Foreign Trade Bank of Latin America Inc (BLX) 2010 Q1 法說會逐字稿

Thank you, everyone. Welcome to the Bladex Conference Call. As a reminder, today's call is being recorded. At this time, I will turn the conference to Ms. Melanie Carpenter. Ma'am, you may begin your conference.

Thanks, Stephanie. Hello, everyone and thank you for joining the Bladex First Quarter 2010 Conference Call on this the 21st of April of 2010. This call is for investors and analysts only. If you're a member of the media, you're invited to listen only. But if you have any questions, please follow up with i-advize after this call.

Joining us today are Mr. Jaime Rivera, the Company's Chief Executive Officer and Mr. Christopher Schech, the Chief Financial Officer. Their comments are based on the earnings release issued yesterday. A copy of the long version is available on the Company website at www.Bladex.com.

Any comment that management makes today, may include forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Their comments are based on information and data that is currently available. However, the actual performance may differ due to various factors, and these are cited in the Safe Harbor statement in the press release. And with that, I will turn it over to Mr. Jaime Rivera to begin the presentation. Please go ahead Jaime.

Thank you, Melanie. Ladies and gentlemen, good morning, welcome and thank you for joining us again in our quarterly call. What we hope to do this morning is to provide you with some background and color to the financial results that we published yesterday. Following my comments, as usual, I will ask Mr. Christopher Schech to take us through the details of the figures, and then we will be glad to take up any questions you might have.

So let me start my comments by saying something about the economic environment we faced during the quarter. First, and this is no news to most of you but it is a fact that we can now attest to, in most countries the economies are in fact on the mend. Economic growth is picking up. In some countries more than others, in some industries more than others, but things are improving.

So is liquidity by the way. Both from local sources which was a process already in place or has been a process already in place for a few months. But over the last couple of months from offshore sources as well. In general, this is bringing about a gradual easing in credit risk levels. For us, for Bladex, this represents wind in our sails.

Gradually credit demand continues to pick up. And equally important, regarding our funding, we are getting more of it at increasingly cheaper costs, which is making us more and increasingly competitive. So with this as the -- a very short summary of the economic background that we're facing, let me tell you about the tactics we're following.

Our focus continues to be, as stated in the press release, a careful re-leveraging of the bank by developing new client companies in those areas, and with those entities, that are emphasizing business with other countries in the region. As we've discussed before, we have several competitive advantages in this niche.

Bladex remains today a unique organization in our ability to, more than ever, be able to offer seamless regional services to companies interested in operating regionally. Which again, is our -- is something that is happening more and more in most countries. I want to make a comment here. When we first started to speak about the regionalization of Latin American companies about nine months ago, the concept was quite novel. It has now become part of conventional wisdom.

We are, however, quite a few months ahead of our competition which is now -- which is only now becoming organized to try to exploit this niche. We are already, as I hope I will be able to tell you in the next few minutes, in place and moving forward with our plans to exploit this opportunity.

And the premise and the concept is simple. And again, we've stated it before. We're going to use this opportunity to expand our marketing efforts to have the portfolio grow, to become less concentrated, to produce high revenues, and with higher revenues generate higher ROEs. Assuming of course, and this is what we fully intend to do, that we keep our credit quality under control.

We've been at this for a couple of months only because it was only at the beginning of February that we really started executing on this strategy. But the experience so far has been very good. We did a careful segmentation of most countries in the region. And based on that segmentation, we did over 250 client calls in the last two months.

Our experience in developing new clients out of those client calls was very, very good. We're now in the process of putting many of those clients through the credit analysis process. And it'll be in the next couple of months that we will see how quickly we can convert those approved credit analysis, when they're approved, to actual numbers on the balance sheet, or letters of credit, or other type of income.

The indications so far, however, are at least meeting and in some countries exceeding our expectations. We knew the concept was going to work, but quite frankly, I for one was surprised as to the good reception that we got in the market. And again, how companies recognize and place value on our ability to service them regionally, which is in many cases, their most pressing need at the moment.

In the meantime, because this is taking some time, we're getting a good boost, as you can see from the press release from our business with banks. Banks, local banks, as you can imagine were the first ones to feel the positive impact of improving economies in their countries. First, because consumer demand started to improve, and that generated business for many of the retail banks, and lately, because the corporate sector, including the one focused on import and export, is demanding services. And as a result, the banks are demanding financing from us.

Now as you know if you've been working with Bladex for a while, pricing in the banking sector for us tends to be thinner. But then business itself is less risky and therefore requires less provisions. So the equation from a business perspective works out well for us. Again, the commercial portfolio then, the principle is, let's expand. Let's expand into a new corporate segment that we're developing. And in the meantime, fund our growth and revenues through the increased demand that we're seeing from banks.

In the Treasury and Asset Management Divisions, as you can see from the press release, we faced a relatively tough quarter. But, and this is important to note, that the Bank as a whole still did reasonably well. I think this quarter demonstrates that Bladex no longer needs the contribution of the Treasury and Asset Management Divisions to do reasonably well.

In the Treasury Division, you can check the details in the press release, and Mr. Schech will have some comments to make in a few moments. But the losses that were posted are losses that arose because of valuation of derivative instruments. I am fully confident, and in fact I'm sure, that when and if interest rates rise and/or when the underlying instruments mature, we will see that money back.

In the case of the Asset Management Division, we judged the performance of the unit over the medium term. We provided some numbers in the press release, and as you can see, the Asset Management Division has been a very good business for us.

We expect it to become an even better business now that, as is also portrayed in the figures that were published yesterday, we're starting to get significant increases in the number and balances of third-party investors in the fund, which are starting to generate stable management fees, which was, if you were with us in 2006 when we created the division, the whole point of us going into the business.

We always thought and continue thinking that it's nice to do proprietary trading. But what we are really after are stable fees generated by asset management. A comment on a different subject, but it's a question that I know has come up before, and I want to address it. It has to do with country risk in the three countries that give rise to most questions in Latin America these days, our business in Argentina, in Ecuador and in Venezuela.

And in this regard, let me just state that we are doing well. We did well through the crisis. We're currently doing well. Transactions tend to be short-term in nature. Many of them are structured with things like offshore collection accounts, et cetera. During the crisis, we did ask a few of the clients to reduce their balances. They did so with no problem. So we're happy with what we have in those countries. We haven't seen any problems arise, and we don't expect any to arise. That's the short of it.

So all in all, talking about the quarter again, we think it was a very good beginning to what are going to be two very important quarters ahead. This one and the third quarter, which are the quarters during which we will see our investment into expanding our portfolio and developing new clients bearing fruit.

They're going to be the quarters when we will be able to draw statistics and conclusions as to what percentage of the new clients that we generate do result in additional revenue, and how much revenue is produced by each client. Again, early indications are good. I am confident, and beyond confident, I'm also excited. And we're excited about the effort because we have all the elements that we need in place for the strategy to pay off.

And it's a simple strategy by the way, as long as you know the region the way Bladex does, and have the resources then that we do. We now have the people in place and that was critically important, finding the people and putting them in place was something we wanted to do before hitting the street. It was only a couple of days ago that we found our last person to man our -- the new office in Monterey. So we're now fully staffed and can start moving forward at speed.

We also have the credit analysis team in place. We could not start marketing without having a stronger credit analysis team in place, or we would have faced problems a couple of years down the road, as that effort has also been concluded. And of course, we have the capital to support the growth that we're going to generate. And funding, well funding is not only available as I said, but it's coming down in price.

So we are focused on this as a primary goal for the year, and we see no insurmountable obstacles ahead. All we need is some time to get the job done and get it done right. Because we don't -- this is something that you do once, and want to do and do right, so that you don't have to pay a price in terms of portfolio problems a couple of years down the road. We're doing it well. We have good segmentation analysis. We have very good people after it. The clients are receiving our proposal, or our concept or our value-added proposition very well.

It'll take us some time to get experience and to get the initial clients through the analysis and documentation stage. But I am sure that given the time, the portfolio will grow, become more diversified, revenues will expand, ROE will increase, et cetera. It's a simple plan. We have the resources. It will work. And so with that, as a general background, I will then ask Christopher to take us through the particulars of the quarter. And then, we'll take up any questions that you might have. Christopher, please.

Thank you, Jaime. Hello, and good morning everyone. Thank you for joining us on the call today. My comments will focus on the main aspects that have impacted our results in the first quarter 2010. And as usual, I will put them in context with the previous quarter and the same quarter of a year ago as well.

As already mentioned by Jaime, the Bank has started to invest again in core business growth in terms of people and money. And by some measure, the impact of that is already starting to be felt, especially in terms of a moderate increase in expenses, and more robust portfolio growth. All the internal realignments to adjust with growth are happening with the back drop of market interest rates that remains at historically low levels, and more liquidity returning to the market as risk perceptions improve.

The first quarter 2010 closed with net income of US$10.1 million which compares to US$11.9 million in the previous quarter, and to US$16.7 million that we achieved in the first quarter of 2009. I think I mentioned this last time, in the last call, that a year-on-year comparison is quite difficult, understanding that a year ago, we were quite heavily influenced by the outcomes of the financial crisis.

So back then, our quarterly result was most heavily influenced by a strong rebound of the financial markets, a huge quarter delivered by the asset management decision based on the funds' performance, and the impact of the accelerated revaluation of our securities portfolio, which at the time by the way, also represented a much larger proportion of the Bank's balance sheet.

But at the same time, the Bank at that time was still in the process of adjusting its reserve levels to match the risks that were perceived at the time. And was also focused on managing what was essentially a retrenching portfolio, both of which put pressure on the net income contribution of the Commercial Division.

And what a difference a year makes. Now the overall economic environment has changed as Jaime already mentioned. And so as the numbers that you're looking at this quarter are vastly different from what we were at a year ago.

So as you know, we look at our business in three distinct segments. The Commercial Division, the Treasury Division and the Bladex Asset Management business. And for the first time in several quarters, the Bank's results, as a whole, were achieved exclusively on the strength of our core business, with activities within our Commercial Division being the front and the center.

Now let me share more details regarding the performance and result of each business segment before discussing general aspects of the Bank financial performance. And let's start with the Commercial Division where net income was US$14.2 million in the first quarter, compared to US$11.8 million in the previous quarter, and US$7.5 million a year ago. The net result was mainly impacted by lower reserve requirements for the contingencies and letters of credit portfolio as the portfolio risk profile continues to improve.

Net operating income, and by that I mean, net income before provisions for loan losses declined slightly quarter-to-quarter, mainly from net interest income showing a decrease even as average lending portfolio balance has showed solid growth in the quarter. That decrease in net interest income was essentially the effect of a shift in the portfolio composition towards higher faulty clients with lower margin, especially in the financial institutions portfolio. Something that Jaime talked to you about already.

On the other hand, we are happy to see commission income continue to increase this quarter as our Letters of Credit business grew as well. Average Commercial portfolio balances, including the acceptances and contingencies portfolio, continue their growth this quarter, as this period end portfolio balances which now stand at US$3.2 billion, a 4% increase from the previous quarter, and 15% above the levels at the end of the first quarter 2009.

Credit disbursements approached almost US$1.3 billion in the first quarter. And that is really a robust increase in what is traditionally a quite soft quarter for us. Average lending spreads showed a decrease this quarter as the portfolio mix remains more biased towards banks compared to previous quarters. However, we expect that mix to move back to corporations over the next couple of quarters as we continue our efforts to expand into that segment.

Liquidity and credit risk continue to be well-managed. The Commercial portfolio remains short-term and trade-related in nature. 71% of the portfolio will mature within one year, and 62% of the portfolio is trade finance, while the remainder represents lending to banks and exporters. We believe that we are back on track in our efforts to diversify the composition of our Commercial portfolio. We now have six countries in the group of countries with a portfolio share of 5% or more.

If you look at last year, a year ago we had only three countries in that category. 58% of the loan portfolio is corporations in sovereign risk, 42% is lending to banks. Regarding our exposure to specific industry sectors, not more than 12% of the corporate portfolio is concentrated in a single industry which provides us with an additional level of protection.

Talking about the credit quality of our Commercial portfolio, it has remained quite stable. We reversed US$3.5 million of provisions versus a reversal of US$0.6 million is recorded in the previous quarter. The mix shift in the composition of our Letters of Credit business, and a slight reduction in ending balances, resulted in that release as our off balance sheet risk requirements were diminished.

The reserve requirements from growth in our loan book, unbooked portfolio, were essentially offset by the effects of improved quality of risk by virtue of the mix shift in our portfolio composition. After the quarter closed, a specific reserve requirement of US$3.1 million was established for a loan that we had already been carrying in non-accrual status, and that will impact second quarter results.

The amount of loans in non-accrual status amounted to US$51 million at the end of the first quarter, representing 1.8% of our loan portfolio. That is the same ratios that we had last quarter. At the end of the first quarter, US$5.8 million or 11% of the loans in non-accrual status were actually past due 90 days.

Now let's talk about the Treasury Division which contributed a loss of US$2.8 million to the Bank's bottom line this quarter. Net interest income remained at the prior quarter's levels, but gains from trading securities were lower as declining market interest rates drove lower valuations of freestanding swaps that we had in place to hedge our interest risk exposure relating to bonds in the trading portfolio.

The mark-to-market effect on the available for sale portfolio and relating hedging instruments maintained unrealized losses recorded in the OCI account at US$6 million unchanged from the previous quarter. The securities portfolios, both trading and available for sale, continued to consist of very high quality and liquid Latin American securities. Over 75% of both portfolios represent sovereign or state-owned risk.

On the funding side, the division stepped up its activities to ready our bond issuance programs for possible issuances in the near future, as we move to take advantage of rather favorable market conditions. Now let's briefly discuss our Asset Management Division which for the first time in several quarters, delivered a net loss of US$1.4 million in what was quite a volatile quarter. That volatility put our risk management to, what we believe, a very successful test.

We continued to see net inflows from third-parties as net values surpass -- net assets under management surpass US$200 million which is another milestone in the division's successful trajectory. Third-parties now own 21% of the fund which should impact commission income positively going forward.

Now let me briefly comment on the Bank's general performance in the first quarter 2010. We continue to see strong margins, even as our portfolio mix has shifted temporarily more towards low-risk lending to banks over the previous quarters. This quarter we did see disbursements pick up in our corporate portfolio as we had expected for the quarter, which lifted average margins on disbursements by 51 basis points compared to the previous quarter. This should stabilize portfolio margins as we go further into the future, even as spreads may continue to shrink, as liquidity returns to the markets.

With 171 basis points, our net interest margin remains fairly high, actually improved from the previous quarter mainly thanks to the interest earned in the investment fund. But concerning the Commercial portfolio, it's still quite stable. The upward trend of fees and commission income continues, primarily impacted by growth of our letters of credit operations and third-party investments in the fund. Provisions decreased marginally in the first quarter, mainly driven by the portfolio mix as towards better quality risk.

Operating expenses in the first quarter were slightly higher as you saw. We focused on strengthening our marketing activities mainly in terms of deployment of sales force, and in terms of expenses incurred to have our issuance programs at the ready whenever we need it. Based on early indicators, we really believe that the moderate growth in our expense base as we invest in people and markets will actually provide a tangible and quite attractive payback in a short amount of time.

So before I hand it back to Jaime, just a few comments on the Bank's book value which increased US$0.10 to US$18.59 per share, Tier 1 capital stands now at 24.6%, still quite high, and leverage is now 5.8 times. All in all, we believe that we're still at the beginning of the process of improving returns by growing our portfolio, maintaining control of its credit quality, and while investing prudently in our people and keeping all available funding venues open for increased use. And with that, I hand it back to Jaime for his final remarks. Thank you.

Thank you, Christopher. Ladies and gentlemen, we would now love to get some questions and have a discussion on whatever topic may be on your mind regarding our performance for the quarter and our plans for the future. So please, go ahead.

Thank you. At this time, we will open the floor for questions. (Operator Instructions). Questions will be taken in the order which they are received. (Operator Instructions). Our first question is from Tito Labarta with Deutsche Bank.

Hi. Good morning, Jaime and Christopher. A couple of questions, just first in terms of your outlook for dividends and just given that core trends are improving. The -- and if any expectations for increasing the dividend going forward? And then second question, in turn, on the asset management business, just want to get a sense of your outlook for increasing assets under management, sort of a target on where you would like to be or your strategy for increasing that and then also increasing the fee income derived from that? Thank you.

Tito, good morning and thanks for your questions. The question of the dividend first, we stated it before and this represents the company policy, as soon as we believe and we judge that our earnings power has increased and has gained traction, we will review the dividend and act accordingly. It's something that we review, literally, the Board reviews on a quarterly basis. It's amply discussed, debated. It will be debated again in the Board meeting in July.

I expect, and remember I'm a shareholder as well, I expect that dividends will be increased as soon as the type of results that I am talking about gain some traction. And that will take some time and by some time, I mean a couple of quarters. Regarding asset management and the asset management division, it's now been a position, an official position, of the bank for at least two years. Through the Board of Directors of Bladex asset management, the instructions have been proprietary trading gains are fine, but we want you guys to concentrate on increasing assets under management from third parties. And this has been and this is their focus.

People have been hired to this effect. Contracts with large marketing companies have been signed. A large number of parties have become interested and have run due diligence and are running due diligence on the company. This remains our focus. You can see how the numbers are from basically a base of zero, are starting to pick up. I expect that to continue being the case because that is what the division is concentrating on.

Do we have goals? Yes, we have goals. Though we haven't made them public. We'd rather have you and the rest of the market see the numbers. We're confident that as it is the case with the overall profitability of the bank, once the numbers become evident in the next few quarters, you will then be able to make your own projections without us having to make any promises.

All right. Thanks, Jaime. And just a follow-up on the dividend, what level of profitability do you think you'd see -- you'd be comfortable with? Is it like a 15% or a 10%? I just kind of want to get a sense of where you'd be comfortable in terms of being able to raise the dividend? Thanks.

I think that more than -- a couple of questions. It's an -- I'm not trying to dodge the question, but as you know, the dividend issue is a complex one. I think it involves, firstly, we want to make sure that our pay-out ratio remains comparable to the pay-out ratio in the industry as a whole. We have no intention of paying beyond what is the norm in the industry and we certainly don't want to pay less.

Secondly, we want to make sure that our core income, the income out of the commercial division, and the fees out of the asset management division, are firmly in place so we can go ahead and increase the dividend without running the risk, at the end of the year, of finding ourselves having found -- having paid a pay-out ratio that is higher than the norm of the industry.

So, again, the answer is, let us have some time to make sure that the core income of the bank grows and gains traction and then I'm sure the Board would very gladly increase the dividend. To whatever level, to whatever level we can afford to. That's my general answer.

Okay. Thanks. That's very helpful.

Sure.

Thank you. (Operator Instructions). Our next question is from Mariana Barros with JPMorgan.

Hi. Good morning, everyone. I have two questions. The first one is, I was wondering if there is any gain in the income statement that could partly offset this 2.1% losses that you guys have on the treasury division, since the impact on other comprehensive income wasn't stable in the quarter?

My second question is the additional provisions you built up of US$3.1 million that will impact your second quarter results, what's the nature of that? Is it just loans that are maturing? Or any other one-off impacts? Thanks.

Mariana, thank you. I will take your second question first and then have Christopher answer your first question, because I want to make sure that -- I think I know the answer, but I want to make -- I'd rather Christopher answer it definitely.

The provision that we passed at the beginning of this quarter had to do with a loan that was in clear accrual and it had been placed in clear accrual because we were concerned about it -- the ability of the company to continue making its payments. As it turns out, rates deteriorated with the credit analysis and concluded that it merited a downgrade in the risk rating and placed -- and made up a specific provision accordingly. It's just a loan that suffered as a result of the crisis.

Okay.

We'll just have to work with it until -- but going about recovering as much as we can in the process of restructuring.

Okay. Thanks. Perfect.

And Christopher, will you take up Mariana's first question, please?

Sure. Mariana, gladly. Regarding your question in reference to the impact of revaluations of both the hedges that we have in place for our -- the freestanding hedges that we have in place for our -- to support or to protect our bond, our trading bond -- bonds portfolio. The answer is that there are covering gains that are reflected in these numbers, but you have to realize that this is not a linear relationship between the revaluation gains of the underlying bonds as opposed to the re-evaluations of the interest rate swaps that accompany these bonds.

And the reason for that is that, from an accounting perspective, we have to include additional components in the evaluation of the interest rate swaps, which is basically the credit spreads and the perception of the counterparty risk that they also needs to be factored into the accounting re-evaluations. And so that accounts for much of what's perceived to be a mismatch, yes?

In regards to the other hedging instrument that we have, which is cross-currency swaps, there we have, from an accounting perspective, we have to do a monthly evaluation of the effectiveness of coverage of these instruments and so there are also movements that we need to show in our profit and loss accounts.

However, as these loans, the underlying loans, mature, those temporary differences disappear and that is why we're not really concerned about having to show these movements in the P&L because in the long run, as these loans come off our book, we will fully equalize the loss that we're showing right now.

Okay. Okay. And one last question, if I may have, in terms of what we can expect in terms of sustainable ROE for the company in a long-term scenario, is there any kind of guidance, expectation of the management?

Yes, Mariana, we have for some time stated that our objective regarding ROE is a stable mid-teens figure. We've been using this guidance for a number of years now. It used to be the case that the market thought that our goal was not sufficiently ambitious. We believe -- we now believe that we are probably -- that's probably where the industry is going to settle as we believe that the last year and a half has proved that running a bank at a much higher ROE is unsustainable. So mid-teens, that's our goal.

Okay. Perfect. Thank you very much.

Sure. And by the way, if you run the numbers, if you run your model at a slightly higher leverage, keep the rates -- keep the spreads at more or less where they are today, assume an increased income on the part of the asset management division through fees and expenses relatively under control and credit quality normalized, you will get there with no problem. We just -- it's just a matter of taking your time to do it right.

But you mean the loan spread?

Yes, keep the loan spread.

Okay.

Keep the loan spreads just slightly lower than where they currently are.

Okay.

If you run the numbers, as I just told you, you will get to a mid-teen scenario fairly fast.

Okay. Thanks. Perfect.

Sure.

Thank you for your question. Our next is from Jeremy Hellman with Divine Capital Management.

Hi, good morning everybody.

Jeremy, good morning.

You just answered my first question right there, Jaime, on the spreads. Secondly, just wanted to kind of speak at a high level in terms of global trade and regional trade. Are you seeing any shifting directionality when -- as it pertains to the region and its trading relationships, be it with Asia, Europe, US, et cetera? Is there any kind of shifting winds there to be aware of?

Absolutely. I -- we think it's a sea change. As a result of the crisis, companies decided that they could no longer afford to place all their eggs in Asia, Europe and the US. And as a result, they started to look into neighboring countries. And we believe that they were so successful in establishing operations in Latin America that interregional trade is probably going to grow very fast during the next 3 to 4 years at least and that's what we're trying to capitalize on, by providing services to companies regionally.

That -- the other sea change that took place had to do with the diversification from both a product and geography perspective, of companies doing business internationally. More than ever, companies are trying to make sure to sell to companies -- to countries other than, say, for example, the US and Germany. And now you see Latin American companies operating in the Middle East, for instance. Something that would not have been -- would only have been done on an exceptional basis up to even two years ago.

So that is happening. The expansion of the Panama Canal in 2014 will also bring about a sea change in logistics. There are investments taking place in the ports along the east coast of the United States and investment taking place by shipping companies in Asia and elsewhere to accommodate what they believe is going to be a significantly changed logistical framework to world trade, once the Panama Canal expansion project is completed in 2014.

What this will mean, for instance, is for a country like Brazil, exporting its goods to Asia will become cheaper and Brazilian goods in Asia will become more competitive. Similarly, by the same token, there would be more Asian products coming to Latin America. This is what --the type of reasoning that brought us to start developing connections in Asia three years ago already and why we keep working at it. So, yes, there are significant changes coming -- taking place and more will come about as logistics, technology and marketing change within the trade, finance world.

Okay. Great, thanks.

Sure.

Thank you for your question. (Operator Instructions). Our next question is from [Anurag Dhanwantri] with Porter Orlin.

Good morning, Jaime. Good morning, Christopher.

Anurag, good morning.

Jaime, three questions. I'll go one by one. Maybe I missed this number, but can you talk about the share of banks in the commercial portfolio? It was, I think, 43% last quarter. What was it this quarter?

Christopher, I don't want to miss-speak. Can you give him the figure that you just mentioned, please?

It's 42%.

42%.

Yes.

And the second question is on the US$3.1 million specific provision. Christopher, would you be taking that out of the US$73.9 million provision you already have? Or will this be a fresh provision?

That's a good question. We evaluate the generic reserves, of course, separately and as to the inherent risk portfolio of our -- the remaining portfolio and the specific reserves are determined separately from that. But I think the -- in general, and while I don't want to outright answer your question, is that we take both into consideration and so far the trends on the generic reserve side has been that we believe that we are on a path to a gradual decrease in perceived risk profile of that generic book of business.

So I think that trend will continue unabated, regardless of what specific reserve movements would be. So I think at the end of the day, whether there will be having an impact on our P&L and bottom line, it's too soon to tell. There's a couple of more months to go through. But I think if -- my expectation is that the effect will be somewhat mitigated.

Okay. Okay. And Jaime, we haven't discussed Basel III so far on any of the calls. Can you just give us a broad overview of what you -- I mean, I know it's way too early in the game. A lot of banks just give feedback to the committee and said, look, your demands are too onerous. But from your point of view, can you talk about what it looks like at this moment?

Yes, we have been following the conversations and the projects that have come out closely, particularly as it pertains to two aspects. Firstly, capitalization. And our early conclusion there is that we hope that the guidelines are published fairly -- they are pretty much as proposed because that would place Bladex in a particularly competitive position.

Secondly, regarding liquidity, we've looked into the project. We don't agree with many of the provisions. It would imply, for Bladex, a significant -- the need to significantly increase its liquidity. Not that we won't want to do it anyway. But we are -- we would just want to make sure that Basel III, the guidelines regarding liquidity were applied to banks all over the world because otherwise, it would place us at a competitive disadvantage.

We've always managed liquidity well. We have to manage even -- we have to -- even if we have to manage it even more conservatively, we'll be happy to do so. We just hope, again, that Basel has enough influence to make sure that all our international competitors have to abide by it. Because otherwise, it might place us at a competitive disadvantage. That's two years down the road. Let's see how it goes.

Jaime, are you suggesting that the Latin American government might be far more [unable] to accepting what Basel says than maybe some European and other governments may not be? Is that what you're referring to?

I -- I'm, in a way, yes. Because I think, and I have absolutely -- by the way, I'm just speculating here. So just please bear that in mind. I'm just speculating.

Sure. Sure.

But it seems to me that the Latin American governments can look at the Basel authorities and say gentlemen, we have little to learn from you. We manage liquidity very well and in spite of the mess in the rest of the world, we came through unscathered. We don't see why we should change our liquidity management practices.

I expect that to be a politically charged discussion before it comes to an end, but it might or might not impact us. I'm, again, from a capitalization perspective, I am not worried at all. In fact, I think it would work to our advantage. The liquidity management guidelines are something that are more worrisome, but it's so far down the road really that it's not keeping us awake at night. Not yet.

And Jaime, this is my last question. I know this is a slightly difficult one, an unfair question to ask, but it would be very helpful. Can you tell us about how we should think about loss during the fourth? I mean, the last time shares and NPLs were so far back, that we don't really have a reference point? I mean, of the US$51 million, Christopher suggested that US$5.8 million only was more than 90-days past due, the rest, everything seems to be still quite okay. So one year out, or let's say 5, 6 quarters out, how much do you expect to actually lose in terms of actual loan losses? What is the way to think about that?

That's a difficult question to answer, Anurag.

I know. I know.

Yes, no, let me tell you about it. As it turns out, as it turns out, this is a subject currently, currently, being reviewed by our risk management team. To begin with, let me tell you, we are one of the few banks in the world, certainly Latin America, we have 14 years' worth of individual transaction data, which we have analyzed and put through computer modeling systems to figure out what we believe are fairly accurate loss given default and other type statistics.

In general, our loss, given default, particularly when it comes to trade, finance and bank operations has been extremely low. What the data doesn't capture, and we think that we're trying to figure out how to incorporate it into our risk management practices, is the time that it takes in between default and recovery, that, in some cases is as long as two or three or even four years. And during that time, of course, you have an asset to carry and fund.

So we haven't made the results public. The -- they have been -- our reserve requirements and methodology has been reviewed by outsiders, regulators, rating agencies and being found appropriate. We have a dearth of data and are currently reviewing our reserve methodology in light of the recent experiences. We now have more data, one. And secondly, in light of Basel III guidelines as well.

My -- from a business perspective, I can tell you that losses in banks have been very low. Losses in trade finance has been very low. The ones that are the most damaging, the ones that are the most damaging are the ones related to fraud. Either -- even corporate loans, we have been able to do quite well, except they take longer to recover.

Banks have generally been protected by governments, for example. Trade finance is generally not impacted or is resolved fairly quickly. But again, the whole subject is under review and we are going to update our reserve methodology to the extent that the new data and the new methodologies make it appropriate to do so.

Thank you. Thanks, Jaime. Thanks, Christopher.

Sure, Anurag.

Thank you. (Operator Instructions). Thank you, at this time, we have no further questions. Mr. Rivera, do you have any closing remarks?

Yes. Thank you. Well, ladies and gentlemen, again, thank you for sharing this time with us, again. I hope that you get a feel for how we are at the start of a transformation of the company that is geared around a natural expansion of our business. [Our loan] businesses that we know well. In this effort, securing new clients across the region, mostly clients doing inter-regional trade operations, we enjoyed real competitive advantages. And we are because we are a couple ahead -- a couple of steps ahead of our competition.

So for 2010, we're now well on our way to execute everything we wanted to get done for the year. It looks good. And 2010 is important because it's a stepping stone to 2011, which will be another important year for the bank as we get to 2012. As in our own projections, 2010, 2011 are years where we're going to be investing heavily in setting together what is likely to be a more -- a bank of a much larger scale, much more diversification and higher ROE levels, once we get through the project that the 2010, 2011 projects.

So with this, ladies and gentlemen, I want to again thank you for your attention. I wish you the best for the next quarter and look forward to talking then. Again, thank you very much. Good luck to everybody.

Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect.