,2015 was 14% (2014:13Yo). The income tax rate applicable according to current legislation in the Republic ofPanama is of 25o/o (2014: 25o/o) or the alternative calculation, whichever is greater.

lncome tax is detailed as follows:

2015 2014

Estimated income taxPrior year income tax adjustmentsDeferred income tax

The reconciliation between financial income beforedetailed as follows:

45,337,923 39,639,439322J36 (760,650)

(1,092,764) (1,794,960)44'567'2e5 3Z*083É29

income tax and net taxable income is

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

2015 2014

31 3,547,830 284,594,255(21 2,363,229) ( 1 94, 860, 603)

78,774,972 49.785,078129-959,523 149.508.730

46

BANCO GËNERAL, S. A. AND SUBSIDIAR¡ES(Panama, Republic of Panama)


The income tax paid during 2015 was F,l.27 ,849,067 (2014. B/.6,698,1 1 1).

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

2015Deferred income tax - asset:Allowance for loan lossesAllowance for other real estate ownedFixed assets depreciationTotal deferred income tax - asset

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

2014

25,695,936 24,321,19455,317 71,999

(402.999) (421,653)25ß48254 ?3s[1-439

(515,085) (490,138)(3,928) (1,250)

3,636,263 3,449,974291 .664 166,368

_3*408 14 3J4ßþ4Based to the actual and projected results, management of the Bank and its subsidiariesconsiders that there will be sufficient taxable income to absorb the deferred taxes detailedabove.

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

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

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

47



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

20'150-l 1-5vear vears Total

Letters of credit 102,084,893 22,900,825 124,985,718Financial guarantees 59,159,754 2j08,824 61,268,578Moftgage disbursement commitment 962,190,626 0 962,190,626

Total 1.123,43s,273- 25*0!9S49 tJAB.444ßn

20140-l 1-5vear vears Total

Letters of credit 96,319,242 24,386,088 120,705,330Financial guarantees 58,398,710 9,104/64 67 ,503,474Mortgage disbursement commitment 890,177]44 0 890.177]44

Total 1J44895-690 _33Á94,852 L02S.3S0étg

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

(26) lnvestment Entities and Separate VehiclesThe Bank managed trust contracts at client's own risk which amounted lo B,1.2,144,371,984(2014.B,1.1,975,012,863), and had the custody of securities in investment accounts at client'sown risk which amounted to B,1.7,944,855,873 (2014 B,1.7,326,572,849). Given the nature ofthese services, the Bank's management considers that there are no significant risksattributable to the Bank.

At December 31 , 2015 the Bank does not hold assets under discretionary management.

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

Type of structured lnterest heldentitv Nature and purpose bv the Bank

- lnvestment funds To offer an alternative to investors through a Idiversified portfolio while the capital is l4'10o/o (2014:14'34%)

preserved.

At December 31, 2015, the funds managed at client's own risk amount 8/.359,758 ,773 (2014'.8/.359,268,674); income fees for administration and custody amount P,l.4,143,082 (2014:B,1.3,906,278), and are shown in Fees and other commissions in the consolidated statement ofincome.

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

48



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

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

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

Cash flowFair valueDerivatives for tradingTotal

Cash flowFair valueDerivatives for tradingïotal

Remaining maturity 2015

Notional ValueUp to More than1 vear 1 vear Total

0 3,750,000 3,750,0000 7,250,000 7,250,000

785.224.366 592.528.407 1.377.752.7737ß5224J66 603.528.407 L3e8J-52Jt3

Remaining maturity 20'14

Notional ValueUp to More than1 vear 1 vear Total

6,666,666 6,250,0001 ,263,1 59 7,250,000

356,501,634 398.008,04236tutTtr159 411å9f",042

Fair Value

Assets Liabilities

0 11,3810 1 ,615,952

650,881 24,073,274650-8&t 25J00S07

Fair Value

Assets Liabilities

12,916,666 0 91,5728,513,159 0 1,825,871

754,509,676 3,038,874 21.010,857

At December 31 , 2015, the Bank holds derivatives contracts with a notional value ofB/.1,388,752,773 (2014: B,1.775,939,501), of which B/.835,661 ,464 (2014'. B,1.4O9,138,998)were managed by third parties. Of these derivatives managed by third parties,B.1.616,228,552(2014: B/.140,088,419) are intended to manage the duration and the interestrates risk of such portfolios.

The Bank recognized the amount of 8/.60,050 (2014: 8/.298,508), in the consolidatedstatement of changes in equity as a result of changes in fair values of hedging derivativefinancial instruments.

The net impact of the derivative instruments on the interest expense on borrowings in theconsolidated statement of income was 8/.430,630 (2014'. B,1.770,029).

49



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

Fair Value Measurement of Derivatives2015 Level 1

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

loss

__s50_ -881 ____O

2tLOA.6g7 ___0

Level 2 Level 3

__6503ú _=!25J0_0.6!Z __4

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

loss

The main valuation techniques, assumpt¡onsderivatives are as follows.

Level 1 Level 2 Level 3

=:=___0 _3J38-874 *_____===a

______0 22-928-399 _==-_0

used to measure the fair value of

2014

*3J38-874

22ß2ß309

and inputs

Derivative

Organized Market

Valuation Technique

Quoted prices

lnputs Level

Observable quoted prices in 12active markets

Yield curvesYield foreign exchangeCredit spread, 2

Volatility

Over the Counter (OTC) Discounted cash flow

See note 6, for the description of these levels.

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

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

(b) Demand deposifs from customers/savings deposifs from customers/securities so/d underag reeme nts to re p u rch a seFor these financial instruments described above, the carrying value approximates theirfair value due to their short-term nature.

50



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

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

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

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

201 5

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

Liabilities:DepositsSecurities purchased underagreements, borrowingsplacements

reselland

Book Value

306,520,54070,375,704

9,607,858,038_9ß84J54,?ß2

10,320,523,610

2,051 .61 8,'1 6312ß12t41_J13

Fair Value

307,212,41681,334,891

9,621,735,384lo-t10282*ô91

10,330,860,189

2,OO2,481.90412-333*}12.093

2014Book Value Fair Value

331,857,591 332,785,33684,635,560 100,035,296

8,619.779,405 8,631,596,580_9o30¿72é56 9-lÊ4.¿11212

9,626,438,228 9,636,866,598

1.422.792,634 1.385.183,376alo ¿30s62 11ß22-049ß74

51



The table below summarizes the fair value hierarchy of financial instruments which are notmeasured at fair value on the Bank's consolidated statement of financial position.

2015 Level 1 Level 2 Level 3Assets:

Time depositsSecurities held-to-maturity, netLoans, net

Time depositsSecurities held-to-maturity, netLoans

Liabilities:Deposits

___________0

Level I Level 2

332,785,336 0 0100,035,296 0 84,728,765

8,631,596,580 0 09.064.417.212 0 84.728.765

0 307,212,41669 ,527 ,17 4 1 1 ,807 ,7 17

9,621.735,384_L9_527-174 _9940J55étZ

0 10,330,860,'189

2.002.481.904____0 12J$34e093

Level 3

332,785,33615,306,531

8,631,596,5808.929É88J42

307,212,41681,334,891

9,621,735,384rc-ol!.282591

'10,330,860,189

2,002.481.90412J33-34¿093

0000

Liabilities:DepositsSecurities sold

agreements,placements

Assets:

under repurchaseborrowings and

2014

9,636,866,598 0 0 9,636,866,s98Securities sold under repurchaseagreements, borrowings andpracements

T+##å3# ---+ ----+ ,'1####See note 6, for the description of these levels.

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

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

52



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

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

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

53

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


C red it Q u al itv An alvsi sThe table below set out information about theallowance for impairmenVloss held by the Bank

Carrying amountMaximum exposure

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

Loans with renegotiated termsGross carrying amountlmpaired amountAllowance for impairmentNet carrying amount

Neither past due nor impairedGrade 1

Total

Past due but not impaired30 - 60 days61 - 90 days91 - '120 days121 - 180 daysTotal

Individuallv impairedGrade 2Grade 3Grade 4Grade 5Total

lndividualCollectiveïotal

credit quality of financial assets and theagainst those assets:

Loans2015 2014

(in thousands)

9.752.224

9,417,938208,075

66,35640,326'19,529

9,752,224112,27532,091

9.602É58

64,04164,0415,765

---58,2-ø

8.755.430

8,416,158201,057

82,11750,892

5,2068,755,430

106,03529,6'16

8.619.779

28,34928,3492,588

251ß1

8,404,0308.404.030

12,0575615

012J2s

1 18,63137,21917,300

260

9,417,5129.¿11-þ12

10710814467

____426

102,30332,013

7,1 8916,659

-158J16,t

13,16299,1 1 3

*112J-75

113.4j-

15,05890.977

106*035

Allowance for impairment

54

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


The allowance for loan losses of the Bank includes B/.3,098,000 (2014: B/.4,083,000) tocover country risk, in its portfolio of foreign loans.

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

2015Banco General,

S. A.

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

Total

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

Total

8,519,097,477174,316,66972,420,384

8.703,8358J14.528lß5

Banco General,S. A.

7,643,964,438140,040,20366,510,082

5,956,7457.856.471.468

Subsidiaries

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

0

9ZZ*696205

2014

Subsidiaries

895,846,9451,998,7551,113,205

0

898*958t905

Total

9,490,198,769178,961,77974,360,197

8,703,8359J522Lil!

Total

8,539,81 1,393142,039,95967,623,2975,956,745

8.755.430 373

55



The following table analyzes the credit quality of theassets and impairment reserves held by the Company,mutual funds for 8/.36,659,455 (2014. P,|.36,273,187),risk:

Maximum exposureCarrying amount

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

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

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

investments and other financialexcluding corporate shares andwhich are not subject to credit

lnvestment and OtherFinancial Assets

2015 2014

3,698.694,438 3.189.992.851

30,454,927 42,654,593189,631 447 ,872

29,364,247 29,797,6590 11,598,762

10,261 ,gg0 0159,147 166,070

70,429,832 84,664,94654.128 29.386

70,375.704 84,635,560

904,107,530 773,447,389355,376,073 241,424,22188,485,353 51,427 ,201

530,176,531 450,427,124232,496,300 269,991,951594,873,989 547,690,944

92,294 2,537,7492,200.260 7.803,856

2,707.798,330 2,344,640.335

657,678,663 534,600,26345,722,696 59,967,67932,313,903 37,657,55986,939,017 29,596,733

434,637 4,910,67154,374,820 54,059,25041,409,499 39,526,2421,694,052 480,174

920,466,276 760,687,570

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

56



Time deposits with banksThe Bank held time deposits with banks of 8/.306,520,540 at December 31, 2015 (2O14.8/.331,857,591). Time deposits with banks are held with central banks and financialinstitution counterparties that are rated at least between AAA to BBB-, based on Standard &Poor's, Moody's and Fitch Ratings lnc. ratings.

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

lmpairment of loans and investments and other financialassefs and deposits with banks:lmpairment of loans, investments and other financial assets and deposits with banks isdetermined by comparing the carrying value of the asset to its estimated recoverableamount. At December 31, 2015 the Bank has no impaired deposits.

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

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

lmpairmenf reseryes;The Bank has established reserves to cover losses incurred on loans and investmentsand other financial assets portfolios.

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

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

57



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

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

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

% of exposure that is subject tocollateral requirements

2015 2014Tvpe of collateral

Cash, Properties,73.80% Equipment, and OthersLoans

lnvestment and otherfinancial assets

77.85%

52.21%

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

2015 2014

449,800,546627,337,953

1 ,296,100,003430,323.976

2ß03_562_47ß

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

71% - 90%More than 90%Total

54.44o/o

509,098,431743,380,579

1,550,734,624469,345.774

3_272_559A9ß

Cash, Properties, andEquipment

58



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

Goncentration bv Sector:CorporateConsumerGovernment and Government AgenciesOther Sectors

Geographical Concentration:PanamáLatin America and the CaribbeanUnited States of America and Other

lnvestments and otherfinancial assets2015 2014(in thousands)

1,989,759 1,825,83800

1,745,5410

3235.300

8,466,960 7,521,096 1,266,895 1,120,9501,285,013 1,234,199 327 ,183 328,986

251 135 2.141,222 1,776,3019Jnn4 8J55t3O 3J3å300 3.226,237

20'15 2014(in thousands)

4,722,699 4,345,5254,628,764 4,031,072

00400.761 378,833

9,752.224 8,755.430

'1,400,399

03.226237

(b)

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

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

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

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

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

(c)

59

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


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

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

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

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

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

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

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

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

60



ïhe table below sets out the Bank's maximum exposure limits to foreign currency.The assets and liabilities are presented at their carrying amount, except derivativeswhich are presented at their nominal value within other assets/other liabilities.

Exchange rate

AssetsCash and cash ilemslnveslments and other

financial assetsLoansOther assets

LiabilitiesDepositsObligations and

placementsOther liabilities

Net position

Exchange rate

AssetsCash and cash itemslnvestments and other

financial assetsLoansOther assets

Liabilit¡esDepositsObligations and

placementsOther liabilities

Net pos¡tion

Costa RicanEuros, Colones,

expressed expressedin USD in USD

1.09 531.94

459,153 7,508,261

23,438,193 3,478,0770 14,772,115

27,640,'t 50 2,158.8985t-53¿4fl6 nÅ1a351

0 19,969,1 56

0 5,870,33952.124.230 72.01952J24234 25gLL5r4

__(586J31) _¿005,837

Costa RicanEuros, Colones,

expressed expressedin USD in USD

2015British Japanese Mexican

^uEPounds, Yen, Pesos, -..-ï11-expressed expressed : *::" expressed

in usD ¡n usD "ifli;:" ¡ñ uso.

Othercurrencies,expressed

in USD* Total

24,420 166,412 8,415,714

0 82,998,008o 14,772,1150 250.707,010

_fßÊa12 356-892347

0 19,969,156

185,563,064144,608,205359140A25

Othercurrencies,expressed

in USD* Total

0 14,061,2720

188,490,905't72.406.544314ß58J27

Jj.J24ß4ß

'1.47 122.s0 17.21 0.94

229p01 19,876 7,691

22,839,8550

24.944.314 5.126.0704fL014070 5*145j46

0000

48.263,200 7,663,07448263200 7-6Ê3-014

0 31,145,231 2,096,652000

0 190.837.57831-152.922 192*958-650

000 179,692,725 0

31.240,845 106.840 5,137,99731249-845 l_29J99565 l*132J97

^_J249;ßA Q-511J28) ____(¡7*9231 _r3J59IB5 {4-9zL5B5l _-6Já2422

20'14British Japanese Mex¡can

^urPounds, Yen, Pesos, ^.--ïl:expressed expressed expressed "ijli:åÎ"in USD in USD in USD- jjj..::

i.S6 1 19.28 14.75 0.99'1.21 533.31

0 7,263,999 064,335.286 39.683 59,133.404 6.256,76664335.280 21.364ßâ4 59J331104 6256J66

662,100 6,6ô4,542 371,563 57,320 7,690 1,551 ,608 286,295 9,601,118

31 ,386,927 2,258,901 28,491 ,287 1 ,082 36,371 ,689 r 01 ,531 359,885 98,971 ,3020 11,798,394 0 0 0 0 0 11,798,394

34,532,490 3,145,513 30.032.249 3,212.339 0 194,271.646 4.518,618 269.712,85566.581-ãl-7 2&86¿350 58j95.099 32aOJ41 3Â-379J79 195-92L2B.5 -1IS4J9B 390i83-669

0 14,061,272 0 0 0 00

0 181,226,90636.532,730 1.356,138 4.752.53736t32J30 182-â83-044 AJ-52-537

224623t 2J02.?96 1238,305) {2*986-02Ð _{r,5,?35l) J3341J41 __A122ø1

*Other currencies include Australian Dollar, lndonesian Rupiah, Korean (South) Won,Singapur Dollar, Philippine Peso, Soufh African Rand, Colombian Peso, Canadian Dollar,Guatemalan Quetzal, Russ¡an Ruble and Brazilian Rea/es.

During June 2014, the Bank issued a CHF 180,000,000 bond with a 1.6125% ofcoupon rate and maturity on June 18, 2018. ln order to hedge the risk of foreigncurrency exposure in Swiss Francs (.CHF') related with this issuance, the Bankentered into a future contract to purchase CHF 180,000,000 with settlement date onJune 18, 2018; this future contract is measured at its fair value in the consolidatedstatement of position with the fair value changes included in the consolidatedstatement of income.

61



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

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

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

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

Assets:Deposits w¡th banksSecurities and other fìnancial

assetsLoansTotal

Liab¡l¡t¡es:DepositsSecurities sold under

repurchased agreementsBorrowings, placements and

perpetual bondsTotal

Total ¡nterest sensibility gap

Assets:Depos¡ts with banksSecur¡t¡es and other financial

assetsLoansTotal

Liabilities:Depos¡tsSecur¡t¡es sold under

repurchased agreementsBorrow¡ngs, placements and

perpetual bondsTotal

Total interest sensibility gap

Up to3 months

208,914,483

992,395,5729,1 01 .582.062

19.392ßs2.Afl

4,834,795,167

238,006,349

1 ,031 .207,1 336.1_tr4*0!3,819

4$q,E4!J$g

Up to3 months

246,295,076

981,092,3218.124.972.2759J5¿a59.672

4,556,639,531

1 75,561,000

529,709.086526ff!9*617

4.090-450-055

2015From 1 year to

5 vears

0

1,229,798,602214,274.785

1-44!\073387

1,849,299,497

0

181 ,292.0362=S=99.sg!þi!

$99é$,l3A

From 5 to 10vears

n

708,890,91 31 9.550,374

72ß44t2ßZ

1,687,752

0

2.747.512

-a435293.

724-499.923.

More than l0vears

0

111,230,1856.063,296

_L11292481

262,596

0

21 7,680,000?11-942.59Ê

í!0,649-115)

Total

306,520,540

3,569,281,5549.752.224.570

l3-628J26*664

8,434,382,265

238,006,349

1 .813.611 .814xq4!9JA0J?q

3142*026236

From 3 to 6months

29,696,1 31

193,897,776304.122.18852ZJl6-095

716,329,727

0

343.514.999l-059*844726

f53¿?e,Ëj.)

From 6 monthsto 1 vear

67,909,926

333,068,506106,631 .865

__591_St929Z

1,032,007,526

0

37.170.134l-069;LZ7*6ô0

l56t*5Ê2J6CI

From3to6 From6monthsmonths to 1 vear

15,662,515 69,900,000

151,973,041 228,884,714317,845,86'1 82,215.70448548LA17 381-o0orll.8

632,735,193 1,030,573,200

00

263.884.667 12.226.951896-619ÉÊ0 1-0{2É0!;151

{4!Ll!9J4q @J99¿AA)

From 5 to l0 More than 10vears ye3Ig Total

0 0 331,857,s91

657,079,619 87,701,996 3,076,439,38414.021.269 5.414.721 8.755,430.373

62L100 88 9iJ16Aa ÊJß3-727-348

0

969,707,69321 0.960.543

L180-e68236

1,548,271,675 1,293,963

00

221.007.516 2.269.5121_7ß927j*197 __3JS3.425

1,072,739 7,770,s86,301

0 175,561,000

21 8. 133,902 1 .247 ,231 .634219-?þßA67 9_193J2&935

126J89J24 2_97At348.413

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

62



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

Sensitivitv of the net interest income

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



100bpincrease

2015

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

l00pbincrease

2015 2014

(12,848,455) (11,27e,633)(12,522,962) ('l 0, I 85,803)(13,864,875) (1 I ,279,633)(10,448,756) (8,698,341)

l00pbincrease

2015

(78,295,630)(76,145,244)(79,122,090)(70,836,083)

100bpdecrease

2014 2015 2014

7,237,053 (3,612,703) (7,063,214)8,672,669 (4,937,264) (7,e32,037)9,396,668 (6,039,024) (9,162,902)7,237,053 (3,612,703) (7,063,214)

Sensitivitv in profit or less for investment at fairvalue

Sensitivitv in other comprehensive income

100pbdecrease

2015 2014

10,206,785 8,516,8119,733,527 8,393,255

12104,017 8,600,1287,209,894 7,872,059

1 00pbdecrease

2014 2015 2014

(66,647,271) 80,134,911 63,609,093(65,293,835) 76,132,932 62,390,476(66,926,152) 80,134,911 64,436,818(61,076,035) 70,950,412 57,441,272

(d) Liquidity and Financing RiskConsists in the risk that the Bank cannot meet all its obligations as a result of, amongother reasons, unexpected withdrawals of funds by depositors, the deterioration of thequal¡ty of the loan portfolio, the devaluation of securities, the excessive concentration ofliabilities in one particular source, a gap between assets and liabilities, a shortage ofasset liquidity, or the mismatch of long-term asset financing with shortterm liabilities.

Liq u id ity ri sk m an agement:Risk management policies establish a liquidity limit in order to determine the amount ofthe Bank's assets that should be maintained in highly liquid instruments; as well asfinancing limits, leverage limits and maturity limits.

63

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

Notes to the Consolidated Financial Statennents

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

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

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

Assets:Cash and cash itèmsDepos¡ts w¡th banksSecurities and other

fnancial assets, netLoansOther assetsTotal assets

Liabilities:DepositsSecurities sold under

repurchased agreementsBorrowings, placements

and perpetual bondsOther liabilit¡esTotal liabilitìes

Net liqu¡dity gap

Up to3 months

1 90,835,505415,247,434

400,3s9,2971,146,662,085

307.01 7.0332AS9J21-354

From 3 to 6months

032,346,1 31

180,431,813849,213,872

2,122.546

l-a9éJlL3s2

From 6 monthsto I vear

065,259,926

382,262,106970,1 65,1 98144.584.67 4

Ltg2ttße{

00

1,558,683,4635,999,532,379

598,030¿558.8L3.872

6,076,574,661 740,305,048

238,006,349 0

100,035,908 208,503,731530.834.886 322.461

!p45-4fl!!4 949.13t24t

00

1,007,865,769578, 1 66,71 8

0

1-53S-032"{82

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

000

227,602,791 1,039,659,179 20,130,20593.364.147 15,795.381 7.214.496

1319.005_6€A 3_529.109-391 _,_29Ãi245i

-21ß¿6ß244 4.A29f,i4Áß7 1J57*000-034

0 217,680,000 1,813,611,8140 164.625.822 816.157.193

_____2ç2-599 -18S-AqI.8¿e ßJ.88.298.966

3840_31*130 (48*219.5311 =lJg_5J!ÞJgA

2015From 1 year From 5 to l0 More than 10to 5 vears vears vears

W¡th noMaturitv Total

0 190,835,5050 512,853,491

53,999,242 3,752,693,6800 9,752,224,570

284.087,049 745.126,7503i8*086J91 14"9!!J!3-e99

0 1 0,320,523,61 0

0 238,006,349

With noMatur¡tv Total

0 205,404,1620 601,967,756

52,659,817 3,242,652,6660 8,755,430,373

262.527.595 563.126.628ã5J84Æ2 ß.36f_5gr-585

00

169,091 ,990208,484,318

6,717,418984.?53J2õ

262,596

0

Assets:Cash and cash itemsDeposits with banksSecurit¡es and other

fìnancial assets, netLoansOther assetsTotal assets

Liabilities:DepositsSecurities sold under

repurchased agreementsBorrowings, placements

and perpetual bondsOther liabilitiesTotal liabil¡t¡es

Net liquidity gap

Up to3 months

205,404,162516,405,241

401,569,746981,68s,372172.971 .455

2.27ß-A35*91ß

From 3 to 6months

015,662,515

1 93,595,802850,098,629

1.131 ,815t_060J88.2û1

From 6 monthsto I vear

069,900,000

264,950,496832,866,214118.333,244

128Êû19-9,tl

1,007,395,266

0

2014From I year From 5 to 10 More than 10to 5 vears E3I9 y9g.I9.

1,245,243,432 902,464,243 182,169,1305,363,496,945 540,944,230 186,338,983

1.177 .614 0 6,984.905

00

00

00

5,774,164,2A6 654,624,146

175,561,000 0

46,502,718 131,031,665385,822.061 163,288

_6182-050*065 285-8r9i99

(4-rc4*014089l n4-çß9Êß2

2,187 ,887 ,828 1,293,963

00

1,072,739

0

0 9.626,438,228

0 175,561,000

51,563,783 764,622,597 35,376,96983.276.922 19.444.536 0

1142235ß1t ¿9Lr-954-961 _16*670t32

__143313-983 3-632863-030 1-40ÊJ31-541

453,902 217,680,000 1,247,231,6340 1ô0.496.298 649.203.105

___1-526-641 328-176298 f-69tu133-957

323.9sO372 rc2"9.8!.886) _l*620;14¿618

ln management's opinion, there are in the investment portfolio of the Bank, highly liquidinvestments and other financial assets (with AAA to BBB- rating) for B/.2,395,941,044(2014. B,1.2,030,433,211), that management estimates are readably convertible intocash, in a per¡od no longer than a week.

64



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

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

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

(e) Operational R/sk

2015

25.38%25.97%26.68%25.38o/o

2014

26.060/o26.04o/o26.860/o25.52%

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

The Bank has designed a model of operational risk management under a decentralizedmanagement through risk managers in the areas which is being implemented gradually.

The model of Operational Risk Management, addresses such key points:. ldentification and assessment of risks. Report of incidents and loss events. Definition of mitigation actions. Timely follow up the implementation of action plans defined by the areas¡ Assess the level of operational risk in the Bank's new initiatives, products and / or

services and significant process improvements. Continuous training

The different areas that participate jointly for optimum operational risk management are:. Operational Risk Unit¡ Risk Management of lnformation Technologyo Business Continuity. Management of lnformation Security. Monitoring and Fraud Prevention

65


Notes to the Consolidated Financial Staternents

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

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

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

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

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

2015 2014Capitalratios

Total capital as a percentage of assets based on riskweighted assets 16.66% 17.66%

Total Tier 1 as a percentage of assets based on riskweighted assets 13.74o/o 14.47%

The Bank presents the consolidated capital funds of its risk-weighted assets inaccordance with the requirements of the Superintendence of Banks of Panama, whichare detailed as follows:

66



The Bank's regulatory capital position is as follows:

Primary Capital (Tier 1)Common sharesLegal reserveRetained earningsLess: goodwill and intangible assetsTotal

Secondary Capital (Tier 2)Subordinated debt - perpetual bondsTotal

Total capital

Risk-weighted assets

Capital ratiosTotal capitalTotal primary capital

2015

500,000,000158,231 ,595988,541 ,512

66,960,1371.579.812,960

217.680.000217.680.000

lJ9Z*49¿900 1-662é22-060

10,444,406,442 9,443,021,919

17.21o/o15.13o/o

2A14

500,000,000110,751,996908,717,59469,577.524

1349€9¿000

217,680,000

-21rÉ!0-000

17.66%15.350/o

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

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

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

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

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

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

67



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

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

(32) Major Applicable Laws and Regulations(a) Banking Law

Banking operations in the Republic of Panama, are regulated and supervised by theSuperintendence of Banks of the Republic of Panama, according to the proceduresestablished by Executive Decree No.52 of April 30, 2008, adopting the single textDecree 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 theSuperintendence of Banks and the rules that govern it.

Liquidity RatioThe percentage of liquidity ratio reported by Banco General S. A. to the regulator, underthe parameters of the Agreement No.4-2008, was 37.860/o (2014:35.45%o).

CapitalAdequacyThe Law mandates general license banks to maintain a paid social capital or assignedcapital not lower than ten million balboas (B/.10,000,000) and capital funds of no lessthan 8% of its risk-weighted assets, including off balance sheet operations. The Bankpresents consolidated capital funds of approximately 17.21o/o (2014: 17.66%) of its risk-weighted assets, as calculated using the Agreement No.5-2008 enacted bySuperintendence of Banks of Panama.

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

68



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

From December 31 , 2015, the bank must calculate and maintain, as a minimum, thespecific reserves determined by the criteria established in this Agreement at all times.The basis for reserve calculation is the difference between the amount of the loanclassified in any of the categories subject to reserve, and the amount of the collateralmitigating any possible loss. The weighted values for collateral are also detailed in thisAgreement.

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

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

Corporate loansConsumer loans

Total

Specific Reserve


Total

Specific Reserve

Standard

4,200,2274,387.4898-587J16

0

Specialmention

135,37069,593

204p63

19.O42

Standard

3,783,5613.835.172z-61Â733

0

Specialmention

135,27363,268

198-541

_19_J48

2015(in thousands)

Sub-standard Doubtful

33,892 7,36731 ,186 31 .93965*078 39,306

J1Å92 12"853

2014(in thousands)

Sub-standard Doubtful

48,022 15,66833,970 34.5638l*992 50231

Loss Total

16,262 4,393,1183.217 4,523,424

19.479 epl6ér2

_6*807 ___49Éù1

Loss Total

563 3,983,0874.611 3.971.584

114 7ß54ß7a

1-744 ___55J52

69

19.730 Épaa

BANCO GENERAL, S. A. AND SUBSIDIAR¡ËS(Panama, Republic of Panama)


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

At December 31, 2015, the balance of delinquent and past due loans by major category,based on the Agreement No.4-2013 is as follows:


Total


Total

2015(in thousands)

Current Past Due Delinquent Total

4,353,182 18,452 21,484 4,393,1184,304,686 158,966 59.772 4.523.4248*6 2868 117Álß ß1256 8p16312

20,14(in thousands)

Gurrent Past Due Delinquent Total

3,942,339 13,9'13 26,835 3,983,0873,799,822 126,130 45.632 3,971,5847_742-1ß1 140.4€ _72Ail 7ß54fl1

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

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

Total loans of Banco General, S.A. in the state of non-accrual of interest isB,1.67,587,690 (2014. B,1.61,244,965). Total interest income not recognized on theseloans is B/.3,768,927 (2014: 8/.2,798,509).

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

70



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

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

Total

2015

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

131&1.82e

206,397,584

'10,319,879

(9,493,892)

126,151.846

5,469,9831Ue1,82e

___88*015*402

_11f239J25

2014

72,159,7792,024,7747J40j824,1 19,008

wa43J43

410,959,371

20.547.968

29,828,961

85,443.743

0

_28-932280

157flAþÊ1

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

The calculation of the dynamic reserve is shown or follows:

2015 2014Component 1

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

Resu/f

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

Resu/ú

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

reserves during the quarter

Dynamic ReserveNegative variation between the current quarter vs

previous quarter of the subsidiaries dynamic reserve.Totaldynamic reserve

Restrictions:The dynamic reserve cannot be less than 1 .25% of the

risk-weighted assets on the loans classified underthe normalcategory

The dynamic reserve cannot be greater than 2.5o/o ofthe risk-weighted assets of the loans classified underthe normalcategory

--ß5443J43

7,089,204,992 6,314,982,428

106,338,075 94.724.736

71

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


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

Other real estate owned is recognized at the lower of the carrying amount of theoutstanding loans or the estimated realizable value of the properties. The agreementprovides that the provision of foreclosed properties is gradually within the range of 10o/ofrom the first year of enrollment up to 90% by the fifth year of award, through theestablishment of a reserve asset. The table below sets out the progressive provisioning:

Years

FirstSecondïhirdFourthF¡fth

Minimum reservepercentaqe

10o/o

20o/o

35o/o

15o/o

10%

Banco General, S. A. has other real estate owned of 8/.2,368,311 (2014.P,l.1,453,432)and a provision of B,1.544,094 (2014: 8/.545,852). The provision was estimated basedon Agreements No.1-2000 and No.3-2009 for B,1.221,266 and B'1.322,828 respectively(2014. B.1.287 ,597 and 8i.258,255 respectively).

72



Letters of creditBanking guarantee and promissory

notesTotal

lnitial reserve requiredAdjustment to required reserveReserve required based on estimated

net loss

Letters of creditBanking guarantee and promissory

notesTotal

lnitial reserve requiredAdjustment to required reserve

4.282 0 0

Loss Total

0 1 19,706

0 946.467___! ru€qiJg

0 1,1040 (1,104)

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

2015(in thousands)

Special Sub-Mention Standard Doubtful Loss Total

0 108,896

0 1,014.423__-0 1J23ß19

0 1,3040 (1,304)

______0 _______o

SpecialMention

20't4(in thousands)Sub-

Standard Doubtful

Standard

103,276

1.014.423_u1J.699

00

0

Standard

115.424

5,O21

0_5J21

1,004(1,004)

0

599

0

==ggi

300(300)

0

0

0_____a

00

0

945,971 0 496 0

l*0Êt395 _4282 __496 ______0

0 856 248 00 (856) (248\ 0

Reserve required based on estimatednet loss =________0 ______O ______O ______0 ______0 ______!

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

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

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

73



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

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

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

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

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

74

Documents

BANCO GENERAL, S. AND SUBSIDIARIES of...(Panama, Republic of Panama) Consolidated Statement of Financial Position December 31, 2015 (Expressed in Balboas) Assets Note 2015 2014 Cash