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Bladex Earnings Take a Hit As Latin America Weakens

By Dan Caplinger - Jul 15, 2015 at 12:10PM

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The bank has profited in the past from its central location in Panama, but weakness in the Latin American economy is taking its toll.

The Panama Canal is a key element of global trade. Image: Bladex.

The global economy has evidenced pockets of strength and weakness recently, as the once-struggling U.S. economy has rebounded sharply while formerly hot emerging markets have largely cooled off. In the Americas, Panama's Bladex, short for Banco Latinoamericano de Comercio Exterior (BLX 0.48%), took full advantage of the boom in Central and South America during the region's expansion, but coming into Wednesday morning's second-quarter financial report, Bladex shareholders worried that poor prospects in many key countries in the region could hold back its results. As it turned out, those concerns were warranted, as the bank saw a slight earnings drop from last year's second quarter and failed to live up to its own hopes. Let's look more closely at how Bladex has performed as economic woes plague the region.

Bladex falls short
From a big-picture perspective, it's clear that Bladex failed to meet the expectations that investors had for the bank. Operating revenue fell more than 2% to $36.3 million, falling well short of the $40.3 million that most of those following the stock had wanted to see. Net income also fell year-over-year, with a 2% drop to $20.2 million working out to earnings of $0.52 per share, down from $0.54 last year and missing the consensus forecast by a whopping $0.15 per share.

Several key factors weighed on Bladex's results. Internal investment performance weakened from this time last year, with returns on average equity falling about three-quarters of a percentage point to 8.6% and return on average assets declining to 1.16%. The interest rate environment was also less favorable for Bladex, with net interest margins falling by five-hundredths of a percentage point to 1.79%. The bank's business efficiency ratio maintained its first-quarter level of 33%, but expenses during the quarter fell at a slower pace than revenue.

From a growth perspective, Bladex is still trying to build up its overall asset base, and most of the credit-quality concerns that arose during the first quarter remained relatively in check. Bladex's commercial loan portfolio grew more than 7% to $7.41 billion, and the company's Tier 1 capital ratio actually climbed slightly from year-ago levels to 15.4%. The bank's allowance for credit losses stayed stable sequentially at 1.23%, and although nonaccruing loans of 0.30% quintupled from last year's second quarter, they actually fell back slightly from the first quarter figure.

Bladex CEO Rubens Amaral reflected on the poor economic conditions but defended the bank's results over the first six months of 2015. "It is fair to say that market expectations regarding 2015 economic growth dynamics in Latin America have largely not been met so far," Amaral said. "Nevertheless, we see Bladex's performance remain quite robust, tracking ahead of prior-year cumulated results for the first half." Bladex also said that it has faced more competitive pressure as its rivals seek out the same assets that the bank has always focused on, and Amaral sees the bank aiming to keep margins stable rather than growing at any cost.

What the second half could bring for Bladex
Despite the dour tone of its results, Bladex still sees reason for optimism. The bank's pipeline of yet-to-be-closed transactions suggests a pick-up in activity levels for the remainder of 2015, and it has also seen some of its clients take steps to ensure future liquidity. In particular, Bladex is executing more letters of credit and seeing a similar boost to its contingencies business, and that could help it in the long run even if economic conditions remain under pressure.

Bladex also appears to be ahead of the curve in planning for future risk. Amaral has his eye on Europe and Asia, both of which have gone through troubles of their own and both of which have a big impact on the Latin American markets. Still, the bank appears ready to weather whatever future storms could come its way.

Bladex shareholders might not be happy about the bank's temporary setback, but in the long run, the Panamanian company has demonstrated its ability to adapt to changing economic conditions before and should be able to do so going forward as well. That should give long-term investors comfort even if the stock price ends up moving lower in response to tough times in Latin America.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Bladex. The Motley Fool owns shares of Bladex. Try any of our Foolish newsletter services free for 30 days. 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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