Foreign Trade Bank of Latin America Inc (BLX) 2010 Q4 法說會逐字稿

Good day everyone. Welcome to the Bladex conference call. As a reminder, today's call is being recorded. At this time, I'll turn the conference over to Melanie Carpenter. Ma'am, you may begin the conference.

Thank you. Hello everyone, and thank you for joining the Bladex Fourth Quarter and Full Year 2010 Conference Call on this the February 17th, 2011. Joining us today are Mr. Jaime Rivera, Chief Executive Officer of Bladex, and Mr. Christopher Schech, Chief Financial Officer. Their comments will be based on the earnings release issued yesterday. The copy of the long version is available on the website at Bladex.com.

Any comments that management makes today may include forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Those comments are based on information and data that is currently available, however the actual performance may differ due to various factors. Those are sighted in the Safe Harbor statement in the press release and we please ask you to refer to that for guidance on this matter. And with that, I will turn it over to Jaime Rivera for his presentation. Please go ahead Jaime.

Thank you Melanie. Good morning ladies and gentlemen and welcome to our quarterly call. If you've been with us for a while, you know how much I tend to enjoy our fourth quarter call, as it gives us the chance to talk about trends that happen over a whole year rather than just quarter to quarter changes which are often less meaningful.

So, before I ask Christopher to discuss the details of the latest quarter, let me try to take a step back and provide you with my views on our performance during the year and some of the implications of that for the future of our company. And by the way, I like speaking about our business so much that when I do this, I tend to go on for too long. So much so that last year I got feedback from a couple of you saying things like -- along the lines of, Jaime, that was good but you put me to sleep.

So, this time having listened to the market, I'm going to try to stick to the fundamentals and leave the details to the question and answer section. And the fundamentals are that as you remember, we're managing the bank based on two basic premises. First, the premise that we're operating in a growing market, and second that we are especially well positioned to take advantage of this growth, and I believe 2010 proved both of these premises right.

First, Latin America, our market, grew by 5.9% during the year and more specifically and much more importantly for Bladex, trade flows, a core driver of our business, expanded by a full 26% in the year. Secondly, within this growing market, our positioning allowed us to capture a significantly larger share of the business with disbursements that grew by 79% and resulted in an impressive expansion of our commercial portfolio of 43%.

So, our fundamental for 2010 can be summarized as a growing market and a demonstrably strong positioning. But we have also stated that we would leverage this strong positioning based on our core competencies, which are very difficult to replicate and which we can deploy and do deploy along a wide range of products.

In 2010 in particular, crucially important among our core competencies was our knowledge of the region, which allowed us to identify opportunities and expand the portfolio at a very rapid pace, while at the same time actually improving credit quality. Our knowledge of the region also allowed us to focus our exposure on what we believe are the region's most promising sectors.

In more concrete terms, slightly more than half of our corporate portfolio is out of companies in the hugely successful and rapidly growing commodity, minerals, oil and gas and agricultural sectors, companies that operate by the way not only inter-regionally, but increasingly also within Latin America. This element alone, this growth, this portfolio of clients would be enough to sustain our steady growth during the next five years at least.

And we also made use of a second core competency in 2010, our government shareholders. As you saw in the press release, central banks and government entities in the region provided us with record levels of deposits, which allowed our cost of funds to actually decrease by 112 basis points during the year. This, in spite of our record strong demand for the additional funding that we needed to finance the growth of the portfolio.

Finally from our core competency perspective, this was also the year when our well coordinated and expanding delivery network paid off in a big way, allowing us to generate more business across the entire region. And the clearest evidence that we have of this is the case of Brazil, where even after a 21% growth in the region or rather in the country, our exposure in Brazil is now 37% of the commercial portfolio rather than the 44% concentration that we had a year ago.

In 2010, we had strong growth across the entire region, markets large and small. As Christopher will explain in a minute, all of these trends, favorable trends and core competencies etcetera converge and combine in especially strong manner in the fourth quarter, but maybe the best summary of it all is that the results of our commercial division during 2010 increased by 63% to US$57 million during the year.

Now, there was only one downside to 2010 as I look back of it. The BCGF fund managed by our asset management unit, had its first down year since we created it in 2006, posting a loss, as you can see in the press release, of some US$9.7 million. Now, in the big context of things, this is a business that we know well, running risk in a region with which we're intimately familiar and where we have generated close to US$50 million in gains. In addition, as demonstrated by the bank's fourth quarter results, the volatility of this business no longer impacts our consolidated performance in a material way.

Still we are pragmatic, so we have decided to gradually reduce our exposure to the BCGF fund to our original US$100 million investment, putting the resources to pursue other opportunities across the rest of the growing business that we face. So, the sum total of this considerations is that we're continuing to translate the favorable dynamics that I just described in the market and our strong positioning, into stronger profitability.

And in this sense, let me call your attention to the following, because I think it's important. Back in the fourth quarter of 2009, a year ago, when we were barely starting to relever as a bank after the financial crisis, the ROE of our core commercial business was a low 6.7%. A year later, it was 9.8%. Still low and still away from our stable mid-teens objective, but if you stop to think about it, a change from 6.7%, 9.7% represents a relative improvement of nearly 46% in a single year. Think about that, in a single year, a relative improvement of ROE of nearly 46%.

Crucially, because of the favorable regional and trade dynamics that I just described, and because we have the capital to continue supporting our strong portfolio growth, we are confident that the results of the commercial division will continue to improve, allowing for continued steady increases in both bank profitability and bank ROE levels. And so, to put our money where our mouth is, you saw the recent dividends increase, which speaks loudly to our confidence and faith in this process of going forward.

But what we're aiming for of course is not only increasing dividend levels, but also increasing stock valuations. And in this sense, the bottom line is that in spite of our stock's 33% appreciation during the year 2010, and giving the favorable and structural prospects that I just described, we believe that BLX is still a great bargain with significant, significant upside potential.

So, with this ladies and gentlemen, I hope I have succeeded in summarizing and transmitting to you my sense of well founded optimism as I look to the future of our company from the perspective of what we actually achieved in 2010. To close and in a nutshell, the next five years look very promising for Latin America and for its trade flows.

And given that Bladex is the most Latin American of bank and the most skilled at trade finance in the region, and that our business model provides us with a strong positioning, we believe that the future of the bank, your bank, looks equally promising. So, with this, ladies and gentlemen, I thank you for your attention, look forward to your questions, and will next ask Mr. Schech to dwell into the details of the fourth quarter, after which we will be glad to take your questions. Christopher, please.

Thank you very much Jaime. Hello and good morning everyone. Thank you for joining us on the call today. As you usual, my comments will focus on the main aspects that have impacted our results in the fourth quarter of 2010, but I will speak also to the year 2010 as a whole, putting it into context with the previous year in some cases.

I'd like to start with the highlights, and there the core messages are that the bank again produced a solid quarter in the fourth quarter of 2010 on the back of rapidly growing commercial division. Throughout the year 2010, the results achieved in the commercial division, strengthened quarter after quarter providing the backbone to the bank's financial performance of the year.

Our treasury division on the other hand showed improved results in the fourth quarter while continuing successfully with its key mission to contain and reduce funding costs. The full year performance of the treasury division was characterized mainly by a year-on-year reduction of income derived from its trading portfolio, which had benefited us tremendously in 2009 promised by a strong post financial crisis rebound of valuations of securities.

And finally, the asset management unit was not able to maintain the positive momentum experienced in the third quarter of 2010, and ended the fourth quarter with a loss, capping what for us is a disappointing year. As Jaime already explained, we have started to reduce the bank's exposure to the investment fund. Our margins and spread remain solid as low market rates persist.

And while expenses have risen in the fourth quarter, as they have throughout the year 2010 on the basis of continued investment in our front end activities, we believe that our cost management continues to be prudent and well in line with the growth of portfolio balances and the revenues we derive from them. All the significant commercial portfolio growth we have experienced in the fourth quarter, as well as in the entire year 2010, has not led us to lose sight of portfolio quality and loss performance. And it does show in our NPL trends and reserve requirement levels, which have showed continued improvement throughout the year.

The fourth quarter 2010 closed with net income of US$15.5 million compared to US$15 million in the third quarter of 2010, and compared to US$11.9 million in the fourth quarter of 2009. Net income for the full year 2010 was US$42.2 million compared to US$54.9 million in the year 2009, which was heavily influenced by the outcomes of the financial crisis as we have repeatedly said in earlier calls.

So, let's go into more details regarding the performance and results of each business segment before discussing other aspects of the bank's financial performance. And as usual, we'll start with the commercial division where net income was US$14.9 million in the fourth quarter compared to US$13.9 million in the third quarter of 2010, and compared to US$11.9 million in the fourth quarter of 2009.

This net result was mainly impacted by higher revenues from a growing commercial portfolio base. Net operating income, and by that we mean net income before provisions for loan losses showed a quarter to quarter increase mainly from net interest income as average loan portfolio balances showed solid growth in the quarter. Commission income also improved this quarter, and it increased as a result of a greater number of loan and letters of credit transactions in the quarter.

Over to full year 2010, the commercial division produced net income of US$56.8 million as mentioned by Jaime, up US$34.8 million compared to the year prior, and that is a US$22 million increase, and the composition of which illustrates the resurgence of the bank's core strengths in its core business for one, origination and the portfolio growth that results from it.

On the other hand, pricing discipline, which together with growing portfolio balances drove the revenue growth that you've been able to see over the quarters, and as the most significant income driver, the focus on credit quality which paid off in the year 2010 in the form of lesser reserving requirements for both generic and specific risks.

Expenses in the division grew 28% year-on-year as a result of one, direct cost associated with the expanded commercial team and its footprint in the region, and number two, the greater relative weight of the division in terms of the bank's total assets, which in turn led to greater allocations of indirect costs. Average commercial portfolio balances, including acceptances and contingencies grew 14% in the fourth quarter, while period and portfolio balances reached US$4.4 billion, a 7% increase over the previous quarter, and that's a 43% increase above the levels of the end of the fourth quarter of 2009.

Loan disbursements origination reached nearly US$1.8 billion in the fourth quarter mainly on continued demand from large corporations and financial institutions. Loan disbursements for the full year 2010 reached US$5.5 billion and that was US$2.2 billion or 67% higher than the year before. This growth came mainly from our well established corporate and financial institution segments, while origination growth in our new or middle market segment, continues on its cautious expansion path.

Average lending spreads remained fairly stable this quarter as the portfolio mix stayed biased towards large banks and corporations in investment grade countries. The commercial portfolio remains short term and trade related in nature. 72% of the portfolio will mature within one year, and 59% of that portfolio is trade finance, while the remainder being lending to banks and exporters.

We continue to maintain a diversified mix of country exposures as Jaime already mentioned that balances the risk profile and underscores the bank's ability to support companies and banks, almost anywhere in the region. 57% of the commercial portfolio is corporations [and] sovereigns and 43% is lending to banks. Outside the banking sector, our exposure to industry sectors in the region is also very well diversified.

The portfolio risk profile continues to improve as non-performing loans continue their downward trend in absolute and relative terms. The amount of loans in non-accrual status amounted to US$29 million this quarter, representing 0.7% of our total loan portfolio at the end of the fourth quarter, down 10% from the previous quarter and down 43% from a year ago.

At the end of the fourth quarter, US$1 million were actually passed through more than 90 days, while the rest of non-accruing loans showed payment behavior which was inline with the workout terms. The reduced reserving requirements on the basis of perceived improvements in both country and client risk levels have resulted in net reserves decreases year-on-year, even as the commercial portfolio expanded significantly over the same period. While we see risk abatement trends to continue throughout the region, we nevertheless should expect to see provisions to increase going forward as reserves start keeping pace with our portfolio growth.

Now, let's move onto the treasury division, which contributed a quarterly gain of US$2.2 million to the bank's bottom line in the fourth quarter, as we reduced our securities available for sale portfolio and realized gains of sale in the process. The fourth quarter has seen the only meaningful selling activity in the year 2010 as we took advantage of market conditions.

The mark-to-market effects on the remaining available for sale portfolio and related hedging instruments were the main factors driving a minor quarterly variance of our unrealized losses which we recorded in the OCI account, and that OCI account showed at US$6 million at the end of the fourth quarter, nearly the same level as of a year ago. The securities portfolio continues to consist of high quality and liquid Latin American securities. 68% of the securities portfolio represents sovereigns or state owned risks.

As regards to liquidity levels, we remain comfortably above critical levels near -- our historical levels is around 8% of total assets. On the funding side, the division continues to manage an effective mix in our diversified funding portfolio as average weighted funding costs were down 5 basis points versus the third quarter of 2010 and down 58 basis points versus the same quarter a year ago.

Spreads remained stable versus the third quarter and widened 29 basis points year-on-year. Deposits have been an important factor in reducing overall funding costs and offsetting the effects of increased medium term funding. At the end of the fourth quarter, there were US$1.8 billion in deposits, down very slightly from the third quarter and up 45% compared to the levels of a year ago.

Operating expenses in the division decreased slightly compared to the previous quarter mainly due to fewer professional fees relating to the maintenance of our debt issuance programs. Full year operating expenses were actually slightly lower compared to the prior year. Now, let's talk about the asset management unit, which contributed a net loss of US$1.6 million in the fourth quarter of 2010, down from a gain in the third quarter of US$2.6 million. That was on the basis of a lower trading result and slightly higher operating expenses.

On a full year basis, the unit lost US$9.7 million as mentioned by Jaime, mainly incurred in the first half of the year, and that was down from a gain of US$14.1 million in 2009. Third party participation in the fund dropped three points compared to the third quarter, and six points compared to a year ago. In the fourth quarter, we capped our investment in the fund at a level of approximately US$150 million, and we consequently redeemed US$6 million in the course of the fourth quarter.

And again, as mentioned by Jaime, we now have made the decision to gradually reduce our investment in the fund to the original levels of US$100 million as we redeploy the gains we have accumulated to-date to support other fee generation activities.

Moving on from our segment review, let me give you a brief summary of other financial highlights of the bank's performance in the fourth quarter and the full year 2010. So, net interest margin remained stable at a 170 basis points in the fourth quarter, down a couple of basis points from the third quarter, but at the same level as the average for the entire year 2010.

This is 8 basis points better than the 2009 average and 10 basis points better than the average for the fourth quarter of 2009. Operating expenses in the fourth quarter were up 11% compared to the third quarter, mainly as a result of one-off adjustments and the provisions for variable compensation and social benefit costs.

We continue to invest in the quarter in resources expanding our average headcount in the quarter and establishing the pipeline for additions that we expect to have in the early months of 2011. Year-on-year we grew expenses by 10% to US$42 million total, which is well below the growth rate of our productive assets. The efficiency ratio in the fourth quarter was 44%, still not satisfactory but we're making progress. And for the full year 2010, it was 55% mainly as a result of lower revenues coming from the asset management unit.

In 2010, we opened two new rep offices in Monterrey in Mexico and Porto Alegre in Brazil, and we're well advanced in our efforts to open additional offices in Columbia and Peru. Before I hand it back to Jaime, just a comment on the bank's book value, which increased US$0.22 from the previous quarter to US$18.99 a share, compared to 2009, the book value is at US$0.50 a share.

In 2010, we started to increase our dividend payments and we paid out US$0.64 a share in dividends. Leverage at year end 2010 is 7.3 times up from 7.1 times in the third quarter and up from 5.7 times in the fourth quarter of 2009. Tier one capital stands now at 20.5% down more than five points from a year ago, yet still very healthy as we made good headway throughout 2010 in putting idle capital to work. And with that, I'd like to hand it back to Jaime for the questions and answers session. Thank you.

Thank you Christopher. Ladies and gentlemen, we look forward to your questions. Anybody have any questions, I will be glad to try to answer them and provide you with color and flavor on whatever it is that you would want to know about the quarter, the year and our plans for the future. Please go ahead.

Okay at this time we will open the floor for questions. (Operator Instructions). Our first question will come from Jeremy Hellman with Divine Capital Markets.

Hi, good morning everybody.

Good morning Jeremy.

I got two questions here, I'll just put them both to you and let you take them as you see fit. First off, I wanted to get an update on your efforts with respect to that Brazilian factoring business that you mentioned past couple of quarters that you were looking to maybe buy. Then secondly, with respect to the decision regarding the asset management business, if you're going to retreat from it a little bit, I would probably infer that that's a longer term full exit strategy. I want to see if that's the case or if you're really not committed to that course of action yet?

Okay. Those are actually two questions that are important and also easy to answer. We are moving forward with our efforts in securing or negotiating the purchase of a potential factoring company in Brazil. Details of how well advanced we are, are still confidential, but I can tell you that we continue working and that we have made advanced. I can also made public that we have now -- we now have the services of an investment bank firm working along with us, so that gives you an idea of how advanced the process is.

As soon as we have some type of important news regarding a decision in this respect, we will let you know. We continue believing that factoring is a mode of financing that will become well established in the region as it has in other places in the world as a way of providing trade finance both locally and intra regionally. What remains to be seen of course is whether we can locate a target that fits our culture and our general objectives well, and if we can agree on a reasonable price. We'll let you know.

On the reduction of the -- on the asset, on the exposure to our BCGF fund, we think it's simply pragmatic, efficient based on a year that did not go well as any business. Given that it did not go well, we thought -- and we think it's prudent to simply bring our exposure down to the original investments, get our earnings out, deploy them throughout the rest of the region and see how the unit regains its footing.

We continue believing that we have competitive advantages in the business, we continue marketing it, we continue getting interested calls from potential investors, mostly in Latin America and lately Asia. So, now the decision was a pragmatic one, we've had a bad year, look guys, let's reduce the exposure until we get the momentum back in the division and we'll take it from there. We'll continue analyzing the business as it moves forward. We remain committed to it, and that's in essence as transparent an answer as I can give you, because that's our thought process.

Great, thanks for that Jaime.

Sure, Jeremy.

Okay. Our next question will come from Patrick Brennan with RBO Asset Management.

Hello. I just wanted to follow up on the asset management division, encouraged to hear about the withdrawal -- the gradual withdrawal. I was curious on two things. One, when is -- what is your thinking in terms of timeframe of drawing down to the original US$100 million investment? Let's say a one year, two year, three year type decision here, a little color on the timing, and then also, I'd like to just sort of hear in terms of marketing the asset management division, how this is going to work.

I mean potential investors, they've seen a difficult year in 2010. You know how's the -- you know, what is the sort of appetite for outside parties putting money into the fund and the sort of the discipline and performance, and also how outside investors are viewing the bank's withdrawal [up at] the investment over time, and just discuss any marketing challenges that that could pose. Thanks a lot.

Sure Patrick. I can also provide clear answers to those two questions, because they have been discussed and agreed on within the Company. Regarding timing, what we mean by gradually is it will be no longer or no later than year end -- year end 2011 when we're down to our original US$100 million level.

Depending on how the performance of the unit evolves and what the actual book positions are, we might accelerate that if that doesn't hurt their performance. Or the second subject that you brought up, their ability to market. On that, it is clearly and evident and to be expected that marketing has become more difficult on the heels of a difficult 2010.

On the other hand, if we look back at the track record of the unit since 2006, investors are interested in a bank, Bladex, that based on a knowledge of the region has over the period since then, have made fairly good returns even during the bad period of 2008. In very practical terms, we are going to spend the first six months of 2011 concentrating on rebuilding the track record of the fund to then make it easier for us to go out and follow up on the marketing.

People have, or investors have expressed very interest in the concept of a Latin American bank that knows Latin American well, that has now spent four years learning how to run market risk. It's through a unit, through a professional unit in New York, and are attracted by the sheer concept. The 2010 and the performance represents a detriment, but we believe that if we turned the performance of the unit around in the first half of the year, marketing in the second half of the year should become easier and more effective. That's the plan and that's what we're going to try to do.

Thank you for your question. (Operator Instructions). Our next question will come from William Jones with Singular Research.

Hi guys.

Bill, how are you?

Good. You recently announced a dividend increase, and if I'm not mistaken, I believe this was a second consecutive quarterly dividend increase? Maybe you can give us a little color on whether you -- you know, that will be reviewed quarterly. And I realize it's a board decision, but what kind of a thinking is on the dividend policy and how the bank thinks about that?

The dividend decision is reviewed very carefully on a quarterly basis. And it is a stated and publicly announced policy of the bank to increase the dividend as the profitability of our core business grows in a steady manner. I don't see that changing. If you look back at our history, we have stuck to that. Every time our results have improved in a consistent and steady manner, and once we are convinced that the trend is established and will continue at a higher level, we have tended to increase the dividend.

We will, in all likelihood continue to do that, but I see no reason why that attitude should change. As the commercial division improves its profitability and as that trend that we saw this year becomes even more firmly established, the absolute numbers involved in the bank's profitability will increase, and I would expect that eventually as those numbers become firmly established, and we gain confidence that the new level is not only established, but also sustainable, we will review the dividend and increase it again. We've always done that.

Okay, great, thank you.

Sure.

(Operator Instructions). Our next question will come from Tito Labarta with Deutsche Bank.

Hi, good morning Jaime and Christopher, thanks for the call. Just one question, in the past you've mentioned eventually getting to like an ROE closer to 15%. I just want to get your thoughts in terms of, you know, your ability to achieve that target and timeframe and how long it could take to get there. I just want to get a sense of what you're thinking about that, thank you.

We confirm -- by the way we never spoke of just 15%. We've called it mid-teens, and mid-teens could mean actually 14%, 15%, 16%, 17%. To a large extent, how quickly we get there depends on how quickly Latin America and Latin American trade flows continue to grow. If Latin America continues growing at rates of about 5% and trade flows continue expanding at around 20%, we will get there fairly quickly, and fairly quickly I would think means a couple of years.

If the flow -- if the growth flows, we will naturally flow our own growth, doing otherwise would be imprudent and we would take a bit longer. Our sentiment is look, we want to get there as quickly as possible, but making sure, making absolutely sure that when we get there, we have a sustainable, steady, secure, safe, no surprises business model that will allow our stock price to appreciate in a steady way.

So, although we control our future to a large extent, regarding tactics, we really depend, to a large extent, on the ability of the region and the world -- ready to continue growing the way it's currently growing and that will determine how fast we get there. It looks good, so far it looks good. As you know, some people believe that the growth in the region in 2011 would be somewhat smaller than what it was in 2010, and that trade flows will also slow down a bit.

Still, if we continue gaining market share the way we have, the relative improvements in ROE year-over-year from this year to in the next couple of years should be in the same order of magnitude that we saw this year. So, we're talking about a couple of years if you run your models and make your calculations, assuming also that we're able to keep our credit quality steady of course. I can tell you, we went through our complete portfolio review just recently, and trying to identify any potentially worrisome assets that have not been picked up or identified by our systems. We couldn't find any, but see how the rest of the year goes.

I'm hoping, and indications are, that given the trends that I spoke about regarding the demand for commodities and the way prices are behaving and the little levers that exist in most Latin American companies, we will be able to maintain credit quality. We will have problems of course. You know, you're growing, the number of clients continue to improve, but we're very good at resolving problems. We're very good at restructuring, resolving, and collecting.

But again, that's the other elements that could slow us down, a general credit quality in the region. I don't see that, I don't see that as a very likely scenario, but it could happen. In summary, if things continue going the way they are, we should get there in a couple of years. If things improve, we should get there even faster. If growth slows a bit further, it will take us three years, but we're talking about that type of timeframe.

Alright, great, thank you, very helpful.

Sure.

Our next question will come from Michael Ting with Goffe Capital.

Hi, good morning. I have a question regarding your capital levels. If you look ahead, say one to two years, can you discuss the levels where you'd be comfortable operating at?

Now, this is a more difficult question to answer. We've been asked that question for the last, I guess, five or seven years. And the question -- and the honest answer is that it depends. And it depends on the risk levels in the region. If the risk levels in the region continue improving and our business becomes, quote-unquote, safer, we will naturally be able to, and will want to operate always capitalizations that are going to be not as strong as they are today. That just stands to reason that that would be a prudent thing to do, to give you -- just to give you a historical perspective, back when Latin -- in Latin America last time things were quote-unquote normal, our tier one ratio used to run in the order of 15%.

In a region by the way, normal at that time meant much higher regions throughout the continent. There were only one or two investment grade countries in the region at that time. We expect the new normal -- the new normalcy to settle in a region where most countries -- most large countries will soon be all investment grade, which should allow us to operate at the most at the 15% tier one capitalization levels that we used in the past and maybe lower if our profitability is stronger.

If on the other hand, risk deteriorates because of Europe or because of another sovereign debt crisis elsewhere or whatever, we're going to have to do what we've always done, actually increase and strengthen our capitalization. It's all a question of risk levels. We're comfortable where we currently are, and we're comfortable with the way things are looking, and we've been diminishing our capitalization because risk has been improving. We will continue doing that. I think we will eventually settle at somewhere around 15%, which should be ample to provide us with a 15% ROE.

But if the risk levels in the region improved further, we might be able to go lower. If risk on the other hand deteriorates, we'll have to strengthen it again. That is truly the best answer that I can give you.

Okay, thank you Jaime, and I guess along that line in terms of capital management. If we do get to sort of that 15% level over the next few years if things kind of normalize. I know this might be difficult or more complicated given your shareholding structure, but how do you think about returning capital back to shareholders via share buybacks versus continued increases in dividends?

We've actually done both in the past. A few years ago, we had -- and for a year, we had -- we opened or we established a share buyback program while continuing to pay dividend. At that time, we thought, and correctly by the way, we were correct that the prospects for growth in the region given great levels et cetera would not allow us to deploy our capital more profitably than what the shareholders would be able to invest in. And so, not only did we continue to pay dividends, we paid extraordinary dividends and we had a share buyback program in place, a decision that was supported by, by the way, the entire board of directors, both private and public.

We tend to make whatever makes sense. At this particular moment, we see so much potential for growth and profitable appreciation, that we believe that the best use of our capital is to use it to leverage the Company and make use of the opportunities that we face. When we get to 15%, if the region is stable and we see no other opportunities, well, we'll do what we've done in the past, return capital to the shareholders. So, that's part of our culture as well. And if you look back at our relatively recent history, you will see that what I'm just telling you about corresponds to what we actually did. For something like three years, we paid extraordinary dividends, we established payback programs and increased the dividend.

Thank you for your question. (Operator Instructions). Our next question will come from Gary Lenhoff with Wintrust Capital.

Thanks. I joined late, I apologize if you've addressed this question. I was wondering if you could help me better understand the provisions for loan losses as well as the provisions for your off balance sheet credit risk, which it looks like you increased them in the fourth quarter with respect to loan losses, having reversed them in the third quarter, and vice versa in the fourth. I'm just wondering if you could tell me -- probably a bit more detail on what's happening there?

I would like to take this question -- Christopher. The commercial portfolio consists of both loans and contingencies, which is basically our letters of credit business, and management tends to look at these two product classes as the same. The reserve methodology is the same applicable to loans as well as letters of credit. And so, we look at the portfolio as one.

The nature of the business on the contingency side, the letters of credit business, is that it tends to be slightly more volatile in the sense of being dependent on most commonly -- quite large transactions, which not happen on a clockwork basis. We cannot really count on an oil shipment to be funded or to be supported on a weekly or monthly basis. So, there we do have a slightly greater variations of our outstanding balances. And on the other hand, a loan portfolio is also quite short term in nature. So, there's a lot of business running off every quarter, every month, which needs to be replaced with new business.

So, we obviously try to maintain a healthy mix, both from a country exposure perspective, as well as a product exposure perspective, but you know, it's very hard to be perfect in that sense, and we don't actively try to manage it too much either. So, this is really what accounts for the swings on both the contingency side and the loan side. I don't know if this answer satisfies you, but --?

Sure. Are the two -- are the amounts in each -- the loans versus continuities, are they related or are those independent?

They're quite independent, because they really focus on different types of trade flows.

Yes.

The letters of credit business is -- it's a lot of -- it's commodity driven more than anything, and oil is -- yes oil derivative shipments are a big piece of our business there.

Yes.

So you can imagine that these tankers don't leave every week, so this is quite a seasonal effect, taken into consideration and so forth. So, now they're quite spread and they're not the same underlying product, and they don't have the same underlying characteristics.

Okay. Could you maybe just provide some color on what would cause the loan -- the provision for loan losses, forgetting about contingencies for a second, to reverse almost US$13 million in reserves in the third quarter, and then in effect put it back on the books in the fourth quarter?

Well, the reserve methodology is quite dependent on country risk analysis. And so, if there is a transaction that's happening in a country which has a perceived risk level which is greater or higher than other countries, you would immediately see the effects of it in our reserves. And so, this is something inherent in our reserve methodology, and we've been applying this methodology for a number of years already.

So, we cannot just ignore the fact that markets perceive certain countries with a higher risk premium and we have to reflect that in some ways in our business. And so if transactions happen in a country with that allocated reserve ratio which is higher than others, then you'll see the effect of that immediately in our balance sheet.

Okay, great.

Yes.

Thank you.

Thank you for your question. (Operator Instructions). Okay, at this time, I'm showing no further questions in the queue. I'd like to turn it back to our speakers for closing remarks.

Thank you ladies and gentlemen, thank you very much for your attention. Thank you very much, especially for the calls. I hope we have answered them clearly, I hope we have addressed the doubts that you might have had regarding some of the issues that were not covered, either in the press release or in our opening comments.

Again, I would just want to close by saying or restating my closing remarks when opening the conference and stating that more than ever we believe that the next five years, not 2011, the next five years look extremely promising in Latin America. We have been -- by the way, we have been, physically been to the farms and to the mines and witnessed the first world technology that is being used to produce food and mineral. And we have been to Asia and we know that demand on the part of Asia is going to continue.

So, therefore we are certain that the trade flow from Latin America will continue increasing not only to Asia, but to Europe and to the Middle East, and we are more certain than ever, because we saw this year that our business model and the positioning in our market is not only strong, but getting particularly stronger, vis-a-vis our competition, we are stronger, it's been recognized in the market by our own competitors. It's been recognized by our clients.

By the way, our survey, an independent survey among our clients told us, and without disclosing the name, told us that Bladex has the best trade finance team in Latin America. We're sure we have a great team, a very strong positioning, and are looking forward to -- are working in that region and in the market that is growing very rapidly.

You know our business, we're good at what we do. We'll also be able to convert this into growing profitability. We will do so however carefully, we're bankers, we're good bankers. So, we're going to do it carefully and steadily. We don't want surprises or big swings, but we have a plan and we're -- it's a good plan, we're sticking to it 2011, will be another year of strong growth. Like Christopher said, 2011 by the way will be the second year of strong investment. You will see our expense base increase again. The expectation is that portfolio growth will be a multiple of that expense based growth.

It's going to be a good year and set the platform for a truly outstanding performance, starting 2012. That's the plan for 2011. It's already mid February, we're already on it, working hard, and just to let you know, so far things look good. And we have no reason to believe that they will continue -- that they will change during the rest of the year.

Again, it's a great time to be working in Bladex. We're happy to be here excited, very optimistic about the future, and it's a great time for you to be shareholders of a company that is on its path to sustained success. Thank you very much for your support during 2010, and I look forward to talking to you during our first quarter conference call. Thank you very much. The best of luck to all of you, and we'll see you.

This concludes our teleconference. You may now disconnect your lines.