BLADEX, INC. — FY2017 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2017; this is an annual report, not a standalone fourth-quarter filing. Banco Latinoamericano de Comercio Exterior, S.A. (“Bladex”) is a Panama-incorporated multinational bank focused on trade finance and regional integration in Latin America and the Caribbean. Financial statements are audited and prepared under IFRS, in U.S. dollars.
Financial performance and position
Unless stated otherwise, amounts below are U.S. dollars; “million” figures are rounded.
| Metric | FY2017 / year-end 2017 | FY2016 / year-end 2016 | Change |
|---|---|---|---|
| Total income | $138.3 million | $168.0 million | Down 18% |
| Net interest income | $119.8 million | $155.2 million | Down 23% |
| Profit for the year | $82.0 million | $87.0 million | Down 6% |
| Basic / diluted EPS | $2.09 / $2.08 | $2.23 / $2.22 | Lower |
| Net interest margin / spread | 1.85% / 1.48% | 2.08% / 1.84% | Both narrowed |
| Return on average equity | 8.02% | 8.76% | Lower |
| Efficiency ratio | 33.9% | 27.3% | Higher (weaker) |
| Total assets | $6.27 billion | $7.18 billion | Down 13% |
| Total stockholders’ equity | $1.04 billion | $1.01 billion | Up 3% |
| Gross loans | $5.51 billion | $6.02 billion | Down 9% |
| Deposits | $2.93 billion | $2.80 billion | Up 4% |
| Short-term borrowings and debt | $1.07 billion | $1.47 billion | Down 27% |
| Long-term borrowings and debt, net | $1.14 billion | $1.78 billion | Down 36% |
| Non-performing loans / gross loans | $59 million / 1.07% | $65 million / 1.09% | NPL balance and ratio slightly lower |
Cash flow and liquidity
- Net cash provided by operating activities was $691 million, versus $829 million in 2016. Operating cash flow included a $479 million net decrease in loans and a $126 million increase in deposits.
- Investing activities provided $11 million, compared with $149 million in 2016. Financing activities used $1.09 billion, including net repayments of short- and long-term borrowings and $61 million of dividends paid.
- Cash and cash equivalents on the balance sheet were $672 million; cash and cash equivalents excluding pledged deposits were $619 million, down from $1.01 billion on that latter basis at year-end 2016. The $53 million difference is pledged deposits.
- Liquid assets were 21% of deposits, down from 36%. The Bank reported $478 million of 24-hour customer deposits; liquid assets were $619 million. Management described liquidity as adequate and reported a 2017 internal liquidity index averaging 1.42.
- Interest-bearing funding was 57% deposits, 21% short-term borrowings and debt, and 22% long-term borrowings and debt. Deposits were concentrated: the five largest depositors accounted for 44% of deposits, and 67% of deposits came from central banks or their designees.
- Cash dividends paid were $1.54 per share for 2017. A $0.385-per-share fourth-quarter dividend was approved in January 2018 and paid in February.
Material changes versus FY2016
- Profit fell by $5.0 million, primarily as lower average loan balances and narrower lending spreads reduced net interest income. Total interest expense rose to $106.3 million from $90.7 million, with higher deposit costs reflecting rising market rates.
- Fee and commission income increased 22% to $17.5 million, driven by letters of credit and structuring and syndication activity. Seven syndication/structuring transactions generated $6.6 million of fees; letters-of-credit commissions were $10.4 million.
- Loan impairment expense declined to $8.9 million from $34.8 million. The Bank cited finalized restructurings, lower portfolio balances and a shift toward shorter-term trade exposures. However, loan charge-offs increased to $33 million from $19 million.
- Operating expenses increased 2% to $46.9 million. The filing identifies $3.2 million of non-recurring personnel-related charges, partly offset by lower other expenses and ongoing cost-efficiency measures.
- The Commercial segment earned $93.7 million, up from $87.0 million; the Treasury segment reported an $11.7 million loss, versus a marginal profit in 2016. Higher funding rates and limited income from balance-sheet repricing contributed to Treasury’s weaker result.
- The Commercial Portfolio declined 7% to $6.0 billion. The Bank attributed the decline to risk diversification, shorter tenors and nearly $1 billion of loan prepayments amid high U.S.-dollar liquidity. 81% of the portfolio was scheduled to mature within one year, versus 77% in 2016.
Outlook, commentary and risks
- Outlook: The filing provides strategic priorities, not quantified earnings or revenue guidance. These include streamlining operations and centralizing support, expanding in stable/high-growth markets, diversifying clients and risk exposures, and broadening trade-related products and services.
- Management commentary: Management said 2017 performance demonstrated the business model’s resilience despite regional political uncertainty, slower-than-expected growth and abundant liquidity pressuring margins. It emphasized capital strength, risk management, fee growth and efficiency initiatives.
- Regional and trade risks: Credit activity is concentrated in Latin America; 63% of the Credit Portfolio was in Brazil, Colombia, Mexico, Panama and Costa Rica. Trade restrictions, NAFTA uncertainty, Brexit, weaker regional currencies, inflation and higher U.S. rates could affect trade volumes, borrower repayment capacity, asset quality and funding costs.
- Credit and concentration: Allowance for expected credit losses on loans and commitments totaled $88.1 million, or 1.47% of the Commercial Portfolio, versus $111.8 million, or 1.73%, in 2016. Brazil accounted for $42.4 million, or 48%, of the total allowance. Management cautioned that estimates depend on forward-looking assumptions and actual losses could differ.
- Liquidity and funding: Risks include reliance on interbank funding and deposits, deposit concentration, potential rating downgrades and the absence of a lender of last resort in Panama. Moody’s outlook was negative; Fitch and S&P outlooks were stable. The filing anticipated new Panamanian liquidity requirements, including LCR implementation beginning in July 2018.
- Other risks and contingencies: Interest-rate mismatches, competition, operational and cyber risks, AML/sanctions compliance, regulatory changes and internal estimates are significant risk factors. Off-balance-sheet loan commitments and financial guarantees were $488 million, with a $6.8 million ECL allowance. Management reported no material litigation and compliance with debt covenants at year-end.
- Unusual and subsequent items: The CEO was expected to retire effective April 30, 2018, with Deputy CEO Gabriel Tolchinsky succeeding him; the CFO had been appointed in December 2017. Shareholders approved KPMG as auditor for FY2018 following Deloitte’s audit of FY2017; Deloitte gave unqualified opinions on the financial statements and internal controls. The Board approved $5.5 million of variable compensation during Q1 2018.
- Controls: Management and Deloitte concluded internal control over financial reporting was effective as of December 31, 2017; no material control changes were reported during the year.
Most important facts for investors to verify
- Reconcile the reported capital measures: the selected financial data cites a 21.1% Tier 1 ratio, while other filing disclosures report 18.71% (also described as total capital adequacy) and different risk-weighted asset amounts. Confirm definitions and regulatory calculations.
- Track whether lower loan balances and compressed margins stabilize, and whether fee growth can offset higher funding costs and weaker Treasury results.
- Review credit quality beyond the headline NPL ratio, including the $33 million of 2017 loan charge-offs, restructurings, Brazil-related allowances and geographic/borrower concentrations.
- Assess liquidity against the lower liquid-assets-to-deposits ratio, the large 24-hour deposit balance, top-depositor concentration and the transition to new regulatory liquidity requirements.
- Monitor execution of the cost, client-diversification and product-expansion plans, alongside the senior-management transition and auditor change.
- Confirm the cash-flow versus balance-sheet cash presentation: the filing reports $672 million of cash and equivalents, but $619 million excluding pledged deposits.