Good morning, ladies and gentlemen, and welcome to Bladex's Second Quarter 2023 Earnings Conference Call. A slide presentation is accompanying today's webcast and is also available on the Investors section of the company's website www.bladex.com. There'll be an opportunity for you to ask questions at the end of today's presentation. Please note today's conference call is being recorded. As a reminder, all participants will be in listen-only mode. I would now like to turn the call over to Mr. Carlos Raad, Investor Relations Officer. Please go ahead, sir.

Good morning, everyone, and thanks for joining our second quarter 2023 earnings call. Before we begin our presentation, allow me to remind you that certain statements made during the course of this discussion may constitute forward-looking statements which are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to materially differ, including factors that may be beyond the company's control. For a description of this risk, please refer to our filings with the US Securities and Exchange Commission and our earnings release. Speaking on today's call is our CEO, Jorge Salas, and our CFO, Ana de Mendez. Also joining us today are some of my colleagues from the executive team that will be available for the Q&A. With this, let me turn the call to Jorge. Please go ahead.

Thank you, Carlos, and good morning everyone joining us today. I'm excited to share our second quarter results. I'll start by presenting the highlights of our performance for the quarter and then, Annie, our CFO, will discuss the results in detail. After that, I will comment on our views on the economic dynamics of the region for the second half of the year. And then, as always, we will open the call for questions. Moving to the next slide, Slide 2. Bladex had another outstanding quarter. All relevant financial metrics keep showing a positive trend as we continue to execute our strategic plan. Both our treasury unit and our renewed commercial unit had a very strong performance. The results speak for themselves. Once again, we are showing record net interest income for the quarter, $54 million in NII for the quarter, slightly higher than last quarter and 67% higher than the same period a year ago. Similarly, net interest margin stood at 2.42%, 88 basis points higher year-on-year. All this has been possible largely because we have been gradually and strategically reconfiguring our assets and our liability mix. On the asset side, the client country mix has been optimized, as well as new client onboarding remains strong across every geography we operate. This is very much aligned with our commercial team now having a higher weight on their rate rev goals, on their scorecards under the new variable compensation scheme. Similarly, on the liability side, deposits, our most cost efficient funding source, have been steadily gaining share of the funding mix. Deposits as of quarter-end were over $4 billion for the first time in Bladex's history. This represents almost $900 million or 30% growth year-to-date. But perhaps more importantly is the fact that they now represent 49% of total funding…

Thank you, Jorge, and good morning to everyone. I would like to start with the quarterly evolution of net income for the last year on Slide 3, where we continue to see a solid trend with a 51% annual increase in quarterly profit, reaching $37.1 million for the second quarter of this year, similar to the preceding quarters level and resulting in a 13.4% ROE. This strong result continued to be driven by the sustained improvement in top-line revenue, given a positive trend in the commercial business evolution, continuing to focus in new client onboarding and cross sell, driving higher diversification and positive lending spread evolution. In addition, higher market interest rates continued to positively impact NII. Let me now walk you through our balance sheet and profit and loss line items to better explain these results. So turning to Slide 4, total assets reached an all-time high of over $10 billion at quarter end, representing a 14% annual increase on the back of increased loan and investment portfolio balances, and a sound liquidity position. The commercial portfolio, which includes loans and off-balance sheet letters of credits and guarantees, also reached record levels, totaling $8.1 billion at the end of the second quarter, up 7% from last year and 4% from the preceding quarter. The growth of the commercial portfolio was driven in part by the incorporation of new clients, mainly in the corporate sector and by cross sell efforts, both part of the initial optimization phase of our strategic plan. The portfolio remains well diversified across countries, having sized business opportunities in our top country exposures such as Brazil, Mexico, Colombia, Peru, and several Central American and the Caribbean countries. In terms of products, letter of credit business remains strong and vendor finance, which is closely related to short-term…

[Foreign Language] Annie. As we move into the second half of 2023, we anticipate a more challenging environment for the region. We project a slowdown in Latin America's growth to 1.6% this year after the remarkable 4% we all witnessed in 2022. But there are both upside and downside risks to our growth forecast for the region. On the upside, we see potential in the surge of foreign direct investments observed towards the end of 2022 and early part of this year. This has proven to be more sustainable than we initially expected and that will keep representing for sure lending opportunities for Bladex. Additionally, resilient flows of remittances, coupled with historically low levels of Hispanic unemployment in the US, provide further upside potential for growth. On the downside, as commodity prices recede from their 2022 peak, their contribution to the overall GDP growth in many countries has been weakening in recent months. This decline in export earnings, driven primarily by prices rather than volume is a result of the decrease in global commodity flows. Considering these factors, our growth projections and monetary policy outlook already account for some modest currency weakening in the late 2023 and in 2024, supported by the recent easing in inflation that sets the stage for rate cuts in the region in the second half of this year. I want to emphasize that we remain confident in our ability to navigate these conditions successfully and keep taking advantage of the opportunities that constantly arise in this volatile region. Once again, our strategic plan remains on track. We are pleased with the progress and execution thus far and we are convinced that the bank is well positioned to fulfill the guidance for this year. Lastly, I want to recognize our new Investor Relations team that has made significant progress in fostering robust relationships with the investment community. They not only put together our -- a narrow Investor Day last year, but have also proactively engaged with investors in all major regional investor conferences. Moreover, after years without formal coverage, Bladex now has three sell-side analysts covering our stock, which is of course -- which of course increases the value for our growing shareholder base. Before opening the call for questions, I want to express my appreciation to our team, our clients, our shareholders and our bondholders for their ongoing support and trust. We remain committed to drive long term value for all of you. I'm going to leave it there and open the call for questions now. Operator?

Please stand by. The operator is having some problems. We will be back in a couple of minutes. Hi. I'm Carlos from Bladex. I'm going to take the first question from Inigo Vega from Jefferies. It's a recent question. His question is, fees from letter of credits very impressive in the quarter. Can volumes grow further from here before tapping into new channels like fintech?

That's a good question, Inigo. The truth is that the ability to grow this business is more a function of the capacity to process than anything else. This quarter was indeed very good for our letters of credit business. It's important to know though that besides the growth from the existing clients that have accelerated via cross sell, rate goals on the balanced workers of our front line, there were a couple of specific one-off opportunities in this quarter. We will and it's an essential part of our business. There is an important project to automate and digitalize this process to keep growing this business further and we expect additional volumes and fees going forward.

The second question comes from Patrick Brown, an individual investor. Can you remind us your NIM sensitivity per 100 basis points change in rates? How much time it takes for your assets and liabilities to fully reprice for higher rates?

Good question. So for every 100 points movement in interest rates, there is an impact of about 12 basis points on our net interest margin. This of course varies quarter for quarter because as Annie always says, we have a very -- very short-term duration on our portfolio, but that's our best estimate. Our balance sheet structure is -- you have obviously cash maturing, immediate repricing, then you have obviously the loan portfolio and then you have a longer duration on our investment portfolio that averages 2.5 years. So net interest margin should remain between 2.2% and 2.4% during 2023. That's our best estimate. And most likely on the upper range considering the recent results. This is of course subject to whatever the fate decides to do on rates.

Thank you, Jorge. Next question comes from Andrea Atuesta from Bancolombia. Can you give us more details on what caused the loss on the financial instruments line?

Annie, you want to take that?

Sure. Thank you, Andrea. So there are two main effects in the loss of financial instruments for this quarter. About half of it results from the temporary ineffectiveness of the bank's hedges. As you know, the bank does not run into any currency mismatches and we don't maintain any trading positions. So we contract very simple derivative transactions to hedge the currency or interest rate risk, arising mainly from our bond issuances in the capital markets. So these hedges are perfect to maturity. However, due to the accounting norm, they require to be accounted for at fair value. And even though at maturity, one will completely offset the other, at different moments in time, the fair values of the underlying debt and the hedge may fluctuate and result in either negative or positive effect and that was the case in this quarter. The remaining effect relates to the sale of -- and that's about the other half of investment securities at amortized cost given increased risk that we saw at the beginning of the quarter and this is aligned to our risk management policies with respect to this portfolio.

Thank you, Annie. The next question comes from Gilberto Garcia from Barclays. It's a live question. So I'm going to open the line for him. Gilberto?

Hi, good morning and thank you for the call. I had a couple of questions. First, on your NIM guidance. It implies a bit of potential pressure in the second half of the year. What could be -- what would drive this pressure on NIM? And on another subject on dividends, given the rather consistent positive trends of the past quarters, would you consider increasing your dividend in the near to medium term? Thank you.

Thank you, Gilberto. I'm going to take the dividend question first and then I'll hand it over to Sam to talk about the net interest margin. So as I always say, dividend is a quarterly decision and it's up to the Board. And I can say our discussions at the Board level, not only on dividends, but in general capital -- capital management alternatives, including not only dividends but also even potential additional buybacks is a permanent discussion. I would stress however that the share -- we have shared short-term guidance and also longer term guidance for 2026. And part of that guidance is to manage capital ratios between 15% and 16% and our target portfolio between $10 billion and $11 billion. So whatever we do on capital management will fall within those ranges. But ultimately, it's at the Board -- it's at the Board level and I cannot comment more than what I just said. Sam, you want to?

Yeah. So this is Samuel Canineu, the Chief Commercial Officer. On the margins, speaking about the low margin, the margins on our commercial portfolio, we -- I would say that up to now, we were able to consistently increase our margins as it could be noticed in the -- well, I think it's probably seventh or eighth consecutive quarter. But we feel that we're getting to a cap in terms of how we can increase margins with existing and new clients, of course bound by our own credit appetite. We're not -- I think it's been clear that we're not going to change our credit appetite. And we feel that we have reached close to the limit, of course, by increasing, for example, we have not increased substantially the medium-term portfolio that can help us to increase margins because we saw better opportunities in terms of risk return on the short term. But that can change, so that can help to increase. But we feel that going forward, based on activity of this quarter, we see that it's easing out a little bit and that's why we haven't changed the guidance. Of course, there are other components of the NIM, such as the base differential between assets and liabilities. And that one, it really depends on the Fed actions. If we -- if margin -- if the Fed continues to increase, of course then we can keep that differential or even increase a little bit, that would have a positive impact on our NIM, but it really depends on the Fed action. But yeah, that's why I think the reason behind not changing the guidance.

Thank you, Sam. Next question comes from in Inigo Vega from Jefferies. What is the Stage 3 exposure you wrote off in the quarter? Any recovery potential on that particular ticket? Thanks.

Thank you, Inigo. So we're talking about the non-bank financial institution in Mexico, it's Unifin. Our exposure there was total of $25 million, $20 million on the syndicated loan and $5 million on the bonds. And it was 0.3% of our total portfolio and it was completely written-off during the quarter. We are not very optimistic on any recovery there.

So I think that was the last question. Thank you everybody for connecting and stay safe. Thank you very much. Goodbye.