Q1 2021 Foreign Trade Bank of Latin America Inc Earnings Call

Ladies and gentlemen, Hello, everyone and welcome to <unk> first quarter 'twenty to 'twenty One conference call on this just the day of May 'twenty to 'twenty. One. The this call is being recorded and is for investors and analysts only if you all remember of the media you are invited to listen only blood ex has prepared a powerpoint presentation to accompany their discussion it is available through the web.

Cost and on the bank's corporate website at Www Dot blood ex Dot com.

Joining us today are Mr. Jorge Salas, Chief Executive Officer, and Mrs. Ana Graciela de Mendez, Chief Financial Officer. Their 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 for forward looking statements described on 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 blood ex us future results plans and anticipated trends and the markets affecting its results and financial condition. These forward looking statements are blood ex us expectations on the day of the initial broadcast of this conference call and blood ex does not undertake to uptake of these expectations of base.

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 the communications and with that I am. Please.

He used to turn the call over to Mr. <unk> for his presentation.

Thank you David.

And good morning to everyone.

Joining us today for this.

First quarter results.

On here once again.

Yes.

CFO.

Members of <unk>.

It's been just over a year since the start of the spring.

Yes.

The success in containing the virus and the very real economic impact varied significantly across the different countries in the region.

With this in mind I would like to take this opportunity to have knowledge of the.

The commitment.

One of them.

Our client of ours.

Correspondent Bank.

For all of who have not.

The obligate.

Uh huh.

To all of you we have right.

Hum.

Yes.

Yeah.

Let's begin with slide three.

This morning, I would like to provide some context around our results for.

The first quarter.

For a year that has been unlike any other.

I joined a little more than a year ago.

I joined the bank with a clean balance sheet.

The relatively comparable and committed team.

And the mandate from the board of directors blips floor different items.

The grille of the bank and to return more value to shareholders.

No sooner high started the job.

The world.

The.

Has been hit with the global from that.

Not surprising to me.

RMB immediately change.

Like most companies at that time.

That's true.

To adopt a defensive approach to ensure the bank the ability the.

The capital.

Maintain continuity of operations.

For the wellness.

Oh I'm sorry.

As I have mentioned in previous calls to achieve this goal line.

Moving to use the different levels.

In the business model, including in.

Significant reduction by design of our.

The credit portfolio in the second quarter.

And allowed us.

Through.

What was perhaps the.

The most difficult global environment.

Our founding more than 40 years ago.

The results from.

From themselves.

We entered 2021 with the some credit portfolio with almost zero.

A robust funding structure in our cash.

The liquidity.

This is the third consecutive quarter of growth without relaxing credit underwriting.

The level of our commercial portfolio of the March 'twenty for into one was close to the out of March 'twenty.

But still more than 800 million to know the level of December 2019.

On the other hand, despite the uncertainty generated by the B named vaccination campaign and some of the countries in the region. We are starting to see clear signs of recovery for.

For all of the region.

Recently the <unk>.

IMF revised its 2021 growth.

For Latin America.

From 3% to for <unk>.

What is even more relevant to life.

Growth estimate for the Gray has also been revised upwards from eight 2% to flag.

As of March 16.

The point.

Mainly driven by higher volume and higher commodity price.

Yeah.

We will address this topic further into the presentation.

The point is that our first quarter results do not yet reflect this recovery.

We are confident that this will happen on the re.

Region's economy continue on the upward.

This morning announcement regarding the board's decision to carry out a stopped with the purchase for up to keep the median.

On the open market program.

The man.

The activation.

One of the same time to widen out.

With the flexibility to respond to both opportunities and challenges in the region.

Our board also maintained the quarterly dividend.

The one five cents per share, which also reflects large financial strength and earnings quality.

Good day of his customary I will talk about the pain points of our balance sheet.

And Andy will provide more details regarding the first quarter results.

Which on the ones.

Continue to reflect the impact of.

Historically low.

Library and spread to return to.

The pandemic level.

We will then open it up to goodbye.

Let's please move to slide four.

As I said before we continue to grow our loan for a poorly for the third quarter in a row without relax the underwriting.

As of the end of March our commercial portfolio grew 3% quarter on quarter.

Sportsman were up 5% the non maturity, where again the lack of it on time.

As you can see on the graph the average rate of new disbursement was LIBOR plus 141 basis.

Down.

46 basis points from the race of the maturing portfolio for the for us.

19.

We continue to return to pre pandemic.

On slide five.

I would like to highlight three nine points.

One multiple by Google for the border, Wisconsin to live in Brazil, Chile, and Uruguay, and we continued to decrease our exposure in Argentina.

With all of residual exposure, you mean hiring from performing.

So almost 60% of of our commercial boiler for them as you can see from.

Continues to be deployed in the bedroom great country.

And also.

After a 3% growth for the quarter were almost of the team that all of our commercial book for you.

Mike's going to plan.

Only two per cent.

Moving on to slide six vs. Instead, the thinning Brock what broken down by industry.

As you can see most of the growth for the quarter is commodity related.

Oil and gas was up 49% most of meat and investment grade countries non metal manufacturing portfolio was up 37% also most of the indefinitely.

The recent increase in commodity prices and trading volume is starting to have a positive impact.

On our loans.

The basket commodity I E.

2021 quick exit growth revised.

From nine 1% of diesel.

Last year.

To 27, 1% by the IMF.

As we all know come on top of significant relevance for Latin American economy.

On the export and on the importance of side.

Loudest.

Some of the strongest commodity players in the.

The.

Ranging from strategically important eight on entity.

The import of oil or oil derivative to large local grain exporter.

Importers and exporters to the local subsidiaries.

All major global commodity.

We are seeing an increase of demand from these type of line of at least 30% on average.

I would like to highlight that our commodity exposure.

Of short time for <unk>.

The Navy nature.

Mostly part of the size of this meaning the indirect with Luca.

For the commodity price volatility is non existent.

We expect this commodity driven growth.

To continue as the region recovers.

Moving on to slide 17.

Yeah.

I would like to draw your attention to the chart on the left first related to our asset mix impact.

In this respect it is important to point out of that even though we have been growing our loan portfolio for the quarter.

Building up our investment portfolio since June 20 <unk>.

We're still close to $800 million, 14% below 2019 year end balance of like that anymore.

When the Mi is that line.

Hi, considerable room to grow on our loan portfolio along with the gradual.

The building of the region.

The chart on the right provides an overview of the funding structure.

You can see the most efficient funding book.

The pass it on.

Grown steadily for over a year, both relative and absolute terms.

Black day shareholders.

Continue to have a minimum of meaningful participation in the success of the bank Yankee CD program has also contributed to.

For the growth of our democracy.

<unk> continues to be an active.

Very active in the desktop on market with the private placement from different countries further enhancing its diversification.

On the funding for it.

With that I will now turn the call over to Ryan who will walk us through.

The P&L implications for the sport.

Any.

Thank you Jorge and good morning to all.

Let's move on to slide number eight on the bank. According to me close of operations.

So profit for the first quarter 2021 was $12 8 million Bali.

The 19% on a sequential quarter basis, and 30% of year on year.

Mainly driven by lower net interest income.

This relates to the impact of a sharp decrease in LIBOR base rate in the bank assets and liability.

Coupled with non epic volume sales.

He'll behind pre COVID-19 level.

Even though the bank has shown a steady loan growth trend for.

The three consecutive quarters as Jorge just mentioned.

Yeah.

I will be addressing the NII from the H any more detail in a few minutes.

We saw for the quarter also reflect stable commission income mainly from the letters of quite a bit to me.

With an important participation in the LC confirmations for the import of refined oil.

With respect to fees from the Stuffiness indications of PBT for.

For the first time since the onset of the crisis.

We are starting to see traction in the <unk>.

Pipeline of value added transaction.

We just announced.

In late April.

$300 million facility for say, Amy and then yeah, a leading player in renewable energy generation in Central America.

English flat ex acted as joint lead arranger.

We expect to see more people kind of activity in the coming quarter.

Expenses remain closely control.

Down 10% on a sequential quarter basis due to the usual seasonality of the third quarter of the year.

Yeah on year expenses were down by 13% mainly on lower personnel expenses, mostly related to decreased performance based variable compensation for nation.

In addition, the bank recorded no credit provision during the quarter.

And I mean, the nation remains focused on high quality of countries and factory.

While the bank opinions to the downside miscarriage poultry being able to collect the it's really 100% of catch up on my to ink.

So let's move on to slide nine.

Well, we present, the trends and annual rate and volume.

Could you explain lower net interest income of $18 9 million for the quarter.

Down $6 $9 million or 27% year on year.

Even with the same mad men the spread differential of about 150 basis point when.

When compared to the same period of 'twenty, 2020 of 19.

Net interest income was down $4 $2 million year on year, mainly on lower LIBOR based rate.

The Queen 76%.

Or about 153 basis points year on year.

And by 83% or around 239 basis points, when compared to our normalized 2019.

Thanks for the bank loans, a mostly floating rate book.

It's obvious that in a changing market weighted environment, both sides of the balance sheet. The fact within a short period of time.

In this manner the portion of assets financed by liabilities generally naturally hedged.

This is why net lending spreads remain relatively unchanged at 100 of 50 basis.

But the major impact relates to the portion of assets financed by the bank of equity.

As the overall I think youll decreases.

On lower market rate at the end.

But we felt the resulting in lower net interest margin and net interest income.

In addition, as Acquaints to noise, but the consequence of the bank's defensive measures implemented last year.

During the first half of 2020 non.

Non portfolio went down by as much as one $4 billion or 24%.

From 2019 year end balance to <unk>.

For in a half a billion dollars at June 32020.

We then started to return to loan growth and have kept the positive trend, reaching close to $5 1 billion at March 31st 2021.

Although the choice of pre COVID-19 level.

As such average loan portfolio of balance for the first quarter of 2020, one with 16% lower than the same period of 2020.

Negative impacting net interest income.

This was partly effect by the increase of the investment portfolio to close to 400 million dollar.

Evenly split between the high quality liquid assets for you.

The aim at enhancing the return and liquid assets all of the Y mostly invested with the fed.

And a credit portfolio of Latin American named countries as a complement to the bank's commercial performing it.

Overall, the net change in average volume towards the end and additional negative impact of $2 7 million on NII when compared to the first quarter of last year.

With respect to the sequential quarterly trading slide 10.

The reduction of $3 $4 million on NII is mostly explained by the bank leaching pre COVID-19 level in terms of lending strength.

Thanks to ample U S dollar liquidity available.

Particularly to all of a financial institution clients throughout the region, representing more than half of our exposure.

In addition, during the first quarter of 2021, LIBOR based lending rate continued its downward pricing while in the case of liability.

The pricing was faster and mostly to place in 2020.

As the bank interest rate gap with favorably to stay true for it'd be crazy market rate back in March of 'twenty 'twenty.

The negative rate effect of for 4 million the rest was fast.

That was partly offset.

By the three per cent quote unquote increase in average non portfolio.

Coupled with lower funding to finance a decreased cash the fishing the combined net how for the volume effect of $1 million on NII.

Onto slide 11, the present, the evolution of allowances for credit losses.

Reflect the bank of high quality credit exposure.

Having 57 per cent of its commercial portfolio and 84 per cent of its investment portfolio in the bedroom great country.

So that 95% of for $5 $8 billion of all credit on classified as low risk or stage, one under I. The first night.

These include increase the origination in low risk countries, such as Chile, and Uruguay, that's why the financial institutions in Brazil, all of which generally have a relatively low collect the for staff requirements.

Exposure with increased risk or I of first nine page to reap the.

The same five per se of a token of exposure and includes the loans in our watchlist totaling $9 2 million dollar assets.

One of the interest in countries and sectors affected by the bank of having increased the risk as they always have the nation.

Amounting to an additional $280 million.

The 42 million from the previous quarter of the bank continues to collect it's for insurers to high risk countries, such as Argentina on a time moving.

Non performing stage three loans remain unchanged from the previous quarter at $11 million.

For same thing zero point to percent of total loans.

As the result of all day, there was virtually no impact on credit provisions during the first quarter 2021.

Although the bank's total allowance for credit losses, which.

Which incorporates forward looking expected losses on the right for its nine represented 73 basis points of the total credit portfolio at March 31st 2020.

And all of the banks exposure remains alright.

What did they need to turn the call back for Holly. Thank you.

Thank you Amy.

As I said at the beginning of our call I joined the bank with a clean balance sheet.

I'm incredibly competent and committed to.

The mandate from the board of directors for a different Avenue to.

Grow the bank and return more value to shareholders.

Good day.

A year later.

Although the pandemic continues to pose significant challenges for the region.

We haven't even cleaner balance.

And even more committed team and the.

The board mandate.

Remain unchanged.

We believe that the bank of many opportunities to grow and to increase its product and service offering.

Life is well positioned to navigate the 2021.

Look forward to reporting on progress for you.

In the future quarters.

Yeah.

David we can now.

The open it 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 by pressing star one on your touched on phones now if you are using a speaker phone. Please make sure that your mute function is disabled to allow your signal to reach our equipment.

To ask a question of please press star one and we'll give it just a moment to to give everyone an opportunity to signal for questions.

And our first question comes from Al Marcus with pushed tree investments.

Thank you operator and good morning.

I have to questions.

First can you give us any insight into the thought process.

Behind the board's decision to announce the share repurchase.

And second it's Jorge you mentioned that you were hired with a mandate from the board.

<unk> new growth opportunities and of course.

During the past year, it's been impossible to implement anything but that.

You gave us some color now on what kinds of opportunities to thinking about.

Sure. Thank you for your question the name of the gentlemen.

So.

Thank you for your question, let me start on the on the share buyback.

Let me start by saying that we are to gain back.

That the market price of the source of the day.

Trading on 55% book value.

It's simply too low.

We do know a lot of it.

Unlike most banks from the region half of it we.

We've seen clean portfolio.

Yeah. This is important obviously you ended up itself.

Also because the gave management the ability to focus on growth.

Loudly.

The operating the reason the overall is showing very positive signs for.

Particularly in the segment that we operate the trade the trade ban.

Furthermore.

Most of that's in the World.

The ample liquidity.

But more importantly in the sponsor.

Cost and ample capital base.

To grow.

Yeah.

We're not going to patient level today, the Gainesville Hot.

So the given all of that.

We view the share buyback to another.

Of the way to return value to our shareholders.

In the tax efficient manner. The other way so you know keep.

Keep in mind that as the reason to recover we will be able to man to a wider client base on further diversify our portfolio and yes, we do plan.

To reach pre COVID-19 portfolio.

Yeah.

I don't know if you're on the second question was related to.

The second question of empty.

For you mentioned that you were hired with a mandate to.

Implement new growth opportunities and it's been impossible, but.

What are your thoughts today.

On what those opportunities might be.

Thank you for that question and yes, you're right.

After a year in line.

Not necessarily in the office most of it of time for all of your fleet.

Some things have become more and more evident.

Lot of its model.

Moving to be resilient on the topic of Omics condition.

Moving down.

Even without deviating from the current targeted customers a lot of preparations and banks, nor changing our risk profile the.

<unk> has many opportunities to grow between we.

Some of our product offering.

We have of long standing and very close relationship with the best management of the reason.

At the same time, we have.

A small share of wallet and we haven't.

Upside there.

As part of our current product offering.

Hi, My name.

Great finance loans, the syndication the letters of credit we see broadly.

Increasing the offering more from third grade time on value added type products.

For on time line.

Now, while the board of management with the.

Adjusted.

The largest business strategy for the future we will continue to grow.

And we you know the commodity boom.

Uh huh.

Helping fuel the part of that growth of our syndication team is seeing more and more traction with the army mentioned before.

On the generating a from our letters of credit on.

We're already off to pre COVID-19 levels. So once again where are.

We see many avenues for growth off of.

As the board and management rebate to the.

The strategy and I think we've proven also that we don't need to rely on.

Underwriting standards to do that.

Yeah.

I think that's what happens.

Thank you.

Yeah.

Thank you. Our next question comes from Jim Marrone with singular research.

Yeah.

Yes. Good morning, maybe if you could just touch upon a little bit of about the increased exposure is close by country as well as the industry.

So oh I see that the exposure to Brazil has been increased and I believe Brazil is still the hardest hit from.

From the pandemic.

So just to get your thoughts on on.

The increased exposure to Brazil with respect to of the pandemic and as well in in terms of the industry ex increasing your exposure to commodities.

Given the.

Volatile nature of that industry, and maybe just the thought process.

The increase in non exposure and maybe of some risk management techniques or.

The other strategies you have in regards to industry.

Okay. So to think yes, Brazil has been hit hard by you know on on the outside of.

Uh huh of the economy's growing our most of our exposure in Brazil are announced the institutions, we don't see and talk to your clients, we don't see a and we feel very comfortable with our exposure in.

In Brazil, we don't see any other.

Uh huh.

All right.

With me on.

And actually the systems.

And neither was the Oh, we have some also exposure on a commodity related to a green.

Our clients are.

And Brazil.

Regarding your question on.

On the commodity risk.

With the.

For the price volatility I mentioned during my remarks.

Most of what we're thinking of the and short.

Short term trade related so the.

The price volatility.

Oh come on fees.

It is.

It's already hedged.

By the tenor and and and we don't see where non financing long time and true.

Reading days off of Super cycle or to India.

Nation and prices an increase in volume and we're treating it that way so well.

We are taking advantage of back on.

That is on the triple down on many economy and and not.

That's what we're doing there.

But I think more important we also.

One of our line you saw the the book.

The graph broken down by industry and also by countries, we do not expect major changes.

And in that.

Uh huh.

The nature.

Okay.

Okay, great. Thank you I just one follow up question just in regards to the net interest margin. So it seems like interest rates are going to be how the.

Low for the remainder of 2021.

So I imagine on would have a negative impact on the net interest margin.

And the net interest income for a full year so.

Perhaps you can just discuss some ways in which you are managing that.

The margin and.

Perhaps in some way take advantage of.

The low rates to for it to more of a.

In your favor.

And then maybe discuss.

Discuss maybe if there is going to be a raise in rates in 'twenty to perhaps to.

Combat higher inflation in overheating economy.

All of what so what.

What would you anticipate in terms of margins and income.

Yeah.

Sure.

Well great question Yeah.

You mentioned I mean, theres no doubt about the.

On the historically low LIBOR rate.

Now on the impact on revenues are it is certainly on a challenge we're tackling the two ways. One is one of the volume and we were having to meet volume we plan to keep increasing it.

The traction we have a good pipeline, we haven't resumed on the tubing and then the other thing is it's obviously a P P generating so on.

Whereas the 11th.

Branded value added transactions like the indications, we took the announced and more of that we're going to come in the future.

The medium term our lending.

That's gone on and that's gone on.

For sure.

Yeah.

Yeah.

Okay. Thank you.

Thank you. Our next question comes from Mike Hutchins with Brenda investment partners.

Hello, Jorge on Ana Thanks for the call I've got a question on the kind of evolution of of of spreads on the coming quarter. So on page four of the presentation.

It points out that there's a meaningful difference between the front book and the back book in terms of in terms of spread on.

On the other hand, it seems like looking at the low the cost of your interest or any liabilities for might be some room on that side. So.

So on my first question is just you know how would you expect the kind of low.

Moving to deposit spread along to them or the overall spread to the app.

On the in the coming quarters do you think it kind of remains stable at the at current levels and to you're running with 820 million of of cash and due from banks.

Is there an opportunity to deploy some of that into the securities portfolio or are you holding excess liquidity for loan growth and third I'll, just be and rest of little more detail on how you expect to utilize the share repurchase program will it be a.

I gradual line consistent buyback or more opportunistic.

Yes.

Okay. So regarding.

Ah the AR cash Oh, we're going to see.

The growing the investment portfolio, we plan to keep growing it.

Of course with more on partnering.

On our ability to to demand as well, but the idea is.

Uh huh.

To use that cash in of more.

Profit pool.

Way with the world that is.

You know flooded with with the cash everywhere. So I E. So you kind of expect to see a continued growth in our investment portfolio of.

Hi.

Spread spreads are tightening and as I said before it's going to be a challenge.

During Uh huh.

2021 are the the future.

That's accurate when you wanted to.

Yeah.

The harder for the Big we are seeing.

You know some of them.

Yeah.

Obviously.

That kind of Uh huh.

For us.

In the future on on our top line.

But yeah certainly.

Yeah sure.

Short term it's.

It's one of its going to be a challenge.

I think there was another question.

Hi.

Drew north of I.

Yeah, the about the the use of the.

The feed or our of the share buyback.

I I referred to.

Not not to comment on that and it will depend on on when market conditions.

Conditions, what I can tell you is that we can certainly uh huh bye bye.

Thanks for the medium and in talking about that are on.

Hum.

Our capital ratios that are important to us.

To maintain and.

Right.

Thank you.

Thank you. Our next question comes from our brand Golden It with the Kristofferson Robin Company.

Hi, everyone. Thanks, Thank you for taking my call. It's good to chat again.

I want to focus a little bit more on.

I'm just loan growth because it seems like you know while there are challenges in some of your target countries are all sort of tremendous opportunities.

Opportunities now and whether you wanted to holiday.

A lot of the Super cycle or just increase in commodity price says clearly there was going to be large.

But the benefits to credit and need for Oh.

Working capital cash.

Just to talk about what what is encouraging you and and how you think you can get the the loan book you know backdrop you know let's.

Let's see.

To the COVID-19 and beyond.

Sure Oh, I think that the region, a GDP growth as of May.

No Hoffman to revise upward we are oh sampling on.

The pipeline we are hence the.

Hey morning on.

The financial institutions, which is half of our portfolio out of the economy to recover we are a we're looking in the corporate side, where we're looking on a lot of companies are asking us to help them one of the liability management.

The management.

And then we have obviously the.

On the commodity the.

Direct commodity.

A related company.

We have been growing for three quarters and our April April numbers are also.

It's showing growth in it.

Things keep going this way I don't see why not we cannot each eventually.

The 2019 levels, how fast the well it would depend on the on the recovery of the region.

Yeah.

Okay.

I, just see a lot of opportunities here.

And you've been great stewards of capital.

<unk> been fantastic on the.

That's simply disciplines.

On the on your lending book and it for.

From the outside of looking at all of its very much like there's tremendous growth opportunity right.

Yeah.

We see it the same way.

Fantastic.

Second of a number of other things I'd love to talk about well to that offline. Thank you very much.

Sure. Thank you for that.

Thank you, ladies and gentlemen, again, if he would like to ask a question you may do so by pressing star of one now.

Now we have the questions submitted via webcast from Banco Atlanta to ask what is your assessment of the current situation in Central America and is it considered as of markets where that expected growth can be attained.

The question sorry.

The question.

Central America.

Yeah.

Yeah.

They have money on it. So you have a you know you have political challenges.

Just to the now in the Salvador you have yeah.

The physical Oh.

Pressures.

In Costa Rica.

Do you have.

Well, we bought them on line.

The doing a little better you have.

If you still have.

Inflow of remittances.

And almost every.

Every country has some sort of central America.

A different geography.

Central America is an insignificant part of our portfolio and a significant part of a flow of our of our profit and bottom line. So we know the region. We know the players are we are in contact with the central.

Bankers to our shareholders constantly and yet its down depending on the country we.

We do see a lot of potential I think the the reason.

Syndication loan that we did the quantified by the way I E S T.

Uh Huh, it's it's the it's the top names in Central America, and and we have all of it was coming.

Thank you at this time, we have no other questioners in the queue. So I'll turn it back to our speakers for closing comments.

Well take the thank you for your thank you for your question.

And.

I have no further comments are you on the next call and feel free to call us if you have any further.

The other commentary.

Thank you very much.

Thank you ladies and gentlemen that concludes this morning's presentation. Thank you for your participation you may now disconnect.