Hello, everyone, and welcome to Bladex’s Fourth Quarter 2016 and Full Year Conference Call on today, the 17th of February, 2017. 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 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 today. 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. And with that, I am pleased to turn the call over to Mr. Rubens Amaral for his presentation.

Thanks Chantel. Good morning everyone and thanks for joining us today. I will focus my comments on the yearly performance of the core business in 2016, and will provide you with our views and outlook for 2017. I will follow slides 3 and 4 of the presentation available to you at our website. 2016 was an important year for us at Bladex, as we finished our participation in the discontinued investment fund as of last April. This enables me now to focus the analysis solely on our core business, without the necessary noise and volatility that this investment had inflicted on our quarterly results over the years. We did account for a loss of US$4.4 million from that participation in 2016 a not insignificant swing of nearly US$10 million compared to 2015. We are reporting improved business income for 2016, and we are glad to do so, but we had to deal with a very challenging credit environment and a portfolio growth below our original expectations, which impacted our net income in a negative way. 2016 was also a year of surprises at the global level with “BREXIT”, the elections in the United States, the diverging direction of the interest rates trend, in Europe and Japan, an environment of negative interest rates, and in the United States the resumption of the hikes in the federal funds rate by the Federal Reserve Bank. In Latin America Region the continued recession in Brazil, the uncertainty about how Mexico could be impacted if NAFTA was to be either terminated or renegotiated, and the slower growth of trade flows across the Region, set the tone for sluggish economic activity overall. The combination of the global and regional scenarios demanded from Bladex management a constant effort to adjust and adapt to the challenging reality, in…

Thank you, Rubens. Hello and good morning everyone. Thank you for joining us on the call today. In discussing our fourth quarter and full year 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. As Rubens already mentioned to you, we redeemed the remainder of our former participation in investment funds early in the second quarter of 2016. We exclude these non-core results in our business profit, which represents the core and recurrent results of the Bank. And so this presentation focuses entirely on the factors that are relevant to said business profit. I should also note that going forward, and with the chapter of our participation well behind us, we will no longer have any need to distinguish core results from the overall profit of the Bank in our future earnings releases and business presentations. Rubens already gave you a fairly detailed account of our performance in 2016 with his comments on Pages 3 and 4. So without much further ado, let's recap the numbers starting on page 5. Business Profit reached $91.5 million in the year 2016, compared to $99 million in 2015. The fourth quarter of 2016 closed with Business Profit of $13.3 million, compared to $28 million in the previous quarter, and compared to $25.3 million in the fourth quarter of 2015. On the profit walk on this page 5, we summarize the main drivers of our business performance in 2016, before we go into greater detail in the following pages. The economic and political environment presented a fair amount of challenges for the Region in 2016, as you hear…

Thank you very much, Christopher. Ladies and gentlemen, we’re ready for your questions.

Thank you very much. Ladies and gentlemen, at this time, we would like to open the floor for questions. [Operator Instructions]. Our first question will come from Tito Labarta, Deutsche Bank.

Hi, good morning, Rubens and Christopher. Thank you for the call. A couple of questions. First on your provisioning, just want to understand a little bit more. I understand you used the expected loss method and you had the spike in provisions this quarter, but how should we think about this going forward because we did see the NPL ratio improved a little bit this quarter? So, I guess, was this more pre-emptive and does this mean provisions should come down significantly next year as things improve, or you know, how should we think about what's the recurring level of provisions going forward? And then my second question, you know, we did see some good margin expansion for the year, although a little bit of a contraction in the fourth quarter compared to the third with, you know, potentially increasing rates in the U.S. Is there room for margin to expand further, or have margins kind of peaked? I just want to get a better understanding on, I guess, sensitivity to rates and how you see margins moving going forward. Thank you.

Thank you. Thank you, Tito, for your questions. Good morning to you as well. The first question about provisions, I tried to preempt that question in my initial remarks by really telling you that in terms of our internal calculations, we are comfortably covered as far as the specific reserves are concerned, so – but still, an important credit that we are in the process of renegotiation in Brazil which is advancing quite well. Just today, we had more information about it – the status of the renegotiation – that seems to be moving towards the right direction. Being that the case, I tell you I wouldn’t anticipate any major impact on this more deteriorated portfolio, if you will. So we go back to what we answer all the time about this question; that is, expect the movement of provisions to increase with the increase of our portfolio. We have signaled that we are expecting to grow this year 10% and then naturally associated with that will come more provisions, what we call the generic provisioning requirement that we have in our internal model. So that’s what I see moving forward for 2017. As far as margins are concerned, your second question – and, Christopher, you can complement if I miss any information – I think it’s natural that we see a more challenging year for the net interest margin because we are back to basics, and basics means short-term trade finance and short-term trade finance means smaller margins. So I think we will be able to keep margins in a relatively high levels, but you might see eventually a reduction of this 2% level that we achieved this year in a very successful margins management.

Yeah, I’d like to add to that. You know, the current margin levels that we’ve seen in 2016, I mentioned in my comments that they – we hadn’t seen those levels since 2000, and so it would be very ambitious to believe that we could maintain these very high levels of margins, especially understanding the fact that we are migrating the tenor structure of our book of business towards the shorter end and trade exposures, as Rubens said, so – but then again, we believe there will be an offsetting effect from the continued rise of underlying base rates and that should help mitigate a contraction in net interest margin. So as Rubens mentioned, we don’t expect a sudden drop in margins. We just expect a gradual decline but still remaining at very good levels, for at least our business.

Thank you, Christopher. Tito, does that answer your question?

Thank you mentioned, I guess, the credit that you're negotiating, did you say it was $18 million? Is that pretty much what was provisioned this quarter, or – because, you know: – and also in the second quarter, you had about $11.5 million in provisions. So I guess so we can get a sense, what was extraordinary this year given the renegotiations you’ve done that we can maybe strip out and get a better sense of recurring as the portfolio growth?

The $18 million I mentioned in my initial remarks was associated with the write-off of a restructuring of a credit in Colombia, as I mentioned, so this was something that was already provisioned in 2015 and we absorbed the loss in 2016. To the extent of the existing credits under negotiation, the movement you saw in the provisions was exactly our internal calculation, as explained by Christopher in his remarks about the different buckets, and the requirements we have for to reflect really the possible or potential loss, if you will, that we might have in this negotiation process. So what you have in the fourth quarter, it’s exactly the reflection of this analysis that we did to adjust the need for provisions to the expectations we have in terms of this negotiations.

Yeah, I think if you look back in the history of Bladex and the track record of our NPLs, you’ll see occasionally in years of crises a spike in NPLs, and clearly, that’s been happening over the course of 2015 and 2016, and we don’t have reason to believe that this would be a permanent feature going forward. We don’t believe that, and so we do expect NPLs to gradually decline as the economic conditions improve for our clients and in our countries, and we are – you know, that would be our base case expectation. We don’t believe that the current NPL levels are a sign of what is to come for the next year, so quite the contrary. We’re not guaranteeing that we will go back to zero NPLs as we had many years in the past, but we do believe that the natural NPL levels would be quite a bit lower than they are today.

Okay. Thank you very much. Maybe just one quick follow-up then. Rubens, you mentioned you do expect to be back in double digit ROE for next year, but in the past, you’ve talked about a mid-teens ROE target. Is that still feasible? What would be the timeframe for that?

Thanks, Tito, for your question. You remember, since I joined the Bank as the CEO, that I – my target has been consolidated double digit ROEs and then move towards a more mid-teens, 13% to 15% ROEs as we can diversify our revenue streams. We are doing very well in terms of the diversification, as you saw the syndication business. We expect this year to be a very important year for us also in syndication, and we expect to resume growth. As we combine both of them and we can deploy more capital, we are confident that we can have another year in 2017 of double digit ROEs, and we continue to pursue our target of returning, on a sustainable way at least, what has been our traditional capital at 12 percent and then as we build up on the fee revenue, we can move towards the 13% to 15%. So it’s going to take a few more years for us to get there in light of the downturn we have experienced in the last three years, unfortunately, in Latin America.

Okay. Thank you very much.

Thank you, Tito.

Thank you very much. [Operator Instructions]. Our next question will come from Valorie Herrington, BG Valores.

Hi, and thank you for taking the question. The question is regarding the funding base, especially the deposit side. As the deposits have become a slightly larger and the central bank dominance of those deposits. How should we expect the pricing of that to move forward in regards to higher interest rates, due to credit rates that we’ve seen, or just higher rates in general compared to how you’ve been able to pass that on to the loan book? Should these move in tandem, or because the central banks are also large, important shareholders, is there – how, I guess how does the pricing power work there?

Well, thanks for the question. First of all, the central banks have no preferential treatment as far as the rates are concerned, so it is market rates that we pay to them; and basically, since we’re talking about short-term deposits normally, these are the lowest funding costs that we have in our portfolio and we expect that to remain so, even if base rates go up, so there is no change in the spreads that the central banks would charges us as the bank remains solid, financially solid, it’s presenting good results in spite of this hiccup that we had in the last quarter of 2016. So our capacity to transfer these prices to our clients remains the same. There’s no change in that regards whatsoever, so we don’t expect any increase in the spreads charged by the central banks for the deposits. So, Christopher.

Yeah, I would just add that what we do intend to do is to increase the share of deposits in our funding book, of course, because as Rubens mentioned, this is the most attractively priced source of funds for us and the more deposits we can take on, the better for our spreads and margins, and that is what the funding team is looking for.

Okay, thank you. And you had a target, like I guess a max exposure you would want to have, either for the central banks themselves as a percentage of overall funding or in deposits.

Well, we take whatever deposits are made available to us, but we – there is an important distinction, when we calculate our liquidity coverage ratio and any other liquidity metrics, we do limit the concentrations of deposits, and that ensures that our liquidity management is not overly dependent on one single source of deposits, and so we really make sure that this is the case.

Okay. All right. So the deposit made from the central bank level would be more or less in line with their relative economic size. Would that be a decent assumption?

Well, the deposits come from different central banks and different central banks, irrespective of the size of the economies, okay, I don't know whether you're associating the amount of deposits to the size of the economies, it’s quite the opposite sometimes, if you have smaller economies depositing more with Bladex rather than the big economies that would deposit less with the Bank. So there is no relation whatsoever in terms of the size of the economy and the size of the deposits. There is a relation with the quality of the service we can provide, so smaller central banks definitely having Bladex an important correspondent bank for them not only to invest their liquidity but to use us also as the bank for the payment. So normally, there is no correspondence. I don’t know whether I’m answering your question or whether I understood your question.

No, that’s fair enough. That make sense.

Okay, perfect. Thank you.

Thank you, thank you for the taking the question.

Thank you. [Operator Instructions]. Our next question will come from Greg Eisen, Singular Research.

Thank you. Good morning.

Good morning.

I’m going to go back to, I guess it’s slide 20 in your presentation, yeah. It shows – that’s in the Appendix. It’s showing a coverage ratio of your allowance for losses on loans and such versus your non-performing loans at the end of Q4 of 1.7 times, and that was up versus the coverage of 1.3 times at the end of Q3 and 1.8 last year, and I guess the difference between Q3 is a result of the write-off and what that does to the ratio. But you talked earlier about your expectation for the whole amount of non-performing loans coming down as a percentage; you know, it’s 1.09 right now. That ratio coming down, as you work through the problems that you’ve had and as you continue your focus on the core short-term trade finance business, but I’m really thinking about what should the spread be? How much are you – what would you call as your comfort level of that ratio going forward of a ratio your allowance to your non-performing loans, if it's 1.7 times that, would you still wanted to be in that same kind of level between 1.5 times and 2 times or is there some other level that you think you do? Or you cover with the lower level as I guess, is my question.

Yeah, Greg, this is Christopher, allow me to take your question. And it’s a very good one, of course. We’d like to have NPLs as low as possible, of course, and as a matter of fact, as I mentioned earlier, we’re quite used to seeing zero NPLs in our balance sheet. And so while the likelihood of achieving that over the short run is fairly low, I would say. We do expect that overall NPL levels should decline, as I said. And so that brings the coverage ratio back. The more NPL levels decline, the higher the coverage ratio because we have no intention of reducing reserves. Because we are looking to grow the business, we don’t see a reason why we should lower reserves and, hence, lower also NPL coverage ratios, quite the contrary. And so 1.7 times at the end of 2016, that’s certainly a number we’re comfortable with but we wouldn’t mind that to go much higher than that. Assuming that it’s based on the fact that NPLs are declining and the rest of the business is growing as intended. Does that answer your question?

I get it. I understand the math of what you’re saying. As the NPL level goes down, you’re not going to precipitously drop your protection for these provisions because you need to provide, so the ratio could go up a lot simply because the denominator is the smaller number.

Absolutely. Yeah, we’ve had instances of 20-plus times of NPL coverage, which doesn’t make much sense, but that’s how this indicator works, and so we’d like to just look at overall reserve coverage as it covers the entire book of business. That is a more meaningful number to look at in our view.

Got it. Okay. I’ll let someone else go. Thank you.

Thank you again.

Thank you very much. [Operator Instructions]. At this time, we have no further questions in the queue. End of Q&A

Thank you very much, Chantel. Ladies and gentlemen, thank you for attending our call today, and as I mentioned in my remarks, the Board and management are confident that we’re going to have a successful 2017. We are very aware of the risks still, the headwinds that might impact our performance, but we see with optimism the performance in 2017, and with that, I hope to join you for the call to talk about our first quarter that has started in a nice way. Thank you very much.

Thank you very much. Ladies and gentlemen, at this time, this conference is now concluded. You may disconnect your phone lines and have a great weekend. Thank you. 18