Can Bladex Grow Even as Latin America Stumbles?

Produce like these pineapples is an important part of the Latin American economy. Image source: Bladex.

Latin America has been a hotbed of activity throughout the first 15 years of the 21st century, and many little-known companies have come to the forefront in giving investors exposure to the successes of the Latin American economy. Banco Latinoamericano de Comercio Exterior (BLX 2.14%), also known as Bladex, is one of those companies, with the Panama-based bank helping to support the efforts of clients throughout the region. Coming into its second-quarter financial report on Wednesday, though, Bladex investors have been concerned that even as the bank appears to be healthy, economic conditions in its home territory could threaten its long-term growth. Let's look more closely at what Bladex is likely to say later this week and whether share prices can climb going forward.

Stats on Bladex

Source: Yahoo! Finance.

What's next for Bladex earnings?
Investors have been nervous lately about how well Bladex earnings will hold up, reducing second-quarter projections by a nickel per share and reducing their full-year 2015 and 2016 calls by 5% to 7%. The stock has been stuck in a holding pattern, falling 5% since early April.

Some of the downturn in Bladex stock came immediately after the bank released its first-quarter results in April. Even though the bank exceeded investor expectations on the earnings front, weakness in oil prices weighed on Bladex's results. The more turbulent environment generally throughout the resource-rich Latin America region has led Bladex to get more conservative in its risk management, and while that should help the bank avoid more damage if conditions remain challenging, it could also hold Bladex back when conditions improve.

That said, Bladex has done its best to position itself to take maximum advantage of a recovery when it comes. In particular, it has tended to keep its average loan maturity down, with a predominance of short- and medium-term loans in its portfolio. That doesn't always lead to the maximum available interest income in the short run, but it does give Bladex much more flexibility to shift toward more lucrative areas for financing as conditions warrant. It hopes that by keeping to the short end of the lending curve, the bank will be able to maximize profit while avoiding some of the loan-default risk that its competitors have taken onto their balance sheets.

Bladex has also done a good job of maintaining a solid reputation, keeping its cost of capital down. In April, the bank raised $350 million in a bond offering, with five-year bonds paying a fixed interest rate of 3.25%. With an investment-grade bond rating, Bladex offers bond investors valuable exposure to Latin America without as much credit risk as most companies in the region, and as CFO Christopher Schech said at the time, "Today's successful bond issuance again demonstrates the appeal of top-tier Latin American issuers to global investors."

Meanwhile, for investors, Bladex remains an attractive investment play. On Tuesday, the bank announced its latest quarterly dividend, which currently corresponds to a nearly 5% dividend yield on the stock. That dividend has more than doubled since 2010, and shareholders are clearly sharing in the growth that Bladex has experienced since its recovery from the global financial crisis.

In the Bladex financial report, investors should focus not just on the bank's own results but also on executives' commentary about the state of the regional economy more broadly. Energy prices have bounced somewhat but remain far below their levels in recent years, and that could start to pressure some of Bladex's energy-company clients. Yet with a diversified portfolio of loans, what Bladex really needs to show is that it can overcome downward pressure from any one industry and play a vital role in the overall financing needs of the entire region. If it can demonstrate that ability, then investors should take Bladex's results favorably.