Trade tensions have captured the attention of investors around the world, and worsening relations between key trading partners have taken their toll on financial institutions globally. U.S. banks have suffered as a result of flattening yield curves and uncertain economic prospects. But the potential impact on banking institutions in key emerging markets like Latin America could be even larger, and that has a lot of people watching the Panamanian Banco Latinoamericano de Comercio Exterior (NYSE: BLX), also known as Bladex.
Bladex is popular among investors because of its strong dividend and access to the Latin American market, and its prospects have generally been tied to the health of the regional economy. Bladex's recent third-quarter results showed some of the challenges the region is facing, but the bank remains optimistic that it can overcome trade-related headwinds and keep its shareholders satisfied.
Bladex presses on
Bladex's third-quarter results were a good indicator of how things are going in Latin America. Total revenue eased lower by 2% to $29.5 million, reversing the year-over-year growth that the bank had seen three months ago. Net income came in at $20.4 million, which was a massive improvement from last year's losses and worked out to $0.52 per share in earnings.
Fundamentally, Bladex got more from less by sticking to its strengths. The bank said it saw lower impairment losses on its financial assets than it had in the past, and it also lowered its operating expenses from previous levels.
Yet Bladex also faced many of the challenges that its U.S. counterparts have seen lately. Net interest income was down 2% to $26.7 million, with lower average lending volume and a narrowing interest rate spread hurting the bank. Fee and commission income was also down for the period, as Bladex provided fewer letters of credit in part because of trade tensions weighing on commerce within the region.
Other efficiency measures were mixed, with several falling from where they were three months ago. Return on average equity went from 9% in the second quarter to 8%, and return on aveage assets fell from 1.43% to 1.34% over the same period.
However, Bladex saw improvement on the capital front. Capital ratios rose to 21.1%, up more than three percentage points over the past 12 months. Credit-impaired loans as a percentage of total loans and commercial loan loss allowances were down significantly from year-ago levels as well.
What's ahead for Bladex?
CEO Gabriel Tolchinsky stayed vigilant in looking at the state of the Latin American economy and its potential impact on the bank. "The global economy in 2019 is on course for its weakest year of growth since the financial crisis," Tolchinsky said, "weighed down by tensions that have significantly slowed international trade. Given this macroeconomic context, we are once again downgrading our economic and trade growth expectations for Latin America for both 2019 and 2020."
Yet the CEO's words weren't definitely bad for Bladex. As Tolchinsky noted, Brazil and Colombia are seeing strong consumer demand help support economic growth, while Mexico and Argentina are having a harder time dealing with disruptions to capital flows for investment. Overall, Bladex thinks it can focus on stronger countries and emphasize higher-quality credit opportunities in order to handle that risk.
Moreover, Bladex hasn't shown any concerns about its dividend. The bank once again announced a $0.385-per-share dividend for the quarter, keeping its yield in the 7% to 8% range. Bladex's payout ratio of roughly 75% is higher than you'll see with many of its American counterparts in the financial industry, but it's not so high that it will present clear problems for dividend investors.
Bladex shareholders weren't initially pleased to see somewhat weaker performance than they'd hoped, but the stock recovered from early losses as investors seemed to take longer-term factors into consideration. Bladex has a lot going for it, and although Latin America could see further pressure from trade tensions, the bank is doing all the right things to try to stem the tide and find the best available opportunities.
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