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Bladex Gets a Big Profit Jump

Dan Caplinger, The Motley Fool

Latin America has been one of the fastest-growing parts of the world over the past 20 years, and the financial companies that help enable businesses to expand have shared in their success. For Panama's Banco Latinoamericano de Comercio Exterior (NYSE: BLX), also known as Bladex, a central location at one of the region's financial hubs has provided an amazing opportunity to help clients take advantage of everything that the Latin American economy has to offer.

Coming into Friday's second-quarter financial report, Bladex shareholders expected that the bank would see improvement in its financial results. Yet even bullish investors were pleased at how well Bladex did, and the bank has high hopes that the good times will continue throughout 2019.

Cargo ship with a glass globe superimposed on top of it.

Image source: Bladex.

Strong growth for Bladex

Bladex's second-quarter results showed just how far the bank has come. Total revenue was up just a modest 3% to $33.6 million, which was actually a bit less than what most of those following the stock had expected. Yet net income of $22.3 million soared 34% from year-ago levels, and the resulting earnings of $0.56 per share managed to top the ambitious consensus forecast for $0.55 per share on the bottom line.

Bladex attributed the rise in profit to three factors. First, overall revenue growth contributed a small portion to the gains. More important was the decreased level of impairment-related losses on its balance sheet, which added almost $4 million to the bottom line. Finally, Bladex succeeded in cutting its operating expenses, and that boost in efficiency was instrumental in driving financial improvement that should stay in place in future quarters as well.

Capital returns were also healthy. Return on average equity climbed from 6.4% a year ago to 9% during the most recent quarter, and Bladex posted a gain of more than 30% in its return on average assets. Net interest margin stayed stable compared to year-ago levels, helping to support a key source of profit for Bladex.

Bladex did see some deterioration in its credit quality, but it wasn't too big. Impaired loans were up 0.18 percentage points to 1.16%, and total loan allowances rose from 1.44% a year ago to 1.70%. Nevertheless, Bladex is well capitalized to handle its current impaired loans, and the bank's Tier 1 capital ratio under Basel III standards remained above 20%.

Can Bladex keep growing?

Interestingly, CEO Gabriel Tolchinsky spent more time mulling over a troubling future than about the strong results from the past, noting that the Federal Reserve's shift toward lower interest rates has led to an appreciation in the U.S. dollar and correspondingly less investment in emerging markets. "With lower fund flows to Latin America," Tolchinsky said, "sagging investment in key countries has become a drag on the region's economic growth."

Yet the CEO is optimistic about how Bladex can handle the situation. By boosting deposits, lending at higher spreads, and continuing to maintain credit quality discipline and cost controls, Bladex should be able to work through any macroeconomic difficulties that persist in the region.

Bladex shareholders seemed willing to accept that game plan as a pathway forward, and the stock climbed 5% in morning trading following the announcement. Navigating the turbulent economies of the Latin American region is a constant challenge, and it takes an institution with expertise to avoid traps while taking advantage of the best opportunities for profit. Fortunately, Bladex has that expertise, and Latin America's long-term economic prospects remain attractive enough to justify taking short-term risks.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Bladex. The Motley Fool has a disclosure policy.