FOREIGN TRADE BANK OF LATIN AMERICA, INC.

6-K 1 tv478068_6k.htm 6-K

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE

SECURITIES EXCHANGE ACT OF 1934

For the month of October, 2017

Commission File Number 1-11414

BANCO LATINOAMERICANO DE COMERCIO EXTERIOR, S.A.

(Exact name of Registrant as specified in its Charter)

FOREIGN TRADE BANK OF LATIN AMERICA, INC.

(Translation of Registrant’s name into English)

Business Park Torre V, Ave. La Rotonda, Costa del Este

P.O. Box 0819-08730

Panama City, Republic of Panama

(Address of Registrant’s Principal Executive Offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F x Form 40-F ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes ¨ No x

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes ¨ No x

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: October 31, 2017

FOREIGN TRADE BANK OF LATIN AMERICA, INC.
(Registrant)
By: /s/ Pierre Dulin
Name:	Pierre Dulin
Title:	General Manager

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Banco Latinoamericano

de Comercio Exterior, S.A.

and Subsidiaries

Unaudited condensed consolidated interim statement of financial position as of September 30, 2017 and December 31, 2016, and related unaudited condensed consolidated interim statements of profit or loss, unaudited condensed consolidated interim statements of profit or loss and other comprehensive income, unaudited condensed consolidated interim statements of changes in equity and unaudited condensed consolidated interim statements of cash flows for the nine months ended September 30, 2017, 2016 and 2015.

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Banco Latinoamericano de Comercio Exterior, S.A.

and Subsidiaries

Unaudited condensed consolidated interim financial statements

Contents	Pages
Unaudited condensed consolidated interim statements of financial position	3
Unaudited condensed consolidated interim statements of profit or loss	4
Unaudited condensed consolidated interim statements of profit or loss and other comprehensive income	5
Unaudited condensed consolidated interim statements of changes in equity	6
Unaudited condensed consolidated interim statements of cash flows	7
Notes to the unaudited condensed consolidated interim financial statements	8-72

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Unaudited condensed consolidated interim statement of financial position

September 30, 2017 and December 31, 2016

(In US$ thousand)

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		September 30,
		2017	2016
	Notes	(Unaudited)	(Audited)
Assets
Cash and cash equivalents	3,14	799,435		1,069,538
Financial Instruments:
At fair value through OCI	4.2,14	16,796		30,607
Securities at amortized cost, net	4.3,14	70,697		77,214
Loans at amortized cost	4.5	5,343,191		6,020,731
Less:
Allowance for expected credit losses	4.5	111,728		105,988
Unearned interest and deferred fees	4.5	5,838		7,249
Loans at amortized cost, net		5,225,625		5,907,494
At fair value - Derivative financial instruments used for hedging – receivable	4.6,4.7,14	11,034		9,352
Property and equipment, net		7,849		8,549
Intangibles, net		2,368		2,909
Other assets:
Customers' liabilities under acceptances	14	4,902		19,387
Accrued interest receivable	14	32,869		44,187
Other assets	6	28,545		11,546
Total of other assets		66,316		75,120
Total assets		6,200,120		7,180,783
Liabilities and stockholders' equity
Deposits:	7,14
Noninterest-bearing - Demand		622		1,617
Interest-bearing - Demand		204,511		125,397
Time		2,797,876		2,675,838
Total deposits		3,003,009		2,802,852
At fair value – Derivative financial instruments used for hedging – payable	4.6,4.7,14	25,617		59,686
Financial liabilities at fair value through profit or loss	4.1,4.7,14	-		24
Short-term borrowings and debt	9.1,14	737,129		1,470,075
Long-term borrowings and debt, net	9.2,14	1,357,796		1,776,738
Other liabilities:
Acceptances outstanding	14	4,902		19,387
Accrued interest payable	14	18,191		16,603
Allowance for expected credit losses on loan commitments and financial guarantees contracts	5	4,830		5,776
Other liabilities	10	16,907		18,328
Total other liabilities		44,830		60,094
Total liabilities		5,168,381		6,169,469
Stockholders' equity:	11,12,14
Common stock		279,980		279,980
Treasury stock	12	(64,667	)	(69,176	)
Additional paid-in capital in excess of assigned value of common stock		119,436		120,594
Capital reserves		95,210		95,210
Retained earnings		603,523		587,507
Accumulated other comprehensive loss	4.2,4.6,15	(1,743	)	(2,801	)
Total stockholders' equity		1,031,739		1,011,314
Total liabilities and stockholders' equity		6,200,120		7,180,783

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Unaudited condensed consolidated interim statements of profit or loss

For the three and nine months ended September 30, 2017, 2016 and 2015

(In US$ thousand, except per share amounts)

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	Notes	For the three months ended September 30, — 2017	2016		2015		2017		2016		2015
Interest income:
Deposits		2,995		1,142		564		7,818		3,206		1,484
At fair value through OCI		124		457		1,355		420		1,956		4,944
At amortized cost		51,931		61,218		53,789		162,042		179,286		155,758
Total interest income		55,050		62,817		55,708		170,280		184,448		162,186
Interest expense:
Deposits		12,510		5,329		3,287		30,310		14,970		8,478
Short-term borrowings and debt		2,209		3,642		4,864		8,264		12,232		17,344
Long-term borrowings and debt		12,434		14,026		10,488		40,032		39,722		28,663
Total interest expense		27,153		22,997		18,639		78,606		66,924		54,485
Net interest income		27,897		39,820		37,069		91,674		117,524		107,701
Other income:
Fees and commissions, net		3,566		3,371		7,461		11,848		10,178		12,870
Derivate financial instruments and foreign currency exchange		(616	)	204		(902	)	(12	)	(135	)	(397	)
(Loss) gain per financial instrument at fair value through profit or loss		3		(324	)	7,709		(706	)	(4,091	)	8,009
Gain (loss) per financial instrument at fair value through OCI	4.2	-		69		(65	)	79		(246	)	364
Gain on sale of loans at amortized cost		15		87		208		113		490		720
Other income		201		150		498		810		1,057		1,030
Net other income		3,169		3,557		14,909		12,132		7,253		22,596
Total income		31,066		43,377		51,978		103,806		124,777		130,297
Expenses:
Impairment loss from expected credit losses on loans at amortized cost	4.5	362		5,077		8,761		9,981		17,186		15,380
Impairment loss (recovery) from expected credit losses on investment securities	4.2,4.3	75		(210	)	(286	)	(390	)	276		543
Impairment loss (recovery) from expected credit losses on loans commitments and financial guarantees contracts	5	215		(725	)	(6,740	)	(946	)	(59	)	(5,069	)
Salaries and other employee expenses		5,842		6,230		7,466		20,306		19,008		23,189
Depreciation of equipment and leasehold improvements		384		376		338		1,171		1,039		1,063
Amortization of intangible assets		174		222		125		553		425		447
Other expenses		3,553		4,416		4,942		11,731		13,201		13,986
Total expenses		10,605		15,386		14,606		42,406		51,076		49,539
Profit for the period		20,461		27,991		37,372		61,400		73,701		80,758
Earnings per share:
Basic	11	0.52		0.72		0.96		1.56		1.89		2.08
Diluted	11	0.52		0.71		0.96		1.56		1.88		2.07
Weighted average basic shares	11	39,362		39,102		38,969		39,289		39,059		38,909
Weighted average diluted shares	11	39,413		39,225		39,095		39,319		39,178		39,080

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Unaudited condensed consolidated interim statements of profit or loss and other comprehensive income

For the nine months ended September 30, 2017, 2016 and 2015

(In US$ thousand)

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Profit for the period	Notes	61,400	73,701		80,758
Other comprehensive income (loss):
Items that are or may be reclassified to consolidated statement of profit or loss:
Net change in unrealized losses on financial instruments at fair value through OCI	15	505	8,250		(3,582	)
Net change in unrealized losses on derivative financial instruments	15	553	(1,953	)	(2,151	)
Other comprehensive income (loss)	15	1,058	6,297		(5,733	)
Total comprehensive income for the period		62,458	79,998		75,025

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Unaudited condensed consolidated interim statements of changes in equity

For the nine months ended September 30, 2017, 2016 and 2015

(In US$ thousand)

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Balances at January 1, 2015	279,980	(77,627	)	119,644		95,210	501,669		(7,837	)	911,039
Profit for the period	-	-		-		-	80,758		-		80,758
Other comprehensive income	-	-		-		-	-		(5,733	)	(5,733	)
Issuance of restricted stock	-	1,259		(1,259	)	-	-		-		-
Compensation cost - stock options and stock units plans	-	-		2,457		-	-		-		2,457
Exercised options and stock units vested	-	2,971		(1,504	)	-	-		-		1,467
Repurchase of "Class B" and "Class E" common stock	-	-		-		-	-		-		-
Dividends declared	-	-		-		-	(30,005	)	-		(30,005	)
Balances at September 30, 2015	279,980	(73,397	)	119,338		95,210	552,422		(13,570	)	959,983
Balances at January 1, 2016	279,980	(73,397	)	120,177		95,210	560,642		(10,681	)	971,931
Profit for the period	-	-		-		-	73,701		-		73,701
Other comprehensive income	-	-		-		-	-		6,297		6,297
Issuance of restricted stock	-	1,259		(1,259	)	-	-		-		-
Compensation cost - stock options and stock units plans	-	-		2,480		-	-		-		2,480
Exercised options and stock units vested	-	2,953		(1,387	)	-	-		-		1,566
Repurchase of "Class B" and "Class E" common stock	-	-		-		-	-		-		-
Dividends declared	-	-		-		-	(45,104	)	-		(45,104	)
Balances at September 30, 2016	279,980	(69,185	)	120,011		95,210	589,239		(4,384	)	1,010,871
Balances at January 1, 2017	279,980	(69,176	)	120,594		95,210	587,507		(2,801	)	1,011,314
Profit for the period	-	-		-		-	61,400		-		61,400
Other comprehensive income	-	-		-		-	-		1,058		1,058
Issuance of restricted stock	-	1,259		(1,229	)	-	-		-		30
Compensation cost - stock options and stock units plans	-	-		(38	)	-	-		-		(38	)
Exercised options and stock units vested	-	3,278		109		-	-		-		3,387
Repurchase of "Class B" and "Class E" common stock	-	(28	)	-		-	-		-		(28	)
Dividends declared	-	-		-		-	(45,384	)	-		(45,384	)
Balances at September 30, 2017	279,980	(64,667	)	119,436		95,210	603,523		(1,743	)	1,031,739

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Unaudited condensed consolidated interim statements of cash flows

For the nine months ended September 30, 2017, 2016 and 2015

(In US$ thousand)

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Cash flows from operating activities
Profit for the period	61,400		73,701		80,758
Adjustments to reconcile profit for the period to net cash provided by (used in) operating activities:
Activities of derivative financial instruments used for hedging	(35,559	)	(18,947	)	(22,245	)
Depreciation of equipment and leasehold improvements	1,171		1,039		1,094
Amortization of intangible assets	553		425		416
Impairment loss from expected credit losses	8,645		17,408		(10,854	)
Net gain (loss) on sale of financial assets at fair value through OCI	(79	)	246		(363	)
Compensation cost - share-based payment	(38	)	2,480		2,457
Interest income	(170,280	)	(184,453	)	(162,186	)
Interest expense	78,606		66,924		54,485
Net decrease (increase) in operating assets:
Net decrease (increase) in pledged deposits	18,720		(3,385	)	5,355
Financial instruments at fair value through profit or loss	-		53,383		(1,850	)
Net decrease (increase) in loans at amortized cost	671,889		298,665		(55,573	)
Other assets	(2,514	)	4,044		110,146
Net increase (decrease) in operating liabilities:
Net increase due to depositors	200,157		330,536		608,814
Financial liabilities at fair value through profit or loss	(24	)	(89	)	-
Other liabilities	(15,842	)	(16,850	)	(129,390	)
Cash provided by operating activities:
Interest received	181,598		184,608		171,631
Interest paid	(77,018	)	(62,640	)	(46,812	)
Net cash provided by operating activities	921,385		747,095		605,883
Cash flows from investing activities:
Acquisition of equipment and leasehold improvements	(622	)	(1,520	)	(427	)
Acquisition of intangible assets	(26	)	(3,084	)	-
Proceeds from disposal of equipment and leasehold improvements	150		-		-
Proceeds from disposal of intangible assets	14		-		-
Proceeds from the redemption of of financial instruments at fair value through OCI	-		77,286		126,090
Proceeds from the sale of financial instruments at fair value through OCI	15,177		107,888		68,099
Proceeds from maturities of financial instruments at amortized cost	14,841		44,075		29,923
Purchases of financial instruments at fair value through OCI	-		(91,972	)	(87,692	)
Purchases of financial instruments at amortized cost	(8,324	)	(23,713	)	(35,082	)
Net cash provided by investing activities	21,210		108,960		100,911
Cash flows from financing activities:
Net (decrease) increase in short-term borrowings and debt and securities sold under repurchase agreements	(732,946	)	(1,310,550	)	(931,125	)
Proceeds from long-term borrowings and debt	220,172		374,859		811,276
Repayments of long-term borrowings and debt	(639,114	)	(425,301	)	(429,004	)
Dividends paid	(45,449	)	(45,104	)	(30,005	)
Exercised stock options	3,387		1,566		1,467
Repurchase of common stock	(28	)	-		-
Net cash (used in) financing activities	(1,193,978	)	(1,404,530	)	(577,391	)
Net (decrease) increase in cash and cash equivalents	(251,383	)	(548,475	)	129,403
Cash and cash equivalents at beginning of the period	1,007,726		1,267,302		741,305
Cash and cash equivalents at end of the period	756,343		718,827		870,708

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Corporate information

Banco Latinoamericano de Comercio Exterior, S. A. (“Bladex Head Office” and together with its subsidiaries “Bladex” or the “Bank”), headquartered in Panama City, Republic of Panama, is a specialized multinational bank established to support the financing of trade and economic integration in Latin America and the Caribbean (the “Region”). The Bank was established pursuant to a May 1975 proposal presented to the Assembly of Governors of Central Banks in the Region, which recommended the creation of a multinational organization to increase the foreign trade financing capacity of the Region. The Bank was organized in 1977, incorporated in 1978 as a corporation pursuant to the laws of the Republic of Panama, and officially initiated operations on January 2, 1979. Under a contract law signed in 1978 between the Republic of Panama and Bladex, the Bank was granted certain privileges by the Republic of Panama, including an exemption from payment of income taxes in Panama.

The Bank operates under a general banking license issued by the National Banking Commission of Panama, predecessor of the Superintendency of Banks of Panama (the “SBP”).

In the Republic of Panama, banks are regulated by the SBP through Executive Decree No. 52 of April 30, 2008, which adopts the unique text of the Law Decree No. 9 of February 26, 1998, modified by the Law Decree No. 2 of February 22, 2008. Banks are also regulated by resolutions and agreements issued by this entity. The main aspects of this law and its regulations include: the authorization of banking licenses, minimum capital and liquidity requirements, consolidated supervision, procedures for management of credit and market risks, measures to prevent money laundering, the financing of terrorism and related illicit activities, and procedures for banking intervention and liquidation, among others.

Bladex Head Office’s subsidiaries are the following:

Bladex Holdings Inc. a wholly owned subsidiary, incorporated under the laws of the State of Delaware, United States of America (USA), on May 30, 2000. Bladex Holdings Inc. has ownership in two subsidiaries: Bladex Representacao Ltda. and Bladex Investimentos Ltda.
Bladex Representaçao Ltda., incorporated under the laws of Brazil on January 7, 2000, acts as the Bank’s representative office in Brazil. Bladex Representacao Ltda. is 99.999% owned by Bladex Head Office and the remaining 0.001% owned by Bladex Holdings Inc.
Bladex Investimentos Ltda. was incorporated under the laws of Brazil on May 3, 2011. Bladex Head Office owned 99% of Bladex Investimentos Ltda., and Bladex Holdings Inc. owned the remaining 1%. This company had invested substantially all of its assets in an investment fund, Alpha 4x Latam Fundo de Investimento Multimercado, incorporated in Brazil (“the Brazilian Fund”), registered with the Brazilian Securities Commission (“CVM”, for its acronym in Portuguese). Bladex Investimentos Ltda. merged with Bladex Representacao Ltda. on April 2016, being the latter the extinct company under Brazilian law and prevailing the acquiring company Bladex Representacao Ltda.
Bladex Development Corp. was incorporated under the laws of Panama on June 5, 2014. Bladex Development Corp. is 100% owned by Bladex Head Office.
BLX Soluciones, S.A. de C.V., SOFOM, E.N.R. was incorporated under the laws of Mexico on June 13, 2014. BLX Soluciones is 99.9% owned by Bladex Head Office, and Bladex Development Corp. owns the remaining 0.1%. The company specializes in offering financial leasing and other financial products such as loans and factoring.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Corporate information (continued)

Bladex Head Office has an agency in New York City, USA (the “New York Agency”), which began operations on March 27, 1989. The New York Agency is principally engaged in financing transactions related to international trade, mostly the confirmation and financing of letters of credit for customers in the Region. The New York Agency also has authorization to book transactions through an International Banking Facility (“IBF”).

The Bank has representative offices in Buenos Aires, Argentina; in Mexico City, and Monterrey, Mexico (until April 5, 2017); in Lima, Peru; and in Bogota, Colombia.

These unaudited condensed consolidated interim financial statements were authorized for issue by the Board of Directors on October 17, 2017.

Basis of preparation of the unaudited condensed consolidated interim financial statements

2.1 Statement of compliance

These unaudited consolidated condensed interim financial statements of Banco Latinoamericano de Comercio Exterior, S. A. and its subsidiaries have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting (IAS 34) issued by the International Accounting Standards Board ("IASB"). As all of the disclosures required by IFRS for annual period consolidated financial statements are not included herein, these unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto as of and for the year ended December 31, 2016, contained in the Bank’s annual audited consolidated financial statements. The unaudited condensed consolidated interim statements of profit or loss, profit or loss and other comprehensive income, changes in equity and cash flows for the periods presented are not necessarily indicative of results expected for any future period.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Cash and cash equivalents

Cash and due from banks	7,359	89,656
Interest-bearing deposits in banks	792,076	979,882
Total	799,435	1,069,538
Less:
Pledged deposits	43,092	61,812
Total cash and cash equivalents	756,343	1,007,726

The following table presents the details on interest-bearing deposits in banks and pledged deposits:

Amount	Range Interest rate	Amount	Range Interest rate
Interest-bearing deposits in banks:
Demand deposits (1)	792,076	0.05%
to 1.30 %	854,882	0.01% to 0.77%
Time deposits (2)	-	-	125,000	0.83% to 0.88%
Total	792,076		979,882
Pledged deposits:
New York (3)	3,000	-	2,800	-
Panama (4)	40,092	1.16 %	59,012	0.66 %
Total	43,092		61,812

(1) Demand deposits with bearing interest based on the daily rates determined by banks.

(2) Time deposits “overnight” calculated on an average interest rate.

(3) The New York Agency had a pledged deposit with the New York State Banking Department, as required by law since March 1994.

(4) The Bank had pledged deposits to secure derivative financial instruments transactions.

Financial instruments

4.1 Financial instruments at FVTPL - Fair value through profit or loss

The fair value of financial liabilities at FVTPL is as follows:


Liabilities
Foreign exchange forward	-	24
Total	-	24

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments

4.1 Financial instruments at FVTPL - Fair value through profit or loss (continued)

The information on the nominal amounts of derivative financial instruments at FVTPL is as follows:

Nominal	Fair Value		Nominal	Fair Value
Amount	Asset	Liability	Amount	Asset	Liability
Foreign exchange forward	-	-	-	1,274	-	24
Total	-	-	-	1,274	-	24

4.2 Securities at fair value through other comprehensive income

The amortized cost, related unrealized gross gain (loss) and fair value of securities at fair value through other comprehensive income by country risk and type of debt are as follows:


	Unrealized
Amortized Cost	Gain	Loss	Fair Value
Sovereign debt:
Brazil	2,935	33	11	2,957
Chile	5,194	13	-	5,207
Trinidad and Tobago	8,953	-	321	8,632
	17,082	46	332	16,796


	Unrealized
Amortized Cost	Gain	Loss	Fair Value
Corporate debt:
Brazil	3,144	-	62	3,082
Venezuela	10,810	20	3	10,827

	13,954	20	65	13,909
Sovereign debt:
Brazil	2,926	-	140	2,786
Chile	5,229	-	59	5,170
Trinidad and Tobago	9,283	-	541	8,742
	17,438	-	740	16,698
	31,392	20	805	30,607

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.2 Securities at fair value through other comprehensive income (continued)

As of September 30, 2017 and December 31, 2016, there were no securities at fair value through OCI guaranteeing repurchase transactions.

The following table discloses those securities that had unrealized losses for a period less than 12 months and for 12 months or longer:

Less than 12 months		12 months or longer		Total
Fair Value	Unrealized Gross Losses	Fair Value	Unrealized Gross Losses	Fair Value	Unrealized Gross Losses
Sovereign debt	-	-	9,618	332	9,618	332
Total	-	-	9,618	332	9,618	332

Less than 12 months		12 months or longer		Total
Fair Value	Unrealized Gross Losses	Fair Value	Unrealized Gross Losses	Fair Value	Unrealized Gross Losses
Corporate debt	1,805	3	3,082	62	4,887	65
Sovereign debt	5,170	59	11,528	681	16,698	740
Total	6,975	62	14,610	743	21,585	805

The following table presents the realized gains and losses on sale of securities at fair value through other comprehensive income:

2017	2016		2015
Realized gain on sale of securities	-	72		30
Realized loss on sale of securities	-	(3	)	(95	)
Net gain (loss) on sale of securities at fair value through other comprehensive income	-	69		(65	)

2017		2016		2015
Realized gain on sale of securities	667		7,544		466
Realized loss on sale of securities	(588	)	(7,790	)	(102	)
Net gain (loss) on sale of securities at fair value through other comprehensive income	79		(246	)	364

Field: Page; Sequence: 14; Value: 3

Field: /Page

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.2 Securities at fair value through other comprehensive income (continued)

Securities at fair value through other comprehensive income classified by issuer’s credit quality indicators are as follows:

Rating (1) — 1-4	16,796	30,607
5-6	-	-
7	-	-
8	-	-
9	-	-
10	-	-
Total	16,796	30,607

(1) Current ratings as of September 30, 2017 and December 31, 2016, respectively.

The amortized cost and fair value of securities at fair value through other comprehensive income by contractual maturity are shown in the following tables:

Amortized Cost	Fair Value	Amortized Cost	Fair Value
Due within 1 year	-	-	-	-
After 1 year but within 5 years	14,148	13,839	17,656	16,994
After 5 years but within 10 years	2,934	2,957	13,736	13,613
	17,082	16,796	31,392	30,607

Field: Page; Sequence: 15; Value: 3

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.2 Securities at fair value through other comprehensive income (continued)

The allowance for expected credit losses relating to securities at fair value through other comprehensive income, which is recorded in equity under accumulated other comprehensive income (loss), is as follow:

Allowance for expected credit losses as of December 31, 2016	42		263	-	305
Transfer to lifetime expected credit losses	-		-	-	-
Transfer to credit-impaired financial assets	-		-	-	-
Transfer to 12-month expected credit losses	-		-	-	-
Net effect of changes in reserve for expected credit losses	(2	)	6	-	4
Financial assets that have been derecognized during the period	(12	)	-	-	(12	)
Changes due to financial instruments recognized as of December 31, 2016:	(14	)	6	-	(8	)
New financial assets originated or purchased	-		-	-	-
Write-offs	-		-	-	-
Allowance for expected credit losses as of September 30, 2017	28		269	-	297

Allowance for expected credit losses as of December 31, 2015	234		178		6,737		7,149
Transfer to lifetime expected credit losses	(31	)	456		-		425
Transfer to credit-impaired financial assets	-		-		-		-
Transfer to 12-month expected credit losses	-		-		-		-
Net effect of changes in reserve for expected credit losses	(15	)	(168	)	-		(183	)
Financial assets that have been derecognized during the year	(174	)	(203	)	-		(377	)
Changes due to financial instruments recognized as of December 31, 2015:	(220	)	85		-		(135	)
New financial assets originated or purchased	28		-		-		28
Write-offs	-		-		(6,737	)	(6,737	)
Allowance for expected credit losses as of December 31, 2016	42		263		-		305

(1) 12-month expected credit losses.

(2) Lifetime expected credit losses.

(3) Credit-impaired financial assets (lifetime expected credit losses).

Field: Page; Sequence: 16; Value: 3

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.3 Securities at amortized cost

The amortized cost, related unrealized gross gain (loss) and fair value of these securities by country risk and type of debt are as follows:


	Unrealized
Amortized Cost (1)	Gross Gain	Gross Loss	Fair Value
Corporate debt:
Brazil	4,589	114	24	4,679
Panama	8,324	-	-	8,324
	12,913	114	24	13,003
Sovereign debt:
Colombia	29,208	235	-	29,443
Mexico	20,287	-	100	20,187
Panama	8,510	357	-	8,867
	58,005	592	100	58,497
	70,918	706	124	71,500


	Unrealized
Amortized Cost (2)	Gross Gain	Gross Loss	Fair Value
Corporate debt:
Brazil	4,614	-	146	4,468
Panama	3,000	-	-	3,000
	7,614	-	146	7,468
Sovereign debt:
Brazil	11,179	37	194	11,022
Colombia	29,812	34	280	29,566
Mexico	20,541	-	1,059	19,482
Panama	8,670	198	-	8,868
	70,202	269	1,533	68,938
	77,816	269	1,679	76,406

(1) Amounts do not include allowance for expected credit losses of US$221.

(2) Amounts do not include allowance for expected credit losses of US$602.

Field: Page; Sequence: 17; Value: 3

Field: /Page

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.3 Securities at amortized cost (continued)

The amortized cost and fair value of securities at amortized cost by contractual maturity are shown in the following tables:

Amortized Cost	Fair Value	Amortized Cost	Fair Value
Due within 1 year	6,324	6,324	3,988	4,025
After 1 year but within 5 years	64,594	65,176	68,537	67,358
After 5 years but within 10 years	-	-	5,291	5,023
	70,918	71,500	77,816	76,406

As of September 30, 2017 and December 31, 2016, there were no securities at amortized cost, guaranteeing repurchase transactions.

Securities at amortized cost classified by issuer’s credit quality indicators are as follows:

Rating (1) — 1-4	61,110	76,333
5-6	9,808	1,483
7	-	-
8	-	-
9	-	-
10	-	-
Total	70,918	77,816

(1) Current ratings as of September 30, 2017 and December 31, 2016, respectively.

Field: Page; Sequence: 18; Value: 3

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.3 Securities at amortized cost (continued)

The allowance for expected credit losses relating to securities at amortized cost is as follow:

Allowance for expected credit losses as of December 31, 2016	99		503		-	602
Transfer to lifetime expected credit losses	-		-		-	-
Transfer to credit-impaired financial assets	-		-		-	-
Transfer to 12-month expected credit losses	-		-		-	-
Net effect of changes in reserve for expected credit losses	(2	)	(23	)	-	(25	)
Financial assets that have been derecognized during the period	(10	)	(422	)	-	(432	)
Changes due to financial instruments recognized as of December 31, 2016:	(12	)	(445	)	-	(457	)
New financial assets originated or purchased	76		-		-	76
Allowance for expected credit losses as of September 30, 2017	163		58		-	221

Allowance for expected credit losses as of December 31, 2015	348		178		-	526
Transfer to lifetime expected credit losses	(43	)	444		-	401
Transfer to credit-impaired financial assets	-		-		-	-
Transfer to 12-month expected credit losses	-		-		-	-
Net effect of changes in reserve for expected credit losses	(5	)	(91	)	-	(96	)
Financial assets that have been derecognized during the year	(317	)	(28	)	-	(345	)
Changes due to financial instruments recognized as of December 31, 2015:	(365	)	325		-	(40	)
New financial assets originated or purchased	116		-		-	116
Allowance for expected credit losses as of December 31, 2016	99		503		-	602

(1) 12-month expected credit losses.

(2) Lifetime expected credit losses.

(3) Credit-impaired financial assets (lifetime expected credit losses).

Field: Page; Sequence: 19; Value: 3

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.4 Recognition and derecognition of financial assets

During the periods ended September 30, 2017, 2016 and 2015, the Bank sold certain financial instruments in the secondary market measured at amortized cost. These sales were made on the basis of compliance with the Bank's strategy to optimize the loan portfolio.

The amounts and gains arising from the derecognition of these financial instruments are presented in the following table. These gains are presented within the line “gain on sale of loans at amortized cost” in the consolidated statement of profit or loss.

For the period ended September 30, 2017	70,400	98
For the period ended September 30, 2016	84,075	435
For the period ended September 30, 2015	63,938	336

4.5 Loans – at amortized cost

The following table set forth details of the Bank’s gross loan portfolio:


Corporations:
Private	2,111,180	2,655,910
State-owned	712,083	786,900
Banking and financial institutions:
Private	1,823,376	1,738,999
State-owned	524,752	544,877
Middle-market companies:
Private	171,800	294,045
Total	5,343,191	6,020,731

The composition of the gross loan portfolio by industry is as follows:

Banking and financial institutions	2,348,128	2,283,876
Industrial	1,002,857	1,242,441
Oil and petroleum derived products	723,007	788,186
Agricultural	584,413	1,007,139
Services	327,438	419,440
Mining	163,543	54,000
Others	193,805	225,649
Total	5,343,191	6,020,731

Field: Page; Sequence: 20; Value: 3

Field: /Page

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.5 Loans – at amortized cost (continued)

Loans are reported at their amortized cost considering the principal outstanding amounts net of unearned interest, deferred fees and allowance for expected credit losses.

The amortization of net unearned interest and deferred fees are recognized as an adjustment to the related loan yield using the effective interest rate method.

The unearned discount interest and deferred commission amounted to $5,838 and $7,249 at September 30, 2017 and December 31, 2016, respectively.

Loans classified by borrower’s credit quality indicators are as follows:

September 30, 2017	Corporations		Banking and financial institutions		Middle-market companies
Rating (1)	Private	State-owned	Private	State-owned	Private	Total
1-4	1,435,131	554,888	1,490,694	250,634	85,790	3,817,137
5-6	619,396	157,195	332,682	274,118	51,010	1,434,401
7	27,535	-	-	-	-	27,535
8	10,485	-	-	-	-	10,485
9	-	-	-	-	-	-
10	18,633	-	-	-	35,000	53,633
Total	2,111,180	712,083	1,823,376	524,752	171,800	5,343,191

December 31, 2016	Corporations		Banking and financial institutions		Middle-market companies
Rating (1)	Private	State-owned	Private	State-owned	Private	Total
1-4	1,714,936	646,797	1,457,984	259,981	174,107	4,253,805
5-6	863,937	140,103	281,015	284,896	84,938	1,654,889
7	58,673	-	-	-	-	58,673
8	4,000	-	-	-	-	4,000
9	-	-	-	-	35,000	35,000
10	14,364	-	-	-	-	14,364
Total	2,655,910	786,900	1,738,999	544,877	294,045	6,020,731

(1) Current ratings as of September 30, 2017 and December 31, 2016, respectively.

Field: Page; Sequence: 21; Value: 3

Field: /Page

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.5 Loans – at amortized cost (continued)

The following table provides a breakdown of gross loans by country risk:


Country:
Argentina	290,307	325,321
Belgium	13,826	4,180
Bolivia	10,000	18,318
Brazil	988,713	1,163,825
Chile	209,022	69,372
Colombia	623,852	653,012
Costa Rica	404,187	400,371
Dominican Republic	141,538	243,696
Ecuador	188,503	129,269
El Salvador	78,128	104,723
Germany	42,500	50,000
Guatemala	225,839	315,911
Honduras	79,900	72,319
Jamaica	14,090	7,399
Luxembourg	15,898	14,722
Mexico	912,667	927,041
Nicaragua	32,790	36,949
Panama	476,949	498,651
Paraguay	57,999	108,068
Peru	322,430	467,408
Singapore	9,500	70,204
Switzerland	5,543	46,000
Trinidad and Tobago	156,692	184,389
United States of America	23,318	73,083
Uruguay	19,000	36,500
Total	5,343,191	6,020,731

Field: Page; Sequence: 22; Value: 3

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.5 Loans – at amortized cost (continued)

The remaining loan maturities are summarized as follows:


Current:
Up to 1 month	791,031	896,310
From 1 month to 3 months	1,233,873	1,300,675
From 3 months to 6 months	983,080	1,267,194
From 6 months to 1 year	774,690	551,794
From 1 year to 2 years	472,497	631,629
From 2 years to 5 years	859,212	1,211,847
More than 5 years	164,690	95,918
	5,279,073	5,955,367
Impaired	64,118	65,364
Total	5,343,191	6,020,731

As of September 30, 2017 and December 31, 2016, the range of interest rates on loans fluctuates from 1.35% and 13.86% (2016: 1.21% y 12.69%).

The fixed and floating interest rate distribution of the loan portfolio is as follows:

Fixed interest rates	2,298,910	2,709,555
Floating interest rates	3,044,281	3,311,176
Total	5,343,191	6,020,731

As of September 30, 2017 and December 31, 2016, 90% and 93%, of the loan portfolio at fixed interest rates has remaining maturities of less than 180 days.

An analysis of credit-impaired balances is detailed as follows:

Recorded investment	Past due principal balance	Related allowance Stage 3	Average principal loan balance	Interest income recognized
With an allowance recorded:
Private corporations	29,118	21,348	28,318	30,158	117
Middle-market companies	35,000	35,000	20,235	35,000	1,056
Total	64,118	56,348	48,553	65,158	1,173

Field: Page; Sequence: 23; Value: 3

Field: /Page

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.5 Loans – at amortized cost (continued)

Recorded investment	Past due principal balance	Related allowance Stage 3	Average principal loan balance	Interest income recognized
With an allowance recorded:
Private corporations	30,364	18,364	23,174	12,500	408
Middle-market companies	35,000	35,000	12,179	17,705	1,679
Total	65,364	53,364	35,353	30,205	2,087

The following is a summary of information of interest amounts recognized on an effective interest basis on net carrying amount for those financial assets in Stage 3:

2017	2016	2015
Interest revenue calculated on the net carrying amount (net of credit allowance)	310	720	75

2017	2016	2015
Interest revenue calculated on the net carrying amount (net of credit allowance)	1,173	1,561	215

The following table presents an aging analysis of the loan portfolio:

September 30, 2017 — 91-120 days	121-150 days	151-180 days	Greater than 180 days	Total Past due	Delinquent	Current	Total
Corporations	2,000	-	4,000	18,633	24,633	-	2,798,630	2,823,263
Banking and financial institutions	-	-	-	-	-	-	2,348,128	2,348,128
Middle-market companies	-	-	-	35,000	35,000	-	136,800	171,800
Total	2,000	-	4,000	53,633	59,633	-	5,283,558	5,343,191

December 31, 2016 — 91-120 days	121-150 days	151-180 days	Greater than 180 days	Total Past due	Delinquent	Current	Total
Corporations	-	-	4,000	14,364	18,364	-	3,424,446	3,442,810
Banking and financial institutions	-	-	-	-	-	-	2,283,876	2,283,876
Middle-market companies	-	-	-	35,000	35,000	-	259,045	294,045
Total	-	-	4,000	49,364	53,364	-	5,967,367	6,020,731

Field: Page; Sequence: 24; Value: 3

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.5 Loans – at amortized cost (continued)

As of September 30, 2017 and December 31, 2016, the Bank had credit transactions in the normal course of business with 17% and 16%, respectively, of its Class “A” and “B” stockholders. All transactions were made based on arm’s-length terms and subject to prevailing commercial criteria and market rates and were subject to all of the Bank’s Corporate Governance and control procedures. As of September 30, 2017 and December 31, 2016, approximately 11% and 10%, respectively, of the outstanding loan portfolio was placed with the Bank’s Class “A” and “B” stockholders and their related parties. As of September 30, 2017, the Bank was not directly or indirectly owned or controlled by another corporation or any foreign government, and no Class “A” or “B” shareholder was the registered owner of more than 3.5% of the total outstanding shares of the voting capital stock of the Bank.

The allowances for expected credit losses related to loans at amortized cost are as follows:

Allowance for expected credit losses as of December 31, 2016	29,036		41,599		35,353		105,988
Transfer to lifetime expected credit losses – not credit-impaired	(157	)	157		-		-
Transfer to lifetime expected credit losses - credit-impaired	-		(4,772	)	4,772		-
Transfer to 12-month expected credit losses	1,482		(1,482	)	-		-
Net effect of changes in reserve for expected credit losses	(2,325	)	10,700		11,595		19,970
Financial assets that have been derecognized during the period	(22,418	)	(9,251	)	-		(31,669	)
Changes due to financial instruments recognized as of December 31, 2016:	(23,418	)	(4,648	)	16,367		(11,699	)
New financial assets originated or purchased	21,680		-		-		21,680
Write-offs	-		(1,074	)	(3,167	)	(4,241	)
Recoveries of amounts previously written off	-		-		-		-
Allowance for expected credit losses as of September 30, 2017	27,298		35,877		48,553		111,728

Field: Page; Sequence: 25; Value: 3

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.5 Loans – at amortized cost (continued)

Allowance for expected credit losses as of December 31, 2015	59,214		9,609		21,151		89,974
Transfer to lifetime expected credit losses – not credit-impaired	(9,117	)	9,119		-		2
Transfer to lifetime expected credit losses – not credit-impaired	(7	)	(6,317	)	6,324		-
Transfer to 12-month expected credit losses	2,038		(2,077	)	38		(1	)
Net effect of changes in reserve for expected credit losses	(39,621	)	48,021		26,491		34,891
Financial assets that have been derecognized during the year	(65,640	)	(16,756	)	-		(82,396	)
Changes due to financial instruments recognized as of December 31, 2015:	(112,347	)	31,990		32,853		(47,504	)
New financial assets originated or purchased	82,169		-		-		82,169
Write-offs	-		-		(18,807	)	(18,807	)
Recoveries of amounts previously written off	-		-		156		156
Allowance for expected credit losses as of December 31, 2016	29,036		41,599		35,353		105,988

(1) 12-month expected credit losses.

(2) Lifetime expected credit losses.

(3) Credit-impaired financial assets (lifetime expected credit losses).

Field: Page; Sequence: 26; Value: 3

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.6 Derivative financial instruments for hedging purposes

Quantitative information on derivative financial instruments held for hedging purposes is as follows:

Nominal	Carrying amount of the hedging instrument			Changes in fair value used for calculating hedge
Amount	Asset	Liability		ineffectiveness
Fair value hedges:
Interest rate swaps	367,587	794	(306	)	2,454
Cross-currency interest rate swaps	322,541	2,099	(23,547	)	20,615
Cash flow hedges:
Interest rate swaps	287,500	90	(985	)	398
Cross-currency interest rate swaps	23,025	795	-		2,049
Foreign exchange forward	329,859	7,145	(726	)	9,683
Net investment hedges:
Foreign exchange forward	10,976	111	(53	)	189
Total	1,341,488	11,034	(25,617	)	35,388

| Nominal | Carrying
amount of the hedging instrument | | | Changes in fair value used for calculating hedge | | |
| --- | --- | --- | --- | --- | --- | --- |
| Amount | Asset | Liability | | ineffectiveness | | |
| Fair value hedges: | | | | | | |
| Interest rate swaps | 796,202 | 40 | (2,005 | ) | (2,199 | ) |
| Cross-currency interest rate swaps | 291,065 | 2,561 | (44,944 | ) | (19,316 | ) |
| Cash flow hedges: | | | | | | |
| Interest rate swaps | 752,000 | 323 | (1,699 | ) | 696 | |
| Cross-currency interest rate swaps | 23,025 | - | (1,254 | ) | (1,313 | ) |
| Foreign exchange forward | 352,553 | 6,428 | (9,653 | ) | (5,093 | ) |
| Net investment hedges: | | | | | | |
| Foreign exchange forward | 3,780 | - | (131 | ) | (415 | ) |
| Total | 2,218,625 | 9,352 | (59,686 | ) | (27,640 | ) |

The hedging instruments presented in the tables above are located in the line item in the statement of financial position at fair value - Derivative financial instruments used for hedging – receivable or at fair value – Derivative financial instruments used for hedging – payable.

Field: Page; Sequence: 27; Value: 3

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.6 Derivative financial instruments for hedging purposes (continued)

The gains and losses resulting from activities of derivative financial instruments and hedging recognized in the consolidated statements of profit or loss are presented below:

Gain (loss) recognized in OCI (effective portion)		Classification of gain (loss)	Gain (loss) reclassified from accumulated OCI to the consolidated statement of profit or loss	Gain (loss) recognized on derivatives (ineffective portion)
Derivatives – cash flow hedge
Interest rate swaps	145	Gain (loss) on interest rate swap	-		(122	)
Cross-currency interest rate swaps	364	Gain (loss) on foreign currency exchange	-		(20	)
		Interest income loans at amortized cost	(2,068	)	-
Foreign exchange forward	3,752	Interest income – securities at FVOCI	-		-
		Interest income loans at amortized cost	-		-
		Interest expense – borrowings and debt	-		-
		Interest expenses – deposits	(1,444	)	-
		Gain (loss) on foreign currency exchange	(1,074	)	-
Total	4,261		(4,586	)	(142	)

Field: Page; Sequence: 28; Value: 3

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.6 Derivative financial instruments for hedging purposes (continued)

Gain (loss) recognized in OCI (effective portion)			Classification of gain (loss)	Gain (loss) reclassified from accumulated OCI to the consolidated statement of profit or loss	Gain (loss) recognized on derivatives (ineffective portion)
Derivatives – cash flow hedge
Interest rate swaps	(669	)	Gain (loss) on interest rate swap	-		162
Cross-currency interest rate swaps	(968	)	Gain (loss) on foreign currency exchange	-		23
			Interest income loans at amortized cost	-		-
Foreign exchange forward	2,622		Interest income – securities at FVOCI	(2,355	)	-
			Interest income loans at amortized cost	-		-
			Interest expense – borrowings and debt	-		-
			Interest expenses – deposits	(4,276	)	-
			Gain (loss) on foreign currency exchange	(19,649	)	-
Total	985			(26,280	)	185

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.6 Derivative financial instruments for hedging purposes (continued)

Gain (loss) recognized in OCI (effective portion)			Classification of gain (loss)	Gain (loss) reclassified from accumulated OCI to the consolidated statement of profit or loss	Gain (loss) recognized on derivatives (ineffective portion)
Derivatives – cash flow hedge
Interest rate swaps	784		Gain (loss) on interest rate swap	-		(265	)
Cross-currency interest rate swaps	(1,776	)	Gain (loss) on foreign exchange	-		(86	)
			Interest income – loans at amortized cost	(1,371	)	-
Forward foreign exchange	6,517		Interest income – securities at FVOCI	-		-
			Interest income – loans at amortized cost	-		-
			Interest expense – borrowings and debt	-		-
			Interest expenses – deposits	496		-
			Gain (loss) on foreign currency exchange	(1,375	)	-
Total	5,525			(2,250	)	(351	)

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.6 Derivative financial instruments for hedging purposes (continued)

Gain (loss) recognized in OCI (effective portion)			Classification of gain (loss)	Gain (loss) reclassified from accumulated OCI to the consolidated statement of profit or loss	Gain (loss) recognized on derivatives (ineffective portion)
Derivatives – cash flow hedge
Interest rate swaps	(1,674	)	Gain (loss) on interest rate swap	-		(1,226	)
Cross-currency interest rate swaps	(13	)	Gain (loss) on foreign exchange	-		(60	)
			Interest income – loans at amortized cost	-		-
Forward foreign exchange	4,641		Interest income – securities at FVOCI	-		-
			Interest income – loans at amortized cost	(3,127	)	-
			Interest expense – borrowings and debt	-		-
			Interest expenses – deposits	847		-
			Gain (loss) on foreign currency exchange	3,259		-
Total	2,954			979		(1,286	)

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.6 Derivative financial instruments for hedging purposes (continued)

Gain (loss) recognized in OCI (effective portion)			Classification of gain (loss)	Gain (loss) reclassified from accumulated OCI to the consolidated statement of profit or loss	Gain (loss) recognized on derivatives (ineffective portion)
Derivatives – cash flow hedge
Interest rate swaps	(1,328	)	Gain (loss) on interest rate swap	-		-
Cross-currency interest rate swaps	3,741		Gain (loss) on foreign exchange	-		-
			Interest income – loans at amortized cost	-		-
Forward foreign exchange	1,965		Interest income – securities at FVOCI	(159	)	-
			Interest income – loans at amortized cost	(498	)	-
			Interest expense – borrowings and debt	-		-
			Interest expenses – deposits	(18	)	-
			Gain (loss) on foreign currency exchange	4,359		-
Total	4,378			3,684		-
Derivatives – net investment hedge
Forward foreign exchange	533			-		-
Total	533			-		-

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.6 Derivative financial instruments for hedging purposes (continued)

Gain (loss) recognized in OCI (effective portion)			Classification of gain (loss)	Gain (loss) reclassified from accumulated OCI to the consolidated statement of profit or loss	Gain (loss) recognized on derivatives (ineffective portion)
Derivatives – cash flow hedge
Interest rate swaps	(1,593	)	Gain (loss) on interest rate swap	-		-
Cross-currency interest rate swaps	6,787		Gain (loss) on foreign exchange	-		-
			Interest income – loans at amortized cost	-		-
Forward foreign exchange	3,571		Interest income – securities at FVOCI	(694	)	-
			Interest income – loans at amortized cost	(1,161	)	-
			Interest expense – borrowings and debt	-		-
			Interest expenses – deposits	77		-
			Gain (loss) on foreign currency exchange	10,193		-
Total	8,765			8,415		-
Derivatives – net investment hedge
Forward foreign exchange	957			-		-
Total	957			-		-

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.6 Derivative financial instruments for hedging purposes (continued)

The Bank recognized in the consolidated statement of profit or loss the gain (loss) on derivative financial instruments and the gain (loss) of the hedged asset or liability related to qualifying fair value hedges, as follows:

	September 30, 2017 — Classification in consolidated statement of profit or loss	Gain (loss) on derivatives	Gain (loss) on hedge item		Net gain (loss)
Derivatives – fair value hedge
Interest rate swaps	Interest income – securities at FVOCI	(103	)	377		274
	Interest income at amortized cost	(12	)	160		148
	Interest expenses – borrowings and debt	1,212		(13,219	)	(12,007	)
	Derivative financial instruments and hedging	(150	)	243		93
Cross-currency interest rate swaps	Interest income loans at amortized cost	(986	)	1,619		633
	Interest expenses – borrowings and debt	1,381		(7,577	)	(6,196	)
	Derivative financial instruments and hedging	21,746		(22,379		(633	)
Total		23,088		(40,776	)	(17,688	)

	September 30, 2016 — Classification in consolidated statement of profit or loss	Gain (loss) on derivatives	Gain (loss) on hedge item		Net gain (loss)
Derivatives – fair value hedge
Interest rate swaps	Interest income – securities at FVOCI	(507	)	1,243		736
	Interest income – loans at amortized cost	(265	)	1,803		1,538
	Interest expenses – borrowings and debt	3,945		(21,193	)	(17,248	)
	Derivative financial instruments and hedging	(3,369	)	4,329		960
Cross-currency interest rate swaps	Interest income – loans at amortized cost	(265	)	673		408
	Interest expenses – borrowings and debt	50		(4,383	)	(4,333	)
	Derivative financial instruments and hedging	(2,358	)	1,970		(388	)
Total		(2,769	)	(15,558	)	(18,327	)

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.6 Derivative financial instruments for hedging purposes (continued)

	September 30, 2015 — Classification in consolidated statement of profit or loss	Gain (loss) on derivatives	Gain (loss) on hedge item		Net gain (loss)
Derivatives – fair value hedge
Interest rate swaps	Interest income – securities at FVOCI	(828	)	1,133		305
	Interest income at amortized cost	(307	)	3,077		2,770
	Interest expenses – borrowings and debt	4,481		(16,959	)	(12,478	)
	Derivative financial instruments and hedging	4,504		(4,926	)	(422	)
Cross-currency interest rate swaps	Interest income loans at amortized cost	(131	)	324		193
	Interest expenses – borrowings and debt	840		(3,090	)	(2,250	)
	Derivative financial instruments and hedging	(14,711	)	16,701		1,990
Total		(6,152	)	(3,740	)	(9,892	)

Derivatives financial position and performance

The following tables details the changes of the market value of the underlying item in the statement of financial position related to fair value hedges:

Fair value hedges	September 30, 2017 — Carrying amount	Thereof accumulated fair value adjustments		Line item in the statement of financial position
Interest rate risk
Loans	87	-		Loans at amortized cost
Issuances	352,717	(2,283	)	Short and long term borrowings and debt
Foreign exchange rate risk and FX
Securities at FVOCI	12,363	(137	)	Financial instruments at FVOCI
Loans	478	21		Loans at amortized cost
Issuances	23,086	(1,075	)	Short and long term borrowings and debt

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.6 Derivative financial instruments for hedging purposes (continued)

Derivatives financial position and performance (continued)

Fair value hedges	December 31, 2016 — Carrying amount	Thereof accumulated fair value adjustments		Line item in the statement of financial position
Interest rate risk
Loans	18,514	12		Loans at amortized cost
Issuances	752,910	2,089		Short and long term borrowings and debt
Foreign exchange rate risk and FX
Securities at FVOCI	22,468	(232	)	Financial instruments at FVOCI
Loans	1,469	(618	)	Loans at amortized cost
Issuances	45,647	1,189		Short and long term borrowings and debt

The following tables detail the profile of the timing of the nominal amount of the hedging instrument:

Risk type	September 30, 2017 — Foreign Exchange risk	Interest rate risk	Foreign exchange and Interest rate risk	Total
Up to 1 month	47,549	-	-	47,549
31 to 60 days	62,135	75,000	-	137,135
61 to 90 days	49,606	45,087	-	94,693
91 to 180 days	57,996	60,000	16,821	134,817
181 to 365 days	70,133	37,500	8,127	115,760
1 to 2 years	195,169	21,500	73,193	289,862
2 to 5 years	4,413	413,000	23,025	440,438
More than 5 years	-	3,000	78,234	81,234
Total	487,001	655,087	199,400	1,341,488

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.6 Derivative financial instruments for hedging purposes (continued)

Derivatives financial position and performance (continued)

Analysis of maturity of the derivatives by type of risk covered:

Risk type	December 31, 2016 — Foreign Exchange risk	Interest rate risk	Foreign exchange and Interest rate risk	Total
Up to 1 month	66,149	-	-	66,149
31 to 60 days	33,393	85,000	-	118,393
61 to 90 days	24,093	60,000	-	84,093
91 to 180 days	71,533	745,080	-	816,613
181 to 365 days	109,228	160,422	189	269,839
1 to 2 years	92,115	50,000	24,948	167,063
2 to 5 years	73,311	434,500	96,218	604,029
More than 5 years	-	13,200	79,246	92,446
Total	469,822	1,548,202	200,601	2,218,625

The following tables detail the sources of ineffectiveness for our cash flow hedge positions:

Type of risk hedge	September 30, 2017 — USD-OIS	Tenor	Xccy basis	Credit spread		Total Ineffectiveness
Interest rate risk	10		258	-	(16	)	252
Foreign exchange risk	(6	)	-	8	(1	)	1
Total	4		258	8	(17	)	253

Type of risk hedge	December 31, 2016 — USD-OIS	Tenor	Xccy basis	Credit spread		Total Ineffectiveness
Interest rate risk	19	-	-		604		623
Foreign exchange risk	25	-	(4	)	(5	)	16
Total	44	-	(4	)	599		639

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.6 Derivative financial instruments for hedging purposes (continued)

For control purposes, derivative instruments are recorded at their nominal amount (“notional amount”) in memorandum accounts. Interest rate swaps are made either in a single currency or cross currency for a prescribed period to exchange a series of interest rate flows, which involve fixed for floating interest payments, and vice versa. The Bank also engages in certain foreign exchange trades to serve customers’ transaction needs and to manage foreign currency risk. All such positions are hedged with an offsetting contract for the same currency.

The Bank manages and controls the risks on these foreign exchange trades by establishing counterparty credit limits by customer and by adopting policies that do not allow for open positions in the credit and investment portfolio. The Bank also uses foreign currency exchange contracts to hedge the foreign exchange risk associated with the Bank’s equity investment in a non-U.S. dollar functional currency foreign subsidiary. Derivative and foreign exchange instruments negotiated by the Bank are executed mainly over-the-counter (OTC). These contracts are executed between two counterparties that negotiate specific agreement terms, including notional amount, exercise price and maturity.

The maximum length of time over which the Bank has hedged its exposure to the variability in future cash flows on forecasted transactions is 6.44 years.

The Bank estimates that approximately $1,043 reported as losses in OCI as of September 30, 2017, related to foreign exchange forward contracts, are expected to be reclassified into interest income as an adjustment to yield of hedged loans during the twelve-month period ending September 30, 2018.

The Bank estimates that approximately $486 of losses reported in OCI as of September 30, 2017, related to forward foreign exchange contracts are expected to be reclassified into interest expense as an adjustment to yield of hedged available-for-sale securities during the twelve-month period ending September 30, 2018.

Types of Derivatives and Foreign Exchange Instruments

Interest rate swaps are contracts in which a series of interest rate flows in a single currency are exchanged over a prescribed period. The Bank has designated a portion of these derivative instruments as fair value hedges and a portion as cash flow hedges. Cross currency swaps are contracts that generally involve the exchange of both interest and principal amounts in two different currencies. The Bank has designated a portion of these derivative instruments as fair value hedges and a portion as cash flow hedges. Foreign exchange forward contracts represent an agreement to purchase or sell foreign currency at a future date at agreed-upon terms. The Bank has designated these derivative instruments as cash flow hedges and net investment hedges.

In addition to hedging derivative financial instruments, the Bank has derivative financial instruments held for trading purposes as disclosed in Note 4.1.

4.7 Offsetting of financial assets and liabilities

In the ordinary course of business, the Bank enters into derivative financial instrument transactions and securities sold under repurchase agreements under industry standards agreements. Depending on the collateral requirements stated in the contracts, the Bank and counterparties can receive or deliver collateral based on the fair value of the financial instruments transacted between parties. Collateral typically consists of cash deposits and securities. The master netting agreements include clauses that, in the event of default, provide for close-out netting, which allows all positions with the defaulting counterparty to be terminated and net settled with a single payment amount.

The International Swaps and Derivatives Association master agreement (“ISDA”) and similar master netting arrangements do not meet the criteria for offsetting in the consolidated statement of financial position. This is because they create for the parties to the agreement a right of set-off of recognized amounts that is enforceable only following an event of default, insolvency or bankruptcy of the Bank or the counterparties or following other predetermined events.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.7 Offsetting of financial assets and liabilities (continued)

The following tables summarize financial assets and liabilities that have been offset in the consolidated statement of financial position or are subject to master netting agreements:

a) Derivative financial instruments – assets

September 30, 2017
		Gross amounts offset in the consolidated	Net amount of assets presented in the	Gross amounts not offset in the consolidated statement of financial position
Description	Gross amounts assets	statement of financial position	consolidated statement of financial position	Financial instruments	Cash collateral received	Net Amount
Derivative financial instruments used for hedging – receivable – at fair value	11,034	-	11,034	-	(23,570	)	(12,536	)
Total	11,034	-	11,034	-	(23,570	)	(12,537	)

December 31, 2016		Gross amounts offset in the consolidated	Net amount of assets presented in the	Gross amounts not offset in the consolidated statement of financial position
Description	Gross amounts assets	statement of financial position	consolidated statement of financial position	Financial instruments	Cash collateral received	Net Amount
Derivative financial instruments used for hedging – receivable – at fair value	9,352	-	9,352	-	-	9,352
Total	9,352	-	9,352	-	-	9,352

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial instruments (continued)

4.7 Offsetting of financial assets and liabilities (continued)

a) Derivative financial instruments – assets (continued)

The following table presents the reconciliation of assets that have been offset or are subject to master netting agreements to individual line items in the consolidated statement of financial position:

Description	September 30, 2017 — Gross amounts of assets	Gross amounts offset in the consolidated statement of financial position	Net amount of assets presented in the consolidated statement of financial position
Derivative financial instruments used for hedging – receivable – at fair value	11,034	-	11,034
Total	11,034	-	11,034

Description	December 31, 2016 — Gross amounts of assets	Gross amounts offset in the consolidated statement of financial position	Net amount of assets presented in the consolidated statement of financial position
Derivative financial instruments used for hedging – receivable – at fair value	9,352	-	9,352
Total	9,352	-	9,352

b) Financial liabilities and derivative financial instruments – liabilities

September 30, 2017	Gross	Gross amounts offset in the consolidated	Net amount of liabilities presented in the consolidated	Gross amounts not offset in the consolidated statement of financial position
Description	amounts of liabilities	statement of financial position	statement of financial position	Financial instruments	Cash collateral pledged	Net Amount
Derivative financial instruments used for hedging – payable – at fair value	25,617	-	25,617	-	(40,092	)	(14,475	)
Total	25,617	-	25,617	-	(40,092	)	(14,475	)

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Financial Instruments (continued)

4.7 Offsetting of financial assets and liabilities (continued)

b) Financial liabilities and derivative financial instruments – liabilities (continued)

December 31, 2016	Gross	Gross amounts offset in the consolidated	Net amount of liabilities presented in the consolidated	Gross amounts not offset in the consolidated statement of financial position
Description	Amounts of liabilities	statement of financial position	statement of financial position	Financial instruments	Cash collateral pledged	Net Amount
Financial liabilities at FVTPL	24	-	24	-	-		24
Derivative financial instruments used for hedging – payable – at fair value	59,686	-	59,686	-	(59,012	)	674
Total	59,710	-	59,710	-	(59,012	)	698

The following table presents the reconciliation of liabilities that have been offset or are subject to master netting agreements to individual line items in the consolidated statement of financial position:

Description	September 30, 2017 — Gross amounts of liabilities	Gross amounts offset in the consolidated statement of financial position	Net amount of liabilities presented in the consolidated statement of financial position
Derivative financial instruments:
Derivative financial instruments used for hedging – payable – at fair value	25,617	-	25,617
Total derivative financial instruments	25,617	-	25,617

Description	December 31, 2016 — Gross amounts of liabilities	Gross amounts offset in the consolidated statement of financial position	Net amount of liabilities presented in the consolidated statement of financial position
Derivative financial instruments:
Financial liabilities at FVTPL	24	-	24
Derivative financial instruments used for hedging – payable – at fair value	59,686	-	59,686
Total derivative financial instruments	59,710	-	59,710

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Loans commitments and financial guarantees contracts

In the normal course of business, to meet the financing needs of its customers, the Bank is party to loans commitments and financial guarantees contracts. These instruments involve, to varying degrees, elements of credit and market risk in excess of the amount recognized in the consolidated statement of financial position. Credit risk represents the possibility of loss resulting from the failure of a customer to perform in accordance with the terms of a contract.

The Bank’s outstanding loans commitments and financial guarantees contracts are as follows:

Confirmed letters of credit	146,309	216,608
Stand-by letters of credit and guaranteed – Commercial risk	181,461	176,177
Credit commitments	30,825	10,250
Total	358,595	403,035

The remaining maturity profile of the Bank’s outstanding loans commitments and financial guarantees contracts is as follows:

Maturities — Up to 1 year	353,157	399,257
From 1 to 2 years	1,300	-
From 2 to 5 years	3,560	3,200
More than 5 years	578	578
	358,595	403,035

Loans commitments and financial guarantees contracts classified by issuer’s credit quality indicators are as follows:

Rating (1) — 1-4	128,601	145,255
5-6	229,994	193,368
7	-	64,412
8	-	-
9	-	-
10	-	-
Total	358,595	403,035

(1) Current ratings as of September 30, 2017 and December 31, 2016, respectively.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Loans commitments and financial guarantees contracts (continued)

The breakdown of the Bank’s loans commitments and financial guarantees contracts exposure by country risk is as follows:


Country:
Argentina	30,676	-
Bolivia	-	190
Brazil	26,688	-
Canada	200	160
Chile	141	-
Colombia	81,020	78,815
Costa Rica	11,189	2,250
Dominican Republic	-	26,787
Ecuador	118,628	172,522
El Salvador	988	1,305
Guatemala	11,700	7,000
Honduras	1,877	1,170
Mexico	10,599	11,118
Panama	34,573	39,756
Paraguay	4	-
Peru	29,940	42,764
Switzerland	-	1,000
United Kingdom	-	70
Uruguay	372	18,128
Total	358,595	403,035

Letters of credit and guarantees

The Bank, on behalf of its client’s base, advises and confirms letters of credit to facilitate foreign trade transactions. When confirming letters of credit, the Bank adds its own unqualified assurance that the issuing bank will pay and that if the issuing bank does not honor drafts drawn on the letter of credit, the Bank will. The Bank provides stand-by letters of credit and guarantees, which are issued on behalf of institutional clients in connection with financing between its clients and third parties. The Bank applies the same credit policies used in its lending process, and once issued the commitment is irrevocable and remains valid until its expiration. Credit risk arises from the Bank's obligation to make payment in the event of a client’s contractual default to a third party. Risks associated with stand-by letters of credit and guarantees are included in the evaluation of the Bank’s overall credit risk.

Credit commitments

Commitments to extend credit are binding legal agreements to lend to clients. Commitments generally have fixed expiration dates or other termination clauses and require payment of a fee to the Bank. As some commitments expire without being drawn down, the total commitment amounts do not necessarily represent future cash requirements.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Loans commitments and financial guarantees contracts (continued)

The allowances for credit losses related to loans commitments and financial guarantees contracts are as follows:

Allowance for expected credit losses as of December 31, 2016	1,144		4,632		-	5,776
Transfer to lifetime expected credit losses	(0.3	)	0.3		-	-
Transfer to credit-impaired instruments	-		-		-	-
Transfer to 12-month expected credit losses	-		-		-	-
Net effect of changes in reserve for expected credit loss	(36	)	(833	)	-	(869	)
Instruments that have been derecognized during the period	(957	)	-		-	(957	)
Changes due to instruments recognized as of December 31, 2016:	(993	)	(833	)	-	(1,826	)
New instruments originated or purchased	880		-		-	880
Allowance for expected credit losses as of September 30, 2017	1,031		3,799		-	4,830

Allowance for expected credit losses as of December 31, 2015	2,914		2,510		-	5,424
Transfer to lifetime expected credit losses	(646	)	693		-	47
Transfer to credit-impaired instruments	-		-		-	-
Transfer to 12-month expected credit losses	-		-		-	-
Net effect of changes in reserve for expected credit loss	(748	)	1,756		-	1,008
Instruments that have been derecognized during the year	(2,631	)	(326	)	-	(2,957	)
Changes due to instruments recognized as of December 31, 2015:	(4,025	)	2,123		-	(1,902	)
New instruments originated or purchased	2,254		-		-	2,254
Allowance for expected credit losses as of December 31, 2016	1,143		4,633		-	5,776

(1) 12-month expected credit losses.

(2) Lifetime expected credit losses.

(3) Credit-impaired financial assets (lifetime expected credit losses).

The reserve for expected credit losses on loans commitments and financial guarantees contracts reflects the Bank’s Management estimate of expected credit losses items such as: confirmed letters of credit, stand-by letters of credit, guarantees and credit commitments.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Other assets

Following is a summary of other assets:

Investment in financial assets	9,041	-
Accounts receivable	5,456	5,413
Real estate owned	5,119	-
IT projects under development	4,843	4,199
Other (1)	4,086	1,934
	28,545	11,546

(1) As of September 30, 2017, $1.7 million corresponds to leasing under development.

Deposits

The maturity profile of the Bank’s deposits is as follows:

Demand	205,133	127,014
Up to 1 month	908,834	1,201,328
From 1 month to 3 months	703,352	463,479
From 3 month to 6 months	327,120	336,627
From 6 month to 1 year	587,181	436,884
From 1 year to 2 years	126,004	190,000
From 2 years to 5 years	145,385	47,520
	3,003,009	2,802,852

The following table presents additional information regarding the Bank’s deposits:

Aggregate amounts of time deposits of $100,000 or more	3,002,388	2,802,474
Aggregate amounts of deposits in the New York Agency	266,128	250,639

2017	2016	2015
Interest expense paid to deposits in the New York Agency.	966	576	317

2017	2016	2015
Interest expense paid to deposits in the New York Agency.	2,524	1,429	919

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Securities sold under repurchase agreements

As of September 30, 2017 and December 31, 2016, the Bank does not have financing transactions under repurchase agreements.

As of September 30, 2017, the Bank did not incur interest expense generated by financing transactions under repurchase agreements. During the periods ended September 30, 2016 and 2015, interest expense related to financing transactions under repurchase agreements totaled $835.2 and $176.0, respectively, corresponding to interest expense generated by the financing contracts under repurchase agreements. These expenses are included in the interest expense – short-term borrowings and debt line in the consolidated statements of profit or loss.

Borrowings and debt

9.1 Short-term borrowings and debt

The breakdown of short-term (original maturity of less than one year) borrowings and debt, together with contractual interest rates, is as follows:


Short-term Borrowings:
At fixed interest rates	325,355	788,075
At floating interest rates	404,474	657,000
Total borrowings	729,829	1,445,075
Short-term Debt:
At fixed interest rates	7,300	25,000
At floating interest rates	-	-
Total debt	7,300	25,000
Total short-term borrowings and debt	737,129	1,470,075
Average outstanding balance during the period	707,348	1,348,230
Maximum balance at any month-end	1,070,070	1,876,322
Range of fixed interest rates on borrowing and debt in U.S. dollars	1.40% to 1.75%	1.10% to 1.50%
Range of floating interest rates on borrowing in U.S. dollars	1.59% to 1.85%	1.14% to 1.48%
Range of fixed interest rates on borrowing in Mexican pesos	7.67 %	6.16 %
Range of floating interest rate on borrowing in Mexican pesos	7.88 %	5.72 %
Weighted average interest rate at end of the period	2.11 %	1.30 %
Weighted average interest rate during the period	1.54 %	1.10 %

The balances of short-term borrowings and debt by currency, is as follows:


Currency
US dollar	727,300	1,470,000
Mexican peso	9,829	75
Total	737,129	1,470,075

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Borrowings and debt (continued)

9.2 Long-term borrowings and debt

Borrowings consist of long-term and syndicated loans obtained from international banks. Debt instruments consist of public and private issuances under the Bank's Euro Medium Term Notes Program (“EMTN”) as well as public issuances in the Mexican market. The breakdown of borrowings and long-term debt (original maturity of more than one year), together with contractual interest rates gross of prepaid commission of $5,222 and $5,133 as of September 30, 2017 and December 31, 2016, respectively, is as follows:


Long-term Borrowings:
At fixed interest rates with due dates from October 2017 to February 2022.	49,304	61,148
At floating interest rates with due dates from November 2017 to March 2021.	579,000	631,326
Total borrowings	628,304	692,474
Long-term Debt:
At fixed interest rates with due dates from March 2018 to March 2024.	533,447	921,479
At floating interest rates with due dates from January 2018 to March 2022.	201,267	167,918
Total long-term debt	734,714	1,089,397
Total long-term borrowings and debt outstanding	1,363,018	1,781,871
Net average outstanding balance during the period	1,566,619	1,881,085
Maximum outstanding balance at any month – end	2,010,078	2,054,138
Range of fixed interest rates on borrowing and debt in U.S. dollars	2.25% to 3.25%	2.85% to 3.75%
Range of floating interest rates on borrowing and debt in U.S. dollars	2.22% to 2.87%	1.66% to 2.49%
Range of fixed interest rates on borrowing in Mexican pesos	4.75% to 9.09%	4.75% to 8.90%
Range of floating interest rates on borrowing and debt in Mexican pesos	7.75% to 7.97%	6.19% to 6.54%
Range of fixed interest rate on debt in Japanese yens	0.46% to 0.81%	0.46% to 0.81%
Range of fixed interest rate on debt in Euros	3.75 %	3.75 %
Range of fixed interest rate on debt in Australian dollar	3.33 %	3.33 %
Weighted average interest rate at the end of the period	3.42 %	2.98 %
Weighted average interest rate during the period	3.37 %	2.84 %

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Borrowings and debt (continued)

9.2 Long-term borrowings and debt (continued)

The balances of long-term borrowings and debt by currency, is as follows:


Currency
US dollar	956,048	1,392,995
Mexican peso	225,571	219,347
Japanese yen	98,735	95,238
Euro	59,136	52,574
Australian dollar	23,528	21,717
Total	1,363,018	1,781,871

The Bank's funding activities include: (i) EMTN, which may be used to issue notes for up to $2.3 billion, with maturities from 7 days up to a maximum of 30 years, at fixed or floating interest rates, or at discount, and in various currencies. The notes are generally issued in bearer or registered form through one or more authorized financial institutions; (ii) Short-and Long-Term Notes “Certificados Bursatiles” Program (the “Mexico Program”) in the Mexican local market, registered with the Mexican National Registry of Securities maintained by the National Banking and Securities Commission in Mexico (“CNBV”, for its acronym in Spanish), for an authorized aggregate principal amount of 10 billion Mexican pesos with maturities from one day to 30 years.

Some borrowing agreements include various events of default and covenants related to minimum capital adequacy ratios, incurrence of additional liens, and asset sales, as well as other customary covenants, representations and warranties. As of September 30, 2017 the Bank was in compliance with all covenants.

The future maturities of long-term borrowings and debt outstanding as of September 30, 2017, are as follows:

Due in
2017	27,938
2018	322,984
2019	363,635
2020	378,272
2021	200,999
2022	10,054
2024	59,136
	1,363,018

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Other liabilities

Following is a summary of other liabilities:

Accruals and other accumulated expenses	5,394	4,170
Accounts payable	8,475	11,179
Others	3,038	2,979
	16,907	18,328

Earnings per share

The following table presents a reconciliation of the income and share data used in the basic and diluted earnings per share (“EPS”) computations for the dates indicated:


September 30,			September 30,
2017	2016	2015	2017	2016	2015
Profit for the period	20,461	27,991	37,372	61,400	73,701	80,758
Basic earnings per share	0.52	0.72	0.96	1.56	1.89	2.08
Diluted earnings per share	0.52	0.71	0.96	1.56	1.88	2.07
Weighted average common shares outstanding - applicable to basic	39,362	39,102	38,969	39,289	39,059	38,909
Effect of diluted securities:
Stock options and restricted stock units plans	51	123	126	30	119	171
Adjusted weighted average common shares outstanding applicable to diluted EPS	39,413	39,225	39,095	39,319	39,178	39,080

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Capital and Reserves

Common stock

The Bank’s common stock is divided into four categories:

1) “Class A”; shares may only be issued to Latin American Central Banks or banks in which the state or other government agency is the majority shareholder.

2) “Class B”; shares may only be issued to banks or financial institutions.

3) “Class E”; shares may be issued to any person whether a natural person or a legal entity.

4) “Class F”; may only be issued to state entities and agencies of non-Latin American countries, including, among others, central banks and majority state-owned banks in those countries, and multilateral financial institutions either international or regional institutions.

The holders of “Class B” shares have the right to convert or exchange their “Class B” shares, at any time, and without restriction, for “Class E” shares, at a rate of one-to-one.

The following table provides detailed information on the Bank’s common stock activity per class for each of the periods in the three-year period ended September 30, 2017, 2016 and 2015:

(Share units) — Authorized	40,000,000	40,000,000		100,000,000	100,000,000	280,000,000
Outstanding at January 1, 2015	6,342,189	2,479,050		29,956,100	-	38,777,339
Conversions	-	(4,581	)	4,581	-	-
Repurchase common stock	-	-		-	-	-
Restricted stock issued – directors	-	-		57,000	-	57,000
Exercised stock options - compensation plans	-	-		70,358	-	70,358
Restricted stock units – vested	-	-		64,208	-	64,208
Outstanding at September 30, 2015	6,342,189	2,474,469		30,152,247	-	38,968,905
Outstanding at January 1, 2016	6,342,189	2,474,469		30,152,247	-	38,968,905
Conversions	-	-		-	-	-
Restricted stock issued – directors	-	-		57,000	-	57,000
Exercised stock options - compensation plans	-	-		68,409	-	68,409
Restricted stock units – vested	-	-		65,358	-	65,358
Outstanding at September 30, 2016	6,342,189	2,474,469		30,343,014	-	39,159,672
Outstanding at January 1, 2017	6,342,189	2,474,469		30,343,390	-	39,160,048
Conversions	-	(64,663	)	64,663	-	-
Repurchase common stock	-	(1,000	)	-	-	(1,000	)
Restricted stock issued – directors	-	-		57,000	-	57,000
Exercised stock options - compensation plans	-	-		77,995	-	77,995
Restricted stock units – vested	-	-		70,519	-	70,519
Outstanding at September 30, 2017	6,342,189	2,408,806		30,613,567	-	39,364,562

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Capital and Reserves (continued)

The following table presents information regarding shares repurchased but not retired by the Bank and accordingly classified as treasury stock:

Shares	Amount	Shares	Amount	Shares		Amount		Shares		Amount
Outstanding at January 1, 2015	318,140	10,708	589,174	16,242	2,295,186		50,677		3,202,500		77,627
Repurchase of common stock	-	-	-	-	-		-		-		-
Restricted stock issued – directors	-	-	-	-	(57,000	)	(1,259	)	(57,000	)	(1,259	)
Exercised stock options - compensation plans	-	-	-	-	(70,358	)	(1,553	)	(70,358	)	(1,553	)
Restricted stock units – vested	-	-	-	-	(64,208	)	(1,418	)	(64,208	)	(1,418	)
Outstanding
at September
30, 2015	318,140	10,708	589,174	16,242	2,103,620		46,447		3,010,934		73,397
Outstanding at January 1, 2016	318,140	10,708	589,174	16,242	2,103,620		46,447		3,010,934		73,397
Repurchase of common stock	-	-	-	-	-		-		-		-
Restricted stock issued – directors	-	-	-	-	(57,000	)	(1,259	)	(57,000	)	(1,259	)
Exercised stock options - compensation plans	-	-	-	-	(68,409	)	(1,510	)	(68,409	)	(1,510	)
Restricted stock units – vested	-	-	-	-	(65,358	)	(1,443	)	(65,358	)	(1,443	)
Outstanding
at September
30, 2016	318,140	10,708	589,174	16,242	1,912,853		42,235		2,820,167		69,185
Outstanding at January 1, 2017	318,140	10,708	589,174	16,242	1,912,477		42,226		2,819,791		69,176
Repurchase of common stock	-	-	1,000	28	-		-		1,000		28
Restricted stock issued - directors	-	-	-	-	(57,000	)	(1,259	)	(57,000	)	(1,259	)
Exercised stock options - compensation plans	-	-	-	-	(77,995	)	(1,721	)	(77,995	)	(1,721	)
Restricted stock units - vested	-	-	-	-	(70,519	)	(1,557	)	(70,519	)	(1,557	)
Outstanding
at September
30, 2017	318,140	10,708	590,174	16,270	1,706,963		37,689		2,615,277		64,667

Reserves

The Banking Law in the Republic of Panama requires banks with general banking license to maintain a total capital adequacy index that shall not be lower than 8% of total assets and off-balance sheet irrevocable contingency transactions, weighted according to their risk; and primary capital equivalent that shall not be less than 4.5% of its assets and loans commitments and financial guarantees contracts, weighted according to their risk. As of September 30, 2017, the Bank’s total capital adequacy ratio is 19.36% which is in compliance with the minimum capital adequacy ratios required by the Banking Law in the Republic of Panama.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Capital and Reserves (continued)

Restriction on retained earnings

The Bank does not have restrictions on its ability to access its retained earnings other than those resulting from the supervisory framework within which the Bank operates. The supervisory framework requires banks to keep an additional reserve within equity for credit risk coverage of its credit facilities. As of September 30, 2017 and December 31, 2016, the amount stands at $115.4 million and $62.5 million, respectively of retained earnings are restricted from dividend distribution for purposes of complying with local regulatory requirements.

Additional paid-in capital

As of September 30, 2017 and December, 31 2016, the additional paid-in capital consists of additional cash contributions to the common capital paid by shareholders.

Business segment information

The Bank’s activities are managed and executed in two business segments: Commercial and Treasury. The business segment results are determined based on the Bank’s managerial accounting process as defined by IFRS 8 – Operating Segments, which assigns consolidated statement of financial positions, revenue and expense items to each business segment on a systematic basis. The Chief Operating Decision Maker (CODM), represented by the Chief Executive Officer (CEO) and the Management Committee reviews internal management reports from each division at least quarterly. Segment profit, as included in the internal management reports is used to measure performance as management believes that this information is the most relevant in evaluating the results of the respective segments relative to other entities that operate within the same industry.

The Bank’s net interest income represents the main driver of profits; therefore, the Bank presents its interest-earning assets by business segment, to give an indication of the size of business generating net interest income. Interest-earning assets also generate gains and losses on sales, such as for financial instruments at fair value through OCI and financial instruments at fair value through profit or loss, which are included in net other income, in the Treasury Segment. The Bank also discloses its other assets and contingencies by business segment, to give an indication of the size of business that generates net fees and commissions, also included in net other income, in the Commercial Business Segment.

The Commercial Business Segment incorporates all of the Bank’s financial intermediation and fees generated by the commercial portfolio. The commercial portfolio includes book value of loans at amortized cost, acceptances, loan commitments and financial guarantee contracts. Profits from the Commercial Business Segment include net interest income from loans at amortized cost, fee income, gain on sale of loans at amortized cost, impairment loss from expected credit losses on loans at amortized cost, impairment loss from expected credit losses on loan commitments and financial guarantee contracts, and allocated expenses.

The Treasury Business Segment incorporates deposits in banks and all of the Bank’s financial instruments at fair value through profit or loss, financial instruments at fair value through OCI and securities at amortized cost. Profits from the Treasury Business Segment include net interest income from deposits with banks, financial instruments at fair value through OCI and securities at amortized cost, derivative financial instruments foreign currency exchange, gain (loss) for financial instrument at fair value through profit or loss, gain (loss) for financial instrument at fair value through OCI, impairment loss for expected credit losses on investment securities, other income and allocated expenses.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Business segment information (continued)

The following table provides certain information regarding the Bank’s operations by segment:

2017		2016		2015
Commercial
Interest income	160,594		177,026		154,065
Interest expense	(68,947	)	(71,645	)	(60,597	)
Net interest income	91,647		105,381		93,468
Net other income (2)	12,410		11,632		14,080
Total income	104,057		117,013		107,548
Impairment loss from expected credit losses on loans at amortized cost and impairment loss from expected credit losses on loan commitments and financial guarantee contracts	(9,035	)	(17,127	)	(10,311	)
Expenses, less impairment loss from expected credit losses	(26,217	)	(25,412	)	(30,367	)
Profit for the period	68,805		74,474		66,870
Commercial assets and loan commitments and financial guarantee contracts (end of period balances):
Interest-earning assets (3 and 5)	5,337,353		6,384,687		6,682,445
Other assets and loan commitments and financial guarantee contracts (4)	362,919		367,003		437,436
Total interest-earning assets, other assets and loan commitments and financial guarantee contracts	5,700,272		6,751,690		7,119,881
Treasury
Interest income	9,686		7,422		8,121
Interest expense	(9,659	)	4,721		6,112
Net interest income	27		12,143		14,233
Net other income (2)	(278	)	(4,379	)	8,516
Total income	(251	)	7,764		22,749
Impairment loss for expected credit losses on investment securities	390		(276	)	(543	)
Expenses, less impairment loss for expected credit losses	(7,544	)	(8,261	)	(8,318	)
Profit (loss) for the period	(7,405	)	(773	)	13,888
Treasury assets (end of period balances):
Interest-earning assets (3 and 5)	887,149		900,127		1,603,395
Total interest-earning assets	887,149		900,127		1,603,395
Combined business segment total
Interest income	170,280		184,448		162,186
Interest expense	(78,606	)	(66,924	)	(54,485	)
Net interest income	91,674		117,524		107,701
Net other income (2)	12,132		7,253		22,596
Total income	103,806		124,777		130,297
Impairment loss from expected credit losses on loans at amortized cost and impairment loss from expected credit losses on loan commitments and financial guarantee contracts	(9,035	)	(17,127	)	(10,311	)
Impairment loss from expected credit losses on investment securities	390		(276	)	(543	)
Expenses, less impairment loss from expected credit losses	(33,761	)	(33,673	)	(38,685	)
Profit for the period	61,400		73,701		80,758

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Business segment information (continued)


Total assets and loan commitments and financial guarantee contracts (end of period balances):
Interest-earning assets (2 and 4)	6,224,502	7,191,443
Other assets and loan commitments and financial guarantee contracts (3)	362,919	422,422
Total interest-earning assets, other assets and loan commitments and financial guarantee contracts	6,587,421	7,613,865

| (1) | The numbers set out in these tables have been rounded and
accordingly may not total exactly. |
| --- | --- |
| (2) | Net other income consists of other income including gains on sale of loans at amortized cost,
gains (loss) per financial instrument at FVTPL and FVOCI, derivative instruments and foreign currency exchange. |

(3) Includes deposits and loans at amortized cost, net of unearned interest and deferred fees.

(4) Includes customers’ liabilities under acceptances, loans commitments and financial guarantees contracts.

(5) Includes cash and cash equivalents, interest-bearing deposits with banks, financial instruments at fair value through OCI, financial instruments at amortized cost and financial instruments at fair value through profit or loss.


Reconciliation of total assets:
Interest-earning assets – business segment	6,224,502		7,191,443
Allowance for expected credit losses on loans at amortized cost	(111,728	)	(105,988	)
Allowance for expected credit losses on securities at amortized cost	(221	)	(602	)
Customers’ liabilities under acceptances	4,902		19,387
Intangibles, net	2,368		2,909
Accrued interest receivable	32,869		44,187
Property and equipment, net	7,849		8,549
Derivative financial instruments used for hedging - receivable	11,034		9,352
Other assets	28,545		11,546
Total assets – consolidated financial statements	6,200,120		7,180,783

Fair value of financial instruments

The Bank determines the fair value of its financial instruments using the fair value hierarchy established in IFRS 13 - Fair Value Measurements and Disclosure, which requires the Bank to maximize the use of observable inputs (those that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market information obtained from sources independent of the reporting entity) and to minimize the use of unobservable inputs (those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances) when measuring fair value. Fair value is used on a recurring basis to measure assets and liabilities in which fair value is the primary basis of accounting. Additionally, fair value is used on a non-recurring basis to evaluate assets and liabilities for impairment or for disclosure purposes. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Bank uses some valuation techniques and assumptions when estimating fair value. The Bank applied the following fair value hierarchy:

Level 1 – Assets or liabilities for which an identical instrument is traded in an active market, such as publicly-traded instruments or futures contracts.

Level 2 – Assets or liabilities valued based on observable market data for similar instruments, quoted prices in markets that are not active; or other observable inputs that can be corroborated by observable market data for substantially the full term of the asset or liability.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Fair value of financial instruments (continued)

Level 3 – Assets or liabilities for which significant valuation assumptions are not readily observable in the market; instruments measured based on the best available information, which might include some internally-developed data, and considers risk premiums that a market participant would require.

When determining the fair value measurements for assets and liabilities that are required or permitted to be recorded at fair value, the Bank considers the principal or most advantageous market in which it would transact and considers the assumptions that market participants would use when pricing the asset or liability. When possible, the Bank uses active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Bank uses observable market information for similar assets and liabilities. However, certain assets and liabilities are not actively traded in observable markets and the Bank must use alternative valuation techniques to determine the fair value measurement. The frequency of transactions, the size of the bid-ask spread and the size of the investment are factors considered in determining the liquidity of markets and the relevance of observed prices in those markets.

When there has been a significant decrease in the volume or level of activity for a financial asset or liability, the Bank uses the present value technique which considers market information to determine a representative fair value in usual market conditions.

A description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis, including the general classification of such assets and liabilities under the fair value hierarchy is presented below:

Financial instruments at FVTPL and FVOCI

Financial instruments at FVTPL are carried at fair value, which is based upon quoted prices when available, or if quoted market prices are not available, on discounted expected cash flows using market rates commensurate with the credit quality and maturity of the security.

Financial instruments at FVOCI are carried at fair value, based on quoted market prices when available, or if quoted market prices are not available, based on discounted expected cash flows using market rates commensurate with the credit quality and maturity of the security.

When quoted prices are available in an active market, financial instruments at FVOCI and financial instruments at FVTPL are classified in level 1 of the fair value hierarchy. If quoted market prices are not available or they are available in markets that are not active, then fair values are estimated based upon quoted prices of similar instruments, or where these are not available, by using internal valuation techniques, principally discounted cash flows models. Such securities are classified within level 2 of the fair value hierarchy.

Derivative financial instruments

The valuation techniques and inputs depend on the type of derivative and the nature of the underlying instrument. Exchange-traded derivatives that are valued using quoted prices are classified within level 1 of the fair value hierarchy.

For those derivative contracts without quoted market prices, fair value is based on internal valuation techniques using inputs that are readily observable and that can be validated by information available in the market. The principal technique used to value these instruments is the discounted cash flows model and the key inputs considered in this technique include interest rate yield curves and foreign exchange rates. These derivatives are classified within level 2 of the fair value hierarchy.

The fair value adjustments applied by the Bank to its derivative carrying values include credit valuation adjustments (“CVA”), which are applied to OTC derivative instruments, in which the base valuation generally discounts expected cash flows using the Overnight Index Swap (“OIS”) interest rate curves. Because not all counterparties have the same credit risk as that implied by the relevant OIS curve, a CVA is necessary to incorporate the market view of both, counterparty credit risk and the Bank’s own credit risk, in the valuation.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Fair value of financial instruments (continued)

Derivative financial instruments (continued)

Own-credit and counterparty CVA is determined using a fair value curve consistent with the Bank’s or counterparty credit rating. The CVA is designed to incorporate a market view of the credit risk inherent in the derivative portfolio. However, most of the Bank’s derivative instruments are negotiated bilateral contracts and are not commonly transferred to third parties. Derivative instruments are normally settled contractually, or if terminated early, are terminated at a value negotiated bilaterally between the counterparties. Therefore, the CVA (both counterparty and own-credit) may not be realized upon a settlement or termination in the normal course of business. In addition, all or a portion of the CVA may be reversed or otherwise adjusted in future periods in the event of changes in the credit risk of the Bank or its counterparties or due to the anticipated termination of the transactions.

Transfer of financial assets

Gains or losses on sale of loans depend in part on the carrying amount of the financial assets involved in the transfer, and its fair value at the date of transfer. The fair value of instruments is determined based upon quoted market prices when available, or are based on the present value of future expected cash flows using information related to credit losses, prepayment speeds, forward yield curves, and discounted rates commensurate with the risk involved.

Financial instruments measured at fair value on a recurring basis by caption on the consolidated statement of financial positions using the fair value hierarchy are described below:

Level 1 (a)	Level 2 (b)	Level 3 (c)	Total
Assets
Securities at fair value through OCI:
Corporate debt	-	-	-	-
Sovereign debt	16,796	-	-	16,796
Total securities at fair value through OCI	16,796	-	-	16,796
Financial instruments at FVTPL
Foreign exchange forward	-	-	-	-
Total financial instruments at FVTPL	-	-	-	-
Derivative financial instruments used for hedging – receivable:
Interest rate swaps	-	884	-	884
Cross-currency interest rate swaps	-	2,894	-	2,894
Foreign exchange forward	-	7,256	-	7,256
Total derivative financial instrument used for hedging – receivable	-	11,034	-	11,034
Total financial assets at fair value	16,796	11,034	-	27,830
Liabilities
Financial instruments at FVTPL
Foreign exchange forward	-	-	-	-
Total financial instruments at FVTPL	-	-	-	-
Derivative financial instruments used for hedging – payable:
Interest rate swaps	-	1,291	-	1,291
Cross-currency interest rate swaps	-	23,547	-	23,547
Foreign exchange forward	-	779	-	779
Total derivative financial instruments used for hedging – payable	-	25,617	-	25,617
Total financial liabilities at fair value	-	25,617	-	25,617

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Fair value of financial instruments (continued)

Level 1 (a)	Level 2 (b)	Level 3 (c)	Total
Assets
Securities at fair value through OCI:
Corporate debt	13,909	-	-	13,909
Sovereign debt	13,912	2,786	-	16,698
Total securities at fair value through OCI	27,821	2,786	-	30,607
Derivative financial instruments used for hedging – receivable:
Interest rate swaps	-	363	-	363
Cross-currency interest rate swaps	-	2,561	-	2,561
Foreign exchange forward	-	6,428	-	6,428
Total derivative financial instrument used for hedging – receivable	-	9,352	-	9,352
Total financial assets at fair value	27,821	12,138	-	39,959
Liabilities
Financial instruments at FVTPL:
Interest rate swaps	-	-	-	-
Cross-currency interest rate swaps	-	-	-	-
Foreign exchange forward	-	24	-	24
Total financial instruments at FVTPL	-	24	-	24
Derivative financial instruments used for hedging – payable:
Interest rate swaps	-	3,704	-	3,704
Cross-currency interest rate swaps	-	46,198	-	46,198
Foreign exchange forward	-	9,784	-	9,784
Total derivative financial instruments used for hedging – payable	-	59,686	-	59,686
Total financial liabilities at fair value	-	59,710	-	59,710

(a) Level 1: Quoted market prices in an active market.

(b) Level 2: Internally developed models with significant observable market or quoted market prices in an inactive market.

The following information should not be interpreted as an estimate of the fair value of the Bank. Fair value calculations are only provided for a limited portion of the Bank’s financial assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparison of fair value information of the Bank and other companies may not be meaningful for comparative analysis.

The following methods and assumptions were used by the Bank’s management in estimating the fair values of financial instruments whose fair value is not measured on a recurring basis:

Financial instruments with carrying value that approximates fair value

The carrying value of certain financial assets, including cash and due from banks, interest-bearing deposits in banks, customers’ liabilities under acceptances, accrued interest receivable and certain financial liabilities including customer’s demand and time deposits, securities sold under repurchase agreements, accrued interest payable, and acceptances outstanding, as a result of their short-term nature, are considered to approximate fair value. These instruments are classified in Level 2.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Fair value of financial instruments (continued)

Securities at amortized cost

The fair value has been based upon current market quotations, where available. If quoted market prices are not available, fair value has been estimated based upon quoted price of similar instruments, or where these are not available, on discounted expected cash flows using market rates commensurate with the credit quality and maturity of the security. These securities are classified in Levels 1 and 2.

Loans at amortized cost

The fair value of the loan portfolio, including impaired loans, is estimated by discounting future cash flows using the current rates at which loans would be made to borrowers with similar credit ratings and for the same remaining maturities, considering the contractual terms in effect as of December 31 of the relevant year. These assets are classified in Level 2.

Short and long-term borrowings and debt

The fair value of short and long-term borrowings and debt is estimated using discounted cash flow analysis based on the current incremental borrowing rates for similar types of borrowing arrangements, taking into account the changes in the Bank’s credit margin. These liabilities are classified in Level 2.

The following table provides information on the carrying value and estimated fair value of the Bank’s financial instruments that are not measured on a recurring basis:

Carrying value	Fair value	Level 1 (a)	Level 2 (b)	Level 3 (c)
Financial assets
Instruments with carrying value that approximates fair value
Cash and deposits on banks	799,435	799,435	-	799,435	-
Acceptances	4,902	4,902	-	4,902	-
Interest receivable	32,869	32,869	-	32,869	-
Securities at amortized cost (2)	70,697	71,500	45,749	25,751	-
Loans at amortized cost (1)	5,225,625	5,431,846	-	5,431,846	-
Financial liabilities
Instruments with carrying value that approximates fair value
Deposits	3,003,009	3,003,009	-	3,003,009	-
Acceptances	4,902	4,902	-	4,902	-
Interest payable	18,191	18,191	-	18,191	-
Short-term borrowings and debt	737,129	737,345	-	737,345	-
Long-term borrowings and debt, net	1,363,018	1,384,750	-	1,384,750	-

(a) Level 1: Quoted market prices in an active market.

(b) Level 2: Internally developed models with significant observable market or quoted market prices in an inactive market.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Fair value of financial instruments (continued)

The following table provides information on the carrying value and estimated fair value of the Bank’s financial instruments that are not measured on a recurring basis:

Carrying value	Fair value	Level 1 (a)	Level 2 (b)	Level 3 (c)
Financial assets
Instruments with carrying value that approximates fair value
Cash and deposits on banks	1,069,538	1,069,538	-	1,069,538	-
Acceptances	19,387	19,387	-	19,387	-
Interest receivable	44,187	44,187	-	44,187	-
Securities at amortized cost (2)	77,214	76,406	73,406	3,000	-
Loans at amortized cost (1)	5,907,494	6,021,006	-	6,021,006	-
Financial liabilities
Instruments with carrying value that approximates fair value
Deposits	2,802,852	2,802,852	-	2,802,852	-
Acceptances	19,387	19,387	-	19,387	-
Interest payable	16,603	16,603	-	16,603	-
Short-term borrowings and debt	1,470,075	1,470,045	-	1,470,045	-
Long-term borrowings and debt, net	1,776,738	1,808,228	-	1,808,228	-

(a) Level 1: Quoted market prices in an active market.

(b) Level 2: Internally developed models with significant observable market or quoted market prices in an inactive market.

(1) The carrying value of loans at amortized cost is net of the allowance for expected credit losses of $111.7 million and unearned interest and deferred fees of $5.8 million for September 30, 2017; allowance for expected credit losses of $106.0 million and unearned interest and deferred fees of $7.2 million for December 31, 2016.

(2) The carrying value of securities at amortized cost is net of the allowance for expected credit losses of $0.2 million for September 30, 2017 and $0.6 million for December 31, 2016.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Accumulated other comprehensive income (loss)

The breakdown of accumulated other comprehensive income (loss) related to financial instruments at FVOCI, derivative financial instruments, and foreign currency translation is as follows:

Balance as of January 1, 2015	(6,817	)	(1,020	)	(7,837	)
Net unrealized gain (loss) arising from the period	(1,380	)	(3,974	)	(5,354	)
Reclassification adjustment for (gains) loss included in the profit of the period (1)	(2,202	)	1,823		(379	)
Other comprehensive income (loss) from the period	(3,582	)	(2,151	)	(5,733	)
Balance as of September 30, 2015	(10,399	)	(3,171	)	(13,570	)
Balance as of January 1, 2016	(8,931	)	(1,750	)	(10,681	)
Net unrealized gain (loss) arising from the period	6,933		2,137		9,070
Reclassification adjustment for (gains) loss included in the profit of the period (1)	1,317		(4,090	)	(2,773	)
Other comprehensive income (loss) from the period	8,250		(1,953	)	6,297
Balance as of September 30, 2016	(681	)	(3,703	)	(4,384	)
Balance as of January 1, 2017	(853	)	(1,948	)	(2,801	)
Net unrealized gain (loss) arising from the period	330		(207	)	123
Reclassification adjustment for (gains) loss included in the profit of the period (1)	175		760		935
Other comprehensive income (loss) from the period	505		553		1,058
Balance as of September 30, 2017	(348	)	(1,395	)	(1,743	)

(1) Reclassification adjustments include amounts recognized in profit of the year that had been part of other comprehensive income (loss) in this and previous years.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Accumulated other comprehensive income (loss)

The following table presents amounts reclassified from other comprehensive income to the profit of the period:

Three months ended September 30, 2017 — Details about accumulated other comprehensive income components	Amount reclassified from accumulated other comprehensive income		Affected line item in the consolidated statement of profit or loss where net income is presented
Realized gains (losses) on financial instruments at FVOCI:	-		Interest income – financial instruments at FVOCI
	-		Net gain on sale of financial instruments at FVOCI
	(3	)	Derivative financial instruments and hedging
	(3	)
Gains (losses) on derivative financial instruments:
Foreign exchange forward	(2,068	)	Interest income – loans at amortized cost
	76		Interest expense – borrowings and deposits
	(326	)	Net gain (loss) on foreign currency exchange
Interest rate swaps	(122	)	Net gain (loss) on interest rate swaps
Cross-currency interest rate swap	-		Net gain (loss) on cross-currency interest rate swap
	(2,440	)

Nine months ended September 30, 2017 — Details about accumulated other comprehensive income components	Amount reclassified from accumulated other comprehensive income		Affected line item in the consolidated statement of profit or loss where net income is presented
Realized gains (losses) on financial instruments at FVOCI:	-		Interest income – financial instruments at FVOCI
	(144	)	Net gain on sale of financial instruments at FVOCI
	(31	)	Derivative financial instruments and hedging
	(175	)
Gains (losses) on derivative financial instruments:
Foreign exchange forward	(6,097	)	Interest income – loans at amortized cost
	(1,174	)	Interest expense – borrowings and deposits
	6,414		Net gain (loss) on foreign currency exchange
Interest rate swaps	92		Net gain (loss) on interest rate swaps
Cross-currency interest rate swap	5		Net gain (loss) on cross-currency interest rate swap
	(760	)

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Accumulated other comprehensive income (loss)

Three months ended September 30, 2016 — Details about accumulated other comprehensive income components	Amount reclassified from accumulated other comprehensive income		Affected line item in the consolidated statement of profit or loss where net income is presented
Realized gains (losses) on financial instruments at FVOCI:	-		Interest income – financial instruments at FVOCI
	168		Net gain on sale of financial instruments at FVOCI
	185		Derivative financial instruments and hedging
	353
Gains (losses) on derivative financial instruments:
Foreign exchange forward	(1,414	)	Interest income – loans at amortized cost
	470		Interest expense – borrowings and deposits
	2,528		Net gain (loss) on foreign currency exchange
Interest rate swaps	264		Net gain (loss) on interest rate swaps
Cross-currency interest rate swap	421		Net gain (loss) on cross-currency interest rate swap
	2,269

Nine months ended September 30, 2016 — Details about accumulated other comprehensive income components	Amount reclassified from accumulated other comprehensive income		Affected line item in the consolidated statement of profit or loss where net income is presented
Realized gains (losses) on financial instruments at FVOCI:	-		Interest income – financial instruments at FVOCI
	(800	)	Net gain on sale of financial instruments at FVOCI
	(517	)	Derivative financial instruments and hedging
	(1,317	)
Gains (losses) on derivative financial instruments:
Foreign exchange forward	(3,168	)	Interest income – loans at amortized cost
	878		Interest expense – borrowings and deposits
	5,022		Net gain (loss) on foreign currency exchange
Interest rate swaps	870		Net gain (loss) on interest rate swaps
Cross-currency interest rate swap	488		Net gain (loss) on cross-currency interest rate swap
	4,090

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Accumulated other comprehensive income (loss)

Three months ended September 30, 2015 — Details about accumulated other comprehensive income components	Amount reclassified from accumulated other comprehensive income		Affected line item in the consolidated statement of profit or loss where net income is presented
Realized gains (losses) on financial instruments at FVOCI:	(235	)	Interest income – financial instruments at FVOCI
	1,543		Net gain on sale of financial instruments at FVOCI
	(260	)	Derivative financial instruments and hedging
	1,048
Gains (losses) on derivative financial instruments:
Forward foreign exchange	(498	)	Interest income – loans at amortized cost
	911		Interest expense – borrowings and deposits
	–		Net gain (loss) on foreign currency exchange
Interest rate swaps	–		Net gain (loss) on interest rate swaps
Cross-currency interest rate swap	–		Net gain (loss) on cross-currency interest rate swap
	413

Nine months ended September 30, 2015 — Details about accumulated other comprehensive income components	Amount reclassified from accumulated other comprehensive income		Affected line item in the consolidated statement of profit or loss where net income is presented
Realized gains (losses) on financial instruments at FVOCI:	(572	)	Interest income – financial instruments at FVOCI
	3,268		Net gain on sale of financial instruments at FVOCI
	(494	)	Derivative financial instruments and hedging
	2,202
Gains (losses) on derivative financial instruments:
Forward foreign exchange	(327	)	Interest income – loans at amortized cost
	(234	)	Interest expense – borrowings and deposits
	(1,232	)	Net gain (loss) on foreign currency exchange
Interest rate swaps	–		Net gain (loss) on interest rate swaps
Cross-currency interest rate swap	–		Net gain (loss) on cross-currency interest rate swap
	(1,793	)

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Related party transactions

During the reporting periods, total compensation paid to directors and the executives of Bladex as representatives of the Bank amounted to:

2017	2016	2015	2017	2016	2015
Expenses:
Compensation costs paid to directors	218	252	238	441	491	480
Compensation costs paid to executives	246	346	354	1,636	3,696	4,226

Litigation

Bladex is not engaged in any litigation that is material to the Bank’s business or, to the best of the knowledge of the Bank’s management that is likely to have an adverse effect on its business, financial condition or results of operations.

Risk management

Risk is inherent in the Bank’s activities, but it is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. This process of risk management is critical to the Bank’s continuing profitability and each individual within the Bank is accountable for the risk exposures relating to his or her responsibilities. The Bank is exposed to market, credit, compliance and liquidity risk. It is also subject to country risk and various operating risks.

The Board of Directors is responsible for the overall risk management approach and for approving the risk management strategies and principles. The Board has appointed an Administration Committee which has the responsibility to monitor the overall risk process within the Bank.

The Risk Committee has the overall responsibility for the development of the risk strategy and implementing principles, frameworks, policies and limits. The Risk Committee is responsible for managing risk decisions and monitoring risk levels and reports on a weekly basis to the Supervisory Board.

The Risk Management Unit is responsible for implementing and maintaining risk related procedures to ensure an independent control process is maintained. The unit works closely with the Risk Committee to ensure that procedures are compliant with the overall framework.

The Risk Management Unit is responsible for monitoring compliance with risk principles, policies and limits across the Bank. This unit also ensures the complete capture of the risks in risk measurement and reporting systems. Exceptions are reported on a daily basis, where necessary, to the Risk Committee, and the relevant actions are taken to address exceptions and any areas of weakness.

The Bank‘s Assets/Liabilities Committee (ALCO) is responsible for managing the Bank’s assets and liabilities and the overall financial structure. It is also primarily responsible for the funding and liquidity risks of the Bank. The Bank’s policy is that risk management processes throughout the Bank are audited annually by the Internal Audit function, which examines both the adequacy of the procedures and the Bank’s compliance with the procedures. Internal Audit discusses the results of all assessments with management, and reports its findings and recommendations to the Audit Committee.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Risk management (continued)

Risk measurement and reporting systems

The Bank’s risks are measured using a method that reflects both the expected loss likely to arise in normal circumstances and unexpected losses, which are an estimate of the ultimate actual loss based on statistical models. The models make use of probabilities derived from historical experience, adjusted to reflect the economic environment. The Bank also runs worst-case scenarios that would arise in the event that extreme events which are unlikely to occur do, in fact, occur.

Monitoring and controlling risks is primarily performed based on limits established by the Bank. These limits reflect the business strategy and market environment of the Bank as well as the level of risk that the Bank is willing to accept, with additional emphasis on selected industries. In addition, the Bank’s policy is to measure and monitor the overall risk bearing capacity in relation to the aggregate risk exposure across all risk types and activities. Information compiled from all the businesses is examined and processed in order to analyze, control and identify risks on a timely basis. This information is presented and explained to the Board of Directors, the Risk Committee, and the head of each business division. The report includes aggregate credit exposure, credit metric forecasts, market risk sensitivities, stop losses, liquidity ratios and risk profile changes. On a monthly basis, detailed reporting of industry, customer and geographic risks takes place. Senior management assesses the appropriateness of the allowance for credit losses on a monthly basis. The Supervisory Board receives a comprehensive risk report once a quarter which is designed to provide all the necessary information to assess and conclude on the risks of the Bank. For all levels throughout the Bank, specifically tailored risk reports are prepared and distributed in order to ensure that all business divisions have access to extensive, necessary and up–to–date information.

Risk mitigation

As part of its overall risk management, the Bank uses derivatives and other instruments to manage exposures resulting from changes in interest rates, foreign currencies, equity risks, credit risks, and exposures arising from forecast transactions.

In accordance with the Bank’s policy, its risk profile is assessed before entering into hedge transactions, which are authorized by the appropriate level of seniority within the Bank. The effectiveness of hedges is assessed by the Risk Controlling Unit (based on economic considerations rather than the IFRS hedge accounting regulations). The effectiveness of all the hedge relationships is monitored by the Risk Controlling Unit quarterly. In situations of ineffectiveness, the Bank will enter into a new hedge relationship to mitigate risk on a continuous basis.

Risk concentration

Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Bank’s performance to developments affecting a particular industry or geographical location. In order to avoid excessive concentrations of risk, the Bank’s policies and procedures include specific guidelines to focus on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly. Selective hedging is used within the Bank to manage risk concentrations at both the relationship and industry levels.

The Bank has exposure to the following risk from financial instruments:

18.1 Credit risk

Credit risk is the risk that the Bank will incur a loss because its customers or counterparties fail to discharge their contractual obligations. The Bank manages and controls credit risk by setting limits on the amount of risk it is willing to accept for individual counterparties and for geographical and industry concentrations, and by monitoring exposures in relation to such limits.

The Bank has established a credit quality review process to provide early identification of possible changes in the creditworthiness of counterparties, including regular collateral revisions. Counterparty limits are established by the use of a credit risk classification system, which assigns each counterparty a risk rating. Risk ratings are subject to regular revision. The credit quality review process aims to allow the Bank to assess the potential loss as a result of the risks to which it is exposed and take corrective action.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Risk management (continued)

18.1 Credit risk (continued)

Individually assessed allowances

The Bank determines the allowances appropriate for each individually significant loan or advance on an individual basis, taking into account any overdue payments of interests, credit rating downgrades, or infringement of the original terms of the contract. Items considered when determining allowance amounts include the sustainability of the counterparty’s business plan, its ability to improve performance if it is in a financial difficulty, projected receipts and the expected payout should bankruptcy ensue, the availability of other financial support, the realizable value of collateral and the timing of the expected cash flows. Allowances for losses are evaluated at each reporting date, unless unforeseen circumstances require more careful attention.

Collectively assessed allowances

Allowances are assessed collectively for losses on loans and advances and for debt investments at amortized costs that are not individually significant and for individually significant loans and advances that have been assessed individually and found not to be impaired. The Bank generally bases its analyses on historical experience and prospective information. However, when there are significant market developments, regional and/or global, the Bank would include macroeconomic factors within its assessments. These factors include, depending on the characteristics of the individual or collective assessment: unemployment rates, current levels of bad debt, changes in the law, changes in regulation, bankruptcy trends, and other consumer data. The Bank may use the aforementioned factors as appropriate to adjust the impairment allowances.

Allowances are evaluated separately at each reporting date with each portfolio. The collective assessment is made for groups of assets with similar risk characteristics, in order to determine whether provision should be made due to incurred loss events for which there is objective evidence, but the effects of which are not yet evident in the individual loans assessments. The collective assessment takes account of data from the loan portfolio (such as historical losses on the portfolio, levels of arrears, credit utilization, loan to collateral ratios and expected receipts and recoveries once impaired) or economic data (such as current economic conditions, unemployment levels and local or industry–specific problems). The approximate time when a loss is likely to have been incurred and the time it will be identified as requiring an individually assessed impairment allowance is also taken into consideration. The impairment allowance is then reviewed by credit management to ensure alignment with the Bank’s overall policy.

Financial guarantees and letters of credit are assessed in a similar manner as for loans.

Derivative financial instruments

Credit risk arising from derivative financial instruments is, at any time, limited to those with positive fair values, as recorded on the statement of financial position at fair value.

With gross–settled derivatives, the Bank is also exposed to a settlement risk, being the risk that the Bank honors its obligation, but the counterparty fails to deliver the counter value.

Credit–related commitments risks

The Bank makes available to its customers guarantees that may require that the Bank makes payments on their behalf and enters into commitments to extend credit lines to secure their liquidity needs. Letters of credit and guarantees (including standby letters of credit) commit the Bank to make payments on behalf of customers in the event of a specific act, generally related to the import or export of goods. Such commitments expose the Bank to similar risks to loans and are mitigated by the same control processes and policies.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Risk management (continued)

18.1 Credit risk (continued)

Collateral and other credit enhancements

The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are in place covering the acceptability and valuation of each type of collateral.

The main types of collateral obtained are, as follows:

For commercial lending, charges over real estate properties, inventory and trade receivables.

The Bank also obtains guarantees from parent companies for loans to their subsidiaries. Management monitors the market value of collateral and will request additional collateral in accordance with the underlying agreement. It is the Bank’s policy to dispose of repossessed properties in an orderly fashion. The proceeds are used to reduce or repay the outstanding claim. In general, the Bank does not occupy repossessed properties for business use.

The Bank also makes use of master netting agreements with counterparties with whom a significant volume of transactions are undertaken. Such arrangements provide for single net settlement of all financial instruments covered by the agreements in the event of default on any one contract. Master netting arrangements do not normally result in an offset of balance–sheet assets and liabilities unless certain conditions for offsetting.

Although master netting arrangements may significantly reduce credit risk, it should be noted that:

Credit risk is eliminated only to the extent that amounts due to the same counterparty will be settled after the assets are realized.
The extent to which overall credit risk is reduced may change substantially within a short period because the exposure is affected by each transaction subject to the arrangement.

18.2 Liquidity risk

Liquidity refers to the Bank’s ability to maintain adequate cash flows to fund operations and meet obligations and other commitments on a timely basis.

As established by the Bank’s liquidity policy, the Bank’s liquid assets are held in overnight deposits with the Federal Reserve Bank of New York or in the form of interbank deposits with reputable international banks that have A1, P1, or F1 ratings from two of the major internationally – recognized rating agencies and are primarily located outside of the Region. In addition, the Bank’s liquidity policy allows for investing in negotiable money market instruments, including Euro certificates of deposit, commercial paper, and other liquid instruments with maturities of up to three years. These instruments must be of investment grade quality A or better, must have a liquid secondary market and be considered as such according to Basel III rules.

The Bank performs daily reviews, controls and periodic stress tests on its liquidity position, including the application of a series of limits to restrict its overall liquidity risk and to monitor the liquidity level according to the macroeconomic environment. The Bank determines the level of liquid assets to be held on a daily basis, adopting a Liquidity Coverage Ratio methodology referencing the Basel Committee guidelines. Additionally, the Liquidity Coverage Ratio is complemented with the use of the Net Stable Funding Ratio to maintain an adequate long-term funding structure. Specific limits have been established to control (1) cumulative maturity “gaps” between assets and liabilities, for each maturity classification presented in the Bank’s internal liquidity reports, and (2) concentrations of deposits taken from any client or economic group maturing in one day and total maximum deposits maturing in one day.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Risk management (continued)

18.2 Liquidity risk (continued)

The Bank follows a Contingent Liquidity Plan. The plan contemplates the regular monitoring of several quantified internal and external reference benchmarks (such as deposit level, Emerging Markets Bonds Index Plus, LIBOR-OIS spread and market interest rates), which in cases of high volatility would trigger implementation of a series of precautionary measures to reinforce the Bank’s liquidity position. In the Bank’s opinion, its liquidity position is adequate for the Bank’s present requirements.

While the Bank’s liabilities generally mature over somewhat shorter periods than its assets, the associated liquidity risk is diminished by the short-term nature of the loan portfolio, as the Bank is engaged primarily in the financing of foreign trade.

The following table details the Banks’s assets and liabilities grouped by its remaining maturity with respect to the contractual maturity:

Description	September 30, 2017 — Up to 3 months	3 to 6 months		6 months to 1 year		1 to 5 years		More than 5 years		Without maturity		Total
Assets
Cash and cash equivalent	799,435		–		–		–		–		–		799,435
Investment securities	–		700		5,624		78,214		2,955		–		87,493
Loans at amortized cost	2,024,904		983,080		774,690		1,336,194		224,323				5,343,191
Unearned interest and deferred fees	(854	)	(675	)	(137	)	(3,897	)	(275	)	–		(5,838	)
Allowance for expected credit losses	–		–		–		–		–		(111,728	)	(111,728	)
Other assets	33,593		8,201		5,578		16,812		2,142		21,241		87,567
Total	2,857,078		991,306		785,755		1,427,323		229,145		(90,487	)	6,200,120
Liabilities
Deposits in banks	2,260,608		311,011		313,190		118,200		–		–		3,003,009
Other liabilities	301,010		554,236		261,255		973,166		68,734		6,971		2,165,372
Total	2,561,618		865,247		574,445		1,091,366		68,734		6,971		5,168,381
Net position	295,461		126,059		211,310		335,957		160,410		(97,457	)	1,031,739

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Risk management (continued)

18.2 Liquidity risk (continued)

Description	December 31, 2016 — Up to 3 months	3 to 6 months		6 months to 1 year		1 to 5 years		More than 5 years		Without maturity		Total
Assets
Cash and cash equivalent	1,069,538		–		–		–		–		–		1,069,538
Investment securities	1,024		3,000		–		83,643		20,756		(602	)	107,821
Loans at amortized cost	2,262,349		1,267,194		551,794		1,843,476		95,918		–		6,020,731
Unearned interest and deferred fees	(663	)	(906	)	(258	)	(4,762	)	(660	)	–		(7,249	)
Allowance for expected credit losses	–		–		–		–		–		(105,988	)	(105,988	)
Other assets	55,445		6,587		3,721		6,399		642		23,136		95,930
Total	3,387,693		1,275,875		555,257		1,928,756		116,656		(83,454	)	7,180,783
Liabilities
Deposits in banks	2,306,413		173,288		275,631		47,520		–		–		2,802,852
Other liabilities	884,453		744,135		346,294		1,330,515		61,220		–		3,366,617
Total	3,190,866		917,423		621,925		1,378,035		61,220		–		6,169,469
Net position	196,827		358,452		(66,668	)	550,721		55,436		(83,454	)	1,011,314

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Risk management (continued)

18.3 Market risk

Market risk generally represents the risk that values of assets and liabilities or revenues will be adversely affected by changes in market conditions. Market risk is inherent in the financial instruments associated with many of the Bank’s operations and activities, including loans, deposits, investment and financial instruments at FVTPL, short- and long-term borrowings and debt, derivatives and trading positions. This risk may result from fluctuations in different parameters: interest rates, currency exchange rates, inflation rates and changes in the implied volatility. Accordingly, depending on the instruments or activities impacted, market risks can have wide ranging, complex adverse effects on the Bank’s financial condition, results of operations, cash flows and business

Interest rate risk

The Bank endeavors to manage its assets and liabilities in order to reduce the potential adverse effects on the net interest income that could be produced by interest rate changes. The Bank’s interest rate risk is the exposure of earnings (current and potential) and capital to adverse changes in interest rates and is managed by attempting to match the term and repricing characteristics of the Bank’s interest rate sensitive assets and liabilities. The Bank’s policy with respect to interest rate risk provides that the Bank establishes limits with regards to: (1) changes in net interest income due to a potential impact, given certain movements in interest rates and (2) changes in the amount of available equity funds of the Bank, given a one basis point movement in interest rates.

The following summary table presents a sensitivity analysis of the effect on the Bank’s results of operations derived from a reasonable variation in interest rates which its financial obligations are subject to, based on change in points.

September 30, 2017	Change in interest rate — +200 bps	20,732,105
	-200 bps	(5,018,319	)
September 30, 2016	+200 bps	8,672,488
	-200 bps	(8,206,113	)
September 30, 2015	+200 bps	37,304,725
	-200 bps	4,265,871

This analysis is based on the prior year changes in interest rates and assesses the impact on income, with balances as of September 30, 2017 and December 31, 2016. This sensitivity provides an idea of the changes in interest rates, taking as example the volatility of the interest rate of the previous year.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Risk management (continued)

18.3 Market risk (continued)

Interest rate risk (continued)

The table below summarizes the Bank's exposure based on the terms of repricing of interest rates on financial assets and liabilities.

Description	September 30, 2017 — Up to 3 months	3 to 6 months	6 months to 1 year	1 to 5 years	More than 5 years	Total
Assets
Securities and other financial assets	–	700	5,624		78,214	2,955	87,493
Loans at amortized cost	2,024,904	983,080	774,690		1,336,194	224,323	5,343,191
Total	2,024,904	983,780	780,314		1,414,408	227,278	5,430,684
Liabilities
Deposits	1,444,206	292,556	942,914		118,200	–	2,797,876
Short and long term borrowings and debt, net	282,777	534,884	267,079		951,049	59,136	2,094,925
Total	1,726,983	827,440	1,209,993		1,069,249	59,136	4,892,801
Total interest rate sensibility	297,921	156,340	(429,679	)	345,159	168,142	537,883

Description	December 31, 2016 — Up to 3 months	3 to 6 months	6 months to 1 year	1 to 5 years		More than 5 years		Total
Assets
Time deposit	125,000	–	–		–		–		125,000
Securities and other financial assets	9,025	3,000	–		72,094		18,200		102,319
Loans at amortized cost	4,350,913	1,445,290	141,060		83,919		–		6,021,182
Total	4,484,938	1,448,290	141,060		156,013		18,200		6,248,501
Liabilities
Deposits	2,179,399	173,288	275,631		47,520		–		2,675,838
Short and long term borrowings and debt, net	2,168,964	402,643	133,190		495,883		46,133		3,246,813
Total	4,348,363	575,931	408,821		543,403		46,133		5,922,651
Total interest rate sensibility	136,575	872,359	(267,761	)	(387,390	)	(27,933	)	325,850

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Risk management (continued)

18.3 Market risk (continued)

Currency risk

Currency risk is the risk that the value of a financial instrument will fluctuate because of changes in exchange rates of foreign currencies, and other financial variables, as well as the reaction of market participants to political and economic events. For purposes of accounting standards this risk does not come from financial instruments that are not monetary items, or for financial instruments denominated in the functional currency. Exposure to currency risk is low since the Bank’s has maximum exposure limits established by the Board.

Most of the Bank’s assets and most of its liabilities are denominated in US American Dollars and hence the Bank does not incur a significant currency exchange risk. The currency exchange rate risk is mitigated by the use of derivatives, which, although perfectly covered economically, may generate a certain accounting volatility.

The following table details the maximum to foreign currency, where all assets and liabilities are presented based on their book value, except for derivatives, which are included within other assets and other liabilities based on its value nominal.

Brazilian Real expressed in US$	European Euro expressed in US$	Japanese Yen expressed in US$	Colombian Peso expressed in US$	Mexican Peso expressed in US$	Other currencies expressed in US$ (1)	Total
Exchange rate	3.1670	1.1820	112.535	2937.650	18.2109
Assets
Cash and cash equivalent	1,729	9	1	53	330	79	2,201
Loans at amortized cost	–	–	–	–	137,364	–	137,364
Other assets	9,569	59,160	97,747	–	94,133	121,276	381,885
Total	11,298	59,169	97,748	53	231,827	121,355	521,450
Liabilities
Borrowings and deposit placements	–	59,100	97,747	–	137,345	121,276	415,468
Other liabilities	10,933	–	–	–	94,397	–	105,330
Total	10,933	59,100	97,747	–	231,742	121,276	520,798
Net currency position	365	69	1	53	85	79	652

(1) It includes other currencies such as: Argentine pesos, Australian- dollar, Swiss franc, Pound sterling, Peruvian soles and Remimbis .

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Risk management (continued)

18.3 Market risk (continued)

Currency risk (continued)

Brazilian Real expressed in US$	European Euro expressed in US$	Japanese Yen expressed in US$	Colombian Peso expressed in US$	Mexican Peso expressed in US$		Other currencies expressed in US$ (1)	Total
Exchange rate	3.25	1.06	116.68	3,002.00	20.6139		–
Assets
Cash and cash equivalent	4,014	6	6	55	2,339		74	6,494
Investments and other financial assets	–	–	–	–	–		–	–
Loans at amortized cost	–	–	–	–	295,580		–	295,580
Other assets	–	52,800	94,279	–	79,104		–	226,183
Total	4,014	52,806	94,285	55	377,023		74	528,257
Liabilities
Borrowings and deposit placements	–	–	94,279	–	280,557		–	374,836
Other liabilities	3,933	52,800	–	–	96,951		–	153,684
Total	3,933	52,800	94,279	–	377,508		–	528,520
Net currency position	81	6	6	55	(485	)	74	(263	)

(1) It includes other currencies such as: Argentine pesos, Australian- dollar, Canadian dollar, Swiss franc, Peruvian soles and Remimbis .

18.4 Operational Risk

Operational risk is the risk of loss arising from systems failure, human error, fraud or external events. When controls fail to operate effectively, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to financial loss. Bladex, like all financial institutions, is exposed to operational risks, including the risk of fraud by employees and outsiders, failure to obtain proper internal authorizations, failure to properly document transactions, equipment failures, and errors by employees, and any failure, interruption or breach in the security or operation of the Bank’s information technology systems could result in interruptions in such activities. Operational problems or errors may occur, and their occurrence may have a material adverse impact on the Bank’s business, financial condition, results of operations and cash flows. The Bank cannot expect to eliminate all operational risks, but it endeavors to manage these risks through a control framework and by monitoring and responding to potential risks. Controls include effective segregation of duties, access, authorization and reconciliation procedures, staff education and assessment processes, such as the use of internal audit.

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Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Notes to the unaudited condensed consolidated interim financial statements

(Amounts expressed in thousands of U.S. dollars, unless otherwise indicated)

Risk management (continued)

18.4 Operational Risk (continued)

Capital management

The primary objectives of the Bank’s capital management policy are to ensure that the Bank complies with externally imposed capital requirements and maintains strong credit ratings and healthy capital ratios in order to support its business and to maximize shareholder value.

The Bank manages its capital structure and makes adjustments to it according to changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Bank may adjust the amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No changes have been made to the objectives, policies and processes from the previous years. However, they are under constant review by the Board.

Tier 1 capital	1,049,159	1,054,719
Risk weighted assets	5,420,443	6,350,544
Tier 1 capital ratio	19.36 %	16.61 %

Subsequent Events

Bladex announced a quarterly cash dividend of $15,155 which represents $0.385 US dollar cent per share corresponding to the 3rd quarter of 2017. The cash dividend was approved by the Board of Directors at its meeting held on October 17, 2017 and it is payable on November 21, 2017 to the Bank’s stockholders as of November 1, 2017 record date.

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