6-K 1 tm2035905d1_6k.htm FORM 6-K

 

 

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 November, 2020

 

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:  November 13, 2020  
  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 financial statements

as of September 30, 2020, and for the three and nine months ended September 30, 2020.

 

 

 

 

Banco Latinoamericano de Comercio Exterior, S.A. and Subsidiaries

 

Contents    
     
Unaudited condensed consolidated interim statements of financial position    
     
Unaudited condensed consolidated interim statements of profit or loss    
     
Unaudited condensed consolidated interim statements of comprehensive income    
     
Unaudited condensed consolidated interim statements of changes in equity    
     
Unaudited condensed consolidated interim statements of cash flows    
     
Notes to the unaudited condensed consolidated interim financial statements    

 

 

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

 

Unaudited condensed consolidated interim statements of financial position

September 30, 2020 and December 31, 2019

(In thousands of US dollars)

 

   Notes   September 30,
2020
(Unaudited)
   December 31,
2019
 
Assets               
                
Cash and due from banks   7,8    1,401,669    1,178,170 
                
Securities and other financial assets, net   5,9    238,572    88,794 
                
Loans        4,566,255    5,892,997 
Interest receivable        30,339    41,757 
Allowance for loans losses        (42,492)   (99,307)
Unearned interest and deferred fees        (7,176)   (12,114)
Loans, net   5,7,10    4,546,926    5,823,333 
                
Customers' liabilities under acceptances   5,7    89,576    115,682 
Derivative financial instruments - assets   5,7,13    6,943    11,157 
                
Equipment and leasehold improvements, net        16,620    18,752 
Intangibles, net        864    1,427 
Investment properties        3,285    3,494 
Other assets   14    6,739    8,857 
Total assets        6,311,194    7,249,666 
                
Liabilities and Equity               
Liabilities:               
Demand deposits        361,230    85,786 
Time deposits        2,693,965    2,802,550 
    7,15    3,055,195    2,888,336 
Interest payable        3,431    5,219 
Total deposits        3,058,626    2,893,555 
                
Securities sold under repurchase agreements   7,16    10,663    40,530 
Borrowings and debt, net   7,17    2,066,943    3,138,310 
Interest payable        9,649    10,554 
                
Customers' liabilities under acceptances   5,7    89,576    115,682 
Derivative financial instruments - liabilities   5,7,13    33,315    14,675 
Allowance for  loan commitments and financial guarantees contracts losses   5    2,088    3,044 
Other liabilities   18    14,627    17,149 
Total liabilities        5,285,487    6,233,499 
                
Equity:               
Common stock        279,980    279,980 
Treasury stock        (57,866)   (59,669)
Additional paid-in capital in excess of value assigned to common stock        119,850    120,362 
Capital reserves        95,210    95,210 
Regulatory reserves   24    136,019    136,019 
Retained earnings        458,265    446,083 
Other comprehensive income (loss)        (5,751)   (1,818)
Total equity        1,025,707    1,016,167 
Total liabilities and equity        6,311,194    7,249,666 

 

The accompanying notes are an integral part of these unaudited 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  nine months ended September 30, 2020 and 2019

(In thousands of US dollars, except per share data and number of shares)

 

       For the three months
ended September 30,
   For the nine months
ended September 30,
 
   Notes   2020   2019   2020   2019 
Interest income:                         
Deposits        897    3,757    4,272    13,295 
Securities        911    763    2,228    2,494 
Loans        37,886    60,994    136,690    193,809 
Total interest income   21    39,694    65,514    143,190    209,598 
Interest expense:                         
Deposits        (4,400)   (16,692)        (53,281)
Borrowings and debt        (12,686)   (22,164)   (51,506)   (73,708)
Total interest expense   21    (17,086)   (38,856)   (73,059)   (126,989)
                          
Net interest income        22,608    26,658    70,131    82,609 
                          
Other income (expense):                         
Fees and commissions, net   19,21    2,611    2,815    7,624    10,293 
(Loss) gain on financial instruments, net   12,21    (437)   (169)   (4,744)   650 
Other income, net        407    217    838    1,674 
Total other income, net   21    2,581    2,863    3,718    12,617 
                          
Total revenues        25,189    29,521    73,849    95,226 
                          
Reversal (provision) for credit losses   5,6,7,21    (1,543)   (612)   1,153    (2,365)
Reversal (impairment) on non-financial assets        140    500    -    500 
                          
Operating expenses:                         
Salaries and other employee expenses        (4,626)   (5,651)   (15,804)   (17,791)
Depreciation of equipment and leasehold improvements        (1,116)   (612)   (2,705)   (2,120)
Amortization of intangible assets        (185)   (160)   (562)   (515)
Other expenses        (2,415)   (2,434)   (8,079)   (8,978)
Total operating expenses   21    (8,342)   (8,969)   (27,150)   (29,404)
Profit for the period        15,444    20,440    47,852    63,957 
                          
Per share data:                         
Basic earnings per share (in US dollars)   19    0.39    0.52    1.21    1.62 
Diluted earnings per share (in US dollars)   19    0.39    0.52    1.21    1.62 
Weighted average basic shares (in thousands of shares)   19    39,672    39,602    39,645    39,566 
Weighted average diluted shares (in thousands of shares)   19    39,672    39,602    39,645    39,566 

 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

 

  2 

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

 

Unaudited condensed consolidated interim statements of comprehensive income

For the three and nine months ended September 30, 2020 and 2019

(In thousands of US dollars)

 

   For the three months
ended September 30
   For the nine months
ended September 30
 
   2020   2019   2020   2019 
Profit for the period   15,444    20,440    47,852    63,957 
Other comprehensive income (loss):                    
Items that will not be reclassified subsequently to profit or loss:                    
Change in fair value on equity instrument at FVOCI, net of hedging   -    1,057    546    450 
                     
Items that are or may be reclassified subsequently to profit or loss:                    
Change in fair value on debt financial instruments at FVOCI, net of hedging   (1,698)   258    (3,080)   (2,709)
Reclassification of gains (losses) on financial instruments to the profit or loss   (261)   (393)   (606)   247 
Exchange difference in conversion of foreign currency operation   (122)   (53)   (793)   (152)
                     
Other comprehensive income (loss)   (2,081)   869    (3,933)   (2,164)
                     
Total comprehensive income for the period   13,363    21,309    43,919    61,793 

 

The accompanying notes are an integral part of these unaudited 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 nine months ended September 30, 2020 and 2019

(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, 2019, previously reported   279,980    (61,076)   119,987    95,210    136,019    423,050    420    993,590 
Effect for change in accounting policy   -    -    -    -    -    (1,926)   -    (1,926)
Balances at January 1, 2019, adjusted   279,980    (61,076)   119,987    95,210    136,019    421,124    420    991,664 
Profit for the period   -    -    -    -    -    63,957    -    63,957 
Other comprehensive income (loss)   -    -    -    -    -    -    (2,164)   (2,164)
Issuance of restricted stock   -    1,259    (1,259)   -    -    -    -    - 
Compensation cost - stock options and stock units plans   -    -    1,340    -    -    -    -    1,340 
Exercised options and stock units vested   -    148    (148)   -    -    -    -    - 
Dividends declared   -    -    -    -    -    (45,696)   -    (45,696)
Balances at September 30, 2019   279,980    (59,669)   119,920    95,210    136,019    439,385    (1,744)   1,009,101 
                                         
Balances at January 1, 2020   279,980    (59,669)   120,362    95,210    136,019    446,083    (1,818)   1,016,167 
Profit for the period   -    -    -    -    -    47,852    -    47,852 
Other comprehensive income (loss)   -    -    -    -    -    -    (4,535)   (4,535)
Transfer of fair value on equity instrument at FVOCI                            (602)   602    - 
Issuance of restricted stock   -    1,523    (1,523)   -    -    -    -    - 
Compensation cost - stock options and stock units plans   -    -    1,291    -    -    -    -    1,291 
Exercised options and stock units vested   -    280    (280)   -    -    -    -    - 
Dividends declared   -    -    -    -    -    (35,068)   -    (35,068)
Balances at September 30, 2020   279,980    (57,866)   119,850    95,210    136,019    458,265    (5,751)   1,025,707 

 

 

The accompanying notes are an integral part of these unaudited 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 nine months ended September 30, 2020 and 2019

(In thousands of US dollars)

 

   2020   2019 
Cash flows from operating activities          
Profit for the period   47,852    63,957 
Adjustments to reconcile profit for the year to net cash provided by (used in) operating activities:          
Depreciation of equipment and leasehold improvements   2,705    2,120 
Amortization of intangible assets   562    515 
Loss for write-off of fixed assets   6    - 
(Reversal) provision for credit losses   (1,153)   2,365 
Unrealized loss on financial instruments at fair value through profit or loss   2,986    - 
Realized gain on financial instruments at fair value through profit or loss   (484)   - 
Gain net on sale of financial assets at fair value through OCI   -    (163)
Amortization of premium and discount related to securities   (5,966)   611 
Compensation cost - share-based payment   1,291    1,340 
Net changes in hedging position and foreign currency   4,240    (18,383)
Interest income   (143,190)   (209,598)
Interest expense   73,059    126,989 
Net decrease (increase) in operating assets:          
Pledged deposits   (23,952)   21,340 
Loans   1,236,130    224,165 
Other assets   2,602    7,292 
Net increase (decrease) in operating liabilities:          
Due to depositors   166,859    (119,352)
Other liabilities   (2,587)   962 
Cash flows provided by operating activities   1,360,960    104,160 
Interest received   152,643    211,683 
Interest paid   (77,981)   (132,504)
Net cash provided by operating activities   1,435,622    183,339 
           
Cash flows from investing activities:          
Acquisition of equipment and leasehold improvements   (601)   (547)
Acquisition of intangible assets   -    (356)
Proceeds from the sale of securities at fair value through OCI   1,882    6,000 
Proceeds from the redemption of securities at fair value through OCI   -    8,094 
Proceeds from redemption of securities at amortized cost   44,577    23,151 
Purchases of securities at fair value through OCI   (103,600)   - 
Purchases of securities at amortized cost   (89,182)   (15,151)
Net cash (used in) provided by investing activities   (146,924)   21,191 
           
Cash flows from financing activities:          
(Decrease) increase in securities sold under repurchase agreements   (29,867)   16,298 
Decrease in short-term borrowings and debt   (1,162,760)   (826,881)
Proceeds from long-term borrowings and debt   386,096    245,460 
Repayments of long-term borrowings and debt   (246,982)   (337,596)
Payments of leases liabilities   (820)   (747)
Dividends paid   (34,818)   (43,892)
Net cash used in financing activities   (1,089,151)   (947,358)
           
Increase (decrease) net in cash and cash equivalents   199,547    (742,828)
Cash and cash equivalents at beginning of the period   1,159,718    1,706,192 
Cash and cash equivalents at end of the period   1,359,265    963,364 

 

The accompanying notes are an integral part of these unaudited 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 is 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, liquidity 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 0.001% is 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”).

 

The Bank has representative offices in Buenos Aires, Argentina; in Mexico City, Mexico; and in Bogota, Colombia, and has a representative license in Lima, Peru.

 

These unaudited condensed consolidated interim financial statements were authorized for issue by the Board of Directors on October 20, 2020.

 

  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)

 

2.Basis of preparation of the condensed consolidated interim financial statements

 

2.1Statement of compliance

 

These 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 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, 2019, contained in the Bank’s annual audited consolidated financial statements. The 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.

 

3.Changes in significant accounting policies

 

3.1New accounting policies and amendments adopted

 

The Bank has initially adopted Interest Rate Benchmark Reform (Amendments to IFRS 9, and IFRS 7) from January 1, 2020. This change in accounting policy is also expected to be reflected in the Bank’s consolidated financial statements as at and for the year ending December 31, 2020. The Bank has applied the interest rate benchmark reform amendments to hedging relationships that existed at January 1, 2020 or were designated thereafter and that are directly affected by interest rate benchmark reform. These amendments also apply to the gain or loss recognized in OCI that existed at January 1, 2020.

 

Managing interest rate benchmark reform and any risks arising due to reform

 

A fundamental reform of major interest rate benchmarks is being undertaken globally, including the replacement of interbank offered rates (IBORs) with alternative nearly risk-free rates (referred to as ‘IBOR reform’). Due to the nature of its business, the Bank portfolio is predominantly made up of short-term fixed rate assets and liabilities. However, the Bank has exposures to IBORs (USD Libor only) on its financial instruments that will be replaced or reformed as part of these market-wide initiatives. There is uncertainty over the timing and the methods of transition. The Bank anticipates that IBOR reform will impact its risk management and hedge accounting.

 

The Libor Transition Steering Committee (LTSC) monitors and manages the transition to alternative rates. The committee evaluates the extent to which contracts reference IBOR cash flows, whether such contracts will need to be amended as a result of IBOR reform and how to manage communication about IBOR reform with counterparties. The committee reports to the Board of directors and collaborates with other business functions as needed. It provides periodic reports to management of interest rate risk and risks arising from IBOR reform.

 

Derivatives held for risk management purposes and hedge accounting

 

Derivatives

 

The Bank holds interest rate swaps for risk management purposes, which are designated in cash flow hedging relationships. The interest rate swaps have floating legs that are indexed to USD Libor. The Bank’s derivative instruments are governed by the International Swaps and Derivatives Association (ISDA)’s Master Agreement.

 

ISDA is currently reviewing its standardized contracts in the light of IBOR reform. When ISDA has completed its review, the Bank expects to negotiate the inclusion of new fallback clauses with its derivative counterparties. No derivative instruments have been modified as at September 30, 2020.

 

  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.Changes in significant accounting policies (continued)

 

3.1New accounting policies and amendments adopted (continued)

 

Hedge accounting

 

The Bank evaluated the extent to which its cash flow hedging relationships are subject to uncertainty driven by IBOR reform as of September 30, 2020. The Bank’s hedged items and hedging instruments continue to be indexed to IBOR benchmark rates, i.e. USD Libor. IBOR benchmark rates are quoted each day and IBOR cash flows are exchanged with its counterparties as usual. However, the Bank’s cash flow hedging relationships extend beyond the anticipated cessation date for USD LIBOR. The Bank expects that USD LIBOR will be discontinued after the end of 2021. The preferred alternative reference rate is Secured Overnight Financing Rate (SOFR). However, there is uncertainty as to when and how replacement may occur with respect to the relevant hedged item and hedging instrument. Such uncertainty may impact the hedging relationship and its effectiveness assessment. The Bank applies the amendments to IFRS 9 issued in September 2019 to those hedging relationships directly affected by IBOR reform.

 

Hedging relationships impacted by IBOR reform may experience ineffectiveness attributable to market participants’ expectations of when the shift from the existing IBOR benchmark rate to an alternative benchmark interest rate will occur. This transition may occur at different times for the hedged item and hedging instrument, which may lead to hedge ineffectiveness. The Bank has measured its hedging instrument indexed to USD LIBOR using available quoted market rates for LIBOR-based instruments of the same tenor and similar maturity and has measured the cumulative change in present value of hedged cash flows on a similar basis

 

The Bank’s exposure to USD LIBOR designated in a hedging relationship is $20 million nominal amount at September 30, 2020 attributable to the interest rate swap hedging USD LIBOR cash flows on the same principal amount of the Bank’s USD-denominated bond issuances maturing in 2023.

 

For the purpose of evaluating whether there is an economic relationship between the hedged item(s) and the hedging instrument(s), the Bank assumes that the benchmark interest rate is not altered as a result of IBOR reform.

 

The Bank will cease to apply the amendments to its assessment of the economic relationship between the hedged item and the hedging instrument when the uncertainty arising from IBOR reform is no longer present with respect to the timing and the amount of the interest rate benchmark-based cash flows of the hedged item or hedging instrument, or when the hedging relationship is discontinued. For its highly probable assessment of the hedged item, the Bank will no longer apply the amendments when the uncertainty arising from IBOR reform about the timing and amount of the interest rate benchmark-based future cash flows of the hedged item is no longer present, or when the hedging relationship is discontinued.

 

3.2New accounting policies and amendments not yet adopted

 

In May 2020, the IASB (International Accounting Standards Board) published the document “Rental Lease concessions related to COVID-19", which contains amendments to IFRS 16 Leases effective as of June 1, 2020, in order to provide relief to the lessee with respect to the rental concessions granted as a result of the events of COVID-19, where in the existing event the lessee must re-measure the responsibility of the lease using a revised discount rate.

 

At the reporting date, the Bank has not modified nor received concessions in the lease agreements signed with third parties.

 

  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)

 

4.Significant accounting policies

 

4.1Judgments, estimates and significant accounting assumptions

 

A.Estimates and assumptions

 

The key assumptions concerning the future and other key sources of estimating uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Bank based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances beyond the control of the Bank. Such changes are reflected in the assumptions when they occur.

 

B.Going concern

 

The Bank’s management has made an assessment of its ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. Therefore, the condensed consolidated financial statements continue to be prepared on a going concern basis.

 

4.2Leases

 

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.

 

At inception or on reassessment of a contract that contains a 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 lease agreements of office spaces in buildings in which the Bank is a lessee, it chose not to separate the components of the contract that do not correspond to the lease and to account for all of them under a single lease component.

 

A.Definition of a lease

 

The Bank determines at the beginning of the contract if an agreement is or contains a lease according to IFRS 16, the Bank assesses if a contract is or contains a lease based on the definition of a lease.

 

B.As a lessee

 

The Bank recognizes right-of-use assets and lease liabilities for most leases. These leases are presented in the consolidated statement of financial position. Lease liabilities are measured at the present value of the lease payments, discounted at the Bank's internal funding cost rate. The right-of-use assets are measured at their book value, by discounting total lease payments to present value using the Bank's internal funding cost rate, for the weighted average term of the contract, adjusted for any prepayment, incremental cost, dismantling cost and accumulated depreciation.

 

  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.Significant accounting policies

 

The right-of-use asset is subsequently depreciated using the straight-line method from the inception date until the end of the lease term. In addition, the right-of-use asset is periodically reduced by impairment losses, if applicable, and is adjusted for certain new measurements of the lease liability. The Bank presents its right of use assets in equipment and improvements to the leased property and the liability for lease in obligations and debt, net in the consolidated statement of financial position.

 

C.As a sublessor

 

Sub-leases of assets for rights of use are classified as operating leases. The subleased portion is classified as investment property, which is subsequently measured by applying the cost model. Leases receivable are recognized as income in the consolidated statement of income in the period in which they are earned.

 

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.Investment properties - Right of use

 

Rights-of-use assets that the Bank holds under sublease agreements for the purpose of obtaining lease income are classified as investment properties in the consolidated statement of financial position. These assets are measured at initial recognition using the same criteria used to recognize other rights-of-use assets. After initial recognition, the book value of these assets is amortized on a straight-line basis over their life. The useful life of these investment properties is closely related to the principal lease agreement.

 

  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.Financial risk

 

This note presents information about the Bank’s exposure to financial risks and the Bank’s management of capital.

 

A.Credit risk

 

i.Credit quality analysis

 

The following tables set out information about the credit quality of financial assets measured at amortized cost, and securities at FVOCI. Unless specifically indicated, for financial assets the amounts in the table represent the outstanding balances. For loan commitments and financial guarantee contracts, the amounts in the table represent the amounts committed or guaranteed, respectively.

 

The Bank’s Management has not made any adjustment to the methodology and key inputs used to determine the PD and LGD parameters produced by the model.

 

Loans

 

September 30, 2020
   PD Ranges  Stage 1   Stage 2   Stage 3   Total 
Grades 1 - 4  0.03 - 0.74   2,347,105    -    -    2,347,105 
Grades 5 - 6  0.75 - 3.95   1,716,933    169,931    -    1,886,864 
Grades 7 - 8  3.96 - 30.67   190,118    142,168    -    332,286 
Grades 9 - 10  30.68 - 100   -    -    -    - 
       4,254,156    312,099    -    4,566,255 
Loss allowance      (18,618)   (23,874)   -    (42,492)
Total      4,235,538    288,225    -    4,523,763 

 

December 31, 2019
   PD Ranges  Stage 1   Stage 2   Stage 3   Total 
Grades 1 - 4  0.03 - 0.74   2,928,401    -    -    2,928,401 
Grades 5 - 6  0.75 - 3.95   2,330,150    85,173    -    2,415,323 
Grades 7 - 8  3.96 - 30.67   343,606    143,822    -    487,428 
Grades 9 - 10  30.68 - 100   -    -    61,845    61,845 
       5,602,157    228,995    61,845    5,892,997 
Loss allowance      (28,892)   (15,842)   (54,573)   (99,307)
Total      5,573,265    213,153    7,272    5,793,690 

 

  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.Financial risk (continued)

 

A.Credit risk (continued)

 

Loan commitments, financial guarantees issued and customers’ liabilities under acceptances

 

September 30, 2020
   12-month PD
Ranges
  Stage 1   Stage 2   Stage 3   Total 
Commitments and contingencies                       
Grades 1 - 4  0.03 - 0.74   196,997    -    -    196,997 
Grades 5 - 6  0.75 - 3.95   166,168    28,345    -    194,513 
Grades 7 - 8  3.96 - 30.67   39,254    -    -    39,254 
       402,419    28,345    -    430,764 
                        
Customers' liabilities under acceptances                       
Grades 1 - 4  0.03 - 0.74   32,761    -    -    32,761 
Grades 5 - 6  0.75 - 3.95   767    -    -    767 
Grades 7 - 8  3.96 - 30.67   56,048    -    -    56,048 
       89,576    -    -    89,576 
       491,995    28,345    -    520,340 
Loss allowance      (1,789)   (299)   -    (2,088)
Total      490,206    28,046    -    518,252 

 

December 31, 2019
   12-month PD
Ranges
  Stage 1   Stage 2   Stage 3   Total 
Commitments and contingencies                       
Grades 1 - 4  0.03 - 0.74   153,874    -    -    153,874 
Grades 5 - 6  0.75 - 3.95   150,631    27,446    -    178,077 
Grades 7 - 8  4.13 - 30.43   161,421    -    -    161,421 
       465,926    27,446    -    493,372 
                        
Customers' liabilities under acceptances                       
Grades 1 - 4  0.03 - 0.74   13,367    -    -    13,367 
Grades 5 - 6  0.75 - 3.95   5,491    -    -    5,491 
Grades 7 - 8  4.13 - 30.43   96,824    -    -    96,824 
       115,682    -    -    115,682 
       581,608    27,446    -    609,054 
Loss allowance      (2,683)   (361)   -    (3,044)
Total      578,925    27,085    -    606,010 

 

  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.Financial risk (continued)

 

A.Credit risk (continued)

 

Securities at amortized cost

 

September 30, 2020
   12-month PD
Ranges
  Stage 1   Stage 2   Stage 3   Total 
Grades 1 - 4  0.03 - 0.74   95,562    -    -    95,562 
Grades 5 - 6  0.75 - 3.95   25,826    -    -    25,826 
       121,388    -    -    121,388 
Loss allowance      (301)   -    -    (301)
Total      121,087    -    -    121,087 

 

December 31, 2019
   12-month PD
Ranges
  Stage 1   Stage 2   Stage 3   Total 
Grades 1 - 4  0.03 - 0.74   73,047    -    -    73,047 
Grades 5 - 6  0.75 - 3.95   -    1,500    -    1,500 
       73,047    1,500    -    74,547 
Loss allowance      (103)   (10)   -    (113)
Total      72,944    1,490    -    74,434 

 

Securities at fair value through other comprehensive income (FVOCI)

 

September 30, 2020
   12-month PD
Ranges
  Stage 1   Stage 2   Stage 3   Total 
Grades 1 - 4  0.03 - 0.74   112,424    -    -    112,424 
       112,424    -    -    112,424 
Loss allowance      (15)   -    -    (15)
Total      112,409    -    -    112,409 

 

December 31, 2019
   12-month PD Ranges  Stage 1   Stage 2   Stage 3   Total 
Grades 1 - 4  0.03 - 0.74   5,094    -    -    5,094 
       5,094    -    -    5,094 
Loss allowance      -    -    -    - 
Total      5,094    -    -    5,094 

 

  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.Financial risk (continued)

 

A.Credit risk (continued)

 

The following table presents information of the current and past due balances of loans in stages 1, 2 and 3:

 

   September 30, 2020     
   Stage 1   Stage 2   Stage 3   Total 
Current   4,254,155    312,100    -    4,566,255 

 

   December 31, 2019     
   Stage 1   Stage 2   Stage 3   Total 
Current   5,602,157    228,995    47,169    5,878,321 
Past due                    
90-120 days   -    -    3,724    3,724 
151-180 days   -    -    -    - 
More than 180 days   -    -    10,952    10,952 
Total past due   -    -    14,676    14,676 
Total   5,602,157    228,995    61,845    5,892,997 

 

As of September 30, 2020, and December 31, 2019, other financial assets were no past due or impaired balances.

 

  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)

 

5.Financial risk (continued)

 

A.Credit risk (continued)

 

The following table presents an analysis of counterparty credit exposures arising from derivative transactions. The Bank's derivative fair values and generally secured by cash.

 

   September 30, 2020 
   Notional value
USD
   Derivative
financial
instrument - fair
value asset
   Derivative
financial
instrument - fair
value liabilities
 
Interest rate swaps   146,333    1,531    (2,159)
Cross-currency swaps   587,893    4,918    (30,241)
Foreign exchange forwards   68,317    494    (915)
Total   802,543    6,943    (33,315)

 

   December 31, 2019 
   Notional value
USD
   Derivative
financial
instrument - fair
value asset
   Derivative
financial
instrument - fair
value liabilities
 
Interest rate swaps   521,333    407    (1,903)
Cross-currency swaps   369,869    10,125    (10,197)
Foreign exchange forwards   74,471    625    (2,575)
Total   965,673    11,157    (14,675)

 

ii.Collateral and other credit enhancements

 

The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are in place covering the acceptability and valuation of each type of collateral.

 

Derivatives and repurchase agreements

 

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.

 

  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)

 
5.Financial risk (continued)

 

A.Credit risk (continued)

 

Such arrangements provide for single net settlement of all financial instruments covered by the agreements in the event of default on any one contract. Master netting arrangements do not normally result in an offset of balance–sheet assets and liabilities unless certain conditions for offsetting are met.

 

Although master netting arrangements may significantly reduce credit risk, it should be noted that:

 

-Credit risk is eliminated only to the extent that amounts due to the same counterparty will be settled after the assets are realized.

 

-The extent to which overall credit risk is reduced may change substantially within a short period because the exposure is affected by each transaction subject to the arrangement.

 

Loans

 

The main types of collateral obtained are, as follows:

 

-For commercial lending, liens on real estate property, inventory and trade receivables.

 

The Bank also obtains guarantees from parent companies for loans to their subsidiaries. Management monitors the market value of collateral and will request additional collateral in accordance with the underlying agreement. It is the Bank’s policy to dispose of repossessed property in an orderly fashion. The proceeds are used to reduce or repay the outstanding claim. In general, the Bank does not occupy repossessed property for business use.

 

The Bank holds guarantees and other financial credit enhancements against certain exposures in the loan portfolio. As of September 30, 2020, and December 31, 2019, the coverage ratio to the carrying amount of the loan portfolio was 12% and 12% respectively.

 

iii.Implementation of forward-looking information

 

The Bank incorporates information of the economic environments on a forward-looking view, when assessing whether the credit risk of a financial instrument has significantly increased, since initial recognition through customer and country rating models which include projections of the inputs under analysis.

 

Supplementary, for the expected credit loss measurement the results of the “alert model” can be considered, which are analyzed through a severity indicator to total risk resulting from the estimates and assumptions of several macroeconomics factors. These estimates and assumptions are supported by a base scenario associated to a probability of occurrence of 95%. Other scenarios represent optimistic and pessimistic results. The implementation and interpretation of the outcomes of the alert are based on the expert judgement of management, based on suggestions of areas such as Credit Risk, Economic Studies and Loan Recovery of the Bank.

 

The external information could include economic data and projections published by governmental committees, monetary agencies (e.g., Federal Reserve Bank and from countries where the Bank operates), supranational organizations (International Monetary Fund, The World Bank, World Trade Organization), private sector, academic projections, credit rating agencies, among other.

 

  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)

 

5.Financial risk (continued)

 

A.Credit risk (continued)

 

Principal macroeconomies variables of the country rating model with forward-looking scenarios are:

 

Variables Description
   
GDP Growth (Var. %) % Variation in the growth of the Gross Domestic Product (GDP)
   
ComEx Growth (Var. %) % Variation in foreign trade growth (Exp. + Imp.)

 

The model uses, as main inputs, the following macroeconomic variables: the percentage variation of the gross domestic product of Latin America and the percentage of the foreign trade index growth. The main movements and changes in the variables are analyzed, in general and in particular for each country in the region. This historical and projected information over a period of five years allows Management a complementary means to estimate the macroeconomic effects in the Bank's portfolio.

 

The table below lists the macroeconomic assumptions by country used in the base, optimistic and pessimistic scenarios over the five-year forecasted average available for each reporting period.

 

      Variable 
      GDP Growth (Var.%)   ComEx Growth Index (Var.%) 
Country  Scenario  September 30,
2020
   December 31,
2019
   September 30,
2020
   December 31,
2019
 
   Central   0.8%   2.1%   3.5%   4.0%
Brazil  Upside   1.8%   3.1%   7.0%   7.5%
   Downside   -0.6%   0.7%   -0.5%   0.0%
   Central   1.6%   3.4%   3.0%   5.5%
Colombia  Upside   2.7%   4.5%   6.0%   8.5%
   Downside   0.3%   2.1%   -0.5%   2.0%
   Central   -0.2%   1.3%   1.8%   2.5%
Mexico  Upside   0.8%   2.3%   5.8%   6.5%
   Downside   -1.4%   0.1%   -2.7%   -2.0%
   Central   1.7%   2.2%   4.9%   2.7%
Chile  Upside   2.8%   3.3%   8.4%   6.2%
   Downside   0.5%   1.0%   0.9%   -1.3%
   Central   1.8%   3.4%   3.9%   5.4%
Guatemala  Upside   2.8%   4.4%   6.9%   8.4%
   Downside   0.6%   2.2%   0.4%   1.9%
   Central   1.6%   2.8%   4.9%   5.7%
Costa Rica  Upside   2.6%   3.8%   8.4%   9.2%
   Downside   0.3%   1.5%   0.9%   1.7%
   Central   2.2%   4.3%   2.3%   3.8%
Panama  Upside   3.7%   5.8%   5.3%   6.8%
   Downside   0.8%   2.9%   -1.2%   0.3%
   Central   2.9%   4.5%   4.2%   5.7%
Dominican  Upside   4.1%   5.7%   7.7%   9.2%
Republic  Downside   1.6%   3.2%   0.2%   1.7%

 

  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)

 

5.Financial risk (continued)

 

A.Credit risk (continued)

 

iv.Loss allowances

 

The following tables show reconciliations from the opening to the closing balance of the loss allowance by class of financial instrument.

 

Loans

 

   Stage 1   Stage 2   Stage 3   Total 
Allowance for expected credit losses as of December 31, 2019   28,892    15,842    54,573    99,307 
Transfer to lifetime expected credit losses   (903)   903    -    - 
Net effect of changes in allowance for expected credit losses   120    12,660    (2,584)   10,196 
Financial instruments that have been derecognized during the period   (20,642)   (1,105)   -    (21,747)
New financial assets originated or purchased   11,151    -    -    11,151 
Write-offs   -    (4,426)   (52,106)   (56,532)
Recoveries   -    -    117    117 
Allowance for expected credit losses as of September 30, 2020   18,618    23,874    -    42,492 

 

   Stage 1   Stage 2   Stage 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   (2,488)   2,488    -    - 
Net effect of changes in allowance for expected credit losses   (2,154)   5,881    7,987    11,714 
Financial instruments that have been derecognized during the year   (27,118)   (8,916)   (500)   (36,534)
New financial assets originated or purchased   25,695    -    -    25,695 
Write-offs   -    -    (2,405)   (2,405)
Recoveries   -    -    52    52 
Allowance for expected credit losses as of December 31, 2019   28,892    15,842    54,573    99,307 

 

  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)

 

5.Financial risk (continued)

 

A.Credit risk (continued)

 

Loan commitments, financial guarantee contracts and customers’ liabilities under acceptances

 

The allowance for expected credit losses on loan commitments and financial guarantee contracts reflects the Bank’s management estimate expected credit losses of customers’ liabilities under acceptances and items such as: confirmed letters of credit, stand-by letters of credit, guarantees, and credit commitments.

 

   Stage 1   Stage 2   Stage 3   Total 
Allowance for expected credit losses as of December 31, 2019   2,683    361    -    3,044 
Transfer to lifetime expected credit losses   (79)   79    -    - 
Net effect of changes in reserve for expected credit loss   11    (120)   -    (109)
Financial instruments that have been derecognized during the period   (1,776)   (21)   -    (1,797)
New instruments originated or purchased   950    -    -    950 
Allowance for expected credit losses as of September 30, 2020   1,789    299    -    2,088 

 

   Stage 1   Stage 2   Stage 3   Total 
Allowance for expected credit losses as of December 31, 2018   3,089    200    -    3,289 
Net effect of changes in reserve for expected credit loss   (17)   170    -    153 
Financial instruments that have been derecognized during the year   (2,497)   (9)   -    (2,506)
New instruments originated or purchased   2,108    -    -    2,108 
Allowance for expected credit losses as of December 31, 2019   2,683    361    -    3,044 

 

  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)

 

5.Financial risk (continued)

 

A.Credit risk (continued)

 

Securities at amortized cost

 

   Stage 1   Stage 2   Stage 3   Total 
Allowance for expected credit losses as of December 31, 2019   103    10    -    113 
Net effect of changes in allowance for expected credit losses   22    -    -    22 
Financial instruments that have been derecognized during the period   (66)   (10)   -    (76)
New financial assets originated or purchased   242    -    -    242 
Allowance for expected credit losses as of September 30, 2020   301    -    -    301 

 

   Stage 1   Stage 2   Stage 3   Total 
Allowance for expected credit losses as of December 31, 2018   113    27    -    140 
Net effect of changes in allowance for expected credit losses   (1)   (17)   -    (18)
Financial instruments that have been derecognized during the year   (46)   -    -    (46)
New financial assets originated or purchased   37    -    -    37 
Allowance for expected credit losses as of December 31, 2019   103    10    -    113 

 

Securities at fair value through other comprehensive income (FVOCI)

 

   Stage 1   Stage 2   Stage 3   Total 
Allowance for expected credit losses as of December 31, 2018   -    -    -    - 
Financial instruments that have been derecognized during the year   15    -    -    15 
Allowance for expected credit losses as of December 31, 2019   15    -    -    15 

 

  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)

 

5.Financial risk (continued)

 

A.Credit risk (continued)

 

Securities at fair value through other comprehensive income (FVOCI)

 

   Stage 1   Stage 2   Stage 3   Total 
Allowance for expected credit losses as of December 31, 2018   33    140    -    173 
Financial instruments that have been derecognized during the year   (33)   (140)   -    (173)
Allowance for expected credit losses as of December 31, 2019   -    -    -    - 

 

The following table provides a reconciliation between:

 

-Amounts shown in the previous tables reconciling opening and closing balances of loss allowance per class of financial instrument; and

 

-The ‘reversal (provision) for credit losses’ line item in the condensed consolidated interim statement of profit or loss and other comprehensive income.

 

       Loan commitments   Securities     
September 30, 2020  Loans   and financial
guarantee contracts
   At amortized cost   FVOCI   Total 
Net effect of changes in allowance for expected  credit losses   10,196    (109)   22    -    10,109 
Financial instruments that have been derecognized during the year   (21,747)   (1,797)   (76)   -    (23,620)
New financial assets originated or purchased   11,151    950    242    15    12,358 
Total   (400)   (956)   188    15    (1,153)

 

       Loan commitments   Securities     
September 30, 2019  Loans   and financial
guarantee contracts
   At amortized cost   FVOCI   Total 
Net effect of changes in allowance for expected  credit losses   11,366    (24)   (8)   2    11,336 
Financial instruments that have been derecognized during the year   (31,715)   (2,496)   (34)   (33)   (34,278)
New financial assets originated or purchased   23,366    1,906    35    -    25,307 
Total   3,017    (614)   (7)   (31)   2,365 

 

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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)

 

5.Financial risk (continued)

 

A.Credit risk (continued)

 

v.Credit-impaired financial assets

 

Credit-impaired loans and advances are graded 8 to 10 in the Bank’s internal credit risk grading system.

 

The following table sets out a reconciliation of changes in the net carrying amount of credit-impaired loans.

 

   September 30,
2020
   December 31,
2019
 
Credit-impaired loans and advances at beginning of period   54,573    49,439 
Change in expected credit losses allowance   (2,859)   7,164 
Recoveries of amounts previously written off   117    52 
Interest income   275    323 
Write-offs   (52,106)   (2,405)
Credit-impaired loans and advances at end of period   -    54,573 

 

During the period ended September 30, 2020, the sale of the outstanding credit-impaired loan in Stage 3, classified at amortized cost, was made at $11.6 million. This sale resulted in a write off against the credit loss allowance of $ 52.1 million.

 

vi.Concentrations of credit risk

 

The Bank monitors concentrations of credit risk by sector, industry and by country. An analysis of concentrations of credit risk from loans, loan commitments, financial guarantees and investment securities is as follows.

 

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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)

 

5.Financial risk (continued)

 

A.Credit risk (continued)

 

Concentration by sector and industry

 

           Loan commitments and   Securities 
   Loans   financial guarantee contracts   At amortized cost   FVOCI 
   September 30,
2020
   December 31,
2019
   September 30,
2020
   December 31,
2019
   September 30,
2020
   December 31,
2019
   September 30,
2020
   December 31,
2019
 
Carrying amount - principal   4,566,255    5,892,997    89,576    115,682    121,388    74,547    112,424    5,094 
Amount committed/guaranteed   -    -    430,764    493,372    -    -    -    - 
                                         
Concentration by sector                                        
Corporations:                                        
Private   1,413,682    1,782,808    264,100    213,161    30,553    2,998    40,488    - 
State-owned   632,828    780,491    63,352    69,822    30,115    23,792    -    - 
Financial institutions:                                        
Private   2,056,018    2,692,787    65,824    75,130    22,380    19,276    15,122    - 
State-owned   422,409    589,690    127,064    250,941    18,084    -    51,689    - 
Sovereign   41,318    47,221    -    -    20,256    28,481    5,125    5,094 
Total   4,566,255    5,892,997    520,340    609,054    121,388    74,547    112,424    5,094 
                                         
Concentration by industry                                        
Financial institutions   2,478,427    3,282,477    192,888    326,071    40,464    19,276    66,811    - 
Industrial   811,254    925,375    142,372    143,560    39,671    21,658    40,488    - 
Oil and petroleum derived products   432,099    561,068    81,571    71,571    20,997    5,132    -    - 
Agricultural   307,409    327,288    -    -    -    -    -    - 
Services   290,051    370,753    73,064    20,497    -    -    -    - 
Mining   82,369    162,364    -    -    -    -    -    - 
Sovereign   41,318    47,221    -    -    20,256    28,481    5,125    5,094 
Other   123,328    216,451    30,445    47,355    -    -    -    - 
Total   4,566,255    5,892,997    520,340    609,054    121,388    74,547    112,424    5,094 

 

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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)

 

5.Financial risk (continued)

 

A.Credit risk (continued)

 

Risk rating and concentration by country

 

                   Securities 
   Loans   Loan commitments and financial guarantee contracts   At amortized cost   FVOCI 
   September 30,
2020
   December 31,
2019
   September 30,
2020
   December 31,
2019
   September 30,
2020
   December 31,
2019
   September 30,
2020
   December 31,
2019
 
Carrying amount - principal   4,566,255    5,892,997    89,576    115,682    121,388    74,547    112,424    5,094 
Amount committed/guaranteed   -    -    430,764    493,372    -    -    -    - 
                                         
Rating                                        
1-4   2,347,105    2,928,401    229,758    167,241    95,562    73,047    112,424    5,094 
5-6   1,886,864    2,415,323    195,280    183,568    25,826    1,500    -    - 
7-8   332,286    487,428    95,302    258,245    -    -    -    - 
10   -    61,845    -    -    -    -    -    - 
Total   4,566,255    5,892,997    520,340    609,054    121,388    74,547    112,424    5,094 
                                         
Concentration by country                                        
Argentina   145,767    226,481    -    -    -    -    -    - 
Belgium   12,723    13,742    -    -    -    -    -    - 
Bolivia   5,000    7,000    2,850    400    -    -    -    - 
Brazil   838,288    1,015,316    50,000    50,000    25,825    1,500    -    - 
Canada   -    -    -    657    -    -    -    - 
Chile   504,226    683,132    -    8    1,033    -    5,125    5,094 
Colombia   652,106    906,092    50,333    50,610    30,099    15,338    -    - 
Costa Rica   144,723    220,380    32,893    59,161    -    -    -    - 
Dominican Republic   177,746    289,853    16,500    16,500    -    -    -    - 
Ecuador   70,158    174,267    103,850    252,391    -    -    -    - 
El Salvador   45,000    54,233    1,061    5,555    -    -    -    - 
France   112,370    152,530    68,890    47,906    -    -    -    - 
Germany   31,951    34,613    -    -    -    -    -    - 
Guatemala   275,650    278,557    43,845    44,200    -    -    -    - 
Honduras   61,790    128,937    345    300    -    -    -    - 
Hong Kong   1,500    10,400    -    -    -    -    -    - 
Jamaica   28,622    38,312    -    -    -    -    -    - 
Luxembourg   50,000    59,813    -    -    -    -    -    - 
Mexico   574,620    754,465    20,055    27,377    44,042    21,505    -    - 
Panama   278,639    268,356    53,113    25,304    8,299    36,204    -    - 
Paraguay   96,296    127,970    11,870    10,652    -    -    -    - 
Peru   123,773    150,301    12,245    8,033    12,090    -    -    - 
Singapore   93,000    90,955    -    -    -    -    -    - 
Switzerland   -    -    -    10,000    -    -    -    - 
Trinidad and Tobago   176,898    181,676    -    -    -    -    -    - 
United States of America   55,000    25,000    25,000    -    -    -    50,780    - 
United Kingdom   10,409    -    -    -    -    -    -    - 
Uruguay   -    619    27,490    -    -    -    -    - 
Multinational   -    -    -    -    -    -    56,519    - 
Total   4,566,255    5,892,997    520,340    609,054    121,388    74,547    112,424    5,094 

 

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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)

 

5.Financial risk (continued)

 

A.Credit risk (continued)

 

vii.Offsetting financial assets and liabilities

 

The following tables include financial assets and liabilities that are offset in the condensed consolidated interim financial statement or subject to an enforceable master netting arrangement:

 

a)Derivative financial instruments – assets

 

September 30, 2020 
  
       Gross amounts   Net amount of            
       offset in the   assets presented  Gross amounts not offset in the     
       consolidated   in the  consolidated statement of     
   Gross   statement of   consolidated  financial position     
   amounts of   financial   statement of  Financial   Cash collateral     
Description  assets   position   financial position  instruments   received   Net Amount 
Derivative financial instruments used for hedging   6,943    -   6,943   -    (2,766)   4,177 
Total   6,943    -   6,943   -    (2,766)   4,177 

 

December 31, 2019 
  
       Gross amounts   Net amount of            
       offset in the   assets presented  Gross amounts not offset in the     
       consolidated   in the  consolidated statement of     
   Gross   statement of   consolidated  financial position     
   amounts of   financial   statement of  Financial   Cash collateral     
Description  assets   position   financial position  instruments   received   Net Amount 
Derivative financial instruments used for hedging   11,157    -   11,157   -    (9,350)   1,807 
Total   11,157    -  

11,157

   -    (9,350)   1,807 

 

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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)

 

5.Financial risk (continued)

 

A.Credit risk (continued)

 

b)Securities sold under repurchase and derivative financial instruments – liabilities

 

September 30, 2020
           Net amount of             
       Gross amounts   liabilities             
       offset in the   presented   Gross amounts not offset in the     
       consolidated   in the   consolidated statement of     
   Gross   statement of   consolidated   financial position     
   amounts of   financial   statement of   Financial   Cash collateral   Net 
Description  liabilities   position   financial position   instruments   pledged   Amount 
Securities sold under repurchase agreements   (10,663)   -    (10,663)   12,040    18    1,395 
                               
Derivative financial instruments used for hedging   (33,315)   -    (33,315)   -    24,476    (8,839)
Total   (43,978)   -    (43,978)   12,040    24,494    (7,444)

 

December 31, 2019
           Net amount of             
       Gross amounts   liabilities             
       offset in the   presented   Gross amounts not offset in the     
       consolidated   in the   consolidated statement of     
   Gross   statement of   consolidated   financial position     
   amounts of   financial   statement of   Financial   Cash collateral   Net 
Description  liabilities   position   financial position   instruments   pledged   Amount 
Securities sold under repurchase agreements   (40,530)   -    (40,530)   41,937    320    1,726 
                               
Derivative financial instruments used for hedging   (14,675)   -    (14,675)   -    14,632    (43)
Total   (55,205)   -    (55,205)   41,937    14,952    1,683 

 

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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)

 

5.Financial risk (continued)

 

B.Liquidity risk

 

i.Exposure to liquidity risk

 

The key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to deposits from customers and short-term funding. For this purpose, ‘net liquid assets’ includes cash and cash equivalents which consist of deposits from banks and customers, as well as corporate debt securities rated A- or above.

 

The following table details the Bank's liquidity ratios, described in the previous paragraph, for the period ended on September 30, 2020 and for the year ended December 31, 2019, respectively:

 

  

September 30,

2020

  

December 31,

2019

 
At the end of the period   166.69%   52.48%
Period average   115.84%   37.82%
Maximum of the period   234.38%   53.38%
Minimum of the period   53.26%   23.23%

 

The following table include the Bank’s liquid assets by geographical location:

 

   September 30,
2020
   December 31,
2019
 
(in millions of USD dollars)  Cash and due from banks   Securities FVOCI   Total   Cash and due from banks 
United State of America   1,261    51    1,312    1,132 
Other O.E.C.D countries   25    -    25    4 
Latin America   21    -    21    4 
Other countries   50    -    50    20 
Multinational   -    57    57    - 
Total   1,357    108    1,465    1,160 

 

The following table includes the Bank’s demand deposits from customers and its ratio to total deposits from customers:

 

   September 30,
2020
   December 31,
2019
 
(in millions of USD dollars)          
Demand liabilities and "overnight"   835    86 
% Demand liabilities and "overnight" of total deposits   27.32%   2.97%

 

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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)

 

5.Financial risk (continued)

 

B.Liquidity risk (continued)

 

The liquidity requirements resulting from the Bank’s demand deposits from customers is satisfied by the Bank’s liquid assets as follows:

 

(in millions of USD dollars)  September 30,
2020
   December 31,
2019
 
Total liquid assets   1,465    1,160 
% Total assets of total liabilities   47.95%   40.15%
% Total liquid assets in the U.S. Federal          
Reserve   96.84%   97.37%

 

The remaining liquid assets were composed of short-term deposits in other banks.

 

Even though the average term of the Bank's assets exceeds the average term of its liabilities, the associated liquidity risk is diminished by the short-term nature of a significant portion of the loan portfolio, since the Bank is primarily engaged in financing foreign trade.

 

The following table includes the carrying amount for the Bank’s loans and securities short-term portfolio with maturity within one year based on their original contractual term together with its average remaining term:

 

(in millions of USD dollars)  September 30,
2020
   December 31,
2019
 
Loan portfolio and investment portfolio less than/equal to 1 year according to its original term   2,625    3,485 
Average term (days)   285    189 

 

The following table includes the carrying amount for the Bank’s loans and securities medium term portfolio with maturity based over one year based on their original contractual term together with its average remaining term:

 

(in millions of USD dollars)  September 30,
2020
   December 31,
2019
 
Loan portfolio and investment portfolio less than/equal to 1 year according to its original term   2,179    2,497 
Average term (days)   1,301    1,185 

 

  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)

 

5.Financial risk (continued)

 

B.Liquidity risk (continued)

 

ii.Maturity analysis for financial liabilities and financial assets

 

The following table details the future undiscounted cash flows of assets and liabilities grouped by their remaining maturity with respect to the contractual maturity:

 

   September 30, 2020 
Description  Up to 3 months   3 to 6 months   6 months to 1 year   1 to 5 years   More than 5 years   Gross Inflow (outflow)   Carrying amount 
Assets                            
Cash and due from banks   1,404,682    -    -    -    -    1,404,682    1,401,669 
Securities and other financial assets, net   4,271    9,691    30,731    197,455    -    242,148    238,572 
Loans, net   1,264,997    1,082,164    913,404    1,326,738    113,170    4,700,473    4,546,926 
Derivative financial instruments - assets   5,362    36    333    1,212    -    6,943    6,943 
Total   2,679,312    1,091,891    944,468    1,525,405    113,170    6,354,246    6,194,110 
                                    
Liabilities                                   
Deposits   (2,741,230)   (144,003)   (135,213)   (45,573)   -    (3,066,019)   (3,058,626)
Securities sold under repurchase agreements   -    -    (10,734)   -    -    (10,734)   (10,663)
Borrowings and debt, net   (120,378)   (46,520)   (508,105)   (1,090,756)   (447,110)   (2,212,869)   (2,066,943)
Derivative financial instruments - liabilities   (4,282)   (169)   -    (34,734)   -    (39,185)   (33,315)
Total   (2,865,890)   (190,692)