Banco Latinoamericano de ercio Exterior(BLX) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The third quarter net income totaled $55 million, down from $64 million in the previous quarter, reflecting the impact of a one-off transaction in Q2 [10][6] - The return on equity (ROE) for the quarter was 14.9%, down from the previous quarter, primarily due to the issuance of Additional Tier 1 (AT1) capital and one-off transactions [10][6] - The regulatory capital adequacy ratio rose to 15.8%, and the Basel III Tier 1 ratio increased to 18.1%, both above internal targets and regulatory minimums [9] Business Line Data and Key Metrics Changes - The commercial portfolio reached $12.3 billion, up 1% quarter over quarter and 13% year over year, driven by growth in loans, contingencies, and investments [12] - The loan portfolio closed at $8.7 billion, an increase of 2% from the previous quarter and 8% year over year, indicating steady client demand [12] - Non-interest income totaled $15.4 million for the quarter, reflecting strong activity in letters of credit and syndication despite a sequential decline [20][21] Market Data and Key Metrics Changes - The company reported a 6% quarter-over-quarter increase in deposits, reaching a record $6.8 billion, and a 21% year-over-year increase [17] - The growth in deposits was primarily driven by corporate clients, which rose over 26% from June [17] - The investment portfolio totaled $1.1 billion, up 4% from the prior quarter and 18% year over year, maintaining a predominantly investment-grade composition [15] Company Strategy and Development Direction - The company aims to strengthen its capital base through the AT1 issuance to support a robust pipeline of high-value transactions [3] - The strategic plan launched in 2022 focuses on enhancing operating capabilities and developing new business lines to diversify revenue sources [29] - The company is positioned to capture opportunities in medium-term structured solutions and trade finance expertise amid regional economic variations [28] Management Comments on Operating Environment and Future Outlook - The management noted a more challenging environment with rate cuts and high regional liquidity but expressed confidence in the company's solid results [2] - The economic outlook for Latin America is stable, with the IMF projecting 2.4% growth for 2025, supported by stronger performance in several economies [28] - Management emphasized the importance of navigating uncertainty and capturing opportunities through structured solutions and trade finance [28] Other Important Information - The company successfully issued its first AT1 capital instrument in mid-September, which was oversubscribed and attracted a diverse range of investors [3] - The efficiency ratio closed at 25.8%, better than the full-year guidance of 27%, reflecting disciplined cost management [24] - The company has implemented a new trade finance platform expected to enhance transaction volumes and client experience [21] Q&A Session Summary Question: What is the new target for capital ratios after the AT1 issuance? - Management confirmed the target remains in the mid-teens, around 15%, with plans to deploy the additional capital over the next 12 to 18 months [34][35] Question: What is the visibility on the stage two credit quality? - Management indicated that the increase in stage two was driven by a single client, with no systemic issues, and confirmed that the client is current [36][37] Question: What are the growth opportunities for deploying AT1 capital? - The focus is on Central America and selective opportunities in Argentina, particularly in sectors with strong credit profiles [50][54] Question: How will operational deposits impact funding costs? - Management sees operational deposits as a low-hanging fruit for reducing funding costs and plans to enhance cash management capabilities [40][41] Question: What is the expected performance of net interest margin (NIM)? - The company maintains a NIM guidance of 230 basis points for the year, with sensitivity to interest rate cuts impacting NIM by about 12 to 13 basis points for a 100 basis point cut [59]