Fitch Ratings has affirmed Banco Latinoamericano de Comercio Exterior's (Bladex) ratings, including its 'BBB' Issuer Default Rating (IDR). The Rating Outlook is Stable. A full list of rating actions is provided below.
Bladex's IDR and viability rating reflect its ample trade finance expertise; sound asset quality and reserves; improving performance; ample, proven liquidity; strong capitalization; stable, albeit narrow, margins; and positive economic environment and prospects. Bladex's ratings are tempered by the significant concentration on both sides of the company's balance sheet, which is mitigated by a sound risk management function and strong ties to its main fund providers.
Fitch could upgrade Bladex's ratings if the bank achieves a consistently more stable and diversified revenue mix and lower concentration on both sides of its balance sheet. This would reduce risk and protect the company's balance sheet and income statement from the volatility it has faced through market cycles, consistent with other financial institutions with higher ratings. On the other hand, severe losses in the asset management arm, significantly weaker margins or asset quality deterioration that would erode profitability and the capital/ reserves cushion could pressure ratings downward.
Bladex may expect some support from its main shareholders (central banks of Latin America) should it be required. However, given the dilution of ownership, Fitch believes support may be difficult to coordinate and cannot be relied on.
Bladex's performance through 2011 was driven by higher loan volumes (up 47% in 2010, 56% yoy at June 2011), sound non-interest revenues - mainly from the asset management unit - and resilient albeit low margins. Operating costs grew moderately, and lower pressure from loan loss provisions contributed to improve efficiency and profitability (ROAE: 12.06%, ROAA: 1.58%). Margins showed remarkable stability through the crisis and reflect the low risk nature of its business (target market, products). Low margins and volatile asset management revenues heighten the need to achieve higher loan volumes to bolster revenues; the low margins also leave the bank's earnings vulnerable to unexpected shocks.
Asset quality improved during 2010-2011 in absolute (down 40%) and relative terms (down to 0.61% of gross loans) due to remedial management efforts and stronger economic growth. Loan loss reserves cover the impaired portfolio 2.8 times. Although declined from the peak of end-2009, capital ratios are robust by any standard and likely to remain in the mid-high teens, a level considered adequate given Bladex's low risk business, asset quality, reserves and risk management policies.
Bladex has developed a unique expertise and franchise since 1975 and consolidated as the top regional foreign trade bank. Efforts to diversify from its core business have historically had moderate results. In order to reduce revenue volatility, the bank is decreasing its exposure in its asset management unit; a welcome decision that will take some time to be fully implemented. Bladex's key markets continue to enjoy positive and sound economic growth fostering loan growth and sound asset quality. Bladex should be able to maintain a sound performance through asset growth, resilient margins, contained operating costs and little provisions pressure thanks to its sound asset quality.
Given its customer base (major regional banks and corporations) the bank is structurally concentrated on its loan portfolio. By the same token, funding (primarily received from central/state-owned and commercial banks) is also concentrated and outflows are highly correlated in times of severe financial turmoil. However, besides having over 10% of its assets in bank deposits and highly liquid securities, Bladex has a very liquid loan portfolio that rolls over at least twice a year. This has proven to be a key safeguard for the bank as it successfully faced severe liquidity crunches - the latest during 2008-2009 - that forced it to rapidly shrink its balance sheet by about a third.
Fitch has affirmed Bladex's ratings as follows:
--Long-term foreign currency IDR at 'BBB';
--Short-term foreign currency IDR at 'F2';
--Individual rating at 'C';
--Viability rating at 'bbb';
--Support rating at '5';
--Support floor at 'NF';
--National long term rating at 'AA-(cl)'.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 16, 2011);
--'Rating Multilateral Development Banks and Other Supranationals' (Aug. 12, 2011).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Rating Multilateral Development Banks and Other Supranationals
Diego Alcazar, +1-212-908-0396
One State Street Plaza
New York, NY 10004
Theresa Paiz-Fredel, +1-212-908-0534
Peter Shaw, +1-212-908-0553
Cindy Stoller, New York, +1-212-908-0526
Additional information is available at 'www.fitchratings.com'.