Institutional Presentation - December 2018 - Central American Bank for Economic Integration April 2019 - BCIE

 
Institutional Presentation - December 2018 - Central American Bank for Economic Integration April 2019 - BCIE
Institutional Presentation – December 2018
Central American Bank for Economic Integration

                                                 April 2019
Institutional Presentation - December 2018 - Central American Bank for Economic Integration April 2019 - BCIE
Central American Bank for Economic Integration

INDEX

                             1. Macroeconomic Overview

                             2. CABEI’s Role and Policy Importance

                             3. Equity and Profitability

                             4. ALM Policy

                             5. Credit Risk Management

                             6. Comparison with other MDBs - Rating
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Institutional Presentation - December 2018 - Central American Bank for Economic Integration April 2019 - BCIE
Central American Bank for Economic Integration

Fact Sheet

             Key Economic Facts                                    Guatemala

             Area: 572,563 km2
                                                                   El Salvador
             Population: 58.9 million
             Population density: 102.9 people per km2               Costa Rica
             Population Growth (2016-2017): 1.40%
             Regional GDP: US$335 billion                            Honduras

             GDP per Capita: US$5,681
                                                                    Nicaragua
         ✓ The Central American region consists of eight
           countries: Guatemala, El Salvador, Honduras,                 Belize
           Nicaragua, Costa Rica, Belize, Panama and
           Dominican Republic.                                        Panama

         ✓ The establishment of the Central American        Dominican Republic
           Integration System (SICA) allows the region to
           work together on an economic, political and
           social level.

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Institutional Presentation - December 2018 - Central American Bank for Economic Integration April 2019 - BCIE
Central American Bank for Economic Integration

Key Statistics for Central American Region Economic Outlook

                            Economic Growth                                                            Inflation
                               (Percentage)                                                           (Percentage)

                         Most Relevant Economic Activities

                                                              ✓ Economic growth for 2019 in Latin America is estimated to be around
                                                                2.2%, while Central America’s growth is estimated at 3.2%.

                                                              ✓ Inflation forecast for 2019 in LATAM is estimated at 4.9%; 1.3% higher
                                                                than the 3.6% estimate for CA.

                                                              *Excludes Venezuela’s hyperinflation.

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Institutional Presentation - December 2018 - Central American Bank for Economic Integration April 2019 - BCIE
Central American Bank for Economic Integration

Key Statistics for Central American Region Economic Outlook

                                Central America Region: CG Debt                           ✓ During the 2000-2008 period, most of CA countries reported fiscal deficits
                                      (Percentage of GDP)                                   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 governments keep making and implementing important policy
                                                                                            measures. It also compares favorably to the LATAM average for the 2017-
                                                                                            2018 period (2.6% vs 5.8%).

                                                                                                           Central America Region: Fiscal Deficit
                                                                                                                    (Percentage of GDP)

    ✓ 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.

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Institutional Presentation - December 2018 - Central American Bank for Economic Integration April 2019 - BCIE
Central American Bank for Economic Integration

Vulnerabilities: Central America vs South America

                                                                       HTG>FTG                                    HTG=FTG               HTG
Institutional Presentation - December 2018 - Central American Bank for Economic Integration April 2019 - BCIE
Central American Bank for Economic Integration

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             Formally signed October       Improved hemispheric integration.
      and Central America                                    of 1999               Improved rules for the investments promotion.
                                                                                   Created an expanded and secure market for the goods produced.

      Free trade agreement between Panama             Formally signed March        Improved commercial relationship in the region.
      and Central America                                    of 2002               Increased the economic and social development.

      Central America* – USA Free Trade               Formally signed May of       Improved commercial relationship in the region.
      Agreement                                                2004                Increased the market access.
      (DR-CAFTA)                                                                   Encouraged a complementary agenda for Central America Region.

      Free trade agreement between Mexico                Formally signed           Improved the competitiveness between Central America and Mexico.
      and Central America                               November of 2011           Increased the economic and social development.
                                                                                   Removed commercial barriers and facilitated the trade between Central America and Mexico.

      The European Union - Central America            Formally signed June of      Improved commercial and cooperative relationship between regions.
      Association Agreement (EU-CAAA)                          2012                Increased social development in the Central America Region.

      Free trade agreement between the                   Formally signed           On June 18th 2015, Central American countries and the Republic of Korea launched negotiations towards a
      Republic of Korea and Central                   February of 2018 (but        free trade agreement, which concluded on November 16, 2016 in Managua, Nicaragua. In 2017, Central
      America**                                         not yet in effect)         America and the Republic of Korea carried out internal processes, including the legal review of the texts of
                                                                                   the free trade agreement. On February 21st 2018 the FTA was signed in Seoul, Korea with Costa Rica, El
                                                                                   Salvador, Honduras, Nicaragua and Panama. The agreement is expected to take effect following its approval
                                                                                   at the National Assembly of Korea.
      *Includes Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Dominican Republic.
      ** Includes Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama.
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Institutional Presentation - December 2018 - Central American Bank for Economic Integration April 2019 - BCIE
Central American Bank for Economic Integration

INDEX

                             1. Macroeconomic Overview

                             2. CABEI’s Role and Policy Importance

                             3. Equity and Profitability

                             4. ALM Policy

                             5. Credit Risk Management

                             6. Comparison with other MDBs - Rating
                                                                      8
Institutional Presentation - December 2018 - Central American Bank for Economic Integration April 2019 - BCIE
Central American Bank for Economic Integration

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 28th 2017 (Resolution DI-25/2017).

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Institutional Presentation - December 2018 - Central American Bank for Economic Integration April 2019 - BCIE
Central American Bank for Economic Integration

About CABEI: Member Countries
            ➢ Supranational development bank focused on Central
              America, founded in 1960                                                                                              Cuba          Dominican
            ➢ Headquartered in Tegucigalpa, Honduras                                                                                               Republic
                                                                                                                      Belize

            ➢ Founding Members:                                                                                            Honduras
                ➢ El Salvador                                                                Guatemala
                ➢ Guatemala                                                                                                         Nicaragua
                ➢ Honduras                                                                             El Salvador
                ➢ Nicaragua                                                                                                                        Panama
                                                                                                                   Costa Rica
                ➢ Costa Rica
            ➢ Non-Founding Regional Members:
               ➢ Dominican Republic (2007)
                                                                                                                                                   Mexico
               ➢ Panama (2007)
               ➢ Belize (2006) (*)
            ➢ Non-Regional Members (**):
               ➢ ROC Taiwan (1992)                                                           Founding Members                                                                 Spain
               ➢ Mexico (1992)                                                                                                                    Colombia
                                                                                             Non-Founding Regional Members
               ➢ Argentina (1995)
                                                                                             Non-Regional Members
               ➢ Colombia (1997)
               ➢ Spain (2005)
               ➢ Cuba (2018)
    (*) As of November 9th, 2016, Belize became a non-founding regional member.
    (**) On December 28th, 2018, the Republic of Korea signed the Accession Protocol to CABEI’s Constitutive Agreement and the Shares Subscription Agreement,
        thus formalizing its incorporation.                                                                                                                     Argentina   ROC (Taiwan)

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Central American Bank for Economic Integration

Organizational Structure

                                                                               Board of
                                                                              Governors                         Board of Directors Composition

                   CABEI has 318 employees situated at its
                   headquarters in Tegucigalpa and its 6
                   regional offices (1 regional office for each           Board of Directors
                   Founding Member Country and 1 office in
                   Panama). In the short term, the Bank expects
                   to open an additional regional office in
                   Dominican Republic.

                                                                          Executive President

                                                                        Executive Vice-President

                        Operations and                                        Financial                                          Credit
                                                      Sector and                                   Risk Management
                         Technology                                          Management                                       Management
                                                   Countries Division                                   Division
                           Division                                            Division                                         Division

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Central American Bank for Economic Integration

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 (2005-2016)

                                                                                                                      1 Includes Guatemala, El Salvador, Honduras,
                                                                                                                      Nicaragua and Costa Rica
                                                                                                                      * Includes CII ,
                                                                                                                      ** Includes IFC & IDA,
                                                                                                                      Source: www.iadb.org, www.worldbank.org
                                                                  Total Disbursements 2005-2016:                      CABEI.
                                                                           US$35.5 billion

     ✓ Through the years CABEI has consolidated its role as the Multilateral Development Bank with the most relevant presence in the Central American region.

     ✓ This consolidation has been mainly derived from the Preferred Creditor Treatment conferred to CABEI by its member countries.

     ✓ CABEI’s role is not and cannot be readily fulfilled by another private or domestic public institution.
                                                                                                                                                                     12
Central American Bank for Economic Integration

Rising importance of CABEI in the Region

                                                 ✓ Since its creation, CABEI has disbursed over US$27.9
                                                   billion to the Central American region.

                                                 ✓ More than 57% 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.

                                                 ✓ CABEI has a track record of more than five (5) decades
                                                   of fulfilling its public policy mandate throughout credit
                                                   cycles, and will continue to do so in the future.

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Central American Bank for Economic Integration

CABEI as part of the Central American Integration System (SICA by its acronym in Spanish)

  CABEI - SICA

  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

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Central American Bank for Economic Integration

Amendments to CABEI’s Constitutive Agreement

                                                                                                                                                                                  AA-

    ✓ On April 24, 2014, the Board of Governors instructed the Board of Directors and the Bank’s Administration to proceed with the formulation of an action plan for eventual
      modifications to the Constitutive Agreement and to the internal regulation of the Bank.
    ✓ On February 12, 2015, the Board of Governors unanimously approved amendments to CABEI’s Constitutive Agreement. Subsequently, on January 25, 2016, the Legislative
      Assembly of Costa Rica ratified the aforementioned reforms.
    ✓ 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.

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Central American Bank for Economic Integration

Regional Integration Projects

                                                 Energy Interconnectivity
                       Social Housing
      Social Housing                                                        Road Network

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Central American Bank for Economic Integration

Loan Portfolio Diversification

     Expansion to Six Lanes of Las Playas Corridor, Tranch I La                                                                       Montegrande Dam Multiple Project
     Chorrera-Santa Cruz Project                                                                                                      (Dominican Republic)
     (Panama)
                                                                                                                                      The main objective of the project is to control the Yaque del
     The project aims to expand 32.65 kilometers of Las Playas                                                                        Sur River avenues to protect the flood zone, provide the
     Corridor, improving the cross section to six lanes and                                                                           region with a supply system for irrigation, treatment and
     extending the width of the shoulder, while maintaining the                                                                       supply of drinking water, as well as renewable energy
     existing lane width in each direction. The project is expected                                                                   generation.
     to benefit more than 500 thousand inhabitants of the
     Panama Oeste Province, of which 51% are women. It is
     estimated that the project will create 1,500 temporary                                                                           CABEI Investment:
     construction jobs.
                                                                                                                                      The amount financed by CABEI is US$249.6 million.
     CABEI Investment:
     The amount financed by CABEI is US$450.0 million.
                                                                      AES Colon Project
                                                                                                                                      RANC
                                                                      (Panama)

                                                                      The project consists of a natural gas-based electrical
                                                                      generation plant with an installed capacity of 381 MW and
                                                                      includes its corresponding regasification terminal with a
                                                                      storage capacity of 180,000 cubic meters. As the first of its
                                                                      kind in Central America, the project represents a milestone
                                                                      in the development of regional energy markets due to its low
                                                                      investment and operation costs, its economies of scale and
                                                                      its limited environmental impact.

                                                                      CABEI Investment:
                                                                      The amount financed by CABEI is US$100.0 million.

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Central American Bank for Economic Integration
Results of the Amendments to CABEI’s Constitutive Agreement:
Loan Portfolio Diversification

         ✓ During 2018, CABEI approved operations for US$2,443 million of which US$987 million (40%) correspond to non-founding regional countries
           and non-regional countries.

         ✓ Such level of approvals is aligned with the Bank’s loan portfolio diversification process established as an objective under the amendments to
           its Constitutive Agreement.

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Central American Bank for Economic Integration
Results of the Amendments to CABEI’s Constitutive Agreement:
Speed of Loan Portfolio Diversification
     1992 - 2003                         2004 - 2015            2016
       $1,840                              $4,579              $6,473

                                                                        ✓ Diversification allows for the
                                                                          optimization       of       capital,
                                                                          enhancing         the        Bank's
                                                                          creditworthiness and, in turn,
                                                                          improving its risk profile.

                                                                        ✓ In 2018, the Bank’s loan
         2017                               2018               2019P      portfolio concentration risk was
        $6,835                             $7,487              $8,053     mitigated, as its top 5
                                                                          geographic exposures were
                                                                          decreased even further to 83%
                                                                          of the total portfolio.

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Central American Bank for Economic Integration

                            2015-2019 Institutional Strategy

                                                               20
Central American Bank for Economic Integration

Operations: 2015-2019 Institutional Strategy

             ✓ 2015-2019 Institutional Strategy seeks to maximize the impact of CABEI's operations on: Sustainable Economic Development of the Region and
               Sustainable Development Goals (SDGs) of the of the 2030 Agenda for Sustainable Development.

             ✓ CABEI is currently in the process of developing its 2020-2024 Institutional Strategy.

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Central American Bank for Economic Integration

Operations: 2015-2019 Institutional Strategy - Focus Areas

                                                 Competitiveness
                                                    Services

                                                                             Human Development
                                                                             And Social Infrastructure

                                                            Focus
                                Financial
                           Intermediation and
                          Development Finance               Areas                     Productive
                                                                                      Infrastructure

                                                        Rural Development
                                                                             Energy
                                                       and the Environment

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Central American Bank for Economic Integration

CABEI’s impact on development

                                           I-BCIE                                                      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.
                                                                                                                                                                    23
Central American Bank for Economic Integration

Strategic Objectives of the Institutional Strategy (2015-2019)

                                                                 24
Central American Bank for Economic Integration

INDEX

                             1. Macroeconomic Overview

                             2. CABEI’s Role and Policy Importance

                             3. Equity and Profitability

                             4. ALM Policy

                             5. Credit Risk Management

                             6. Comparison with other MDBs - Rating
Central American Bank for Economic Integration

                                                 Balance Sheet

                                                                 26
Central American Bank for Economic Integration

Balance Sheet

                                                   Balance Sheet as of December 31, 2018
                                                                (US$ Million)

                                             Assets                              Liabilities and Equity

                                     Total US$10,850                            Total US$10,850
                                                                                                          27
Central American Bank for Economic Integration

Balance Sheet Structure

                     Total Assets                Total Liabilities       Total Equity

                                  8.7%                          8.8%                     8.5%

                                    11.6%                        11.1%                      13.0%
                           5.7%                          6.5%                     4.0%
Central American Bank for Economic Integration

Financials: Balance Sheet – Loan Portfolio

                       Loan Portfolio
                                                                As of December 31, 2018
                                         7.6%          Loan Portfolio by Country US$7,487 Million
                                                9.5%
                                  5.6%

                                                                                                    29
Central American Bank for Economic Integration

Financials: Balance Sheet – Loan Portfolio Distribution by Institutional Sector and Focus Area
                                                                                As of December 31, 2018
                                                                         Total Loan Portfolio US$7,487 Million
                                                                                                                                 Loan Portfolio by Focus Area
                                     Loan Portfolio by Institutional Sector
                                                                                                                                              (%)
                                                 (US$ million)

       ✓ The Bank’s loan portfolio is mainly in the public sector; which grants CABEI a Preferred Creditor Treatment.
       ✓ Within the private sector, the portfolio has a greater proportion corresponding to the financial sector (with 59% ), in line with the trend observed over the past 5 years.
                                                                                                                                                                                       30
Central American Bank for Economic Integration

                               Profitability and Capitalization

                                                                  31
Central American Bank for Economic Integration
Consistent Profitability
                                                                                    153.7

                                                                              (*)

         (*) Net Income for year-end 2017 would have reached US$161.1 million if the effect of the additional loan loss
         reserves constituted as a result of the deterioration of El Salvador’s credit rating is excluded.

                                 CABEI, in line with the principle of institutional self-sustainability, maintains consistent levels of profitability.   32
                                                               All net income is capitalized to the general reserve.
Central American Bank for Economic Integration
Sound Capitalization

                            Capital Adequacy Ratios
                                                                                             Diversification, PCT enhancement,
                                                                                             Paid-in    Capital    from    New
                                                                                             Members, consolidation of FETS
                                                                                             to the Bank's Ordinary Capital.

    ✓ The capital adequacy ratio is the main pillar to assure CABEI’s financial soundness.

    ✓ The Bank has a strict capital adequacy requirement (35%).

    ✓ CABEI, in compliance with its ALM Policy, also monitors the Capital Adequacy Ratio
      established by the Basel II and Basel III Accords. As of December 31, 2018 the ratio
      reached 34.5%.
                                                                                                                                 33
Central American Bank for Economic Integration

Capital Structure

                                                 Capital Structure as of April 30, 2019

                                                                                          34
Central American Bank for Economic Integration

INDEX

                             1. Macroeconomic Overview

                             2. CABEI’s Role and Policy Importance

                             3. Equity and Profitability

                             4. ALM Policy

                             5. Credit Risk Management

                             6. Comparison with other MDBs - Rating
                                                                      35
Central American Bank for Economic Integration

                                         Funding and Liquidity

                                                                 36
Central American Bank for Economic Integration
Liquidity Risk - Investment Portfolio & Liquidity Levels

 ✓ Liquidity risk is mitigated by CABEI’s ALM Policy, which requires holding a minimum liquid asset
   coverage of 6 months of gross cash requirements which include 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 and the Bank’s ALM Policy, CABEI monitors both
   the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR) proposed by Basel III. As of
   December 31, 2018, the aforementioned ratios stood at 3.84x and 1.20x, respectively.

 ✓ At December 2018, the effective duration of the Investment Portfolio was 0.61 years.

 ✓ Monitor key liquidity indicators used by credit agencies to evaluate MDBs is required by CABEI’s ALM
   policy.
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Central American Bank for Economic Integration
Liquidity Risk - Investment Portfolio & Liquidity Levels

                         Investment Portfolio Credit Quality Evolution                                                     Liquidity by Sector

                                                                           3,399
                                                          2,987
                                       2,730
                    2,370

                                                                                                                                                        67.9%   76.5%
                                                                                                                   53.9%               57.8%

      ✓ The quality of the Investment Portfolio has improved in recent years, from 90% invested in liquid assets with A or higher in 2015 to 95% in 2018.

      ✓ Likewise, the investment portfolio composition by sector also reflects an improvement as the sovereign and supranational exposures increase.

                                                                                                                                                                        38
Central American Bank for Economic Integration

Funding Strategy

                      Objective                    Pilars

                                                                 •   Bond Issuances
                                                                 •   Loans
                                                   Instruments   •   Comercial Paper Program
                                                                 •   Term Deposits Program

             To access money markets and
                                                   Markets       • International
            international capital markets to
                                                                 • Regional
          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                             • Diversification by tenors
                                                   Maturities    • Asset/Liability Duration Management

                                                   Costs         • Cost Efficiency

                                                                                                         39
Central American Bank for Economic Integration

Evolution of Funding Sources

            ✓ CABEI's financing structure has been evolving due to an active participation in capital markets, which reflects the good perception international markets have
              regarding its credit profile and maturity as an institution.

            ✓ CABEI's financing structure reflects the institution’s preference for stable funding sources.

                                                                                                                                                                               40
Central American Bank for Economic Integration

Funding Diversification

                                                     Bonds Payable/Distribution by Markets and Currencies

                                          December 2006                                                                   December 2018
                                                                                                                            December
                                                                                                                          US$4,893 MM2018
                                          US$1,200 MM
                                                                                                                           EUR               THB
                                                                                                                                 HKD   JPY   1% TRY
                                                                                                               NOK         7%    1%    5%        1%
                                                                                                               3%                                           CNH
                                                                                                                                                            13%

                                                                                              CHF                                                                           CRC
                                                                                              28%                                                                 COP
                                                                                                                                                                  3%        3%
                                                                                                                                                                          ZAR
                                                                                                                                                                          2%
                                                                                                                                                                         UYU
                                                                                                                                                                         3%

                                                                                                                                                                          USD-El Salvador
                                                                                                                                                                               1%
                                                                                                                                                                        USD-Nicaragua
                                                                                                                                                                            0.5%

                                                                                                      AUD                                                                  USD-Panama
                                                                                                      3%                                                           NZD         1%
                                                                                                                    USD                               MXN          0.4%
                                                                                                                    10%                               16%

              ✓ CABEI has a highly diversified funding base and has maintained an uninterrupted access to the international capital markets.

              ✓ Historically, CABEI has made debt placements in 23 different currencies and 23 different markets.

                                                                                                                                                                                     41
Central American Bank for Economic Integration

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.

                                                                                                                                                                     42
Central American Bank for Economic Integration

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 US$250 million), as well as to obtain GCF funding for
                          Project Portfolio with GCF - Indicative Pipeline                              micro, small, medium and large projects.
               Project Name             US$ million          Status            Financial Instrument
                                                                                                      ✓ As an accredited entity of the GCF, CABEI will strengthen support for its member
         Productive Investment             28.0         Project Approved.          Loan, Grant
         Initiative for Adaptation                                                                      countries in order to meet the commitments and goals agreed upon in the different
         to Climate Change in                                                                           climate change conventions and to implement Nationally Determined Contributions
         Central America                                                                                (NDC) through the execution of regional and national projects and programs that
         Solid Waste Management            101.3      Proposal Development            Grant             contribute to increasing the resilience of communities to climate change and climate
         in Guatemala                                                                                   variability.
         Central America Dry               300.0      Proposal Development          Loan, Grant
         Corridor Programme                                                                           ✓ On October 19, 2018, in the city of Manama, Bahrain, GCF’s Board approved a financial
         Green Housing                     TBD        Pre-investment studies           TBD              contribution to the “Productive Investment Initiative for Adaptation to Climate Change
         Programme in Central                                                                           (CAMBio II)” for US$15.5 million (US$12.5 million in reimbursable resources and
         America
                                                                                                        US$3.0 million in non-reimbursable resources from the GCF).
         Sustainable Cities                TBD        Pre-investment studies           TBD
         Programme in Central
         America

         Electric Train in Costa Rica     1,200.5     Pre-investment studies           TBD

         Dry Corredor Programme            400.0      Pre-investment studies           TBD
         (FAO)

                                                                                                                                                                                             43
Central American Bank for Economic Integration

INDEX

                             1. Macroeconomic Overview

                             2. CABEI’s Role and Policy Importance

                             3. Equity and Profitability

                             4. ALM Policy

                             5. Credit Risk Management

                             6. Comparison with other MDBs - Rating
                                                                      44
Central American Bank for Economic Integration
Financials: Credit Risk - Risk Management Policy

     Capital Adequacy and Leverage Policies:                         Main Credit Policies:                            Main Credit Policies for Derivatives Exposures:

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

                                                                                                              ✓ Credit exposure limits with derivative counterparties are defined by
                                                                                                                the following conditions:
                                                                                                                     ✓ Financial international counterparties: Up to US$50 million.
                                                                                                                     ✓ For clients (Government, Financial Institutions o Corporates):
                                                                                                                        ALCO Approval.

                                                                                                                                                                                     45
Central American Bank for Economic Integration

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.
                                                 ✓ Historically and due to its Preferred Creditor Treatment, CABEI's public sector
                                                   loan portfolio does not present overdue loans or non-accrual status.
                                                 ✓ CABEI’s credit quality has reached historical levels and is under control.

                                                                                                                                     46
Central American Bank for Economic Integration

INDEX

                             1. Macroeconomic Overview

                             2. CABEI’s Role and Policy Importance

                             3. Equity and Profitability

                             4. ALM Policy

                             5. Credit Risk Management

                             6. Comparison with other MDBs - Rating
                                                                      47
Central American Bank for Economic Integration

Key Financial Indicators

                                                 48
Central American Bank for Economic Integration

Peer Comparison

                Concept                                  CABEI                                               Peer Comparison
                                                                                         More important than IADB and CAF for its Founding
        Relevance             Very Important for its Regional Shareholders.
                                                                                         Members.
                                                                                         Allowance for Loan Losses Coverage is higher than its
                              Loan Portfolio Credit Quality Index has improved
        Credit Quality                                                                   peers. As of December 31, 2017, CABEI has no overdue or
                              consistently.
                                                                                         non-accrual loans, while IADB and CAF do.
                              Conservative provisioning policy based on the credit       Greater loan loss reserve coverage ratios than IADB and
        Provisioning
                              rating of its borrowing countries.                         CAF.

        Leverage              Superior and well diversified funding structure.           Lower average leverage ratios than IADB and CAF.

        Equity/Total Assets   Solid capital ratios without adjustments.                  Average is higher than IADB and CAF.

                              Capital payments from its member countries as a result
                              of the capitalization scheme approved in 2009 are          CAF presents higher frequency in capital increases. CABEI
        Paid-In Capital
                              complete. Currently receiving capital installments from    has bolstered its track record of capital increases.
                              Panama and the Dominican Republic.
                              Solid and stable profitability ratios; all net income is   Better cost-income ratios, ROE, ROA and NII than IADB
        Profitability
                              capitalized to the General Reserve.                        and CAF.

        Liquidity             Comparable and more stable.                                Superior than IADB average ratios and lower than CAF.

                                                                                                                                                     49
Central American Bank for Economic Integration

S&P upgrades CABEI from A+ to AA

                                                 Results from the solid preferred creditor treatment that
                                                 member countries grant the Institution which supports the
                                                 Bank's capital position and the fact that CABEI has managed to
                                                 extend its mandate and increase its membership base through
                                                 the recent incorporation of the Republic of Korea.

                                                 S&P highlighted the fact that CABEI's policy importance is
                                                 supported by key developments following the 2016
                                                 amendments to it's Constitutive Agreement, which improved
                                                 the bank's governance structure, increased its membership
                                                 base, and unlocked additional financing through diversification
                                                 and capital injections.

                                                 S&P factored extraordinary support in the form of callable
                                                 capital into the rating from CABEI's highly rated shareholder,
                                                 which provides an uplift to our RAC ratio.
                                                 Currently, eligible callable capital comes from the Republic of
                                                 China, Taiwan, rated 'AA-', for $375 million. Once the Republic
                                                 Korea makes its first capital installment, an additional $337.5
                                                 million in callable capital will become eligible.
                                                                                                          50
Central American Bank for Economic Integration

Credit Ratings
                                  Credit Ratings to Date
                                                                                                                   Key Factors Supporting High Investment Grade Rating
                                      Rating
                                                                          Last                                   Very strong preferred         Very strong mandate and
               Agency           Long        Short        Outlook                                                 creditor treatment (PCT)      policy importance
                                                                        Reviewed
                                Term        Term                                                             Highly rated members              Strong capital adequacy
                 S&P             AA            A-1+       Stable          Mar-19
                                                                                                             Extraordinary shareholder         Strong liquidity position
             Moody’s*            A1            P-1       Positive         Jun-18                             support
                 JCR             AA            N/A        Stable          Mar-19                             Diversify funding strategy        High quality loan portfolio
          *According to Moody’s Supranational Rating Methodology, CABEI’s indicative
          Rating Range is: Aa1-Aa3.
                                                                                        CABEI’s Rating History

                                                                                       17 upgrades in 17 years

                                                                                                                                                                             51
Central American Bank for Economic Integration

CABEI’s Risk Rating is the best rated issuer in all Latin America

                                                                    52
Central American Bank for Economic Integration

                                                 Central American Bank for
                                                   Economic Integration
                                                       www.bcie.org

                                                                             53
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