Foreign Trade Bank of Latin America Inc (BLX) 2011 Q4 法說會逐字稿

Good day, everyone, and welcome to the Bladex conference call. All lines are currently placed in a listen only mode. As a reminder, this call is being recorded. At this time, I would like to turn the call over to Melanie Carpenter of i-advize for opening remarks and introductions. Ma'am, you may begin your conference.

Thank you, [Kelly]. Hello, everyone. Thank you for joining the Bladex Fourth Quarter and Full Year 2011 Conference Call on this, the 24th of February of 2012. This call is for investors and analysts only. If you're a member of the media, you're invited to listen only.

Joining us today from Panama are Mr. Jaime Rivera, Chief Executive Officer, and Mr. Christopher Schech, Chief Financial Officer, along with other members of the senior management team. Their comments will be based on the earnings release issued yesterday. A copy of the long version is available at the website of www.bladex.com.

Any comments that management makes today may include forward-looking statements. These are defined by the Private Securities Litigation Reform Act of 1995. They're 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 for his remarks. Please go ahead, Jaime.

Thank you, Melanie. And good morning, ladies and gentlemen. And welcome to our fourth quarter conference, one in which we get the opportunity to review the quarter, the year as a whole, and this is the part I enjoy the most, speak about the way we plan to move forward during this year.

We don't want to waste any of your valuable time. So Christopher Schech will dissect the numbers as he always does so well while I will try to address some of the bigger picture type of trends driving our business.

Let me start by stating the overriding principle of the bank once more. By design, by charter, and by vocation, we do business in Latin America and only in Latin America. We think of ourselves as the most Latin American of banks, and are sure we are the most international of Latin American banks.

And Latin America, fortunately, is doing very, very well. The global slowdown, the distinguished politicians in Brussels and our dear colleagues in the European Union, notwithstanding.

So that during the 2011, we did business in a region that grew by some 4.1%, a growth rate that was skewed downward by the growth figures in Brazil, which around 3% were less than half of what they were a year earlier, as the country successfully dealt with inflation levels that were becoming worrisome.

Still, during 2011, we did business in eight countries that grew more than 5%, and in 17 that grew by more 4%. It's a growing region.

For 2012, the regional growth figure that economists are speaking about, is about 3.5%. But in visiting both Peru and Colombia in the last couple of weeks, I saw evidence speaking to both clients, and listening to our government ministers, that growth this year stands a very good chance of exceeding last year's, which runs against the economists consensus.

Having visited four regions -- four countries in the region this quarter, I'm sorry, I have a feeling that, again, from what I hear from our clients principally, the absence of tail type of event, the region would probably do better than expected.

To give you a flavor of how the region is doing, here are some figures which I thought would prove interesting to you. With only a few exceptions, [typical debt] loans in the regions are hovering around a manageable 40% of GDP. Fiscal accounts, while they haven't recovered to 2008 levels, are again also at manageable levels. And our current accounts are also -- current account deficits in most cases are also running around 2.5%.

Reserves, critical from the point of view of the financial systems that support these economies, have expanded about 50% beyond the already high levels that allow central bank as you remember to face the 2008 crisis without undue strain. The macroeconomic figures in the region are strong.

From the point of view of monetary policy, central banks, unlike elsewhere in the world, have a lot of room to maneuver to stimulate their economies, should this become necessary, with the average reference rate hovering around 4% or so, and inflation levels relatively in check in most countries.

Workers remittances, as you know, are critically important for some of the smaller countries in Latin America have not only recovered to 2008 levels, but are actually increasing. So you put it all together, and you have the makings of a 2012 year where growth capital market issuances are expected in the region to be smaller than coupon payments and amortization. It's actually going to be -- debt issuance is actually be -- going to be negative. Again, quite a contrast to regions in other parts of the world.

Industrial supply did already moderate in most countries, along with what's going on in the European Union and in the United States principally. It did moderate from an average of about 8% to 2% per annum. But crucially, crucially, retail sales have proven resilient.

Colombia, to give you an example, the retail index went from around [105 to 125] during the year. In Brazil from about [110 to 140]. And herein lies another of the fundamental changes in the region. For the first time since independence, really, for the first time, Latin America is creating an expanding middle class. The larger economies, in fact, some 51% of the population is now part of the new middle class, up from just 41% in 2001.

Emotionally, socially, if you stop to think about it, this is just a phenomenally favorable thing. As an outward mobile middle class, is the fiercest supporter of democracy. On a much more mundane level, it is incredibly favorable for Bladex as a growing middle class tends to fuel growing imports. Crucially, as well, investment levels are rising. To quote one of the ministers that I met in Colombia, investment levels there have reached 28% already, levels which are quantum leap over the mid teens levels of just a few years ago.

So to round up my case for Latin America, I'd like to give you a couple of real world examples that might surprise you, particularly if you have in mind, as I'm sure you do, the equivalent figures for countries in the European Union. Peru, for instance, justifiably one of the current darlings of the investment world in the region, Peru has a debt load of less than 22% of GDP, current account deficit of only 1.1%, and reserve levels equivalent to a full 13 months of imports.

As known is the case of Bolivia, which I'd like to describe for you. In Bolivia, foreign debt amounts to only 21% of GDP. The country has a fiscal surplus of 2%. A current account surplus, again, surplus of 4.2%, and 17 months import worth of reserves.

So I think these two real world examples make my case for the strength of the economics in the region. So we've all been around for a long time. And the region does, of course, face risks and problems. Commodity prices, which are critically important for the region, are driven by the demand in China where, fortunately, a soft landing seems to be underway. Infrastructure in the entire region is under great strength.

[Indication] as we all know, lack the needs of a changing world. Innovation and productivity have only recently come to the forefront. And crucially, in my opinion, and I've been very vocal about this for a decade now, drug problem is getting worse as production -- drug production expands in line with demand, not only in the US and the European Union, but also in countries in the region itself.

On a macro level, you know, however, the overriding fact and the overriding truth is that our 2009 predictions calling for Latin American becoming a strategic source of the energy and of the minerals and of the food. And in the case of Mexico, the manufactured parts that the new global paradigm would require have proven true. We were right, as has our prediction that Latin American companies would expand into other Latin American countries, attracted by favorable market dynamics, resulting from strong, local demand itself, the result of the increasing middle class, a phenomenon that I just described.

So driven by these two tectonic shifts, Latin America in our opinion is and will remain a great place to do business. A great place to do business and especially, especially, a great place to do trade finance. And here's where we can get to talk more specifically about Bladex.

Reade flows in the region during 2011 expanded by some 23%. That's about 5.5 times the underlying economic growth rate in the region. Now coupled with Bladex's ability, resulting from the last two years of investment to gain market share through a higher share of wallet of existing customers, and by developing new ones, this is what allows our average commercial portfolio to expand by some 39% during 2011, fully, 1.6 times the great growth rate of trade flows.

Bladex enjoys a couple of real and structural advantages within the favorable scenario that I just described. Our brand, our infrastructure, our client suite, and our products are all positioned after two years of investment, as I mentioned, to capture all the full growth rate in the region trade flows and more.

Crucially, and this is very important for us, and in fact, it's crucial for the business as a whole, we have assembled what our clients themselves called in a recent survey the best team, the business of trade finance in Latin America hence the best team in the business of trade finance in Latin America.

By the way, happy as I was to hear the news, particularly because they're coming -- they came from our customers, our next goal is to become the best trade finance in the business by 2014.

So then again -- so then, how are we going to go about our work in 2012? What are we going to do? Well, during the last three years, as you remember, we have been focusing on achieving the minimum scale that we needed to support the expanded infrastructure and commercial and risk management team necessary to position the bank as and where we have.

2012, as I said during our last conference, will shift focus. Net income will become the number one priority. Net income achieved through a combination of incremental fees, and higher efficiency levels and added leverage in the balance sheet.

Growing net income levels will result in growing ROEs, and thus, higher stock prices while at the same time, allowing us to continue to increase our dividends. Some additional color on our plans for the year, externally, we will assist the portfolio mix towards clients with higher risk adjusted returns and higher fee generation potential. And we will leverage our stronger than ever traction on the ground to expand the client base even further.

Externally, we will focus on improving what our clients value the most about Bladex. And I say this because they've told us so in both surveys and in one on one conversations. Providing them with information about opportunities in the region and critically, proving our already best in class agility. The term agility coming up in our conversations and in the surveys.

In this search for improved agility, we're already reviewing and consolidating and simplifying our processes and are planning to physically move our headquarters to new facilities sometime in the second quarter of this year.

The new premises have been designed with one main objective in mind. Serve our clients better than anyone in the business. Great finance, as you probably know, is a business that requires of great speed. So we have designed a new layout in accordance with the typical trade transaction process. The commercial team, for example, will be right next to the credit team is next -- will be next to the next to the compliance team, which will in turn be next to the disbursement team. Administration functions will be in a separate floor.

There will be no offices anywhere, just conference and huddle rooms. Industry leading speed, communications and efficiency, that's what we're after.

Finally, there are two questions floating in the web that I'd like to address outright. First, the asset management unit. As I said before, we like the business. However, we've made over $50 million out of the $100 million we originally put in. But it is a volatile business. And crucially, our efforts in generating third party fees have come short of expectations, to put it very mildly. Even if supported by the fund's strong track record.

The guys in the asset management team have proven to be AAA raters. The fact is that we haven't been able to sell our services and our ability to generate income for third party investors.

(Inaudible) part of the problem we have learned to manage. Rest of the bank has grown, as we have promised it would do. And we have taken $50 million out of our investment in the fund, also as promised.

Third party money problem, however, remains an issue, and one that is not getting any easier on account of the Volcker rule among other structural reasons, rather. So the board asked the management of the unit for strategic options to address the situation. And while I cannot give you any details, I can confirm that a definitive solution is being worked on literally as we speak.

Other question that seems to be floating in the net has to do with our portfolio growth during the fourth quarter. And while I think it's important to keep in mind that there was a 3% increase in the average portfolio balances during the quarter, which is what really counts for interest income purposes, the fact is that at the end of the year, balances showed a 4% decrease versus the third quarter.

Here's the story of what happened in plain, simple and transparent terms. Acting sometime in late November, we saw the world becoming increasingly paranoid, because actually, I think that is the reason -- they were rather paranoid about the clock stopping to take in the financial world as a result of the sovereign debt problems in the European Union, and particularly in Greece.

So not being privy to information as to what was really going on in the European Union, in the United States, at the IMF, at the ECB, at the Bank of England, and at the Greek Parliament, we decided that the situation called for a strong dosage of prudence until things became clear.

Not wanting to be the last ones out of a burning theater, we purposely stopped renewing some of our maturing loans and building a massive liquidity that, as you can see from our -- in the balance sheet, came to exceed the amount of our capital. And that was that. We left some money on the table, yes, but we believe that what we did is consistent with running a bank in a responsible manner under the circumstances that we faced at the time.

So this, ladies and gentlemen is where we are, facing highly attractive markets from our great positioning purposely built over the last two years. And this is why we're so enthusiastic about the future for the bank. 2012 will be the year in which we will complete the transformation that we started in 2009, and which will place us ahead of just about every one of our competitors in a growing business, which were specialists, and in a growing region, that we know better than just about anyone.

Yes, we know, of course, that we're -- there will be problems that we will have to face. We are experienced and especially have a heck of a strong team to face them. Graphs of our results going forward will not be smooth. I can assure you, this is the real world, after all, just to give you an idea and to remind you, the growth rates, the average growth rates in our portfolio over the last seven quarters read as follows.

Let me see. 6%, 8%, 14%, 4%, (inaudible) percent, 7% and 3% of trade finance business is one which is not linear. It's seasonal and it's impacted by a number of factors that are often not related to either our business, or the economics of the countries involved.

There will be growth, but it's not going to be -- it's not ever going to be linear and smooth. What I can assure you is that net income and ROE levels will continue to growth, that our shareholders and clients and our region will benefit accordingly.

So ladies and gentlemen, thank you for your patience. And I hope you found some of my comments useful. At this point, I'll ask Christopher to please dissect the figures for you. And then, we will be very glad to take up your questions. Christopher, please?

Thank you, Jaime. Hello, and good morning, everyone. Thank you for joining us on the call today. In discussing our fourth quarter and full year results, I will focus on the main aspects that have impacted our results. And I will put them in context with the previous quarter, the same quarter of a year ago, and of course, with the full year 2010.

But before I start, just a few words regarding the presentation of our business segment results to reflect a more detailed and, we believe, more meaningful view of our segment performance in that we no longer allocate interest in operating expenses simply according to average portfolio balances in each segment.

Instead, we allocate interest expense based on duration match funding principles, and of the risk adjustment capital determined for each of the segments. Our expenses are allocated based on actual resource usage in each segment. We have applied these changes to the full year 2010, the fourth quarter 2010, and the third quarter 2011 segment -- third quarter 2011 segment results, to allow for comparisons on the same basis.

So to begin with the highlights, the results of the fourth quarter 2011 were a continuation and an acceleration of the results achieved in our core business over the previous quarters, in spite of and within an increasingly volatile capital markets environment. Therefore, towards the end of the fourth quarter, we prioritized liquidity of our loan balances growth as Jaime has already indicated to you.

Even so, the commercial division continued its earnings expansion across all client segments, driving scale and revenue growth, as lending rates widened and average portfolio balances grew 3% in the quarter.

Treasury division delivered another quarter with positive results, while reinforcing the bank's liquidity and funding positions in light of increased market volatility. And the asset management unit had a good fourth quarter, capping the year 2011 with a very solid result.

Our lending interest rates have strengthened at an accelerated pace in the fourth quarter, short term funding costs did so even more rapidly, which resulted in a tightening of the net interest margin and the net interest spread.

Fundamentally, our commercial portfolio continues to benefit from the favorable growth and credit quality trends in the region. As reflected in our stable non performing loans outstanding, while balances are beginning to grow.

Reserves grew moderately this quarter as a function of commercial portfolio diversification and a strengthening of reserves relating to our nonaccrual portfolio. Expenses are higher on a year-on-year basis, affecting a larger front end workforce and our expanded presence in the region. However, the effects of consolidating all these new elements and becoming more efficient in utilizing them are already showing its impact on efficiency, which has improved significantly.

So to go into a little bit more detail, the fourth quarter 2011 closed with net income of $24.8 million, a substantial increase of $8.5 million compared to the $16.3 million that we achieved in the third quarter of 2011, and up $9.3 million versus the fourth quarter of 2010. The full year 2011 closed with net income of $83.2 million, very nearly doubled the net income of $42.2 million that achieved in 2010.

So let's go into more detail regarding the performance and the result of each business segment before we discuss other aspects of the bank's financial performance. As usual, we begin with the commercial division, where net income was $17.7 million in the fourth quarter, compared to $14.5 million in the third quarter, and compared to $11.3 million in the fourth quarter of 2010.

The quarterly variance in that result was impacted mainly by net interest income growth as a result of higher average loan balances and in lending rates, while commissioning income came in lower due to limited growth in the letters of credit business, and lower loan fees.

Expenses dropped mainly as a result of lower hiring expenses and professional fees that we had incurred in the third quarter and that did not recur in the fourth quarter. The change in the provision for credit losses showed a slight increase in provisions this quarter, as a function of a gradual shift of the composition of our commercial portfolio with higher middle market portfolio balances, and also with the strengthening of reserves relating to the nonaccrual portfolio, which was mitigated by a reduced reserving requirement as ending loan and contingency balances were slightly lower at the end of the quarter.

Net operating income, meaning net income before provisions for credit losses, increased considerably quarter-on-quarter, as higher revenues were derived from growing average commercial portfolio balances, and widening lending rates, and as expense levels came down versus the previous quarter.

On interest income, which means fees and commissions amounted to $3.1 million this quarter, compared to $3.7 million in the previous quarter, and compared to $3.3 million in the same quarter of a year ago. As increased commissions from the letters of credit business were offset by lower transactional fees, which result from loan structuring activities and loan commitments.

Comparing annual results, '11 fees and commissions amounted to $11 million versus $10.3 million in 2010. And that was mainly from increased commission income from the letters of credit business. And compared to the fourth quarter of 2010, net operating income improved as net interest income increased mainly on the basis of portfolio growth and margin improvement, we outpaced the growth in expenses associated with a larger sales force, and a larger infrastructure.

Average commercial portfolio balances, as Jaime already mentioned, including acceptances and contingencies end in the fourth quarter 2011, reaching $5.5 billion. Our period end portfolio balances reached [$5 billion], a 4% decrease over the previous quarter, as we slowed our lending temporarily in light of recent capital markets volatility.

Average balances in the fourth quarter 2011 were 26% above the levels in the fourth quarter of a year ago. And total 2011 average balances were up 39% versus the year 2010, as our regional expansion, the segment penetration activities continued to gain traction in the market.

With regards to disbursements, quarterly disbursements amounted to $2.3 billion in the fourth quarter 2011, down 15% from the third quarter 2011 as a result of the liquidity buildup towards the end of the quarter. But up 4% versus the level of the fourth quarter of a year ago.

Annual credit disbursements reached $10.5 billion in 2011, up 42% versus the previous year. Our cross border vendor finance activities increased substantially over the course of the year, with over $2.3 billion disbursed in the business -- in this business sub segment, which is characterized by very short term facilities with an average tenure of around 60 days, involving the discounted purchase of trade receivables in the form of builds of exchange which are primarily originated from US based exporters selling into Latin American markets.

Also general loan demand from large corporations and financial institutions continues to be quite strong, but it still represents a relatively small portion of the portfolio origination growth in our newer middle market segment, doubled in the year 2011 in terms of loan balances and number of clients as the local workforce in our new representation offices is now fully deployed.

Average net interest margins and spreads decreased 6 basis points this quarter, mainly driven by a spike in short term borrowing costs in the interbank markets. Average US dollar LIBOR rates have started to move upwards, supporting the widening of lending rates and to benefit our bank.

Portfolio mix is still biased towards our established client base of large banks and corporations. Commercial portfolio continues to be short term and trade related in nature. 70% of the portfolio will mature within one year. And 59% of the portfolio is straight finance, while the remainder represents lending to banks and corporations, which are involved in foreign trade.

We continue to maintain a diversified mix of country exposures that enhances the risk profile of our portfolio with more than 75% of our total exposure in investment grade rated countries. At the same time, our portfolio mix underscores our ability to support companies and banks in other parts of the region as well.

The portfolio composition in terms of clients remain stable with 46% of the commercial portfolio representing our relationship with corporations in sovereigns. Another 46% represents lending to financial institutions. And 8% pertain to our clients in the middle market segment.

Outside the banking sector, our exposure to industry sectors in the region is well diversified. And our strategy continues to be focused on those sectors where Latin America has the same competitive advantages as a key provider of processed goods and raw materials.

Portfolio risk profile remains solid, with non performing loans representing 0.6% of total loan portfolio balances, compared to 0.7% in both the previous quarter and the fourth quarter over a year ago. At the end of the fourth quarter 2011, there were no amounts past due 90 days with all the non-accruing loans showing payment behavior, which was in line with the loan agreements.

Reserves relating to a nonaccrual loan were strengthened based on updated analysis regarding expected payment capacity in the future. Improvements in both country and client risk levels continue to have a mitigating effect on credit costs. However, provision (inaudible) continue and will continue as reserves reflect both continued portfolio growth and to a smaller extent, also changes in the portfolio mix.

Now let me move on to the Treasury division, which posted a gain of $3.3 million in the fourth quarter compared to $5.3 million in the previous quarter and $5.8 million in the quarter of a year ago. We again trimmed positions in our securities portfolio this quarter, and proceeded to realize gains on sales, while favoring more liquid assets.

The mark to market effects on the available for sale portfolio and related hedging instruments reflected improvements towards the end of the year in the debt crisis of Latin American securities and contributed to reducing unrealized losses that we record in the OCI, other comprehensive income, accounts by $10 million to a level of negative $3 million this quarter, compared to negative $13 million at the end of the third quarter and down from the negative $6 million of a year ago.

Securities portfolios continued to consist of high quality and liquid Latin American securities. Around three-quarters of the securities portfolios represent sovereign or state own risks. As market volatility increased in the fourth quarter 2011, we intensified our proactive monitoring of prudent liquidity levels, and increased liquid assets substantially this quarter. (Inaudible - audio gap) ensure a maximum degree of flexibility for the bank.

Capital markets conditions, however, have shown some improvements since the beginning of the year. And we have adjusted our liquidity management accordingly, freeing up resources to fuel loan growth again.

(Inaudible - audio gap) mix in our diversified funding portfolio, locking in short term funding, while increasing tenors and growing our medium term obligations. Average weighted funding costs increased by 17 basis points versus the third quarter of 2011, and up 5 basis points versus the same quarter of a year ago as short term interest interbank rates spiked in global financial markets during the fourth quarter.

And interest spreads as a consequence tightened six basis points as mentioned earlier versus the previous year, but they widened 17 basis points year-on-year.

[Total] deposit balances decreased by $192 million or 8% to a level of $2.3 billion versus the historic highs that we'd reached in the third quarter of 2011. As more emphasis was placed by the bank on longer deposit tenors in lieu of accepting shorter term deposits. Ending balances were up $483 million or 27% higher compared to the fourth quarter '11 -- for 2010, sorry.

Average deposit balances in the fourth quarter 2011 were up slightly versus the previous quarter and up 24% versus the same quarter of a year ago. Average deposit balances have been an important factor in reducing overall annual funding costs by 14 basis points year-on-year, more than offsetting the costs of increased amounts of medium term funding. The deposits came primarily from our central bank shareholders, although many Latin American private banks also placed some of their US dollar liquidity with Bladex.

Now let's talk about our asset management unit, which had a solid result this quarter with net income of $3.9 million after a net loss of $3.4 million in the third quarter, and compared to a net loss of 1.6 million the fourth quarter of 2010.

The unit remains focused on the Pan LatAm region. The investment approach for the assets on this management continues to favor long positions in Latin American currencies, as well as long positions in short term Latin American credits.

This quarter's gain resulted from favorable mark to market valuations of these positions, even as overall market conditions continued to be very difficult for the investment fund sector as a whole. The result capped a successful year for the unit in achieving above market returns for its investors. The unit contributed net income of $15.1 million to Bladex's bottom line in 2011, compared to a $10 million loss in the year 2010.

The bank continued to redeploy its retained earnings in the investment -- in the investment fund this quarter, as Jaime mentioned also. And for all of 2011, it redeemed $50 million, following through with its approach to reducing absolute and relative exposure to this high return, but sometimes more volatile source of earnings.

Moving on from our segment review. Let me give you a brief summary of other financial highlights of the bank's performance. The net interest margin decreased 6 basis points to 184 basis points in the fourth quarter. And borrowing costs moved upwards, pending a repricing in our loan portfolio. The net interest margin was up 14 basis points versus the same quarter of a year ago. And the full year net interest margin was at 181 basis points, 11 basis points higher than in the year 2010. As average credit portfolio balances increased, and average yields benefited from an improved portfolio mix of higher yielding loans, securities, and liquidity.

At the same time, low cost deposit growth allowed to offset the impact of higher short term borrowing costs and higher average medium and long term liability balances. With regards to expenses, operating expenses in the fourth quarter were up 3% compared to the previous quarter, mainly as a result of variable compensation provisions in the asset management category.

Expenses relating to the core activities in our commercial and Treasury divisions were down quarter-on-quarter as discretionary spending and cost related to new hires were reduced. Year-on-year, expenses were up 9% as the average workforce reflected the increased number of sales executives and risk management staff.

Overall, 2011 operating expenses amounted to $50 million, up 19% versus the prior year. It was mainly driven by employee compensation and benefit costs as the bank all but completed its expansion into terms of average headcount and number of offices, which we had planned to strengthen our position in the region. And also, due to an increase of the performance related expenses and the asset management unit.

As the added capacity becomes increasingly productive, the bank's efficiency ratios continue to improve. Efficiency ratio for 2011 reached 36%, substantially improved over the previous year, with sort of 55%. Quarterly efficiency ratio now stands at 34%, compared to 44% in the fourth quarter of 2010.

The same positive trend can be observed in the efficiency ratio relating to our core operations. The bank's overall return on equity reached 13.1% in the fourth quarter, and stood at 11.4% for the full year 2011, compared to 6.2% the year before.

The ROE relating to our core operations is also improving steadily. After having reached double digit levels in the third quarter, it has solidified in the fourth quarter and should continue to improve as a function of revenue growth with an increase and more diversified credit portfolio.

The bank's book value stands at $20.45 a share. Leverage at the end of the fourth quarter 2011 is at 8.4 times, which is slightly down from the 8.6 times in the previous quarter, and which is -- and up from the 7.3 times in the fourth quarter of 2010. Tier 1 capital stands at 18.6% compared to a 16.9% in the previous quarter, as a result of profits and improved OCI levels. And these 18.6% for the quarter compared to 20.5% in the quarter of a year ago.

As published in a recent press release, the bank's board decided to increase the quarterly dividend by $0.05 to $0.25 cents per share. The increase dividend corresponding to the fourth quarter 2011 was paid earlier this month. And it reflects the continued commitment of the bank, the increased shareholder return, and its business growth.

And with that, I hand it back to Jaime for the Q&A session. Thank you very much.

Thank you very much, Christopher. Ladies and gentlemen, we'd be delighted to take up your questions, please.

At this time, we'll open the lines for questions. (Operator Instructions). Our first question comes from Tito Labarta with Deutsche Bank.

Hi, good morning. Jaime and Christopher, thanks for the call. And thanks for addressing some of the questions you did. Maybe just a couple of follow ups. First on the asset management business, you mentioned that you're working on a definitive solution. If you can maybe just give us some color on the timeline for that, when you think that would be, and if there is any preference for keeping it in-house and raising third party fees, or maybe selling it, or just kind of any color you can give on what that solution could be?

And then the second question following up on the loan growth, I understand why you kind of slowed down in the quarter, but maybe if you can give some guidance for 2012 and, you know, what kind of loan growth we should expect for this year? Thank you.

Well, thanks, Tito. To answer your questions, first, whatever solution we structure for the asset management business will have the generation of third party fees as one of its driving elements, period.

As to timing, this was treated and discussed at our last board meeting. Our responsibilities were assigned for the analysis and discussion of the different options that were presented. And discussions are already ongoing. And so, while I cannot promise, I am really in no position to do that. I don't have enough information to do that. I would expect that to be result one way or another before the end of this quarter. Is that sufficient color for you?

Yes, that's very helpful, thank you.

Okay. Regarding loan growth, it'll be certainly smaller than what it was last year, simply because the economies supposedly are going to slow down, one. And secondly, because we'll concentrate our focus on wringing out as much money as we can out of the existing portfolio by changing the portfolio mix.

In our calculations, we have come to believe that if we do that, we will generate -- that portfolio mix is a low hanging fruit that we will generate much easier than simply going out and trying to continue to lever as a bank.

As to an actual number to use, if you believe that Latin America is going to grow at something like 3.5% to 4%, if you go back historically, our asset base has expanded anywhere from three to four times the rate of growth of Latin America as a whole. I would start with that.

And then, by the end of the first quarter, we should have a better idea of how fast the economy's really growing, and how much additional demand we're obtaining as a result, and provide you with a better figure, but use that one to begin with.

All right, thank you very much, Jaime. Just maybe one follow up question. And when you look at the middle market lending, it's now around 8%, I think, of your portfolio. And do you have any idea where you could be by the end of this year, or what kind of growth to expect in that segment? Thanks.

That -- the figures that you see actually represent 100% improvement, 100% growth over where we started last year. Growth in that segment will slow down. And it will slow down, not because we don't find it interesting, but on -- under the conditions that are currently existing in the market, it turns out that the highest risk adjusted returns are in some sectors of the corporate market. And so, that's where we're going to be aiming our guns at principally.

Okay, thank you.

Thank you.

Thank you. Our next question comes from [James Ellman] with Ascend.

Yes, good morning, thanks a lot for taking my question. First of all, could you give us some detail as to what you're seeing in terms of European banks withdrawing from Latin American trade financ3 funding and your outlook for Bladex to be able to grow its loans in that space and if margins will expand with competition increasing?

Certainly. I'm sorry, I did not quite get your name?

It's James Ellman at Ascend.

James, thank you. European banks, as it turns out, you know, a few comments on -- from a macro perspective. European banks have something like 50% of their foreign claims in Europe itself, 20% in the United States, and the balance is distributed in different, you know, Asia, other Europe, and Africa. Latin America represents from the figures that we have seen, only 4% of their foreign claims.

They are, in fact, withdrawing. I believe that to the extent that they could withdraw their cross border lending, but that -- they have done most of that already. The ones that have not withdrawn, nor do I think will withdraw, are the European banks with underground retail operations.

In particular, the Spanish banks. Spanish banks are responsible for more than half of the retail claims in the region. Those will stay because -- firstly, because they're making very good money, which their headquarters sorely needs. And secondly, because they are -- the local regulations in the markets where they operate ring fence their ability to, quote-unquote, get out.

The impact it has had on margins, yes, there has been some margins have improved partly as a result of the withdrawal of some of the European banks from the trade finance business. But on the other hand, local banks are increasingly filling the void, and such that while margins have increased, they have not to the extent that you would have expected, you know, even five years ago. And that, by the way, we think is good. We don't want to face a situation in Latin America where clients cannot get access to financing.

We believe that margins in our business will continue to widen. Cost of funds will increase certainly, but the fact is that we have been able to more than pass that increased funding to our clients. And that alone is sufficient to -- will be sufficient rather to fuel our growth in net income, along with the other initiatives that I just mentioned, increased fees and increased productivity.

All right, and just in terms of many of those European banks and non Spanish ones, I imagine much of their trade finance were correspondent lines to local banks in the region. Would you be able to pick up some of that market share?

We already have. We already have. There's a limit as to how much we want to do with that in that respect, however, because often, the risk adjusted returns in the corporate sector as I just mentioned is better. So yes, while we have and you can see that in our press release, our financial institution segment it grow quite significantly last year, that's probably to a large extent come to an end. And in changing the portfolio mix, we will in fact, switching some of the money that's currently being placed with banks to corporations, which prove more profitable to us, and where we can get fees, unlike with the bank.

Okay, and I'm sorry, just finally on this side, so would you say that there's still room for you to gain market share and grow faster than the market in 2012 as the European banks or some of the non Spanish ones retreat from the market?

No doubt. We are going to gain -- continue, by the way, continue gaining market share, even if the European banks have never withdrawn from the market, we would have gained market share simply as a result of the position that we currently enjoy in the market.

We now have a network of 10 offices, which places us in a unique position to address the inter regional trade that is growing very rapidly and the internationalization of Latin American companies that are increasingly doing business across borders in Latin America, and which require the assistance of a bank both at their home headquarters and at the sites of the new operations.

We have what we believe is the best network to address that very rapidly growing segment of the business.

Very good, thank you very much.

No, thank you.

Thank you again. (Operator Instructions). Our next question comes from Jeremy Hellman with Divine Capital Markets.

Hi, good morning, gentlemen.

Jeremy, good morning.

First question for me, it sounds like you're back to expanding the loan portfolio. Do you have an ability to either gave a definitive dollar value as of January 31 for the size of the portfolio or maybe just some relative basis versus where the balance was at year end?

Jeremy, let me -- let's just put it this way. January was an especially strong month for bank. Everything worked out extremely well in January. It's been one of the stronger Januarys we've had. February has slowed down, as it generally does, Carnival in much of the region, particularly in some of our largest markets.

So no, we're -- we are back to normal growth. We'll see how March goes. February is in the bag already, basically, it's going to be a decent month. Nothing extraordinary. The quarter will be determined by March. And we see no reason why normal growth should not resume.

Remember that. Remember that the first quarter is generally weak from the -- from all perspectives. But we have reason to believe that it might not be as weak as it generally is. That's probably all I want to say on the subject at the moment.

Okay. Next, the -- going back a few quarters, we used to be talking about factoring in possible acquisition in Brazil. Haven't heard any commentary about that in recent memory. Is it safe to presume that's not on the table anymore?

Two comments on that. No, the factory in Brazil, the purchase of a factory and company in Brazil is not on the table anymore. But B, you know, it's in our press release. We did have a plan B in case the factory purchase did not work out, we started discounting receivables on a wholesale basis. And we did something like $2.3 billion last year of what is in essence a wholesale factory between Latin America and mostly Europe. It's mostly oil business. That business is growing very rapidly.

That is another business we are putting resources and focusing our attention. And that is probably how our factoring operation will evolve. Wholesale business, large tickets, clients in Latin America and in Europe that we grow extremely efficient with discounted those $2.3 billion was receivables with only two people. So we had a plan B and fortunately, Plan B worked very well.

Okay. And then, two last ones for me. And more on the qualitative side, I always appreciate your qualitative opinion on things. Caught a piece on Bloomberg TV this morning, they had a commercial realtor from New York talking about Mexico as being in his view, the next Brazil. Kind of curious for your take on that sort of opinion.

And then, secondly, you mentioned the growth of the regional middle class. Looking long term, do you think you might entertain listing your shares publicly on any of the bourses in the Latin American region, so that the growing middle class might have an increased ability to, you know, invest in the bank.

Your second question first because it's easier to answer. Not only will I need to consider listing ourselves in the local markets in the future, we have given very serious consideration to that in very recent times. For one reason or another, we haven't done so. But we have concluded that it wasn't the right time, but it's a question we periodically look at.

The minute we think it's convenient from the point of view of volumes, et cetera, we will do so. As you know the, quote-unquote problem with many of the existing markets, local market in Latin America is that they're highly concentrated. Very few names make up a fairly large percentage of the traded volume.

And so, that's what stopped us from actually going through with the plan. To the extent that that is changing, as some of these markets consolidate, and actually form single markets, we would probably do so, yes. It's -- we're Latin American bank, we should be in some -- or in various Latin American markets, for God sakes. So we will do that at some time.

The question of Mexico is a complicated one. The -- my -- off the top of my mind, answer is to a very large extent Mexico -- the future of Mexico in regards to economic growth will depend or continue to depend because that is the way Mexico structured itself within NAFTA, on how things go in the United States. Things in the United States are really picking up, slowly but they are. And we've already noticed that impact in our business in Mexico.

That's -- I think, the NAFTA will to a larger extent determine how quickly and how fast Mexico develops. The other factor that would be -- will have an impact on how Mexico does is the level of investment in the country. And that, in my opinion, will primarily have to do with how successful Mexico is in eventually controlling the violence that is being brought about and upon the country by the drug trade.

My hope in this regard arises out of seeing what Colombia did. They were very successful. It was difficult and costly, but Colombia demonstrated that it is very possible to control violence and the drug trade. Mexico, it's just starting along those -- that line. They've done great strides, great sacrifices. You know, in the ultimate sense of the word, a lot of very courageous Mexican men and women have died literally in the fight against the drug trade.

My belief is that with persistency, time, and resources, that war will be won as well. If the US does well, and Mexico succeeds in controlling violence, that's a great future for the country.

Hello?

Okay, thank you for your question. Our next question comes from David Ross of Chevy Chase Trust.

Hey, guys. Congratulations on the quarter. It was a good job. The question I have is the relative importance of Mexico and Venezuela seems to have declined over the last couple of years. I was wondering if you could provide some, you know, thoughts on what's going on there.

I'll ask -- I'll address Mexico first. We've decided to change course in Mexico about three years ago. And while our strategy was right, the staffing was not. And it took us a year and half to realize that the people that we have in charge of operations were very good people, but not the type -- they didn't have the type of skills that we needed to implement our strategy in the country. That delays for us about a year and a half. We now have a very strong team in Mexico. And as a result, I expect you will see the importance of Mexico within our growth.

In Venezuela, on the other hand, the answer is quite simple. Strictly risk and uncertainty related. Venezuela is a shareholder. We've always done good business in the country, they have always treated us well, but there comes a point where political risk and uncertainty makes it difficult for us to assess and therefore price risk. And the result we've purposely kept our exposure to the country small.

Okay, great, thanks.

Thank you.

(Operator Instructions). Our next question comes from the James Ellman with Ascend.

Hi there. Thanks again. You mentioned that you had pulled back on the high -- abnormally high level of liquidity that you are holding as of the end of the year. Can you give us a bit of color in terms of the size of how much you're dropping that liquidity cushion and what its impact might be on margins as we look into the first and second quarter of the year?

We used to run liquidity levels somewhere around $300 million to $400 million. We're not there yet, but we're moving in that direction. I think you can assume for purposes of your projection a higher than usual, but diminishing cost of liquidity through mid year -- by mid-year and midyear only, because from what we know about Europe, it is the first and second quarter that are going to be critical in the region.

If the market makes it through June 30, we expect to be able to go from what we call the yellow liquidity scenario to the green liquidity scenario, and go back to, quote-unquote historically critical level the second half of the year. In the first half of the year, however, we will hold liquidity levels that while smaller than what we had at the end of the year, will be larger than what we historically carry. We think that's the prudent thing to do until things return to some sort of normalcy.

All right, and then just in terms of well, you highlighted that you see significant opportunities for growth right now. Are you at all constrained by the amount of capital you have? In other words, would you potentially need additional equity capital later this year as you grow?

Absolutely, absolutely, absolutely not. Our problem is just the opposite. We had -- we have in the past been asked a question as to what right capital levels should be? And back when risk levels were lower than they were today, we said that we were aiming at a 15% Tier 1 ratio. We're currently at 18%, which is why we -- one of the things we're going to be working on this year is capital management. We need to deploy that capital and use it. And there's two ways we're going to do that.

We're going to lever the bank. And to the extent that we continue growing via net income, we're going to start growing the dividends again. And that's how -- those are the options. And the combination of both leverage and increased dividends is probably how we bring the capital bank into in line.

All right, and in terms of the growth outlook you see right now, do you think you can get to that 15% level in the first half of this year?

Not in the first half, no, no. It would be unrealistic to think in terms of that. To begin with, [this] level is such that we'd rather grow as we currently have been doing slowly. Secondly, what we're going to be concentrating on doing the first half of the year is, yes, we're going to grow. But more than grow, what we're going to be doing is doing a lot of portfolio shift in the mix, taking money from low yielding assets to higher yielding ones. So no, I think it would be unrealistic to think in terms of us going down to 15% in six months, no.

Very good, thank you. And last question, just to follow up on that, in terms of the low yielding to higher yielding, can you give us just an idea in terms of the -- what's -- what you're letting roll off in terms of the low yielding assets and what sort of yield you're getting on the average higher yielding assets right now? What sort of delta is there?

Oh, the delta is quite significant. On a nominal basis, it can be as much as 150 basis points to 250 basis points. When you look at it all on an aggregate level, the impact is less apparent, especially during the first year, because you need to establish reserves, higher yields that generally mean higher risk and therefore, the need for higher generic provisions. But that's the type of difference that we're talking about.

Very good. Thank you very much.

Sure.

Thank you. (Operator Instructions). Our next question comes from Arthur Byrnes with Deltec.

Jaime?

Arthur, how are you?

I'm very well, thank you. Well done. Let me just --

Thank you.

-- ask you. Let me ask you a question. In getting to your 15% Tier 1 capital, you're still not very leveraged compared to other banks. And I understand why, but how has funding been for you?

It was -- in December in particular, it was difficult. Capital markets, as you know, basically stopped functioning for a couple of weeks. We're fortunate, however, in that over the last few years, we've done a couple of [streaks] that turn out to be very appropriate and right. As you know, we make our fair share of mistakes, but when it comes to strategic decisions, where our record is quite solid.

Firstly, we developed the funding markets in Asia. And the funding markets in Asia have not been impacted by what's going on in the European Union and in the US. From an inter bank perspective, both in terms of amount and number of respondents, our main sources of funding are China and Taiwan. And those markets have remained steady and have -- and we have been able to continuously source money from them.

The next untapped and widely available source that we have are the capital markets in Latin America. We didn't tap them last year, because we found other options, which were more favorable, less expensive, either in the interbank market in Europe even, and in the United States.

But right now, because Latin America is doing so well, the capital markets in several countries are avid for paper or risk of the quality that Bladex represents. And so, you will probably feel very shortly us starting to source funding through issues in a couple of Latin American countries at the least. And fortunately, the funding is available, and the amounts are sufficient to provide us with what we need to fund our growth.

Your funding so far is all in US dollars, isn't it?

It is and will continue being in US dollars.

Right.

Most of the funding that we will raise we will swap into dollars, we're just not ready to take currency risk.

Right.

And we're more efficient providing dollar financing, than we are providing local currency financing. We know how to do dollars much better than local currency.

A second and last question, the return on your cash balances is -- looks to me to be quite high. You do quite well there. Are you sure you're not taking too much risk with liquidity?

No. I'll make a couple of comments. The first comment is that the majority, not to say 100% of our liquidity is placed with a certain central bank that is the only one in the world authorized to print dollars. So risk there is relatively minor.

Secondly, the reason why we're making money or so much money on our cash balance is that we're telling our depositors, central banks in the majority who want to keep money with us that the price for keeping the money safe with us is -- well, we pay them very little. And as a result, in intermediary, we take the money from them, place it with central bank I just mentioned. And we make a relatively good money.

Very good. Congratulations, Jaime. Good to talk to you.

Likewise, Arthur. Great hearing from you.

Bye.

Bye-bye.

Thank you for your question. (Operator Instructions). Our next question comes from Jordan Hymowitz with Philadelphia Financial.

Hey, guys, thanks for taking my question. A follow up to Mr. Ellman's question, if you took the cash portfolio down to call it $500 million over time, what would the margin then move up to? You said there's about 150 basis points to 250 basis point change?

Oh, if we took $300 million, just to speak of a theoretically figure, and we placed it out in the market in the form of loans, the difference would be substantial, anywhere from 150 basis points to 250 basis points, straight off the bat. Remember how -- that we would have to establish generic provisions against that. But yes, carrying that liquidity is costing us some money, which is why we'll bring it down as soon as we think it's a prudent thing to do.

Well, what would the margin move to? Probably, what, 15 basis points to 20 basis points higher?

Oh, yes, absolutely.

Have you run those numbers? I'm trying to run as we speak, but have you run like if you had $300 million less cash and $300 million more loans where the margin would be, because the provision doesn't affect the margins below the line.

Yes, we run those numbers all the time. And because in addition to as part of managing liquidity, how much do we need and how much it is costing us.

And you said already you don't want to share those numbers?

Well, yes, I can share the numbers. Let me get hold of the latest calculations. Let me see. The numbers would probably -- the net -- the difference would probably amount to somewhere around 15 basis points to 20 basis points.

Okay, exactly what I thought. Okay. All right. And second question, is if we're talking or writing a Tier 1 capital of close to 15% versus the 18% now, and then you returned a 15% on equity, it seems like your normalized earnings could get up to about $2.70 as we stand here today. Is that a reasonable thought? It's not going to be there tomorrow, but is that a reasonable mathematical thought process?

Can you repeat the question again? 15% Tier 1 and?

And a 15% ROE?

And a 15% ROE. And therefore?

You get to about $2.75 of earnings?

That's a net income of about $100 million?

That's exactly right.

That's a conservative estimate, but yes, you're right.

Okay, thank you.

Sure.

Thank you. There are no further questions at this time. So I'll turn the call back to Mr. Rivera for closing remarks.

Well, thank you. Well, thank you very much, ladies and gentlemen. In closing, let me again thank you for your interest. And make a single and I think important point. We have the banks currently operating in a sweet point., probably the best position that we have enjoyed literally in the last decade and certainly in the eight years since I have the privilege of being named to my current position.

We're extremely optimistic about what we see ahead for the bank. We are objectively optimistic. We have a capital. We have liquidity. Our credit quality is pristine, just that, pristine. We have very strong people. We have a growing marketing. We -- the -- everything that you saw in the fourth quarter is sustainable. There's nothing there that is extraordinary. The fundamentals remain strong. We're going to continue growing and particularly focusing on net income. That will increase the ROE, which will increase the price, and will increase our ability to provide shareholders with the even higher dividends.

That is the opportunity for current shareholders. And that is the opportunity for those considering investing in Bladex. And with that, I want to again thank you for your interest, for your confidence. And I hope you -- wish you success during the next quarter, and I look forward to talking in three months. Thank you very much, everyone.

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