Q2 2021 Foreign Trade Bank of Latin America Inc Earnings Call

And you are now rejoining the main conference.

Hello, everyone and welcome to block for the second quarter, 2020.1 conference call on this 28th day of July 2021.

This call is being recorded and is for investors and analysts only if you remember of the media you are invited to listen only.

<unk> has the.

Powerpoint presentation to accompany their discussion it is available through the webcast and on the bank of corporate website at Www Dot <unk> Dot com.

Joining us today are Mr. Jorge Salas, Chief Executive Officer, and Mrs. Ana Graciela de Mendez, Chief Financial Officer, the comments will be based on their earnings release, which.

Preparing for earlier today and is available on the corporate website.

The following statement is made pursuant to the safe Harbor for forward looking statements described and the private Securities Litigation Reform Act of 1995 and section 21 E of the Securities Exchange Act of 1934.

And these communications, we may make certain statements that.

And are forward looking such as statements regarding <unk> future results plans and anticipated trends and the markets affecting its results and financial condition. The.

These forward looking statements are blocks of the expectations on the day of the initial broadcast of this conference call and <unk> does not undertake to update these expectations based on subsequent events or knowledge.

The issue various risks uncertainties and assumptions are detailed and the banks press releases and filings with the Securities and Exchange Commission.

Should 1 or more of these the 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.

And I am pleased to turn the call over to Mr. Solid for his presentation.

Thank you Nick and good morning, everyone, joining us to score of our second quarter results.

As usual and I'm here with our CFO of any mandates and a few members of my executive team.

And with that so.

Let's begin with slide 3.

And let's dive right into the main messages that we would like to convey today.

The title of the slide for.

Provides a good summary.

Improved results consistent growth.

And Christine and I.

Okay.

Growth in Latin America is starting to regain traction.

The economies reopen and commodity prices at record levels.

And remittances are also at record high.

As a matter of fact, just yesterday the IMF.

By for the.

The second time of this year its growth projections for 2021 for Latin America from 4.6 in April to 5.8%.

With the 2 biggest economies in the region, and Mexico, and Brazil growing at 6.3% and 5.

3% respectively.

Having said that.

Daily New infections peaked.

1 of the a month ago.

Since the vaccine rollout has been and general very slow in most countries with the exception of Chile and Uruguay.

So we remain cautiously optimistic and well positioned to keep growing.

And taking advantage of the opportunities that keep arriving every day.

And this context, we grew our loan portfolio and our investment portfolio for the fourth quarter and a row.

While keeping asset quality sound with only <unk>, 2%.

Of.

Npls to total loans.

Second quarter results improved.

Revenue increased 17%.

And also our net profit increased 10% quarter on quarter.

And he will share the details of our P&L later on and the presentation.

Also during the second quarter, we created a new executive position.

EVP of strategy and PMI.

To further align our organizational structure and enhance our execution capabilities.

A couple of new value added structure services our.

And our driven by this unit are now.

Yeah.

Finally, the share buyback plan announced in May is executed as planned.

And the board decided to maintain the quarterly dividend at <unk> 25 per share.

So let's move onto <unk> and the next slide slide 4.

So after collecting 100% of all scheduled maturities of over $3 billion for the quarter, we manage the dispersed over 3.3 billion and the quarter, that's 21% compare.

2.

21% mortgage credit for the previous quarter for a net portfolio growth of.

5% quarter on quarter.

It is worth mentioning that new loans for the quarter were the scores on average 8 basis points below loans that mature and debt were collected for the quarter.

As a result of the unprecedented liquidity that we see.

Across.

The region.

As of annual note later on and the presentation when analyzing the net interest income.

The increased volume for the quarter more than compensated the decrease and spread.

Moving on to the following slide slide 5.

5.

Our portfolio continues to be well diversified by country and has increased 22%.

Quarter year on year.

The reduction and exposure to investment grade countries by 14% is explained by the recent downgrades for Columbia by 2 of the 3 main.

The credit rating agencies.

Our growth for the quarter was focused on the Dominican Republic, Guatemala and Mexico.

And mainly and resilient factors like electric power generation quasi sovereign corporations and top tier financial institutions.

Turning to slide 6.

Again, it's the same graph of broken down by industry.

Just to give some context.

World growth, especially in the U S and China is fueling.

Craig clubs.

Latam trade flows are.

Are expected to grow 21%.

Moving to 2021.

And an additional 8%.

For 2022, as we can see most of our growth for the quarter was just like in the past quarter related to the recent.

Commodity boom, which is associated to both prices and volumes.

So our.

Our oil and gas oil and gas portfolio was up 71% and our metals and manufacturing portfolio was up 40% mostly in investment grade countries.

Also at the.

The economies reopen our food and beverage exposure increased by almost $100 million of 32% and company.

Companies based in Mexico, Panama, Peru, and Chile.

Moving on to slide 7.

The bar graph on the left shows the credit investment portfolio grew $134 million last quarter. In addition to a stable high quality liquid portfolio the signs.

And then Hans.

Liquid yields.

Both investment portfolios that add up to $523 million by the end of the quarter are well diversified and predominantly investment grade rating.

As I mentioned in the last call you can expect further growth of our investment portfolio.

Going forward.

Slide 8 shows our liability mix from the left and our asset mix and the rate.

And it's clear that our most efficient funding source deposits.

Keep growing and nominal terms and are now at.

$3.3 billion.

While still representing 61% of our funding.

Class a shareholders continue to have a meaningful participation and the success of our Yankee CD program. That's also contributed to the growth of our deposit base.

As you can see and the chart on the right.

Our critical.

Credit portfolio loan plus investments.

Our financial.

Pre pandemic levels of Q1.2020 by almost $340 million. We believe that this is consistent that debt.

Consistent trend is very relevant.

And we are confident that there.

Considerable room and opportunity to keep growing of the region continues to recover and.

And defense and moving on to slide 9 I want to show you just a couple of examples of value added structural solutions that are now in place.

The first 1 of the top of the graph.

There is supply chain finance receivable discounting mechanism through and established Latin America, and Fintech platform that enables slides to leverage as vendor funding from vendor finance product and.

And pick and choose.

To finance short term receivables from target prospects.

The second 1 is a tailor made cash and invoice management property and Terry solution interconnected with the Panama Canal Authority, specifically designed for major of freight companies, which ships go through the Panama Canal.

These and other similar projects in the future.

<unk> will be supervised by our new strategic planning unit that contains a PMO office.

To ensure efficiency and accurate.

Time to market.

With that.

I will turn the call to any who will walk us through the P&L implications.

Patients and then I will take it back and.

Thanks, Jorge and good morning to everyone and me.

And now comment on passive quarterly results of operations on slide 10.

And so profit for the second quarter of 2021 was up by 10%.

1 of the sequential quarter basis, and stable year on year at $14 million.

Top line revenue growth was the most relevant aspects positively impacting profit.

Having increased by a solid 17% with respect to the prior quarter and 20.

9% compared to a year ago.

Quarter on quarter net interest income of more NII was up by 11% driven by higher average loan portfolio and lower funding costs.

I have said and the negative impact of the continued downward trend and market.

Rate the latter mostly responsible for the 3% annual decrease in NII.

As I will discuss into more detail in a moment.

He has continued to perform well with a positive trend in the bank's traditional letters of credit business and.

A pickup.

And the loan syndications activity.

So the $4.3 million total fee income for the quarter day.

Noted a sequential quarterly increase of 41%.

And more than twice the figure from the second quarter of last year.

Other non fee income includes net.

So from financial instrument, mostly associated with devaluation of currency position and hedging derivatives.

This line item displayed a gain of $234000 in the second quarter of 2021 day.

The $4 million improvement with respect to second.

Quarter of last year, 1 of the bank recorded a $3.9 million loss, mostly related to the fair value adjustment of a debt instrument received as part of a loan restructuring that took place back in 2018.

Quarterly profit also reflect expenses back.

Back to historical level at about $10 million.

Up 11% from a seasonally low first quarter of the year.

And up 22% from a year ago.

And when cost saving measures were implemented at the onset of the pandemic.

On a year to date basis expense.

And at similar level of $19 million up 2% from a year ago.

As we will see ahead credit provisions of $1.4 million.

For the quarter reflect strong credit origination.

While the bank reserves, it sound asset quality with only zero point and to pursue.

<unk> and Npls apologist for had just mentioned.

Year to date for us.

It reached $27 million down.

Down 17% from last year, mostly impacted by the net effect of lower LIBOR based market rate on the bank's assets and liabilities.

Reducing NII.

<unk>, 16% in the same period.

On slide 11, we present.

A more detailed information.

On the quarter on quarter net interest income variation.

11% as I just indicated.

The 12% increase and average loans.

Along with.

Higher average investments and lower cash position offsetting higher funding.

Resulted in a net.

The positive volume effect on NII of $3.7 million.

And in turn lower funding costs by 17 basis points for more than offset by lower.

By the rate down 23 basis points as a result of both the continued downward repricing of LIBOR based lending rate.

And tighter lending spreads and returning to pre COVID-19 levels.

The latter of reflecting sustained credit quality and ample market liquidity.

Particularly in the banking sector.

Overall, the net rate effect was a negative $1.6 million for a total NII per quarter on quarter increase of $2.1 million.

On page 12, we present, the same quarterly NII variation analysis.

The lending.

This time, comparing it to the second quarter of last year.

Here again, the bank recorded a strong volume effect positively impacting NII by $6.7 million.

Having improved the average interest earning assets mix.

With higher loans and investments.

And lower cash levels.

Nonetheless, this positive effect was wiped out by the impact of 105 basis points or 73% decrease and average lending LIBOR base rate.

Couple of by lending spreads and returning to pre pandemic levels as I just commented on it.

The combined volume rate effect resulted in a zero point $7 million or 3% decrease in NII year on year.

On slide 13 with.

We present, the evolution of allowances for credit losses, which continued to reflect the bank's high quality.

Exposure and its commercial and investment portfolios.

Npls remained unchanged from the previous quarter at $11 million or 0.2% of total loans.

<unk> 9 stage 2 credits representing loans with increased risk since origination.

Credit and mostly related to downgrades and internal country ratings and credit and watch list went down 2.4% from 10% of year ago.

Of the bank has been very successful in decreasing higher risk exposures and sectors most impacted by the pandemic.

Stage.

And low risk credit representing 96% of the total exposure increased by $464 million for 8% on robust credit origination and accounted for most of the $1.4 million and credit provision for the second quarter of 2021.

While overall the bank's total allowance for credit losses, which incorporates forward looking expected losses under <unk> 9 represented 71 basis points of the total credit portfolio at June 32021.

Finally on slide 14.

And see how credit growth.

Both parts to lower our Basel III tier 1 capitalization, although still strong at 23, 6%.

For which credit risk weighted assets increased by 11% quarter on quarter.

And our calculator.

For the advanced internal based ratings approach.

For IRB.

Clearly, reflecting the low risk of our exposures and our business focus on short term trading lending to try and banks and corporations.

In the graph to the left.

We also presents.

Regulatory capital adequacy ratio.

18, 2%.

As mandated by the superintendent of effect of Panama.

With the main difference from the internal approach consisting of credit risk weighted assets being calculated under Basel standardized approach.

As a reference the average regulatory capital ratio for the.

All of opinion International banking center is around 16%.

The noting the industry's approach to manage our conservative capital position in the country with no lender of last resort.

With respect to block the stock repurchase program of up to $60 million announced in early may opt.

The Penn and now the bank has repurchased a total of 728000 class E. Common shares for a total of approximately $11.2 million.

In addition, as Jorge mentioned the board recently declared and unchanged quarterly dividend of <unk> 25 per share.

Maintaining.

<unk> and attractive dividend yield of around 6.5% at current stock price.

Let me now turn the call back for Jorge.

Thank you.

Thank you Ron.

And.

Summarizing.

The second quarter of the year.

We think of clear.

<unk> and kind of.

Net loss continues to trend and the right direction.

Keeping sound asset quality on our book of business that continues to grow.

Serving top notch corporations, taking advantage of our unique competitive position in the region.

Australia, where we have operated for over 40 years and it.

That is clearly showing.

From its Kelvin.

I will now.

I'll ask the operator to open it up for questions. Thank you.

Thank you and at this time.

And we will open the floor for questions.

And would like to ask a question. Please press star followed by 1 on your telephone keypad.

<unk> will be taken and the order and which they are received.

And at any time, you would like to remove yourself from the question and Q Press Star 2.

And to ask a question. Please press star 1 now.

Our first question comes from Jim Marrone with singular research. Please go ahead.

Yes. Thank you for taking my question.

I guess, maybe the first question and I have is just some regards to going forward with respect to interest rate. So.

It's widely known that Central Bank.

We will start raising interest rates too.

Address the current and inflationary environment. So I'm just looking at how.

How blade axe is looking to capitalize on the increase in interest rates going forward and maybe if you can just provide some color.

<unk>, both on the asset side as well as on the liability side of your balance sheet.

Yeah.

Yes for sure.

Question.

There is clearly inflation pressure.

And many reads.

Regions of the world for.

And for a couple of reasons 1 is the disruption in supply change.

Because of logistical reasons sanitary reasons and even climb of meetings.

The truth is that supply chain disruption is putting pressure on.

On costs.

And in order to protect margins and the pressure is being translated through the value change.

2 consumer prices.

Also there is a demand shock basically because of the growth.

And the U S and China, which is also being translated into.

Expansionary pressures now and Latin America.

Most countries are facing.

The inflationary pressures.

For both internal and external debt.

Say commodities.

Prices interest rates have been recently adjusted.

Upward in Brazil.

Sales and Mexico and in Chile.

And we expect the same for the rest of the region and in the second half of the this is obviously.

But to the extent that we don't have we don't assume FX risk is obviously positive.

For blocks of business model as long as it obviously of someone says we have.

The moderate moderate.

Inflation so so.

On the asset side.

And I think.

It's very clear that we can.

Potentially and increase our margin.

Bob.

As as.

Rates go up.

And.

And local currency and we are already.

<unk> seen that happening and most of the countries and the regions, where we have.

Exposure just just.

Brazil, we have 20% of our portfolio, Chile, we have 10% of our portfolio.

That's obvious.

Obviously youre going to.

To be beneficial for our profitability.

Great.

Yeah, Yeah yeah.

And on.

And the fact.

And you asked for the impact on both assets and liabilities.

We we do keep a.

Mostly floating rate book so the.

And as he likes dollar rate go up we should be able to benefit obviously from a rethinking of on both sides of the balance sheet with the net positive effect in net interest income on the ice.

Okay, great. Thank you and then just in regards to your credit quality. So you say, it's very good and your NPL npls of minute remains steady.

Just curious.

Just as far as the credit quality is it is it mainly concentrated on.

And large enterprises or is there a significant and exposure of small business and just.

Scene going forward, you know how is that going to impact.

You know as we can.

Come out of this recovery.

With the.

And now shake out of of small businesses.

The reopening just can you provide some color on your on your credit quality as far as the mix.

And where do you see it going forward.

Yes, that's true.

And that's also very good.

Good question and in it.

And.

And going to try to take a step back so you understand where you know.

A bit of of historical context of our risk appetite and.

And our performance short answer is it's basically.

The big corporations, and and banks are so so very little.

And actually no small and medium businesses.

Because we exited.

That market back in and.

And that and 2018, so but.

After.

After the big loss in 2018, the bank started these rate de risking and.

And that meant.

And reducing exposures and countries like Argentina, reducing exposure to small of corporate and also not engaging in long term transactions and that involved.

And make it commodity risk.

2019, and it with the clean book.

And Roy of almost 9%.

And then when I came in in March the pandemic hit and.

And we decided for obvious reasons to de risk even further.

It's shortening the tenor even more increasing our liquidity at the expense of the size of the book.

And that was huge and that was $1.5 billion and 2 months so.

And so at 25% of the book.

And we shifted to more of Phi.

And exited.

The riskier sectors like mining and retailer and the airline.

And then as the pandemic has evolved.

And the uncertainly has slowly dissipated.

We have as you saw of juice as we saw and the presentation increase the size of our loan portfolio reduced the excess liquidity to normalized levels.

And and increased the size of the investment portfolio.

Now going forward.

And as the region show stronger signs of recovery.

And we are not in a position to take additional controlled risk in 2 main <unk> 1 is value returning.

Returning to.

Our historical mix of 5 and corporate and also return to our historical level of <unk>.

Corporate.

As opposed to 2.

I mean.

The long term versus shorter term now.

The.

This is all.

Big corporations.

That normally have sales over $300 million and I'd have access to local and international and capital market, we are not venturing into small and medium businesses.

We will continue to complement.

This strategy with value added products like the 1 I showed.

Before and the presentation.

I don't know if that answers your question.

No that's great. Thank you for that color I appreciate that.

Thank you. Our next question was submitted by Tim done.

Rich.

Could you provide some information on what makes up the $4.4 million charge to other comprehensive loss on the balance sheet.

Yes sure.

Thank you for the question, Yes, we do we do keep.

Some day indicate David and.

Of particular.

First for instance swap to cover certain and.

Liabilities that we have in Mexican peso and.

And they are accounted for as cash flow hedges. So the valuation of these derivative is.

The recorded in other comprehensive income in our equity and debt basically explains.

And from <unk>, which is the change in valuation of the waiver fees, which tend to.

As we they are actually economically.

Very well covered but the.

In the interim during the life of these.

And in derivatives.

And the underlying exposures they may have certain volatility that it's effective.

And if that answers the question GP for embodiment, yes, the temporary ineffectiveness, but they tend to correct over time and so they are economically matched at the end of day to day shoots.

The channel.

And it go close to zero at maturity.

Thank you and as a reminder of our audience you may ask a question of by pressing star 1 now.

And it appears we have no additional questions at this time.

Okay. There are no further questions.

Thank you for your participation.

Stay safe and have a great.

Great day. Thank you. Thank you.

Yes.

Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.

Okay.

[music].

Yes.

Yeah.

Yes.

And.