Bladex, Inc. Class E

Hello, everyone, and welcome to Bladex First Quarter 2020 Conference Call on this 15th day of April 2020. 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 at www.bladex.com. 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 the 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. In these communications, we may make certain statements that are forward-looking, such as statements regarding Bladix's future results, plans, and anticipated trends in the markets affecting its results and financial condition. These forward-looking statements are Bladix's expectations on the day of the initial broadcast of this conference call, and Bladix does not undertake to update its expectations based on subsequent events of knowledge. Various risks, uncertainties, and assumptions are detailed in the bank's press release and the filings with the Securities and Exchange Commission. Should more and more of these risks or uncertainties materialize, or should any of our underlying assumptions prove incorrect, actual results may differ significantly from results expressed or implied in these communications. And with that, I am pleased to turn the conference over to Mr. Salas for his presentation. Please go ahead.

Thank you, Stephanie. Good morning, everyone. Thank you for joining us today to discuss our first quarter 2020 results and how we're navigating the current and clearly extraordinary economic environment. On the call with me today are our Chief Financial Officer, Annie Mendez, as well as our Chief Risk Officer, Alex Tisoni. As many as you know, I started working in Gladys this year on Monday, March 9 at CEO. Two days later, Wednesday, the 11th, the World Health Organization declared the rapidly spreading coronavirus as a global pandemic. The next day, Thursday, the 12th, the bank successfully activated its business continuity plan. Since then, all of our staff, a total of 177 employees, have been operating remotely from their homes in six different countries, and the bank's day-to-day operations have been running smoothly without interruption. As of today, I am very happy to report we have no cases of COVID-19 in our workforce. Furthermore, the team is working with enduring commitment sharp focus, and an amazing collaborative spirit across the whole organization. I have to say I'm honored and also grateful to lead an organization that can adapt so fast to such extreme circumstances. I want to thank our employees and our board of directors who have made this possible. Those of you who know VLADIX, know that our strengths and adaptability are built in and have been so for a very long time. These qualities are vitally important today as the world is confronted with a crisis like no other. Before we talk about business, I want to take a moment to note that this pandemic is having more than an economic impact. It is taking a worldwide human toll and thousands of lives lost. Our deepest sympathies and prayers are with all of those affected. Before COVID-19, we were expecting a slight recovery in Latin America's GDP. It is clear today that that is not going to happen. Experts are estimating an average GDP contraction for the region that ranges from negative 3 to negative 6 percent. Obviously, the magnitude of the shock for each country will depend on the length of the shutdowns, the structure and the shape of the economy, and the extent of the government's assistance programs and the potential access to multilateral aid. Against this complex and uncertain reality, I want to cover two main topics today. One, a high-level overview of our first quarter results and why they are a clear demonstration of our unique strengths and adaptability in these difficult circumstances. Secondly, the dividend decision made by our Board and how it reflects our commitment to maintaining a solid capital base. Then I will turn the call over to Annie so she can discuss our first quarter financial results in more detail. After Annie's presentation and my closing remarks, we will open it up for questions. Let's start with the highlights of the results. I've heard some express the sentiment that historic results are less important right now given the uncertainty we are all experiencing. I have a different view. The health and fitness of a patient usually determine both the severity and the symptoms and the speed at which they recover. Vladex is a fit and healthy patient. Our results for Q1 2020 show a well-catalyzed, highly liquid bank with a strong balance sheet, industry-leading efficiency metrics, very healthy portfolio, and perhaps more importantly, the ability to adapt to the rapidly changing circumstances. So starting with our balance sheet, by March 31st, our cash position was $1.3 billion, equivalent to 19% of total assets, up from 16% at the end of 2019, and well in excess of Basel III liquidity ratios. As soon as COVID-19 storm started, Bladix was able to significantly increase liquidity, actually in a matter of weeks, thanks to its historically diversified and stable funding sources that include many long-lasting relationships with correspondent banks across the globe, as well as deposits from central banks across the region, who are also our Class A shareholders. On the asset side, the bank has maintained a high-quality portfolio with a country mix that, thanks to the strategies implemented during the last several quarters, is weighted toward lower-risk countries, quasi-sovereign corporations, and perhaps more importantly, top tier banks across the region that account for 55% of our total exposure at quarter end. Our capital was over a billion dollars in equity, quarter end, which translates into a Basel III Tier 1 ratio of 22%. Moving on to our P&L, our net income for the quarter was in excess $18 million, which is 14% lower than Q1 2019. These profits resulted in an average ROE of 7% and average return on assets of 1.1%. This decline mostly resulted from lower net interest revenues, plus market rates decreased, and from lower structuring fees. It's worth mentioning that the operating expenses remained on track for the quarter, contributing to our resilient efficiency levels. I'm going to leave my general comments here. Annie will share more details about our results, and we can talk more about them in the Q&A session. Now, let me talk about our dividend. In the view of the bank's strong balance sheet, together with our demonstrated capacity to generate capital for earnings, the Board decided to continue to distribute dividends. However, now that capital preservation is a top priority, the Board agreed to reduce the first interim dividend to 25 cents per share. which equates to a payout ratio of 54% on our first quarter earnings. Because of the volatile nature of the region in which we operate, the bank has historically maintained solid levels of capitalization, which in this context become a unique strength, enabling us to serve our clients' needs in difficult times like this one. I will now pass on the call over to Annie, and after she finishes, I will make additional remarks before we open it up for questions. Annie?

Thank you, Jorge, and good morning to all. I will now go through the results for the first quarter of 2020 into more detail, making reference to the presentation uploaded on our website. So let's start with slide number three on our current financial position. Given today's uncertainty in global markets, I want to emphasize Jorge's comments about the strength of our balance sheet. Our solid liquidity position of $1.3 billion, or 19% of total assets at order end, is mostly placed with the Federal Reserve Bank of New York, and is the result of the bank's top priority in response to the situation created by this global pandemic, which is to ensure a robust liquidity pool. Liability deposits accounted for 47 percent of average funding sources during the first quarter of 2020. Class A shareholders represented by Latin American central banks continued to maintain a relevant participation in the bank's funding base of about one-half of total profits. Although quarter-end deposit balances decreased by 15 percent compared to the end of 2019, average balances for the quarter have remained within normal ranges, and the deposit base has continued to evolve quite favorably during the first two weeks of April now at similar levels of a quarter and a year ago. The rest of the bank's funding sources are short-term facilities, which on average represented 25% of the total for the quarter and which increased by 5% at the end of the quarter compared to December 2019 in the period balance. The remaining 28% of average funding came from medium-term facilities and debt capital market issuances. We have a fluent dialogue with the major depositors and funding providers, both global and regional financial institutions and investors from different geographies and markets who have widely reaffirmed their commitment to the bank as a strategic business partner even in this stressed financial environment. A second pillar of the bank's solid financial position is our strong capitalization, having recorded over $1 billion in equity at quarter end, which consists entirely of issued and fully paid ordinary common stock. Our 22% CO1 ratio and seven times leverage of assets to equity represent conservative levels way in excess of regulatory requirements and Basel III guidelines. In addition, and also significant, the bank maintains its high-quality portfolio profile with a country mix that continues to weigh more on lower-risk countries. as exposure to investment-grade countries accounted for 55% of the total, and with a concentration in lending predominantly to top-tier financial institutions and quasi-sovereign corporations, with a combined total of 70% of total exposure at quarter end, and which constitutes the bank's traditional and long-standing client-business relationship and represent key systemic players in each of their markets. The remaining exposure is mostly placed with sub-tier private local corporations across the region, which are leaders in their respective industries, and with regional players or multi-Latina. In this environment, we are serving our strategic customer base focusing on client segments and industries that are better suited to face the challenges posed by the current crisis. Now moving on to slide four on our P&L results. Net income for the quarter totaled $18 million, or 46 cents per share, down 17% from the previous quarter and down 14% from a year ago. This decline mostly resulted from lower net interest revenue as market rates continued to decrease and from lower structuring fees related to the uneven nature of fee generation for this business on a quarterly basis. On the other hand, there was virtually no impact from credit provisions recorded as impairment loss and financial instruments and operating expenses remain adequate at stable run rate levels. I will go into more detail on quarterly results later in this presentation, but now I will refer to slides five and six, which provide details on the evolution and composition of our commercial portfolio, which includes loans and off-balance sheet exposures, such as letters of credit and guarantees. Average commercial portfolio during the first quarter 2020 remained stable with respect to the previous quarter at $6.2 billion and experienced a 10% decline in end of period balances to $5.8 billion, mainly due to strict credit underwriting parameters that we activated in March when the COVID-19 crisis rapidly intensified. We believe the bank is defensively positioned to face this crisis on the account of its sound portfolio quality in view of the substantial impact of COVID-19 on Latin American economies. After the commodity crisis from 2014 through 2016, the bank shifted its origination strategy and adjusted its underwriting policies to reduce exposures to commodity-related risks and increased the participation of regulated top-tier financial institutions throughout the region. At quarter end, exposure to these top-tier financial institutions represented 55% of total portfolio. Under this COVID-19 scenario, we consider these financial institutions, which are the most relevant and key players in each of their markets, among the most defensive sectors with better tools to mitigate the impact of the crisis. In the past several quarters, the bank has also adjusted its country exposure, focusing origination towards investment-grade countries in Latin America and non-LATAM OECD countries. The latter related to transactions carried out in Latin America, mostly with multinationals operating in the region. We believe that this country should be better positioned in the current global context. The short-term nature of our portfolio, with 69% maturing in the next 12 months, coupled with the quality of our clients, play to our advantage in managing our portfolio exposure with a focus on maintaining credit soundness under strict and prudent credit underwriting standards. Under COVID-19, we have implemented a continuous review process of our entire portfolio on a name-by-name basis. We have classified sectors in risk categories, with those included at high risk representing close to 12% of our portfolio at quarter end. Sectors in this high-risk category include airlines, oil and gas upstream and supply chain, sugar, and this includes our NPL exposure already 89% reserves, retail, and auto industry. None of these sectors represent more than 2.5% of total portfolio. Furthermore, most of these exposures are with relevant players in their respective markets and or with sovereign and quasi-sovereign institutions with a track record of no default, even in previous crisis that could have adversely impacted them. We have also classified country risk exposures, identifying two countries at high risk, mainly Argentina and Ecuador. We have been reducing our exposure in both of these countries for the last several quarters. At the end of March 2020, the exposure in Ecuador was $355 million, or 6% of total portfolio, down 17% quarter-on-quarter. 62% of the total is off-balance sheet exposure related to letters of credit confirmation on the import of defined oil products with a track record of more than 20 years without any default, even during sovereign international default, given the strategic nature of these oil imports for the country. In the case of Argentina, the exposure was $195 million at quarter end, or 3% of total portfolio, down 14% quarter on quarter, and down 66% from a year ago, as the bank decided to reduce exposure in Argentina since the beginning of 2019. Most of the country's exposure is with the largest state-owned integrated oil company, with interest in energy generation and a history of non-default, even under sovereign default in the past. On to slide seven, credit-imperred loans, or MPLs, remain stable at $62 million at March 31, 2020, and accounted for a single client exposure in Brazil still under a complex and prolonged restructuring process. This exposure has an individually allocated credit loss allowance of 89%, reflecting a book value of around $8 million. NTLs represented 1% of total loans with an overall reserve coverage of 1.7 times. The remaining 99% of the loan portfolio remains current. The bank's total allowance for credit losses were relatively unchanged with respect to December 31, 2019 balances, having recorded virtually no impact in credit provisions for the first quarter of 2020. This was the result of lower reserve requirements on decreased end-of-period credit portfolio balances, offset by increased Stage 2 exposure, that is, exposure which has deteriorated since origination, as the bank made a downward revision in the outlook for certain industries impacted by the current environment, which I commented on before. Net interest income, presented on slide eight, decreased to $25.8 million for the quarter, on the account of a six basis points decrease in net interest margin to 1.59%, as market rates continued to decline, impacting the overall yields of assets financed by our ample capital base. This was offset by lower cost of funds also on lower market rates, and by stable levels of average loan portfolio balances, and on net lending spreads and net interest spreads during the quarter. Continuing on to slide nine, operating expenses for the first quarter of 2020 decreased by 6% quarter-in-quarter, to $10.5 million on the account of the typical third quarter seasonal effect. Year-on-year, expenses increased by 7% on higher personnel-related costs, mainly associated to the CEO transition, and to increase salary base on employee vacancies in 2019 that were filled toward year-end. Efficiency stood at 37% for the quarter, up from 36% a quarter ago, and 31% a year ago, mainly on lower revenues. With this, I will now turn the call back to Jorge. Thank you.