TEXT-S&P affirms Banco Latinoamericano de Comercio Exterior

Tue Sep 25, 2012 3:51pm EDT

Overview
     -- Panama-based Banco Latinoamericano de Comercio Exterior has maintained 
a steady growth path and strong capitalization levels. 
     -- We are affirming our 'BBB' long- and 'A-2' short-term ratings on the 
bank. 
     -- The stable outlook reflects our expectations that the bank will 
maintain strong capital levels and adequate risk position.


Rating Action
On Sept. 25, 2012, Standard & Poor's Ratings Services affirmed its 'BBB' long- 
and 'A-2' short-term ratings on Banco Latinoamericano de Comercio Exterior 
S.A. (BLX). The outlook is stable.
  
Rationale 
The ratings on BLX reflect its "adequate" business position, "strong" capital 
and earnings capacity, "adequate" risk position, "above average" funding, and 
"adequate" and liquidity.

Our bank criteria use our Banking Industry Country Risk Assessment (BICRA) 
economic risk and industry risk scores to determine a bank's anchor, the 
starting point in assigning an issuer credit rating. The 'bbb-' anchor of BLX 
reflects our view of the weighted average economic risk in the countries in 
which the bank has exposure through its loan book. BLX's largest exposure is 
in Brazil, where it has loans representing 35% of its total exposures as of 
June 2012. Exposure to other Latin American countries amounts to 65% 
(including Mexico, Colombia, Chile, Argentina, Peru, Uruguay, Ecuador and 
Central America), with no one country accounting for more than 15%. The 
weighted economic average risk is about '6'. A BICRA is scored on a scale from 
'1' to '10', ranging from the lowest risk banking systems (group '1') to the 
highest risk (group '10'). Within the region, a common weakness for economic 
risk is low income per capita. Industry risk in Panama is '5', which we 
consider high risk, reflecting our view that supervision practices still lag 
international standards because the method for calculating capital 
requirements doesn't account for all risks that banks in Panama face. Also, 
Panama lacks a lender of last resort. We classify Panama as "support 
uncertain" because large banks in the country are difficult to support.

In our view, the sovereign rating on Panama doesn't constrain the issuer 
credit rating on BLX, because it has a limited exposure to the country. We 
don't believe that economic stress conditions in the countries to which BLX 
has a higher exposure will put its capital and liquidity at risk. The 
short-term nature of the bank's assets underpins its flexibility to adjust 
amid significant volatility, as during the Argentine crisis in 2002 or the 
global financial crisis in 2008-2009. Because central banks of several Latin 
American countries are BLX's shareholders, we believe that it could count on 
their support to maintain deposit funding and recover from losses.

We believe that BLX has an "adequate" business position based on its 
operations in the niche trade finance segment, growing customer base, and deep 
knowledge of the foreign trade business. The bank offers a wide range of 
products in the trade finance market throughout Latin America. BLX specializes 
in short-term trade finance, and therefore its performance moves in tandem 
with Latin American foreign trade. For 2012 and 2013, we expect the bank's 
loan portfolio to grow 10%-15%, due to high commodities and agricultural 
products exports and prices. Management has the capacity to overcome difficult 
conditions and come up with new products to withstand tough market conditions. 
Over the past few years, BLX has gained geographic diversification in its loan 
portfolio by reducing its operations in Brazil and expanding into Peru, 
Mexico, and Colombia. Exposures are congruent with these countries' economic 
importance. We expect the bank to maintain its competitive advantage because 
of its market and product knowledge and its status as a renowned trade finance 
product supplier with a commitment from the region's central banks.

Capital and earnings of the bank are "strong" based on the bank's strong 
capital ratio, the adequate quality of its capital and earnings, and its 
moderate earnings capacity. We expect the risk-adjusted capital (RAC) ratio to 
average about 13% for the next 12-18 months. The bank's capital is adequate 
because it consists of paid-in capital and retained earnings. However, 
earnings capacity is moderate--with an average earnings buffer forecast of 
0.8% for the next two years-in part because of inherent volatility of the 
asset management unit that has pressured core earnings. During the first half 
of 2012, core earnings to adjusted assets improved to 1.8% from 1.3% in 2011 
and 0.5% in 2010 because of more-profitable lending to midsize companies and 
better trade income. For 2012, we expect net interest income to increase as a 
result of the growth in the loan portfolio, and trading income to decline, as 
the bank reduced its bond position to invest in loans. 

We consider BLX to have an "adequate" risk position with 51% of its loan 
portfolio allocated to the corporate segment, 9% to mid capitalization 
companies, and 40% to financial institutions. About 65% of the loan portfolio 
is related to foreign trade finance lines and the remainder to general lines. 
The bank's short-term tenor of its loan portfolio, the good knowledge of the 
market, and its special creditor status in some countries has allowed it to 
mitigate client concentration. The 20 largest credits accounted for 37% of 
BLX's loan portfolio as of June 2012. Despite concentration and volatility in 
the region, BLX's nonperforming loans to total loans was 0.5% as of June 2012, 
down from 0.7% for 2011 and 2010. Due to its adequate underwriting standards, 
we expect the bank to have less than 1% in problematic loans, despite greater 
exposure to more-risky midsize enterprises. The Panamanian financial system 
doesn't have requirements for market risk; however, we think that market risk 
impact on BLX should be low because of its small trading position, absence of 
foreign exchange open exposures, and hedges' offset of mismatches in interest 
rates. We believe our RAC model considers the credit and operational risks 
adequately. 

We assess BLX's liquidity as "adequate" and funding as "above average". The 
bank benefits from a solid customer deposit base, especially with central 
banks and financial institutions in the region. BLX has also been able to 
diversify its funding and extend maturities through several local-currency 
issuances in the countries where it operates and through medium-term 
facilities from global banks. Due to lack of Panamanian government support in 
a distress scenario, BLX maintains a prudent liquidity cushion. It enjoys, in 
our opinion, sufficient liquidity to support expansion, especially because 70% 
of its loan portfolio is short term. We don't expect its liquidity management 
to change in the future. As of June 2012, cash and unrestricted liquid 
securities accounted for 12% of BLX's total assets and 31% of total deposits.

Outlook 
Our stable outlook reflects our belief that BLX's performance will remain 
good, based on its strong capital and earnings and an adequate risk position. 
We expect that the bank will maintain its business niche as a specialist in 
trade finance. Our base-case forecast contemplates credit losses of less than 
1%, average loan portfolio growth of 12% to 15% for 2012, and its maintenance 
of strong capitalization. We could lower the ratings if BLX's RAC ratio falls 
to less than 10%, core earnings to adjusted assets narrows consistently to 
less than 0.5%, or credit losses grow to more than 3%. An increased exposure 
to speculative-grade countries could also pressure the ratings downward. We 
don't foresee an upgrade in the short term as this would depend on a 
significant consolidation in the anchor score of the bank. 



Ratings Score Snapshot
Lead Bank Rating              BBB/Stable/A-2
SACP                          bbb
 Anchor                       bbb-
 Business Position            Adequate (0)
 Capital and Earnings         Strong (1)
 Risk Position                Adequate (0)
 Funding And Liquidity        Above Average and Adequate (0)

Support                       0
 GRE Support                  0
 Group Support                0
 Sovereign Support            0

Additional Factors            0


Related Criteria And Research 
     -- Banks: Rating Methodology And Assumptions, Nov. 9, 2011
     -- Banking Industry Country Risk Assessment Methodology and Assumptions, 
Nov. 9, 2011


Ratings List
Ratings Affirmed

Banco Latinoamericano de Comercio Exterior S.A.
 Counterparty Credit Rating             BBB/Stable/A-2     
 Certificate Of Deposit
  Foreign Currency                      BBB/A-2                
 Senior Unsecured                       BBB                
 Senior Unsecured                       mxAAA              
 Commercial Paper                       mxA-1+             



Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
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