Q2 2023 Banco Latinoamericano de Comercio Exterior SA Earnings Call

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Speaker 2: Good morning ladies and gentlemen and welcome to BLADEX's second quarter 2023 earnings conference call.

Speaker 2: A slide presentation is accompanying today's webcast and is also available on the investors section of the company's website www.bladix.com

Speaker 2: There will be an opportunity for you to ask questions at the end of today's presentation.

Speaker 2: Please note today's conference call is being recorded. As a reminder, all participants will be in listen-only mode. I would now like to turn the call over to Mr. Carlos Raad, the Investor Relations Officer. Please go ahead, sir.

Speaker 3: Good morning everyone and thanks for joining our second quarter 2023 earnings call. Before we begin our presentation, allow me to remind you that certain statements made during the course of this discussion may constitute forward-looking statements which are based on management's current expectations.

Speaker 3: and beliefs and are subject to a number of risks and uncertainties that could cause actual results to materially differ, including factors that may be beyond the company's control. For a description of this risk, please refer to our filings with the U.S. Securities and Exchange Commission and our earnings release.

Speaker 3: Speaking on today's call is our CEO , Jorge Salas, and our CFO , Ana DíMéndez. Also joining us today are some of my colleagues from the executive team that will be available for the Q&A. With this, let me turn the call to Jorge. Please go ahead.

Speaker 4: Thank you, Carlos, and good morning, everyone, joining us today.

Speaker 4: Thank you, Carlos, and good morning, everyone, joining us today. I'm excited to share our second quarter results.

Speaker 4: I'll start by presenting the highlights of our performance for the quarter, and then Ani or CFO will discuss the results in detail.

Speaker 4: after that I will comment on our views

Speaker 4: on the economic dynamics of the region for the second half of the year. And then, as always, we will open the call for questions.

Speaker 4: Moving to the next slide, slide two.

Speaker 4: Blax had another outstanding quarter.

Speaker 4: All relevant financial metrics keep showing a positive trend as we continue to execute our strategic plan.

Speaker 4: Both our Treasury Unit and our renewed Commercial Unit had a very strong default.

Speaker 4: The results speak for themselves.

Speaker 4: Once again, we're showing record net interest income for the quarter.

Speaker 4: $54 million in NII for the quarter.

Speaker 4: slightly higher than last quarter and 67% higher than the same period a year ago.

Speaker 4: Similarly, net interest margins stood at 2.42%, 88 basis points higher year on year.

Speaker 4: All this has been possible largely because we have been gradually and strategically reconfiguring our assets and our liability mix.

Speaker 4: On the asset side, the client-country mix has been optimized as well as new client onboarding remains strong across every geography we operate.

Speaker 4: This is very much aligned with our commercial team now having a higher weight on their railroad goals under scorecards under the new variable compensation scheme.

Speaker 4: Similarly, on the liability side, deposits are most cost-efficient funding sources.

Speaker 4: have been steadily gaining share of the funding mix.

Speaker 4: Deposits as of quarter end were over $4 billion for the first time in Black history.

Speaker 4: This represents almost $900 million or 30% growth year to date.

Speaker 4: But perhaps more importantly is the fact that they now represent 49% of total funding as opposed to 42% a year ago.

Speaker 4: And we expect this trend to continue going forward.

Speaker 4: Also, on the funding side, our Treasury Unit successfully issued medium-term debt in Panama for the first time ever and most recently in the Mexican market.

Speaker 4: Both issuances were supported by a very robust demand and added to the diversification of our funding sources.

Speaker 4: Ani will comment on this in her section.

Speaker 4: Also, I want to highlight another record-breaking result.

Speaker 4: Fee income. Fee income was up 35% quarter on quarter and 38% year to date.

Speaker 4: This is mainly driven by our layers of credit fees, which as a trade bank is of course at the core of our business model.

Speaker 4: We have reached over $1 billion in debtors of credit for the first time ever.

Speaker 4: Again, process redesign.

Speaker 4: and increased operational capacity have enabled us to keep growing this business steadily. Bottom line for the quarter was $37.1 million for a return on equity of 13.4%, similar to the previous quarter and in line with our 2023 guidance and our long-term guidance of attaining.

Speaker 4: a sustainable meat team returns by 2026.

Speaker 4: These results are a clear reflection that Black has reached an inflection point as we keep gaining traction in the execution of our strategic plan. A comprehensive plan designed to capitalize on the very clear upside potential of our unique business model that is being carefully executed.

Speaker 5: where we continue to see a solid trend with a 61% annual increase in quarterly profits.

Speaker 5: reaching $37.1 million for the second quarter of this year.

Speaker 5: similar to the preceding quarter's level and resulting in a 13.4% ROE.

Speaker 5: These strong results continue to be driven by the sustained improvement in top line revenue.

Speaker 5: given a positive trend in the commercial business evolution, continuing to focus in new client onboarding and cross-sell, driving higher diversification and positive lending spread evolution.

Speaker 5: In addition, higher market interest rates continue to positively impact NII.

Speaker 5: Let me now walk you through our balance sheet and profit and loss line items to better explain these results.

Speaker 5: Let me now walk you through our balance sheet and profit and loss line items to better explain these results. Turning to slide 4.

Speaker 5: total assets reached an all-time high of over $10 billion at quarter end, representing a 14% annual increase on the back of increased loan and investment portfolio balances and a sound liquidity position.

Speaker 5: The commercial portfolio, which includes loans and off-balance sheet letters of credit and guarantees, also reach record levels.

Speaker 5: totaling $8.1 billion at the end of the second quarter, up 7% from last year and 4% from the preceding quarter.

Speaker 5: The growth of the commercial portfolio was driven in part by the incorporation of new clients, mainly in the corporate sector,

Speaker 5: and by cross-sell efforts, both part of the initial optimization phase of our strategic plan.

Speaker 5: The portfolio remains well-diversified across countries.

Speaker 5: having sized business opportunities in our top country exposures, such as Brazil, Mexico, Colombia, Peru, and several Central American and Caribbean countries. In terms of products, we see low Wall Street sales new Isaiah Capitol Hill,

Speaker 5: letter of credit business remains strong, and vendor finance, which is closely related to short-term commodity trade financing, proves resilience as the commodity cycle recedes, mainly maintaining good traction.

Speaker 5: letter of credit business remains strong, and vendor finance, which is closely related to short-term commodity trade financing, proves resilience as the commodity cycle recedes, mainly maintaining good traction. The short-term nature of the portfolio

Speaker 5: generate high turnover, with over 60% maturing quarterly.

Speaker 5: and an average duration of close to 12 months with 72% maturing within the next year.

Speaker 5: The bank's lending business is complemented by an investment securities portfolio.

Speaker 5: allowing for further risk diversification.

Speaker 5: as almost 70% is placed with non-LATAM issuers, mostly from the U.S.

Speaker 5: This portfolio reached over $8 billion at quarter-end and is fully comprised of securities held to maturity and accounted for at amortized cost.

Speaker 5: with an average remaining tenor of less than two and a half years.

75% of this portfolio is invested with investment grade issuers with an average rating of triple B- for the total portfolio.

The bank's cash position, mostly placed in the New York Federal Reserve, stood at 18% of total assets and 45% of deposits at quarter end.

denoting a proactive and prudent liquidity management which follows Basel methodology's liquidity coverage ratio.

Now let's move on to slide 5 where we see our funding sources that remain well-diversified across products, geographies, and panels.

As Jorge mentioned, we continue to see an increase in deposits.

reaching a record level of over $4 billion.

as part of our cross-sell strategy from our client banks and corporations.

together with our Yankee CD program, which continues to show a strong performance and provides granularity to our funding base. Deposits from our Class A shareholders who placed a share of their international reserves with Plovix are practically tremendous.

continue to have a relevant participation in the total deposit mix.

Overall, deposit growth enhances atomization and continues to represent a stable and cost-effective source of funding.

We continue to have ample availability of bilateral credit lines from many correspondent banks worldwide.

as well as constant access to debt capital markets and the global syndicated loan market.

During the second quarter, as Jorge also pointed out, we tapped for the first time ever the Pan-Aminian debt capital market.

having registered a corporate bond revolving program for up to $300 million in the local exchange.

with an outstanding balance currently at $66 million.

along with other short- and long-term private placements totaling over $160 million under our Euro Medium-Term Node program.

More recently, at the beginning of July , we successfully issued debt for a total of 4 million Mexican pesos.

or $238 million equivalent in the Mexican debt capital market with three- and five-year maturity tranches at a very competitive price when swapped to U.S. dollars.

Turning to slide six, we remain committed to a sound capital position.

a pillar of our business model which supports our investment grade ratings. Capital levels continue to increase on the account of solid quarterly earnings, resulting in improved capital ratios in line with our internal target and risk appetite.

The Board recently declared a dividend of 25 cents per share, an amount unchanged from preceding quarters.

Now turning to slide 7, we continue to see a positive trend in financial margins.

driving strong top-line performance. Net interest margin reached 2.42% in the second quarter of 2023, up by 88 basis points from last year, and remaining relatively stable from the preceding quarter.

On one side, higher weighted average asset rates have improved the return of equity funding such assets.

On the other side,

The average asset and liability rate differential, or net interest spread,

has also expanded over the last year.

This in turn reflects a positive evolution in lending spread, as well as a proactive management.

of the interest rate gap in an increasing interest rate environment.

As a result, net interest income, or NII, presented on slide 8.

has shown a strong growth over the last year. NII has increased by 83% or close to $49 million when comparing

the net interest income for the first six months of 2023 with the same period of the year before.