Foreign Trade Bank of Latin America Inc (BLX) 2014 Q1 法說會逐字稿

Hello, everyone. And welcome to Bladex first quarter 2014 conference call on today, 23 April 2014. This call is being recorded and is for investors and analysts only. If you are a member of the media, you are invited to listen only.

Bladex has prepared a Power Point presentation to accompany their discussion. It is available through the webcast and on the Bank's corporate website at www.bladex.com.

Joining us today are Mr. Rubens Amaral, Chief Executive Officer of Bladex and Mr. Christopher Schech, Chief Financial Officer. Their comments will be based on the earnings release which was issued yesterday. A copy of the long version is available on the Corporate website.

Any comments made by the executive officers today may include forward-looking statements. These are defined by the Private Securities Litigation Reform Act of 1995. They are based on information and data that is currently available. However, the actual performance may differ due to various factors which are cited in the Safe Harbor statement in the press release.

And, with that, I am pleased to turn the call over to Mr. Rubens Amaral for his presentation.

Thank you, David. Good morning to everyone. And thanks for taking the time to attend our call today. I am pleased to present to you some of the results for the first quarter 2014.

We were able to benefit from strong origination in the fourth quarter 2013, which helped us to deal with the cyclicality of the first quarter in Latin America when credit activity is traditionally smaller.

Our total disbursements, to give you some color, for the quarter amounted to $3.3 billion, being $438 million in medium term transactions, which supported the diversification of the mix of our portfolio and improvement of the margins as discussed in previous calls. On the other hand, we continue to diversify our funding structure, taking advantage of the strong demand in the private placement market as well as in the syndicated loan market.

With more liquidity flowing to the region, we were able also to improve slightly our cost of funds. Therefore, with the improved margins on the asset side due to the medium term deployment and better cost of funds, our net interest margin improved quarter-on-quarter and year-on-year, reaching 1.79%, which is, although, shy of our objective was 2% is an important step towards this goal that we have shared with you before.

Our loan syndication business continues to strengthen and we are very pleased with the results in the first quarter of 2014 as we have participated in six different transactions being [sole lead venture] in two deals, joint lead venture in two other transactions that were originated by us, and one [data] lead venture in two other transactions. The total amount of these six transactions was $610 million, and we had in our books an average of 25% of each transaction.

Our pipeline for the second quarter remains attractive, and we expect to continue to increase our fee income accordingly.

In terms of our investment in the fund, the performance was again weak, posting a small loss. Notwithstanding, we continued our redemption schedule as planned. And as of April 1, 2014, we reduced our investment for $13.9 million, which will enable the Bank to deconsolidate investment declines during the second quarter 2014.

The Board of Directors approved the quarterly dividend of $0.35 per share, consistent with improved performance of our business results. The dividend yield remains attractive at over 5%, although the marketplace price has depreciated a little more than the indices.

In terms of the market environment and how it might affect our business moving forward, our view hasn't changed since the last time we met. We have by now experienced an important reduction of the monetary stimulus by the Federal Reserve Bank, fluctuations in the commodities prices, and other things affecting our market. But we continue to see investors investing more in our region. Thus, we are keeping our forecast of fourth quarter growth for 2014 between 10% and 13%.

We continue to monitor constantly the quality of our portfolio. That is a critical picture in the way we manage the Bank. And we do not expect any meaningful change in our provisions requirements, except the natural movement stemming from the growth of the credit portfolio.

Lastly, we continued our efforts to improve efficiency throughout the organization. Our efficiency ratio continues to improve - ratio continues to improve. And we remain committed to do more with less.

Thanks again for your time today. I will now turn it over to Christopher to guide you through our presentation and to provide you with more color about our figures. Thank you.

Christopher, please?

Thank you, Rubens. Hello and good morning, everyone. Thank you for joining us on the call today.

As we discuss our first quarter results, I will focus on the main aspects that have impacted our results. And, as was mentioned in the introduction, I will base myself on the earnings call presentation that we have uploaded to our website, together with the earnings release, which is being webcast as we are speaking.

So before we go into more detail, let's start on page six with a quick rundown of the key financial highlights and drivers that shaped this quarter.

The first quarter 2014, closed with net income to Bladex shareholders of $23.5 million, compared to $23.9 million in the previous quarter, and $16.3 million in the first quarter of 2013.

In order to accurately present performance in our recurring business activities, we focus on business net income, which is recurring net income derived from our principal business activities of financial intermediation which generate net interest, commission and fee income. We also refer to it as core income, or income from core activities.

And that business net income reached $24 million in the first quarter, down from the first quarter 2013, mainly due to the absence of reversals of provisions for credit losses. Business net income grew over [15%] compared to the first quarter of 2013.

Net interest margin is back on track, as mentioned by Rubens, having risen 10 basis points during the quarter versus the previous quarter, which puts it 17 basis points ahead of the levels seen in the first quarter of a year ago.

Return on assets and return on equity metrics remained fairly stable quarter-on-quarter, but increased sharply compared to prior year levels.

The efficiency ratio improved quarter-on-quarter, mainly from better non-core results and remained significantly below prior year levels.

Our Tier 1 capitalization continues to be comfortable, reaching 16.4% at the end of the first quarter.

So let's look into quarterly results in a bit more detail. Moving to the next slide, page seven, which shows the evolution of net income compared to the previous quarter and compared to the first quarter of 2013.

Net interest income rose compared to the fourth quarter 2013, benefiting from higher lending spreads and lower cost of funds. We had very little net movement in the provision line this quarter, compared to the reversals of provisions recorded in the fourth quarter of last year.

Other income, which encompasses non-recurring items and non-core activities, such as the participation in investment funds, (inaudible) average income recovered from a larger loss in the previous quarter.

Key income, while a bit lower than in the fourth quarter of last year, received a boost from a very active structured finance business, as already alluded to by Rubens, as we will discuss later also in more detail. And the level of credit activity was also better than what is usually seen for this time of year, as the higher margins in South American business is just starting to get under way.

Year-on-year, quarterly net interest income was substantially ahead on greater average portfolio balances and higher lending spreads.

Fee income was also ahead, compared to a year ago, on higher levels of credit activity and, as mentioned, the higher revenues from our syndications platform.

The next page, page eight, provides a closer look at net interest income and net interest margin. The positive evolution quarter-on-quarter and year-on-year where both metrics benefited from lower cost of funds, as evidenced by rising spreads. But lending rates also recovered when compared to the fourth quarter 2013, in which we have seen weaker margin trends.

Average portfolio balances remained relatively stable this quarter as we continued to give priority to better [price] transactions.

Average funding costs declined further this quarter as deposit balances grew, offsetting the effects of expanding tenures in our long term borrowing. For the first time ever, Bladex faced 10-year tenure debt during this quarter in order to provide a well-diversified and stable funding base for our business.

And just today, we also completed - or yesterday, actually - we also completed a very successful and well priced syndicated transaction, placing $250 million in global and especially Asian markets, with a tenure of 3.5 years, in support of our medium term lending activity.

On page nine, a quick discussion of our efficiency levels, which saw improvement compared to the previous quarter and the first quarter of a year ago.

The business efficiency ratio looks at our recurring base of expenses and revenues, and it shows a meaningful year-on-year improvement, while remaining stable quarter-on-quarter at higher variable compensation expenses offset the efficiency effect of higher revenues.

Our first wave of Lean] Six Sigma process improvements just launched during the first quarter of this year. And we expect to see the effects of that deriving further business efficiency ratio decreases.

On page 10, we show the evolution of Bladex' portfolio balances. Financial institutions increased their share of the portfolio, mainly as a consequence of the medium tenure structure transactions with our syndications platform [arranged], and took participations in this quarter.

Demand from corporations remained robust. And average lender market balances declined temporarily as a result of account profitability reviews that we have been conducting.

On page 11, we highlight our fee and commission income business, which generated income of $4.3 million, compared to $4.7 million in the previous quarter. Year-on-year, fee income growth was nearly 80%, as a result of the increased scale of our structured transaction platform business, which closed more deals this quarter, plus the diversified range of clients, industry sectors and countries.

The pipeline of transactions looks quite healthy. And we expect to be making progress towards establishing this line of business as a dependable and consistent contributor of fee income going forward.

Fee income generation on the contingency side of our business was also fairly solid - a bit lower than the previous quarter, considering the seasonal aspect of this business.

As mentioned before, we expect to see income picking up as the main season of commodity shipments get underway in South America.

On page 12, we talk about our non-core income, primarily resulting from the remaining [Tasus] investment in the investment fund, formerly owned by Bladex. And this was sold a year ago. Performance in the fund was improved, but still negative this quarter.

As Rubens has mentioned, effective April 1 of this year, we made a partial redemption from the fund, bringing our participation in the feeder fund below the [50%] threshold. This will allow us to deconsolidate the feeder funds during the second quarter of this year.

We will, of course, continue with contractual redemptions to bring down our exposure until our final redemption, which is slated for April 3, 2016, at the very latest.

And so, finally, on page 13, we highlight our focus on total shareholder returns. Just recently, the Board of Directors authorized a quarterly dividend payment of $0.35 per share, helping maintain an attractive dividend deal for our shareholders.

And with that, I'd like to hand it back over to Rubens to sum up our conclusions. And thank you.

Thank you, Christopher. Ladies and gentlemen, we are ready for your questions.

Ladies and gentlemen, the floor is now open for your questions. (Operator Instructions). Our first question comes from Chris Delgado with JPMorgan.

Hi and good morning. Just one quick question kind of relating to loan growth. Could you give us a sense of how you see that evolving over the course of the year, especially given the reforms that are happening in Mexico. Do you see yourselves increasing your exposure there? That's pretty much it.

Hey, Chris, good morning. Thanks for your question. We see our growth, normally, this year as we have seen in past years. But the first quarter is always more challenging for us. And this year, we benefited, as I mentioned before, from the strong origination we had in the fourth quarter. And we expect to see growth in the second quarter and in the quarters ahead.

Normally, the way we see the market behaving, the first quarter is slow, the quarter is stronger, third quarter, stable and fourth quarter, again, stronger. So we are anticipating to have the same sort of behavior that will allow us to grow something between the 10% and 15% that I told you before in my initial remarks.

Mexico is an important market for us. It's a very challenging market. It is a market with now the upgrade; margins naturally will be under pressure. But, as we are diversifying into the middle market, we see opportunities for growth in that market. And we have also been more active in the local currency transactions. And you might see us being more active in that type of transaction in the second quarter.

So we expect to keep a healthy portfolio in Mexico. And we expect to see an important growth in the second quarter in Mexico. And you might see more growth in the local currency value in U.S. dollars, as we also are benefiting from the availability of funding in Mexican pesos also to us in that market.

OK. Great. Thanks.

Thank you, Chris.

(Operator Instructions). Our next question comes from Gary Lenhoff with Great Lakes Advisers.

Thank you. Christopher, just an administrative question. Once you deconsolidate the investment fund, where will we see your participation in the investment earnings and expenses? Will that be in Other operating expense? Or where will it flow to the income statement?

Yes. Gary, thank you. Good morning. Thanks for your questions. Actually, the main impact is still cosmetic. Of course, we will still continue to participate on gains and losses of the fund, and to the extent they materialize according to our participation percentages, which, as you know, has gone down. It will be a single line in the Other Income line. And it would be a net gain from investment from trading. That will be the only line where we would show the results of our participation in the fund. And to us, this is a great improvement because we don't have to break out the different lines, the expense line, the revenue lines. And so that's much easier for us. And I think commensurate with what we intended to do from the beginning.

So hope this answered your question.

It does. Thank you very much.

(Operator Instructions). We have another question from Chris Delgado with JPMorgan.

Actually, one other question I have relates to your efficiency. You guys have been able to control expenses quite well over the past few quarters. Do you think you'll still be able to continue to do that in the coming years without impacting the profitability of your business negatively?

Yes. Chris, if you don't mind, I will take your question. I think the overarching goal is to do more with less, as Rubens has mentioned. And so, of course, we want to generate more revenues with lesser expense growth. So we may not target necessarily expense reduction as we continue to grow our revenues in the double digits. But our intention is really to have a double-digit growth rate in revenues, accompanied by a low single-digit growth rate in our expense space. And that is (inaudible).

And, of course, the overarching goal for us is to reach our efficiency ratio target of 30%. And we're getting closer. And if and when we get there - and we don't have much doubt that we will get there - we won't stop. I think we will continue to drive more efficiency in our business. And that is over the short and medium term.

Does that answer your question?

Yes. It does. Perfect. Thanks.

Thank you.

(Operator Instructions). I would now like to turn it back to Mr. Amaral.

OK. Thank you, David. Thank you for taking the call today. As we always like to say when we close, we continue to work hard to make sure we continue to deliver good results, solid results and improve results quarter-over-quarter. And we're looking forward to a very successful second quarter.

Thank you very much. Have a great day. And thanks for taking the time to participate in our call today.

Ladies and gentlemen, that concludes today's Bladex first quarter 2014 conference call. You may disconnect your lines. And have a wonderful morning. Thank you.