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Challenging Conditions Hit Bladex Earnings Hard

By Dan Caplinger – Oct 19, 2016 at 7:58PM

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The Panamanian bank kept improving its capital position, but total income fell despite wider interest margin figures.

In recent years, Latin America has taken a big part of the damage from the sluggish growth rates in the global economy. Weak economic conditions greatly affect the financial sector, and Panamanian bank Banco Latinoamericano de Comercio Exterior (BLX -0.42%), better known as Bladex, has seen the impact of tepid economic growth on its own business. Coming into its third-quarter financial report, Bladex shareholders were expected to see top-line pressure but hoped that the bank would be able to keep tis profits up. Instead, Bladex wasn't able to match its income figures from the previous year's quarter. Let's look more closely at how Bladex did and what's to come for the banking institution.

Bladex highlights the growth potential of Latin America. Image source: Bladex.

Bladex watches key figures fall

Bladex's third-quarter results included some disappointments for investors. Operating revenue once again posted a substantial decline, dropping more than 16% to $43.4 million and missing the consensus forecast for $44.74 million. Similarly, net income fell by 25% to $28 million, and that produced earnings of $0.72 per share -- $0.13 less than most investors were expecting to see.

Taking a closer look at Bladex's internal metrics, deterioration continued on several key measures. Returns on equity were down more than four percentage points to 11.2% compared to the year-ago quarter, even though the figure marked a more than two percentage point gain from the second quarter of 2016. The bank's efficiency ratio worsened by a percentage point to 26%, with even greater deterioration over just the past three months. Returns on assets also fell, hitting the 1.5% mark and down from 1.85% a year ago.

Some credit concerns also hit Bladex's results. Nonperforming loans were up to 1.31%, rising by a full percentage point over the past 12 months. Allowances for credit losses were also higher than they were this time last year, at 1.67%.

Yet Bladex continued to see some positives as well. Net interest margin again grew to 2.13%, and net interest spreads rose to 1.89%. Tier 1 capital ratios as defined under Basel III improved to 15.9%, up from 15.1% in the year-ago quarter. Liquid assets also remained below 10% of total assets, reflecting Bladex's commitment to making the most of its capital.

Bladex CEO Rubens Amaral had comments about the bank's results. "Core operating trends strengthened considerably during the third quarter," Amaral said, "while credit quality remained stable." The CEO also noted that a challenging business environment had the effect of "limiting the scope for accelerated portfolio growth," but that didn't keep Bladex from surpassing the $1 billion mark in Tier 1 capital during the quarter.

Can Bladex start growing again?

Still, looking forward, Bladex is optimistic about its future prospects. The company sees Latin America rebounding for the remainder of 2016 and going into 2017. In response, Bladex is aiming to take advantage of short-term trade exposure that will benefit greatly from an uptick in local economic activity. At the same time, though, the bank will keep looking opportunistically for longer-term lending relationships that can set the stage for more sustained growth.

One way Bladex can improve its results is to focus more on income sources other than from interest-related spreads. For instance, Bladex said that its fee income fell during the quarter, pointing directly to letters of credit producing lower fees. Yet many banking institutions have seen fees as an essential part of their overall business models, and Bladex will need to consider whether it can take steps to boost its fee income without endangering well-established customer relationships.

Bladex shareholders didn't immediately respond to the results in after-market trading, with shares nearly unchanged following the announcement. Nevertheless, what Bladex really needs to rebound is a renewed economic upswing throughout Latin America. If the global economy cooperates, then Bladex is well positioned to benefit from new expansion.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Bladex. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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