Banco Latinoamericano de Comercio Exterior, S.A.

Good morning, everyone, and thanks for joining our third quarter 2022 earnings call. Before we begin our presentation, allow me to remind you that certain statements made during the course of this discussion may constitute forward-looking statements which are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to materially differ including factors that may be beyond the company's control. For a description of this risk, please refer to our findings with the U.S. Securities and Exchange Commission and our earnings release. Speaking on today's call is our CEO, Jorge Salas, who will provide an overview of performance for the quarter and review the drivers behind these results as Bladex advances on the execution of the renewed strategy. Annie Mendez, our CFO, will then discuss the quarter's financial results in more detail. And after that, we'll open the call for your questions. Also joining us today are some of my colleagues from the executive team that will be available for Q&A. With this, let me turn the call to Jorge. Please go ahead.

Thank you, Carlos, and good morning, everyone. Let's continue to deliver strong results in the third quarter. as we execute our strategic plan in advance on our goal of driving profitable growth. Economic activity in Latin America has remained resilient, with foreign trade flows reaching record highs. The economic activity in the region, together with tight credit markets and a successful execution of our strategy, has contributed to higher commercial volumes, as well as an expansion in lending spreads for Bladik. Net income maintained the positive momentum we delivered in prior quarters, up 70% year-on-year to almost $27 million. This new level of net income, along with a more optimized capital structure, resulted in an expansion of ROE to 10.3%. Our strategic initiatives contributed to sustained growth in our credit book to nearly $9 billion at quarter end and maintaining a very healthy asset quality with NPLs at nearly 0%. I want to point out that we have accomplished this strong performance while consistently improving our efficiency ratio. And I will talk more about this shortly. Now let's turn to slide four for a brief update on our progress on the strategic plan. As I mentioned last quarter, we aim to capitalize on the strength we have consolidated in over 40 years of banking in Latin America with a goal of enhancing profitability, ensuring long-term sustainability, and, of course, increase the overall value creation for all stakeholders of Bladix. Today, I would like to highlight that the strong results we are presenting are largely the product of the strategic plan. and to a lesser extent, driven by the current macro environment. The plan has been in place since the start of the year, and in this nine months, it is already delivering very positive results. During the first phase of our plan, we optimized the balance sheet, allocating our capital more profitably. We began the year with a core equity tier one ratio of 19.1%, and we closed the third quarter with an optimized capital ratio of 14.4% as we expand our loan book while maintaining a very good asset quality. We also increased penetration with existing clients while we continue to expand our customer base. During the first nine months of the year, we increased new active customers by 13% with over 50% of the book growth driven by new customers. In addition, our profitability focus, along with the overall higher rates, have allowed us to expand net lending spread. At the same time, we have continued to optimize the portfolio mix, both in terms of industries and geographies, all while maintaining a deep focus on cross-selling. Just as an example, in just nine months, the penetrations of our letters of credit product increased by 10% within our client base. We're also pleased with the progress achieved in terms of driving fee income from our loan syndication desk that keeps showing good momentum. As a matter of fact, this week we announced another syndicated deal, a $130 million senior secured amortizing facility for Favorita Fruit, a carbon-neutral corporation, and one of the largest banana exporters in Ecuador. Black acted as a sole leader ranger and book runner for this deal. I'm going to leave it here for now and turn the call back to Annie, our CFO, who will walk you through our quarterly results in more detail. After that, I'll make some closing remarks before we open it up for questions. And that's it for now. Annie, can you please go ahead, please?

Thank you, Jorge. Good morning to all. Starting with slide five, total assets continue the growth trend, up another 4% during the quarter, reaching over $9 billion on the back of sustained loan growth, complemented by an investment portfolio which allows us to further diversify our exposures by country, including investments in non-Latham issuers, mainly from the U.S., representing 52% of the total. Our cash position, mostly invested with the New York Fed, stood at 11% of total assets, reflecting our rigorous liquidity management, which follows Basel III liquidity standards, as required by the Panama Banking Regulator. The bank's core business, namely our commercial portfolio, is constituted by the loan portfolio which totaled $7.1 billion at quarter end, together with contingencies or off-balance sheet assets for another $0.8 billion, the latter mainly consisting of the issuance and confirmation of trade-related letters of credit. We continue to expand the loan book, greatly reflecting the increase in cross-sell and deeper penetration with the existing customer base and the addition of new clients, as contemplated in the initial phase of our five-year plan. We have also experienced higher demand given sustained economic activity and trade flows in Latin America. Further on, we will explain in more detail how this asset growth has been consistently supported by a well-diversified funding structure. As shown on slide six, our geographic exposure remains diversified, with Brazil maintaining the largest share at 16%, followed by Mexico at 12%, commensurate with the size of these economies, where we plan to continue focusing on expanding our client base. We remain and will remain well diversified in other countries throughout the region, with an important portion in non-LATAM investment-grade exposures, mostly in the US, Europe, and Asia, related to transactions carried out in Latin America and the Caribbean. Overall, exposures in investment-grade countries represented 43% of the total commercial portfolio. In terms of sectors, Financial institutions represent 43% of the portfolio, up by two percentage points from the prior quarter, as we capitalize on business opportunities arising from the liquidity constraint in the region, all while keeping a stringent focus on maximizing credit spreads. Exposure to top-tier corporates throughout the region continue to be influenced by growth in commodity-related sectors, such as oil and gas, mainly downstream, which now represents 16% of the total, followed by manufacturing industries at 8%, while electric power and food and beverage accounted each for 7% of total exposure. Turning to slide seven, again this quarter, credit disbursements of over $4 billion were exceeded collected maturity and represented over half of the commercial portfolio. This denotes the short-term nature of our portfolio, characteristic of our business model, with 70% of loans maturing within the next 12 months and the average remaining tenor of the portfolio at approximately one year. This provides agility to rebalance our book through economic cycles in the region. Lending spreads on new loans exceeded those of maturing by 14 basis points, reflecting our focus on optimizing our portfolio mix to maximize net lending spreads and margin expansion. Moving on to slide eight, sustained asset growth is supported by a well-diversified funding structure. Our resilient deposit base accounted for 42% of BLAX's funding sources, while 48% of deposits come from our central bank Class A shareholders. This strong deposit base is complemented by an ample availability of bilateral credit lines from a wide range of correspondent banks and by the continuous access to the global capital markets. where Bladex is a recurrent issuer, mainly but not exclusively in the U.S. and Mexico, as well as the global syndicated loan market, all of which represent the remaining 58% of the bank's funding sources. In August, Bladex closed a new public issuance in the Mexican market, which amounted to 5.5 billion Mexican pesos, or the US dollar equivalent of $275 million, with two tranches of three and a half years and five years. Turning to slide nine, the bank's capital strength remains a pillar of our business model and a critical factor recognized in our ratings. In recent quarters, we have taken advantage of increased demand for short-term trade financing, while widening lending spreads, allowing us to achieve a more efficient use of capital. We remain committed to maintaining a sound capital position and anticipate a deceleration in loan growth in the coming quarters, unexpected slowdown of economic activity and commodity prices. In this sense, we expect an inflection point in capital ratios having reached a Basel III Tier 1 ratio of 14.4%, and the Panamanian Regulator's capital adequacy ratio of 12.2%, both well above regulatory minimums. In addition, the Board recently declared a dividend of $0.25 per share for the quarter, unchanged from preceding quarters, representing a payout of 34% of third quarter earnings. We continuously analyze capital management alternatives to optimize our capital structure and to support growth opportunities. Please turn to page 10. Top line revenue growth remains mainly driven by solid NII performance, which in turn is backed by strong net interest margin and net interest spread expansion. Net interest spread representing the rate differential between interest-earning assets and financial liabilities, have been continuously expanding on the account of increased lending spread, as mentioned earlier. In turn, net interest margin, which also considers the portion of assets financed by our equity, was supported by both higher net interest spread and by the impact of increasing market rates on the overall yield of assets financed by the bank's equity. Let's now move on to slide 11, presenting in more detail the quarterly evolution of NII, which increased by $7.5 million sequentially. The continued positive trend in net interest margin that I just discussed, up 23 basis points sequentially and reaching 1.77% in the third quarter, resulted in a rate-effect increase in NII of $5.3 million in the period. At the same time, the average loan portfolio increased by $423 million sequentially, accompanied by the related increase in financial liabilities and a continued proactive liquidity management. This resulted in a positive net volume impact on NII of an additional $2.2 million for the period. Moving on to slide 12, fee income from letters of credit remained stable from previous quarter and up from last year, representing a consistent support in fee generation, complemented by loan structuring and syndication fees. an activity that picked up during the quarter with four transactions executed, resulting in a sequential increase of $2 million. Syndication's activity is transaction-based, so its trend should be analyzed on an annual basis. After a period of nearly no activity during the pandemic, we started to see transactions again since the second half of 2021. In the trailing 12-month period ending September 30, 2022, fees from syndication activity total $6 million. As shown on slide 13, Bladex maintains strong asset quality levels. Provisions for this quarter increased to $4.8 million compared to the $0.8 million in the prior quarter. Stage 1 exposure, which accounts for 98% of the total, increased by $204 million during the quarter on new loan origination, requiring $1 million in credit allowances at a 41 basis point reserve coverage. Lower Stage 2 credit exposure was offset by the increase in reserve coverage at close to 15% as the result of a $3.9 million credit provision requirement in connection with a couple of isolated credits with increased risk since origination. In addition, MPLs or Stage 3 credits remain unchanged at close to 0% of total loans. Reserve coverage increased 9 percentage points for this loan compared to the previous quarter, compensated by recoveries from loans written off in previous three years, resulting in minimal Stage 3 provisions. Moving on to slide 14, during the third quarter, the efficiency ratio improved to 31.6% as strong revenue growth more than offset an increase in operating expenses, which totaled $14.6 million. The new variable compensation structure, closely tied to strategy execution and financial performance, together with new hires supporting the underlying business growth, remain the main driver behind the $2.8 million annual increase in salary-related expenses. The increase in other operating expenses mostly relates to strategy implementation costs. By design, Tribal execution expenses have been programmed so that they can be covered by incremental revenue throughout this process, as it continues to be the case in this quarter. As we scale up the business under the new strategy, we expect to see further improvements in efficiency in the medium term. Turning to slide 15, We delivered this quarter an annualized ROE of 10.3%, up from 9.1% in the second quarter and 6.1% a year ago. This improvement in profitability was driven by several factors, including the sustained trend in margin enhancement, continued loan growth resulting in a more efficient use of capital. together with top-line growth including higher field generation, ongoing capture of operating efficiencies, more than offset increasing expenses and credit provision, all of which resulted in a profit of $27 million for the quarter, up by 17% sequentially and 71% year-on-year. I would now like to turn the call back to Jorge for closing remarks. Thank you.

Thanks, Nani. So we are pleased to report another quarter consistently delivering on improved operational and financial results, capitalizing on BLAX's unique position with operations in over 30 countries across the region. Prior to closing this call, I'd like to remind you that we'll be hosting a virtual investor day on November the 14th. That day, we will take a deeper look in our strategic plan. Several members of my management team will join me in sharing with you more details about the different phases of our plan and the progress on each front. We will discuss how we are focusing on attracting and retaining the required talent, and improving our processes and infrastructure to effectively scale our operations. Moreover, we will provide near-term and mid-term operating and financial goals and KPIs to track progress over time. We look forward to sharing our plans with you. In the meantime, our investor relations team is available to you to answer any questions. And now I would like to close the call and open it up for the Q&A.