UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE
SECURITIES EXCHANGE ACT OF 1934
For the month of August, 2019
Commission File Number 1-11414
BANCO LATINOAMERICANO DE COMERCIO EXTERIOR, S.A.
(Exact name of Registrant as specified in its Charter)
FOREIGN TRADE BANK OF LATIN AMERICA, INC.
(Translation of Registrant’s name into English)
Business Park Torre V, Ave. La Rotonda, Costa del Este
P.O. Box 0819-08730
Panama City, Republic of Panama
(Address of Registrant’s Principal Executive Offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F x Form 40-F ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Yes ¨ No x
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Yes ¨ No x
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 1, 2019
FOREIGN TRADE BANK OF LATIN AMERICA, INC. | ||
(Registrant) | ||
By: | /s/ Ana Graciela de Méndez | |
Name: | Ana Graciela de Méndez | |
Title: | CFO |
Banco Latinoamericano
de Comercio Exterior, S.A.
and Subsidiaries
Unaudited condensed consolidated interim statement as of June 30, 2019
and for the six months ended June 30, 2019 and 2018.
Banco Latinoamericano de Comercio Exterior, S.A.
and Subsidiaries
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Unaudited condensed consolidated interim statement of financial position
June 30, 2019 and December 31, 2018
(In thousands of US dollars)
Notes | June 30, 2019 (Unaudited) | December 31, 2018 (Audited) | ||||||||||
Assets | ||||||||||||
Cash and cash equivalents | 4,19 | 869,500 | 1,745,652 | |||||||||
Securities and other financial assets, net | 5,19 | 104,080 | 123,598 | |||||||||
Loans | 5,570,574 | 5,778,424 | ||||||||||
Interest receivable | 44,982 | 41,144 | ||||||||||
Allowance for loans losses | (103,283 | ) | (100,785 | ) | ||||||||
Unearned interest and deferred fees | (15,062 | ) | (16,525 | ) | ||||||||
Loans, net | 6,19 | 5,497,211 | 5,702,258 | |||||||||
Customers' liabilities under acceptances | 19 | 71,091 | 9,696 | |||||||||
Derivative financial instruments - assets | 9,19 | 1,397 | 2,688 | |||||||||
Equipment and leasehold improvements, net | 10 | 22,513 | 6,686 | |||||||||
Intangibles, net | 1,417 | 1,633 | ||||||||||
Other assets | 11 | 8,345 | 16,974 | |||||||||
Total assets | 6,575,554 | 7,609,185 | ||||||||||
Liabilities and Equity | ||||||||||||
Liabilities: | ||||||||||||
Demand deposits | 69,655 | 211,381 | ||||||||||
Time deposits | 2,944,833 | 2,759,441 | ||||||||||
12,19 | 3,014,488 | 2,970,822 | ||||||||||
Interest payable | 8,078 | 12,154 | ||||||||||
Total deposits | 3,022,566 | 2,982,976 | ||||||||||
Securities sold under repurchase agreements | 13,19 | 28,231 | 39,767 | |||||||||
Borrowings and debt, net | 14,19 | 2,405,151 | 3,518,446 | |||||||||
Interest payable | 9,948 | 13,763 | ||||||||||
Customers' liabilities under acceptances | 19 | 71,091 | 9,696 | |||||||||
Derivative financial instruments - liabilities | 9,19 | 20,801 | 34,043 | |||||||||
Allowance for loan commitments and financial guarantees contracts losses | 7,19 | 2,554 | 3,289 | |||||||||
Other liabilities | 12,697 | 13,615 | ||||||||||
Total liabilities | 5,573,039 | 6,615,595 | ||||||||||
Equity: | ||||||||||||
Common stock | 279,980 | 279,980 | ||||||||||
Treasury stock | (59,669 | ) | (61,076 | ) | ||||||||
Additional paid-in capital in excess of value assigned to common stock | 119,477 | 119,987 | ||||||||||
Capital reserves | 22 | 95,210 | 95,210 | |||||||||
Regulatory reserves | 22 | 136,019 | 136,019 | |||||||||
Retained earnings | 434,111 | 423,050 | ||||||||||
Other comprehensive income | 16 | (2,613 | ) | 420 | ||||||||
Total equity | 1,002,515 | 993,590 | ||||||||||
Total liabilities and equity | 6,575,554 | 7,609,185 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
1 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Unaudited condensed consolidated interim statements of profit or loss
For the three and six months ended June 30, 2019 and 2018
(In thousands of US dollars, except per share data and number of shares)
For the three months ended June 30 | For the six months ended June 30 | |||||||||||||||||||
Notes | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||
Interest income: | ||||||||||||||||||||
Deposits | 4,181 | 3,225 | 9,538 | 6,164 | ||||||||||||||||
Securities | 789 | 664 | 1,731 | 1,272 | ||||||||||||||||
Loans | 65,560 | 58,030 | 132,815 | 111,920 | ||||||||||||||||
Total interest income | 18 | 70,530 | 61,919 | 144,084 | 119,356 | |||||||||||||||
Interest expense: | ||||||||||||||||||||
Deposits | (18,896 | ) | (16,388 | ) | (36,589 | ) | (30,392 | ) | ||||||||||||
Borrowings and debt | (23,703 | ) | (17,642 | ) | (51,544 | ) | (34,485 | ) | ||||||||||||
Total interest expense | 18 | (42,599 | ) | (34,030 | ) | (88,133 | ) | (64,877 | ) | |||||||||||
Net interest income | 27,931 | 27,889 | 55,951 | 54,479 | ||||||||||||||||
Other income (expense): | ||||||||||||||||||||
Fees and commissions, net | 17,18 | 5,128 | 5,032 | 7,478 | 8,091 | |||||||||||||||
Gain (loss) on financial instruments, net | 8,18 | 63 | (796 | ) | 819 | 183 | ||||||||||||||
Other income, net | 512 | 530 | 1,457 | 645 | ||||||||||||||||
Total other income, net | 18 | 5,703 | 4,766 | 9,754 | 8,919 | |||||||||||||||
Total revenues | 33,634 | 32,655 | 65,705 | 63,398 | ||||||||||||||||
Impairment loss on financial instruments | 5,6,7 | (811 | ) | (1,771 | ) | (1,753 | ) | (3,702 | ) | |||||||||||
Impairment loss on non-financial assets | 18 | - | (2,888 | ) | - | (2,888 | ) | |||||||||||||
Operating expenses: | ||||||||||||||||||||
Salaries and other employee expenses | (5,829 | ) | (6,083 | ) | (12,140 | ) | (16,177 | ) | ||||||||||||
Depreciation of equipment and leasehold improvements | 10 | (705 | ) | (319 | ) | (1,396 | ) | (642 | ) | |||||||||||
Amortization of intangible assets | (191 | ) | (337 | ) | (355 | ) | (675 | ) | ||||||||||||
Other expenses | (3,826 | ) | (4,631 | ) | (6,544 | ) | (8,190 | ) | ||||||||||||
Total operating expenses | 18 | (10,551 | ) | (11,370 | ) | (20,435 | ) | (25,684 | ) | |||||||||||
Profit for the period | 22,272 | 16,626 | 43,517 | 31,124 | ||||||||||||||||
Per share data: | ||||||||||||||||||||
Basic earnings per share | 15 | 0.56 | 0.42 | 1.10 | 0.79 | |||||||||||||||
Diluted earnings per share | 15 | 0.56 | 0.42 | 1.10 | 0.79 | |||||||||||||||
Weighted average basic shares | 15 | 39,553 | 39,626 | 39,548 | 39,547 | |||||||||||||||
Weighted average diluted shares | 15 | 39,553 | 39,651 | 39,548 | 39,572 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
2 |
Banco Latinoamericano de Comercio Exterior, S. A. y Subsidiarias
Unaudited condensed consolidated interim statements of profit or loss and other comprehensive income
For the three and six months ended June 30, 2019 and 2018
(In thousands of US dollars)
For the three months ended June 30 | For the six months ended June 30 | |||||||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||||
Profit for the period | 22,272 | 16,626 | 43,517 | 31,124 | ||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||
Items that will not be reclassified subsequently to profit and loss: | ||||||||||||||||||||
Change in fair value on equity instrument at FVOCI, net of hedging | 16 | (864 | ) | (2,519 | ) | (608 | ) | (2,519 | ) | |||||||||||
Items that are or may be reclassified subsequently to profit and loss: | ||||||||||||||||||||
Change in fair value of financial instruments, net of hedging | 16 | (743 | ) | 83 | (2,664 | ) | 83 | |||||||||||||
Reclassification of gains (losses) on financial instruments to the profit or loss | 16 | (274 | ) | 2,694 | 338 | 2,694 | ||||||||||||||
Exchange difference in conversion of foreign currency operation | 16 | (23 | ) | (137 | ) | (99 | ) | (137 | ) | |||||||||||
Other comprehensive income (loss) | 16 | (1,904 | ) | 121 | (3,033 | ) | 121 | |||||||||||||
Total comprehensive income for the period | 20,368 | 16,747 | 40,484 | 31,245 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
3 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Unaudited condensed consolidated interim statements of changes in stockholders's equity
For the six months ended June 30, 2019 and 2018
(In thousands of US dollars)
Common stock | Treasury stock | Additional
paid- in capital in excess of value assigned to common stock | Capital reserves | Regulatory reserves | Retained earnings | Other comprehensive income | Total equity | |||||||||||||||||||||||||
Balances at January 1, 2018 | 279,980 | (63,248 | ) | 119,941 | 95,210 | 129,254 | 479,712 | 1,963 | 1,042,812 | |||||||||||||||||||||||
Profit for the period | - | - | - | - | - | 31,124 | - | 31,124 | ||||||||||||||||||||||||
Other comprehensive income (loss) | - | - | - | - | - | - | 121 | 121 | ||||||||||||||||||||||||
Issuance of restricted stock | - | 1,259 | (1,259 | ) | - | - | - | - | - | |||||||||||||||||||||||
Compensation cost - stock options and stock units plans | - | - | 123 | - | - | - | - | 123 | ||||||||||||||||||||||||
Exercised options and stock units vested | - | 3,355 | 254 | - | - | - | - | 3,609 | ||||||||||||||||||||||||
Repurchase of "Class B" and "Class E" common stock | - | (1 | ) | - | - | - | - | - | (1 | ) | ||||||||||||||||||||||
Regulatory reserve | - | - | - | - | (5,297 | ) | 5,297 | - | - | |||||||||||||||||||||||
Dividends declared | - | - | - | - | - | (30,409 | ) | - | (30,409 | ) | ||||||||||||||||||||||
Balances at June 30, 2018 | 279,980 | (58,635 | ) | 119,059 | 95,210 | 123,957 | 485,724 | 2,084 | 1,047,379 | |||||||||||||||||||||||
Balances at January 1, 2019, previously reported | 279,980 | (61,076 | ) | 119,987 | 95,210 | 136,019 | 423,050 | 420 | 993,590 | |||||||||||||||||||||||
Effect for change in accounting policy | - | - | - | - | - | (2,007 | ) | - | (2,007 | ) | ||||||||||||||||||||||
Balances at January 1, 2019, adjusted | 279,980 | (61,076 | ) | 119,987 | 95,210 | 136,019 | 421,043 | 420 | 991,583 | |||||||||||||||||||||||
Profit for the period | - | - | - | - | - | 43,517 | - | 43,517 | ||||||||||||||||||||||||
Other comprehensive income | - | - | - | - | - | - | (3,033 | ) | (3,033 | ) | ||||||||||||||||||||||
Issuance of restricted stock | - | 380 | (1,259 | ) | - | - | - | - | (879 | ) | ||||||||||||||||||||||
Compensation cost - stock options and stock units plans | - | - | 897 | - | - | - | - | 897 | ||||||||||||||||||||||||
Exercised options and stock units vested | - | 1,027 | (148 | ) | - | - | - | - | 879 | |||||||||||||||||||||||
Dividends declared | - | - | - | - | - | (30,449 | ) | - | (30,449 | ) | ||||||||||||||||||||||
Balances at June 30, 2019 | 279,980 | (59,669 | ) | 119,477 | 95,210 | 136,019 | 434,110 | (2,613 | ) | 1,002,515 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
4 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Unaudited condensed consolidated interim statements of cash flows
For the six months ended June 30, 2019 and 2018
(In thousands of US dollars)
2019 | 2018 | |||||||
Cash flows from operating activities | ||||||||
Profit for the period | 43,517 | 31,124 | ||||||
Adjustments to reconcile profit for the year to net cash provided by (used in) operating activities: | ||||||||
Net changes in hedging position | (481 | ) | (1,786 | ) | ||||
Depreciation of equipment and leasehold improvements | 1,396 | 642 | ||||||
Amortization of intangible assets | 355 | 675 | ||||||
Loss for disposal of equipment and leasehold improvements | - | 291 | ||||||
Loss for derecognition of intangible assets | - | 6,686 | ||||||
Impairment loss on financial instruments | 1,753 | 3,662 | ||||||
(Gain) loss, net on sale of financial assets at fair value through OCI | (163 | ) | 342 | |||||
Amortization of premium and discount related to securities at amortized cost | 453 | 203 | ||||||
Gain on sale of property and equipment | - | (18 | ) | |||||
Impairment loss on other assets | - | 1,740 | ||||||
Compensation cost - share-based payment | 897 | 123 | ||||||
Interest income | (144,084 | ) | (119,356 | ) | ||||
Interest expense | 88,133 | 64,877 | ||||||
Net decrease (increase) in operating assets: | ||||||||
Pledged deposits | 12,566 | 18,922 | ||||||
Loans | 207,850 | (51,257 | ) | |||||
Other assets | 8,630 | (6,649 | ) | |||||
Net increase (decrease) in operating liabilities: | ||||||||
Due to depositors | 43,666 | 60,158 | ||||||
Other liabilities | (612 | ) | 1,936 | |||||
Cash flows provided by (used in) operating activities | 263,876 | 12,315 | ||||||
Interest received | 140,831 | 111,849 | ||||||
Interest paid | (96,024 | ) | (64,740 | ) | ||||
Net cash provided by operating activities | 308,683 | 59,424 | ||||||
Cash flows from investing activities: | ||||||||
Acquisition of equipment and leasehold improvements | (65 | ) | (492 | ) | ||||
Acquisition of intangible assets | (125 | ) | (6,725 | ) | ||||
Proceeds from the sale of securities at fair value through OCI | 6,000 | 3,684 | ||||||
Proceeds from maturities of securities at amortized cost | 15,979 | 1,131 | ||||||
Purchases of securities at amortized cost | (3,479 | ) | (10,529 | ) | ||||
Net cash provided by (used in) investing activities | 18,310 | (12,931 | ) | |||||
Cash flows from financing activities: | ||||||||
(Decrease) increase in securities sold under repurchase agreements | (11,536 | ) | - | |||||
Net decrease in short-term borrowings and debt | (897,407 | ) | (23,065 | ) | ||||
Proceeds from long-term borrowings and debt | 83,636 | 160,174 | ||||||
Repayments of long-term borrowings and debt | (334,885 | ) | (126,172 | ) | ||||
Payments of lease liabilities | (512 | ) | - | |||||
Dividends paid | (30,754 | ) | (30,641 | ) | ||||
Exercised stock options | 879 | 3,609 | ||||||
Repurchase of common stock | - | (1 | ) | |||||
Net cash used in financing activities | (1,190,579 | ) | (16,096 | ) | ||||
Increase (decrease) net in cash and cash equivalents | (863,586 | ) | 30,397 | |||||
Cash and cash equivalents at beginning of the period | 1,706,192 | 618,807 | ||||||
Cash and cash equivalents at end of the period | 842,606 | 649,204 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
5 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
1. | Corporate information |
Banco Latinoamericano de Comercio Exterior, S. A. (“Bladex Head Office” and together with its subsidiaries “Bladex” or the “Bank”), headquartered in Panama City, Republic of Panama, is a specialized multinational bank established to support the financing of foreign trade and economic integration in Latin America and the Caribbean (the “Region”). The Bank was established pursuant to a May 1975 proposal presented to the Assembly of Governors of Central Banks in the Region, which recommended the creation of a multinational organization to increase the foreign trade financing capacity of the Region. The Bank was organized in 1977, incorporated in 1978 as a corporation pursuant to the laws of the Republic of Panama, and initiated operations on January 2, 1979. Under a contract law signed in 1978 between the Republic of Panama and Bladex, the Bank was granted certain privileges by the Republic of Panama, including an exemption from payment of income taxes in Panama.
The Bank operates under a general banking license issued by the National Banking Commission of Panama, predecessor of the Superintendence of Banks of Panama (the “SBP”).
In the Republic of Panama, banks are regulated by the SBP through Executive Decree No. 52 of April 30, 2008, which adopts the unique text of Law Decree No. 9 of February 26, 1998, modified by Law Decree No. 2 of February 22, 2008. Banks are also regulated by resolutions and agreements issued by this entity. The main aspects of this law and its regulations include: the authorization of banking licenses, minimum capital and liquidity requirements, consolidated supervision, procedures for management of credit and market risks, measures to prevent money laundering, the financing of terrorism and related illicit activities, and procedures for banking intervention and liquidation, among others.
Bladex Head Office’s subsidiaries are the following:
- | Bladex Holdings Inc. is a wholly owned subsidiary, incorporated under the laws of the State of Delaware, United States of America (USA), on May 30, 2000. Bladex Holdings Inc. has ownership in Bladex Representaçao Ltda. |
- | Bladex Representaçao Ltda., incorporated under the laws of Brazil on January 7, 2000, acts as the Bank’s representative office in Brazil. Bladex Representaçao Ltda. is 99.999% owned by Bladex Head Office and the remaining is 0.001% owned by Bladex Holdings Inc. |
- | Bladex Development Corp. was incorporated under the laws of the Republic of Panama on June 5, 2014. Bladex Development Corp. is 100% owned by Bladex Head Office. |
- | BLX Soluciones, S.A. de C.V., SOFOM, E.N.R.(“BLX Soluciones”) was incorporated under the laws of Mexico on June 13, 2014. BLX Soluciones is 99.9% owned by Bladex Head Office, and Bladex Development Corp. owns the remaining 0.1%. The company specializes in offering financial leasing and other financial products such as loans and factoring. |
Bladex Head Office has an agency in New York City, USA (the “New York Agency”), which began operations on March 27, 1989. The New York Agency is principally engaged in financing transactions related to international trade, mostly the confirmation and financing of letters of credit for customers in the Region. The New York Agency, also has authorization to book transactions through an International Banking Facility (“IBF”).
6 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
1. | Corporate information (continued) |
The Bank has representative offices in Buenos Aires, Argentina; in Mexico City, Mexico; in Lima, Peru; and in Bogota, Colombia.
These unaudited condensed consolidated interim financial statements were authorized for issue by the Board of Directors on July 16, 2019.
2. | Basis of preparation of the condensed consolidated interim financial statements |
2.1 | Statement of compliance |
These unaudited condensed consolidated interim financial statements of Banco Latinoamericano de Comercio Exterior, S. A. and its subsidiaries have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting (IAS 34) issued by the International Accounting Standards Board ("IASB"). As all the disclosures required by IFRS for annual period consolidated financial statements are not included herein, these unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto as of and for the year ended December 31, 2018, contained in the Bank’s annual audited consolidated financial statements. The unaudited condensed consolidated interim statements of profit or loss, other comprehensive income, changes in equity and cash flows for the periods presented are not necessarily indicative of results expected for any future period.
2.2 | Reclassification |
Certain amounts in the consolidated financial statements of the prior year was reclassified in order to align them with the presentation of the actual period. These reclassifications did not change total assets, liabilities, equity, nor the profit for the period.
3. | Change in accounting policies |
Except as described below, the accounting policies applied in these interim financial statements are the same as those applied in the consolidated financial statements of the Bank at and for the year ended December 31, 2018.
Changes in accounting policies are also expected to be reflected in the consolidated financial statements of the Bank at and for the year ended December 31, 2019.
3.1 | Leases |
Accounting policy applicable from January 1, 2019:
Leases under IFRS 16
At inception of a contract, the Bank assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Bank assesses whether:
- | The contract involves the use of an identified asset –this may be specified explicitly or implicitly; and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. |
- | The Bank has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use. |
- | The Bank has the right to direct the use of the asset. The Bank has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decision about how and for what purpose the asset is used is predetermined, the Bank has the right to direct the use of the asset if either: |
- | The Bank has the right to operate the asset; or |
- | The Bank designed the asset in a way that predetermines how and for what purpose it will be used. |
7 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
3. | Change in accounting policies (continued) |
3.1 | Leases (continued) |
This policy is applied to contracts entered into, or changed, on or after January 1, 2019.
At inception or on reassessment of a contract that contains lease component, the bank allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices. However, for the leases of land and buildings in which it is a lessee, the Bank has elected not to separate non-lease components and to account for the lease components as a single lease component.
The Bank applied IFRS 16 with a date of initial application of 1 January 2019. As a result, the Bank has changed its accounting policy for lease contracts as detailed below.
The Bank applied IFRS 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognized in retained earnings at 1 January 2019. The details of the changes in accounting policies are disclosed below:
A. | Definition of a lease |
Previously, the Bank determined at contract inception whether an arrangement is or contains a lease under IFRIC 4. Under IFRS 16, the Bank assesses whether a contract is or contains a lease based on the definition of a lease based on the definition of a lease, as explained in Note 3.1.
On transition to IFRS 16, the Bank elected to apply the practical expedient to grandfather the assessment of which transactions are leases. It applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed for whether there is a lease. Therefore, the definition of a lease under IFRS 16 was applied only to contracts entered into or changed on or after 1 January 2019.
B. | As a lessee |
As a lessee, the Bank previously classified leases as operating or finance leases based on its assessment of whether the leases transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Bank. Under IFRS 16, the Bank recognizes right-of-use assets and lease liabilities for most leases. These leases are on the consolidated statement of financial position.
Leases classified as operating leases under IAS 17
At transition, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Bank´s internal funding cost rate as at 1 January 2019.
The right-of-use assets are measured at their book value as if IFRS 16 had been applied since the commencement date, discounted using total lease payments at present value, using the Bank's internal funding cost rate, the weighted average term of the contract, adjusted for any prepayment, incremental cost, dismantling cost and depreciation that would have been recognized from the beginning of the contract until the date of implementation of the standard.
The Bank used the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17:
- | Applied for lease contracts with similar characteristics, the internal funding cost rate of the Bank, according to the average term of stay. |
- | Excluded initial direct costs from measuring the right-of-use asset at the date of initial application. |
- | Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease. |
8 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
3. | Change in accounting policies (continued) |
3.1 | Leases (continued) |
C. | As a lessor |
The Bank do not require to make any adjustments on transition of IFRS 16 for its leases like a lessor, except when figure as an intermediate lessor. The Bank accounted its leases in accordance with IFRS 16 on the date of initial application.
Under IFRS 16, the Bank should the evaluate the classification of the sublease by reference to the right-of-use assets, and not by reference to the underlying asset. At transition, the Bank revalued the classification of a sublease contract previously classified as an operating lease under IAS 17. The Bank concluded that the sublease is an operating lease under IFRS 16.
The Bank applied IFRS 15 to revenue from contracts with customers to assign the consideration in the contract to each lease component and that is not a lease.
D. | Impacts on consolidated financial statements |
On transition to IFRS 16, the Bank recognized and additional $17.1 million of right-of-use assets and $20.7 million of lease liabilities, recognizing the difference in retained earnings. When measuring the lease liabilities, the Bank discounted the lease payments using its internal funding cost rate at 1 January 2019. The weighted average rate applied is 4.81%.
January 1, 2019 | ||||
Operating lease commitments disclosed as of December 31, 2018 | 16,790 | |||
Extensions and termination options that are reasonably true of being exercised | 10,786 | |||
27,576 | ||||
Discounted lease liabilities using the internal funding cost rate as of January 1, 2019 | 20,735 |
Accounting policy applicable until December 31, 2018:
Leases under NIC 17
The determination of whether an arrangement is a lease, or contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.
Banks as a lessee
Leases where the lessor does not transfer to the Bank substantially all the risks and benefits incidental to ownership of the leased items are classified as operating leases. Operating lease payments are recognized as an expense in profit or loss on a straight-line basis through the lease term. Rental payable is recognized as an expense as incurred.
Bank as a sub-lessor
Leases where the Bank does not transfer substantially all risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Rental income is recognized as revenue as earned. In the event that the contract is cancelable, they are recognized as income over the term of the lease.
9 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
4. | Cash and cash equivalents |
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Cash and due from banks | 8,246 | 9,644 | ||||||
Interest-bearing deposits in banks | 861,254 | 1,736,008 | ||||||
Total | 869,500 | 1,745,652 | ||||||
Less: | ||||||||
Pledged deposits | 26,894 | 39,460 | ||||||
Total cash and cash equivalents | 842,606 | 1,706,192 |
The following table presents the details of interest-bearing deposits in banks and pledged deposits:
June 30, 2019 | December 31, 2018 | |||||||||||||||
Amount | Interest rate range | Amount | Interest rate range | |||||||||||||
Interest-bearing deposits in banks: | ||||||||||||||||
Demand deposits (1) | 861,254 | 1.00% a 5.88% | 1,686,008 | 2.43% to 6.5% | ||||||||||||
Time deposits (2) | - | 50,000 | - | |||||||||||||
Total | 861,254 | 1,736,008 | ||||||||||||||
Pledged deposits (3) | 26,894 | 2.38 | % | 39,460 | 2.40 | % |
The following table provides a breakdown of pledged deposits by country risk:
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Country: | ||||||||
United States of America (3) | 13,843 | 15,009 | ||||||
United Kingdom | 11,937 | 15,217 | ||||||
Spain | 560 | 8,740 | ||||||
Netherlands | 174 | 494 | ||||||
France | 380 | - | ||||||
Total | 26,894 | 39,460 |
(1) | Interest-bearing demand deposits based on the daily rates determined by banks. The rate 5.88% corresponds to a deposit placed in BRL - Brazil. In addition, a rate of 5.79% corresponds to a deposit placed in MXN – Mexico. |
(2) | Time deposits “overnight” calculated on an average interest rate. |
(3) | Includes deposits pledged of $3.5 million at June 30, 2019 and December 31, 2018, respectively, with the New York State Banking Department under March 1994 legislation and deposits pledged to guarantee derivative financial instrument transactions. |
10 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
5. | Securities and other financial assets, net |
All securities and other financial assets as of June 30, 2019 and December 31, 2018 are presented as follows:
At fair value | ||||||||||||||||||||
At June 30, 2019 | With changes in other comprehensive income | With | Total securities and | |||||||||||||||||
Carring amount | Amortized cost | Recyclable
to profit and loss | Non-recyclable
to profit and loss | changes
in profit or loss | other financial assets, net | |||||||||||||||
Principal | 72,195 | 16,231 | 5,785 | 8,739 | 102,950 | |||||||||||||||
Interest receivable | 878 | 375 | - | - | 1,253 | |||||||||||||||
Reserves | (123 | ) | - | - | - | (123 | ) | |||||||||||||
72,950 | 16,606 | 5,785 | 8,739 | 104,080 |
At fair value | ||||||||||||||||||||
At December 31, 2018 | With changes in other comprehensive income | With | Total securities and | |||||||||||||||||
Carring amount | Amortized cost | Recyclable
to profit and loss | Non-recyclable
to profit and loss | changes
in profit or loss | other financial assets, net | |||||||||||||||
Principal | 85,326 | 21,798 | 6,273 | 8,750 | 122,147 | |||||||||||||||
Interest receivable | 1,140 | 451 | - | - | 1,591 | |||||||||||||||
Reserves | (140 | ) | - | - | - | (140 | ) | |||||||||||||
86,326 | 22,249 | 6,273 | 8,750 | 123,598 |
Securities at amortized cost
The amortized cost of these securities by country risk and type of debt, excluding the amounts of interest receivable and allowance for expected credit losses are as follows:
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Corporate debt | ||||||||
Brazil | 1,494 | 1,491 | ||||||
Mexico | 7,177 | 7,264 | ||||||
Panama | 11,151 | 11,151 | ||||||
19,822 | 19,906 | |||||||
Sovereign debt | ||||||||
Colombia | 15,444 | 28,183 | ||||||
Mexico | 19,682 | 19,859 | ||||||
Panama | 17,247 | 17,378 | ||||||
52,373 | 65,420 | |||||||
72,195 | 85,326 |
As of June 30, 2019, and December 31, 2018, the allowance for expected credit losses relating to securities at amortized cost amounted to $123 thousand and $140 thousand, respectively.
As of June 30, 2019, and December 31, 2018, securities at amortized cost were pledged to secure repurchase transactions accounted for as secured financings with a carrying value of $23.6 million and 35.1 million, respectively.
11 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
5. | Securities and other financial assets, net (continued) |
Securities at amortized cost (continued)
Securities at amortized cost by contractual maturity are shown in the following tables:
June 30, 2019 | December 31, 2018 | |||||||
Due within 1 year | 25,954 | 28,551 | ||||||
After 1 year but within 5 years | 46,241 | 56,775 | ||||||
72,195 | 85,326 |
Securities at amortized cost classified by issuer’s credit quality indicators are as follows:
Rating | June 30, 2019 | December 31, 2018 | |||||||
2 | - | 5,181 | |||||||
3 | 31,930 | 44,858 | |||||||
4 | 38,770 | 33,796 | |||||||
5 | 1,495 | 1,491 | |||||||
Total | 72,195 | 85,326 |
Securities at fair value through other comprehensive income (FVOCI)
The fair value of financial instruments at FVOCI by country risk and type of debt, excluding interest receivable, are as follows:
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Corporate debt | ||||||||
Panama | - | 6,157 | ||||||
- | 6,157 | |||||||
Sovereign debt | ||||||||
Brazil | 3,051 | 2,887 | ||||||
Chile | 5,121 | 5,011 | ||||||
Trinidad and Tobago | 8,059 | 7,743 | ||||||
16,231 | 15,641 | |||||||
16,231 | 21,798 |
As of June 30, 2019, and December 31, 2018, the allowance for expected credit losses relating to securities at fair value through other comprehensive income amounted to $200 thousand and $172 thousand, respectively.
As of June 30, 2019, and December 31, 2018, securities at fair value through other comprehensive income were pledged to secure repurchase transactions accounted for as secured financings with a carrying value of $4.6 million, for both periods.
12 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
5. | Securities and other financial assets, net (continued) |
Securities at fair value through other comprehensive income (FVOCI) (continued)
The following table presents the realized gains or losses on sale of securities at fair value through other comprehensive income:
Three months ended June 30 | ||||||||
2019 | 2018 | |||||||
Realized gain on sale of securities | 54 | - | ||||||
Realized loss on sale of securities | - | - | ||||||
Net gain on sale of securities at FVOCI | 54 | - |
Six months ended June 30 | ||||||||
2019 | 2018 | |||||||
Realized gain on sale of securities | 163 | - | ||||||
Realized loss on sale of securities | - | - | ||||||
Net gain on sale of securities at FVOCI | 163 | - |
Securities at FVOCI classified by issuer’s credit quality indicators are as follows:
June 30, | December 31, | ||||||||
Rating | 2019 | 2018 | |||||||
1 | 5,121 | 5,010 | |||||||
4 | - | 13,901 | |||||||
5 | 11,110 | 2,887 | |||||||
Total | 16,231 | 21,798 |
The amortized cost and fair value of securities at FVOCI by contractual maturity are shown in the following tables:
June 30, 2019 | December 31, 2018 | |||||||||||||||
Amortized | Amortized | |||||||||||||||
Cost | Fair value | cost | Fair value | |||||||||||||
Due within 1 year | 8,149 | 8,059 | 8,386 | 7,743 | ||||||||||||
After 1 year but within 5 years | 8,065 | 8,172 | 8,084 | 7,898 | ||||||||||||
After 5 years but within 10 years | - | - | 5,926 | 6,157 | ||||||||||||
16,214 | 16,231 | 22,396 | 21,798 |
13 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
5. | Securities and other financial assets, net (continued) |
Equity instrument at FVOCI, non-recyclable in profit & loss
The fair value of the equity instrument irrevocably measured at fair value through OCI:
June 30, 2019 | December 31, 2018 | |||||||
Equity instrument | 5,785 | 6,273 |
Financial Instrument at fair value through profit and loss
The following table presents the fair value of the debt instrument at fair value with changes in profit or loss:
June 30, 2019 | December 31, 2018 | |||||||
Financial instrument | 8,739 | 8,750 |
14 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
6. | Loans |
The following table sets forth the details of the Bank’s gross loan portfolio:
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Corporations: | ||||||||
Private | 1,677,087 | 1,893,696 | ||||||
State-owned | 694,264 | 801,938 | ||||||
Financial institutions: | ||||||||
Private | 2,588,603 | 2,458,690 | ||||||
State-owned | 610,620 | 624,100 | ||||||
Total | 5,570,574 | 5,778,424 |
The composition of the gross loan portfolio by industry is as follows:
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Financial institutions | 3,199,223 | 3,082,790 | ||||||
Industrial | 929,642 | 986,262 | ||||||
Oil and petroleum derived products | 539,632 | 634,615 | ||||||
Agricultural | 226,301 | 446,960 | ||||||
Services | 369,632 | 393,925 | ||||||
Mining | 37,361 | 20,000 | ||||||
Sovereign | 53,123 | 59,026 | ||||||
Other | 215,660 | 154,846 | ||||||
Total | 5,570,574 | 5,778,424 |
15 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
6. | Loans (continued) |
Loans classified by borrower’s credit quality indicators are as follows:
June 30, 2019 | |||||||||||||||||||||
Corporations | Financial institutions | ||||||||||||||||||||
Rating | Private | State-owned | Private | State-owned | Total | ||||||||||||||||
1-4 | 1,006,311 | 263,173 | 1,010,734 | 103,325 | 2,383,543 | ||||||||||||||||
5-6 | 397,588 | 205,311 | 1,291,840 | 409,278 | 2,304,017 | ||||||||||||||||
7 | 208,487 | 225,780 | 286,029 | 98,017 | 818,313 | ||||||||||||||||
8 | - | - | - | - | - | ||||||||||||||||
9 | - | - | - | - | - | ||||||||||||||||
10 | 64,701 | - | - | - | 64,701 | ||||||||||||||||
Total | 1,677,087 | 694,264 | 2,588,603 | 610,620 | 5,570,574 |
December 31, 2018 | |||||||||||||||||||||
Corporations | Financial institutions | ||||||||||||||||||||
Rating | Private | State-owned | Private | State-owned | Total | ||||||||||||||||
1-4 | 975,588 | 388,773 | 797,439 | 54,000 | 2,215,800 | ||||||||||||||||
5-6 | 795,399 | 391,438 | 1,476,861 | 464,800 | 3,128,498 | ||||||||||||||||
7 | 58,008 | 21,727 | 184,390 | 105,300 | 369,425 | ||||||||||||||||
8 | - | - | - | - | - | ||||||||||||||||
9 | 64,701 | - | - | - | 64,701 | ||||||||||||||||
10 | - | - | - | - | - | ||||||||||||||||
Total | 1,893,696 | 801,938 | 2,458,690 | 624,100 | 5,778,424 |
16 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
6. | Loans (continued) |
The following table provides a breakdown of loans classified by country risk:
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Country: | ||||||||
Brazil | 939,864 | 1,156,223 | ||||||
Mexico | 845,058 | 867,441 | ||||||
Colombia | 634,407 | 625,932 | ||||||
Chile | 477,461 | 176,976 | ||||||
Argentina | 382,601 | 604,112 | ||||||
Dominican Republic | 358,294 | 301,067 | ||||||
Panama | 348,426 | 485,546 | ||||||
Guatemala | 325,687 | 328,830 | ||||||
Costa Rica | 289,727 | 370,087 | ||||||
Ecuador | 229,198 | 188,445 | ||||||
Trinidad and Tobago | 192,028 | 144,874 | ||||||
Paraguay | 134,616 | 158,685 | ||||||
Peru | 120,021 | 78,191 | ||||||
Honduras | 85,008 | 89,205 | ||||||
Jamaica | 55,579 | 21,727 | ||||||
El Salvador | 55,292 | 70,048 | ||||||
Germany | 35,500 | 17,500 | ||||||
Singapore | 28,700 | 38,500 | ||||||
Hong Kong | 12,500 | - | ||||||
Luxembourg | 10,726 | 17,664 | ||||||
Belgium | 8,000 | 13,278 | ||||||
Uruguay | 1,881 | 9,906 | ||||||
Bolivia | - | 14,187 | ||||||
Total | 5,570,574 | 5,778,424 |
17 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
6. | Loans (continued) |
The remaining loan maturities are summarized as follows:
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Current: | ||||||||
Up to 1 month | 887,230 | 820,184 | ||||||
From 1 month to 3 months | 935,618 | 966,210 | ||||||
From 3 months to 6 months | 948,871 | 1,281,615 | ||||||
From 6 months to 1 year | 1,226,020 | 769,280 | ||||||
From 1 year to 2 years | 456,569 | 719,564 | ||||||
From 2 years to 5 years | 992,807 | 1,110,489 | ||||||
More than 5 years | 58,758 | 46,381 | ||||||
5,505,873 | 5,713,723 | |||||||
Impaired | 64,701 | 64,701 | ||||||
Total | 5,570,574 | 5,778,424 |
As of June 30, 2019, the range of interest rates on loans fluctuates from 1.20% to 11.73%, respectively (as of December 31, 2018 the range of interest rates fluctuates from 1.20% to 12.25%).
The fixed and floating interest rate distribution of the loan portfolio is as follows:
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Fixed interest rates | 2,713,039 | 2,706,834 | ||||||
Floating interest rates | 2,857,535 | 3,071,590 | ||||||
Total | 5,570,574 | 5,778,424 |
As of June 30, 2019, and December 31, 2018, 78% of the loan portfolio at fixed interest rates has remaining maturities of less than 180 days.
18 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
6. | Loans (continued) |
The following table presents an aging analysis of the loan portfolio by credit classification in stages 1, 2 and 3:
June 30, 2019 | ||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||
Gross carrying amount | ||||||||||||||||
Current | 5,201,350 | 304,523 | 54,616 | 5,560,489 | ||||||||||||
Past due | ||||||||||||||||
90-120 days | - | - | - | - | ||||||||||||
151-180 days | - | - | - | - | ||||||||||||
More than 180 days | - | - | 10,085 | 10,085 | ||||||||||||
Total past due | - | - | 10,085 | 10,085 | ||||||||||||
Total | 5,201,350 | 304,523 | 64,701 | 5,570,574 |
December 31, 2018 | ||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||
Gross carrying amount | ||||||||||||||||
Current | 5,340,751 | 372,972 | 57,025 | 5,770,748 | ||||||||||||
Past due | ||||||||||||||||
90-120 days | - | - | 2,410 | 2,410 | ||||||||||||
151-180 days | - | - | 2,857 | 2,857 | ||||||||||||
More than 180 days | - | - | 2,409 | 2,409 | ||||||||||||
Total past due | - | - | 7,676 | 7,676 | ||||||||||||
Total | 5,340,751 | 372,972 | 64,701 | 5,778,424 |
As of June 30, 2019 and December 31, 2018, the Bank had credit transactions in the normal course of business with 15% and 17%, respectively, of its Class “A” and “B” stockholders. All transactions were made based on arm’s-length terms and subject to prevailing commercial criteria and market rates and were subject to all of the Bank’s Corporate Governance and control procedures. As of June 30, 2019 and December 31, 2018, approximately 12% and 9%, respectively, of the outstanding loan portfolio was placed with the Bank’s Class “A” and “B” stockholders and their related parties. As of June 30, 2019, the Bank was not directly or indirectly owned or controlled by another corporation or any foreign government, and no Class “A” or “B” shareholder was the registered owner of more than 3.5% of the total outstanding shares of the voting capital stock of the Bank.
Recognition and derecognition of financial assets
During the periods ended June 30, 2019 and 2018, the Bank sold loans measured at amortized cost. These sales were made based on compliance with the Bank's strategy to optimize credit risk of its loan portfolio.
The carrying amounts and gains arising from the derecognition of these financial instruments are presented in the following table. These gains are presented within the line “Gain (loss) on financial instruments, net” in the consolidated statement of profit or loss.
Assignments and participations | Gains (losses) | ||||||||
Carrying amount as of June 30, 2019 | 5,000 | - | |||||||
Carrying amount as of June 30, 2018 | 71,667 | (625 | ) |
19 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
6. | Loans (continued) |
The allowance for expected credit losses relating to loans at amortized cost are as follows:
Stage 1 (1) | Stage 2 (2) | Stage 3 (3) | Total | |||||||||||||
Allowance for expected credit losses as of December 31, 2018 | 34,957 | 16,389 | 49,439 | 100,785 | ||||||||||||
Transfer to lifetime expected credit losses | (805 | ) | 805 | - | - | |||||||||||
Transfer to credit-impaired financial instruments | - | (2,743 | ) | 2,743 | - | |||||||||||
Transfer to 12-month expected credit losses | - | - | - | - | ||||||||||||
Net effect of changes in allowance for expected credit losses | (948 | ) | 2,856 | 7,585 | 9,493 | |||||||||||
Financial instruments that have been derecognized during the period | (20,778 | ) | (5,285 | ) | - | (26,063 | ) | |||||||||
New financial assets originated or purchased | 19,049 | - | - | 19,049 | ||||||||||||
Write-offs | - | - | - | - | ||||||||||||
Recoveries | - | - | 19 | 19 | ||||||||||||
Allowance for expected credit losses as of June 30, 2019 | 31,475 | 12,022 | 59,786 | 103,283 |
Stage 1 (1) | Stage 2 (2) | Stage 3 (3) | Total | |||||||||||||
Allowance for expected credit losses as of December 31, 2017 | 19,821 | 33,477 | 27,996 | 81,294 | ||||||||||||
Transfer to lifetime expected credit losses | (514 | ) | 514 | - | - | |||||||||||
Transfer to credit-impaired financial instruments | (111 | ) | (7,864 | ) | 7,975 | - | ||||||||||
Transfer to 12-month expected credit losses | 4,471 | (4,471 | ) | - | - | |||||||||||
Net effect of changes in reserve for expected credit losses | (4,665 | ) | 5,823 | 55,153 | 56,311 | |||||||||||
Financial instruments that have been derecognized during the year | (16,400 | ) | (11,090 | ) | - | (27,490 | ) | |||||||||
New financial assets originated or purchased | 32,355 | - | - | 32,355 | ||||||||||||
Write-offs | - | - | (41,686 | ) | (41,686 | ) | ||||||||||
Recoveries | - | - | 1 | 1 | ||||||||||||
Allowance for expected credit losses as of December 31, 2018 | 34,957 | 16,389 | 49,439 | 100,785 |
(1) | 12-month expected credit losses. |
(2) | Lifetime expected credit losses. |
(3) | Credit-impaired financial assets (lifetime expected credit losses). |
20 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
7. | Loan commitments and financial guarantee contracts |
In the normal course of business, to meet the financing needs of its customers, the Bank is party to loan commitments and financial guarantee contracts. These instruments involve, to varying degrees, elements of credit and market risk in excess of the amount recognized in the consolidated statement of financial position. Credit risk represents the possibility of loss resulting from the failure of a customer to perform in accordance with the terms of a contract.
The Bank’s outstanding loan commitments and financial guarantee contracts are as follows:
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Documentary letters of credit | 203,410 | 218,988 | ||||||
Stand-by letters of credit and guarantees - commercial risk | 258,423 | 179,756 | ||||||
Credit commitments | 105,500 | 103,143 | ||||||
Total loans commitments and financial guarantee contracts | 567,333 | 501,887 |
The remaining maturity profile of the Bank’s outstanding loan commitments and financial guarantee contracts is as follows:
June 30, | December 31, | |||||||
Maturities | 2019 | 2018 | ||||||
Up to 1 year | 474,133 | 434,544 | ||||||
From 1 to 2 years | 13,200 | 200 | ||||||
From 2 to 5 years | 80,000 | 67,143 | ||||||
Total | 567,333 | 501,887 |
Loan commitments and financial guarantee contracts classified by issuer’s credit quality indicators are as follows:
June 30, | December 31, | ||||||||
Rating | 2019 | 2018 | |||||||
1-4 | 203,110 | 94,724 | |||||||
5-6 | 203,637 | 158,864 | |||||||
7 | 160,586 | 248,299 | |||||||
Total | 567,333 | 501,887 |
21 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
7. | Loan commitments and financial guarantee contracts (continued) |
The breakdown of the Bank’s loan commitments and financial guarantee contracts’ exposure by country risk is as follows:
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Country: | ||||||||
Ecuador | 159,634 | 247,225 | ||||||
Costa Rica | 63,533 | 38,598 | ||||||
Colombia | 59,544 | 52,000 | ||||||
Dominican Republic | 57,991 | 16,500 | ||||||
Brazil | 50,000 | 50,000 | ||||||
France | 47,906 | - | ||||||
Mexico | 43,088 | 22,731 | ||||||
Panama | 22,671 | 29,175 | ||||||
Uruguay | 21,007 | 750 | ||||||
Peru | 15,804 | 2,846 | ||||||
Guatemala | 13,578 | 15,293 | ||||||
Switzerland | 10,000 | - | ||||||
Canada | 1,079 | 422 | ||||||
El Salvador | 562 | 824 | ||||||
Bolivia | 546 | 293 | ||||||
Honduras | 390 | 250 | ||||||
Germany | - | 18,000 | ||||||
Argentina | - | 6,980 | ||||||
Total | 567,333 | 501,887 |
Letters of credit, stand-by letters of credit and guarantees
The Bank, on behalf of its client’s base, issues, confirms and advises letters of credit to facilitate foreign trade transactions. When issuing, confirming and advising letters of credit, the Bank adds its own unqualified assurance that the bank will pay upon presentation of complying documents as per the terms and conditions established in the letter of credit. The Bank also issues, confirms and advises stand-by letters of credit and guarantees, which are issued on behalf of institutional clients in connection with financing between its clients and third parties. The Bank applies the same credit policies used in its lending process, and once the commitment is issued, it becomes irrevocable and remains valid until its expiration upon the presentation of complying documents on or before the expiry date.
Credit commitments
Commitments to extend credit are binding legal agreements to lend to clients. Commitments generally have fixed expiration dates or other termination clauses and require payment of a fee to the Bank. As some commitments expire without being drawn on, the total commitment amounts do not necessarily represent future cash requirements.
22 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
7. | Loan commitments and financial guarantee contracts (continued) |
The allowance for expected credit losses relating to loan commitments and financial guarantee contracts is as follows:
Stage 1 (1) | Stage 2 (2) | Stage 3 (3) | Total | |||||||||||||
Allowance for expected credit losses as of December 31, 2018 | 3,089 | 200 | - | 3,289 | ||||||||||||
Transfer to lifetime expected credit losses | - | - | - | - | ||||||||||||
Transfer to credit-impaired financial instruments | - | - | - | - | ||||||||||||
Transfer to 12-month expected credit losses | - | - | - | - | ||||||||||||
Net effect of changes in reserve for expected credit loss | 59 | 194 | - | 253 | ||||||||||||
Financial instruments that have been derecognized during the period | (2,463 | ) | (9 | ) | - | (2,472 | ) | |||||||||
New instruments originated or purchased | 1,484 | - | - | 1,484 | ||||||||||||
Allowance for expected credit losses as of June 30, 2019 | 2,169 | 385 | - | 2,554 |
Stage 1 (1) | Stage 2 (2) | Stage 3 (3) | Total | |||||||||||||
Allowance for expected credit losses as of December 31, 2017 | 1,358 | 5,487 | - | 6,845 | ||||||||||||
Transfer to lifetime expected credit losses | (31 | ) | 31 | - | - | |||||||||||
Transfer to credit-impaired financial instruments | - | - | - | - | ||||||||||||
Transfer to 12-month expected credit losses | - | - | - | - | ||||||||||||
Net effect of changes in reserve for expected credit loss | 13 | 169 | - | 182 | ||||||||||||
Financial instruments that have been derecognized during the year | (1,179 | ) | (5,487 | ) | - | (6,666 | ) | |||||||||
New instruments originated or purchased | 2,928 | - | - | 2,928 | ||||||||||||
Allowance for expected credit losses as of December 31, 2018 | 3,089 | 200 | - | 3,289 |
(1) | 12-month expected credit losses. |
(2) | Lifetime expected credit losses. |
(3) | Credit-impaired financial assets (lifetime expected credit losses). |
The allowance for expected credit losses on loan commitments and financial guarantee contracts reflects the Bank’s management estimate of expected credit losses items such as: confirmed letters of credit, stand-by letters of credit, guarantees and credit commitments.
23 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
8. | Impairment loss on financial instruments, net |
The following table sets forth the details for the loss on financial instrument recognized in the consolidated statements of profit or loss:
Three months ended June 30 | ||||||||
2019 | 2018 | |||||||
Gain in derivative financial instruments and changes in foreign currency, net | 13 | (516 | ) | |||||
Gain (loss) in financial instruments at fair value through profit or loss | (4 | ) | (280 | ) | ||||
Gain realized in financial instruments at fair value with changes in other comprehensive income | 54 | - | ||||||
(Loss) gain on sale of loans | - | - | ||||||
63 | (796 | ) |
Six months ended June 30 | ||||||||
2019 | 2018 | |||||||
Gain in derivative financial instruments and changes in foreign currency, net | 283 | 1,150 | ||||||
Gain (loss) in financial instruments at fair value through profit or loss | 373 | (342 | ) | |||||
Gain realized in financial instruments at fair value with changes in other comprehensive income | 163 | - | ||||||
(Loss) gain on sale of loans | - | (625 | ) | |||||
819 | 183 |
24 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
9. | Derivative financial instruments |
Quantitative information on derivative financial instruments is as follows:
June 30, 2019 | ||||||||||||||||
Nominal | Carrying amount of the hedging instrument | Changes in fair value used for calculating hedge | ||||||||||||||
Amount | Asset | Liability | ineffectiveness | |||||||||||||
Fair value hedges: | ||||||||||||||||
Interest rate swaps | 447,167 | 153 | (2,854 | ) | 3,325 | |||||||||||
Cross-currency swaps | 147,991 | 628 | (6,841 | ) | 8,527 | |||||||||||
Cash flow hedges: | ||||||||||||||||
Interest rate swaps | 278,000 | - | (1,559 | ) | 1,204 | |||||||||||
Cross-currency swaps | 23,025 | - | (1,553 | ) | (169 | ) | ||||||||||
Foreign exchange forwards | 175,769 | 616 | (7,978 | ) | (994 | ) | ||||||||||
Net investment hedges: | ||||||||||||||||
Foreign exchange forwards | 5,752 | - | (16 | ) | (62 | ) | ||||||||||
Total | 1,077,704 | 1,397 | (20,801 | ) | 11,831 |
December 31, 2018 | ||||||||||||||||
Nominal | Carrying amount of the hedging instrument | Changes in fair value used for calculating hedge | ||||||||||||||
Amount | Asset | Liability | ineffectiveness | |||||||||||||
Fair value hedges: | ||||||||||||||||
Interest rate swaps | 433,500 | 108 | (6,134 | ) | (1,666 | ) | ||||||||||
Cross-currency swaps | 226,757 | 1,134 | (15,994 | ) | 11,676 | |||||||||||
Cash flow hedges: | ||||||||||||||||
Interest rate swaps | 460,000 | 513 | (3,276 | ) | (2,462 | ) | ||||||||||
Cross-currency swaps | 23,025 | - | (1,384 | ) | (2,263 | ) | ||||||||||
Foreign exchange forwards | 176,311 | 933 | (7,177 | ) | (14,854 | ) | ||||||||||
Net investment hedges: | ||||||||||||||||
Foreign exchange forwards | 6,183 | - | (78 | ) | (128 | ) | ||||||||||
Total | 1,325,776 | 2,688 | (34,043 | ) | (9,697 | ) |
The hedging instruments detailed in the tables above are presented in the consolidated statement of financial position as derivative financial instruments - assets or derivative financial instruments - liabilities.
25 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
9. | Derivative financial instruments (continued) |
The gains and losses resulting from activities of hedging derivative financial instruments recognized in the consolidated statements of profit or loss are presented below:
Three months ended June 30, 2019 | ||||||||||||||
Gain (loss) recognized in OCI (effective portion) | Classification of gain (loss) | Gain (loss) reclassified from OCI to profit or loss | Gain (loss) recognized on derivatives (ineffective portion) | |||||||||||
Derivatives – cash flow hedges | ||||||||||||||
Interest rate swaps | 1,138 | Gain (loss) on interest rate swaps | - | - | ||||||||||
Cross-currency swaps | 311 | Gain on financial instruments, net | - | - | ||||||||||
Interest income – loans | (498 | ) | - | |||||||||||
Foreign exchange forwards | 608 | Interest expenses – deposits | (525 | ) | - | |||||||||
Gain on financial instruments, net | (309 | ) | - | |||||||||||
Total | 2,057 | (1,332 | ) | - | ||||||||||
Derivatives – net investment hedge | ||||||||||||||
Foreign exchange forwards | 128 | |||||||||||||
Total | 128 |
26 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
9. | Derivative financial instruments (continued) |
Six months ended June 30, 2019 | ||||||||||||||
Gain (loss) recognized in OCI (effective portion) | Classification of gain (loss) | Gain (loss) reclassified from OCI to profit or loss | Gain (loss) recognized on derivatives (ineffective portion) | |||||||||||
Derivatives – cash flow hedges | ||||||||||||||
Interest rate swaps | 1,948 | Gain (loss) on interest rate swaps | - | - | ||||||||||
Cross-currency swaps | 166 | Gain on financial instruments, net | - | - | ||||||||||
Interest income – loans | (527 | ) | - | |||||||||||
Foreign exchange forwards | 1,744 | Interest expenses – deposits | (1,045 | ) | - | |||||||||
Gain on financial instruments, net | (170 | ) | - | |||||||||||
Total | 3,858 | (1,402 | ) | - | ||||||||||
Derivatives – net investment hedge | ||||||||||||||
Foreign exchange forwards | 123 | |||||||||||||
Total | 123 |
27 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
9. | Derivative financial instruments (continued) |
Three months ended June 30, 2018 | ||||||||||||||
Gain (loss) recognized in OCI (effective portion) | Classification of gain (loss) | Gain (loss) reclassified from OCI to profit or loss | Gain (loss) recognized on derivatives (ineffective portion) | |||||||||||
Derivatives – cash flow hedge | ||||||||||||||
Interest rate swaps | (468 | ) | Gain (loss) on interest rate swaps | - | - | |||||||||
Cross-currency swaps | 856 | Gain on financial instruments, net | - | - | ||||||||||
Interest income – loans | 746 | - | ||||||||||||
Foreign exchange forwards | 9,923 | Interest expenses – deposits | 1,117 | - | ||||||||||
Gain on financial instruments, net | 642 | - | ||||||||||||
Total | 10,311 | 2,505 | - | |||||||||||
Derivatives – net investment hedge | ||||||||||||||
Foreign exchange forwards | (928 | ) | ||||||||||||
Total | (928 | ) |
28 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
9. | Derivative financial instruments (continued) |
Six months ended June 30, 2018 | ||||||||||||||
Gain (loss) recognized in OCI (effective portion) | Classification of gain (loss) | Gain (loss) reclassified from OCI to profit or loss | Gain (loss) recognized on derivatives (ineffective portion) | |||||||||||
Derivatives – cash flow hedge | ||||||||||||||
Interest rate swaps | (2,011 | ) | Gain (loss) on interest rate swaps | - | - | |||||||||
Cross-currency swaps | 1,040 | Gain on financial instruments, net | - | 4 | ||||||||||
Interest income – loans | 1,164 | - | ||||||||||||
Foreign exchange forwards | 7,298 | Interest expenses – deposits | 2,227 | - | ||||||||||
Gain on financial instruments, net | (2,732 | ) | - | |||||||||||
Total | (6,327 | ) | 659 | 4 | ||||||||||
Derivatives – net investment hedge | ||||||||||||||
Foreign exchange forwards | (919 | ) | ||||||||||||
Total | (919 | ) |
29 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
9. | Derivative financial instruments (continued) |
For the agreements qualifying as fair value hedge, the Bank recognized the gain or loss on the derivative financial instruments and the gain or loss of the hedged asset or liability in profit or loss as follows:
June 30, 2019 | ||||||||||||||
Classification in consolidated statement of profit or loss | Gain (loss) on derivatives | Gain (loss) on hedged item | Net gain (loss) | |||||||||||
Derivatives – fair value hedge | ||||||||||||||
Interest rate swaps | Interest income – securities FVOCI | 23 | 208 | 231 | ||||||||||
Interest income – loans | (9 | ) | 1,703 | 1,694 | ||||||||||
Interest expenses – borrowings and debt | (1,937 | ) | (6,154 | ) | (8,091 | ) | ||||||||
Gain on financial instruments, net | (435 | ) | 283 | (152 | ) | |||||||||
Cross-currency swaps | Interest income – loans | (251 | ) | 608 | 357 | |||||||||
Interest expenses – borrowings and debt | (959 | ) | (3,264 | ) | (4,223 | ) | ||||||||
Gain on financial instruments, net | (5,003 | ) | 4,203 | (800 | ) | |||||||||
Total | (8,571 | ) | (2,413 | ) | (10,984 | ) |
June 30, 2018 | ||||||||||||||
Classification in consolidated statement of profit or loss | Gain (loss) on derivatives | Gain (loss) on hedged item | Net gain (loss) | |||||||||||
Derivatives – fair value hedge | ||||||||||||||
Interest rate swaps | Interest income – securities FVOCI | (21 | ) | 194 | 173 | |||||||||
Interest income – loans | (14 | ) | 160 | 146 | ||||||||||
Interest expenses – borrowings and debt | (555 | ) | (6,099 | ) | (6,654 | ) | ||||||||
Gain on financial instruments, net | (3,425 | ) | 3,262 | (163 | ) | |||||||||
Cross-currency swaps | Interest income – loans | (488 | ) | 936 | 448 | |||||||||
Interest expenses – borrowings and debt | 98 | (4,535 | ) | (4,437 | ) | |||||||||
Gain on financial instruments, net | (1,172 | ) | 2,312 | 1,140 | ||||||||||
Total | (5,577 | ) | (3,770 | ) | (9,347 | ) |
30 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
9. | Derivative financial instruments (continued) |
Derivatives financial position and performance
The following tables detail the changes of fair value of the underlying item in the consolidated statement of financial position related to fair value hedges:
June 30, 2019 | ||||||||||
Fair value hedges | Carrying amount | Accumulated fair value adjustments | Line item in the consolidated statement of financial position | |||||||
Interest rate risk | ||||||||||
Securities at FVOCI | 12,653 | 57 | Securities and other financial instruments, net | |||||||
Loans | 65,251 | 585 | Loans | |||||||
Issuances | 368,784 | (1,216 | ) | Borrowings and debt, net | ||||||
Foreign exchange rate risk and interest rate risk: | ||||||||||
Loans | 9,768 | 72 | Loans | |||||||
Issuances | 130,547 | 5,051 | Borrowings and debt, net |
December 31, 2018 | ||||||||||
Fair value hedges | Carrying amount | Accumulated fair value adjustments | Line item in the consolidated statement of financial position | |||||||
Interest rate risk | ||||||||||
Securities at FVOCI | 12,221 | (527 | ) | Securities and other financial instruments, net | ||||||
Loans | 66,091 | 97 | Loans | |||||||
Issuances | 349,428 | 5,266 | Borrowings and debt, net | |||||||
Foreign exchange rate risk and interest rate risk: | ||||||||||
Loans | 10,581 | (1,097 | ) | Loans | ||||||
Issuances | 199,356 | 15,024 | Borrowings and debt, net |
31 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
9. | Derivative financial instruments (continued) |
Derivatives financial position and performance (continued)
The following tables detail the maturity profile of the timing of the nominal amounts of the hedging instruments, by type of risk covered:
June 30, 2019 | ||||||||||||||||
Risk type | Foreign exchange risk | Interest rate risk | Foreign exchange and interest rate risks | Total | ||||||||||||
Up to 1 month | - | - | - | - | ||||||||||||
31 to 60 days | 8,927 | 4,500 | - | 13,427 | ||||||||||||
61 to 90 days | 31,461 | 75,000 | - | 106,461 | ||||||||||||
91 to 180 days | 23,784 | 80,000 | - | 103,784 | ||||||||||||
181 to 365 days | 13,375 | 463,000 | - | 476,375 | ||||||||||||
1 to 2 years | 7,252 | 69,667 | 23,025 | 99,944 | ||||||||||||
2 to 5 years | 96,722 | 33,000 | 147,991 | 277,713 | ||||||||||||
More than 5 years | - | - | - | - | ||||||||||||
Total | 181,521 | 725,167 | 171,016 | 1,077,704 |
December 31, 2018 | ||||||||||||||||
Risk type | Foreign exchange risk | Interest rate risk | Foreign exchange and interest rate risks | Total | ||||||||||||
Up to 1 month | 27,458 | - | - | 27,458 | ||||||||||||
31 to 60 days | 16,977 | 115,000 | - | 131,977 | ||||||||||||
61 to 90 days | 6,908 | 50,000 | - | 56,908 | ||||||||||||
91 to 180 days | 27,177 | 17,000 | 146,505 | 190,682 | ||||||||||||
181 to 365 days | 98,813 | 159,500 | - | 258,313 | ||||||||||||
1 to 2 years | 5,161 | 463,000 | 23,025 | 491,186 | ||||||||||||
2 to 5 years | - | 89,000 | 11,484 | 100,484 | ||||||||||||
More than 5 years | - | - | 68,768 | 68,768 | ||||||||||||
Total | 182,494 | 893,500 | 249,782 | 1,325,776 |
Assessment of the sources of ineffectiveness
As part of its hedging operations and according to the type of hedge, the Bank is exposed to the following ineffectiveness factors:
· | Cash flow hedges: Type of hedge used to mitigate the risk of changes in foreign exchange currency rates, as well of changes in interest rate risk that could include volatility in the projected cash flows. The sources of ineffectiveness arise mainly because of the differences in discount rates (OIS - Overnight Index Swap). |
· | Fair value hedges: Type of hedge used to mitigate both interest rate risk and foreign currency risk. The sources of ineffectiveness come mainly from forward rates, discount rates and cross currency basis (cost of the operation). |
32 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
9. | Derivative financial instruments (continued) |
For control purposes, derivative instruments are recorded at their nominal amount in memoranda accounts. Interest rate swaps are made either in a single currency or cross currency for a prescribed period to exchange a series of interest rate flows, which involve fixed for floating interest payments, and vice versa. The Bank also engages in certain foreign exchange forward contracts to serve customers’ transaction needs and to manage foreign currency risk. All such positions are hedged with an offsetting contract for the same currency.
The Bank manages and controls the risks on these foreign exchange trades by establishing counterparty credit limits by customer and by adopting policies that do not allow for open positions in the loan and investment portfolio. The Bank also uses foreign exchange forward contracts to hedge the foreign exchange risk associated with the Bank’s equity investment in a non-U.S. dollar functional currency foreign entity. Derivative and foreign exchange forward instruments negotiated by the Bank are executed mainly over-the-counter (OTC). These contracts are executed between two counterparties that negotiate specific agreement terms, including notional amount, exercise price and maturity.
The maximum length of time over which the Bank has hedged its exposure to the variability in future cash flows on forecasted transactions is 4.7 years.
The Bank recognized the lifetime associated cost of the foreign exchange forward contracts into interest income, in profit or loss, as an adjustment to the yield on hedged items creating an accumulated reserve in OCI, reclassified to profit or loss at their maturity. The Bank estimates that approximately $432 thousand are expected to be reclassified into profit or loss during the twelve-month year ending June 30, 2020.
The Bank recognized the lifetime associated cost of the foreign exchange forward contracts into interest expense, in profit or loss, as an adjustment to the yield on hedge items creating an accumulated reserve in OCI, reclassified to profit or loss at their maturity. The Bank estimates that approximately $3.8 million are expected to be reclassified into profit or loss during the twelve-month year ending June 30, 2020.
Types of Derivatives and Foreign Exchange Instruments
Interest rate swaps are contracts in which a series of interest rate flows in a single currency are exchanged over a prescribed period. The Bank has designated a portion of these derivative instruments as fair value hedges and another portion as cash flow hedges. Cross currency swaps are contracts that generally involve the exchange of both interest and principal amounts in two different currencies. The Bank has designated a portion of these derivative instruments as fair value hedges and another portion as cash flow hedges. Foreign exchange forward contracts represent an agreement to purchase or sell foreign currency at a future date at agreed-upon terms. The Bank has designated these derivative instruments as cash flow hedges and net investment hedges.
33 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
9. | Derivative financial instruments (continued) |
Offsetting of financial assets and liabilities
In the ordinary course of business, the Bank enters into derivative financial instrument transactions and securities sold under repurchase agreements under industry standards agreements. Depending on the collateral requirements stated in the contracts, the Bank and counterparties can receive or deliver collateral based on the fair value of the financial instruments transacted between parties. Collateral typically consists of pledged cash deposits and securities. The master netting agreements include clauses that, in the event of default, provide for close-out netting, which allows all positions with the defaulting counterparty to be terminated and net settled with a single payment amount.
The International Swaps and Derivatives Association master agreement (“ISDA”) and similar master netting arrangements do not meet the criteria for offsetting in the consolidated statement of financial position. This is because they create for the parties to the agreement a right of set-off of recognized amounts that is enforceable only following an event of default, insolvency or bankruptcy of the Bank or the counterparties or following other predetermined events.
The following tables summarize financial assets and liabilities that have been offset in the consolidated statement of financial position or are subject to master netting agreements:
a) | Derivative financial instruments – assets |
June 30, 2019 | ||||||||||||||||||||||||
Gross | Gross
amounts offset in the consolidated statement of | Net
amount of assets presented in the consolidated statement of | Gross
amounts not offset in the consolidated statement of financial position | |||||||||||||||||||||
Description | amounts
of assets | financial position | financial position | Financial instruments | Cash
collateral received | Net Amount | ||||||||||||||||||
Derivative financial instruments used for hedging at fair value | 1,397 | - | 1,397 | - | (1,096 | ) | 301 | |||||||||||||||||
Total | 1,397 | - | 1,397 | - | (1,096 | ) | 301 |
December 31, 2018 | ||||||||||||||||||||||||
Gross | Gross
amounts offset in the consolidated statement of | Net
amount of assets presented in the consolidated statement of | Gross
amounts not offset in the consolidated statement of financial position | |||||||||||||||||||||
Description | amounts
of assets | financial position | financial position | Financial instruments | Cash
collateral received | Net Amount | ||||||||||||||||||
Derivative financial instruments used for hedging at fair value | 2,688 | - | 2,688 | - | (1,496 | ) | 1,192 | |||||||||||||||||
Total | 2,688 | - | 2,688 | - | (1,496 | ) | 1,192 |
34 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
9. | Derivative financial instruments (continued) |
Offsetting of financial assets and liabilities (continued)
b) | Financial liabilities and derivative financial instruments – liabilities |
June 30, 2019 | ||||||||||||||||||||||||
Gross | Gross
amounts offset in the consolidated statement of | Net
amount of liabilities presented in the consolidated | Gross
amounts not offset in the consolidated statement of financial position | |||||||||||||||||||||
Description | amounts
of assets | financial position | statement
of financial | Financial instruments | Cash collateral pledged | Net Amount | ||||||||||||||||||
Derivative financial instruments used for hedging at fair value | 20,801 | - | 20,801 | - | (23,394 | ) | (2,593 | ) | ||||||||||||||||
Total | 20,801 | - | 20,801 | - | (23,394 | ) | (2,593 | ) |
December 31, 2018 | ||||||||||||||||||||||||
Gross | Gross
amounts offset in the consolidated statement of | Net
amount of liabilities presented in the consolidated statement of | Gross
amounts not offset in the consolidated statement of financial position | |||||||||||||||||||||
Description | amounts
of liabilities | financial position | financial position | Financial instruments | Cash collateral pledged | Net Amount | ||||||||||||||||||
Derivative financial instruments used for hedging at fair value | 34,043 | - | 34,043 | - | (35,960 | ) | (1,917 | ) | ||||||||||||||||
Total | 34,043 | - | 34,043 | - | (35,960 | ) | (1,917 | ) |
35 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
10. | Equipment and leasehold improvements |
Leases
In accordance with the accounting policy described in note 3.1, the Bank has applied IFRS 16, under the modified retrospective method. The following is the detail of the equipment and improvements to the leased property that comprise properties and leased assets that do not meet the definition of investment property:
June 30, 2019 | December 31, 2019 | |||||||
Equipment and leasehold improvements, net | 6,104 | 6,686 | ||||||
Right-of-use assets | 16,409 | - | ||||||
23,153 | 6,686 |
Following is the movement of right-of-use assets on the leases for which the Bank is a lessee:
Building | ||||
Balance at January 1, 2019 | 17,125 | |||
Increase due to revaluation of assets by right of use | 8 | |||
Depreciation by right-of-use property | (724 | ) | ||
Balance al June 30, 2019 | 16,409 |
The Bank leases buildings for its offices. The lease of offices spaces typically run for a period of 15 years, and the representative offices for 3 to 5 years. Some leases include an option to renew the lease for an additional period of the same duration after the end of the contract term.
The Bank sub-leases some of its properties under operating leases.
11. | Other assets |
Following is a summary of other assets
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Accounts receivable (1) | 2,983 | 13,333 | ||||||
Interest receivable - deposits | 35 | 281 | ||||||
IT projects under development | 665 | 357 | ||||||
Other | 4,662 | 3,003 | ||||||
8,345 | 16,974 |
(1) | As of December 31, 2018, the sale of financial assets was executed for $12.4 million and related payment was received in January 2019. |
36 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
12. | Deposits |
The maturity profile of the Bank’s deposits, excluding interest payable, is as follows:
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Demand | 69,655 | 211,381 | ||||||
Up to 1 month | 1,280,921 | 1,192,252 | ||||||
From 1 month to 3 months | 672,304 | 412,638 | ||||||
From 3 months to 6 months | 757,686 | 533,135 | ||||||
From 6 months to 1 year | 143,191 | 462,156 | ||||||
From 1 year to 2 years | 2,029 | 70,047 | ||||||
From 2 years to 5 years | 88,702 | 89,213 | ||||||
3,014,488 | 2,970,822 |
13. | Securities sold under repurchase agreements |
As of June 30, 2019, and December 31, 2018, the Bank has financing transactions under repurchase agreements for $28.2 million and $39.8 million, respectively.
During the period ended June 30, 2019 and 2018, $509 thousand and $291 thousand was recorded corresponding to interest expenses generated by financing agreements under repurchase agreements. These expenses are included as interest expense – borrowings and debt line in profit or loss.
14. | Borrowings and debt |
Borrowings and debt are detailed as follows:
June 30, 2019 | ||||||||||||||||||||||||||||
Short-Term | Long-term | |||||||||||||||||||||||||||
Carring amount | Borrowings | Debt | Lease Liabilities | Borrowings | Debt | Lease Liabilities | Total | |||||||||||||||||||||
Principals | 1,046,005 | 80,340 | 1,095 | 722,136 | 538,984 | 19,127 | 2,407,687 | |||||||||||||||||||||
Prepaid commissions | - | - | - | (2,067 | ) | (469 | ) | - | (2,536 | ) | ||||||||||||||||||
1,046,005 | 80,340 | 1,095 | 720,069 | 538,515 | 19,127 | 2,405,151 |
December 31, 2018 | ||||||||||||||||||||||||||||
Short-Term | Long-term | |||||||||||||||||||||||||||
Carring amount | Borrowings | Debt | Lease Liabilities | Borrowings | Debt | Lease Liabilities | Total | |||||||||||||||||||||
Principals | 1,975,174 | 45,930 | - | 886,384 | 614,505 | - | 3,521,993 | |||||||||||||||||||||
Prepaid commissions | - | - | - | (2,790 | ) | (757 | ) | - | (3,547 | ) | ||||||||||||||||||
1,975,174 | 45,930 | - | 883,594 | 613,748 | - | 3,518,446 |
37 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
14. | Borrowings and debt (continued) |
Short-term borrowings and debt
The breakdown of short-term (original maturity of less than one year) borrowings and debt, along with contractual interest rates, is as follows:
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Short-term borrowings: | ||||||||
At fixed interest rates | 325,000 | 695,500 | ||||||
At floating interest rates | 721,005 | 1,279,674 | ||||||
Total borrowings | 1,046,005 | 1,975,174 | ||||||
Short-term debt: | ||||||||
At fixed interest rates | 10,000 | 2,700 | ||||||
At floating interest rates | 70,340 | 43,230 | ||||||
Total debt | 80,340 | 45,930 | ||||||
Total short-term borrowings and debt | 1,126,345 | 2,021,104 | ||||||
Average outstanding balance during the period | 1,172,622 | 1,095,530 | ||||||
Maximum balance at any month-end | 1,437,837 | 2,021,104 | ||||||
Range of fixed interest rates on borrowings and debt in U.S. dollars | 2.65% to 3.30% | 2.74% to 3.30% | ||||||
Range of floating interest rates on borrowings in U.S. dollars | 2.74% to 3.11% | 2.72% to 3.41% | ||||||
Range of fixed interest rates on borrowings in Mexican pesos | - | - | ||||||
Range of floating interest rate on borrowings in Mexican pesos | 8.80% to 9.31% | 8.49% to 9.39% | ||||||
Weighted average interest rate at end of the period | 3.86% | 3.18% | ||||||
Weighted average interest rate during the period | 3.65% | 3.00% |
The outstanding balances of short-term borrowings and debt by currency, are as follows:
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Currency | ||||||||
US dollar | 982,800 | 1,926,000 | ||||||
Mexican peso | 143,545 | 95,104 | ||||||
Total | 1,126,345 | 2,021,104 |
38 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
14. | Borrowings and debt (continued) |
Long-term borrowings and debt
Borrowings consist of long-term and syndicated loans obtained from international banks. Debt instruments consist of public and private issuances under the Bank's Euro Medium Term Notes Program (“EMTN”) as well as public issuances in the Mexican and Japanese markets. The breakdown of borrowings and long-term debt (original maturity of more than one year), along with contractual interest rates, plus prepaid commissions as of June 30, 2019 and December 31, 2018, respectively, are as follows:
Long-term borrowings: | June 30, 2019 | December 31, 2018 | ||||||
At fixed interest rates with due dates from October 2020 to February 2022 | 59,023 | 63,367 | ||||||
At floating interest rates with due dates from November 2019 to August 2023 | 663,113 | 823,017 | ||||||
Total long-term borrowings | 722,136 | 886,384 | ||||||
Long-term debt: | ||||||||
At fixed interest rates with due dates from May 2020 to March 2024 | 503,984 | 503,229 | ||||||
At floating interest rates with due dates from March 2022 to June 2023 | 35,000 | 111,276 | ||||||
Total long-term debt | 538,984 | 614,505 | ||||||
Total long-term borrowings and debt | 1,261,120 | 1,500,889 | ||||||
Less: Prepaid commissions | (2,536 | ) | (3,547 | ) | ||||
Total long-term borrowings and debt, net | 1,258,584 | 1,497,342 | ||||||
Net average outstanding balance during the period | 1,326,965 | 1,244,619 | ||||||
Maximum outstanding balance at any month – end | 1,390,093 | 1,500,889 | ||||||
Range of fixed interest rates on borrowings and debt in U.S. dollars | 2.85% to 3.25% | 2.25% to 3.25% | ||||||
Range of floating interest rates on borrowings and debt in U.S. dollars | 3.07% to 4.07% | 3.26% to 4.46% | ||||||
Range of fixed interest rates on borrowings in Mexican pesos | 5.45% to 9.09% | 5.25% to 9.09% | ||||||
Range of floating interest rates on borrowings and debt in Mexican pesos | 9.68% to 9.69% | 9.19% to 9.71% | ||||||
Range of fixed interest rates on debt in Japanese yens | 0.46% to 0.52% | 0.46% | ||||||
Range of fixed interest rates on debt in Euros | 3.75% | 3.75% | ||||||
Range of fixed interest rates on debt in Australian dollars | 3.33% | 3.33% | ||||||
Weighted average interest rate at the end of the period | 4.21% | 4.35% | ||||||
Weighted average interest rate during the period | 4.37% | 4.09% |
39 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
14. | Borrowings and debt (continued) |
Long-term borrowings and debt (continued)
The balances of long-term borrowings and debt by currency, excluding prepaid commissions, are as follows (excluded a lease liabilities)
June 30, 2019 | December 31, 2018 | |||||||
Currency | ||||||||
US dollar | 1,091,576 | 1,203,101 | ||||||
Mexican peso | 19,010 | 143,661 | ||||||
Japanese yen | 68,574 | 72,670 | ||||||
Euro | 60,898 | 60,315 | ||||||
Australian dollar | 21,062 | 21,142 | ||||||
Total | 1,261,120 | 1,500,889 |
The Bank's funding activities include: (i) EMTN, which may be used to issue notes for up to $2.3 billion, with maturities from 7 days up to a maximum of 30 years, at fixed or floating interest rates, or at discount, and in various currencies. The notes are generally issued in bearer or registered form through one or more authorized financial institutions; (ii) Short-and Long-Term Notes (“Certificados Bursatiles”) Program (the “Mexican Program”) in the Mexican local market, registered with the Mexican National Registry of Securities administered by the National Banking and Securities Commission in Mexico (“CNBV”, for its acronym in Spanish), for an authorized aggregate principal amount of 10 billion Mexican pesos with maturities from one day to 30 years.
Some borrowing agreements include various events of default and covenants related to minimum capital adequacy ratios, incurrence of additional liens, and asset sales, as well as other customary covenants, representations and warranties. As of June 30, 2019, the Bank was in compliance with all those covenants.
The future payments of long-term borrowings and debt outstanding as of June 30, 2019, are as follows:
Payments | Outstanding | ||||
2019 | 33,943 | ||||
2020 | 477,636 | ||||
2021 | 495,019 | ||||
2022 | 131,125 | ||||
2023 | 62,500 | ||||
2024 | 60,897 | ||||
1,261,120 |
40 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
14. | Borrowings and debt (continued) |
Long-term borrowings and debt (continued)
Reconciliation of movements of borrowings and debt arising from financing activities of consolidated statements of cash flows:
Borrowings and debt, net as at January 1, 2017 | 2,211,567 | |||
Net increase (decrease) in short-term borrowings and debt | (23,065 | ) | ||
Proceeds from long-term borrowings and debt | 160,174 | |||
Repayments of long-term borrowings and debt | (126,172 | ) | ||
Change in foreign currency | (6,519 | ) | ||
Adjustment of fair value for hedge accounting relationship | 3,278 | |||
Other adjustments | (1,121 | ) | ||
Borrowings and debt, net as at June 30, 2018 | 2,218,142 |
Borrowings and debt, net as at December 31, 2018 | 3,518,446 | |||
Net increase (decrease) in short-term borrowings and debt | (897,407 | ) | ||
Proceeds from long-term borrowings and debt | 83,636 | |||
Repayments of long-term borrowings and debt | (334,885 | ) | ||
Payment of lease liabilities | (512 | ) | ||
Proceeds from lease liabilities | 20,734 | |||
Change in foreign currency | 8,719 | |||
Adjustment of fair value for hedge accounting relationship | 5,182 | |||
Other adjustments | 1,238 | |||
Borrowings and debt, net as at June 30, 2019 | 2,405,151 |
41 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
14. | Borrowings and debt (continued) |
Long-term borrowings and debt (continued)
Lease liabilities
Maturity analysis contractual undiscounted cash flows of the lease liability is detailed below:
June 30, 2019 | ||||
Due within 1 year | 2,022 | |||
After 1 year but within 5 years | 8,510 | |||
After 5 years but within 10 years | 16,546 | |||
Total undiscounted lease liabilities | 27,078 | |||
Short-term | 1,096 | |||
Long-term | 19,127 | |||
Lease liabilities included in the statement of financial position at June 30 | 20,222 |
Amounts recognized in the statement of cash flows
June 30, 2019 | ||||
Cash outflow for leases | 996 |
Amounts recognized in profit or loss
Three months ended | ||||
June 30, 2019 | ||||
Interest on lease liabilities | (239 | ) | ||
Income from sub-leasing right-of-use assets | 75 |
Six months ended | ||||
June 30, 2019 | ||||
Interest on lease liabilities | (482 | ) | ||
Income from sub-leasing right-of-use assets | 150 |
42 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
15. | Earnings per share |
The following table presents a reconciliation of profit and share data used in the basic and diluted earnings per share (“EPS”) computations for the dates indicated:
Three months ended June 30 | ||||||||
2019 | 2018 | |||||||
(Thousands of U.S. dollars) | ||||||||
Profit for the period | 22,272 | 16,626 | ||||||
(U.S. dollars) | ||||||||
Basic earnings per share | 0.56 | 0.42 | ||||||
Diluted earnings per share | 0.56 | 0.42 | ||||||
(Thousands of shares) | ||||||||
Weighted average of common shares outstanding applicable to basic EPS | 39,553 | 39,626 | ||||||
Effect of diluted securities: | ||||||||
Stock options and restricted stock units plan | - | 25 | ||||||
Adjusted weighted average of common shares outstanding applicable to diluted EPS | 39,553 | 39,651 |
Six months ended June 30 | ||||||||
2019 | 2018 | |||||||
(Thousands of U.S. dollars) | ||||||||
Profit for the period | 43,517 | 31,124 | ||||||
(U.S. dollars) | ||||||||
Basic earnings per share | 1.10 | 0.79 | ||||||
Diluted earnings per share | 1.10 | 0.79 | ||||||
(Thousands of shares) | ||||||||
Weighted average of common shares outstanding applicable to basic EPS | 39,548 | 39,547 | ||||||
Effect of diluted securities: | ||||||||
Stock options and restricted stock units plan | - | 25 | ||||||
Adjusted weighted average of common shares outstanding applicable to diluted EPS | 39,548 | 39,572 |
43 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
16. | Other comprehensive income |
The breakdown of other comprehensive income (loss) relating to financial instruments at FVOCI, derivative financial instruments, and foreign currency translation is as follows:
Financial instruments at FVOCI | Derivative financial instruments | Foreign currency translation adjustment | Total | |||||||||||||
Balance as of January 1, 2018 | (385 | ) | 858 | 1,490 | 1,963 | |||||||||||
Change in fair value of financial instruments, net of hedging | (168 | ) | 251 | - | 83 | |||||||||||
Change in fair value of equity instruments at FVOCI, net of hedging | (3,379 | ) | 860 | - | (2,519 | ) | ||||||||||
Reclassification of gains (losses) on financial instruments to the profit or loss (1) | (38 | ) | 2,732 | - | 2,694 | |||||||||||
Exchange difference in conversion of foreign currency operation | - | - | (137 | ) | (137 | ) | ||||||||||
Other comprehensive income (loss) for the period | (3,585 | ) | 3,843 | (137 | ) | 121 | ||||||||||
Balance as of June 30, 2018 | (3,970 | ) | 4,701 | 1,353 | 2,084 | |||||||||||
Balance as of January 1, 2019 | (1,264 | ) | 1,477 | 207 | 420 | |||||||||||
Change in fair value of financial instruments, net of hedging | 271 | (2,935 | ) | - | (2,664 | ) | ||||||||||
Change in fair value of equity instruments at FVOCI, net of hedging | (608 | ) | - | - | (608 | ) | ||||||||||
Reclassification of gains (losses) on financial instruments to the profit or loss (1) | 168 | 170 | - | 338 | ||||||||||||
Exchange difference in conversion of foreign currency operation | - | - | (99 | ) | (99 | ) | ||||||||||
Other comprehensive income (loss) for the period | (169 | ) | (2,765 | ) | (99 | ) | (3,033 | ) | ||||||||
Balance as of June 30, 2019 | (1,433 | ) | (1,288 | ) | 108 | (2,613 | ) |
(1) Reclassification adjustments include amounts recognized in profit or loss of the year that had been part of other comprehensive income in this and previous years.
44 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
16. | Other comprehensive income (continued) |
The following table presents amounts reclassified from other comprehensive income to profit or loss:
Three months ended June 30, 2019 | ||||||
Details about other comprehensive income components | Amount reclassified from other comprehensive income | Affected line item in the consolidated statement of profit or loss | ||||
Realized gains (losses) on securities at FVOCI: | 72 | Gain on financial instruments, net | ||||
Gains (losses) on derivative financial instruments: | ||||||
Foreign exchange forwards | (498 | ) | Interest income – loans | |||
(525 | ) | Interest expense – borrowings and deposits | ||||
(309 | ) | Gain on financial instruments, net | ||||
Interest rate swaps | - | Gain on financial instruments, net | ||||
Cross-currency swaps | - | Gain on financial instruments, net | ||||
(1,332 | ) |
Six months ended June 30, 2019 | ||||||
Details about other comprehensive income components | Amount reclassified from other comprehensive income | Affected line item in the consolidated statement of profit or loss | ||||
Realized gains (losses) on securities at FVOCI: | 168 | Gain on financial instruments, net | ||||
Gains (losses) on derivative financial instruments: | ||||||
Foreign exchange forwards | (527 | ) | Interest income – loans | |||
(1,045 | ) | Interest expense – borrowings and deposits | ||||
170 | Gain on financial instruments, net | |||||
Interest rate swaps | - | Gain on financial instruments, net | ||||
Cross-currency swaps | - | Gain on financial instruments, net | ||||
(1,402 | ) |
45 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
16. | Other comprehensive income (continued) |
Three months ended June 30, 2018 | ||||||
Details about other comprehensive income components | Amount reclassified from other comprehensive income | Affected line item in the consolidated statement of profit or loss | ||||
Realized gains (losses) on securities at FVOCI: | 41 | Gain on financial instruments, net | ||||
Gains (losses) on derivative financial instruments: | ||||||
Foreign exchange forwards | (746 | ) | Interest income – loans | |||
(1,116 | ) | Interest expense – borrowings and deposits | ||||
288 | Gain on financial instruments, net | |||||
Interest rate swaps | - | Gain on financial instruments, net | ||||
Cross-currency swaps | - | Gain on financial instruments, net | ||||
(1,574 | ) |
Six months ended June 30, 2018 | ||||||
Details about other comprehensive income components | Amount reclassified from other comprehensive income | Affected line item in the consolidated statement of profit or loss | ||||
Realized gains (losses) on securities at FVOCI: | 38 | Gain on financial instruments, net | ||||
Gains (losses) on derivative financial instruments: | ||||||
Foreign exchange forwards | (1,164 | ) | Interest income – loans | |||
(2,227 | ) | Interest expense – borrowings and deposits | ||||
667 | Gain on financial instruments, net | |||||
Interest rate swaps | (8 | ) | Gain on financial instruments, net | |||
Cross-currency swaps | - | Gain on financial instruments, net | ||||
(2,732 | ) |
46 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
17. | Fees and commission income |
Fees and commission income from contracts with customers broken down by main types of services according to the scope of IFRS 15, are detailed below:
Three months ended June 30, 2019 | ||||||||||||||||||||||||
Syndicated loans | Documentary letters of credit | Stand-by letters of credit and guarantees | Credit commitments | Other | Total | |||||||||||||||||||
Openning and confirmation | - | 1,796 | 625 | 200 | - | 2,621 | ||||||||||||||||||
Negotiation and acceptance | - | 61 | - | - | - | 61 | ||||||||||||||||||
Amendment | - | 14 | 3 | - | - | 17 | ||||||||||||||||||
Structuring | 2,437 | - | - | - | - | 2,437 | ||||||||||||||||||
Other | - | (6 | ) | - | - | (2 | ) | (8 | ) | |||||||||||||||
2,437 | 1,865 | 628 | 200 | (2 | ) | 5,128 |
Six months ended June 30, 2019 | ||||||||||||||||||||||||
Syndicated loans | Documentary letters of credit | Stand-by letter of credit and guarantees | Credit commitments | Others | Total | |||||||||||||||||||
Openning and confirmation | - | 3,209 | 1,136 | 407 | - | 4,752 | ||||||||||||||||||
Negotiation and acceptance | - | 224 | - | - | - | 224 | ||||||||||||||||||
Amendment | - | 19 | 14 | - | - | 33 | ||||||||||||||||||
Structuring | 2,437 | - | - | - | - | 2,437 | ||||||||||||||||||
Others | - | (6 | ) | - | - | 38 | 32 | |||||||||||||||||
2,437 | 3,446 | 1,150 | 407 | 38 | 7,478 |
47 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
17. | Fees and commission income (continued) |
Three months ended June 30, 2018 | ||||||||||||||||||||||||
Syndicated loans | Documentary letters of credit | Stand-by letters of credit and guarantees | Credit commitments | Other | Total | |||||||||||||||||||
Openning and confirmation | - | 1,880 | 959 | 136 | - | 2,975 | ||||||||||||||||||
Negotiation and acceptance | - | 28 | - | - | - | 28 | ||||||||||||||||||
Amendment | - | 16 | 6 | - | - | 22 | ||||||||||||||||||
Structuring | 2,011 | - | - | - | - | 2,011 | ||||||||||||||||||
Other | - | - | - | - | (4 | ) | (4 | ) | ||||||||||||||||
2,011 | 1,924 | 965 | 136 | (4 | ) | 5,032 |
Six months ended June 30, 2018 | ||||||||||||||||||||||||
Syndicated loans | Documentary letters of credit | Stand-by letter of credit and guarantees | Credit commitments | Others | Total | |||||||||||||||||||
Openning and confirmation | - | 3,719 | 1,985 | 202 | - | 5,906 | ||||||||||||||||||
Negotiation and acceptance | - | 65 | - | - | - | 65 | ||||||||||||||||||
Amendment | - | 41 | 12 | - | - | 53 | ||||||||||||||||||
Structuring | 2,036 | - | - | - | - | 2,036 | ||||||||||||||||||
Others | - | - | - | - | 31 | 31 | ||||||||||||||||||
2,036 | 3,825 | 1,997 | 202 | 31 | 8,091 |
The following table provides information on the ordinary income that is expected to be recognized on the contracts in force as of June 30, 2019 and December 31, 2018:
Up to 1 year | 1 to 2 years | More than 2 years | Total | |||||||||||||
Ordinary income expected to be recognized on the contracts as of June 30, 2019 | 1,527 | 377 | 580 | 2,484 |
Up to 1 year | 1 to 2 years | More than 2 years | Total | |||||||||||||
Ordinary income expected to be recognized on the contracts as of December 31, 2018 | 1,655 | 377 | 761 | 2,793 |
48 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
18. | Business segment information |
The Bank’s activities are managed and executed in two business segments: Commercial and Treasury. The business segment results are determined based on the Bank’s managerial accounting process as defined by IFRS 8 – Operating Segments, which assigns assets, liabilities, revenue and expense items to each business segment on a systematic basis. The maximum decision-making operating authority of the Bank is represented by the Chief Executive Officer and the Executive Committee, which review the internal management reports for each division at least every six months. Segment profit, as included in the internal management reports is used to measure performance as management believes that this information is the most relevant in evaluating the results of the respective segments relative to other entities that operate within the same industry.
The Bank’s net interest income represents the main driver of profits; therefore, the Bank presents its interest-earning assets by business segment, to give an indication of the size of business generating net interest income. Interest-earning assets also generate gains and losses on sales, mainly from financial instruments at fair value through OCI and financial instruments at fair value through profit or loss, which are included in net other income, in the Treasury Segment. The Bank also discloses its other assets and contingencies by business segment, to give an indication of the size of business that generates net fees and commissions, also included in net other income, in the Commercial Business Segment.
The Commercial Business Segment encompasses the Bank’s core business of financial intermediation and fee generation activities catering to corporations, financial institutions and investors in Latin America. These activities include the origination of bilateral short-term and medium-term loans, structured and syndicated credits, loan commitments, and financial guarantee contracts such as issued and confirmed letters of credit, stand-by letters of credit, guarantees covering commercial risk, and other assets consisting of customers’ liabilities under acceptances.
Profits from the Commercial Business Segment include (i) net interest income from loans; (ii) fees and commissions from the issuance, confirmation and negotiation of letters of credit, guarantees and loan commitments, and through loan structuring and syndication activities; (iii) gain on sale of loans generated through loan intermediation activities, such as sales in the secondary market and distribution in the primary market; (iv) impairment loss on financial instruments; and (v) direct and allocated operating expenses.
The Treasury Business Segment focuses on managing the Bank’s investment portfolio, and the overall structure of its assets and liabilities to achieve more efficient funding and liquidity positions for the Bank, mitigating the traditional financial risks associated with the balance sheet, such as interest rate, liquidity, price and currency risks. Interest-earning assets managed by the Treasury Business Segment include liquidity positions in cash and cash equivalents, and financial instruments related to the investment management activities, consisting of securities at FVOCI and securities at amortized cost. The Treasury Business Segment also manages the Bank’s interest-bearing liabilities, which constitute its funding sources, mainly deposits, short- and long-term borrowings and debt.
Profits from the Treasury Business Segment include net interest income derived from the above mentioned treasury assets and liabilities, and related net other income (net results from derivative financial instruments and foreign currency exchange, gain (loss) per financial instruments at FVTPL, gain (loss) on sale of securities at FVOCI, and other income), recovery or impairment loss on financial instruments, and direct and allocated operating expenses.
49 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
18. | Business segment information (continued) |
The following table provides certain information regarding the Bank’s operations by segment:
Three months ended June 30, 2019 | ||||||||||||
Commercial | Treasury | Total | ||||||||||
Interest income | 65,560 | 4,970 | 70,530 | |||||||||
Interest expense | (192 | ) | (42,407 | ) | (42,599 | ) | ||||||
Inter-segment net interest income | (37,792 | ) | 37,792 | - | ||||||||
Net interest income | 27,576 | 355 | 27,931 | |||||||||
Other income (expense), net | 5,522 | 181 | 5,703 | |||||||||
Total income | 33,098 | 536 | 33,634 | |||||||||
Impairment loss on financial assets | (776 | ) | (35 | ) | (811 | ) | ||||||
Operating expenses | (8,149 | ) | (2,402 | ) | (10,551 | ) | ||||||
Segment profit (loss) | 24,173 | (1,901 | ) | 22,272 |
Six months ended June 30, 2019 | ||||||||||||
Commercial | Treasury | Total | ||||||||||
Interest income | 132,816 | 11,268 | 144,084 | |||||||||
Interest expense | (386 | ) | (87,747 | ) | (88,133 | ) | ||||||
Inter-segment net interest income | (77,066 | ) | 77,066 | - | ||||||||
Net interest income | 55,364 | 587 | 55,951 | |||||||||
Other income (expense), net | 8,120 | 1,634 | 9,754 | |||||||||
Total income | 63,484 | 2,221 | 65,705 | |||||||||
Impairment loss on financial assets | (1,744 | ) | (9 | ) | (1,753 | ) | ||||||
Operating expenses | (15,460 | ) | (4,975 | ) | (20,435 | ) | ||||||
Segment profit (loss) | 46,280 | (2,763 | ) | 43,517 | ||||||||
Segment assets | 5,582,825 | 960,489 | 6,543,314 | |||||||||
Segment liabilities | 73,644 | 5,486,699 | 5,560,343 |
50 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
19. | Business segment information (continued) |
Three months ended June 30, 2018 | ||||||||||||
Commercial | Treasury | Total | ||||||||||
Interest income | 58,029 | 3,890 | 61,919 | |||||||||
Interest expense | (34,030 | ) | (34,030 | ) | ||||||||
Inter-segment net interest income | (30,182 | ) | 30,182 | - | ||||||||
Net interest income | 27,847 | 42 | 27,889 | |||||||||
Other income (expense), net | 5,437 | (671 | ) | 4,766 | ||||||||
Total income | 33,284 | (629 | ) | 32,655 | ||||||||
Impairment loss on financial assets | (1,793 | ) | 22 | (1,771 | ) | |||||||
Impairment loss on non-financial assets | (2,888 | ) | - | (2,888 | ) | |||||||
Operating expenses | (8,806 | ) | (2,564 | ) | (11,370 | ) | ||||||
Segment profit (loss) | 19,797 | (3,171 | ) | 16,626 |
Six months ended June 30, 2018 | ||||||||||||
Commercial | Treasury | Total | ||||||||||
Interest income | 111,919 | 7,437 | 119,356 | |||||||||
Interest expense | - | (64,877 | ) | (64,877 | ) | |||||||
Inter-segment net interest income | (56,962 | ) | 56,962 | - | ||||||||
Net interest income | 54,957 | (478 | ) | 54,479 | ||||||||
Other income (expense), net | 7,988 | 931 | 8,919 | |||||||||
Total income | 62,945 | 453 | 63,398 | |||||||||
Impairment loss on financial assets | (3,749 | ) | 47 | (3,702 | ) | |||||||
Impairment loss on non-financial assets | (2,888 | ) | - | (2,888 | ) | |||||||
Operating expenses | (19,567 | ) | (6,117 | ) | (25,684 | ) | ||||||
Segment profit (loss) | 36,741 | (5,617 | ) | 31,124 | ||||||||
Segment assets | 5,522,843 | 785,683 | 6,308,526 | |||||||||
Segment liabilities | 15,308 | 5,253,161 | 5,268,469 |
51 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
18. | Business segment information (continued) |
Reconciliation on information on reportable segments | ||||||||
Three months ended June 30 | ||||||||
2019 | 2018 | |||||||
Total profit for the period | 22,272 | 16,626 |
Six months ended June 30 | ||||||||
2019 | 2018 | |||||||
Total profit for the period | 43,517 | 31,124 | ||||||
Assets: | ||||||||
Assets from reportable segments | 6,543,314 | 6,308,526 | ||||||
Equipment and leasehold improvements, net - unallocated | 22,513 | 6,958 | ||||||
Intangibles, net - unallocated | 1,417 | 4,790 | ||||||
Other assets - unallocated | 8,309 | 10,800 | ||||||
Unallocated amounts | 32,240 | 22,548 | ||||||
Total assets | 6,575,554 | 6,331,074 | ||||||
Liabilities: | ||||||||
Liabilities from reportable segments | 5,560,343 | 5,268,469 | ||||||
Other liabilities - unallocated | 12,696 | 15,226 | ||||||
Unallocated amounts | 12,696 | 15,226 | ||||||
Total Liabilities | 5,573,039 | 5,283,695 |
52 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
19. | Fair value of financial instruments |
The Bank determines the fair value of its financial instruments using the fair value hierarchy established in IFRS 13 - Fair Value Measurements and Disclosure, which requires the Bank to maximize the use of observable inputs (those that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market information obtained from sources independent of the reporting entity) and to minimize the use of unobservable inputs (those that reflect the reporting entity’s own assumptions about the inputs that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances) when measuring fair value. Fair value is used on a recurring basis to measure assets and liabilities in which fair value is the primary basis of accounting. Additionally, fair value is used on a non-recurring basis to assess assets and liabilities for impairment or for disclosure purposes. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Bank uses some valuation techniques and assumptions when estimating fair value. The Bank applied the following fair value hierarchy:
Level 1 – Assets or liabilities for which an identical instrument is traded in an active market, such as publicly-traded instruments or futures contracts.
Level 2 – Assets or liabilities valued based on observable market data for similar instruments, quoted prices in markets that are not active; or other observable inputs that can be corroborated by observable market data for substantially the full term of the asset or liability.
Level 3 – Assets or liabilities for which significant valuation inputs are not readily observable in the market; instruments measured based on the best available information, which might include some internally-developed data, and considers risk premiums that a market participant would require.
When determining the fair value measurements for assets and liabilities that are required or permitted to be recorded at fair value, the Bank considers the principal or most advantageous market in which it would transact and considers the inputs that market participants would use when pricing the asset or liability. When possible, the Bank uses active markets and observable prices to value identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Bank uses observable market information for similar assets and liabilities. However, certain assets and liabilities are not actively traded in observable markets and the Bank must use alternative valuation techniques to determine the fair value measurement. The frequency of transactions, the size of the bid-ask spread and the size of the investment are factors considered in determining the liquidity of markets and the relevance of observed prices in those markets.
When there has been a significant decrease in the valuation of the financial asset or liability, or in the level of activity for a financial asset or liability, the Bank uses the present value technique which considers market information to determine a representative fair value in usual market conditions.
Recurring valuation:
A description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis, including the general classification of such assets and liabilities under the fair value hierarchy is presented below:
Financial instruments at FVTPL and FVOCI
Financial instruments at FVTPL are carried at fair value, which is based upon quoted prices when available, or if quoted market prices are not available, on discounted expected cash flows using market rates commensurate with the credit quality and maturity of the security.
Financial instruments at FVOCI are carried at fair value, based on quoted market prices when available, or if quoted market prices are not available, based on discounted expected cash flows using market rates commensurate with the credit quality and maturity of the security.
53 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
19. | Fair value of financial instruments (continued) |
Financial instruments at FVTPL and FVOCI (continued)
When quoted prices are available in an active market, financial instruments at FVOCI and financial instruments at FVTPL are classified in level 1 of the fair value hierarchy. If quoted market prices are not available or they are available in markets that are not active, then fair values are estimated based upon quoted prices for similar instruments, or where these are not available, by using internal valuation techniques, principally discounted cash flows models. Such securities are classified within levels 2 and 3 of the fair value hierarchy.
Derivative financial instruments
The valuation techniques and inputs depend on the type of derivative and the nature of the underlying instrument. Exchange-traded derivatives that are valued using quoted prices are classified within level 1 of the fair value hierarchy.
For those derivative contracts without quoted market prices, fair value is based on internal valuation techniques using inputs that are readily observable and that can be validated by information available in the market. The principal technique used to value these instruments is the discounted cash flows model and the key inputs considered in this technique include interest rate yield curves and foreign exchange rates. These derivatives are classified within level 2 of the fair value hierarchy.
The fair value adjustments applied by the Bank to its derivative carrying values include credit valuation adjustments (“CVA”), which are applied to OTC derivative instruments, in which the base valuation generally discounts expected cash flows using the Overnight Index Swap (“OIS”) interest rate curves. Because not all counterparties have the same credit risk as that implied by the relevant OIS curve, a CVA is necessary to incorporate the market view of both, counterparty credit risk and the Bank’s own credit risk, in the valuation.
Own-credit and counterparty CVA is determined using a fair value curve consistent with the Bank’s or counterparty credit rating. The CVA is designed to incorporate a market view of the credit risk inherent in the derivative portfolio. However, most of the Bank’s derivative instruments are negotiated bilateral contracts and are not commonly transferred to third parties. Derivative instruments are normally settled contractually, or if terminated early, are terminated at a value negotiated bilaterally between the counterparties. Therefore, the CVA (both counterparty and own-credit) may not be realized upon a settlement or termination in the normal course of business. In addition, all or a portion of the CVA may be reversed or otherwise adjusted in future periods in the event of changes in the credit risk of the Bank or its counterparties or due to the anticipated termination of the transactions.
54 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
19. | Fair value of financial instruments (continued) |
Financial instruments measured at fair value on a recurring basis by caption on the consolidated statement of financial position using the fair value hierarchy are described below:
June 30, 2019 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets | ||||||||||||||||
Securities and other financial assets: | ||||||||||||||||
Securities at FVOCI - Corporate debt | - | - | - | - | ||||||||||||
Securities at FVOCI - Sovereign debt | - | 16,231 | - | 16,231 | ||||||||||||
Equity instrument at FVOCI | - | 5,785 | - | 5,785 | ||||||||||||
Debt instrument at fair value through profit or loss | - | - | 8,739 | 8,739 | ||||||||||||
Total securities and other financial assets | - | 22,016 | 8,739 | 30,756 | ||||||||||||
Derivative financial instruments - assets: | ||||||||||||||||
Interest rate swaps | - | 153 | - | 153 | ||||||||||||
Cross-currency swaps | - | 628 | - | 628 | ||||||||||||
Foreign exchange forwards | - | 616 | - | 616 | ||||||||||||
Total derivative financial instrument assets | - | 1,397 | - | 1,397 | ||||||||||||
Total assets at fair value | - | 23,414 | 8,739 | 32,153 | ||||||||||||
Liabilities | ||||||||||||||||
Derivative financial instruments - liabilities: | ||||||||||||||||
Interest rate swaps | - | 7,995 | - | 7,995 | ||||||||||||
Cross-currency swaps | - | 8,393 | - | 8,393 | ||||||||||||
Foreign exchange forwards | - | 4,413 | - | 4,413 | ||||||||||||
Total derivative financial instruments - liabilities | - | 20,801 | - | 20,801 | ||||||||||||
Total liabilities at fair value | - | 20,801 | - | 20,801 |
55 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
19. | Fair value of financial instruments (continued) |
December 31, 2018 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets | ||||||||||||||||
Securities and other financial assets: | ||||||||||||||||
Securities at FVOCI - Corporate debt (1) | - | 6,157 | - | 6,157 | ||||||||||||
Securities at FVOCI - Sovereign debt (1) | - | 15,641 | - | 15,641 | ||||||||||||
Equity instrument at FVOCI (1) | - | 6,273 | - | 6,273 | ||||||||||||
Debt instrument at fair value through profit or loss | - | - | 8,750 | 8,750 | ||||||||||||
Total securities and other financial assets | - | 28,071 | 8,750 | 36,821 | ||||||||||||
Derivative financial instruments - assets: | ||||||||||||||||
Interest rate swaps | - | 621 | - | 621 | ||||||||||||
Cross-currency swaps | - | 1,134 | - | 1,134 | ||||||||||||
Foreign exchange forwards | - | 933 | - | 933 | ||||||||||||
Total derivative financial instrument assets | - | 2,688 | - | 2,688 | ||||||||||||
Total assets at fair value | - | 30,759 | 8,750 | 39,509 | ||||||||||||
Liabilities | ||||||||||||||||
Derivative financial instruments - liabilities: | ||||||||||||||||
Interest rate swaps | - | 9,410 | - | 9,410 | ||||||||||||
Cross-currency swaps | - | 17,378 | - | 17,378 | ||||||||||||
Foreign exchange forwards | - | 7,255 | - | 7,255 | ||||||||||||
Total derivative financial instruments - liabilities | - | 34,043 | - | 34,043 | ||||||||||||
Total liabilities at fair value | - | 34,043 | - | 34,043 |
(1) | At December 31, 2018, investment securities and equity instrument at FVOCI for $21.8 million and $6.5 million, respectively; were reclassified from level 1 to level 2 of the fair value hierarchy due to changes in market conditions causing that the quoted prices were no longer active for these financial instruments. |
Fair value calculations are only provided for a limited portion of the Bank’s financial assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparison of fair value information of the Bank and other companies may not be meaningful for comparative analysis.
Non-recurring valuation:
The following methods and inputs were used by the Bank’s management in estimating the fair values of financial instruments whose fair value is not measured on a recurring basis:
Financial instruments with carrying value that approximates fair value
The carrying value of certain financial assets, including cash and due from banks, interest-bearing deposits in banks, customers’ liabilities under acceptances, interest receivable and certain financial liabilities including customer’s demand and time deposits, securities sold under repurchase agreements, interest payable, and acceptances outstanding, due to their short-term nature, is considered to approximate their fair value. These instruments are classified in Level 2.
56 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
19. | Fair value of financial instruments (continued) |
Non-recurring basic (continued)
Securities at amortized cost
The fair value has been estimated upon current market quotations, where available. If quoted market prices are not available, fair value has been estimated based upon quoted prices of similar instruments, or where these are not available, on discounted expected cash flows using market rates commensurate with the credit quality and maturity of the security. These securities are classified in Levels 1 and 2.
Loans
The fair value of the loan portfolio, including impaired loans, is estimated by discounting future cash flows using the current rates at which loans would be made to borrowers with similar credit ratings and for the same remaining maturities, considering the contractual terms in effect as of December 31 of the relevant year. These assets are classified in Levels 2 and 3.
Transfer of financial assets
Gains or losses on sale of loans depend in part on the carrying amount of the financial assets involved in the transfer, and their fair value at the date of transfer. The fair value of these instruments is determined based upon quoted market prices when available or is based on the present value of future expected cash flows using information related to credit losses, prepayment speeds, forward yield curves, and discounted rates commensurate with the risk involved.
Short and long-term borrowings and debt
The fair value of short and long-term borrowings and debt is estimated using discounted future cash flows based on the current incremental borrowing rates for similar types of borrowing arrangements, considering the changes in the Bank’s credit margin. These liabilities are classified in Level 2.
Valuation framework
The Bank has an established control framework for the measurement of fair values, which is independent of front office management, verifying the valuation results of the derivative financial instruments, securities and other financial instrument significantly measured. Specific controls include:
- | Verification of observable pricing |
- | Verification of re – performance of model valuations |
- | A review and approval process for new models and changes to existing models |
- | Annual calibration and back testing of models against observed market transactions |
- | Analysis and evaluation of the significant valuation movements |
- | Review of the significant unobservable inputs, valuation adjustments and changes to the fair value measurement of Level 3 instruments. |
57 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
19. | Fair value of financial instruments (continued) |
The following table provides information on the carrying value and an estimated fair value of the Bank’s financial instruments that are not measured on a recurring basis:
June 30, 2019 | ||||||||||||||||||||
Carrying | Fair | |||||||||||||||||||
value | value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Assets | ||||||||||||||||||||
Cash and deposits on banks | 869,500 | 869,500 | - | 869,500 | - | |||||||||||||||
Securities at amortized cost (1) (3) | 72,950 | 73,064 | - | 61,896 | 11,168 | |||||||||||||||
Loans, net (2) | 5,497,211 | 5,636,228 | - | 5,571,527 | 64,701 | |||||||||||||||
Customers' liabilities under acceptances | 71,091 | 71,091 | - | 71,091 | - | |||||||||||||||
Liabilities | ||||||||||||||||||||
Deposits | 3,014,488 | 3,014,488 | - | 3,014,488 | - | |||||||||||||||
Securities sold under repurchase agreements | 28,231 | 28,231 | - | 28,231 | - | |||||||||||||||
Borrowings and debt, net | 2,405,151 | 2,427,911 | - | 2,427,911 | - | |||||||||||||||
Customers' liabilities under acceptances | 71,091 | 71,091 | - | 71,091 | - | |||||||||||||||
Allowance for expected credit losses on loan commitments and financial guarantee contracts | 2,554 | 2,554 | - | 2,554 | - |
December 31, 2018 | ||||||||||||||||||||
Carrying | Fair | |||||||||||||||||||
value | value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Assets | ||||||||||||||||||||
Cash and deposits on banks | 1,745,652 | 1,745,652 | - | 1,745,652 | - | |||||||||||||||
Securities at amortized cost (1) (3) | 86,326 | 85,036 | - | 73,869 | 11,167 | |||||||||||||||
Loans, net (2) | 5,702,258 | 5,958,540 | - | 5,884,527 | 74,013 | |||||||||||||||
Customers' liabilities under acceptances | 9,696 | 9,696 | - | 9,696 | - | |||||||||||||||
Liabilities | ||||||||||||||||||||
Deposits | 2,982,976 | 2,982,976 | - | 2,982,976 | - | |||||||||||||||
Securities sold under repurchase agreements | 39,767 | 39,767 | - | 39,767 | - | |||||||||||||||
Borrowings and debt, net | 3,518,446 | 3,558,763 | - | 3,558,763 | - | |||||||||||||||
Customers' liabilities under acceptances | 9,696 | 9,696 | - | 9,696 | - | |||||||||||||||
Allowance for expected credit losses on loan commitments and financial guarantee contracts | 3,289 | 3,289 | - | 3,289 | - |
(1) | The carrying value of securities at amortized cost is net of the accrued interest receivable of $0.9 million and the allowance for expected credit losses of $0.1 million as of June 30, 2019, and the accrued interest receivable of $1.1 million and the allowance for expected credit losses $0.1 million for December 31, 2018. |
(2) | The carrying value of loans at amortized cost is net of the accrued interest receivable of $44.9 million, the allowance for expected credit losses of $103.3 million and unearned interest and deferred fees of $15.1 million for June 30, 2019, and the accrued interest receivable of $41.1 million, the allowance for expected credit losses of $100.8 million and unearned interest and deferred fees of $16.5 million for December 31, 2018. |
(3) | At December 31, 2018, investment securities at amortized cost were reclassified from level 1 to level 2 of the fair value hierarchy due to changes in market conditions causing that the quoted prices were no longer active for these financial instruments. |
58 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
19. | Fair value of financial instruments (continued) |
Level 3 fair value measurements
Reconciliation
The following table presents the movement of instruments measured at Level 3 fair value:
Carrying amount as of December 31, 2018 | 8,750 | |||
Unrealized loss | (11 | ) | ||
Carrying amount as of June 30, 2019 | 8,739 |
Unobservable inputs used in the fair value mesurements
The following tables provides information about the significant inputs used in the measurement of instruments at Level 3 fair value:
Type of financial instruments | Fair value June 30, 2019 | Measurement techniques | Significant unobservable inputs | |||||
At fair value through profit or loss (debentures) | 8,739 | Discounted cash flows | Discount rate Premiun or liquidity rate |
Range of estimates | Unobservable inputs sensibility | ||
13.59% | Significant increases would lead to a lower fair value | ||
51% | Significant increases would lead to a lower fair value |
Significant unobservable inputs were developed as follows:
a). The discount rate was derived from the discount rate of a similar company in the same line of business. For the discount rate, the debt-equity structure for the Issuer of the securities was applied.
b) The premium or liquidity rate was derived from liquidity cost studies carried out by experts and then subsequently from knowledge of management of similar businesses.
Effect of unobservable inputs in fair value measurement
Although management considers that its estimates of fair value are appropriate, the use of different methodologies or assumptions can generate different Level 3 fair values for measurements .. Changing one or more assumptions used can generate the following effect:
Effect on income* | ||||||
June 30, 2019 | Negative effect | Positive effect | ||||
Other assets at fair value through profit or loss (debenture) | (984 | ) | 1,097 |
* Changes in +100 bps in the unobservable variables.
59 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
20. | Related party transactions |
The detail of the assets and liabilities with related private corporations and financial institutions is as follows:
June 30, | Decembre 31, | |||||||
2019 | 2018 | |||||||
Assets | ||||||||
Demand deposits | 4,042 | 5,179 | ||||||
Loans, net of allowance for loan losses | 227,811 | 200,741 | ||||||
Securities at fair value through other comprehensive income, net | 2,911 | 2,748 | ||||||
Equipment and leasehold improvements, net (1) | 15,133 | - | ||||||
Total asset | 249,897 | 208,668 | ||||||
Liabilities | ||||||||
Demand deposits | - | 200,000 | ||||||
Time deposits | 280,000 | 40,000 | ||||||
Borrowings and debt, net (2) | 18,832 | - | ||||||
Total liabilities | 298,832 | 240,000 |
(1) As of June 30, 2019, the right-of-use assets arising from contracts where the Bank is a lessee with related parties are included in the composition.
(2) As of June 30, 2019, lease liabilities arising from contracts where the Bank is a lessee with related parties are included in the composition.
The following is the movement of assets by right to use assets for leases with related parties:
Building | ||||
Balance at January 1, 2019 | 15,719 | |||
Depreciation by right-of-use property of the period | (586 | ) | ||
Balance at June 30, 2019 | 15,133 |
60 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
20. | Related party transactions (continued) |
The detail of income and expenses with related parties is as follows:
Three months ended June 30 | ||||||||
2019 | 2018 | |||||||
Interest income | ||||||||
Loans | 1,914 | 1,023 | ||||||
Securities | 32 | 32 | ||||||
Total interest income | 1,946 | 1,055 | ||||||
Interest expense | ||||||||
Deposits | (1,983 | ) | (303 | ) | ||||
Borrowings and debt (1) | (224 | ) | - | |||||
Total interest expense | (2,207 | ) | (303 | ) | ||||
Net interest income (expenses) | (261 | ) | 752 | |||||
Other income (expense) | 5 | - | ||||||
Gain on financial instruments, net | (20 | ) | 8 | |||||
Other income, net | - | 1 | ||||||
Total other income, net | (15 | ) | 9 | |||||
Operating expenses | ||||||||
Depreciation of equipment and leasehold improvements | (293 | ) | - | |||||
Other expenses | (110 | ) | (622 | ) | ||||
Total operating expenses | (403 | ) | (622 | ) | ||||
Net income from related parties | (679 | ) | 139 |
Six months ended June 30 | ||||||||
2019 | 2018 | |||||||
Interest income | ||||||||
Loans | 4,123 | 1,673 | ||||||
Securities | 64 | 64 | ||||||
Total interest income | 4,187 | 1,737 | ||||||
Interest expense | ||||||||
Deposits | (3,892 | ) | (866 | ) | ||||
Borrowings and debt (1) | (450 | ) | - | |||||
Total interest expense | (4,342 | ) | (866 | ) | ||||
Net interest income (expenses) | (155 | ) | 871 | |||||
Other income (expense) | ||||||||
Fees and commissions, net | 5 | 1 | ||||||
(Loss) gain on financial instruments, net | (7 | ) | 8 | |||||
Other income, net | - | 1 | ||||||
Total other income, net | (2 | ) | 10 | |||||
Operating expenses | ||||||||
Depreciation of equipment and leasehold improvements | (586 | ) | - | |||||
Other expenses | (201 | ) | (1,184 | ) | ||||
Total operating expenses | (787 | ) | (1,184 | ) | ||||
Net income from related parties | (944 | ) | (303 | ) |
(1) As of June 30, 2019, the financial costs associated with the lease liability arising from the contract where the Bank is a lessee with related parties are included in the composition.
61 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
20. | Related party transactions (continued) |
The total compensation paid to directors and the executives of Bladex as representatives of the Bank amounted to:
Three months ended June 30 | ||||||||
2019 | 2018 | |||||||
Expenses: | ||||||||
Compensation costs to directors | 211 | 177 | ||||||
Compensation costs to executives | 556 | 550 |
Six months ended June 30 | ||||||||
2019 | 2018 | |||||||
Expenses: | ||||||||
Compensation costs to directors | 245 | 211 | ||||||
Compensation costs to executives | 2,298 | 3,488 |
Compensation costs to directors and executives, include annual cash retainers and the cost of granted restricted stock and restricted stock units.
21. | Litigation |
Bladex is not engaged in any litigation that is significant to the Bank’s business or, to the best of the knowledge of Bank’s management, that is likely to have an adverse effect on its business, consolidated financial position or its consolidated financial performance.
22. | Applicable laws and regulations |
Liquidity index
The Rule No. 2-2018 issued by the Superintendence of Banks of Panama (SBP) establishes that every general license or international license bank must guarantee, with a higher level of confidence, that it is in the position to face its intraday liquidity obligations in a period when liquidity pressure may affect the lending market. For that purpose, the Superintendence of Banks of Panama has established a short-term liquidity coverage ratio known as “Liquidity Coverage Ratio or LCR”. This ratio is measured through the quotient of two amounts, the first one corresponds to the high-quality liquid assets and the second one corresponds to the net cash outflows in 30 days.
As of June 30, 2019 and December 31, 2018, the minimum LCR to be reported to the SBP was 25% for both periods. The Bank´s LCR as of June 30, 2019 and December 31, 2018 was 134% and 238%, respectively.
The Rule No. 4-2008 issued by the Superintendence of Banks of Panama (SBP) establishes that every general license or international license bank must maintain, always, a minimum balance of liquid assets equivalent to 30% of the gross total of its deposits in the Republic of Panama or overseas up to 186 days, counted from the reporting date. The formula is based on the following parameters:
Liquid assets | x 100 = X% (Liquidity ratio) |
Liabilities (Deposits Received) |
As of June 30, 2019, and December 31, 2018, the percentage of the liquidity index reported by the Bank to the regulator was 86.19% and 124.39%, respectively.
62 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
22. | Applicable laws and regulations (continued) |
Capital adequacy
The Banking Law in the Republic of Panama and the Rules No. 01-2015 and 03-2016 require that the general license banks maintain a total capital adequacy index that shall not be lower, at any time, than 8% of total assets and off-balance sheet irrevocable contingency transactions, weighted according to their risks; and ordinary primary capital that shall not be less than 4.5% of its assets and off-balance sheet transactions that represent an irrevocable contingency, weighted based on their risks; and a primary capital that shall not be less than 6% of its assets and off-balance sheet transactions that represent an irrevocable contingency, weighted based on their risks.
The primary objectives of the Bank’s capital management policy are to ensure that the Bank complies with capital requirements imposed by local regulator and maintains strong credit ratings and healthy capital ratios to support its business and to maximize shareholder value.
The Bank manages its capital structure and adjusts it according to changes in economic conditions and the risk characteristics of its activities. To maintain or adjust the capital structure, the Bank may adjust the amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No changes have been made to the objectives, policies and processes from the previous years. However, they are under constant review by the Board.
June 30, 2019 | December 31, 2018 | |||||||
Tier 1 capital | 1,007,197 | 995,743 | ||||||
Risk weighted assets | 5,467,012 | 5,830,875 | ||||||
Tier 1 capital ratio | 18.42% | 17.08% |
Leverage ratio
Article 17 of the Rule No. 1-2015 establishes the leverage ratio of a regulated entity by means of the quotient between the ordinary primary capital and the total exposure for non-risk-weighted assets inside and outside the statement of financial position established by the Superintendence of Banks of Panama (SBP). For the determination of the exposure of off-balance-sheet operations, the criteria established for credit and counterparty credit risk positions will be used. The exposure of the derivatives will be the fair value at which it is recorded in the entity's assets.
The leverage ratio cannot be lower, at any time, than 3%. The Bank will inform to SBP as often as the compliance with the leverage ratio is determined.
June 30, 2019 | December 31, 2018 | |||||||
Ordinary capital | 87,1179 | 859,725 | ||||||
Non-risk-weighted assets | 6,687,598 | 7,779,919 | ||||||
Leverage ratio | 13.03% | 11.05% |
63 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
22. | Applicable laws and regulations (continued) |
Specific credit provisions
Rule No. 4-2013, modified by Rule No. 8-2014, states that the specific provisions are originated from the objective and concrete evidence of impairment. These provisions must be established for credit facilities classified according to the risk categories denominated as: special mention, substandard, doubtful, or unrecoverable, both for individual credit facilities as for a group of such facilities. In the case of a group, it corresponds to circumstances that indicate the existence of deterioration in credit quality, although individual identification is still not possible.
Banks must calculate and maintain at all times the amount of the specific provisions determined by the methodology specified in this Rule, which takes into account the balance owed of each credit facility classified in any of the categories subject to provision, mentioned in the paragraph above; the present value of each guarantee available in order to mitigate risk, as established by type of collateral; and a weighting table that applies to the net exposure balance subject to loss of such credit facilities.
Article 34 of this Rule establishes that all credits must be classified in the following five (5) categories, according to their default risk and loan conditions, and establishes a minimum reserve for each classification: normal 0%, special mention 20%, substandard 50%, doubtful 80%, and unrecoverable 100%.
If there is an excess in the specific provision, calculated in accordance with this Rule, compared to the provision calculated in accordance with IFRS, this excess will be accounted for as a regulatory credit reserve in equity and will increase or decrease with appropriations from/to retained earnings. The balance of the regulatory credit reserve will not be considered as capital funds for calculating certain ratios or prudential indicators mentioned in the Rule.
Based on the classification of risks, collateral and in compliance with SBP Rule No. 4-2013, the Bank classified the loan portfolio as follows:
June 30, 2019 | ||||||||||||||||||||||||
Loans | Normal | Special Mention | Substandard | Doubtful | Unrecoverable | Total | ||||||||||||||||||
Corporations | 2,293,157 | 13,493 | - | - | 64,701 | 2,371,351 | ||||||||||||||||||
Banks: | ||||||||||||||||||||||||
Private | 2,588,603 | - | - | - | - | 2,588,603 | ||||||||||||||||||
State-owned | 610,620 | - | - | - | - | 610,620 | ||||||||||||||||||
3,199,223 | - | - | - | - | 3,199,223 | |||||||||||||||||||
Total | 5,492,380 | 13,493 | - | - | 64,701 | 5,570,574 | ||||||||||||||||||
Allowance for loan losses IFRS (*): | 44,078 | 2,100 | - | - | 55,425 | 101,603 | ||||||||||||||||||
Total | 44,078 | 2,100 | - | - | 55,425 | 101,603 |
64 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
22. | Applicable laws and regulations (continued) |
December 31, 2018 | ||||||||||||||||||||||||
Loans | Normal | Special Mention | Substandard | Doubtful | Unrecoverable | Total | ||||||||||||||||||
Corporations | 2,630,932 | - | - | 64,701 | - | 2,695,633 | ||||||||||||||||||
Banks: | ||||||||||||||||||||||||
Private | 2,458,691 | - | - | - | - | 2,458,691 | ||||||||||||||||||
State-owned | 624,100 | - | - | - | - | 624,100 | ||||||||||||||||||
3,082,791 | - | - | - | - | 3,082,791 | |||||||||||||||||||
Total | 5,713,723 | - | - | 64,701 | - | 5,778,424 | ||||||||||||||||||
Allowance for loan losses IFRS (*): | 51,346 | - | - | 48,383 | - | 99,729 | ||||||||||||||||||
Total | 51,346 | - | - | 48,383 | - | 99,729 |
As of June 30, 2019, and December 31, 2018, the total restructured loans amounted to $9.0 million.
(*) As of June 30, 2019 and December 31, 2018, there is no excess in the specific provision calculated in accordance with Agreement No. 8-2014 of the SBP, over the provision calculated in accordance with IFRS.
Specific credit provisions (continued)
For statutory purposes only, non-accruing loans are presented by category as follows:
June 30, 2019 | ||||||||||||||||||||||||
Non-accruing loans | Normal | Special Mention | Substandard | Doubtful | Unrecoverable | Total | ||||||||||||||||||
Impaired loans | - | - | - | - | 64,701 | 64,701 | ||||||||||||||||||
Total | - | - | - | - | 64,701 | 64,701 |
December 31, 2018 | ||||||||||||||||||||||||
Non-accruing loans | Normal | Special Mention | Substandard | Doubtful | Unrecoverable | Total | ||||||||||||||||||
Impaired loans | - | - | - | 64,701 | - | 64,701 | ||||||||||||||||||
Total | - | - | - | 64,701 | - | 64,701 |
specific provision
June 30, 2019 | December 31, 2018 | |||||||
Non-accuring loans: | ||||||||
Private corporations | 64,701 | 64,701 | ||||||
Total non-accruig loans | 64,701 | 64,701 | ||||||
Interest that would be reversed if the loans had been classified as non-accruig loans | 1,680 | 1,056 | ||||||
Income from collateral interest on no-accruing loans | - | 2,879 |
65 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
22. | Applicable laws and regulations (continued) |
Credit risk coverage - dynamic provision
The Superintendence of Banks of Panama by means of Rule No. 4-2013, establishes the compulsory constitution of a dynamic provision in addition to the specific credit provision as part of the total provisions for the credit risk coverage.
The dynamic provision is an equity item associated to the regulatory capital, but does not replace or offset the capital adequacy requirements established by the Superintendence of Banks of Panama.
Methodology for the constitution of the regulatory credit reserve
The Superintendence of Banks of Panama by means of the General Resolution of Board of Directors SBP-GJD-0003-2013 of July 9, 2013, establishes the accounting methodology for differences that arise between the application of the International Financial Reporting Standards (IFRS) and the application of prudential regulations issued by the SBP; as well as the additional disclosures required to be included in the notes to the consolidated financial statements.
The parameters established in this methodology are the following:
1. | The calculations of accounting balances in accordance with IFRS and the prudential standards issued by the Superintendence of Banks of Panama will be carried out and the respective figures will be compared. |
2. | When the calculation made in accordance with IFRS results in a greater reserve or provision for the bank compared to the one resulting from the use of the prudential standards issued by the SBP, the Bank will account the IFRS figures. |
3. | When the impact of the use of prudential standards results in a greater reserve or provision for the Bank, the effect of the application of IFRS will be recognized in profit or loss, and the difference between IFRS calculation compared to the prudential standards calculation will be appropriated from retained earnings as a regulatory credit reserve. If the bank does not have sufficient retained earnings, the difference will be presented as an accumulated deficit account. |
4. | The regulatory credit reserve mentioned in paragraph 3 of this Rule may not be reversed against the retained earnings as long as there are differences between IFRS and the originated prudential regulations. |
Considering that the Bank presents its consolidated financial statements under IFRS, specifically for its expected credit reserves
under IFRS 9, the line "Regulatory credit reserve" established by the Superintendence of Banks of Panama has been used to present the difference between the application of the accounting standard used and the prudential regulations of the Superintendence of Banks of Panama to comply with the requirements of Rule No. 4-2013.
As of June30, 2019 and December 31, 2018, the total amount of the dynamic provision and the regulatory credit reserve calculated according to the guidelines of Rule No. 4-2013 of the Superintendence of Banks of Panama is $136.0 million for both periods, appropriated from retained earnings for purposes of compliance with local regulatory requirements. This appropriation is restricted from dividend distribution in order to comply with local regulations. The provision and reserve are detailed as follows:
June 30, 2019 | December 31, 2019 | |||||||
Dynamic provision | 136,019 | 136,019 | ||||||
Regulatory credit reserve | - | - | ||||||
136,019 | 136,019 |
Capital reserve
In addition to capital reserves required by regulations, the Bank maintains a capital reserve of $95.2 million, which was voluntarily established. Pursuant to Article No. 69 of the Banking Law, reduction of capital reserves requires prior approval of SBP.
66 |
Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
23. | Subsequent events |
Bladex announced a quarterly cash dividend of $0.385 US dollar cents per share corresponding to the second quarter of 2019. The cash dividend was approved by the Board of Directors at its meeting held on July 16, 2019 and it is payable on August 14, 2019 to the Bank’s stockholders as of July 30, 2019 record date.
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