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Bladex Treads Water and Hopes for a Stronger 2019

By Dan Caplinger – Updated Apr 23, 2019 at 4:39PM

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The Panamanian bank had largely flat performance to finish 2018.

Even while the U.S. economy keeps humming along, different parts of the world have seen weaker conditions. In Latin America, a combination of political and economic challenges has led to a more uncertain outlook for the business community. That's put a damper on activity at Panamanian bank Banco Latinoamericano de Comercio Exterior (BLX -3.12%), as it's been harder for the institution more commonly referred to as Bladex to find the high-quality lending opportunities that it seeks for its asset portfolio.

Coming into Thursday's fourth-quarter financial report, Bladex shareholders expected weaker earnings results and figured that revenue would stay largely unchanged from year-earlier levels as the bank waits out sluggish economic conditions in its key markets. Bladex's results were largely consistent with that thesis, but the bank sees reason for more optimism in 2019.

Check out the latest Bladex earnings call transcript.

Large metal bank vault door, open with a ramp up to the actual vault.

Image source: Getty Images.

A flat performance from Bladex

Fourth-quarter results showed the ongoing challenges it faces. Total revenue of $34.1 million was down 1% from the year-ago quarter, again failing to produce even the modest top-line growth that those following the stock wanted. Net income of $20.7 million was a nice bounce from the loss Bladex suffered in the third quarter of 2018, but it was up just $100,000 from the year-earlier period. Even so, the resulting earnings of $0.52 per share were well above the $0.43 consensus forecast among investors.

The most noteworthy change in Bladex's financial condition was its decision to boost its cash reserve holdings dramatically. Over the past three months, total assets soared by more than $1 billion to $7.61 billion, but the size of the bank's commercial and treasury portfolios remained largely unchanged. Those assets were largely held at the Federal Reserve Bank of New York, and Bladex warned that it made its decision to resort to alternative funding sources in anticipation of a temporary decline in the size of its deposit base.

Bladex's other fundamental metrics were mixed. Net interest income was down less than 1% to $28 million, but operating expenses were down more than 5% from year-earlier levels, and that helped to bolster profit despite some impairment losses on nonfinancial assets. Net interest margin sank from 1.78% a year ago to 1.61% in the most recent quarter, as spreads continued to tighten. Returns on average equity were up slightly, but the boost in cash holdings cut returns on assets to 1.20%. Tier 1 capital ratios were down 3 full percentage points from year-ago levels to 18.1%.

Credit quality metrics remained steady as well. Nonperforming loans made up 1.12% of Bladex's total loan portfolio, up from 1.07% in the fourth quarter of 2017, but total allowances for loan losses climbed 0.18 percentage points to 1.65% in order to cover that exposure.

Can Bladex get healthier?

CEO Gabriel Tolchinsky talked about the strategy that Bladex is following. "In our third-quarter 2018 conference call," Tolchinsky said, "we mentioned that the credit quality of our portfolio, cost structure, and allowances for expected credit losses set the base to improve our earnings generation capacity. Our fourth-quarter 2018 earnings are the first step in that direction." He pointed to positive news like the election of a pro-business president in Brazil and the passage of the trilateral trade agreement among Mexico, the U.S., and Canada as potential catalysts for more extensive business activity.

That said, risks remain for Bladex. Mexico and Argentina both continue to face economic headwinds, and slowing economies in Europe and China could have collateral damage on the industries in Latin America that support those nations.

Bladex has aimed for better balance in its portfolio, with the expectation that the bank can better weather changing business conditions by being diversified. The bank made progress on that front during the quarter, finding a better mix of medium-term loans to counterbalance its existing short-term loan portfolio and offer greater stability and higher origination margin levels. Bladex expects those moves to improve profits throughout 2019, with cautious optimism that economic prospects for Latin America will improve.

For Bladex shareholders, it'll take more than a single quarter of stable performance to convince them that the bad times are over for the Panamanian bank. However, these results are a step in the right direction, and they could end up being the foundation for a stronger 2019 for Bladex if the bank can keep executing well.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Bladex. The Motley Fool has a disclosure policy.

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