Foreign Trade Bank Of Latin America, Inc. Q4 FY2020 Earnings Call

Ladies and gentlemen, hello and welcome to Bladex's Fourth Quarter 2020 Conference Call on this 12th day of February 2021. This call is being recorded and is for investors and analysts only. If you are a member of the media, you are invited to listen-only. Bladex has prepared a PowerPoint presentation to accompany their discussion. It is available through the webcast and on the Bank's corporate website. Joining us today are Mr. Jorge Salas, Chief Executive Officer; and Ms. Ana Graciela de Mendez, Chief Financial Officer. Their comments will be based on their earnings release, which was issued earlier today and is available on the corporate website. The following statement is made pursuant to the Safe Harbor for forward-looking statements described in the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934.

Thank you, and good morning to everyone joining us today to discuss our fourth quarter results. Today, I am here once again with our CFO, Ana Mendez, and a few members of the executive team. This morning, I'll be talking about our balance sheet management during the quarter and an overview for the whole year. Then Ana will discuss the P&L implications of it. After Ana's comments, I will make some closing remarks, and then as customary, I will open it up for questions. So, there's no doubt that Latin America was one of the most impacted regions in 2020. The world's GDP decreased by 3.5% compared to that of Latin America that decrease more than twice as much at 7.4%. Moreover, as a different dynamic evolved, GDP contraction estimates for the last year were constantly revised and varied drastically in most countries. I'd like to highlight once again what I have been noting in previous quarters. That is the importance of our business model in the current context. Having the ability to diversify our portfolio in more than 20 countries, lending exclusively to top-notch customers, tuning banks, and above all, having primarily a short-term portfolio will continue to be a significant comparative advantage in this continuously changing environment. Why? Simply because it allows us to diligently manage our exposure towards defensive sectors in the different countries as their outlook changes, as it did during the last three quarters. Let me now talk about what happened during the fourth quarter on both sides of the balance sheet. Beginning with the asset side and moving to slide three. We grew our commercial portfolio by 9% with respect to the previous quarter, reaching $5.6 billion by the end of the year. Growth was mostly short-term lending, and focused on defensive sectors and countries. I will address this topic in more detail further on in the presentation.

Thank you, Jorge, and good morning to all. So let's continue on to slide ten where you can see the evolution of our P&L recording a profit for the fourth quarter of 2020 of $15.7 million, up 2% from the preceding quarters on relatively stable revenue and loan provisions for credit losses reflecting high-quality origination during the quarter, as well as the ongoing collection rate of loan activities close to 100%. As Jorge mentioned, including the continued reduction in high-risk countries and sectors. These were partly offset by a generally seasonal increase in quarterly expenses of 22% quarter-on-quarter.

Thank you, Ana. I truly believe that given the circumstances, this has been a very good year for Bladex. I'm very proud of the Bladex team that has managed to disperse over $6 billion since the pandemic started and collected virtually all maturities in time throughout the year. We have acted swiftly, taking advantage of the levers of our business model to protect the quality of our assets and make the best of the current low-rate environment on the liability side. We find ourselves well prepared to navigate 2021. As I mentioned at the beginning, Latin America has been one of the most impacted regions in the world. Several countries applied very stringent lockdown measures from the onset of the pandemic that are still causing severe damage to their economies and unfortunately have not yielded the expected results with respect to slowing the spread of the virus. Public policies in most countries continue to be erratic in a region that generally has limited fiscal room inside our public health system. Having said that, we estimate that the region will grow between 4% and 4.5% in 2021, mostly in the second half of the year, and will reach pre-pandemic levels of GDP by the end of 2023. We are seeing some positive signs; consumer confidence indicators are generally improving, and the increase in commodity prices, external liquidity, and the distribution of vaccines, although it may take some time, should also contribute to faster growth. The different countries, however, have their own set of challenges, so the speed of recovery will vary largely by country. In any case, we at Bladex will continue to work closely with our clients to whom we have offered continued support through the crisis, and who have shown financial resilience during this unprecedented circumstance. Those are our comments for today. Now I will open it up for questions.

Our first question comes from an unidentified analyst.

Yes, sir. I've owned the stock for much of the last 12 years or so, and I'm curious if you could evaluate how you feel the bank has done over that period of time, and what your goals are going forward. I have been very impressed with your ability to minimize loan losses, but I just wondered what you hope to do in a more positive way.

How do we see growth going forward?

Yes.

We are seeing increased demand as the economy reopens, particularly in resilient sectors such as oil and gas, utilities, food, and beverage. Additionally, some of our clients are beginning to develop their strategic plans, focusing on organic growth, inorganic growth, or acquisitions. Our clients seek our financial solutions, and we are noticing some traction in that area. Companies and financial institutions are also working to enhance their funding structures and manage their debt maturity profiles. We are looking into medium-term facilities with the right structure and pricing. While I cannot provide specific guidance on size, I can share that our commercial portfolio grew by 13% in the second half of the year, and we expect moderate growth going forward. I hope this addresses your question; we will not compromise on credit quality for the sake of growth.

Okay, I understand. So I recall, I think it was the first or second quarter that you mentioned that your loan spreads have widened appreciably. Do you see any positive trends in terms of loan spreads now?

Yes, we're seeing that definitely. We saw that shown in the graph; in the last quarter, we started to see a more normalized level of spreads close to what we used to have before COVID. That also has to do with the fact that we are working with the top-notch, the top tier of the pyramid in terms of price-quality clients, which are particularly very liquid in general and highly targeted for lending. So in short, we did start to see a reversion of the spreads that we were able to charge at the beginning of the crisis.

Mr. Wiggins with Fronius Partners has a follow-up.

Sorry, I didn't mean to take up too much time. I wasn't sure if there were any other questions. But I just wanted, when you started, you didn't really get; you came into a very difficult time. I don't recall you ever articulating any longer-term goals for your tenure at the bank. I just wonder if you had any sort of longer-term goals? The bank's assets are still about the same as they were 10 years ago. Is there a target with respect to equity assets that you hope to reach or anything of a quantitative nature that you hope to get to over your next some odd years?

So you're asking about our vision of long-term returns for the bank? Right?

Yes, I just, I mean you've done a great job of managing through this difficult period; I'm just trying to get a sense of what you're trying to accomplish beyond that.

First, we need to navigate through the current crisis. This bank is experiencing the lowest loan portfolio in the past decade, which has been around $8 billion in previous years, with double-digit returns back in 2015. At that time, we were operating on a larger scale but doing the same things as we are now. We are currently implementing several initiatives that I can't disclose, but we are using this time to enhance our internal processes and strengthen our digital capabilities. When we are able to relaunch the bank in a different environment, we want to ensure that we can achieve operational economies of scale. That's the extent of what I can share. Our client base remains strong, and there is significant opportunity for growth. We currently hold a limited share of our clients' finances, so increasing cross-selling of products to our existing customers will be a key source of new revenue.

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

So if there are no further questions, I would like to thank everybody and please stay safe. Thank you.

Thank you, ladies and gentlemen. That concludes this morning's presentation. You may disconnect your phone lines, and thank you for joining us today.