Hello everyone and welcome to the Bladex Third Quarter 2016 Conference Call on today, the 20th of October, 2016. This call is being recorded and is for investors and analysts only. If you are a member of the media, you are invited to listen-only. Bladex has prepared a PowerPoint presentation to accompany their discussion. It is available through the webcast and on the Bank's corporate website at www.bladex.com. Joining us today are Mr. Rubens Amaral, Chief Executive Officer of Bladex and Mr. Christopher Schech, Chief Financial Officer. Their comments will be based on the earnings release which was issued yesterday. A copy of the long version is available on the corporate website. Any comments made by the executive officers today may include forward-looking statements. These are defined by the Private Securities Litigation Reform Act of 1995. They are based on information and data that is currently available. However, the actual performance may differ due to various factors, which are cited in the Safe Harbor statement in the press release. With that, I am pleased to turn over the call to Mr. Rubens Amaral for his presentation. Sir, please begin.

Thanks, Katie. Good morning and welcome to the Bladex third quarter 2016 earnings call. The results of Q3, we just released, confirmed the positive prospects of our traditional trade finance business which highlights the improved earnings generation capacity as discussed in our previous call. Christopher will comment, later, about our performance in the quarter, but I would like to emphasize that year-to-date results are positive, strong, and overall better than last years, so much that it has enabled the Bank to absorb additional credit provisions in light of a more challenging credit cycle as already addressed last quarter. As a consequence of the strong performance and good prospects for Q4, the Board of Directors has approved again a dividend of $0.385, which continues to offer a very attractive dividend yield to our shareholders on top of double-digit ROE performance. As this is our last call in the year, I always like to provide you with an overview about our outlook for Latin America and our business prospects for 2017. Although there is a high level of uncertainty in the markets due to, among others, the outcome of the elections in the United States, the lack-luster growth of the world economy and world trade flows, the reduced path of growth in China, the impacts of an interest rate hike by the Federal Reserve Bank and the reality of negative interest rates in Europe and Japan,we feel more positive about the prospects for Latin American in 2017 as far as economic growth and trade flows are concerned. The more recent data from the World Trade Organization points to some positive trends that could help a trade recovery in the foreseeable future. For instance, the global trade grew in Q2 2016, 0.3% for the first time after two years of declines. Certain key…

Thank you, Rubens. Hello and good morning everyone. Thank you for joining us on the call today. In discussing our third quarter results for 2016, I will focus on the main aspects that have impacted our results and I will make reference to the earnings call presentation that we have uploaded to our website together with the earnings release and which is being webcast as we speak. After the highlights given to you by Rubens why don’t we do a quick rundown of the key financial metrics you will find on pages four and five of the presentation. The third quarter of 2016 closed with net profit of $28 million compared to $22.3 million in the previous quarter and compared to $37.4 million in the third quarter of 2015. As I will explain later in more detail, the main drivers of this quarter's performance fourth quarter-on-quarter and year-on-year, were higher levels of net interest income from rising margins in our core business and lower operating expenses, while quarter-on-quarter lower provisions continue to strengthen our reserve levels regarding non-performing loans undergoing restructuring and recovery effort. Contrary to the third quarter of 2015, which showed an inflated net income number or profit number, I should say, relating to non-core elements, we no longer have impacts from non-core items this time around, as our final chapter of the participation in investment funds was definitely closed last quarter. With that, third quarter business profit from core operations now equate exactly to our total profit reaching $28 million in the third quarter 2016 compared to $22.1 million in the second quarter and compared to $30.3 million in the third quarter of a year ago, mainly reflecting solid margins and normalized levels of provision. This quarter, average commercial portfolio growth in dollar terms reverse its downward…

Thanks, Christopher. Ladies and gentlemen, we are ready for your questions.

Thank you. I will open the floor for questions. [Operator Instructions] Our first question comes from Tito Labarta from Deutsche Bank.

Hi, good morning. Christopher and Rubens, thank you for the call. Couple questions, I heard you say loan growth is going to resume. So my question is how would that then potentially impacts the spreads? We saw some good margin expansion this quarter, I think partially attributed to the tightening in loan growth, but as loan growth resumes, can you maintain these level of margins or would there be some pressure there particularly, I guess, if maybe competition comes back? I just want to understand the kind of the outlook for margins as loan growth increases. And then my second question would be also in terms of asset quality, would you see NPLs kind of stable this quarter following the pickup we saw last quarter?. When can that also improve, I guess, as you grow faster? Any other concerns in terms of asset quality or when can you begin to see some improvements given that NPLs are typically much lower than the 1.3% we're seeing today? Thank you..

Thank you, Tito. Let me tell you first of all, that we plan to grow, but doubling down on our traditional business trade finance short term, so trade finance short term, it’s lower margins. We expect that, that will have an impact that will be compensated by the growth that we’re going to exhibit thus, increasing the bottom line and not reducing the bottom line, although we might have lower spread. So, the outlook, its for spreads, is an outlook in our view that will be slightly down from the levels you see, but compensated by the volumes we’re goint to be able to place and sooner rather than later. As far as asset quality, and then Christopher you can jump in any time to complement, we see that we have achieved a level that we expected not to deteriorate further. There are ongoing negotiations with the existing non-performing Loans, and we expect recovers to start sometime next year. So it's a process that is going to take time, but we don’t expect it to further deteriorate. The movement in provisions, that you might see, will be a result of our growth. That's primarily our outlook and Christopher, if you want to complement.

Yes, an additional comment to the net margin question, Tito. I mean, the transition or the gradual portfolio mix shift towards short dated trade business is already happening and still we show increased overall margin levels and that has to do with the referenced base rates, and they have displayed the continued growth over the last months and quarters. We don't know whether that growth will continue. Arguably there is the expectation of the Fed action going forward, which would support, again higher net interest margin levels. And so far, this mix shift has been over compensated by the rise in underlying base rates, and we continue to expect that the base rates will continue support somewhat elevated levels of margins. Even though, I have to agree with Rubens, the more we do trade finance business short dated which is a lot safer, of course, but also has lower margins, we should expect the overall NIM to decline gradually, but not precipitously.

Okay, that’s very helpful. And then maybe just one follow-up in terms of the provisions, you mentioned you’re on ongoing negotiations with some of the non-performing loans? So do you think that there could be potentially some recovery, so maybe next year we could -- maybe we can see provision reversals next year?

Yes. Tito, again this is Christopher. To that, I would point to our past history of NPLs. And arguably in cycles of economic recession, we have seen increases in NPLs and we have seen a declines in NPLs in the period following those cycle. And so we don't have a reason to expect anything otherwise. And you also know that we have been quite successful in achieving reasonably high recovery rates, but eventually, it takes time, as Rubens mentioned. We don't expect these restructuring efforts to be completed overnight and yield immediate results, but clearly our client base is large corporations, financial institutions that have significant business, and we’ll have going concern going forward and we’ll regain their ability to generate at the cash flow set that are needed in order to repay their debt and so that is clearly our expectation, yes.

Great. Thanks, that’s very helpful.

Thanks, Tito.

Thank you. Our next question comes from William Meija from GAM.

Yes, hello. Hi. Thank you very much for presentation. Could I please ask you to focus on little bit more on the prospects for growth on the asset side? And you’re saying that most recently the origination seems to have a pick-up significantly and that the prospects for the fourth quarter looks quite strong and going to 2017 as well. Is that whether you can quantify little bit that how much we could expect the loan growth to be, that’s my first question. And the second question, obviously, is on the fee income side. I mean, there is a slide in the presentation where you actually see that it was little bit weak this first nine months on the letters of credit and off-balance sheet instrument side. What kind of levels you is actually going to be more recurrent going forward? We see normalization basically in volumes and client activity. Yes, that’s pretty it on my side. thank you.

Okay. Thank you, William. This is Rubens. Let me answer your question referrals and then Christopher can answer your question about fee income. As far as the growth is concerned as I mentioned, we have already identified demand for Q4, where several of our clients that had disbursements planned for the Q3, asked us to postpone disbursements for Q4. We see the resumption of imports growth in Latin America as I alluded to before in my comments. So the way we see is that, we are going to be able to post solid 2.5% growth in end-of-period balances by the end of 2016, that will come primarily from the countries that I have mentioned in my, during the presentation, initial comments, that’s going to be Mexico, that’s going to be Peru, that’s going to be Colombia. Brazil will grow as the other countries grow, but we’ll keep our target level of exposure between 18% to 20% and more towards 18% than 20% this year, because we still need to see what happens with the country in terms of the political measures implemented by government. And then Argentina is really starts to pick up. This is into finance and the crops that might be a good opportunity for us to jump in and finance exports in Argentina as I alluded to before. So that’s the prospects for Q4. And as we’re seeing growth, very solid growth prospects for 2017 of almost 7% in trade flows in Latin America, and also a solid growth, I would say, in terms of GDP growth, because from negative almost 1% this year, we’re going to go positive of for almost 1.6% according to the IMF. That in itself give us a good opportunity to continue to grow in these countries, as I mentioned to you before. As far Central America is concerned overall, we expect to remain stable because we have a very important sizeable exposure to the region, but we’ll expect the growth in the countries that I mentioned to you, giving us a possibility to increase our portfolio by 10% next year is our low estimate, and our more optimistic estimate would be 15%. But we are very comfortable with the 10% level, coming from these countries and focusing on trade finance business. So Christopher…

Yes. I’d just expand a little bit on --focusing on the on the letters of credit business in the contingency credit and I think some of the most of the drivers that Rubens mentioned are also true for more activity in this LC business and you’ve seen a decline year-on-year in that business, which primarily is attributable to commodities, specific oil and gas prices that have been significantly reduced versus prior-year period. And the reason for that is that we have a strong business activity in confirming LCs issued by governments to import refined fuels into the countries. And clearly this market has eroded by lower oil and gas prices. And so we don't anticipate a significant pickup in oil and gas prices, there is nothing we could base ourselves that there’s something on, but we do have worked on diversifying our client base in LCs, not just not confirming in the majority of our transactions, but also issuing on behalf of corporate clients and those will certainly benefit from an improvement in trade flows. So our view is that the LC and contingent credit business will recover to levels seen in prior years, maybe not this year, but for sure we expect there is an improvement next year.

Okay. But just to confirm on the asset growth first, I mean, if I if I add out all the numbers that you gave me, overall you think that the loan growth for 2017 can be definitely above 5% at least with conservative assumptions, right?

Yes

Yes.

And then the, just to also confirm the numbers that you gave me on the other fee income side, obviously the fee income dropped year-on-year by 55%, right?, Is that something that we should also see going for the fourth quarter, gaining at a level, the base that you reported in the fourth quarter of 2015, what is is still elevated?

I think we should see a slight pick-up in the remainder of the year and certainly a more significant pick up next year too, which hopefully will get us to the levels we’ve seen in the comparison period. I don’t know if this answers your question. I mean we don’t expect to post fee income numbers on that line of business equal to 2015 this year around, but in 2017, we should aim to get back to those 2015 levels.

Okay. If I just may have a follow-up question now that I just remembered that I asked you one quarter before right, a quarter ago, and it’s on the operating leverage that is quite significant. And if I run my numbers correctly and I allow basically for some growth in OpEx year-on-year for the fourth quarter, yet you're going to see a contraction in OpEx for the year of close to high single digit levels, right?. You said that obviously you’re working out of a profile on efficiency, right? But going into 2017, are we going to see a still a lot of operating leverage coming through or what is your expectation?

Yes. Thank you, William for the question. This is again Christopher. To your question regarding operating leverage and expense level, I would say the following, I think operating expense, excluding variable compensation for performance, should definitely continue to trend of stable, you should not assume significant growth there at all, I would put an inflation number on that growth maybe 0% to 2% or something like that. Clearly we have no desire to increase our expense base, and we don't see a need to, because we have ample capacity to deal with additional business, both on technology, human capital side as well. And the variable compensation based on performance will exactly rely on that. If the numbers look very good, then you should see a pickup in that expense piece, but only then. So net-net, the bottom line should definitely improve and the overall expense should not be a factor, it should decrease the efficiency or not improve our our efficiency ratios. Clearly, our target is to continue to improve the efficiency ratio by either growing the revenue strongly, which is clearly our target next year and certainly not looking to boost expenses the same way, but much less though. Does that answer the question?

Yes. Thank you very much.

Thank you. [Operator Instructions] Our next question comes from Catalina Araya from JPMorgan.

Yes, good morning. Hi, Rubens. Hi, Christopher. I have a follow-up on asset quality. I know provisions came down significantly from previous quarter, but my first question is, did you provisioned something related to specific client in 3Q is that were kind of similar or similar clients that we saw 2Q, is out of the $4 billion, is there something related to this specific exposure. And then my second question, a bit more strategy wise or should we think, when we look at the Tier I ratio, I mean it's quite strong close to 16%, should we expect a higher payout ratio in the coming quarters given that growth this year was a bit sluggish?

With regard to the first question, Catalina, hi, how are you. In regards to the credit quality, the adjustments we made on the effective provisions this quarter were adjustments in minor scale in our view, (pre-con) for the progress is being made on the restructuring efforts and they always tend to take longer than initially anticipated, and we have to account for that, because remember our IFRS 9 rules require to account for all expected losses until the end of the maturities that are in questioning in this NPL book, and so that is the majority of the effect there in the book. As it relates to existing exposures that we already know about, that has been identified already, have already, we monitor how they move from the buckets that are required based on IFRS 9 rules, which as soon as we see any significant deterioration in risk, we have to account for a longer horizon until the end of the maturities and that inevitably will increase the reserve requirement. And so this is normal course of business every quarter, of course, and so nothing really out of the ordinary in that regard

And, sometimes, depending on the negotiations were engaged into with the clients, you might have collateral that needs to be sold and then evaluation of this collateral can change, and we need to adjust accordingly to the last assessment provided to us, appraisal. So I think it's primarily what Christopher has said and we don't feel, as I mentioned before first question, that the asset quality will deteriorate further. It’s the opposite, we expect really to be successful in these recovery efforts and the next year we’ll start showing improvements in the NPLs. So, can you repeat your second question, please.

One follow-up on provisions. So, if asset quality improves next year, how should we think of a recurring level of provision expenses, like on a quarterly basis, should be closer to $4 million or below $4 million a quarter around about..?

I'll take that question Catalina, that will be a function of our asset growth, of course. In the first place, if we manage to grow the way we expect to grow, you should – you see a commensurate increase in reserve requirements. Given that this growth will primarily be happening at least for our vision in the low risk trade finance arena, you should not assume that the reserve requirement would be any greater than it is now. That should be quite a bit less. So the end, we don’t narrow it down to numbers that you should expect to see on the quarterly basis that will be too much of guidance, that we don’t feel comfortable giving at this point, but it should be in the lower range of what you just mentioned. I think the $4 million should definitely be at the high end of that, and that again will primarily be a function of the rate of growth of our assets.

Okay. Perfect. Thank you. Very clear And then now my second question, was more related to growth and dividend policy. I mean?

Dividend, okay. Yes, dividends, of course, we’ve maintained or rather, I should say, the Board which has ultimately discussion on this, of course, has decided to maintain the payout of $0.385 over the last several quarters already. And that really has to do with the appreciation that the core performance trends while not bad at all, given the economic cycle, we haven't really displayed a significant growth rate in our net income numbers of profit numbers as you've seen over the last quarters and even on 2015 and this year. So, in the past, the decision to adjust the dividend payment levels was primarily based on the underlying performance, and so – and also taking in consideration of the fact that the dividend yield is very attractive as is. So, I think this will change the moment we will show rising return equity numbers, rising asset growth, rising bottom line performance, and that will certainly be taken into consideration by the Board.

Yes, definitely. Catalina, this is Rubens. The Board is very cognizant of the importance of rewarding the shareholders. And we review, on a yearly basis, how we are in terms of the dividends. And naturally when we need to review year-end 2016, the Board will make an appraisal whether we should adjust dividends. But as Christopher has mentioned, the Board feels very comfortable with the dividend levels that we have today, and you have to keep in mind that one of the important points for us to keep a strong capitalization is to preserve our rating. So, that's one thing that the Board also takes into consideration when you see Bladex with higher levels of capitalization. This is a protection to our rating that in this situation currently in Latin America is playing to our strengths, because overall Latin America has experienced downgrade and we can remain strongly in our rating, that's one of the reasons why we kept being more successful in the margins, because now we have an arbitrage in comparison to the clients overall in the industry. So, it's all these components, but definitely the commitment of the Board is to share the good results with the shareholders.

[Operator Instructions] Greg Eisen, Singular Research.

I want to go back to the loss reserve provision. If I heard you correctly, it sounds like you continue to add to the reserve for the existing relationships, which were identified last quarter, but which IFRS requires you to consider for the life of the loan until it's eliminated to consider all potential future losses that might occur based on that loan, carrying cost and such I guess. Did I hear that right?

Yes, that is correct.

Is that the bulk of the $4 million provision this quarter?

Yes, it is.

Okay. And my follow-up question then is, should we expect, in Q4 and maybe the first couple of quarters of 2017,that you would continue to have to add provision for those particular relationships until you resolve them? Is that still going to be adding in each quarter?

I think -- this is again Christopher taking your question, Greg. Thank you very much. As Rubens mentioned earlier, we don't really anticipate a further deterioration of the existing exposures that we know have -- are undergoing restructuring efforts. And so we don't -- the answer to your question is, no. And we expect, however, to see a need for increased reserves of provisioning on the basis of asset growth. As you put a new loan on the book, clearly there is -- you have to put up a reserve for that new loan. And since we expect incremental business going forward, not as we have seen over the last several quarters from rather stagnant portfolio balances, we expect to see rising balances going forward and that certainly will trigger provisions in every quarter, but that is normal course of business. So, it has nothing to do with deteriorating asset quality or anything like that. And that is what we essentially expect for the coming year.

Kevin Brenes, BG Valores.

Regarding the capitalization, is there a specific Basel III ratio the Bank targets or one that the credit rating agencies have mentioned that they want to see to keep you guys at the current ratings?

Thanks, Kevin, for the question. This is again Christopher. Allow me to take your question. There is not a definite number that any agency and remember we're rated by three agencies: S&P, Moody's and Fitch, that is being put out there as a threshold number. But clearly, we have already indicated, in our corporate presentation that you can see on the website and download, that we would not want to drop below a 13.5% Tier I capitalization ratio, 13.5% why because we've done internal stress testing and shock scenarios, which would indicate that in aggregate shock scenario of an Argentina crisis plus a Lehman financial crisis, if we maintain levels of 13.5% or better, we should not run into any regulatory problems in regards to our capitalization, and this is how we define sort of a lower threshold of where we would want to stay clear of, and that is, you'll see us currently well above this level, which allows us to think that we can grow our business safely without jeopardizing our stress case scenarios and calculations. And so, I hope that answers your question.

Yes. I was just trying to think on and if you are to grow at 10% in the following year in addition to where the dividend is currently at, and what kind of buffer would that create, and 13.5% is decently below where you currently are. So, that --

Yes. I think it does leave us with ample room for growth in the coming years not just one year. And of course as this growth is accentuated in the lower risk trade finance arena, again, this will also be taken into consideration your capitalization requirements and so, we don't really feel any impediments to pursue reasonable growth going forward. Operator Thank you. [Operator Instructions] At this time I am showing no further questions in the queue, I'll now like to it turn it back over to Mr. Amaral for closing remarks.

Thanks Katie, again. Ladies and gentlemen, thanks for taking time today to listen to our call. As we highlighted during the presentation, we are very positive about our results, very happy with the strong results we have presented in this third quarter of 2016, and we look forward talking to you next year presenting the final results for 2016. Looking forward to talking to you in February. Have a good day.

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect.