Banks around the world have had to deal with the prospects of slowing economic growth, and European banks have been the latest to feel the pinch from concerns about potential systemic issues that could hurt the industry. But Banco Latinoamericano de Comercio Exterior (NYSE:BLX), better known as Bladex, has had to deal with sluggish conditions in Latin America for quite a while. Coming into its fourth-quarter financial report, Bladex shareholders had hoped the bank would be able to keep itself from contracting too much, but the poor economy in its key markets caused Bladex to fall short of investors' expectations.
Let's look more closely at how Bladex did to finish 2015, and whether it sees better times ahead for 2016 and beyond.
Bladex falls short
Bladex's fourth-quarter results were a big letdown after solid performance in the previous quarter. Operating revenue plunged almost 15% to $43.6 million, falling at roughly double the rate investors were expecting from the bank. Net income dropped an even more precipitous 35% to $23.2 million, and that resulted in earnings of just $0.60 per share. That was $0.16 short of the consensus earnings forecast among Bladex investors.
A closer look at Bladex's numbers shows mixed performance in the bank's internal metrics. Returns on equity dropped six percentage points to 9.5%, and returns on assets dropped by nearly a sixth to 1.27%. Net interest margins widened slightly from the third quarter, but they were still narrower than they were a year ago, and interest spreads showed the same general trend. Operating expenses fell, but not by enough to offset the revenue declines.
From a credit-health standpoint, Bladex also didn't present a clear picture. On one hand, Tier 1 capital ratios calculated under Basel III standards climbed by more than half a percentage point to 16.1%, indicating that Bladex has plenty of capital on hand by regulatory standards. Yet credit quality metrics worsened during the quarter. Nonperforming loans as a percentage of Bladex's gross loan portfolio jumped 13-fold to 0.78%, and Bladex's loan reserve now covers less than two times the credit losses the bank expects.
Bladex CEO Rubens Amaral acknowledged the difficulties but remained optimistic about the bank's performance. "Especially in the second half of the year, the economic environment took a turn for the worse," Amaral said, "with the confluence of several adverse macroeconomic trends impacting more forcefully Latin American countries." Factors like the recession in Brazil and commodity-related problems across the region held Bladex back, but the CEO pointed to "Bladex's resilient earnings generation capacity, which allowed the Bank to absorb an increase in expected credit losses for certain exposures in the process of restructuring."
Can Bladex bounce back in 2016?
Bladex believes its recent moves could help it weather any further difficulties this year. For instance, the company pointed to its reduction in exposure to Brazil as a potential driver in helping Bladex adapt to changing conditions quickly. Being able to move to wherever the best opportunities present themselves will be crucial for Bladex going forward.
However, many investors still have little confidence in the region's capacity to expand, and the moves of large banks over the years have largely confirmed the poor sentiment. For instance, HSBC (NYSE:HSBC) sold its once-dominant Panamanian banking unit to Bancolombia for $2.1 billion in 2013, as the Colombian buyer sought to expand its presence throughout the Central American region. The move was the latest in a string of divestitures London-based HSBC had made in withdrawing from Central America. Given HSBC's attitudes toward developing and maintaining a global presence, its willingness to make a major move out of Central America appeared prescient in hindsight.
Bladex shareholders didn't seem overly disappointed with the bank's results since the stock fell about 2% following the announcement. What Bladex really needs is a pick-up in economic activity throughout the region, and if it comes in 2016, then the bank's stock could recover from its poor performance in 2015.