Hello everyone and welcome to Bladex Second Quarter 2016 Conference Call on today, the 27th of July, 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. And with that, I am pleased to turn over the call to Mr. Rubens Amaral for the presentation.

Thanks, Katie. Good morning everyone and thanks for attending our earnings call for the second quarter and half year review of 2016. My comments are summarized on Page 3 of the presentation available for this call. Although net profit this quarter came in slightly below the previous quarter, our business performance has confirmed the positive aspect of the improved earnings generation capacity that Bladex has achieved. Total disbursements were up by $400 million and our top revenues as well as the adjusted earnings per share increased by 15% year-on-year, which underlines, once again, the positive trends in our core business. We are very pleased with our ability to maintain stable margins at about 2% while move to lower risk trade financial exposures and strengthening our funding with medium term issues at the same time. Net profit has been negatively impacted this quarter mainly by an expected and specific provisions not stemming from deterioration in our asset quality but rather through an isolated situation involving a group of companies and individuals, which were listed as a specially designated national under the Kingpin Designation Act by U.S. authorities in early May. The Bank has undertaken all necessary actions to preserve its contractual rights and to recover the outstanding amounts from its obligors, improving collective efforts with other creditors while maintaining constant communication with relevant authorities to ensure that any such actions are conducted within legal parameters at all times. It is important to note that Bladex has complied with all the policies, procedures and regulatory requirements applicable in this case. As already anticipated, last quarter our syndications platform delivered from a very volatile environment, solidifying our fee income generation. We are very pleased with that result. The pipeline remains strong and at the very beginning of this month, of July, we have…

Thank you, Rubens. Hello, and good morning, everyone. Thank you for joining us on the call today. As usual, and in discussing our second quarter results of 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. So Rubens has already mentioned most of the highlights of this quarter, and half year results. So, let's just do a quick rundown of the key financial metrics, you'll find on Pages 4 and 5. The second quarter of 2016 closed with net profit of $22.3 million compared to $23.4 million in the previous quarter, and compared to $13.5 million in the second quarter of 2015. As I will explain later in a little bit more detail, the main drivers of this quarter's performance were higher total income from net interest income and fees, expanding margins in our core business, and lower operating expenses, all of which was offset by increased provisions in reserve levels regarding non performing loans undergoing restructuring and recovery efforts. And as discussed in our last call already, we no longer have meaningful impacts from non-core items as we concluded our exit from the participation in investment funds earlier this quarter. [Technical Difficulty] relevant going forward, we will still pickup non-core items in order to actually to present the current business performance of the comparison periods of the past. And so this business profit reached 22.1 million this quarter, compared to 28.1 million in 2016, and compared to 16 million in the second quarter of a year ago, reflecting increased earnings [Technical Difficulty] and some better operating results before provisions that allowed us to mitigate, to…

Thanks Christopher for quite a detailed report of our results for the quarter. Ladies and gentlemen, we are ready for the questions.

[Operator Instructions] our first question comes from Tito Labarta from Deutsche Bank.

Hi good morning Christopher and Rubens. Thank you for the call. I guess my question in terms of asset quality and given the spike in provisions, how much of the provisions this quarter were related to the specific corporates that you were mentioning. I guess trying to get a better sense of what should we expect for provision levels going forward. Do you think there can still be some more provisions or how do you see that's evolving for the year? And I guess on the back of that, what level of ROE do you think you can reach this year and in the mid-to-long term, are you still committed to the 13% to 15% type ROE and then how long would it take to get there? Thank you.

Yes, thank you Tito. This is Christopher. Allow me to take your questions. I describe the effects of this particular event as measuring or amounting to two-thirds of our total provisions for the quarter and so the math is fairly simple in that regard. And clearly, we view this as a one-off events, certainly not expecting to see repeat of that at all. And so, you have to take that into consideration when you normalize our provision expense for the quarter. And in regards to the mid-to-long term outlook for business returns, I think and Rubens please jump in any time, we do aim for double-digit returns. We think we can achieve them given the fact that margins are relatively high, given the fact that the portfolio quality is good and we continue to see that going forward. And so if we do our math or we do our tasks on controlling costs as we have been able to up to now, we should be able to reach those targets.

I would add to that, as far as ROE are concerned, we have set our target for the core business to achieve a solid and sustainable 12% ROE and we continue to develop our efforts in our syndication strategy so we can generate fee income that could also help us to achieve the medium term target of 15%. We are doing a very thorough quantitative analysis of our portfolio and how it behaved in the different crisis before really to adjust the way we are approaching the growth of the portfolio, so we can continue to grow with quality and leverage a little more and bring more returns, based on better quality of our portfolio focused on the short term trade finance. So the composition of that being more determined to grow and to take opportunities that are available for us in the markets, as I've mentioned, several countries we have good opportunities to grow, continue to strengthen our syndications platform, be very conscious, as Christopher already mentioned in terms of the total productivity, I prefer to say not cost but productivity rather, that will lead us to achieve our 12% and continuing our quest to get, in the next three to four years 15% levels. As for as provisions are concerned, just to clarify, there was one time event that took an important portion of this provisions and the rest of the provisions that were on top of that that we had to do this quarter had to do with restructuring that we were engaged before. But because of the nature of the restructuring that went far beyond what we would have expected, one company particularly in Brazil would [indiscernible] filed for Chapter 11 and then that forced us to adjust the level of provisioning this quarter. That's why you see also a little bit of increase in that line item. But moving forward, as you asked, what we see is what we always answer Tito and you asked this questions in the other calls, is the movement in our portfolio. As we grow, the provisions will be adjusted accordingly into the growth of the portfolio.

So do you think that 12% ROE is still achievable for this year given the additional provisions and sort of the relatively weak first half of the year? And then also maybe, when do you think growth can begin to pick up in Brazil. I know they're still going through some issues there, but looks like things maybe turning around at some point. So, when do you think you can start to grow in Brazil again?

We are doing our very best to have a -- start of the second half of the year, to get as close as possible to -- our project but you have to understand with the unfortunate performance of the fund in the first quarter that ate an important part of our net profit and also there is an unexpected event, that is a challenge. So, we will be over the 10% mark definitely. And depending on how fast we can grow in the second quarter, then eventually we're going to get to this 12% by the first or second quarter of the next year. In terms of Brazil, I have to tell you, you know I'm Brazilian so I'm kind of biased when I talk about Brazil and maybe I tend to be a little more strict about assessment of Brazil. So we have seen a movement in the right direction as far as the political environment is concerned. There is still a very important milestone to be overcome that is the final decision about the impeachment of the President and that, as far as we understand, these things are moving in direction that eventually there might be a confirmation of this. And having this confirmation, then we can have a government that is on a provisional basis running the country right now are confirmed. And that been the case, then I think we might have a positive 2017 in Brazil going back to growth. That remains to be seen. The first forecast is something around 0.5% growth next year, but we're going to be very careful because the macro, it's growing well as Christopher mentioned, but the micro the company's environment is still challenging and we are primarily focusing on short-term trade finance. So as far as exposure in business is concerned, as long as we can continue to do short-term trade finance, you continue to see our exposure in Brazil around this 18%. We're not planning on increasing that. And in fact, if you see the presentation today it's quite impressive what the Bank did terms of its exposure to Brazil from 2008 47% to today's levels of 18%, a constant reduction year after year meaning that we are aiming at diversify the portfolio. So we don't want, only because it's positive signals are given in the country in the political arena really to go back to full throttle in that country. It's going to take a while and you see us growing and the relative exposure of Brazil staying 18%; around that number, which might mean a limited growth capacity in Brazil, but primarily focused our short-term trade financing.

Thank you. Your next question comes from Catalina Araya from J.P. Morgan.

Thanks for taking my question. The first question is a follow-up on asset quality. You said that two-thirds of provisions are related to this economic group. I just want to get a sense of how much has been in provision, if it's a 100% or should we expect to see further provisions down the road. And then in terms of the new NPL formation, it did quite significantly. So, is this all related to this law or this exposure? And then my second question is related to topline growth. I mean margins were good, they remained stable, but loan growth continues to decelerate mostly as you explained, reducing the exposure in Brazil. So my question is, if we were to see further reductions in the loan book in the second half, could this catch up on the NIM and should we expect NIM contraction towards the end of the year? Thank you.

Yes, hi Catharina this is Christopher again. Thank for the question. Maybe my wording was clear enough, but the two-thirds, probably even close to two-thirds comment was both in regards to the total provisions recorded in the quarter and also in regards to the exposure to that particular credit. And so we covered right about 60% of that exposure, which should be quite ample, quite honestly. And so, we don't have any plans to read that this is a very aggressive number, a very optimistic number, quite the contrary.

In fact, Catalina this is Rubens, if I may add the restructuring efforts that I mentioned in my initial remarks with a number of other banks have been very successful and also being coordinated with the Government of Panama and the authorities in the U.S. So everything follows the path that's necessary for this successful restructuring to be effective. So as far as we understand, because there has been guarantees that have been brought that we didn't have before, because our exposure to this company was short term trade finance, we are financing imports with this company. Now we participated in a group of banks that have access to real estate guarantees that we didn't have before. Thus the reason for us to do the 60%, which we believe, as Christopher just mentioned, it gives us ample room really to go through the motions of these recovery effort. So, I honestly do not anticipate that this might require even more. But you know, these negotiations can go different ways and although we feel comfortable at this very moment we'll see how this thing evolves. But we feel very positive about the level of provisions that we do today. So Christopher you can mention about the margins please.

Yes, and regarding the growth prospects for the second quarter, I think Rubens mentioned that we're working to get back on track to what our original guidance was for the year, of 2%, 3% growth think it's 3%, as mentioned by Rubens, and that means that we have to get cracking, because in the first half we haven't shown that growth for obvious reasons, because we were mostly concerned about de-risking, especially Brazil and I think we reached levels in Brazil that we're comfortable with, as Rubens also mentioned. So this now gives us the opportunity to pursue opportunities in other countries, also mentioned by Rubens and the focus will be on the short end of the curve. And we do think that margins will be impacted by the fact that we will be looking primarily for low risk trade finance business, but margins as such are still quite high even in that line of business and so, we don't really anticipate as the significant reduction of the NIM levels towards the end of the year. We do expect to wind up around 2% and not necessarily below that and so that should be a very good number to work with for us.

And just to follow up on the asset quality, if I may, from the 60%, and you talked like you're working hard with further restructuring or the recoveries of this loan. Do you think we'll see provision reverses or what's the idea, that would be in this year or there is no visibility?

That's a very good question. I mean at this point in time, which is early in the process, we can't think of reversals at this point, quite honestly. We don't anticipate any increases either but we're not worried about reversals at this point in time. We just want to see that process flow and we'll wait what happens. For the time being you shouldn't pencil in any releases this year, because it's likely a -- quite a protracted process and so we don't anticipate this feat done in a short amount of time.

Thank you. [Operator Instructions] Our next question comes from William Meija from GAM.

Just apologies for asking this question again, but I just want to make sure that I understood the numbers right. You were saying that of the $12 million that you provided for loan losses this quarter, about two-thirds are related to this one-off trade event, so about $7.8 million. And then, that leaves us basically with about $4.2 million, right? Which is -- if I understood correctly, partly related to restructuring efforts that require incremental provisioning. So we will work to actually strip those out as well right, strip those off. What is the underlying provisioning for the quarter, I mean, basically what really required provisioning of loans during the quarter added to the NPL formation. Thank you.

William, thanks for your question. Let me tell you, as we move towards more short-term trade finance, you will realize that it's much lower credit risk. That's why we call our generic needs for provisions have decreased in the quarter, reflecting the better quality of our credit portfolio. So in that sense, if we're didn't have this one-off event, the position would be quite different. We had, as I mentioned before, to do also an additional provision for specific credits in Brazil that on top of the difference between the total provisions that we did, and the provisions for this specific case. That difference reflects three cases in Brazil and a smaller case in Mexico to complete the vast remainder of the provisions that we did. So as far as that is concerned, we feel that we have determined the right levels for provisioning. The portfolio today, as it is today, presents a lower level risk. That's the provision for the portfolio what we would call the generic provisions reduced in the quarter, but we are offset by this increase that we had in the specific provisions for this specific credits.

And just to add to that, the general method you exposed earlier in your comment, I think is correct. We said that we provisioned around 60%, close to two-thirds of our total exposure in that particular one-off event which we don't anticipate to see any repeat of that. And so, yes, the other elements of increase were primarily related to those credits in Brazil, which reached in a planned stage of restructuring in the restructuring process and which had to recognized. I should also mention that our accounting rules, the IFRS rule 9 which is our reserve rule which were implemented last year forces us to be quite proactive in recognizing losses. We don't sit on these credits looking backwards and see how should it be reflected in our numbers? We are forced to look forward and anticipate expected losses, looking into the 12 month or even a longer horizon and so that is fully reflected in our reserves.

So if you look at your restructure book right and your book currently, what you are experiencing in recent months, right. Have you seen any need to actually increment your provisions due to those expected losses? Is the experience getting better or getting worse, because what I'm trying to understand is, look this quarter you booked 74 bps in terms of cost of risk, right. Out of which you have the trade event, which accounts for close to 50 bps, right. And then you have 26 bps left of which you are suggesting that a big portion of that is also kind of non recurrent right. And last quarter, you booked 8 bps of cost of risk. So I want to understand if next quarter your cost of risk is going to go down back to a single digit number?

Yes, it's a very good question. Honestly, if we knew that answer we'd feel as I'm also much more confident in projecting our future earnings, I think if you go back a couple of quarters, you saw an increase in the fourth quarter, you saw a decline in the first quarter of this year based on the positive progress that was made in restructurings. Now we have a situation in second quarter where our progress has stalled in a couple of cases in Brazil and so, the dynamics of that are very hard to predict. What we have to do is to do our best job to anticipate these expected losses and we have to adjust on a quarterly basis those expectations. And so it's very hard for them and we think if these restructuring processes continue on the intended path we shouldn't see any further problems, but it would be very ambitious for us to say that we can know that for a fact.

And I just add that, as I mentioned in my response to Tito, what you should expect is normalization of the provisioning process where we do provision as we grow the portfolio and this is something that we're always discussing because at the end of the day, we have a portfolio that short term did it and sometimes balance fall by the end of the quarter because companies decide to do prepayments as was the case this quarter and that impacts the EBITDA level of positions. So this jigsaw effect that you see, unfortunately it's a reality of this type of the nature of the business that the bank has that in short term made it and because we operate in a region where it's relatively higher risks, so the amounts of positions tend to vary from country to country depending on the risk and then eventually, as you saw this quarter, we reduced our business in Ecuador not because of our own [indiscernible] but because there was no relative [indiscernible] and then there was an important pack in our provision. So, that is the nature of having a portfolio that short term that strengthen us in Latin America; unfortunately, I agree with Christopher, it is more difficult for you to predict. But overall you put aside this specific provisions that is around 50 basis points or so. I think you mentioned this number, I think this is give or take the number -- the correct number. So we're taking that 1% provision over the portfolio. So the portfolio grows by about 3%, you do the math, you can factor what the provisions could increase because the mix of the portfolio, if we need to say. If we have a little more challenging adventures in the portfolio, then it can be a little higher. But overall, I would say that you would be comfortable working with 1% coverage ratio for the normal portfolio of the Bank.

And then just, if I may just one follow-up question on the operating cost that this quarter obviously came down quite significantly year-on-year and quarter-on-quarter. So is this new level, the $10 million that you reflected this quarter in terms of operating cost, like the new normal or what should we expect basically going forward?

As an employee I should tell you, I hope not. But it is payable compensation. And so if the metrics aren't great, then variable compensation will not be great. And so, these numbers are clear reflection of what the bank and the Board thinks. And so we, of course, anticipate an improvement in the second half of the year. We do expect, as Rubens mentioned, to get to low double-digits ROE levels by the end of the year. And so we do expect that compensation-related expense should pick up some of that improvement, but we have to prove that first and then see the effect of that. And so a short long-winded answer to your question, short answer should be, we shouldn't count on 10 million being the new run rate for this bank. And so, I would be cautious about that. But you should also understand that, if this run rate improves or increases, it also means that the return profile of the bank improves and should compensate for that increased expense effect I hope this answers your question.

Yes. I don't know how you guys disclosed this, but what part of this is viable?

How much of this is viable? I think if you go back last year, you would see roundabout 9% to 10% of expenses were of the variable compensation kind of nature, so roundabout $5 million last year. So that would be, if we hit the targets and you should also know that the targets don't stay the same, they always increase. Every year, there is a different target, a higher target that we have to achieve. And so, if I had to give you a sense of the dimension, it's around $5 million.

[Operator Instructions] our next question comes from Greg Eisen of Singular Research.

I'd like to address the credit issue just from a different angle. You've answered most of the questions, but if we look at your total loans outstanding and subtract everything that's in restructuring right now, the remainder is your ongoing book of business. At this time, at the end of the quarter what percent of that ongoing book of business was short-term trade finance, which you think represents relatively low risk to you? And what percent of that remaining book of business is not short-term trade finance that is a riskier type of product, as a percentage of the total?

I think the, with the exception of the, again, this is Christopher taking your question, thanks for the question. Yes, I think the answer is if you exclude the one-off event that we talked about, which Rubens mentioned was on a trade finance exposure, the remainder of the non-performing loan exposures are normally non-trade exposures. These are medium-term financings for the most part. And so, if you exclude those non-performing loans from the rest of the book, the ratio of pure trade focus in that book should be higher than the 59% that we have overall. So let's say it's 60% or 61% of the total book. And so, I hope that answers your question.

And the rest, there is no non-trade. It's basically exposure to financial institutions that in its majority short-term dated as well. So although, it's not trade, trade will be what Christopher saying 61%. When you look at the composition in short-term trade, then it increases to 70%, because then you have the non-trade short-term transactions that we do primarily with financial institutions.

So, you said maybe 61% before those financial institutions, and I'm sorry, I'm having trouble hearing, I have a bad connection, the number, including the financial institutions would come up to what? Did you say 71%?

Yes, if you include the short-dated transact, I think the risk profile is impacted by two things, trade or non-trade, but more importantly, whether its short dated or long dated. And so the shorter-dated business inherently is less risky for us, because we can react much more quickly. And so, the short dated nature of our lending to the banks is a high quality factor as well. And so we said or Rubens mentioned that around 70% of our total book of business matures within a year, and that makes it good risk for us, because we have ample ability to react very quickly as those loans come due, may just decide to not renew if we don't like the risk anymore.

Okay, so 70% is a year or less?

Yes.

Thank you. [Operator Instructions] At this time, I am showing no further questions in the queue. I'll now like to turn the call back over to Mr. Amaral for closing remarks.

Thanks, Katie. Thank you everyone for attending the call. As I mentioned in my initial remarks, I feel very positive about the second half of the year. The Bank is doing very well, the core business is strengthening, and we are very satisfied that we have built a strong revenue base that allowed the Bank to absorb these unexpected losses. So I am looking forward to talking to you about the results of the third quarter with very good results for you. Thank you. Have a good day.

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