Edgar Filing: FOREIGN TRADE BANK OF LATIN AMERICA, INC.

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 August, 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

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: August 1, 2017

FOREIGN TRADE BANK OF LATIN AMERICA, INC.
(Registrant)

	By: /s/ Pierre Dulin

	Name:	Pierre Dulin
	Title:	General Manager

Banco Latinoamericano

de Comercio Exterior, S.A.

and Subsidiaries

Unaudited condensed consolidated interim statement of financial position as of June 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 six months ended June 30, 2017, 2016 and 2015.

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

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

Unaudited condensed consolidated interim statement of financial position

June 30, 2017 and December 31, 2016

(In US$ thousand)

		June 30,			December 31,
		2017			2016
	Notes	(Unaudited)			(Audited)
Assets
Cash and cash equivalents	3,14		819,390			1,069,538
Financial Instruments:	4,14
At fair value through profit or loss	4.1,4.7,14		13			-
At fair value through OCI	4.2,14		16,435			30,607
Securities at amortized cost, net	4.3,14		62,791			77,214
Loans at amortized cost	4.5		5,570,315			6,020,731
Less:
Allowance for expected credit losses	4.5		115,607			105,988
Unearned interest and deferred fees	4.5		6,723			7,249
Loans at amortized cost, net			5,447,985			5,907,494

At fair value - Derivative financial instruments used for hedging – receivable	4.6,4.7,14		6,497			9,352

Property and equipment, net			8,001			8,549
Intangibles, net			2,577			2,909

Other assets:
Customers' liabilities under acceptances	14		5,194			19,387
Accrued interest receivable	14		33,466			44,187
Other assets	6		19,813			11,546
Total of other assets			58,473			75,120
Total assets			6,422,162			7,180,783

Liabilities and stockholders' equity
Deposits:	7,14
Noninterest-bearing - Demand			455			1,617
Interest-bearing - Demand			126,522			125,397
Time			3,226,578			2,675,838
Total deposits			3,353,555			2,802,852

At fair value – Derivative financial instruments used for hedging – payable	4.6,4.7,14		33,946			59,686

Financial liabilities at fair value through profit or loss	4.1,4.7,14		27			24
Short-term borrowings and debt	9.1,14		487,056			1,470,075
Long-term borrowings and debt, net	9.2,14		1,485,707			1,776,738

Other liabilities:
Acceptances outstanding	14		5,194			19,387
Accrued interest payable	14		12,953			16,603
Allowance for expected credit losses on loan commitments and financial guarantees contracts	5		4,615			5,776
Other liabilities	10		14,969			18,328
Total other liabilities			37,731			60,094
Total liabilities			5,398,022			6,169,469

Stockholders' equity:	11,12,14
Common stock			279,980			279,980
Treasury stock	12		(64,732	)		(69,176	)
Additional paid-in capital in excess of assigned value of common stock			118,898			120,594
Capital reserves			95,210			95,210
Retained earnings			598,217			587,507
Accumulated other comprehensive loss	4.2,4.6,15		(3,433	)		(2,801	)
Total stockholders' equity			1,024,140			1,011,314
Total liabilities and stockholders' equity			6,422,162			7,180,783

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

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

Unaudited condensed consolidated interim statements of profit or loss

For the six months ended June 30, 2017, 2016 and 2015

(In US$ thousand, except per share amounts)

		For the three months ended June 30,									For the six months ended June 30,
	Notes	2017			2016			2015			2017			2016			2015

Interest income:
Deposits			2,822			894			489			4,823			2,064			920
At fair value through OCI			126			548			1,728			296			1,499			3,589
At amortized cost			53,151			59,032			50,607			110,111			118,068			101,969
Total interest income			56,099			60,473			52,824			115,230			121,631			106,478
Interest expense:
Deposits			11,593			5,089			2,738			17,800			9,641			5,191
Short-term borrowings and debt			2,487			3,735			5,837			6,055			8,590			12,480
Long-term borrowings and debt			12,674			13,463			9,442			27,598			25,696			18,175
Total interest expense			26,754			22,287			18,017			51,453			43,927			35,846

Net interest income			29,345			38,186			34,807			63,777			77,704			70,632

Other income:
Fees and commissions, net			5,013			4,434			3,109			8,282			6,807			5,409
Derivate financial instruments and foreign currency exchange			473			500			(339	)		604			(339	)		505
(Loss) gain per financial instrument at fair value through profit or loss			(649	)		416			(2,205	)		(709	)		(3,767	)		300
Gain (loss) per financial instrument at fair value through OCI			(35	)		(30	)		133			79			(315	)		429
Gain on sale of loans at amortized cost			12			303			305			98			403			512
Other income			255			556			284			609			907			532
Net other income			5,069			6,179			1,287			8,963			3,696			7,687

Total income			34,414			44,365			36,094			72,740			81,400			78,319

Expenses:
Impairment loss (recovery) from expected credit losses on loans at amortized cost	4.5		5,666			9,966			11,649			9,619			12,109			6,619
(Recovery) impairment loss from expected credit losses on investment securities	4.2,4.3		(11	)		479			1,659			(465	)		486			829
Impairment loss (recovery) from expected credit losses on loans commitments and financial guarantees contracts	5		(1,324	)		1,579			(3,434	)		(1,161	)		666			1,671
Salaries and other employee expenses			7,768			4,898			7,368			14,464			12,778			15,723
Depreciation of equipment and leasehold improvements			356			334			345			787			663			725
Amortization of intangible assets			178			91			173			379			203			322
Other expenses			4,300			4,746			4,816			8,178			8,785			9,044
Total expenses			16,933			22,093			22,576			31,801			35,690			34,933
Profit for the period			17,481			22,272			13,518			40,939			45,710			43,386

Earnings per share:
Basic	11		0.44			0.57			0.35			1.04			1.17			1.12
Diluted	11		0.44			0.57			0.35			1.04			1.17			1.11
Weighted average basic shares	11		39,317			39,078			38,954			39,252			39,037			38,880
Weighted average diluted shares	11		39,347			39,198			39,073			39,280			39,120			39,015

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

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

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

For the six months ended June 30, 2017, 2016 and 2015

(In US$ thousand)

	Notes	2017			2016			2015

Profit for the period			40,939			45,710			43,386
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		116			7,400			3,248
Net change in unrealized losses on derivative financial instruments	15		(748	)		(4,498	)		200
Other comprehensive income (loss)	15		(632	)		2,902			3,448

Total comprehensive income for the period			40,307			48,612			46,834

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

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

Unaudited condensed consolidated interim statements of changes in equity

For the six months ended June 30, 2017, 2016 and 2015

(In US$ thousand)

	Common stock		Treasury stock			Additional paid-in capital in excess of assigned value of common stock			Capital reserves		Retained earnings			Accumulated other comprehensive income (loss)			Total

Balances at January 1, 2015		279,980		(77,627	)		119,644			95,210		501,669			(7,837	)		911,039
Profit for the period		-		-			-			-		43,386			-			43,386
Other comprehensive income		-		-			-			-		-			3,448			3,448
Issuance of restricted stock		-		(1,514	)		(17	)		-		-			-			(1,531	)
Compensation cost - stock options and stock units plans		-		1,653			2,377			-		-			-			4,030
Exercised options and stock units vested		-		1,673			(2,746	)		-		-			-			(1,073	)
Repurchase of "Class B" and "Class E" common stock		-		-			-			-		-			-			-
Dividends declared		-		-			-			-		(15,000	)		-			(15,000	)
Balances at June 30, 2015		279,980		(75,815	)		119,258			95,210		530,055			(4,389	)		944,300

Balances at January 1, 2016		279,980		(73,397	)		120,177			95,210		560,642			(10,681	)		971,931
Profit for the period		-		-			-			-		45,710			-			45,710
Other comprehensive income		-		-			-			-		-			2,902			2,902
Issuance of restricted stock		-		1,259			(1,259	)		-		-			-			-
Compensation cost - stock options and stock units plans		-		-			1,689			-		-			-			1,689
Exercised options and stock units vested		-		1,538			(1,449	)		-		-			-			89
Repurchase of "Class B" and "Class E" common stock		-		-			-			-		-			-			-
Dividends declared		-		-			-			-		(30,052	)		-			(30,052	)
Balances at June 30, 2016		279,980		(70,600	)		119,158			95,210		576,299			(7,779	)		992,268

Balances at January 1, 2017		279,980		(69,176	)		120,594			95,210		587,507			(2,801	)		1,011,314
Profit for the period		-		-			-			-		40,939			-			40,939
Other comprehensive income		-		-			-			-		-			(632	)		(632	)
Issuance of restricted stock		-		1,259			(1,259	)		-		-			-			-
Compensation cost - stock options and stock units plans		-		-			644			-		-			-			644
Exercised options and stock units vested		-		3,213			(1,081	)		-		-			-			2,132
Repurchase of "Class B" and "Class E" common stock		-		(28	)		-			-		-			-			(28	)
Dividends declared		-		-			-			-		(30,229	)		-			(30,229	)
Balances at June 30, 2017		279,980		(64,732	)		118,898			95,210		598,217			(3,433	)		1,024,140

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

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

Unaudited condensed consolidated interim statements of cash flows

For the six months ended June 30, 2017, 2016 and 2015

(In US$ thousand)

	2017			2016			2015

Cash flows from operating activities
Profit for the period		40,939			45,710			43,386
Adjustments to reconcile profit for the period to net cash provided by (used in) operating activities:
Activities of derivative financial instruments used for hedging		(23,616	)		(5,790	)		(14,666	)
Depreciation of equipment and leasehold improvements		787			663			725
Amortization of intangible assets		379			203			322
Impairment loss from expected credit losses		7,993			13,261			9,119
Net loss (gain) on sale of financial assets at fair value through OCI		(79	)		(30	)		(429	)
Compensation cost - share-based payment		644			1,007			1,491
Interest income		(115,230	)		(121,631	)		(106,478	)
Interest expense		51,453			43,927			35,846
Net decrease (increase) in operating assets:
Net (increase) decrease in pledged deposits		13,615			(4,850	)		6,649
Financial instruments at fair value through profit or loss		(13	)		53,167			3,658
Net decrease (increase) in loans at amortized cost		449,890			170,666			(224,996	)
Other assets		5,925			5,013			96,840
Net increase (decrease) in operating liabilities:
Net increase due to depositors		550,703			410,831			730,251
Financial liabilities at fair value through profit or loss		3			(89	)		7
Other liabilities		(17,486	)		(18,809	)		(61,042	)
Cash provided by operating activities:
Interest received		125,951			120,777			116,283
Interest paid		(55,103	)		(46,217	)		(35,689	)
Net cash provided by operating activities		1,036,755			667,809			601,277

Cash flows from investing activities:
Acquisition of equipment and leasehold improvements		(346	)		(89	)		(277	)
Acquisition of intangible assets		(4	)		(7	)		-
Proceeds from disposal of equipment and leasehold improvements		64			-			-
Proceeds from the redemption of of financial instruments at fair value through OCI		-			70,341			94,557
Proceeds from the sale of financial instruments at fair value through OCI		14,488			78,450			47,035
Proceeds from maturities of financial instruments at amortized cost		14,879			29,075			13,335
Purchases of financial instruments at fair value through OCI		-			(83,627	)		(88,224	)
Purchases of financial instruments at amortized cost		-			(24,071	)		(21,929	)
Net cash provided by investing activities		29,081			70,072			44,497

Cash flows from financing activities:
Net (decrease) increase in short-term borrowings and debt and securities sold under repurchase agreements		(983,019	)		(1,234,527	)		(583,565	)
Proceeds from long-term borrowings and debt		219,587			464,969			405,513
Repayments of long-term borrowings and debt		(510,618	)		(299,607	)		(220,994	)
Dividends paid		(30,294	)		(29,722	)		(29,863	)
Exercised stock options		2,003			-			1,382
Net cash (used in) financing activities		(1,302,369	)		(1,098,887	)		(427,527	)

Net (decrease) increase in cash and cash equivalents		(236,533	)		(361,006	)		218,247
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		771,193			906,296			959,552

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

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.

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 July 18, 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.

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

	June 30, 2017		December 31, 2016

Cash and due from banks		20,684		89,656
Interest-bearing deposits in banks		798,706		979,882
Total		819,390		1,069,538

Less:
Pledged deposits		48,197		61,812
Total cash and cash equivalents		771,193		1,007,726

Interest-bearing deposits in banks

Demand deposits

As of June 30, 2017 and December 31, 2016, cash in banks balances correspond to bank deposits, bearing interest based on the daily rates determined by banks for between 0.25% to 1.30% and 0.01% to 0.77%, respectively.

Time deposits

As of June 30, 2017 and December 31, 2016, cash equivalents balances correspond to demand deposits (overnight), bearing an average interest rate of 1.30% and 0.83% to 0.88%, respectively.

Pledged deposits

	June 30, 2017		December 31, 2016
Pledged deposits:
New York⁽¹⁾		3,000		2,800
Panama⁽²⁾		45,197		59,012
Total		48,197		61,812

⁽¹⁾

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

⁽²⁾

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:

	June 30, 2017		December 31, 2016
Assets
Foreign exchange forward		13		-
Total		13		-

Liabilities
Foreign exchange forward		27		24
Total		27		24

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)

4.1

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:

	June 30, 2017						December 31, 2016
	Nominal		Fair Value				Nominal		Fair Value
	Amount		Asset		Liability		Amount		Asset		Liability
Foreign exchange forward		3,095		13		27		1,274		-		24
Total		3,095		13		27		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:

	June 30, 2017
			Unrealized
	Amortized Cost		Gain		Loss		Fair Value
Sovereign debt:
Brazil		2,931		-		40		2,891
Chile		5,206		-		18		5,188
Trinidad and Tobago		9,063		-		707		8,356
		17,200		-		765		16,435

	December 31, 2016
			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

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 June 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:

	June 30, 2017
	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		7,115		25		9,320		740		16,435		765
Total		7,115		25		9,320		740		16,435		765

	December 31, 2016
	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:

	Three months ended June 30,
	2017			2016			2015
Realized gain on sale of securities		130			7,432			140
Realized loss on sale of securities		(165	)		(7,462	)		(7	)
Net (loss) gain on sale of securities at fair value through other comprehensive income		(35	)		(30	)		133

	Six months ended June 30,
	2017			2016			2015
Realized gain on sale of securities		667			7,471			436
Realized loss on sale of securities		(588	)		(7,786	)		(7	)
Net gain (loss) on sale of securities at fair value through other comprehensive income		79			(315	)		429

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⁾	June 30, 2017		December 31, 2016
1-4		16,435		30,607
5-6		-		-
7		-		-
8		-		-
9		-		-
10		-		-
Total		16,435		30,607

⁽¹⁾ Current ratings as of June 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:

	June 30, 2017				December 31, 2016
	Amortized Cost		Fair Value		Amortized Cost		Fair Value

Due within 1 year		-		-		-		-
After 1 year but within 5 years		14,269		13,544		17,656		16,994
After 5 years but within 10 years		2,931		2,891		13,736		13,613
		17,200		16,435		31,392		30,607

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:

	Stage 1 ⁽¹⁾			Stage 2 ⁽²⁾		Stage 3 ⁽³⁾		Total
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		(1	)		3		-		2
Financial assets that have been derecognized during the period		(11	)		-		-		(11	)
Changes due to financial instruments recognized as of December 31, 2016:		(12	)		3		-		(9	)
New financial assets originated or purchased		-			-		-		-
Write-offs		-			-		-		-
Allowance for expected credit losses as of June 30, 2017		30			266		-		296

	Stage 1 ⁽¹⁾			Stage 2 ⁽²⁾			Stage 3 ⁽³⁾			Total
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).

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:

	June 30, 2017
			Unrealized
	Amortized Cost⁽¹⁾		Gross Gain		Gross Loss		Fair Value
Corporate debt:
Brazil		4,597		34		61		4,570
		4,597		34		61		4,570

Sovereign debt:
Colombia		29,408		213		-		29,621
Mexico		20,370		-		314		20,056
Panama		8,564		304		-		8,868
		58,342		517		314		58,545
		62,939		551		375		63,115

	December 31, 2016
			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$148.

⁽²⁾

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

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:

	June 30, 2017				December 31, 2016
	Amortized Cost		Fair Value		Amortized Cost		Fair Value

Due within 1 year		-		-		3,988		4,025
After 1 year but within 5 years		62,939		63,115		68,537		67,358
After 5 years but within 10 years		-		-		5,291		5,023
		62,939		63,115		77,816		76,406

As of June 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⁾	June 30, 2017		December 31, 2016
1-4		61,455		76,333
5-6		1,484		1,483
7		-		-
8		-		-
9		-		-
10		-		-
Total		62,939		77,816

⁽¹⁾

Current ratings as of June 30, 2017 and December 31, 2016, respectively.

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:

	Stage 1 ⁽¹⁾			Stage 2 ⁽²⁾			Stage 3 ⁽³⁾		Total
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		1			(22	)		-		(21	)
Financial assets that have been derecognized during the period		(11	)		(422	)		-		(433	)
Changes due to financial instruments recognized as of December 31, 2016:		(10	)		(444	)		-		(454	)
New financial assets originated or purchased		-			-			-		-
Allowance for expected credit losses as of June 30, 2017		89			59			-		148

	Stage 1 ⁽¹⁾			Stage 2 ⁽²⁾			Stage 3 ⁽³⁾		Total
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).

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 June 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.

	Assignments and Participations		Gains

For the period ended June 30, 2017		70,400		98
For the period ended June 30, 2016		53,900		326
For the period ended June 30, 2015		41,020		227

4.5

Loans – at amortized cost

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

	June 30, 2017		December 31, 2016
Corporations:
Private		2,369,870		2,655,910
State-owned		868,755		786,900
Banking and financial institutions:
Private		1,629,497		1,738,999
State-owned		456,093		544,877
Middle-market companies:
Private		246,100		294,045
Total		5,570,315		6,020,731

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

	June 30, 2017		December 31, 2016
Banking and financial institutions		2,085,590		2,283,876
Industrial		1,111,020		1,242,441
Oil and petroleum derived products		975,877		788,186
Agricultural		698,428		1,007,139
Services		341,187		419,440
Mining		195,000		54,000
Others		163,213		225,649
Total		5,570,315		6,020,731

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 $6,723 and $7,249 at June 30, 2017 and December 31, 2016, respectively.

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

June 30, 2017
	Corporations				Banking and financial institutions				Middle-market companies
Rating⁽¹⁾	Private		State-owned		Private		State-owned		Private		Total
1-4		1,622,796		714,589		1,331,663		260,589		140,934		4,070,571
5-6		667,245		154,166		297,834		195,504		70,166		1,384,915
7		55,465		-		-		-		-		55,465
8		6,000		-		-		-		-		6,000
9		-		-		-		-		-		-
10		18,364		-		-		-		35,000		53,364
Total		2,369,870		868,755		1,629,497		456,093		246,100		5,570,315

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 June 30, 2017 and December 31, 2016, respectively.

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:

	June 30, 2017		December 31, 2016
Country:
Argentina		195,785		325,321
Belgium		13,055		4,180
Bolivia		-		18,318
Brazil		1,039,084		1,163,825
Chile		220,798		69,372
Colombia		585,193		653,012
Costa Rica		350,706		400,371
Dominican Republic		79,311		243,696
Ecuador		178,845		129,269
El Salvador		86,578		104,723
Germany		45,000		50,000
Guatemala		273,195		315,911
Honduras		50,497		72,319
Jamaica		60,177		7,399
Luxembourg		18,078		14,722
Mexico		1,034,610		927,041
Nicaragua		41,515		36,949
Panama		425,626		498,651
Paraguay		56,628		108,068
Peru		484,064		467,408
Singapore		33,293		70,204
Switzerland		-		46,000
Trinidad and Tobago		190,500		184,389
United States of America		73,277		73,083
Uruguay		36,500		36,500
Total		5,570,315		6,020,731

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:

	June 30, 2017		December 31, 2016
Current:
Up to 1 month		748,711		896,310
From 1 month to 3 months		1,351,784		1,300,675
From 3 months to 6 months		1,045,355		1,267,194
From 6 months to 1 year		648,984		551,794
From 1 year to 2 years		570,492		631,629
From 2 years to 5 years		1,068,104		1,211,847
More than 5 years		74,236		95,918
		5,507,666		5,955,367

Impaired:
Delinquent with impairment		6,000		-
Past due with impairment		56,649		65,364
Total		5,570,315		6,020,731

As of June 30, 2017 and December 31, 2016, the range of interest rates on loans fluctuates from 1.29% and 13.86% (2016: 1.21% y 12.69%).

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

	June 30, 2017		December 31, 2016

Fixed interest rates		2,554,714		2,709,555
Floating interest rates		3,015,601		3,311,176
Total		5,570,315		6,020,731

As of June 30, 2017 and December 31, 2016, 93%, for both periods, 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:

	June 30, 2017						2017
	Recorded investment		Past due principal balance		Related allowance Stage 3		Average principal loan balance		Interest income recognized
With an allowance recorded:
Private corporations		27,649		24,364		25,654		15,223		90
Middle-market companies		35,000		35,000		19,942		35,000		763
Total		62,649		59,364		45,596		50,223		853

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)

	December 31, 2016						2016
	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:

	Three months ended June 30,
	2017		2016		2015
Interest revenue calculated on the net carrying amount (net of credit allowance)		359		585		84

	Six months ended June 30,
	2017		2016		2015
Interest revenue calculated on the net carrying amount (net of credit allowance)		853		662		140

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

June 30, 2017
	91-120 days		121-150 days		151-180 days		Greater than 180 days		Total Past due		Delinquent		Current		Total
Corporations		-		-		3,285		18,364		21,649		6,000		3,210,976		3,238,625
Banking and financial institutions		-		-		-		-		-		-		2,085,590		2,085,590
Middle-market companies		-		-		-		35,000		35,000		-		211,100		246,100
Total		-		-		3,285		53,364		56,649		6,000		5,507,666		5,570,315

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

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 June 30, 2017 and December 31, 2016, the Bank had credit transactions in the normal course of business with 16%, for both periods, 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 June 30, 2017 and December 31, 2016, approximately 8% 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 June 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:

	Stage 1 ⁽¹⁾			Stage 2 ⁽²⁾			Stage 3 ⁽³⁾		Total
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		(19	)		19			-		-
Transfer to lifetime expected credit losses - credit-impaired		-			(1,110	)		1,110		-
Transfer to 12-month expected credit losses		-			-			-		-
Net effect of changes in reserve for expected credit losses		(912	)		9,740			9,133		17,961
Financial assets that have been derecognized during the period		(27,222	)		(4,347	)		-		(31,569	)
Changes due to financial instruments recognized as of December 31, 2016:		(28,153	)		4,302			10,243		(13,608	)
New financial assets originated or purchased		23,227			-			-		23,227
Write-offs		-			-			-		-
Recoveries of amounts previously written off		-			-			-		-
Allowance for expected credit losses as of June 30, 2017		24,110			45,901			45,596		115,607

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)

	Stage 1 ⁽¹⁾			Stage 2 ⁽²⁾			Stage 3 ⁽³⁾			Total
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).

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:

	June 30, 2017
	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		367,700		-		(1,636	)		329
Cross-currency interest rate swaps		318,067		1,902		(27,601	)		16,684
Cash flow hedges:
Interest rate swaps		342,500		246		(1,173	)		369
Cross-currency interest rate swaps		23,025		264		-			1,518
Foreign exchange forward		321,930		4,050		(3,524	)		3,750
Net investment hedges:
Foreign exchange forward		1,964		35		(12	)		154
Total		1,375,186		6,497		(33,946	)		22,804

	December 31, 2016
	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.

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:

	Three months ended at June 30, 2017
	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		(431	)	Gain (loss) on interest rate swap		-			51
Cross-currency interest rate swaps		86		Gain (loss) on foreign currency exchange		-			18
				Interest income loans at amortized cost		(2,158	)		-
Foreign exchange forward		8,708		Interest income – securities at FVOCI		-			-
				Interest income loans at amortized cost		(2,032	)		-
				Interest expense – borrowings and debt		-			-
				Interest expenses – deposits		8,594			-
				Gain (loss) on foreign currency exchange		-			-
Total		8,363				4,404			69

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)

	Six months ended at June 30, 2017
	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		(815	)	Gain (loss) on interest rate swap		-			284
Cross-currency interest rate swaps		(1,333	)	Gain (loss) on foreign currency exchange		-			43
				Interest income loans at amortized cost		(287	)		-
Foreign exchange forward		(1,130	)	Interest income – securities at FVOCI		-			-
				Interest income loans at amortized cost		(2,832	)		-
				Interest expense – borrowings and debt		-			-
				Interest expenses – deposits		(18,575	)		-
				Gain (loss) on foreign currency exchange		-			-
Total		(3,278	)			(21,694	)		327

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)

	Three months ended at June 30, 2016
	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		(840	)	Gain (loss) on interest rate swap		-			(383	)
Cross-currency interest rate swaps		(1,025	)	Gain (loss) on foreign exchange		-			89
				Interest income – loans at amortized cost		(1,003	)		-
Forward foreign exchange		(661	)	Interest income – securities at FVOCI		220			-
				Interest income – loans at amortized cost		-			-
				Interest expense – borrowings and debt		-			-
				Interest expenses – deposits		173			-
				Gain (loss) on foreign currency exchange		694			-
Total		(2,526	)			84			(294	)

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)

	Six months ended at June 30, 2016
	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		(2,458	)	Gain (loss) on interest rate swap		-			(961	)
Cross-currency interest rate swaps		1,762		Gain (loss) on foreign exchange		-			26
				Interest income – loans at amortized cost		-			-
Forward foreign exchange		(1,876	)	Interest income – securities at FVOCI		-			-
				Interest income – loans at amortized cost		(1,755	)		-
				Interest expense – borrowings and debt		-			-
				Interest expenses – deposits		350			-
				Gain (loss) on foreign currency exchange		4,634			-
Total		(2,572	)			3,229			(935	)

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)

	Three months ended at June 30, 2015
	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		875		Gain (loss) on interest rate swap		-			-
Cross-currency interest rate swaps		2,087		Gain (loss) on foreign exchange		-			-
				Interest income – loans at amortized cost		-			-
Forward foreign exchange		194		Interest income – securities at FVOCI		(338	)		-
				Interest income – loans at amortized cost		(417	)		-
				Interest expense – borrowings and debt		-			-
				Interest expenses – deposits		95			-
				Gain (loss) on foreign currency exchange		2,805			-
Total		3,156				2,145			-

Derivatives – net investment hedge
Forward foreign exchange		(416	)			-			-
Total		(416	)			-			-

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)

	Six months ended at June 30, 2015
	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		(264	)	Gain (loss) on interest rate swap		-			-
Cross-currency interest rate swaps		3,046		Gain (loss) on foreign exchange		-			-
				Interest income – loans at amortized cost		-			-
Forward foreign exchange		1,607		Interest income – securities at FVOCI		(535	)		-
				Interest income – loans at amortized cost		(663	)		-
				Interest expense – borrowings and debt		-			-
				Interest expenses – deposits		95			-
				Gain (loss) on foreign currency exchange		5,833			-
Total		4,389				4,730			-

Derivatives – net investment hedge
Forward foreign exchange		424				-			-
Total		424				-			-

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:

	June 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		(79	)		277			198
	Interest income at amortized cost		(12	)		158			146
	Interest expenses – borrowings and debt		976			(10,206	)		(9,230	)
	Derivative financial instruments and hedging		593			(379	)		214
Cross-currency interest rate swaps	Interest income loans at amortized cost		(394	)		716			322
	Interest expenses – borrowings and debt		743			(4,772	)		(4,029	)
	Derivative financial instruments and hedging		19,217			(20,685	)		(1,468	)
Total			21,044			(34,891	)		(13,847	)

	June 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		(362	)		836			474
	Interest income – loans at amortized cost		(137	)		1,508			1,371
	Interest expenses – borrowings and debt		2,889			(14,126	)		(11,237	)
	Derivative financial instruments and hedging		(1,404	)		1,798			394
Cross-currency interest rate swaps	Interest income – loans at amortized cost		(137	)		354			217
	Interest expenses – borrowings and debt		(36	)		(2,472	)		(2,508	)
	Derivative financial instruments and hedging		(3,713	)		3,213			(500	)
Total			(2,900	)		(8,889	)		(11,789	)

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)

	June 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		(599	)		753			154
	Interest income at amortized cost		(215	)		2,080			1,865
	Interest expenses – borrowings and debt		2,540			(8,097	)		(5,557	)
	Derivative financial instruments and hedging		(3,179	)		3,420			241
Cross-currency interest rate swaps	Interest income loans at amortized cost		(122	)		288			166
	Interest expenses – borrowings and debt		813			(2,359	)		(1,546	)
	Derivative financial instruments and hedging		(13,353	)		15,023			1,670
Total			(14,115	)		11,108			(3,007	)

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:

	June 30, 2017
Fair value hedges	Carrying amount			Thereof accumulated fair value adjustments			Line item in the statement of financial position
Interest rate risk
Loans		200			0.20		Loans at amortized cost
Issuances		353,339			(1,661	)	Short and long term borrowings and debt

Foreign exchange rate risk and FX
Securities at FVOCI		12,336			(186	)	Financial instruments at FVOCI
Loans		(1,042	)		(191	)	Loans at amortized cost
Issuances		(25,760	)		(57	)	Short and long term borrowings and debt

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)

	December 31, 2016
Fair value hedges	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:

	June 30, 2017
Risk type	Foreign Exchange risk		Interest rate risk		Foreign exchange and Interest rate risk		Total
Up to 1 month		43,574		-		-		43,574
31 to 60 days		27,107		39,000		-		66,107
61 to 90 days		113,533		26,000		63		139,596
91 to 180 days		62,430		120,200		-		182,630
181 to 365 days		64,775		67,500		16,821		149,096
1 to 2 years		150,561		37,000		81,320		268,881
2 to 5 years		3,206		417,500		23,025		443,731
More than 5 years		-		3,000		78,571		81,571
Total		465,186		710,200		199,800		1,375,186

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:

	December 31, 2016
Risk type	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:

	June 30, 2017
Type of risk hedge	USD-OIS			Tenor		Xccy basis		Credit spread			Total Ineffectiveness
Interest rate risk		9			301		-		(16	)		294
Foreign exchange risk		(3	)		-		5		-			2
Total		6			301		5		(16	)		296

	December 31, 2016
Type of risk hedge	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

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 6.69 years.

The Bank estimates that approximately $733 reported as losses in OCI as of June 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 June 30, 2018.

The Bank estimates that approximately $1,041of losses reported in OCI as of June 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 June 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.

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:

Derivative financial instruments – assets

June 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
Financial assets at FVTPL		13		-		13		-		-			13
Derivative financial instruments-hedging		6,497		-		6,497		-		(13,704	)		(7,207	)
Total		6,510		-		6,510		-		(13,704	)		(7,194	)

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		9,352		-		9,352		-		-		9,352
Total		9,352		-		9,352		-		-		9,352

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)

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:

	June 30, 2017
Description	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
Financial assets at FVTPL		13		-		13
Derivative financial instruments - hedging		6,497		-		6,497
Total		6,510		-		6,510

	December 31, 2016
Description	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		9,352		-		9,352
Total		9,352		-		9,352

Financial liabilities and derivative financial instruments – liabilities

June 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

Financial liabilities at FVTPL		27		-		27		-		-			27
Derivative financial instruments - hedging		33,946		-		33,946		-		(45,197	)		(11,251	)
Total		33,973		-		33,973		-		(45,197	)		(11,224	)

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)

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 - hedging		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:

	June 30, 2017
Description	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		27		-		27
Derivative financial instruments used for hedging		33,946		-		33,946
Total derivative financial instruments		33,973		-		33,973

	December 31, 2016
Description	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		59,686		-		59,686
Total derivative financial instruments		59,710		-		59,710

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:

	June 30, 2017		December 31, 2016
Confirmed letters of credit		254,071		216,608
Stand-by letters of credit and guaranteed – Commercial risk		2,342		176,177
Credit commitments		7,438		10,250
Total		263,851		403,035

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

Maturities	June 30, 2017		December 31, 2016
Up to 1 year		246,713		399,257
From 1 to 2 years		13,000		-
From 2 to 5 years		578		3,200
More than 5 years		3,560		578
		263,851		403,035

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

Rating⁽¹⁾	June 30, 2017		December 31, 2016
1-4		95,181		145,255
5-6		168,670		193,368
7		-		64,412
8		-		-
9		-		-
10		-		-
Total		263,851		403,035

⁽¹⁾

Current ratings as of June 30, 2017 and December 31, 2016, respectively.

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:

	June 30, 2017		December 31, 2016
Country:
Argentina		141		-
Bolivia		62		190
Canada		200		160
Colombia		81,020		78,815
Costa Rica		9,556		2,250
Dominican Republic		-		26,787
Ecuador		87,890		172,522
El Salvador		1,339		1,305
Guatemala		1,700		7,000
Honduras		1,202		1,170
Mexico		11,738		11,118
Panama		40,283		39,756
Paraguay		29		-
Peru		27,946		42,764
Switzerland		-		1,000
United Kingdom		-		70
Uruguay		745		18,128
Total		263,851		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.

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:

	Stage 1 ⁽¹⁾			Stage 2 ⁽²⁾			Stage 3 ⁽³⁾		Total
Allowance for expected credit losses as of December 31, 2016		1,144			4,632			-		5,776
Transfer to lifetime expected credit losses		(6	)		6			-		-
Transfer to credit-impaired instruments		-			-			-		-
Transfer to 12-month expected credit losses		-			-			-		-
Net effect of changes in reserve for expected credit loss		(707	)		(254	)		-		(961	)
Instruments that have been derecognized during the period		(838	)		(370	)		-		(1,208	)
Changes due to instruments recognized as of December 31, 2016:		(1,551	)		(618	)		-		(2,169	)
New instruments originated or purchased		1,008			-			-		1,008
Allowance for expected credit losses as of June 30, 2017		601			4,014			-		4,615

	Stage 1 ⁽¹⁾			Stage 2 ⁽²⁾			Stage 3 ⁽³⁾		Total
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.

Other assets

Following is a summary of other assets:

	June 30, 2017		December 31, 2016
Accounts receivable		5,815		5,413
IT projects under development		4,751		4,199
Other ⁽¹⁾		9,247		1,934
		19,813		11,546

⁽¹⁾

As of June 30, 2017, $7.6 million corresponds to financial leasing under development.

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)

Deposits

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

	June 30, 2017		December 31, 2016
Demand		126,977		127,014
Up to 1 month		1,229,202		1,201,328
From 1 month to 3 months		546,026		463,479
From 3 month to 6 months		593,547		336,627
From 6 month to 1 year		591,268		436,884
From 1 year to 2 years		215,131		190,000
From 2 years to 5 years		51,404		47,520
		3,353,555		2,802,852

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

	June 30, 2017		December 31, 2016
Aggregate amounts of time deposits of $100,000 or more		3,353,099		2,802,474
Aggregate amounts of deposits in the New York Agency		261,652		250,639

	Three months ended June 30,
	2017		2016		2015
Interest expense paid to deposits in the New York Agency.		847		464		310

	Six months ended June 30,
	2017		2016		2015
Interest expense paid to deposits in the New York Agency.		1,557		853		602

Securities sold under repurchase agreements

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

As of June 30, 2017, the Bank did not incur interest expense generated by financing transactions under repurchase agreements. During the periods ended June 30, 2016 and 2015, interest expense related to financing transactions under repurchase agreements totaled $554 and $223, 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.

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

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:

	June 30, 2017			December 31, 2016
Short-term Borrowings:
At fixed interest rates		192,256			788,075
At floating interest rates		277,500			657,000
Total borrowings		469,756			1,445,075

Short-term Debt:
At fixed interest rates		17,300			25,000
At floating interest rates		-			-
Total debt		17,300			25,000
Total short-term borrowings and debt		487,056			1,470,075

Average outstanding balance during the period		839,856			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		1.30% to 1.75%			1.10% to 1.50%
Range of floating interest rates on borrowing in U.S. dollars		1.55% to 1.82%			1.14% to 1.48%
Range of fixed interest rates on borrowing in Mexican pesos		6.16% to 7.49%			6.16	%
Range of floating interest rate on borrowing in Mexican pesos		-			5.72	%
Weighted average interest rate at end of the period		1.70	%		1.30	%
Weighted average interest rate during the period		1.43	%		1.10	%

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

	June 30, 2017		December 31, 2016
Currency
US dollar		477,800		1,470,000
Mexican peso		9,256		75
Total		487,056		1,470,075

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 $6,156 and $5,133 as of June 30, 2017 and December 31, 2016, respectively, is as follows:

	June 30, 2017			December 31, 2016
Long-term Borrowings:

At fixed interest rates with due dates from September 2017 to February 2022.		76,817			61,148
At floating interest rates with due dates from November 2017 to March 2021.		682,098			631,326
Total borrowings		758,915			692,474

Long-term Debt:

At fixed interest rates with due dates from March 2018 to March 2024.		530,975			921,479
At floating interest rates with due dates from January 2018 to March 2022.		201,973			167,918
Total long-term debt		732,948			1,089,397
Total long-term borrowings and debt outstanding		1,491,863			1,781,871

Average outstanding balance during the period		1,652,208			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		1.35% to 3.25%			2.85% to 3.75%
Range of floating interest rates on borrowing in U.S. dollars		2.07% to 2.75%			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		7.57% to 8.06%			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		3.34	%		2.98	%
Weighted average interest rate during the period		3.32	%		2.84	%

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:

	June 30, 2017		December 31, 2016
Currency
US dollar		1,076,609		1,392,995
Mexican peso		236,888		219,347
Japanese yen		98,771		95,238
Euro		56,534		52,574
Australian dollar		23,061		21,717
Total		1,491,863		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 June 30, 2017 the Bank was in compliance with all covenants.

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

Due in	Outstanding
2017		55,983
2018		426,363
2019		363,837
2020		378,199
2021		200,893
2022		10,054
2024		56,534
		1,491,863

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)

10.

Other liabilities

Following is a summary of other liabilities:

	June 30, 2017		December 31, 2016
Accruals and other accumulated expenses		2,928		4,170
Accounts payable		9,662		11,179
Others		2,379		2,979
		14,969		18,328

11.

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:

	Three months ended						Six months ended
	June 30,						June 30,
	2017		2016		2015		2017		2016		2015
Profit for the period		17,481		22,272		13,518		40,939		45,710		43,386

Basic earnings per share		0.44		0.57		0.35		1.04		1.17		1.12
Diluted earnings per share		0.44		0.57		0.35		1.04		1.17		1.11

Weighted average common shares outstanding - applicable to basic		39,317		39,078		38,954		39,252		39,037		38,880

Effect of diluted securities:
Stock options and restricted stock units plans		30		120		119		28		83		135
Adjusted weighted average common shares outstanding applicable to diluted EPS		39,347		39,198		39,073		39,280		39,120		39,015

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)

12.

Capital and Reserves

Common stock

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

“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.

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

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

“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 June 30, 2017, 2016 and 2015:

(Share units)	“Class A”		“Class B”			“Class E”		“Class F”		Total
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		-		-			-		-		-
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 June 30, 2015		6,342,189		2,479,050			30,147,666		-		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		-		-			-		-		-
Restricted stock units – vested		-		-			69,678		-		69,678
Outstanding at June 30, 2016		6,342,189		2,474,469			30,278,925		-		39,095,583

Outstanding at January 1, 2017		6,342,189		2,474,469			30,343,390		-		39,160,048
Repurchase common stock		-		(1,000	)		-		-		(1,000	)
Restricted stock issued – directors		-		-			57,000		-		57,000
Exercised stock options - compensation plans		-		-			74,995		-		74,995
Restricted stock units – vested		-		-			70,519		-		70,519
Outstanding at June 30, 2017		6,342,189		2,473,469			30,545,904		-		39,361,562

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)

12.

Capital and Reserves (continued)

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

	“Class A”				“Class B”				“Class E”						Total
	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 June 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		-		-		-		-		-			-			-			-
Restricted stock units – vested		-		-		-		-		(69,678	)		(1,538	)		(69,678	)		(1,538	)
Outstanding at June 30, 2016		318,140		10,708		589,174		16,242		1,976,942			43,650			2,884,256			70,600

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		-		-		-		-		(74,995	)		(1,656	)		(74,995	)		(1,656	)
Restricted stock units - vested		-		-		-		-		(70,519	)		(1,557	)		(70,519	)		(1,557	)
Outstanding at June 30, 2017		318,140		10,708		590,174		16,270		1,709,963			37,754			2,618,277			64,732

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 June 30, 2017, the Bank’s total capital adequacy ratio is 17.97% which is in compliance with the minimum capital adequacy ratios required by the Banking Law in the Republic of Panama.

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)

12.

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 June 30, 2017 and December 31, 2016, the amount stands at $114.5 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 June 30, 2017 and December, 31 2016, the additional paid-in capital consists of additional cash contributions to the common capital paid by shareholders.

13.

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.

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)

13.

Business segment information (continued)

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

	Periods ended June 30,
	2017			2016			2015
Commercial
Interest income		109,137			116,496			101,098
Interest expense		(45,822	)		(46,984	)		(39,856	)
Net interest income		63,315			69,512			61,242
Net other income ⁽²⁾		8,687			7,780			6,269
Total income		72,002			77,292			67,511
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		(8,458	)		(12,775	)		(8,290	)
Expenses, less impairment loss from expected credit losses		(18,494	)		(16,880	)		(20,300	)
Profit for the period		45,050			47,637			38,921
Commercial assets and loan commitments and financial guarantee contracts (end of period balances):
Interest-earning assets ^{(3 and 5)}		5,563,592			6,511,779			6,682,445
Other assets and loan commitments and financial guarantee contracts ⁽⁴⁾		269,575			395,585			437,436
Total interest-earning assets, other assets and loan commitments and financial guarantee contracts		5,833,167			6,907,364			7,119,881

Treasury
Interest income		6,093			5,135			5,380
Interest expense		(5,631	)		3,057			4,010
Net interest income		462			8,192			9,390
Net other income ⁽²⁾		276			(4,084	)		1,418
Total income		738			4,108			10,808
Impairment loss for expected credit losses on investment securities		465			(486	)		(829	)
Expenses, less impairment loss for expected credit losses		(5,314	)		(5,549	)		(5,514	)
Profit (loss) for the period		(4,111	)		(1,927	)		4,465
Treasury assets (end of period balances):
Interest-earning assets ^{(3 and 5)}		898,777			1,124,621			1,603,395
Total interest-earning assets		898,777			1,124,621			1,603,395

Combined business segment total
Interest income		115,230			121,631			106,478
Interest expense		(51,453	)		(43,927	)		(35,846	)
Net interest income		63,777			77,704			70,632
Net other income ⁽²⁾		8,963			3,696			7,687
Total income		72,740			81,400			78,319
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		(8,458	)		(12,775	)		(8,290	)
Impairment loss from expected credit losses on investment securities		465			(486	)		(829	)
Expenses, less impairment loss from expected credit losses		(23,808	)		(22,429	)		(25,814	)
Profit for the period		40,939			45,710			43,386

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)

13.

Business segment information (continued)

	June 30, 2017		December 31, 2016
Total assets and loan commitments and financial guarantee contracts (end of period balances):
Interest-earning assets ^{(2 and 4)}		6,462,369		7,191,443
Other assets and loan commitments and financial guarantee contracts ⁽³⁾		269,575		422,422
Total interest-earning assets, other assets and loan commitments and financial guarantee contracts		6,731,944		7,613,865

⁽¹⁾

The numbers set out in these tables have been rounded and accordingly may not total exactly. 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.

⁽²⁾

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

⁽³⁾

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

⁽⁴⁾

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.

	June 30, 2017			December 31, 2016
Reconciliation of total assets:
Interest-earning assets – business segment		6,462,369			7,191,443
Allowance for expected credit losses on loans at amortized cost		(115,607	)		(105,988	)
Allowance for expected credit losses on securities at amortized cost		(148	)		(602	)
Customers’ liabilities under acceptances		5,194			19,387
Intangibles, net		2,534			2,909
Accrued interest receivable		33,466			44,187
Property and equipment, net		8,044			8,549
Derivative financial instruments used for hedging - receivable		6,497			9,352
Other assets		19,813			11,546

Total assets – consolidated financial statements		6,422,162			7,180,783

14.

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.

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)

14.

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.

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)

14.

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:

	June 30, 2017
	Level 1^(a)		Level 2^(b)		Level 3^(c)		Total
Assets
Securities at fair value through OCI:
Corporate debt		-		-		-		-
Sovereign debt		16,435		-		-		16,435
Total securities at fair value through OCI		16,435		-		-		16,435
Financial instruments at FVTPL
Foreign exchange forward		-		13		-		13
Total financial instruments at FVTPL		-		13		-		13
Derivative financial instruments used for hedging – receivable:
Interest rate swaps		-		246		-		246
Cross-currency interest rate swaps		-		2,166		-		2,166
Foreign exchange forward		-		4,085		-		4,085
Total derivative financial instrument used for hedging – receivable		-		6,497		-		6,497
Total financial assets at fair value		16,435		6,510		-		22,945

Liabilities
Financial instruments at FVTPL
Foreign exchange forward		-		27		-		27
Total financial instruments at FVTPL		-		27		-		27
Derivative financial instruments used for hedging – payable:
Interest rate swaps		-		2,809		-		2,809
Cross-currency interest rate swaps		-		27,601		-		27,601
Foreign exchange forward		-		3,536		-		3,536
Total derivative financial instruments used for hedging – payable		-		33,946		-		33,946
Total financial liabilities at fair value		-		33,973		-		33,973

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)

14.

Fair value of financial instruments (continued)

	December 31, 2016
	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.

^(c)

Level 3: Internally developed models with significant unobservable market information.

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.

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)

14.

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:

	June 30, 2017
	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		819,390		819,390		-		819,390		-
Acceptances		5,194		5,194		-		5,194		-
Interest receivable		33,466		33,466		-		33,466		-
Securities at amortized cost ⁽²⁾		62,791		63,115		57,865		5,250		-
Loans at amortized cost ⁽¹⁾		5,447,985		5,540,374		-		5,540,374		-

Financial liabilities
Instruments with carrying value that approximates fair value
Deposits		3,353,555		3,353,555		-		3,353,555		-
Acceptances		5,194		5,194		-		5,194		-
Interest payable		12,953		12,953		-		12,953		-
Short-term borrowings and debt		487,056		487,190		-		487,190		-
Long-term borrowings and debt		1,485,707		1,523,648		-		1,523,648		-

^(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.

^(c)

Level 3: Internally developed models with significant unobservable market information.

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)

14.

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:

	December 31, 2016
	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		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.

^(c)

Level 3: Internally developed models with significant unobservable market information.

⁽¹⁾

The carrying value of loans at amortized cost is net of the allowance for expected credit losses of $115.6 million and unearned interest and deferred fees of $6.7 million for June 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 $0.1 million for June 30, 2017 and $0.6 million for December 31, 2016.

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)

15.

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:

	Financial instruments at FVOCI			Derivative financial instruments			Total
Balance as of January 1, 2015		(6,817	)		(1,020	)		(7,837	)
Net unrealized gain (loss) arising from the period		4,402			(2,006	)		2,396
Reclassification adjustment for (gains) loss included in the profit of the period ⁽¹⁾		(1,154	)		2,206			1,052
Other comprehensive income (loss) from the period		3,248			200			3,448
Balance as of June 30, 2015		(3,569	)		(820	)		(4,389	)

Balance as of January 1, 2016		(8,931	)		(1,750	)		(10,681	)
Net unrealized gain (loss) arising from the period		5,730			(2,677	)		3,053
Reclassification adjustment for (gains) loss included in the profit of the period ⁽¹⁾		1,670			(1,821	)		(151	)
Other comprehensive income (loss) from the period		7,400			(4,498	)		2,902
Balance as of June 30, 2016		(1,531	)		(6,248	)		(7,779	)

Balance as of January 1, 2017		(853	)		(1,948	)		(2,801	)
Net unrealized gain (loss) arising from the period		(57	)		939			882
Reclassification adjustment for (gains) loss included in the profit of the period ⁽¹⁾		173			(1,687	)		(1,514	)
Other comprehensive income (loss) from the period		116			(748	)		(632	)
Balance as of June 30, 2017		(737	)		(2,696	)		(3,433	)

⁽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.

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)

15.

Accumulated other comprehensive income (loss) (continued)

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

Three months ended June 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
		60		Net gain on sale of financial instruments at FVOCI
		(129	)	Derivative financial instruments and hedging
		(69	)

Gains (losses) on derivative financial instruments:
Foreign exchange forward		(2,158	)	Interest income – loans at amortized cost
		(2,032	)	Interest expense – borrowings and deposits
		3,235		Net gain (loss) on foreign currency exchange
Interest rate swaps		51		Net gain (loss) on interest rate swaps
Cross-currency interest rate swap		3		Net gain (loss) on cross-currency interest rate swap
		(901	)

Six months ended June 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
		24		Net gain on sale of financial instruments at FVOCI
		(197	)	Derivative financial instruments and hedging
		(173	)

Gains (losses) on derivative financial instruments:
Foreign exchange forward		(4,029	)	Interest income – loans at amortized cost
		(1,251	)	Interest expense – borrowings and deposits
		6,748		Net gain (loss) on foreign currency exchange
Interest rate swaps		214		Net gain (loss) on interest rate swaps
Cross-currency interest rate swap		5		Net gain (loss) on cross-currency interest rate swap
		1,687

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)

15.

Accumulated other comprehensive income (loss) (continued)

Three months ended June 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:		221		Interest income – financial instruments at FVOCI
		(1,017	)	Net gain on sale of financial instruments at FVOCI
		(346	)	Derivative financial instruments and hedging
		(1,142	)

Gains (losses) on derivative financial instruments:
Foreign exchange forward		(1,003	)	Interest income – loans at amortized cost
		231		Interest expense – borrowings and deposits
		2,231		Net gain (loss) on foreign currency exchange
Interest rate swaps		28		Net gain (loss) on interest rate swaps
Cross-currency interest rate swap		13		Net gain (loss) on cross-currency interest rate swap
		1,500

Six months ended June 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
		(967	)	Net gain on sale of financial instruments at FVOCI
		(703	)	Derivative financial instruments and hedging
		(1,670	)

Gains (losses) on derivative financial instruments:
Foreign exchange forward		(1,755	)	Interest income – loans at amortized cost
		408		Interest expense – borrowings and deposits
		2,495		Net gain (loss) on foreign currency exchange
Interest rate swaps		606		Net gain (loss) on interest rate swaps
Cross-currency interest rate swap		67		Net gain (loss) on cross-currency interest rate swap
		1,821

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)

15.

Accumulated other comprehensive income (loss) (continued)

Three months ended June 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:		(338	)	Interest income – financial instruments at FVOCI
		607		Net gain on sale of financial instruments at FVOCI
		(37	)	Derivative financial instruments and hedging
		232

Gains (losses) on derivative financial instruments:
Forward foreign exchange		417		Interest income – loans at amortized cost
		(1,145	)	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
		(728	)

Six months ended June 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:		(337	)	Interest income – financial instruments at FVOCI
		1,725		Net gain on sale of financial instruments at FVOCI
		(234	)	Derivative financial instruments and hedging
		1,154

Gains (losses) on derivative financial instruments:
Forward foreign exchange		171		Interest income – loans at amortized cost
		(1,145	)	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
		(2,206	)

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)

16.

Related party transactions

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

	Three months ended June 30,						Six months ended June 30,
	2017		2016		2015		2017		2016		2015
Expenses:
Compensation costs paid to directors		189		164		208		223		239		242
Compensation costs paid to executives		996		2,016		2,154		1,389		3,350		3,872

17.

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.

18.

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.

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)

18.

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.

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)

18.

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.

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)

18.

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.

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)

18.

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:

	June 30, 2017
Description	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		819,390			-			-			-			-			-			819,390
Investment securities		13			-			-			76,483			2,891			(148	)		79,239
Loans at amortized cost		2,100,495			1,045,356			770,655			1,516,877			136,932			-			5,570,315
Unearned interest and deferred fees		(942	)		(810	)		(420	)		(4,057	)		(494	)		-			(6,723	)
Allowance for expected credit losses		-			-			-			-			-			(115,607	)		(115,607	)
Other assets		30,047			6,611			6,048			13,877			1,121			17,844			75,548
Total		2,949,003			1,051,157			776,283			1,603,180			140,450			(97,911	)		6,422,162

Liabilities
Deposits in banks		2,615,922			286,099			375,000			76,534			-			-			3,353,555
Other liabilities		274,530			187,149			254,153			1,254,108			74,527			-			2,044,467
Total		2,890,452			473,248			629,153			1,330,642			74,527			-			5,398,022
Net position		58,551			577,909			147,130			272,538			65,923			(97,911	)		1,024,140

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)

18.

Risk management (continued)

18.2

Liquidity risk (continued)

	December 31, 2016
Description	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

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)

18.

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.

	Change in interest rate	Effect on income

June 30, 2017	+200 bps		21,800
	-200 bps		(6,163	)

June 30, 2016	+200 bps		17,019
	-200 bps		(1,874	)

June 30, 2015	+200 bps		15,563
	-200 bps		(3,374	)

This analysis is based on the prior year changes in interest rates and assesses the impact on income, with balances as of June 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.

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)

18.

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.

	June 30, 2017
Description	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		60,000			-		-		-		-		60,000
Securities and other financial assets		13			-		-		76,335		2,891		79,239
Loans at amortized cost		2,163,144			1,045,356		770,655		1,516,924		74,236		5,570,315
Total		2,223,157			1,045,356		770,655		1,593,259		77,127		5,709,554

Liabilities
Deposits		2,615,468			286,098		375,000		76,534		-		3,353,100
Short and long term borrowings and debt, net		259,707			180,208		244,679		1,231,635		56,534		1,972,763
Total		2,875,175			466,306		619,679		1,308,169		56,534		5,325,863
Total interest rate sensibility		(652,018	)		579,050		150,976		285,090		20,593		383,691

	December 31, 2016
Description	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

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)

18.

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.

	June 30, 2017
	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		3.3146		1.1423		112.485		3,045.665		18.1527			-

Assets
Cash and cash equivalent		2,164		5		2		52		1,020			94		3,337
Investments and other financial assets		-		-		-		-		-			-		-
Loans at amortized cost		-		-		-		-		320,952			-		320,952
Other assets		-		244,086		98,771		-		-			-		342,857
Total		2,164		244,091		98,773		52		321,972			94		667,146

Liabilities
Borrowings and deposit placements		-		244,086		98,771		-		246,144			-		589,001
Other liabilities		1,980		-		-		-		76,225			-		78,205
Total		1,980		244,086		98,771		-		322,369			-		667,206

Net currency position		184		5		2		52		(397	)		94		(60	)

⁽¹⁾

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

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)

19.

Risk management (continued)

18.3

Market risk (continued)

Currency risk (continued)

	December 31, 2016
	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.

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)

18.

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.

	June 30, 2017			December 31, 2016
Tier 1 capital		1,022,626			1,054,719

Risk weighted assets		5,689,987			6,350,544
Tier 1 capital ratio		17.97	%		16.61	%

19.

Subsequent Events

Bladex announced a quarterly cash dividend of $15,154 which represents $0.385 per share corresponding to the 2nd quarter of 2017. The cash dividend was approved by the Board of Directors at its meeting held on July 18, 2017 and it is payable on August 17, 2017 to the Bank’s stockholders as of August 2, 2017 record date.