Foreign Trade Bank of Latin America Inc (BLX) 2016 Q4 法說會逐字稿

Hello everyone and welcome to Bladex's Fourth Quarter 2016 and Full Year Conference Call on today, the 17th of February, 2017. 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 today. 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.

Thanks Chantel. Good morning everyone and thanks for joining us today. I will focus my comments on the yearly performance of the core business in 2016 and will provide you with our views and outlook for 2017. I will follow the slides number 3 and 4 and the presentation available to you at our website. 2016 was an important year for us at Bladex, as we finished our participation in the discontinued investment fund as of last April. This enables me now to focus the analysis solely on our core business, without the necessary noise and volatility that this investment had inflicted on our quarterly results over the years. We did account for a loss of $4.4 million from that participation in 2016, a not insignificant swing of nearly $10 million when compared to 2015. We are reporting improved business income for 2016 and we are glad to do so, but we had to deal with a very challenging credit environment and a portfolio growth below our original expectations, which impacted our net income in a negative way.

2016 was also a year of surprises at the global level with "BREXIT", the elections in the United States, the diverging direction of the interest rates trend, in Europe and Japan, an environment of negative interest rates and in the United States, the resumption of the hikes in the federal funds rate by the Federal Reserve Bank.

In Latin America Region, the continued recession in Brazil, the uncertainty about how Mexico could be impacted if NAFTA was to be either terminated or renegotiated, and the slower growth of trade flows across the Region set the tone for sluggish economic activity overall. The combination of the global and regional scenarios demanded from Bladex management a constant effort to adjust and adapt to the challenging reality, in other words a sense of urgency in everything we do. This reality though impacted our financial performance in positive, in negative ways. So let me start with the positive impacts. We focused our actions in six key points.

First, increasing our traditional business of short-term trade finance. The duration of our book of business reduced from 10.7 months in 2015 to 8.8 months by the end of 2016. The trade finance component increased to 66% from 56% in 2015. This is what we call, internally back to basics.

Second, being selective about new credits focused on higher spreads. The overall Net Interest Margin was up by 24 basis points for the year, and the Net Interest Spread increased by 16 basis points in 2016.

Third, managing carefully and efficiently our interest rate gaps, positioning the balance sheet to benefit from the increase in the base rate. We are fundamentally a floating-rate bank and gaps are therefore quite small. Nevertheless, we managed an additional pick up in margins by 4 basis points when comparing spreads trends in assets and liabilities. The combination of higher spreads and efficient asset liability management produced an increase in top revenues by $10 million achieved with average portfolio balances that were lower than the previous year.

Fourth, keeping our laser focus on efficiency and increase of productivity. The business efficiency ratio reached 26% down from 31% in 2015. This is what we call internally, a culture of permanent improvement.

Fifth, using our medium-term lending to leverage our syndications platform. We closed 10 new deals with a total amount of $1 billion, which represented an increase of 76% when compared to the volumes for 2015, while the markets in general experienced a drop of approximately 40% in total volumes of syndications. This is our strategy to diversify the revenue streams.

And last but not least, strengthening and diversifying our funding structure. We tapped the Japanese Probond market, for the first time, with a $73 million issue and we returned to the Mexican capital markets issuing a new bond for $85 million. Both issuances were for 3 years, adding to the stability of our funding. This is our approach to improve our financial strength

But also as I mentioned, there is not so bright side as well for 2016. So let me tell you, what we faced.

First, a drop in the business ROE from 10.4% in 2015 to 9.2% in 2016, because of a reduction of 8% in our business profit overall.

Second, a decrease of 4% on our average loan portfolio year-over-year due to the reduction of our exposures in Brazil and prepayments in excess of $300 million during the last quarter of the year. Nevertheless, total disbursements were similar to last year and reached $12 billion.

Third, a poor performance of in traditional business of letters of credit due to lower oil prices with average balances down by 17% in 2016, representing a drop of 31%, $4 million in the fees associated with this activity. We did note an improvement over the second half of the year and plan to build on that in 2017.

And lastly, more complexity in the re-structuring of the non-performing portfolio which caused the Bank to increase the specific provisions to cover potential losses, having an impact in the P&L of $35 million for 2016. As far as these specific transactions are concerned, let me mention that we're dealing with five companies being 3 of them in Brazil, 1 in Uruguay and 1 in Panama. We have another case involving another company in Brazil in advanced stage of negotiations for a possible restructuring and we have already set aside specific provisions.

Our internal model for calculating specific reserves and the status of the negotiations indicate a higher probability more than 60% that our provision coverage is within the acceptable levels for the potential expected losses. Nevertheless, as I need to remind you, as is always the case with these negotiations, we cannot guarantee with 100% certainty that new provisions won't be necessary given the size and complexity of these restructurings. As far as charge-offs are concerned, we absorbed against existing specific provisions that had been correctly assessed by us back in 2015 a total of $18 million associated with a restructured credit in the oil industry in Colombia. This outcome is painful as it is for me to report today was already absorbed in the 2015 results.

As you can appreciate, 2016 was certainly not a dull year as far as credit risk management is concerned, but let me assure you, we are comfortable with the actions taken, and continue to aggressively pursue the most favorable solution for the non-performing loans undergoing restructuring, but I can't finish these comments about credit quality without mentioning the current portfolio of performing loans which I am pleased to report is fundamentally sound based on our most recent in-depth internal credit review. We always have exposures in our watch list portfolio, but we do not anticipate any significant problem for 2017 outside of what has already been identified as per my previous comments.

As you can see, the financial performance of the Bank on 2016 highlights its capacity to adapt quickly to the changing and more challenging environment and although we have not been immune to the consequences of a down credit cycle, the results confirm the business model resilience and the relevance of Bladex within Latin America for its traditional client base.

As already reported in a previous press release, our Board of Directors approved a dividend of $0.385 per share, after reviewing our financial performance in 2016, as well as the prospects for 2017, which underlines our view that the worst of this down credit cycle is over and confirms the confidence of the Board regarding the capacity and determination of the Bank to return to asset growth and increased profitability without losing sight of the importance of maintaining sound credit quality.

Let me comment quickly about our outlook for 2017. We are, as I said in the press release cautiously optimistic for 2017, but we remain alert for the risks of a possible weak growth in global trade as the rhetoric of more protectionism increases in Europe and in the United States. In our view, there is a potential improvement in economic conditions in Latin America. Brazil will most likely post for the first time in the last two years a slight growth, which bodes well for the country and its surrounding economies, but does not imply we will resume growth in the country immediately. We will continue to monitor closely how the country progresses and for the time being, will remain very selective about new credits, expect our exposure for the following quarters to remain around 18%.

On the other hand, let's move to the second largest economies in the Region, Mexico. The uncertainty associated with a renegotiation of the NAFTA remains. Although, we have identified opportunities to grow our portfolio in that country, we are monitoring closely the events and we'll be very careful as far as growth is concerned, focusing on short-term trade finance, but in this case, you can expect a little increase as we hoped our portfolio again increase from 15% to 18% in that country. Let me talk to you about maybe some more stable economies in our region.

We are very comfortable with the opportunities identified in Chile, Colombia and Peru. Although Chile has been a very competitive market for us, we see increased opportunities in the trade value chain. We have identified also good prospects in Colombia and Peru along the same lines as Chile and therefore, we expect that an important portion of our growth in 2017 will come from these more stable economies in our Region.

Therefore, we are keeping our guidance of portfolio growth at around 10% for 2017, which will enable us to deploy efficiently the capital, in such a way that is dear to your hearts, I know, helping the bank to return to double-digits ROE and the three digits bottom line.

With that, I will now turn it over to Christopher for his comments. Thank you very much.

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

In discussing our fourth quarter and full year results for 2016, 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.

As Rubens already mentioned to you, we did redeemed the remainder of our former participation in investment funds early in the second quarter of 2016. We exclude these non-core results in our business profit, which represents the core and recurrent results of the bank. And so this presentation focuses entirely on the factors that are relevant to [said] business profit.

I should also note that going forward and with the chapter of our participation well behind us, we will no longer have any need to distinguish core results from the overall profit of the bank in our future earnings releases and business presentations.

Rubens already gave you a fairly detailed account of our performance in 2016 with his comments on pages 3 and 4. So without much further ado, let's recap the numbers starting on page 5.

Business profit reached $91.5 million in the year 2016 compared to $99 million in 2015. The fourth quarter of 2016 closed with business profit of $13.3 million compared to $28 million in the previous quarter and compared to $25.3 million in the fourth quarter of 2015.

On our profit walk on this page 5, we summarize the main drivers of our business performance in 2016 before we go into greater detail in the following pages.

The economic and political environment presented a fair amount of challenges for the Region in 2016, as you already heard from Rubens, which triggered internal responses in Bladex to mitigate the effects of these circumstances, starting with an increased diversification of our book of business with emphasis on de-risking, reducing concentration risk in countries, sectors and clients, and also mitigating credit risk by shifting origination focus to short-term trade transactions. Nevertheless, with all this, we grew net interest income despite lower average portfolio balances on stronger pricing and the net benefit of the rise of underlying base rates, as we positioned effectively assets and liabilities, which as you well know are floating rate base and specifically LIBOR based.

Meanwhile, we solidified the track record of our syndications franchise, closing more transactions and greater volumes in a year that saw very subdued activity in Latin American debt capital markets. We continued to squeeze efficiency gains out of internal processes in another year of expense reduction, even as we completed the migration to a more powerful version of our core banking system.

Our liquidity position remained strong and our funding was cost effective while ensuring ample stability of funds with new bond issuances and syndications and increasingly diversified sources of funds. Capitalization strengthened with a growing capital base and reduced risk-weighted assets. All these achievements help mitigate the effects of the year-on-year increase in non-performing loan exposures with higher provision for expected credit losses in regards to exposures confined to certain countries, primarily Brazil, as you already heard, and sectors to account for complex and sluggish, time-consuming restructuring efforts.

Moving on to page 6, we again show the profit walk, but now focusing on the quarterly variations. In the fourth quarter, net interest income declined versus the previous quarter on lower portfolio balances and lower lending spreads as the portfolio mix shifted to shorter tenors and more trade transactions. Compared to the quarter of a year ago, however, we see overall higher margins compensate lower portfolio balances for minimal variation in net interest income. Fee and other income in the fourth quarter rose quarter-on-quarter, primarily on rebounding activity in the letters of credit business, which continued to pick up from very sluggish demand during the first half of 2016. Compared to a year ago, quarterly fee and other income was lower mainly as the syndication business had a solid finish for the year with 2 closed transactions, but we had an exceptionally strong fourth quarter of 2015 in that regard. Expenses were seasonally higher in the fourth quarter but stayed below the levels of the fourth quarter of a year ago. As for the entire, provisions for expected credit losses were a significant element in the fourth quarter, as we accounted for delays and increased complexities in restructuring proceedings.

Now moving on to page 7, we take a closer look at net interest income and margins, which showed strong performance in 2016. With net interest income increasing 7% year-on-year on lower average portfolio balances on the back of net interest margin, which grew 24 basis points to 208 basis points, a level not seen in this Bank since the year 2000.

Looking at the net interest spread graph, we see stronger lending spreads and a small improvement in liability spreads as key drivers for this margin growth. On top of that, the steady rise in underlying base rates, (LIBOR rates) throughout 2016 helped accelerate our margin expansion as we were quick to pass on these base rate increases in our lending book. Looking at the fourth quarter, we saw lending spreads slowing down on account of a greater share of shorter tenor trade transactions in the portfolio mix, while liability spreads continued to improve. These trends will likely continue in the coming quarters to some extent mitigated by the gradual rise in base rates which continues to this date.

We show more details about our funding structure on page 8, highlighting our funding mix in the column graph in the upper left. Year-on-year, the share of deposits in our funding mix has risen to now 46% of total funding balances, while medium term borrowings and issuances have also risen in percentage terms, adding stability to the funding mix. Average funding costs rose in tandem with underlying base rates, except that we were able to tighten average liability spreads just a bit during the fourth quarter, managing to slow down the growth of funding costs below that of the underlying LIBOR. You saw, of course our margin discussion on page 7 that on the lending side, we were not only able to pass on this increases in average funding costs, but also widen lending spreads on a much faster pace and boosting NIM that way.

And back to the funding discussion, just a quick highlight the geographical diversification of our funding sources per the donut chart in the upper right. We did execute our first issuance in the Tokyo ProBond market in June along with another issuance in Mexico earlier in the year, as already alluded to by Rubens. Mexico is a very liquid and cost effective market for us. And also to highlight the solid deposit base per the donut chart in the lower right, where we can appreciate the importance of our central bank shareholders and the value added that they deliver to Bladex's day-to-day business through their stable deposits.

On page 9, we show average portfolio balances and segmentation of our commercial portfolio, which saw a decline in the fourth quarter 2016 and the full year on account of de-risking certain credit exposures with a significant reduction in Brazil, which was partially compensated by growth in other parts of the Region, foremost in places like Mexico, Colombia, Peru and Argentina.

This growth was primarily in short tenor trade transactions as shown in the columns graphs depicting the share of trade transactions in the total portfolio, as well as the tenor structure of our portfolio, which migrated towards the short end. Short-term trade transactions have better risk/return performance, but effects of their growth on portfolio balances was limited as market demand slowed in some countries during the fourth quarter to digest, and evaluate the implications particularly of US elections of early November of last year.

With that and with the prepayments of large ticket transactions mentioned by Rubens, our original expectations of incremental asset growth in the fourth quarter were not met.

On page 10, we present breakdowns of our commercial portfolio balances by industry segments with little variation overall. The upstream oil and gas segment continued to trend lower in absolute exposure terms, while we favored other segments benefitting from improved terms of trade. Also the exposure profile went to shorter tenors with remaining maturity moving to 269 days from 330 days a year ago.

Moving on to page 11, we present a breakdown of our exposure profile in Brazil, which continued to suffer a prolonged recessionary backdrop in 2016. Exposures in that country accounted for 18% of the commercial book, stable compared to the prior quarter, and significantly reduced compared to prior years in a pronounced secular trend. The exposure profile continues to be overwhelmingly trade focused with short tenors, and is centered in large-cap financial institutions and clients in export-oriented sectors able to benefit from improving terms of trade.

On page 12, the evolution of credit quality and reserve indicators showed a quarter-on-quarter decline in NPL levels to 109 basis points of total portfolio balances down from 131 basis points in the previous quarter, owing to the charge-off of an exposure in the upstream oil and gas sector, following the completion of the restructuring process which had been appropriately reserved for back in 2015. The remaining NPL stay confined to certain countries in particular Brazil, as you heard already by what was described by Rubens and also confined to certain industrial sectors, mainly soft commodities as we show in the graph in the middle of the page. and can appreciate in the next slide, page 13 in more detail, we made the decision in the fourth quarter to further strengthen reserves regarding these exposures on account of increasing complexity and sluggish progress of ongoing restructuring efforts.

As you know, Bladex adopted International Financial Reporting Standards, (IFRS) back in 2015 and early-adopted Rule IFRS 9 Financial Instruments in that process. This new rule will be required for all banks under IFRS starting 2018 and it essentially calls for a more proactive forward-looking assessment of credit risk inherent in financial instruments, which includes loans, contingencies and securities. And you do that by assessing credit risk by segmenting the portfolio into three stages or buckets as I prefer to call them.

Bucket 1, encompasses new origination and older vintages of exposures that have not evidenced any change in credit risk over their lives. Those credits are assessed using a 12 month expected loss horizon.

Bucket 2, encompasses performing exposures of any vintage that have undergone a change in perceived credit risk, as determined, by a long list of individual factors and market indicators such as external and internal credit ratings, economic, financial and business indicators, changes in regulatory environment and so on and so forth. Those credits are assessed using a lifetime expected loss horizon.

Now, given the short tenor structure of our commercial portfolio, with 77% of the book maturing within the next 12 months, the distinction between performing loan bucket 1, and performing loan bucket 2 does not really have that much of an impact for Bladex in determining the resulting reserve requirement.

And finally bucket 3 encompasses the small group of non-performing exposures that Rubens already discussed earlier, and there you can see the reserve strengthening that has occurred in all of 2016, and during the fourth quarter of the year, net of the charge off of the exposure following the completion of a restructuring process.

With that, overall reserves reached close to $112 million at the end of the year, a $106 million for on-book loans and $6 million for off balance sheet contingent exposures, such as our letters of credit. Overall, this represented a reserve to commercial portfolio ratio of 173 basis points, the highest since 2011 and an NPL coverage ratio of 1.7 times.

Moving on to page 14, we show our fee and other income evolution. As mentioned earlier, we completed two syndication transactions this quarter, bringing the total to 10 transactions for the year, given the nearly 40% drop in volumes experienced in LatAm debt capital markets, we feel very good about our performance in this space, even if overall fees and commissions did not quite reach prior year levels. We believe our loan structuring franchise will continue to do well, especially in a market that is showing signs of a rebound in credit demand.

Moving on to page 15, shows a quick recap of our operating expenses and efficiency levels. Expense levels declined year on year on lower performance-based variable compensation expense and internal process efficiencies and that brought our business efficiency ratio down to 26%.

On page 16, we highlight return on average equity and capitalization trends. The business return on average equity reached 9.2% compared to 10.4% in 2015, showing the mitigated extent to which provisions for expected credit losses posted during 2016, a year which presented challenges that we hadn't seen since the financial crisis of 2008/2009. So, it mitigated the expense of those provisions with the effect did not made a dent, but did not tear a big hole into our 2016 numbers, thanks to stronger top line results and lower expenses. Meanwhile, Tier 1 Basel III ratio strengthened to 17.9% on an increased capital base and lower risk-weighted assets. Leverage stood at 7.1 times at the end of the year, indicating ample room to grow going forward.

And finally, on page 17, we highlight our focus on total shareholder returns. The total rate of return reached 21%, including an average dividend yield of 5.9%. The Bladex stock valuations remains very attractive. The Bladex Board of Directors continued with its very consistent approach in evaluating 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 session. Thank you.

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

Thank you very much. Ladies and gentlemen, at this time, we would like to open the floor for questions.

(Operator Instructions)

Tito Labarta, Deutsche Bank.

Hi, good morning, Rubens and Christopher, thank you for the call. A couple of questions. First, on your provisioning, just want to understand a little bit more, I understand, you used the expected loss method, and you had the spike in provisions this quarter, but how should we think about this going forward, because we did see the NPL ratio improved a little bit this quarter? So I guess, was this more pre-emptive and does this mean provisions should come down significantly next year as things improve or how should we think about what's the recurring level of provisions going forward? And then my second question, you know we did see some good margin expansion for the year although little bit of a contraction in the fourth quarter compared to the third with, you know, potentially increasing rates in the US. Is there room for margin to expand further or have margins kind of peaked? I just want to get a better understanding on I guess, sensitivity to rates and how you see margins moving, going forward? Thank you.

Thank you Tito for your questions. Good morning to you as well. The first question about provisions, I tried to pre-empt that question in my initial remarks by really telling you that in terms of our internal calculations, we are comfortably covered as far as the specific reserves are concerned. So -- but still an important credit that we are in the process of renegotiation in Brazil, which is advancing quite well, just today, we had more information about the status of the renegotiation. That seems to be moving towards the right direction. Be that the case, I tell you, I wouldn't anticipate any major impact on this more deteriorated portfolio if you will. So we go back to what we answer all the time about this question that is expect the movement of provisions to increase with the increase of our portfolio. We have signaled that we are expecting to grow this year 10% and then naturally associated with that will come more provisions, what we call the generic provisioning requirement that we have in our internal model. So, that's what I see moving forward for 2017.

As far as margins are concerned, your second question, and Christopher you can complement if I miss any information. I think it's natural that we see more challenging year for the net interest margin because we are back to basics and basics means short term trade finance and short-term trade finance means smaller margins. So I think, we will be able to keep margins in relatively high levels, but you might see eventually a reduction of this 2% level that we achieved this year in a very successful margins management.

Yes, I would like to add to that, that the current margin levels that we've seen in 2016, I mentioned in my comments that they, we haven't seen those levels since 2000 and so it would be very ambitious to believe that we could maintain these very high levels of margins especially understanding the fact that we are migrating the tenor structure of our book of business towards the shorter end and trade exposures as Rubens said so, but then again we believe there will be an offsetting effect from the continued rise of underlying base rates and that should help mitigate a contraction in net interest margin. So as Rubens mentioned, we don't expect a sudden drop in margins, we just expect a gradual decline, but still remaining at very good levels for at least for our business.

Thank you, Christopher. Tito, does that answer your question?

I think you mentioned, I guess the credit that you're negotiating, did you say it was $18 million? Is that pretty much what was provisioned this quarter? And also in the second quarter, you had about $11.5 million in provisions. So I guess, we can get a sense, what was extraordinary this year given the renegotiations you've done that we can maybe strip out and get a better sense of recurring as the portfolio grows?

The $18 million I mentioned in my initial remarks was associated with the write-off of a restructuring of a credit in Colombia as I mentioned, so this was something that was already provisioned in 2015 and we absorbed the loss in 2016. To the extent of the existing credits under negotiation, the movement you saw in the provisions was exactly our internal calculation as explained by Christopher in his remarks about the different buckets and the requirements, we have to reflect really the possible or potential loss, if you will that we might have in this negotiation process. So what you have in the fourth quarter is exactly the reflection of this analysis that we did to adjust the need for provisions to the expectations we have in terms of this negotiation.

Yes. I think, if you look back in the history of Bladex and the track record of our NPLs, you'll see occasionally in years of crisis, spike in NPLs and clearly that's been happening over the course of 2015 and 2016, and we don't have a reason to believe that this would be a permanent feature going forward. We don't believe that, and so we do expect NPLs to gradually decline as the economic conditions improve for our clients in our countries and that would be our base case expectation. We don't believe that the current NPL levels are a sign of what is to come for the next years, so quite the contrary.

We're not guaranteeing that we would go back to zero NPLs as we had many years in the past, but we do believe that the natural NPL levels should be quite a bit lower than they are today.

Okay, thank you very much. Maybe just one quick follow-up then Rubens you mentioned, you do expect to be back in double-digit ROE for next year, but in the past, you've talked about a mid-teens ROE target. Is that still feasible? What would be the timeframe for that?

Thanks Tito for your question. You remember since I joined the Bank as the CEO that my target has been to consolidat the double-digit ROEs and then move towards a more mid-teens 13% to 15% ROEs, as we can diversify our revenue streams. We are doing very well in terms of the diversification as you saw the syndication business. We expect this year to be a very important year for us also in syndication and we expect to resume growth. As we combine both of them and we can deploy more capital, we are confident that we can have another year in 2017 of double-digit ROEs. And we continue to pursue our target of returning on a sustainable way at least what has been our traditional cost of capital at 12%. And then as we build up on the fee revenue, we can move towards the 13% to 15%. So it's going to take a few more years for us to get there in light of the downturn we have experienced in the last three years unfortunately in Latin America.

(Operator Instructions) Valerie Herrington, BG Valores.

Hi, and thank you for taking the question. The question is regarding the funding base, especially the deposit side. As the deposits have become a slightly larger and the central bank dominance of those deposits, how should we expect via the pricing of that to move forward in regards to higher interest rates, due to credit rates that we've seen or just higher rates in general compared to how you've been able to pass that on to the loan book? Should these move in tandem or because the central banks are also large important shareholders. Is there how, I guess how does the pricing power work there?

Well, thanks for the question. First of all, the central banks have no preferential treatment as far as the rates are concerned, so it is market rates that we pay to them, and basically since we're talking about short-term deposits normally these are the lowest funding costs that we have in our portfolio and we expect that to remain so, even if base rates go up. So there is no change in the spreads that the central banks would charges us as the bank remains solid -- financially solid, it's presenting good results in spite of this hiccup that we had in the last quarter of 2016. So our capacity to transfer these prices to our clients remains the same. There is no change in that regards whatsoever, so we don't expect any increase in the spreads charged by the central banks for the deposits. So, Christopher?

Yes, I would just add that what we do intend to do is to increase the share of deposits in our funding book of course, because as Rubens mentioned, this is the most attractively priced source of funds for us. And the more deposits, we can take on the better for our spreads and margins. And that is what the funding team is looking for.

Okay, thank you. And you had a target , like I guess, a max exposure you would want to have [either through] for the central banks themselves as a percentage of overall funding or in deposits?

Well, we take whatever deposits are made available to us, but there is an important distinction, when we calculate our liquidity coverage ratio in any other liquidity metrics, we do limit the concentrations of deposits and that ensures that our liquidity management is not overly dependent on one single source of deposits, and so we really make sure that this is the case.

Okay. So the deposit made from the central bank level would be more or less in-line with their relative economic size, would that be a decent assumption?

Well, the deposits come from different central banks, and different central banks irrespective of the size of the economies, I don't know whether you're associating the amount of deposits to the size of the economies. It's quite the opposite sometimes, you have smaller economies depositing more with Bladex rather than the big economies that would deposit less with the Bank. So there is no relation whatsoever in terms of the size of the economy and the size of the deposits. There is a relation with the quality of the service we can provide, so it's more the central banks definitely have in Bladex an important correspondent bank for them, not only to invest their liquidity, but to use as also as the bank for the payment. So normally, there is no correspondence. I don't know whether, I'm answering your question or whether I understood your question.

No, that's fair enough. That makes sense, that makes sense.

Perfect. Thank you.

(Operator Instructions) Greg Eisen, Singular Research.

I want to go back to, I guess it's slide 20 in your presentation. It shows -- that's in the appendix, it's showing a coverage ratio of your allowance for losses on loans and such versus your non-performing loans at the end of Q4 of 1.7 times and that was up versus the coverage of 1.3 times at the end of Q3 and 1.8 times last year. And I guess the difference between Q3 as a result of the write-off, and what that does to the ratio, but you talked earlier about your expectation for the whole amount of non-performing loans coming down as a percentage it's 1.09% right now, that ratio coming down as you work through the problems that you've had and as you continue your focus on the core short term trade finance business, but I'm really thinking about what should the spread be? How much are you -- what would you call as your comfort level of that ratio going forward of a ratio your allowance to your non-performing loans, if it's 1.7 times that, would you still wanted to be in that same kind of level between 1.5 times and 2 times or is there some other level that you think you do? Or you cover with the lower level as I guess, is my question.

Yes, Greg, this is Christopher, allow me to take your question. And it's a very good one, of course. We'd like to have NPLs as low as possible of course, and as a matter of fact as I mentioned earlier, we quite used to seeing zero NPLs in our balance sheet. And so while the likelihood of achieving that over the short run is fairly low, I would say. We do expect that overall NPL levels should decline as I said. And so that brings the coverage ratio back -- the more NPL levels decline, the higher the coverage ratio, because we have no intention of reducing reserves. Because, we are looking to grow the business, we don't see a reason why we should lower reserves and hence lower also the NPL coverage ratios, quite the contrary. And so 1.7 times at the end of 2016 that's certainly a number we are comfortable with, but we wouldn't mind that to go much higher than that. Assuming that is based on the fact that NPLs are declining and the rest of the business is growing as intended. Does that answer your question?

Yes, I get it. I understand the math, what you're saying as the NPL level goes down, you are not going to precipitously drop your protection these provisions, because you need to provide, so the ratio could go up a lot simply because the denominator is the smaller number?

Absolutely, we've had instances of 20-plus times of NPL coverage, which doesn't make much sense, but that's how this indicator works and so we'd like to -- let's just look at overall reserve coverage as it covers the entire book of business that is a more meaningful number to look at in our view.

Thank you very much. (Operator Instructions). At this time we have no further questions in the queue.

Thank you very much, Chantelle. Ladies and gentlemen, thank you for attending our call today. And as I mentioned in my remarks, the Board and management are confident that we're going to have a successful 2017. We are very aware of the risks still, the headwinds that might impact our performance, but we see with optimism the performance in 2017. And with that, I hope to join you for the call to talk about our first quarter that has started in a nice way. Thank you very much.

Thank you very much. Ladies and gentlemen, at this time this conference is now concluded. You may disconnect your phone lines and have a great weekend. Thank you.