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, 2017

 

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, 2017

  FOREIGN TRADE BANK OF LATIN AMERICA, INC.
  (Registrant)
       
    By: /s/ Pierre Dulin
       
    Name: Pierre Dulin
    Title: General Manager

 

 

 

 

Banco Latinoamericano

de Comercio Exterior, S.A.

and Subsidiaries

 

Unaudited condensed consolidated interim statement of financial position as of June 30, 2017 and December 31, 2016, and related unaudited condensed consolidated interim statements of profit or loss, unaudited condensed consolidated interim statements of profit or loss and other comprehensive income, unaudited condensed consolidated interim statements of changes in equity and unaudited condensed consolidated interim statements of cash flows for the six months ended June 30, 2017, 2016 and 2015.

 

 

 

 

Banco Latinoamericano de Comercio Exterior, S.A.

and Subsidiaries

 

Unaudited condensed consolidated interim financial statements

 

Contents Pages
   
Unaudited condensed consolidated interim statements of financial position 3
   
Unaudited condensed consolidated interim statements of profit or loss 4
   
Unaudited condensed consolidated interim statements of profit or loss and other comprehensive income 5
   
Unaudited condensed consolidated interim statements of changes in equity 6
   
Unaudited condensed consolidated interim statements of cash flows 7
   
Notes to the unaudited condensed consolidated interim financial statements 8-72

 

2 

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
 
Unaudited condensed consolidated interim statement of financial position
June 30, 2017 and December 31, 2016
(In US$ thousand)

 

      June 30,   December 31, 
      2017   2016 
   Notes  (Unaudited)   (Audited) 
Assets             
Cash and cash equivalents  3,14   819,390    1,069,538 
Financial Instruments:  4,14          
At fair value through profit or loss  4.1,4.7,14   13    - 
At fair value through OCI  4.2,14   16,435    30,607 
Securities at amortized cost, net  4.3,14   62,791    77,214 
Loans at amortized cost  4.5   5,570,315    6,020,731 
Less:             
Allowance for expected credit losses  4.5   115,607    105,988 
Unearned interest and deferred fees  4.5   6,723    7,249 
Loans at amortized cost, net      5,447,985    5,907,494 
              
At fair value - Derivative financial instruments used for hedging – receivable  4.6,4.7,14   6,497    9,352 
              
Property and equipment, net      8,001    8,549 
Intangibles, net      2,577    2,909 
              
Other assets:             
Customers' liabilities under acceptances  14   5,194    19,387 
Accrued interest receivable  14   33,466    44,187 
Other assets  6   19,813    11,546 
Total of other assets      58,473    75,120 
Total assets      6,422,162    7,180,783 
              
Liabilities and stockholders' equity             
Deposits:  7,14          
Noninterest-bearing - Demand      455    1,617 
Interest-bearing - Demand      126,522    125,397 
Time      3,226,578    2,675,838 
Total deposits      3,353,555    2,802,852 
              
At fair value – Derivative financial instruments used for hedging – payable  4.6,4.7,14   33,946    59,686 
              
Financial liabilities at fair value through profit or loss  4.1,4.7,14   27    24 
Short-term borrowings and debt  9.1,14   487,056    1,470,075 
Long-term borrowings and debt, net  9.2,14   1,485,707    1,776,738 
              
Other liabilities:             
Acceptances outstanding  14   5,194    19,387 
Accrued interest payable  14   12,953    16,603 
Allowance for expected credit losses on loan commitments and financial guarantees contracts  5   4,615    5,776 
Other liabilities  10   14,969    18,328 
Total other liabilities      37,731    60,094 
Total liabilities      5,398,022    6,169,469 
              
Stockholders' equity:  11,12,14          
Common stock      279,980    279,980 
Treasury stock  12   (64,732)   (69,176)
Additional paid-in capital in excess of assigned value of common stock      118,898    120,594 
Capital reserves      95,210    95,210 
Retained earnings      598,217    587,507 
Accumulated other comprehensive loss  4.2,4.6,15   (3,433)   (2,801)
Total stockholders' equity      1,024,140    1,011,314 
Total liabilities and stockholders' equity      6,422,162    7,180,783 

 

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 profit or loss
For the six months ended June 30, 2017, 2016 and 2015
(In US$ thousand, except per share amounts)

 

      For the three months ended
June 30,
   For the six months ended
June 30,
 
   Notes  2017   2016   2015   2017   2016   2015 
                            
Interest income:                                 
Deposits      2,822    894    489    4,823    2,064    920 
At fair value through OCI      126    548    1,728    296    1,499    3,589 
At amortized cost      53,151    59,032    50,607    110,111    118,068    101,969 
Total interest income      56,099    60,473    52,824    115,230    121,631    106,478 
Interest expense:                                 
Deposits      11,593    5,089    2,738    17,800    9,641    5,191 
Short-term borrowings and debt      2,487    3,735    5,837    6,055    8,590    12,480 
Long-term borrowings and debt      12,674    13,463    9,442    27,598    25,696    18,175 
Total interest expense      26,754    22,287    18,017    51,453    43,927    35,846 
                                  
Net interest income      29,345    38,186    34,807    63,777    77,704    70,632 
                                  
Other income:                                 
Fees and commissions, net      5,013    4,434    3,109    8,282    6,807    5,409 
Derivate financial instruments and foreign currency exchange      473    500    (339)   604    (339)   505 
(Loss) gain per financial instrument at fair value through profit or loss      (649)   416    (2,205)   (709)   (3,767)   300 
Gain (loss) per financial instrument at fair value through OCI      (35)   (30)   133    79    (315)   429 
Gain on sale of loans at amortized cost      12    303    305    98    403    512 
Other income      255    556    284    609    907    532 
Net other income      5,069    6,179    1,287    8,963    3,696    7,687 
                                  
Total income      34,414    44,365    36,094    72,740    81,400    78,319 
                                  
Expenses:                                 
Impairment loss (recovery) from expected credit losses on loans at amortized cost  4.5   5,666    9,966    11,649    9,619    12,109    6,619 
(Recovery) impairment loss from expected credit losses on investment securities  4.2,4.3   (11)   479    1,659    (465)   486    829 
Impairment loss (recovery) from expected credit losses on loans commitments and financial guarantees contracts  5   (1,324)   1,579    (3,434)   (1,161)   666    1,671 
Salaries and other employee expenses      7,768    4,898    7,368    14,464    12,778    15,723 
Depreciation of equipment and leasehold improvements      356    334    345    787    663    725 
Amortization of intangible assets      178    91    173    379    203    322 
Other expenses      4,300    4,746    4,816    8,178    8,785    9,044 
Total expenses      16,933    22,093    22,576    31,801    35,690    34,933 
Profit for the period      17,481    22,272    13,518    40,939    45,710    43,386 
                                  
Earnings per share:                                 
Basic  11   0.44    0.57    0.35    1.04    1.17    1.12 
Diluted  11   0.44    0.57    0.35    1.04    1.17    1.11 
Weighted average basic shares  11   39,317    39,078    38,954    39,252    39,037    38,880 
Weighted average diluted shares  11   39,347    39,198    39,073    39,280    39,120    39,015 

 

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 profit or loss and other comprehensive income
For the six months ended June 30, 2017, 2016 and 2015
(In US$ thousand)          

 

   Notes  2017   2016   2015 
                
Profit for the period      40,939    45,710    43,386 
Other comprehensive income (loss):                  
Items that are or may be reclassified to consolidated statement of profit or loss:                  
Net change in unrealized losses on financial instruments at fair value through OCI  15   116    7,400    3,248 
Net change in unrealized losses on derivative financial instruments  15   (748)   (4,498)   200 
Other comprehensive income (loss)  15   (632)   2,902    3,448 
                   
Total comprehensive income for the period      40,307    48,612    46,834 

 

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

 

5 

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
 
Unaudited condensed consolidated interim statements of changes in equity
For the six months ended June 30, 2017, 2016 and 2015
(In US$ thousand)

 

   Common stock   Treasury stock   Additional paid-in
capital in excess
of assigned value
of common stock
   Capital reserves   Retained earnings   Accumulated
other
comprehensive
income (loss)
   Total 
                             
Balances at January 1, 2015   279,980    (77,627)   119,644    95,210    501,669    (7,837)   911,039 
Profit for the period   -    -    -    -    43,386    -    43,386 
Other comprehensive income   -    -    -    -    -    3,448    3,448 
Issuance of restricted stock   -    (1,514)   (17)   -    -    -    (1,531)
Compensation cost - stock options and stock units plans   -    1,653    2,377    -    -    -    4,030 
Exercised options and stock units vested   -    1,673    (2,746)   -    -    -    (1,073)
Repurchase of "Class B" and "Class E" common stock   -    -    -    -    -    -    - 
Dividends declared   -    -    -    -    (15,000)   -    (15,000)
Balances at June 30, 2015   279,980    (75,815)   119,258    95,210    530,055    (4,389)   944,300 
                                    
Balances at January 1, 2016   279,980    (73,397)   120,177    95,210    560,642    (10,681)   971,931 
Profit for the period   -    -    -    -    45,710    -    45,710 
Other comprehensive income   -    -    -    -    -    2,902    2,902 
Issuance of restricted stock   -    1,259    (1,259)   -    -    -    - 
Compensation cost - stock options and stock units plans   -    -    1,689    -    -    -    1,689 
Exercised options and stock units vested   -    1,538    (1,449)   -    -    -    89 
Repurchase of "Class B" and "Class E" common stock   -    -    -    -    -    -    - 
Dividends declared   -    -    -    -    (30,052)   -    (30,052)
Balances at June 30, 2016   279,980    (70,600)   119,158    95,210    576,299    (7,779)   992,268 
                                    
Balances at January 1, 2017   279,980    (69,176)   120,594    95,210    587,507    (2,801)   1,011,314 
Profit for the period   -    -    -    -    40,939    -    40,939 
Other comprehensive income   -    -    -    -    -    (632)   (632)
Issuance of restricted stock   -    1,259    (1,259)   -    -    -    - 
Compensation cost - stock options and stock units plans   -    -    644    -    -    -    644 
Exercised options and stock units vested   -    3,213    (1,081)   -    -    -    2,132 
Repurchase of "Class B" and "Class E" common stock   -    (28)   -    -    -    -    (28)
Dividends declared   -    -    -    -    (30,229)   -    (30,229)
Balances at June 30, 2017   279,980    (64,732)   118,898    95,210    598,217    (3,433)   1,024,140 

 

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

 

6 

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
 
Unaudited condensed consolidated interim statements of cash flows
For the six months ended June 30, 2017, 2016 and 2015
(In US$ thousand)

 

   2017   2016   2015 
             
Cash flows from operating activities               
Profit for the period   40,939    45,710    43,386 
Adjustments to reconcile profit for the period to net cash provided by (used in) operating activities:               
Activities of derivative financial instruments used for hedging   (23,616)   (5,790)   (14,666)
Depreciation of equipment and leasehold improvements   787    663    725 
Amortization of intangible assets   379    203    322 
Impairment loss from expected credit losses   7,993    13,261    9,119 
Net loss (gain) on sale of financial assets at fair value through OCI   (79)   (30)   (429)
Compensation cost - share-based payment   644    1,007    1,491 
Interest income   (115,230)   (121,631)   (106,478)
Interest expense   51,453    43,927    35,846 
Net decrease (increase) in operating assets:               
Net (increase) decrease in pledged deposits   13,615    (4,850)   6,649 
Financial instruments at fair value through profit or loss   (13)   53,167    3,658 
Net decrease (increase) in loans at amortized cost   449,890    170,666    (224,996)
Other assets   5,925    5,013    96,840 
Net increase (decrease) in operating liabilities:               
Net increase due to depositors   550,703    410,831    730,251 
Financial liabilities at fair value through profit or loss   3    (89)   7 
Other liabilities   (17,486)   (18,809)   (61,042)
Cash provided by operating activities:               
Interest received   125,951    120,777    116,283 
Interest paid   (55,103)   (46,217)   (35,689)
Net cash provided by operating activities   1,036,755    667,809    601,277 
                
Cash flows from investing activities:               
Acquisition of equipment and leasehold improvements   (346)   (89)   (277)
Acquisition of intangible assets   (4)   (7)   - 
Proceeds from disposal of equipment and leasehold improvements   64    -    - 
Proceeds from the redemption of of financial instruments at fair value through OCI   -    70,341    94,557 
Proceeds from the sale of financial instruments at fair value through OCI   14,488    78,450    47,035 
Proceeds from maturities of financial instruments at amortized cost   14,879    29,075    13,335 
Purchases of financial instruments at fair value through OCI   -    (83,627)   (88,224)
Purchases of financial instruments at amortized cost   -    (24,071)   (21,929)
Net cash provided by investing activities   29,081    70,072    44,497 
                
Cash flows from financing activities:               
Net (decrease) increase in short-term borrowings and debt and securities sold under repurchase agreements   (983,019)   (1,234,527)   (583,565)
Proceeds from long-term borrowings and debt   219,587    464,969    405,513 
Repayments of long-term borrowings and debt   (510,618)   (299,607)   (220,994)
Dividends paid   (30,294)   (29,722)   (29,863)
Exercised stock options   2,003    -    1,382 
Net cash (used in) financing activities   (1,302,369)   (1,098,887)   (427,527)
                
Net (decrease) increase in cash and cash equivalents   (236,533)   (361,006)   218,247 
Cash and cash equivalents at beginning of the period   1,007,726    1,267,302    741,305 
Cash and cash equivalents at end of the period   771,193    906,296    959,552 

 

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

 

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)

 

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 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 officially 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 Superintendency 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 the Law Decree No. 9 of February 26, 1998, modified by the 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. 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 two subsidiaries: Bladex Representacao Ltda. and Bladex Investimentos Ltda.

 

-Bladex Representaçao Ltda., incorporated under the laws of Brazil on January 7, 2000, acts as the Bank’s representative office in Brazil. Bladex Representacao Ltda. is 99.999% owned by Bladex Head Office and the remaining 0.001% owned by Bladex Holdings Inc.

 

-Bladex Investimentos Ltda. was incorporated under the laws of Brazil on May 3, 2011. Bladex Head Office owned 99% of Bladex Investimentos Ltda., and Bladex Holdings Inc. owned the remaining 1%. This company had invested substantially all of its assets in an investment fund, Alpha 4x Latam Fundo de Investimento Multimercado, incorporated in Brazil (“the Brazilian Fund”), registered with the Brazilian Securities Commission (“CVM”, for its acronym in Portuguese). Bladex Investimentos Ltda. merged with Bladex Representacao Ltda. on April 2016, being the latter the extinct company under Brazilian law and prevailing the acquiring company Bladex Representacao Ltda.

 

-Bladex Development Corp. was incorporated under the laws 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. 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.

 

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)

 

1.Corporate information (continued)

 

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, and Monterrey, Mexico (until April 5, 2017); 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 18, 2017.

 

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

 

2.1Statement of compliance

 

These unaudited consolidated condensed 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 of 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, 2016, contained in the Bank’s annual audited consolidated financial statements. The unaudited condensed consolidated interim statements of profit or loss, profit or loss and other comprehensive income, changes in equity and cash flows for the periods presented are not necessarily indicative of results expected for any future period.

 

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)

 

3.Cash and cash equivalents

 

   June 30,
2017
   December 31,
2016
 
         
Cash and due from banks   20,684    89,656 
Interest-bearing deposits in banks   798,706    979,882 
Total   819,390    1,069,538 
           
Less:          
Pledged deposits   48,197    61,812 
Total cash and cash equivalents   771,193    1,007,726 

 

Interest-bearing deposits in banks

 

Demand deposits

 

As of June 30, 2017 and December 31, 2016, cash in banks balances correspond to bank deposits, bearing interest based on the daily rates determined by banks for between 0.25% to 1.30% and 0.01% to 0.77%, respectively.

 

Time deposits

 

As of June 30, 2017 and December 31, 2016, cash equivalents balances correspond to demand deposits (overnight), bearing an average interest rate of 1.30% and 0.83% to 0.88%, respectively.

 

Pledged deposits

 

   June 30,
2017
   December 31,
2016
 
Pledged deposits:          
New York(1)   3,000    2,800 
Panama(2)   45,197    59,012 
Total   48,197    61,812 

 

(1)The New York Agency had a pledged deposit with the New York State Banking Department, as required by law since March 1994.
(2)The Bank had pledged deposits to secure derivative financial instruments transactions.

 

4.Financial instruments

 

4.1Financial instruments at FVTPL - Fair value through profit or loss

 

The fair value of financial liabilities at FVTPL is as follows:

 

   June 30,
2017
   December 31,
2016
 
Assets        
Foreign exchange forward   13    - 
Total   13    - 
           
Liabilities          
Foreign exchange forward   27    24 
Total   27    24 

 

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)

 

4.Financial instruments (continued)

 

4.1Financial instruments at FVTPL - Fair value through profit or loss (continued)

 

The information on the nominal amounts of derivative financial instruments at FVTPL is as follows:

 

   June 30, 2017   December 31, 2016 
   Nominal   Fair Value   Nominal   Fair Value 
   Amount   Asset   Liability   Amount   Asset   Liability 
Foreign exchange forward   3,095    13    27    1,274    -    24 
Total   3,095    13    27    1,274    -    24 

 

4.2Securities at fair value through other comprehensive income

 

The amortized cost, related unrealized gross gain (loss) and fair value of securities at fair value through other comprehensive income by country risk and type of debt are as follows:

 

   June 30, 2017 
       Unrealized     
   Amortized
Cost
   Gain   Loss   Fair Value 
Sovereign debt:                    
Brazil   2,931    -    40    2,891 
Chile   5,206    -    18    5,188 
Trinidad and Tobago   9,063    -    707    8,356 
    17,200    -    765    16,435 

 

   December 31, 2016 
       Unrealized     
   Amortized
Cost
   Gain   Loss   Fair Value 
Corporate debt:                    
Brazil   3,144    -    62    3,082 
Venezuela   10,810    20    3    10,827 
    13,954    20    65    13,909 
                     
Sovereign debt:                    
Brazil   2,926    -    140    2,786 
Chile   5,229    -    59    5,170 
Trinidad and Tobago   9,283    -    541    8,742 
    17,438    -    740    16,698 
    31,392    20    805    30,607 

 

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)

 

4.Financial instruments (continued)

 

4.2Securities at fair value through other comprehensive income (continued)

 

As of June 30, 2017 and December 31, 2016, there were no securities at fair value through OCI guaranteeing repurchase transactions.

 

The following table discloses those securities that had unrealized losses for a period less than 12 months and for 12 months or longer:

 

   June 30, 2017 
   Less than 12 months   12 months or longer   Total 
   Fair
Value
   Unrealized
Gross Losses
   Fair
Value
   Unrealized
Gross Losses
   Fair
Value
   Unrealized
Gross Losses
 
Sovereign debt   7,115    25    9,320    740    16,435    765 
Total   7,115    25    9,320    740    16,435    765 

 

   December 31, 2016 
   Less than 12 months   12 months or longer   Total 
   Fair
Value
   Unrealized
Gross Losses
   Fair
Value
   Unrealized
Gross Losses
   Fair
Value
   Unrealized
Gross Losses
 
                         
Corporate debt   1,805    3    3,082    62    4,887    65 
Sovereign debt   5,170    59    11,528    681    16,698    740 
Total   6,975    62    14,610    743    21,585    805 

 

The following table presents the realized gains and losses on sale of securities at fair value through other comprehensive income:

 

   Three months ended June 30, 
   2017   2016   2015 
Realized gain on sale of securities   130    7,432    140 
Realized loss on sale of securities   (165)   (7,462)   (7)
Net (loss) gain on sale of securities at fair value through other comprehensive income   (35)   (30)   133 

 

   Six months ended June 30, 
   2017   2016   2015 
Realized gain on sale of securities   667    7,471    436 
Realized loss on sale of securities   (588)   (7,786)   (7)
Net gain (loss) on sale of securities at fair value through other comprehensive income   79    (315)   429 

 

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)

 

4.Financial instruments (continued)

 

4.2Securities at fair value through other comprehensive income (continued)

 

Securities at fair value through other comprehensive income classified by issuer’s credit quality indicators are as follows:

 

Rating(1)  June 30,
2017
   December 31,
2016
 
1-4   16,435    30,607 
5-6   -    - 
7   -    - 
8   -    - 
9   -    - 
10   -    - 
Total   16,435    30,607 

 

(1) Current ratings as of June 30, 2017 and December 31, 2016, respectively.

 

The amortized cost and fair value of securities at fair value through other comprehensive income by contractual maturity are shown in the following tables:

 

   June 30, 2017   December 31, 2016 
   Amortized
Cost
   Fair Value   Amortized
Cost
   Fair Value 
                 
Due within 1 year   -    -    -    - 
After 1 year but within 5 years   14,269    13,544    17,656    16,994 
After 5 years but within 10 years   2,931    2,891    13,736    13,613 
    17,200    16,435    31,392    30,607 

 

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)

 

4.Financial instruments (continued)

 

4.2Securities at fair value through other comprehensive income (continued)

 

The allowance for expected credit losses relating to securities at fair value through other comprehensive income, which is recorded in equity under accumulated other comprehensive income (loss), is as follow:

 

   Stage 1 (1)   Stage 2 (2)    Stage 3 (3)   Total 

Allowance for expected credit losses as of December 31, 2016

   42    263    -    305 
Transfer to lifetime expected credit losses   -    -    -    - 
Transfer to credit-impaired financial assets   -    -    -    - 
Transfer to 12-month expected credit losses   -    -    -    - 
Net effect of changes in reserve for expected credit losses   (1)   3    -    2 
Financial assets that have been derecognized during the period   (11)   -    -    (11)
Changes due to financial instruments recognized as of December 31, 2016:   (12)   3    -    (9)
New financial assets originated or purchased   -    -    -    - 
Write-offs   -    -    -    - 

Allowance for expected credit losses as of

June 30, 2017

   30    266    -    296 

 

   Stage 1 (1)   Stage 2 (2)    Stage 3 (3)   Total 
Allowance for expected credit losses as of December 31, 2015   234    178    6,737    7,149 
Transfer to lifetime expected credit losses   (31)   456    -    425 
Transfer to credit-impaired financial assets   -    -    -    - 
Transfer to 12-month expected credit losses   -    -    -    - 
Net effect of changes in reserve for expected credit losses   (15)   (168)   -    (183)
Financial assets that have been derecognized during the year   (174)   (203)   -    (377)
Changes due to financial instruments recognized as of December 31, 2015:   (220)   85    -    (135)
New financial assets originated or purchased   28    -    -    28 
Write-offs   -    -    (6,737)   (6,737)

Allowance for expected credit losses as of

December 31, 2016

   42    263    -    305 

 

(1)12-month expected credit losses.
(2)Lifetime expected credit losses.
(3)Credit-impaired financial assets (lifetime expected credit losses).

 

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)

 

4.Financial instruments (continued)

 

4.3Securities at amortized cost

 

The amortized cost, related unrealized gross gain (loss) and fair value of these securities by country risk and type of debt are as follows:

 

   June 30, 2017 
       Unrealized     
   Amortized
Cost (1)
   Gross Gain   Gross Loss   Fair Value 
Corporate debt:                    
Brazil   4,597    34    61    4,570 
    4,597    34    61    4,570 
                     
Sovereign debt:                    
Colombia   29,408    213    -    29,621 
Mexico   20,370    -    314    20,056 
Panama   8,564    304    -    8,868 
    58,342    517    314    58,545 
    62,939    551    375    63,115 

 

   December 31, 2016 
       Unrealized     
   Amortized
Cost (2)
   Gross Gain   Gross Loss   Fair Value 
Corporate debt:                    
Brazil   4,614    -    146    4,468 
Panama   3,000    -    -    3,000 
    7,614    -    146    7,468 
Sovereign debt:                    
Brazil   11,179    37    194    11,022 
Colombia   29,812    34    280    29,566 
Mexico   20,541    -    1,059    19,482 
Panama   8,670    198    -    8,868 
    70,202    269    1,533    68,938 
    77,816    269    1,679    76,406 

 

(1)Amounts do not include allowance for expected credit losses of US$148.
(2)Amounts do not include allowance for expected credit losses of US$602.

 

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)

 

4.Financial instruments (continued)

 

4.3Securities at amortized cost (continued)

 

The amortized cost and fair value of securities at amortized cost by contractual maturity are shown in the following tables:

 

   June 30, 2017   December 31, 2016 
   Amortized
Cost
   Fair
Value
   Amortized
Cost
  

Fair

Value

 
                 
Due within 1 year   -    -    3,988    4,025 
After 1 year but within 5 years   62,939    63,115    68,537    67,358 
After 5 years but within 10 years   -    -    5,291    5,023 
    62,939    63,115    77,816    76,406 

 

As of June 30, 2017 and December 31, 2016, there were no securities at amortized cost, guaranteeing repurchase transactions.

 

Securities at amortized cost classified by issuer’s credit quality indicators are as follows:

 

Rating(1)  June 30,
2017
   December 31,
2016
 
1-4   61,455    76,333 
5-6   1,484    1,483 
7   -    - 
8   -    - 
9   -    - 
10   -    - 
Total   62,939    77,816 

 

(1)Current ratings as of June 30, 2017 and December 31, 2016, respectively.

 

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)

 

4.Financial instruments (continued)

 

4.3Securities at amortized cost (continued)

 

The allowance for expected credit losses relating to securities at amortized cost is as follow:

 

   Stage 1 (1)   Stage 2 (2)    Stage 3 (3)   Total 

Allowance for expected credit losses as of December 31, 2016

   99    503    -    602 
Transfer to lifetime expected credit losses   -    -    -    - 
Transfer to credit-impaired financial assets   -    -    -    - 
Transfer to 12-month expected credit losses   -    -    -    - 
Net effect of changes in reserve for expected credit losses   1    (22)   -    (21)
Financial assets that have been derecognized during the period   (11)   (422)   -    (433)
Changes due to financial instruments recognized as of December 31, 2016:   (10)   (444)   -    (454)
New financial assets originated or purchased   -    -    -    - 

Allowance for expected credit losses as of June 30, 2017

   89    59    -    148 

 

   Stage 1 (1)   Stage 2 (2)    Stage 3 (3)   Total 
Allowance for expected credit losses as of December 31, 2015   348    178    -    526 
Transfer to lifetime expected credit losses   (43)   444    -    401 
Transfer to credit-impaired financial assets   -    -    -    - 
Transfer to 12-month expected credit losses   -    -    -    - 
Net effect of changes in reserve for expected credit losses   (5)   (91)   -    (96)
Financial assets that have been derecognized during the year   (317)   (28)   -    (345)
Changes due to financial instruments recognized as of December 31, 2015:   (365)   325    -    (40)
New financial assets originated or purchased   116    -    -    116 

Allowance for expected credit losses as of December 31, 2016

   99    503    -    602 

 

(1)12-month expected credit losses.
(2)Lifetime expected credit losses.
(3)Credit-impaired financial assets (lifetime expected credit losses).

 

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)

 

4.Financial instruments (continued)

 

4.4Recognition and derecognition of financial assets

 

During the periods ended June 30, 2017, 2016 and 2015, the Bank sold certain financial instruments in the secondary market measured at amortized cost. These sales were made on the basis of compliance with the Bank's strategy to optimize the loan portfolio.

 

The 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 on sale of loans at amortized cost” in the consolidated statement of profit or loss.

 

   Assignments and
Participations
   Gains 
         
For the period ended June 30, 2017   70,400    98 
For the period ended June 30, 2016   53,900    326 
For the period ended June 30, 2015   41,020    227 

 

4.5Loans – at amortized cost

 

The following table set forth details of the Bank’s gross loan portfolio:

 

   June 30,
 2017
   December 31,
2016
 
Corporations:        
Private   2,369,870    2,655,910 
State-owned   868,755    786,900 
Banking and financial institutions:          
Private   1,629,497    1,738,999 
State-owned   456,093    544,877 
Middle-market companies:          
Private   246,100    294,045 
Total   5,570,315    6,020,731 

 

The composition of the gross loan portfolio by industry is as follows:

 

   June 30,
 2017
   December 31,
2016
 
Banking and financial institutions   2,085,590    2,283,876 
Industrial   1,111,020    1,242,441 
Oil and petroleum derived products   975,877    788,186 
Agricultural   698,428    1,007,139 
Services   341,187    419,440 
Mining   195,000    54,000 
Others   163,213    225,649 
Total   5,570,315    6,020,731 

 

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)

 

4.Financial instruments (continued)

 

4.5Loans – at amortized cost (continued)

 

Loans are reported at their amortized cost considering the principal outstanding amounts net of unearned interest, deferred fees and allowance for expected credit losses.

 

The amortization of net unearned interest and deferred fees are recognized as an adjustment to the related loan yield using the effective interest rate method.

 

The unearned discount interest and deferred commission amounted to $6,723 and $7,249 at June 30, 2017 and December 31, 2016, respectively.

 

Loans classified by borrower’s credit quality indicators are as follows:

 

June 30, 2017
   Corporations   Banking and financial
institutions
   Middle-market
companies
     
Rating(1)  Private   State-owned   Private   State-owned   Private   Total 
1-4   1,622,796    714,589    1,331,663    260,589    140,934    4,070,571 
5-6   667,245    154,166    297,834    195,504    70,166    1,384,915 
7   55,465    -    -    -    -    55,465 
8   6,000    -    -    -    -    6,000 
9   -    -    -    -    -    - 
10   18,364    -    -    -    35,000    53,364 
Total   2,369,870    868,755    1,629,497    456,093    246,100    5,570,315 

 

December 31, 2016
   Corporations   Banking and financial
institutions
   Middle-market
companies
     
Rating(1)  Private   State-owned   Private   State-owned   Private   Total 
1-4   1,714,936    646,797    1,457,984    259,981    174,107    4,253,805 
5-6   863,937    140,103    281,015    284,896    84,938    1,654,889 
7   58,673    -    -    -    -    58,673 
8   4,000    -    -    -    -    4,000 
9   -    -    -    -    35,000    35,000 
10   14,364    -    -    -    -    14,364 
Total   2,655,910    786,900    1,738,999    544,877    294,045    6,020,731 

 

(1)Current ratings as of June 30, 2017 and December 31, 2016, respectively.

 

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)

 

4.Financial instruments (continued)

 

4.5Loans – at amortized cost (continued)

 

The following table provides a breakdown of gross loans by country risk:

 

   June 30,
2017
  

December 31,
2016

 
Country:          
Argentina   195,785    325,321 
Belgium   13,055    4,180 
Bolivia   -    18,318 
Brazil   1,039,084    1,163,825 
Chile   220,798    69,372 
Colombia   585,193    653,012 
Costa Rica   350,706    400,371 
Dominican Republic   79,311    243,696 
Ecuador   178,845    129,269 
El Salvador   86,578    104,723 
Germany   45,000    50,000 
Guatemala   273,195    315,911 
Honduras   50,497    72,319 
Jamaica   60,177    7,399 
Luxembourg   18,078    14,722 
Mexico   1,034,610    927,041 
Nicaragua   41,515    36,949 
Panama   425,626    498,651 
Paraguay   56,628    108,068 
Peru   484,064    467,408 
Singapore   33,293    70,204 
Switzerland   -    46,000 
Trinidad and Tobago   190,500    184,389 
United States of America   73,277    73,083 
Uruguay   36,500    36,500 
Total   5,570,315    6,020,731 

 

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)

 

4.Financial instruments (continued)

 

4.5Loans – at amortized cost (continued)

 

The remaining loan maturities are summarized as follows:

 

   June 30,
2017
  

December 31,
2016

 
Current:          
Up to 1 month   748,711    896,310 
From 1 month to 3 months   1,351,784    1,300,675 
From 3 months to 6 months   1,045,355    1,267,194 
From 6 months to 1 year   648,984    551,794 
From 1 year to 2 years   570,492    631,629 
From 2 years to 5 years   1,068,104    1,211,847 
More than 5 years   74,236    95,918 
    5,507,666    5,955,367 
           
Impaired:          
Delinquent with impairment   6,000    - 
Past due with impairment   56,649    65,364 
Total   5,570,315    6,020,731 

 

As of June 30, 2017 and December 31, 2016, the range of interest rates on loans fluctuates from 1.29% and 13.86% (2016: 1.21% y 12.69%).

 

The fixed and floating interest rate distribution of the loan portfolio is as follows:

 

   June 30,
2017
  

December 31,
2016

 
         
Fixed interest rates   2,554,714    2,709,555 
Floating interest rates   3,015,601    3,311,176 
Total   5,570,315    6,020,731 

 

As of June 30, 2017 and December 31, 2016, 93%, for both periods, of the loan portfolio at fixed interest rates has remaining maturities of less than 180 days.

 

An analysis of credit-impaired balances is detailed as follows:

 

   June 30, 2017   2017 
   Recorded
investment
   Past due
principal
balance
   Related
allowance
Stage 3
   Average
principal
loan
balance
   Interest
income
recognized
 
With an allowance recorded:                         
Private corporations   27,649    24,364    25,654    15,223    90 
Middle-market companies   35,000    35,000    19,942    35,000    763 
Total   62,649    59,364    45,596    50,223    853 

 

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)

 

4.Financial instruments (continued)

 

4.5 Loans – at amortized cost (continued)

 

   December 31, 2016   2016 
   Recorded
investment
   Past due
principal
balance
   Related
allowance
Stage 3
   Average
principal
loan
balance
   Interest
income
recognized
 
With an allowance recorded:                         
Private corporations   30,364    18,364    23,174    12,500    408 
Middle-market companies   35,000    35,000    12,179    17,705    1,679 
Total   65,364    53,364    35,353    30,205    2,087 

 

The following is a summary of information of interest amounts recognized on an effective interest basis on net carrying amount for those financial assets in Stage 3:

 

   Three months ended June 30, 
   2017   2016   2015 
Interest revenue calculated on the net carrying amount (net of credit allowance)   359    585    84 

 

   Six months ended June 30, 
   2017   2016   2015 
Interest revenue calculated on the net carrying amount (net of credit allowance)   853    662    140 

 

The following table presents an aging analysis of the loan portfolio:

 

June 30, 2017
   91-120
 days
   121-150
 days
   151-180
 days
   Greater
than 180
days
   Total
Past
due
   Delinquent   Current   Total 
Corporations   -    -    3,285    18,364    21,649    6,000    3,210,976    3,238,625 
Banking and financial institutions   -    -    -    -    -    -    2,085,590    2,085,590 
Middle-market companies   -    -    -    35,000    35,000    -    211,100    246,100 
Total   -    -    3,285    53,364    56,649    6,000    5,507,666    5,570,315 

 

December 31, 2016
   91-120
 days
   121-150
 days
   151-180
 days
  

Greater

than 180
days

   Total
Past
due
   Delinquent   Current   Total 
Corporations   -    -    4,000    14,364    18,364    -    3,424,446    3,442,810 
Banking and financial institutions   -    -    -    -    -    -    2,283,876    2,283,876 
Middle-market companies   -    -    -    35,000    35,000    -    259,045    294,045 
Total   -    -    4,000    49,364    53,364    -    5,967,367    6,020,731 

 

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)

 

4.Financial instruments (continued)

 

4.5 Loans – at amortized cost (continued)

 

As of June 30, 2017 and December 31, 2016, the Bank had credit transactions in the normal course of business with 16%, for both periods, 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, 2017 and December 31, 2016, approximately 8% and 10%, 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, 2017, 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.

 

The allowances for expected credit losses related 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, 2016

   29,036    41,599    35,353    105,988 
Transfer to lifetime expected credit losses – not credit-impaired   (19)   19    -    - 
Transfer to lifetime expected credit losses - credit-impaired   -    (1,110)   1,110    - 
Transfer to 12-month expected credit losses   -    -    -    - 
Net effect of changes in reserve for expected credit losses   (912)   9,740    9,133    17,961 
Financial assets that have been derecognized during the period   (27,222)   (4,347)   -    (31,569)
Changes due to financial instruments recognized as of December 31, 2016:   (28,153)   4,302    10,243    (13,608)
New financial assets originated or purchased   23,227    -    -    23,227 
Write-offs   -    -    -    - 
Recoveries of amounts previously written off   -    -    -    - 

Allowance for expected credit losses as of June 30, 2017

   24,110    45,901    45,596    115,607 

 

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)

 

4.Financial instruments (continued)

 

4.5 Loans – at amortized cost (continued)

 

   Stage 1 (1)   Stage 2 (2)    Stage 3 (3)   Total 

Allowance for expected credit losses as of December 31, 2015

   59,214    9,609    21,151    89,974 
Transfer to lifetime expected credit losses – not credit-impaired   (9,117)   9,119    -    2 
Transfer to lifetime expected credit losses – not credit-impaired   (7)   (6,317)   6,324    - 
Transfer to 12-month expected credit losses   2,038    (2,077)   38    (1)
Net effect of changes in reserve for expected credit losses   (39,621)   48,021    26,491    34,891 
Financial assets that have been derecognized during the year   (65,640)   (16,756)   -    (82,396)
Changes due to financial instruments recognized as of December 31, 2015:   (112,347)   31,990    32,853    (47,504)
New financial assets originated or purchased   82,169    -    -    82,169 
Write-offs   -    -    (18,807)   (18,807)
Recoveries of amounts previously written off   -    -    156    156 

Allowance for expected credit losses as of December 31, 2016

   29,036    41,599    35,353    105,988 

 

(1)12-month expected credit losses.
(2)Lifetime expected credit losses.
(3)Credit-impaired financial assets (lifetime expected credit losses).

 

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)

 

4.Financial instruments (continued)

 

4.6 Derivative financial instruments for hedging purposes

 

Quantitative information on derivative financial instruments held for hedging purposes is as follows:

 

   June 30, 2017 
   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   367,700    -    (1,636)   329 
Cross-currency interest rate swaps   318,067    1,902    (27,601)   16,684 
Cash flow hedges:                    
Interest rate swaps   342,500    246    (1,173)   369 
Cross-currency interest rate swaps   23,025    264    -    1,518 
Foreign exchange forward   321,930    4,050    (3,524)   3,750 
Net investment hedges:                    
Foreign exchange forward   1,964    35    (12)   154 
Total   1,375,186    6,497    (33,946)   22,804 

 

   December 31, 2016 
   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   796,202    40    (2,005)   (2,199)
Cross-currency interest rate swaps   291,065    2,561    (44,944)   (19,316)
Cash flow hedges:                    
Interest rate swaps   752,000    323    (1,699)   696 
Cross-currency interest rate swaps   23,025    -    (1,254)   (1,313)
Foreign exchange forward   352,553    6,428    (9,653)   (5,093)
Net investment hedges:                    
Foreign exchange forward   3,780    -    (131)   (415)
Total   2,218,625    9,352    (59,686)   (27,640)

 

The hedging instruments presented in the tables above are located in the line item in the statement of financial position at fair value - Derivative financial instruments used for hedging – receivable or at fair value – Derivative financial instruments used for hedging – payable.

 

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)

 

4.Financial instruments (continued)

 

4.6 Derivative financial instruments for hedging purposes (continued)

 

The gains and losses resulting from activities of derivative financial instruments and hedging recognized in the consolidated statements of profit or loss are presented below:

 

   Three months ended at June 30, 2017 
   Gain (loss)
recognized in
OCI (effective
portion)
   Classification of gain
(loss)
  Gain (loss)
reclassified from
accumulated OCI
to the
consolidated
statement of
profit or loss
   Gain (loss)
recognized on
derivatives
(ineffective
portion)
 
Derivatives – cash flow hedge                  
Interest rate swaps   (431)  Gain (loss) on interest rate swap   -    51 
Cross-currency interest rate swaps   86   Gain (loss) on foreign currency exchange   -    18 
        Interest income loans at amortized cost   (2,158)   - 
Foreign exchange forward   8,708   Interest income – securities at FVOCI   -    - 
        Interest income loans at amortized cost   (2,032)   - 
        Interest expense – borrowings and debt   -    - 
        Interest expenses – deposits   8,594    - 
        Gain (loss) on foreign currency exchange   -    - 
Total   8,363       4,404    69 

 

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)

 

4.Financial instruments (continued)

 

4.6 Derivative financial instruments for hedging purposes (continued)

 

   Six months ended at June 30, 2017 
   Gain (loss)
recognized in
OCI (effective
portion)
   Classification of gain
(loss)
  Gain (loss)
reclassified from
accumulated OCI
to the
consolidated
statement of
profit or loss
   Gain (loss)
recognized on
derivatives
(ineffective
portion)
 
Derivatives – cash flow hedge                  
Interest rate swaps   (815)  Gain (loss) on interest rate swap   -    284 
Cross-currency interest rate swaps   (1,333)  Gain (loss) on foreign currency exchange   -    43 
        Interest income loans at amortized cost   (287)   - 
Foreign exchange forward   (1,130)  Interest income – securities at FVOCI   -    - 
        Interest income loans at amortized cost   (2,832)   - 
        Interest expense – borrowings and debt   -    - 
        Interest expenses – deposits   (18,575)   - 
        Gain (loss) on foreign currency exchange   -    - 
Total   (3,278)      (21,694)   327 

 

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)

 

4.Financial instruments (continued)

 

4.6 Derivative financial instruments for hedging purposes (continued)

 

   Three months ended at June 30, 2016 
   Gain (loss)
recognized in
OCI (effective
portion)
   Classification of
gain (loss)
  Gain (loss)
reclassified from
accumulated OCI
to the
consolidated
statement of
profit or loss
   Gain (loss)
recognized on
derivatives
(ineffective
portion)
 
Derivatives – cash flow hedge                  
Interest rate swaps   (840)  Gain (loss) on interest rate swap   -    (383)
Cross-currency interest rate swaps   (1,025)  Gain (loss) on foreign exchange   -    89 
        Interest income – loans at amortized cost   (1,003)   - 
Forward foreign exchange   (661)  Interest income – securities at FVOCI   220    - 
        Interest income – loans at amortized cost   -    - 
        Interest expense – borrowings and debt   -    - 
        Interest expenses – deposits   173    - 
        Gain (loss) on foreign currency exchange   694    - 
Total   (2,526)      84    (294)

 

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)

 

4.Financial instruments (continued)

 

4.6 Derivative financial instruments for hedging purposes (continued)

 

   Six months ended at June 30, 2016 
   Gain (loss)
recognized in
OCI (effective
portion)
   Classification of
gain (loss)
  Gain (loss)
reclassified from
accumulated OCI
to the
consolidated
statement of
profit or loss
   Gain (loss)
recognized on
derivatives
(ineffective
portion)
 
Derivatives – cash flow hedge                  
Interest rate swaps   (2,458)  Gain (loss) on interest rate swap   -    (961)
Cross-currency interest rate swaps   1,762   Gain (loss) on foreign exchange   -    26 
        Interest income – loans at amortized cost   -    - 
Forward foreign exchange   (1,876)  Interest income – securities at FVOCI   -    - 
        Interest income – loans at amortized cost   (1,755)   - 
        Interest expense – borrowings and debt   -    - 
        Interest expenses – deposits   350    - 
        Gain (loss) on foreign currency exchange   4,634    - 
Total   (2,572)      3,229    (935)

 

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)

 

4.Financial instruments (continued)

 

4.6 Derivative financial instruments for hedging purposes (continued)

 

   Three months ended at June 30, 2015 
   Gain (loss)
recognized in
OCI (effective
portion)
   Classification of
gain (loss)
  Gain (loss)
reclassified from
accumulated OCI
to the
consolidated
statement of
profit or loss
   Gain (loss)
recognized on
derivatives
(ineffective
portion)
 
Derivatives – cash flow hedge                  
Interest rate swaps   875   Gain (loss) on interest rate swap   -    - 
Cross-currency interest rate swaps   2,087   Gain (loss) on foreign exchange   -    - 
        Interest income – loans at amortized cost   -    - 
Forward foreign exchange   194   Interest income – securities at FVOCI   (338)   - 
        Interest income – loans at amortized cost   (417)   - 
        Interest expense – borrowings and debt   -    - 
        Interest expenses – deposits   95    - 
        Gain (loss) on foreign currency exchange   2,805    - 
Total   3,156       2,145    - 
                   
Derivatives – net investment hedge                  
Forward foreign exchange   (416)      -    - 
Total   (416)      -    - 

 

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)

 

4.Financial instruments (continued)

 

4.6 Derivative financial instruments for hedging purposes (continued)

 

   Six months ended at June 30, 2015 
   Gain (loss)
recognized in
OCI (effective
portion)
   Classification of gain
(loss)
  Gain (loss)
reclassified from
accumulated OCI
to the
consolidated
statement of
profit or loss
   Gain (loss)
recognized on
derivatives
(ineffective
portion)
 
Derivatives – cash flow hedge                  
Interest rate swaps   (264)  Gain (loss) on interest rate swap   -    - 
Cross-currency interest rate swaps   3,046   Gain (loss) on foreign exchange   -    - 
        Interest income – loans at amortized cost   -    - 
Forward foreign exchange   1,607   Interest income – securities at FVOCI   (535)   - 
        Interest income – loans at amortized cost   (663)   - 
        Interest expense – borrowings and debt   -    - 
        Interest expenses – deposits   95    - 
        Gain (loss) on foreign currency exchange   5,833    - 
Total   4,389       4,730    - 
                   
Derivatives – net investment hedge                  
Forward foreign exchange   424       -    - 
Total   424       -    - 

 

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)

 

4.Financial instruments (continued)

 

4.6 Derivative financial instruments for hedging purposes (continued)

 

The Bank recognized in the consolidated statement of profit or loss the gain (loss) on derivative financial instruments and the gain (loss) of the hedged asset or liability related to qualifying fair value hedges, as follows:

 

   June 30, 2017
   Classification in
consolidated statement
of profit or loss
  Gain (loss) on
derivatives
   Gain (loss) on
hedge item
   Net gain (loss) 
Derivatives – fair value hedge               
Interest rate swaps  Interest income – securities at FVOCI   (79)   277    198 
   Interest income at amortized cost   (12)   158    146 
   Interest expenses – borrowings and debt   976    (10,206)   (9,230)
   Derivative financial instruments and hedging   593    (379)   214 
Cross-currency interest rate swaps  Interest income loans at amortized cost   (394)   716    322 
   Interest expenses – borrowings and debt   743    (4,772)   (4,029)
   Derivative financial instruments and hedging   19,217    (20,685)   (1,468)
Total      21,044    (34,891)   (13,847)

 

   June 30, 2016
   Classification in
consolidated statement
of profit or loss
  Gain (loss) on
derivatives
   Gain (loss) on
hedge item
   Net gain (loss) 
Derivatives – fair value hedge                  
Interest rate swaps  Interest income – securities at FVOCI   (362)   836    474 
   Interest income – loans at amortized cost   (137)   1,508    1,371 
   Interest expenses – borrowings and debt   2,889    (14,126)   (11,237)
   Derivative financial instruments and hedging   (1,404)   1,798    394 
Cross-currency interest rate swaps  Interest income – loans at amortized cost   (137)   354    217 
   Interest expenses – borrowings and debt   (36)   (2,472)   (2,508)
   Derivative financial instruments and hedging   (3,713)   3,213    (500)
Total      (2,900)   (8,889)   (11,789)

 

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)

 

4.Financial instruments (continued)

 

4.6 Derivative financial instruments for hedging purposes (continued)

 

   June 30, 2015
   Classification in
consolidated statement
of profit or loss
  Gain (loss) on
derivatives
   Gain (loss) on
hedge item
   Net gain (loss) 
Derivatives – fair value hedge                  
Interest rate swaps  Interest income – securities at FVOCI   (599)   753    154 
   Interest income at amortized cost   (215)   2,080    1,865 
   Interest expenses – borrowings and debt   2,540    (8,097)   (5,557)
   Derivative financial instruments and hedging   (3,179)   3,420    241 
Cross-currency interest rate swaps  Interest income loans at amortized cost   (122)   288    166 
   Interest expenses – borrowings and debt   813    (2,359)   (1,546)
   Derivative financial instruments and hedging   (13,353)   15,023    1,670 
Total      (14,115)   11,108    (3,007)

 

Derivatives financial position and performance

 

The following tables details the changes of the market value of the underlying item in the statement of financial position related to fair value hedges:

 

   June 30, 2017
Fair value hedges  Carrying
amount
   Thereof
accumulated
fair value
adjustments
   Line item in the statement of financial
position
Interest rate risk             
Loans   200    0.20   Loans at amortized cost
Issuances   353,339    (1,661)  Short and long term borrowings and debt
              
Foreign exchange rate risk and FX             
Securities at FVOCI   12,336    (186)  Financial instruments at FVOCI
Loans   (1,042)   (191)  Loans at amortized cost
Issuances   (25,760)   (57)  Short and long term borrowings and debt
              

 

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)

 

4.Financial instruments (continued)

 

4.6 Derivative financial instruments for hedging purposes (continued)

 

Derivatives financial position and performance (continued)

 

   December 31, 2016
Fair value hedges  Carrying
amount
   Thereof
accumulated
fair value
adjustments
   Line item in the statement of financial
position
Interest rate risk             
Loans   18,514    12   Loans at amortized cost
Issuances   752,910    2,089   Short and long term borrowings and debt
              
Foreign exchange rate risk and FX             
Securities at FVOCI   22,468    (232)  Financial instruments at FVOCI
Loans   1,469    (618)  Loans at amortized cost
Issuances   45,647    1,189   Short and long term borrowings and debt
              

 

The following tables detail the profile of the timing of the nominal amount of the hedging instrument:

 

   June 30, 2017 
Risk type  Foreign
Exchange risk
   Interest rate
risk
   Foreign exchange
and Interest
rate risk
   Total 
Up to 1 month   43,574    -    -    43,574 
31 to 60 days   27,107    39,000    -    66,107 
61 to 90 days   113,533    26,000    63    139,596 
91 to 180 days   62,430    120,200    -    182,630 
181 to 365 days   64,775    67,500    16,821    149,096 
1 to 2 years   150,561    37,000    81,320    268,881 
2 to 5 years   3,206    417,500    23,025    443,731 
More than 5 years   -    3,000    78,571    81,571 
Total   465,186    710,200    199,800    1,375,186 

 

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)

 

4.Financial instruments (continued)

 

4.6 Derivative financial instruments for hedging purposes (continued)

 

Derivatives financial position and performance (continued)

 

Analysis of maturity of the derivatives by type of risk covered:

 

   December 31, 2016 
Risk type  Foreign
Exchange risk
   Interest rate
risk
   Foreign exchange
and Interest
rate risk
   Total 
Up to 1 month   66,149    -    -    66,149 
31 to 60 days   33,393    85,000    -    118,393 
61 to 90 days   24,093    60,000    -    84,093 
91 to 180 days   71,533    745,080    -    816,613 
181 to 365 days   109,228    160,422    189    269,839 
1 to 2 years   92,115    50,000    24,948    167,063 
2 to 5 years   73,311    434,500    96,218    604,029 
More than 5 years   -    13,200    79,246    92,446 
Total   469,822    1,548,202    200,601    2,218,625 

 

The following tables detail the sources of ineffectiveness for our cash flow hedge positions:

 

   June 30, 2017 
Type of risk hedge  USD-OIS   Tenor   Xccy basis   Credit spread   Total
Ineffectiveness
 
Interest rate risk   9    301    -    (16)   294 
Foreign exchange risk   (3)   -    5    -    2 
Total   6    301    5    (16)   296 

 

   December 31, 2016 
Type of risk hedge  USD-OIS   Tenor   Xccy basis   Credit spread   Total
Ineffectiveness
 
Interest rate risk   19    -    -    604    623 
Foreign exchange risk   25    -    (4)   (5)   16 
Total   44    -    (4)   599    639 

 

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)

 

4.Financial instruments (continued)

 

4.6Derivative financial instruments for hedging purposes (continued)

 

For control purposes, derivative instruments are recorded at their nominal amount (“notional amount”) in memorandum 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 trades 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 credit and investment portfolio. The Bank also uses foreign currency exchange contracts to hedge the foreign exchange risk associated with the Bank’s equity investment in a non-U.S. dollar functional currency foreign subsidiary. Derivative and foreign exchange 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 6.69 years.

 

The Bank estimates that approximately $733 reported as losses in OCI as of June 30, 2017, related to foreign exchange forward contracts, are expected to be reclassified into interest income as an adjustment to yield of hedged loans during the twelve-month period ending June 30, 2018.

 

The Bank estimates that approximately $1,041of losses reported in OCI as of June 30, 2017, related to forward foreign exchange contracts are expected to be reclassified into interest expense as an adjustment to yield of hedged available-for-sale securities during the twelve-month period ending June 30, 2018.

 

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 a 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 a 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.

 

In addition to hedging derivative financial instruments, the Bank has derivative financial instruments held for trading purposes as disclosed in Note 4.1.

 

4.7 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 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.

 

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)

 

4.Financial instruments (continued)

 

4.7Offsetting of financial assets and liabilities (continued)

 

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, 2017
       Gross amounts
offset in the
consolidated
   Net amount of
assets presented
in the
   Gross amounts not offset in
the consolidated statement
of financial position
     
Description  Gross
amounts
assets
   statement of
financial
position
   consolidated
statement of
financial position
   Financial
instruments
   Cash
collateral
received
   Net
Amount
 
Financial assets at FVTPL   13    -    13    -    -    13 
Derivative financial instruments-hedging   6,497    -    6,497    -    (13,704)   (7,207)
Total   6,510    -    6,510    -    (13,704)   (7,194)

 

December 31, 2016
       Gross amounts
offset in the
consolidated
   Net amount of
assets presented
in the
   Gross amounts not offset in
the consolidated statement
of financial position
     
Description  Gross
amounts
assets
   statement of
financial
position
   consolidated
statement of
financial position
   Financial
instruments
   Cash
collateral
received
   Net
Amount
 
Derivative financial instruments   9,352    -    9,352    -    -    9,352 
Total   9,352    -    9,352    -    -    9,352 

 

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)

 

4.Financial instruments (continued)

 

4.7Offsetting of financial assets and liabilities (continued)

 

a)Derivative financial instruments – assets (continued)

 

The following table presents the reconciliation of assets that have been offset or are subject to master netting agreements to individual line items in the consolidated statement of financial position:

 

   June 30, 2017 
Description  Gross amounts
of assets
   Gross amounts
offset in the
consolidated
statement of
financial position
   Net amount of assets
presented
in the consolidated
statement of
financial position
 
Financial assets at FVTPL   13    -    13 
Derivative financial instruments - hedging   6,497    -    6,497 
Total   6,510    -    6,510 

 

   December 31, 2016 
Description  Gross amounts
of assets
   Gross amounts
offset in the
consolidated
statement of
financial position
   Net amount of assets
presented
in the consolidated
statement of
financial position
 
Derivative financial instruments used for hedging   9,352    -    9,352 
Total   9,352    -    9,352 

 

b)Financial liabilities and derivative financial instruments – liabilities

 

June 30, 2017
   Gross   Gross
amounts
offset in the
consolidated
   Net amount
of liabilities
presented
in the
consolidated
   Gross amounts not offset
in the consolidated
statement of financial
position
     
Description  amounts
of
liabilities
   statement of
financial
position
   statement of
financial
position
   Financial
instruments
   Cash
collateral
pledged
   Net
Amount
 
                         
Financial liabilities at FVTPL   27    -    27    -    -    27 
Derivative financial instruments - hedging   33,946    -    33,946    -    (45,197)   (11,251)
Total   33,973    -    33,973    -    (45,197)   (11,224)

 

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)

 

4.Financial Instruments (continued)

 

4.7 Offsetting of financial assets and liabilities (continued)

 

b)Financial liabilities and derivative financial instruments – liabilities (continued)

 

December 31, 2016
   Gross   Gross
amounts
offset in the
consolidated
   Net amount
of liabilities
presented
in the
consolidated
   Gross amounts not offset
in the consolidated
statement of financial
position
     
Description  amounts
of
liabilities
   statement of
financial
position
   statement of
financial
position
   Financial
instruments
   Cash
collateral
pledged
   Net
Amount
 
                         
Financial liabilities at FVTPL   24    -    24    -    -    24 
Derivative financial instruments - hedging   59,686    -    59,686    -    (59,012)   674 
Total   59,710    -    59,710    -    (59,012)   698 

 

The following table presents the reconciliation of liabilities that have been offset or are subject to master netting agreements to individual line items in the consolidated statement of financial position:

 

   June 30, 2017 
Description  Gross amounts
of liabilities
   Gross amounts
offset in the
consolidated
statement of
financial position
   Net amount of
liabilities presented
in the consolidated
statement of
financial position
 
             
Derivative financial instruments:               
Financial liabilities at FVTPL   27    -    27 
Derivative financial instruments used for hedging   33,946    -    33,946 
Total derivative financial instruments   33,973    -    33,973 

 

   December 31, 2016 
Description  Gross amounts
of liabilities
   Gross amounts
offset in the
consolidated
statement of
financial position
   Net amount of
liabilities presented
in the consolidated
statement of
financial position
 
             
Derivative financial instruments:               
Financial liabilities at FVTPL   24    -    24 
Derivative financial instruments used for hedging   59,686    -    59,686 
Total derivative financial instruments   59,710    -    59,710 

 

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)

 

5.Loans commitments and financial guarantees contracts

 

In the normal course of business, to meet the financing needs of its customers, the Bank is party to loans commitments and financial guarantees 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 loans commitments and financial guarantees contracts are as follows:

 

   June 30,
2017
   December 31,
2016
 
Confirmed letters of credit   254,071    216,608 
Stand-by letters of credit and guaranteed –
Commercial risk
   2,342    176,177 
Credit commitments   7,438    10,250 
Total   263,851    403,035 

 

The remaining maturity profile of the Bank’s outstanding loans commitments and financial guarantees contracts is as follows:

 

Maturities  June 30,
2017
   December 31,
2016
 
Up to 1 year   246,713    399,257 
From 1 to 2 years   13,000    - 
From 2 to 5 years   578    3,200 
More than 5 years   3,560    578 
    263,851    403,035 

 

Loans commitments and financial guarantees contracts classified by issuer’s credit quality indicators are as follows:

 

Rating(1)  June 30,
2017
   December 31,
2016
 
1-4   95,181    145,255 
5-6   168,670    193,368 
7   -    64,412 
8   -    - 
9   -    - 
10   -    - 
Total   263,851    403,035 

 

(1)Current ratings as of June 30, 2017 and December 31, 2016, respectively.

 

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)

 

5.Loans commitments and financial guarantees contracts (continued)

 

The breakdown of the Bank’s loans commitments and financial guarantees contracts exposure by country risk is as follows:

 

   June 30,
2017
  

December 31,
2016

 
Country:          
Argentina   141    - 
Bolivia   62    190 
Canada   200    160 
Colombia   81,020    78,815 
Costa Rica   9,556    2,250 
Dominican Republic   -    26,787 
Ecuador   87,890    172,522 
El Salvador   1,339    1,305 
Guatemala   1,700    7,000 
Honduras   1,202    1,170 
Mexico   11,738    11,118 
Panama   40,283    39,756 
Paraguay   29    - 
Peru   27,946    42,764 
Switzerland   -    1,000 
United Kingdom   -    70 
Uruguay   745    18,128 
Total   263,851    403,035 

 

Letters of credit and guarantees

 

The Bank, on behalf of its client’s base, advises and confirms letters of credit to facilitate foreign trade transactions. When confirming letters of credit, the Bank adds its own unqualified assurance that the issuing bank will pay and that if the issuing bank does not honor drafts drawn on the letter of credit, the Bank will. The Bank provides 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 issued the commitment is irrevocable and remains valid until its expiration. Credit risk arises from the Bank's obligation to make payment in the event of a client’s contractual default to a third party. Risks associated with stand-by letters of credit and guarantees are included in the evaluation of the Bank’s overall credit risk.

 

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 down, the total commitment amounts do not necessarily represent future cash requirements.

 

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)

 

5.Loans commitments and financial guarantees contracts (continued)

 

The allowances for credit losses related to loans commitments and financial guarantees contracts are as follows:

 

   Stage 1 (1)   Stage 2 (2)    Stage 3 (3)   Total 

Allowance for expected credit losses as of December 31, 2016

   1,144    4,632    -    5,776 
Transfer to lifetime expected credit losses   (6)   6    -    - 
Transfer to credit-impaired instruments   -    -    -    - 
Transfer to 12-month expected credit losses   -    -    -    - 
Net effect of changes in reserve for expected
credit loss
   (707)   (254)   -    (961)
Instruments that have been derecognized during the period   (838)   (370)   -    (1,208)
Changes due to instruments recognized as of December 31, 2016:   (1,551)   (618)   -    (2,169)
New instruments originated or purchased   1,008    -    -    1,008 

Allowance for expected credit losses as of June 30, 2017

   601    4,014    -    4,615 

 

   Stage 1 (1)   Stage 2 (2)    Stage 3 (3)   Total 

Allowance for expected credit losses as of December 31, 2015

   2,914    2,510    -    5,424 
Transfer to lifetime expected credit losses   (646)   693    -    47 
Transfer to credit-impaired instruments   -    -    -    - 
Transfer to 12-month expected credit losses   -    -    -    - 
Net effect of changes in reserve for expected
credit loss
   (748)   1,756    -    1,008 
Instruments that have been derecognized during the year   (2,631)   (326)   -    (2,957)
Changes due to instruments recognized as of December 31, 2015:   (4,025)   2,123    -    (1,902)
New instruments originated or purchased   2,254    -    -    2,254 

Allowance for expected credit losses as of December 31, 2016

   1,143    4,633    -    5,776 

 

(1)12-month expected credit losses.
(2)Lifetime expected credit losses.
(3)Credit-impaired financial assets (lifetime expected credit losses).

 

The reserve for expected credit losses on loans commitments and financial guarantees 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.

 

6.Other assets

 

Following is a summary of other assets:

 

   June 30,
2017
   December 31,
2016
 
Accounts receivable   5,815    5,413 
IT projects under development   4,751    4,199 
Other (1)   9,247    1,934 
    19,813    11,546 

 

(1)As of June 30, 2017, $7.6 million corresponds to financial leasing under development.

 

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)

 

7.Deposits

 

The maturity profile of the Bank’s deposits is as follows:

 

   June 30,
2017
   December 31,
2016
 
Demand   126,977    127,014 
Up to 1 month   1,229,202    1,201,328 
From 1 month to 3 months   546,026    463,479 
From 3 month to 6 months   593,547    336,627 
From 6 month to 1 year   591,268    436,884 
From 1 year to 2 years   215,131    190,000 
From 2 years to 5 years   51,404    47,520 
    3,353,555    2,802,852 

 

The following table presents additional information regarding the Bank’s deposits:

 

   June 30,
2017
   December 31,
2016
 
Aggregate amounts of time deposits of $100,000 or more   3,353,099    2,802,474 
Aggregate amounts of deposits in the New York Agency   261,652    250,639 

 

   Three months ended June 30, 
   2017   2016   2015 
Interest expense paid to deposits in the New York Agency.   847    464    310 

 

   Six months ended June 30, 
   2017   2016   2015 
Interest expense paid to deposits in the New York Agency.   1,557    853    602 

 

8.Securities sold under repurchase agreements

 

As of June 30, 2017 and December 31, 2016, the Bank does not have financing transactions under repurchase agreements.

 

As of June 30, 2017, the Bank did not incur interest expense generated by financing transactions under repurchase agreements. During the periods ended June 30, 2016 and 2015, interest expense related to financing transactions under repurchase agreements totaled $554 and $223, respectively, corresponding to interest expense generated by the financing contracts under repurchase agreements. These expenses are included in the interest expense – short-term borrowings and debt line in the consolidated statements of profit or loss.

 

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)

 

9.Borrowings and debt

 

9.1Short-term borrowings and debt

 

The breakdown of short-term (original maturity of less than one year) borrowings and debt, together with contractual interest rates, is as follows:

 

   June 30,
2017
   December 31,
2016
 
Short-term Borrowings:          
At fixed interest rates   192,256    788,075 
At floating interest rates   277,500    657,000 
Total borrowings   469,756    1,445,075 
           
Short-term Debt:          
At fixed interest rates   17,300    25,000 
At floating interest rates   -    - 
Total debt   17,300    25,000 
Total short-term borrowings and debt   487,056    1,470,075 
           
Average outstanding balance during the period   839,856    1,348,230 
Maximum balance at any month-end   1,070,070    1,876,322 
Range of fixed interest rates on borrowing and debt in U.S. dollars   1.30% to 1.75%    1.10% to 1.50% 
Range of floating interest rates on borrowing in U.S. dollars   1.55% to 1.82%    1.14% to 1.48% 
Range of fixed interest rates on borrowing in Mexican pesos   6.16% to 7.49%    6.16%
Range of floating interest rate on borrowing in Mexican pesos   -    5.72%
Weighted average interest rate at end of the period   1.70%   1.30%
Weighted average interest rate during the period   1.43%   1.10%

 

The balances of short-term borrowings and debt by currency, is as follows:

 

   June 30,
2017
   December 31,
2016
 
Currency          
US dollar   477,800    1,470,000 
Mexican peso   9,256    75 
Total   487,056    1,470,075 

 

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)

 

9.Borrowings and debt (continued)

 

9.2 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 market. The breakdown of borrowings and long-term debt (original maturity of more than one year), together with contractual interest rates gross of prepaid commission of $6,156 and $5,133 as of June 30, 2017 and December 31, 2016, respectively, is as follows:

 

   June 30,
2017
   December 31,
2016
 
Long-term Borrowings:          
           
At fixed interest rates with due dates from September 2017 to February 2022.   76,817    61,148 
At floating interest rates with due dates from November 2017 to March 2021.   682,098    631,326 
Total borrowings   758,915    692,474 
           
Long-term Debt:          
           
At fixed interest rates with due dates from March 2018 to March 2024.   530,975    921,479 
At floating interest rates with due dates from January 2018 to March 2022.   201,973    167,918 
Total long-term debt   732,948    1,089,397 
Total long-term borrowings and debt outstanding   1,491,863    1,781,871 
           
Average outstanding balance during the period   1,652,208    1,881,085 
Maximum outstanding balance at any month – end   2,010,078    2,054,138 
Range of fixed interest rates on borrowing and debt in U.S. dollars   1.35% to 3.25%    2.85% to 3.75% 
Range of floating interest rates on borrowing in U.S. dollars   2.07% to 2.75%    1.66% to 2.49% 
Range of fixed interest rates on borrowing in Mexican pesos   4.75% to 9.09%    4.75% to 8.90% 
Range of floating interest rates on borrowing and debt in Mexican pesos   7.57% to 8.06%    6.19% to 6.54% 
Range of fixed interest rate on debt in Japanese yens   0.46% to 0.81%    0.46% to 0.81% 
Range of fixed interest rate on debt in Euros   3.75%   3.75%
Range of fixed interest rate on debt in Australian dollar   3.33%   3.33%
Weighted average interest rate at the end of the period   3.34%   2.98%
Weighted average interest rate during the period   3.32%   2.84%

 

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)

 

9.Borrowings and debt (continued)

 

9.2Long-term borrowings and debt (continued)

 

The balances of long-term borrowings and debt by currency, is as follows:

 

   June 30,
2017
   December 31,
2016
 
Currency          
US dollar   1,076,609    1,392,995 
Mexican peso   236,888    219,347 
Japanese yen   98,771    95,238 
Euro   56,534    52,574 
Australian dollar   23,061    21,717 
Total   1,491,863    1,781,871 

 

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 “Mexico Program”) in the Mexican local market, registered with the Mexican National Registry of Securities maintained 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, 2017 the Bank was in compliance with all covenants.

 

The future maturities of long-term borrowings and debt outstanding as of June 30, 2017, are as follows:

 

Due in  Outstanding 
2017   55,983 
2018   426,363 
2019   363,837 
2020   378,199 
2021   200,893 
2022   10,054 
2024   56,534 
    1,491,863 

 

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)

 

10.Other liabilities

 

Following is a summary of other liabilities:

 

   June 30,
2017
   December 31,
2016
 
Accruals and other accumulated expenses   2,928    4,170 
Accounts payable   9,662    11,179 
Others   2,379    2,979 
    14,969    18,328 

 

11.Earnings per share

 

The following table presents a reconciliation of the income and share data used in the basic and diluted earnings per share (“EPS”) computations for the dates indicated:

 

   Three months ended   Six months ended 
   June 30,   June 30, 
   2017   2016   2015   2017   2016   2015 
Profit for the period   17,481    22,272    13,518    40,939    45,710    43,386 
                               
Basic earnings per share   0.44    0.57    0.35    1.04    1.17    1.12 
Diluted earnings per share   0.44    0.57    0.35    1.04    1.17    1.11 
                               
Weighted average common shares outstanding - applicable to basic   39,317    39,078    38,954    39,252    39,037    38,880 
                               
Effect of diluted securities:                              
Stock options and restricted stock units plans   30    120    119    28    83    135 
Adjusted weighted average common shares outstanding applicable to diluted EPS   39,347    39,198    39,073    39,280    39,120    39,015 

 

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)

 

12.Capital and Reserves

 

Common stock

 

The Bank’s common stock is divided into four categories:

 

1)“Class A”; shares may only be issued to Latin American Central Banks or banks in which the state or other government agency is the majority shareholder.
2)“Class B”; shares may only be issued to banks or financial institutions.
3)“Class E”; shares may be issued to any person whether a natural person or a legal entity.
4)“Class F”; may only be issued to state entities and agencies of non-Latin American countries, including, among others, central banks and majority state-owned banks in those countries, and multilateral financial institutions either international or regional institutions.

 

The holders of “Class B” shares have the right to convert or exchange their “Class B” shares, at any time, and without restriction, for “Class E” shares, at a rate of one-to-one.

 

The following table provides detailed information on the Bank’s common stock activity per class for each of the periods in the three-year period ended June 30, 2017, 2016 and 2015:

 

(Share units)  “Class A”     “Class B”         “Class E”   “Class F”   Total 
Authorized   40,000,000    40,000,000    100,000,000    100,000,000    280,000,000 
                          
Outstanding at January 1, 2015   6,342,189    2,479,050    29,956,100    -    38,777,339 
Conversions   -    -    -    -    - 
Repurchase common stock   -    -    -    -    - 
Restricted stock issued – directors   -    -    57,000    -    57,000 
Exercised stock options - compensation plans   -    -    70,358    -    70,358 
Restricted stock units – vested   -    -    64,208    -    64,208 
Outstanding at June 30, 2015   6,342,189    2,479,050    30,147,666    -    38,968,905 
                          
Outstanding at January 1, 2016   6,342,189    2,474,469    30,152,247    -    38,968,905 
Conversions   -    -    -    -    - 
Restricted stock issued – directors   -    -    57,000    -    57,000 
Exercised stock options - compensation plans   -    -    -    -    - 
Restricted stock units – vested   -    -    69,678    -    69,678 
Outstanding at June 30, 2016   6,342,189    2,474,469    30,278,925    -    39,095,583 
                          
Outstanding at January 1, 2017   6,342,189    2,474,469    30,343,390    -    39,160,048 
Repurchase common stock   -    (1,000)   -    -    (1,000)
Restricted stock issued – directors   -    -    57,000    -    57,000 
Exercised stock options - compensation plans   -    -    74,995    -    74,995 
Restricted stock units – vested   -    -    70,519    -    70,519 
Outstanding at June 30, 2017   6,342,189    2,473,469    30,545,904    -    39,361,562 

 

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)

 

12.Capital and Reserves (continued)

 

The following table presents information regarding shares repurchased but not retired by the Bank and accordingly classified as treasury stock:

 

   “Class A”   “Class B”   “Class E”   Total 
   Shares   Amount   Shares   Amount   Shares   Amount    Shares     Amount 
Outstanding at January 1, 2015   318,140    10,708    589,174    16,242    2,295,186    50,677    3,202,500    77,627 
Repurchase of common stock   -    -    -    -    -    -    -    - 
Restricted stock issued – directors   -    -    -    -    (57,000)   (1,259)   (57,000)   (1,259)
Exercised stock options - compensation plans   -    -    -    -    (70,358)   (1,553)   (70,358)   (1,553)
Restricted stock units – vested   -    -    -    -    (64,208)   (1,418)   (64,208)   (1,418)
Outstanding at June 30, 2015   318,140    10,708    589,174    16,242    2,103,620    46,447    3,010,934    73,397 
                                         
Outstanding at January 1, 2016   318,140    10,708    589,174    16,242    2,103,620    46,447    3,010,934    73,397 
Repurchase of common stock   -    -    -    -    -    -    -    - 
Restricted stock issued – directors   -    -    -    -    (57,000)   (1,259)   (57,000)   (1,259)
Exercised stock options - compensation plans   -    -    -    -    -    -    -    - 
Restricted stock units – vested   -    -    -    -    (69,678)   (1,538)   (69,678)   (1,538)
Outstanding at June 30, 2016   318,140    10,708    589,174    16,242    1,976,942    43,650    2,884,256    70,600 
                                         
Outstanding at January 1, 2017   318,140    10,708    589,174    16,242    1,912,477    42,226    2,819,791    69,176 
Repurchase of common stock   -    -    1,000    28    -    -    1,000    28 
Restricted stock issued - directors   -    -    -    -    (57,000)   (1,259)   (57,000)   (1,259)
Exercised stock options - compensation plans   -    -    -    -    (74,995)   (1,656)   (74,995)   (1,656)
Restricted stock units - vested   -    -    -    -    (70,519)   (1,557)   (70,519)   (1,557)
Outstanding at June 30, 2017   318,140    10,708    590,174    16,270    1,709,963    37,754    2,618,277    64,732 

 

Reserves

 

The Banking Law in the Republic of Panama requires banks with general banking license to maintain a total capital adequacy index that shall not be lower than 8% of total assets and off-balance sheet irrevocable contingency transactions, weighted according to their risk; and primary capital equivalent that shall not be less than 4.5% of its assets and loans commitments and financial guarantees contracts, weighted according to their risk. As of June 30, 2017, the Bank’s total capital adequacy ratio is 17.97% which is in compliance with the minimum capital adequacy ratios required by the Banking Law in the Republic of Panama.

 

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)

 

12.Capital and Reserves (continued)

 

Restriction on retained earnings

 

The Bank does not have restrictions on its ability to access its retained earnings other than those resulting from the supervisory framework within which the Bank operates. The supervisory framework requires banks to keep an additional reserve within equity for credit risk coverage of its credit facilities. As of June 30, 2017 and December 31, 2016, the amount stands at $114.5 million and $62.5 million, respectively of retained earnings are restricted from dividend distribution for purposes of complying with local regulatory requirements.

 

Additional paid-in capital

 

As of June 30, 2017 and December, 31 2016, the additional paid-in capital consists of additional cash contributions to the common capital paid by shareholders.

 

13.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 consolidated statement of financial positions, revenue and expense items to each business segment on a systematic basis. The Chief Operating Decision Maker (CODM), represented by the Chief Executive Officer (CEO) and the Management Committee reviews internal management reports from each division at least quarterly. 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, such as for 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 incorporates all of the Bank’s financial intermediation and fees generated by the commercial portfolio. The commercial portfolio includes book value of loans at amortized cost, acceptances, loan commitments and financial guarantee contracts. Profits from the Commercial Business Segment include net interest income from loans at amortized cost, fee income, gain on sale of loans at amortized cost, impairment loss from expected credit losses on loans at amortized cost, impairment loss from expected credit losses on loan commitments and financial guarantee contracts, and allocated expenses.

 

The Treasury Business Segment incorporates deposits in banks and all of the Bank’s financial instruments at fair value through profit or loss, financial instruments at fair value through OCI and securities at amortized cost. Profits from the Treasury Business Segment include net interest income from deposits with banks, financial instruments at fair value through OCI and securities at amortized cost, derivative financial instruments foreign currency exchange, gain (loss) for financial instrument at fair value through profit or loss, gain (loss) for financial instrument at fair value through OCI, impairment loss for expected credit losses on investment securities, other income and allocated expenses.

 

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)

 

13.Business segment information (continued)

 

The following table provides certain information regarding the Bank’s operations by segment:

 

   Periods ended June 30, 
   2017   2016   2015 
Commercial               
Interest income   109,137    116,496    101,098 
Interest expense   (45,822)   (46,984)   (39,856)
Net interest income   63,315    69,512    61,242 
Net other income (2)   8,687    7,780    6,269 
Total income   72,002    77,292    67,511 
Impairment loss from expected credit losses on loans at amortized cost and impairment loss from expected credit losses on loan commitments and financial guarantee contracts   (8,458)   (12,775)   (8,290)
Expenses, less impairment loss from expected credit losses   (18,494)   (16,880)   (20,300)
Profit for the period   45,050    47,637    38,921 
Commercial assets and loan commitments and financial guarantee contracts (end of period balances):               
Interest-earning assets (3 and 5)   5,563,592    6,511,779    6,682,445 
Other assets and loan commitments and financial guarantee contracts (4)   269,575    395,585    437,436 
Total interest-earning assets, other assets and loan commitments and financial guarantee contracts   5,833,167    6,907,364    7,119,881 
                
Treasury               
Interest income   6,093    5,135    5,380 
Interest expense   (5,631)   3,057    4,010 
Net interest income   462    8,192    9,390 
Net other income (2)   276    (4,084)   1,418 
Total income   738    4,108    10,808 
Impairment loss for expected credit losses on investment securities   465    (486)   (829)
Expenses, less impairment loss for expected credit losses   (5,314)   (5,549)   (5,514)
Profit (loss) for the period   (4,111)   (1,927)   4,465 
Treasury assets (end of period balances):               
Interest-earning assets (3 and 5)   898,777    1,124,621    1,603,395 
Total interest-earning assets   898,777    1,124,621    1,603,395 
                
Combined business segment total               
Interest income   115,230    121,631    106,478 
Interest expense   (51,453)   (43,927)   (35,846)
Net interest income   63,777    77,704    70,632 
Net other income (2)   8,963    3,696    7,687 
Total income   72,740    81,400    78,319 
Impairment loss from expected credit losses on loans at amortized cost and impairment loss from expected credit losses on loan commitments and financial guarantee contracts   (8,458)   (12,775)   (8,290)
Impairment loss from expected credit losses on investment securities   465    (486)   (829)
Expenses, less impairment loss from expected credit losses   (23,808)   (22,429)   (25,814)
Profit for the period   40,939    45,710    43,386 

 

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)

 

13.Business segment information (continued)

 

   June 30,
2017
   December 31,
2016
 
Total assets and loan commitments and financial guarantee contracts (end of period balances):          
Interest-earning assets (2 and 4)   6,462,369    7,191,443 
Other assets and loan commitments and financial guarantee contracts (3)   269,575    422,422 
Total interest-earning assets, other assets and loan commitments and financial guarantee contracts   6,731,944    7,613,865 

 

(1)The numbers set out in these tables have been rounded and accordingly may not total exactly. Net other income consists of other income including gains on sale of loans at amortized cost, gains (loss) per financial instrument at FVTPL and FVOCI, derivative instruments and foreign currency exchange.
(2)Includes deposits and loans at amortized cost, net of unearned interest and deferred fees.
(3)Includes customers’ liabilities under acceptances, loans commitments and financial guarantees contracts.
(4)Includes cash and cash equivalents, interest-bearing deposits with banks, financial instruments at fair value through OCI, financial instruments at amortized cost and financial instruments at fair value through profit or loss.

 

   June 30,
2017
   December 31,
2016
 
Reconciliation of total assets:          
Interest-earning assets – business segment   6,462,369    7,191,443 
Allowance for expected credit losses on loans at amortized cost   (115,607)   (105,988)
Allowance for expected credit losses on securities at amortized cost   (148)   (602)
Customers’ liabilities under acceptances   5,194    19,387 
Intangibles, net   2,534    2,909 
Accrued interest receivable   33,466    44,187 
Property and equipment, net   8,044    8,549 
Derivative financial instruments used for  hedging - receivable   6,497    9,352 
Other assets   19,813    11,546 
           
Total assets  – consolidated financial statements   6,422,162    7,180,783 

 

14.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 assumptions 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 evaluate 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.

 

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)

 

14.Fair value of financial instruments (continued)

 

Level 3 – Assets or liabilities for which significant valuation assumptions 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 assumptions that market participants would use when pricing the asset or liability. When possible, the Bank uses active and observable markets to price 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 volume or 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.

 

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.

 

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 of similar instruments, or where these are not available, by using internal valuation techniques, principally discounted cash flows models. Such securities are classified within level 2 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.

 

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)

 

14.Fair value of financial instruments (continued)

 

Derivative financial instruments (continued)

 

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.

 

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 its fair value at the date of transfer. The fair value of instruments is determined based upon quoted market prices when available, or are 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.

 

Financial instruments measured at fair value on a recurring basis by caption on the consolidated statement of financial positions using the fair value hierarchy are described below:

 

   June 30, 2017 
   Level 1(a)   Level 2(b)   Level 3(c)   Total 
Assets                    
Securities at fair value through OCI:                    
Corporate debt   -    -    -    - 
Sovereign debt   16,435    -    -    16,435 
Total securities at fair value through OCI   16,435    -    -    16,435 
Financial instruments at FVTPL                    
Foreign exchange forward   -    13    -    13 
Total financial instruments at FVTPL   -    13    -    13 
Derivative financial instruments used for hedging – receivable:                    
Interest rate swaps   -    246    -    246 
Cross-currency interest rate swaps   -    2,166    -    2,166 
Foreign exchange forward   -    4,085    -    4,085 
Total derivative financial instrument used for hedging – receivable   -    6,497    -    6,497 
Total financial assets at fair value   16,435    6,510    -    22,945 
                     
Liabilities                    
Financial instruments at FVTPL                    
Foreign exchange forward   -    27    -    27 
Total financial instruments at FVTPL   -    27    -    27 
Derivative financial instruments used for hedging – payable:                    
Interest rate swaps   -    2,809    -    2,809 
Cross-currency interest rate swaps   -    27,601    -    27,601 
Foreign exchange forward   -    3,536    -    3,536 
Total derivative financial instruments used for hedging – payable   -    33,946    -    33,946 
Total financial liabilities at fair value   -    33,973    -    33,973 

 

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)

 

14.Fair value of financial instruments (continued)

 

   December 31, 2016 
   Level 1(a)   Level 2(b)   Level 3(c)   Total 
Assets                    
Securities at fair value through OCI:                    
Corporate debt   13,909    -    -    13,909 
Sovereign debt   13,912    2,786    -    16,698 
Total securities at fair value through OCI   27,821    2,786    -    30,607 
Derivative financial instruments used for hedging – receivable:                    
Interest rate swaps   -    363    -    363 
Cross-currency interest rate swaps   -    2,561    -    2,561 
Foreign exchange forward   -    6,428    -    6,428 
Total derivative financial instrument used for hedging – receivable   -    9,352    -    9,352 
Total financial assets at fair value   27,821    12,138    -    39,959 
Liabilities                    
Financial instruments at FVTPL:                    
Interest rate swaps   -    -    -    - 
Cross-currency interest rate swaps   -    -    -    - 
Foreign exchange forward   -    24    -    24 
Total financial instruments at FVTPL   -    24    -    24 
Derivative financial instruments used for hedging – payable:                    
Interest rate swaps   -    3,704    -    3,704 
Cross-currency interest rate swaps   -    46,198    -    46,198 
Foreign exchange forward   -    9,784    -    9,784 
Total derivative financial instruments used for hedging – payable   -    59,686    -    59,686 
Total financial liabilities at fair value   -    59,710    -    59,710 

 

(a)Level 1: Quoted market prices in an active market.
(b)Level 2: Internally developed models with significant observable market or quoted market prices in an inactive market.
(c)Level 3: Internally developed models with significant unobservable market information.

 

The following information should not be interpreted as an estimate of the fair value of the Bank. 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.

 

The following methods and assumptions 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, accrued interest receivable and certain financial liabilities including customer’s demand and time deposits, securities sold under repurchase agreements, accrued interest payable, and acceptances outstanding, as a result of their short-term nature, are considered to approximate fair value. These instruments are classified in Level 2.

 

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)

 

14.Fair value of financial instruments (continued)

 

Securities at amortized cost

 

The fair value has been based upon current market quotations, where available. If quoted market prices are not available, fair value has been estimated based upon quoted price 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 at amortized cost

 

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 Level 2.

 

Short and long-term borrowings and debt

 

The fair value of short and long-term borrowings and debt is estimated using discounted cash flow analysis based on the current incremental borrowing rates for similar types of borrowing arrangements, taking into account the changes in the Bank’s credit margin. These liabilities are classified in Level 2.

 

The following table provides information on the carrying value and estimated fair value of the Bank’s financial instruments that are not measured on a recurring basis:

 

   June 30, 2017 
   Carrying
value
   Fair
 value
   Level 1(a)   Level 2(b)   Level 3(c) 
Financial assets                         
Instruments with carrying value that approximates fair value                         
Cash and deposits on banks   819,390    819,390    -    819,390    - 
Acceptances   5,194    5,194    -    5,194    - 
Interest receivable   33,466    33,466    -    33,466    - 
Securities at amortized cost (2)   62,791    63,115    57,865    5,250    - 
Loans at amortized cost (1)   5,447,985    5,540,374    -    5,540,374    - 
                          
Financial liabilities                         
Instruments with carrying value that approximates fair value                         
Deposits   3,353,555    3,353,555    -    3,353,555    - 
Acceptances   5,194    5,194    -    5,194    - 
Interest payable   12,953    12,953    -    12,953    - 
Short-term borrowings and debt   487,056    487,190    -    487,190    - 
Long-term borrowings and debt   1,485,707    1,523,648    -    1,523,648    - 

 

(a)Level 1: Quoted market prices in an active market.
(b)Level 2: Internally developed models with significant observable market or quoted market prices in an inactive market.
(c)Level 3: Internally developed models with significant unobservable market information.

 

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)

 

14.Fair value of financial instruments (continued)

 

The following table provides information on the carrying value and estimated fair value of the Bank’s financial instruments that are not measured on a recurring basis:

 

   December 31, 2016 
   Carrying
value
   Fair
 value
   Level 1(a)   Level 2(b)   Level 3(c) 
Financial assets                         
Instruments with carrying value that approximates fair value                         
Cash and deposits on banks   1,069,538    1,069,538    -    1,069,538    - 
Acceptances   19,387    19,387    -    19,387    - 
Interest receivable   44,187    44,187    -    44,187    - 
Securities at amortized cost (2)   77,214    76,406    73,406    3,000    - 
Loans at amortized cost (1)   5,907,494    6,021,006    -    6,021,006    - 
                          
Financial liabilities                         
Instruments with carrying value that approximates fair value                         
Deposits   2,802,852    2,802,852    -    2,802,852    - 
Acceptances   19,387    19,387    -    19,387    - 
Interest payable   16,603    16,603    -    16,603    - 
Short-term borrowings and debt   1,470,075    1,470,045    -    1,470,045    - 
Long-term borrowings and debt   1,776,738    1,808,228    -    1,808,228    - 

  

(a)Level 1: Quoted market prices in an active market.
(b)Level 2: Internally developed models with significant observable market or quoted market prices in an inactive market.
(c)Level 3: Internally developed models with significant unobservable market information.

 

(1)The carrying value of loans at amortized cost is net of the allowance for expected credit losses of $115.6 million and unearned interest and deferred fees of $6.7 million for June 30, 2017; allowance for expected credit losses of $106.0 million and unearned interest and deferred fees of $7.2 million for December 31, 2016.
(2)The carrying value of securities at amortized cost is net of the allowance for expected credit losses of $0.1 million for June 30, 2017 and $0.6 million for December 31, 2016.

 

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)

 

15.Accumulated other comprehensive income (loss)

 

The breakdown of accumulated other comprehensive income (loss) related to financial instruments at FVOCI, derivative financial instruments, and foreign currency translation is as follows:

 

   Financial
instruments at
FVOCI
   Derivative
financial
instruments
  

 

Total

 
Balance as of January 1, 2015   (6,817)   (1,020)   (7,837)
Net unrealized gain (loss) arising from the period   4,402    (2,006)   2,396 

Reclassification adjustment for (gains) loss included in the profit

of the period (1)

   (1,154)   2,206    1,052 
Other comprehensive income (loss) from the period   3,248    200    3,448 
Balance as of June 30, 2015   (3,569)   (820)   (4,389)
                
Balance as of January 1, 2016   (8,931)   (1,750)   (10,681)
Net unrealized gain (loss) arising from the period   5,730    (2,677)   3,053 

Reclassification adjustment for (gains) loss included in the profit

of the period (1)

   1,670    (1,821)   (151)
Other comprehensive income (loss) from the period   7,400    (4,498)   2,902 
Balance as of June 30, 2016   (1,531)   (6,248)   (7,779)
                
Balance as of January 1, 2017   (853)   (1,948)   (2,801)
Net unrealized gain (loss) arising from the period   (57)   939    882 

Reclassification adjustment for (gains) loss included in the profit

of the period (1)

   173    (1,687)   (1,514)
Other comprehensive income (loss) from the period   116    (748)   (632)
Balance as of June 30, 2017   (737)   (2,696)   (3,433)

 

(1) Reclassification adjustments include amounts recognized in profit of the year that had been part of other comprehensive income (loss) in this and previous years.

 

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)

 

15.Accumulated other comprehensive income (loss) (continued)

 

The following table presents amounts reclassified from other comprehensive income to the profit of the period:

 

Three months ended June 30, 2017
Details about accumulated other
comprehensive income components
  Amount reclassified
from accumulated other
comprehensive income
   Affected line item in the consolidated statement of
profit or loss where net income is presented
Realized gains (losses) on financial instruments at FVOCI:   -   Interest income – financial instruments at FVOCI
    60   Net gain on sale of financial instruments at FVOCI
    (129)  Derivative financial instruments and hedging
    (69)   
         
Gains (losses) on derivative financial instruments:        
Foreign exchange forward   (2,158)  Interest income – loans at amortized cost
    (2,032)  Interest expense – borrowings and deposits
    3,235   Net gain (loss) on foreign currency exchange
Interest rate swaps   51   Net gain (loss) on interest rate swaps
Cross-currency interest rate swap   3   Net gain (loss) on cross-currency interest rate swap
    (901)   

 

Six months ended June 30, 2017
Details about accumulated other
comprehensive income components
  Amount reclassified
from accumulated other
comprehensive income
   Affected line item in the consolidated statement of
profit or loss where net income is presented
Realized gains (losses) on financial instruments at FVOCI:   -   Interest income – financial instruments at FVOCI
    24   Net gain on sale of financial instruments at FVOCI
    (197)  Derivative financial instruments and hedging
    (173)   
         
Gains (losses) on derivative financial instruments:        
Foreign exchange forward   (4,029)  Interest income – loans at amortized cost
    (1,251)  Interest expense – borrowings and deposits
    6,748   Net gain (loss) on foreign currency exchange
Interest rate swaps   214   Net gain (loss) on interest rate swaps
Cross-currency interest rate swap   5   Net gain (loss) on cross-currency interest rate swap
    1,687    

 

59 

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

15.Accumulated other comprehensive income (loss) (continued)

 

Three months ended June 30, 2016
Details about accumulated other
comprehensive income components
  Amount reclassified
from accumulated other
comprehensive income
   Affected line item in the consolidated statement of
profit or loss where net income is presented
Realized gains (losses) on financial instruments at FVOCI:   221   Interest income – financial instruments at FVOCI
    (1,017)  Net gain on sale of financial instruments at FVOCI
    (346)  Derivative financial instruments and hedging
    (1,142)   
         
Gains (losses) on derivative financial instruments:        
Foreign exchange forward   (1,003)  Interest income – loans at amortized cost
    231   Interest expense – borrowings and deposits
    2,231   Net gain (loss) on foreign currency exchange
Interest rate swaps   28   Net gain (loss) on interest rate swaps
Cross-currency interest rate swap   13   Net gain (loss) on cross-currency interest rate swap
    1,500    

 

Six months ended June 30, 2016
Details about accumulated other
comprehensive income components
  Amount reclassified
from accumulated other
comprehensive income
   Affected line item in the consolidated statement of
profit or loss where net income is presented
Realized gains (losses) on financial instruments at FVOCI:   -   Interest income – financial instruments at FVOCI
    (967)  Net gain on sale of financial instruments at FVOCI
    (703)  Derivative financial instruments and hedging
    (1,670)   
         
Gains (losses) on derivative financial instruments:        
Foreign exchange forward   (1,755)  Interest income – loans at amortized cost
    408   Interest expense – borrowings and deposits
    2,495   Net gain (loss) on foreign currency exchange
Interest rate swaps   606   Net gain (loss) on interest rate swaps
Cross-currency interest rate swap   67   Net gain (loss) on cross-currency interest rate swap
    1,821    

 

60 

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

15.Accumulated other comprehensive income (loss) (continued)

 

Three months ended June 30, 2015
Details about accumulated other
comprehensive income components
  Amount reclassified
from accumulated other
comprehensive income
   Affected line item in the consolidated statement of
profit or loss where net income is presented
Realized gains (losses) on financial instruments at FVOCI:   (338)  Interest income – financial instruments at FVOCI
    607   Net gain on sale of financial instruments at FVOCI
    (37)  Derivative financial instruments and hedging
    232    
         
Gains (losses) on derivative financial instruments:        
Forward foreign exchange   417   Interest income – loans at amortized cost
    (1,145)  Interest expense – borrowings and deposits
    -   Net gain (loss) on foreign currency exchange
Interest rate swaps   -   Net gain (loss) on interest rate swaps
Cross-currency interest rate swap   -   Net gain (loss) on cross-currency interest rate swap
    (728)   

 

Six months ended June 30, 2015
Details about accumulated other
comprehensive income components
  Amount reclassified
from accumulated other
comprehensive income
   Affected line item in the consolidated statement of
profit or loss where net income is presented
Realized gains (losses) on financial instruments at FVOCI:   (337)  Interest income – financial instruments at FVOCI
    1,725   Net gain on sale of financial instruments at FVOCI
    (234)  Derivative financial instruments and hedging
    1,154    
         
Gains (losses) on derivative financial instruments:        
Forward foreign exchange   171   Interest income – loans at amortized cost
    (1,145)  Interest expense – borrowings and deposits
    (1,232)  Net gain (loss) on foreign currency exchange
Interest rate swaps   -   Net gain (loss) on interest rate swaps
Cross-currency interest rate swap   -   Net gain (loss) on cross-currency interest rate swap
    (2,206)   

 

61 

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

16.Related party transactions

 

During the reporting periods, total compensation paid to directors and the executives of Bladex as representatives of the Bank amounted to:

 

   Three months ended June 30,   Six months ended June 30, 
   2017   2016   2015   2017   2016   2015 
Expenses:                              
Compensation costs paid to directors   189    164    208    223    239    242 
Compensation costs paid to executives   996    2,016    2,154    1,389    3,350    3,872 

 

17.Litigation

 

Bladex is not engaged in any litigation that is material to the Bank’s business or, to the best of the knowledge of the Bank’s management that is likely to have an adverse effect on its business, financial condition or results of operations.

 

18.Risk management

 

Risk is inherent in the Bank’s activities, but it is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. This process of risk management is critical to the Bank’s continuing profitability and each individual within the Bank is accountable for the risk exposures relating to his or her responsibilities. The Bank is exposed to market, credit, compliance and liquidity risk. It is also subject to country risk and various operating risks.

 

The Board of Directors is responsible for the overall risk management approach and for approving the risk management strategies and principles. The Board has appointed an Administration Committee which has the responsibility to monitor the overall risk process within the Bank.

 

The Risk Committee has the overall responsibility for the development of the risk strategy and implementing principles, frameworks, policies and limits. The Risk Committee is responsible for managing risk decisions and monitoring risk levels and reports on a weekly basis to the Supervisory Board.

 

The Risk Management Unit is responsible for implementing and maintaining risk related procedures to ensure an independent control process is maintained. The unit works closely with the Risk Committee to ensure that procedures are compliant with the overall framework.

 

The Risk Management Unit is responsible for monitoring compliance with risk principles, policies and limits across the Bank. This unit also ensures the complete capture of the risks in risk measurement and reporting systems. Exceptions are reported on a daily basis, where necessary, to the Risk Committee, and the relevant actions are taken to address exceptions and any areas of weakness.

 

The Bank‘s Assets/Liabilities Committee (ALCO) is responsible for managing the Bank’s assets and liabilities and the overall financial structure. It is also primarily responsible for the funding and liquidity risks of the Bank. The Bank’s policy is that risk management processes throughout the Bank are audited annually by the Internal Audit function, which examines both the adequacy of the procedures and the Bank’s compliance with the procedures. Internal Audit discusses the results of all assessments with management, and reports its findings and recommendations to the Audit Committee.

 

62 

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

18.Risk management (continued)

 

Risk measurement and reporting systems

 

The Bank’s risks are measured using a method that reflects both the expected loss likely to arise in normal circumstances and unexpected losses, which are an estimate of the ultimate actual loss based on statistical models. The models make use of probabilities derived from historical experience, adjusted to reflect the economic environment. The Bank also runs worst-case scenarios that would arise in the event that extreme events which are unlikely to occur do, in fact, occur.

 

Monitoring and controlling risks is primarily performed based on limits established by the Bank. These limits reflect the business strategy and market environment of the Bank as well as the level of risk that the Bank is willing to accept, with additional emphasis on selected industries. In addition, the Bank’s policy is to measure and monitor the overall risk bearing capacity in relation to the aggregate risk exposure across all risk types and activities. Information compiled from all the businesses is examined and processed in order to analyze, control and identify risks on a timely basis. This information is presented and explained to the Board of Directors, the Risk Committee, and the head of each business division. The report includes aggregate credit exposure, credit metric forecasts, market risk sensitivities, stop losses, liquidity ratios and risk profile changes. On a monthly basis, detailed reporting of industry, customer and geographic risks takes place. Senior management assesses the appropriateness of the allowance for credit losses on a monthly basis. The Supervisory Board receives a comprehensive risk report once a quarter which is designed to provide all the necessary information to assess and conclude on the risks of the Bank. For all levels throughout the Bank, specifically tailored risk reports are prepared and distributed in order to ensure that all business divisions have access to extensive, necessary and up–to–date information.

 

Risk mitigation

 

As part of its overall risk management, the Bank uses derivatives and other instruments to manage exposures resulting from changes in interest rates, foreign currencies, equity risks, credit risks, and exposures arising from forecast transactions.

 

In accordance with the Bank’s policy, its risk profile is assessed before entering into hedge transactions, which are authorized by the appropriate level of seniority within the Bank. The effectiveness of hedges is assessed by the Risk Controlling Unit (based on economic considerations rather than the IFRS hedge accounting regulations). The effectiveness of all the hedge relationships is monitored by the Risk Controlling Unit quarterly. In situations of ineffectiveness, the Bank will enter into a new hedge relationship to mitigate risk on a continuous basis.

 

Risk concentration

 

Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Bank’s performance to developments affecting a particular industry or geographical location. In order to avoid excessive concentrations of risk, the Bank’s policies and procedures include specific guidelines to focus on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly. Selective hedging is used within the Bank to manage risk concentrations at both the relationship and industry levels.

 

The Bank has exposure to the following risk from financial instruments:

 

18.1 Credit risk

 

Credit risk is the risk that the Bank will incur a loss because its customers or counterparties fail to discharge their contractual obligations. The Bank manages and controls credit risk by setting limits on the amount of risk it is willing to accept for individual counterparties and for geographical and industry concentrations, and by monitoring exposures in relation to such limits.

 

The Bank has established a credit quality review process to provide early identification of possible changes in the creditworthiness of counterparties, including regular collateral revisions. Counterparty limits are established by the use of a credit risk classification system, which assigns each counterparty a risk rating. Risk ratings are subject to regular revision. The credit quality review process aims to allow the Bank to assess the potential loss as a result of the risks to which it is exposed and take corrective action.

 

63 

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

18.Risk management (continued)

 

18.1 Credit risk (continued)

 

Individually assessed allowances

 

The Bank determines the allowances appropriate for each individually significant loan or advance on an individual basis, taking into account any overdue payments of interests, credit rating downgrades, or infringement of the original terms of the contract. Items considered when determining allowance amounts include the sustainability of the counterparty’s business plan, its ability to improve performance if it is in a financial difficulty, projected receipts and the expected payout should bankruptcy ensue, the availability of other financial support, the realizable value of collateral and the timing of the expected cash flows. Allowances for losses are evaluated at each reporting date, unless unforeseen circumstances require more careful attention.

 

Collectively assessed allowances

 

Allowances are assessed collectively for losses on loans and advances and for debt investments at amortized costs that are not individually significant and for individually significant loans and advances that have been assessed individually and found not to be impaired. The Bank generally bases its analyses on historical experience and prospective information. However, when there are significant market developments, regional and/or global, the Bank would include macroeconomic factors within its assessments. These factors include, depending on the characteristics of the individual or collective assessment: unemployment rates, current levels of bad debt, changes in the law, changes in regulation, bankruptcy trends, and other consumer data. The Bank may use the aforementioned factors as appropriate to adjust the impairment allowances.

 

Allowances are evaluated separately at each reporting date with each portfolio. The collective assessment is made for groups of assets with similar risk characteristics, in order to determine whether provision should be made due to incurred loss events for which there is objective evidence, but the effects of which are not yet evident in the individual loans assessments. The collective assessment takes account of data from the loan portfolio (such as historical losses on the portfolio, levels of arrears, credit utilization, loan to collateral ratios and expected receipts and recoveries once impaired) or economic data (such as current economic conditions, unemployment levels and local or industry–specific problems). The approximate time when a loss is likely to have been incurred and the time it will be identified as requiring an individually assessed impairment allowance is also taken into consideration. The impairment allowance is then reviewed by credit management to ensure alignment with the Bank’s overall policy.

 

Financial guarantees and letters of credit are assessed in a similar manner as for loans.

 

Derivative financial instruments

 

Credit risk arising from derivative financial instruments is, at any time, limited to those with positive fair values, as recorded on the statement of financial position at fair value.

 

With gross–settled derivatives, the Bank is also exposed to a settlement risk, being the risk that the Bank honors its obligation, but the counterparty fails to deliver the counter value.

 

Credit–related commitments risks

 

The Bank makes available to its customers guarantees that may require that the Bank makes payments on their behalf and enters into commitments to extend credit lines to secure their liquidity needs. Letters of credit and guarantees (including standby letters of credit) commit the Bank to make payments on behalf of customers in the event of a specific act, generally related to the import or export of goods. Such commitments expose the Bank to similar risks to loans and are mitigated by the same control processes and policies.

 

64 

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

18.Risk management (continued)

 

18.1 Credit risk (continued)

 

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.

 

The main types of collateral obtained are, as follows:

 

-For commercial lending, charges over real estate properties, 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 properties in an orderly fashion. The proceeds are used to reduce or repay the outstanding claim. In general, the Bank does not occupy repossessed properties for business use.

 

The Bank also makes use of master netting agreements with counterparties with whom a significant volume of transactions are undertaken. 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.

 

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.

 

18.2 Liquidity risk

 

Liquidity refers to the Bank’s ability to maintain adequate cash flows to fund operations and meet obligations and other commitments on a timely basis.

 

As established by the Bank’s liquidity policy, the Bank’s liquid assets are held in overnight deposits with the Federal Reserve Bank of New York or in the form of interbank deposits with reputable international banks that have A1, P1, or F1 ratings from two of the major internationally – recognized rating agencies and are primarily located outside of the Region. In addition, the Bank’s liquidity policy allows for investing in negotiable money market instruments, including Euro certificates of deposit, commercial paper, and other liquid instruments with maturities of up to three years. These instruments must be of investment grade quality A or better, must have a liquid secondary market and be considered as such according to Basel III rules.

 

The Bank performs daily reviews, controls and periodic stress tests on its liquidity position, including the application of a series of limits to restrict its overall liquidity risk and to monitor the liquidity level according to the macroeconomic environment. The Bank determines the level of liquid assets to be held on a daily basis, adopting a Liquidity Coverage Ratio methodology referencing the Basel Committee guidelines. Additionally, the Liquidity Coverage Ratio is complemented with the use of the Net Stable Funding Ratio to maintain an adequate long-term funding structure. Specific limits have been established to control (1) cumulative maturity “gaps” between assets and liabilities, for each maturity classification presented in the Bank’s internal liquidity reports, and (2) concentrations of deposits taken from any client or economic group maturing in one day and total maximum deposits maturing in one day.

 

65 

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

18.Risk management (continued)

 

18.2 Liquidity risk (continued)

 

The Bank follows a Contingent Liquidity Plan. The plan contemplates the regular monitoring of several quantified internal and external reference benchmarks (such as deposit level, Emerging Markets Bonds Index Plus, LIBOR-OIS spread and market interest rates), which in cases of high volatility would trigger implementation of a series of precautionary measures to reinforce the Bank’s liquidity position. In the Bank’s opinion, its liquidity position is adequate for the Bank’s present requirements.

 

While the Bank’s liabilities generally mature over somewhat shorter periods than its assets, the associated liquidity risk is diminished by the short-term nature of the loan portfolio, as the Bank is engaged primarily in the financing of foreign trade.

 

The following table details the Banks’s assets and liabilities grouped by its remaining maturity with respect to the contractual maturity:

 

   June 30, 2017 
Description  Up to 3
months
   3 to 6
months
   6 months
to 1 year
   1 to 5
years
   More
than
5 years
   Without
maturity
   Total 
Assets                                   
                                    
Cash and cash equivalent   819,390    -    -    -    -    -    819,390 
Investment securities   13    -    -    76,483    2,891    (148)   79,239 
Loans at amortized cost   2,100,495    1,045,356    770,655    1,516,877    136,932    -    5,570,315 
Unearned interest and deferred fees   (942)   (810)   (420)   (4,057)   (494)   -    (6,723)
Allowance for expected credit losses   -    -    -    -    -    (115,607)   (115,607)
Other assets   30,047    6,611    6,048    13,877    1,121    17,844    75,548 
Total   2,949,003    1,051,157    776,283    1,603,180    140,450    (97,911)   6,422,162 
                                    
Liabilities                                   
Deposits in banks   2,615,922    286,099    375,000    76,534    -    -    3,353,555 
Other liabilities   274,530    187,149    254,153    1,254,108    74,527    -    2,044,467 
Total   2,890,452    473,248    629,153    1,330,642    74,527    -    5,398,022 
Net position   58,551    577,909    147,130    272,538    65,923    (97,911)   1,024,140 

 

66 

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
Notes to the unaudited condensed consolidated interim financial statements
(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

 

18.Risk management (continued)

 

18.2 Liquidity risk (continued)

 

   December 31, 2016 
Description  Up to 3
months
   3 to 6
months
   6 months
to 1 year
   1 to 5
years
   More
than
5 years
   Without
maturity
   Total 
Assets                                   
Cash and cash equivalent   1,069,538    -    -    -    -    -    1,069,538 
Investment securities   1,024    3,000    -    83,643    20,756    (602)   107,821 
Loans at amortized cost   2,262,349    1,267,194    551,794    1,843,476    95,918    -    6,020,731 
Unearned interest and deferred fees   (663)   (906)   (258)   (4,762)   (660)   -    (7,249)
Allowance for expected credit losses   -    -    -    -    -    (105,988)   (105,988)
Other assets   55,445    6,587    3,721    6,399    642    23,136    95,930 
Total   3,387,693    1,275,875    555,257    1,928,756    116,656    (83,454)   7,180,783 
                                    
Liabilities                                   
                                    
Deposits in banks   2,306,413    173,288    275,631    47,520    -    -    2,802,852 
Other liabilities   884,453    744,135    346,294    1,330,515    61,220    -    3,366,617 
Total   3,190,866    917,423    621,925    1,378,035    61,220    -    6,169,469 
                                    
Net position   196,827    358,452    (66,668)   550,721    55,436    (83,454)   1,011,314 

 

67 

 

 

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.Risk management (continued)

 

18.3 Market risk

 

Market risk generally represents the risk that values of assets and liabilities or revenues will be adversely affected by changes in market conditions. Market risk is inherent in the financial instruments associated with many of the Bank’s operations and activities, including loans, deposits, investment and financial instruments at FVTPL, short- and long-term borrowings and debt, derivatives and trading positions. This risk may result from fluctuations in different parameters: interest rates, currency exchange rates, inflation rates and changes in the implied volatility. Accordingly, depending on the instruments or activities impacted, market risks can have wide ranging, complex adverse effects on the Bank’s financial condition, results of operations, cash flows and business

 

Interest rate risk

 

The Bank endeavors to manage its assets and liabilities in order to reduce the potential adverse effects on the net interest income that could be produced by interest rate changes. The Bank’s interest rate risk is the exposure of earnings (current and potential) and capital to adverse changes in interest rates and is managed by attempting to match the term and repricing characteristics of the Bank’s interest rate sensitive assets and liabilities. The Bank’s policy with respect to interest rate risk provides that the Bank establishes limits with regards to: (1) changes in net interest income due to a potential impact, given certain movements in interest rates and (2) changes in the amount of available equity funds of the Bank, given a one basis point movement in interest rates.

 

The following summary table presents a sensitivity analysis of the effect on the Bank’s results of operations derived from a reasonable variation in interest rates which its financial obligations are subject to, based on change in points.

 

   Change in
interest rate
  Effect on
 income
 
        
June 30, 2017  +200 bps   21,800 
   -200 bps   (6,163)
         
June 30, 2016  +200 bps   17,019 
   -200 bps   (1,874)
         
June 30, 2015  +200 bps   15,563 
   -200 bps   (3,374)

 

This analysis is based on the prior year changes in interest rates and assesses the impact on income, with balances as of June 30, 2017 and December 31, 2016. This sensitivity provides an idea of the changes in interest rates, taking as example the volatility of the interest rate of the previous year.

 

68 

 

 

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.Risk management (continued)

 

18.3 Market risk (continued)

 

Interest rate risk (continued)

 

The table below summarizes the Bank's exposure based on the terms of repricing of interest rates on financial assets and liabilities.

 

   June 30, 2017 
Description  Up to 3
months
   3 to 6
months
   6 months
to 1 year
   1 to 5 years   More than
5 years
   Total 
Assets                              
Time deposit   60,000    -    -    -    -    60,000 
Securities and other financial assets   13    -    -    76,335    2,891    79,239 
Loans at amortized cost   2,163,144    1,045,356    770,655    1,516,924    74,236    5,570,315 
Total   2,223,157    1,045,356    770,655    1,593,259    77,127    5,709,554 
                               
Liabilities                              
Deposits   2,615,468    286,098    375,000    76,534    -    3,353,100 
Short and long term borrowings and debt, net   259,707    180,208    244,679    1,231,635    56,534    1,972,763 
Total   2,875,175    466,306    619,679    1,308,169    56,534    5,325,863 
Total interest rate sensibility   (652,018)   579,050    150,976    285,090    20,593    383,691 

 

   December 31, 2016 
Description  Up to 3
months
   3 to 6
months
   6 months
to 1 year
   1 to 5 years   More than
5 years
   Total 
Assets                              
Time deposit   125,000    -    -    -    -    125,000 
Securities and other financial assets   9,025    3,000    -    72,094    18,200    102,319 
Loans at amortized cost   4,350,913    1,445,290    141,060    83,919    -    6,021,182 
Total   4,484,938    1,448,290    141,060    156,013    18,200    6,248,501 
                               
Liabilities                              
Deposits   2,179,399    173,288    275,631    47,520    -    2,675,838 
Short and long term borrowings and debt, net   2,168,964    402,643    133,190    495,883    46,133    3,246,813 
Total   4,348,363    575,931    408,821    543,403    46,133    5,922,651 
Total interest rate sensibility   136,575    872,359    (267,761)   (387,390)   (27,933)   325,850 

 

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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)

 

18.Risk management (continued)

 

18.3 Market risk (continued)

 

Currency risk

 

Currency risk is the risk that the value of a financial instrument will fluctuate because of changes in exchange rates of foreign currencies, and other financial variables, as well as the reaction of market participants to political and economic events. For purposes of accounting standards this risk does not come from financial instruments that are not monetary items, or for financial instruments denominated in the functional currency. Exposure to currency risk is low since the Bank’s has maximum exposure limits established by the Board.

 

Most of the Bank’s assets and most of its liabilities are denominated in US American Dollars and hence the Bank does not incur a significant currency exchange risk. The currency exchange rate risk is mitigated by the use of derivatives, which, although perfectly covered economically, may generate a certain accounting volatility.

 

The following table details the maximum to foreign currency, where all assets and liabilities are presented based on their book value, except for derivatives, which are included within other assets and other liabilities based on its value nominal.

 

   June 30, 2017 
   Brazilian
Real
expressed
in US$
   European
Euro
expressed
in US$
   Japanese
Yen
expressed
in US$
   Colombian
Peso
expressed
in US$
   Mexican
Peso
expressed
in US$
   Other
currencies
expressed
in US$(1)
   Total 
Exchange rate   3.3146    1.1423    112.485    3,045.665    18.1527    -      
                                    
Assets                                   
Cash and cash equivalent   2,164    5    2    52    1,020    94    3,337 
Investments and other financial assets   -    -    -    -    -    -    - 
Loans at amortized cost   -    -    -    -    320,952    -    320,952 
Other assets   -    244,086    98,771    -    -    -    342,857 
Total   2,164    244,091    98,773    52    321,972    94    667,146 
                                    
Liabilities                                   
Borrowings and deposit placements   -    244,086    98,771    -    246,144    -    589,001 
Other liabilities   1,980    -    -    -    76,225    -    78,205 
Total   1,980    244,086    98,771    -    322,369    -    667,206 
                                    
Net currency position   184    5    2    52    (397)   94    (60)

 

(1)It includes other currencies such as: Argentine pesos, Australian- dollar, Swiss franc, Pound sterling, Peruvian soles and Remimbis.

 

70 

 

 

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.Risk management (continued)

 

18.3 Market risk (continued)

 

Currency risk (continued)

 

   December 31, 2016 
   Brazilian
Real
expressed
in US$
   European
Euro
expressed
in US$
   Japanese
Yen
expressed
in US$
   Colombian
Peso
expressed
in US$
   Mexican
Peso
expressed
in US$
   Other
currencies
expressed
in US$(1)
   Total 
Exchange rate   3.25    1.06    116.68    3,002.00    20.6139    -      
                                    
Assets                                   
Cash and cash equivalent   4,014    6    6    55    2,339    74    6,494 
Investments and other financial assets   -    -    -    -    -    -    - 
Loans at amortized cost   -    -    -    -    295,580    -    295,580 
Other assets   -    52,800    94,279    -    79,104    -    226,183 
Total   4,014    52,806    94,285    55    377,023    74    528,257 
                                    
Liabilities                                   
Borrowings and deposit placements   -    -    94,279    -    280,557    -    374,836 
Other liabilities   3,933    52,800    -    -    96,951    -    153,684 
Total   3,933    52,800    94,279    -    377,508    -    528,520 
                                    
Net currency position   81    6    6    55    (485)   74    (263)

 

(1)It includes other currencies such as: Argentine pesos, Australian- dollar, Canadian dollar, Swiss franc, Peruvian soles and Remimbis.

 

18.4 Operational Risk

 

Operational risk is the risk of loss arising from systems failure, human error, fraud or external events. When controls fail to operate effectively, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to financial loss. Bladex, like all financial institutions, is exposed to operational risks, including the risk of fraud by employees and outsiders, failure to obtain proper internal authorizations, failure to properly document transactions, equipment failures, and errors by employees, and any failure, interruption or breach in the security or operation of the Bank’s information technology systems could result in interruptions in such activities. Operational problems or errors may occur, and their occurrence may have a material adverse impact on the Bank’s business, financial condition, results of operations and cash flows. The Bank cannot expect to eliminate all operational risks, but it endeavors to manage these risks through a control framework and by monitoring and responding to potential risks. Controls include effective segregation of duties, access, authorization and reconciliation procedures, staff education and assessment processes, such as the use of internal audit.

 

71 

 

 

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.Risk management (continued)

 

18.4 Operational Risk (continued)

 

Capital management

 

The primary objectives of the Bank’s capital management policy are to ensure that the Bank complies with externally imposed capital requirements and maintains strong credit ratings and healthy capital ratios in order to support its business and to maximize shareholder value.

 

The Bank manages its capital structure and makes adjustments to it according to changes in economic conditions and the risk characteristics of its activities. In order 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,  
2017
   December 31,
2016
 
Tier 1 capital   1,022,626    1,054,719 
           
Risk weighted assets   5,689,987    6,350,544 
Tier 1 capital ratio   17.97%   16.61%

 

19.Subsequent Events

 

Bladex announced a quarterly cash dividend of $15,154 which represents $0.385 per share corresponding to the 2nd quarter of 2017. The cash dividend was approved by the Board of Directors at its meeting held on July 18, 2017 and it is payable on August 17, 2017 to the Bank’s stockholders as of August 2, 2017 record date.

 

72