Company Quick10K Filing
Foreign Trade Bank of Latin America
20-F 2019-12-31 Filed 2020-04-30
20-F 2018-12-31 Filed 2019-04-30
20-F 2017-12-31 Filed 2018-04-30
20-F 2016-12-31 Filed 2017-04-28
20-F 2015-12-31 Filed 2016-04-29
20-F 2014-12-31 Filed 2015-04-23
20-F 2013-12-31 Filed 2014-04-25
20-F 2012-12-31 Filed 2013-04-23
20-F 2011-12-31 Filed 2012-04-27
20-F 2010-12-31 Filed 2011-05-26
20-F 2009-12-31 Filed 2010-06-11

BLX 20F Annual Report

Part I
Item 1.Identity of Directors, Senior Management and Advisers
Item 2.Offer Statistics and Expected Timetable
Item 3.Key Information
Item 4.Information on The Company
Item 4A.Unresolved Staff Comments
Item 5.Operating and Financial Review and Prospects
Item 6.Directors, Executive Officers and Employees
Item 7.Major Shareholders and Related Party Transactions
Item 8.Financial Information
Item 9.The Offer and Listing
Item 10.Additional Information
Item 11.Quantitative and Qualitative Disclosure About Market Risk
Item 12.Description of Securities Other Than Equity Securities
Part II
Item 13.Defaults, Dividend Arrearages and Delinquencies
Item 14.Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15.Controls and Procedures
Item 16.[Reserved]
Item 16A.Audit Committee Financial Expert
Item 16B.Code of Ethics
Item 16C.Principal Accountant Fees and Services
Item 16D.Exemptions From The Listing Standards for Audit Committees
Item 16E.Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F.Change in Registrant's Certifying Accountant
Item 16G.Corporate Governance
Item 16H.Mine Safety Disclosure
Part III
Item 17.Financial Statements
Item 18.Financial Statements
Item 19.Exhibits
EX-2.1 tm206471d1_ex2-1.htm
EX-8.1 tm206471d1_ex8-1.htm
EX-11.1 tm206471d1_ex11-1.htm
EX-12.1 tm206471d1_ex12-1.htm
EX-12.2 tm206471d1_ex12-2.htm
EX-13.1 tm206471d1_ex13-1.htm
EX-13.2 tm206471d1_ex13-2.htm

Foreign Trade Bank of Latin America Earnings 2019-12-31

Balance SheetIncome StatementCash Flow

20-F 1 tm206471d1_20f.htm FORM 20-F

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 20-F

 

 

 

(Mark One)

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report……………………………

For the transition period from ______ to _______

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)

REPUBLIC OF PANAMA

(Jurisdiction of incorporation or organization)

 

 

Torre V, Business Park

Avenida La Rotonda, Urb. Costa del Este

P.O. Box 0819-08730

Panama City, Republic of Panama

(Address of principal executive offices)

 

 

Ana Graciela de Méndez

Chief Financial Officer

+507 210-8500

Email address: amendez@bladex.com

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class

Class E Common Stock

Trading Symbol

BLX

Name of each exchange on which registered

New York Stock Exchange

 

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

 

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

6,342,189 Shares of Class A Common Stock
2,182,426 Shares of Class B Common Stock
31,077,662 Shares of Class E Common Stock
0 Shares of Class F Common Stock
39,602,277 Total Shares of Common Stock

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. 

x Yes   ¨    No

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. 

¨ Yes   x    No

 

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

x Yes   ¨    No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 

x Yes   ¨    No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

x Large Accelerated Filer ¨ Accelerated Filer ¨    Non-accelerated Filer
¨    Emerging growth company

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.   ¨

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

¨ U.S. GAAP

x   International Financial Reporting Standards as issued

by the International Accounting Standards Board

¨ Other

 

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. 

¨    Item 17   ¨ Item 18

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

¨ Yes   x    No

 

 

 

 

 

BANCO LATINOAMERICANO DE COMERCIO EXTERIOR, S.A.

 

TABLE OF CONTENTS

 

Page

 

PART I   6
Item 1. Identity of Directors, Senior Management and Advisers 6
Item 2. Offer Statistics and Expected Timetable 6
Item 3. Key Information 6
A. Selected Financial Data 6
B. Capitalization and Indebtedness 8
C. Reasons for the Offer and Use of Proceeds 8
D. Risk Factors 8
Item 4. Information on the Company 22
A. History and Development of the Company 22
B. Business Overview 23
C. Organizational Structure 47
D. Property, Plant and Equipment 47
Item 4A. Unresolved Staff Comments 47
Item 5. Operating and Financial Review and Prospects 48
A. Operating Results 48
B. Liquidity and Capital Resources 70
C. Research and Development, Patents and Licenses, etc. 79
D. Trend Information 80
E. Off-Balance Sheet Arrangements 85
F. Tabular Disclosure of Contractual Obligations 86
Item 6. Directors, Executive Officers and Employees 87
A. Directors and Executive Officers 87
B. Compensation 93
C. Board Practices 97
D. Employees 102
E. Share Ownership 102
Item 7. Major Shareholders and Related Party Transactions 102
A. Major Shareholders 102
B. Related Party Transactions 104
C. Interests of Experts and Counsel 105
Item 8. Financial Information 105
A. Consolidated Statements and Other Financial Information 105
B. Significant Changes 106
Item 9. The Offer and Listing 106
A. Offer and Listing Details 106
B. Plan of Distribution 107
C. Markets 107
D. Selling Shareholders 107
E. Dilution 107

 

2

 

 

F. Expenses of the Issue 107
Item 10. Additional Information 107
A. Share Capital 107
B. Memorandum and Articles of Association 108
C. Material Contracts 110
D. Exchange Controls 110
E. Taxation 110
F. Dividends and Paying Agents 115
G. Statement by Experts 115
H. Documents on Display 115
I. Subsidiary Information 115
Item 11. Quantitative and Qualitative Disclosure About Market Risk 116
Item 12. Description of Securities Other than Equity Securities 121
PART II 122
Item 13. Defaults, Dividend Arrearages and Delinquencies 122
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 122
Item 15. Controls and Procedures 122
Item 16. [Reserved] 124
     
Item 16A. Audit Committee Financial Expert 124
Item 16B. Code of Ethics 124
Item 16C. Principal Accountant Fees and Services 124
Item 16D. Exemptions from the Listing Standards for Audit Committees 125
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 125
Item 16F. Change in Registrant’s Certifying Accountant 125
Item 16G. Corporate Governance 125
Item 16H. Mine Safety Disclosure 125
     
PART III 126
Item 17. Financial Statements 126
Item 18. Financial Statements 126
Item 19. Exhibits 127

 

3

 

 

 

In this Annual Report on Form 20-F, or this Annual Report, references to the “Bank” or “Bladex” are to Banco Latinoamericano de Comercio Exterior, S.A., a specialized multinational bank incorporated under the laws of the Republic of Panama (“Panama”), and its consolidated subsidiaries described in Item 4.A “Information on the Company – History and Development of the Company.” References to Bladex’s consolidated financial statements (the “Consolidated Financial Statements”) are to the financial statements of Banco Lationoamericano de Comercio Exterior, S.A., and its subsidiaries, with all intercompany balances and transactions having been eliminated for consolidating purposes. References to “Bladex Head Office” are to Banco Latinoamericano de Comercio Exterior, S.A. in its individual capacity. References to “U.S. dollars” or “$” are to United States (“U.S.”) dollars. References to the “Region” are to Latin America and the Caribbean. The Bank accepts deposits and raises funds principally in U.S. dollars, grants loans mostly in U.S. dollars and publishes its Consolidated Financial Statements in U.S. dollars. The numbers and percentages set forth in this Annual Report have been rounded and, accordingly, may not total exactly.

 

Upon written or oral request, the Bank will provide without charge to each person to whom this Annual Report is delivered, a copy of any or all of the documents listed as exhibits to this Annual Report (other than exhibits to those documents, unless the exhibits are specifically incorporated by reference in the documents). Written requests for copies should be directed to the attention of Mrs. Ana Graciela de Méndez, Chief Financial Officer, Bladex, as follows: (1) if by regular mail, to P.O. Box 0819-08730, Panama City, Republic of Panama, and (2) if by courier, to Torre V, Business Park, Avenida La Rotonda, Urb. Costa del Este, Panama City, Republic of Panama. Telephone requests may be directed to Mrs. de Méndez at +507 210-8563. Written requests may also be sent via e-mail to Mrs. de Méndez at amendez@bladex.com or ir@bladex.com.

 

Forward-Looking Statements

 

In addition to historical information, this Annual Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements may appear throughout this Annual Report. The Bank uses words such as “believe,” “intend,” “expect,” “anticipate,” “plan,” “may,” “will,” “should,” “estimate,” “potential,” “project” and similar expressions to identify forward-looking statements. Such statements include, among others, those concerning the Bank’s expected financial performance and strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. Forward-looking statements involve risks and uncertainties, and actual results may differ materially from those discussed in any such statement. Factors that could cause actual results to differ materially from these forward-looking statements include the risks described in the section titled “Risk Factors.” Factors or events that could cause the Bank’s actual results to differ may emerge from time to time, and it is not possible for the Bank to predict all such factors or results. The Bank undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable law or regulation. Forward-looking statements include statements regarding:

 

·the coronavirus (COVID-19) pandemic and government actions intended to limit its spread;
·general economic, political and business conditions in North America, Central America, South America and the jurisdictions in which the Bank or its customers operate;
·the growth of the Bank’s Credit Portfolio, including its trade finance portfolio;
·the Bank’s ability to increase the number of its clients;
·the Bank’s ability to maintain its investment-grade credit ratings and preferred creditor status;
·the effects of changing interest rates, inflation, exchange rates and the macroeconomic environment in the Region on the Bank’s financial condition;
·the execution of the Bank’s strategies and initiatives, including its revenue diversification strategy;
·anticipated profits and return on equity in future periods;
·the Bank’s level of capitalization and debt;

 

4

 

 

·the implied volatility of the Bank’s Treasury profits;
·levels of defaults by borrowers and the adequacy of the Bank’s allowance for losses on financial instruments and the measure of its expected credit loss model;
·the availability and mix of future sources of funding for the Bank’s lending operations;
·the adequacy of the Bank’s sources of liquidity to cover large deposit withdrawals;
·management’s expectations and estimates concerning the Bank’s future financial performance, financing, plans and programs, and the effects of competition;
·government regulations and tax laws and changes therein;
·increases in compulsory reserve and deposit requirements;
·effectiveness of the Bank’s risk management policies;
·failure in, or breach of, the Bank’s operational or security systems or infrastructure;
·regulation of the Bank’s business and operations on a consolidated basis;
·the effects of possible changes in economic or financial sanctions, requirements, or trade embargoes, changes in international trade, tariffs, restrictions or policies, such as those imposed or implemented by the current administration in the United States of America (“United States” or “U.S.”), or as a result of the United Kingdom’s (“U.K.”) exit from the European Union (“Brexit”);
·credit and other risks of lending and investment activities; and
·the Bank’s ability to sustain or improve its operating performance.

 

In addition, the statements included under the headings “Item 4.B. Business Overview—Strategies for 2020 and Subsequent Years” and “Item 5.D. Trend Information” are forward-looking statements. Given the risks and uncertainties surrounding forward-looking statements, undue reliance should not be placed on these statements. Many of these factors are beyond the Bank’s ability to control or predict. The Bank’s forward-looking statements speak only as of the date of this Annual Report. Other than as required by law, the Bank undertakes no obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise.

 

5

 

 

PART I

 

Item 1.Identity of Directors, Senior Management and Advisers

 

Not required in this Annual Report.

 

Item 2.Offer Statistics and Expected Timetable

 

Not required in this Annual Report.

 

Item 3.Key Information

 

A.        Selected Financial Data

 

The following table presents selected consolidated financial data for the Bank. The Consolidated Financial Statements were prepared and presented in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The following selected financial data as of December 31, 2019 and 2018, and for the years ended December 31, 2019, December 31, 2018 and December 31, 2017 has been derived from the Consolidated Financial Statements, and are included in this Annual Report beginning on page F-1, together with the reports of the independent registered public accounting firms KPMG LLP (“KPMG”) and Deloitte, Inc. (“Deloitte”). The following selected fianancial data as of December 31, 2017 and for the year ended December 31, 2016 are derived from the Form 20-F for the year 2018 already filed with the SEC. The following selected fianancial data as of December 31, 2016 and for the year ended December 31, 2015 are derived from the From 20-F for the year 2017 already filed with the SEC. The following selected fianancial data as of December 31, 2015 are derived from the From 20-F for the year 2016 already filed with the SEC. The Consolidated Financial Statements as of, and for the years ended December 31, 2019 and 2018 were audited by the independent registered public accounting firm KPMG, and the Consolidated Financial Statements as of, and for the years ended, December 31, 2017, 2016 and 2015 were audited by the independent registered public accounting firm Deloitte. The information below is qualified in its entirety by reference to the detailed information included elsewhere herein and should be read in conjunction with Item 4, “Information on the Company,” Item 5, “Operating and Financial Review and Prospects,” and the Consolidated Financial Statements and notes thereto included in this Annual Report.

 

 

Consolidated Selected Financial Information

 

   As of December 31, 
   2019   2018   2017   2016   2015 
Consolidated Statement of Financial Position Data:  (in $ thousands) 
Cash and due from banks  $1,178,170   $1,745,652   $672,048   $1,069,538   $1,299,966 
Securities and other financial assets, net   88,794    123,598    95,484    107,821    303,429 
Loans   5,892,997    5,778,424    5,505,658    6,020,731    6,691,749 
Allowance for loan losses   (99,307)   (100,785)   (81,294)   (105,988)   (89,974)
Total assets   7,249,666    7,609,185    6,267,747    7,180,783    8,286,216 
Total deposits, less interest payable   2,888,336    2,970,822    2,928,844    2,802,852    2,795,469 
Securities sold under repurchase agreement   40,530    39,767    0    0    114,084 
Borrowings and debt, net   3,138,310    3,518,446    2,211,567    3,246,813    4,312,170 
Total liabilities   6,233,499    6,615,595    5,224,935    6,169,469    7,314,285 
Common stock   279,980    279,980    279,980    279,980    279,980 
Total equity  $1,016,167   $993,590   $1,042,812   $1,011,314   $971,931 

 

6

 

 

   As of and for the Year Ended December 31, 
   2019   2018   2017   2016   2015 
   (in $ thousands, except per share data and ratios) 
Consolidated Statement of profit or loss Data:                    
Total interest income   $273,682   $258,490   $226,079   $245,898   $220,312 
Total interest expense   (164,167)   (148,747)   (106,264)   (90,689)   (74,833)
Net interest income    109,515    109,743    119,815    155,209    145,479 
                          
Fees and commissions, net   15,647    17,185    17,514    14,306    19,200 
(Loss) gain on financial instruments, net   (1,379)   (1,009)   (739)   (2,919)   7,576 
Other income, net   2,874    1,670    1,723    1,378    1,603 
Total other income, net   17,142    17,846    18,498    12,765    28,379 
Total revenues   126,657    127,589    138,313    167,974    173,858 
Impairment loss on financial instruments   (430)   (57,515)   (9,439)   (35,115)   (18,090)
Gain (loss) on non-financial assets, net   500    (10,018)   0    0    0 
Total operating expenses   (40,674)   (48,918)   (46,875)   (45,814)   (51,784)
Profit for the year   86,053    11,138   $81,999   $87,045   $103,984 
Weighted average basic shares    39,575    39,543    39,311    39,085    38,925 
Weighted average diluted shares    39,575    39,543    39,329    39,210    39,113 
Basic shares period end   39,602    39,539    39,429    39,160    38,969 
Per Common Share Data:                         
Basic earnings per share   2.17    0.28    2.09    2.23    2.67 
Diluted earnings per share   2.17    0.28    2.08    2.22    2.66 
Book value per share (period end) (1)   25.66    25.13    26.45    25.83    24.94 
Regular cash dividends declared per share    1.54    1.54    1.54    1.54    1.155 
Regular cash dividends paid per share    1.54    1.54    1.54    1.54    1.54 
Selected Financial Ratios:                         
Performance Ratios:                         
Return on average total assets (2)   1.36%   0.17%   1.27%   1.16%   1.32%
Return on average total equity (3)   8.56%   1.08%   8.02%   8.76%   10.95%
Net interest margin (4)    1.74%   1.71%   1.85%   2.08%   1.84%
Net interest spread (4)    1.19%   1.21%   1.48%   1.84%   1.68%
Efficiency Ratio (5)    32.1%   38.3%   33.9%   27.3%   29.8%
Total operating expenses to average total assets   0.64%   0.76%   0.72%   0.61%   0.66%
Regular cash dividend payout ratio (6)   70.8%   546.7%   73.8%   69.1%   57.6%
Liquidity Ratios:                         
Liquid assets (7) / total assets   16.00%   22.42%   9.87%   14.03%   15.29%
Liquid assets (7) / total deposits   40.15%   57.43%   21.13%   35.95%   45.33%
Asset Quality Ratios:                         
Credit-impaired loans (8) to Loan Portfolio (9)   1.05%   1.12%   1.07%   1.09%   0.78%
Charged-off loans to Loan Portfolio   0.04%   0.72%   0.60%   0.31%   0.09%
Allowance for loan losses to Loan Portfolio   1.69%   1.74%   1.48%   1.76%   1.34%
Allowance for loan commitments and financial guarantee contracts losses to total loan commitments and financial guarantee contracts plus customers’ liabilities under acceptances   0.50%   0.64%   1.39%   1.37%   1.17%
Capital Ratios:                         
Total equity to total assets   14.02%   13.06%   16.64%   14.08%   11.73%
Average total equity to average total assets (10)   15.84%   15.98%   15.80%   13.28%   12.02%
Leverage ratio (11)   7.1x   7.7x   6.0x   7.1x   8.5x
Tier 1 capital to risk-weighted assets (12)    19.8%   18.1%   21.1%   17.9%   16.1%
Risk-weighted assets (12)  $

5,137,523

   $5,494,080   $4,931,046   $5,662,453   $6,103,767 

 

(1)Book value per share refers to the Bank’s total equity divided by the Bank’s outstanding common basic shares at the end of the period.
(2)For the years 2019, 2018, 2017, 2016 and 2015, return on average total assets is calculated as profit for the year divided by average total assets. Average total assets for 2019, 2018, 2017, 2016 and 2015, is calculated on the basis of daily average balances.
(3)For the years 2019, 2018, 2017, 2016 and 2015, return on average total equity is calculated as profit for the year divided by average total equity. Average total equity for 2019, 2018, 2017, 2016 and 2015, is calculated on the basis of daily average balances.
(4)For the years 2019, 2018, 2017, 2016 and 2015, net interest margin is calculated as net interest income divided by the average balance of interest-earning assets. Average balance of interest-earning assets for 2019, 2018, 2017, 2016 and 2015, is calculated on the basis of daily average balances. Net interest spread is calculated as average yield earned on interest-earning assets, less the average yield paid on interest-bearing liabilities. For more information regarding calculation of the net interest margin and the net interest spread, see Item 5.A., “Operating and Financial Review and Prospects—Operating Results—Net Interest Income and Margins.”
(5)Efficiency ratio is total operating expenses as a percentage of total revenues.
(6)The Bank calculates regular cash dividend payout ratio as regular cash dividends paid per share during the relevant period.
(7)Liquid assets refer to total cash and cash equivalents, consisting of cash and due from banks, and interest-bearing deposits in banks, less pledged deposits, as shown in the consolidated statements of cash flows. See Item 5.B. “Operating and Financial Review and Prospects—Liquidity and Capital Resources—Liquidity” and Item 18, “Financial Statements.
(8)As of December 31, 2019, 2018, 2017, 2016 and 2015, the Bank had credit-impaired loans of $62 million, $65 million, $59 million, $65 million and $52 million, respectively. Impairment factors considered by the Bank’s management include collection status, collateral value, the probability of collecting scheduled principal and interest payments when due, and economic conditions in the borrower’s country of residence.
(9)Loan Portfolio refers to loans, gross of the allowance for loan losses, interest receivable and unearned interest and deferred fees.
(10)For the years 2019, 2018, 2017, 2016 and 2015, average total assets and average total equity are calculated on the basis of daily average balances.
(11)Leverage ratio is the ratio of total assets to total equity.
(12)Tier 1 Capital is calculated according to Basel III capital adequacy guidelines, and is equivalent to total equity excluding certain effects such as accumulated other comprehensive income (loss) (“OCI”) of the securities at fair value through OCI. Tier 1 Capital ratio is calculated as a percentage of risk-weighted assets. Risk-weighted assets are estimated based on Basel III capital adequacy guidelines.

 

7

 

 

B.        Capitalization and Indebtedness

 

Not required in this Annual Report.

 

C.        Reasons for the Offer and Use of Proceeds

 

Not required in this Annual Report.

 

D.        Risk Factors

 

The Bank’s business, results of operations, financial conditions and cash flows are subject to, and could be materially adversely affected by, various risks and uncertainties, including, without limitation, those set forth below, any one of which could cause the Bank’s actual results to vary materially from recent results or anticipated future results. Investors should consider, among other things, all of the information set out in this Annual Report and particularly the risk factors with respect to Bladex and the Region. In general, investing in financial instruments of issuers in emerging market countries such as Panama involves a higher degree of risk than investing in financial instruments of U.S. and European issuers. Additional risks and uncertainties not presently known to the Bank or that its management currently deems immaterial may also impair the Bank’s business operations.

 

Risks Relating to the Bank’s Business

 

The ongoing COVID-19 pandemic and measures intended to prevent its spread could have material adverse effects on the Bank’s business, results of operations, cash flows and financial condition.

 

In December 2019, COVID-19 was first reported in Wuhan, China, and on March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The outbreak has reached more than 160 countries and has led governments and other authorities around the world, including federal, state and local authorities in the Region, to impose strict measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders.

 

The impact of the COVID-19 pandemic and measures to prevent its spread could negatively impact the Bank’s business in a number of ways, some of which may not be foreseeable at the present time. For example, the borrowers to which the Bank lends through its Commercial Portfolio may be materially and adversely affected by the impact of the outbreak of COVID-19 on the global economy and on the economy in the Region. The borrowers to which the Bank lends operate a wide range of businesses and are active in numerous economic sectors, many of which are facing, and will continue to face, significant challenges and negative impacts as a result of the COVID-19 outbreak. These impacts may include, among others, reduced business volumes, temporary closures of the Bank’s borrowers’ facilities, insufficient liquidity, delayed or defaulted payments from the Bank’s borrowers’ own customers, increased levels of indebtedness or the unavailability of sufficient financing for the Bank’s borrowers, and other factors which are beyond the Bank’s control. To the extent the COVID-19 pandemic adversely affects the business and financial results of the borrowers to whom the Bank lends, it could lead to loan restructurings on terms which may not be as favorable to the Bank, bankruptcies and insolvencies of the Bank’s borrowers, and increase the level of impaired loans in the Bank’s Commercial Portfolio and its level of allowances for expected credit losses, which could in turn materially and adversely affect the Bank’s business, results of operations and financial condition.

 

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The COVID-19 outbreak may also cause material and adverse impacts on the Bank’s assets, as well as impacts on income due to lower lending and transaction volumes, which may impact the Bank’s assets and capital position. Further expected credit losses could arise, impacted by the disruption to global supply chains, and through the impact that COVID-19 is having more broadly on economic growth globally. In addition, the COVID-19 pandemic may cause the Bank to continue to institute from time to time office closures and remote working arrangements for its employees and staff, which could have a material adverse effect on productivity.

 

The COVID-19 pandemic has also caused, and is likely to continue to cause, severe economic, market and other disruptions worldwide and in the Region. The Bank cannot assure you that conditions in the bank lending, capital and other financial markets will not continue to deteriorate as a result of the pandemic, or that the Bank’s access to capital and other sources of funding will not become constrained, which could adversely affect the Bank’s Commercial Portfolio volumes and the terms of future loans in the Commercial Portfolio, renewals or refinancings.

 

The extent of the COVID-19 pandemic’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the outbreak, all of which are uncertain and difficult to predict. Due to the speed with which the situation is developing, we are not able at this time to estimate the effect of these factors on our business, but the adverse impact on our business, results of operations, financial condition and cash flows could be material.

 

Bladex faces liquidity risk, and its failure to adequately manage this risk could result in a liquidity shortage, which could adversely affect its financial condition, results of operations and cash flows.

 

Bladex, like all financial institutions, faces liquidity risk. Liquidity risk is the risk that the Bank will be unable to maintain adequate cash flow to repay its deposits and borrowings and fund its Credit Portfolio on a timely basis. The Bank’s capacity and cost of funding may be impacted by a number of factors, such as changes in market conditions (e.g., in interest rates), credit supply, changes in credit ratings, regulatory changes, systemic shocks and volatility in the banking and financial sectors, and changes in the market’s perception of the Bank, among others. Failure to adequately manage its liquidity risk could produce a shortage of available funds, which may cause the Bank to be unable to repay its obligations as they become due.

 

Short-term borrowings and debt from international private banks that compete with the Bank in its lending activity, represent one of the main sources of funding at 23% of the Bank’s total funding as of December 31, 2019. If these international banks cease to provide funding to the Bank or cease to provide funding to the Bank at historically applicable interest rates, the Bank would have to seek funding from other sources, which may not be available, or if available, may be at a higher cost.

 

Turmoil in the international financial markets, including but not limited to recent ongoing turmoil related to COVID-19, oil prices and other factors, could negatively impact liquidity in such financial markets, reducing the Bank’s access to credit or increasing its cost of funding, which could lead to tighter lending standards. The occurrence of such unfavorable market conditions could have a material adverse effect on the Bank’s liquidity, results of operations and financial condition.

 

As of December 31, 2019, 61% of the Bank’s total deposits represented deposits from central banks or their designees (i.e., the Bank’s Class A shareholders), 20% of the Bank’s deposits represented deposits from private sector commercial banks and financial institutions, 10% of the Bank’s deposits represented deposits from state-owned and private, corporations and international organizations, and 9% of the Bank’s deposits represented deposits from state-owned banks. The Bank does not accept retail deposits from individuals. Any disruption or material decrease in current or historic deposit levels, in particular levels of deposits made by central banks and their designees (i.e., the Bank’s Class A shareholders) due, among other factors, to any change in their U.S. dollar liquidity strategies which currently include making deposits with the Bank, could have a material adverse effect on the Bank’s liquidity, results of operations and financial condition.

 

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Lastly, Panama is a U.S. dollar-based economy. Panama does not have a central bank, and there is no lender of last resort to local financial institutions in the Panamanian banking sector in the event of financial difficulties or system-wide liquidity disruptions, which could adversely affect the banking system in the country.

 

Any of the above factors, either individually or in the aggregate, could adversely affect the Bank’s liquidity, financial condition, results of operations and cash flows.

 

The Bank’s allowance for losses on financial instruments could be inadequate to cover credit losses mostly related to its loans, loan commitments and financial guarantee contracts.

 

The Bank determines the appropriate level of allowances for losses based on a forward-looking process that estimates the probable loss inherent in its Credit Portfolio, which is the result of a statistical analysis supported by the Bank’s historical portfolio performance, external sources, and the judgment of the Bank’s management. The latter reflects assumptions and estimates made in the context of changing political and economic conditions in the Region. The Bank’s commercial portfolio (the “Commercial Portfolio”) includes: (i) gross loans excluding interest receivable, allowance for loan losses, unearned interest and deferred fees (the “Loan Portfolio”), (ii) customers’ liabilities under acceptances, and (iii) loan commitments and financial guarantee contracts, such as confirmed and stand-by letters of credit, and guarantees covering commercial risk. The Bank’s allowances for losses could be inadequate to cover losses in its Commercial Portfolio due to, among other factors, concentration of exposure or deterioration in certain sectors or countries, including but not limited to the impact of recent ongoing turmoil related to COVID-19, oil prices and other factors, which in turn could have a material adverse effect on the Bank’s financial condition, results of operations and cash flows.

 

The Bank’s businesses are subject to market risk inherent in the Bank’s financial instruments, as fluctuations in different metrics may have adverse effects on its financial position.

 

Market risk generally represents the risk that the values of assets and liabilities or revenues will be adversely affected by changes in market conditions. Market risk is inherent in the financial instruments associated with many of the Bank’s operations and activities, including loans and securities at amortized cost, deposits, financial instruments at fair value through profit or loss (“FVTPL”) and securities at fair value through other comprehensive income (“FVOCI”), short-term and long-term borrowings and debt, derivatives and trading positions. This risk may result from fluctuations in different metrics: interest rates, currency exchange rates and changes in the implied volatility of interest rates and changes in securities prices, due to changes in either market perception or actual credit quality of either the relevant issuer or its country of origin. This risk may also result from turmoil in the international financial markets, including but not limited to recent ongoing turmoil related to COVID-19, oil prices and other factors. Accordingly, depending on the instruments or activities impacted, market risks can have wide ranging, complex adverse effects on the Bank’s financial condition, results of operations, cash flows and business.

 

Furthermore, the Bank cannot predict the amount of realized or unrealized gains or losses on its financial instruments for any future period. Gains or losses on the Bank’s investment portfolio may not contribute to its net revenue in the future or may cease to contribute to its net revenue at levels consistent with more recent periods. The Bank may not successfully realize the appreciation or depreciation now existing in its consolidated investment portfolio or in any assets of such portfolio.

 

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The Bank faces interest rate risk that may be caused by the mismatch in maturities of interest-earning assets and interest-bearing liabilities.  If not properly managed, this mismatch can reduce net interest income as interest rates fluctuate.

 

As a bank, Bladex faces interest rate risk because interest-bearing liabilities generally reprice at a different pace than interest-earning assets. Bladex’s exposure to financial instruments whose values vary with the level or volatility of interest rates contributes to its interest rate risk. Failure to adequately manage eventual mismatches may reduce the Bank’s net interest income during periods of fluctuating interest rates.

 

The Bank’s Commercial Portfolio may decrease or may not grow as expected. Additionally, growth in the Bank’s Commercial Portfolio or other factors, including those beyond the Bank’s control, may expose the Bank to increases in its allowance for expected credit losses.

 

The Bank’s Commercial Portfolio, including its Loan Portfolio, may not grow at anticipated levels or may decrease in future periods. A reversal or slowdown in the growth rate of the Region’s economy and trade volumes could adversely affect the Bank’s Commercial Portfolio, and as a result adversely affect the Bank’s results of operations. The spread of the COVID-19 virus throughout the world, and in particular the Region, as well as the implementation of restrictive governmental measures to prevent its spread, has begun to affect our Commercial Portfolio in a number of ways, including a reduction in Commercial Portfolio balances. In particular, as loans in the Commercial Portfolio have matured in accordance with their terms, the Bank has been lending on a more selective basis, having established strict credit underwriting criteria with a focus on client segments and industries that the Bank believes are better suited to weather the effects of the COVID-19 pandemic. See Item 3.D., “Key Information--Risk Factors—Risks Relating to the Bank’s Business--The ongoing COVID-19 pandemic and measures intended to prevent its spread could have material adverse effects on the Bank’s business, results of operations, cash flows and financial condition,” and Item 5.D., “Operating and Financial Review and Prospects—Trend Information.”

 

Furthermore, any future expansion of the Bank’s Commercial Portfolio may expose the Bank to higher levels of potential or actual losses and require an increase in the allowance for expected credit losses, which could negatively impact the Bank’s operating results and financial position. Furthermore, the Bank’s historical loan loss experience may not be indicative of its future loan losses. Credit-impaired or low credit quality loans can also increase the Bank’s allowance for expected credit losses and thereby negatively impact the Bank’s results of operations. The Bank may not be able to effectively control the level of the impaired loans in its total Loan Portfolio. In particular, the amount of its reported credit-impaired loans may increase in the future as a result of growth in its Loan Portfolio, including loans that the Bank may acquire in the future, changes in its business profile or factors beyond the Bank’s control, such as the impact of economic trends and political events affecting the Region, certain industries or financial markets and global economies, or particular clients’ businesses, all of which could be negatively impacted by the effects of the COVID-19 pandemic. These factors, among others, could have a material adverse effect on the Bank’s financial condition, results of operations and cash flows.

 

Increased competition and banking industry consolidation could limit the Bank’s ability to grow and may adversely affect its results of operations.

 

Most of the competition the Bank faces in the trade finance business comes from domestic and international banks, and in particular European, North American and Asian institutions. Many of these banks have substantially greater resources than the Bank, may have better credit ratings, and may have access to less expensive funding than the Bank does. It is difficult to predict how increased competition will affect the Bank’s growth prospects and results of operations.

 

Over time, there has been substantial consolidation among companies in the financial services industry. Merger activity in the financial services industry has produced companies that are capable of offering a wide array of financial products and services at competitive prices. In addition, whenever economic conditions and risk perception improve in the Region, competition from commercial banks, the securities markets and other new market entrants generally increases.

 

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Globalization of the capital markets and financial services industries exposes the Bank to further competition.  To the extent the Bank expands into new business areas and new markets, the Bank may face competitors with more experience and more established relationships with clients, regulators and industry participants in the relevant market, which could adversely affect the Bank’s ability to compete. The Bank’s ability to grow its business and therefore, its earnings, may be affected by these competitive pressures.

 

The Bank also faces competition from local financial institutions which increasingly have access to as good or better resources than the Bank. Local financial institutions are also clients of the Bank and there is complexity in managing the balance when a local financial institution is both a client and competitor. Additionally, many local financial institutions are able to gain direct access to the capital markets and low cost funding sources, threatening the Bank’s historical role as a provider of U.S. dollar funding.

 

As a result of the foregoing, increased competition and banking industry consolidation could limit the Bank’s ability to grow and may adversely affect its results of operations.

 

The Bank’s businesses rely heavily on data collection, management and processing, and information systems, several of which are provided by third parties. Operational failures or security breaches with respect to any of the foregoing could adversely affect the Bank, including the effectiveness of its risk management and internal control systems. Additionally, the Bank may experience cyberattacks or system defects and failures (including failures to update systems), viruses, worms, and other malicious software from computer “hackers” or other sources, which could unexpectedly interfere with the operation of the Bank’s systems.

 

All of the Bank’s principal businesses are highly dependent on the ability to timely collect and process a large amount of financial and other information across numerous and diverse markets, at a time when transaction processes have become increasingly complex with increasing volume. The proper functioning of financial control, accounting or other data collection and processing and information systems is critical to the Bank’s businesses and to its ability to compete effectively. A partial or complete failure of any of these primary systems could materially and adversely affect the Bank’s decision-making process, risk management and internal control systems, as well as the Bank’s ability to respond on a timely basis to changing market conditions. If the Bank cannot maintain effective data collection, management and processing and information systems, it may be materially and adversely affected.

 

The Bank also relies on third party technology suppliers for many of its core operating systems that are crucial to its business activities. Any issues associated with those suppliers may have a significant impact on the Bank’s capacity to process transactions and conduct its business. Additionally, these suppliers have access to the Bank’s core systems and databases, exposing the Bank to vulnerability from its technology providers. Any security problems and security vulnerabilities of such third parties may have a material adverse effect on the Bank.

 

The Bank is also dependent on information systems to operate its website, process transactions, respond to customer inquiries on a timely basis and maintain cost-efficient operations. While the Bank has implemented policies and procedures designed to manage information security, the Bank may experience cyberattacks or operational problems with its information systems as a result of system defects and failures (including failures to update systems), viruses, worms, and other malicious software from computer “hackers” or other sources, which could unexpectedly interfere with the operation of the Bank’s systems.

 

Furthermore, the Bank manages and stores certain proprietary information and sensitive or confidential data relating to its clients and to its operations. The Bank may be subject to breaches of the information technology systems it uses for these purposes. Additionally, the Bank operates in many geographic locations and is exposed to events outside its control, including the potential proliferation of regulatory requirements regarding local storage of data, use of local services or technology, or sharing of intellectual property. Despite the contingency plans the Bank has in place, its ability to conduct business in any of its locations may be adversely impacted by a disruption to the infrastructure that supports its business.

 

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In addition, as a result of the COVID-19 pandemic, the Bank has implemented office closures and remote working policies in order to protect the health of its employees and staff. These arrangements have necessitated new and increased reliance on information technology, such as videoconferencing and other infrastructure. Any failure or hacking of these and other systems could materially and adversely affect the Bank’s business and operations.

 

The Bank’s ability to remain competitive depends in part on its ability to upgrade its information technology on a timely and cost-effective basis. The Bank continually makes investments and improvements in its information technology infrastructure in order to remain competitive. The Bank may not be able to maintain the level of capital expenditures necessary to support the improvement or upgrading of its information technology infrastructure. Any failure to effectively improve or upgrade its information technology infrastructure and management information systems in a timely manner could have a material adverse effect on the Bank. The Bank’s reputation could also suffer if the Bank is unable to protect its customers’ information from being used by third parties for illegal or improper purposes.

 

Operational problems or errors can have a material adverse impact on the Bank’s business, financial condition, reputation, results of operations and cash flows.

 

Operating failures, including those that result from human error or fraud, not only may increase the Bank’s costs and cause losses, but may also give rise to conflicts with its clients, lawsuits, regulatory fines, sanctions, interventions, reimbursements and other indemnity costs, all of which may have a material adverse impact on the Bank’s business, financial condition, reputation, results of operations and cash flows. Ethical misconduct or breaches of applicable laws by the Bank’s businesses or its employees could also be damaging to the Bank’s reputation, and could result in litigation, regulatory action or penalties. Operational risk also includes: (i) legal risk associated with inadequacy or deficiency in contracts signed by the Bank; (ii) penalties due to noncompliance with laws, such as anti-money laundering (“AML”) and embargo regulations; and (iii) punitive damages to third parties arising from the activities undertaken by the Bank. Also, the Bank has additional services for the proper functioning of its business and technology infrastructure, such as networks, internet and systems, among others, provided by external or outsourced companies. Impacts on the provision of these services, caused by these companies due to the lack of supply or the poor quality of the contracted services, can affect the conduct of the Bank’s business as well as its clients. Operational problems or errors such as these may have a material adverse impact on the Bank’s business, financial condition, reputation, results of operations and cash flows.

 

Any delays or failure to implement business initiatives that the Bank may undertake could prevent the Bank from realizing the anticipated revenues and benefits of these initiatives.

 

Part of the Bank’s strategy is to diversify income sources through certain business initiatives, including targeting new clients and developing new products and services. These initiatives may not be fully implemented within the time frame the Bank expects, or at all. In addition, even if such initiatives are fully implemented, they may not generate revenues as expected, which could adversely affect the Bank’s business, results of operations and growth prospects. Any delays in implementing these business initiatives could prevent the Bank from realizing the anticipated benefits of the initiatives, which could adversely affect the Bank’s business, results of operations and growth prospects.

 

The Banks hedging strategy may not be able to prevent losses.

 

The Bank uses diverse instruments and strategies to hedge its exposures to a number of risks associated with its business, but the Bank may incur losses if such hedges are not effective. The Bank may not be able to hedge its positions, or do so only partially, or its hedges may not have the desired effectiveness to mitigate the Bank’s exposure to the diverse risks and market in which it is involved.

 

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Any failure to remain in compliance with applicable banking laws or other applicable regulations in the jurisdictions in which the Bank operates could harm its reputation and/or cause it to become subject to fines, sanctions or legal enforcement, which could have a material adverse effect on the Bank’s business, financial condition and results of operations.

 

Bladex has adopted various policies and procedures to ensure compliance with applicable laws, including internal controls and “know-your-customer” procedures aimed at preventing money laundering and terrorism financing; however, the participation of multiple parties in any given transaction can increase complexity and require additional time for due diligence. Also, because trade finance can be more reliant on document-based information than other banking activities, it is susceptible to documentary fraud, which can be linked to money laundering, terrorism financing, illicit activities and/or the circumvention of sanctions or other restrictions (such as export prohibitions, licensing requirements or other trade controls). While the Bank remains alert to potentially high-risk transactions, it is also aware that efforts, such as forgery, double invoicing, partial shipments of goods and use of fictitious goods, may be used to evade applicable laws and regulations. If the Bank’s policies and procedures are ineffective in preventing third parties from using it as a conduit for money laundering or terrorism financing without its knowledge, the Bank’s reputation could suffer and/or it could become subject to fines, sanctions or legal action (including being added to any “blacklists” that would prohibit certain parties from engaging in transactions with the Bank), which could have an adverse effect on the Bank’s business, financial condition and results of operations. In addition, amendments to applicable laws and regulations in Panama and other countries in which the Bank operates could impose additional compliance burdens on the Bank.

 

The Bank may not be able to detect or prevent money laundering and other financial crimes fully or on a timely basis, which could expose the Bank to additional liability and could have a material adverse effect on the Bank.

 

The Bank is required to comply with applicable AML, anti-terrorism, anti-bribery and corruption sanctions, laws and regulations. The Bank has developed policies and procedures aimed at detecting and preventing the use of its banking network for money laundering and other financial crime related activities. Financial crime is continually evolving and is subject to increasingly stringent regulatory oversight and focus. This requires proactive and adaptive responses from the Bank so that it is able to deter threats and criminality effectively. If the Bank is unable to fully comply with applicable laws, regulations and expectations, regulators and relevant law enforcement agencies may impose significant fines and other penalties on the Bank, including a complete review of its business systems, day-to-day supervision by external consultants and ultimately the revocation of the Bank’s banking license.

 

In addition, while the Bank reviews its counterparties’ internal policies and procedures with respect to such matters, the Bank, to a large degree, relies upon its counterparties to maintain and properly apply their own appropriate compliance procedures and internal policies. Such measures, procedures and internal policies may not be completely effective in preventing third parties from using the Bank’s (and its counterparties’) services as a conduit for illicit purposes (including illegal cash operations) without the Bank’s (and its counterparties’) knowledge. If the Bank is associated with, or even accused of having breached AML, anti-terrorism or sanctions requirements, the Bank’s reputation could suffer and/or the Bank could become subject to fines, sanctions and/or legal enforcement (including being added to any blacklists that would prohibit certain parties from engaging in transactions with the Bank). Any of the above consequences could have a material adverse effect on the Bank’s operating results, financial condition and prospects.

 

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Expansion and/or enforcement of U.S. economic or financial sanctions, requirements or trade embargoes could have a material adverse effect on the Bank.

 

The Bank requires all subsidiaries, branches, agencies and offices to comply in all material respects with applicable Sanctions (as defined below). The Bank continues to monitor activities relating to those jurisdictions which are subject to Sanctions and periodically updates its global Sanctions policy to promote compliance with the various requirements resulting from these changes in Sanctions.

 

During 2019 and in recent years, the U.S. has issued new legislation expanding Sanctions on Nicaragua, North Korea, Russia and Venezuela, and issued an executive order modifying Sanctions with respect to Sudan. Furthermore, in recent years, OFAC has designated some notable groups or financial institutions on the Specially Designated Nationals (“SDN”) List in the regions or jurisdictions where the Bank is either located or in which it does business.

 

For example, since 2015 and through 2019, the U.S. has continued to expand Sanctions in respect of the Government of Venezuela and certain Venezuelan nationals, including certain Venezuelan government officials effectively blocking all property and interests in property of the Government of Venezuela pursuant to Executive Order 13884 of August 5, 2019. With regard to any Sanctions targeting persons who have been added to OFAC’s SDN List or other persons considered blocked persons under OFAC sanctions, U.S. persons may not make to such persons, or receive from such persons, any contribution or provision of funds, goods, or services. These Sanctions also prohibit, with certain limited exceptions, (a) transactions by a U.S. person or within the United States relating to new debt with a maturity greater than 30 days or new equity, of the Government of Venezuela, bonds issued by the Government of Venezuela prior to August 25, 2017, and dividend payments or other distributions of profits to the Government of Venezuela from its controlled entities, and (b) direct or indirect purchases by a U.S. person or within the United States of securities from the Government of Venezuela (other than new debt with a maturity of 30 days or less). These recent Sanctions relating to Venezuela have also resulted in the designation of certain state-owned financial institutions, as SDNs, including Banco De Desarrollo Económico y Social de Venezuela (“BANDES”), Banco Bandes Uruguay S.A., Banco Bicentenario del Pueblo, de la Clase Obrera, Mujer y Comunas, Banco Universal C.A., Banco de Venezuela, S.A. Banco Universal and Banco Prodem S.A.

 

Beginning in 2018, the U.S. also expanded Sanctions in respect of the Government of Nicaragua and certain Nicaraguan nationals. Like the Venezuela-related Sanctions, these recent Sanctions have also resulted in the designation of certain financial institutions, as SDNs, including Banco Corporativo S.A., a subsidiary to the Venezuelan government-funded Alba de Nicaragua, S.A.

 

While the Bank does not consider that its business activities with counterparties with whom transactions are restricted or prohibited under U.S. Sanctions are material to its business, these aforementioned recent developments and any future expansion of Sanctions could have a material adverse impact on the Bank due to, among other things, the following:

 

Bladex may be owned, directly or indirectly, by, or have shareholders which are, central banks, multilateral development banks or other persons which may be the current or future target of Sanctions; and
Bladex may maintain counterparties that are organized in, located in or otherwise do business in jurisdictions which may or whose government may be the target of Sanctions.

 

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Changes in applicable law and regulation may have a material adverse effect on the Bank.

 

The Bank is subject to extensive laws and regulations regarding the Bank’s organization, operations, lending and funding activities, capitalization and other matters. The Bank has no control over applicable law and government regulations, which govern all aspects of its operations, including but not limited to regulations that impose:

 

·Minimum capital requirements;
·Reserve and compulsory deposit requirements;
·Funding restrictions;
·Lending limits, earmarked lending and other credit restrictions;
·Limits on investments in fixed assets;
·Corporate governance, financial reporting and employee compensation requirements;
·Accounting and statistical requirements;
·Competition policy; and
·Other requirements or limitations.

 

The regulatory structure governing financial institutions, such as the Bank, is continuously evolving. Disruptions and volatility in the global financial markets resulting in liquidity problems at major international financial institutions could lead the governments in jurisdictions in which the Bank operates to change laws and regulations applicable to financial institutions based on such international developments.

 

In response to the global financial crisis, which began in late 2007, national and intergovernmental regulatory entities, such as the Basel Committee on Banking Regulations and Supervisory Practices (the “Basel Committee”) proposed reforms to prevent the recurrence of a similar crisis, including the Basel III framework, which creates new higher minimum regulatory capital requirements. On December 16, 2010 and January 13, 2011, the Basel Committee issued its original guidance (which was updated in 2013) on a number of regulatory reforms to the regulatory capital framework in order to strengthen minimum capital requirements, including the phasing out of innovative Tier 1 and 2 Capital instruments with incentive-based redemption clauses and implementing a leverage ratio on institutions in addition to current risk-based regulatory requirements. The Superintendency of Banks of Panama (“Superintendencia de Bancos de Panamá” or the “Superintendency”) is authorized to increase the minimum capital requirement percentage in Panama in the event that generally accepted international capitalization standards (the standards set by the Basel Committee on Banking Supervision) become more stringent. Non-compliance with this legal lending limit could result in the assessment of administrative sanctions by the Superintendency for such violations, taking into consideration the magnitude of the offense and any prior occurrences, and the magnitude of damages and prejudice caused to third parties. The Bank follows Basel III criteria to determine capitalization levels, and has determined the Bank’s Tier 1 Basel III capital ratio to be 19.8% as of December 31, 2019. In addition, as of December 31, 2019, the Bank’s primary capital to risk-weighted asset ratio, calculated according to the guidelines of the Banking Law, was 17.3%.

 

Based on the Bank’s current regulatory capital ratios, as well as conservative assumptions on expected returns and asset growth, the Bank does not anticipate that additional regulatory capital will be required to support its operations in the near future. However, depending on the effects of the rules that complete the implementation of the Basel III framework on Panamanian banks and particularly on other Bank operations, the Bank may need to reassess its ongoing funding strategy for regulatory capital.

 

The Bank also has operations in countries outside of Panama, including the United States. Changes in the laws or regulations applicable to the Bank business in the countries in which it operates or adoption of new laws, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in the United States, and the related rulemaking, may have a material adverse effect on the Bank’s business, financial condition, and results of operations. The Dodd-Frank Act was signed into law on July 21, 2010 and was intended to overhaul the financial regulatory framework in the United States following the global financial crisis and has substantially impacted all financial institutions that are subject to its requirements. The Dodd-Frank Act, among other things, imposes higher prudential standards, including more stringent risk-based capital, leverage, liquidity and risk-management requirements, established a Bureau of Consumer Financial Protection, established a systemic risk regulator, consolidated certain federal bank regulators, imposes additional requirements related to corporate governance and executive compensation and requires various U.S. federal agencies to adopt a broad range of new implementing rules and regulations, for which they are given broad discretion.

 

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In 2014, the U.S. Federal Reserve Board issued a final rule strengthening supervision and regulation of large U.S. bank holding companies and foreign banking organizations (such as the Bank). The final rule establishes a number of enhanced prudential standards for large U.S. bank holding companies and foreign banking organizations to help increase the resiliency of their operations. These standards include liquidity, risk management, and capital. The final rule was required by Section 165 of the Dodd-Frank Act. Under the final rule, foreign banking organizations with combined U.S. assets of $50 billion or more will be required to establish a U.S. risk committee and employ a U.S. chief risk officer to help ensure that the foreign bank understands and manages the risks of its combined U.S. operations. In addition, these foreign banking organizations will be required to meet enhanced liquidity risk-management standards, conduct liquidity stress tests, and hold a buffer of highly liquid assets based on projected funding needs during a 30-day stress test event. Foreign banking organizations with total consolidated assets of $50 billion or more, but combined U.S. assets of less than $50 billion, are subject to enhanced prudential standards. However, the capital, liquidity, risk-management, and stress testing requirements applicable to these foreign banking organizations are substantially less than those applicable to foreign banking organizations with a larger U.S. presence. In addition, the final rule implements stress testing requirements for foreign banking organizations with total consolidated assets of more than $10 billion and risk committee requirements for foreign banking organizations that meet the asset threshold and are publicly traded. While the majority of these enhanced prudential standards are not currently applicable to the Bank, they could ultimately become applicable as the Bank grows, its U.S. presence or assets increase or if the Dodd-Frank Act is later amended, modified or supplemented with new legislation.

 

On December 10, 2013, pursuant to the Dodd-Frank Act, federal banking and securities regulators issued final rules to implement Section 619 of the Dodd-Frank Act (the “Volcker Rule”). Generally, subject to certain exceptions, the Volcker Rule restricts banks from: (i) short-term proprietary trading as principal in securities and other financial instruments, and (ii) sponsoring or acquiring or retaining an ownership interest in private equity and hedge funds. The Volcker Rule prohibitions and restrictions generally apply to banking entities, including the Bank, unless an exception applies. Based on analysis of applicable regulations and the Bank’s investment activities, the Bank has determined that its current investment activities are not subject to the Volcker Rule restrictions.

 

The Dodd-Frank Act also will have an impact on the Bank’s derivatives activities if it enters into swaps or security-based swaps with U.S. persons. In particular, Bladex may be subject to mandatory trade execution, mandatory clearing and mandatory posting of margin in connection with its swaps and security-based swaps with U.S. persons.

 

On March 18, 2010, the Hiring Incentives to Restore Employment Act of 2010, Pub. L. 111-147 (H.R. 2847), added Sections 1471 through 1474 (collectively, “FATCA”) to Subtitle A of the Internal Revenue Code of 1986, as amended (the “Code”). FATCA requires withholding agents, including foreign financial institutions (“FFIs”), to withhold thirty percent (30%) of certain payments to a FFI unless the FFI has entered into an agreement with the U.S. Internal Revenue Service (“IRS”) to, among other things, report certain information with respect to U.S. accounts. FATCA also imposes on withholding agents certain withholding, documentation, and reporting requirements with respect to certain payments made to certain non-financial foreign entities.

 

On June 30, 2014, Panama signed a Model 1 intergovernmental agreement (“Panama IGA”) with the U.S. for purposes of FATCA. Under the Panama IGA, most Panamanian financial institutions are required to register with the IRS and comply with the requirements of the Panama IGA, including with respect to due diligence, reporting, and withholding.

 

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To this end, the Bank registered with the IRS on April 23, 2014 as a Registered Deemed-Compliant Financial Institution (including a Reporting Financial Institution under a Model 1 IGA) and is required under the Panama IGA to identify U.S. persons and report certain information required by the IRS, through the tax authorities in Panama.

 

Any changes in applicable laws and regulations, as well as the volume and complexity of the laws and regulations applicable to the Bank, may have a material adverse effect on the Bank.

 

Any failure by the Bank to maintain effective internal control over financial reporting may adversely affect investor confidence and, as a result, the value of investments in our securities.

 

The Bank is required under the Sarbanes-Oxley Act of 2002 to furnish a report by the Bank’s management on the effectiveness of its internal control over financial reporting and to include a report by its independent auditors attesting to such effectiveness. Any failure by the Bank to maintain effective internal control over financial reporting could adversely affect its ability to report accurately its financial condition or results of operations. If the Bank is unable to conclude that its internal control over financial reporting is effective, or if its independent auditors determine that Bladex has a material weakness or significant deficiency in its internal control over financial reporting, the Bank could lose investor confidence in the accuracy and completeness of its financial reports, the market prices of its shares could decline, and could be subject to sanctions or investigations by the Securities and Exchange Commission (“SEC”) or other regulatory authorities. Failure to remedy any material weakness in its internal control over financial reporting, or to implement or maintain other effective control systems required of public companies subject to SEC regulation, also could restrict the Bank’s future access to the capital markets.

 

The Bank makes estimates and assumptions in connection with the preparation of its consolidated financial statements, and any changes to those estimates and assumptions could have a material adverse effect on its operating results.

 

In connection with the preparation of its consolidated financial statements, the Bank uses certain estimates and assumptions based on historical experience and other factors. While the Bank’s management believes that these estimates and assumptions are reasonable under the current circumstances, they are subject to significant uncertainties, some of which are beyond its control. Should any of these estimates and assumptions change or prove to have been incorrect, its reported operating results could be materially adversely affected.

 

Regulation and reform of LIBOR, EURIBOR or other benchmarks could adversely affect financial instruments linked to such benchmarks.

 

On July 27, 2017, the U.K. Financial Conduct Authority announced that it will no longer compel or persuade banks to contribute to LIBOR rate setting after 2021. It remains unclear whether LIBOR will continue to be viewed as an acceptable market benchmark rate, what rate or rates may develop as accepted alternatives to LIBOR, or what the effect of any such changes may have on the markets for LIBOR-based financial instruments.

 

Uncertainty as to the nature of potential changes, alternative reference rates or other reforms may adversely affect market liquidity, the pricing of LIBOR-based instruments and the availability and cost of associated hedging instruments and borrowings. Payments under contracts referencing new reference rates may differ from those referencing LIBOR. The transition may change the Bank’s risk profile and require changes to its risk and pricing models, valuation tools, product design and hedging strategies. Although the Bank is unable to quantify the ultimate impact of the transition from LIBOR given the uncertain nature of the potential changes, it continues to monitor the developments related to the future of LIBOR in line with any regulatory or quasi-regulatory guidance. Moreover, the failure to manage any potential transition from LIBOR to a different reference rate, or rates, may adversely affect the Bank’s reputation, business and financial condition, and results of operations.

 

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Recent changes in the Bank’s senior management team may be disruptive to, or cause uncertainty in, the Bank’s business, results of operations and the market price of its shares.

 

The Bank recently appointed Mr. Jorge Salas as the Bank’s new Chief Executive Officer, effective as of March 9, 2020. While the Bank’s new Chief Executive Officer has extensive management experience at financial institutions focused on the Region, he is new to the Bank’s management team which could limit the Bank’s ability to quickly and efficiently respond to problems and effectively manage the Bank’s business. If the Bank’s management team is not able to work effectively, either individually or as together as a group, the Bank’s results of operations may be negatively impacted.

 

The loss of senior management, or the Bank’s ability to attract and maintain key personnel, could have a material adverse effect on it.

 

The Bank’s ability to maintain its competitive position and implement its strategy depends on its senior management. The loss of some of the members of the Bank’s senior management, or the Bank’s inability to maintain and attract additional personnel, could have a material adverse effect on its operations and ability to implement its strategy. The Bank’s performance and success are largely dependent on the talents and efforts of highly skilled individuals. Talent attraction and retention is one of the key pillars for supporting the results of Bladex, which is focused on client satisfaction and sustainable performance. The Bank’s ability to attract, develop, motivate and retain the right number of appropriately qualified people is critical to its performance and ability to thrive throughout the Region. Concurrently, the Bank faces the challenge of providing a new experience to employees, so that the Bank is able to attract and retain highly-qualified professionals who value environments offering equal opportunities and who wish to build their careers in dynamic, cooperative workplaces, which encourage diversity and meritocracy and are up to date with new work models.

 

The Bank’s performance could be adversely affected if it were unable to attract, retain and motivate key talent. As the Bank is highly dependent on the technical skills of its personnel, including successors to crucial leadership positions, as well as their relationships with clients, the loss of key components of the Bank’s workforce could make it difficult to compete, grow and manage the business. A loss of such expertise could have a material adverse effect on the Bank’s financial performance, future prospects and competitive position.

 

Risks Relating to the Region

 

The Bank’s credit activities are concentrated in the Region. The Bank also faces borrower concentration. Adverse economic developments in the Region or in the condition of the Bank’s largest borrowers could adversely affect the Bank’s growth, asset quality, prospects, profitability, financial condition and financial results.

 

As a reflection of the Bank’s mission and strategy, the Bank’s credit and other activities are concentrated in the Region, and are therefore highly susceptible to macroeconomic factors throughout the Region, as well as in individual countries. Economies in the Region have historically experienced significant volatility evidenced, in some cases, by political uncertainty, including with respect to upcoming elections, slow economic growth or recessions, increases in unemployment and the resulting reduction in consumer purchasing power, declining investments, fluctuations in interest rates and the capital markets, government and private sector debt defaults and restructurings, and significant inflation and/or currency devaluation.  Furthermore, since the outbreak of COVID-19 in December 2019, economies in the Region have faced, and continue to face, significant economic difficulties and uncertainties as a result of the spread of the virus and the effects of restrictive governmental measures to prevent its spread. See Item 3.D., “Key Information--Risk Factors—Risks Relating to the Bank’s Business--The ongoing COVID-19 pandemic and measures intended to prevent its spread could have material adverse effects on the Bank’s business, results of operations, cash flows and financial condition,” and Item 5.D., “Operating and Financial Review and Prospects—Trend Information.”

 

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Global economic changes, including the effects of the COVID-19 pandemic, fluctuations in commodity prices, oil and energy prices, U.S. dollar interest rates and U.S. dollar exchange rates, and slower economic growth in industrialized countries, could have adverse effects on the economic condition of countries in the Region, including Panama, and other countries in which the Bank operates. There could be downside in the country risk of the most vulnerable countries of the Region on the back of a potential disorderly sovereign debt restructuring as, for example, Argentina and Ecuador. Adverse changes affecting the economies in the Region could have a significant adverse impact on the quality of the Bank’s credit exposures, including increased allowance for losses, debt restructurings and loan losses. In turn, these effects could also have an adverse impact on the Bank’s asset growth, asset quality, prospects, profitability and financial condition.

 

Banks, including Bladex, that operate in countries considered to be emerging markets may be particularly susceptible to disruptions and reductions in the availability of credit or increases in financing costs, which may have a material adverse impact on their operations. In particular, the availability of credit to financial institutions operating in emerging markets is significantly influenced by an aversion to global risk. In addition, any factor impacting investors’ confidence, such as a downgrade in credit ratings of a particular country or an intervention by a government or monetary authority in any such markets, may affect the price or availability of resources for financial institutions in any of these markets, which may affect the Bank.

 

The Bank also faces borrower concentration, with its credit activities being in a number of countries. The Bank’s credit portfolio (the “Credit Portfolio”) consists of the Commercial Portfolio and the “Investment Portfolio.” The “Investment Portfolio” consists of securities at FVOCI and investment securities at amortized cost. Adverse changes affecting one or more of these economies could have a material adverse impact on the Bank’s Credit Portfolio and, as a result, its financial condition, growth, prospects, results of operations and financial condition. As of December 31, 2019, 59% of the Bank’s Credit Portfolio was outstanding to borrowers in the following five countries: Brazil ($1,067 million, or 16%), Colombia ($972 million, or 15%), Mexico ($803 million, or 12%), Chile ($688 million, or 10%), and Ecuador ($427 million, or 6%).

 

In addition, as of December 31, 2019, of the Bank’s total Credit Portfolio balances, 9% were to five borrowers in each of Brazil and Colombia, 7% were to five borrowers in Chile, and 6% were to five borrowers in each of Mexico and Ecuador. A significant deterioration of the financial or economic condition of any of these countries or borrowers could have a material adverse impact on the Bank’s Credit Portfolio, potentially requiring the Bank to create additional allowances for expected credit losses, or suffer credit losses with the effect accentuated because of this concentration.

 

The Bank’s mission is focused on supporting trade and regional integration across the Region. As a result, any increases in tariffs or other restrictions on foreign trade, or resulting uncertainty that reduces international trade flows, either throughout the Region or globally, could adversely affect the Bank’s business, results of operations or share price.

 

The Bank’s mission is focused on supporting trade and regional integration across the Region, and a significant portion of the Bank’s operations is derived from financing trade related transactions. As a result, increases in tariffs, changes in political, regulatory and economic conditions in the U.S. or in the Region, or in policies governing infrastructure, trade and foreign investment in the U.S., or other restrictions on foreign trade throughout the Region or globally could adversely affect the Bank’s business and results of operations. For example, the Trump administration in the U.S. has increasingly threatened to impose tariffs on a variety of imports from countries throughout the world, including the Region, and has imposed certain tariffs on steel and aluminum. China has also imposed tariffs against certain American products. The U.S. and China agreed upon phase one of a trade agreement reducing protectionist measures by both countries. Negotiations for a second phase of the agreement could be affected if China fails to meet certain commitments it made in phase one, which may be more difficult to uphold following the spread of the coronavirus in China. There can be no assurance that the U.S. or China, or other countries, including those in the Region, will not move to implement further tariffs or restrictions on trade, or what the scope and effects of any such restrictions might be. Any such tariffs or restrictions, or uncertainty surrounding any future restrictions, could materially adversely affect international trade flows, which is a core sector underlying the Bank’s business model. Any such disruptions in international trade flows could materially and adversely affect the demand and pricing of the Bank’s trade related lending activities, and therefore have a material adverse effect on the Bank’s business, financial condition, results of operations and share price.

 

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The United Kingdom (the “UK”) left the European Union (the “E.U.”) on January 31, 2020, which was a process commonly referred to as “Brexit”, and entered a transition period until December 31, 2020. During the transition period the UK will continue to be bound by E.U. laws and regulations. Beyond that date there is no certainty on what the future relationship between the UK and the E.U. will be. This ongoing lack of certainty has led to uncertainty in international markets. As a result, global markets and currencies may be adversely impacted, including fluctuations in the value of the British pound as compared to the U.S. dollar. Any market disruptions, including, among others, disruptions in financial markets or international trade, as a result of Brexit or otherwise, could have an adverse effect on the Bank’s business, financial conditions and results of operations.

 

Local country foreign exchange controls or currency devaluation, and rising inflation, may harm the Bank’s borrowers’ ability to pay U.S. dollar-denominated obligations.

 

The Bank makes mostly U.S. dollar-denominated loans and investments.  As a result, the Bank faces the risk that local foreign exchange controls may restrict the ability of the Bank’s borrowers to acquire dollars to repay loans on a timely basis, even if they are exporters, and/or that significant currency devaluation might occur, which could increase the cost, in local currency terms, to the Bank’s borrowers of acquiring dollars to repay loans. Asset risks may rise for banks that lend to exporters or high value-added manufacturers, particularly in the automotive supplier and technology sectors in the Region. Any of these factors could harm the Bank’s borrowers’ ability to pay U.S. dollar-denominated obligations, which could adversely affect the Bank’s business and results of operations.

 

A significant portion of the Bank’s Loan Portfolio consists of loans made to borrowers in the oil and gas and agribusiness sectors in the Region. Lending in these sectors presents unique risks related to commodities pricing.

 

As of December 31, 2019, $561 million, or 10% of the Bank’s Loan Portfolio was comprised of oil and gas related loans, and $327 million, or 6% of the Bank’s Loan Portfolio was comprised of agribusiness loans. Repayment of these loans depends substantially, in some cases, on producing, exploring and exporting and also marketing the oil and gas or other commodities. Collateral securing these loans may be illiquid. In addition, the limited purpose of some agricultural-related collateral affects credit risk because such collateral may have limited or no other uses to support values when loan repayment problems emerge. Many external factors can impact the Bank’s borrowers’ ability to repay their loans, including commodity price volatility (i.e., oil and sugar prices), diseases such as COVID-19, war, adverse weather conditions, water issues, land values, production costs, changing government regulations and subsidy programs, changing tax treatment, technological changes, labor market shortages/increased wages, and changes in consumers’ preferences, over which the Bank’s borrowers may have no control. These factors, as well as recent volatility in certain commodity prices, including the substantial decrease in oil prices, could adversely impact the ability of those to whom the Bank has made loans to perform under the terms of their borrowing arrangements with the Bank, which in turn could result in credit losses and adversely affect the Bank’s business, financial condition and results of operations.

 

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A downgrade in the Bank’s credit ratings may adversely affect its funding costs, access to capital, access to loan and debt capital markets, liquidity and, as a result, its business and results of operations. Increased risk perception in countries in the Region where the Bank has large credit exposures could have an adverse impact on the Bank’s credit ratings.

 

Credit ratings represent the opinions of independent rating agencies regarding the Bank’s ability to repay its indebtedness, and affect the cost and other terms upon which it is able to obtain funding. Each of the rating agencies reviews its ratings and rating methodologies on a periodic basis and may decide on a grade change at any time, based on factors that affect the Bank’s financial strength, such as liquidity, capitalization, asset quality and profitability. Credit ratings are essential to the Bank’s capability to raise capital and funding through the issuance of debt, loan transactions, as well as to the cost of such financing.

 

Among other factors, increased risk perception in any country where the Bank has large exposures could trigger downgrades to the Bank’s credit ratings.  Such perception of increased risk could result from events which are beyond the Bank’s control, such as economic or political crises or the macroeconomic deterioration of certain key economic sectors due to the spread of COVID-19 or otherwise, among other factors. A credit rating downgrade would likely increase the Bank’s funding costs, and may create liquidity risk, reduce its deposit base and access to the lending and debt capital markets, trigger additional collateral or funding requirements or decrease the number of investors and counterparties willing or permitted, contractually or otherwise, to do business with or lend to the Bank.  As a result, the Bank’s ability to obtain the necessary funding to carry on its financing activities in the Region at meaningful levels could be affected adversely, which could have a negative effect on its business and results of operations.

 

Item 4.Information on the Company

 

A.       History and Development of the Company

 

The Bank, a corporation (sociedad anónima) organized under the laws of Panama and headquartered in Panama City, Panama, is a specialized multinational bank originally established by central banks of Latin American and Caribbean countries to promote foreign trade and economic integration in the Region. The legal name of the Bank is Banco Latinoamericano de Comercio Exterior, S.A. Translated into English, the Bank is also known as Foreign Trade Bank of Latin America, Inc. The commercial name of the Bank is Bladex.  

 

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 foreign trade financing capacity of the Region. The Bank was organized in 1977, incorporated in 1978 as a corporation pursuant to the laws of the Republic of Panama, and officially began operations on January 2, 1979. Panama was selected as the location of the Bank’s headquarters because of the country’s importance as a banking center in the Region, the benefits of a fully U.S. dollar-based economy, the absence of foreign exchange controls, its geographic location, and the quality of its communications facilities.  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 offers its services through its head office in Panama City, its agency in New York (the “New York Agency”), its subsidiaries in Brazil and Mexico, its representative offices in Buenos Aires, Argentina; Mexico City, Mexico; Sao Paulo, Brazil; and Bogotá, Colombia, and its representative license in Peru, as well as through a worldwide network of correspondent banks.

 

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Bladex’s head office is located at Torre V, Business Park, Avenida La Rotonda, Urb. Costa del Este, Panama City, Republic of Panama, and its telephone number is +507 210-8500.

 

The New York Agency, which began operations on March 27, 1989, is located at 10 Bank Street, Suite 1220, White Plains, NY 10606, and its telephone number is +1 (914) 328-6640. The New York Agency is principally engaged in financing transactions related to international trade, mainly the confirmation and financing of letters of credit for customers in the Region. The New York Agency is also authorized to book transactions through an International Banking Facility (“IBF”).

 

Bladex’s shares of Class E common stock are listed on the New York Stock Exchange (“NYSE”) under the symbol “BLX.”

 

The following is a description of the Bank’s subsidiaries:

 

-Bladex Holdings Inc. (“Bladex Holdings”) is a wholly owned subsidiary, incorporated under the laws of the State of Delaware, United States, on May 30, 2000. Bladex Holdings maintains ownership in Bladex Representação Ltda.

 

-Bladex Representação Ltda., incorporated under the laws of Brazil on January 7, 2000, acts as the Bank’s representative office in Brazil. Bladex Head Office owns 99.999% of Bladex Representação Ltda. and Bladex Holdings owns the remaining 0.001%.

 

-Bladex Development Corp. (“Bladex Development”) was incorporated under the laws of the Republic of Panama on June 5, 2014.  Bladex Head Office owns 100% of Bladex Development.

 

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

 

The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. Information is also available on the Bank’s website at: http://www.bladex.com

 

 

B.       Business Overview

 

Overview

 

The Bank’s mission is to provide financial solutions of excellence to financial institutions, companies and investors doing business in Latin America, supporting trade and regional integration across the Region.

 

As a multinational bank operating in 23 countries with a strong and historic commitment to Latin America, the Bank possesses extensive knowledge of business practices, risk and regulatory environments, accumulated over forty years of doing business throughout the entire Region. Bladex provides foreign trade solutions to a select client base of premier Latin-American financial institutions and corporations, and has developed an extensive network of correspondent banking institutions with access to the international capital markets. Bladex enjoys a preferred creditor status in many jurisdictions, being recognized by its strong capitalization, prudent risk management and sound corporate governance standards. Bladex fosters long-term relationships with clients, and it has developed over the years a reputation for excellence when responding to its clients’ needs, in addition to having a solid financial track record, which has reinforced its brand recognition and its franchise value in the Region, and contributes to the Bank achieving its vision of being recognized as a leading institution in supporting trade and regional integration across Latin America.

 

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The Bank’s lending and investing activities are funded by interbank deposits, primarily from central banks and financial institutions in the Region, by borrowings from international commercial banks, and by sales of the Bank’s debt securities to financial institutions and investors in Asia, Europe, North America and the Region. The Bank does not provide retail banking services to the general public, such as retail savings accounts or checking accounts, and does not take retail deposits.

 

Bladex participates in the financial and capital markets throughout the Region, through two business segments.

 

The Commercial Business Segment encompasses the Bank’s core business of financial intermediation and fee generation activities developed to cater to corporations, financial institutions and investors in Latin America. The array of products and services include the origination of bilateral short- and medium-term loans, structured and syndicated credits, loan commitments, letter of credit contingencies 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. The majority of the Bank’s short-term loans are extended in connection with specifically identified foreign trade transactions. Through its revenue diversification strategy, the Bank’s Commercial Business Segment has introduced a broader range of products, services and solutions associated with foreign trade, including co-financing arrangements, underwriting of syndicated credit facilities, structured trade financing (in the form of factoring and vendor financing) and financial leasing.

 

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 Bank’s 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 and which consist mainly of deposits, short- and long-term borrowings and debt.

 

Historically, trade finance has been afforded favorable treatment in the context of debt restructurings of Latin American borrowers. This has been, in part, due to the perceived importance that governments and other borrowers in the Region have attributed to maintaining access to trade finance. The Bank believes that, in the past, the combination of its focus on trade finance and the composition of its Class A shareholders has been instrumental in obtaining certain exceptions regarding U.S. dollar convertibility and transfer limitations imposed on the servicing of external obligations, or preferred creditor status. Although the Bank maintains both its focus on trade finance and its Class A shareholders’ participations, it cannot guarantee that such exceptions will be granted in future debt restructurings.

 

As of December 31, 2019, the Bank had 51 employees, or 29% of its total employees, across its offices responsible for marketing the Bank’s financial products and services to existing and potential new customers.

 

Developments During 2019

 

During 2019, global economy continued to grow in an uncertain environment, characterized by increasing volatility. In 2019, the global economy experienced its weakest year of growth since the previous 2008 financial crisis, weighed down by tensions that have significantly slowed international trade. According to the International Monetary Fund (“IMF”), global growth was only 2.9%, which was significantly below what we believe to be global potential growth. The main drivers for the lackluster performance of the world economy were: the trade war between the United States and China, negative trade flows that disrupted supply chains, and particular risks in countries such as Italy and Turkey which, together with Brexit, affected European growth and in particular, growth in Germany.

 

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2019 was characterized by increased conflict in international trade and increases in tariffs by several countries related to a range of products. For example, the Trump administration in the U.S. has increased tariffs on a variety of imports from countries throughout the world, including the Region, and continues to threaten additional new, and increases in existing, tariffs. For example, in 2019 the U.S. imposed certain increased tariffs on certain products imported from China. China has also announced retaliatory tariffs against certain U.S. products. Furthermore, the Trump administration has undertaken to replace NAFTA with the USMCA, which has now been ratified by each of the United States, Canada and Mexico.

 

2019 was also a challenging year for economies in Latin America. Regional economic growth was 0.1%, significantly below the 1% growth recorded in 2018, and significantly below the 2.1% level of growth that had been projected by the IMF. Other than 2016, when Brazil experienced its sharpest recession in the last 70 years, 2019 was the slowest growth year for the Region in a decade. Of the largest three economies of Latin America, which represent about 75% of the GDP of the Region, Brazil was the only one that registered any meaningful growth, growing tepidly at 1.2%. Mexico had zero growth – a remarkable decoupling from a strong U.S. economy. Argentina’s GDP shrank by 3.3%.

 

Increased policy uncertainty in several large Latin American countries continues to weigh on growth. For example, uncertainty surrounding economic policy and reforms in Brazil and Mexico likely contributed to the slowdown in real GDP and investment growth in 2019.

 

In addition, Regional growth was significantly impacted by (i) depressed commodity prices as a result of trade uncertainties and a strong U.S. dollar; (ii) Mexico registering no GDP growth due to necessary fiscal restraint, tight monetary policy to keep portfolio monies flowing and a fundamental lack of investment; (iii) the potential for social unrest in Chile; and (iv) smaller countries such as Costa Rica registering fiscal imbalances and Ecuador struggling to comply with its IMF program.

 

More recently, certain countries in the Region have experienced social unrest, namely Bolivia, Colombia, Chile, and Ecuador, which, in some cases, disrupted economic activity. Economic policy uncertainty has also risen in these countries as governments consider alternative policies and reforms to make growth more inclusive and address social demands.

 

Potential growth continues to be impeded by lingering structural problems, including high public debt, weaker financial systems, high unemployment, and vulnerability to commodity and climate-related shocks. Some countries have started to strengthen their fiscal positions, but further tightening is needed in others to ensure debt sustainability.

 

Within this economic context, liquidity concerns for the top corporate names in the Region were exacerbated by the combination of low growth and risk aversion, which compressed margins to levels which may not always compensate for the level of credit risk associated with particular borrowers. Against this backdrop, Bladex was able to deliver a net profit of $86.1 million for 2019, which resulted in a return on average equity (“ROAE”) of 8.6% and a return on average assets (“ROAA”) of 1.36%, significantly higher than 2018 levels of 1.1% and 0.17%, respectively. The focus on high quality borrowers and abundant U.S. dollar liquidity in key markets put pressure on the Bank’s origination margins. However, despite this challenging environment, Bladex was able to maintain relatively stable margin levels. The Bank’s syndicated and structured transactions tied to Latin American integration had a solid 2019 performance, with income increasing 14% in 2019 compared to 2018. On the cost side, operating expenses decreased 17% year-over-year in 2019 compared to 2018, reflecting effective cost control management and overall improved structural and operational efficiencies.

 

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Bladex continues to analyze the risk/reward equation at the country level, adjusting the Bank’s portfolio accordingly and maintaining a vigilant credit underwriting posture. As 73% of the Bank’s Commercial Portfolio at the end of 2019 had less than one year of remaining life, Bladex is in a privileged position to dynamically adjust its exposures. The Bank believes that its book of business is solid, with the addition of new clients and prospects identified during 2019. Credit impaired loan totals decreased in 2019 compared to 2018, as did the volume of transactions that have been placed on the Bank’s watch list category, with the Bank registering a credit reserve coverage ratio of 1.7 times Non-Performing Loans as of December 31, 2019. Finally, the Bank’s Tier I Basel III capital ratio remained strong at 19.8% as of December 31, 2019, with a solid book value above $25 per share.

 

Strategies for 2020 and Subsequent Years

 

Focus on credit underwriting soundness and liquidity management in light of the effects of the COVID-19 pandemic

 

Since the World Health Organization declared a global pandemic in March 11th, 2020, Bladex has successfully activated its Business Continuity Plan, including the closure of its offices, and work-from-home policies for employees, and has successfully implemented measures to preserve the Bank’s liquidity position.. The Bank believes that these and other measures taken have represented an effective and agile response to the extreme circumstances arising from the COVID-19 pandemic.

 

The strategies described below are subject to the effects of the Bank having to operate in a substantially different environment in 2020 and thereafter than in previous periods. Since the onset of COVID-19 the Bank has leveraged the short-term and trade finance nature of its Commercial Portfolio as a means to provide sufficient flexibility to react to, and realign size and composition of, the Commercial Portfolio, to take account of external risks and expected developments.

 

As a result, during the duration of the COVID-19 crisis, the Bank’s commercial strategy will continue to prioritize underwriting credit soundness, liquidity management and risk/reward targets for each transaction, over portfolio growth.

 

Streamline the Bank’s operating model for greater efficiency

 

The Bank aims to continue improving efficiency and productivity throughout its organization, with representative offices concentrating primarily on origination and client relationship management.

 

Further grow the Bank’s business in politically and economically stable, high-growth markets

 

The Bank’s expertise in risk and capital management and extensive knowledge of the Region allows it to identify and strategically focus on stable and growth-oriented markets, including investment-grade countries in the Region. Bladex maintains strategically located representative offices in order to provide focused products and services in markets that the Bank considers key to its continued growth.

 

Targeted growth in expanding and diversifying the Bank’s country and industry exposure

 

The Bank’s strategy is to participate in activities associated with trade and the trade supply chain, as well as integration across Latin American, targeting clients that offer the potential for longstanding relationships and a wider presence in the Region, such as financial institutions, corporations, sovereigns and state-owned entities. The Bank seeks to achieve this through participation in bilateral and co-financed transactions and by strengthening the short- and medium-term trade and non-trade financing that it provides. The Bank intends to continue enhancing existing client relationships and establish new client-relationships through its Region-wide expertise, product knowledge, quality of service, agile decision-making process and client approach, and by strategically targeting industries and participants in the value chain of international trade by country within the Region.

 

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The Bank plans to continue targeting clients across a diversified range of industry sectors, and will seek to limit the concentration of any single corporate industry sector to a maximum of 10% of its total Loan Portfolio. The Bank plans to continue to focus on strategic sectors in international trade.

 

The Bank plans to focus its future efforts on growing its business with a larger number of corporate clients along the trade value chain, which management believes will reinforce the Bank’s business model, enhance origination capacity and all the Bank to deploy capital most effectively. The Bank also intends to continue diversifying its credit risk profile, in order to continue to mitigate the impact of potential losses, should they occur.

 

Increase the range of products and services offered to clients

 

As a result of the Bank’s relationships throughout the Region, management believes it is well positioned to strategically identify key products and services to offer to clients. The Bank’s Articles of Incorporation permit a broad scope of potential activities, encompassing all types of banking, investment, and financial and other businesses that support foreign trade flows and the development of trade and integration in the Region. This supports the Bank’s ongoing strategy to develop and expand products and services that complement the Bank’s expertise in foreign trade finance and risk management, such as: i) financing acquisitions from the Bank’s structuring and syndication business desk, as well as liability management transactions, ii) letters of credit client base diversification, and iii) vendor finance with a focus on supply chain finance through electronic platforms.

 

Lending Policies

 

The Bank extends credit directly to financial institutions and corporations within the Region. The Bank finances import and export transactions for all types of goods and products, with the exception of certain restricted items such as weapons, ammunition, military equipment and hallucinogenic drugs or narcotics not utilized for medical purposes. Imports and exports financed by the Bank are destined for buyers and sellers in countries both inside and outside the Region. The Bank analyzes credit requests from eligible borrowers by applying its credit risk criteria, including economic and market conditions. The Bank maintains a consistent lending policy and applies the same credit criteria to all types of potential borrowers in evaluating creditworthiness.

 

Due to the nature of trade finance, the Bank’s loans are generally unsecured. However, in certain instances, based upon the Bank’s credit review of the borrower and the economic and political situation and trends in the borrower’s home country, the Bank may determine that the level of risk involved requires that a loan be secured by collateral.

 

 

Country Credit Limits

 

The Bank maintains a continual review of each country's risk profile evolution, supporting its analysis with various factors, both quantitative and qualitative, the main driving factors of which include: the evolution of macroeconomic policies (fiscal, monetary, and exchange rate policy), fiscal and external performance, price stability, level of liquidity in foreign currency, changes of legal and institutional framework, as well as material social and political events, among others, including industry analysis relevant to Bladex business activities.  

 

Bladex has a methodology for capital allocation by country and its risk weights for assets. The Risk Policy and Assessment Committee (the “CPER”) of the Bank’s Board of Directors (the “Board”) approves a level of “allocated capital” for each country, in addition to nominal exposure limits. These country capital limits are reviewed at least once a year by the CPER, and more often if necessary. The methodology helps to establish the capital equivalent of each transaction, based on the internal numeric rating assigned to each country, which is reviewed and approved by the CPER.

 

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The amount of capital allocated to a transaction is based on customer type (sovereign, state-owned or private corporations, or financial institutions), the type of transaction (trade or non-trade), and the average remaining term of the transaction (from one to 180 days, 181 days to a year, between one and three years, or longer than three years). Capital utilizations by the business units cannot exceed the Bank’s reported total equity.

 

Borrower Lending Limits

 

The Bank generally establishes lines of credit for each borrower according to the results of its risk analysis and potential business prospects; however, the Bank is not obligated to lend under these lines of credit. Once a line of credit has been established, credit generally is extended after receipt of an application from the borrower for financing. Loan pricing is determined in accordance with prevailing market conditions and the borrower’s creditworthiness.

 

For existing borrowers, the Bank’s management has authority to approve credit lines up to the legal lending limit prescribed by Panamanian law, provided that the credit lines comply fully with the country credit limits and conditions for the borrower’s country of domicile set by the Board. Approved borrower lending limits are reported to the CPER quarterly. Panamanian Law sets forth certain concentration limits, which are applicable and strictly adhered to by the Bank, including a 30% limit as a percentage of capital and reserves for any one borrower and borrower group, in the case of certain financial institutions, and a 25% limit as a percentage of capital and reserves for any borrower and borrower group, in the case of corporate and sovereign entities. As of December 31, 2019, the Bank’s legal lending limit prescribed by Panamanian law for corporations and sovereign borrowers amounted to $254 million, and for financial institutions and financial groups amounted to $305 million. Panamanian law also sets lending limits for related party transactions, which are described in more detail in the section “Supervision and Regulation–Panamanian Law.” Non-compliance with this legal lending limit could result in the assessment of administrative sanctions by the Superintendency for such violations, taking into consideration the magnitude of the offense and any prior occurrences, and the magnitude of damages and prejudice caused to third parties. As of December 31, 2019, the Bank was in compliance with regulatory legal lending limits.

 

Credit Portfolio

 

The Bank’s Credit Portfolio consists of the Commercial Portfolio and the Investment Portfolio. The Bank’s Commercial Portfolio includes: (i) gross loans excluding interest receivable, allowance for loan losses, unearned interest and deferred fees (the “Loan Portfolio”), (ii) customers’ liabilities under acceptances, and (iii) loan commitments and financial guarantee contracts, such as confirmed and stand-by letters of credit, and guarantees covering commercial risk. The Bank’s Investment Portfolio consists of securities at FVOCI and investment securities at amortized cost.

 

As of December 31, 2019, the Credit Portfolio amounted to $6,582 million compared to $6,397 million as of December 31, 2018 and $6,085 million as of December 31, 2017. The $185 million, or 3%, increase during 2019 compared to 2018 was largely attributable to the Bank’s Commercial Portfolio, which increased by $212 million, or 3%, due to improved conditions for credit demand in the Region and an increase in the Bank’s client base of financial institutions.

 

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Commercial Portfolio

 

The Bank’s Commercial Portfolio amounted to $6,502 million as of December 31, 2019, compared to $6,290 million as of December 31, 2018, and $5,999 million as of December 31, 2017. The $212 million, or 3%, increase during 2019 reflects the larger proportion of longer tenor transactions in the Bank’s Commercial Portfolio in recent years and an increase in the Bank’s client base of financial institutions.

 

As of December 31, 2019, 73% of the Bank’s Commercial Portfolio was scheduled to mature within one year, compared to 74% as of December 31, 2018 and 81% as of December 31, 2017, which reflects higher medium term lending origination throughout 2019. As of those same dates, trade-related finance transactions represented 40%, 45% and 60%, respectively, of the Bank’s Commercial Portfolio, while trade-related finance transactions represented 53%, 59% and 74%, respectively, of the Bank’s short-term origination, both of which reflect the Bank’s increasing focus on, and exposure to, financial institutions in recent years.

 

As of December 31, 2019, the Commercial Portfolio’s exposure remained diversified across regions and industry sectors, with 56% of the total Commercial Portfolio representing the Bank’s traditional client base of financial institutions and 44% of the total Commercial Portfolio represented by corporations, of which 32% and 51% of such percentages were trade-related financing, respectively. In addition, the Commercial Portfolio continued to be well diversified across corporate sectors, with industry concentration levels of 6% of the total Commercial Portfolio or lower as of December 31, 2019, except for the industrial sector as a whole and the total oil and gas exposure. Geographically, exposure to Brazil, which represents the Bank’s largest country-risk exposure, decreased to 16% of the total Commercial Portfolio, down from 19% in 2018, out of which 81% was with financial institutions at the end of 2019, compared to 73% in 2018. Exposure to Argentina was reduced to 3% of the total Commercial Portfolio at the end of 2019, down from 10% in 2018, as a result of several loans to Argentine borrowers maturing and being repaid during 2019. Overall, during 2019 the Bank focused its portfolio origination towards top-tier banks and corporations in lower-risk countries, focusing its growth in top-rated countries in the Region, where it was able to take advantage of positive risk/return opportunities. Consequently, exposures in Colombia and Chile increased to 15% and 11% of the total Commercial Portfolio, which now represent the second and fourth largest country exposures, respectively, up from 11% and 3% the year before. In addition, exposure to other top-rated countries outside of Latin America, which relates to transactions carried out in the Region, was also increased to 7% of the total Commercial Portfolio at the end of the 2019, from 2% the year before. Mexico, which still represents a significant part of the Commercial Portfolio as the third largest exposure, decreased to 12% of the Commercial Portfolio at year-end 2019, compared to 14% at the end of 2018.

 

The following table sets forth the distribution of the Bank’s Commercial Portfolio, by product category, as of December 31 of each year:

 

   As of December 31, 
   2019   %   2018   %   2017   %   2016   %   2015   % 
   (in $ millions, except percentages) 
Loans  $5,893    90.6   $5,778    91.9   $5,506    91.8   $6,021    93.4   $6,692    93.5 
Loan commitments and financial guarantee contracts   493    7.6    502    8.0    487    8.1    403    6.3    447    6.3 
Customers’ liabilities under acceptances   116    1.8    10    0.1    6    0.1    20    0.3    16    0.2 
Total  $6,502    100.0   $6,290    100.0   $5,999    100.0   $6,444    100.0   $7,155    100.0 

 

Loan Portfolio

 

As of December 31, 2019, the Bank’s Loan Portfolio totaled to $5,893 million, compared to $5,778 million as of December 31, 2018 and $5,506 million as of December 31, 2017. The $115 million, or 2%, Loan Portfolio increase during 2019 was mainly attributable to higher medium term lending origination throughout 2019, as the Bank was able to deploy longer tenor transactions with its traditional client base of top quality financial institutions, exporting corporations and “multilatinas”, and continued to perform well on its short-term origination capacity. As of December 31, 2019, the Loan Portfolio had an average remaining maturity term of 380 days, and 71% of the Bank’s Loan Portfolio was scheduled to mature within one year, compared to an average remaining maturity of 323 days, or 73% maturing within one year as of December 31, 2018, and 282 days, or 80% maturing within one year as of December 31, 2017.

 

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As of December 31, 2019, the Bank’s credit-impaired loans totaled $62 million (or 1.05% of the Loan Portfolio), compared to $65 million (or 1.12% of the Loan Portfolio) as of December 31, 2018 and $59 million (or 1.07% of the Loan Portfolio) as of December 31, 2017. Credit-impaired loans decreased in 2019 mainly due to the sale of an exposure which resulted in a $0.5 million collection and a $2.4 million write-off against existing individually allocated reserves. As of December 31, 2019, $62 million in credit-impaired loans were to a single borrower in the Brazilian sugar sector, accounting for 100% of the Bank’s total impaired loans classified as Stage 3 (under accounting standard IFRS 9), with individually assigned allowance for credit losses of $54 million, representing coverage of 88%. The remainder of the Loan Portfolio performed well during 2019, as evidenced by the 6% increase in loans classified as Stage 1 under IFRS 9, with credit conditions unchanged since origination. Moreover, loans classified as Stage 2 under IFRS 9, which represent loans with exposures whose credit conditions have deteriorated since origination, decreased by 34% in 2019.

 

Loan Portfolio by Country

 

The following table sets forth the distribution of the Bank’s Loan Portfolio by country risk at the dates indicated:

 

   As of December 31, 
   2019   % of
Total
Loans
   2018   % of
Total
Loans
   2017   % of
Total
Loans
   2016   % of
Total
Loans
   2015   % of
Total
Loans
 
   (in $ millions, except percentages) 
Argentina  $226    3.8   $604    10.5   $295    5.3   $325    5.4   $142    2.1 
Belgium   14    0.2    13    0.2    11    0.2    4    0.1    13    0.2 
Bermuda   0    0.0    0    0.0    0    0.0    0    0.0    20    0.3 
Bolivia   7    0.1    14    0.2    15    0.3    18    0.3    20    0.3 
Brazil    1,015    17.2    1,156    20.0    1,019    18.5    1,164    19.3    1,605    24.0 
Chile   683    11.6    177    3.1    171    3.1    69    1.2    195    2.9 
Colombia   906    15.4    626    10.8    829    15.1    653    10.8    621    9.3 
Costa Rica   220    3.7    370    6.4    356    6.5    400    6.6    341    5.1 
Dominican Republic   290    4.9    301    5.2    250    4.5    244    4.1    384    5.7 
Ecuador   174    3.0    188    3.3    94    1.7    129    2.1    169    2.5 
El Salvador   54    0.9    70    1.2    55    1.0    105    1.7    68    1.0 
France   153    2.6    0    0.0    0    0.0    0    0.0    6    0.1 
Germany   35    0.6    18    0.3    38    0.7    50    0.8    97    1.4 
Guatemala   279    4.7    329    5.7    309    5.6    316    5.2    458    6.8 
Honduras   129    2.2    89    1.5    75    1.4    73    1.3    118    1.8 
Hong Kong   11    0.2    0    0.0    0    0.0    0    0.0    0    0.0 
Jamaica   38    0.7    22    0.4    24    0.4    8    0.1    17    0.2 
Luxembourg   60    1.0    18    0.3    20    0.4    15    0.2    0    0.0 
Mexico   754    12.8    867    15.0    850    15.4    927    15.4    789    11.8 
Netherlands   0    0.0    0    0.0    0    0.0    0    0.0    0    0.0 
Nicaragua   0    0.0    0    0.0    30    0.5    37    0.6    17    0.3 
Panama   268    4.6    485    8.4    500    9.1    499    8.3    455    6.8 
Paraguay   128    2.2    159    2.7    60    1.1    108    1.8    116    1.7 
Peru   150    2.6    78    1.4    212    3.8    467    7.8    511    7.6 
Singapore   91    1.5    39    0.7    55    1.0    70    1.2    12    0.2 
Switzerland   0    0.0    0    0.0    4    0.1    46    0.8    45    0.7 
Trinidad & Tobago   182    3.1    145    2.5    175    3.2    184    3.1    200    3.0 
United States of America   25    0.4    0    0.0    44    0.8    73    1.2    54    0.8 
Uruguay   1    0.0    10    0.2    15    0.3    37    0.6    219    3.3 
Total  $5,893    100.0   $5,778    100.0   $5,506    100.0   $6,021    100.0   $6,692    100.0 

 

The risk relating to countries outside the Region pertains to transactions carried out in the Region, with credit risk transferred outside the Region by way of legally binding corporate guarantees that are payable at first demand. As of December 31, 2019, the Bank’s combined Loan Portfolio associated with European country risk represented $261 million, or 4.42%, of the total Loan Portfolio, compared to $48 million, or 0.84%, of the total Loan Portfolio as of December 31, 2018 and $73 million, or 1.32%, as of December 31, 2017.

 

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Loan Portfolio by Type of Borrower

 

The following table sets forth the amounts of the Bank’s Loan Portfolio by type of borrower as of the dates indicated:

 

   As of December 31, 
   2019   % of Total Loans   2018   % of Total Loans   2017   % of Total Loans   2016   % of Total Loans   2015   % of Total Loans 
   (in $ millions, except percentages) 
Private sector commercial banks and financial institutions  $2,693    45.7   $2,459    42.5   $2,084    37.9   $1,739    28.9   $1,975    29.5 
State-owned commercial banks   590    10.0    624    10.8    574    10.4    515    8.5    613    9.2 
Central banks   0    0.0    0    0.0    0    0.0    30    0.5    0    0.0 
State-owned organizations   780    13.2    743    12.9    723    13.1    787    13.1    462    6.9 
Private corporations   1,783    30.3    1,893    32.8    2,125    38.6    2,950    49.0    3,642    54.4 
Sovereign   47    0.8    59    1.0    0    0.0    0    0.0    0    0.0 
Total  $5,893    100.0   $5,778    100.0   $5,506    100.0   $6,021    100.0   $6,692    100.0 

 

As of December 31, 2019, the Bank’s Loan Portfolio industry exposure mainly included: (i) 56% in the financial institutions sector; (ii) 16% in the industrial sector, comprised of food and beverage (5%), electric power (5%), metal (4%) and other manufacturing (2%); and (iii) 10% in the oil and gas sector, which in turn was mostly divided into integrated (7.3%) and downstream (2.2%). No other industry sector exceeded 10% exposure of the Loan Portfolio.

 

Maturities and Sensitivities of the Loan Portfolio to Changes in Interest Rates

 

The following table sets forth the remaining term of the maturity profile of the Bank’s Loan Portfolio as of December 31, 2019, by type of rate and type of borrower:

 

   As of December 31, 2019 
   (in $ millions) 
   Due in one year or
less
   Due after one year
through five years
   Due after five years   Total 
FIXED RATE                    
Private sector commercial banks and financial institutions  $981   $152   $0   $1,133 
State-owned commercial banks   257    0    0    257 
State-owned organizations   393    0    0    393 
Private corporations   912    6    9    927 
Sovereign   12    35    0    47 
Subtotal   2,555    193    9    2,757 
FLOATING RATE                    
Private sector commercial banks and financial institutions  $1,137   $423   $0   $1,560 
State-owned commercial banks   272    61    0    333 
State-owned organizations   55    256    76    387 
Private corporations   184    636    36    856 
Sovereign   0    0    0    0 
Subtotal   1,648    1,376    112    3,136 
Total   4,203    1,569    121    5,893 

Note: Scheduled amortization repayments fall into the maturity category in which the payment is due, rather than that of the final maturity of the loan.

 

Loan Commitments and Financial Guarantee Contracts

 

The Bank, on behalf of its client base, advises and confirms letters of credit to facilitate foreign trade transactions.  When confirming letters of credit, the Bank adds its own unqualified assurance that the issuing bank will pay, with the understanding that, if the issuing bank does not honor drafts drawn on the letter of credit, the Bank will. The Bank also provides stand-by letters of credit, guarantees, and commitments to extend credit, which are binding legal agreements to disburse or lend to clients, subject to the customers’ compliance with customary conditions precedent or other relevant documentation. Commitments generally have fixed expiration dates or other termination clauses and require payment of a fee to the Bank. As some commitments expire without being drawn down, the total commitment amounts do not necessarily represent future liquidity requirements.

 

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The Bank applies the same credit policies and criteria used in its lending process to its evaluation of these instruments, and, once issued, the commitment is irrevocable and remains valid until its expiration. Credit risk arises from the Bank’s obligation to make payment in the event of a client’s contractual default to a third party.

 

Loan commitments and financial guarantee contracts amounted to $493 million, or 8% of the total Commercial Portfolio, as of December 31, 2019, compared to $502 million, or 8% of the total Commercial Portfolio, as of December 31, 2018 and $488 million, or 8% of the total Commercial Portfolio, as of December 31, 2017. Confirmed and stand-by letters of credit, and guarantees covering commercial risk represented 86% of the total loan commitments and financial guarantee contracts as of December 31, 2019, compared to 79%, and 91%, as of December 31, 2018 and 2017, respectively.

 

The following table presents the distribution of the Bank’s loan commitments and financial guarantee contracts by country risk, as of December 31 of each year:

 

   As of December 31, 
   2019   2018   2017 
   Amount   % of Total
loan
commitments
and financial
guarantee
contracts
   Amount   % of Total
loan
commitments
and financial
guarantee
contracts
   Amount   % of Total
loan
commitments
and financial
guarantee
contracts
 
   (in $ millions, except percentages) 
Loan commitments and financial guarantee contracts                              
Argentina  $0    0.0   $7    1.4   $8    1.5 
Bolivia   0    0.1    0    0.0    0    0.0 
Brazil   50    10.2    50    10.0    0    0.0 
Canada   1    0.1    0    0.0    0    0.1 
Chile   0    0.0    0    0.0    15    3.1 
Colombia   48    9.6    52    10.4    91    18.7 
Costa Rica   59    12.0    39    7.7    20    4.1 
Dominican Republic   16    3.3    17    3.3    0    0.0 
Ecuador   155    31.5    247    49.3    253    51.9 
El Salvador   6    1.1    1    0.2    1    0.2 
France   48    9.7    0    0.0    0    0.0 
Germany   0    0.0    18    3.6    0    0.0 
Guatemala   44    9.0    15    3.0    12    2.4 
Honduras   0    0.1    0    0.0    1    0.2 
Mexico   17    3.5    23    4.5    35    7.2 
Panama   22    4.4    29    5.9    31    6.4 
Paraguay   11    2.2    0    0.0    0    0.0 
Peru   6    1.2    3    0.6    18    3.6 
Switzerland   10    2.0    0    0.0    0    0.0 
Uruguay   0    0.0    1    0.1    3    0.6 
Total loan commitments and financial guarantee contracts  $493    100.0   $502    100.0   $488    100.0 

 

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Investment Portfolio

 

As part of its Credit Portfolio, the Bank holds an Investment Portfolio, in the form of both securities at FVOCI and investment securities at amortized cost, consisting of investments in securities issued by Latin American entities.

 

In the normal course of business, the Bank utilizes interest rate swaps for hedging purposes associated with assets (mainly its Investment Portfolio) and liabilities (mainly issuances) denominated in fixed rates.

 

The following table sets forth information regarding the carrying value of the Bank’s Investment Portfolio and other financial assets, net, as of the dates indicated.

 

   As of December 31, 
   2019   2018   2017 
   (in $ millions) 
Securities at amortized cost   $75   $85   $69 
Securities at FVOCI    5    22    17 
Investment Portfolio  $80   $107   $86 
Equity instrument at FVOCI    2    6    8 
Financial instrument at fair value through profit and loss (debentures)    6    9    0 
Interest receivable    1    2    1 
Reserves    (0)   (0)   (0)
Total securities and other financial assets, net  $89   $124   $95 

 

During the periods under review herein, the Bank did not hold instruments in obligations of the U.S. Treasury or other U.S. Government agencies or corporations, or in states of the U.S. or their municipalities.

 

The following tables set forth the distribution of the Bank’s Investment Portfolio, presented in principal amounts, by country risk, type of borrower and contractual maturity, as of the dates indicated:

 

   As of December 31, 
   2019   2018   2017 
   Amount   %   Amount   %   Amount   % 
   (in $ millions, except percentages) 
Brazil  $2    1.8   $4    4.1   $5    5.2 
Chile   5    6.4    5    4.7    5    6.0 
Colombia   15    19.3    28    26.3    29    33.8 
Mexico   22    27.0    27    25.3    20    23.5 
Panama   36    45.5    35    32.4    18    21.5 
Trinidad and Tobago   0    0.0    8    7.2    9    10.0 
Total  $80    100.0   $107    100.0   $86    100.0 

 

   As of December 31, 
   2019   2018   2017 
   Amount   %   Amount   %   Amount   % 
   (in $ millions, except percentages) 
Private sector commercial banks and financial institutions  $19    24.2   $19    17.5   $11    13.4 
State-owned commercial banks   0    0.0    3    2.7    3    3.4 
Sovereign debt   34    42.2    46    43.5    48    55.7 
State-owned organizations   24    29.8    32    29.5    24    27.5 
Private corporations   3    3.8    7    6.8    0    0.0 
Total  $80    100.0   $107    100.0   $86    100.0 

 

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   As of December 31, 
   2019   2018   2017 
   Amount   %   Amount   %   Amount   % 
   (in $ millions, except percentages) 
In one year or less  $28    35.5   $36    33.9   $8    9.3 
After one year through five years   51    64.5    65    60.4    78    90.7 
After five years through ten years   0    0.0    6    5.7    0    0.0 
Total  $80    100.0   $107    100.0   $86    100.0 

 

As of December 31, 2019, 2018 and 2017, securities held by the Bank of any single issuer did not exceed 10% of the Bank’s equity.

 

Securities at amortized cost

 

As of December 31, 2019, the Bank’s securities at amortized cost decreased to $75 million, from $85 million as of December 31, 2018. The $10 million, or 12% decrease during the year in the securities at amortized cost portfolio was mostly attributable to $28 million in proceeds received from matured investment securities during 2019, which was partially offset by $18 million of investment securities acquired in 2019. As of December 31, 2019, securities at amortized cost with a carrying value of $36 million were pledged to secure repurchase transactions accounted for as secured financings.

 

As of December 31, 2018, the Bank’s securities at amortized cost increased to $85 million, from $69 million as of December 31, 2017. The $16 million, or 23% increase during the year in the securities at amortized cost portfolio was mostly attributable to $27 million in investment securities acquired during 2018, and net of the $10 million in proceeds received from matured investment securities. As of December 31, 2018, securities at amortized cost with a carrying value of $35 million were pledged to secure repurchase transactions accounted for as secured financings.

 

Securities at FVOCI

 

As of December 31, 2019, the Bank’s securities at FVOCI decreased to $5 million, from $22 million as of December 31, 2018. The $17 million, or 77%, decrease during the year in the securities at FVOCI was attributable to the proceeds of $9 million and $8 million from the sale and redemption, respectively, of securities at FVOCI during the year. As of December 31, 2019, the Bank’s securities at FVOCI consisted of investments in securities of issuers in the Region, of which 100% corresponded to sovereign and state-owned issuers. As of December 31, 2019, securities at FVOCI with a carrying value of $4.9 million were pledged to secure repurchase transactions accounted for as secured financings.

 

As of December 31, 2018, the Bank’s securities at FVOCI increased to $22 million, from $17 million as of December 31, 2017. The $5 million, or 30%, increase during the year in the securities at FVOCI was mostly attributable to $10 million in securities purchases, net of $5 million in proceeds from the redemption of securities at FVOCI during the year. As of December 31, 2018, the Bank’s securities at FVOCI consisted of investments in securities of issuers in the Region, of which 72% corresponded to sovereign and state-owned issuers, and 28% corresponded to the private sector. As of December 31, 2018, securities at FVOCI with a carrying value of $4.6 million were pledged to secure repurchase transactions accounted for as secured financings.

 

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Total Gross Outstandings by Country

 

The following table sets forth the aggregate gross amount of the Bank’s cross-border outstandings, consisting of cash and due from banks, interest-bearing deposits in banks, securities at FVOCI, securities and loans at amortized cost, and accrued interest receivable, as of December 31 of each year:

 

   As of December 31, 
   2019   2018   2017 
   Amount   % of Total
Outstandings
   Amount   % of Total
Outstandings
   Amount   % of Total
Outstandings
 
   (in $ millions, except percentages) 
Argentina  $231    3.2   $609    7.9   $296    4.7 
Brazil   1,023    14.2    1,169    15.2    1,042    16.5 
Chile   690    9.6    183    2.4    176    2.8 
Colombia   929    12.9    660    8.6    863    13.7 
Costa Rica   222    3.1    372    4.9    358    5.7 
Dominican Republic   292    4.1    304    4.0    251    4.0 
Ecuador   178    2.5    189    2.5    95    1.5 
France   156    2.2    0    0.0    0    0.0 
Guatemala   281    3.9    332    4.3    310    4.9 
Honduras   131    1.8    90    1.2    75    1.2 
Mexico   784    10.9    899    11.7    875    13.9 
Panama   310    4.3    529    6.9    526    8.3 
Paraguay   129    1.8    161    2.1    60    1.0 
Peru   151    2.1    79    1.0    213    3.4 
Singapore   91    1.3    38    0.5    55    0.9 
Trinidad & Tobago   182    2.5    154    2.0    185    2.9 
United States of America   1,162    16.2    1,669    21.8    665    10.5 
Other countries (1)   251    3.4    237    3.0    258    4.1 
Total (2)  $7,193    100.0   $7,674    100.0   $6,303    100.0 

 

(1)“Other countries” consists of cross-border outstandings to countries in which cross-border outstandings did not exceed 1% for any of the periods indicated. “Other countries” in 2019 was comprised of Luxembourg ($60 million), El Salvador ($55 million), Jamaica ($38 million), Germany ($35 million), Egypt ($20 million), Belgium ($14 million), Switzerland ($10 million), Hong Kong ($10 million), Bolivia ($7 million), Japan ($1 million), and Uruguay ($1 million). “Other countries” in 2018 was comprised of El Salvador ($71 million), Germany ($68 million), Jamaica ($22 million), Japan ($2 million), Luxembourg ($18 million), Belgium ($14 million), Switzerland ($9 million), Bolivia ($14 million), Uruguay ($10 million) and Spain ($9 million). “Other countries” in 2017 was comprised of El Salvador ($55 million), Germany ($38 million), Japan, ($2 million), Nicaragua ($30 million), Jamaica ($25 million), Spain ($22 million), Luxembourg ($20 million), Netherlands ($15 million), Uruguay ($15 million), Switzerland ($9 million), Bolivia ($15 million) and Belgium ($12 million).
(2)The outstandings by country does not include loan commitments and financial guarantee contracts, and other assets. See Item 4.B. “Business Overview— Loan Commitments and Financial Guarantee Contracts.”

 

In allocating country risk limits, the Bank applies a portfolio management approach that takes into consideration several factors, including the Bank’s perception of country risk levels, business opportunities, and economic and political risk analysis.

 

As of December 31, 2019, overall cross border outstandings totaled $7,193 million, a $481 million, or 6%, decrease compared to $7,674 million as of December 31, 2018, mainly as a result of decreased levels of liquid assets in the form of cash and cash equivalents, mostly placed with the U.S. Federal Reserve Bank.

 

As of December 31, 2018, overall cross border outstandings totaled $7,674 million, a $1,371 million, or 22%, increase compared to $6,303 million as of December 31, 2017, mainly as a result of the Bank having liquidity above historical levels at the end of 2018, as the Bank obtained funding sources in anticipation of a potential temporary decline in its deposit base which ended-up reverting toward year-end 2018.

 

Cross-border outstanding exposures in countries outside the Region correspond principally to the Bank’s liquidity placements and secured credits related to transactions carried out in the Region. See Item 5, “Operating and Financial Review and Prospects—Liquidity and Capital Resources—Liquidity.”

 

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The following table sets forth the amount of the Bank’s cross-border outstandings by type of institution as of December 31 of each year:

 

   As of December 31, 
   2019   2018   2017 
   (in $ millions) 
Private sector commercial banks and financial institutions  $2,761   $2,546   $2,168 
State-owned commercial banks and financial institutions   613    681    579 
Central banks   1,129    1,648    609 
Sovereign debt   81    47    49 
State-owned organizations   808    838    750 
Private corporations   1,801    1,914    2,148 
Total  $7,193   $7,674   $6,303 

 

Total Revenues Per Country

 

The following table sets forth information regarding the Bank’s total revenues by country at the dates indicated, with total revenues calculated as the sum of net interest income plus total other income, net – which includes fees and commissions, net; gain (loss) on financial instruments, net; and other income, net:

 

 

   For the year ended December 31, 
   2019   2018   2017 
   (in $ millions) 
Argentina  $14.9   $10.0   $7.0 
Brazil   13.1    17.9    27.9 
Chile   2.8    2.6    2.2 
Colombia   10.3    15.4    18.5 
Costa Rica   10.7    11.1    11.8 
Dominican Republic   5.7    4.1    2.9 
Ecuador   13.6    10.4    9.5 
El Salvador   1.7    1.5    2.5 
Germany   1.6    2.0    2.4 
Guatemala   7.9    7.5    7.0 
Honduras   2.9    2.4    2.3 
Jamaica   1.7    2.1    1.6 
Mexico   18.8    14.6    17.5 
Panama   8.6    13.9    10.8 
Paraguay   2.3    1.6    1.9 
Peru   0.5    2.4    5.1 
Trinidad and Tobago   8.2    5.0    3.7 
Other countries (1)   1.4    3.1    3.7 
Total revenues  $126.7   $127.6   $138.3 

 

1)Other countries consists of total income per country in which total income did not exceed $1 million for any of the periods indicated above.

 

The above table provides total revenues by country, as they are presented in the Bank’s Consolidated Financial Statements, and which are generated from the Bank’s Commercial and Treasury Business Segments. Given that the Bank’s business segments generate revenues not only from net interest income, but from other sources generating other income, net, the Bank adds those corresponding items to net interest income to show total revenues earned before impairment losses and operating expenses.

 

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Net Revenues

 

During the year ended December 31, 2019, the Bank recorded net revenues totaling $126.7 million, representing a $0.9 million or 1% decrease compared to 2018. The main driver of this decline was attributable to lower average lending volumes, as the Bank improved its portfolio risk profile by reducing unwanted exposures to certain countries, industries and clients, along with decreased average liability deposit balances, which impacted the Bank’s overall funding costs. These factors were only partially offset by the net positive effect of higher average LIBOR-based market rates throughout 2019 compared to 2018.

 

During the year ended December 31, 2018, the Bank recorded net revenues totaling $127.6 million, representing a $10.7 million or 8% decrease compared to 2017. The main country driving this decline was Brazil, whose revenues declined by $10 million, mostly due to a decrease in lending spreads as the Bank increased its lending to financial institutions in the country.

 

Competition

 

The Bank operates in a highly competitive environment in most of its markets, and faces competition principally from international banks, the majority of which are European, North American or Asian, as well as Latin American regional banks, in making loans and providing fee-generating services. The Bank competes in its lending and deposit-taking activities with other banks and international financial institutions, many of which have greater financial resources, enjoy access to less expensive funding and offer sophisticated banking services. Whenever economic conditions and risk perception improve in the Region, competition from commercial banks, the securities markets and other new participants generally increases. Competition may have the effect of reducing the spreads of the Bank’s lending rates over its funding costs and constraining the Bank’s profitability.

 

The Bank also faces competition from local financial institutions which increasingly have access to as good or better resources than the Bank. Local financial institutions are also clients of the Bank and there is complexity in managing the balance when a local financial institution is a client and competitor. Additionally, many local financial institutions are able to gain direct access to the capital markets and low cost funding sources, threatening the Bank’s historical role as a provider of U.S. dollar funding.

 

Increased open account exports and new financing requirements from multinational corporations are changing the way banks intermediate foreign trade financing. Trade finance volumes are also dependent on global economic conditions.

 

The Bank also faces competition from investment banks and the local and international securities markets, which provide liquidity to the financial systems in certain countries in the Region, as well as non-bank specialized financial institutions. The Bank competes primarily on the basis of agility, pricing, and quality of service. See Item 3.D., “Key Information–Risk Factors.”

 

Supervision and Regulation

 

General

 

The Superintendency regulates, supervises and examines the Bank on a consolidated basis. The New York Agency is regulated, supervised and examined by the New York State Department of Financial Services and the Board of Governors of the Federal Reserve System (the “U.S. Federal Reserve Board”). The Bank’s direct and indirect nonbanking subsidiaries doing business in the United States are subject to regulation by the U.S. Federal Reserve Board. The Bank is subject to regulations in each jurisdiction in which the Bank has a physical presence. The regulation of the Bank by relevant Panamanian authorities differs from the regulation generally imposed on banks, including foreign banks, in the United States by U.S. federal and state regulatory authorities.

 

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The Superintendency of Banks has signed and executed agreements or letters of understanding with more than 26 foreign supervisory authorities regarding the sharing of supervisory information under principles of reciprocity, appropriateness, national agreement and confidentiality. These entities include the U.S. Federal Reserve Board, the Federal Reserve Bank, the Office of the Comptroller of the Currency of the Treasury Department, or OCC, and the Federal Deposit Insurance Corporation. In addition, the Statement of Cooperation between the United States and Panama promotes cooperation between U.S. and Panamanian banking regulators and demonstrates the commitment of the U.S. regulators and the Superintendency to the principles of comprehensive and consolidated supervision.

 

Banks in Panama are subject to the Decree Law 9 of February 26, 1998, as amended, as well as banking regulations issued by the Superintendency (the “Banking Law”).

 

Panamanian Law

 

The Bank operates in Panama under a General Banking License issued by the National Banking Commission, predecessor of the Superintendency of Banks. Banks operating under a General Banking License (“General License Banks”), may engage in all aspects of the banking business in Panama, including taking local and foreign deposits, as well as making local and international loans.

 

Capital

 

General License Banks must at all times maintain: (i) a paid-in capital of no less than U.S.$10 million and (ii) an adjusted capital of not less than 8% of total risk-weighted assets. The Superintendency has the power to impose additional capital adequacy requirements not contemplated above on any financial institution to secure the stability of Panama’s financial system.

 

Adjusted capital consists of the sum of: (i) primary capital (Tier I Capital), (ii) secondary capital (Tier II Capital) and (iii) the credit balance of the dynamic reserves. Primary capital is further divided into ordinary capital (Common Equity Tier 1) and additional capital (Additional Tier 1).

 

Primary Capital

 

(i)Ordinary Capital includes paid-in capital in shares, surplus capital, declared reserves, retained earnings, minority interests in equity accounts of consolidated subsidiaries, other items of net total earnings and any other reserves authorized by the Superintendency.

 

(ii)Additional primary capital includes instruments issued by a bank that comply with the criteria to be classified as ordinary primary capital and that are not classified as ordinary primary capital, issuance premiums from financial instruments considered ordinary primary capital, financial instruments that are held by a third party and are issued by consolidated affiliates of the bank, and any other financial instrument resulting from capital adjustments of ordinary primary capital.

 

Secondary Capital

 

Secondary capital includes: (i) financial instruments that comply with the criteria set forth in Rule No. 1-2015 to be classified as secondary capital, (ii) subscription premiums paid on financial instruments that are classified as secondary capital, (iii) financial instruments issued by consolidated affiliates of the bank to third parties, and (iv) reserves for future losses (excluding provisions assigned to the deterioration of assets valued on an individual or collective basis).

 

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Dynamic Reserves

 

The dynamic reserve must be between 1.25% and 2.5% of the risk-weighted assets amount corresponding to the credit facilities classified in the Normal category and cannot decrease with respect to the amount calculated for the previous quarter, except for cases when such decrease is as a result of a conversion from dynamic reserves to specific reserves.

 

General License Banks are required to maintain a ratio of ordinary primary capital over risk-weighted assets of 4.50% as of January 1, 2019. In addition, General License Banks are required to maintain a ratio of primary capital over risk weighted assets of 6.00% as of January 1, 2019.

 

Loan Classification and Loan Loss Reserves

 

Regulations require that banks have loan loss allowances. The calculation of the specific reserves requires that the loan portfolio be classified according to parameters prescribed in the regulation. There are five categories of loan classifications: Normal, Special Mention, Sub-standard, Doubtful and Unrecoverable. Regulations require banks to suspend accruing interest on impaired loans.

 

Specific reserves are reserves required in connection with the credit classification of a loan. They are created for individual credit facilities as well as for a consolidated group of credit facilities. The minimum reserve requirements depend on the classification of the loan as follows: Normal loans 0%; Special Mention loans 2%; Sub-standard loans 15%; Doubtful loans 50%; and Unrecoverable 100%. Specific reserve requirements take into account the classification of the loan as well as the guarantees provided by the borrowers to secure such loans. Guarantees are calculated at present value in accordance with the requirements established by banking regulations.

 

Banks may create their own financial models to determine the amount of the specific reserves, subject to the approval of the Superintendency. In any event, the internal financial models must comply with the aforementioned minimum specific reserve requirements. Compliance with regulations on loan classification and loan loss reserves are monitored by the Superintendency through reports, as well as on- and off-site examinations.

 

Liquidity

 

General License Banks are required to maintain 30% of their total gross deposits in qualifying liquid assets as prescribed by the Superintendency (which include short-term loans to other banks and other liquid assets). Qualifying liquid assets must be free of liens, encumbrances and transfer restrictions. The Superintendency may impose concentration limits and cash requirements, as well as weights per type of liquid assets.

 

The Superintendency requires general license banks to monitor their liquidity and identify potential liquidity risk events that may affect the bank. Banks must undertake stress tests and active monitoring of their intra-day liquidity. The stress tests performed by the bank should include at minimum: (a) the simultaneous exhaustion of liquidity in different markets; (b) restrictions on access to secured and unsecured funding; (c) limitations on foreign currency exchange and difficulties on the execution of foreign currency exchange transactions; and (d) analysis of the possible effects of severe stress scenarios.

 

Banks are required to have a contingent funding plan which should include: (i) a diversified pool of contingent funding options; (ii) provide detail as to potential amounts and values that could be obtained from each of the funding options; (iii) procedures that detail the priority of the funding sources; and (iv) a flexible framework which will allow the bank to react effectively to different situations.

 

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General license banks are required to calculate and comply with the liquidity coverage ratio (“LCR”) established by the Superintendency. The regulation establishes two bands of ratios that can be applicable to banks in Panama. The Superintendency determines, according to internal criteria, the band applicable to each bank. The band 1 banks are required to gradually reach a ratio of 50% and the band 2 banks are required to gradually reach a ratio of 100%, each by December 2022. The Superintendency has confirmed that the band 2 is applicable to the Bank. The Superintendency defines the LCR as the stock of high-quality liquid assets over total net cash outflows over the next 30 calendar days. The definition is based on the Basel III Liquidity Coverage Ratio and liquidity risk monitoring tools published by the Basel Committee on Banking Supervision and adjusted by the Superintendency.

 

Lending Limits

 

Pursuant to the Banking Law, banks cannot grant loans or issue guarantees or any other obligation (“Credit Facilities”), to any one person or group of related persons in excess of 25% of the bank’s total capital. This limitation also extends to Credit Facilities granted to parties related to the ultimate parent of the banking group. However, the Banking Law establishes that, in the case of Credit Facilities granted by mixed-capital banks with headquarters in Panama whose principal business is the granting of loans to other banks, the limit is 30% of the bank’s capital funds. As confirmed by the Superintendency, the Bank currently applies the limit of 30% of the Bank’s total capital with respect to the Bank’s Credit Facilities in favor of financial institutions and the limit of 25% of the Bank’s total capital with respect to the Bank’s Credit Facilities in favor of corporations and sovereign borrowers.

 

Under the Banking Law, a bank and the ultimate parent of the banking group may not grant loans or issue guarantees or any other obligation to “related parties” that exceed (1) 5% of its total capital, in the case of unsecured transactions, and (2) 10% of its total capital, in the case of collateralized transactions (other than loans secured by deposits in the bank). For these purposes, a “related party” is (a) any one or more of the bank’s directors, (b) any shareholder of the bank that directly or indirectly owns 5% or more of the issued and outstanding capital stock of the bank, (c) any company of which one or more of the bank’s directors is a director or officer or where one or more of the bank’s directors is a guarantor of the loan or credit facility, (d) any company or entity in which the bank or any one of its directors or officers can exercise a controlling influence, (e) any company or entity in which the bank or any one of its directors or officers owns 20% or more of the issue and outstanding capital stock of the company or entity and (f) managers, officers and employees of the bank, or their respective spouses (other than home mortgage loans or guaranteed personal loans under general programs approved by the bank for employees). The Superintendency currently limits the total amount of secured and unsecured Credit Facilities (other than Credit Facilities secured by deposits in the bank) granted by a bank or the ultimate parent of a banking group to related parties to 25% of the total capital of the bank.

 

The Superintendency of Banks may authorize the total or partial exclusion of loans or credits from the computation of these limitations in cases of unsecured loans and other credits granted by mixed-capital banks with headquarters in Panama whose principal business is the granting of loans to other banks, which is the case of the Bank. This authorization is subject to the following conditions: (1) the ownership of shares in the debtor bank–directly or indirectly–by the shared director or shared officer, may not exceed 5% of the bank’s capital, or may not amount to any sum that would ensure his or her majority control over the decisions of the bank; (2) the ownership of shares in the creditor bank–directly or indirectly–by the debtor bank represented in any manner by the shared director or shared officer, may not exceed 5% of the shares outstanding of the creditor bank, or may not amount to any sum that would ensure his or her majority control over the decisions of the bank; (3) the shared director or shared officer must abstain from participating in the deliberations and in the voting process regarding the loan or credit request; and (4) the loan or credit must strictly comply with customary standards of discretion set by the grantor bank’s credit policy. The Superintendency will determine the amount of the exclusion in the case of each loan or credit submitted for its consideration.

 

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The Banking Law contains additional limitations and restrictions with respect to related party loans and Credit Facilities. For instance, under the Banking Law, banks may not grant Credit Facilities to any employee in an amount that exceeds the employee’s annual compensation package, and all Credit Facilities to managers, officers, employees or shareholders who are owners of 5% or more of the issued and outstanding capital stock of the lending bank or the ultimate parent of the banking group, will be made on terms and conditions similar to those given by the bank to its clients in arm’s-length transactions and which reflect market conditions for a similar type of operation. Shares of a bank cannot be pledged or offered as security for loans or Credit Facilities issued by the bank.

 

Corporate Governance

 

The board of directors of a bank must be comprised of at least seven members, with knowledge and experience in the banking business, including at least two independent directors. The majority of the members of the board of directors may not be part of the banks’ management nor have material conflicts of interest. None of the Chief Executive Officer, Chief Operating Officer or Chief Financial Officer may preside over the board of directors. Members of the board of directors who participate in board-established committees must have specialized knowledge and experience in the areas assigned to the committees in which they participate. The board of directors shall meet at least every three months. The board of directors shall keep detailed minutes of all meetings.

 

Minimum corporate governance requirements for banking institutions include: (a) documentation of corporate values, strategic objectives and codes of conduct; (b) documentation that evidences compliance with the corporate values and code of conduct of the bank; (c) a defined corporate strategy that can be used to measure the contribution to the bank of each level of the corporate governance structure; (d) the designation of responsibilities and authorized decision-making authorities within the bank, and their individual powers and approval levels; (e) the creation of a system that regulates interaction and cooperation of the board of directors, senior management and external and internal auditors; (f) creation of control systems for independent risk management; (g) prior approval, monitoring and verification of risks for credit facilities with existing conflicts of interest; (h) creation of policies for recruitment, induction, continuous and up-to-date staff training and financial and administrative incentives; (i) existence of internal and public information that guarantee the transparency of the corporate governance system; (j) creation of a direct supervision system for each level of the organizational structure; (k) external audits independent from management and the board of directors; and (l) internal audits independent from management of the bank.

 

Integral Risk Management

 

Panamanian banking regulations contain guidelines for integral risk management of financial institutions. Integral risk management is a process intended to identify potential events that can affect banks and to manage those events according to their nature and risk level. These guidelines cover the different risks that could affect banking operations such as: (i) credit risk; (ii) counterparty risk; (iii) liquidity risk; (iv) market risk; (v) operational risk; (vi) reputational risk; (vii) country risk; (viii) contagion risk; (ix) strategic risk; (x) information technology risk; and (xi) concentration risk. Banks are required to have policies for the management and mitigation of all risks to which they are exposed. The board of directors, management and the risk committee of the board of directors are responsible for compliance with the integral risk management policies created to mitigate the exposure of the bank to such risks.

 

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Additional Regulatory Requirements

 

In addition to the foregoing requirements, there are certain other requirements applicable to General License Banks, including: (1) a requirement that a bank must notify the Superintendency before opening or closing a branch or office in Panama and obtain approval from the Superintendency before opening or closing a branch or subsidiary outside Panama, (2) a requirement that a bank obtain approval from the Superintendency before it liquidates its operations, merges or consolidates with another bank or sells all or substantially all of its assets, (3) a requirement that a bank must designate the certified public accounting firm that it wishes to contract to perform external audit duties for the new fiscal term, within the first three months of each fiscal term, and notify the Superintendency within 7 days of such designation, (4) a requirement that a bank obtain prior approval from the Superintendency of the rating agency it wishes to hire to perform the risk analysis and rating of the bank, (5) a requirement that a bank must publish in a local newspaper the risk rating issued by the rating agency and any risk rating update, and (6) a requirement that a bank must provide written affirmation of the Bank’s audited financial statements signed by the Bank’s Chairman of the Board, the Chief Executive Officer and Chief Financial Officer. The subsidiaries of Panamanian banks established in foreign jurisdictions must observe the legal and regulatory provisions applicable in Panama regarding the sufficiency of capital, as prescribed under the Banking Law.

 

Supervision, Inspection and Reports

 

The Banking Law regulates banks and the entire “banking group” to which each bank belongs. Banking groups are defined as the holding company and all direct and indirect subsidiaries of the holding company, including the bank in question. Banking groups must comply with audit standards and various limitations set forth in the Banking Law, in addition to all compliance required of the bank in question. The Banking Law provides that banks and banking groups in Panama are subject to inspection by the Superintendency, which must take place at least once every two years. The Superintendency is empowered to request from any bank or any company that belongs to the economic group of which a bank in Panama is a member, the documents and reports pertaining to its operations and activities. Banks are required to file with the Superintendency weekly, monthly, quarterly and annual information, including financial statements, an analysis of their Credit Facilities and any other information requested by the Superintendency. In addition, banks are required to make available for inspection any reports or documents that are necessary for the Superintendency to ensure compliance with Panamanian banking laws and regulations. Banks subject to supervision may be fined by the Superintendency for violations of Panamanian banking laws and regulations.

 

 

Panamanian laws and regulations governing Anti Money Laundering, Terrorism Financing and the Prevention of the Proliferation of Weapons of Mass Destruction

 

Panama has enacted extensive legislation and regulations to prevent and fight money laundering activities and the financing of terrorism and weapons of mass destruction by financial institutions and certain other businesses.

 

Financial and non-financial supervised entities are subject to supervision, reporting and compliance requirements by various government agencies. The following entities are deemed to be “financial supervised entities”: (i) banks; (ii) bank groups; (iii) trust companies; (iv) leasing companies; (v) factoring companies; (vi) credit, debit or pre-paid card processing entities; (vii) companies engaged in remittances or wire transfers; and (viii) companies that provide any other service related to trust companies. These entities must comply with measures to prevent their operations and/or transactions from being used for money laundering operations, terrorism financing or any other illicit activity. Banks and trust companies are regulated and supervised by the Superintendency.

 

The laws and regulations require supervised entities to perform due diligence reviews on their clients and their transactions. Supervised entities have the obligation to ensure that the information provided by their customers is continuously updated. Clients classified as higher risk clients are required to update their information on a yearly basis. Banks are further required to create a system of client classification by risk profiles, based on factors such as nationality, country of birth or incorporation, domicile, profession or trade, geographic region of the customer’s activities, corporate structure, type, amount and frequency of transactions, source of funds, politically exposed persons, products, services and channels. Banks are required to know and keep information about the ultimate beneficial owner of their clients.

 

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Banks are subject to supervision and monitoring measures in order to prevent the use of their banking operations and/or transactions for money laundering operations. These measures include: (i) compliance with “Know Your Customer” policies; (ii) supervision of employee activities; (iii) tracking the movement of every customer’s account to be aware of their regular activities and be able to identify unusual transactions; (iv) keeping a registry of every suspicious transaction and notifying suspicious transactions to the Financial Analysis Unit (a Panamanian governmental agency under the Ministry of the Presidency); (v) conducting internal audits at least every six months on accounts with funds exceeding $10,000, with the purpose of determining if transactions made in these accounts are consistent with the account holder’s usual behavior; and (vi) monitoring accounts of clients labelled as politically exposed persons.

 

Furthermore, banks that provide correspondent banking services to foreign banks must assess, review and monitor the policies and internal controls of such foreign banks to prevent money laundering, terrorism financing or any other illicit activities.

 

United States Law

 

The Bank operates the New York Agency, a New York state-licensed agency in White Plains, New York, and maintains a direct wholly-owned non-banking subsidiary in Delaware, Bladex Holdings, which is not engaged in banking activities.

 

The U.S. banking industry is highly regulated under federal and state law. These regulations affect the operations of the Bank in the United States. Set forth below is a brief description of the bank regulatory framework that is or will be applicable to the New York Agency. This description is not intended to describe all laws and regulations applicable to the New York Agency. Banking statues, regulations and policies are continually under review by Congress and state legislatures and federal and state regulatory agencies, including changes in how they are interpreted or implemented, could have a material adverse impact on the New York Agency and its operations. In addition to laws and regulations, state and federal bank regulatory agencies (including the U.S. Federal Reserve Board) may issue policy statements, interpretive letters and similar written guidance applicable to the New York Agency (including the Bank). These issuances also may affect the conduct of the New York Agency’s business or impose additional regulatory obligations. The brief description below is qualified in its entirety by reference to the full text of the statues, regulations, policies, interpretive letters and other written guidance that are described.  

 

U.S. Federal Law

 

In addition to being subject to New York state laws and regulations, the New York Agency is subject to federal regulations, primarily under the International Banking Act of 1978, as amended (“IBA”). The New York Agency is subject to examination and supervision by the U.S. Federal Reserve Board. The IBA generally extends federal banking supervision and regulation to the U.S. offices of foreign banks and to the foreign bank itself. Under the IBA, the U.S. branches and agencies of foreign banks, including the New York Agency, are subject to reserve requirements on certain deposits. At present, the New York Agency has no deposits subject to such requirements. The New York Agency also is subject to reporting and examination requirements imposed by the U.S. Federal Reserve Board similar to those imposed on domestic banks that are members of the U.S. Federal Reserve System. The Foreign Bank Supervision Enhancement Act of 1991 (the “FBSEA”), amended the IBA to enhance the authority of the U.S. Federal Reserve Board to supervise the operations of foreign banks in the United States. In particular, the FBSEA expanded the U.S. Federal Reserve Board’s authority to regulate the entry of foreign banks into the United States, supervise their ongoing operations, conduct and coordinate examinations of their U.S. offices with state banking authorities, and terminate their activities in the United States for violations of law or for unsafe or unsound banking practices.

 

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In addition, under the FBSEA, state-licensed branches and agencies of foreign banks may not engage in any activity that is not permissible for a “federal branch” (i.e., a branch of a foreign bank licensed by the federal government through the OCC, rather than by a state), unless the U.S. Federal Reserve Board has determined that such activity is consistent with sound banking practices.

 

The New York Agency does not engage in retail deposit-taking from persons in the United States. Under the FBSEA, the New York Agency may not obtain Federal Deposit Insurance Corporation (“FDIC”), insurance and generally may not accept deposits from persons in the United States, but may accept credit balances incidental to its lawful powers, from persons in the United States, and accept deposits from non-U.S. citizens who are non-U.S. residents, but must inform each customer that the deposits are not insured by the FDIC.

 

The IBA also restricts the ability of a foreign bank with a branch or agency in the United States to engage in non-banking activities in the United States, to the same extent as a U.S. bank holding company. Bladex is subject to certain provisions of the Bank Holding Company Act of 1956 (the “BHCA”), because it maintains an agency in the United States. Generally, any nonbanking activity engaged in by Bladex directly or through a subsidiary in the United States is subject to certain limitations under the BHCA. Among other limitations, the provisions of the BHCA include the so-called "Volcker Rule," which may restrict proprietary trading activities conducted by Bladex and its affiliates with U.S. clients or counterparties, as well as certain private funds-related activities with US nexus. Under the Gramm-Leach-Bliley Financial Modernization Act of 1999 (the “GLB Act”), a foreign bank with a branch or agency in the United States may engage in a broader range of non-banking financial activities, provided it is qualified and has filed a declaration with the U.S. Federal Reserve Board to be a “financial holding company.” The application with the U.S. Federal Reserve Board to obtain financial holding company status, filed by the Bank on January 29, 2008, was withdrawn, effective March 2, 2012, as the Bank no longer considered the financial holding company status to be a necessary requirement in order to achieve its long-term strategic goals and objectives. At present, the Bank has a subsidiary in the United States, Bladex Holdings, a wholly-owned corporation incorporated under Delaware law that is not presently engaged in any activity.

 

In addition, pursuant to the Financial Services Regulatory Relief Act of 2006, the SEC and the U.S. Federal Reserve Board finalized Regulation R. Regulation R defines the scope of exceptions provided for in the GLB Act for securities brokerage activities which banks may conduct without registering with the SEC as securities brokers or moving such activities to a broker-dealer affiliate. The “push out” rules exceptions contained in Regulation R enable banks, subject to certain conditions, to continue to conduct securities transactions for customers as part of the bank’s trust and fiduciary, custodial, and deposit “sweep” functions, and to refer customers to a securities broker-dealer pursuant to a networking arrangement with the broker-dealer. The New York Agency is subject to Regulation R with respect to its securities activities.

 

New York State Law

 

The New York Agency, established in 1989, is licensed by the Superintendent of Financial Services of the State of New York (the “Superintendent”), under the New York Banking Law. The New York Agency maintains an international banking facility that also is regulated by the Superintendent and the U.S. Federal Reserve Board. The New York Agency is examined by the Department of Financial Services and is subject to banking laws and regulations applicable to a foreign bank that operates a New York agency. New York agencies of foreign banks are regulated substantially the same as, and have similar powers to, New York state-chartered banks, subject to certain exceptions (including with respect to capital requirements and deposit-taking activities).

 

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The Superintendent is empowered by law to require any branch or agency of a foreign bank to maintain in New York specified assets equal to a percentage of the branch’s or agency’s liabilities, as the Superintendent may designate. Under the current requirement, the New York Agency is required to maintain a pledge of a minimum of $2 million with respect to its total third-party liabilities and such pledge may be up to 1% of the agency’s third party liabilities, or upon meeting eligibility criteria, up to a maximum amount of $100 million. As of December 31, 2019, the New York Agency maintained a pledge deposit with a carrying value of $3.5 million with the New York State Department of Financial Services, above the minimum required amount. In addition, the Superintendent retains the authority to impose specific asset maintenance requirements upon individual agencies of foreign banks on a case-by-case basis.

 

The New York Banking Law generally limits the amount of loans to any one person to 15% of the capital, surplus fund and undivided profits of a bank. For foreign bank agencies, the lending limits are based on the capital of the foreign bank and not that of the agency.

 

The Superintendent is authorized to take possession of the business and property of a New York agency of a foreign bank whenever an event occurs that would permit the Superintendent to take possession of the business and property of a state-chartered bank. These events include the violation of any law, unsafe business practices, an impairment of capital, and the suspension of payments of obligations. In liquidating or dealing with an agency’s business after taking possession of the agency, the New York Banking Law provides that the claims of creditors which arose out of transactions with the agency may be granted a priority with respect to the agency’s assets over other creditors of the foreign bank.

  

U.S. Anti-Money Laundering Laws

 

U.S. anti-money laundering laws, including the Financial Recordkeeping and Reporting of Currency and Foreign Transactions Act of 1970 (commonly known as the Bank Secrecy Act), as amended by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (commonly referred to as the PATRIOT Act), impose significant compliance and due diligence obligations, on financial institutions doing business in the United States, including, among other things, requiring these financial institutions to maintain appropriate records, file certain reports involving currency transactions, conduct certain due diligence with respect to their customers and establish anti-money laundering compliance programs designed to detect and report suspicious or unusual activity. The New York Agency is a “financial institution” for these purposes. The failure of a financial institution to comply with the requirements of these laws and regulations could have serious legal, reputational and financial consequences for such institution. The New York Agency has adopted risk-based policies and procedures reasonably designed to promote compliance in all material respects with these laws and their implementing regulations.

 

U.S. Economic or Financial Sanctions, Requirements or Trade Embargoes

 

The economic or financial sanctions, requirements or trade embargoes (collectively, the “Sanctions”) imposed, administered or enforced from time to time by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) and other U.S. governmental authorities, require all U.S. persons, including U.S. branches or agencies of foreign banks operating in the U.S. (such as the New York Agency) to comply with these sanctions, and require U.S. financial institutions to block accounts and other property of, or reject unlicensed trade and financial transactions with specified countries, entities, and individuals. Failure to comply with applicable Sanctions can have serious legal, reputational and financial consequences for an institution subject to these requirements and Sanctions, in general, may have a direct or indirect adverse impact on the business or operations of parties that engage in trade finance or international commerce. The New York Agency has adopted risk-based policies and procedures reasonably designed to promote compliance in all material respects with applicable Sanctions.

 

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Other U.S. Laws/Regulations

 

The New York Agency’s operations are also subject to federal or state laws and regulations applicable to financial institutions which relate to credit transactions and financial privacy. These laws, include, without limitation, the following:

 

·State usury laws and federal laws concerning interest rates and other charges collected or contracted for by the New York Agency;
·Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;
·Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; and
·Rules and regulations of the various state and federal agencies charged with the responsibility of implementing such state or federal laws.

 

Information Security

 

The Bank has approved policies and implemented procedures defining roles and responsibilities for managing information security as part of the Information Security and Technological Risk Management Framework. These policies and procedures cover any access to data, resource management and information systems by the Bank’s employees, providers and suppliers, as well as any other person dealing with the Bank.

 

The Bank’s Information Security Team is responsible for overseeing compliance with the policies and procedures by any person with access to our systems. The Bank also engages independent third-party reviews of its cyber-security program.

 

The cyber-security program was developed using a holistic approach, which enables us to cover both the technical and strategic measures in one program. This program is based on four fundamental pillars: Perimeter Security, Service and Infrastructure Security, User Security and Data Security.

 

Seasonality

 

The Bank’s business is not materially affected by seasonality.

 

Raw Materials

 

The Bank is not dependent on sources or availability of raw materials.

 

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C.       Organizational Structure

 

For information regarding the Bank’s organizational structure, see Item 18, “Financial Statements,” note 1.

 

D.       Property, Plant and Equipment

 

The Bank leases its headquarters, which comprises 4,990 square meters of office space, located at Business Park - Tower V, Costa del Este, Panama City, Panama. The Bank leases computer hosting equipment spaces located at Gavilan Street Balboa, Panama City, Panama and 21 square meters of office space and internet access, as a contingency, located at 75E Street San Francisco, Panama City, Panama.

 

In addition, the Bank leases office space for its representative offices in Mexico City, Mexico; Buenos Aires, Argentina; Bogotá, Colombia; São Paulo, Brazil; and its New York Agency in White Plains, New York.

 

Item 4A.Unresolved Staff Comments

 

None.

 

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Item 5.Operating and Financial Review and Prospects

 

The following discussion and analysis of the Bank’s financial condition and results of operations should be read in conjunction with the Bank’s Consolidated Financial Statements and the related notes included elsewhere in this Annual Report. See Item 18, “Financial Statements.” The Bank’s consolidated financial position as of December 31, 2017 should be read in conjunction with the Bank’s audited financial statements included in the Bank’s Annual Report on Form 20-F for the year ended December 31, 2018, filed with the SEC on April 30, 2019. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. The Bank’s actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information—D. Risk Factors” or in other parts of this Annual Report. The Bank’s Consolidated Financial Statements and the financial information discussed below have been prepared in accordance with IFRS.

 

Nature of Earnings

 

The Bank derives income from net interest income and net other income, which includes fees and commissions, net, gain (loss) on financial instruments, net, and other income, net. Net interest income, or the difference between the interest income the Bank receives on its interest-earning assets and the interest expense the Bank pays on interest-bearing liabilities, is generated principally by the Bank’s lending activities. The Bank generates fees and commissions mainly through the issuance, confirmation and negotiation of letters of credit, guarantees, and credit commitments, and through loan structuring and syndication activities.

 

A.Operating Results

 

The following table summarizes changes in components of the Bank’s profit for the year and performance for the periods indicated. The operating results in any period are not indicative of the results that may be expected for any future period.

 

   For the Year Ended December 31, 
   2019   2018   2017 
   (in $ thousands, except per share amounts and percentages) 
Interest income  $273,682   $258,490   $226,079 
Interest expense   (164,167)   (148,747)   (106,264)
Net interest income   109,515    109,743    119,815 
Other income (expense):               
Fees and commissions, net   15,647    17,185    17,514 
Loss on financial instruments, net   (1,379)   (1,009)   (739)
Other income, net   2,874    1,670    1,723 
Total other income, net    17,142    17,846    18,498 
Total revenues   126,657    127,589    138,313 
                
Impairment loss on financial instruments   (430)   (57,515)   (9,439)
Gain (loss) on non-financial assets, net    500    (10,018)   0 
                
Operating expenses:               
Salaries and other employee expenses   (24,179)   (27,989)   (27,653)
Depreciation of equipment and leasehold improvements   (2,854)   (1,282)   (1,578)
Amortization of intangible assets   (702)   (1,176)   (838)
Other expenses   (12,939)   (18,471)   (16,806)
Total operating expenses    (40,674)   (48,918)   (46,875)
Profit for the year  $86,053   $11,138   $81,999 
Basic earnings per share  $2.17   $0.28   $2.09 
Diluted earnings per share  $2.17   $0.28   $2.08 
Weighted average basic shares   39,575    39,543    39,311 
Weighted average diluted shares   39,575    39,543    39,329 
Return on average total assets (1)   1.36%   0.17%   1.27%
Return on average total equity (2)   8.56%   1.08%   8.02%

 

(1)For the years 2019, 2018 and 2017, return on average total assets is calculated as profit for the year divided by average total assets. Average total assets for 2019, 2018 and 2017 is calculated on the basis of daily average balances.
(2)For the years 2019, 2018 and 2017, return on average total equity is calculated as profit for the year divided by average total equity. Average total equity for 2019, 2018 and 2017 is calculated on the basis of daily average balances.

 

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Profit for the year

 

Bladex’s profit for the year 2019 totaled $86.1 million, or $2.17 per share, compared to $11.1 million, or $0.28 per share for 2018. This increase in profits was mainly driven by: (i) substantially lower impairment losses of $0.4 million in 2019, compared to $57.5 million in 2018, which was due to the Bank’s improved risk profile as a result of higher quality loan originations, the timely collection of scheduled maturities of its watch-list exposures, and no new credits classified as credit-impaired loans since the third quarter of 2018, (ii) steady top line total revenues resulting in a $1.5 million or 1