UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE

SECURITIES EXCHANGE ACT OF 1934

 

For the month of November, 2018

 

Commission File Number 1-11414

 

BANCO LATINOAMERICANO DE COMERCIO EXTERIOR, S.A.

(Exact name of Registrant as specified in its Charter)

 

FOREIGN TRADE BANK OF LATIN AMERICA, INC.

(Translation of Registrant’s name into English)

 

Business Park Torre V, Ave. La Rotonda, Costa del Este

P.O. Box 0819-08730

Panama City, Republic of Panama

(Address of Registrant’s Principal Executive Offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F  x    Form 40-F  ¨

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Yes  ¨   No   x

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

Yes  ¨   No   x

 

 

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: November 2, 2018

 

  FOREIGN TRADE BANK OF LATIN AMERICA, INC.
  (Registrant)
   
    By: /s/ Ana Graciela de Méndez
       
    Name: Ana Graciela de Méndez
    Title:    CFO

 

 

 

 

Banco Latinoamericano

de Comercio Exterior, S.A.

and Subsidiaries

 

Unaudited condensed consolidated interim statement of financial position as of September 30, 2018 and December 31, 2017, 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 stockholder’s equity and unaudited condensed consolidated interim statements of cash flows for the nine months ended September 30, 2018, 2017 and 2016

 

 

 

 

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 stockholder’s equity 6
   
Unaudited condensed consolidated interim statements of cash flows 7
   
Notes to the unaudited condensed consolidated interim financial statements 8-82

 

2

 

 

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries
 
Unaudited condensed consolidated interim statement of financial position
September 30, 2018 and December 31, 2017
(In US$ thousand)

 

      September 30,   December 31, 
      2018   2017 
   Notes  (Unaudited)   (Audited) 
Assets             
Cash and cash equivalents  4,5,18   792,952    672,048 
Financial Instruments:             
Securities at fair value through OCI  5,18   20,971    25,135 
Securities at amortized cost, net  5,18   77,562    68,934 
Loans  5,18   5,724,518    5,505,658 
Less:             
Allowance for expected credit losses  5   139,318    81,294 
Unearned interest and deferred fees  5   7,357    4,985 
Loans, net      5,577,843    5,419,379 
              
Derivative financial instruments used for hedging – receivable  5,16,18   3,391    13,338 
              
Investment properties, net  7   2,289    5,119 
              
Property and equipment, net      6,692    7,420 
Intangibles, net      1,798    5,425 
              
Other assets:             
Customers' liabilities under acceptances  18   24,232    6,369 
Accrued interest receivable  18   45,367    30,872 
Other assets  8   7,661    13,708 
Total of other assets      77,260    50,949 
Total assets      6,560,758    6,267,747 
              
Liabilities and stockholders' equity             
Deposits:  9,18          
Noninterest-bearing - Demand      203    420 
Interest-bearing - Demand      77,928    81,644 
Time      2,699,404    2,846,780 
Total deposits      2,777,535    2,928,844 
              
Derivative financial instruments used for hedging – payable  5,16,18   26,394    34,943 
              
Securities sold under repurchase agreement  5,10,18   39,767    - 
Short-term borrowings and debt  11,18   1,237,603    1,072,723 
Long-term borrowings and debt, net  11,18   1,423,952    1,138,844 
              
Other liabilities:             
Acceptances outstanding  18   24,232    6,369 
Accrued interest payable  18   23,427    15,816 
Allowance for expected credit losses on loan commitments and financial guarantees contracts  6   3,219    6,845 
Other liabilities  12   15,678    20,551 
Total other liabilities      66,556    49,581 
Total liabilities      5,571,807    5,224,935 
              
              
Stockholders' equity:             
Common stock  14   279,980    279,980 
Treasury stock  15   (61,076)   (63,248)
Additional paid-in capital in excess of assigned value of common stock  14   119,523    119,941 
Capital reserves      95,210    95,210 
Dymanic provision  22   108,756    108,756 
Regulatory credit reserve  22   25    20,498 
Retained earnings  22   444,959    479,712 
Accumulated other comprehensive income (loss)  5,16   1,574    1,963 
Total stockholders' equity      988,951    1,042,812 
Total liabilities and stockholders' equity      6,560,758    6,267,747 

 

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 three and nine months ended September 30, 2018, 2017 and 2016
(In US$ thousand, except earnings per share amounts)

 

      For the three months ended
September 30,
   For the nine months ended
September 30,
 
   Notes  2018   2017   2016   2018   2017   2016 
                            
Interest income:                                 
Deposits      3,129    2,995    1,142    9,293    7,818    3,206 
Securities at fair value through OCI      150    124    457    416    420    1,956 
Securities at amortized cost      599    474    688    1,605    1,448    2,261 
Loans      61,142    51,457    60,530    173,062    160,594    177,025 
Total interest income      65,020    55,050    62,817    184,376    170,280    184,448 
Interest expense:                                 
Deposits      16,767    12,510    5,329    47,160    30,310    14,970 
Short and long-term borrowings and debt      20,957    14,643    17,668    55,441    48,296    51,954 
Total interest expense      37,724    27,153    22,997    102,601    78,606    66,924 
                                  
Net interest income      27,296    27,897    39,820    81,775    91,674    117,524 
                                  
Other income (expense):                                 
Fees and commissions, net      3,692    3,566    3,371    11,783    11,848    10,178 
(Loss) gain on derivative financial instruments and foreign currency exchange      (1,554)   (616)   204    (404)   (12)   (135)
Gain (loss) per financial instrument at fair value through profit or loss      109    3    (324)   (233)   (706)   (4,091)
Gain (loss) on sale of securities at fair value through OCI  5   -    -    69    -    79    (246)
Gain (loss) on sale of loans  5   -    15    87    (625)   113    490 
Loss on investment properties at fair value through profit or loss  7   (412)   -    -    (1,560)   -    - 
Other income, net      564    201    150    1,209    810    1,057 
Total other income, net      2,399    3,169    3,557    10,170    12,132    7,253 
                                  
Total income      29,695    31,066    43,377    91,945    103,806    124,777 
                                  
Expenses:                                 
Impairment loss from expected credit losses on loans  5   53,568    362    5,077    62,509    9,981    17,186 
Impairment loss (recovery) from expected credit losses on investment securities  5   -    75    (210)   (47)   (390)   276 
Impairment loss (recovery) from expected credit losses on loan commitments and financial guarantee contracts  5   1,566    215    (725)   (3,626)   (946)   (59)
Impairment loss in other assets  8   1,724    -    -    3,464    -    - 
Loss on derecognition of intangible assets      2,705    -    -    2,705    -    - 
Salaries and other employee expenses      5,213    5,842    6,230    21,390    20,306    19,008 
Depreciation of equipment and leasehold improvements      315    384    376    957    1,171    1,039 
Amortization of intangible assets      336    174    222    1,011    553    425 
Other expenses      4,987    3,553    4,416    13,177    11,731    13,201 
Total expenses      70,414    10,605    15,386    101,540    42,406    51,076 
(Loss) profit for the period      (40,719)   20,461    27,991    (9,595)   61,400    73,701 
                                  
(Loss) earnings per share:                                 
Basic  13   (1.03)   0.52    0.72    (0.24)   1.56    1.89 
Diluted  13   (1.03)   0.52    0.71    (0.24)   1.56    1.88 
Weighted average basic shares  13   39,540    39,362    39,102    39,544    39,289    39,059 
Weighted average diluted shares  13   39,540    39,413    39,225    39,544    39,319    39,178 

 

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 three and nine months ended September 30, 2018, 2017 and 2016
(In US$ thousand)

 

      For the three months ended
September 30,
   For the nine months ended
September 30,
 
   Notes  2018   2017   2016   2018   2017   2016 
                            
(Loss) profit for the period      (40,719)   20,461    27,991    (9,595)   61,400    73,701 
Other comprehensive income (loss):                                 
Items that will not be reclassified subsequently to profit and loss:                                 
Change in fair value for revaluation by equity instrument to FVOCI, net of hedging  16   866    -    -    (1,653)   -    - 
                                  
Items that are or may be reclassified subsequently to profit and loss:                                 
Change in fair value for debt instrument revaluation, net of hedging  16   (2,304)   (759)   6,017    (2,221)   123    9,070 
Reclasification adjustment for gains (losses) included in the loss or profit  16   1,998    2,449    (2,622)   4,693    935    (2,773)
Exchange difference in conversion of foreign operating currency      (1,071)   -    -    (1,208)   -    - 
                                  
Other comprehensive income (loss)  16   (511)   1,690    3,395    (389)   1,058    6,297 
                                  
Other comprehensive income (loss) for the period      (41,230)   22,151    31,386    (9,984)   62,458    79,998 

 

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 stockholders's equity
For the nine months ended September 30, 2018, 2017 and 2016
(In US$ thousand)

 

   Common stock   Treasury stock  

Additional paid-

in capital in

excess of assigned

value of common

stock

   Capital reserves   Dynamic
provision
   Regulatory
reserve
   Retained
earnings
  

Accumulated

other

comprehensive

income (loss)

   Total 
Balances at January 1, 2016   279,980    (73,397)   120,177    95,210    30,788    7,920    521,934    (10,681)   971,931 
Profit for the period   -    -    -    -    -    -    73,701    -    73,701 
Other comprehensive income   -    -    -    -    -    -    -    6,297    6,297 
Issuance of restricted stock   -    1,259    (1,259)   -    -    -    -    -    - 
Compensation cost - stock options and stock units plans   -    -    2,480    -    -    -    -    -    2,480 
Exercised options and stock units vested   -    -    -    -    -    -    -    -    - 
Repurchase of "Class B" and "Class E" common stock   -    -    -    -    -    -    -    -    - 
Regulatory  reserve   -    2,953    (1,387)   -    -    -    2,203    -    3,769 
Dymanic provision   -    -    -    -    -    -    (10,244)   -    (10,244)
Dividends declared   -    -    -    -    -    -    (45,104)   -    (45,104)
Balances at September 30, 2016   279,980    (69,185)   120,011    95,210    30,788    7,920    542,490    (4,384)   1,002,829 
                                              
Balances at January 1, 2017   279,980    (69,176)   120,594    95,210    43,826    18,633    525,048    (2,801)   1,011,314 
(Loss) profit for the period   -    -    -    -    -    -    61,400    -    61,400 
Other comprehensive income (loss)   -    -    -    -    -    -    -    1,058    1,058 
Issuance of restricted stock   -    1,259    (1,229)   -    -    -    -    -    30 
Compensation cost - stock options and stock units plans   -    -    (38)   -    -    -    -    -    (38)
Exercised options and stock units vested   -    3,278    109    -    -    -    -    -    3,387 
Repurchase of "Class B" and "Class E" common stock   -    (28)   -    -    -    -    -    -    (28)
Regulatory  reserve   -    -    -    -    -    -    10,637    -    10,637 
Dymanic provision   -    -    -    -    -    -    (63,566)   -    (63,566)
Dividends declared   -    -    -    -    -    -    (45,384)   -    (45,384)
Balances at September 30, 2017   279,980    (64,667)   119,436    95,210    43,826    18,633    488,135    (1,743)   978,810 
                                              
Balances at January 1, 2018   279,980    (63,248)   119,941    95,210    108,756    20,498    479,712    1,963    1,042,812 
Profit for the period   -    -    -    -    -    -    (9,595)   -    (9,595)
Other comprehensive income   -    -    -    -    -    -    -    (389)   (389)
Issuance of restricted stock   -    1,259    (1,259)   -    -    -    -    -    - 
Compensation cost - stock options and stock units plans   -    -    587    -    -    -    -    -    587 
Exercised options and stock units vested   -    3,355    254    -    -    -    -    -    3,609 
Repurchase of "Class B" and "Class E" common stock   -    (2,442)   -    -    -    -    -    -    (2,442)
Regulatory  reserve   -    -    -    -    -    (20,473)   20,473    -    - 
Dymanic provision   -    -    -    -    -    -    -    -    - 
Dividends declared   -    -    -    -    -    -    (45,631)   -    (45,631)
Balances at September 30, 2018   279,980    (61,076)   119,523    95,210    108,756    25    444,959    1,574    988,951 

 

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 nine months ended September 30, 2018, 2017 and 2016
(In US$ thousand)

 

   2018   2017   2016 
             
Cash flows from operating activities               
(Loss) profit for the period   (9,595)   61,400    73,701 
Adjustments to reconcile profit for the year to net cash provided by (used in) operating activities:               
Activities of derivative financial instruments used for hedging   1,929    (35,559)   (18,947)
Depreciation of equipment and leasehold improvements   957    1,171    1,039 
Amortization of intangible assets   1,011    553    425 
Loss for disposal of equipment and leasehold improvements   840    150    - 
Loss for disposal of intangible assets   2,705    14    - 
Loss on investment properties at fair value through profit or loss   1,560    -    - 
Impairment loss from expected credit losses   58,836    8,645    17,408 
(Loss) gain on sale of financial assets at fair value through OCI   -    (79)   246 
Amortization of premium and discount related to securities at amortized cost   798    601    863 
Gain on sale of property and equipment   18    -    - 
Impairment loss on other assets   3,464    -    - 
Compensation cost - share-based payment   587    (38)   2,480 
Interest income   (184,376)   (170,280)   (184,453)
Interest expense   102,601    78,606    66,924 
Net decrease (increase) in operating assets:               
Net decrease (increase) in pledged deposits   25,320    18,720    (3,385)
Financial instruments at fair value through profit or loss   -    -    53,383 
Net decrease (increase) in loans   (216,489)   676,129    297,758 
Other assets   (15,281)   (2,514)   4,044 
Net increase (decrease) in operating liabilities:               
Net increase due to depositors   (151,309)   200,157    330,536 
Financial liabilities at fair value through profit or loss   -    (24)   (89)
Other liabilities   13,218    (15,842)   (16,850)
Cash provided by operating activities   (363,206)   821,810    625,083 
                
Interest received   169,881    181,598    184,608 
Interest paid   (94,990)   (77,018)   (62,640)
Net cash provided by operating activities   (288,315)   926,390    747,051 
                
Cash flows from investing activities:               
Acquisition of equipment and leasehold improvements   (1,131)   (622)   (1,520)
Acquisition of intangible assets   (45)   (26)   (3,084)
Proceeds from the sale of investment property   1,270    -    - 
Proceeds from the redemption of securities at fair value through OCI   3,244    -    77,286 
Proceeds from the sale of securities at fair value through OCI   -    15,177    107,888 
Proceeds from maturities of securities at amortized cost   6,324    14,240    43,212 
Purchases of securities at fair value through OCI   -    -    (91,972)
Purchases of securities at amortized cost   (15,701)   (8,324)   (23,713)
Net cash provided by investing activities   (6,039)   20,445    108,097 
                
Cash flows from financing activities:               
Increase (decrease) net in short-term borrowings and debt and securities sold under repurchase agreements   204,647    (732,946)   (1,310,550)
Proceeds from long-term borrowings and debt   532,206    220,172    374,859 
Repayments of long-term borrowings and debt   (247,098)   (639,114)   (425,301)
Dividends paid   (45,860)   (45,449)   (45,104)
Exercised stock options   3,609    3,387    1,566 
Repurchase of common stock   (2,442)   (28)   - 
Net cash used in financing activities   445,062    (1,193,978)   (1,404,530)
                
Increase (decrease) net in cash and cash equivalents   146,224    (251,383)   (548,475)
Cash and cash equivalents at beginning of the period   618,807    1,007,726    1,267,302 
Cash and cash equivalents at end of the period   765,031    756,343    718,827 

 

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 Superintendence of Banks of Panama (the “SBP”).

 

In the Republic of Panama, banks are regulated by the SBP through Executive Decree No. 52 of April 30, 2008, which adopts the unique text of 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 Bladex Representacao 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 Securities and Exchange Commission of Brazil (“CVM”, for its acronym in Portuguese). Bladex Investimentos Ltda. merged with Bladex Representacao Ltda. on April 2016, being the former 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.

 

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”).

 

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)

 

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

 

These unaudited condensed consolidated interim financial statements were authorized for issue by the Board of Directors on October 23, 2018.

 

2.Basis of preparation of the consolidated financial statements

 

2.1Statement of compliance

 

These unaudited consolidated interim financial statements of Banco Latinoamericano de Comercio Exterior, S. A. and its subsidiaries have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting (IAS 34) issued by the International Accounting Standards Board ("IASB"). As all the disclosures required by IFRS for annual period consolidated financial statements are not included herein, these unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto as of and for the year ended December 31, 2017, 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.

 

2.2Reclassification

 

Certain amounts in the prior year’s financial statements have been reclassified to conform to the current year’s presentation. These reclassifications had no effect on the previously reported changes in net assets or equity.

 

3.Summary of new significant accounting policies

 

3.1Investment properties

 

Property and Land that is held for long-term rental yields, operating leases and/or for capital appreciation, and that is not occupied by the Bank, is classified as investment property. Investment property is measured initially at its cost, including related transaction costs and where applicable borrowing costs. After initial recognition, investment property is carried at fair value.

 

Fair value is based on active market prices, adjusted, if necessary, for differences in the nature, location or condition of the specific asset. If this information is not available, the Bank uses alternative valuation methods, such as recent prices on less active markets or discounted cash flow projections. Valuations are performed as of the financial position date by professional valuers who hold recognised and relevant professional qualifications and have recent experience in the location and category of the investment property being valued. These valuations form the basis for the carrying amounts in the consolidated financial statements.

 

The fair value of investment property reflects, among other things, rental income from current leases and other assumptions market participants would make when pricing the property under current market conditions.

 

Subsequent expenditure is capitalised to the asset’s carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the carrying amount of the replaced part is derecognised.

 

Changes in fair values are recognised in the income statement. Investment properties are derecognised when they have been disposed.

 

Where the Bank disposes of a property at fair value in an arm’s length transaction, the carrying value immediately prior to the sale is adjusted to the transaction price, and the adjustment is recorded in the income statement within from fair value adjustment on investment property.

 

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.Summary of new significant accounting policies (continued)

 

3.1Investment properties (continued)

 

If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment. Its fair value at the date of reclassification becomes its cost for subsequent accounting purposes.

 

4.Cash and cash equivalents

 

  

September 30,

2018

  

December 31,

2017

 
         
Cash and due from banks   14,214    11,032 
Interest-bearing deposits in banks   778,738    661,016 
Total   792,952    672,048 
           
Less:          
Pledged deposits   27,921    53,241 
Total cash and cash equivalents   765,031    618,807 

 

The following table presents the details on interest-bearing deposits in banks and pledged deposits:

 

   September 30, 2018   December 31, 2017 
   Amount  

Range

Interest rate

   Amount  

Range

Interest rate

 
Interest-bearing deposits in banks:                    
Demand deposits(1)   778,738    0.41% a 5.61%   661,016    0.25% a 1.55%
Time deposits(2)   -    -    -    - 
Total   778,738         661,016      
                     
Pledged deposits:                    
New York(3)   3,500    -    3,000    - 
Panama(4)   24,421    2.18%   50,241    1.42%
Total   27,921         53,241      

 

(1)Demand deposits with bearing interest based on the daily rates determined by banks.
(2)Time deposits “overnight” calculated on an average interest rate.
(3)The New York Agency had a pledged deposit with the New York State Banking Department, as required by law since March 1994.
(4)The Bank had pledged deposits to secure derivative financial instruments transactions.

 

10

 

 

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

 

5.Financial instruments

 

Financial instruments at fair value through other comprehensive income “FVOCI”

 

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

 

Equity Investment at FVOCI

 

   September 30, 2018 
       Unrealized     
   Amortized cost   Gain   Loss   Fair value 
Equity investments (1)                    
Brazil   8,402    7,405    10,280    5,527 
    8,402    7,405    10,280    5,527 

 

Securities at FVOCI

 

   September 30, 2018 
       Unrealized     
   Amortized cost   Gain   Loss   Fair value 
Sovereign debt:                    
Brazil   2,946    -    135    2,811 
Chile   5,147    -    136    5,011 
Trinidad and Tobago   8,501    -    879    7,622 
    16,594    -    1,150    15,444 
    24,996    7,405    11,430    20,971 

 

Equity Investment at FVOCI

 

   December 31, 2017 
       Unrealized     
   Amortized cost   Gain   Loss   Fair value 
Equity investments (1)                    
Brazil   8,630    -    228    8,402 
    8,630    -    228    8,402 

 

Securities at FVOCI

 

   December 31, 2017 
       Unrealized     
   Amortized cost   Gain   Loss   Fair value 
Sovereign debt:                    
Brazil   2,937    29    12    2,954 
Chile   5,182    -    35    5,147 
Trinidad and Tobago   8,843    -    211    8,632 
    16,962    29    258    16,733 
    25,592    29    486    25,135 

 

(1)Equity instruments were initially recognized at fair value. These equity instruments correspond to equity securities classified with the irrevocable option of changes in OCI.

 

11

 

 

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

 

5.Financial instruments (continued)

 

Financial instruments at fair value through other comprehensive income (continued)

 

Securities at FVOCI (continued)

 

As of September 30, 2018, and as of December 31, 2017, there were no securities at fair value through other comprehensive income accounted for as secured financings.

 

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

 

   September 30, 2018 
   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   6,885    210    8,559    940    15,444    1,150 
Total   6,885    210    8,559    940    15,444    1,150 

 

   December 31, 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   5,147    35    9,616    223    14,763    258 
Total   5,147    35    9,616    223    14,763    258 

 

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

 

   Three months ended September 30th 
   2018   2017   2016 
Realized gain on sale of securities   -    -    72 
Realized loss on sale of securities   -    -    (3)
Net gain (loss) on sale of securities at fair value through
other comprehensive income
   -    -    69 

 

   Nine months ended September 30th 
   2018   2017   2016 
Realized gain on sale of securities   -    667    7,544 
Realized loss on sale of securities   -    (588)   (7,790)
Net gain (loss) on sale of securities at fair value through
other comprehensive income
   -    79    (246)

 

12

 

 

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

 

5.Financial instruments (continued)

 

Financial instruments at fair value through other comprehensive income (continued)

 

Securities at FVOCI (continued)

 

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

 

Rating(1) 

September 30,

2018

  

December 31,

2017

 
1-4   15,444    16,733 
5-6   -    - 
7   -    - 
8   -    - 
9   -    - 
10   -    - 
Total   15,444    16,733 

 

(1)Current ratings as of September 30, 2018 and December 31, 2017, 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:

 

   September 30, 2018   December 31, 2017 
  

Amortized

cost

   Fair value  

Amortized

cost

   Fair value 
                 
Due within 1 year   -    -    -    - 
After 1 year but within 5 years   16,594    15,444    16,962    16,733 
After 5 years but within 10 years   -    -    -    - 
    16,594    15,444    16,962    16,733 

 

13

 

 

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

 

5.Financial instruments (continued)

 

Financial instruments at fair value through other comprehensive income (continued)

 

Securities at FVOCI (continued)

 

The significant changes in the gross carrying amount of securities at fair value through other comprehensive income during the period that contributed to changes in the allowance for expected credit loss, is provided at the table below:

 

   Stage 1 (1)   Stage 2 (2)   Stage 3 (3)   Total 
Gross carrying amount as of December 31, 2017   13,779    2,954    -    16,733 
Transfer in book value to stage 2   -    -    -    - 
Transfer in financial instruments with credit-impaired   -    -    -    - 
Transfer in book value to stage 1   -    -    -    - 
Financial instruments that have been derecognized during the period   (1,146)   (143)   -    (1,289)
Changes due to financial instruments recognized as of December 31, 2017   (1,146)   (143)   -    (1,289)
New financial assets originated or purchased   -    -    -    - 
Write-offs   -    -    -    - 
Gross carrying amount as of September 30, 2018   12,633    2,811    -    15,444 

 

   Stage 1 (1)   Stage 2 (2)   Stage 3 (3)   Total 
Gross carrying amount as of December 31, 2016   27,821    2,786    -    30,607 
Transfer in book value to stage 2   -    -    -    - 
Transfer in financial instruments with credit-impaired   -    -    -    - 
Transfer in book value to stage 1   -    -    -    - 
Financial instruments that have been derecognized during the year   (14,042)   168    -    (13,874)
Changes due to financial instruments recognized as of December 31, 2016   (14,042)   168    -    (13,874)
New financial assets originated or purchased   -    -    -    - 
Write-offs   -    -    -    - 
Gross carrying amount as of December 31, 2017   13,779    2,954    -    16,733 

 

(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)

 

5.Financial instruments (continued)

 

Securities at FVOCI (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, 2017   24    198    -    222 
Transfer to lifetime expected credit losses   -    -    -    - 
Transfer to credit-impaired financial instruments   -    -    -    - 
Transfer to 12-month expected credit losses   -    -    -    - 
Net effect of changes in reserve for expected credit losses   (2)   4    -    2 
Financial instruments that have been derecognized during the period   -    -    -    - 
Changes due to financial instruments recognized as of December 31, 2017:   (2)   4    -    2 
New financial assets originated or purchased   -    -    -    - 
Write-offs   -    -    -    - 
Allowance for expected credit losses as of September 30, 2018   22    202    -    224 

 

   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 instruments   -    -    -    - 
Transfer to 12-month expected credit losses   -    -    -    - 
Net effect of changes in reserve for expected credit losses   (6)   (65)   -    (71)
Financial instruments that have been derecognized during the year   (12)   -    -    (12)
Changes due to financial instruments recognized as of December 31, 2016:   (18)   (65)   -    (83)
New financial assets originated or purchased   -    -    -    - 
Write-offs   -    -    -    - 
Allowance for expected credit losses as of December 31, 2017   24    198    -    222 

 

(4)12-month expected credit losses.
(5)Lifetime expected credit losses.
(6)Credit-impaired financial assets (lifetime expected credit losses).

 

15

 

 

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

 

5.Financial instruments (continued)

 

Securities at amortized cost

 

The amortized cost, related unrealized gross gain (loss) and fair value of these securities by country risk and type of debt, excluding the amounts of allowance for expected credit losses are as follows:

 

   September 30, 2018 
       Unrealized     
  

Amortized

cost (1)

  

 

Gain

  

 

Loss

   Fair value 
Corporate debt:                    
Brazil   1,489    -    26    1,463 
Mexico   6,787    -    9    6,778 
Panama   12,805    27    -    12,832 
    21,081    27    35    21,073 
                     
Sovereign debt:                    
Colombia   28,389    106    261    28,234 
Mexico   19,944    -    663    19,281 
Panama   8,295    -    24    8,271 
    56,628    106    948    55,786 
    77,709    133    983    76,859 

 

   December 31, 2017 
       Unrealized     
  

Amortized

cost (2)

  

 

Gain

  

 

Loss

   Fair value 
Corporate debt:                    
Brazil   1,485    3    -    1,488 
Panama   9,978    -    -    9,978 
    11,463    3    -    11,466 
Sovereign debt:                    
Colombia   29,006    67    16    29,057 
Mexico   20,203    -    167    20,036 
Panama   8,458    -    11    8,447 
    57,667    67    194    57,540 
    69,130    70    194    69,006 

 

(1)Amounts do not include allowance for expected credit losses of $147.
(2)Amounts do not include allowance for expected credit losses of $196.

 

As of September 30, 2018, securities at amortized cost with a carrying value of $37 million, were pledged to secure repurchase transactions accounted for as secured financings. As of December 31, 2017, there were no securities at amortized cost accounted for as secured financial liabilities.

 

16

 

 

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

 

5.Financial instruments (continued)

 

Securities at amortized cost (continued)

 

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

 

   September 30, 2018   December 31, 2017 
  

Amortized

cost (1)

  

Fair

value

  

Amortized

cost (2)

  

Fair

value

 
                 
Due within 1 year   25,092    25,223    7,978    7,978 
After 1 year but within 5 years   52,617    51,636    61,152    61,028 
After 5 years but within 10 years   -    -    -    - 
    77,709    76,859    69,130    69,006 

 

(1)Amounts do not include allowance for expected credit losses of $147.
(2)Amounts do not include allowance for expected credit losses of $196.

 

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

 

Rating(3) 

September 30,

2018

  

December 31,

2017

 
1-4   76,220    57,667 
5-6   1,489    11,463 
7   -    - 
8   -    - 
9   -    - 
10   -    - 
Total   77,709    69,130 

 

(3)Current ratings as of September 30, 2018 and December 31, 2017, respectively.

 

17

 

 

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

 

5.Financial instruments (continued)

 

Securities at amortized cost (continued)

 

The significant changes in the gross carrying amount of securities at amortized cost during the period that contributed to changes in the allowance for expected credit loss, is provided at the table below:

 

   Stage 1 (1)   Stage 2 (2)   Stage 3 (3)   Total 
Gross carrying amount as of December 31, 2017   67,645    1,485    -    69,130 
Transfer in book value to stage 2   -    -    -    - 
Transfer in financial instruments with credit impaired   -    -    -    - 
Transfer in book value to stage 1   -    -    -    - 
Financial instruments that have been derecognized during the period   (7,363)   4    -    (7,359)
Changes due to financial instruments recognized as of December 31, 2017   (7,363)   4    -    (7,359)
New financial assets originated or purchased   15,938    -    -    15,938 
Write-offs   -    -    -    - 
Gross carrying amount as of September 30, 2018   76,220    1,489    -    77,709 

 

   Stage 1 (1)   Stage 2 (2)   Stage 3 (3)   Total 
Gross carrying amount as of December 31, 2016   65,154    12,687    -    77,841 
Transfer in book value to stage 2   -    -    -    - 
Transfer in financial instruments with credit impaired   -    -    -    - 
Transfer in book value to stage 1   -    -    -    - 
Financial instruments that have been derecognized during the year   (7,487)   (11,202)   -    (18,689)
Changes due to financial instruments recognized  as of December 31, 2016   (7,487)   (11,202)   -    (18,689)
New financial assets originated or purchased   9,978    -    -    9,978 
Write-offs   -    -    -    - 
Gross carrying amount as of December 31, 2017   67,645    1,485    -    69,130 

 

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

 

18

 

 

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

 

5.Financial instruments (continued)

 

Securities 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, 2017   144    52    -    196 
Transfer to lifetime expected credit losses   -    -    -    - 
Transfer to credit-impaired financial instruments   -    -    -    - 
Transfer to 12-month expected credit losses   -    -    -    - 
Net effect of changes in reserve for expected credit losses   (21)   (22)   -    (43)
Financial instruments that have been derecognized during the period   (50)   -    -    (50)
Changes due to financial instruments recognized as of December 31, 2017:   (71)   (22)   -    (93)
New financial assets originated or purchased   44    -    -    44 
Allowance for expected credit losses as of September 30, 2018   117    30    -    147 

 

   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 instruments   -    -    -    - 
Transfer to 12-month expected credit losses   -    -    -    - 
Net effect of changes in reserve for expected credit losses   (16)   (29)   -    (45)
Financial instruments that have been derecognized during the year   (18)   (422)   -    (440)
Changes due to financial instruments recognized as of December 31, 2016:   (34)   (451)   -    (485)
New financial assets originated or purchased   79    -    -    79 
Allowance for expected credit losses as of December 31, 2017   144    52    -    196 

 

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

 

19

 

 

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

 

5.Financial instruments (continued)

 

Recognition and derecognition of financial assets

 

During the periods ended September 30, 2018, 2017 and 2016, the Bank sold loans measured at amortized cost. These sales were made based on 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 (loss) on sale of loans” in the consolidated statement of profit or loss.

 

  

Assignments and

participations

  

Gains

(losses)

 
         
For the year ended September 30, 2018   71,667    (625)
For the year ended September 30, 2017   72,400    113 
For the year ended September 30, 2016   146,975    490 

 

Loans – at amortized cost

 

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

 

  

September 30,

2018

  

December 31,

2017

 
Corporations:          
Private   1,769,868    1,882,846 
State-owned   840,632    723,267 
Banking and financial institutions:          
Private   2,452,756    2,083,795 
State-owned   537,270    573,649 
Middle-market companies:          
Private   123,992    242,101 
Total   5,724,518    5,505,658 

 

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

 

  

September 30,

2018

  

December 31,

2017

 
Banking and financial institutions   2,990,026    2,657,444 
Industrial   838,352    772,238 
Oil and petroleum derived products   749,270    735,413 
Agricultural   512,735    501,241 
Services   323,375    430,717 
Mining   90,600    231,687 
Others   220,160    176,918 
Total   5,724,518    5,505,658 

 

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.

 

20

 

 

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

 

5.Financial instruments (continued)

 

Loans – at amortized cost (continued)

 

As of September 30, 2018, and December 31, 2017, the unearned discount interest and deferred fees amounted to $7,357 and $4,985, respectively.

 

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

 

September 30, 2018
   Corporations  

Banking and financial

institutions

  

Middle-market

companies

     
Rating(1)  Private   State-owned   Private   State-owned   Private   Total 
1-4   1,321,449    613,743    2,122,932    332,395    56,351    4,446,870 
5-6   364,443    226,889    329,824    204,875    32,641    1,158,672 
7   -    -    -    -    -    - 
8   -    -    -    -    -    - 
9   83,976    -    -    -    -    83,976 
10   -    -    -    -    35,000    35,000 
Total   1,769,868    840,632    2,452,756    537,270    123,992    5,724,518 

 

December 31, 2017
   Corporations  

Banking and financial

institutions

  

Middle-market

companies

     
Rating(1)  Private   State-owned   Private   State-owned   Private   Total 
1-4   1,336,032    563,877    1,729,592    361,236    147,212    4,137,949 
5-6   523,055    159,390    354,203    212,413    59,889    1,308,950 
7   -    -    -    -    -    - 
8   23,759    -    -    -    -    23,759 
9   -    -    -    -    -    - 
10   -    -    -    -    35,000    35,000 
Total   1,882,846    723,267    2,083,795    573,649    242,101    5,505,658 

 

(1)Current ratings as of September 30, 2018 and December 31, 2017, respectively.

 

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)

 

5.Financial instruments (continued)

 

Loans – at amortized cost (continued)

 

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

 

  

September 30,

2018

  

December 31,

2017

 
Country:          
Argentina   541,010    294,613 
Belgium   15,000    11,368 
Bolivia   20,087    15,000 
Brazil   1,175,590    1,019,466 
Chile   158,991    170,827 
Colombia   702,067    829,136 
Costa Rica   312,215    356,459 
Dominican Republic   273,560    249,926 
Ecuador   175,845    94,315 
El Salvador   54,895    55,110 
Germany   22,500    37,500 
Guatemala   253,345    309,024 
Honduras   87,318    74,476 
Jamaica   55,860    24,435 
Luxembourg   19,985    19,924 
Mexico   868,554    850,463 
Nicaragua   24,953    29,804 
Panama   540,394    500,134 
Paraguay   124,917    59,536 
Peru   135,932    211,846 
Singapore   49,700    54,500 
Switzerland   600    3,687 
Trinidad and Tobago   111,200    175,000 
United States of America   -    44,109 
Uruguay   -    15,000 
Total   5,724,518    5,505,658 

 

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)

 

5.Financial instruments (continued)

 

Loans – at amortized cost (continued)

 

The remaining loan maturities are summarized as follows:

 

  

September 30,

2018

  

December 31,

2017

 
Current:          
Up to 1 month   818,382    846,993 
From 1 month to 3 months   1,024,512    1,079,793 
From 3 months to 6 months   918,042    1,175,801 
From 6 months to 1 year   1,076,886    922,711 
From 1 year to 2 years   534,189    392,456 
From 2 years to 5 years   1,190,185    989,222 
More than 5 years   43,346    39,923 
    5,605,542    5,446,899 
           
Delinquent   2,857    - 
Impaired   116,119    58,759 
Total   5,724,518    5,505,658 

 

As of September 30, 2018, and December 31, 2017, the range of interest rates on loans fluctuates from 0.85% and 11.62% (2017: 1.35% y 11.52%).

 

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

 

  

September 30,

2018

  

December 31,

2017

 
         
Fixed interest rates   2,682,659    2,378,509 
Floating interest rates   3,041,859    3,127,149 
Total   5,724,518    5,505,658 

 

As of September 30, 2018, and December 31, 2017, 80% and 85%, of the loan portfolio at fixed interest rates has remaining maturities of less than 180 days.

 

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

 

   September 30, 2018   2018 
  

Recorded

investment

  

Past due

principal

balance

  

Related

allowance

Stage 3

  

Average

principal

loan

balance

  

Balance

interest

recognized

 
With an allowance recorded:                         
Private corporations   83,976    6,248    62,620    40,480    745 
Middle-market companies   35,000    35,000    26,588    35,000    3,838 
Total   118,976    41,248    89,208    75,480    4,583 

 

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)

 

5.Financial instruments (continued)

 

Loans – at amortized cost (continued)

 

   December 31, 2017   2017 
  

Recorded

investment

  

Past due

principal

balance

  

Related

allowance

Stage 3

  

Average

principal

loan

balance

  

Balance

interest

recognized

 
With an allowance recorded:                         
Private corporations   23,759    -    7,468    5,988    229 
Middle-market companies   35,000    35,000    20,527    35,000    3,028 
Total   58,759    35,000    27,995    40,988    3,257 

 

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 September 30, 
   2018   2017   2016 
Interest revenue calculated on the net carrying amount (net of credit allowance)   1,187    310    720 

 

   Nine months ended September 30, 
   2018   2017   2016 
Interest revenue calculated on the net carrying amount (net of credit allowance)   2,151    1,173    1,561 

 

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

 

September 30, 2018
   91-120
 days
   121-150
 days
   151-180
 days
  

Greater

than 180

days

   Total
Past
due
   Delinquent   Current   Total 
Corporations   61,844    -    -    -    61,844    2,857    2,545,799    2,610,500 
Banking and financial institutions   -    -    -    -    -    -    2,990,026    2,990,026 
Middle-market companies   -    -    -    35,000    35,000    -    88,992    123,992 
Total   61,844    -    -    35,000    96,844    2,857    5,624,817    5,724,518 

 

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)

 

5.Financial instruments (continued)

 

Loans – at amortized cost (continued)

 

December 31, 2017
   91-120
 days
   121-150
 days
   151-180
 days
  

Greater

than 180
days

   Total
Past
due
   Delinquent   Current   Total 
Corporations   -    -    -    -    -    -    2,606,113    2,606,113 
Banking and financial institutions   -    -    -    -    -    -    2,657,444    2,657,444 
Middle-market companies   -    -    -    35,000    35,000    -    207,101    242,101 
Total   -    -    -    35,000    35,000    -    5,470,658    5,505,658 

 

As of September 30, 2018, and December 31, 2017, the Bank had credit transactions in the normal course of business with 16% and 21%, 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 the Bank’s Corporate Governance and control procedures. As of September 30, 2018, and December 31, 2017, approximately 9% and 14%, respectively, of the outstanding loan portfolio was placed with the Bank’s Class “A” and “B” stockholders and their related parties. As of September 30, 2018, 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.

 

Modified financial assets

 

The following table refer to modified financial assets, where modification does not result in de-recognition:

 

Modified financial assets (with loss allowance based on

lifetime ECL) modified during the period

  September 30, 2018   December 31, 2017 
Gross carrying amount before modification   -    8,855 
Loss allowance before modification   -    (3,344)
Net amortized cost before modification   -    5,511 
Gross carrying amount after modification   -    4,484 
Loss allowance after modification   -    (4,484)
Net amortized cost after modification   -    - 

 

For the modified financial assets during the year 2017, were received other real estate owned for $ 5,119.

 

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)

 

5.Financial instruments (continued)

 

Loans – at amortized cost (continued)

 

The significant changes in the gross carrying amount of loans during the period that contributed to changes in the allowance for expected credit loss, is provided at the table below:

 

   Stage 1 (1)   Stage 2 (2)   Stage 3 (3)   Total 
Gross carrying amount as of December 31, 2017   4,839,227    607,672    58,759    5,505,658 
Transfer in book value to stage 2   (38,654)   38,654    -    - 
Transfer in Financial Instruments with credit-impaired   (5,714)   (61,845)   67,559    - 
Transfer in book value to stage 1   39,560    (39,560)   -    - 
Financial instruments that have been derecognized during the period   (3,746,902)   (325,637)   (2,858)   (4,075,397)
Changes due to financial instruments recognized as of December 31, 2017   (3,751,710)   (388,388)   64,701    (4,075,397)
New financial assets originated or purchased   4,298,741    -    -    4,298,741 
Write-offs   -    -    (4,484)   (4,484)
Gross carrying amount as of September 30, 2018   5,386,258    219,284    118,976    5,724,518 

 

   Stage 1 (1)   Stage 2 (2)   Stage 3 (3)   Total 
Gross carrying amount as of December 31, 2016   5,019,368    935,999    65,364    6,020,731 
Transfer in book value to stage 2   (41,167)   41,167    -    - 
Transfer in Financial Instruments with credit -impaired   -    (46,673)   46,673    - 
Transfer in book value to stage 1   8,000    (8,000)   -    - 
Financial instruments that have been derecognized during the year   (4,214,697)   (313,394)   (21,667)   (4,549,758)
Changes due to financial instruments recognized as of December 31, 2016   (4,247,864)   (326,900)   25,006    (4,549,758)
New financial assets originated or purchased   4,067,723    -    -    4,067,723 
Write-offs   -    (1,427)   (31,611)   (33,038)
Gross carrying amount as of December 31, 2017   4,839,227    607,672    58,759    5,505,658 

  

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

 

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)

 

5.Financial instruments (continued)

 

Loans – at amortized cost (continued)

 

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, 2017   19,821    33,477    27,996    81,294 
Transfer to lifetime expected credit losses   (109)   109    -    - 
Transfer to credit impaired financial instruments   (111)   (7,864)   7,975    - 
Transfer to 12-month expected credit losses   4,172    (4,172)   -    - 
Net effect of changes in reserve for expected credit losses   (4,249)   (179)   57,721    53,293 
Financial instruments that have been derecognized during the period   (13,889)   (8,042)   -    (21,931)
Changes due to financial instruments recognized as of December 31, 2017   (14,186)   (20,148)   65,696    31,362 
New financial assets originated or purchased   31,146    -    -    31,146 
Write-offs   -    -    (4,484)   (4,484)
Recoveries of amounts previously written off   -    -    -    - 
Allowance for expected credit losses as of September 30, 2018   36,781    13,329    89,208    139,318 

 

   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   (672)   672    -    - 
Transfer to credit-impaired financial instruments   -    (12,845)   12,845    - 
Transfer to 12-month expected credit losses   1,428    (1,428)   -    - 
Net effect of changes in reserve for expected credit losses   (2,900)   18,227    20,257    35,584 
Financial instruments that have been derecognized during the year   (24,434)   (11,321)   (8,333)   (44,088)
Changes due to financial instruments recognized as of December 31, 2016   (26,578)   (6,695)   24,769    (8,504)
New financial assets originated or purchased   17,363    -    -    17,363 
Write-offs   -    (1,427)   (32,126)   (33,553)
Recoveries of amounts previously written off   -    -    -    - 
Allowance for expected credit losses as of December 31, 2017   19,821    33,477    27,996    81,294 

 

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

 

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)

 

5.Financial instruments (continued)

 

Derivative financial instruments for hedging purposes

 

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

 

   September 30, 2018 
   Nominal  

Carrying amount of the

hedging instrument

  

Changes in fair

value used for

calculating hedge

 
   Amount   Asset   Liability   ineffectiveness 
Fair value hedges:                    
Interest rate swaps   433,500    414    (5,264)   (490)
Cross-currency swaps   227,353    518    (13,670)   11,080 
Cash flow hedges:                    
Interest rate swaps   457,500    1,516    (2,785)   (968)
Cross-currency swaps   23,025    -    (663)   (1,542)
Foreign exchange forward   169,988    943    (3,974)   (11,640)
Net investment hedges:                    
Foreign exchange forward   5,012    -    (38)   (88)
Total   1,316,378    3,391    (26,394)   (3,648)

 

   December 31, 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   367,500    -    (4,361)   (2,394)
Cross-currency swaps   306,961    3,672    (30,154)   15,900 
Cash flow hedges:                    
Interest rate swaps   595,000    127    (428)   995 
Cross-currency swaps   23,025    879    -    2,132 
Foreign exchange forward   225,388    8,610    -    11,835 
Net investment hedges:                    
Foreign exchange forward   9,243    50    -    181 
Total   1,527,117    13,338    (34,943)   28,649 

 

The hedging instruments presented in the tables above are 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.

 

28

 

 

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

 

5.Financial instruments (continued)

 

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 September 30, 2018 
  

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   42   Gain (loss) on interest rate swap   -    (3)
Cross-currency swaps   521   Gain (loss) on foreign currency exchange   -    (11)
        Interest income – loans   786    - 
Foreign exchange forward   1,913   Interest income – securities at FVOCI   -    - 
        Interest expenses – deposits   1,135    - 
        Interest expense – borrowings and debt   -    - 
        Gain (loss) on foreign currency exchange   (3,948)   - 
Total   2,476       (2,027)   (14)
                   
Derivatives – net investment hedge                  
Foreign exchange forward   303              
Total   303              

 

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)

 

5.Financial instruments (continued)

 

Derivative financial instruments for hedging purposes (continued)

 

   Nine months ended September 30, 2018 
  

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   (1,969)  Gain (loss) on interest rate swap   -    (3)
Cross-currency swaps   1,561   Gain (loss) on foreign currency exchange   -    (7)
        Interest income – loans   1,204    - 
Foreign exchange forward   9,212   Interest income – securities at FVOCI   -    - 
        Interest expenses – deposits   3,362    - 
        Interest expense – borrowings and debt   -    - 
        Gain (loss) on foreign currency exchange   (6,125)   - 
Total   8,804       (1,559)   (10)
                   
Derivatives – net investment hedge                  
Foreign exchange forward   (1,222)             
Total   (1,222)             

 

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)

 

5.Financial instruments (continued)

 

Derivative financial instruments for hedging purposes (continued)

 

   Three months ended September 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   145   Gain (loss) on interest rate swap   -    (122)
Cross-currency swaps   364   Gain (loss) on foreign currency exchange   -    (20)
        Interest income – loans   (2,068)   - 
Foreign exchange forward   3,752   Interest income – securities at FVOCI   -    - 
        Interest expenses – deposits   (1,444)   - 
        Interest expense – borrowings and debt   -    - 
        Gain (loss) on foreign currency exchange   (1,074)   - 
Total   4,261       (4,586)   (142)

 

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)

 

5.Financial instruments (continued)

 

Derivative financial instruments for hedging purposes (continued)

 

   Nine months ended September 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   (669)  Gain (loss) on interest rate swap   -    162 
Cross-currency swaps   (968)  Gain (loss) on foreign exchange   -    23 
        Interest income – loans   -    - 
Forward foreign exchange   2,622   Interest income – securities at FVOCI   (2,355)   - 
        Interest expenses – deposits   (4,276)   - 
        Interest expense – borrowings and debt   -    - 
        Gain (loss) on foreign currency exchange   (19,649)   - 
Total   985       (26,280)   185 

 

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)

 

5.Financial instruments (continued)

 

Derivative financial instruments for hedging purposes (continued)

 

   Three months ended September 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   784   Gain (loss) on interest rate swap   -    (265)
Cross-currency swaps   (1,776)  Gain (loss) on foreign exchange   -    (86)
        Interest income – loans   (1,371)   - 
Forward foreign exchange   6,517   Interest income – securities at FVOCI   -    - 
        Interest expenses – deposits   496    - 
        Interest expense – borrowings and debt   -    - 
        Gain (loss) on foreign currency exchange   (1,375)   - 
Total   5,525       (2,250)   (351)

 

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)

 

5.Financial instruments (continued)

 

Derivative financial instruments for hedging purposes (continued)

 

   Nine months ended September 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   (1,674)  Gain (loss) on interest rate swap   -    (1,226)
Cross-currency swaps   (13)  Gain (loss) on foreign exchange   -    (60)
        Interest income – loans   -    - 
Forward foreign exchange   4,641   Interest income – securities at FVOCI   -    - 
        Interest income – loans   (3,127)   - 
        Interest expenses – deposits   847    - 
        Interest expense – borrowings and debt   -    - 
        Gain (loss) on foreign currency exchange   3,259    - 
Total   2,954       979    (1,286)

 

For the agreements qualified as fair value hedge, the Bank recognized in the consolidated statement of profit or loss the gain (loss) on the derivative financial instruments and the gain (loss) of the hedged asset or liability related. The details as follows:

 

   Three months ended September 30, 2018
  

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   5    97    102 
   Interest income – loans   (65)   870    805 
   Interest expenses – borrowings and debt   (755)   (3,051)   (3,806)
   Derivative financial instruments and hedging   (3,732)   3,835    103 
Cross-currency swaps  Interest income – loans   (151)   345    194 
   Interest expenses – borrowings and debt   (107)   (2,658)   (2,765)
   Derivative financial instruments and hedging   (13,728)   10,850    (2,878)
Total      (18,533)   10,288    (8,245)

 

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)

 

5.Financial instruments (continued)

 

Derivative financial instruments for hedging purposes (continued)

 

   Nine months ended September 30, 2018
  

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   (16)   291    275 
   Interest income – loans   (79)   1,030    951 
   Interest expenses – borrowings and debt   (1,310)   (9,150)   (10,460)
   Derivative financial instruments and hedging   (7,157)   7,097    (60)
Cross-currency swaps  Interest income – loans   (639)   1,281    642 
   Interest expenses – borrowings and debt   (9)   (7,193)   (7,202)
   Derivative financial instruments and hedging   (14,900)   13,162    (1,738)
Total      (24,110)   6,518    (17,592)

 

   Three months ended September 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   (24)   100    76 
   Interest income loans   -    2    2 
   Interest expenses – borrowings and debt   236    (3,013)   (2,777)
   Derivative financial instruments and hedging   (743)   622    (121)
Cross-currency swaps  Interest income loans   (592)   903    311 
   Interest expenses – borrowings and debt   638    (2,805)   (2,167)
   Derivative financial instruments and hedging   2,529    (1,694)   (835)
Total      2,044    (5,885)   (3,841)

 

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)

 

5.Financial instruments (continued)

 

Derivative financial instruments for hedging purposes (continued)

 

   Nine months ended September 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   (103)   377    274 
   Interest income loans   (12)   160    148 
   Interest expenses – borrowings and debt   1,212    (13,219)   (12,007)
   Derivative financial instruments and hedging   (150)   243    93 
Cross-currency swaps  Interest income loans   (986)   1,619    633 
   Interest expenses – borrowings and debt   1,381    (7,577)   (6,196)
   Derivative financial instruments and hedging   21,746    (22,379)   (633)
Total      23,088    (40,776)   (17,688)

 

   Three months ended September 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   (145)   407    262 
   Interest income loans   (128)   295    167 
   Interest expenses – borrowings and debt   1,056    (7,067)   (6,011)
   Derivative financial instruments and hedging   (1,965)   2,531    566 
Cross-currency swaps  Interest income loans   (128)   319    191 
   Interest expenses – borrowings and debt   86    (1,911)   (1,825)
   Derivative financial instruments and hedging   1,355    (1,243)   112 
Total      131    (6,669)   (6,538)

 

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)

 

5.Financial instruments (continued)

 

Derivative financial instruments for hedging purposes (continued)

 

   Nine months ended September 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   (507)   1,243    736 
   Interest income loans   (265)   1,803    1,538 
   Interest expenses – borrowings and debt   3,945    (21,193)   (17,248)
   Derivative financial instruments and hedging   (3,369)   4,329    960 
Cross-currency swaps  Interest income loans   (265)   673    408 
   Interest expenses – borrowings and debt   50    (4,383)   (4,333)
   Derivative financial instruments and hedging   (2,358)   1,970    (388)
Total      (2,769)   (15,558)   (18,327)

 

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:

 

   September 30, 2018
Fair value hedges 

Carrying

amount

  

Accumulated

fair value

adjustments

  

Line item in the statement of financial

position

Interest rate risk             
Loans   65,794    (199)  Loans
Issuances   (347,398)   7,296   Short and long-term borrowings and debt
              
Foreign exchange rate risk and interest rate risk:             
Securities at FVOCI   12,060    (761)  Securities at FVOCI
Loans   11,735    (494)  Loans
Issuances   (200,724)   13,656   Short and long-term borrowings and debt
              

 

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)

 

5.Financial instruments (continued)

 

Derivative financial instruments for hedging purposes (continued)

 

Derivatives financial position and performance (continued)

 

   December 31, 2017
Fair value hedges 

Carrying

amount

  

Accumulated

fair value

adjustments

  

Line item in the statement of financial

position

Interest rate risk             
Loans   -    -   Loans
Issuances   355,000    (4,411)  Short and long-term borrowings and debt
              
Foreign exchange rate risk and interest rate risk:             
Securities at FVOCI   12,369    (32)  Securities at FVOCI
Loans   25,027    744   Loans
Issuances   (249,328)   (2,301)  Short and long-term borrowings and debt

 

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

 

   September 30, 2018 
Risk type 

Foreign

Exchange risk

   Interest rate
risk
  

Foreign exchange

and Interest

rate risk

   Total 
Up to 1 month   -    -    -    - 
31 to 60 days   -    77,500    -    77,500 
61 to 90 days   -    -    -    - 
91 to 180 days   52,103    165,000    -    217,103 
181 to 365 days   94,324    96,500    73,193    264,017 
1 to 2 years   101,884    463,000    -    564,884 
2 to 5 years   3,964    89,000    31,142    124,106 
More than 5 years   -    -    68,768    68,768 
Total   252,275    891,000    173,103    1,316,378 

 

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)

 

5.Financial instruments (continued)

 

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, 2017 
Risk type 

Foreign

Exchange risk

  

Interest rate

risk

  

Foreign exchange

and Interest

rate risk

   Total 
Up to 1 month   69,459    -    -    69,459 
31 to 60 days   26,104    -    -    26,104 
61 to 90 days   1,729    185,000    16,821    203,550 
91 to 180 days   16,567    137,500    -    154,067 
181 to 365 days   68,952    202,500    8,127    279,579 
1 to 2 years   178,331    21,500    73,193    273,024 
2 to 5 years   4,413    416,000    24,872    445,285 
More than 5 years   -    -    76,049    76,049 
Total   365,555    962,500    199,062    1,527,117 

 

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 5.4 years.

 

The Bank recognized the lifetime associated cost of the foreign exchange forward agreements into interest income, as an adjustment to the yield on hedge items creating an accumulated reserve in OCI, reclassified to profit or loss at its’ maturity. The Bank estimates that approximately $190, are expected to be reclassified into profit or loss during the twelve-month year ending September 30, 2019.

 

The Bank recognized the lifetime associated cost of the foreign exchange forward agreements into interest expense, as an adjustment to the yield on hedge items creating an accumulated reserve in OCI, reclassified to profit or loss at its’ maturity. The Bank estimates that approximately $2,899, are expected to be reclassified into profit or loss during the twelve-month year ending September 30, 2019.

 

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.Financial instruments (continued)

 

Derivative financial instruments for hedging purposes (continued)

 

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.

 

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.

 

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

 

September 30, 2018
      

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 used for hedging – receivable – at fair value   3,391    -    3,391    -    (2,188)   1,203 
Total   3,391    -    3,391    -    (2,188)   1,203 

 

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.Financial instruments (continued)

 

Offsetting of financial assets and liabilities (continued)

 

a)Derivative financial instruments – assets (continued)

 

December 31, 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

 
Derivative financial instruments used for hedging – receivable – at fair value   13,338    -    13,338    -    (22,304)   (8,966)
Total   13,338    -    13,338    -    (22,304)   (8,966)

 

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:

 

   September 30, 2018 
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 – receivable – at fair value   3,391    -    3,391 
Total   3,391    -    3,391 

 

   December 31, 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

 
Derivative financial instruments used for hedging – receivable – at fair value   13,338    -    13,338 
Total   13,338    -    13,338 

 

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.Financial instruments (continued)

 

Offsetting of financial assets and liabilities (continued)

 

b)Financial liabilities and derivative financial instruments – liabilities

 

September 30, 2018
   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

 
                         
Derivative financial instruments used for hedging – payable – at fair value   26,394    -    26,394    -    (24,421)   1,973 
Total   26,394    -    26,394    -    (24,421)   1,973 

 

December 31, 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

 
                         
Derivative financial instruments used for hedging – payable – at fair value   34,943    -    34,943    -    (50,241)   (15,298)
Total   34,943    -    34,943    -    (50,241)   (15,298)

 

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)

 

5.Financial Instruments (continued)

 

Offsetting of financial assets and liabilities (continued)

 

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

 

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:

 

   September 30, 2018 
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:               
Derivative financial instruments used for hedging – payable – at fair value   26,394    -    26,394 
Total derivative financial instruments   26,394    -    26,394 

 

   December 31, 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:               
Derivative financial instruments used for hedging – payable – at fair value   34,943    -    34,943 
Total derivative financial instruments   34,943    -    34,943 

 

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)

 

6.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 more than 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:

 

  

September 30,

2018

  

December 31,

2017

 
Confirmed letters of credit   194,891    273,449 
Stand-by letters of credit and guaranteed –  Commercial risk   145,401    168,976 
Credit commitments   215,548    45,578 
Total   555,840    488,003 

 

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

 

Maturities 

September 30,

2018

  

December 31,

2017

 
Up to 1 year   433,239    457,168 
From 1 to 2 years   46,888    257 
From 2 to 5 years   75,713    30,000 
More than 5 years   -    578 
Total   555,840    488,003 

 

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

 

Rating(1) 

September 30,

2018

  

December 31,

2017

 
1-4   331,602    151,934 
5-6   224,238    336,069 
7   -    - 
8   -    - 
9   -    - 
10   -    - 
Total   555,840    488,003 

 

(1)Current ratings as of September 30, 2018 and December 31, 2017, respectively.

 

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)

 

6.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:

 

  

September 30,

2018

  

December 31,

2017

 
Country:          
Argentina   45,652    7,546 
Bolivia   200    200 
Brazil   50,000    - 
Canada   422    425 
Chile   -    15,000 
Colombia   76,634    91,020 
Costa Rica   44,872    19,848 
Dominican Republic   16,500    - 
Ecuador   44,872    252,800 
El Salvador   176,219    767 
Guatemala   4,900    11,788 
Honduras   11,700    890 
Mexico   550    35,643 
Panama   30,114    31,260 
Paraguay   96,150    22 
Peru   -    17,618 
Uruguay   1,927    3,176 
Total   555,840    488,003 

 

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.

 

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)

 

6.Loans commitments and financial guarantees contracts (continued)

 

The allowances for expected 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, 2017   1,358    5,487    -    6,845 
Transfer to lifetime expected credit losses   -    -    -    - 
Transfer to credit-impaired financial instruments   -    -    -    - 
Transfer to 12-month expected credit losses   16    (16)   -    - 
Net effect of changes in reserve for expected credit loss   6    (3,893)   -    (3,887)
Financial instruments that have been derecognized during the period   (1,178)   (1,473)   -    (2,651)
Changes due to instruments recognized as of December 31, 2017:   (1,156)   (5,382)   -    (6,538)
New instruments originated or purchased   2,912    -    -    2,912 
Allowance for expected credit losses as of September 30, 2018   3,114    105    -    3,219 

 

   Stage 1 (1)   Stage 2 (2)   Stage 3 (3)   Total 
Allowance for expected credit losses as of December 31, 2016   1,143    4,633    -    5,776 
Transfer to lifetime expected credit losses   (1)   1    -    - 
Transfer to credit-impaired financial instruments   -    -    -    - 
Transfer to 12-month expected credit losses   -    -    -    - 
Net effect of changes in reserve for expected credit loss   (54)   853    -    799 
Financial instruments that have been derecognized during the year   (971)   -    -    (971)
Changes due to instruments recognized as of December 31, 2016:   (1,026)   854    -    (172)
New instruments originated or purchased   1,241    -    -    1,241 
Allowance for expected credit losses as of December 31, 2017   1,358    5,487    -    6,845 

 

(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.

 

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)

 

7.Investment Properties

 

Investment properties are measured at fair value through profit or loss. The gains and losses resulting from fair value adjustments are recognized in the consolidated statements of profit or loss. A summary as follows:

 

   September 30, 2018 
  

Carrying

amount

  

 

Gross gain

  

 

Gross loss

   Fair value 
Investment Properties (1)                    
Paraguay   5,119    1,270    1,560    2,289 
    5,119    1,270    1,560    2,289 

 

   December 31, 2017 
  

Initial

recognition

  

 

Gross gain

  

 

Gross loss

   Fair value 
Investment Properties (1)                    
Paraguay   5,119    -    -    5,119 
    5,119    -    -    5,119 

 

(1)Other real estate owned as dation in payment.

 

8.Other assets

 

Following is a summary of other assets:

 

  

September 30,

2018

  

December 31,

2017

 
Accounts receivable   4,219    6,793 
IT projects under development (1)   394    1,405 
Other (2)   3,048    5,510 
    7,661    13,708 

 

(1)As of September 30, 2018 the Bank derecognized the amount of $0.8 million related to a IT projects under development, outstanding as of December 31, 2017, in the consolidated financial statement of profit or loss as Impairment loss in Other Assets.

 

(2)As of September 30, 2018 the Bank derecognized the amount of $1.7 million related to a leasing under development, outstanding as of December 31, 2017, in the consolidated financial statement of profit or loss as Impairment loss in Other Assets.

 

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)

 

9.Deposits

 

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

 

  

September 30,

2018

  

December 31,

2017

 
Demand   78,131    82,064 
Up to 1 month   1,107,071    1,147,772 
From 1 month to 3 months   233,927    492,205 
From 3 months to 6 months   640,811    411,159 
From 6 months to 1 year   541,500    571,500 
From 1 year to 2 years   85,541    76,422 
From 2 years to 5 years   90,554    147,722 
    2,777,535    2,928,844 

 

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

 

  

September 30,

2018

  

December 31,

2017

 
Aggregate amounts of time deposits of $100,000 or more   2,777,311    2,928,425 
Aggregate amounts of deposits in the New York Agency   250,807    266,158 

 

   Three months ended September 30th 
  

2018

  

2017

  

2016

 
Interest expense paid to deposits in the New York Agency.   1,653    966    576 

 

  

Nine months ended September 30th

 
   2018   2017   2016 
Interest expense paid to deposits in the New York Agency.   4,202    2,524    1,429 

 

10.Securities sold under repurchase agreements

 

As of September 30, 2018, the Bank has financing transactions under repurchase agreements for $39.8 million.

 

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

 

During the periods ended September 30, 2018 and September 30, 2016, interest expense related to financing transactions under repurchase agreements totaled $324 and $809 thousand, corresponding to interest expense generated by the financing contracts under repurchase agreements. These expenses are included in the interest expense – short-term and long-term borrowings and debt line in the consolidated statements of profit or loss. As of September 30, 2017, the Bank did not incur in any interest expense generated by financial liabilities under repurchase agreements.

 

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)

 

11.Borrowings and debt

 

Short-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:

 

  

September 30,

2018

  

December 31,

2017

 
Short-term Borrowings:          
At fixed interest rates   240,499    429,069 
At floating interest rates   948,974    633,154 
Total borrowings   1,189,473    1,062,223 
Short-term Debt:          
At fixed interest rates   2,700    10,500 
At floating interest rates   45,430    - 
Total debt   48,130    10,500 
Total short-term borrowings and debt   1,237,603    1,072,723 
           
Average outstanding balance during the period   890,343    710,021 
Maximum balance at any month-end   1,237,603    1,072,723 
Range of fixed interest rates on borrowing and debt in U.S. dollars   1.95% to 2.92%   1.60% to 1.95%
Range of floating interest rates on borrowing in U.S. dollars   2.32% to 2.99%   1.77% to 2.08%
Range of fixed interest rates on borrowing in Mexican pesos   8.40% to 8.80%   7.92%
Range of floating interest rate on borrowing in Mexican pesos   8.40% to 8.51%   7.68% to 7.89%
Weighted average interest rate at end of the period   3.16%   2.16%
Weighted average interest rate during the period   2.91%   1.66%

 

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

 

  

September 30,

2018

  

December 31,

2017

 
Currency          
US dollar   1,110,000    1,044,500 
Mexican peso   127,603    28,223 
Total   1,237,603    1,072,723 

 

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)

 

11.Borrowings and debt (continued)

 

Long-term borrowings and debt

 

Borrowings consist of long-term and syndicated loans obtained from international banks. Debt instruments consist of public and private issuances under the Bank's Euro Medium Term Notes Program (“EMTN”) as well as public issuances in the Mexican market. The breakdown of borrowings and long-term debt (original maturity of more than one year), together with contractual interest rates, and prepaid commission of $4,022 and $4,211 as of September 30, 2018 and December 31, 2017, respectively, are as follows:

 

  

September 30,

2018

  

December 31,

2017

 
Long-term Borrowings:        
At fixed interest rates with due dates from October 2018 to February 2022   66,942    44,011 
At floating interest rates with due dates from August 2019 to August 2023   746,206    379,000 
Total borrowings   813,148    423,011 
Long-term Debt:          
At fixed interest rates with due dates from June 2019 to March 2024   499,679    532,305 
At floating interest rates with due dates from April 2019 to June 2023   115,147    187,739 
Total long-term debt   614,826    720,044 
Total long-term borrowings and debt   1,427,974    1,143,055 
Less: Prepaid commission   (4,022)   (4,211)
Total long-term borrowings and debt, net   1,423,952    1,138,844 
           
Net average outstanding balance during the period   1,167,928    1,477,788 
Maximum outstanding balance at any month – end   1,427,974    2,010,078 
Range of fixed interest rates on borrowing and debt in U.S. dollars   2.25% to 3.20%   1.35% to 3.25%
Range of floating interest rates on borrowing and debt in U.S. dollars   2.85% to 3.25%   2.61% to 3.01%
Range of fixed interest rates on borrowing in Mexican pesos   5.25% to 9.09%   4.89% to 9.09%
Range of floating interest rates on borrowing and debt in Mexican pesos   9.21% to 9.36%   7.99% to 8.00%
Range of fixed interest rate on debt in Japanese yens   0.46%   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   3.38% to 3.77%   3.33%
Weighted average interest rate at the end of the period   4.26%   3.60%
Weighted average interest rate during the period   4.01%   3.43%

 

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)

 

11.Borrowings and debt (continued)

 

Long-term borrowings and debt (continued)

 

The balances of long-term borrowings and debt by currency, excluding prepaid commission, are as follows:

 

  

September 30,

2018

  

December 31,

2017

 
Currency          
US dollar   1,121,010    753,981 
Mexican peso   154,294    206,750 
Japanese yen   70,280    98,711 
Euro   60,713    60,178 
Australian dollar   21,677    23,435 
Total   1,427,974    1,143,055 

 

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 September 30, 2018, the Bank was in compliance with all covenants.

 

The future payments of long-term borrowings and debt outstanding as of September 30, 2018, are as follows:

 

Payments  Outstanding 
     
2018   3,334 
2019   259,761 
2020   487,909 
2021   478,857 
2022   74,900 
2023   62,500 
2024   60,713 
    1,427,974 

 

12.Other liabilities

 

Following is a summary of other liabilities:

 

  

September 30,

2018

  

December 31,

2017

 
Accruals and other accumulated expenses   1,660    8,018 
Accounts payable   5,815    9,307 
Others   8,203    3,226 
    15,678    20,551 

 

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.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 September 30th 
   2018   2017   2016 
(Thousands of U.S. dollars)               
(Loss) profit for the period   (40,719)   20,461    27,991 
                
(U.S. dollars)               
Basic (loss) earnings per share   (1.03)   0.52    0.72 
Diluted (loss) earnings per share   (1.03)   0.52    0.71 
                
(Share units)               
Weighted average common shares outstanding -   applicable to basic   39,540    39,362    39,102 
                
Effect of diluted securities:               
Stock options and restricted stock units plan   -    51    123 
Adjusted weighted average common shares outstanding applicable to diluted EPS   39,540    39,413    39,225 

 

   Nine months ended September 30th 
   2018   2017   2016 
(Thousands of U.S. dollars)               
(Loss) profit for the period   (9,595)   61,400    73,701 
                
(U.S. dollars)               
Basic (loss) earnings per share   (0.24)   1.56    1.89 
Diluted (loss) earnings per share   (0.24)   1.56    1.88 
                
(Share units)               
Weighted average common shares outstanding -   applicable to basic   39,544    39,289    39,059 
                
Effect of diluted securities:               
Stock options and restricted stock units plan   -    30    119 
Adjusted weighted average common shares outstanding applicable to diluted EPS   39,544    39,319    39,178 

 

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.Capital and additional paid-in capital in excess

 

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-years ended September 30, 2018, 2017and 2016:

 

(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, 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   -    -    68,409    -    68,409 
Restricted stock units – vested   -    -    65,358    -    65,358 
Outstanding at September 30, 2016   6,342,189    2,474,469    30,343,014    -    39,159,672 
                          
Outstanding at January 1, 2017   6,342,189    2,474,469    30,343,390    -    39,160,048 
Conversions        (64,663)   64,663         - 
Repurchase common stock   -    (1,000)   -    -    (1,000)
Restricted stock issued – directors   -    -    57,000    -    57,000 
Exercised stock options - compensation plans   -    -    77,995    -    77,995 
Restricted stock units – vested   -    -    70,519    -    70,519 
Outstanding at September 30, 2017   6,342,189    2,408,806    30,613,567    -    39,364,562 
                          
Outstanding at January 1, 2018   6,342,189    2,408,806    30,677,840    -    39,428,835 
Conversions   -    (64,386)   64,386    -    - 
Repurchase common stock   -    (99,193)   (64)   -    (99,257)
Restricted stock issued – directors   -    -    57,000    -    57,000 
Exercised stock options - compensation plans   -    -    102,918    -    102,918 
Restricted stock units – vested   -    -    49,055    -    49,055 
Outstanding at September 30, 2018   6,342,189    2,245,227    30,951,135    -    39,538,551 

 

Additional paid-in capital in excess

 

As of September 30, 2018, and December 31, 2017, the additional paid-in capital consists of additional cash contributions to the common capital paid by shareholders.

 

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)

 

15.Treasury stock

 

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, 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   -    -    -    -    (68,409)   (1,510)   (68,409)   (1,510)
Restricted stock units – vested   -    -    -    -    (65,358)   (1,443)   (65,358)   (1,443)
Outstanding at  September 30, 2016   318,140    10,708    589,174    16,242    1,912,853    42,235    2,820,167    69,185 
                                         
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   -    -    -    -    (77,995)   (1,721)   (77,995)   (1,721)
Restricted stock units – vested   -    -    -    -    (70,519)   (1,557)   (70,519)   (1,557)
Outstanding at  September 30, 2017   318,140    10,708    590,174    16,270    1,709,963    37,689    2,615,277    64,667 
                                         
Outstanding at January 1, 2018   318,140    10,708    590,174    16,270    1,642,690    36,270    2,551,004    63,248 
Repurchase of common stock   -    -    99,193    2,441    64    1    99,257    2,442 
Restricted stock issued - directors   -    -    -    -    (57,000)   (1,259)   (57,000)   (1,259)
Exercised stock options - compensation plans   -    -    -    -    (102,918)   (2,272)   (102,918)   (2,272)
Restricted stock units - vested   -    -    -    -    (49,055)   (1,083)   (49,055)   (1,083)
Outstanding at September 30, 2018   318,140    10,708    689,367    18,711    1,433,781    31,657    2,441,288    61,076 

 

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)

 

16.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

  

Foreign

currency

translation

adjustment

   Total 
Balance as of January 1, 2016   (8,931)   (1,750)   -    (10,681)
Change in fair value for revaluation by debt instrument to FVOCI, net of hedging   6,933    2,137    -    9,070 
Reclassification adjustment for (gains) loss included in the loss or profit (1)   1,317    (4,090)   -    (2,773)
Other comprehensive income (loss) from the period   8,250    (1,953)   -    6,297 
Balance as of September 30, 2016   (681)   (3,703)   -    (4,384)
                     
Balance as of January 1, 2017   (853)   (1,948)   -    (2,801)
Change in fair value for revaluation by debt instrument to FVOCI, net of hedging   330    (207)   -    123 
Reclassification adjustment for (gains) loss included in the loss or profit (1)   172    760    -    935 
Other comprehensive income (loss) from the period   505    553    -    1,058 
Balance as of September 30, 2017   (348)   (1,395)   -    (1,743)
                     
Balance as of January 1, 2018   (385)   858    1,490    1,963 
Change in fair value for revaluation by debt instrument to FVOCI, net of hedging   (688)   (1,533)   -    (2,221)
Change in fair value for revaluation by equity instrument to FVOCI, net of hedging   (2,816)   1,163    -    (1,653)
Reclassification adjustment for (gains) loss included in the loss or profit (1)   (37)   4,730    -    4,693 
Exchange difference in conversion of foreign operating currency   -    -    (1,208)   (1,208)
Other comprehensive income (loss) from the period   (3,541)   4,360    (1,208)   (389)
Balance as of September 30, 2018   (3,926)   5,218    282    1,573 

 

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

 

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)

 

16.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 September 30, 2018

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 securities at FVOCI:   -   Interest income – securities at FVOCI
    -   Net gain on sale of securities at FVOCI
    -   Derivative financial instruments and hedging
    -    
         
Gains (losses) on derivative financial instruments:        
Foreign exchange forward   (786)  Interest income – loans
    742   Interest expense – borrowings and deposits
    (1,957)  Net gain (loss) on foreign currency exchange
Interest rate swaps   3   Net gain (loss) on interest rate swaps
Cross-currency interest rate swap   -   Net gain (loss) on cross-currency interest rate swap
    (1,998)   

 

Nine months ended September 30, 2018

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 securities at FVOCI:   -   Interest income – securities at FVOCI
    -   Net gain on sale of securities at FVOCI
    38   Derivative financial instruments and hedging
    38    
         
Gains (losses) on derivative financial instruments:        
Foreign exchange forward   (1,950)  Interest income – loans
    (1,485)  Interest expense – borrowings and deposits
    (1,290)  Net gain (loss) on foreign currency exchange
Interest rate swaps   (5)  Net gain (loss) on interest rate swaps
Cross-currency interest rate swap   -   Net gain (loss) on cross-currency interest rate swap
    (4,730)   

 

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)

 

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

 

Three months ended September 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 securities at FVOCI:   -   Interest income – securities at FVOCI
    -   Net gain on sale of securities at FVOCI
    (3)  Derivative financial instruments and hedging
    (3)   
         
Gains (losses) on derivative financial instruments:        
Foreign exchange forward   (2,068)  Interest income – loans
    76   Interest expense – borrowings and deposits
    (332)  Net gain (loss) on foreign currency exchange
Interest rate swaps   (122)  Net gain (loss) on interest rate swaps
Cross-currency interest rate swap   -   Net gain (loss) on cross-currency interest rate swap
    (2,446)   

 

Nine months ended September 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 securities at FVOCI:   -   Interest income – securities at FVOCI
    (144)  Net gain on sale of securities at FVOCI
    (31)  Derivative financial instruments and hedging
    (175)   
         
Gains (losses) on derivative financial instruments:        
Foreign exchange forward   (6,097)  Interest income – loans
    (1,174)  Interest expense – borrowings and deposits
    6,414   Net gain (loss) on foreign currency exchange
Interest rate swaps   92   Net gain (loss) on interest rate swaps
Cross-currency interest rate swap   5   Net gain (loss) on cross-currency interest rate swap
    (760)   

 

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)

 

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

 

Three months ended September 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 securities at FVOCI:   -   Interest income – securities at FVOCI
    168   Net gain on sale of securities at FVOCI
    185   Derivative financial instruments and hedging
    353    
         
Gains (losses) on derivative financial instruments:        
Foreign exchange forward   (1,414)  Interest income – loans
    470   Interest expense – borrowings and deposits
    2,528   Net gain (loss) on foreign currency exchange
Interest rate swaps   264   Net gain (loss) on interest rate swaps
Cross-currency interest rate swap   421   Net gain (loss) on cross-currency interest rate swap
    2,269    

 

Nine months ended September 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 securities at FVOCI:   -   Interest income – securities at FVOCI
    (800)  Net gain on sale of securities at FVOCI
    (517)  Derivative financial instruments and hedging
    (1,317)   
         
Gains (losses) on derivative financial instruments:        
Foreign exchange forward   (3,168)  Interest income – loans
    878   Interest expense – borrowings and deposits
    5,022   Net gain (loss) on foreign currency exchange
Interest rate swaps   870   Net gain (loss) on interest rate swaps
Cross-currency interest rate swap   488   Net gain (loss) on cross-currency interest rate swap
    4,090    

 

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)

 

17.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 Executive 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 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.

 

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)

 

17.Business segment information (continued)

 

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

 

   Periods ended September 30th 
   2018(1)   2017(1)   2016(1) 
Commercial               
Interest income   173,062    160,594    177,025 
Less:               
Interest expense   91,631    68,947    71,645 
Net interest income   81,431    91,647    105,380 
Net other income (2)   10,683    12,410    11,632 
Total income   92,114    104,057    117,012 
Less:               
Impairment loss from expected credit losses on loans and impairment loss from expected credit losses on loan commitments and financial guarantee contracts   58,883    9,035    17,127 
Impairment loss in other assets   2,118    -    - 
Expenses, less impairment loss from expected credit losses   28,119    26,217    25,412 
Profit for the period   2,994    68,805    74,474 
Commercial assets and loan commitments and financial guarantee contracts (end of period balances):               
Interest-earning assets (3 and 5)   5,717,161    5,337,353    6,384,687 
Other assets and loan commitments and financial guarantee contracts (4)   580,072    362,919    367,003 
Total interest-earning assets, other assets and loan commitments and financial guarantee contracts   6,297,233    5,700,272    6,751,690 
                
Treasury               
Interest income   11,314    9,686    7,423 
Less:               
Interest expense   10,970    9,659    4,721 
Net interest income   344    27    12,144 
Net other income (2)   (513)   (278)   (4,379)
Total income   (169)   (251)   7,765 
Less:               
(Recovery) impairment loss for expected credit losses on investment securities   (47)   390    (276)
Expenses, less impairment loss for expected credit losses   8,416    7,544    8,261 
Profit (loss) for the period   (8,538)   (7,405)   (773)
Treasury assets (end of period balances):               
Interest-earning assets (3 and 5)   886,105    887,149    900,127 
Total interest-earning assets   886,105    887,149    900,127 

 

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)

 

17.Business segment information (continued)

 

   Periods ended September 30th 
Combined business segment total  2018(1)   2017(1)   2016(1) 
             
Interest income   184,376    170,280    184,448 
Less:               
Interest expense   102,601    78,606    66,924 
Net interest income   81,775    91,674    117,524 
Net other income (2)   10,170    12,132    7,253 
Total income   91,945    103,806    124,777 
Less:               
Impairment loss from expected credit losses on loans and impairment loss from expected credit losses on loan commitments and financial guarantee contracts   58,883    9,035    17,127 
(Recoveries) impairment loss from expected credit losses on investment securities   (47)   (390)   276 
Impairment loss in other assets   2,118    -    - 
Expenses, less impairment loss from expected credit losses   36,535    33,761    33,673 
(Loss) profit for reportable segments   (5,544)   61,400    73,701 
                
Unallocated disposal of intangible and other assets (6)   (4,051)   -    - 
(Loss) profit for the period   (9,595)   61,400    73,701 

 

  

September 30,

2018

  

December 31,

2017

 
Total assets and loan commitments and financial guarantee contracts (end of period balances):          
Interest-earning assets (3 and 5)   6,603,266    6,258,584 
Other assets and loan commitments and financial guarantee contracts (4)   580,072    493,794 
Total interest-earning assets, other assets and loan commitments and financial guarantee contracts   7,183,338    6,752,378 

 

(1)The numbers set out in these tables have been rounded and accordingly may not total exactly.
(2)Net other income consists of other income including gains on sale of loans, gains (loss) per financial instrument at FVTPL and FVOCI, derivative instruments and foreign currency exchange.
(3)Includes deposits and loans, net of unearned interest and deferred fees.
(4)Includes customers’ liabilities under acceptances, loans commitments and financial guarantees contracts.
(5)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.

 

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)

 

17.Business segment information (continued)

 

  

September 30,

2018

  

December 31,

2017

 
Reconciliation of total assets:          
Interest-earning assets – business segment   6,603,266    6,258,584 
Equity investment   5,527    8,402 
Allowance for expected credit losses on loans   (139,318)   (81,294)
Allowance for expected credit losses on securities at amortized cost   (147)   (196)
Investment properties, net   2,289    5,119 
Customers’ liabilities under acceptances   24,232    6,369 
Intangibles, net   1,798    5,425 
Accrued interest receivable   45,367    30,872 
Property and equipment, net   6,692    7,420 
Derivative financial instruments used for hedging - receivable   3,391    13,338 
Other assets   7,661    13,708 
Total assets – condensed consolidated interim financial statement   6,560,758    6,267,747 

 

18.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.

 

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.

 

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.Fair value of financial instruments (continued)

 

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.

 

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.

 

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.Fair value of financial instruments (continued)

 

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:

 

   September 30, 2018 
   Level 1(a)   Level 2(b)   Level 3(c)   Total 
Assets                    
Securities at fair value through OCI:                    
Equity investments   5,527    -    -    5,527 
Sovereign debt (1)   15,444    -    -    15,444 
Total securities at fair value through OCI   20,971    -    -    20,971 
Derivative financial instruments used for hedging – receivable:                    
Interest rate swaps   -    1,930    -    1,930 
Cross-currency interest rate swaps   -    518    -    518 
Foreign exchange forward   -    943    -    943 
Total derivative financial instrument used for hedging – receivable   -    3,391    -    3,391 
Total financial assets at fair value   20,971    3,391    -    24,362 
                     
Liabilities                    
Derivative financial instruments used for hedging – payable:                    
Interest rate swaps   -    8,049    -    8,049 
Cross-currency interest rate swaps   -    14,333    -    14,333 
Foreign exchange forward   -    4,012    -    4,012 
Total derivative financial instruments used for hedging – payable   -    26,394    -    26,394 
Total financial liabilities at fair value   -    26,394    -    26,394 

 

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

 

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.Fair value of financial instruments (continued)

 

   December 31, 2017 
   Level 1(a)   Level 2(b)   Level 3(c)   Total 
Assets                    
Securities at fair value through OCI:                    
Equity investments   8,402    -    -    8,402 
Sovereign debt (1)   16,733    -    -    16,733 
Total securities at fair value through OCI   25,135    -    -    25,135 
Derivative financial instruments used for hedging – receivable:                    
Interest rate swaps   -    129    -    129 
Cross-currency interest rate swaps   -    4,550    -    4,550 
Foreign exchange forward   -    8,659    -    8,659 
Total derivative financial instrument used for hedging – receivable   -    13,338    -    13,338 
Total financial assets at fair value   25,135    13,338    -    38,473 
Liabilities                    
Derivative financial instruments used for hedging – payable:                    
Interest rate swaps   -    4,789    -    4,789 
Cross-currency interest rate swaps   -    30,154    -    30,154 
Total derivative financial instruments used for hedging – payable   -    34,943    -    34,943 
Total financial liabilities at fair value   -    34,943    -    34,943 

 

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

 

(1)At December 31, 2017, securities at fair value through OCI for $2,955 were reclassified from level 2 to level 1 of the fair value hierarchy given that Bloomberg's valuation "BVAL" for these values increased from 7 (in 2016) to 10 (in 2017).

.

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.

 

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.Fair value of financial instruments (continued)

 

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.

 

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 1and 2.

 

Loans

 

The fair value of the loan portfolio, including impaired loans, is estimated by discounting future cash flows using the current rates at which loans would be made to borrowers with similar credit ratings and for the same remaining maturities, considering the contractual terms in effect as of December 31 of the relevant year. These assets are classified in 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, considering the changes in the Bank’s credit margin. These liabilities are classified in Level 2.

 

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.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:

 

   September 30, 2018 
  

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   792,952    792,952    -    792,952    - 
Acceptances   24,232    24,232    -    24,232    - 
Interest receivable   45,367    45,367    -    45,367    - 
Securities at amortized cost (2)   77,562    76,712    63,915    -    12,797 
Loans, net (1)   5,577,843    5,850,112    -    5,850,112    - 
                          
Financial liabilities                         
Instruments with carrying value that approximates fair value:                         
Deposits   2,777,535    2,777,535    -    2,777,535    - 
Acceptances   24,232    24,232    -    24,232    - 
Interest payable   23,427    23,427    -    23,427    - 
Short-term borrowings and debt   1,237,603    1,239,864    -    1,239,864    - 
Long-term borrowings and debt, net   1,423,952    1,449,887    -    1,449,887    - 

 

   December 31, 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   672,048    672,048    -    672,048    - 
Acceptances   6,369    6,369    -    6,369    - 
Interest receivable   30,872    30,872    -    30,872    - 
Securities at amortized cost (2)   68,934    69,006    50,581    8,447    9,978 
Loans, net (1)   5,419,379    5,520,604    -    5,520,604    - 
                          
Financial liabilities                         
Instruments with carrying value that approximates fair value:                         
Deposits   2,928,844    2,928,844    -    2,928,844    - 
Acceptances   6,369    6,369    -    6,369    - 
Interest payable   15,816    15,816    -    15,816    - 
Short-term borrowings and debt   1,072,723    1,072,483    -    1,072,483    - 
Long-term borrowings and debt, net   1,138,844    1,158,534    -    1,158,534    - 

 

(a)Level 1: Quoted market prices in an active market.
(b)Level 2: Quoted market prices in an inactive market or internally developed models with significant observable 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 $139.3 million and unearned interest and deferred fees of $7.4 million for September 30, 2018; allowance for expected credit losses of $81.3 million and unearned interest and deferred fees of $5.0 million for December 31, 2017.

 

(2)The carrying value of securities at amortized cost is net of the allowance for expected credit losses of $0.1 million as of September 30, 2018 and $0.2 million as of December 31, 2017.

 

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)

 

19.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 September 30, 
   2018   2017   2016 
Expenses:               
Compensation costs paid to directors   214    218    252 
Compensation costs paid to executives   472    246    346 

 

   Nine months ended September 30, 
   2018   2017   2016 
Expenses:               
Compensation costs paid to directors   425    441    491 
Compensation costs paid to executives   3,960    1,636    3,696 

 

20.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.

 

21.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 a Risk 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 Executive Committee.

 

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.

 

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)

 

21.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 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 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. 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:

 

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.

 

69

 

 

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)

 

21.Risk management (continued)

 

Credit risk (continued)

 

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 using 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 because of the risks to which it is exposed and take corrective action.

 

Individually assessed allowances

 

The Bank determines the allowances appropriate for each individually significant loan or advance on an individual basis, considering 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.

 

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)

 

21.Risk management (continued)

 

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.

 

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.

 

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)

 

21.Risk management (continued)

 

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:

 

   September 30, 2018 
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   792,952    -    -    -    -    -    792,952 
Investment securities   1,650    12,975    18,045    60,336    -    -    93,006 
Equity investments   -    -    -    -    -    5,527    5,527 
Loans   1,880,751    918,042    1,076,886    1,786,219    62,620    -    5,724,518 
Unearned interest and deferred fees   (843)   (1,243)   (22)   (4,901)   (348)   -    (7,357)
Allowance for expected credit losses   (44,078)   (7,099)   (7,284)   (63,616)   (17,241)   -    (139,318)
Other assets   58,573    12,733    15,185    2,029    1,495    1,415    91,430 
Total   2,689,005    935,408    1,102,810    1,780,067    46,526    6,942    6,560,758 
                                    
Liabilities                                   
Deposits   2,112,392    366,462    298,681    -    -    -    2,777,535 
Other liabilities   282,509    477,113    801,028    1,159,765    67,342    6,515    2,794,272 
Total   2,394,901    843,575    1,099,709    1,159,765    67,342    6,515    5,571,807 
                                    
Confirmed letters of credit   76,352    116,479    2,060    -    -    -    194,891 
Stand-by letters of credit and guaranteed – Commercial risk   18,476    36,466    66,540    23,919    -    -    145,401 
Credit commitments   74,834    65,000    -    75,714    -    -    215,548 
Total   169,662    217,945    68,600    99,633    -    -    555,840 
Net position   124,442    (126,112)   (65,499)   520,669    (20,816)   427    433,111 

 

72

 

 

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)

 

21.Risk management (continued)

 

Liquidity risk (continued)

 

   December 31, 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   672,048    -    -    -    -    -    672,048 
Investment securities   700    279    7,000    77,688    -    -    85,667 
Equity investments   -    -    -    -    -    8,402    8,402 
Loans   1,926,787    1,175,801    922,711    1,386,161    94,198    -    5,505,658 
Unearned interest and deferred fees   (472)   (479)   (223)   (3,546)   (248)   (17)   (4,985)
Allowance for expected credit losses   (35,787)   (6,302)   (8,208)   (24,827)   (6,170)   -    (81,294)
Other assets   31,282    8,635    13,175    3,819    9,398    15,942    82,251 
Total   2,594,558    1,177,934    934,455    1,439,295    97,178    24,327    6,267,747 
                                    
Liabilities                                   
Deposits   1,722,041    411,158    571,500    224,145    -    -    2,928,844 
Other liabilities   806,547    151,090    291,694    979,958    66,802    -    2,296,091 
Total   2,528,588    562,248    863,194    1,204,103    66,802    -    5,224,935 
                                    
Confirmed letters of credit   169,042    101,403    3,004    -    -    -    273,449 
Stand-by letters of credit and guaranteed – commercial risk   18,687    72,080    77,952    257    -    -    168,976 
Credit commitments   -    15,000    -    30,000    578    -    45,578 
Total   187,729    188,483    80,956    30,257    578    -    488,003 
Net position   (121,759)   427,203    (9,695)   204,935    29,798    24,327    554,809 

 

73

 

 

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)

 

21.Risk management (continued)

 

Market risk (continued)

 

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, securities held to maturity and financial instruments through OCI, short- and long-term borrowings and debt, derivatives and financial liabilities through profit or loss. 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

 
        
September 30, 2018  +200 bps   4,124 
   -200 bps   (3,037)
         
September 30, 2017  +200 bps   20,732 
   -200 bps   (5,018)
         
September 30, 2016  +200 bps   8,673 
   -200 bps   (8,206)

 

This analysis is based on the prior year changes in interest rates and assesses the impact on income, with balances as of September 30, 2018 and December 31, 2017. This sensitivity provides an idea of the changes in interest rates, taking as example the volatility of the interest rate of the previous period.

 

74

 

 

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)

 

21.Risk management (continued)

 

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.

 

   September 30, 2018 
Description 

Up to 3

months

  

3 to 6

months

  

6 months

to 1 year

   1 to 5 years  

More than

5 years

   Total 
Assets                              
Investments securities   1,611    12,959    18,044    60,392    -    93,006 
Equity investments   -    -    -    -    5,527    5,527 
Loans   4,188,420    885,102    426,030    214,373    10,593    5,724,518 
Total   4,190,031    898,061    444,074    274,765    16,120    5,823,051 
                               
Liabilities                              
Deposits   2,034,263    366,460    298,681    -    -    2,699,404 
Securities sold under repurchase agreements   -    11,536    28,231    -    -    39,767 
Short and long-term borrowings and debt, net   1,945,586    152,616    92,522    410,118    60,713    2,661,555 
Total   3,979,849    530,612    419,434    410,118    60,713    5,400,726 
Total interest rate sensibility   210,182    367,449    24,640    (135,353)   (44,593)   422,325 

 

   December 31, 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                              
Investments securities   700    279    7,000    77,688    -    85,667 
Equity investments   -    -    -    -    8,402    8,402 
Loans   4,067,639    952,542    301,334    173,550    10,593    5,505,658 
Total   4,068,339    952,821    308,334    251,238    18,995    5,599,727 
                               
Liabilities                              
Deposits   2,242,220    305,415    197,060    102,085    -    2,846,780 
Short and long-term borrowings and debt, net   1,585,145    2,538    85,232    482,814    55,838    2,211,567 
Total   3,827,365    307,953    282,292    584,899    55,838    5,058,347 
Total interest rate sensibility   240,974    644,868    26,042    (333,661)   (36,843)   541,380 

 

75

 

 

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)

 

21.Risk management (continued)

 

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 using 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.

 

   September 30, 2018 
  

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   4.0496    1.1610    113.635    2972    18.7103    -    - 
                                    
Assets                                   
Cash and cash equivalent   762    16    2    45    7,087    115    8,027 
Equity investments   -    -    -    -    -    -    - 
Loans   -    -    -    -    207,183    -    207,183 
Total   762    16    2    45    214,270    115    215,210 
                                    
Liabilities                                   
Borrowings and deposit placements   -    -    -    -    213,402    -    213,402 
Other Liabilities   -    -    -    -    -    -    - 
Total   -    -    -    -    213,402    -    213,402 
                                    
Net currency position   762    16    2    45    868    115    1,808 

 

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

 

76

 

 

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)

 

21.Risk management (continued)

 

Market risk (continued)

 

Currency risk (continued)

 

   December 31, 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   3.31    1.20    112.66    2,985.78    19.67    -    - 
                                    
Assets                                   
Cash and cash equivalent   87    2    4    91    369    75    628 
Equity investments   168    -    -    -    -    -    168 
Loans   -    -    -    -    143,182    -    143,182 
Total   255    2    4    91    143,551    75    143,978 
                                    
Liabilities                                   
Borrowings and deposit placements   -    -    -    -    143,661    -    143,661 
Total   -    -    -    -    143,661    -    143,661 
                                    
Net currency position   255    2    4    91    (110)   75    317 

 

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

 

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.

 

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 to support its business and to maximize shareholder value.

 

77

 

 

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)

 

21.Risk management (continued)

 

Capital management (continued)

 

The Bank manages its capital structure and adjusts it according to changes in economic conditions and the risk characteristics of its activities. To maintain or adjust the capital structure, the Bank may adjust the amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No changes have been made to the objectives, policies and processes from the previous years. However, they are under constant review by the Board.

 

  

September 30,

2018

  

December 31,

2017

 
Tier 1 capital   992,664    1,048,304 
           
Risk weighted assets   5,731,405    5,601,518 
Tier 1 capital ratio   17.32%   18.71%

 

22.Applicable laws and regulations

 

Liquidity index

 

The Rule No. 4-2008 issued by the Superintendence of Banks of Panama (SBP) establishes that every general license or international license bank must maintain, always, a minimum balance of liquid assets equivalent to 30% of the gross total of its deposits in the Republic of Panama or overseas up to 186 days, counted from the date of the report. The formula is based on the following parameters:

 

Liquid assets x 100 = X% (Liquidity index)  
Liabilities (Deposits Received)    

 

As of September 30, 2018, and December 31, 2017, the percentage of the liquidity index reported by the Bank to the regulator was 87.02% and 88.78%, respectively.

 

Capital adequacy

 

The Banking Law in the Republic of Panama and the Rules No. 01-2015 and 03-2016 require that the general license banks maintain a total capital adequacy index that shall not be lower, at any time, than 8% of total assets and off-balance sheet irrevocable contingency transactions , weighted according to their risks; and ordinary primary capital that shall not be less than 4.5% of its assets and off-balance sheet transactions that represent an irrevocable contingency, weighted according to their risks; and a primary capital that shall not be less than 6% of its assets and off-balance sheet transactions that represent an irrevocable contingency, weighted according to their risks.

 

As of September 30, 2018, the Bank's total capital adequacy ratio is 17.32%, which is in compliance with the capital adequacy indexes required by the Banking Law in the Republic of Panama.

 

78

 

 

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

 

22.Applicable laws and regulations (continued)

 

Specific provisions

 

The Rule No. 4-2013, modified by Rule No. 8-2014, indicates that the specific provisions are originated from the objective and concrete evidence of impairment. These provisions must be established for credit facilities classified according to the risk categories denominated: special mention, substandard, doubtful, or unrecoverable, both for individual credit facilities as for a group of such facilities. In the case of a group, it corresponds to circumstances that indicate the existence of deterioration in credit quality, although individual identification is still not possible.

 

Banks must calculate and maintain at all times the amount of the specific provisions determined by the methodology specified in this Rule, which takes into account the balance owed of each credit facility classified in any of the categories subject to provision, mentioned in the paragraph above; the present value of each guarantee available in order to mitigate risk, as established by type of guarantee; and a weighting table that applies to the net balance subject to loss of such credit facilities.

 

In Article 34 of this Rule, it establishes that all credits must be classified in the following five (5) categories, according to their default risk and loan conditions, and establishes a minimum reserve for each classification: normal 0%, special mention 2%, substandard 15%, doubtful 50%, and unrecoverable 100%.

 

If there is an excess in the specific provision, calculated in accordance with this Rule, compared to the provision calculated in accordance with IFRS, this excess will be accounted as a regulatory credit reserve in Stockholder’s Equity and will increases or decreases with allocations towards the retained earnings. The balance of the regulatory credit reserve will not be considered as capital funds for calculating certain ratios or prudential indicators mentioned in the Rule.

 

Based on the classification of risks, real guarantees and in accordance with Rule No. 04-2013 of the Superintendence of Banks of Panama, the Bank classified the loan portfolio as follows:

 

   September 30, 2018 
Loans  Normal  

Special

Mention

   Substandard   Doubtful   Unrecoverable   Total 
Corporations   2,526,524    -    -    83,976    -    2,610,500 
Banks:                              
Private   2,452,756    -    -    -    -    2,452,756 
State-owned   537,270    -    -    -    -    537,270 
    2,990,026    -    -    -    -    2,990,026 
Others   88,992    -    -    -    35,000    123,992 
Total   5,605,542    -    -    83,976    35,000    5,724,518 
                               
Loans provision:                              
Specific   -    -    -    61,875    22,750    84,625 
Total   -    -    -    61,875    22,750    84,625 

 

79

 

 

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

 

22.Applicable laws and regulations (continued)

 

Specific provisions (continued)

 

   December 31, 2017 
Loans  Normal  

Special

Mention

   Substandard   Doubtful   Unrecoverable   Total 
Corporations   2,582,354    -    23,759    -    -    2,606,113 
Banks:                              
Private   2,083,795    -    -    -    -    2,083,795 
State-owned   573,649    -    -    -    -    573,649 
    2,657,444    -    -    -    -    2,657,444 
Others   207,101    -    -    -    35,000    242,101 
Total   5,446,899    -    23,759    -    35,000    5,505,658 
                               
Loans provision:                              
Specific   -    -    7,238    -    17,500    24,738 
Total   -    -    7,238    -    17,500    24,738 

 

As of September 30, 2018, and December 31, 2017, the total restructured loans amounted to $28,440 and $32,924, respectively.

 

Non-accruing loans are presented by category as follows:

 

   September 30, 2018 

Non-accruing

loans

  Normal  

Special

Mention

   Substandard   Doubtful   Unrecoverable   Total 
Impaired loans   -    -    -    83,976    35,000    118,976 
Total   -    -    -    83,976    35,000    118,976 

 

   December 31,2017 

Non-accruing

loans

  Normal  

Special

Mention

   Substandard   Doubtful   Unrecoverable   Total 
Impaired loans   -    -    23,759    -    35,000    58,759 
Total   -    -    23,759    -    35,000    58,759 

 

80

 

 

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

 

22.Applicable laws and regulations (continued)

 

Specific provisions (continued)

 

  

September 30,

2018

  

December 31,

2017

 
Non-accruing loans:          
Private corporations   83,976    23,759 
Middle-market companies   35,000    35,000 
Total non-accruing loans   118,976    58,759 
Interests that would be reversed if the loans had been classified as non-accruing loans   4,583    3,257 
Income from collected interest on non-accruing loans   1,381    551 

 

Credit risk coverage - dynamic provision

 

The Superintendence of Banks of Panama by means of the Rule No. 4-2013, which governs as of June 30, 2014 and repeals in all its parts the Rule No. 6-2000 and all its amendments, establish the compulsory constitution of a dynamic provision in addition to the specific provision as part of the total provisions for credit risk coverage.

 

The dynamic provision is an equity consignment associated to the regulatory capital, but does not replace or offset the capital adequacy requirements established by the Superintendence of Banks of Panama. The Rule in Article 50, numeral 2, establishes the period of adjustment where banks must ensure that they have the minimum percentages of risk-weighted assets, without prejudice to the Bank's decision to apply the corresponding amount in accordance with what establishes Article 37 of this Rule.

 

Methodology for the constitution of the regulatory credit reserve

 

The Superintendence of Banks of Panama by means of the General Resolution of Board of Directors SBP-GJD-0003-2013 of July 9, 2013, establishes the accounting methodology of the identified differences that rise between the application of the International Financial Reporting Standards (IFRS) and the application of prudential regulations issued by the SBP; as well as the additional disclosures require to be included in the notes to the consolidated financial statements.

 

The parameters established in this methodology are the following:

        

1.“The calculations of how the accounting balances would be applied in accordance to IFRS and the prudential standards issued by the Superintendence of Banks of Panama will be carried out and the respective figures will be compared.

 

2.When the calculation made in accordance with IFRS results in a greater reserve or provision for the Bank compared to the one resulting from the use of the prudential standards issued by the SBP, the Bank will account the IFRS figures.

 

3.When the impact of the use of prudential standards results in a greater reserve or provision for the bank, the effect of the application of IFRS will be recorded in profit and loss, and the difference between IFRS calculation compared to the prudential standards calculation will be appropriated in the retained earnings as a regulatory credit reserve. If the Bank does not have sufficient retained earnings, the difference will be presented as an accumulated deficit account.

 

4.The regulatory credit reserve mentioned in numeral 3 of this Rule may not be reversed against the retained earnings as long as there are differences between the IFRS and the originated prudential regulations”.

 

81

 

 

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

 

22.Applicable laws and regulations (continued)

 

Credit risk coverage - dynamic provision (continued)

 

Considering that the Bank presents its consolidated financial statements under IFRS, specifically for its expected credit reserves under IFRS 9, the line "Regulatory credit reserve" established by the Superintendence of Banks of Panama has been used to present the difference between the application of the accounting standard used and the prudential regulations of the Superintendence of Banks of Panama to comply with the requirements of the Rule No. 4-2013.

 

As of September 30, 2018, and December 31, 2017, the total amount of the dynamic provision and the regulatory credit reserve calculated according to the guidelines of Rule No. 4-2013 of the Superintendence of Banks of Panama is $108,781 and $ 129,254. respectively, taken in full from retained earnings for purposes of compliance with local regulatory requirements. This appropriation is restricted to distributing dividends in order to comply with local regulatory. As follows, the detail:

 

  

September 30,

2018

  

December 31,

2017

 
Dynamic provision   108,756    108,756 
Regulatory credit reserve   25    20,498 
    108,781    129,254 

 

23.Subsequent Events

 

Bladex announced a quarterly cash dividend of $0.385 US dollar cent per share corresponding to the third quarter of 2018. The cash dividend was approved by the Board of Directors at its meeting held on October 23, 2018 and it is payable on November 20, 2018 to the Bank’s stockholders as of November 06, 2018 record date.

 

82