Bladex Ramps Up Despite Latin America's Challenges

Panama Canal. Image source: Bladex.

After a long period of strong economic growth, Latin America has had to face typical growing pains lately, with a plunge in commodity markets having a particularly significant impact on the region's natural resource-rich economies.

For Banco Latinoamericano de Comercio Exterior (BLX 0.26%), turbulent economic conditions in Central and South America have posed business challenges, but it has worked hard to find opportunities despite the difficult conditions that some of its potential customers face.

Coming into its third-quarter financial report, shareholders hoped to see signs that things were looking for the Panama-based bank, and the results that Bladex announced confirmed that the bank is seeing a long-awaited uptick in activity that could bode well for its future prospects. Let's take a closer look at its latest results to see why investors are excited about what's to come for the bank.

Bladex gets the job done
Results show vast improvement from what investors have seen earlier in the year. Operating revenue jumped 14% to $49.2 million, which was a huge improvement compared to the 6% decline that most investors following the bank had expected. Net income also rose substantially, with a gain of more than 26% to $33.6 million. That sent earnings all the way up to $0.86 per share, topping the consensus forecast by more than 20% and reversing last quarter's big shortfall.

Looking at Bladex's internal performance metrics, you can see the huge improvement that it experienced during the quarter. Returns on average equity soared to 13.9%, rising more than two percentage points from the year-ago quarter. Returns on average assets jumped by more than a quarter percentage point sequentially to 1.44%. Not everything went perfectly for Bladex, as net interest margins fell by a tenth of a percentage point to 1.83% from a year ago, and efficiency ratios fell into the mid- to upper-20s from last year's 30% level in the third quarter. Nevertheless, Bladex was able to keep expenses in check even as revenue rose, and that contributed to the big climb in the bottom line.

Interestingly, the Panamanian bank has worked hard to be smart about how it grows. Its commercial loan portfolio has actually shrunk over the past year, and that has helped contribute to a nice rise in its Tier 1 capital ratio to 16.7%. Nonaccruing loans remain in check at 0.31% of total loans, despite being more than five times higher than year-ago figures, and the allowance for commercial credit losses that Bladex has in reserve climbed slightly to 1.32%.

Overall, Bladex CEO Rubens Amaral was pleased with the performance. "Despite increased headline risks in the region and heightened volatility in global markets," Amaral said, "the real economy is still very much at work, and business continues to get done." Amaral noted that margins still aren't exactly where the bank would like, but it expects further growth to continue into the future.

Will the upturn continue for Bladex?
Bladex also thinks that its recovery could build momentum in the future. With robust credit demand, Amaral believes that it will see continued revenue growth in the coming months, and he sees a strong pipeline of future transactions that should contribute to better results for the rest of 2015 and into 2016. At the same time, its efforts to control costs have been successful, and fee income has picked up as well. Amaral warned against becoming overconfident, but Bladex sees itself as having the traits necessary to succeed in the particular set of conditions that Latin America faces right now.

As expected, Bladex also touted its ability to attract capital investment from its funding sources, citing its September announcement about a $175 million syndicated loan from lenders in Asia to help finance its operations. By having a diversified set of sources for capital when necessary, Bladex should be able to support its growth efforts in line with its overall strategic plan.

Bladex shareholders were pleased about the bank's results, sending shares up 4% after its announcement. What this quarter's results demonstrate is that even if Latin America's overall economic success hasn't lived up to what investors have gotten used to seeing in the past, Bladex can still find pockets of strength and take advantage of them to produce the revenue and earnings that investors expect and crave.