Q4 2020 Foreign Trade Bank of Latin America Inc Earnings Call
Ladies and gentlemen, Hello, and welcome to <unk> fourth quarter 2020 conference call on this the 12 to day of February 'twenty 'twenty. One this call is being recorded and is for investors and analysts only if you are a member of the media you are invited to listen to only blood X has prepared a powerpoint presentation to accompany their day.
It is available through the webcast and on the bank's corporate website at Www Dot blood ex dotcom.
Joining us today are Mr. Jorge Salas, Chief Executive Officer, and Mrs. Ana Graciela de Mendez, Chief Financial Officer for their comments will be 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 for forward looking statements described in the private Securities Litigation Reform Act of 1995 and section 21 E of the Securities Exchange Act of 1934.
In these communications, we may make certain statements that are forward looking such as statements regarding <unk> future results plans and anticipated trends and the markets affecting its results and financial condition. These forward looking statements are blacks as expectations on the day of the initial broadcast of this conference call and blood X does not undertake to update these.
Expectations based on subsequent events or knowledge various risks uncertainties and assumptions are detailed in the bank's press releases and filings with the Securities and Exchange Commission.
Should one or more of these risks or uncertainties materialize or should any of our underlying assumptions prove incorrect actual results may differ significantly from results expressed or implied in these communications and with that I am pleased to turn the call over to Mr song to ask for his presentation.
Thank you David and good morning to everyone joining us today to discuss our fourth quarter results.
Today I'm here once again led our CFO Andy Mendez.
A few members of the executive team.
This morning, I'll be talking about our balance sheet management during the quarter.
And an overview for the whole year.
And then Andy will discuss the P&L implications of it all.
After Andy's comments I will make some closing remark and then it's customary.
I will open it up for questions.
So there is no doubt that Latin America was one of the most impacted regions in 2020.
World GDP decreased by three 5%.
Compared to that of Latin America decreased more than twice as much.
Kevin for a percent.
Moreover, as the pandemic evolved.
GDP contraction estimate for the last year, we're constantly remind.
And very drastically.
In most countries.
I would like to highlight once again, what I have been noting in previous quarters and that is the important.
Our business model.
In the current context.
Having the ability to diversify our board of volume and more than 20 countries.
Lending exclusively to top notch customers moving back in.
And above all having primarily a short term for it for you is and it will continue to be 'twenty to 'twenty one cigna.
Significant comparative advantage in this continuously changing your mind why simply because it allows us to diligently manage our exposure towards defensive sector in the different countries.
Their outlook changes.
As it did.
During the last three quarters.
Let me now talk about what happened during the fourth quarter on both sides of the balance.
Beginning with the assets, sorry, and moving to slide three.
We grew our commercial portfolio by 9% with respect to the previous quarter.
Five 6 billion by the end of the year.
Growth with most of these short term lending and focus on defensive sectors and countries.
I will address this topic in more detail further on in the revenue.
On slide for you can see that roughly $2 1 billion loans matured during the quarter and over $2 6 billion nearly half of the entire portfolio.
Disburse during the fourth quarter.
I was 17% more than in the previous quarter.
Also the average tenor of new disbursement.
Again short term approximately nine months and.
And the average rate was LIBOR, plus 180 to 82 basis points.
Down 33 basis points from the rate for the maturing portfolio for the quarter.
As loans closed at the peak of the crisis mature and then were replaced with relatively normalized pricing level in a context.
High market liquidity.
It is worth mentioning that the bank continues to collect virtually 100% of all scheduled maturities quarter after quarter.
The quality of our pro for you today is pristine.
Our npls at year end or just $11 million.
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Non portfolio.
In slide number five we know how.
How the portfolio remains focused with almost 60% from.
Lower risk countries.
Q4 growth was mainly concentrated in Peru.
Oil and gas.
And then followed by Brazil, and Colombia, primarily short term lending to financial institutions in both countries.
On the other hand, we continued to systematically reduce our exposure in Argentina.
Down 64 million.
At the beginning of the crisis, and now representing less than 2% to look for.
For Ya.
Kimberly insight thank.
You can see that origination.
Q4.
Prudently manage and focus.
In terms of.
Loan growth was mainly concentrated.
I said in finance institutions.
As of the end of the year it represented 54% to.
But for it.
On the oil and gas downstream downstream sector, representing 7% other portfolio with a relatively important participation as well in the food and beverage and electric power industries.
6% again, all resilient sectors.
The following slide slide seven shows the quarterly evolution over average compensation.
It portrayed I would to prudent measures I'd be honest enough to cry.
During higher liquidity levels by taking advantage of the short term nature of our portfolio. That's for that's an effective liquidity buffer.
This defensive strategy of course impacted our net interest income.
Which Andy will explain further later in the call.
It is clear in this graph and the third quarter, Marc I mean Vectren point.
I have to compensation.
In the second half of the year, we not only we soon portfolio growth.
But also started to build a corporate bond portfolio, allowing us to reduce our cash position and improve the overall yield on assets.
Switching to slide eight you may see how the investment portfolio have been built during the second semester, reaching $400 million.
By year end it was evenly split between a high quality liquid asset portfolio.
Aimed at enhancing the return on liquid assets.
For most of the embedded with the fed.
And the credit portfolio of Latin American ethane and Steve as a complement to the bank's commercial portfolio.
In sum, we take pride in having improved our asset composition.
<unk> of both mix and quality despite all the challenges faced.
You're very complex year.
Moving on to the other side of the balance sheet in slide nine we show now how our funding mix evolve during the year.
A few things are worth mentioning for.
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Deposit growth.
Deposits are lowest cost source of funding grew 9% year on year and substantially increased their share.
And the banks total funding base exceeding 60%.
This is in part attributable to the art Yankee CD program, which has been consistently gaining traction reaching 452 million by the end of last year.
But also think tour thanks to our class a shareholder.
Central banks across the region, who continue to support the bank to their investment.
Amount to approximately 50%.
Of total deposits.
Moreover, during 2020, the bank to further reinforces the ability for its funding base to new medium term funding.
Funding transactions.
Bond issuance.
Public and private and syndications attractive investors from the U S Europe Asia, and Latin America by yearend.
Long term funding represented 31% of total funding.
6% year on year.
Finally, we reduced our reliance on funding from correspondent banks, which at the end of 'twenty to 'twenty amounted to less than 8% of total funding down from 30% in March.
<unk> said to the bank has access to a wide net whereas correspondent bank in.
In the U S Europe and Asia in line in excess of $2 billion.
Yes.
So I'll leave my comments on liabilities there.
But as you can see 'twenty to 'twenty was a very dynamic year on both sides of the balance sheet.
Funding structure.
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Nick.
Country mix.
James.
And industry to me.
<unk> as well.
Overall this was a clear indication of the resiliency of the business model and its versatility to adapt to the challenges of the pandemic.
As well as the bank's ability to take advantage of this flexibility to.
Secondly, protect quality.
And soundness.
I'd like to ask a portfolio.
I'll now turn the call to Andy So she can walk you through it.
The P&L implications.
Of all of this.
Thank you Jorge and good morning tool.
So let's continue on to slide number 10, I don't play well.
Well you can see the evolution of our P&L.
Holding a profit for the fourth quarter 2000 2015.
$15 $7 million.
Up 2% from the preceding quarter.
On relatively stable revenue.
And no provision for credit losses.
Reflecting high quality origination during the quarter as well as the ongoing collection rate of known to me to ease of close to 100% and Jorge mentioned, Inc.
The continued reduction in highly countries and sectors.
These were partly offset by a generally seasonal increase in quarterly expenses.
22% quarter on quarter.
Net income for the year 2020 was $63 $6 million.
826% reduction from the previous year.
Mainly reflecting lower revenue.
Which went down by 22%.
On the accounts of the bank defensive approach since the onset of COVID-19 to.
Preserve liquidity and nowhere known balance.
Coupled with the negative impact of lower margin rate.
The overall yield of assets financed by the bank equity base.
We will explain in further detail further ahead.
Is that my fault.
Annual net interest income was down 16% or $17 $1 million.
While fee income was down another $5 $2 million or 33%.
The ladder relating mostly to the absence of new executed structuring transactions during the year.
Reflecting very low marketing activity in that line of business throughout the year.
Although a new pipeline of transactions.
Got it to build up towards the last months of the year and is currently ongoing.
Fees from the letter of credit business performed well in the second half of the year returning to pre COVID-19 level.
After the second quarter impacted by decreased activity.
Overall net of credit fees for the year decreased by 5% when compared to 2019.
Annual revenues were also impacted.
By a $4 8 million dollar loss on financial instruments.
Mostly related to the fair value adjustment in the second quarter of 2020.
If a debt instrument, we see as part of a non restructuring back in 2018.
And to a lesser extent.
T V to it to the valuation of headroom to EBIT during 'twenty to 'twenty.
No revenue for the year 2020 were partly compensated.
By a $1 5 million reversal of provision for credit losses.
Which I will refer to lean more detail ahead.
They will also compensated by an 8% year on year reduction in operating expenses due.
Due to the decreased performance based employee variable compensation as well as other cost savings derived from operational measures aimed for.
Element it on there the current context.
No. Other profit resulted in decreased quarterly and annual returns for 'twenty, 'twenty recording, 6% annually and a 1%, Iowa for the fourth quarter and full year.
Down from close to 9% and one 3% one 4% respectively in the previous year.
Moving on to slide 11.
We presented drivers for net interest income evolution, which will be sent to them.
Main revenue pool for the bank at approximately.
90% of total revenue.
Net interest income for the fourth quarter was down 1% from the previous quarter to $22 $3 million.
Increased average lending balances up 3% from the previous quarter as well as higher participation from the illiquid bond portfolio, replacing cash balance.
We're able to largely offset lower net interest margin.
Down five basis points to a level of 137% under.
And the continued downward repricing of loans from decreased market lively.
So in the last three quarters of 'twenty 'twenty did.
Bank maintained a widened net lending weighted Rancho.
They noted by that 193 basis points difference between known and overall funding rate in for Q 'twenty.
Up 43 basis points when compared to for 2019.
This is the result of higher lending spread.
The bank was able to tight during the first months of the crisis.
Together with a favorable liability sensitive interest rate capital efficient in a decreasing market weighted environment.
Net liabilities has to be repricing at a faster pace than known doing most part of the year and.
And in fact that started to level during the fourth quarter.
Net interest income for the year 2020 of $90 million to $5 million was down $17 million for 16% from the year before.
Mostly due to lower market weight and they came to an average asset competition.
For the year 2020 the.
The weighted average asset rate, including liquidity investment securities and loans.
It was down by 157 basis points.
From the previous year to two point, 72%.
In turn non portfolio average base rates and loan which is LIBOR based.
<unk> was down 151 basis points.
So a very high level estimation of the impact in net interest income.
Wait with pricing at lower market rate.
To me to parcels.
Amounts to a decrease of about 15 million.
Considering 1 billion billion dollar equity invested in productive assets.
The net effect in NII. It was also negatively impacted by the changing asset mix.
Glad to doing 2020 <unk>.
Low yielding cash balances increased from 12% in 2019% to 23% of tilt to laugh at.
Loans decreased from 87% to 75% on average.
All of these effects were partly compensated by a positive impact of the increased net lending weight to the crane show that I mentioned before.
That's the weighted average funding rate was also down by 151 basis point.
To 159%.
Now moving on to slide 12.
At present, the evolution of allowances for credit losses, which on their accounting standard for your first nine.
Incorporate for looking expected losses for.
So that bladder to best estimation of the impact of the current economic environment is already accounted for.
In fact as required by Ifr as guidelines, we evaluated our itself reserve model to ensure that the impact of the new macroeconomic realities in the market we operate for accounted for it.
And concluded that our reserve methodology adequately incorporate the effects of COVID-19 in our forward looking estimation of expected north.
Are you for its nine stage, one exposure categorized as no risk.
Increased by $625 million to $5 $6 billion or 94% of total to.
During the fourth quarter of 2020.
And included the rice and high quality liquid bond portfolio as well as increased origination in knowing these countries and sectors, such as Chile, and Peru, as well as financial institution in Brazil, and Colombia.
All of which generally have a relatively nowhere collective reserve requirement.
In addition to portfolio, including loans in our watch list as well as exposures in countries and sectors assessed by the bank as having increased risk.
They were as a nation we.
Main at 6% of total exposure amounting to $331 million at December 31st 2020.
In addition, during the fourth quarter of 2020.
Known amounted amounting to 11 million for classified as stage tweet or credit impaired at all he commented before.
From stage two in previous quarter.
So that would be M. P M to total loans ratio stood at 0.2% at year end 'twenty 'twenty.
The net result for the fourth quarter 2020 was a provision reversal of zero point $3 million.
In the same manner, the overall impact of credit provision for the year 2020, with a reversal of $1 5 million.
Reflecting again the successful collection of high risk exposures throughout the year, coupled with increased origination in highest quality country sectors and counterparties.
During the year 2020, a total of $56 5 million in loans were written off against.
Individually allocated to mix there are for.
Week, $52 1 million, that's what's related to the sales during the second quarter of 2020 of our credit impaired loans or MPL index sugar sector of Brazil that remain from the previous credit cycle, which ranged from 21 nine to 2016.
The remaining for 4 million write off relates to the sale of a $17 5 million dollar loans towards South American company in the airline sector during the third quarter of 2020.
Do think that company's exposure to zero.
Down from $46 $5 million in March of 'twenty 'twenty.
Well, they're all.
The banks total allowance for credit losses represented 75 basis points.
Total credit portfolio at December 31st.
2020.
All of which remains current.
With this I will now like to turn to call back to Jorge.
Yeah.
Thank you for them.
I truly believe that.
Given the circumstances. This has been a very good year for bag.
I'm very proud of the Atlantic team.
<unk> managed to disperse over $6 billion since the pandemic started and collected virtually all maturity.
In time throughout the year.
We have acted swiftly taking advantage of the levers.
Of our business model to protect the quality of our assets in.
And making the best of the current low rate environment on the liability side.
We find ourselves well prepared to navigate 'twenty 'twenty one.
As I mentioned at the beginning Latin America has been one of the most impact for the reasons in the world.
Several countries to apply very stringent lockdown measures from the onset of the pandemic that are still causing severe damage to their economy.
And unfortunately have not yielded the expected result, with respect to the spring.
The spread of the virus.
Public policies in most countries.
To be erratic.
In a region that in general has limited physical room.
And fragile public health system.
Yeah.
Having said that we estimate that the region will grow between four and four 5% from 'twenty to them.
Mostly in the second half of the year.
To reach pre pandemic levels of GDP.
By the end of 2023.
We are seeing some profit decline.
Consumer confidence indicators are generally improving.
And then the increase in commodity price here, it's fair to.
To liquidity.
And the distribution of the vaccine.
Although it may take some time to.
Should also contribute to foster growth.
But to different countries, however have their own set of challenges.
So to speak of recovery for very large feet by countries.
In any case, we Atlantic will continue to work closely with our clients.
To whom we have offered continue to support through the crisis and who have shown financial resilience. During these unprecedented circumstances.
Those are common for today.
Now for opening up for questions.
Thank you ladies and gentlemen at this time the floor is open for your questions. If you would like to ask a question you may do so now by pressing star one on your Touchtone phones, if you're using a speaker phone. Please make sure that your mute function is disabled to allow your signal to reach our equipment again, if you would like to ask a question. Please.
Press Star one now.
And our first question comes from Jim Wiggins with Phronesis partners.
Yes, Sir.
It was I've owned the stock for much of the last 12 years or so and I'm curious if you could.
Could you sort of evaluate how you feel the banks has done over that period of time and what your goals are going forward I I have been very impressed with your ability to minimize loan losses, but just wondering what you hope to do in a more positive vein.
Yeah.
Good day.
How do we.
The growth going forward.
Yes, yes.
Okay. So let me.
Yeah.
So we are seeing increased demand.
The economy reopening, especially in the resilient sectors oil and gas you'd theatre food and beverage.
We've also started to see.
Some of our clients working on their strategic plans to either expand organically or inorganically to acquire some other company.
Our clients turn to us to provide financial solutions.
So we're seeing from some traction there.
We're also seeing company and finance institutions.
Trying to improve their funding structure in this context.
Okay, Yeah, and then in the debt maturity profile.
So we are exploring those medium term.
Facility as.
As well.
Through a combination of the right structure and the right price.
I cannot give you specific guidance from five but.
But I can tell you that our commercial portfolio.
Yeah.
13% in the second half of the year.
And and and we continue to see moderate growth going forward.
I don't know if that answers your question, we will not sacrifice credit quality for growth.
But in this uncertain to us.
Okay.
So I recall I think it was me.
First for a second quarter that you.
You'd mentioned that your loans spreads had widened appreciably and I I do you see any positive trends in terms of loans spreads now.
Yeah, we're seeing definitely I would pull that I'm.
So that from the graph we.
In the last quarter was tied to to see a more normalized level of Oh spreads close to what we used to have before COVID-19 and that that also has to do with the fact that we are obviously working with the top notch at the top tier of the pyramid in terms of credit quality and client.
Which are particularly.
You know very liquid in general and and <unk>.
Hi, Lee.
And Oh for Oh, you mean, how highly at target of a blending them. So we didnt enjoy it when we did start to to see every version of the spreads that we were able to charge at the beginning of the price.
Okay.
Thank you.
Youre welcome.
Thank you again, if you would like to ask a question press Star one now.
Yeah.
And Mr. Wiggins with furnaces partners has a follow up.
Alright.
Didn't mean to them to take up too much time I wasn't sure if for any other questions, but I just wanted to when you started.
You didn't really get you came in to during a very difficult time and I don't recall you are articulating any longer term goals for your tenure at the bank just wondered if you had any sort of longer term goals to banks assets are still about the same as they were 10 years ago.
Is there a target with respect to our equity to assets that you hope to reach for them.
Anything about quantitative nature of that you hope to get to over here over the next some odd years.
Okay.
But for you you were asking about our vision of long term returns for the bank right is it yeah I just I mean, just I mean it.
You've done a great job of managing through this difficult period, I'm, just sort of trying to get a sense of what you're trying to accomplish beyond that.
So first we have to go to through the crisis right. I mean this bank has had I mean, we are at the lowest.
Our loan portfolio and in the last decade.
And for this portfolio has been close to 8 billion.
And back then he was going to 15 returns were double digits. So and that was basically doing exactly the same thing to the bank is doing now.
Just a bigger scale. We are now are working on several initiatives that I can.
Not sure.
For obvious reason, but part of it is just taking advantage of.
Of this.
Time to work on internal.
Ross.
Okay.
Making sure that our digital capabilities are there where when we can.
Relative back back.
In a different environment and to make sure that we can.
Uh huh.
For the economies of scale to do that.
Operationally.
That's what I can share for now.
Thank you.
We do have a very solid client base and we have a non space.
We are very limited to share of wallet with our with our clients. So.
Uh huh.
Cross selling more products to our client base will.
Will it be something important.
Cost of new income.
Yeah.
Thanks.
Yeah.
Thank you again, if you would like to ask a question. Please do so by pressing star one now.
At this time, we have no other questioners in the queue. So I'll turn it back to our speakers for closing comments.
But if there are no further questions I would like to thank everybody.
And please stay safe.
Thank you.
Thank you ladies and gentlemen that concludes this morning's presentation. You may disconnect your phone lines and to thank you for joining us today.