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

 

Contents    
     
Unaudited condensed consolidated interim statement of financial position   1
     
Unaudited condensed consolidated interim statement of profit or loss   2
     
Unaudited condensed consolidated interim statement of other comprehensive income   3
     
Unaudited condensed consolidated interim statement of changes in equity   4
     
Unaudited condensed consolidated interim statement of cash flows   5
     
Notes to the unaudited condensed consolidated interim financial statements   6-67

 

 

 

 

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

 

2.1Statement 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.

 

2.2Reclassification

 

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.

 

3.1Leases

 

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)

 

3.1Leases (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)

 

3.1Leases (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.

 

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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 

 

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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.

 

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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.

 

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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%

 

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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 

 

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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 

 

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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.

 

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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.

 

 67