Institutional Presentation December 2017 Central American Bank for Economic Integration. July 2018

Transcription

1 Institutional Presentation December 2017 Central American Bank for Economic Integration July 2018

2 INDEX 1. Macroeconomic Overview 2. CABEI s Role and Policy Importance 3.Equity and Profitability 4. Funding and Liquidity 5. Credit Risk Management 6. Comparison with other MDBs - Rating 2

3 Fact Sheet Guatemala Key Economic Facts Extension: 572,563 km2 Population: 58.3 million Population density: people per km 2 Population Growth: 1.45% Regional GDP: US$316 billion El Salvador Costa Rica Honduras Nicaragua Belize The Central American region consists of eight countries: Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Belize, Panama and Dominican Republic. The establishment of the Central American Integration System (SICA) allows the region to work together on an economic, political and social level. Panama Dominican Republic 3 3

4 Key Statistics for Central American Region*: Economic Outlook Economic Growth (Percentage) Inflation (Percentage) Economic Activities with Higher Growth Guatemala El Salvador Honduras Nicaragua Costa Rica Panama Mining Financial Intermediation Financial Intermediation Dominican Republic Fishing Service Activities Trade Construction Trade Transportation Manufacturing Hunting Communications Transportation Agriculture Private Services Manufacturing Agriculture Manufacturing Electricity, Gas and Water Supply Hotels and Restaurants Trade Manufacturing Transportation Financial Storage and Intermediation Communications Financial Intermediation Trade Manufacturing Economic growth for the period in Latin America is estimated to be around 1.8%, while Central America s growth isestimated at 3.8%. During the period, the inflation gap between both regions decreased. For the period, inflation in LATAM is estimated at 3.8%; 0.3% higher than the 3.5% estimated for CA. *Central America includes Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, Dominican Republic and Belize 4

5 Key Statistics for Central American Region : Economic Outlook Central Government debt growth is one of the major concerns for LATAM and CA authorities. Except for El Salvador and Belize, Central American countries exhibit debt levels below the LATAM average. During the period, most of CA countries reported fiscal deficits close to LATAM s regional average (1.9%). The fiscal position of the CA region as a whole has improved in the recent past; as local authorities keep making and implementing important policy measures. It also compares favorably to the LATAM average (4.3%). Central America Region: CG Debt (Percentage of GDP) Central America Region: Fiscal Deficit (Percentage of GDP) 5

6 Vulnerabilities: Central America vs South America Given South America s dependence on hard commodity exports, the sub-region has a relatively high exposure to a drop in hard commodity prices. The situation is different for countries in Central America as they depend more on the economic conditions of the U.S., as its main commercial partner and source of remittances; and would actually benefit from a drop in commodity prices, especially energy prices. Future growth in Central American and Caribbean economies is expected to be closely in line with their historical average, which is above the LATAM average. 6

7 Central America: Trade Integration Agreements and Regional Initiatives Following substantial work towards regional trade integration over the last half century, Central America has emphasized multilateral initiatives that underpin integration: Initiatives Year approved Benefits Free trade agreement between Chile and Central America Free trade agreement between Panama and Central America Central America* USA Free Trade Agreement (DR-CAFTA) Free trade agreement between Mexico and Central America The European Union - Central America Association Agreement (EU-CAAA) Formally signed October of 1999 Formally signed March of 2002 Formally signed May of 2004 Formally signed November of 2011 Formally signed June of 2012 Improved hemispheric integration. Improved rules for the investments promotion. Create an expanded and secure market for the goods produced. Improved commercial relationship in the region. Increased the economic and social development. Improved commercial relationship in the region. Increased the market access. Encouraged a complementary agenda for Central America Region. Improved the competitiveness between Central America en Mexico. Increased the economic and social development. Removed commercial barriers and facilitated the trade between Central America and Mexico. Improved commercial and cooperative relationship between regions. Increased social development in the Central America Region. Free trade agreement between the Republic of Korea and Central America** Formally signed February of 2018 On June 18th 2015, Central American countries and the Republic of Korea launched negotiations towards a free trade agreement. The aforementioned negotiations for a free trade agreement concluded on November 16, 2016 in Managua, Nicaragua. In 2017, Central America and the Republic of Korea carried out internal processes, including the legal review of the texts of the free trade agreement. The trade agreement was formally signed on February 21 st 2018 in Seoul, Korea. *Includes Dominican Republic **Includes Panama 7

8 INDEX 1. Macroeconomic Overview 2. CABEI s Role and Policy Importance 3.Equity and Profitability 4. Funding and Liquidity 5. Credit Risk Management 6. Comparison with other MDBs - Rating 8

9 About CABEI CABEI's Mission* The Bank s objective shall be to promote the economic integration and the balanced economic and social development of the Central American region, which includes the founding countries and the non-founding regional countries, attending and aligning itself with the interests of all of its member countries. * Effective as of March 28 th 2017 (Resolution DI-25/2017). 9

10 About CABEI: Member Countries Supranational development bank focused on Central America, founded in 1960 Headquartered in Tegucigalpa, Honduras Founding Members: El Salvador Guatemala Honduras Nicaragua Costa Rica Non-Founding Regional Members: Dominican Republic (2007) Panama (2007) Belize (2006) (*) Belize Honduras Guatemala Nicaragua El Salvador Costa Rica Dominican Republic Panama Mexico Non-Regional Members (**): ROC Taiwan (1992) Mexico (1992) Argentina (1995) Colombia (1997) Spain (2005) Founding Members Non-Founding Regional Members Non-Regional Members Colombia Spain (*) As of November 9 th, 2016, Belize became a non-founding regional member. (**) On November 10 th, 2016 Cuba formally submitted its request to become an non-regional member of CABEI. The incorporation of Cuba as a non-regional member was approved by the Board of Governors on April 27, 2017 through resolution AG-08/2017 and it s formalization is currently in process. On January 25 th, 2018, through official communication, the Republic of Korea requested its incorporation to CABEI as a non-regional member. On February 28 th, 2018 through resolution AG-02/2018, the Board of Governors approved the incorporation of the Republic of Korea as a non-regional member. Argentina ROC (Taiwan) 10

11 About CABEI: Organizational Structure Board of Governors Board of Directors Composition CABEI has 321 employees situated at its headquarters in Tegucigalpa and its 6 regional offices (1 regional office for each Founding Member Country and 1 office in Panama). In the short term, the Bank expects to open an additional regional office in Dominican Republic. Board of Directors Executive President Executive Vice-President Operations and Technology Division Sector and Countries Division Financial Management Division Risk Management Division Credit Management Division 11

12 About CABEI: CABEI s Preferred Creditor Status June 2018: The positive outlook reflects Moody's expectation that the formal and legal incorporation of Korea as member of CABEI will diversify the banks' shareholder base and will strengthen the quality of its capital structure. In addition, CABEI has strengthened its capital and liquidity metrics and this positive trend is likely to be sustained." July 2017: S&P considers that the positive outlook reflects our view that over the next two years CABEI will likely maintain its strong financial profile while improving its adjusted risk-adjusted capital (RAC), thanks to the benefits the bank receives from its preferred creditor status and ongoing equity support from its shareholders. (*) Average ratings based on the individual ratings assigned to Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica by Moody s Investors Service. As a supranational institution and under its Constitutive Agreement, CABEI has been accorded in the territory of its member states Preferred Creditor Status. September 2017: "Since amending its Constitutive Agreement, CABEI has sustained an excellent capitalization assessment while increasing loan portfolio diversification by raising its exposure to non-founding countries. Fitch assumes Member countries, even if experiencing severe difficulties, will continue to honour CABEI's preferred-creditor status and exempt its private-sector borrowers from any measures that may affect the transfer and/or convertibility of their debt service payments. 12

13 About CABEI: CABEI s Preferred Creditor Status As a supranational institution and under its Constitutive Agreement, CABEI is granted preferred creditor status on the territory of its member states. All of CABEI s assets and properties are considered public international property and are immune from search, requisition, confiscation, expropriation or any other form of apprehension or forced alienation by executive or legislative action. CABEI, its income, property and other assets, as well as the operations and transactions it carries out pursuant to its Constitutive Agreement, shall be exempt from all taxation and from all custom duties or other charges of a similar nature. CABEI shall also be exempt from any obligation relating to the payment, withholding or collection of any tax, contribution or duty. No tax or lien may be levied on any obligation or securities issued or guaranteed by CABEI, including any dividend or interest thereon, by whomsoever held. 13

14 CABEI is the dominant MDB in the Central American Region CABEI, IADB and World Bank participation (%) of total disbursements to the Region¹ in the last twelve years ( ) Total Disbursements : US$35.5 billion 1 Includes Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica * Includes CII ** Includes IFC & IDA, Source: CABEI. Through the years CABEI has consolidated its role as the Multilateral Development Bank with the most relevant presence in the Central American region, achieving a participation close to 50% of the total disbursements to Central America over the last 12 years ( ). This consolidation has been mainly derived from the Preferred Creditor Treatment conferred to CABEI by its member countries. 14

15 Rising importance of CABEI in the region Since its creation, CABEI has disbursed over US$26.7 billion tothe Central American region. More than 55% of those disbursements have taken place over the past 10 years. During periods when several multilateral development banks have frozen disbursements to some Central American countries (Nicaragua, Honduras and Guatemala), CABEI continued to fulfill its mandate, thus strengthening the Preferred Creditor Treatment conferred to it by its member countries. 15

16 SICA Member Countries CABEI / New Members SICA s purpose is to achieve the integration of Central America for it to become a Region of Peace, Freedom, Democracy and Development. CABEI is SICA s financial arm. Order of Malta Republic of Serbia 16

17 Modifications to CABEI s Constitutive Agreement On April 24th, 2014, CABEI s Board of Governors instructed the Board of Directors and the Bank's Management to prepare a plan of action for eventual amendments to the Constitutive Agreement and the Bank's internal policies. On February 12th, 2015 CABEI s Board of Governors approved amendments to the Constitutive Agreement. On January 25th, 2016, the Legislative Assembly of Costa Rica ratified the modifications to CABEI's Constitutive Agreement. These reforms became effective on June 9, 2016, given that literal d) Article 35 of CABEI s Constitutive Agreement, states that such reforms shall become effective for all its members three (3) months after the date of its official communication, which occurred on March 8, 2016; after the publication of the respective law (No.9350) on Costa Rica s Official Gazette. AA- 17

18 Regional Projects & Loan Portfolio Diversification Initiatives Over 57 years promoting regional integration 18

19 Approvals and Disbursements December

20 Operations by Country & Focus Area December

21 Operations: 57 years promoting regional integration Up to 2016, CABEI approved road infrastructure projects in the region for US$6,132 million. Results: Physical integration More efficient transportation for goods and people between countries and cities. Increased value of the agricultural, industrial, commercial and tourism sectors. CABEI has approved energy projects of more than US$6,400.0 million, which increased installed capacity for approximately 6,097 MW during the period. This installed capacity accounted for more than 38.0% of the total power generated. Funding for the energy sector, focused mainly on renewable energy. Central American Road Map Since 1996 up to 2017, CABEI has funded more than US$7,621 million to support various programs to impact: micro, small and medium size enterprises (SMEs), educational loans, housing municipalities, foreign trade, productive sectors and financial sector strengthening. As of 2017, CABEI has supported 746,646 SMEs, which employ 1,541,950 people. CABEI has achieved positive and tangible results supporting the most vulnerable population sectors through microfinance, allowing the Bank to reach the poorest households in rural areas, thereby promoting social and economic development in the Central American region. Central American Electrical Interconnection 21

22 Operations: 57 years promoting regional integration Social Housing Initiative Integration Goal: The program support low-income households to acquire, build and improve their housing. This program is executed by CABEI with the financial support of the Mexican Government, within the Mesoamerican Project initiative. CABEI's Investment: CABEI is providing more than US$257 million through its network of 95 regional public and private sector financial intermediaries. Energy Interconnectivity Transportation and Facilitation of Trade: Integration Goal: International Network of Mesoamerican Highways (RICAM), Sea Transport Project (TMCD) and Mesoamerican Multimodal Transportation System (STMM), focus on more efficient transport of people and goods. CABEI's Investment: CABEI's investment is about US$ 1,686 million. The beneficiary countries are: Belize, Guatemala, El Salvador, Honduras, and Nicaragua. Social Housing Social Housing Energy Integration Goal: The Central American Electrical Interconnection System (SIEPAC for its acronym in Spanish) has two (2) main goals: (a) support the creation and consolidation of the Regional Electricity Market (MER), and (b) to establish regional interconnected electricity lines to allow electricity exchanges between all MER actors. Road Network CABEI's Investment: CABEI's investment is about US$100.0 million, which represents 20.0% of the total project investment. 22

23 Loan Portfolio Diversification: Approvals during Program for the Sanitation of Districts of Arraiján and La Chorrera (Panama) The Program s objective is to finance the design and construction of sewerage systems in the districts of Arraiján and La Chorrera in the province of Panama Oeste, to allow for the collection, transmission and final treatment of wastewater. Once operational, the levels of pollution of rivers, creeks and the bay of Panama will be reduced, thus improving public health and the quality of life of its inhabitants. CABEI Investment: The amount to be financed by CABEI is US$100.0 million. Productive Infrastructure Projects with Deferred Impact on the Expenditure Register (United Mexican States) The project seeks to contribute to reduce the long-term costs of energy distribution and to provide electric power services with higher quality, lower cost and which proposes promotes environmental sustainability. Montegrande Dam Multiple Project (Dominican Republic) The main objective of the project is to regulate the Yaque del Sur River avenues to protect the flood zone, provide the region with a supply system for irrigation, treatment and supply of drinking water, as well as electricity generation. CABEI Investment: The amount to be financed by is CABEI US$249.6 million. RANC CABEI Investment: The amount to be financed by is CABEI US$150.0 million. 23

24 Loan Portfolio Diversification: Approvals during 2017 During 2017, CABEI approved operations for US$1,926 million of which US$520 million (27%) correspond to non-founding regional countries and non-regional countries. Such level of approvals is aligned with the loan portfolio diversification process established and presented as objective under the amendments to CABEI s Constitutive Agreement. 24

25 Loan Portfolio Diversification Portfolio diversification allow the use of capital optimization for evaluation methodologies of Risk Rating Agencies, enhancing the Bank's creditworthiness and, in turn, improving its risk rating. In 2017 concentration risk in loan portfolio was mitigated, the 5 largest exposures represented 87% of total portfolio. 25

26 Institutional Strategy 26

27 Operations: Institutional Strategy The Institutional Strategy seeks to maximize the impact of CABEI's operations on: Sustainable Economic Development of the Region. Sustainable Development Goals (SDGs) of the of the 2030 Agenda for Sustainable Development. 27

28 Operations: Institutional Strategy - Focus Areas Competitiveness Services Human Development And Social Infrastructure Financial Intermediation and Development Finance Focus Areas Productive Infrastructure Rural Development and the Environment Energy 28

29 CABEI s impact on development I-CABEI SIEMAS CABEI measures the impact of its operations on the region s development through the CABEI Development Impact Index (I-BCIE). The Bank also has a System for Identification, Evaluation and Mitigation of Environmental and Social Risks (SIEMAS), which help establish plans associated with the prevention or mitigation of environmental or social risks in CABEI operations. 29

30 Diverse Range of Products and Clients Our Clients Loans Co-Financing Syndicated Loans A/B Loans Public Sector Project Finance Global Credit Lines Equity Investments Guarantees & Letters of Credit Pre-investment Loans & Technical Cooperation Leasing Corporate Private Sector Financial Sector 30

31 Strategic Objectives of the Institutional Strategy ( ) 31

32 INDEX 1. Macroeconomic Overview 2. CABEI s Role and Policy Importance 3.Equity and Profitability 4. Funding and Liquidity 5. Credit Risk Management 6. Comparison with other MDBs - Rating 32

33 Balance Sheet 33

34 Balance Sheet Balance Sheet as of December 31 th, 2017 (US$ Million) Assets Liabilities and Equity Total US$9,721 Total US$9,721 Disclaimer: The figures included are rounded, preliminary and unaudited; subject to changes according to the review of external auditors. 34

35 Balance Sheet Structure 9.0% 5.7% 10.5% 6.5% 5.8% 4.0% Over the last five years, CABEI's assets have shown an average growth of 5.3% and equity has achieved an average strengthening of 5.7%. Disclaimer: The figures included are rounded, preliminary and unaudited; subject to changes according to the review of external auditors. 35

36 Financials: Balance Sheet Loan Portfolio Loan Portfolio As of December 31th, 2017 Loan Portfolio by Country US$6,835 Million 6.4% 5.6% Country US$ Million Costa Rica 1,370.3 Honduras 1,360.7 El Salvador 1,160.7 Guatemala 1,101.4 Nicaragua Panama Dominican Republic Colombia Mexico Belice 10.7 Argentina 2.5 Total 6,834.8 Disclaimer: The figures included are rounded, preliminary and unaudited; subject to changes according to the review of external auditors. 36

37 Financials: Balance Sheet Loan Portfolio Distribution by Institutional Sector and Focus Area Loan Portfolio by Institutional Sector (US$ million) As of December 31st, 2017 Total Loan Portfolio US$6,835 Million Loan Portfolio by Focus Area (%) The Bank s loan portfolio is mainly in the public sector; which grants CABEI preferred creditor status. Within the private sector, the portfolio has a greater proportion corresponding to the financial sector (with 51% ), in line with the trend observed over the past 5 years. 37

38 Loan Portfolio Institutional Sector Distribution * CABEI continues to focus its growth on the public sector as a result of its "Back to Basics" strategy. Consequently, private sector exposure has declined from a high of 44% in 2006 to 17% in December 2017 Disclaimer: The figures included are rounded, preliminary and unaudited; subject to changes according to the review of external auditors. 38

39 Profits and Capitalization 39

40 Consistent Profits Disclaimer: The figures included are rounded, preliminary and unaudited; subject to changes according to the review of external auditors. 40

41 Sound Financial Position Capital Adequacy Ratio The capital adequacy ratio is the main pillar to assure CABEI s financial soundness. The Bank has a strict capital adequacy requirement (35%). CABEI also monitors the Capital Adequacy Ratio established by the Basel II and Basel III Accords; as of December 31 st, 2017 the ratio reached 33.0%. 41

42 Capital Structure 42

43 INDEX 1. Macroeconomic Overview 2. CABEI s Role and Policy Importance 3. Equity and Profitability 4. Funding and Liquidity 5. Credit Risk Management 6. Comparison with other MDBs - Rating 43

44 Funding and Liquidity 44

45 Liquidity Risk - Investment Portfolio & Liquidity Levels Liquidity risk is mitigated by CABEI s internal ALM Policy, which requires holding a minimum liquid asset coverage of 6 months of gross cash requirements which includes loan disbursements, debt service obligations and operating expenses. CABEI also maintains a high level of liquid assets in relation to its total assets. In line with international risk management standards, CABEI monitors both the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR) proposed by Basel III. As of December 31th 2017, the aforementioned ratios stood at4.22x and 1.18x, respectively. At December 2017, the effective duration of the Investment Portfolio was 0.63 years. As of December 31, 2017, 94.6% of CABEI liquid assets were invested in investment grade obligations rated A or better. 45

46 Funding Strategy Objective Pilars Instruments Bond Issuances Loans Comercial Paper Program Term Deposits Program To access money markets and international capital markets to ensure that the required resources to fulfill CABEI s obligations will be available at the most efficient cost, to benefit CABEI s borrowing member countries Markets Expiration Dates International Regional Diversification by tenors Asset/Liability Duration Management Costs Cost Efficiency 46

47 Evolution of Funding Sources In the last 20 years CABEI's financing structure has evolved from bilateral loans to financing through international capital markets, supported by its strengthened credit profile and the good perception that international investors have regarding its maturity as international issuer. Current CABEI's financing structure reflects the institution s preference for stable funding sources. 47

48 Funding Diversification Bonds / Distribution by Markets and Currencies December 2006 US$1,200 MM December 2017 US$4,472 MM CABEI has a highly diversified funding base and maintains an unrestricted access to the international capital markets. As of December 31, 2017, CABEI has issued bonds in 22 different currencies and 23 different markets. Historically, as at December 2017, CABEI has issued bonds for US$8,939.9 million, US$487.0 million of that amount have been issued through 18 public and private placements in Central America s capital markets. * Includes Panama and Dominican Republic 48

49 Financial: Funding Diversification 39% 1% 29% 29% 2% During periods of global financial turmoil, CABEI has maintained full access to the international capital markets, which reflects the favorable perception of international investors towards the Institution. On March 2016, CABEI upsized its MTN Program from US$4.0 billion to US$6.0 billion, given its relevance towards the procurement of stable funding. 49

50 International Partners To further its mission, for over 50 years CABEI has partnered with a wide range of institutions including governments, development banks, and official agencies to channel resources to key sectors such as microfinance, renewable energy, infrastructure, rural development, and education. 50

51 Socially Responsible Investment (SRI) First Green Bond Placement On July 29 th, CABEI offered its first Green Bond ever in the Uridashi market in Japan, sold in South African Rand (ZAR) for ZAR 1.0 billion (USD 72.9 million). With this transaction, CABEI became the first Central American issuer selling a Green Bond in Japan. During the bond tenure CABEI will do it s best effort, in accordance with it s Constitutive Agreement, to allocate the net funds of this transaction to finance sustainable programs and projects that contributes with energy efficiency, renewable energy and energy infrastructure; through regional governments, corporate agencies or financial institutions. 51

52 CABEI: A Strong Partner for Combating Climate Change in Central America On December 14, 2016, during the XV Green Climate Fund (GCF) Board meeting held in Apia, Samoa, CABEI was formally accredited as a regional entity with direct access to the Green Climate Fund (GCF). As such, CABEI became the first entity in Central America to obtain accreditation to the GCF and the fourth regional entity for Latin America and the Caribbean to be accredited under the Fund s standards. Accreditation implies that CABEI has the capacity to carry out large-scale projects (maximum GCF category: over $250 million), as well as to obtain GCF funding for micro, small, medium and large projects. As an accredited entity of the GCF, CABEI will strengthen support for its member countries in order to meet the commitments and goals agreed upon in the different climate change conventions and to implement Nationally Determined Contributions (NDC) through the execution of regional and national projects and programs that contribute to increasing the resilience of communities to climate change and climate variability. 52

53 INDEX 1. Macroeconomic Overview 2. CABEI s Role and Policy Importance 3. Equity and Profitability 4. Funding and Liquidity 5. Credit Risk Management 6. Comparison with other MDBs - Rating 53

54 Financials: Credit Risk - Risk Management Policy Capital Adequacy and Leverage Policies: CABEI s Capital Adequacy Ratio requires that total equity represent at least 35% of total risk weighted assets. CABEI s total loan portfolio shall not exceed 3.5 times its total equity (Gearing Ratio). CABEI s maximum leverage cannot exceed 3 times its total equity (Debt / Equity). By policy, the ALCO Committee should monitor the capital adequacy indicator that incorporates the criteria established in the framework of Basel II and III. By policy, the ALCO Committee should monitor the leverage ratio established under Basel III. Main Credit Policies: CABEI s participation in project finance private sector loans must not exceed 40% of the total amount of the loan during its life (60% for projects with amounts lower than US$25 million or with public sector participation). For corporate private sector loans, the collateral put forth by the client, must maintain a minimum coverage of 100% of the total loan. Single Client Exposure (Private) must not exceed 5% of the Bank s equity, and the exposure to a regulated private financial economic group must not exceed 10%. State or mixed institutions with majority state participation with NSG should not exceed 20% of CABEI s equity. Main Credit Policies for Derivatives Exposures: Subscription of Credit Support Annexes (CSAs) with all counterparties in order to mitigate the credit exposure. In that sense, CABEI has established thresholds and margin calls (collateral). Credit risk in derivatives has been eliminated by requiring daily collateral and establish a "threshold" of 0. As part of this initiative, since December 2013, a third party provides collateral management service to CABEI. Calculation of net positions with counterparties under ISDA agreements. All counterparties must be approved by the ALCO Committee. Counterparties in derivatives contracts must have an investment grade rating. If an existing counterparty is downgraded below investment grade, no new derivative contracts can be agreed between such entity and CABEI. Credit exposure limits with derivative counterparties are defined by the following conditions: Financial internacional counterparties: Up to US$50 million. For clients (Government, Financial Institutions o Corporates): ALCO Approval. 54

55 Credit Risk - Improving Credit Quality All Private and Public Sector borrowers are current with their payments. All overdue and non-accrual loans observed in past years correspond to private sector operations. Based on historical evidence and due to its preferred creditor status, CABEI does not present overdue loans or loans in non-accrual status for its public sector borrowers. CABEI s credit quality has reached historical levels and is under control. 55

56 INDEX 1. Macroeconomic Overview 2. CABEI s Role and Policy Importance 3. Equity and Profitability 4. Funding and Liquidity 5. Credit Risk Management 6. Comparison with other MDBs - Rating 56

57 Key Financial Indicators 57

58 Peer Comparison Concept CABEI Peer Comparison Relevance Very Important for its Regional Shareholders. More important than IADB and CAF in Central America. Credit Quality Loan Portfolio Credit Quality Index has improved consistently. Allowance for Loan Losses Coverage is higher than its peers. Leverage Superior. Well diversified funding structure. Lower leverage ratios than IADB and CAF. Equity/Total Assets Solid capital ratios without adjustments. Average is higher than IADB and CAF. Paid-In Capital Profitability Currently receiving capital installments from its member countries as a result of the capitalization scheme approved in Solid and stable profitability ratios; all net income is capitalized to the General Reserve. CAF presents higher frequency in capital increases. Better cost-income ratios, ROE, ROA and NII than IADB and CAF. Liquidity Comparable and more stable. Superior than IADB average ratios and lower than CAF. 58

59 Financials: Credit Ratings Credit Ratings to Date Key Factors Supporting Investment Grade Rating: Agency Long- Term Rating Short- Term Outlook Last Reviewed S&P A+ A-1 Positive Jul-18 Fitch A+ F1 Stable Sep-17 Moody's A1 P-1 Positive Jun-18 JCR AA- N/A Stable Abr-18 *According to Moody s Supranational Rating Methodology, CABEI s indicative Rating Range is: Aa1-Aa3. Multilateral/preferred creditor status Strong capitalization Relevance in Central American Region Progress in geographic diversification of loan portfolio High liquidity and solvency Diversified fund procurement Sound asset quality Sustained growth Conservative financial policies/strict credit policies 14 upgrades in 16 years 59

60 CABEI s Risk Rating among the best in Latin America CABEI s rating A1 assigned by Moody s, is the third best credit rating in Latin America, only behind CAF (Aa3) and Chile (Aa3). This credit rating reflects the financial soundness of CABEI s profile, consolidated through the Bank's relevance in the region, the benefit it receives as a preferred creditor and the continued support of its shareholders. 60

61 Central American Bank for Economic Integration 61