Banco Latinoamericano de Comercio Exterior, S. A. (BLX) Earnings

Management highlights

- Balance Sheet Growth: Commercial portfolio, deposits, and loans all reached new record levels, with disciplined capital deployment following the 2021 capital issuance. Deposits grew 8% QoQ to a record $7.9 billion, representing 64% of total funding, with Yankee CD balances also hitting a new high of nearly $2 billion. A new green Yankee CD initiative was launched to broaden the investor base and expand sustainable funding options. Tier 1 capital ratio ended at 16.6%, comfortably above the 15-16% target operating range, providing ample capacity for future growth. Liquidity assets totaled $1.9 billion (13.3% of total assets), remaining within regulatory requirements and risk appetite. - Revenue Diversification Progress: Non-interest income grew 86% QoQ, driven by strong performance from loan syndications and early traction in client derivative business. Non-interest income now accounts for 25.4% of total revenue, up from ~15% a few years ago, reducing reliance on net interest margins amid ongoing margin pressure. Year-to-date, Bladex has mobilized $2.2 billion in syndication volume, retaining only 26% on its balance sheet, highlighting the capital efficiency of this business. - Strategic Plan Execution: The 2030 strategic plan's first two pillars (commercial growth and revenue diversification) are progressing as planned. Phase 1 of the new transactional services online banking platform is live, with gradual onboarding of letter of credit clients, and two additional correspondent banking clients are near completion. Process redesign and automation are underway to build scalable, controlled foundations for the transactional services business before scaling. - Asset Quality: Overall credit quality remains sound, with 98.4% of total credit exposure in Stage 1. Stage 2 exposures declined to 1.1% ($162 million), and Stage 3 exposure increased to 0.5% ($75 million) due to the migration of a single previously monitored exposure. The bank proactively reduced exposure by selling the bilateral loan component of the single exposure, with the remaining exposure fully reserved. Total reserves ended at $93.8 million, providing 1.25x coverage of impaired credits.

Guidance

- Full-year adjusted return on equity (ROE) guidance is reaffirmed at 14% to 15%, maintained from prior guidance. - Full-year net interest margin (NIM) guidance is maintained, with management monitoring competitive conditions, portfolio repricing, and funding costs closely. - Full-year efficiency ratio guidance is reaffirmed at 27% to 28%, with expenses expected to increase in the second half of 2026 in line with the planned strategic investment program. - Management expects portfolio growth to continue at a steady, disciplined pace in line with long-term strategy, but retains existing portfolio guidance due to lack of full visibility on second half market conditions (upside to growth is possible but management will not chase volume just to hit higher targets). - Credit coverage ratio is expected to increase to 1.5x to 1.6x by the end of 2026 from the current 1.25x.

Segment performance

Bladex's overall commercial portfolio reached a record $13 billion at the end of Q2 2026, up 8% quarter-over-quarter (QoQ) and 20% year-over-year (YoY). The portfolio is split into two core segments: 1) Loans: Ended at $10.5 billion, up 8% QoQ and 22% YoY, accounting for 80.8% of the total commercial portfolio. 2) Contingencies: Ended at $2.3 billion, up 11% QoQ and 5% YoY, accounting for 17.7% of the total commercial portfolio. On the revenue side, total revenue for the quarter was ~$98.8 million. Net interest income reached a new high of $73.3 million, up 4% QoQ, accounting for 74.2% of total revenue. Non-interest income (excluding hedging derivatives) hit a record $25.1 million, up 86% QoQ, accounting for 25.4% of total revenue. Within non-interest income: fees and commissions totaled $23.3 million; credit commitments contributed $5.2 million; structuring and distribution generated $7.9 million; client derivatives contributed $1.3 million. The commercial bond portfolio remained broadly stable at $226 million.

Risks & headwinds

- Persistent net interest margin pressure: Margin compression has been stronger than originally expected, driven by abundant regional liquidity, strong competition for high-quality assets, and competitive pressure on short-term lending spreads. - Global and macroeconomic uncertainty: Sustained geopolitical trade tensions, renewed inflation risks, and the lagged impact of extended high interest rates in the U.S. create a challenging operating backdrop. - Political and policy uncertainty: While recent electoral results in Latin America reduced near-term political uncertainty, investors remain focused on governance, fiscal performance, and policy direction across the region, which could create market volatility. - Single name credit risk: The migration of one large exposure to Stage 3 highlighted concentration risk, though management acted proactively to reduce exposure and the issue is isolated with no broader deterioration in portfolio quality.

Analyst Q&A

• Q: Given stronger-than-expected margin pressure and current high growth rates, has management changed its credit growth appetite for the second half of 2026, and what is the outlook for NPL formation and credit coverage? /

  A: Management has not changed its growth appetite; its 2030 strategic plan was specifically designed to navigate this margin pressure environment. Near-term margin pressure is amplified for Bladex because ~70% of its book matures in under a year, but the bank is offsetting pressure by growing higher-margin structured products, medium-term syndicated/project finance deals that generate both spread and fee income, and growing low-cost deposits. For asset quality, non-performing loans are not expected to increase from current levels, and coverage ratio will rise to 1.5-1.6x by year-end from 1.25x now.

• Q: How much of the record Q2 non-interest income is recurring versus one-off, and when will transactional banking investments meaningfully lower funding costs? /

  A: Syndication fees had a one-off impact from deals delayed from Q1 to Q2, and should not be extrapolated for the full year. However, letter of credit fees and early-stage client derivative revenue are growing structurally, and the quarter’s strong fee result reflected seven syndication deals (a quarterly record) showing the business is less dependent on large single transactions than in the past. Meaningful funding cost benefits from transactional banking will not come until the second half of the 2030 plan (years 4 and 5), as the bank builds out its platform and client base gradually.

• Q: What is the nature of Bladex's increased exposure to Argentina and El Salvador, and will the bank re-enter Venezuela in coming quarters? /

  A: Argentina exposure is concentrated in the oil and gas sector, primarily short-term import financing for the winter gas demand. El Salvador exposure is primarily short-term financing to the financial sector, all within the bank's existing risk framework. Bladex currently has zero exposure to Venezuela; re-entry is not included in current projections, but would be gradual, selective, and fully compliant with all credit, legal, and compliance requirements if it occurs over the long term.

• Q: How sensitive is the portfolio to trade slowdowns and commodity price volatility, and when will tech and personnel investments produce tangible efficiency gains? /

  A: The largest commodity exposure is to oil, mostly to strong national oil companies that are long-standing clients, and the short-term tenor of the portfolio allows fast repricing and repositioning if conditions change. Management has not seen a regional trade slowdown to date. Tangible efficiency gains are already being realized, and the strategic plan is structured to keep the efficiency ratio between 27% and 29% through the full execution period, with no projected spike over 30%.