The Western Hemisphere has been a hotbed of growth during the past decade, as promising trends from Mexico south to Argentina and Chile have driven the economies of Central America, South America, and the Caribbean toward more promising futures. That has opened the door for financial institutions like Panama's Banco Latinoamericano de Comercio Exterior (NYSE:BLX), also known as Bladex, to offer financing for growth opportunities.
Coming into Thursday afternoon's first-quarter financial report, Bladex shareholders hoped that the bank would continue to grow at its past pace. Despite some problems stemming from the reliance of many Latin American economies on natural resources, Bladex's results remained solid. Let's take a closer look at Bladex, and how it fared to begin the 2015 year.
Bladex keeps growing
Overall, Bladex's results looked quite favorable. Operating revenue climbed more than 15%, to $42.2 million, roughly in line with what most investors were looking for the bank to post for the quarter. Net income of $28.8 million was up 22% from year-ago levels, equating to earnings of $0.74 per share.
Looking more closely at the numbers, Bladex improved in many key areas. Net interest income climbed by 11% as the bank was able to benefit both from higher average loan balances, and from higher net margins that stemmed from its ability to obtain funding more cheaply. Return on equity figures rose to 12.6%, and net interest spreads and net interest margins both expanded slightly.
Overall, Bladex's business efficiency ratio dropped to a very healthy 33%, with a slight drop in operating expenses combining with rising operating revenues to give the bank a profile that would be the envy of most banks around the world.
Some credit-quality concerns started to emerge for Bladex, although there doesn't seem to be major cause for concern at this point. Allowance for credit losses rose by 0.05 percentage points, to 1.23%, and nonperforming loans jumped more than sixfold from year-ago levels. Nevertheless, the ratio of nonperforming loans to total loans remains quite low, at just 0.32%, and Bladex still has more than four times the reserves necessary to cover its nonperforming loan balances.
Bladex CEO Rubens Amaral was cautiously optimistic about the future. "Seasonal effects [are] not uncommon in our business during the early part of the year," Amaral said, and "weakness in commodity prices, especially so in the case of oil products, has put a damper on origination volumes, even as demand continues to be strong." Amaral assured investors that the bank is looking at its credit decisions carefully to ensure it stays ahead of changing economic conditions in the region.
How Bladex is positioning itself for the future
In particular, Bladex is taking several steps to manage risk. Like many banks, Bladex extends letters of credit to many commercial customers; but the bank has diversified away from the higher-risk areas of the market in order to maintain high levels of confidence in its customer base. By going beyond energy to make a bigger impression in industries including finance, food and beverage, and retail, Bladex believes it can find new avenues for growth without making itself too reliant on a rebound in oil.
For now, though, Bladex is better positioned to handle any adverse consequences than many larger U.S. banks. The bank's Tier 1 capital ratio declined slightly, but at 16.2%, it still compares favorably with institutions worldwide.
Admittedly, conditions in many parts of Latin America are challenging, with Brazil's currency dropping dramatically compared to the U.S. dollar, and with several other economies facing structural challenges that could result in a loss of international confidence. Still, looking forward, Bladex believes that it can overcome any general economic headwinds, and the bank boasts a solid pipeline of coming transactions that should help it generate much-needed fee income to supplement its core banking income.
As long as economic conditions don't deteriorate further, Bladex appears well positioned to keep growing with its focus on the Americas.