Foreign Trade Bank of Latin America Inc (BLX) 2015 Q2 法說會逐字稿

Hello, everyone, and welcome to Bladex's second quarter 2015 conference call on today, the 16th of July, 2015. 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 PowerPoint 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, Josh. Good morning, everyone, and thanks for joining us today for the second quarter and half-year 2015 earnings call.

Yesterday, we released information about our results for the first half of 2015. Despite a lower than expected performance for the second quarter, I am very pleased to report a strong first semester for 2015 in terms of Bladex results.

Let me share some key indicators for the first six months' performance which highlight the quality of our earnings in comparison to the first six months of 2014: so, increasing our net income, up 11%; loan portfolio growth, of 7.4%; efficiency ratio improved to 33%; earnings per share increased to $1.26; and return on average equity improved to 10.6%.

As you can appreciate, the key metrics of our performance remain solid, which bodes well for an even better second half for 2015.

With respect to the second quarter performance, most of the transactions were short-term trade finance, where margins are tighter because there's still plenty of liquidity available to clients, both in local currency and US dollars, which as a consequence presses down the spreads.

The medium- to long-term deals only impacted our books more towards the end of the second quarter, which deferred the positive impact on revenues to the third quarter of 2015, but required the increase in the provisions, as we had mentioned in previous calls could be the case.

In terms of fee income, although our syndication business is tracking behind last year's performance, I am happy to share with you that the pipeline of new deals amounts to $900 million. This specific pipeline comprises of seven new mandates to execute transactions in Peru, Brazil, Ecuador, Guatemala, Honduras, Panama, and Paraguay.

These transactions are all medium-term deals which will definitely have a positive impact on our effort of increasing the margins [besides generating] the fee income. We will shortly share with you the closing of these transactions, as we are in the last stages of finalizing these deals. We continue our effort to further [strengthen our charge] in this new business line, setting the base for another successful year in adding to our fee income generation.

In terms of liquidity management, we continued our strategy of diversifying our funding structure by successfully placing in the global capital markets a new bond issue for five years [last months of April] for a total amount of $350 million, a deal that was oversubscribed several times, showing the interest on our Company.

Not less important in terms of liquidity, our base of deposits continues to increase importantly, which strengthens our financial soundness and reduces our cost of funding.

Let me share with you how we are looking at the next semester as far as our focus is concerned. We are working to, first, accelerate the conversion of new transactions without compromising the credit quality so average balances can increase more rapidly and impact our interest income early in the semester.

Second, increasing the margins as we continue to diversify the portfolio towards more medium-term transactions which combined with increased average balances early in the semester will contribute to greater revenues.

Third, deliver on the mandates of our syndication business and bring in new ones for the fourth quarter, thus increasing our return on assets and using more efficiently our capital.

And last but not least, increase the client base by improving our [prospection] of new clients, which helps our objective of increasing diversification of our credit portfolio.

Therefore, as you see, our outlook remains positive for the rest of the year. But we are cognizant of the fact there are still challenges ahead which we need to continue to monitor carefully, such as, first, the global economic environment, which involves among others what's happening in Greece, the adjustments in China, the expected increase in interest rates in the United States, the oil and commodity prices, among others; but not less important for us at Bladex, the Latin American environment, which involves the increased volatility of local currencies, the divergent path of growth in the countries across the region, the slower growth of trade, et cetera.

As we have commented before in our previous calls, our Bank is prepared to benefit from more or less challenging environments without compromising the results and the credit quality of our portfolio.

In this respect, we expect growth of the loan book to continue according our initial guidance of 8% to 10% for the whole year, and we're working to have a better second semester, which combined with the very good performance in the first half of 2015 will produce another year of good results and returns to our shareholders.

In line with that, as you have already been informed, our Board has approved a dividend of $0.385 for the second quarter of 2015, confirming, first, the positive view of the results of the Bank, and second, their commitment towards sharing with our shareholders such results.

With that, I will now turn it over to Christopher to guide you through our presentation. Thank you very much. Christopher, please?

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

And as usual, in discussing our second quarter results, I will focus on the main aspects that have impacted our results, and I will make reference to the earnings call presentation that we have uploaded to our website, together with the earnings release, and which is being webcast as we speak.

So, before we go into more detail, let's go to page 4 for a quick run-down of the key financial highlights and drivers that shaped this quarter.

The second quarter 2015 closed with net income to Bladex shareholders of $20.2 million, compared to $28.8 million in the previous quarter and compared to $20.7 million in the second quarter of 2014.

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 generates net interest, commission, and fee income and also other income. We also refer to it as core income or income from core activities.

And so, this business net income reached $22.5 million in the second quarter, down slightly, 2%, compared to the second quarter of 2014, mainly as commission income is still lagging prior-year levels, as you heard from Rubens. Business net income was down 15% from $26.4 million in the first quarter 2015, and that is mainly due to provisions from higher end-of-period commercial portfolio balances which require the required reserves.

The quarterly net interest margin was five basis points below the level seen in the second quarter of a year ago and also five basis points below the first quarter of this year.

In similar fashion, the quarterly net interest spread, which represents the difference between average interest rates earned versus average rates paid, dropped four basis points year on year and five basis points quarter on quarter.

Year to date, both net interest margin and net interest spread are in the same levels of the prior-year period, at 181 basis points and 165 basis points, respectively.

This quarter, we seized on opportunities to grow our asset base and to set the base for accelerated revenues growth in the coming months. For this asset growth, we established a required reserves and which drove of course the increase in provisions, and this provision increase made business return on assets and return on equity metrics drop quarter on quarter but remain stable year on year.

The business efficiency ratio was 33% in the second quarter 2015, the same level as in the previous quarter, and compared to 32% in the quarter of a year ago.

In regard to capitalization levels, the Tier 1 Basel III ratio stood at 16.1% at the end of the second quarter 2015, just down slightly from 16.4% in the previous quarter due to asset growth, and continues slightly above the Basel I levels which we continue to report temporarily just for the sake of period comparison purposes.

And last but not least, for the announcement, as already mentioned by Rubens, that came out by the day before yesterday, the Board of Directors declared a dividend payment for the second quarter of $0.385 a share, which continues to add an attractive dividend yield component to our total shareholder value proposition.

So, let's look into quarterly analysis in a bit more detail, moving to the next slide, page 5, which shows the evolution of net income for the six months of 2015 compared to the six months of a year ago.

Year on year, the year-to-date net income was up some 11% compared to the same period of a year ago. Net interest income was the main driver for that, on higher average portfolio balances and stable net interest spread and net interest margin.

As already mentioned, commission income lagged behind the prior-year period in non-core income, mainly from the participation in the investment fund continues ahead of last year's levels.

Moving to the quarter-on-quarter comparison on page 6, we see net interest income dropping slightly compared to the first quarter 2015 on account of lower average loan portfolio balances, as portfolio growth accelerated towards the end of the quarter, and on lower net margins, which we will talk about in just a minute.

Fees and other income increased versus the first quarter 2015, as our letters of credit and contingencies business showed increased activity.

Provisions increased due to portfolio growth, as mentioned before.

And expenses had a slight decline quarter on quarter.

Non-core income, which represents the participation in the investment funds, swung to a loss this quarter.

On page 7, we take another look at net interest income and margins. Year on year, interest income was up on a greater business scale and stable margins. The quarterly variance in net interest margin was a result of lower lending rates in an environment of liquidity which is still abundant, focusing on high-quality risk. The average original tenor of our lending exposures declined slightly, and that also contributed to the quarterly decline in our net interest margin.

On page 8, we highlight the average portfolio balances growth and segmentation. Year on year, the corporate client segment continued to grow, while exposures to financial institutions remained relatively stable. Quarter on quarter, portfolio averages declined slightly, as portfolio growth picked up towards the end of the quarter. The fundamental portfolio characteristics -- its trade finance focus and short-term nature -- remain intact.

On page 9, we present breakdowns of our commercial portfolio balances by country on the left and by industry sector on the right. Changes versus the previous quarter have been relatively minor, as we gradually trim exposures in certain countries and [move] industry segments while we grow in others. Brazil exposures remain stable, while Mexico is increasing its share of our portfolio as a result of the diversified growth opportunities that this market presents to us.

Moving on to page 10, we show the evolution of credit quality and reserve parameters, which essentially remained stable quarter on quarter. Our exposures in countries, sectors, and clients are continually monitored to ensure a sound credit profile, and we have not had to make any adjustments of significance to our exposure profile.

On page 11, a quick recap of operating expenses and efficiency levels. Expenses continued to see slight declines versus the comparison periods, and the business efficiency ratio, which excludes the non-core income from the participation in the investment fund, remained stable. We continue to work towards efficiency improvements, which over the next couple of quarters will primarily be a function of increased revenue generation.

And moving on to page 12, we show our fee income evolution. As Rubens already mentioned and as we discussed last quarter, we talked about this year's dynamics in our loan intermediation and syndication business already. And while the second quarter again showed no closed transactions and very limited secondary market activity, we continue to expect a positive evolution for the remainder of the year, as you heard already.

We will very soon be announcing the first closed transaction for the year, and our pipeline of mandated and prospective transaction looks, indeed, very healthy.

On the letters of credit side, we continue to increase diversification and have strengthened our internal capacity [both to a] personnel and operating work flow perspective to help accelerate that business going forward, as well.

On page 13, we highlight return on average equity and capitalization trends. In terms of the year-on-year trend, year-to-date return on average equity continues to be on track. Capitalization levels remain strong, with a Tier I Basel III ratio hovering above 16%.

And finally, on page 14, we highlight our focus on total shareholder return. As mentioned, the Board of Directors continued its consistent approach in validating the Bank's core performance trends and again authorized a quarterly dividend payment of $0.385 a share.

And with that, I'd like to hand it back to Rubens for the Q&A section. Thank you very much.

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

(Operator Instructions) Jeremy Hellman, Singular Research.

I was wondering if you guys could speak a little bit more about the competitive environment and what you're doing in response? And the backdrop being you noted ample liquidity in the market framed against economic activity that's below where it was the past couple of years. So, I was curious if you guys are turning business away because others are competing aggressively on price? Or, are you taking a different tack?

Let me address, first of all, in terms of liquidity available in the marketplace. I mentioned in my initial remarks that liquidity is a function not only of US dollars but also local currency, because with the devaluation of currencies and some of the [regulatory] measures that have been implemented in countries, for instance, such as Peru, clients are more compelled to use local currency rather than US dollars.

So, in that sense, we had some sort of competition that is not normally the case, because normally in the case of trade finance the pricing of US dollar funding is always more competitive for clients. So, there was an increased competition from a liquidity standpoint in terms of your local currency.

So, in terms of turning down deals, we're very careful about the markets we take in our portfolio. But as you can see from the increase in our disbursements, we increased 40% quarter on quarter the total disbursements of the Bank, almost $1 billion in new disbursements, from the first quarter to the second quarter. So, although we are being selective, we are not turning down transactions unless they are [bidding] well below by our targets.

In terms of the overall environment, we see Brazil as a big market, still our largest exposure. They have recession this year, and the views of the market -- or the IMF, rather -- has reduced prospective growth in Brazil even more. So, it is a tremendous impact in terms of the overall market.

Mexico, the second largest economy, is not growing at the levels that we were expected initially.

So, Central America, overall, it's more or less the same as we have seen since the beginning of the year. And Peru, a little less. Colombia, also a little less because of the impact of oil prices.

So, overall, it is a little bit subdued, the economic activity, but we are seeing a movement in terms of increasing inter-regional trade. Recently, Brazil and Mexico sat together and they signed a cooperation agreement to increase bilateral trades, which it's a very good news for us because these are the two major markets. And if they do more business between themselves, that will impact our business both in Brazil and Mexico.

Central America, although there is no critical mass there, you can appreciate that our total exposure is almost as high as we have to Brazil. So, we see opportunities of growth there, as well. [Standalone] Colombia, we had a reduction in the portfolios, but we are expecting to increase again by the third and fourth quarter.

So, overall, it's more subdued trade flows, not growing as fast as they used to be. But we at Bladex, we are well positioned to capture this opportunity to continue our growth in spite of a more not-so [tight] prospects for the growth in the region.

Okay. And just continuing on that last theme on inter-regional activity, would it be proper to assume that is favoring Bladex and also any other regional banks at the expense of global banks from other regions, be it Asian banks, US, or European banks?

That's another important point of your question. We have seen less activity from some international banks, but all the banks are coming back to the region. But when you mentioned the inter-regional trade, as you asked in your question, that is something that favors more Bladex and the regional banks.

So, we have some competition of regional banks, mostly in Central America, because you know the Colombian banks are very aggressive [in their expansion] towards Central America. So, there, we see more competition from them.

But overall, in the other markets, except for some European banks, more German banks that are more active in the trade finance arena, we are not seeing as much competition from international banks as used to see in the past.

Okay. That's good to hear. Okay. Good luck for the rest of the year, guys.

Tito Labarta, Deutsche Bank.

I still have a couple of questions. One, I guess following up on the liquidity and in terms of net interest margin, we did see some pressure there this quarter. In the past, you've guided for margins eventually getting to the 2% level. Do you think, just given the environment today, that that still is possible? If so, how long would it take to get there? I just want to get a sense of how you see margins evolving, going forward.

And then, a second question in terms of profitability. You also in the past have guided for ROE trending to the mid-teens, close to 15%. Is that still a target that you feel is reasonable, given this quarter ROE was a bit below 10%? And if so, again, how long do you think it would take to get there?

I think generally we all agree here that the second quarter of this year is not really a good representation as to what we think Bladex can do and will be doing. And so, I wouldn't get hung up on looking at the quarterly results as much, and just focus more on the year-to-date evolution which, we think, is reasonably good and can and will certainly improve, if the environment does not deteriorate dramatically.

And so, in regards to the margin targets, we of course would love to reach 2% level sooner rather than later. And if the Fed makes their rate moves, maybe we can get there sooner.

But really, what is more important to us is reaching our return target. And so, if we can get a 12% return on our core business with the least amount of risk on the balance sheet and that is achieved with a margin of 185 basis points, we're happy with that.

And so, 2% is not necessarily the only solution to getting good returns. But of course, we are looking to expand our margins, and that primarily will not be in the form of taking on more risk with brand new clients that we know very little about. It's more about doing more longer-tenor transactions with the existing client base that we have.

And so, we're pretty happy to see that this quarter there's been some good disbursements movements in that arena, in the medium- to long-term lending. And as you heard Rubens earlier [with those] syndications and when those syndications get closed, we have a nice pipeline of additional medium-term lending on the books. And so, that is where we expect to really drive the margin expansion.

But again, we'd love to be at 2%; no question. But it's not mission critical to reach that 2% level this year or next year. We will get there. We are pretty certain about that. But we can't really tell you just how long it will take.

And in terms of the ROE -- Christopher, if you'll allow me to answer Tito -- I have been telling the markets that our target is to consistently return 12% based on our core business and to develop new initiatives to help us to get [meeting 15%] in the years ahead.

So, last year we finished the year with 12%. And the way we are working today and what we expect this year is again to go and return consistently the 12% by year-end in 2015.

You saw that although this quarterly performance, as Christopher mentioned, shouldn't be your proxy for the rest of the year, we had 10.6% ROE for the first six months of the year. That is slightly better than we did last year.

So, with that in mind and seeing the pipeline we are seeing, that we are [sharing with the upbeat] from the loan growth in the syndications but in our traditional business, we expect to have a second semester that will put us very close to 12% return on equity. And continue our target of working towards [new] initiatives that is too soon for me to share with you, but it's our objective in the medium-term to get to the 15%.

Thank you. That's very helpful. Just one clarification. At the beginning of the call, you said how many syndication deals you had in the pipeline. Can you just repeat those numbers -- how many deals there were and what the amounts were and how much that will contribute to fee income?

Last call, we said we had -- last call, the first quarter -- around 11 to 12 possible deals. But today, what I can tell you is that we have seven mandates that we [evolved]. And you know this type of transactions, Tito, that sometimes they depend on the client's decision and sometimes certain deals don't go through and then deals are canceled.

But now, we have a pipeline of $900 million of transactions. Normally, we take 20% to 30% of this amount and the rest we distribute. And these are seven transactions.

Okay. And do you have a sense of how much that could add to your fee income in the second half?

Well, I have a sense.

That you can disclose, I guess?

Well, I prefer not to at this moment, because you know that market conditions can impact. So, I don't want to give you a number and then something happens to the market. And then, the next quarter you tell me: You told me this number and you didn't deliver.

Okay. That's fair enough.

I think for the entire year, we said even last quarter that we expect to be doing as good as last year or even better in that line of business, in the syndication business, and we still think this is attainable.

That's fair to say. So, look to the performance that we at least can match last year's.

All right. That's very helpful.

Catalina Araya, J.P. Morgan.

Just following up on Tito's question, I just want to get an understanding on the underlying earnings power to reach this 12% ROE. I understand that it will be a mix between fee income and some improvements in NII, but can you give us some more color on that? According to our calculations, we see it difficult to reach over $30 million per quarter to reach the 12%. So, I just want to get a better sense.

And then, my second question would be, could you remind us on your interest rate sensitivity, how much do you benefit on NII from Fed tightening, please?

Okay. I'll take the first question, and Christopher will take the second question.

I understand that you feel -- I would say just go back to last year and see where we were last year in the second quarter and see that we were not in a different position that we were today. So, this is not new for us. And traditionally, you know that in our business the second half of the year is always stronger than the first half of the year. So, that's one.

And although the economic environment is not as strong as it used to be, even a little bit slower than last year, the pipeline of deals we are seeing gives us the tranquility to tell you that we expect to have a very strong performance in the second quarter that will come definitely from improving our net interest margin, by having these medium-term deals.

And as I mentioned also, because at the end of the day we are working to accelerate the average balances of our portfolio early in the semester, so that will contribute definitely to improving our net interest income over the third and the fourth quarter. So, that is crucial for us and that is exactly what we are doing now.

Syndications, in terms of fee income, I'm not talking about possible deals when I mentioned the deals that I mentioned. I'm talking about (inaudible). And absent any major problem in the markets, these deals will be closed very soon. And that in itself will be a tremendous impact in our ROA, return on assets.

So, with that, and comparing what we did last year in the same period of time, and seeing that the pipeline is not less strong than it was last year, I'm very confident that we'll be able to achieve this amount of revenues for the second half of the year.

Christopher?

And in regards to the sensitivity toward a rate increase, of course you'll know that we are a floating-rate bank. And so, -- with the distinction, I would say, in comparison to other banks, that our repricing cycle is extremely short. We fund ourselves on a, let's say, three-month LIBOR basis and lend on the same three-month LIBOR or six-month LIBOR basis.

And so, the only repricing gap that we would have, really, the extent of it would be the difference between a three-month liability and a six-month loan. And so, within two months, entire book of business that we have reprices, and we pass these rate increases on to our client base, which is standard [course of] business.

Now, you also know that we have a strong equity base that supports every single loan that is outstanding and which we don't pay interest expense on. And so, a portion of that rate increase does drop immediately down to the bottom line. If you'll take one part of equity and nine parts of debt and you assume a given increase in rates, in base rates, LIBOR rates, you'll see that this one part does not pay this rate increase, and that drops down to the bottom line.

We think for every 10 basis points that go up, we should maybe keep one basis point. That's a very crude rule of thumb, but it should give you a good indication of what may happen once base rates go up.

We also are working, of course, to optimize our funding structure to make sure that we benefit the most of it. And so, you saw us increase our deposit base substantially, which is very low cost.

And so, we are indeed positioning ourselves within the limits that are allowable in our internal guidelines to be able to benefit from an eventual rate increase, which, however, we do not anticipate for this year based on our projections. We don't count on these types of effects, because we don't pretend to know anything better than the Fed itself. And so, while it's not in our projection numbers, when it happens, it will be beneficial to us.

I don't know if this answers your question?

Yes. But do you have a nominal number for 100 basis points change in the rates, to the NII?

On net interest income, as such, in terms of absolute numbers, no.

Okay.

We could do these type of projections all day long and they would be always wrong anyway, given the fact that rates have not moved. And so, we haven't even tried, to be honest with you.

Okay.

(Operator Instructions) Luciano Buyo, Santander.

I just wonder if you can recall us which is your time frame on the disinvestment from the feeder fund? I know you are reducing your -- you are making redemptions on a quarter basis. But if you can remember us if there is a time frame?

Also, if you can clarify is there any exposure -- presumably, you have not -- but if you have any exposure to all the -- to the companies that are being investigated in Brazil right now on the corruption scandals?

First of all, we have informed before that we have agreed to [have no capital for our investment fund] for three years. That expires March 31, 2016, and we continue determined to pursue that course of action. So, by March 31, 2016, we'll be out of our obligation to keep the minimum amount required.

Nevertheless, we continue to redeem as the fund presents some returns. We just had $4 million redemption in the first six months of this year. So, we continue to do so as the fund performs.

So, just to confirm to you that we are [agreed] to exit the fund by March 31, 2016.

In terms of construction companies, my answer is very simple. No, we don't have any exposure to the construction company being investigated in Brazil.

Thank you.

Huong Le, Great Lakes Advisors.

Actually, this is Gary Lenhoff. Gentlemen, I apologize if you addressed this. The provisions for the quarter, $5.7 million, for loan losses, can you clarify for me how much of that is new -- is a general provision based on the new activity in the quarter versus going back and provisioning for existing loans, the quality of which may have changed during that time?

Sure. If you don't mind, I would like to take this question, Gary. So, the overall coverage ratio of 123 basis points hasn't moved quarter on quarter. So, there is no increased risk on the balance sheet based on our reserve methodology. That would be immediately detectable if you saw us change that coverage ratio.

And of course the composition always varies a little bit because we have exposures increasing or declining in certain countries, sectors, clients, and that always works out to be basically the similar profile in basic -- in more fundamental perspective.

And with regards to generic or to specific reserves, you saw that the non-accruing loan portfolio is actually declining slightly. And so, we have -- I was just looking at the numbers here. We haven't -- really not made any major changes in the composition of specific versus generic. The existing exposures are so small anyways that they don't really impact -- on the specific results side, they don't really have much of an impact.

I would say, Gary -- if you'll allow me, Christopher -- that our methodology calls for identifying the country risk where we are in. So, eventually, with the situation that you see in different countries, we might make some moves in our ratings for the countries, and normally this ratings movement will impact the way we provision. So, you have a little bit of that in the increasing of the provisions.

And because our methodology also calls for less provisions in the traditional trade finance business that is short term, when we do more medium term the provisions increase. And as I mentioned in my initial remarks, as we did more transactions, medium-term transactions, so at the end of the quarter that's exactly what's happened. So, our methodology required for increasing the provisions.

So, it's not that there is a deterioration in this profile; it's simply adjustment to the new mix of the portfolio that we have that caused us to have the provision and that has been the case. And the guidance we always try to give the markets is that it will be [with ratio] around 120 to 125 of the total portfolio. That's the average range where we can have our provisions according to the mix of the portfolio that we can vary.

If there is any deterioration in (inaudible) that requires a specific provision, then we'll inform you that that's the case. In this quarter, that was not the case, that we had a slightly reduction in our requirements of non-accrued loans.

I don't know whether that answers your question?

Yes, that's very helpful. Second question, which I think, Ruben, you may have just touched upon, the provision for the off-balance sheet credit risks, actually there was a reversal. Is that tied to the mix issue that you just described?

Is that --?

Yes, exactly. We reserve for a loan the same way we reserve for a letter of credit, which is not a loan, of course. There's no monies disbursed in the case of a letter of credit, but we view this as the same type of exposure as if it were a loan. And so, the methodology is really the same for both.

But you can see the evolution of these reserve balances for both types of instruments vary over time as the activity increases or decreases over time.

So, of course, the letters of credit portfolio is much smaller than the loan book, but you also should know that the use of letters of credit is primarily relevant in markets where the risk perception is not as stellar as in others. And so, normally the contingency business would require higher levels of required reserves.

Right. And were there any adverse developments in that portfolio in the quarter? Or, is, again, this just an impact of the general reserve?

No. No, we just did more business in particular countries with the use of letters of credit, and that drove the reserve requirement. (inaudible) just more activity.

Great. Okay. And then, last question -- and you guys get this every time. We don't ask this question when you have foreign currency gains, but when there are losses. Obviously, in your business you have a fair bit of currency exposure. Can you just give us some color on the $1.2 million impact of foreign currency in the quarter? And again, your thoughts on how to manage currency -- or how you manage currency? And if that's just a given volatility that we as investors have to expect, on a quarterly basis at least?

Right. And so, yes, I see exactly what you mean. Of course, the line "Net loss on foreign currency exchange," it's just a part of the whole story, because you should know that the internal guidelines and policies at Bladex do prohibit us from having net exposures in any currency that is greater than $500,000. And so, we should never show any significant impact on FX.

And so, the way we protect ourselves is to establish the appropriate coverages. And so, the effect of that coverage is -- sadly, from an accounting perspective, you're not able to see in the same line. You will have to go to other lines, such as the "Derivative financial instruments and hedging" line, which has a plus of $800,000, almost $900,000, offsetting the $1.2 million FX loss. And you should also include the "Net gain (loss) from trading securities," which are the standalone instruments that we have on the book, which protect us in general terms from the overall FX exposure.

So, if you add up these lines -- the derivatives net instrument and hedging line, the net gain (loss) on trading securities line and the net loss on foreign currency exchange -- you will wind up with exactly zero, or very close to zero, and that is how it's designed to be.

Great. Christopher, that's very helpful.

(Operator Instructions) At this time, I'd now like to turn the call back over to Mr. Rubens Amaral for any closing remarks.

Thank you, Josh.

Thank you for your attention today. We are very pleased with the results of the Bank, and we'll continue to work hard to bring you even better quarters in the third and fourth quarter of the year, finishing a very strong [development] activity.

So, thank you very much. We're looking forward to talking to you in the next quarter. Have a good day.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect.