Bladex (NYSE: BLX) reported Q2 EPS of $0.46, $0.13 worse than the analyst estimate of $0.59. Revenue for the quarter came in at $21.7 million versus the consensus estimate of $34.68 million.

BUSINESS HIGHLIGHTS

• During 2Q20, the Bank collected 99% of all scheduled credit maturities totaling close to $2 billion, coupled with credit prepayments for $222 million, on account of the high quality of its borrower base and the short-term nature of its Commercial Portfolio.
• The Bank was able to gain a deep understanding of the impacts of Covid-19 on sectors and clients by country, having been in close contact with most of its client base. It has reassessed the risk profile of its entire portfolio under the current context.
• By design, under tighter credit underwriting standards, selective credit disbursements amounting to $1 billion, mostly placed during the second half of 2Q20 – at wider credit spreads – resulted in a reduction in Commercial Portfolio balances, totaling $4.9 billion at June 30, 2020, down 16% QoQ and 21% YoY.
• The portfolio continued to be well-diversified and focused on high quality exposures, with 58% in investment grade countries, 52% with financial institutions and 17% with sovereign and state-owned corporations. In addition, the Bank was able to reduce exposure to higher risk sectors now representing 11.1% of the total, from 12.5% in the previous quarter. Specifically, sugar and airline sectors were down by a total of $138 million, to only 1% each, of the total portfolio.
• Given the prevailing market uncertainty and deep economic impact of Covid-19, the Bank aimed and was able to maintain a strong liquidity position throughout 2Q20, as a result of its continued and ample access to diversified funding sources. These include its central bank shareholders as well as correspondent banks and capital markets investors throughout the globe. The rapid collection of loan maturities also proved to be an effective liquidity buffer. Liquidity levels reached $2.0 billion at June 30, 2020 (30% of total assets and 68% of total deposits), of which 91% was placed with the Federal Reserve Bank of New York.
• As a result of the Bank's decision to reduce loan balances and maintain increased liquidity levels, its profitability was pressured on lower core income generation. Profit for 2Q20 and 6M20 totaled $14.1 million (-23% QoQ; -37% YoY) and $32.4 million (-26% YoY), respectively.
• During 2Q20, the Bank recorded credit provision reversals totaling $2.6 million, mostly related to the sale of its single remaining credit-impaired loan (or NPL), bringing NPL balances to zero at June 20, 2020. At the same date, the Bank's total allowance for credit losses represented nearly 1% of the total Credit Portfolio.
• Credit provision reversals were offset by a $3.9 million loss on financial instruments, mostly related to the unrealized loss of a debt instrument measured at fair value through profit or loss, recorded as part of a loan restructuring back in 2018.
• Operating expenses were down $2.3 million, or 22%, on lower personnel expenses, mostly due to decreased performance-based variable compensation provision.
• The Bank's Tier 1 Basel III Capital Ratio strengthened to 24.8% at the end of 2Q20, resulting from lower risk-weighted assets on decreased Commercial Portfolio balances, while the equity base remained stable at over $1 billion.

CEO's Comments

Mr. Jorge Salas, Bladex's Chief Executive Officer said:

"Beyond Bladex's financial strength on its historically solid capital levels, our business model allows for a unique possibility to adapt to rapidly changing market conditions in a very agile manner. Catering exclusively to corporate clients, most of which are industry leaders with robust corporate governance practices and solid financials, significantly reduces the credit risk in our portfolio.

Moreover, the short-term nature of our portfolio – having more than 70% maturing within the next year – becomes an effective liquidity buffer, especially relevant in the current context; when combined with our regional foot-print, it allows the Bank to swiftly relocate the portfolio in resilient sectors and countries across Latin America.

Since the onset of the COVID-19 crisis, we have collected over $2 billion, representing 99% of total scheduled maturities, a clear demonstration of the credit quality of our portfolio. In turn, after re-assessing the risk of our portfolio by industry under the COVID-19 and contacting almost every single client, we tightened our underwriting standards and selectively disbursed around $1 billion in new loans, at shorter tenors and wider risk-adjusted credit spreads in defensive sectors and clients, with a focus in lower risk countries.

On the funding side, our deposits increased on account of the continuous support of our central bank shareholders, we continued to have ample access to bilateral funding sources, and we successfully tapped the debt capital markets with an approximate $230 million USD equivalent issuance in local currency in Mexico. We have now a stronger funding structure, with increased tenors while maintaining ample diversification.

As a result, by design, we have been able to maintain a solid liquidity position throughout the quarter, in view of current uncertainty.

The high quality of our client base and the levers embedded in Bladex's business model have allowed us to successfully navigate this crisis up until now. Having said that, we are cognizant of the significant challenges that lie ahead, with a 2020 GDP estimate for the region close to negative 9.5%. We believe that our 40-year experience in the Region, including several negative credit cycles, and our good understanding of the impacts and macroeconomic dynamics in every country, play to our advantage. We are committed to continue to support our clients, for whom we have been long-standing allies."

For earnings history and earnings-related data on Bladex (BLX) click here.