Q2 2020 Banco Latinoamericano de Comercio Exterior SA Earnings Call
Hello, everyone and welcome to plot actually second quarter 2020 conference call on the 28 day of July 2020. This call is being recorded and is for investors and analysts to only if youre a member of the media you were invited to listen only Blahniks has prepared I Powerpoint presentation to accompany there.
A discussion today.
This is available through the webcast and on the banks corporate website at Www Dot blacks dot com.
Joining us today, Mr., Jorge Sally Chief Executive Officer, and Miss on on our C.L.A.D. Mendez Chief Financial Officer.
These comments, we based on the earnings release, which was issued earlier today and is available on the corporate website. The following statement is made pursuant to the safe Harbor are forward looking statements described any private Securities Litigation Reform Act of 1995, and the section 21 E. Other security.
Change Act of 1934.
And these communications you may make certain statements that are forward looking such as statements regarding black Sea show results plan and anticipated trends and the market affecting its resulting financial condition. These forward looking statements on Bladex is expectations on the date of the initial broadcast of this conference call and water.
This does not undertake to update these expectations based on subs subsequent events or knowledge various risks uncertainties and assumptions are detailed in the banks press release and filings with the Securities and Exchange Commission should one or more of these risks and uncertainties materialize or should any of the.
Underlying assumptions prove incorrect actual results may differ significantly from the results expressed or implied and these communications and with that I'm pleased to turn the call over to Mr. Solace. Please go ahead.
Thank you sorry.
Good morning, everyone joining us today, it's close for second quarter results.
Good day.
Enjoying part I'm not going up here and I'm just arts here, though.
A few members of the team.
This morning, we'll be talking about our balance sheet management during the quarter and then army, we'll disclose the piano implication told it.
After on these remarks I'll make some closing comments and then I'll open it up for questions.
Before we dive into the balance sheet.
I want to update you on our business come to know what do you plan.
The fact that close to 95% of course, there is still working from home.
And our BPP remains in place.
We continue to serve our customers without any interruption, while keeping our employees safe.
It's very engaged.
Well like just starting my comments today by referring to the main message, we conveyed a little over three months ago.
Last call when discussing our first quarter results.
Some of you may recall back in April.
Emphasized that beyond the banks historically solid capital levels.
Business model allows for the unique ability.
I want to stress the unique ability to rapidly adopt.
The changing market conditions.
I'm going to they get a step further now.
And argue about our business model becomes a comparative advantage.
But especially relevant in the current contracts.
Let me elaborate a little bit more on this.
We all know that catering exclusively to corporate current significantly reduces the Chris the credit redskin portfolio.
Approximately half of our portfolio is comprised with financial institutions in the other half.
Our basically top tier corporations in that region.
Blogs has zero exposure to repeal or small businesses then.
Which had been impacted the most.
Crisis.
Moreover.
Like most banks operating in the region our loan portfolio is essentially short term.
The short term nature of our pool or you're not only becomes an effective liquidity buffer.
But also when combined with the regional footprint.
Allows it back to swiftly relocate the portfolio in Brazilian sectors.
And no rich countries across Latin America.
As we anticipated in our previous earnings calls.
And that's you will see now successfully handling the different levers embedded in our business model has proven to be incredibly valuable in managing our balance sheet.
The second core.
As you can seems like three.
We started the quarter would refuse quite point $8 billion income or your portfolio, including almost half a billion dollars in contingencies essentially trade letters of credit.
The average yield inoperative hold you back two months ago LIBOR was 194.
Slide four.
You can see that we have we had almost $2 billion maturing.
During the quarter.
I'm happy to report today.
We're able to collect over 99% of all scheduled maturities.
Or $2 billion.
And even had some pre payments of approximately 222.
In dollars.
We only had roughly $20 million going knows that worked successfully restructured during the quarter.
Correct.
Yes, we believe is a clear demonstration of the sound credit quality.
Oh no portfolio.
As you may see insights high we disburse.
Over a billion dollars during the quarter.
Wider spreads averaging LIBOR plus 265 days.
This billion dollars in disbursements, we're done after Kentucky every single client reassessing the industry Rick.
They are cobot 19 for the entire portfolio.
And tightening our underwriting standards.
The Mac is very simple.
$2 billion mature and were almost all essentially collected on fine.
Well disbursements.
A billion dollars almost twice its spread the result.
On slide six.
A billion dollar decrease the commercial portfolio equivalent to 16%.
Done by design.
Further strengthen our liquidity position.
In terms of uncertainty.
Slide seven shows our after tax remain basically unchanged.
Obviously, however, the reduction on the loan portfolio balances, 16%, coupled with increasing liquidity that went from roughly 20% again you'd do you want to almost 30%.
Total assets or $2 billion by June Thirtyth have impacted the results for the core.
And he will explain the effect on the PML.
Later in the presentation.
The end result is the lower risk profile of the portfolio.
As shown in slide eight.
We ended the quarter with three percentage point increase in exposure to investment grade countries now accounting for 58% the tolling portfolio.
And continued important stake of 52% in top tier financial institutions, which we consider among the most offensive due to the regulated nature of the SEC [noise].
The remaining exposure is well diversified I'm on.
Sectors and countries.
Slide nine portrays the change.
On the liability side of the balance sheet.
Paired to bat score.
Our deposit base.
Which has historically represented a stable cost effective.
Funding source increased by $417 million or 17% quarter on quarter.
With an increase in the relevant participation from our central bank shareholders now representing 52%.
The buses.
Again, I feared demonstration of their continued support.
Doing on certain types.
And your other hand.
Oh, so was able to top on the debt capital markets and bilateral funding sources <unk> world, increasing the tenor of our borrowing borrowing and that from and to 16 months and benefiting from the decreasing interest rate environment.
It's also worth mentioning that after the repayment although.
144, a bond for $250 million not me we successfully.
Shoot a long term local bond in the Mexican market.
The which we were able to raise.
The U.S. dollar equivalent to approximately $230 million.
This was our issuance in the Mexican market.
And one that marked a significant milestone being the first.
Sure to relevant topic that market synced up and then make started.
I'm going to leave.
Ill leave it there for now and hand, the call over to <unk> CFO to comment on the financial results for the quarter.
Thank you Jorge and good morning tool.
So let's move on to slide number 10.
The second quarter results of operation.
Net income for the quarter was $14 million, representing a 23% decrease quarter on quarter.
837% year on year, mainly on lower interest and fees May then you.
Down a combined total of $5.3 million.
Impacted by the bank the station to increase liquidity position into lower loan balances in view of the current market environment as Jorge mention.
These were also down on the absence of transactional structuring them syndications PBT for the quarter.
In the Green context.
In addition, the combination of losses on financial instrument for $3.9 million.
Mostly related to an unrealized loss.
That is two men measured at fair value to profit of law.
And they really are $2.6 million being granted per lesion.
We thought that you know net charge of $1.3 million in overall at the deterioration for the quarter.
All of these were compensated by a 2.3 million dollar or 22% reduction in operating expenses.
Profits for the first half Oh 2020 total.
$32.4 million down 26% year on year.
Reflecting similar trends as Doug mentioned for the quarterly result.
No with profits on a stable and solid level it would be of over $1 billion. We sold 15 bequeath, we turn recording close to 6% I really both for the second quarter into first half of the year.
As of June 30, 2020 tier one capital ratio on their basket Green methodology.
<unk>, four and a half percentage point.
From the previous quarter to 24.8%, reflecting lower risk weighted assets on the account or decrease no portfolio balances while asset quality remained sound.
Net interest income or and I I presented on slide 11.
Decreased two.
25 $21.7 million into second quarter.
Net interest margin or NIM.
Oh Wow, we like the 8% was down 31 basis points quarter on quarter.
Maybe due to the change in after completion.
By no yielding average liquidity increased by 144%.
To an average of $1.9 billion during the quarter.
Representing 28%, let's go to average acid.
From 12% in the previous quarter.
Meanwhile, average loan portfolio decreased by 15% quarter on quarter $4.8 billion, representing 70% of average assets from 86% in the previous quarter.
As a result this change in Africa feature and also considering a 5% increase in average interest bearing liabilities.
The net change in volume resulted in a net negative impact.
$6.6 million <unk> and <unk>.
This was partly compensated by the rate net positive effect on Eni amounting to $25 million.
As the bank interest rate gap was favorably the station in a decrease in market rate environment.
That liabilities reprice at a faster pace than known doing deported.
In addition, the bandwidth also able to increase net lending spreads.
Taking advantage of you lending opportunity at we've adjusted price level.
So excluding that liquidity component.
The differential between known and funding rate widen 46 basis points during the quarter, reaching one point, 99% in the second quarter 2020.
Compared to an average of around 1.5% in previous quarters.
For the six month ended June 30, 2020, net interest income totaled 47, and a half million dollar.
Down 15% from the year before.
While net interest margin of one point, 43% decreased 34 basis point on the same period.
This is explained by the changing acid me alluded to before.
That's what asked by lower markedly impacting the overall yield of asset finance by our ample capital base.
[noise] onto slide 12.
During the second quarter of 2020.
The bank, we quoted credit provision reversal.
Totaling $2.6 million.
Mostly related to the sale of single remaining credit impaired loan or NPL in the sugar sector of Brazil for 19 cents on the dollar.
Compared to a previously allocated eased you'd be dual stage three weeks there 86%.
These sales we saw good being a $52.1 million right now.
And a $2.7 million stage, three credit provision reversal, bringing NPL balance the zero at June 30 2020.
The banks combined total stage, one and stage two allowances for credit losses was relatively unchanged with respect to March 31st 2020 balance.
This was the result of lower reserve requirements on the Green and the Healy period credit portfolio by Olympic.
Reflected in the 974 million dollar reduction in stage one exposure.
This was offset by the increased $133 million in stage two exposure as the bank made a downward revision in the outlook for set certain concrete mainly Argentina and for certain fly is impacted by the current environment.
Having said this.
Exposure that we have said as hybrid under the current convicts was reduced by $185 million.
11.1% of the portfolio during the second quarter.
Highlighting that collection of maturity and repayment amounting to $79 million in the airline industry.
Oh, there's sectors in these high risk that they agree our oil and gas upstream and its supply chain schumer retail and auto industry among others.
None of these sectors, we present more than 2% of total portfolio aside from oil and gas upstream, which accounted for 2.9% of the portfolio at June 30.
And it's mostly with a quad play sobering entity with explicit southern support in an investment grade country.
Overall, the banks talk little allowance for credit losses represented nearly 1% of doesn't quite before you at June 30 2021.
100% of which remain current.
Credit provision reversal were offset.
By 83.9 million dollar loss on financial instruments.
Most of which was related to the degree in fair value of a debt instrument.
Recorded as part of alone restructuring backing 2018.
Continuing on to slide 13 operating expenses for the second quarter 2020 decreased by 22% quarter on quarter to $8.3 million.
Mainly due to decreased salary and other employee expenses on the account or reduce performance based variable compensation provision.
Year to date expenses were down 8% to 18.8 million daughter.
Also on lower personnel expenses as well that's on cost savings in other expenses.
Efficiency ratio stood at 41.5 per cent for the quarter.
And 38.7% year to date.
By these expense reductions mainly on lower revenues.
I will now turn the call back to Jorge for his final remarks. Thank you.
Thank you Manny.
So to put this all together.
I will say, but.
Hi quality of our client base.
In the levers embedded in our business model has allowed us to successfully.
Navigate this crisis up until now.
Significantly increasing liquidity in a matter weeks.
And collecting over 99% of maturities close to $2 billion.
Across all industries.
All countries in a timely matter is perhaps the clearest demonstration of that.
Having said that.
We're cognizant.
Well the significant challenges that lie ahead.
When he 20 GDP estimates for the region.
Or close to negative 9.5%, though.
Moreover, most of the countries in Latin America have limited fiscal room.
That's still trying to figure out how to gradually reopen their economies well keeping the spread of the virus under control.
In this context after more than 40 years conducting business in Latin America, So several negative cycles in region.
Got it has a good understanding public changing circumstances.
And the macroeconomic dynamics of the different countries in the region.
Moreover, being a longstanding highlight of our clients throughout many of these crisis.
Yes, that's a good grasp of their strength in their challenges.
We believe that in general our client.
Mostly industry leaders.
In their respective markets with ample liquidity and funding sources.
Well not only be able to navigate the crisis, but our world decision to take advantage of the opportunities that will arise for them in their sectors.
Lives will continue to be there supporting them.
I will now open up for questions. Thank you.
At this time, we'd like to open the floor for questions. If he would like to ask a question. Please press star key followed by the one key on your Touchtone phone now.
Questions will be taking in which the older. Their received if any time you'd like to move yourself from the question in queue. Please press star to again that star one to ask an audio question.
It looks like our first question will be from CIMB maurine from singular research.
[laughter] yet.
Yes. Thank you for taking my question. So I guess my first question it would be in regards to.
Slide number.
11, So I was just looking at the favorable interest rate got position.
In the decrease seed market rate environment in writing them lending spreads. So I think I also heard the comment that you've increased the some of the loan capacity to certain sectors, perhaps if he's been just.
Comments again, perhaps on the sectors in which sectors are seen as more favorable.
And which ones are going forward and maybe if you can discuss again the country exposures.
And what your position in the future and then I have a follow up question after that.
Okay. So that's Ah. Thank you for your questions that that's several questions and one if I understood correctly I mean, why don't you start with the interest rate and.
Ah spreads question, and then I'll, Oh, all tapping into the sectors questions.
Sure so.
As I mentioned.
You know that then interest margin in general has been impacted due to the apps competition. The team can make because we did increase.
Our average liquidity and decreased average known for its a liquidity yielding a opposed to 19 basis points has had an impact in than any this morning.
But I also mentioned that we have seen a widening of a net lending spreads and that you can you can see you know in the graph in that page 11 that you mentioned that we increased.
That differential between lending and and somebody weight by.
Hey, about about 46.8 basis points I'm, sorry to 199%.
So.
You know at the end of the they the combination of both the impact of lowering interest rate in our balance sheet, which I also mentioned.
It was favorably.
During the <unk> during the second quarter, because the Labeed reprice faster and then on the other hand, you know our lending did decrease so these widening of spreads did not fully impact and then any interest margins at least not yet.
So I don't know him.
If that is gearing up or if you you want to pedal question or maybe Jorge you can address then the country affect your question.
Yeah, that's fine, but the next question can be answered yes.
Yes, so so regarding the sectors.
So we have we see the man and pop up your bank, so no longer risk those art systemically important banks.
And.
Lowest countries with.
Hey, Central Bank with a lot of higher biology.
Then we have put industry, we have the utilities I mean power generation distribution Oh communications those are.
All in GAAP imports are I mean, those are all sectors, where we're seeing a lot of them out.
Okay very good and just one other question in regards to [noise].
Governments or.
In the countries that you operate so there seems to be all you know oh growing concern in regards to the a large amount of deficit and debt that governments are taking on in order to stimulate the economy and I'm kind of right through this pandemic. So can you.
Just maybe provided that just.
Some brief comments on how the a rising government that.
And deficits.
Could impact the operations of of Bladex.
I mean, certainly it's it's a.
Very difficult times to for most countries in Latin America, Oh, so it seems like the epicenter of the.
And then because moved to Latin America, so that places or even more challenges now the most vulnerable countries, Oh, we see or Argentina in Ecuador due to their weaknesses.
Fundamentals are and they need to restructure Oh, you know they're dead, we've been reducing exposure in both countries even before the pandemic started.
Ah Ah.
You know more in accordance to our historically.
You know conservative approach.
But in there that we lent in today in 17 different countries. I mean are all different realities in effect as we mentioned before they ship on our lending strategy has been more towards Ah Ah investing big countries, which it's almost 60% of the portfolio.
Today.
But yes, certainly are important challenges in most countries. We've seen also devaluations of their currency Oh, yeah [laughter] protecting.
Sure International reserves and we've also seen a you know very active multilateral and especially from the item that Ah Ah very recently I hope that answers your question.
Yeah, that's great. Thank you for the commerce.
Thank you. It does look like we have aim web question.
And it says I understand the need for liquidity, but went to $2 billion and cash, earning less than two tenths of the 1% and with only 415 million in the market cap trading at 57% discount to book has there been any consideration of any stuff.
We purchase is considering it would result in 9% return from dividends and increased net book value per share. Thank you.
One of that.
Yeah, I wanted to answer that.
Okay, Yeah first of all the liquidity of course.
Yes, we do see their liquidity position obviously.
You know temporary while these are prices are you know has it particularly during the second quarter, where there was a.
Short visibility or the impact going forward.
We have reinforced or our funding structure it even more and we continue to maintain a a very diversified funding structure. We are also seen.
New lending opportunities.
Which we feel tend to or get a or or or go into new lending or increased lending on their steel prudent credit underwriting standards.
We do expect that the liquidity that you saw over $2 billion.
I would be you know a topic that should start to she will start to reduce and we should start to see increasing in lending going forward and Ah that's locally at night I might add so you know just due to point out that the liquidity position is pretty much temporary that on one side.
And then on the other side on you know capital management or at all.
We do viscose season, Accordingly basis with our board. Both you know capitals management in general and dividends that we just so in particular you know the bank.
It has historically and in recent years maintain a very solid capital completion, that's pretty much a correct me if they due to the fact that we do appreciate in a very volatiles region.
And I'm more so in this in the current context so.
No we as I said before as we increased our our assets our lending or are we with weighted attitude.
Adapt to more you know they recent past level.
And ER and we should decrease our capitalization or in terms of the capital ratios somehow but feel a we will see still continue to have and minus the bank very conservatively in terms of our capital position and as it had been a recent history for as any indication I can tell you that in the last five years.
Your one capital ratio has been 19 presents an average so that gives you a.
Yeah and indication of how we have managed snack and the importance that we need to our solid capital position I'm not that.
Answers the question.
Thank you. Our next audio question will come from I fail, Olivia from Rock Hill Global.
Hi, good morning.
Morning, I wanted to follow up on that question you a reduced a dividend.
Hi, Dan quarter or two quarters ago.
And ER given.
No matter, how well you manage to ya asset quality and liquidity or do you and where the share prices.
I would would it take two or you know restored to dividend back one and two.
You know have you at least discussed with the boards and the a buyback.
Possibility because you know from a.
Ah shareholder standpoint, you know, it's probably the best investment here can you can make at this point. Thank you.
Yeah, I mean, but.
It's a it's a it's a very good question.
So first of all that's you all know the dividend policy, it's up to the board and it's already decision.
Based on those hold for the quarter, so I'd prefer not to speculate on on Twoq or did it.
Oh.
Yeah, we did maintained or.
The dividend from last quarter.
But Moreover, the historically high levels.
Capital decision on the bank are a reflection of the.
Volatiles nature.
The region, where operating and Uh huh.
I can tell you, though that capital preservation will continue to be a priority for sure.
During this time at least until we have some more visibility on how this whole situation is going to evolve.
And we have yet.
Ongoing conversations with the board on.
Obviously of the future of bank I want to stress, though that we do I have a very oh, you know robust.
Oh.
Hi, John you're not ready to go our balance sheet.
Great. Thank you.
Thank you. Our next question will be from Hussein stuff so from Metlife.
Yes, hi, Thank you for taking my question to hearing.
To do.
Oh.
Oh, yes.
I just want to a follow up on Youre, a country concentration or specifically on Argentina. So sad increase this I interesting exposure up more to do with the loan shrinking or is there more lending in the country and if it's the ladder could you. Please give some detail where your lending.
Just given the fact, but you downwardly revised outlook for the country. Thank you.
Sure so in Argentina.
It's a it's more.
It's more Uh huh.
Shrinkage are done done I mean in absolute terms, we decrease I mean, Argentina.
End of June we had $180 million, that's supposed to $226 million at the end of December 29 team and we have previously but you know 2018, we had above $600 million. So let me part of it is explained but the largest.
You know integrated oil companies country state owned or that has a history of no default even under sovereign Oh defaults in the past so with oil prices picking up now we feel fairly comfortable with that exposure.
Thank you.
Thank you.
Our next question would be from Robert came from global rational capital.
[noise] Hi, they can you hear me.
Yeah, Hi, Robert Hillary.
Hi, Jorge High high and Yeah, I just had two questions and then and then one real quick so.
So the firstly I would just like to congratulate you on the conservative loan books I did it seems that the past what you've done to reduce the risk has paid off with very low in payments.
And also you your presentation is quite nicely set out in infants and since the thank you for that.
So hey, I just have a question for you and maybe and it can comment as well I'm fees would you elaborate on the magnitude and Recoverability of the line items and piece could you comment on the impairment indicators and to what extent provisions have been.
So these loans for example in Latin financed but use it was reported that the Phoenix made a small determine the million dollar loan to lets him in lines in January 2020, and I presume. The all important indicators of this line because they l'enfant before tend to live.
Going Crazy prediction. So obviously I don't expect do you guys any detail in any particular line, but just generally if you just comments on the on the magnitude and recoverability of of the Elon lines and and payment indicators and whether there's any provisions right. So far.
Yes. Thank you Robert that that's very relevant question.
The good news, we've been sets and be reducing.
Our exposure in the airlines in the street as much as 54%.
Quarter on quarter, So where we do have exposure with two of the main airlines in the region.
Juan headquarter in Panama.
Okay, and you want in Chile, and yes, there is impaired argues impairments on on the one today.
And I get to that we are.
Activity Oh monitoring the chapter 11 process on lifetime.
Huh.
But we feel comfortable with the.
Our research we have there.
Okay. Thank you.
The second question is.
You know just based on your comments on the loan portfolio.
And the conservative nature of your balance sheet at the moment in it appears to me that the likelihood upgrading having a surprising logs learning payments at this point is.
He is fairly low you know despite the magnitude of the this crisis. Yeah. We would you agree with US This assessment, who is that too difficult to say even at this point.
I would agree obviously, we cannot rule that out I mean, it's a it's it's very uncertain times we are.
Yeah mortgage starting our portfolio very very closely we're talking to our clients Oh on a regular basis, we believe we.
Oh, good provisioning, but I mean, the truth is is that.
Well I mean, nobody knows when.
This is going to in so yeah aggregate demand is is.
[laughter] concern going forward, but we do feel very comfortable with.
The health of the loan portfolio today.
Okay. Thank you.
Yeah, Hi allow me I.
Yes, I just want to add that if you know we follow I have heard nine accounting norm. So we are ready incorporate forward looking expect the credit losses in our reserve model. So the allowance for credit losses that we have as of June 30, 2020, we have already incorporated these forward looking at page any no return us.
Pertains to the current portfolio. So I can also glad that.
Stage, one and two excluding the NPL that we got rid off during the quarter stage, one and two research coverage has gone up by 30% things that beginning of the year, Oh 22 basis points. So we we have been incorporating.
You know forward looking expectations of a portfolio, a india analyses of countries and sectors in kind specific so.
I just wanted to at that.
Okay. Thank you and great and then just one last quick I'm, just wondering where the come in so made by the the other quotas.
In regards to dividends and share buybacks in particular, the share buybacks and the comment that it would be difficult to find a better investment at this point in time. So I mean it is there if it's possible that even just to have a discussion with the board on those points would that you're obviously the dividends. This.
<unk> constantly but share buybacks I I don't think Atlantic has done a shape I think before and I suspect part of the reason is also just because of the liquidity of the shares but if it's possible to have a discussion with the board I think I think the shareholders would probably.
Appreciate that.
Oh I'm sure every week, we do have open discussions or would the but the board about.
ER.
This topic and.
Other relevant topic, Scott I can tell today will focus is to.
Keep navigating the store.
The where we're doing it.
But certainly that discussion.
It takes place.
Sorry back the great thing.
Elaborate more on that.
Thank you.
I.
Thank you.
And once again, that's star one to ask an audio question.
I'm showing no further questions in the queue at this time I'd like to turn it back over to our speakers for closing remarks.
Yeah sure there are no more questions I want to thank you.
For a join the cool.
Thank you for their support blogs and.
Piece or say stay safe and healthy.
Thank you very much everybody.
Thank you good morning.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.