Q1 2024 Banco Latinoamericano de Comercio Exterior S A Earnings Call

Operator: Good morning, ladies and gentlemen, and welcome to Bladdock's first quarter 2024 earnings conference call. A slide presentation is accompanying today's webcast and is also available on the investor section of the company's website, www.bladdocks.com. There will be an opportunity for you to ask questions at the end of today's presentation. Please note that 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. Jorge Salas, Chief Executive Officer. Sir, please go ahead. Good morning.

Good morning, ladies and gentlemen, and welcome to <unk> first quarter 'twenty 'twenty four.

Carl.

Presentation is accompanying today's webcast and is also available on the investors section of the company's web site Www Dot dot com.

There will be an opportunity for you to ask questions at the end of todays presentation. Please note today's conference call is being recorded.

As a reminder, all participants will be in listen only mode I.

I would now like to turn the call over to Mr. Jorge Salas Chief Executive Officer, Sir. Please go ahead.

Jorge L. Salas: Good morning, everyone, and thank you for joining us to discuss our 2024 first quarter results. I will start by providing a high-level summary of our performance, and then Ani Mendez, our CFO, will discuss the results in more detail. After that, I'll make a couple of comments regarding key initiatives in our strategic plan, and then I will open the call for questions.

Jorge L. Salas: Good morning, everyone and thank you for joining to discuss our 2020 before first quarter results.

Jorge L. Salas: I will start by providing a high level summary of our performance and then army mandates our CFO will discuss the results in more detail.

Jorge L. Salas: After that I'll make a couple of comments regarding key initiatives in our strategic plan and then I'll open the call for questions.

Jorge L. Salas: 2024 had a very strong start, extending the positive profitability trend from the previous quarter. This is notable not only because Q4 had a couple of positive one-off transactions but, more importantly, because we have been able to achieve these results in a more challenging landscape marked by the reopening of debt capital markets, increased liquidity in domestic and global markets, and also increased competition from local and international banks. In this context, we have managed to grow our portfolio, maintain our income generation, protect margins, increase deposits, and continue generating significant fee income throughout the first quarter of the year. Moving on to slide two, here we show the highlights of the first quarter results. Starting with the balance sheet.

Jorge L. Salas: 'twenty 'twenty four and had a very strong start extending the positive profitability trend from the previous quarters.

CFO: This is notable not only because Q4 had a couple of positive one off transactions, but more importantly, because we have been able to achieve these results in a more challenging landscape marked by reopening of dead capital markets increasingly in domestic and global markets and also.

CFO: Increased competition from local and international banks.

CFO: In this context, we have managed to grow our portfolio maintain our income generation protect margin increased deposits and continued generating significant fee income.

CFO: The first quarter of the year.

CFO: Moving onto slide two here, we show the highlights of the first quarter results.

CFO: Starting with the balance sheet.

Jorge L. Salas: Growth of the credit book was 3% quarter-on-quarter and 12% year-on-year with pristine asset quality. At the same time, deposits increased 7% quarter-over-quarter and 32% year-on-year, gaining the largest share of our funding structure. As a result of the continued growth in the deposit base, the bank has been tactically reducing the use of bilateral facilities from corresponding banks.

CFO: Growth of the credit book was 3% quarter on quarter, and 12% year on year with pristine asset quality.

CFO: At the same time deposits increased 7% quarter over quarter, and 32% year on year, gaining a larger share of our funding structure.

CFO: As a result of the continued growth on the deposit base. The bank has been reducing the use of bilateral facilities from corresponding back Dave.

Jorge L. Salas: This, of course, has benefited our funding costs. Also, during the first quarter, the Fed once again topped the Mexican debt capital markets with a new bond placement for $3 billion Mexican pesos, equivalent to $180 million, which was widely oversubscribed. Today, close to $1.3 billion, almost 15% of total funding comes from the Mexican market.

CFO: <unk> of course has benefited our funding costs.

CFO: Also during the first quarter <unk> once again topped the Mexican debt capital markets with a new bond placement or 3 billion Mexican pesos equivalent to a $180 million.

CFO: Which is widely oversubscribed.

CFO: Today close to $1 3 billion.

CFO: Almost 15% of total funding.

CFO: From the Mexican market.

Jorge L. Salas: On the P&L side, we're seeing margins stabilizing at the level we projected for the year, with NIM close to 2.5%. Income, on the other hand, also had a strong quarter, led primarily by solid revenues from our letters of credit. All this led to a net income of 51.3 million dollars for the quarter, 11 percent higher than our previous record-breaking Q4 and 39 percent higher year on year. Finally, we're excited to report 16.8% ROE for the border, an improvement of 126 basis points over the last block. I'm going to leave the highlights here for now and turn the call over to Ani, our CFO, who will talk about the results in more detail.

CFO: On the P&L side, we are seeing margin stabilizing at the level, we predicted for the year with NIM close to two 5%.

CFO: Fee income on the other hand also had a strong quarter led primarily by solid revenue from our letters of credit.

CFO: All this led to a net income of $51 3 million.

CFO: For the quarter.

CFO: 7% higher than our previous record breaking Q4, and 39% higher year on year.

CFO: Finally, we are excited to report 16, 8% ROE for the border.

CFO: An improvement of 126 basis points over the last one.

CFO: I will leave the highlights here for now and turn the call to our CFO, who will talk about the results in more detail.

Ana Graciela de Mendez: Thank you, Jorge. Good morning to everyone.

CFO: Ronnie.

Ronnie: Thank you Jorge good morning to everyone.

Ana Graciela de Mendez: I will now go into more detail on the financial performance during the first quarter of 2024, starting on slide number three. As Jorge mentioned, the bank continued to improve its bottom-line results, reaching net income in excess of $51 million during the first quarter, up by 39 percent from last year and 11 percent from the previous quarter. On the back of these strong results, the analyzed return on equity reached a notable 16.8%.

Ronnie: I will now go into more detail on the financial performance during the first quarter of 2024, starting on slide number three.

Ronnie: As Jorge introduced the bank continued to improve bottom line results, reaching net income in excess of $51 million during the first quarter up by 39% from last year and 11% from the previous quarter.

Ronnie: On the back of these strong results the annualized return on equity reached a notable 16, 8%.

Ana Graciela de Mendez: Let me now walk you through our balance sheet and profit and loss table, underlining the main items driving this sustained exceptional performance. Moving on to slide four, Black's balance sheet remains stable from the previous quarter at $10.7 billion, up by 16% from the year before on the basis of continued growth in the loan and investment portfolio balances, along with a sound liquidity position. The bank's cash position, which is mostly placed with the Federal Reserve Bank of New York, stood at $1.7 billion at quarter end, representing 16% of total assets and 37% of liability deposits.

Jorge L. Salas: Let me now walk you through our balance sheet and profit and loss statements underlining the main items driving this sustained exceptional performance.

Jorge L. Salas: Moving on to slide four.

Jorge L. Salas: <unk> balance sheet remained stable from the previous quarter at $10 7 billion.

Jorge L. Salas: Up by 16% from the year before on the basis.

Jorge L. Salas: <unk> growth in the loan and investment portfolio balances along with sound liquidity position.

The bank's cash position, which is mostly placed with the federal Reserve Bank of New York stood at $1 7 billion at quarter end, representing 16% of total assets and 37% of liability of the profit.

Ana Graciela de Mendez: Our prudent liquidity management approach follows Basel's liquidity coverage ratio as required by Panama's banking regulators. Along with strong asset quality and capitalization, a sound liquidity position represents a pillar of the bank's investment grade rating. More details on the other two main asset components, loans and investment securities, are presented in the following slide. The bank's investment securities portfolio reached $1.1 billion at quarter end.

Jorge L. Salas: Our prudent liquidity management approach follows basalt methodologies liquidity coverage ratio as required by Panamax banking, Greg and David along with strong asset quality and capitalization.

Jorge L. Salas: Our liquidity position with presents a pillar of the bank's investment grade ratings.

Jorge L. Salas: More details on the other two main asset component.

Jorge L. Salas: Loans and investment Securities are presented in the following slides.

Jorge L. Salas: The vast investment securities portfolio reached $1 1 billion at quarter end, 77% of this portfolio is placed with non Latam issuer, mostly from the U S providing country risk diversification to our credit book.

Ana Graciela de Mendez: Seventy-seven percent of this portfolio is placed with non-LATAM issuers, mostly from the U.S., providing country-risk diversification to our credit book. Furthermore, 81% is placed with investment-grade issuers and is eligible to be discounted with the Federal Reserve through our New York agency, thus providing contingent liability funding. The average remaining tenure of the portfolio is a little over two years.

Jorge L. Salas: Furthermore, 81% is placed with investment grade issuers and eligible to be discounted with the federal reserve to our newer agents.

Jorge L. Salas: Thus, providing contingent liability funding.

Jorge L. Salas: The average remaining tenor of the portfolio is a little over two years.

Ana Graciela de Mendez: The bank's core business is represented by the commercial portfolio, which includes loans as well as off-bank sheet items, such as letters of credit and guarantees. The commercial portfolio reached $8.7 billion at quarter end on a continued positive growth trend, having increased by 2% from year-end 2023 balances and 12% from the previous year, notwithstanding the lower market activity characteristic of the first quarter of the year, along with an increased competitive environment, as Jorge just mentioned. The commercial portfolio is well diversified across countries and industries in the Latin America and Caribbean region, with top exposures to Brazil at 12% and to Mexico and Colombia at 11% each.

Jorge L. Salas: The bank's core business is represented by the commercial portfolio, which includes loans as well as off balance sheet items, such as letters of credit and guarantees.

Jorge L. Salas: The commercial portfolio reached $8 7 billion at quarter ends on a continued positive will grant having increased by 2% from year end 2023, bounces and 12% on the previous year, notwithstanding the lower market activity characteristic of the first quarter of the year alone.

Jorge L. Salas: With any increased competitive environment as Jorge just mentioned.

Jorge L. Salas: The commercial portfolio is well diversified across countries and industries and the Latin America and Caribbean region.

Jorge L. Salas: With top exposures to Brazil at 12% and to Mexico, and Colombia at 11% each in.

Ana Graciela de Mendez: In line with its trade focus, the portfolio continues to be predominantly short-term in nature, with 73% scheduled to mature in the next 12 months and an average remaining tenure of less than one year. As shown on slide number six, BLAREC's asset quality remains strong, with 97% of the credit portfolio being classified as low risk or stage one, as defined by IFRS 9, while only 3% were classified as stage two, representing credits with increased risk since origination and which were all performing. On the other hand, only a minimal 0.1% of total exposure remains classified as Stage 3 impaired credits or NPL, amounting to $10 million, with a total reserve coverage of 6.9 times.

Jorge L. Salas: In line with its trade focus the portfolio continues to be short term in nature with 73% scheduled to mature in the next 12 months and an average remaining tenor of less than one year.

Jorge L. Salas: As shown on slide number six <unk> asset quality remains strong with 97% of the portfolio being classified as low risk or stage, one as defined by <unk> nine while only 3% classified as stage two representing credits with.

Jorge L. Salas: The increased risks into origination and which were all performing.

Jorge L. Salas: On the other hand, only a minimal <unk>, 1% of total exposure remains classified as stage three impaired.

Jorge L. Salas: <unk> or NPL.

Jorge L. Salas: Amounting to $10 million with a total reserve coverage of six nine times.

Ana Graciela de Mendez: Overall, credit provision charges for the first quarter were $3 million, mostly reflecting the increased balance in Stage 1 exposure from Commercial Portfolio Group. On slide 7, the graph on the left illustrates our funding structure, with deposits now representing 52% of the total funding, reaching over $4.7 billion, an increase of 32% from last year and 7% from the preceding quarter. As Jorge pointed out, this significant growth reflects the combined effect of our cross-selling strategy and the success of our Yankee CD program, which provides granularity to our funding base, together with the continued relevant participation of our Central Bank Class A shareholders.

Overall credit provision charges for the first quarter were $3 million.

Jorge L. Salas: Mostly reflecting the increased balance in stage, one exposure from commercial portfolio growth.

Jorge L. Salas: On slide seven the graph on the left illustrates our funding structure.

Jorge L. Salas: With deposits now representing 52% of the total funding reaching over $4 7 billion.

Jorge L. Salas: An increase of 32% from last year and 7% from the preceding quarter.

Jorge L. Salas: As Jorge pointed out this significant will reflect the combined effect of our cross selling strategy and the success of our Yankee CD program, which provides granularity to our funding base together with the continued relevant participation of our central Bank class a shareholders.

Ana Graciela de Mendez: These deposits are overall short-term in nature, with an average original maturity of close to five months, representing cost-effective, recurrent, and stable funding. The bank's longer-term funding base reached $2.8 billion at quarter-end, representing 31% of total funding. It consists of bond issuance in the debt capital markets in the U.S., Mexico, and Panama, along with private placements issued under the bank's EMPN program in different geographies, as well as bilateral and syndicated facilities in the international loan market. BLADEX also counts on a wide base of correspondent banks worldwide, which provide trade financing facilities with tenors of up to one year.

Jorge L. Salas: These deposits are overall short term in nature with an average original maturity of close to five months, representing a cost effective recurrent and stable funding source.

Jorge L. Salas: The bank's longer tenor funding base reached $2 8 billion at quarter end, representing 31% of total funding.

Jorge L. Salas: It consists of bond issuance in the debt capital markets in the U S, Mexico and Panama.

Jorge L. Salas: Along with private placement issued under the bank's MTN program in different geographies as well as by lateral and three indicated facility in the international market.

<unk> also counts on a wide base of correspondent banks worldwide, which provide trade financing facilities with tenors of up to one year. Additionally, the bank is also active in the insurance of short term paper in public and private format.

Ana Graciela de Mendez: Additionally, the bank is also active in the issuance of short-term paper in public and private format under its different debt programs. The bank's equity position, presented on the right-hand side, continues to be enhanced by earnings generation. Our board recently declared a 50 cents per share quarterly dividend unchanged from the preceding quarter on the back of strong financial performance.

Jorge L. Salas: That program.

Jorge L. Salas: The bank's equity position presented on the right hand side continues to be enhanced by earnings generation.

Jorge L. Salas: Our board recently declared a <unk> 50 per share quarterly dividend unchanged from the preceding quarter on the back of strong financial performance.

Ana Graciela de Mendez: Even as we continue to grow our business and our balance sheet, we aim to maintain our capital ratios at current levels as a reflection of our internal risk appetite and in defense of our investment rate rating. Moving now to the drivers behind Net Interest Income Evolution, in the following slide, we illustrate the positive trend in Net Interest Spread, or NIS, and Net Interest Margin, or NIM, since the beginning of our strategy execution in the first quarter of 2022.

Jorge L. Salas: As we continue to grow our business and our balance sheet, we aim to maintain our capital ratios at current levels as a reflection of our internal risk appetite and in defense of our investment grade rating.

Moving now to the drivers behind net interest income evolution in the following slides illustrate the positive trend in net interest spread or NII and net interest margin or NIM since the beginning of our strategy execution in the first quarter of 2022.

Jorge L. Salas: Nif's consisting of the rate differential between assets and liabilities have shown an increasing trend which has to level at around one 8% in recent quarters as expected.

Ana Graciela de Mendez: NIS, consisting of the rate differential between assets and liabilities, has shown an increase in trend which has leveled at around 1.8 percent in recent quarters, as expected, except for 4Q23, which was positively impacted by some accrual acceleration. Higher lending spreads, efficient costs of funds driven by a higher deposit base, and proactive management of the short-term interest rate gap stand as the main drivers of this positive NIS trend over the last couple of years. Along with higher market interest rates, these factors have also benefited the net interest margin, which has stabilized at a level close to our target of 2.5 percent.

Jorge L. Salas: For the <unk> 23, which was positively impacted by some accrual accelerations.

Jorge L. Salas: Higher lending spreads efficient cost of funds driven by a higher deposit base.

Jorge L. Salas: Proactive management of the short tenor interest rate gap stand as the main drivers of this positive trend.

Jorge L. Salas: Trends over the last couple of years.

Jorge L. Salas: Along with higher market interest rates. These factors have also benefited the net interest margin, which has stabilized at a level close to our target of two 5%.

Ana Graciela de Mendez: Market-based average asset rates have increased by close to 500 basis points since the beginning of 2022, generating incremental revenues from the share of assets funded by our equity. Overall, higher margins, along with sustained average portfolio growth, have driven increased net interest income levels, which stood at $62.9 million in the first quarter of 2024, up 20% from the same period of last year and 4% below the preceding quarter on a strong 4Q23, as already mentioned.

Jorge L. Salas: Market based average asset rate increased by close to 500 basis points since the beginning of 2022 generating incremental revenues from the share of assets funded by our equity.

Jorge L. Salas: Overall higher margins along with sustained average portfolio growth has driven increased net interest income levels, which.

Jorge L. Salas: <unk> stood at $62 9 million in the first quarter of 2024 up 20% from the same period of last year and 4% below the preceding quarter on a strong <unk> 2003 as already mentioned.

Ana Graciela de Mendez: Strong NII evolution reflects our successful strategy execution, particularly with regard to new client onboarding, cross-selling efforts, including higher deposits from our client base, and a strict emphasis on pricing, profitability, and capital optimization at a transaction level. Moving on to slide nine, fee income has also shown a strong performance in recent quarters. It stood at $9.5 million during the first quarter of 2024, almost double the amount from the same period last year.

Strong NII evolution reflects our successful strategy execution, particularly with regard to new client on boarding cross selling efforts, including higher deposits from our client base and a strict emphasis on pricing profitability and capital optimization at a transaction level.

Jorge L. Salas: Moving on to slide nine fee income as also shown a strong performance in recent quarters.

Jorge L. Salas: It stood at $9 $5 million during the first quarter of 2024.

Jorge L. Salas: Most double BMO from the same period of last year.

Ana Graciela de Mendez: Relative to the fourth quarter of 2023, revenue had a slight decrease, mainly due to lower activity in the transaction-based, structuring, and syndications business, which was also particularly strong at the year-end. Letter of credit business, a pillar of our strategy, has increased to a quarterly level of close to $6 million, having streamlined processes that have allowed increased transactionality as well as benefiting from cross-sell emphasis. Once we complete the automation phase of this key trade finance product, we should be able to further scale this important revenue stream. Jorge will comment on this later.

Relative to the fourth quarter of 2023 fee income had a slight decrease mainly due to lower activity in the transaction bank structuring and syndication business, which was also particularly strong at year end.

Jorge L. Salas: Letter of credit business, a pillar of our strategy has increased to a quarterly level of close to $6 million.

Jorge L. Salas: Having streamlined processes that have allowed increased transaction activity as well as benefiting from cross sell emphasis.

Jorge L. Salas: Once we complete the automation of these key trade finance product, we should be able to further scale. This important revenue stream Jorge will comment on this later.

Ana Graciela de Mendez: During the first quarter of 2024, we also saw increased other fees, which relate to fee acceleration on facility prepayments, along with other opportunistic off-bankership transactions. On slide 10, seasonally lower quarterly expenses led to an improvement in the bank's efficiency, reaching a cost-to-income level of 25 percent in the first quarter of 2024, better than the 27 percent experienced in recent quarters. Expenses decreased by $3.2 million, or 15%, with respect to the preceding quarter, which included higher performance-based variable compensation due to an outstanding 2023, as well as greater activity in strategy execution.

Jorge L. Salas: During the first quarter of 2024, we also saw increased other fees, which relate to see acceleration of facility prepayments along with other opportunistic off balance sheet transactions.

Speaker Change: On slide 10, seasonally lower quarterly expenses led to an improvement in the bank's efficiency.

Speaker Change: <unk> a cost to income level of 25% in the first quarter of 2024 better than the 27% experienced in recent quarters.

Speaker Change: Expenses decreased by $3 2 million or 15% with respect to the preceding quarter, which included higher performance based variable compensation due to our outstanding 2023, as well as greater activity in strategy execution.

Ana Graciela de Mendez: When compared to the same period of last year, quarterly expenses were up by $2.4 million, or 15%, due to a higher salary base, as our workforce increased by close to 50% over the last two years, in line with our focus on strengthening blood exit execution capabilities, as outlined in our strategic plan. With that, I now turn the call back over to you. Thank you.

Speaker Change: When compared to the same period of last year quarterly expenses were up by $2 4 million or 15% due to a higher salary base as our workforce increased by close to 50% over the last three years in line with our focus on strengthening blacks its execution Cape.

Speaker Change: As outlined in our strategic plan.

Speaker Change: With this let me now turn the call back to Jorge Thank you.

Jorge L. Salas: Thank you very much and great job. As we have communicated before, after two years of careful execution, VLADEX is transitioning from the optimization phase to the expansion phase of our five-year strategic network. In this new phase, the focus is the enhancement of our product. Significant technological upgrades are needed to achieve this objective.

Jorge L. Salas: Thank you very much and great job.

Jorge L. Salas: As we have communicated before after two years of careful execution <unk> is transitioning from the optimization phase two the expansion phase of our five year strategic plan.

In this new phase the focus is the enhancement of our product suite Cigna.

Speaker Change: Significant technological upgrades are needed to achieve this objective.

Jorge L. Salas: In this sense, after a lengthy and very thorough vendor selection process, ZEISS will soon announce the selection of two strategic IT platforms that will enhance our product. One platform is related to trade finance solutions, and the other one will support the treasury management space. I want to share with you the transformative impact of these new solutions on our valley.

Speaker Change: In this sense after a lengthy and very thorough vendor selection process dice will soon announce the selection of two strategic IP platforms that will enhance our product suite.

Speaker Change: One platform is related with trade finance solution and the other one will support the Treasury management space.

Speaker Change: I want to share with you the transformative impact of this new solutions in our back.

Jorge L. Salas: First of all, the trade finance platform will provide the operational support to significantly scale our biggest fee income generating product, letters of credit. The new platform not only has an extremely friendly client interface but also will allow us to efficiently process a significantly higher number of transactions while minimizing manual errors as end-to-end processes will be refined through automation. Moreover, the platform will allow us to provide structured working capital solutions for our corporate clients, specifically on the buyer side, at the first stage of implementation.

Speaker Change: First of all the trade finance platform will provide the operational support to significantly scale, our biggest fee income generating broad letters of credit.

Speaker Change: The new platform not only has an extremely friendly client interface, but also will allow us to efficiently process, a significantly higher number of transactions, while minimizing manual error as end to end processes will be refined through automation.

Speaker Change: Moreover, the platform will allow us to provide structured working capital solution for our corporate clients specifically on the buyer side on the first stage of implementation.

Jorge L. Salas: Once the platform is up and running, we will be able to enter multiple highly transactional supply chain finance programs of existing clients and new clients at the same time. Today, we are only able to join a limited number of programs as we are forced to select only the ones that have limited transactionality.

Speaker Change: Once the platform is up and running we will be able to enter multiple highly transactional supply chain finance program of existing clients and new clients at the same time today, we're only able to join a limited number of grower as we are forced to select only the one that have.

Speaker Change: Limited transactional.

Jorge L. Salas: This will bring significant gains in both lending bargains and also credit spreads since supply chain finance programs typically command a premium over the typical direct lending facility. Similarly, the implementation of a new IT solution for the treasury area will allow us to automate processes that are currently carried out with a high degree of manual intervention. We intend to implement a treasury solutions team that will offer hedging products to our clients covering risks derived from FX, interest rate, and commodity price exposure.

Speaker Change: This will bring significant gains in both lending volumes and also credit spreads since supply chain Finance program typically command a premium over the typical direct lending facility.

Speaker Change: Similarly, the implementation of a new IP solution for the Treasury area will allow us to automate processes that are currently carried out with a high degree of manual information.

We intend to implement a treasury solutions that will offer hedging products to our clients covering risks derived from FX interest rates and commodity price exposure.

Jorge L. Salas: Clearly, the treasury business has strong synergies with other initiatives that are currently being implemented at the bank. Project finance borrowers, for example, are often looking for tools to manage interest rate risk and FX risk associated with their debt. This provides an opportunity to offer interest rate or cross-currency swaps. However, although we have mentioned this point before, I would like to emphasize once again that these initiatives do not entail opening new risk fronts for BLAR. The Treasury Solutions team will be offering hedging products to our clients covering risks derived from FX or interest rate exposure.

Speaker Change: Clearly the treasury business, a strong synergies with other initiatives that are currently being implemented at the back.

Speaker Change: Brian its finance borrowers for example are often looking for tools to manage interest rate risks and FX risks associated with their deck. This provides an opportunity to offer interest rate our cross currency swaps.

Speaker Change: Although we have mentioned at this point before I would like to emphasize once again that these initiatives do not entail opening new risk fronts four blocks.

Treasury solutions team will be offering hedging products to our clients covering risks derived from FX or interest rate exposures.

Jorge L. Salas: Our relationship management team has identified plenty of potential opportunities which the bank, with its wide regional coverage, is in a very good position to capture. I want to make one last comment regarding our guidance for the year. Even though, as of today, we have exceeded the profitability targets, mainly due to the successful implementation of the first phase of our plan, we also recognize the positive impact of favorable market conditions on our results.

Speaker Change: Our relationship management team.

<unk> plenty of potential opportunities, which the bank with a wide regional coverage is in a very good position to capture.

I want to make one last comment regarding our guidance for the year.

Speaker Change: Even though as of today, we have exceeded the brokerage stability target mainly due to the successful implementation of the first phase of our plan. We also recognize the positive impact of favorable market conditions and our results.

Jorge L. Salas: Looking forward, our focus is twofold, first, on the execution of the expansion phase of our strategic plan and, secondly, on maintaining the profitability levels we have achieved so far. In this context, I want to reaffirm our guidance for 2024 and remain committed to achieving the objectives outlined in our plan for 2024. I will leave it there for now and open the call for questions, Operator. Thank you very much.

Speaker Change: Looking forward our focus is twofold.

Speaker Change: On the execution of the expansion phase of our strategic plan and secondly on maintaining the profitability levels, we have accomplished so far.

Speaker Change: In this context I want to reaffirm our guidance for 2024 and remain committed to achieving the objectives outlined in our plan for 2026.

Speaker Change: I will leave it there for now and open the call for questions operator.

Speaker Change: Thank you very much for the presentation. We will now begin the Q&A session for investors and analysts if you wish to ask a question. Please press the button raised hand.

Operator: Thank you very much for the presentation. We will now begin the Q&A section for investors and analysts. If you wish to ask a question, please press the button and raise your hand. If your question has already been answered, you can leave the queue by clicking on put hand down. There's also the possibility to ask your questions through the Q&A icon at the bottom of the screen. You may select the icon and type your question along with your name and company.

Speaker Change: If your question has already been answered you can leave the queue by clicking on one hand down there is also a possibility to ask your questions through the Q&A icon at the bottom of the screen you may select the icon and type your question with your name and company.

Operator: Written questions that are not addressed during the earnings call will be returned by the investor relations team. Our first question comes from... Patrick Brown, great results. Congratulations. There was a slight decrease in margins this quarter. Can you further comment on this?

Speaker Change: Questions that are not addressed during the earnings call will be returned by an investor relations team.

Speaker Change: Our first question comes from.

Speaker Change: Patrick Brown great results congrats.

Patrick Brown: Slight decrease in margins this quarter can you further comment on this.

Jorge L. Salas: Thank you, Patrick. That's a good question. We are seeing some pressure on credit spreads, and I'll say it's mainly for two reasons. One is that we're seeing more liquidity, and we're also seeing more competition from banks, both locally and international banks. But I'll say that perhaps the main reason is perhaps that local and international debt capital markets are starting again to compete with our medium-term portfolio. Now, this is not new to us. The good news here is that we have a very strong pipeline of good quality syndicated deals with health and special estate that should close in this second quarter of the year. So that should compensate.

Speaker Change: Thank you Patrick.

Patrick Brown: Good question, we are seeing some pressure on credit spreads.

Speaker Change: Let's say, it's mainly for two reasons.

Speaker Change: One is we're seeing more liquidity.

Speaker Change: And we're also seeing more competition from banks.

Speaker Change: Local and international emerge, but I'll say that the main reason is perhaps the local and international debt capital markets are starting again to compete with our medium term portfolio now.

Speaker Change: Now this is not this is not new growth are.

Speaker Change: Good news here is that we have a very strong pipeline of good quality syndicated deals with healthy healthy spreads I will state that should close.

Speaker Change: In the second quarter of the year.

Speaker Change: So that should compensate.

Jorge L. Salas: Next question also from Patrick Brown: we see a decrease in quarterly expenses related to the fourth quarter. What should we expect going forward?

Speaker Change: Next question also from Patrick Brown, we see a decrease in quarterly expenses related to the fourth quarter, what should we expect going forward.

Jorge L. Salas: Thank you, good question as well. This one is a little tricky because expenses are seasonally high in Q4, and particularly last Q4, and are seasonally low in Q1. I guess I'll say the average run rate that you should expect is closer to the level of Q3 in 2023. And as I mentioned before, we do expect to keep investing in transformations in the IT platforms going forward.

Speaker Change: Thank you good question as well this one is a little tricky.

Speaker Change: Because expenses are seasonally high in Q4, and particularly last Q4 and are seasonally low in Q1.

Speaker Change: I guess I'll say the average.

Speaker Change: Run rate that you should expect is closer to.

Speaker Change: So the level of Q3 in 2023.

Speaker Change: And as I mentioned before we do expect to keep investing.

Speaker Change: And transformations in the IP platforms going forward.

Operator: The next question is from Inigo Vega with Jefferies. You can activate your microphone.

Speaker Change: Next question is from an Eagle Vega with Jefferies you can activate your microphone.

Speaker Change: Yes.

Inigo Vega: Hi, good morning. I have a couple of questions. One going back to the NIM. I mean, the NIM was 2.5 in Q1, which is in line with your target for the full year. You mentioned a bit more competition, more liquidity, interest rates. Who knows? But, you know, they should come down at some point over the next 18 months. How realistic is it to think, you know, two point five.

Eagle Vega: Hi, good morning.

Eagle Vega: I've got a couple of questions.

Eagle Vega: One going back to the NIM and the NIM was two five.

Eagle Vega: In Q1, which is in line with your target with full year, you mention a bit more competition more liquidity.

Eagle Vega: Who knows but they should come down at some point over the next 18 months.

Eagle Vega: Hopefully at least there is two things.

Eagle Vega: Two five.

Inigo Vega: [inaudible] not only for this year but for the following year, like, you know, within these moving pieces, like, you know, spread from the core business and obviously your long position on interest rates to the equity. And my second question is on OPEX. I mean, you've done a great job.

Speaker Change: <unk> not only for this year, but for the following years within these moving pieces like straight from the core business.

Speaker Change: And obviously your loan position on.

Speaker Change: On interest rates.

Speaker Change: And my second question is on Opex, I mean, you've done.

Speaker Change: <unk>.

Inigo Vega: OPEC's effort already. You were talking about these solutions, which are key in the strategic plan. How big are they in terms of OPEC's effort?

Speaker Change: Opex fourth already you were talking about these solutions, which are key strategic.

Speaker Change: That's the plan.

Speaker Change: How big are they in terms of the Opex that flows I mean, how much.

Inigo Vega: I mean, how much do we still need to see OPEX going up? I guess, you know, still this year. And where is the lag for full monetization? So, you know, when do you think these two IT platforms could be fully monetized? Are we talking like, you know, two years, three years, four years?

Speaker Change: Do we still need to see Opex going up I guess still this year on what is the lag.

Speaker Change: Our full monetization so.

Speaker Change: When do you see in this too.

Speaker Change: Platforms could be fully monetize how are we talking like.

Speaker Change: Two years three years four years, thank you for that.

Jorge L. Salas: Thank you for that.

Jorge L. Salas: Thank you. Thank you, Inigo.

Speaker Change: Thank you. Thank you renewable let me start with the second question first and then the <unk>.

Jorge L. Salas: Let me start with the second question first, and then the margins question; I'll turn it to Juan. So on the OPEX and the IT investments, we do expect a gradual, let's say, implementation of both platforms to begin in the second half of this year. Implementations for these platforms usually take between a year and 18 months. Um, Obviously, as part of the purpose here is to generate incremental revenues to protect precisely our needs.

Speaker Change: Margins question alternative too.

Speaker Change: Two one.

Speaker Change: So so on the Opex and the IP investments, we do expect to a gradual.

Speaker Change: The implementation.

Speaker Change: Both platforms to begin with.

Speaker Change: Second half of this year.

Speaker Change: Implementation for this platform usually takes between.

Speaker Change: A year and 18 months.

Speaker Change: Obviously part of the purpose.

Speaker Change: Here is to generate incremental revenues to protect precisely.

Speaker Change: Our NIM.

Jorge L. Salas: We expect the incremental revenues to be around 10% of total revenues by 2026, and the tools combined to account for about 50% of total IT investment in the next five years. The rest is basically cyber security infrastructure and other applications. I think the right way to look at it is in terms of average incremental IT expenses, which will be around 1.5% of total revenues in our response rate. Hey, I don't know if that answers your question.

Speaker Change: We expect the incremental revenues to be around 10% of total revenue by 2026.

Speaker Change: And the tools combined.

Speaker Change: We're about 50% of total IP investments in the next.

Speaker Change: Five years.

Speaker Change: The rest is basically cyber security infrastructure.

Speaker Change: Sure.

Speaker Change: I think the goal.

Speaker Change: Correct way to look at it in terms of.

Speaker Change: Albert increments, so expenses will be around.

One 5% of total revenues in our rates.

Speaker Change:

Speaker Change: I don't know if that answers your question.

Inigo Vega: Yeah, yeah, absolutely, absolutely, very clear.

Speaker Change: Yeah, Yeah, absolutely absolutely very clear.

Speaker Change: Okay and in terms of NIM.

Speaker Change: Our guidance.

Speaker Change: That we put there.

Jorge L. Salas: Okay, and in terms of NIM, our guidance that we put there assumes two pet cuts in the second half of the year. So who knows what's going to happen with the race, as you say. But we do.

Speaker Change: Assuming two fed cuts in the second half.

Speaker Change: Of the year.

Speaker Change: What's going to happen with Brexit.

As you say.

Speaker Change: But we remain committed to towards net interest margin of two five.

Speaker Change: Given what we're seeing.

Speaker Change: Okay. So you think so so you're saying that the $2 five you can have like a bit of pressure from <unk>.

Inigo Vega: Okay, so you think, so yeah, so you think that.

Jorge L. Salas: That's right................ Depositing a share on funding will also help us to protect

Speaker Change: Low interest rates and as it go higher but you kind of said that too.

Inigo Vega: Yeah, and considering that, you know, the repricing takes a while, so for this year, in our base case, we didn't see so much of an impact. If the rates do go down, they would probably see more pressure next year from the lower rates. Perfect, super clear. Thank you so much.

Speaker Change: Slightly higher margin on the core business.

Speaker Change: Our core business.

Speaker Change: Also in terms of.

Speaker Change: Deposits gaining share.

On <unk>.

On funding will also help us to protect.

Speaker Change: Spreads there.

Speaker Change: Yes, and consider any of that.

Speaker Change: The re pricing takes a while for this year.

Speaker Change: In our base case.

Speaker Change: Didn't see so much of an impact.

Speaker Change: The rates will go down.

<unk> seen more pressure next year.

Speaker Change: Lower rates.

Inigo Vega: Perfect. Super clear. Thank you so much. You're welcome.

Speaker Change: Perfect Super clear. Thank you so much.

Speaker Change: Youre welcome.

Speaker Change: Yeah.

Operator: Okay, thank you very much. That's all the questions we have for today. I'll pass the line back to the BLADx team for closing remarks.

Speaker Change: Okay. Thank you very much that's all the questions. We have for today I'll pass the line back to the <unk> team for closing remarks.

Speaker Change: Alright.

Jorge L. Salas: Let me just make a couple of comments before closing. We're happy, of course, with the traction that the strategic plan has gained. I think the results speak for themselves. Non-interest income has doubled since we started to execute the plan and clearly has the potential to scale even further with the implementation of the tools that I've described. I mean, the process, as you saw, is growing faster than the commercial portfolio, which is, of course, helping. Our nettings are spread.

And just make a couple of comments before closing.

Speaker Change: Happy of course with the traction that the strategic plan.

Speaker Change: I think the results speak.

Speaker Change: For themselves.

Speaker Change: Noninterest income has doubled and we started to get the plan and clearly.

Speaker Change: Has the potential to scale, even further with the <unk>.

Speaker Change: Implementation of the tools that described.

Speaker Change: The process is we saw growing faster than in the commercial portfolio, which is of course, helping.

Speaker Change: Uh huh.

Speaker Change: Our net interest spread.

Jorge L. Salas: Credit quality remains pristine, and our ROE for the quarter is the highest in at least 20 years. So, I'm super happy. The whole team is very clear and focused on the roadmap going forward, and extremely committed.

Speaker Change: Credit quality remains pristine.

Speaker Change: And our ROE for the quarter is the highest in at least 20 years. So.

Speaker Change: Super Happy the whole team is very clear and focused on the roadmap going forward.

Speaker Change: And extremely committed to it.

Jorge L. Salas: I'm going to leave it there. See you again on the next call. Thank you. This concludes today's presentation. Thank you.

I'm going to leave it there.

Speaker Change: Yeah again in the next call.

Thank you so much.

Speaker Change: This concludes today's presentation. Thank you have a great day.

Operator: This concludes today's presentation. Thank you. Have a great day.

Speaker Change: Okay.

Speaker Change: Goodbye.