Foreign Trade Bank of Latin America Inc (BLX) 2011 Q3 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 will turn the conference over to Ms. Melanie Carpenter. Ma'am you, may begin.

Thank you. Hello, everyone. Thank you for joining the Bladex Third Quarter 2011 Conference Call. Today is October 21st, 2011. This call is for investors and analysts only.

Joining us today from Bladex's office in New York is Mr. Jaime Rivera, CEO. And business travel we have Mr. Christopher Schech, CFO. Their comments are based on the earnings release issued yesterday. A copy of the long version is available at the website, www.bladex.com.

Any comments 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 the call over to Mr. Jaime Rivera. Please go ahead, Jaime.

Thank you, Melanie. Good morning, ladies and gentlemen, and friends, really, most of you. Thank you and welcome to our conference call once more. As you can see from the press release that was distributed yesterday, we just had a great quarter. And this is shaping up to be a really good year. From my perspective, however, it's not only a good year, but it's been a year where the results have been based on simple, consistent blocking and tackling. There have been no Hail Mary passes. The business is working very well.

But before I ask Christopher to run you through the numbers and explain -- give you light and detail on what happened and how the different figures moved, there's a couple of points I'd like to leave with you because I think they are important.

One of them, the first one important to what is going on with the Company over the short term, and the second is important and relevant to our plans as to the future. It is my job, as you know, to take care of both aspects of what we do, the day-to-day and dealing with the current problems and opportunities without losing sight of the direction the Company is heading in with something particularly important given what is going on in the world these days.

So the two points I'd like to leave with you are the following. We are pragmatic. We're professional. We realize and admit that no one, no country or region or bank is immune to what's going on in the market. However, I want to tell you and I want to give you the reasons why I believe that both Latin America and Bladex are probably going to do fairly well regardless of the financial tsunami that will probably hit our shores soon.

On Latin America first. From a purely financial perspective, as you probably know but it's worth remembering and emphasizing, Latin America is actually fairly well positioned. Consumer debt, corporate debt and, most crucially, sovereign debt levels are fairly low. And this gives consumers, companies and especially governments in the region ample room to maneuver and a lot of flexibility regarding options in dealing with the problems that may be heading to our shores. And that places Latin America in a privileged position.

Secondly, central banks in most countries in the regions have accumulated even more reserves than they had back in 2008, and that gives them, the central banks, flexibility and the tools necessary to provide their countries with liquidity if that becomes necessary.

Thirdly, inflation, which, as you remember, even a few months ago was a worry, is no longer. Is no longer much of a concern because prices in general, especially food prices and energy prices have eased.

And finally, and crucially from my perspective, and I admit my perspective is biased, the banks in the region, the banks in Latin America, the financial system in Latin America, is in general in very good shape. The banks are profitable, very well capitalized, they're liquid, credit quality is good, et cetera. And that gives Latin America's economies great resilience.

And I went public a few weeks ago in a conference in Bogota and I said that I thought that knowing the banking business as I've come to know it, I frankly feel that, as we speak or these days, the better managed, stronger banks in the world are those in Latin America. So from a financial perspective, Latin America is in good shape.

Strategically, however, and it's important to also think strategically, the region of Latin America is also very well located. Firstly, the region's export products remain in demand throughout the world. The commodities that Latin America exports to China, and of course China is a big question mark in many people's minds these days.

The commodities that we export to China, if you look into the figures and if you dwell into the details, you will conclude that many of the products that are bought by China in Latin America are products that Chinese themselves use at home. They are not products that the Chinese import from, say, Southeast Asia to then manufacture and export to regions like the US and Europe, which are expected to slow down over the coming months or years.

So that gives, in our estimation, a lot of resiliency to our exports, Latin America's exports, that is, to China. And that's certainly from the perspective of what we see in Bladex, on a day-to-day basis what we're seeing. We haven't yet seen a deterioration in either the volumes of the products being exported or the numbers of transactions coming through our offices. So from that perspective as well, Latin America is strategically well positioned.

And lastly, and very importantly and quite differently to what used to be the case even five years ago, Latin America is becoming increasingly integrated. Regional trade is growing and it's growing very fast. And that provides the region with a cushion that it didn't have before.

So if you add these factors along with others, such as, for instance, Latin America as of late becoming an increasingly important producer of oil and gas, which are likely to remain in high demand in the world, regardless, really, of how quickly other economies expand, you have to conclude that, well, the region is doing well. It has the financial resources to withstand another bout of financial crisis. And it is strategically well located to continue to grow.

Again, not immune -- the region is not -- is going to slow down. But from our perspective, from Bladex's perspective, it provides us with a market that is likely going to continue to grow. And that is, of course, hugely important for us because that's our market. Our market is Latin America and its trade, both exports and imports.

The second point, then, that I want to make, having explained why we think that Latin America is well positioned in relative terms to face whatever might be coming down the road, is that Bladex itself is also very well positioned, from two points of view as well. Financially, you can dwell into our numbers. Christopher will explain them in a second.

But we are very well capitalized at a time when capital is very scarce in the financial industry. That is not an issue for us at all. We have, as you can see from the figures that were published yesterday, a very strong liquidity position. Our credit quality remains strong, et cetera. And finally we're doing very well.

At this point I'd like to make a couple of points which I thought -- I want to make them because I've been asked about them and I thought I would never have to make them. But I just want to -- we're in a public forum so I would clearly state, no, Bladex owns no Greek debt. I've been asked that a couple of times. We don't have no Greek debt, no debt of any of the countries that are currently being in question. Our business is Latin America. All our risk relates to Latin America.

Secondly, our liquidity, our cash is deposited mostly, more than 90% of it is deposited with -- well, the one institution in the world that is legally authorized to print dollars. So that liquidity, that cushion of liquidity that we have is safe.

And thirdly, because this a question that's also being asked, no, we don't have anyone that is suing us. We have no problems. In fact, I don't think we have a single suit against the Bbnk for any reason. Those are three clouds hanging over the financial industry that simply do not apply to Bladex.

So, then, strategically, speaking of Bladex again -- about Bladex again, our position is even stronger, even stronger than our financial position. And this on account of at least two reasons. Firstly, and this is crucially important, given what is going on in the market, many of our competitors, for reasons of their own and problems that they're having at home, are having to withdraw from the market. International competitors mostly, mostly European and in some cases even American banks.

So this is allowing us to step in and support our clients at a time of special need for them. And you can imagine what this is doing for us in terms of strengthening our franchise, improving client loyalty, improving our key role or our strategic importance to the region. And importantly, as you can see from our numbers, it's allowing us much greater pricing power than in the past.

We're being able to charge more for whatever we do for our clients. It's really a win-win situation. We're supporting our clients when -- at a time when they really need help. And we're doing so while at the same time being able to improve our profitability.

And the second reason why we are strategically very well placed within what's going on in the world and in Latin America is that, as you might remember from what we spoke about, was probably a year ago, we were among the first banks in Latin America, if not the first one, who identified the trend towards region -- towards domestic companies in Latin America becoming increasingly regional.

And we are, as we speak, the only network, integrated network of being able to provide financial services related to trade on a regional basis. And that's providing us with a great ability to expand our business and serviced clients regionally and do things for them that no other bank currently can do.

Again -- and again, that is -- you can see that translated into higher net interest income figures and into higher fee income. And we believe that is likely to persist for some time, as creating a network such as the one that we have created over the last few years does take some time.

So, Latin America is not immune to what's going on in the world. Bladex is not immune to what is going on in the world. We realize that we have taken measures -- Christopher will speak to that in a second. But we are -- Bladex is ideally positioned to continue pursuing our ultimate goal. And that's the third point that I would want to reemphasize.

Our objective remains unchanged. We want to and we have been working and we have been successful at improving our -- the ROE of our core intermediation activities. It's being increasing in a very sustained fashion over the next -- over the last two years. We have done so, if you think about it, and we said this is the way we are going to do it, we have increased our ROE over the last couple of years, mostly through the use of increasing leverage. ROE, as you know, depends basically on leverage and ROA.

The world has changed. Economies are expected to slow down. They probably will. So we will be shifting gears. We will continue increasing ROE, but we will be doing so by emphasizing increasing ROA. We're simply going to be charging more for our services rather than through continued leverage. But we are firmly convinced, and I think this quarter shows it, that it is perfectly possible and it's probably going to be easier for us to continue that gradual improvement in ROE under the current conditions in the market than over the last two years.

Again, our objective remains to increase our ROE but because that will increase the value of our stock. That will make our shareholders rich. That will make me respectably wealthy. That will make everyone happy. That will lower our cost of funding. And we will -- we will be doing that while helping our clients at a time of real need and while helping the region continue becoming a key element of the world's trade flows.

This is something that, and I'm speaking now personally, I find extremely gratifying and that we as a management team are very proud of and actually -- and having a lot of fun while at it. It's a great feeling to do good business while doing well for clients in our region.

So, with this, ladies and gentlemen, I'll ask Christopher to take you through the details of the quarter and then, as always, we'll be delighted and happy and actually I look forward to having a conversation with you and answering whatever questions or doubts you may have. Christopher, please.

Yes, thank you very much, Jaime. Hello and good morning, everyone. Thank you for joining us on the call today. In discussing our third quarter results, I will focus on the main aspects that have impacted our results this quarter. And I will put them in context with the previous quarter as well as the same quarter of a year ago.

The results of the third quarter 2011 were a continuation and an acceleration of the results achieved in our core business over the previous quarter. We have a commercial division that is continuing its expansion across all client segments, driving scale and revenue growth as margins and commission income improve. The treasury division delivered another quarter with positive results, as it carefully manages its securities portfolio.

More importantly, though, it continued to drive down funding costs while boosting liquidity levels to a very safe level, considering an increasingly uncertain capital markets environment. And after a very good second quarter, the asset management unit had a difficult third quarter 2011. But it knew how to limit its losses to a manageable level.

Our margins and spreads have strengthened more significantly even as low interbank market rates persist. Our commercial portfolio continues to benefit from the favorable growth and credit quality trends in the region, as reflected in our stable nonperforming loan trends. And as anticipated, reserve levels are starting to increase as a function of commercial portfolio growth.

Expenses, while higher on a year-on-year basis, reflecting a larger frontend workforce and more offices, expenses are starting to show more restrained growth as we enter a period of consolidation of all the new elements that we have added over the past several quarters.

So the third quarter 2011 closed with net income of $16.3 million, down $9.4 million compared to the $25.7 million that we achieved in the previous quarter, but up $1.4 million, or 9%, versus the third quarter of 2010.

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. As usual, let's start with the commercial division, where net income was $17.7 million in the third quarter compared to $13.3 million in the second quarter and compared to $13.9 million in the third quarter of 2010. The quarterly variance in the net result was impacted mainly by net interest income growth as a result of higher average loan balances and margins and higher commission income.

Expenses grew marginally, as we are starting to consolidate the workforce and office infrastructure that we have built up over the last several quarters to support sustained origination and asset growth in the region. The change in the provision for loan losses line again showed an increase in provisions this quarter, which we believe is starting to become more commensurate with our portfolio growth.

Net operating income, and that means the net income before provisions for loan losses, increased considerably quarter-to-quarter, as higher revenues derived from a growing commercial portfolio base outpaced expense growth.

Commission income showed quarter-on-quarter growth, as anticipated for the quarter, not only from growth in average contingency portfolio balances that drive the majority of these commissions, but also as the result of the fact that our activities, diversified fee income generation through restructuring syndications on behalf of our clients are starting to gain traction.

Compared to the third quarter of 2010, net operating income improved as net interest income increased mainly on the basis of portfolio growth, outpacing the year-on-year growth in expenses.

So average commercial portfolio balances, including acceptances and contingencies, grew 11% in the third quarter, while period end portfolio balances reached $5.6 billion, a 7% increase over the previous quarter and a 34% increase above the levels of the end of the third quarter of 2010, as our regional expansion and second penetration activities continued to have traction in the market.

Credit disbursements reached $2.7 billion in the third quarter, which is down $0.4 billion versus the previous quarter, but up 17% from the level of the third quarter of 2010. Demand from large corporations and financial institutions continues to be strong, and origination growth in our newer middle market segment in terms of loan balances and also in terms of number of clients acquired have accelerated with the deployment of the local workforce in our new rep offices.

Average lending spreads improved this quarter, as the portfolio mix still stays biased towards large banks and financial institutions and corporations. Average US dollar interbank market rates, which represent our base rates, remained at low levels this quarter.

The commercial portfolio continues to be short term and trade related in nature. About $4 billion, or 71%, of the portfolio will mature within one year, and 64% of the portfolio is directly related with trade, while the remainder represents lending to banks and corporations involved in foreign trade.

We continue to maintain a diversified mix of country exposures that enhances the risk profile of our portfolio and drives home again the relevance of our ability to support companies and financial institutions almost anywhere in the region, just as Jaime already explained.

The portfolio composition itself remains stable in terms of business segments, as 50% of the commercial portfolio is corporations and sovereigns, 43% is lending to financial institutions, and 7% is lending to the middle market companies. Outside the banking sector, our exposure to the industry sectors in the region is well diversified, with strategic focus on those sectors where Latin America has distinct competitive advantages as a provider sought after around the world in terms of the goods and materials we supply to the rest of the world.

The portfolio risk profile remains very solid, as nonperforming loans stayed stable at 0.7% of portfolio balances, similar levels set in the previous quarter and down from the 0.9% of a year ago. At the end of the third quarter there were no past due amounts, with all the non-accruing loans showing payment behavior which was in line with the loan agreement.

As improvements in both country and client risk levels continued to have a mitigating effect on credit costs, we nevertheless have reached a point where we are seeing provision increases as reserves are reflecting our portfolio growth.

Now let me move on to the treasury division, which posted a quarterly gain of $2 million in the third quarter compared to $1.1 million in the previous quarter and compared to $1.5 million loss a year ago. We again [trend] positions in our securities portfolio this quarter and proceeded to realize gains of sale.

The mark-to-market effect on the available for sale portfolio and related hedging instrument stemming from revived concerns regarding sovereign debt in other regions were among the main factors driving up our quarterly unrealized losses that we record in the other comprehensive income accounts, the subset of the capital account, which amounted this quarter $12.7 million compared to $3.4 million at the end of the second quarter and $5.5 million a year ago.

The securities portfolio consists of titles and papers of very high quality and stemming from liquid Latin American governments and issuers. Around three-quarters of the securities portfolio represents sovereign or state owned risk. And as market volatility has returned, we have emphasized the close monitoring of liquidity levels and have increased them this quarter to very comfortable levels in order to ensure a great degree of flexibility and maneuvering room for ourselves

On the funding side, the division continues to manage an effective mix in our diversified funding portfolio, as average weight of funding costs were lower by 3 basis points versus the second quarter of 2011 and down 17 basis points versus the same quarter of a year ago.

Net interest spreads widened 16 basis points versus the previous quarter and by 24 basis points year-on-year. Deposits have again proven to be an important factor in reducing overall funding costs and offsetting the costs of increased amount of medium term funding.

At the end of the third quarter there were $2.5 billion in deposits, up 20% versus the previous quarter and up 34% compared to the levels of a year ago. The deposit increases came primarily from our central bank shareholders, which continue to place a great degree of trust in our bank. We continue to diversify our liability [tenor] structure this quarter, with another loan syndication that we closed in Asia.

So let's talk about our asset management unit, which had a weak result this quarter, with a net loss of $3.3 million compared to a gain of $11.3 million in the second quarter of 2011 and a $2.6 million gain in the third quarter of a year ago. This quarter's performance resulted from mark-to-market losses in the investment funds, reflecting a very difficult environment in the capital markets.

The positions that were primarily impacted by these marks were long positions in Latin American currencies, as well as long positions in short term Latin American credits. Even as the results were not satisfactory this quarter, they continue to compare rather favorably with the rest of the industry.

The fund remains focused on [PEMs] LatAm region and no positions are held outside the region. The bank continues to redeploy its retained earnings in the fund this quarter and it now has redeemed $30 million over the course of the first nine months of 2011.

Moving on from our segment review, let me give you a brief summary of other financial highlights of the bank's performance in the third quarter of 2011. Net interest margin rose 15 basis points to 190 basis points in the third quarter, which is up 17% versus a year ago, as average loan balances grew and average yields benefited from higher yielding securities, loans and liquidity.

Operating expenses in the third quarter were down 7% compared to the previous quarter, mainly as a result of lower performance related expenses in the asset management unit. Year-on-year, expenses were up 19% as a result of our investment in frontend resources, primarily adding sales executives and risk resources.

As this incremental workforce becomes increasingly productive, we see efficiency ratios improve. The year-to-date efficiency ratio now stands at 37% compared to 60% a year ago, and the efficiency ratio relating to our core operations, which we also monitor very closely, shows accelerating quarter-to-quarter improvements.

Return on equity, as already mentioned by Jaime, in our core operations also is improving steadily, reaching double digit levels this quarter.

The bank's book value stands at $19.71 per share. Leverage at the end of the third quarter 2011 amounted to 8.6 times, slightly up from the 7.9 times of the previous quarter and up from 7.1 times in the third quarter of 2010. Tier one capital stands now at 16.9%, leaving the bank very well positioned to perform. And with that, I'd like to hand it back to Jaime for the questions and answer section. Thank you.

Thanks, Christopher. Ladies and gentlemen, we'd love to address and answer any questions that you might have. Please, go ahead.

At this time we will open the floor for questions. (Operator Instructions). Our first question will come from Regina Chi with DRZ.

Yes, hi. Good morning. I have a couple of questions. First, can you just talk about the NIM trends going forward as you continue to do this mix shift into higher SME loans? And if you can just expand on your exposure to SMEs and how that increased quarter-on-quarter?

And then my last question is your opening remarks talked about how you're going to increase ROEs via ROAs, but yet you're increasing leverage quarter-on-quarter. So can you just explain that and where do you expect leverage to cap -- to be capped? Thank you.

Regina, thank you for your questions. A few comments on the NIM first. Yes, we believe that we are going to continue see increases in the NIM. As I said the realities that we have been successful at imposing higher pricing on our loans and while we are, because that is a reality, we fully expect to be paying more for funding in the coming months. Traditionally we have been very good at more than passing that cost on to our clients. So the short answer to your question is yes, we expect and in fact are planning on seeing the NIM gradually rise over the next quarters.

SMEs, and remember we have been working at this now for something like a year and a half, it took us about six months longer than we thought it would take to really get traction and start adding something like, $90 million per quarter or so of balances to what we call medium sized companies, which are in reality companies that are not as huge as they ones that we used to work with.

Many of these companies are becoming regional. They -- many of these companies are now dependent on trade operations for their revenue. We go to them and our offer is based on, look, we can do two things for you.

Firstly, we can serve your regional needs better than your domestic bank, which we recognize are very good but are generally just that, domestic banks. To the extent that you are becoming more and more regional, we can help you with your operations in other countries. That has proven quite a good selling point in that it addresses a very real need. We think the portfolio is going to continue to expand. We have been quite careful about going about it.

As you can imagine, loans to these companies tend to be much more structured. We use a lot more guarantees than we use in the rest of the portfolio. We of course charge more. We of course reserve -- our reserves on that portfolio are higher. We think that over the course of this year we double the portfolio, in essence. In a year we probably see double again in the coming year, which is one of the reasons that will help the NIM.

Regarding the ROE question, we have so far been increasing ROE based primarily on leverage, although we have also increased NIM levels. We think that as the economies slow, because that's what most people expect to see, the economies in the world will slow, Latin America will probably slow down to something like 4% in 2012, our own growth rate will slow down.

And that is good because it would be less than prudent for us, in fact it probably be imprudent for us to continue growing at the rate we have been growing, the size of the balance sheet that is, while the economy is under stress and risk levels improve.

So we will continue growing, yes, but you would probably see most of the increase in ROE come as a result of ROA rather than growth. We will see both, but the emphasis will be on ROE mostly through higher margins and commissions. Did I answer your question clearly and completely? And if not, please tell me so and I will elaborate further.

Well, if you can just give some numbers to the SME portfolio as a percentage of total portfolio and also if you have a number in your mind where you are comfortable with a certain leverage. Like, is it 10 times, is it 22 times? Bank leverage has come down significantly from the 40s down to the 20s and it's probably going to come down more. So if you have a number there.

And also, I've noticed how you've reduced your tier one ratio as you've been growing and reallocating your capital to these higher growth areas. What level of tier one are you most comfortable with?

Let me address the -- your second question first. We believe that the right answer depends on overall risk levels. To the extent that risk levels improve, we have always been of the opinion that we can afford to work with a weaker capitalization. To the extent that risk levels become worse or become more worrisome, we've tended to improve or to increase our strengthen our capitalization.

On the -- our current plans call for a tier one of no less than 15% as we move forward. Everything else being equal. If risk levels improve, and/or if our profitability grows even more than we think it's going to grow, then we will revisit the question. But from -- on the basis -- if you're planning as you do your modeling use a figure of 15% because that's the figure that we use as the level which is commensurate with the risk levels that we see both in our portfolio in the regions and in the world.

Regarding your first question, the SME portfolio, we probably see -- we will probably see about 10% of our portfolio at the end of this year. That's what we're aiming for. And we will probably see a trade at something like 15% to 17% of the entire portfolio by next year.

Okay, great.

No, no, thank you.

Thank you for your question. (Operator Instructions). Our next question will come from Patrick Brennan with RBO Asset Management.

So, good morning. I think at the beginning of the call you articulated very well the case for why Latin America could prove more resilient and why Bladex is better positioned. And I also liked hearing your answer on the return on assets improving.

I guess, once again, can you put that -- those comments in context with the loss in the asset management division and why the asset management division still plays a role in kind of the short and intermediate term vision with Bladex. Leave it there to start. Thanks.

Patrick, can you please rephrase the second part of your question? I got the first one very clearly, but I couldn't quite understand the second part of your question.

Okay, I'll try again. It just, as I said, it was sort of one question. It was just you articulated the -- why return on assets can improve. And therefore why the return on equity for Bladex can improve. And your comments were all directed, presumably at the commercial division. And if you feel confident you can execute on that vision, why is the asset management division part of the Bladex plans over the short and intermediate term?

Oh, that's the question, Patrick, that I think can be answered or is answered in two terms. Firstly, it's been a very good business for us and it's been a very good business for us because the asset management division makes use of Bladex's intelligence about what we know in Latin America.

We created this division it's now been six years ago. It's a business we know very well by now because we realized that there was intelligence that we knew, intelligence that we had about the region, which could allow us to take market risk in addition to credit risk.

And that's the reason why we created the asset management division, we thought, and we still do, by the way, and I think the numbers prove it, that there is -- that is a way to monetize our ability and our ability to make market risk calls based on what we know about the region. It is volatile. It is volatile. We wish the division made money every quarter, but we're pragmatic that that has not happened in the past and will not happen in the future.

We take a look at performance year-to-date, we made $11 million so far and that's been good. It's been a good use of capital that we have available. And we're firmly committed to the principle that this is a business that Bladex is especially qualified and especially previously qualified to run because we know the region particularly well.

So, we look at the asset management division as the icing on the cake. For a number of years we have been saying that the model that we'd like to run is a core operation, a bank, an intermediation bank that is sufficiently large to make sure that whatever happens in the asset management division becomes just that, the icing on the cake. And that if and whenever the asset management division has a bad quarter, it will eventually and it will continue to have a few bad quarters as it moves forward, it doesn't impact our overall result that much.

This quarter, by the way, proves that point. The core -- our core operations have now grown to the point where the division had a bad quarter and it really didn't make much of a difference. That will continue being the case. As you know, we are reducing our exposure in the asset management division while we are growing the rest of the Bank. I think both models on both business -- both businesses are perfectly complementary, especially now. Especially now that our core operations, the Bank itself, has acquired scale and is becoming increasingly profitable.

It's a good business for us. It's something that we know how to do. It's something that makes use of the intelligence that we have about the region and therefore in our confidence -- we're confident that it's going to, in the long run, continue to prove to be a good business. Does that -- do my comments answer your questions? Would you want me to elaborate any further?

No, we'll just leave it there. Thank you.

No, no, thank you.

Thank you for your question. Our next question will come from David Ross with Chevy Chase Trust.

Yes, was the -- did you see any change in momentum during the quarter, especially as we moved into that August and September timeframe? And secondly, have you seen any changes in trade flows in any of the countries? Did anybody show any particular strength or weakness during the quarter?

David, I'm going to be quite frank with you. We are a bit puzzled. We are a bit puzzled because while every expert in the world is speaking about a slowdown, we haven't yet felt it. We have to believe it will eventually happen because so many people who know so much about the world believe that it will -- a slowdown will come about. But as of the end of the quarter and even in the two weeks into this quarter, we don't -- we have not yet seen a slowdown in either volumes or numbers of transactions or any special type of product that is no longer in demand.

Now, I would readily admit that that might be -- or actually I'm sure that part of the reason is, of course, because we have more clients, and that because we have more clients we're seeing more operations. And part of the reason might also be because we're not doing business for them that was being done by banks that are no longer operating in the region.

But I don't -- in speaking to our clients we haven't heard yet of anybody complaining of a significant slowdown. Again, we have to believe it will happen. And if it does, we'll deal with it accordingly and that's actually our base scenario, a slowdown in the region as a whole, and are planning accordingly. But we haven't, David, yet felt it yet.

Okay, great. Thanks.

Sure, David.

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

Hi, guys.

William, good morning. How are you?

Good morning. Forgive me if Christopher already addressed this, but the provision for losses on off-balance sheet credit risk was a fairly big number. Perhaps you could shed a little more light on that.

Oh, yes. We have a fairly sophisticated provision model that is based on, among many other things, the country where the transactions take place, the type of transactions that -- the type of transaction, the tenor of the transaction, et cetera. So what happened during last quarter is that we did a fairly large amount of business, and this was mostly letters of credit having to do with the import of oil products in the region between some of the riskiest countries in Latin America.

And when it comes to those countries, because of the higher risk, we assign higher credit provisions to the transactions. And that's the real and simple answer. You will see that change quarter to quarter as more operations take place in some countries which are riskier than others.

I see. Okay. And you also had a net gain on a sale of -- on sales of available for sale securities on the income statement, realized gain of $1.8 million, despite the difficult capital markets. Maybe you could explain that -- how you were able to achieve that.

Well, this is a business that we've been running now for about five years. And our principle varies, the following. We know many of the issuers of those securities very well because many of them are our clients and they are clients in our trade finance book. So we are in fairly close and constant contact with them.

The market, for whatever reason, sometimes because of liquidity considerations, sometimes because of our flight to quality that occurs in the world as a whole, for whatever reason, the market tends to sell into -- sell those securities and prices drop. And we believe -- at times we think, well, wait a second, this price -- the security of this price has dropped too much. It's actually a good deal for us to buy.

And we go in and pick those up when we know we are picking up or buying securities of companies that we know and we know intimately well, so well, in fact, that we know that the prices are likely to increase again as conditions in the world changes -- change, rather, liquidity comes back, risk avoidance becomes less of an issue. We hold them in the available for sale portfolio.

They pay us well because we buy them cheap, we realize good interest -- income on them. And then when price does rise, however long it takes, sometimes it takes a few weeks, sometimes it takes a year, when price does rise we sell them and realize a profit. It's again -- it's -- I think it's something like 15% of our portfolio, or that's certainly the guideline that we have. Our securities will never rise beyond 15% of our portfolio.

But it's a good business for us. It's making use of our knowledge of the clients to buy when the market for reasons that we don't agree with, sells and prices drop. We've been doing that for the last six years and have been quite successful at it.

Okay, thank you.

No, no, thank you.

Thank you. (Operator Instructions). Sir, I'm showing at this time there are no further questions. So I'll turn things back to Mr. Rivera for closing remarks.

Well, thank you very much. Well, ladies and gentlemen, I hope that we have been able to convey to you a couple of basic and simple facts. We have a plan and a strategy that have proven to be effective. For the future our intention is to continue to execute on that plan and that strategy.

The way -- the changes in the market are actually placing us in an improved competitive position and making it actually easier for us to implement on that plan and to actually accelerate what we thought was going to be a four-year project, for example, we think is going to now be a three-year project.

So we look forward to the coming year, actually, and continue doing what we've been doing, increasing ROE, maintaining our credit policy where it is, retaining our focus on the two things that we know very well, Latin America and trade finance, where we are becoming increasingly important both to governments and our clients.

In the meantime we're all members, we all operate in the financial markets. It's a difficult time and exciting time for all of us. I wish you success and look forward to talking in three months. Again, thank you very much, best of luck and thanks for your attention.

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