Q2 2024 Banco Latinoamericano de Comercio Exterior SA Earnings Call
Your meeting I D followed by pound.
Speaker Change: You have.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: And representing a substantial 35% increase compare to the same period last year.
Speaker Change: There is no doubt that this robust year over year growth on the bottom line is a testament of our continued strength of our business model and the successful execution of our strategic plan.
Speaker Change: Finally, I'm pleased to report a return on equity of 16, 2% for the second quarter, an increase of 279 basis points compared to the same period last year.
Speaker Change: This reflects the strong profitability of our bank debt has optimized its capital allocation and operates with a minimum liquidity gap no FX risks and historically excellent asset quality.
Speaker Change: I will not I will now hand, it over to Anthony our CFO for a detailed financial and announced.
Anthony: Can you go ahead.
Anthony: Thank you Jorge and good morning, everyone.
Speaker Change: Let's now move to slide three.
Speaker Change: As already mentioned the bank has maintained a strong performance trend with quarterly net income reaching over $50 million for the second consecutive quarter.
Speaker Change: Martin an annual increase of 35%.
These results represent a 2% return on assets.
Speaker Change: 16% Roe.
Speaker Change: And add up to a 101 4 million net income for the first half of the year.
Speaker Change: Up by 37% from last year.
Speaker Change: Or as touched upon the main drivers of this bottom line performance.
Speaker Change: So let me expand on it a bit more starting with our asset growth and compensation on slide four.
Speaker Change: Loans increased by 9% on an annual basis and were up by 1%.
Speaker Change: The previous quarter.
Speaker Change: Including off balance sheet items commercial portfolio grew by 13% from last year.
Speaker Change: During the second quarter, we have observed a substantial increase in liquidity in our operating markets.
Speaker Change: Leading to heightened competition and margin pressure.
Speaker Change: Nonetheless, we continue to see demand and business growth, particularly in our trade related lines of business such as letters of credit confirmation and the discounting of cross border receivables or vendor finance.
Speaker Change: This growth is driven by our efforts to add new clients and cross sell.
Speaker Change: As well as by increased structured transactions on both products.
Speaker Change: All while maintaining our focus on providing tailor made solutions for our clients.
Speaker Change: We were also able to increase longer tenor transactions with a robust performance of our newly formed project finance and infrastructure business.
Speaker Change: Along with the one originated through our syndication desk.
Speaker Change: What do we see a strong pipeline going forward.
Speaker Change: Overall average loans and lending spreads remained stable quarter over quarter, and we note an increase from last year.
Speaker Change: In the next slide we present, our commercial portfolio on the right.
Speaker Change: Which continues to be well diversified 12, the Latam region with top exposures to Brazil at 12%.
Speaker Change: And to Mexico, and Colombia at 11% each closely followed by what amount and the Dominican Republic at 10% each.
Speaker Change: Both countries in Central America, and Caribbean region, with good economic prospects, where we continued to execute on solid risk reward opportunities.
Speaker Change: On the left hand side the investment Securities portfolio remained at $1 1 billion at.
Speaker Change: At quarter end.
Speaker Change: Same as the prior quarter.
Speaker Change: 78% of this portfolio is placed with non Latam issuers, mostly from the U S providing country risk diversification to our credit book.
Speaker Change: Furthermore, 86% is placed with investment grade issuers and is eligible to be discounted with the federal reserve to our New York Agency.
Speaker Change: Thus, providing contingent liquidity funding.
Speaker Change: The average remaining tenor of the portfolio is a little over two years.
Speaker Change: On slide six you.
Speaker Change: You can see our credit exposure that is loans investments and off balance sheet items combined classified by stages. After <unk> nine.
Stage, one of low risk exposure.
Speaker Change: <unk> for 94, 5% of total exposure.
Speaker Change: At $9 8 billion.
Speaker Change: An increase of over $300 million or.
Speaker Change: Four 3% from the previous quarter.
Speaker Change: Which explains most of the increase in credit reserves.
Speaker Change: Of the $6 $7 million in credit provision charges for the quarter stage one growth.
Speaker Change: Presented most of it.
Speaker Change: Italy, $6 2 million.
Speaker Change: On the other side stage two exposure now represents five 5% or $563 million.
Speaker Change: Notably although stage two exposure has increased from 3% of total exposure on the preceding quarter.
Speaker Change: Its overall quality has improved.
This is explained by the collection of scheduled maturities of higher risk exposures categorized our special mention and or monitoring.
Speaker Change: Which has been offset by the increase of low risk, mostly very short tenor and quasi government exposures with revised downward risk ratings.
Speaker Change: As part of our proactive client risk evaluation for us.
Speaker Change: As a result phase II allocated reserves remained relatively stable with.
Speaker Change: With a credit reserve requirement of only zero point $4 million during the second quarter.
Speaker Change: Finally, only a minimal 0.1% of total exposure remains classified as stage three impaired credits or npls amounting to $10 million with a total reserve coverage of seven five times.
Speaker Change: Overall, the quality of the portfolio remains strong with a robust reserve coverage.
Speaker Change: Now moving to slide seven.
Speaker Change: Our funding base remains well diversified.
Speaker Change: With deposits now accounting for 58% of the total financial liabilities.
Speaker Change: As highlighted by Jorge our deposit base continues to show a robust growth trend.
Jorge: Reaching $5 3 billion.
Jorge: Which represents a 29% increase from last year and up 11% from the preceding quarter.
Speaker Change: Central banks are class, a shareholders, who placed part of their U S. Dollar international reserves with US account for 39% of total deposits.
Speaker Change: A very stable source of funding overtime.
Speaker Change: The remaining 61% comes from our client banks and corporations.
Speaker Change: Source that has been showing a strong growth over the last several quarters as a result of our cross selling efforts.
Speaker Change: As Jorge pointed out our Yankee CD program, which operates out of our New York Agency through broker dealers distributions continues to provide both volume and granularity representing 26% of total deposits at the end of June.
Jorge: Or he is also already mentioned another important funding transaction in the global syndicated market, which along with our recurrence access to global capital markets and a broad network of correspondent banks worldwide provides a solid funding base with <unk>.
Jorge: Geographic and tenant diversification.
Jorge: The bank's equity position presented on slide eight.
Jorge: Continues to be enhanced by strong earnings generation.
Jorge: Our board recently declared a <unk> 50 per share quarterly dividend unchanged from the preceding quarter on the back of strong financial performance.
Jorge: Even as we continue to grow our business and our balance sheet, we aim to maintain our capital ratios.
Jorge: Current levels as a reflection of our internal risk appetite and in defense of our investment grade ratings.
Speaker Change: Moving onto P&L performance on slide nine you can see the evolution of net interest income and margin the main components of revenue.
Speaker Change: Net interest income has remained stable over the last two quarters at close to $63 million with.
Speaker Change: Representing an annual increase of 15%.
Speaker Change: Sustained margins and higher average asset volumes have driven.
Speaker Change: Strong topline performance.
Speaker Change: Over the last year, we have seen a positive trend in net interest spreads or NII and net interest margin or NIM, continuing the momentum that began with the execution of our new strategy in 2022.
Speaker Change: Enhanced financial margins reflect improved lending spreads.
Speaker Change: With a strict emphasis on pricing and optimization of capital allocation at a transaction level.
Speaker Change: It also reflects efficient cost of funds management supported by a higher deposit base, along with higher market interest rates.
Speaker Change: During the second quarter, we saw a slight reduction in mis in NIM from the preceding quarter.
Reaching 174% and 243% respectively.
Speaker Change: Mainly resulting from the effect of the inverted yield curve on a higher very short tenor deposit base.
Speaker Change: <unk> the base rate differential between assets and liabilities.
Speaker Change: When market interest rates begin to decline as widely anticipated.
Speaker Change: We expect a correction in the yield curve.
Speaker Change: Which should benefit our short tenor interest rate gap position.
Speaker Change: Slide 10 showcases our solid fee income performance.
Speaker Change: In the second quarter of 2024, it nearly doubled compared to the same period of last year.
Speaker Change: Our letter of credit business.
Speaker Change: Key strategic pillar as grown to a quarterly level of $6 5 million.
Speaker Change: Having streamlined processes benefiting from new client additions.
Speaker Change: Some very profitable onshore opportunities.
Speaker Change: Once we complete the automation space of these key trade finance product, which.
Speaker Change: Should be able to continue to scale this important revenue stream.
Speaker Change: As Jorge mentioned, we also had a strong quarter in our structuring business.
Jorge: Having closed five transactions during the quarter generating $3 7 million in fees.
Jorge: For a total of $5 million in the first half of the year.
Speaker Change: Noting and outstanding performance.
Speaker Change: On slide 11 <unk>.
Speaker Change: Expenses remained stable quarter on quarter at $18 million.
Speaker Change: Improving efficiency to a level of 24%.
Speaker Change: For the quarter on strong revenue growth.
Speaker Change: The annual 17% increase in quarterly expenses.
Speaker Change: Mostly relates to a higher salary base.
Speaker Change: Our workforce increased by close to 50% over the last couple of years.
Speaker Change: In line with our focus on strengthening <unk> execution capabilities.
Outlined in our strategic plan.
Speaker Change: Let me now turn the call back to Jorge Thank you.
Jorge: Thank you very much Amy.
Speaker Change: Before we open the call for questions I'd like to share an important update on the progress of phase two of our 2026 strategic plan.
Jorge: As I mentioned in our last call and in line with our goal to maintain our position as a leading provider of create finance solutions in Latam I am excited to announce that after a careful vendor selection process.
Speaker Change: <unk> has selected the state of the art trade platform developed by the top IP consulting firms CGI to optimize our processing and management of letters of credit and working capital solutions.
Speaker Change: This award winning platform is utilized by major banks to important foreign trade in over 85 countries across Asia, Europe, North America, and Australia with bloggers, who will be the first Latin American bank to adopt this world class technology.
Speaker Change: This trade platform will significantly enhance efficiency security and transparency in blacks this operation.
Speaker Change: <unk>, our corporate clients to manage their financial needs quickly and accurately on a single integrated global platform.
Speaker Change: The implementation of this project started just a few days ago with a dedicated multi disciplinary team from both institutions collaborating over the next 10 to 12 months to deploy these advanced trade finance technology under the supervision of largest PMO office.
Speaker Change: We will keep you updated on the progress of this and other key projects.
Speaker Change: I'm going to leave it here for now in Oakland and the call for questions.
Speaker Change: Operator.
Speaker Change: Thank you very much for the presentation will now begin the Q&A section for investors and analysts.
Speaker Change: If you wish to ask a question. Please click on race hand. If your question has already been entered you can Lisa Q by clicking on foot hands down.
Speaker Change: There's also the possibility to ask your questions through the Q&A icon at the bottom of the screen you may selects the icon and type your question with your name and company.
Speaker Change: Written questions that are not addressed during the earnings call will be returned by the Investor Relations team.
Speaker Change: Our first question comes from Eagle makeup with Jefferies.
Speaker Change: We can open your microphone.
Eagle makeup: Hi, Good morning, all these cynical Vega from Jefferies.
Speaker Change: Very quick.
Speaker Change: Great question.
Speaker Change: First one is on.
Speaker Change: On the Super high growth, we've seen in <unk>.
Speaker Change: Minton guarantees of balance sheet I see that you know.
Growth is much higher than.
The non balanced human being can you assure where is it coming from legacy commitments you see blips prophage.
Speaker Change: We face any concentration in any particular country second.
Speaker Change: Second one is on.
Speaker Change: On the partnership on the trade finance.
Speaker Change: You mentioned with GCI.
Speaker Change: Can you sort of give some color on when we expect.
Speaker Change: Some revenue or have you seen that revenues from this what is the pipeline.
Speaker Change: New products launched.
Speaker Change: Launching new products with a platform. So if you can give us some color on that would be super helpful.
Speaker Change: And the last one is on competition you mentioned.
Speaker Change: The market is competitive.
Speaker Change: Capital markets are.
Speaker Change: Wide open.
Speaker Change: See the lending yields are down like four weeks.
Speaker Change: In the quarter things were a lot, but if you can sort of comment on what.
Speaker Change: Where is the completeness environment today, and whether you see the completeness environment over the next few months.
Speaker Change: Thats all for me thank you.
Speaker Change: I'll, let Andy go great questions.
Speaker Change: Okay.
Speaker Change: Let me, let me start by the last one on margins.
Andy: Some of our Chief commercial officer is here with me.
Andy: He's going to tackle that one and then I'm going to talk about.
Andy: The other two questions on our balance sheet and.
Speaker Change: Trade finance platform, so somebody wanted to tackle the first one sure things.
We're definitely facing a very competitive environment for lending, which was already referred by you and I mean in your initial remarks.
Speaker Change: Pricing pressure pressures of excess liquidity in U S dollar in general and a much more effective International addition margin.
Speaker Change: The other point of pressure has been more favorable local markets for borrowers.
Speaker Change: Bear to U S dollars as some countries have started to cut rates before the fed.
Speaker Change: Despite such pressures however.
Speaker Change: We're happy with how we have been able to hold up our net net interest margins rather stable.
Speaker Change: And that is partially due to the continuous rollout of this strategic plan.
Speaker Change: Special mentioned here with the strengthening.
Speaker Change: Of our syndication of breakfast, which was already mentioned.
Speaker Change: But not only but also deals with higher margins using their medium term nature for.
Speaker Change: For the most part.
Speaker Change: As well as the good ramp up of our product demands and infrastructure business.
He is employment the closing of the refinancing of the Arizona transaction.
Speaker Change: The Dominican Republic, what does demand goes.
Speaker Change: Which we exited as one of the joint lead Arrangers and a $440 million of credit facility to support the first class global sponsor in the country.
Speaker Change: While the pungent economy, particularly led by international Tourism that has been that has growing infrastructure needs.
Speaker Change: We do expect the margin pressures to continue.
Speaker Change: But.
Speaker Change: We also do expect the rollouts of the new strategy strategy.
Speaker Change: <unk>.
Speaker Change: Transactions that comes with higher margins to continue as well and to counter that pressure.
Speaker Change: I feel that we will continue to be.
Speaker Change: Navigating well.
Speaker Change: And we.
Speaker Change: Hope June through June or July would you say like that thank you.
Okay. That's does that answer your question and you I mean.
Speaker Change: Awesome, absolutely Super helpful. Yeah, right here.
Let me talk now about VR and increasingly our balance sheet.
Speaker Change: Either.
Speaker Change: It wasn't significant.
Speaker Change: Inquiries about.
Speaker Change: 33% as you mentioned.
Speaker Change: The bulk of that.
Speaker Change: As related to one off I'm going to say very short term trade.
Speaker Change: Trade related opportunistic transactions.
Speaker Change: That involved.
Speaker Change: One of our class a shareholders.
Speaker Change: Those are mostly letters of credit.
Speaker Change: Those who are responsible for the bulk of our stage one reserves this quarter.
Speaker Change: But its more due to the country risk rating.
Speaker Change: And I'm talking about Argentina.
Speaker Change: We're basically financing imports related to the most basic energy needs in the country.
Speaker Change: Essential for the country to run.
Speaker Change: That was done this many times over the year with impeccable track record.
Speaker Change: If you think about the new this is our bread and butter very short term create related and attractive returns.
Speaker Change: Don't forget we also have.
Speaker Change: Brookdale greater status in that country. So.
Speaker Change: That's basically it we are following the developments and.
Speaker Change: In Argentina closely and we believe that the country is going into right direction, there might be more opportunities there going forward.
Speaker Change: As far as the CGI investment in under trade finance platform.
Speaker Change: Let me just share some key assumptions of the business case.
Speaker Change: The investment.
Speaker Change: We believe that once the platform is up and running we can be able to process. Two five times. The transactional volume. We are just on letters of credit that we are processing today.
Speaker Change: We expect that.
Speaker Change: To be there are about 225 times.
Speaker Change: Approximately two years, it's very clear that the demand is there even with our current customer base without growing our customer base, it's very clear that we can reach that volume.
Speaker Change: Now the average dollar amount of the let's say the incremental transactions will be substantially smaller maybe.
Speaker Change: <unk>.
Speaker Change: Half the size of a predicted.
Speaker Change: Average fee on that those tickets wood tends to be higher.
Speaker Change: Also.
Speaker Change: The other important things that we will not need to keep adding people to the team to handle this.
Speaker Change: Incremental volume.
Speaker Change: All of this is just on the letters of credit.
All of this is just on the letters of credit.
Speaker Change: On the supply chain finance the rationale is similar.
Speaker Change: It will be able to boost our current Bert vendor finance.
Speaker Change: Business very efficiently in other words, making.
Speaker Change: Being able to process more volume of smaller tickets.
Speaker Change: With minimal.
Speaker Change: Head count.
Joseph: In any case, we expect the incremental revenues Joseph the letter of credit business will be enough to pay back the cost of the whole platform in about 18 months.
Speaker Change: That's basically the rationale for it.
Speaker Change: Whether trade finance aircrafts CGI.
Speaker Change: We're very excited with.
Speaker Change: Sounds great.
Speaker Change: Thanks, very much again for all the details and comprehensive.
Speaker Change: Thank you. Thank you so much.
Speaker Change: Our next question comes from selling to mining.
Speaker Change: Grupo Banco Columbia.
Speaker Change: Her question is taken into account the economic and political context.
Speaker Change: You, where inflation has had favorable behavior and it's expected that the SCB will cut rates in September and at the same time to commercial tensions.
Rates.
Speaker Change: Commercial centers that have been generated how do you see this impacting the countries in the region. Thank you.
Speaker Change: Yeah, Let me let me.
Speaker Change: Talk a little bit about how.
Speaker Change: We see.
Speaker Change: The region on a country by country.
Speaker Change: Basis.
Speaker Change: First of all regarding raise its clear that central banks.
Speaker Change: In advanced economies have started to two.
Speaker Change: To ease their monetary.
Speaker Change: Michael.
Speaker Change: <unk>.
Speaker Change: That of course will impact.
Speaker Change: Sure.
Speaker Change: Central banks in the region.
Speaker Change: Perhaps.
Speaker Change: Later than we originally thought.
Speaker Change:
Speaker Change: So real interest rates in the region maybe.
Speaker Change: Remain restricted.
Speaker Change: Towards the end of the year.
Speaker Change: Now on a country specific basis we.
Speaker Change: We see we have like three groups of countries. So first Uruguay.
Speaker Change: Tyler we have grown a lot.
Speaker Change: Costa Rica Paraguay.
Speaker Change: Dominican Republic also an important country for us.
Speaker Change: Perhaps the best prepared in terms of economics.
Speaker Change: Fundamentals in policy response.
Speaker Change:
Speaker Change: From Brookfield there'll be the <unk>.
Speaker Change: First let's say strategic group for us.
Speaker Change: Obviously, Brazil and Mexico.
Speaker Change: Remain important for us due to their size they do face clear physical.
Speaker Change: And political risks.
Speaker Change: Then we have.
For another group of countries, where we have Chile, Peru.
Speaker Change: <unk> in Panama.
Speaker Change: There are.
Speaker Change: Persistent political risk.
And I will say weak weak growth outlooks.
Speaker Change: And then we have Ecuador, Argentina and Salvador.
Speaker Change: Bolivia, where we have minimal exposure.
Speaker Change: Those are countries that faced structural.
Speaker Change: Challenges and are undergoing significant.
Speaker Change: Economic adjustments for you guys.
Speaker Change: Those are the countries now in any case I think.
Valentina: It's always important Valentina.
Valentina: So keep in mind that our client base consists of large.
Valentina: Solid corporations embarrassed that we have a very.
Valentina: Long term relationships with most of them and very deep non.
Valentina: Tom you want to add something.
Yes.
Tom: Just to finalize the answer to this question I think is very important also to remind that in times of.
Speaker Change: A little bit more noise in the region.
Tom: That's when.
<unk> can take one more opportunistic.
Tom: Our approach in mind profitable transactions that have short term short term duration and historically those have been good times for blood excess liquidity from let's say the global players tend to dry up so we're positioned to capture if that indeed happens.
Tom: Good point.
Speaker Change: Okay. Thank you very much that's all the questions we have for today.
Mr. <unk>: Pass the line back to Mr. <unk> for the concluding remarks.
Mr. <unk>: Okay. So thank you.
We're joining in summary, I'm going to say another great quarter.
Speaker Change: For blacks with over $50 million and net income and over 16% Roe.
Speaker Change: Strategic initiatives.
Speaker Change: On a business plan keep yielding very tangible sustainable.
Speaker Change: Results deposit balances are record levels. These are record levels.
Speaker Change: The team as a whole is very motivated.
Speaker Change: Very focused on the implementation.
Speaker Change: Key projects in this space of the plan.
Speaker Change: Credit quality remains sound.
Speaker Change: And the top priority.
Speaker Change: And we're looking forward to share more progress on our plan in our next call.
Speaker Change: That's it for us. Thank you very much and see you in the next call.
Speaker Change: Goodbye.
Speaker Change: <unk> Conference call has now concluded you may disconnect and have a nice day.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Sure.