Hello everyone and welcome to the Bladex' second quarter 2017 on today, July 21, 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 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 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 statements in the press release. And with that, I am pleased to turn the call over to Mr. Rubens Amaral for his presentation.

Thanks Cynthia. Good morning everyone. Thanks for joining us today. Earlier today, we reported earnings of $40.9 million for the first half of the year or equivalent to $1.04 per share. During the quarter, challenging operating conditions continued in the markets where we operate thus affecting our financial performance. Although we posted a week overall result and we were not able to grow our portfolio according to our expectations, let me highlight some key points we consider important as we look and consider this quarter's results. Please refer to the page three of the presentation being webcast. First point. The efforts of the diversification is paying off. We have now a much more diversified book of business in terms of countries, industries and individual exposures. For instance, for the first time, Mexico's loan book now represents the largest exposure we have to a country at just 18% of our portfolio. You can see how this diversification is working. Second, fee income coming from our syndication in LC businesses posted solid growth of 42% quarter-on-quarter and 11% year-on-year. Deposits also reached record highs at $3.4 billion which has contributed importantly to mitigate our cost of funding overall. And to the brightest spot that I would like to highlight today, new disbursements, for the first time in recent quarters exceed the maturities, indicating we are poised to reverse the downward trend experienced during the last quarters. This bodes well for our performance in the second half of the year, which seasonally has a history of always performing better than the fourth of the year. Lastly, solid capitalization. The bank has ever stronger capitalization with a Tier 1 ratio according to Basel III of 20.3%. And not less important, we presented lower NPLs. Overall NPLs were down 4% for the quarter, showing that…

Thank you Rubens. Hello and good morning everyone. Thank you for joining us on the call today. In discussing our results for the second quarter and first half of 2017, 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. So Rubens already gave you a fairly detailed account of our performance in the second quarter of 2017 on page three so let's dive right into the numbers starting on page four. The second quarter of 2017 closed with profit of $17.5 million compared to $23.5 million in the previous quarter and compared to $22.3 million in the second quarter of 2016. Profit for the first half of 2017 amounted to $40.9 million compared to $45.7 million in 2016. In our profit walk on page four, we summarize the main drivers of our business performance in the second quarter of 2017 and first half of 2017 before we go and highlight further aspects in the following pages. As you heard from Rubens, the economic and political environment remained relatively volatile in the region during the second quarter of this year with especially Brazil taking a turn for the worse. Business activity in most markets remained subdued and U.S. dollar liquidity was ample in light of net inflows into the region brought about by increased activity in debt capital market issuances, funds repatriation programs and record levels of remittances. We also continued to de-risk our exposure profile, prioritizing pure trade and short term transactions. The combined effects of these elements impacted portfolio growth negatively this quarter as we recorded lower average and end of period balances. Net interest income…

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

[Operator Instructions]. Our first question will come from Yuri Fernandes from JPMorgan.

Okay. Thank you. Thank you Christopher and Rubens for the opportunity. I have just one question, actually two questions on volumes and margins. On volumes, I would like to know more on how you are seeing the demand? And I noticed you revised the guidance from 8% to 0% this year. Should we believe this is okay because probably you are going to see a very good evolution in the third and fourth quarter? So the first question is about volumes you are seeing the region and if you feel comfortable with this? And the second one is about margins. If you can talk a little bit more about how you see potential margin expansion for the third and fourth quarter? I understood you had like some derivative that impacted your NII and that probably should help a little but, but also if you can describe a little bit more the funding and how you are seeing the spreads on your loans? Thank you.

Thank you Yuri. Good morning to you too. Let me address the questions and then Christopher, feel free to please jump in any time to add any comments you might like. So my first answer to your first question is yes, we feel comfortable that we will be able to deliver on the growth that we have assessed, that we probably will achieve the same levels of the end of the year last year. So it's a growth that will be around 8%, if we look today's book of business. So we feel very comfortable that that will be achievable. Christopher gave you a good description of all the different countries but we see demand picking up a little bit and here I would like to go back to one of the points I mentioned in my preliminary comments about disbursements. To give you a perspective, although we haven't posted growth that we expected, it doesn't mean that we are doing less. In fact, we are doing more and if you see our attachment about credit disbursements, you are going to realize that growth year-on-year year of disbursements were at 34%. We finished the first six months of the year with $7 billion worth of new disbursements compared to $5.2 billion in 2016. So that shows clearly to that you we are doing more, but also demonstrates to you that we are doing what we promised we would do, that is short term transactions, more trade finance transactions and that impacts our book of business because they are short term and that we have liquidation of these transactions in our normal course of business and eventually we finished the quarter with lower than expected end of period balance. But we are very confident we will be able to achieve the volumes we are providing you the guidance with now the revised one. As far as the margins are concerned, we have several different pressures in terms of margins. We are working diligently to make sure we can keep the margins at the levels they are. But there are pressures coming from the increase of base rates. You know the base rates have been increasing over time and because of this phenomenon that we are seeing in the region with more liquidity coming from remittances, coming from more active capital markets and lower economic activity within the countries, clients really pressure us to keep the all-in rates. So you might see some impact on our margins moving forward and also because we are focusing more on the short term trade finance, which normally presents a lower margins. So it is a component of really working hard to increase the volumes to make up for eventually the reduction, although we will work to make it very small in terms of margins.

So I just wanted to add that, as Rubens has mentioned, some of the effects that impacted the markets in most recent quarters, especially the ample liquidity that we were finding in most all of the countries that we operate I, we don't believe that this is a permanent feature. Capital flows have a way of changing constantly. Remittances will certainly not remain at these very highs that we are seeing as of late. Funds repatriation programs like the ones we are seeing in Argentina will not last forever either. So we do expect liquidity to become a little tighter, which would support the margins that we can ask for. And again the underlying rise in base rates as we reprice our book of business do have a beneficial impact in mitigating any lending spread deterioration as well. So we don't believe that the NIMs that we are looking at now will be worse going forward. We should be entertaining the fact that we had a nonrecurring impact in the second quarter NIMs, we expect to see NIMs improving slightly from second quarter levels, probably not reaching the 2% levels that we saw last year, but certainly remaining well within that range of NIMs between 180 basis points and 200, hopefully closer to 200 than 180.

No. Super clear. Thanks for the answers. If I may, just one thing about your sustainability ROE levels. How do you see the ROE in the mid term? And if you have any, I don't know, potential and permanent inefficiency, lower expenses, some kind of plan to improve the ROEs, even though the NIIs should be more challenging ahead?

So this is the same question that our Board asks of us every time we meet and we discuss results. This is a constant challenge we have ahead of us, how really to improve ROE. And first of all, it is making sure that we resume growth. We keep the margins where they are. And we believe in what we believe that it has been so far very distinctive feature of Bladex, our syndication business. That is generating fee income that really can lever importantly the ROE. As far as the cost side is concerned, we don't see any increases in our administrative costs. It's the opposite. We just mentioned what you saw this quarter was one-time nonrecurring service expenses. It's the opposite. We are looking really to return to the normal levels of costs that we have overall. And we continue to improve the cost of funds. As you saw, we reached record highs in deposits. This is a very important component in terms of our cost structure. We don't have any major investment to make. So at the end of the day, when you look costs will be under control. We will grow our business and we will continue to consolidate our fee income. So the combination of these three factors will help us hopefully to get back to the double digit ROEs by next year. This year, it's challenging. We are still in single digits, high single digits. It's going to be around 8%, 9%. 8.5%, 9.5%, we expect at a minimum. But we are working very hard to go back to double digit ROE.

Okay. Super clear. Thank you.

Thank you very much. [Operator Instructions]. Our next question will come from Jonathan [indiscernible].

Hi gentlemen. So as I understand it, loans are hopefully going to end the year flat to year-end 2016 levels, capital is building and you are de-risking the portfolio and I have been a very long time investor in Bladex, over a decade now and one of the things that's great about the company is that you take that exposures where risk-reward doesn't create value. But at this point, were are you comfortable letting leverage levels drop to, right? If the portfolio growth continues to be muted, much less shrinking at the current point while capital is building, at what point will you consider putting in place some form of buyback to return capital that the company is unable to put to use?

Thanks, Jonathan. Thanks for your question. Thanks for being a long term shareholder of Bladex. We appreciate. Thanks for your comments. This is something that is recurring in our discussions with our Board. We are always looking at ways of maximizing the return in capital and believe me, if we get to a conclusion that we don't have that capacity, the Board will act immediately and we will do something as far as returning capital is concerned. But this is not in our horizon anytime soon because what we need to keep in perspective is that we are coming from maybe one of the most negative credit cycles for Latin America with the drop in commodity prices that we experienced after 2015, both oil prices and commodities overall, soft commodities and metals that impacted tremendously the region. We had, as you rightly commented, to adjust our activities to the risk-reward in the most efficient way. So what we have seen is that that we have reached a tipping point and we see now that there is a good possibility of growth in deploying this capital. This year is impacted, but whatever has happened already in the first half but we see a very positive second half. Demand from our clients in different countries because of the increasing trade flows are showing that we are going to have a growth, as we said, eventually, I don't want to promise. You know that we are very careful about guidance. The only guidance we offer is growth and we are conservative. But we firmly believe that we can finish the year on a flat at a minimum. There might be possibility for us to grow and believe me, we are not hesitating to growth. I think the disbursements, as I alluded to before, proves that we really approve that we really are increasing our activities. So this is in our constant discussion. But we don't see any measures in the foreseeable future. It's the opposite. We want to deploy the capital to make sure we can impact the stock price in a positive way by the results we deliver.

No, that's fine. And again, you know that I have been here long enough, but I am not trying to propose strategies to boost the stock in the short term. But it seems only prudent to have in place a buyback. It does not have to be utilized. but opportunistically if the market gives you the chance to buyback your stock, particularly you know below book value, not to have that in place because if the market gives you that opportunity, by the time you have it in place, that opportunity may no longer be there. And there is no reason not to have it there and then just don't utilize it, if you have a better use for the capital.

We agree with your assessment and that's what we have been discussing at the Board.

Understood. Thank you.

You are welcome, Jonathon.

Thank you very much. Our next question will come from Greg Eisen, Singular Research.

Thanks. Good morning.

Good morning Greg.

Good morning. Could you identify what percentage of your loan portfolio will be classified as trade finance this quarter? We talked in prior quarters that you are almost up to the goal level that you had for trade finance as a percentage of your total loan book. But could you identify that for us?

Greg, allow me to take your question. This is Christopher. As per our earnings release, we are at 69% of our total book being presented by trade finance exposures. And indeed, it crept up a little bit quarter-on-quarter from, I think, 66% or 67%,a couple of percentage points. And we frankly don't think that we will see levels of 80% or even higher percentage of our total book being represented by trade finance exposures. That is not realistic. And we do believe that we should not expect to see those numbers decline significantly going forward. Also, as a matter of preserving the net interest margins and net interest income, because as you know short term trade finance transactions are generally modestly priced due to the shorter tenors primarily. So to answer your question, we do believe that we are reaching somewhat, getting towards the levels that we would have expected, given our strategy to go more and more into trade finance exposures, but don't necessarily believe that this trend will continue unabated going forward. I hope this answers your question.

Yes. It answers my question. Turning to another question. If you look at what's happened in your business since June 30 so far in July, do you see any signs of activity in your loan activity so far in July that justify your optimism for the year? Is this July bear that out?

Allow me to answer first and Rubens may jump in any time, of course.

Sure.

In the first half of any month, it's quite hard for us to pinpoint exactly where the end of the month will wind up being because of the fact that a lot of the companies really focus on month end balances. And so for the time being, what you normally would see is a small drop in balances at the beginning of a month and then a pickup towards the end of the month. And again, we are seeing a pickup towards the end of the month as usual and we believe that what we are seeing is not detrimental to what we just expressed in terms of our growth expectations for the remainder of the year.

Understood. Okay. I will accept that answer. Moving on to another question. It sounds like despite the high level of disbursements that you have had this past quarter that the portfolio dropped because you essentially lost some loans from your book, because people went elsewhere, they took their business elsewhere on buying cheaper rates, they were very rate sensitive. As you look at your loan portfolio, how do you quantify? Is it possible for you to quantify? And could you explain to us how you look at it? The risk on your net interest margin and the size of the loan portfolio continuing to lose business just on people buying rate elsewhere if this liquidity continues in your marketplace?

Yes. I think the very end of your question, I think, answers the question. So whether liquidity will continue this trend and the way that we have seen so far, I think Christopher made some comments during his initial comments that we don't to see that trend that will continue for too long. And the situation is, for us it's difficult to predict that and how that could impact NII because basically what's happening is that companies are having access to more medium term financing at the capital markets and they are taking advantage of that and paying short term transactions they have in their portfolio. So it's not that they are benefiting from smaller or reduced rates compared to what we have to offer. It's that they have access to medium term financing that is well available for them in the market and they are benefiting from that. So what we are seeing, Christopher mentioned something about July, the situation, it's improving towards the end of the month and we expect this continue to be the case. And no, we don't expect these prepayments to become a reality. This has been a reality in the last two quarters. You remember that I mentioned last quarter that we had some prepayments as well. But this quarter was when we saw the bulk of it happening. But in our projections, we are not expecting that this trend of prepayments will continue. It is the opposite. As the region improves the risk profile a bit, we have very interesting pipeline of syndications that will help us also to offer medium term financing for these companies. So we expect to see growth in our book of business associated with more medium term financing in the second half of the year as well.

Understood. And then if I could just ask one more question about your operating expenses. It came in at $12.6 million versus $11.2 million last quarter. Could you discuss what -- could you give maybe a little bit more color on what was the nature of any nonrecurring expenses that might have occurred in this quarter that we could expect not to see in the next two quarters?

Yes, Greg, it is Christopher again. Well, the changes in senior management are quite rare in the Bladex and so you should not expect to see that happening every quarter. And so that's what happened. We had some senior people leaving the bank and being replaced by new staff. And the costs that we incurred this quarter were associated with the severance payments that were made to these exiting staff.

Is the dollar amount of the nonrecurring costs very similar to --

Yes. It's very close the variance that you saw quarter-on-quarter.

Okay. Good. That answers my question. I will let someone else go. Thank you.

Thanks Greg.

Thank you very much. [Operator Instructions]. Thank you. At this time, we have no further questions in the queue. So I would like to turn this conference back over to Mr. Rubens Amaral.

Thank you Cynthia. Thanks everyone for your attention today. I am looking forward to talking to you again in October. Goodbye and have a good day.

Thank you very much. Ladies and gentlemen, at this time, this conference has now concluded. You may disconnect your phone lines and have a great rest of the week.