How to Start a Panama Bank

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Panama Bank

No one can engage in the banking business in Panama without obtaining a banking license.

Law 9 of 1998 created the Superintendency of Banks along with the requirements to start a Panama bank.

Three types of licenses may be issued:

1. General License: Allows the licensee to engage in the banking business within the Republic  of  Panama,  as  well  as  to  carry  out  transactions  that  are  perfected, consummated  or  have  their  desired  effect  outside  the  territory  of  the  Republic  of Panama,  and to  carry out  whatever  other  activities  that  may  be  authorized  by the Superintendency of Banks.

2. International License: Allows the licensee to engage, from an office established within Panama,  transactions  that  are  perfected,  consummated  or  have  their  desired  effect outside  the  territory  of  the  Republic  of  Panama,  and  to  carry  out  whatever  other activities that may be authorized by the Superintendency of Banks.

3. Representation License: Allows licensed foreign banks to establish a representation office in the Republic of Panama and carry out whatever other activities that may be authorized by the Superintendency of Banks.

1.  GENERAL LICENSE

Documents Required From Banks To Be Licensed In Panama

The application for banking license of a Bank in process of being formed, which will be organized as a corporation according to with the legislation of the Republic of Panama, must be carried out through a Lawyer or Law Firm qualified to provide legal services in the Republic of Panama.

The applying Bank or its Promoting Group will prove the fulfillment of the necessary criteria and requirements for the evaluation of the license applications, by attaching the following documents to the application:

a. Articles of Incorporation: Draft of the Articles of Incorporation and of the statutes of the legal entity in process of being formed who would be the legal owner of the license applied for;

b. Authorization of the Board of Directors: Minutes, extract of minutes or secretarial certificate of the Board of Directors Meeting of the applicant or its financial promoter that states the financial support, the authorization to practice the banking business, as also the assignment or investment of capital needed to practice the banking activity in Panama;

c. General Information of the Stockholders, Directors and Officials of the Applicant and its Promoter: Detailed and precise information to confirm irrefutably the identity, residence, address, nationality (identity cedula and/or passport), occupation and participation percentage in the capital of the stockholders of the applicant, its promoter and the promoter’s directors and officials, and their stock participation.

In case the applicant or promoter’s stocks are frequently traded in the stock market, the required information will fall on the five (5) stockholders with the greatest participation percentage;

d. Resumes of the Bank’s Responsible Personnel: Resumes of the officials, directors, executive and administrative personnel who will be responsible for the banking institution in Panama, along with banking, commercial and personal references, including full contact information so the information can be verified or more can be requested;

e. Personal Financial Statements: Personal financial statements which detail the financial solvency of the directors, the dignitaries and the major stockholders or the ones with capacity to exercise control of the Bank;

f. Economic Group or Financial Conglomerate: Information about the Economic Group or Financial Conglomerate of which the Bank forms, presenting in particular a flowchart that shows the links between the applicant, the corporations that have control over the applicant and/or promoter, and any subsidiary or affiliate corporations; property, control or management relationships; and the directors, officials and responsible personnel they have in common;

g. Financial Activities of the Economic Group or Financial Conglomerate: Description of all the financial activities carried out by the companies integrating the Economic Group or Financial Conglomerate of which the Bank forms, including a list of the jurisdictions under which those companies operate;

h. Applicant’s Major Investments: List of all the corporations in which the applicant and  the subsidiaries that are consolidated with him possess by themselves or together with somebody else, an equity investment of more than 25% of the capital or more than 10% of the respective voting rights;

i. Minimum Capital: Evidence that it possesses the minimum initial capital amount for the bank in Panama, Three Million USD ($3,000,000) if applying for an International License, and Ten Million USD ($10,000,000) if applying for a General License.

j. Capital Distribution: Participation percentage of the applicant or its promoting group in the paid capital of the projected institution;

k. Consolidated and Audited Financial Statements: Comparative consolidated and audited financial statements of the applicant and/or its promoting group corresponding to the last two closed fiscal years, together with temporary Financial Statements;

l. Auditors’ Registration and Authorization: Name of the external auditor of the institution that will own the respective license, along with a certification from the Technical Committee of the Ministry of Commerce and Industries of the Republic of Panama, which states that the external auditor that endorses the Financial Statements of the applicant and/or its promoter is duly authorized to practice that profession;

m. Publications and Memorandums: The most recent annual report or similar publication that contains information on the applicant and/or its promoting group, or of the Economic Group to which it belongs, its constitution, changes in the trade name, mergers or consolidations, turn of operations, local and foreign banking institutions (subsidiaries, branches, representing offices and agencies), relations with other financial institutions and in general about the result of its management, its indicators of profitability, growth and risk over its assets, its liabilities and its equity;

n. Project of Activities to be Developed / Business Plan: Description of the applicant’s proposed plans after the License has been approved (objectives over the short, medium and long terms), indicating the Bank’s viability, and its contribution to the Panamanian economy;

o. Feasibility Study: The applicant’s financial projections, projected organizational functions and expected profitability of the bank;

p. Risk Management: Procedures, policies, manuals and other documents that develop the implementation of the management of important banking risks,  such as credit risks, interest rate risks, and operation, liquidity and legal risks; and

q. Any other document, information or requirement requested by the Superintendent.

Documents Required From Foreign Banks

The application for banking license for a Bank organized as a corporation according to foreign legislation must be carried out through a Lawyer or Law Firm with the ability to provide legal services in the Republic of Panama.

The applying Bank or its Promoting Group will fulfill the necessary criteria and requirements for the evaluation of the license applications by attaching the following documents to the application:

a. Articles of Incorporation: Authenticated copy of the Articles of Incorporation;

b. Authorization of the Board of Directors: Minutes, extract of minutes or secretarial certificate of the Board of Directors Meeting of the applicant or its financial promoter, that states the financial support and the authorization to operate the banking business, as well as the assignment or investment of capital needed to operate banking activity in Panama;

c. Certification from the Authorities (monetary, supervising or regulating) of the Country of Origin: Certification issued by the authority of the country of origin of the applicant or its promoter indicating his proper registration and authorization to operate the banking business in his country, and also the authorization to operate the banking business in or from Panama or to establish a Representing Office in Panama.

In case the applicant operates as a Bank in his country of origin, or he forms part of a financial conglomerate that includes Banks that operate in his country of origin, the Superintendency of Banks could require a certification of the Bank Supervising Entity of the mentioned country, indicating that the mentioned entity will carry out the consolidated and over-the-boundaries supervision of the applicant, and the frequency and extent of the inspections, in case the Banking License is granted in Panama;

d. General information of the Stockholders, Directors and Officials of the Applicant and its Promoter: Detailed and precise information to confirm irrefutably the identity, residence, address, nationality (identity cedula and/or passport), occupation and participation percentage in the capital of the major stockholders, or the ones with capacity to exercise control of the Bank and of its directors and officials, and the stock participation of the latter.

In case the applicant or promoter’s stocks are frequently traded in the stock market, the required information will fall on the five (5) stockholders with the greatest participation percentage;

e. Resumes of the Bank’s Responsible Personnel: Resumes of the officials, director, executive and administrative personnel who will be responsible for the banking institution in Panama, including banking, commercial and personal references, providing the source so the information can be verified or more can be requested;

f. Economic Group or Financial Conglomerate: Information about the Economic Group or Financial Conglomerate of which the Bank forms, providing in particular a flowchart that shows the links between the applicant, the corporations that have control over the applicant and/or promoter, and any subsidiary or affiliate corporations; control or management relationships; and the directors, officials and responsible personnel they have in common;

g. Financial activities of the Economic Group or Financial Conglomerate: Description of all the financial activities carried out by the companies integrating the Economic Group or Financial Conglomerate of which the Bank forms part of; including a list of the jurisdictions under which those companies operate;

h. Substantial Investments from the Applicant and its Stockholders: List of all corporations wherein the applicant and the subsidiaries consolidating with it or on their own or jointly with other persons have an equity investment exceeding 25% of the capital or exceeding 10% of the respective voting rights.

Likewise, the stockholders of the applicant and/or sponsor must submit an affidavit that specifies if they belong to financial groups in which on their own or jointly with other persons they have an equity investment exceeding 25% of the capital or exceeding 10% of the respective voting rights.

i. Minimum Capital: Evidence that it possesses the minimum initial capital amount for the Bank in Panama, Three Million USD ($3,000,000) if applying for an International License, and Ten Million USD ($10,000,000) if applying for a General License.  The capital assigned for a Bank established as a subsidiary in Panama must be constituted with additional funds to the main branch capital, and not as part of the main branch capital;

j. Capital Distribution: Participation percentage of the applicant or its promoting group in the paid capital of the projected institution;

k. Legal Representation: In case of branches, name of the persons designated as General Attorneys – in – fact of the Bank, who must be residents of Panama and at least one of them must be of Panamanian nationality;

l. Auditors’ Registration and Authorization: Name of the external auditor of the institution that will own the respective license.  At the Superintendent’s discretion, a certification must be provided from the corresponding foreign authority, which states that the external auditor that endorses the Financial Statements of the applicant and/or promoter is duly authorized to practice that profession;

m. Agents: List of the Bank’s main agents divided by geographical region;

n. Publications and Reports: Annual Reports and other publications that            contain information on the applicant and/or its promoting group, or of the Economic Group to which it belongs, its constitution, changes in the trade name, mergers or consolidations, turn of the operations, local and foreign banking institutions (subsidiaries, branches, representing offices and agencies), relations with other financial institutions and in general about the result of its management, its indicators of profitability, growth and risk over its assets, its liabilities and its equity;

o. Project of Activities to be Developed / Business Plan: Description of the applicant’s proposed plans after the License has been approved (objectives over the short, medium and long terms), indicating the Bank’s viability, and its contribution to the Panamanian economy;

p. Feasibility Study: The applicant’s financial projections, projected organizational functions and expected profitability of the bank;

q. Risk Management: Procedures, policies, manuals and other documents that develop the implementation of the management of important banking risks,  such as credit risks, interest rate risks, and operation, liquidity and legal risks;

r. Consolidated and Audited Financial Statements: Comparative consolidated and audited financial statements of the applicant and/or its promoting group corresponding to the last two fiscal years, together with temporary Financial Statements no more than sixty (60) days old.  The financial statements referred by this paragraph must be prepared in conformance with the International Accounting Standards or the United States Generally Accepted Accounting Principles (US-GAAP);

s. Other Financial Information: In case of branches, reports on the classification of asset portfolio and the expiry structure of liabilities and assets, and also about the position of the bank or promoter in the place of origin, according to the main financial guides (total assets, portfolio, deposits and equity) and the most recent rating of the supervising authority; and

t. Any other document, information or requirement requested by the Superintendent.

Post Application Process

Changing License Status: Banks may request the Superintendency for a change in the type of license, in which case the updated documentation on file in the Superintendency will be recognized as valid.  On a case by case basis, the Superintendency will determine what additional requirements are necessary to effect the change.

Temporary Permit

Once all of the requirements have been met, the Superintendent will grant a Temporary Permit for the exclusive purpose for allowing the applicant to file its Articles of Incorporation with the Public Registry which must use the Word “Bank” in its description and functions.

The temporary permit will be issued for 90 days.

Definitive License

Once the applicant’s corporation is registered with the Public Registry during the temporary permit time period and having met the minimum capitalization requirement, the applicant will solicit the definitive license for the corporation.

Once the petition has been filed, the Superintendent can grant or refuse to issue the license by means of a formal Resolution within 120 days from the filing of the petition for a definitive license.  This time period can be extended by the Superintendent when particular circumstances make it necessary.

Publication of Petitions for Licenses

Once the Superintendency has received and analyzed the documentation of the petitioner for a license to its satisfaction, the Superintendency will publish, in a newspaper with wide national circulation in the Republic, for three working days, a public notice containing the following information:

1. Name of the petitioner for the license.

2. Name of the directors and officials of the petitioner.

3. Operative background of the petitioner.

4. Names and identifications or passports of the directors, officials, and executives of the bank, indicating their respective positions.

The audited financial statements of the petitioner, corresponding to the previous fiscal year, will be at the disposal of the general public in the offices of the Superintendency.

Persons who believe they have well founded reasons to oppose the granting of the requested license, may expound them in writing to the Superintendency and present the documentation which supports their opposition, if available, within fifteen days following the date of the last publication mentioned in this article.  The Superintendency will consider well founded reasons that deal with the economic capacity and moral solvency of the petitioner or of the entity that aspires to a banking license, of the directors, the officers, and executives mentioned in the public notice and, in general, those verifiable circumstances that make it inconvenient to establish a new banking entity in Panama.  The Superintendency will have no obligation to issue any decision over such opposition or objections.  In any case, the petitioner will have the right to refute the objections against the granting of a banking license within 15 days after the Superintendency has notified of them to the petitioner.

2. INTERNATIONAL BANKING LICENSE

Preliminary Authorization for International Banking License

Foreign Banks who do not have a banking license to operate in Panama may request that the Superintendent grant a preliminary authorization to engage in the international banking business.  This authorization would allow the petitioner to eventually operate from an office located in Panama, under a full international license, in transactions that are perfected, consummated or have their desired effect outside the territory of the Republic of Panama.

The preliminary authorization for an International Banking License can be approved when the following requirements are complied with:

1. Confirmation from the home supervisor that continuity of business has been effectively interrupted in the country of origin of the petitioner.

2. Confirmation from Banco Nacional de Panamá or from Caja de Ahorros that the transfer of funds required to establish a guarantee deposit has been received.

3. Evidence that the petitioner has the minimum paid-in or assigned capital required from international licensed banks.

This authorization is to be annually renewed.  The preliminary authorization is not a permanent license to conduct banking business from Panama.

Legal Agents Of Branches Of Foreign Banks: Foreign bank branches will designate a minimum of two legal agents who are natural persons residing in Panama where one of them is a Panamanian citizen.

Business Continuity: Banks shall have policies, regulations, and procedures to assure that their principal operations can be maintained or recovered in a timely manner (in the event of any significant interruption that might affect its operational capability) in order to minimize the consequences that might arise from such interruptions.  The Superintendency may issue applicable regulations for this matter.

Corporate Governance: Banks are required to comply with Corporate Governance regulations issued by the Superintendency.  In case of noncompliance, they will be sanctioned according to the provisions of this Decree Law.

In 2001, the Superintendency of Banks issued new rules which apply to every bank:

Moral And Financial Solvency: Natural persons that apply for a banking license to the Superintendency for a foreign-formed Bank or as promoters of a new Bank in the process of being formed, or also as their directors, officials and main stockholders, must possess a renowned moral character and financial solvency. The requested banking license will not be granted if any of the previously mentioned persons:

a. Has been convicted of money laundering, illicit traffic of drugs, fraud, illegal traffic of arms or persons, kidnapping, extortion, embezzlement, corruption of public servants, acts of terrorism, international traffic of vehicles, or of any crime against property or legal authority;

b. Is disqualified to practice commercial activities, in Panama or in another country;

c. Has been declared bankrupt or is in civil suit with creditors;

d. Has been identified by the Superintendency as responsible in the Bank for the acts that lead to the compulsory liquidation of the Bank.

Experience: The applying Bank or its promoting group must have proven experience in the operations for which they request a banking license, with a history that shows the gradual increment of their financial capacity, without major or repeated drawbacks.

The Superintendent will obtain the necessary information about the directors, officials and executives who have been proposed to manage the bank for which they are applying.  The Superintendent will consider their experience in financial businesses, professional competence, moral integrity and relevant backgrounds.

Corporate Governance: The applying Bank or its promoting group must prove that the bank institution for which they are applying will have an administrative structure that clearly takes into consideration the separation of responsibilities in various functions, an independent audit, the execution of the functions related to abiding by the laws, regulations and applicable internal policies, and a Board of Directors capable of carrying out an independent vigilance over the Bank’s management.

The applying Bank or its promoting group may prove the elements stated in the previous paragraph, by the presentation of documents that clearly describe the responsibility assignment and of the authorities that make the decisions in the Bank, the hierarchical line of approvals required in all levels of the Corporate Government structure, starting with the Board of Directors, and also the mechanism for its interaction and cooperation between itself, the Upper Management and the internal and external auditors.

Exclusion Of Bearer Stocks In Panamanian Banks: No license of any kind will be issued to the Banks in process of being formed or constituted according to Panamanian legislation whose capital is represented in whole or in part by bearer stocks.

Neither will licenses of any kind be issued to the Banks in process of being formed, constituted according to Panamanian legislation, if the capital of legal entities that control the Bank is represented in whole or in part by bearer stocks.

For the effects of applying this article, it will be understood that a corporation is controlled by an individual, if he individually has the needed votes to elect on his own most of the directors of that corporation, or for designating the Legal Representative or General Attorney – in – fact or the highest level Executive of that corporation.

Exclusion Of Bearer Stocks In Foreign Banks: No license of any kind will be issued to the Banks constituted according to with a foreign legislation, whose capital is represented in whole or in part by bearer stocks.

Discretional Authority Of The Superintendent:  The superintendent will meet with representatives of the applying bank or of the promoting group, or with the attorney designated by them for that purpose, before the formal presentation of the application for banking license.

It will be left to the Superintendent’s discretion to grant the respective license, attending to the analysis of the documents submitted by the applicant or its promoter, the meetings he/she holds with the applicant and/or its promoting group before the presentation of the license application, and the investigations that lead to that effect.

In the cases when he deems it convenient, the Superintendent may condition granting the license to the fulfillment of particular quantitative or qualitative conditions, with the previous signing of a commitment by the applicant or his promoting group.

3.  REPRESENTATION LICENSE

Representation offices must always include the words “representative office” in all of their operations.

A representation license has to be requested directly by the bank that will be represented and may only be issued to said bank.  Once the license is issued, the bank may engage in representation activities through a branch or a wholly owned subsidiary.

Representation License Applicants

Representation Licenses can only be granted to Banks with a physical presence and a Parent Bank constituted abroad, with management and substantial operations in their home country, which must be subject to the control and oversight of a Foreign Supervising Authority.

Considering that, among other things, pursuant to Decree Law No. 9 of 1998, the      Representation Offices cannot perform any banking business in or from Panama; the Superintendency of Banks can determine which of the requirements will be demanded together with the license application procedure.

Representation Licenses will not be granted to Banks that cannot prove compliance with the requirements of capital adequacy, liquidity and the other prudential standards set by the legislation and/or the corresponding Foreign Supervising Authority.

Representation License holders cannot perform, under the protection of said license, any banking operation in or from their office in Panama, whether the latter is active or passive, operations with General or International License Banks, with residents or non-residents, of credit mediation, mediation in collections and/or payments or in managing capital or goods in a trust.

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