BLX Banco Latinoamericano de Comercio Exterior SA

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE

SECURITIES EXCHANGE ACT OF 1934

 

For the month of May, 2020

 

Commission File Number 1-11414

 

BANCO LATINOAMERICANO DE COMERCIO EXTERIOR, S.A.

(Exact name of Registrant as specified in its Charter)

 

FOREIGN TRADE BANK OF LATIN AMERICA, INC.

(Translation of Registrant’s name into English)

 

Business Park Torre V, Ave. La Rotonda, Costa del Este

P.O. Box 0819-08730

Panama City, Republic of Panama

(Address of Registrant’s Principal Executive Offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-Fx Form 40-F ¨

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Yes ¨ Nox

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

Yes¨ Nox

 

 

 

Banco Latinoamericano de Comercio Exterior, S.A. and Subsidiaries

 

Unaudited condensed consolidated interim statement as of March 31, 2020

and for the three months ended March 31, 2020 and 2019.

 

 

Banco Latinoamericano de Comercio Exterior, S.A. and Subsidiaries

 

Contents
Unaudited condensed consolidated interim statement of financial position	3
Unaudited condensed consolidated interim statement of profit or loss	4
Unaudited condensed consolidated interim statement of other comprehensive income	5
Unaudited condensed consolidated interim statement of changes in equity	6
Unaudited condensed consolidated interim statement of cash flows	7
Notes to the unaudited condensed consolidated interim financial statements	8

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

 

Unaudited condensed consolidated interim statement of financial position

March 31, 2020 and December 31, 2019

(In thousands of US dollars)

 

		Notes		March 31, 2020 (Unaudited)				December 31, 2019 (Audited)
Assets
Cash and due from banks		6,7			1,353,018				1,178,170
Securities and other financial assets, net		5,6,8			86,326				88,794
Loans					5,337,487				5,892,997
Interest receivable					40,613				41,757
Allowance for loans losses					(99,941	)			(99,307	)
Unearned interest and deferred fees					(11,095	)			(12,114	)
Loans, net		5,6,9			5,267,064				5,823,333
Customers' liabilities under acceptances		5,6			66,657				115,682
Derivative financial instruments - assets		5,6,12			17,044				11,157
Equipment and leasehold improvements, net					18,110				18,752
Intangibles, net					1,236				1,427
Investment properties					3,494				3,494
Other assets		13			9,574				8,857
Total assets					6,822,523				7,249,666
Liabilities and Equity
Liabilities:
Demand deposits					302,442				85,786
Time deposits					2,165,154				2,802,550
		6,14			2,467,596				2,888,336
Interest payable					5,048				5,219
Total deposits					2,472,644				2,893,555
Securities sold under repurchase agreements		6,15			53,888				40,530
Borrowings and debt, net		6,16			3,137,018				3,138,310
Interest payable					10,045				10,554
Customers' liabilities under acceptances		5,6			66,657				115,682
Derivative financial instruments - liabilities		5,6,12			49,095				14,675
Allowance for  loan commitments and financial guarantees contracts losses		5			2,443				3,044
Other liabilities		17			12,245				17,149
Total liabilities					5,804,035				6,233,499
Equity:
Common stock					279,980				279,980
Treasury stock					(59,409	)			(59,669	)
Additional paid-in capital in excess of value assigned to common stock					120,586				120,362
Capital reserves					95,210				95,210
Regulatory reserves		23			136,019				136,019
Retained earnings					448,762				446,083
Other comprehensive income (loss)					(2,660	)			(1,818	)
Total equity					1,018,488				1,016,167
Total liabilities and equity					6,822,523				7,249,666

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

 

Unaudited condensed consolidated interim statements of profit or loss
For the three months ended March 31, 2020 and 2019
(In thousands of US dollars, except per share data and number of shares)

 

		Notes		2020				2019
Interest income:
Deposits					2,459				5,357
Securities					640				942
Loans					55,890				67,255
Total interest income		20			58,990				73,554
Interest expense:
Deposits					(11,462	)			(17,694	)
Borrowings and debt					(21,727	)			(27,841	)
Total interest expense		20			(33,189	)			(45,534	)
Net interest income					25,801				28,020
Other income (expense):
Fees and commissions, net		19,20			3,073				2,350
Loss on financial instruments, net		11,20			(358	)			756
Other income, net					240				945
Total other income, net		20			2,955				4,051
Total revenues					28,756				32,071
Impairment loss on financial instruments		5,20			89				(942	)
Operating expenses:
Salaries and other employee expenses					(7,007	)			(6,311	)
Depreciation of equipment and leasehold improvements					(735	)			(691	)
Amortization of intangible assets					(191	)			(164	)
Other expenses					(2,611	)			(2,718	)
Total operating expenses		20			(10,543	)			(9,884	)
Profit for the period					18,302				21,245
Per share data:
Basic earnings per share (in US dollars)		18			0.46				0.54
Diluted earnings per share (in US dollars)		18			0.46				0.54
Weighted average basic shares (in thousands of shares)		18			39,609				39,542
Weighted average diluted shares (in thousands of shares)		18			39,609				39,542

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

  

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

 

Unaudited condensed consolidated interim statements of profit or loss and other comprehensive income
For the three months ended March 31, 2020 and 2019
(In thousands of US dollars)

 

		2020				2019
Profit for the period			18,302				21,245
Other comprehensive income (loss):
Items that will not be reclassified subsequently to profit or loss:
Change in fair value on equity instrument at FVOCI, net of hedging			320				257
Items that are or may be reclassified subsequently to profit or loss:
Change in fair value on debt financial instruments at FVOCI, net of hedging			(1,230	)			(1,781	)
Reclassification of gains (losses) on financial instruments to the profit or loss			(117	)			470
Exchange difference in conversion of foreign currency operation			185				(76	)
Other comprehensive income (loss)			(842	)			(1,130	)
Total comprehensive income for the period			17,460				20,115

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

 

Unaudited condensed consolidated interim statements of changes in stockholders's equity

For the three months ended March 31, 2020 and 2019

(In thousands of US dollars)

 

		Common stock				Treasury stock				Additional paid- in capital in excess of value assigned to common stock				Capital reserves				Regulatory reserves				Retained earnings				Other comprehensive income				Total equity
Balances at January 1, 2019			279,980				(61,076	)			119,987				95,210				136,019				423,050				420				993,590
Effect for change in accounting policy			-				-				-				-				-				(2,006	)			-				(2,006	)
Profit for the period			-				-				-				-				-				21,245				-				21,245
Other comprehensive income (loss)			-				-				-				-				-				-				(1,130	)			(1,130	)
Compensation cost - stock options and stock units plans			-				-				460				-				-				-				-				460
Exercised options and stock units vested			-				129				(129	)			-				-				-				-				-
Dividends declared			-				-				-				-				-				(15,225	)			-				(15,225	)
Balances at March 31, 2019			279,980				(60,947	)			120,318				95,210				136,019				427,064				(710	)			996,934

 

Balances at January 1, 2020			279,980				(59,669	)			120,362				95,210				136,019				446,083				(1,818	)			1,016,167
Profit for the period			-				-				-				-				-				18,302				-				18,302
Other comprehensive income (loss)			-				-				-				-				-				-				(1,218	)			(1,218	)
Transfer of fair value on equity instrument at FVOCI			-				-				-				-				-				(376	)			376				-
Compensation cost - stock options and stock units plans			-				-				484				-				-				-				-				484
Exercised options and stock units vested			-				260				(260	)			-				-				-				-				-
Dividends declared			-				-				-				-				-				(15,247	)			-				(15,247	)
Balances at March 31, 2020			279,980				(59,409	)			120,586				95,210				136,019				448,762				(2,660	)			1,018,488

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

 

Unaudited condensed consolidated interim statements of cash flows
For the three months ended March 31, 2020 and 2019
(In thousands of US dollars)

 

		2020				2019
Cash flows from operating activities
Profit for the period			18,302				21,245
Adjustments to reconcile profit for the year to net cash provided by (used in) operating activities:
Depreciation of equipment and leasehold improvements			735				691
Amortization of intangible assets			191				164
Impairment (gain) loss on financial instruments			(89	)			942
Gain, net on sale of financial assets at fair value through OCI			-				(109	)
Amortization of premium and discount related to securities at amortized cost			100				92
Compensation cost - share-based payment			484				460
Net changes in hedging position			(2,527	)			394
Interest income			(58,990	)			(73,554	)
Interest expense			33,189				45,534
Net decrease (increase) in operating assets:
Pledged deposits			(37,149	)			6,551
Loans			511,523				297,671
Other assets			(723	)			10,737
Net increase (decrease) in operating liabilities:
Due to depositors			(420,740	)			(223,247	)
Other liabilities			(4,986	)			76
Cash flows provided by operating activities			39,320				87,647
Interest received			60,350				67,663
Interest paid			(33,869	)			(48,756	)
Net cash provided by operating activities			65,801				106,554
Cash flows from investing activities:
Acquisition of equipment and leasehold improvements			(9	)			(25	)
Proceeds from the sale of securities at fair value through OCI			1,882				4,200
Proceeds from redemption of securities at amortized cost			14,825				12,700
Purchases of securities at amortized cost			(14,549	)			(200	)
Net cash provided by investing activities			2,149				16,675
Cash flows from financing activities:
Increase (decrease) in securities sold under repurchase agreements			13,357				(11,535	)
Net increase (decrease) in short-term borrowings and debt			103,460				(868,016	)
Proceeds from long-term borrowings and debt			50,000				470,159
Repayments of long-term borrowings and debt			(81,631	)			(633,752	)
Payments of leases liabilities			(273	)			(254	)
Dividends paid			(15,165	)			(15,383	)
Net cash provided by (used in) financing activities			69,749				(1,058,781	)
Increase (decrease) net in cash and cash equivalents			137,699				(935,552	)
Cash and cash equivalents at beginning of the period			1,159,718				1,706,192
Cash and cash equivalents at end of the period			1,297,417				770,640

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.  

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

1.

Corporate information

 

Banco Latinoamericano de Comercio Exterior, S. A. (“Bladex Head Office” and together with its subsidiaries “Bladex” or the “Bank”), headquartered in Panama City, Republic of Panama, is a specialized multinational bank established to support the financing of foreign trade and economic integration in Latin America and the Caribbean (the “Region”). The Bank was established pursuant to a May 1975 proposal presented to the Assembly of Governors of Central Banks in the Region, which recommended the creation of a multinational organization to increase the foreign trade financing capacity of the Region. The Bank was organized in 1977, incorporated in 1978 as a corporation pursuant isto the laws of the Republic of Panama, and initiated operations on January 2, 1979. Under a contract law signed in 1978 between the Republic of Panama and Bladex, the Bank was granted certain privileges by the Republic of Panama, including an exemption from payment of income taxes in Panama.

 

The Bank operates under a general banking license issued by the National Banking Commission of Panama, predecessor of the Superintendence of Banks of Panama (the “SBP”).

 

In the Republic of Panama, banks are regulated by the SBP through Executive Decree No. 52 of April 30, 2008, which adopts the unique text of Law Decree No. 9 of February 26, 1998, modified by Law Decree No. 2 of February 22, 2008. Banks are also regulated by resolutions and agreements issued by this entity. The main aspects of this law and its regulations include: the authorization of banking licenses, minimum capital and liquidity requirements, consolidated supervision, procedures for management of credit, liquidity and market risks, measures to prevent money laundering, the financing of terrorism and related illicit activities, and procedures for banking intervention and liquidation, among others.

 

Bladex Head Office’s subsidiaries are the following:

 

Bladex Holdings Inc. is a wholly owned subsidiary, incorporated under the laws of the State of Delaware, United States of America (USA), on May 30, 2000. Bladex Holdings Inc. has ownership in Bladex Representaçao Ltda.

 

Bladex Representaçao Ltda. incorporated under the laws of Brazil on January 7, 2000, acts as the Bank’s representative office in Brazil. Bladex Representaçao Ltda. is 99.999% owned by Bladex Head Office and the remaining 0.001% is owned by Bladex Holdings Inc.

 

Bladex Development Corp. was incorporated under the laws of the Republic of Panama on June 5, 2014. Bladex Development Corp. is 100% owned by Bladex Head Office.

 

BLX Soluciones, S.A. de C.V., SOFOM, E.N.R. (“BLX Soluciones”) was incorporated under the laws of Mexico on June 13, 2014. BLX Soluciones is 99.9% owned by Bladex Head Office, and Bladex Development Corp. owns the remaining 0.1%. The company specializes in offering financial leasing and other financial products such as loans and factoring.

 

Bladex Head Office has an agency in New York City, USA (the “New York Agency”), which began operations on March 27, 1989. The New York Agency is principally engaged in financing transactions related to international trade, mostly the confirmation and financing of letters of credit for customers in the Region. The New York Agency also has authorization to book transactions through an International Banking Facility (“IBF”).

 

The Bank has representative offices in Buenos Aires, Argentina; in Mexico City, Mexico; and in Bogota, Colombia, and has a representative license in Lima, Peru.

 

These unaudited condensed consolidated interim financial statements were authorized for issue by the Board of Directors on April 8, 2020.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

2.

Basis of preparation of the condensed consolidated interim financial statements

 

2.1          Statement of compliance

 

These unaudited condensed consolidated interim financial statements of Banco Latinoamericano de Comercio Exterior, S. A. and its subsidiaries have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting (IAS 34) issued by the International Accounting Standards Board ("IASB"). As all the disclosures required by IFRS for annual period consolidated financial statements are not included herein, these unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto as of and for the year ended December 31, 2019, contained in the Bank’s annual audited consolidated financial statements. The unaudited condensed consolidated interim statements of profit or loss, other comprehensive income, changes in equity and cash flows for the periods presented are not necessarily indicative of results expected for any future period.

 

3.

Changes in significant accounting policies

 

3.1

New accounting policies and amendments not yet adopted

 

As of January 1, 2020, the Bank applied the Interest Rate Benchmark Reform (“the Reform”), which contains amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures Information, issued by the International Accounting Standards Board (IASB) as the Phase 1 of the Project of IBOR Reform to address the increase in the level of uncertainty of the long-term feasibility of some benchmark interest rates and the first reforms applied to such rates. Phase 1 of the amendments addresses the effects on financial information due to such uncertainties.

 

On initial designation of the hedging relationship, the Bank formally documents the relationship between the hedging instrument and hedged item, including the risk management objective and strategy in undertaking the hedge, together with the method that will be used to assess the effectiveness of the hedging relationship. The Bank makes an assessment, both on inception of the hedging relationship and on an ongoing basis, of whether the hedging instrument is expected to be highly effective in offsetting the changes in the fair value or cash flows of the respective hedged item during the period for which the hedge is designated. For the purpose of evaluating whether the hedging relationship is expected to be highly effective, the Bank assumes that the benchmark interest rate is not altered as a result of IBOR reform.

 

If the Bank concludes that the actual result of a hedging relationship is not effective or is outside the minimum levels determined by Risk Management as highly effective, then the Bank determines if the hedging relationship continues to qualify for hedge accounting or whether it must be discontinued. This includes, for example, determining that the hedge is expected to be highly effective prospectively and that effectiveness of the hedging relationship can be reliably measured.

 

The Bank will cease to apply the amendments to its retrospective and prospective effectiveness assessment of the hedging relationship when the uncertainty arising from interest rate benchmark reform is no longer present with respect to the timing and the amount of the interest rate benchmark-based cash flows of the hedged item or hedging instrument, or when the hedging relationship is discontinued.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

4.

Significant accounting policies

 

4.1.

Judgments, estimates and significant accounting assumptions

 

A.

Estimates and assumptions

 

The key assumptions concerning the future and other key sources of estimating uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Bank based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances beyond the control of the Bank. Such changes are reflected in the assumptions when they occur.

 

B.

Going concern

 

The Bank’s management has made an assessment of its ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. Therefore, the condensed consolidated financial statements continue to be prepared on a going concern basis.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

5.

Financial risk

 

This note presents information about the Bank’s exposure to financial risks and the Bank’s management of capital.

 

A.

Credit risk

 

i.

Credit quality analysis

 

The following tables set out information about the credit quality of financial assets measured at amortized cost, and securities at FVOCI. Unless specifically indicated, for financial assets the amounts in the table represent gross carrying amounts. For loan commitments and financial guarantee contracts, the amounts in the table represent the amounts committed or guaranteed, respectively.

 

Loans

 

		March 31, 2020												`
		PD Ranges				Stage 1			Stage 2			Stage 3			Total
Grades 1 - 4			0.03 - 0.74			2,543,852			-			-			2,543,852
Grades 5 - 6			0.75 - 3.95			2,044,471			228,209			-			2,272,680
Grades 7 - 8			3.96 - 30.67			340,782			118,328			-			459,110
Grades 9 - 10			30.68 - 100			-			-			61,845			61,845
						4,929,105			346,537			61,845			5,337,487
Loss allowance						(27,326	)		(17,871	)		(54,744	)		(99,941	)
Total						4,901,779			328,666			7,101			5,237,546

 

		December 31, 2019
		PD Ranges				Stage 1			Stage 2			Stage 3			Total
Grades 1 - 4			0.03 - 0.74			2,928,401			-			-			2,928,401
Grades 5 - 6			0.75 - 3.95			2,330,150			85,173			-			2,415,323
Grades 7 - 8			3.96 - 30.67			343,606			143,822			-			487,428
Grades 9 - 10			30.68 - 100			-			-			61,845			61,845
						5,602,157			228,995			61,845			5,892,997
Loss allowance						(28,892	)		(15,842	)		(54,573	)		(99,307	)
Total						5,573,265			213,153			7,272			5,793,690

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

5.

Financial risk (continued)

 

A.

Credit risk (continued)

 

Loan commitments, financial guarantees issued and customers’ liabilities under acceptances

 

		March 31, 2020
		12-month PD Ranges				Stage 1			Stage 2			Stage 3			Total
Commitments and contingencies
Grades 1 - 4			0.03 - 0.74			157,231			-			-			157,231
Grades 5 - 6			0.75 - 3.95			104,085			35,843			-			139,928
Grades 7 - 8			3.96 - 30.67			130,441			-			-			130,441
						391,757			35,843			-			427,600
Customers' liabilities under acceptances
Grades 1 - 4			0.03 - 0.74			4,983			-			-			4,983
Grades 5 - 6			0.75 - 3.95			-			-			-			-
Grades 7 - 8			3.96 - 30.67			61,674			-			-			61,674
						66,657			-			-			66,657
						458,414			35,843			-			494,257
Loss allowance						(2,052	)		(391	)		-			(2,443	)
Total						456,362			35,452			-			491,814

 

		December 31, 2019
		12-month PD Ranges				Stage 1			Stage 2			Stage 3			Total
Commitments and contingencies
Grades 1 - 4			0.03 - 0.74			153,874			-			-			153,874
Grades 5 - 6			0.75 - 3.95			150,631			27,446			-			178,077
Grades 7 - 8			4.13 - 30.43			161,421			-			-			161,421
						465,926			27,446			-			493,372
Customers' liabilities under acceptances
Grades 1 - 4			0.03 - 0.74			13,367			-			-			13,367
Grades 5 - 6			0.75 - 3.95			5,491			-			-			5,491
Grades 7 - 8			4.13 - 30.43			96,824			-			-			96,824
						115,682			-			-			115,682
						581,608			27,446			-			609,054
Loss allowance						(2,683	)		(361	)		-			(3,044	)
Total						578,925			27,085			-			606,010

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

5.

Financial risk (continued)

 

A.

Credit risk (continued)

 

Securities at amortized cost

 

		March 31, 2020
		12-month PD Ranges				Stage 1			Stage 2			Stage 3			Total
Grades 1 - 4			0.03 - 0.74			74,200			-			-			74,200
						74,200			-			-			74,200
Loss allowance						(106	)		-			-			(106	)
Total						74,094			-			-			74,094

 

		December 31, 2019
		12-month PD Ranges				Stage 1			Stage 2			Stage 3			Total
Grades 1 - 4			0.03 - 0.74			73,047			-			-			73,047
Grades 5 - 6			0.75 - 3.95			-			1,500			-			1,500
						73,047			1,500			-			74,547
Loss allowance						(103	)		(10	)		-			(113	)
Total						72,944			1,490			-			74,434

 

Securities at fair value through other comprehensive income (FVOCI)

 

		March 31, 2020
		12-month PD Ranges				Stage 1			Stage 2			Stage 3			Total
Grades 1 - 4			0.03 - 0.74			5,065			-			-			5,065
						5,065			-			-			5,065
Loss allowance						-			-			-			-
Total						5,065			-			-			5,065

 

		December 31, 2019
		12-month PD Ranges				Stage 1			Stage 2			Stage 3			Total
Grades 1 - 4			0.03 - 0.74			5,094			-			-			5,094
						5,094			-			-			5,094
Loss allowance						-			-			-			-
Total						5,094			-			-			5,094

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

5.	Financial risk (continued)

 

A.

Credit risk (continued)

 

The following table presents information of the current and past due balances of loans in stages 1, 2 and 3:

 

 

		March 31, 2020
		Stage 1				Stage 2				Stage 3				Total
Gross carrying amount
Current			4,929,105				346,537				43,445				5,319,087
Past due
90-120 days			-				-				3,724				3,724
151-180 days			-				-				-				-
More than 180 days			-				-				14,676				14,676
Total past due			-				-				18,400				18,400
Total			4,929,105				346,537				61,845				5,337,487

 

		December 31, 2019
		Stage 1				Stage 2				Stage 3				Total
Gross carrying amount
Current			5,602,157				228,995				47,169				5,878,321
Past due
90-120 days			-				-				3,724				3,724
151-180 days			-				-				-				-
More than 180 days			-				-				10,952				10,952
Total past due			-				-				14,676				14,676
Total			5,602,157				228,995				61,845				5,892,997

 

As of March 31, 2020 and December 31, 2019, other financial assets were no past due or impaired balances.

 

The following table presents an analysis of counterparty credit exposures arising from derivative transactions. The Bank's derivative transactions are generally fully secured by cash.

 

 

		March 31,
		Notional value USD				Derivative financial instrument -fair value asset				Derivative financial instrument -fair value liabilities
Interest rate swaps			470,667				3,675				(2,696	)
Cross-currency swaps			401,721				2,346				(46,399	)
Foreign exchange forwards			57,194				11,023				-
Total			929,582				17,044				(49,095	)

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

5.	Financial risk (continued)

 

A.

Credit risk (continued)

 

		December 31, 2019
		Notional value USD				Derivative financial instrument - fair value asset				Derivative financial instrument - fair value liabilities
Interest rate swaps			521,333				407				(1,903	)
Cross-currency swaps			369,869				10,125				(10,197	)
Foreign exchange forwards			74,471				625				(2,575	)
Total			965,673				11,157				(14,675	)

 

ii.

Collateral and other credit enhancements

 

The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are in place covering the acceptability and valuation of each type of collateral.

 

Derivatives and repurchase agreements

 

In the ordinary course of business, the Bank enters into derivative financial instrument transactions and securities sold under repurchase agreements under industry standards agreements. Depending on the collateral requirements stated in the contracts, the Bank and counterparties can receive or deliver collateral based on the fair value of the financial instruments transacted between parties. Collateral typically consists of pledged cash deposits and securities. The master netting agreements include clauses that, in the event of default, provide for close-out netting, which allows all positions with the defaulting counterparty to be terminated and net settled with a single payment amount.

 

The International Swaps and Derivatives Association master agreement (“ISDA”) and similar master netting arrangements do not meet the criteria for offsetting in the consolidated statement of financial position. This is because they create for the parties to the agreement a right of set-off of recognized amounts that is enforceable only following an event of default, insolvency or bankruptcy of the Bank or the counterparties or following other predetermined events.

 

Such arrangements provide for single net settlement of all financial instruments covered by the agreements in the event of default on any one contract. Master netting arrangements do not normally result in an offset of balance–sheet assets and liabilities unless certain conditions for offsetting are met.

 

Although master netting arrangements may significantly reduce credit risk, it should be noted that:

 

-

Credit risk is eliminated only to the extent that amounts due to the same counterparty will be settled after the assets are realized.

-

The extent to which overall credit risk is reduced may change substantially within a short period because the exposure is affected by each transaction subject to the arrangement.

 

Loans

 

The main types of collateral obtained are, as follows:

 

-

For commercial lending, liens on real estate property, inventory and trade receivables.

 

The Bank also obtains guarantees from parent companies for loans to their subsidiaries. Management monitors the market value of collateral and will request additional collateral in accordance with the underlying agreement. It is the Bank’s policy to dispose of repossessed property in an orderly fashion. The proceeds are used to reduce or repay the outstanding claim. In general, the Bank does not occupy repossessed property for business use.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

5.	Financial risk (continued)

 

A.

Credit risk (continued)

 

The Bank holds guarantees and other financial credit enhancements against certain exposures in the loan portfolio. As of March 31, 2020, and December 31, 2019, the coverage ratio to the carrying amount of the loan portfolio was 13% and 12% respectively.

 

iii.

Implementation of forward-looking information

 

The Bank incorporates information of the economic environments on a forward-looking view, when assessing whether the credit risk of a financial instrument has significantly increased since initial recognition through customer and country rating models which include projections of the inputs under analysis.

 

Supplementary, for the expected credit loss measurement the results of the alert model can be considered, which are analyzed through a severity indicator to total risk resulting from the estimates and assumptions of several macroeconomics factors. These estimates and assumptions are supported by a base scenario associated to a probability of occurrence of 95%. Other scenarios represent optimistic and pessimistic results. The implementation and interpretation of the outcomes of the alert are based on the expert judgement of management, based on suggestions of areas such as Credit Risk, Economic Studies and Loan Recovery of the Bank.

 

The external information could include economic data and projections published by governmental committees, monetary agencies (e.g., Federal Reserve Bank and from countries where the Bank operates), supranational organizations (International Monetary Fund, The World Bank, World Trade Organization), private sector, academic projections, credit rating agencies, among other.

 

Principal macroeconomies variables of the country rating model with forward-looking scenarios are:

 

Variables	Description
GDP Growth (Var. %)	% Variation in the growth of the Gross Domestic Product (GDP)
ComEx Growth (Var. %)	% Variation in foreign trade growth (Exp. + Imp.)

 

The model uses, as main inputs, the following macroeconomic variables: the percentage variation of the gross domestic product of Latin America and the percentage of the foreign trade index growth. The main movements and changes in the variables are analyzed, in general and in particular for each country in the region. This historical and projected information over a period of five years allows Management a complementary means to estimate the macroeconomic effects in the Bank's portfolio.

 

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

5.

Financial risk (continued)

 

A.

Credit risk (continued)

 

The table below lists the macroeconomic assumptions by country used in the base, optimistic and pessimistic scenarios over the five-year average forecast period.

 

				Variable
				GDP Growth (Var.%)								ComEx Growth Index (Var.%)
				March 31,				December 31,				March 31,				December 31,
Country		Scenario		2020				20219				2020				2019
		Central			2.3	%			2.1	%			6.2	%			4.0	%
Brazil		Upside			3.3	%			3.1	%			9.7	%			7.5	%
		Downside			0.9	%			0.7	%			2.2	%			0.0	%
		Central			3.5	%			3.4	%			7.3	%			5.5	%
Colombia		Upside			4.6	%			4.5	%			10.3	%			8.5	%
		Downside			2.2	%			2.1	%			3.8	%			2.0	%
		Central			1.8	%			1.3	%			3.8	%			2.5	%
Mexico		Upside			2.8	%			2.3	%			7.8	%			6.5	%
		Downside			0.6	%			0.1	%			-0.7	%			-2.0	%
		Central			2.6	%			2.2	%			5.6	%			2.7	%
Chile		Upside			3.7	%			3.3	%			9.1	%			6.2	%
		Downside			1.4	%			1.0	%			1.6	%			-1.3	%
		Central			1.8	%			1.2	%			4.7	%			3.9	%
Ecuador		Upside			2.8	%			2.2	%			7.7	%			6.9	%
		Downside			0.3	%			-0.3	%			1.2	%			0.4	%
		Central			3.4	%			3.4	%			5.4	%			5.4	%
Guatemala		Upside			4.4	%			4.4	%			8.4	%			8.4	%
		Downside			2.2	%			2.2	%			1.9	%			1.9	%
		Central			3.1	%			2.8	%			7.4	%			5.7	%
Dominican Republic		Upside			4.1	%			3.8	%			10.9	%			9.2	%
		Downside			1.8	%			1.5	%			3.4	%			1.7	%
		Central			4.8	%			4.3	%			5.3	%			3.8	%
Panama		Upside			6.3	%			5.8	%			8.3	%			6.8	%
		Downside			1.8	%			0.3	%			1.8	%			0.3	%

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

5.

Financial risk (continued)

 

	A.	Credit risk (continued)
		iv.	Loss allowances

 

The following tables show reconciliations from the opening to the closing balance of the loss allowance by class of financial instrument.

 

Loans

 

		Stage 1				Stage 2				Stage 3				Total
Allowance for expected credit losses as of December 31, 2019			28,892				15,842				54,573				99,307
Transfer to lifetime expected credit losses			(183	)			183				-				-
Net effect of changes in allowance for expected credit losses			(383	)			2,748				56				2,421
Financial instruments that have been derecognized during the period			(8,296	)			(902	)			-				(9,198	)
New financial assets originated or purchased			7,296				-				-				7,296
Write-offs			-				-				-				-
Recoveries			-				-				115				115
Allowance for expected credit losses as of March 31, 2020			27,326				17,871				54,744				99,941

 

			Stage 1				Stage 2				Stage 3				Total
Allowance for expected credit losses as of December 31, 2018			34,957				16,389				49,439				100,785
Transfer to lifetime expected credit losses			(2,488	)			2,488				-				-
Net effect of changes in allowance for expected credit losses			(2,154	)			5,881				7,987				11,714
Financial instruments that have been derecognized during the period			(27,118	)			(8,916	)			(500	)			(36,534	)
New financial assets originated or purchased			25,695				-				-				25,695
Write-offs			-				-				(2,405	)			(2,405	)
Recoveries			-				-				52				52
Allowance for expected credit losses as of December 31, 2019			28,892				15,842				54,573				99,307

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

  

5.

Financial risk (continued)

 

A.

Credit risk (continued)

 

Loan commitments, financial guarantee contracts and customers’ liabilities under acceptances 

 

The allowance for expected credit losses on loan commitments and financial guarantee contracts reflects the Bank’s management estimate expected credit losses of customers’ liabilities under acceptances and items such as: confirmed letters of credit, stand-by letters of credit, guarantees, and credit commitments.

 

		Stage 1				Stage 2				Stage 3				Total
Allowance for expected credit losses as of December 31, 2019			2,683				361				-				3,044
Net effect of changes in reserve for expected credit loss			(238	)			30				-				(208	)
Financial instruments that have been derecognized during the period			(1,580	)			-				-				(1,580	)
New instruments originated or purchased			1,187				-				-				1,187
Allowance for expected credit losses as of March 31, 2020			2,052				391				-				2,443

 

		Stage 1				Stage 2				Stage 3				Total
Allowance for expected credit losses as of December 31, 2018			3,089				200				-				3,289
Net effect of changes in reserve for expected credit loss			(17	)			170				-				153
Financial instruments that have been derecognized during the year			(2,497	)			(9	)			-				(2,506	)
New instruments originated or purchased			2,108				-				-				2,108
Allowance for expected credit losses as of December 31, 2019			2,683				361				-				3,044

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

5.

Financial risk (continued)

 

A.

Credit risk (continued)

 

Securities at amortized cost

 

		Stage 1				Stage 2				Stage 3				Total
Allowance for expected credit losses as of December 31, 2019			103				10				-				113
Net effect of changes in allowance for expected credit losses			-				-				-				-
Financial instruments that have been derecognized during the period			(27	)			(10	)			-				(37	)
New financial assets originated or purchased			30				-				-				30
Allowance for expected credit losses as of March 31, 2020			106				-				-				106

  

		Stage 1				Stage 2				Stage 3				Total
Allowance for expected credit losses as of December 31, 2018			113				27				-				140
Net effect of changes in allowance for expected credit losses			(1	)			(17	)			-				(18	)
Financial instruments that have been derecognized during the year			(46	)			-				-				(46	)
New financial assets originated or purchased			37				-				-				37
Allowance for expected credit losses as of December 31, 2019			103				10				-				113

 

Securities at fair value through other comprehensive income (FVOCI)

 

Stage 1

Stage 2

Stage 3

Total

Allowance for expected credit losses as of December 31, 2019

-

-

-

-

Financial instruments that have been derecognized during the period

-

-

-

-

Allowance for expected credit losses as of March 31, 2020

-

-

-

-

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

5.

Financial risk (continued)

 

A.

Credit risk (continued)

 

		Stage 1				Stage 2				Stage 3				Total
Allowance for expected credit losses as of December 31, 2018			33				140				-				173
Financial instruments that have been derecognized during the year			(33	)			(140	)			-				(173	)
Allowance for expected credit losses as of December 31, 2019			-				-				-				-

 

The following table provides a reconciliation between:

 

-

Amounts shown in the previous tables reconciling opening and closing balances of loss allowance per class of financial instrument; and

 

-

The ‘impairment losses on financial instruments’ line item in the condensed consolidated interim statement of profit or loss and other comprehensive income.

 

										Securities
March 31, 2020		Loans				Loan commitments and financial guarantee contracts				At amortized cost				FVOCI				Total
Net effect of changes in allowance for expected credit losses			2,421				(208	)			-				-				2,213
Financial instruments that have been derecognized during the year			(9,198	)			(1,580	)			-				(37	)			(10,815	)
New financial assets originated or purchased			7,296				1,187				-				30				8,513
Total			519				(601	)			-				(7	)			(89	)

 

										Securities
March 31, 2019		Loans				Loan commitments and financial guarantee contracts				At amortized cost				FVOCI				Total
Net effect of changes in allowance for expected credit losses			9,360				(266	)			(8	)			(7	)			9,079
Financial instruments that have been derecognized during the year			(15,569	)			(1,802	)			-				(10	)			(17,381	)
New financial assets originated or purchased			7,763				1,481				-				-				9,244
Total			1,554				(587	)			(8	)			(17	)			942

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

5.

Financial risk (continued)

 

	A.	Credit risk (continued)
		v.	Credit-impaired financial assets

 

Credit-impaired loans and advances are graded 8 to 10 in the Bank’s internal credit risk grading system.

 

The following table sets out a reconciliation of changes in the net carrying amount of credit-impaired loans .

 

		March 31, 2020				December 31, 2019
Credit-impaired loans and advances at beginning of period			54,573				49,439
Classified as credit-impaired during the period			-				-
Change in expected credit losses allowance			(115	)			7,664
Release for asset sale			-				(500	)
Recoveries of amounts previously written off			115				52
Interest income			171				323
Write-offs			-				(2,405	)
Credit-impaired loans and advances at end of period			54,744				54,573

 

vi.

Concentrations of credit risk

 

The Bank monitors concentrations of credit risk by sector, industry and by country. An analysis of concentrations of credit risk from loans, loan commitments, financial guarantees and investment securities is as follows.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

5.

Financial risk (continued)

 

A.

Credit risk (continued)

 

Concentration by sector and industry

  

										Securities
		Loans								At amortized cost								FVOCI								Loan commitments and financial guarantee contracts
		March 31,				December 31,				March 31,				December 31,				March 31,				December 31,				March 31,				December 31,
		2020				2019				2020				2019				2020				2019				2020				2019
Carrying amount - principal			5,337,487				5,892,997				74,200				74,547				5,065				5,094				66,657				115,682
Amount committed/guaranteed			-				-				-				-				-				-				427,600				493,372
Concentration by sector
Corporations:
Private			1,611,790				1,782,808				6,998				2,998				-				-				160,810				213,161
State-owned			757,042				780,491				28,809				23,792				-				-				69,718				69,822
Financial institutions:
Private			2,522,994				2,692,787				18,000				19,276				-				-				77,521				75,130
State-owned			398,440				589,690				-				-				-				-				186,208				250,941
Sovereign			47,221				47,221				20,393				28,481				5,065				5,094				-				-
Total			5,337,486				5,892,997				74,200				74,547				5,065				5,094				494,257				609,054
Concentration by industry
Financial institutions			2,921,434				3,282,477				18,000				19,276				-				-				263,729				326,071
Industrial			875,826				925,375				30,706				21,658				-				-				127,381				143,560
Oil and petroleum derived products			530,687				561,068				5,101				5,132				-				-				46,492				71,571
Agricultural			265,337				327,288				-				-				-				-				-				-
Services			431,478				370,753				-				-				-				-				5,224				20,497
Mining			102,366				162,364				-				-				-				-				-				-
Sovereign			47,221				47,221				20,393				28,481				5,065				5,094				-				-
Other			163,138				216,451				-				-				-				-				51,431				47,355
Total			5,337,486				5,892,997				74,200				74,547				5,065				5,094				494,257				609,054

  

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

5.

Financial risk (continued)

 

A.

Credit risk (continued)

 

Risk rating and concentration by country

 

										Securities
		Loans								At amortized cost							FVOCI						Loan commitments and financial guarantee contracts
		March 31, 2020				December 31, 2019				March 31, 2020			December 31, 2019				March 31, 2020			December 31, 2019			March 31, 2020			December 31, 2019
Carrying amount - principal		5,337,487				5,892,997				74,200			74,547				5,065			5,094			66,657			115,682
Amount committed/guaranteed		-				-				-			-				-			-			427,600			493,372
Rating
1-4		2,543,852				2,928,401				74,200			73,047				5,065			5,094			162,214			167,241
5-6		2,272,680				2,415,323				-			1,500				-			-			139,928			183,568
7-8		459,110				487,428				-			-				-			-			192,115			258,245
10		61,845				61,845				-			-				-			-			-			-
Total	5,337,487				5,892,997				74,200			74,547				5,065			5,094			494,257			609,053
Concentration by country
Argentina		194,526				226,481				-			-				-			-			-			-
Belgium		14,105				13,742				-			-				-			-			-			-
Bolivia		5,000				7,000				-			-				-			-			3,079			400
Brazil		959,464				1,015,316				-			1,500				-			-			-			50,000
Canada		-				-				-			-				-			-			657			657
Chile		578,710				683,132				-			-				5,065			5,094			8,388			8
Colombia		834,401				906,091				15,282			15,338				-			-			37,000			50,610
Costa Rica		221,288				220,380				-			-				-			-			59,752			59,161
Dominican Republic		104,139				289,853				-			-				-			-			16,500			16,500
Ecuador		169,761				174,267				-			-				-			-			185,253			252,391
El Salvador		64,900				54,232				-			-				-			-			5,596			5,555
France		149,144				152,530				-			-				-			-			47,906			47,906
Germany		33,725				34,613				-			-				-			-			-			-
Guatemala		295,270				278,557				-			-				-			-			44,808			44,200
Honduras		126,441				128,937				-			-				-			-			1,265			300
Hong Kong		-				10,400				-			-				-			-			-			-
Jamaica		31,603				38,312				-			-				-			-			-			-
Luxembourg		58,225				59,813				-			-				-			-			-			-
Mexico		485,150				754,465				21,416			21,505				-			-			30,000			27,377
Panama		379,455				268,355				37,502			36,204				-			-			26,659			25,304
Paraguay		120,348				127,970				-			-				-			-			10,652			10,652
Peru		196,976				150,301				-			-				-			-			6,742			8,033
Singapore		50,259				90,955				-			-				-			-			-			-
Switzerland		-				-				-			-				-			-			10,000			10,000
Trinidad and Tobago		181,676				181,676				-			-				-			-			-			-
United States of America		25,000				25,000				-			-				-			-			-			-
Uruguay		57,921				619				-			-				-			-			-			-
Total	5,337,487				5,892,997				74,200			74,547				5,065			5,094			494,257			609,054

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

5.

Financial risk (continued)

 

A.

Credit risk (continued)

 

vii.

Offsetting financial assets and liabilities

 

The following tables include financial assets and liabilities that are offset in the condensed consolidated interim financial statement or subject to an enforceable master netting arrangement:

 

a)

Derivative financial instruments – assets

 

March 31, 2020
							Gross amounts offset in the consolidated				Net amount of assets presented in the consolidated				Gross amounts not offset in the consolidated statement of financial position
Description			Gross amounts of assets				statement of financial position				statement of financial position				Financial instruments				Cash collateral received				Net Amount
Derivative financial instruments used for hedging			17,044				-				17,044				-				(12,006	)			5,038
Total			17,044				-				17,044				-				(12,006	)			5,038

 

December 31, 2019
							Gross amounts offset in the consolidated				Net amount of assets presented in the consolidated				Gross amounts not offset in the consolidated statement of financial position
Description			Gross amounts of assets				statement of financial position				statement of financial position				Financial instruments				Cash collateral received				Net Amount
Derivative financial instruments used for hedging			11,157				-				11,157				-				(9,350	)			1,807
Total			11,157				-				11,157				-				(9,350	)			1,807

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

5.	Financial risk (continued)

 

A.

Credit risk (continued)

 

b)

Securities sold under repurchase and derivative financial instruments – liabilities

 

March 31, 2020
		Gross				Gross amounts offset in the consolidated				Net amount of liabilities presented in the consolidated				Gross amounts not offset in the consolidated statement of financial position
Description		amounts of liabilities				statement of financial position				statement of financial position				Financial instruments				Cash collateral pledged				Net Amount
Securities sold under repurchase agreements			(53,888	)			-				(53,888	)			56,265				2,685				5,062
Derivative financial instruments used for hedging			(49,095	)			-				(49,095	)			-				47,916				(1,179	)
Total			(102,983	)			-				(102,983	)			56,265				50,601				3,883

 

December 31, 2019
		Gross				Gross amounts offset in the consolidated				Net amount of liabilities presented in the consolidated				Gross amounts not offset in the consolidated statement of financial position
Description		amounts of liabilities				statement of financial position				statement of financial position				Financial instruments				Cash collateral pledged				Net Amount
Securities sold under repurchase agreements			(40,530	)			-				(40,530	)			41,937				320				1,727
Derivative financial instruments used for hedging			(14,675	)			-				(14,675	)			-				14,632				(43	)
Total			(55,205	)			-				(55,205	)			41,937				14,952				1,684

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

5.

Financial risk (continued)

 

B.

Liquidity risk

 

i.

Exposure to liquidity risk

 

The key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to deposits from customers and short-term funding. For this purpose, ‘net liquid assets’ includes cash and cash equivalents which consist of deposits from banks, customers, debt securities issued, other borrowings and commitments maturing within the next month.

 

The following table details the Bank's liquidity ratios, described in the previous paragraph, as of March 31, 2020 and December 31, 2019, respectively, along with average information for the period:

 

		March 31, 2020				December 31, 2019
At the end of the period			121.05	%			52.48	%
Period average			90.58	%			37.82	%
Maximum of the period			185.50	%			53.38	%
Minimum of the period			53.26	%			23.23	%

  

The following table include the Bank’s liquid assets by geographical location:

 

(in millions of USD dollars)		March 31, 2020				December 31, 2019
United State of America			1,293				1,132
Other O.E.C.D countries			-				4
Latin America			9				4
Other countries			-				20
Total			1,302				1,160

 

The following table includes the Bank’s demand deposits from customers and its ratio to total deposits from customers:

 

(in millions of USD dollars)		March 31, 2020				December 31, 2019
Demand liabilities and "overnight"			596				86
% Demand liabilities and "overnight" of total deposits			24.12	%			2.97	%

 

The liquidity requirements resulting from the Bank’s demand deposits from customers is satisfied by the Bank’s liquid assets as follows:

 

(in millions of USD dollars)		March 31, 2020				December 31, 2019
Total liquid assets			1,302				1,160
% Total assets of total liabilities			52.66	%			40.15	%
% Total liquid assets in the U.S. Federal Reserve			99.31	%			97.37	%

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

5.

Financial risk (continued)

 

B.

Liquidity risk (continued)

 

The remaining liquid assets were composed of short-term deposits in other banks.

 

While the Bank's liabilities generally expire in shorter periods than their assets, the associated liquidity risk is diminished by the short-term nature of the loan portfolio, because the Bank is primarily engaged in financing foreign trade.

 

The following table includes the carrying amount for the Bank’s loans and securities short-term portfolio with maturity within one year based on their original contractual term together with its average remaining term:

 

(in millions of USD dollars)		March 31, 2020				December 31, 2019
Loan portfolio and investment portfolio less than/equal to 1 year according to its original term			2,981				3,485
Average term (days)			282				189

 

The following table includes the carrying amount for the Bank’s loans and securities medium term portfolio with maturity based over one year based on their original contractual term together with its average remaining term:

 

(in millions of USD dollars)		March 31, 2020				December 31, 2019
Loan portfolio and investment portfolio greater than/equal to 1 year according to its original term			2,442				2,497
Average term (days)			1,980				1,185

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

5.

Financial risk (continued)

 

B.

Liquidity risk (continued)

 

ii.

Maturity analysis for financial liabilities and financial assets

 

The following table details the future undiscounted cash flows of assets and liabilities grouped by their remaining maturity with respect to the contractual maturity:

 

		March 31, 2020
Description		Up to 3 months				3 to 6 months				6 months to 1 year				1 to 5 years				More than 5 years				Gross Inflow (outflow)				Carrying amount
Assets
Cash and due from banks			1,353,018				-				-				-				-				1,353,018				1,353,018
Securities and other financial assets, net			11,457				9,233				12,971				60,947				-				94,608				86,326
Loans, net			1,390,815				909,647				1,319,462				1,768,660				156,134				5,544,718				5,267,064
Derivative financial instruments - assets			10,661				3,879				-				2,504				-				17,044				17,115
Total			2,765,951				922,759				1,332,433				1,832,111				156,134				7,009,388				6,723,523
Liabilities
Deposits			(2,231,628	)			(123,534	)			(121,910	)			-				-				(2,477,072	)			(2,472,644	)
Securities sold under repurchase agreements			(49,344	)			(4,732	)			-				-				-				(54,076	)			(53,888	)
Borrowings and debt, net			(1,237,027	)			(734,905	)			(316,380	)			(914,777	)			(13,006	)			(3,216,095	)			(3,137,018	)
Derivative financial instruments - liabilities			(128	)			-				(4,620	)			(44,347	)			-				(49,095	)			(49,095	)
Total			(3,518,127	)			(863,171	)			(442,910	)			(959,124	)			(13,006	)			(5,796,338	)			(5,712,645	)
Contingencies
Confirmed lettes of credit			117,252				10,426				9,802				-				-				137,480				137,480
Stand-by letters of credit and guaranteed			90,465				65,491				94,032				10,132				-				260,120				260,120
Credit commitments			-				-				-				30,000				-				30,000				30,000
Total			207,717				75,917				103,834				40,132				-				427,600				427,600
Net position			(959,893	)			(16,329	)			785,689				832,855				143,128				785,450				583,278

  

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

5.

Financial risk (continued)

 

B.

Liquidity risk (continued)

 

		December 31, 2019
Description		Up to 3 months				3 to 6 months				6 months to 1 year				1 to 5 years				More than 5 years				Gross Inflow (outflow)				Carrying amount
Assets
Cash and due from banks			1,178,288				-				-				-				-				1,178,288				1,178,170
Securities and other financial assets, net			16,684				6,457				7,293				54,544				6,492				91,470				88,794
Loans, net			1,960,381				967,594				1,207,469				1,822,519				150,742				6,108,705				5,823,333
Derivative financial instruments - assets			-				625				-				10,532				-				11,157				11,157
Total			3,155,353				974,676				1,214,762				1,887,595				157,234				7,389,620				7,101,454
Liabilities
Deposits			(2,574,180	)			(198,786	)			(122,680	)			-				-				(2,895,646	)			(2,893,555	)
Securities sold under repurchase agreements			(40,691	)			-				-				-				-				(40,691	)			(40,530	)
Borrowings and debt, net			(1,407,612	)			(451,736	)			(230,776	)			(1,147,699	)			(13,422	)			(3,251,245	)			(3,148,864	)
Derivative financial instruments - liabilities			(2,425	)			(775	)			(1,711	)			(12,014	)			-				(16,925	)			(14,675	)
Total			(4,024,908	)			(651,297	)			(355,167	)			(1,159,713	)			(13,422	)			(6,204,507	)			(6,097,624	)
Contingencies
Confirmed lettes of credit			84,235				77,493				7,592				-				-				169,320				169,320
Stand-by letters of credit and guaranteed			35,906				95,440				114,078				10,057				-				255,481				255,481
Credit commitments			-				-				-				68,571				-				68,571				68,571
Total			120,141				172,933				121,670				78,628				-				493,372				493,372
Net position			(989,696	)			150,446				737,925				649,254				143,812				691,741				510,458

  

The amounts in the table above have been compiled as follows:

 

Type of financial instrument	Basis on which amounts are compiled
Financial assets and liabilities	Undiscounted cash flows, which include estimated interest payments.
Issued financial guarantee contracts, and loan commitments	Earliest possible contractual maturity. For issued financial guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in which the guarantee could be called.
Derivative financial liabilities and financial assets	Contractual undiscounted cash flows. The amounts shown are the gross nominal inflows and outflows for derivatives that have simultaneous gross and the net amounts for derivatives that are net settled.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

5.

Financial risk (continued)

 

B.

Liquidity risk (continued)

 

iii.

Liquidity reserves

 

As part of management of liquidity risk arising from financial liabilities, the Bank holds liquid assets comprising cash and cash equivalents, which can be readily sold to meet liquidity requirements.

 

The following table sets out the components of the Banks’s liquidity reserves:

 

		March 31,								December 31,
		2020								2019
		Amount				Fair Value				Amount				Fair Value
Balance with Central Banks			1,267,730				1,267,730				1,129,016				1,129,016
Cash and balances with other bank			85,288				85,288				49,154				49,154
Total Liquidity reserves			1,353,018				1,353,018				1,178,170				1,178,170

  

iv.

Financial assets available to support future funding

 

The following table sets out the Bank’s financial assets available to support future funding:

 

March 31, 2020
		Guaranteed				Available as collateral
Cash and due from banks			55,333				1,297,685
Notional of investment securities			55,300				23,000
Loan portfolio			-				5,337,487
Total assets			110,633				6,658,172

  

December 31, 2019
		Guaranteed				Available as collateral
Cash and due from banks			18,452				1,159,718
Notional of investment securities			40,531				38,045
Loan portfolio			-				5,823,333
Total assets			58,983				7,021,096

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

5.

Financial risk (continued)

 

C.

Market risk

 

The Bank manages market risk by considering the consolidated financial situation of the Bank.

 

i.

Interest rate risk

 

The following is a summary of the Bank’s interest rate gap position for the financial assets and liabilities based on their next repricing date:

 

		March 31, 2020
Description		Up to 3 months				3 to 6 months				6 months to 1 year				1 to 5 years				More than 5 years				Non interest rate risk				Total
Assets
Demand deposits and time deposits			1,344,692				-				-				-				-				8,326				1,353,018
Securities and other financial assets			6,351				22,063				50,851				-				-				-				79,265
Loans			3,445,944				882,223				813,510				195,810				-				-				5,337,487
Total assets			4,796,987				904,286				864,361				195,810				-				8,326				6,769,770
Liabilities
Demand deposits and time deposits			(2,224,511	)			(122,783	)			(120,302	)			-				-				-				(2,467,596	)
Securities sold repurchase agreements			(49,213	)			(4,675	)			-				-				-				-				(53,888	)
Borrowings and debt			(2,672,021	)			(218,044	)			(73,392	)			(153,965	)			-				(19,596	)			(3,137,018	)
Total liabilities			(4,945,745	)			(345,502	)			(193,694	)			(153,965	)			-				(19,596	)			(5,658,502	)
Net effect of derivative financial instruments held for interest risk management			(128	)			844				(4,620	)			(45,443	)			-				-				(49,347	)
Total interest rate sensitivity			(148,886	)			559,628				666,047				(3,598	)			-				(11,270	)			1,061,921

 

		December 31, 2019
Description		Up to 3 months				3 to 6 months				6 months to 1 year				1 to 5 years				More than 5 years				Non interest rate risk				Total
Assets
Demand deposits and time deposits			1,155,155				-				-				-				-				-				1,155,155
Securities and other financial assets			14,935				6,351				5,055				53,300				-				-				79,641
Loans			4,031,432				1,096,355				548,028				208,443				8,739				-				5,892,997
Total assets			5,201,522				1,102,706				553,083				261,743				8,739				-				7,127,793
Liabilities
Demand deposits and time deposits			(2,570,324	)			(197,300	)			(120,419	)			-				-				(293	)			(2,888,336	)
Securities sold repurchase agreements			(40,530	)			-				-				-				-				-				(40,530	)
Borrowings and debt			(2,534,382	)			(401,432	)			(25,261	)			(157,321	)			-				(19,914	)			(3,138,310	)
Total liabilities			(5,145,236	)			(598,732	)			(145,680	)			(157,321	)			-				(20,207	)			(6,067,176	)
Net effect of derivative financial instruments held for interest risk management			(2,425	)			(150	)			(1,711	)			(1,482	)			-				-				(5,768	)
Total interest rate sensitivity			53,861				503,824				405,692				102,940				8,739				(20,207	)			1,054,849

 

Management of interest rate risk is complemented by monitoring the sensitivity of the Bank’s financial assets and liabilities to various standard interest rate scenarios. Standard scenarios that are considered on a monthly basis include a 50bps, 100bps and 200bps, respectively, parallel fall or rise in all yield curves which are assessed accordingly to market conditions.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

5.

Financial risk (continued)

 

C.

Market risk (continued)

 

i.

Interest rate risk (continued)

 

 

The following is an analysis of the Bank’s sensitivity to an increase or decrease in market interest rates, assuming no asymmetrical movements in yield curves and a constant financial position:

 

		Change in interest rate				Effect on profit or loss				Effect on Equity
March 31, 2020			+200 bps				(14,848	)			(21,776	)
			-200 bps				(4,120	)			(21,776	)
December 31, 2019			+200 bps				14,297				(66,840	)
			-200 bps				(14,297	)			66,840

 

Interest rate movements affect reported equity in the following ways:

 

-

Retained earnings: increases or decreases in net interest income and in fair values of derivatives reported in profit or loss;

-

Fair value reserve: increases or decreases in fair values of financial assets at FVOCI reported directly in equity; and

-

Hedging reserve: increases or decreases in fair values of hedging instruments designated in qualifying cash flow hedge relationships.

 

This sensitivity provides a consideration of changes in interest rates, considering last period interest rate volatility.

 

i.

Exposure to currency risk

 

The following table presents the maximum exposure amount in foreign currency of the Bank’s carrying amount of total assets and liabilities, excluding derivative financial assets and liabilities which are included in other assets and liabilities based on their fair value.

 

		March 31, 2020
		Brazilian Real				European Euro				Japanese Yen				Colombian Peso				Mexican Peso				Other Currencies (1)				Total
Exchance rate			5.19				1.10				107.68				4,965.38				23.60
Assets
Cash and due from banks			146				15				5				66				6,884				66				7,182
Loans			-				-				-				-				345,677				-				345,677
Total Assets			146				15				5				66				352,561				66				352,859
Liabilities
Borrowings and debt			-				-				-				-				(352,187	)			-				(352,187	)
Total liabilities			-				-				-				-				(352,187	)			-				(352,187	)
Net currency position			146				15								66				374				66				672

 

⁽¹⁾ It includes other currencies such as: Argentine pesos, Australian dollar, Swiss franc, Sterling pound, Peruvian soles, and Renminbi.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

5.

Financial risk (continued)

 

C.

Market risk (continued)

 

ii.

Foreign exchange risk

 

		December 31, 2019
		Brazilian Real				European Euro				Japanese Yen				Colombian Peso				Mexican Peso				Other Currencies (1)				Total
Exchance rate			4.02				1.12				108.67				3,287.50				18.88
Assets
Cash and due from banks			274				17				4				34				4,243				58				4,630
Loans			-				-				-				-				473,729				-				473,729
Total Assets			274				17				4				34				477,972				58				478,359
Liabilities
Borrowings and debt			-				-				-				-				(478,038	)			-				(478,038	)
Total liabilities			-				-				-				-				(478,038	)			-				(478,038	)
Net currency position			274				17				4				34				(66	)			58				321

 

⁽¹⁾ It includes other currencies such as: Argentine pesos, Australian dollar, Swiss franc, Sterling pound, Peruvian soles, and Renminbi.

 

6.

Fair value of financial instruments

 

The Bank determines the fair value of its financial instruments using the fair value hierarchy established in IFRS 13 - Fair Value Measurements and Disclosure, which requires the Bank to maximize the use of observable inputs (those that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market information obtained from sources independent of the reporting entity) and to minimize the use of unobservable inputs (those that reflect the reporting entity’s own assumptions about the inputs that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances) when measuring fair value. Fair value is used on a recurring basis to measure assets and liabilities in which fair value is the primary basis of accounting. Additionally, fair value is used on a non-recurring basis to assess assets and liabilities for impairment or for disclosure purposes. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Bank uses some valuation techniques and assumptions when estimating fair value.

 

The Bank applied the following fair value hierarchy:

 

Level 1 – Assets or liabilities for which an identical instrument is traded in an active market, such as publicly-traded instruments or futures contracts.

 

Level 2 – Assets or liabilities valued based on observable market data for similar instruments, quoted prices in markets that are not active; or other observable inputs that can be corroborated by observable market data for substantially the full term of the asset or liability.

 

Level 3 – Assets or liabilities for which significant valuation inputs are not readily observable in the market; instruments measured based on the best available information, which might include some internally-developed data, and considers risk premiums that a market participant would require.

 

When determining the fair value measurements for assets and liabilities that are required or permitted to be recorded at fair value, the Bank considers the principal or most advantageous market in which it would transact and considers the inputs that market participants would use when pricing the asset or liability. When possible, the Bank uses active markets and observable prices to value identical assets or liabilities.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

6.

Fair value of financial instruments (continued)

 

When identical assets and liabilities are not traded in active markets, the Bank uses observable market information for similar assets and liabilities. However, certain assets and liabilities are not actively traded in observable markets and the Bank must use alternative valuation techniques to determine the fair value measurement. The frequency of transactions, the size of the bid-ask spread, and the size of the investment are factors considered in determining the liquidity of markets and the relevance of observed prices in those markets.

 

When there has been a significant decrease in the valuation of the financial asset or liability, or in the level of activity for a financial asset or liability, the Bank uses the present value technique which considers market information to determine a representative fair value in usual market conditions.

 

A description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis, including the general classification of such assets and liabilities under the fair value hierarchy is presented below:

 

A.

Recurring valuation

 

Financial instruments at FVTPL and FVOCI

 

Financial instruments at FVTPL and FVOCI are carried at fair value, which is based upon quoted prices when available, or if quoted market prices are not available, on discounted expected cash flows using market rates commensurate with the credit quality and maturity of the security.

 

When quoted prices are available in an active market, financial instruments at FVTPL and financial instruments at FVOCI are classified in level 1 of the fair value hierarchy. If quoted market prices are not available or they are available in markets that are not active, then fair values are estimated based upon quoted prices for similar instruments, or where these are not available, by using internal valuation techniques, principally discounted cash flows models. Such securities are classified within levels 2 and 3 of the fair value hierarchy.

 

Derivative financial instruments and hedged items that qualify as a fair value hedging relationship

 

The valuation techniques and inputs depend on the type of derivative and the nature of the underlying instrument. Exchange-traded derivatives that are valued using quoted prices are classified within level 1 of the fair value hierarchy.

 

For those derivative contracts without quoted market prices, fair value is based on internal valuation techniques using inputs that are readily observable and that can be validated by information available in the market. The principal technique used to value these instruments is the discounted cash flows model and the key inputs considered in this technique include interest rate yield curves and foreign exchange rates. These derivatives are classified within level 2 of the fair value hierarchy.

 

The fair value adjustments applied by the Bank to its derivative carrying values include credit valuation adjustments (“CVA”), which are applied to OTC derivative instruments, in which the base valuation generally discounts expected cash flows using the Overnight Index Swap (“OIS”) interest rate curves. Because not all counterparties have the same credit risk as that implied by the relevant OIS curve, a CVA is necessary to incorporate the market view of both, counterparty credit risk and the Bank’s own credit risk, in the valuation.

 

Own-credit and counterparty CVA is determined using a fair value curve consistent with the Bank’s or counterparty credit rating. The CVA is designed to incorporate a market view of the credit risk inherent in the derivative portfolio. However, most of the Bank’s derivative instruments are negotiated bilateral contracts and are not commonly transferred to third parties. Derivative instruments are normally settled contractually, or if terminated early, are terminated at a value negotiated bilaterally between the counterparties. Therefore, the CVA (both counterparty and own-credit) may not be realized upon a settlement or termination in the normal course of business. In addition, all or a portion of the CVA may be reversed or otherwise adjusted in future periods in the event of changes in the credit risk of the Bank or its counterparties or due to the anticipated termination of the transactions.

 

Financial instruments assets and liabilities recognized and designated as hedged items that qualify as a fair value hedging relationship are measured at amortized cost and adjusted for the effect of the risks covered in the hedging relationship.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

6.

Fair value of financial instruments (continued)

 

A.

Recurring valuation (continued)

 

Financial instruments measured at fair value on a recurring basis by caption on the consolidated statement of financial position using the fair value hierarchy are described below:

 

		March 31, 2020
		Level 1				Level 2				Level 3				Total
Assets
Securities and other financial assets:
Securities at FVOCI - Corporate debt			-				-				-				-
Securities at FVOCI - Sovereign debt			-				5,065				-				5,065
Equity instrument at FVOCI			-				-				-				-
Debt instrument at fair value through profit or loss			-				-				6,492				6,492
Total securities and other financial assets			-				5,065				6,492				11,557
Derivative financial instruments - assets:
Interest rate swaps			-				3,675				-				3,675
Cross-currency swaps			-				2,346				-				2,346
Foreign exchange forwards			-				11,023				-				11,023
Total derivative financial instrument assets			-				17,044				-				17,044
Total assets at fair value			-				22,109				6,492				28,601
Liabilities
Derivative financial instruments - liabilities:
Interest rate swaps			-				2,696				-				2,696
Cross-currency swaps			-				46,399				-				46,399
Foreign exchange forwards			-				-				-				-
Total derivative financial instruments - liabilities			-				49,095				-				49,095
Total liabilities at fair value			-				49,095				-				49,095

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

6.	Fair value of financial instruments (continued)

 

A.

Recurring valuation (continued)

 

		December 31, 2019
		Level 1				Level 2				Level 3				Total
Assets
Securities and other financial assets:
Securities at FVOCI - Corporate debt			-				-				-				-
Securities at FVOCI - Sovereign debt			-				5,094				-				5,094
Equity instrument at FVOCI			-				1,889				-				1,889
Debt instrument at fair value through profit or loss			-				-				6,492				6,492
Total securities and other financial assets			-				6,983				6,492				13,475
Derivative financial instruments - assets:
Interest rate swaps			-				407				-				407
Cross-currency swaps			-				10,125				-				10,125
Foreign exchange forwards			-				625				-				625
Total derivative financial instrument assets			-				11,157				-				11,157
Total assets at fair value			-				18,140				6,492				24,632
Liabilities
Derivative financial instruments - liabilities:
Interest rate swaps			-				1,903				-				1,903
Cross-currency swaps			-				10,197				-				10,197
Foreign exchange forwards			-				2,575				-				2,575
Total derivative financial instruments - liabilities			-				14,675				-				14,675
Total liabilities at fair value			-				14,675				-				14,675

 

Fair value calculations are provided only for a limited portion of assets and liabilities. Due to the wide range of valuation techniques and the degree of subjectivity used for estimates, comparisons of fair value information disclosed by the Bank with those of other companies may not be meaningful for comparative analysis.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

6.

Fair value of financial instruments (continued)

 

B.

Non-recurring valuation

 

The following methods and inputs were used by the Bank’s management in estimating the fair values of financial instruments whose fair value is not measured on a recurring basis:

 

Financial instruments with carrying value that approximates fair value

 

The carrying value of certain financial assets, including cash and due from banks, interest-bearing deposits in banks, customers’ liabilities under acceptances, interest receivable and certain financial liabilities including customer’s demand and time deposits, securities sold under repurchase agreements, interest payable, and acceptances outstanding, due to their short-term nature, is considered to approximate their fair value. These instruments are classified in Level 2.

 

Securities at amortized cost

 

The fair value has been estimated upon current market quotations, where available. If quoted market prices are not available, fair value has been estimated based upon quoted prices of similar instruments, or where these are not available, on discounted expected future cash flows using market rates commensurate with the credit quality and maturity of the security. These securities are classified in Levels 2 and 3.

 

Loans

 

The fair value of the loan portfolio, including impaired loans, is estimated by discounting expected future cash flows using the current rates at which loans would be made to borrowers with similar credit ratings and for the same remaining maturities, considering the contractual terms in effect as of March 31 of the relevant year. These assets are classified in Levels 2 and 3.

 

Transfer of financial assets

 

Gains or losses on sale of loans depend in part on the carrying amount of the financial assets involved in the transfer, and their fair value at the date of transfer. The fair value of these instruments is determined based upon quoted market prices when available or is based on the present value of future expected cash flows using information related to credit losses, prepayment speeds, forward yield curves, and discounted rates commensurate with the risk involved.

 

Short and long-term borrowings and debt

 

The fair value of short and long-term borrowings and debt is estimated using discounted contractual future cash flows based on the current incremental borrowing rates for similar types of borrowing arrangements, considering the changes in the Bank’s credit margin. These liabilities are classified in Level 2.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

6.	Fair value of financial instruments (continued)

 

B.

Non-recurring valuation (continued)

 

The following table provides information on the carrying value and an estimated fair value of the Bank’s financial instruments that are not measured on a recurring basis:

 

		March 31, 2020
		Carrying				Fair
		value				value				Level 1				Level 2				Level 3
Assets
Cash and deposits on banks			1,353,018				1,353,018				-				1,353,018				-
Securities at amortized cost (1)			74,761				72,557				-				49,526				23,031
Loans, net (2)			5,267,064				5,240,179				-				5,174,056				66,123
Customers' liabilities under acceptances			66,657				66,657				-				66,657				-
Investment properties			3,494				3,494				-				-				3,494
Liabilities
Deposits			2,467,596				2,467,596				-				2,467,596				-
Securities sold under repurchase agreements			53,888				53,888				-				53,888				-
Borrowings and debt, net (3)			3,117,422				3,069,353				-				3,069,353				-
Customers' liabilities under acceptances			66,657				66,657				-				66,657				-

 

		December 31, 2019
		Carrying				Fair
		value				value				Level 1				Level 2				Level 3
Assets
Cash and deposits on banks			1,178,170				1,178,170				-				1,178,170				-
Securities at amortized cost (1)			75,271				75,724				-				56,914				18,810
Loans, net (2)			5,823,333				6,162,885				-				6,101,040				61,845
Customers' liabilities under acceptances			115,682				115,682				-				115,682				-
Investment properties			3,494				3,494				-				-				3,494
Liabilities
Deposits			2,888,336				2,888,336				-				2,888,336				-
Securities sold under repurchase agreements			40,530				40,530				-				40,530				-
Borrowings and debt, net (3)			3,118,396				3,126,333				-				3,126,333				-
Customers' liabilities under acceptances			115,682				115,682				-				115,682				-

 

(1)

The carrying value of securities at amortized cost is net of the accrued interest receivable of $0.6 million and the allowance for expected credit losses of $0.1 million as of March 31, 2020 and the accrued interest receivable of $0.8 million and the allowance for expected credit losses of $0.1 million as of December 31, 2019.

 

(2)

The carrying value of loans at amortized cost is net of the accrued interest receivable of $40.6 million, the allowance for expected credit losses of $99.9 million and unearned interest and deferred fees of $11 million for March 31, 2020, and the accrued interest receivable of $41.7 million, the allowance for expected credit losses of $99.3 million and unearned interest and deferred fees of $12.1 million for December 31, 2019.

 

(3)

Borrowings and debt excludes the lease liabilities for an amount of $19.6 million and $19.9 million as of March 31, 2020 and December 31, 2019, respectively.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

6.

Fair value of financial instruments (continued)

 

C.

Valuation framework

 

The Bank has an established control framework for the measurement of fair values, which is independent of front office management, to verify the valuation of significant fair value measurements of derivative financial instruments, securities and other financial instrument. Specific controls include:

 

-

Verification of observable pricing.

-

Validation of performance of valuation models.

-

A review and approval process for new models and changes to existing models.

-

Analysis and assessment of significant valuation fluctuations.

-

Review of significant unobservable inputs, valuation adjustments and changes to fair value measurement of Level 3 instruments.

 

D.

Level 3 - Fair value measurement

 

The following table presents the movement of a Level 3 financial instruments measured at fair value

 

Carrying amount as of December 31, 2019			6,492
Unrealized loss			-
Carrying amount as of March 31, 2020			6,492

 

Significant inputs used to determine fair value for Level 3 financial instruments

 

The following table presents the significant inputs used to determine the fair value for Level 3 financial instruments:

 

Unobservable inputs			Observable inputs
-	Discount rate for similar companies of the same business line adjusted due to the debt-equity structure of the issuer		-		Average recovery factor for companies that reported default – Moody’s

 

Fair value measurement sensitivity to unobservable inputs			Range of estimates
A significant increase in volatility would result in a lower fair value			12.97% a 27.50%

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

6.

Fair value of financial instruments (continued)

 

D.

Level 3 - Fair value measurement (continued)

 

The effect of unobservable inputs on fair value measurement

 

Although the Bank believes that its estimates of fair value are appropriate, the use of different methodologies or assumptions could lead to different measurements of fair value. For fair value measurements in Level 3, changing one or more of the assumptions used would have the following effects.

 

Debentures at fair value through profit or loss		Effect on profit or loss
+ 100 bps to the observable and unobservable inputs			(230	)
- 100 bps to the unobservable and observable inputs			240

 

7.

Cash and due from banks

 

		March 31,				December 31,
		2020				2019
Cash and due from banks			8,326				23,015
Interest-bearing deposits in banks			1,344,692				1,155,155
Total			1,353,018				1,178,170
Less:
Pledged deposits			55,601				18,452
Total cash and cash equivalents			1,297,417				1,159,718

 

The following table presents the details of interest-bearing deposits in banks and pledged deposits:

 

		March 31, 2020								December 31, 2019
		Amount				Interest rate range				Amount				Interest rate range
Interest-bearing deposits in banks:
Demand deposits (1)			1,329,692				0.05% a 4.69	%			1,135,155				1.55% a 5.10	%
Time deposits			15,000				-				20,000				-
Total			1,344,692								1,155,155
Pledged deposits			55,601				0.09	%			18,452				1.55	%

 

(1)	Interest-bearing demand deposits based on daily rates determined by banks. In addition, rates of 4.69% and 5.10% corresponds to a deposit placed in MXN – México.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

7.

Cash and due from banks (continued)

 

The following table provides a breakdown of pledged deposits by country risk:

 

		March 31,				December 31,
		2020				2019
Country:
Netherlands			17,364				-
Switzerland			11,307				9,567
Mexico			7,750				-
Spain			7,290				-
Japan			3,850				1,470
United States of America (1)			6,706				5,645
France			1,334				1,770
Total			55,601				18,452

 

(1)

Includes pledged deposits of $5 million at March 31, 2020 and $3.5 million at December 31, 2019, with the New York State Banking Department under March 1994 legislation and deposits pledged to guarantee derivative financial instrument transactions.

 

8.

Securities and other financial assets, net

 

All securities and other financial assets as of March 31, 2020 and December 31, 2019 are presented as follows:

 

						At fair value
At March 31, 2020						With changes in other comprehensive income (loss)
Carrying amount		Amortized cost				Recyclable to profit and loss				Non-recyclable to profit and loss				With changes in profit or loss				Total securities and other financial assets, net
Principal			74,200				5,065				-				6,492				85,757
Interest receivable			667				8				-				-				674
Reserves			(106	)			-				-				-				(106	)
			74,761				5,073				-				6,492				86,325

 

						At fair value
At December 31, 2019						With changes in other comprehensive income (loss)
Carrying amount		Amortized cost				Recyclable to profit and loss				Non-recyclable to profit and loss				With changes in profit or loss				Total securities and other financial assets, net
Principal			74,547				5,094				1,889				6,492				88,022
Interest receivable			837				48				-				-				885
Reserves			(113	)			-				-				-				(113	)
			75,271				5,142				1,889				6,492				88,794

 

As of March 31, 2020, and December 31, 2019, the Bank sold 261,164 and 767,301 shares, respectively, which were designated in their initial recognition at fair value with changes in other comprehensive income due to market changes affecting the liquidity of the instrument. The cumulative fair value of the shares sold was $1.7 million and $4.8 million, respectively, and the cumulative loss recognized in OCI was $376 thousand and $151 thousand, respectively, transferred to retained earnings.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

8.

Securities and other financial assets, net (continued)

 

Securities and other financial assets by contractual maturity are shown in the following table:

 

						At fair value
At March 31, 2020						With changes in other comprehensive income
		Amortized cost				Recyclabe to profit ans loss				Non-recyclable to profit and loss				With changes in profit or loss				Total securities and other financial assets, net
Due within 1 year			28,101				-				-				-				28,101
After 1 year but within 5 years			46,099				5,065				-				-				51,164
After 5 years but within 10 years			-				-				-				-				-
Non maturity			-				-				-				6,492				6,492
Balance - principal			74,200				5,065				-				6,492				85,757

 

						At fair value
At December 31, 2019						With changes in other comprehensive income
		Amortized cost				Recyclabe to profit ans loss				Non-recyclable to profit and loss				With changes in profit or loss				Total securities and other financial assets, net
Due within 1 year			28,295				-				1,889				-				30,184
After 1 year but within 5 years			46,252				5,094				-				-				51,346
After 5 years but within 10 years			-				-				-				-				-
Non maturity			-				-				-				6,492				6,492
Balance - principal			74,547				5,094				1,889				6,492				88,022

 

The following table includes the securities pledge to secure repurchase transactions accounted for as secured pledged: 

 

		March 31, 2020												December 31, 2019
		Amortized cost				Fair value				Total				Amortized cost				Fair value				Total
Securities pledged to secure repurchase transactions			51,200				5,065				56,265				36,843				5,094				41,937
Securities sold under repurchase agreements			(49,013	)			(4,875	)			(53,888	)			(35,647	)			(4,883	)			(40,530	)

 

The following table presents the realized gains or losses on sale of securities at fair value through other comprehensive income  :

 

		Three months ended March 31th
		2020				2019
Realized gain on sale of securities			-				109
Realized loss on sale of securities			-				-
Net gain on sale of securities at FVOCI			-				109

 

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

9.

Loans

 

The fixed and floating interest rate distribution of the loan portfolio is as follows:

 

		March 31,				December 31,
		2020				2019
Fixed interest rates			2,566,052				2,757,333
Floating interest rates			2,771,435				3,135,664
Total			5,337,487				5,892,997

 

As of March 31, 2020, and December 31, 2019, 63% and 74% of the loan portfolio at fixed interest rates has remaining maturities of less than 180 days.

 

As of March 31, 2020, the range of interest rates on loans fluctuates from 1.20% to 13.93% (December 31, 2019 1.20% to 13.93%).

 

As of March 31, 2020, and December 31, 2019, the Bank had credit transactions in the normal course of business with 12% and 11%, respectively, of its Class “A” and “B” stockholders. All transactions were made based on arm’s-length terms and subject to prevailing commercial criteria and market rates and were subject to all of the Bank’s Corporate Governance and control procedures. As of March 31, 2020, and December 31, 2019, approximately 13% and 11%, respectively, of the outstanding loan portfolio was placed with the Bank’s Class “A” and “B” stockholders and their related parties. As of March 31, 2020, the Bank was not directly or indirectly owned or controlled by another corporation or any foreign government, and no Class “A” or “B” shareholder was the owner of record of more than 3.5 % of the total outstanding shares of the voting capital stock of the Bank.

 

Recognition and derecognition of financial assets

 

During the periods ended March 31, 2020 and December 31, 2019, the Bank sold loans measured at amortized cost. These sales were made based on compliance with the Bank's strategy to optimize credit risk of its loan portfolio.

 

The carrying amounts and gains arising from the derecognition of these financial instruments are presented in the following table. These gains are presented within the line “Gain (loss) on financial instruments, net” in the consolidated statement of profit or loss.

 

		Assignments and participations				Gains (losses)
Carrying amount as of March 31, 2020			5,000				-

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

10.

Loan commitments and financial guarantee contracts

 

In the normal course of business, to meet the financing needs of its customers, the Bank is party to loan commitments and financial guarantee contracts. These instruments involve, to varying degrees, elements of credit and market risk in excess of the amount recognized in the consolidated statement of financial position. Credit risk represents the possibility of loss resulting from the failure of a customer to perform in accordance with the terms of a contract.

 

The Bank’s outstanding loan commitments and financial guarantee contracts are as follows:

 

		March 31,				December 31,
		2020				2019
Documentary letters of credit			137,479				169,320
Stand-by letters of credit and guarantees - commercial risk			260,121				255,481
Credit commitments			30,000				68,571
Total loans commitments and financial guarantee contracts			427,600				493,372

 

The remaining maturity profile of the Bank’s outstanding loan commitments and financial guarantee contracts is as follows:

 

		March 31,				December 31,
Maturities		2020				2019
Up to 1 year			387,468				424,744
From 1 to 2 years			30,132				8,628
From 2 to 5 years			10,000				60,000
Total			427,600				493,372

 

11.

Gain (loss) on financial instruments, net

 

The following table sets forth the details for the gain or loss on financial instrument recognized in the consolidated statements of profit or loss:

 

		For the three months ended
		March 31,
		2020				2019
(Loss) gain on derivative financial instruments and changes in foreign currency, net			(1,191	)			270
Gain on financial instruments at fair value through profit or loss			833				377
Realized gain on sale of a financial instruments at FVOCI			-				109
			(358	)			756

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

12.

Derivative financial instruments

 

The following table details quantitative information on the notional amounts and carrying amounts of the derivative instruments used for hedging by type of risk hedged and type of hedge :

 

		March 31, 2020
						Carrying amount of hedging instruments
		Nominal amount				Asset (1)				Liability (2)
Interest rate risk
Fair value hedges			397,667				3,675				(401	)
Cash flow hedges			73,000				-				(2,295	)
Interest rate and foreign exchange risk
Fair value hedges			346,506				1,511				(41,824	)
Cash flow hedges			55,215				835				(4,575	)
Foreign exchange risk
Cash flow hedges			57,194				11,023				-
Net investment hedges			-				-				-
			929,582				17,044				(49,095	)

 

		December 31, 2019
						Carrying amount of hedging instruments
		Nominal amount				Asset (1)				Liability (2)
Interest rate risk
Fair value hedges			398,333				407				(805	)
Cash flow hedges			123,000				-				(1,098	)
Interest rate and foreign exchange risk
Fair value hedges			346,844				10,125				(8,527	)
Cash flow hedges			23,025				-				(1,670	)
Foreign exchange risk
Cash flow hedges			72,391				625				(2,552	)
Net investment hedges			2,080				-				(23	)
			965,673				11,157				(14,675	)

 

⁽¹⁾ Included in the condensed consolidated interim statement of financial position under the line Derivative financial instruments - assets.

⁽²⁾ Included in the condensed consolidated interim statement of financial position under the line Derivative financial instruments - liabilities.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

12.

Derivative financial instruments (continued)

 

The hedging instruments detailed in the tables above are presented in the consolidated statement of financial position as derivative financial instruments - assets or derivative financial instruments - liabilities.

 

As part of the financial risk management, the Bank uses the following hedging relationships:

 

-

Fair value hedge

-

Cash flow hedge

-

Net investment hedge

 

For control purposes, derivative instruments are recorded at their nominal amount in memoranda accounts. Interest rate swaps are made either in a single currency or cross currency for a prescribed period to exchange a series of interest rate flows, which involve fixed for floating interest payments, and vice versa. The Bank also engages in certain foreign exchange forward contracts to serve customers’ transaction needs and to manage foreign currency risk. All such positions are hedged with an offsetting contract for the same currency.

 

The Bank manages and controls the risks on these foreign exchange trades by establishing counterparty credit limits by customer and by adopting policies that do not allow for open positions in the loan and investment portfolio. The Bank also uses foreign exchange forward contracts to hedge the foreign exchange risk associated with the Bank’s equity investment in a non-U.S. dollar functional currency foreign entity. Derivative and foreign exchange forward instruments negotiated by the Bank are executed mainly over-the-counter (OTC). These contracts are executed between two counterparties that negotiate specific agreement terms, including notional amount, exercise price and maturity.

 

A.

Fair value hedge

 

This type of hedge is used to mitigate the risk of changes in foreign exchange currency rates, as well as changes in interest rate risk. Within the derivative financial instruments used by the Bank for fair value hedging are interest rate swap contracts whereby a series of interest rate flows in a single currency are exchanged over a prescribed period and cross currency swaps contracts that generally involve the exchange of both interest and principal amounts in two different currencies.

 

The Bank’s exposure to interest rate risk is disclosed in Note 5(C)(i). Interest rate risk to which the Bank applies hedge accounting arises from fixed-rate euro medium term notes and other long-term notes issuances (“Certificados Bursatiles”), fixed-rate loans and advances, whose fair value fluctuates when benchmark interest rates change. The Bank hedges interest rate risk only to the extent of benchmark interest rates because the changes in fair value of a fixed-rate note or loan are significantly influenced by changes in the benchmark interest rate. Hedge accounting is applied where economic hedging relationships meet the hedge accounting criteria.

 

Before fair value hedge accounting is applied by the Bank, the Bank determines whether an economic relationship between the hedged item and the hedging instrument exists based on an assessment of the qualitative characteristics of these items and the hedged risk that is supported by quantitative analysis. The Bank considers whether the critical terms of the hedged item and hedging instrument closely align when assessing the presence of an economic relationship. The Bank assesses whether the fair value of the hedged item and the hedging instrument respond similarly to similar risks. The Bank further supports this qualitative assessment by using regression analysis to assess whether the hedging instrument is expected to be and has been highly effective in offsetting changes in the fair value of the hedged item. The sources of ineffectiveness mainly come from forward rates, discount rates and cross currency basis (cost of the operation).

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

12.

Derivative financial instruments (continued)

 

A.

Fair value hedge (continued)

 

The following table details the notional amounts and carrying amounts of derivative instruments used in fair value hedges by type of risk and hedged item, along with the changes during the period used to determine and recognize the ineffectiveness of the hedge:

 

		March 31, 2020
		Nominal				Carrying amount of hedging instruments								Changes in fair value used to calculate hedge ineffectiveness (3)				Ineffectiveness recognized in profit or loss (3)
		amount				Asset (1)				Liability (2)
Interest rate risk
Loans			12,667				-				(269	)			(97	)			(3	)
Securities at FVOCI			5,000				-				(132	)			(87	)			(17	)
Borrowings and debt			380,000				3,675				-				750				(171	)
Interest rate and foreign exchange risk
Loans			6,092				1,511				-				1,227				268
Borrowings and debt			340,414				-				(41,824	)			(42,532	)			(112	)
Total			744,173				5,186				(42,225	)			(40,739	)			(35	)

 

		December 31, 2019
		Nominal				Carrying amount of hedging instruments								Changes in fair value used to calculate hedge ineffectiveness (3)				Ineffectiveness recognized in profit or loss (3)
		amount				Asset (1)				Liability (2)
Interest rate risk
Loans			13,333				-				(166	)			(127	)			(9	)
Securities at FVOCI			5,000				-				(45	)			(97	)			(17	)
Borrowings and debt			380,000				407				(594	)			5,203				(65	)
Interest rate and foreign exchange risk
Loans			6,430				276				-				(482	)			(214	)
Borrowings and debt			340,414				9,849				(8,527	)			7,234				55
Total			745,177				10,532				(9,332	)			11,731				(250	)

 

⁽¹⁾ Included in the condensed consolidated interim statement of financial position under the line Derivative financial instruments - assets.

⁽²⁾ Included in the condensed consolidated interim statement of financial position under the line Derivative financial instruments - liabilities.

⁽³⁾ Included in the condensed consolidated interim statement of profit or loss is the line Loss on financial instruments, net.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

  

12.	Derivative financial instruments (continued)

 

A.

Fair value hedge (continued)

 

The following table details the notional amounts and carrying amounts of the hedged items at fair value by type of risk and hedged item, along with the changes during the period used to determine and recognize the ineffectiveness of the hedge:

 

		March 31, 2020
		Carrying amount of hedged items								Line in the consolidated statement of financial position that includes the carrying amount of the hedged		Accumulated amount of fair value hedge adjustments included in the carrying amount of the hedged				Change in fair value of the hedged items used to calculate hedge
		Asset				Liability				items		items				ineffectiveness(1)
Interest rate risk
Loans			13,011				-			Loans, net			252				94
Securities at FVOCI			5,065				-			Securities and other financial  assets, net			24				70
Borrowings and debt			-				(385,712	)		Borrowings and debt, net			(903	)			(921	)
Interest rate and foreign exchange risk
Loans			4,750				-			Loans, net			(1,287	)			(959	)
Borrowings and debt			-				(297,707	)		Borrowings and debt, net			41,280				42,420
Total			22,826				(683,419	)					39,366				40,704

 

		December 31, 2019
		Carrying amount of hedged items								Line in the consolidated statement of financial position that includes the carrying amount of the hedged		Accumulated amount of fair value hedge adjustments included in the carrying amount of the hedged				Change in fair value of the hedged items used to calculate hedge
		Asset				Liability				items		items					ineffectiveness(1)
Interest rate risk
Loans			-				(385,712	)		Loans, net			(903	)			(921	)
Securities at FVOCI			-				-			Securities and other financial  assets, net			-				-
Borrowings and debt			4,750				-			Borrowings and debt, net			(1,287	)			(959	)
Interest rate and foreign exchange risk			-				(297,707	)									42,420
Loans			22,826				(683,419	)		Loans, net			39,366				40,704
Borrowings and debt			-				-			Borrowings and debt, net			-				-
Total			27,576				(1,366,838	)					37,176				81,244

 

 

⁽¹⁾ Included in the condensed consolidated interim statement of profit or loss is the line Loss on financial instruments, net.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

  

12.	Derivative financial instruments (continued)

 

A.

Fair value hedge (continued)

 

The following table details the maturity of the notional amount for the derivative instruments used in fair value hedges:

 

		March 31, 2020
Maturity		Interest rate swaps				Foreign exchange and interest rate risks				Total
Fair value hedge
Less to 1 year			352,667				-				352,667
1 to 2 years			45,000				-				45,000
2 to 5 years			-				346,506				346,506
Total			397,667				346,506				744,173

 

		December 31, 2019
Maturity		Interest rate swaps				Foreign exchange and interest rate risks				Total
Fair value hedge
Less than 1 year			350,000				-				350,000
1 to 2 years			48,333				-				48,333
2 to 5 years			-				346,844				346,844
Total			398,333				346,844				745,177

 

B.

Cash flow hedge

 

This type of hedge is used to mitigate the risk of changes in foreign exchange currency rates, as well as changes in interest rate risk, that could include variability in the future cash flows. Within the derivative financial instruments used by the Bank for a cash flow hedging are interest rate swaps contracts whereby a series of interest rate flows in a single currency are exchanged over a prescribed period, cross currency swaps contracts that generally involve the exchange of both interest and principal amounts in two different currencies, and foreign exchange forward contracts, an agreement to purchase or sell foreign currency at a future date at agreed-upon terms.

 

The Bank’s exposure to market risk is disclosed in Note 5 (C) (ii). The Bank determines the amount of the exposure to which it applies hedge accounting by assessing the potential impact of changes in interest rates and foreign currency exchange rates on the future cash flows. This assessment is performed using analytical techniques, such as cash flow sensitivity analysis. As noted above for fair value hedges, by using derivative financial instruments to hedge exposures to changes in interest rates and foreign currency exchange rates, the Bank exposes itself to credit risk of the counterparties to the derivatives, which is not offset by the hedged items. This exposure is managed similarly to that off fair value hedges.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

  

12.	Derivative financial instruments (continued)

 

B.

Cash flow hedge (continued)

 

The Bank determines whether an economic relationship exists between the cash flows of the hedged item and hedging instrument based on an assessment of the qualitative characteristics of these items and the hedged risk that is supported by quantitative analysis. The Bank considers whether the critical terms of the hedged item and hedging instrument closely align when assessing the presence of an economic relationship. The Bank assesses whether the cash flows of the hedged item and the hedging instrument respond similarly to the hedged risk, such as the benchmark interest rate or foreign currency. The Bank further supports this qualitative assessment by using sensitivity analysis to assess whether the hedging instrument is expected to be and has been highly effective in offsetting changes in the present value of the hedged item. The Bank assesses hedge effectiveness using the hypothetical derivative method, which creates a derivative instrument to serve as a proxy for the hedged transaction. The terms of the hypothetical derivative match the critical terms of the hedged item and it has a fair value of zero at inception. The sources of ineffectiveness arise mainly because of the differences in discount rates (OIS - Overnight Index Swap).

 

The maximum length of time over which the Bank has hedged its exposure to the variability in future cash flows on forecasted transactions is 3 years .

 

The Bank recognized the lifetime associated cost of the foreign exchange forward contracts into interest income, in profit or loss, as an adjustment to the yield on hedged items creating an accumulated reserve in OCI, reclassified to profit or loss at their maturity. The Bank estimates that approximately $187 thousand are expected to be reclassified into profit or loss during the year ending March 31, 2021.

 

The Bank recognized the lifetime associated cost of the foreign exchange forward contracts into interest expense, in profit or loss, as an adjustment to the yield on hedge items creating an accumulated reserve in OCI, reclassified to profit or loss at their maturity. The Bank estimates that approximately $6 thousand are expected to be reclassified into profit or loss during the year ending March 31, 2021.

 

The following table details the notional amounts and carrying amounts of derivative instruments used in cash flow hedges by type of risk and hedged item, along with the changes during the period used to determine and recognize the ineffectiveness of the hedge:

 

		March 31, 2020
		Nominal amount				Carrying amount of hedging instruments								Change in fair value used for calculating				Changes in the fair value of the hedging instruments				Ineffectiveness				Amount reclassified from the hedge reserve to
						Asset (1)				Liability (2)				hedge ineffectiveness				recognized in OCI (3)				recognized in profit or loss (4)				profit or loss (4)
Interest rate risk
Borrowings and debt			73,000				-				(2,295	)			(1,228	)			(1,227	)			1				(46	)
Interest rate and foreign exchange risk
Borrowings and debt			55,215				835				(4,575	)			(2,040	)			(2,042	)			(2	)			-
Foreign exchange risk
Loans			57,194				11,023				-				10,593				10,594				1				(2,414	)
Borrowings and debt			-				-				-				-				-				-				-
Total			185,409				11,858				(6,870	)			7,325				7,325				-				(2,460	)

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

  

12.

Derivative financial instruments (continued)

 

B.

Cash flow hedge (continued)

 

		December 31, 2019
		Nominal amount				Carrying amount of hedging instruments								Change in fair value used for calculating				Changes in the fair value of the hedging instruments				Ineffectiveness				Amount reclassified from the hedge reserve to
						Asset (1)				Liability (2)				hedge ineffectiveness				recognized in OCI (3)				recognized in profit or loss (4)				profit or loss (4)
Interest rate risk
Borrowings and debt			123,000				-				(1,098	)			(1,459	)			(1,458	)			1				39
Interest rate and foreign exchange risk
Borrowings and debt			23,025				-				(1,670	)			(284	)			(283	)			1				-
Foreign exchange risk
Loans			72,391				625				(2,552	)			(2,346	)			(2,344	)			2				(1,070	)
Borrowings and debt			-				-				-				-				-				-				(5,545	)
Total			218,416				625				(5,320	)			(4,089	)			(4,085	)			4				(6,576	)

 

⁽¹⁾ Included in the condensed consolidated interim statement of financial position under the line Derivative financial instruments - assets.

⁽²⁾ Included in the condensed consolidated interim statement of financial position under the line Derivative financial instruments - liabilities.

⁽³⁾ Included in equity in the condensed consolidated interim statement of financial position on the line Other comprehensive income.

⁽⁴⁾ Included in the condensed consolidated interim statement of profit or loss under the line Loss on financial instruments, net.

 

The following table details the nominal amounts and carrying amounts of the cash flow hedged items by type of risk and hedged item, along with the changes during the period used to determine and recognize the ineffectiveness of the hedge:

 

		March 31, 2020
		Carrying amount of hedged items								Line in the consolidated statement of financial position that includes the carrying amount		Change in the fair value of the hedged items used to calculate
		Asset				Liability				of the hedged items		the hedge ineffectiveness (4)				Cash flow hedge reserve
Interest rate risk
Borrowings and debt			-				(20,099	)		Borrowings and debt, net			1,227				2,255
Interest rate and foreign exchange risk
Borrowings and debt			-				(51,771	)		Borrowings and debt, net			2,042				204
Foreign exchange risk
Loans			45,899				-			Loans, net			(10,594	)			24
Deposits			-				-			Deposit			-				-
Total			45,899				(71,870	)					(7,325	)			2,483

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

  

12.

Derivative financial instruments (continued)

 

B.

Cash flow hedge (continued)

 

		December 31, 2019
		Carrying amount of hedged items								Line in the consolidated		Change in the fair value
		Asset				Liability				statement of financial position that includes the carrying amount of the hedged items		of the hedged items used to calculate the hedge ineffectiveness (4)				Cash flow hedge reserve
Interest rate risk
Borrowings and debt			-				(70,110	)		Borrowings and debt, net			1,458				1,072
Interest rate and foreign exchange risk
Borrowings and debt			-				(21,234	)		Borrowings and debt, net			283				(5	)
Foreign exchange risk
Loans			73,861				-			Loans, net			2,344				263
Deposit			-				-			Deposit			-				-
Total			73,861				(91,344	)					4,085				1,330

 

⁽¹⁾ Included in the condensed consolidated interim statement of profit and loss or the line Loss on financial instruments, net.

 

The following table details the maturity of the derivative instruments used in cash flow hedges:

 

		March 31, 2020
Maturity		Foreign exchange risk				Interest rate swaps				Foreign exchange and interest rate risks				Total
Cash flow hedge
Less to 1 year			57,194				13,000				55,215				125,409
1 to 2 years			-				40,000				-				40,000
2 to 5 years			-				20,000				-				20,000
Total			57,194				73,000				55,215				185,409

  

		December 31, 2019
Maturity		Foreign exchange risk				Interest rate swaps				Foreign exchange and interest rate risks				Total
Cash flow hedge
Less than 1 year			74,471				63,000				23,025				160,496
1 to 2 years			-				40,000				-				40,000
2 to 5 years			-				20,000				-				20,000
Total			74,471				123,000				23,025				220,496

  

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

12.

Derivative financial instruments (continued)

 

C.

Net investment hedge

 

A foreign currency exposure arises from a net investment either in a subsidiary that has a different functional currency from that of the Bank or in a financial instrument in a foreign currency designated at FVOCI. The hedge risk in the net investment hedge is the variability in the US dollar against any other foreign currency that will result in a reduction in the carrying amount.

 

The Bank’s policy is to hedge the net investment only to the extent of the debt principal; therefore, the hedge ratio is established by aligning the principal amount in foreign currency of the debt with the carrying amount of the net investment that is designated.

 

When the hedging instrument is a forward foreign exchange contract, the Bank establishes a hedge relationship where the notional of the forward foreign exchange contract matches the carrying amount of the designated net investment. The Bank ensures that the foreign currency in which the hedging instrument is denominated is the same as the functional currency of the net investment. The only source of ineffectiveness that is expected to arise from these hedging relationships is due to the effect of the counterparty and the Bank’s own credit risk on the fair value of the derivative.

 

The following table details the notional amount and carrying amount of the derivative instruments used as net investment hedge by type of risk and hedged item, along with changes during the period used to determine and recognize the ineffectiveness of the hedge:

 

March 31, 2020

Nominal

Carrying amount of hedging instruments

Change in fair value used for calculating hedge

Changes in the fair value of the hedging instruments recognized in

Ineffectiveness recognized in

Amount reclassified from the hedge reserve to

amount

Asset (1)

Liability (2)

ineffectiveness

OCI (3)

profit or loss (4)

profit or loss (4)

Foreign exchange risk

Net investment

-

-

-

-

-

-

-

Total

-

-

-

-

-

-

-

 

		December 31, 2019
		Nominal				Carrying amount of hedging instruments							Change in fair value used for calculating hedge				Changes in the fair value of the hedging instruments recognized in				Ineffectiveness recognized in			Amount reclassified from the hedge reserve to
		amount				Asset (1)			Liability (2)				ineffectiveness				OCI (3)				profit or loss (4)			profit or loss (4)
Foreign exchange risk
Net investment			2,080			-				(23	)			(23	)			(23	)		-				(78	)
Total			2,080			-				(23	)			(23	)			(23	)		-				(78	)

 

Derivative instruments used in net investment hedges at December 31, 2019 have a maturity of less than 30 days.

 

⁽¹⁾ Included in the condensed consolidated interim statement of financial position under the line Derivative financial instruments - assets.

⁽²⁾ Included in the condensed consolidated interim statement of financial position under the line Derivative financial instruments - liabilities.

⁽³⁾ Included in equity in the condensed consolidated interim statement of financial position on the line Other comprehensive income.

⁽⁴⁾ Included in the condensed consolidated interim statement of profit or loss under the line of Loss on financial instruments, net.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

12.

Derivative financial instruments (continued)

 

C.

Net investment hedge (continued)

 

The following table details the nominal value and carrying amount of the net investment hedged items by type of risk and hedged item, along with changes during the period used to determine and recognize the ineffectiveness of the hedge:

 

March 31, 2020

Carrying amount of hedged items

Line in the consolidated statement of financial position that includes the carrying amount of the

Change in the fair value of the hedged items used to calculate the hedge

Cash flow hedge

Asset

Liability

hedged items

ineffectiveness (1)

reserve

Foreign exchange risk

Net investment

-

-

Securities and other financial assets, net

-

-

Total

-

-

-

-

 

December 31, 2019

Carrying amount of hedged items

Line in the consolidated statement of financial position that includes the carrying amount of the

Change in the fair value of the hedged items used to calculate the hedge

Cash flow hedge

Asset

Liability

hedged items

ineffectiveness (1)

reserve

Foreign exchange risk

Net investment

1,889

-

Securities and other financial assets, net

23

23

Total

1,889

-

23

23

 

⁽¹⁾ Included in the condensed consolidated interim statement of profit or loss under the line Loss on financial instruments, net.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

13.

Other assets

 

Following is a summary of other assets:

 

		March 31,				December 31,
		2020				2019
Accounts receivable			2,791				3,549
Interest receivable - deposits			20				26
IT projects under development			1,040				521
Other			5,723				4,761
			9,574				8,858

 

14.

Deposits

 

The maturity profile of the Bank’s deposits, excluding interest payable, as follows:

 

		March 31,				December 31,
		2020				2019
Demand			302,442				85,786
Up to 1 month			780,789				1,285,949
From 1 month to 3 months			619,790				628,981
From 3 months to 6 months			496,974				593,431
From 6 months to 1 year			262,601				289,189
From 1 year to 2 years			5,000				5,000
			2,467,596				2,888,336

 

The following table presents additional information regarding the Bank’s deposits

 

		March 31,				December 31,
		2020				2019
Aggregate amounts of $100,000 or more			2,467,417				2,888,043
Aggregate amounts of deposits in the New York Agency			343,372				240,003

 

		March 31th
		2020				2019
Interest expense on deposits made in the New York Agency			4,714				1,732

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

15.

Securities sold under repurchase agreements

 

As of March 31, 2020, and December 31, 2019, the Bank has financing transactions under repurchase agreements for $53.9 million and $40.5 million, respectively.

 

During the period ended March 31, 2020 and December 31, 2019, interest expense related to financing transactions under repurchase agreements totaled $193 thousand and $287 thousand, respectively. These expenses are included as interest expense – borrowings and debt line in the consolidated statement of profit or loss.

 

16.

Borrowings and debt

 

Borrowings consist of bilateral funding and syndicated loans obtained from international banks. Debt instruments consist of public and private issuances under the Bank's Euro Medium Term Notes Program (“EMTN”) as well as public issuances in the Mexican and Japanese markets.

 

The Bank's funding activities include: (i) EMTN, which may be used to issue notes for up to $2.250 million, with maturities from 7 days up to a maximum of 30 years, at fixed or floating interest rates, or at discount, and in various currencies. The notes are generally issued in bearer or registered form through one or more authorized financial institutions; (ii) Short-and Long-Term Notes (“Certificados Bursatiles”) Program (the “Mexican Program”) in the Mexican local market, registered with the Mexican National Registry of Securities administered by the National Banking and Securities Commission in Mexico (“CNBV”, for its acronym in Spanish), for an authorized aggregate principal amount of 10 billion Mexican pesos with maturities from 1 day to 30 years.

 

Some borrowing agreements include various events of default and covenants related to minimum capital adequacy ratios, incurrence of additional liens, and asset sales, as well as other customary covenants, representations and warranties. As of March 31, 2020, the Bank was in compliance with all those covenants.

 

Borrowings and debt are detailed as follows:

 

		March 31, 2020
		Short-term												Long-term
Carrying amount		Borrowings				Debt				Lease liabilities				Borrowings				Debt				Lease liabilities				Total
Principal			1,678,125				5,000				1,169				689,321				747,482				18,427				3,139,524
Prepaid commissions			-				-				-				(1,153	)			(1,353	)			-				(2,506	)
			1,678,125				5,000				1,169				688,168				746,129				18,427				3,137,018

 

		December 31, 2019
		Short-term												Long-term
Carrying amount		Borrowings				Debt				Lease liabilities				Borrowings				Debt				Lease liabilities				Total
Principal			1,573,663				22,000				1,145				723,419				802,676				18,769				3,141,672
Prepaid commissions			-				-				-				(1,456	)			(1,906	)			-				(3,362	)
			1,573,663				22,000				1,145				721,963				800,770				18,769				3,138,310

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

16.

Borrowings and debt (continued)

 

Short-term borrowings and debt

 

The breakdown of short-term (original maturity of less than one year) borrowings and debt, along with contractual interest rates, is as follows :

 

		March 31,				December 31,
		2020				2019
Short-term borrowings:
At fixed interest rates			941,082				607,500
At floating interest rates			737,043				966,163
Total borrowings			1,678,125				1,573,663
Short-term debt:
At fixed interest rates			5,000				22,000
At floating interest rates			-				-
Total debt			5,000				22,000
Total short-term borrowings and debt			1,683,125				1,595,663
Maximum balance at any month-end			1,683,125				1,595,663
Range of fixed interest rates on borrowings and debt in U.S. dollars			1.05% a 3.47%				2.07% to 2.52%
Range of floating interest rates on borrowings in U.S. dollars			0.99% a 2.35%				2.09% to 2.35%
Range of fixed interest rates on borrowings in Mexican pesos			7.52%				8.08%
Range of floating interest rates on borrowings in Mexican pesos			7.06% a 8.55%				7.71% to 8.31%
Range of fixed interest rates on borrowings in Euros			1.00%				-

 

The outstanding balances of short-term borrowings and debt by currency, are as follows:

 

		March 31,				December 31,
		2020				2019
Currency
US dollar			1,566,350				1,476,000
Mexican peso			83,725				119,663
Euro			33,050				-
Total			1,683,125				1,595,663

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

16.

Borrowings and debt (continued)

 

Long-term borrowings and debt

 

The breakdown of borrowings and long-term debt (original maturity of more than one year), along with contractual interest rates, plus prepaid commissions as of March 31, 2020 and December 31, 2019, respectively, are as follows (excludes lease liabilities ):

 

		March 31,				December 31,
Long-term borrowings:		2020				2019
At fixed interest rates with due dates from April 2020 to February 2022			32,417				65,435
At floating interest rates with due dates from May 2020 to August 2023			656,904				657,984
Total long-term borrowings			689,321				723,419
Long-term debt:
At fixed interest rates with due dates from May 2020 to March 2024			500,505				502,880
At floating interest rates with due dates from March 2022 to June 2023			246,977				299,796
Total long-term debt			747,482				802,676
Total long-term borrowings and debt			1,436,803				1,526,095
Less: Prepaid commissions			(2,506	)			(3,362	)
Total long-term borrowings and debt, net			1,434,297				1,522,733
Maximum outstanding balance at any month – end			1,525,103				1,527,126
Range of fixed interest rates on borrowings and debt in U.S. dollars			2.56% a 3.25%				2.56% a 3.25%
Range of floating interest rates on borrowings and debt in U.S. dollars			1.1% a 3.03%				2.46% a 3.36%
Range of fixed interest rates on borrowings in Mexican pesos			5.73% a 9.09%				5.73% a 9.09%
Range of floating interest rates on borrowings and debt in Mexican pesos			7.64% a 8.65%				8.14% a 9.13%
Range of fixed interest rates on debt in Japanese yens			0.52%				0.52%
Range of fixed interest rates on debt in Euros			3.75%				3.75%
Range of fixed interest rates on debt in Australian dollars			3.33%				3.33%

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

16.

Borrowings and debt (continued)

 

Long-term borrowings and debt (continued)

 

The balances of long-term borrowings and debt by currency, excluding prepaid commissions, are as follows:

 

		March 31,				December 31,
		2020				2019
Currency
US dollar			1,068,593				1,097,611
Mexican peso			222,860				280,105
Japanese yen			68,569				67,831
Euro			58,365				59,465
Australian dollar			18,416				21,083
Total			1,436,803				1,526,095

 

Future payments of long-term borrowings and debt outstanding as of March 31, 2020, are as follows:

 

Payments		Outstanding
2020			393,722
2021			529,597
2022			392,620
2023			62,500
2024			58,364
			1,436,803

 

Reconciliation of movements of borrowings and debt arising from financing activities, as presented in the consolidated statements of cash flows:

 

		2020				2019
Balance as of January 1,			3,138,310				3,518,446
Net increase (decrease) in short-term borrowings and debt			103,460				(868,016	)
Proceeds from long-term borrowings and debt			50,000				470,159
Repayments of long-term borrowings and debt			(81,631	)			(633,752	)
Payment of lease liabilities			(273	)			(254	)
Recognition of lease liabilities			-				20,734
Change in foreign currency			(74,745	)			3,076
Adjustment of fair value for hedge accounting relationship			948				2,153
Other adjustments			949				662
Balance as of March 31,			3,137,018				2,513,208

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

16.

Borrowings and debt (continued)

 

Lease liabilities

 

Maturity analysis of contractual undiscounted cash flows of the lease liability is detailed below:

 

		March 31,				December 31,
		2020				2019
Due within 1 year			10,481				2,005
After 1 year but within 5 years			12,953				10,470
After 5 years but within 10 years			2,036				13,492
Total undiscounted lease liabilities			25,470				25,967

 

Short-term			1,169				1,145
Long-term			18,427				18,769
Lease liabilities included in the consolidated statement of financial position			19,596				19,914

 

Amounts recognized in the statement of cash flows

 

		March 31,				December 31,
		2020				2019
Cash outflow for leases			273				1,072

 

Amounts recognized in profit or loss

 

		March 31,				March 31,
		2020				2019
Interest on lease liabilities			220				243
Income from sub-leasing right-of-use assets			94				75

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

17.

Other liabilities

 

Following is a summary of other liabilities:

 

		March 31,				December 31,
		2020				2019
Accruals and other accumulated expenses			7,297				11,901
Accounts payable			2,149				2,526
Others			2,799				2,722
			12,245				17,149

 

18.

Earnings per share

 

The following table presents a reconciliation of profit and share data used in the basic and diluted earnings per share (“EPS”) computations for the dates indicated:

 

		For the three months ended March 31st
		2020				2019
(Thousands of U.S. dollars)
Profit for the period			18,302				21,245
(U.S. dollars)
Basic earnings per share			0.46				0.54
Diluted earnings per share			0.46				0.54
(Thousands of shares)
Weighted average of common shares outstanding applicable to basic EPS			39,609				39,542
Effect of diluted securities:
Stock options and restricted stock units plan			-				-
Adjusted weighted average of common shares outstanding applicable to diluted EPS			39,609				39,542

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

19.

Fee and commission income

 

Fee and commission income from contracts with customers broken down by main types of services according to the scope of IFRS 15, are detailed as follows:

 

		March 31, 2020
		Syndications				Documentary and standby letters of credit				Other Commissions, net				Total
Openning and confirmation			-				2,146				291				2,437
Negotiation and acceptance			-				145				-				145
Amendment			-				142				-				142
Structuring			396				-				-				396
Other			-				31				(78	)			(47	)
			396				2,464				213				3,073

 

		March 31, 2019
		Syndications				Documentary and standby letters of credit				Other Commissions, net				Total
Openning and confirmation			-				1,846				209				2,055
Negotiation and acceptance			-				163				-				163
Amendment			-				93				-				93
Structuring			-				-				-				-
Others			-				63				(24	)			39
			-				2,165				185				2,350

 

The following table provides information on the ordinary income that is expected to be recognized on the contracts in force:

 

		Up to 1 year				1 to 2 years				More than 2 years				Total
Ordinary income expected to be recognized on the contracts as of March 31, 2020			1,640				-				1,022				2,662

 

		Up to 1 year				1 to 2 years				More than 2 years				Total
Ordinary income expected to be recognized on the contracts as of December 31, 2019			1,462				95				1,026				2,583

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

20.

Business segment information

 

The Bank’s activities are managed and executed in two business segments: Commercial and Treasury. Information related to each reportable segment is set out below. Business segment results are based on the Bank’s managerial accounting process, which assigns assets, liabilities, revenue and expense items to each business segment on a systematic basis. The maximum decision-making operating authority of the Bank is represented by the Chief Executive Officer and the Executive Committee, who review the internal management reports for each division at least every six months. Segment profit, as included in the internal management reports is used to measure performance as management believes that this information is the most relevant in evaluating the results of the respective segments relative to other entities that operate within the same industry.

 

The Bank’s net interest income represents the main driver of profits; therefore, the Bank presents its interest-earning assets by business segment, to give an indication of the size of business generating net interest income. Interest-earning assets also generate gains and losses on sales, mainly from financial instruments at fair value through OCI and financial instruments at fair value through profit or loss, which are included in net other income. The Bank also discloses its other assets and contingencies by business segment, to give an indication of the size of business that generates net fees and commissions, also included in net other income.

 

The Commercial Business Segment encompasses the Bank’s core business of financial intermediation and fee generating activities developed to cater to corporations, financial institutions and investors in Latin America.  These activities include the origination of bilateral short-term and medium-term loans, structured and syndicated credits, loan commitments, and financial guarantee contracts such as issued and confirmed letters of credit, stand-by letters of credit, guarantees covering commercial risk, and other assets consisting of customers’ liabilities under acceptances.

 

Profits from the Commercial Business Segment include (i) net interest income from loans; (ii) fees and commissions from the issuance, confirmation and negotiation of letters of credit, guarantees and loan commitments, and through loan structuring and syndication activities; (iii) gain on sale of loans generated through loan intermediation activities, such as sales in the secondary market and distribution in the primary market; (iv) recovery or impairment loss on financial instruments, as well as gain (loss) in other non-financial assets, net; and (v) direct and allocated operating expenses.

 

The Treasury Business Segment focuses on managing the Bank’s investment portfolio, and the overall structure of its assets and liabilities to achieve more efficient funding and liquidity positions for the Bank, mitigating the traditional financial risks associated with the balance sheet, such as interest rate, liquidity, price and currency risks. Interest-earning assets managed by the Treasury Business Segment include liquidity positions in cash and cash equivalents, and financial instruments related to the investment management activities, consisting of securities at FVOCI and securities at amortized cost. The Treasury Business Segment also manages the Bank’s interest-bearing liabilities, which constitute its funding sources, mainly deposits, short- and long-term borrowings and debt.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

20.

Business segment information (continued)

 

Profits from the Treasury Business Segment include net interest income derived from the above mentioned treasury assets and liabilities, and related net other income (net results from derivative financial instruments and foreign currency exchange, gain (loss) on financial instruments at FVTPL, gain (loss) on sale of securities at FVOCI, and other income), recovery or impairment loss on financial instruments, and direct and allocated operating expenses.

 

The following table provides certain information regarding the Bank’s operations by segment:

 

		March 31, 2020
		Commercial				Treasury				Total
Interest income			55,891				3,099				58,990
Interest expense			(176	)			(33,013	)			(33,189	)
Inter-segment net interest income			(30,948	)			30,948				-
Net interest income			24,767				1,034				25,801
Other income (expense), net			3,349				(394	)			2,955
Total income			28,116				640				28,756
Impairment loss on financial assets			89				-				89
Gain (impairment loss) on non-financial assets			-				-				-
Operating expenses			(7,341	)			(3,202	)			(10,543	)
Segment profit (loss)			20,864				(2,562	)			18,302
Segment assets			5,359,398				1,453,571				6,812,969
Segment liabilities			84,777				5,707,013				5,791,790

 

		March 31, 2019
		Commercial				Treasury				Total
Interest income			67,255				6,299				73,554
Interest expense			(194	)			(45,340	)			(45,534	)
Inter-segment net interest income			(39,274	)			39,274				-
Net interest income			27,787				233				28,020
Other income (expense), net			2,598				1,453				4,051
Total income			30,385				1,686				32,071
Impairment (loss) profit on financial assets			(968	)			26				(942	)
Operating expenses			(7,310	)			(2,574	)			(9,884	)
Segment profit (loss)			22,107				(862	)			21,245
Segment assets			5,542,644				901,751				6,444,395
Segment liabilities			116,892				5,324,586				5,441,478

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

20.

Business segment information (continued)

 

Reconciliation on information on reportable segments
		March 31,				March 31,
		2020				2019
Profit for the period			18,302				21,245
Assets:
Assets from reportable segments			6,812,969				6,444,395
Other assets - unallocated			9,554				5,947
Total assets			6,822,523				6,450,342
Liabilities:
Liabilities from reportable segments			5,791,790				5,441,478
Other liabilities - unallocated			12,245				11,930
Total liabilities			5,804,035				5,453,408

  

The Bank applied IFRS 16, as of January 1, 2019, using the modified retrospective approach to recognize right-of-use assets for $17.4 million presented within equipment and leasehold improvements and lease liabilities for $20.9 million. As of March 31, 2020, assets and liabilities were allocated between Commercial and Treasury segments .

 

As a result of the adoption of the new standard, certain amounts related to equipment and leasehold improvements and intangibles were reclassified for presentation purposes in the consolidated financial statement.

 

21.

Related party transactions

 

The detail of the assets and liabilities with related private corporations and financial institutions is as follows:

 

		March 31,				December 31,
		2020				2019
Assets
Demand deposits			1,868				3,812
Loans, net			66,714				49,101
Total asset			68,582				52,913
Liabilities
Time deposits			80,000				120,000
Total liabilities			80,000				120,000
Contingencies
Stand-by letters of credit			20,000				20,000
Loss allowance			(49	)			(49	)

  

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

21.

Related party transactions (continued)

 

The detail of income and expenses with related parties is as follows:

 

		March 31,
		2020			2019
Interest income
Loans		540			750
Interest expense
Deposits		(467	)		(292	)
Borrowing and debt (1)		-			(226	)
Total interest expense		(467	)		(518	)
Net interest income (expenses)		73			232
Other income (expense)
Fees and commissions, net		88			-
Gain on financial instruments, net		-			32
Total other income, net		88			32
Operating expenses
Depreciation of equipment and leasehold improvements		-			(293	)
Other expenses		-			(91	)
Total operating expenses		-			(384	)
Net income from related parties		162			(120	)

 

(1)

This caption includes the financial cost relating to leases and depreciation expense for the right-of-use assets that rises from the lease contract with related parties where the Bank acts as a lessee through March 31, 2019.

 

The total compensation paid to directors and the executives as representatives of the Bank amounted to:

 

		March 31,
		2020			2019
Expenses:
Compensation costs to directors		348			409
Compensation costs to executives		3,274			1,828

 

Compensation costs to directors and executives, include annual cash retainers and the cost of granted restricted stock and restricted stock units.

 

22.

Litigation

 

Bladex is not engaged in any litigation that is significant to the Bank’s business or, to the best of the knowledge of Bank’s management, that is likely to have an adverse effect on its business, consolidated financial position or its consolidated financial performance.

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

23.

Applicable laws and regulations

 

Liquidity index

 

Rule No. 2-2018 issued by the Superintendence of Banks of Panama (SBP) establishes that every general license or international license bank must guarantee, with a higher level of confidence, that it is in the position to face its intraday liquidity obligations in a period when liquidity pressure may affect the lending market. For that purpose, the Superintendence of Banks of Panama has established a short-term liquidity coverage ratio known as “Liquidity Coverage Ratio or LCR”. This ratio is measured through the quotient of two amounts, the first one corresponds to the high-quality liquid assets and the second one corresponds to the net cash outflows in 30 days.

 

As of March 31, 2020 and December 31, 2019, the minimum LCR to be reported to the SBP was 25% for both periods. The Bank´s LCR as of March 31, 2020 and December 31, 2019 was 121% and 131%, respectively.

 

Rule No. 4-2008 issued by the SBP establishes that every general license or international license bank must maintain, always, a minimum balance of liquid assets equivalent to 30% of the gross total of its deposits in the Republic of Panama or overseas up to 186 days, counted from the reporting date. The formula is based on the following parameters:

 

	Liquid assets	x 100 = X% (Liquidity ratio)
	Liabilities (Deposits Received)

 

As of March 31, 2020, and December 31, 2019, the percentage of the liquidity index reported by the Bank to the regulator was 109.85% and 100.36%, respectively.

 

Capital adequacy

 

The Banking Law in the Republic of Panama and the Rules No. 01-2015 and 03-2016 require that the general license banks maintain a total capital adequacy index that shall not be lower, at any time, than 8% of total assets and off-balance sheet irrevocable contingency transactions, weighted according to their risks; and ordinary primary capital that shall not be less than 4.5% of its assets and off-balance sheet transactions that represent an irrevocable contingency, weighted based on their risks; and a primary capital that shall not be less than 6% of its assets and off-balance sheet transactions that represent an irrevocable contingency, weighted based on their risks.

 

The primary objectives of the Bank’s capital management policy are to ensure that the Bank complies with capital requirements imposed by local regulator and maintains strong credit ratings and healthy capital ratios to support its business and to maximize shareholder value.

 

The Bank manages its capital structure and adjusts it according to changes in economic conditions and the risk characteristics of its activities. To maintain or adjust the capital structure, the Bank may adjust the amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No changes have been made to the objectives, policies and processes from the previous periods. However, they are under constant review by the Board.

 

		March 31, 2020				December 31, 2019
Tier 1 capital			1,029,928				1,026,125
Risk weighted assets			5,373,187				5,937,648
Tier 1 capital ratio			19.17	%			17.28	%

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

23.

Applicable laws and regulations (continued)

 

Leverage ratio

 

Article No. 17 of the Rule No. 1-2015 establishes the leverage ratio of a regulated entity by means of the quotient between the ordinary primary capital and the total exposure for non-risk-weighted assets inside and outside the statement of financial position established by the SBP. For the determination of the exposure of off-balance-sheet operations, the criteria established for credit and counterparty credit risk positions will be used. The exposure of the derivatives will be the fair value at which it is recorded in the entity's assets.

 

The leverage ratio cannot be lower, at any time, than 3%. The Bank will inform to SBP as often as the compliance with the leverage ratio is determined.

 

		March 31, 2020				December 31, 2019
Ordinary capital			893,909				890,106
Non-risk-weighted assets			6,925,528				7,323,187
Leverage ratio			12.91	%			12.15	%

 

Specific credit provisions

 

Rule No. 4-2013, modified by Rule No. 8-2014, states that the specific provisions are originated from the objective and concrete evidence of impairment. These provisions must be established for credit facilities classified according to the risk categories denominated as: special mention, substandard, doubtful, or unrecoverable, both for individual credit facilities as for a group of such facilities. In the case of a group, it corresponds to circumstances that indicate the existence of deterioration in credit quality, although individual identification is still not possible.

 

Banks must calculate and maintain at all times the amount of the specific provisions determined by the methodology specified in this Rule, which takes into account the balance owed of each credit facility classified in any of the categories subject to provision, mentioned in the paragraph above; the present value of each guarantee available in order to mitigate risk, as established by type of collateral; and a weighting table that applies to the net exposure balance subject to loss of such credit facilities.

 

Article No. 34 of this Rule establishes that all credits must be classified in the following five (5) categories, according to their default risk and loan conditions, and establishes a minimum reserve for each classification: normal 0%, special mention 20%, substandard 50%, doubtful 80%, and unrecoverable 100%.

 

If there is an excess in the specific provision, calculated in accordance with this Rule, compared to the provision calculated in accordance with IFRS, this excess will be accounted for as a regulatory credit reserve in equity and will increase or decrease with appropriations from/to retained earnings. The balance of the regulatory credit reserve will not be considered as capital funds for calculating certain ratios or prudential indicators mentioned in the Rule.

 

Based on the classification of risks, collateral and in compliance with SBP Rule No. 4-2013, the Bank classified the loan portfolio as follows:

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

23.

Applicable laws and regulations (continued)

 

Specific credit provisions (continued)

 

		March 31, 2019
Loans		Normal				Special Mention					Substandard				Doubtful			Unrecoverable				Total
Corporations			2,294,446				12,541				-				-				61,845				2,368,832
Banks:
Private			2,522,994				-				-				-				-				2,522,994
State-owned			398,440				-				-				-				-				398,440
			2,921,434				-				-				-				-				2,921,434
Sovereign			47,221				-				-				-				-				47,221
Total			5,263,101				12,541				-				-				61,845				5,337,487
Allowance for loan losses IFRS (*):			42,706				2,491				-				-				54,744				99,941

 

		December 31, 2019
Loans		Normal				Special Mention				Substandard				Doubtful				Unrecoverable				Total
Corporations			2,487,859				13,595				-				-				61,845				2,563,299
Banks:
Private			2,692,787				-				-				-				-				2,692,787
State-owned			589,690				-				-				-				-				589,690
			3,282,477				-				-				-				-				3,282,477
Sovereign			47,221				-				-				-				-				47,221
Total			5,817,557				13,595				-				-				61,845				5,892,997
Allowance for loan losses IFRS (*):			42,396				2,338				-				-				54,573				99,307

 

As of March 31, 2020 and December 31, 2019, there are no restructured loans.

 

^(*) As of March 31, 2020, and December 31, 2019, there is no excess in the specific provision calculated in accordance with Agreement No. 8-2014 of the SBP, over the provision calculated in accordance with IFRS.

 

70

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

23.

Applicable laws and regulations (continued)

 

Specific credit provisions (continued)

 

For statutory purposes only, non-accruing loans are presented by category as follows:

 

		March 31, 2020
Non-accruing loans		Normal				Special Mention				Substandard				Doubtful				Unrecoverable				Total
Impaired loans			-				-				-				-				61,845				61,845
Total			-				-				-				-				61,845				61,845

 

		December 31, 2019
Non-accruing loans		Normal				Special Mention				Substandard				Doubtful				Unrecoverable				Total
Impaired loans			-				-				-				-				61,845				61,845
Total			-				-				-				-				61,845				61,845

 

Credit risk coverage - dynamic provision

 

		March 31,				December 31,
		2020				2019
Non-accruing loans:
Private corporations			61,845				61,845
Total non-accruing loans			61,845				61,845
Interest that would be reversed if the loans had been classified as non-accruing loans			1,550				1,379
Income from collected interest on non-accruing loans			-				631

  

The SBP by means of Rule No. 4-2013, establishes the compulsory constitution of a dynamic provision in addition to the specific credit provision as part of the total provisions for the credit risk coverage.

 

The dynamic provision is an equity item associated to the regulatory capital but does not replace or offset the capital adequacy requirements established by the SBP.

 

Methodology for the constitution of the regulatory credit reserve

 

The Superintendence of Banks of Panama by means of the General Resolution of Board of Directors SBP-GJD-0003-2013 of July 9, 2013, establishes the accounting methodology for differences that arise between the application of the International Financial Reporting Standards (IFRS) and the application of prudential regulations issued by the SBP; as well as the additional disclosures required to be included in the notes to the consolidated financial statements.

 

71

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

23.

Applicable laws and regulations (continued)

 

Methodology for the constitution of the regulatory credit reserve (continued)

 

The parameters established in this methodology are the following:

        

1.

The calculations of accounting balances in accordance with IFRS and the prudential standards issued by the SBP will be carried out and the respective figures will be compared.

 

2.

When the calculation made in accordance with IFRS results in a greater reserve or provision for the bank compared to the one resulting from the use of the prudential standards issued by the SBP, the Bank will account the IFRS figures.

 

3.

When the impact of the use of prudential standards results in a greater reserve or provision for the Bank, the effect of the application of IFRS will be recognized in profit or loss, and the difference between IFRS calculation compared to the prudential standards calculation will be appropriated from retained earnings as a regulatory credit reserve. If the bank does not have sufficient retained earnings, the difference will be presented as an accumulated deficit account.

 

4.

The regulatory credit reserve mentioned in paragraph 3 of this Rule may not be reversed against the retained earnings as long as there are differences between IFRS and the originated prudential regulations.

 

Considering that the Bank presents its consolidated financial statements under IFRS, specifically for its expected credit reserves under IFRS 9, the line "Regulatory credit reserve" established by the SBP has been used to present the difference between the application of the accounting standard used and the prudential regulations of the SBP to comply with the requirements of Rule No. 4-2013.

 

As of March 31, 2020  , and December 31, 2019, the total amount of the dynamic provision and the regulatory credit reserve calculated according to the guidelines of Rule No. 4-2013 of the SBP is $136.0 million for both periods, appropriated from retained earnings for purposes of compliance with local regulatory requirements. This appropriation is restricted from dividend distribution in order to comply with local regulations. The provision and reserve are detailed as follows:

 

		March 31, 2020				December 31, 2019
Dynamic provision			136,019				136,019
Regulatory credit reserve			-				-
			136,019				136,019

 

Capital reserve

 

In addition to capital reserves required by regulations, the Bank maintains a capital reserve of $95.2 million, which was voluntarily established. Pursuant to Article No. 69 of the Banking Law, reduction of capital reserves requires prior approval of SBP.

 

24.

Subsequent events

 

Bladex announced a quarterly cash dividend of $0.25 US dollar cents per share corresponding to the first quarter of 2020. The cash dividend was approved by the Board of Directors at its meeting held on April 8, 2020 and it was payable on May 13, 2020 to the Bank’s stockholders as of April 27, 2020 record date.

 

The outbreak of the novel Coronavirus disease, also known as COVID-19, initially reported in December of 2019, has spread rapidly as a pandemic among the world´s population during the first quarter of 2020.  The COVID-19 has negatively affected the economic conditions of companies in most of the countries in the world, causing global uncertainty which can significantly affect Bladex’s operations, as well as the operations of its customers, counterparties and suppliers.  The duration and severity of the impacts of COVID-19 are uncertain at this time, and the Bank cannot predict the impact it may have in its operations and financial situation, which could be material and adverse. The Bank's Management will continue to monitor and modify the operating and financial strategies in order to mitigate the possible risks that could affect the business.

 

72

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date:	May 18, 2020	FOREIGN TRADE BANK OF LATIN AMERICA, INC.
		(Registrant)
				By:	/s/ Ana Graciela de Méndez
				Name:	Ana Graciela de Méndez
				Title:	CFO

 

 

 

 

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