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Management’s Discussion and Analysis of the Financial Statements of the Central

American Bank for Economic Integration (CABEI)

as of December 31, 2019

Document prepared by the Bank’s Administration

February 2020

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ORIGIN AND NATURE OF THE BANK

The Central American Bank for Economic Integration (CABEI) is a multilateral financial institution, founded on December 13, 1960 with the objective to promote the integration and balanced economic and social development of the Central American region, which includes the founding member countries and the non-founding regional member countries. Its founding members are the Republics of Guatemala, El Salvador, Honduras, Nicaragua, and Costa Rica. During the 90s, the United Mexican States, the Republic of China (Taiwan), Argentina, and Colombia joined the Bank as non-regional members. In 2005, the Kingdom of Spain joined the Bank, and in 2006, Belize joined as a beneficiary non-founding member. Also, during 2007, the Republic of Panama and the Dominican Republic completed their incorporation as non-regional and beneficiary members (they later became non-founding regional members) of the Bank. In 2016, Belize acquired the status of non-founding regional member. In July 2018, the Republic of Cuba acquired the status of non-regional member. In January 2020, the Republic of Korea acquired the status of non-regional member. As a financial institution focused on regional development, CABEI serves the public and private sector, and specializes in attracting and channeling external financial resources to promote investment and development opportunities in the region. The Bank’s main assets are the loans it grants to institutions from the public and private sector of the member countries, both regional and non-regional. In line with its conservative credit policies, the Bank has prudential exposure limits by country, company, public or mixed institution, private or public bank, as well as with economic groups. In compliance with its institutional objective of promoting the integration and economic balance and social development of the Central American region, which includes the founding members and the non-founding regional members, CABEI has become the main channel of resources to the Central American region through strategic financial projects and initiatives in favor of the development of the region.

To fulfill this mission, the support of CABEI’s members is evidenced through the preferred creditor status granted to the Bank, the received payments of capital, and the

1 Short term, zero-coupon investment instruments directed to international (Global Commercial Paper) and regional (Regional Commercial Paper) investors.

diligence with which its creditor members honor their debt payments in time with the Bank. The implementation of prudential financial policies has granted the Bank with self-sustainability, high levels of capitalization, diversified sources of financing, a highly liquid investment portfolio, and an efficient limit on diverse financial risks such as credit risk, market risk, and liquidity risk. The Bank’s objective is to generate a level of income enough to preserve its financial strength and to sustain its growth. Table No.2 sets forth financial information corresponding to the previous 2 years. With the purpose of guaranteeing the flow of financial resources needed by the Central American region, the Bank has formulated a Financial Strategy which sets the general frame of reference under which CABEI’s financial administration is set, providing the elements which allow a balance between the criteria of risk and profitability, thus, guaranteeing at any given time, the availability of the necessary resources to achieve the Institution’s development objectives. Within the Financial Strategy are set forth several activities, among which is the one for Obtaining Financial Resources. This activity has the objective of strengthening the creation and attainment of capital, market resources, and concessional resources to attend to the financing needs of the region, efficiently and without interruptions. The Bank has established a Financial Strategy whose objective is and has been to ensure the existence and availability of the necessary resources to comply with its obligations and provide financing at the lowest and most stable cost possible to benefit the borrowing countries. Considering this objective, the Bank seeks to guarantee its achievement through the diversification of instruments, markets, and maturities. The Bank issues debt in diverse currencies, markets, structures, and formats, with the objective of maintaining a diversified source of investors. CABEI also obtains bilateral funding through loan contracting at market conditions, as well as concessionally, short-term lines of credit and certificates of deposit, as well as through the issuance of commercial paper under its Global and Regional Programs1.

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The Bank’s assets and liabilities are held mainly in U.S. dollars, which is the functional currency used by the Bank to present its financial statements. Financial Statements Presentation: The Bank’s accounting policies and financial information are in accordance with accounting principles generally accepted in the United States of America (US GAAP). They include all adjustments, consisting of normal recurring and non-recurring accruals, that management considered necessary to fairly present the Bank’s financial position, results of operations, and cash flows. External Auditors: External auditors are appointed by the Board of Governors following a competitive bidding process. In 2019, the Board of Governors appointed the firm Galaz, Yamazaki, Ruiz Urquiza, S.C. (Deloitte México) as the Bank’s external auditors for a five-year period as of 2019, with the purpose of auditing the Bank’s financial statements, the financial statements of the Funds and Programs managed by CABEI, as well as issuing a report on the effectiveness of internal control over financial reporting based on the criteria established in the Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). For the 2018 period, the external audit firm appointed for the audit of CABEI’s financial statements was Ernst & Young México (Mancera S.C.).

RELEVANT FINANCIAL EVENTS

Capital Subscription: On December 31, 2019, the “Accession Protocol of the Republic of Korea to the Constitutive Agreement of CABEI”, as well as the “Shares Subscription Agreement Between the Republic of Korea and CABEI”, entered into full force and effect, once the Republic of Korea informed the fulfillment of its constitutional and legal requirements to become a non-regional member of CABEI. Consequently, as of December 31, 2019, the Republic of Korea has a participation of 45,000 “B” Series Shares, with a nominal value of US$10.0 thousand each, for a total subscription of US$450.0 million, of which, US$337.5 million correspond to callable capital and US$112.5 million correspond to paid-in capital. On January 10, 2020, the Republic of Korea fulfilled all the requirements to become a non-regional member of CABEI through the payment of the first of four consecutive capital installments of US$28.1 million corresponding to its US$450.0 million capital subscription.

Eighth General Capital Increase: As an indisputable sign of the support that member countries are granting the Institution, on November 15, 2019, the Bank’s Board of Governors increased the Institution’s authorized capital by US$2,000.0 million, from US$5,000.0 million to US$7,000.0 million, and established the conditions applicable to the subscription of shares under the aforementioned capital increase. This is the Bank’s Eighth General Capital Increase and the second one in less than ten (10) years, confirming CABEI’s high franchise value, as well as its relevance to the region as the main provider of financial resources. This increase in CABEI’s authorized capital will generate new paid-in capital installments for at least US$255 million, beginning in 2020. Credit Rating: On September 19, 2019, Standard & Poor’s (S&P) rating agency affirmed CABEI’s long-term international risk rating of CABEI of “AA”; with a “stable” outlook. In accordance with the official statement issued by the agency, the increase by two (2) notches, on March 8, 2019 (from “A+”), results from the continued consolidation of the Bank’s expanded mandate following the increase in its membership base with the incorporation of the Republic of Korea, as well expanded participation of Panama and the Dominican Republic. S&P indicated that its affirmation reflects its expectation that CABEI will continue to benefit from preferred creditor treatment from its shareholders, which augments its enterprise risk profile and capital position.

On September 18, 2019, Moody's Investors Service (Moody's) rating agency increased the long-term international risk rating of the Central American Bank for Economic Integration (CABEI) by one (1) scale from “A1” to “Aa3” with a stable outlook. According to the official statement issued by the rating agency, the aforementioned improvement was the product of the diversification and strengthening of the CABEI shareholder base, subsequent to its finalization of the incorporation process of the Republic of Korea and in line with its solid capital liquidity and adequacy indicators. Regarding the incorporation of the Republic of Korea, Moody's highlighted that this country will become CABEI's second non-regional member with the largest shareholding by means of the subscription of US$450.0 million, which is equivalent to 9.2% of the Bank's subscribed capital and increases CABEI’s capital subscribed by members with an “investment grade” rating from 32% to 38%. In addition, the rating agency stressed that such incorporation will further strengthen CABEI's capital position, while mitigating the key credit risks associated with possible deterioration in the credit quality of the region.

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On March 25, 2019, Japanese rating agency, Japan Credit Rating (JCR) upgraded the international long-term issuer credit rating on Central American Bank for Economic Integration (CABEI) by one notch, from AA- to AA; with a stable outlook. According to JCR’s official press release, the amendments to CABEI’s Constitutive Agreement, which came into effect in 2016, have enabled the Bank to further strengthen its equity base, prompt a new capital increase and diversify its loan portfolio. The credit rating agency also emphasized that the incorporation of the Republic of Korea as a non-regional member of CABEI will help diversify the Bank’s shareholder composition and boost its capital position and lending capacity. The following is a detail of CABEI's credit risk ratings:

Financial Conditions: During 2019, the Bank approved two (2) cuts to the revisable spread of the interest rate applicable to public sector operations with sovereign guarantee, granted under the variable interest rate referenced to LIBOR scheme, which totaled twenty-five (25) basis points2 (bps). This is a result of the favorable evolution of the Bank’s credit risk rating and the improvements in its cost of funding. Fourth Assignment and Issuance of “C” Series Shares: On April 26, 2019, the fourth assignment and issuance of "C" Series Shares was carried out, with December 31, 2018 as the cutoff date. 29,401 shares were distributed among CABEI’s members according to the guidelines established in the Bank's Capitalization Regulation (AG-10/2015). This assignment was carried out under the amendments approved to the Constitutive Agreement, through Resolution AG-1/2015, which creates “C” Series Shares, issued in favor of the holders of the “A” and “B” Series Shares with a face value of zero, which will have the purpose of aligning the equity value of the shares with their nominal value and will be issued as the result of a periodic assignment process, as regulated and approved by the Board of Governors. Capital Contributions: During 2019, the non-founding regional and non-regional members made capital payments of US$24.7 million (US$24.6 million in cash and US$0.1 million through the use of “E” Series certificates) and US$3.1 million in cash, respectively.

2 One 15bps cut as of the second quarter of 2019 and a 10bps cut as of December 2019.

Table No.1: Capital Payments Received (Millions of US$)

Climate Change: Within its 2020-2024 Institutional Strategy, the Bank has included an agenda that ensures long-term environmental and social sustainability; given that the Central American Region faces economic, social, and environmental challenges, such as: extreme poverty, inequality, insecurity and adverse environmental events, which manifest with greater intensity due to effects of climate change. This Strategy has a transversal axis of environmental and social sustainability, which is backed by the approval of programs and projects that favor social appropriation and meet the need to preserve the environment, as well as the promotion of initiatives for environmental sustainability that facilitate a transition to a low-carbon economy and resiliency to climate change. Furthermore, in line with the statement expressed by the Bank’s Board of Governors to abstain from financing projects related to the exploration and extraction of coal and generation of coal-related energy, the Bank seeks to materialize that commitment by taking steps towards the adaptation and mitigation of climate change. The Bank will finance climate change mitigation and prevention projects, as well as providing support to strengthen low-carbon economies, resilient societies, sustainable food production, clean energy generation and projects aimed at increasing efficiency in the use of resources. During said strategic period, the Bank estimates a dynamic allocation of resources in the amount of US$1,200.0 million from external sources for operations related to climate change. To reduce the environmental and social risk of operations financed by CABEI, it will only finance those operations whose environmental, social and climatic risk-assessment and monitoring, complies with the requirements established in CABEI’s Environmental and Social Policy.

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In line with the Institutional Strategy, the Bank’s Operational Plan for the 2020-2022 period includes the objective of developing a program for the comprehensive risk management of natural disasters and climate change adaptation. Hence, by the end of 2022, the Bank estimates to allocate at least US$720.0 million for financing operations related to climate change mitigation and adaptation, which reaffirms CABEI's commitment to support its member countries in the fight against climate change. Some of the concrete actions developed by the Bank in support of climate change mitigation, are the following: 1. On September 6, 2017, CABEI and the Green Climate

Fund (GCF) signed the Accreditation Master Agreement (AMA), which will allow CABEI to channel the Fund’s financial resources, once its climate change programs and projects receive approval from GCF’s Board. Inside the scope of this agreement, CABEI is developing a portfolio of mitigation and adaptation programs and projects at a national and regional level, which will contribute to increase the resiliency of communities to the effects of climate change and weather variability.

Additionally, CABEI is also accredited as Permanent Observer of the United Nations Framework Convention for Climate Change (UNFCCC), as a Regional Implementing Entity by the Climate Change Adaptation Fund (AF), and is a founding member of International Development Finance Club (IDFC).

2. On November 15, 2019, CABEI issued a US$375.0 million Floating Rate “USD Reg S Only” 5-year Green Bond. These resources will be used to finance or refinance Green Projects and Assets eligible under CABEI’s Green Bond Framework, supporting strategic sectors which contribute to the transition of the Central American Region towards low-carbon economies, including the sustainable use of land, renewable energy, sustainable water management and clean transport, among others.

Integration of the Special Fund for the Social Transformation of Central America (FETS) into the Bank's ordinary capital: Since the economic-financial situation of the countries eligible under the Heavily Indebted Poor Countries Initiative (HIPC) has improved and, as a result, the applicable external financing policies have been modified, the purpose for which FETS was created has been fulfilled. Consequently, on April 26, 2018 through Resolution No.AG-10/2018, the Bank's Board of Governors

approved the proposal to integrate FETS into the Bank's ordinary capital. The Resolution came into effect on August 22, 2018, once the amendment to article 6 of CABEI’s Constitutive Agreement, which established that FETS existed within the Bank as an independent and separate fund from the Bank’s ordinary capital, became effective. Consequently, the effective date of the integration of FETS into the Bank's ordinary capital was, November 30, 2018, and, as of that date, FETS’s financial figures became a part of the Bank's balance sheet. The following is a summary of FETS’s integrated figures (millions of US$) to the Bank's financial statements:

FINANCIAL RESULTS HIGHLIGHTS

Local Currency Financial Intermediation Program: Under the framework of its Financial Strategy, CABEI continues to boost its Local Currency Financial Intermediation Program, offering diversification opportunities to local investors through a new category of assets, taking into account the high exposure that they maintain to the sovereign and to the domestic financial system, strengthening the Bank's impact on development by means of initiatives such as the Micro, Small and Medium Enterprise (MSME) Support Program, the Municipal Infrastructure Financing Program and the Financial System Liquidity and Expansion Program, among others.

2018

Concept Amount

Cash and demand deposits 2.1

Interest-bearing deposits with banks 61.7

Net loans 42.1

Accrued interest receivable 0.7

Other assets 0.0

Total assets 106.6

Loans payable 10.8

Accrued interest payable 0.0

Other liabilities 25.2

Total liabilities 36.0

Retained earning 70.6

Total equity 70.6

Total liabilities and equity 106.6

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Credit Operations: As of December 31, 2019, the Bank approved twenty-one (21) operations for an aggregate amount of US$2,637.6 million, placing it at a level below the one observed the previous year in terms of the number of approvals (24); however, it presents an increase of US$194.3 million (8.0%) with respect to the amount observed at the end of 2018 (US$2,443.4 million). On the other hand, disbursements during 2019 amounted to US$1,933.9 million; amount that is US$71.4 million (3.8%) over the US$1,862.4 million disbursed at the end of 2018. The undisbursed portion of the approved loans (loan commitments) increased by US$1,144.5 million (18.5%), amounting to US$7,337.8 million3 as of December 31, 2019 compared to the US$6,193.3 million observed at the end of 2018. During the year 2019, the loan portfolio increased by US$216.9 million (2.9%), reaching US$7,704.3 million, compared to the US$7,487.4 million observed at the end of 2018. Public and private sector participation in the total loan portfolio, reached 82% and 18% for both years, respectively. Market Environment and Financing Strategy: During 2019, funding was managed in accordance with CABEI's Financing Strategy, whose main objective is to ensure the necessary resources for the Bank to comply, in a timely manner, with its obligations and provide financing at the lowest and most stable cost possible, for the benefit of the borrowing countries. In light of this objective, CABEI sought to diversify its funding sources based on the following three (3) pillars: Instruments, Maturities and Markets.

Medium- and Long-Term Financing: At the end of 2019, CABEI’s funding amounted to US$1,229.0 million in medium and long-term instruments, of which US$1,116.3 million came from bond issuances in international markets, and US$112.7 million came from long-term loans payable. Short-Term Financing: In addition to medium- and long-term financing and considering the diversification of instruments required by the Funding Strategy, short-term liability transactions were executed. At the end of 2019, Certificates of Deposit and Investment increased by US$28.5 million (2.2%), reaching US$1,327.4 million (US$1,298.9 million at the end of 2018). Commercial Paper Programs increased by US$34.5 million (138.0%), reaching US$59.4 million at the end of 2019 (US$25.0 million at the end of 2018). During 2019, there were no additional

3 For purposes of disclosure in the Financial Statements, only the deeded transactions

are included in the loan commitments, which represent a contractual commitment for the Bank. As of December 31, 2019, these operations amounted to US$3,219.1 million.

proceeds from short-term financing through bilateral lines with international commercial banks and their balance stood at US$200.0 million (US$305.0 million at the end of 2018). Financial Results: During 2019, CABEI generated a net income of US$228.5 million, which represented an increase of US$4.9 million (2.2%) with respect to the net income of US$223.5 million at December 31, 2018. The variation in net income is mainly due to an increase in net financial income of US$24.6 million (10.2%), an increase in the valuation of derivative financial instruments and debt of US$22.2 million (301.7%), an increase in other operating income, net of other operating expenses and special contributions of US$3.4 million (59.0%), offset by a decrease in the reversal of provisions for credit losses of US$40.5 million (-91.8%) and an increase of US$ 4.7 million (9.5%) in administrative expenses. Capital Adequacy: CABEI manages its capital in order to ensure a solid equity position to support the current level of risk-weighted assets and their growth. The Bank’s capital adequacy is measured through the following ratio: Equity/Risk-Weighted Assets4, which, according to its Asset Liability Management Policy must be over 35% and according to the Risk Appetite for 2018, must be over 38%. As of December 31, 2019, said ratio was 41.8%. Additionally, the Bank also monitors the Capital Adequacy Ratio established by the Basel II and Basel III Accords. According to the methodology established by said Committee, the capital adequacy ratio was 35.5% at the end of 2019.

4 The ratio of risk-weighted assets is defined as: The ratio (Equity/Risk-Weighted Assets) x 100%. The assets are weighted according to the risk weights established by the Basel Committee on Banking Supervision.

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Table No.2: Selected Financial Data The following information is based on the Financial Statements of CABEI

(in millions of US$)

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CREDIT ACTIVITY

CABEI’s credit activity focuses primarily on financing programs, projects and investments that contribute to the development of the region. In addition to direct loans, the Bank offers intermediated loans through a wide network of Intermediary Financial Institutions (IFIs), such as banks, cooperatives, and non-banking financial institutions. Hence, the Bank is the main provider of long-term resources in the region, which are channeled to finance high-impact projects for the development of the borrowing countries. Under this approach, during 2019, the Bank’s approvals and disbursements amounted to US$2,637.6 million and US$1,933.9 million, respectively; both directed towards the focus areas defined in the Institutional Strategy 2015 - 2019.

Graph No.1

Loan Approvals by Focus Area December 2019 (Millions of US$)

Graph No. 2 Loan disbursements by Focus Area

December 2019 (Millions of US$)

Approvals: CABEI’s approvals increased by 8.0% during 2019, with respect to the level of approvals in 2018.

Table No.3 Approvals by Country

As of December 31, 2019 and 2018 (Millions of US$)

Also, as can be seen in Table No.4, 90% of total approvals in 2019 corresponds to public sector operations.

Table No.4

Approvals by Institutional Sector December 2019 (Millions of US$)

Graph No.3 Evolution of Approvals by Institutional Sector

Disbursements: During 2019, CABEI disbursed resources for an aggregate amount of US$1,933.9 million, 3.8% above the level of disbursements observed at the end of 2018. 63% of the disbursements made as of December 31, 2019 were directed to the public sector.

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Table No.5 Loan Disbursements by Country

As of December 31, 2019 and 2018 (Millions of US$)

Table No.6 Disbursements by Institutional Sector

December 2019 (Millions of US$)

Graph No.4 Evolution of Disbursements by Institutional Sector

Loan Commitments: Loan commitments are comprised of approved non-deeded operations, deeded operations pending disbursement, and the undisbursed portion of those operations that are in the execution status. During 2019, these commitments increased by US$1,144.5 million (18.5%) in relation to the previous year, standing at US$7,337.8 million, compared to the US$6,193.3 million observed at the end of 2018. On this regard, loan commitments corresponding to the public sector increased by US$637.2 million (10.4%), while loan commitments to the private sector increased by US$507.3 million (726.6%). At the end of 2019, loan commitments corresponding to the public sector represented 92% of the Bank's total loan commitments, while the remaining 8% corresponded to the private sector.

Graph No.5 Evolution of Loan Commitments

(Millions of US$)

Graph No.6 Evolution of Loan Commitments by Institutional

Sector

Table No.7 Loan Commitments by Country and Status

(Millions of US$)

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BALANCE SHEETS

ASSETS: Table No.8

Total Assets (Millions of US$)

A) Cash and demand deposits: As of December 31, 2019, cash and demand deposits decreased by US$7.5 million (19.7%), standing at US$30.6 million as of December 31, 2019 compared to a balance of US$38.1 million at the end of 2018. These balances are within the parameters defined for the management of the Bank's cash flow.

B) Investments5:

5 Includes interest-bearing deposits with banks and securities available for sale.

The Bank invests its liquid assets in securities and deposits in institutions with a high credit rating, predominantly outside the region, which may include obligations from governments, multilateral organizations, as well as financial and corporate institutions. In accordance with the Bank's Investment Policy, a minimum of 80% of the Investment Portfolio must have an “A” rating (includes A-, A, A +) or better, and there can be a maximum of 20% of non-rated instruments or instruments with a rating lower than the “A” range (including A-, A, A+), subject to approval by the Bank’s Asset and Liability Committee (ALCO). Graph No.7 shows the Investment Portfolio by instrument rating.

Graph No.7 Evolution of the Investment Portfolio by Credit Rating

As shown in Table No.9, the integration of the Investment Portfolio as of December 31, 2019 is as follows: Money Market instruments of US$2,132.8 million, represent 54.6% of total investments (50.4% in December 2018), Sovereign Securities Portfolio with US$1,183.6 million representing 30.3% (30.5% in December 2018), Supranational Securities Portfolio with US$384.2 million, representing 9.8% (10.3% in December 2018), Corporate Securities with US$14.1 million, representing 0.4% (4.6% in December 2018) and Investment Funds with US$189.8 million, representing 4.9% (4.2% in December 2018).

Table No.9

Securities Available for Sale (Millions of US$)

Concept Amount % Amount % Amount %

Money Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,132.8 54.6% 1,694.0 50.4% 438.8 25.9%

Sovereigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,183.6 30.3% 1,025.6 30.5% 158.0 15.4%

Supranational . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384.2 9.8% 345.1 10.3% 39.2 11.4%

Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1 0.4% 153.9 4.6% (139.8) (90.8%)

Investment Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189.8 4.9% 142.7 4.2% 47.2 33.1%

Total Portafolio (1)

3,904.5 100.0% 3,361.1 100.0% 543.4 16.2%

Variation2019 2018

The primary objective of the Investment Portfolio is to maintain the necessary liquid resources to cover the Bank's obligations, thus ensuring the continuity of operations, even in the case of adverse conditions in the markets to raise funds. The funds are held primarily to preserve capital and guarantee a continuous cash flow, and not to generate extraordinary returns.

CABEI has established conservative guidelines in the Investment Policy and Manual, which include the Bank's investment process, starting with the origin of the transactions, until their maturity or disinvestment. Likewise, this process defines the roles played by different divisions, the types of eligible assets, risk appetite, profitability measurement, monitoring and required documentation. The risk rating agencies favor CABEI’s conservative guidelines regarding the management of the Investment Portfolio. In this sense, CABEI, like other Multilateral Development Banks, does not consider its treasury activities as a significant source of income. Instead, these activities focus on ensuring enough liquidity to meet all of the Bank's financial commitments at the lowest possible cost. The Bank seeks to maintain the risk of its treasury activities within reasonable margins.

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The Bank’s liquidity risk is mitigated through the application of its internal Asset and Liability Management (ALM) Policy, which requires holding a minimum liquid asset coverage of 6 months of gross cash requirements (see Graph No.8). In addition, CABEI maintains high levels of liquidity in relation to its total assets. In turn, in line with international liquidity risk management standards contemplated in the aforementioned policy, CABEI monitors the liquidity indicators set by the Basel III framework LCR - Liquidity Coverage Ratio and NSFR - Net Stable Funding Ratio. As of December 31, 2019, these ratios stood at 3.88x and 1.25x, respectively.

Graph No.8 Evolution of the Liquidity Ratio

C) Loans: The Bank’s main assets are loans granted to governments and public sector institutions, and private sector entities in the member countries, including the founding, non-founding regional, and non-regional members. During the year 2019, the loan portfolio increased by US$216.9 million (2.9%), reaching US$7,704.3 million at the end of December 2019 compared to US$7,487.4 million observed at the end of 2018. This is the result of an increase of US$127.4 million in the public sector portfolio, whose balance increased from US$6,158.1 million at the end of 2018 to US$6,285.5 million at December 2019, and, due to an increase in the balance of the private sector portfolio of US$89.6 million, from US$1,329.2 million at the end of 2018 to US$1,418.8 million in 2019.

Table No.10 Loans by Institutional Sector

(Millions of US$)

As can be seen in Graph No.9, as of December 31, 2019 and 2018, the public and private sector participation in the total loan portfolio was 82% and 18%, for both years.

Graph No.9 Evolution of Loans by Institutional Sector

Regarding portfolio distribution by market sector (Graph No.10), the private sector is composed of a 72% share for the financial sector and 28% for the corporate sector.

Graph No.10

Loans by Market Sector (Millions of US$)

Regarding credit activity by country, portfolio growth was experienced in Nicaragua, Costa Rica, El Salvador and Honduras for US$115.9 million, US$97.0 million, US$64.8 million and US$56.9 million, respectively. This growth was offset by a decrease in Panama, Guatemala, Mexico, the Dominican Republic, Colombia, and Belize of US$56.6 million, US$29.6 million, US$15.0 million, US$14.5 million, US$1.1 million and US$0.9 million, respectively.

Amount % Amount % Amount %

Public Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,285.5 81.6% 6,158.1 82.2% 127.3 2.1%

Private Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,418.8 18.4% 1,329.2 17.8% 89.6 6.7%

Total Loans 7,704.3 100.0% 7,487.4 100.0% 216.9 2.9%

Concept

2019 2018 Variation

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Table No.11 Loans

(Millions of US$)

Also, with the objective of meeting the financing needs in regional currencies required by loans under Special Programs, the Bank grants loans in said currencies. This is carried out with the purpose of limiting the exposure to exchange rate risk.

Table No.12

Loans by Currency (Millions of US$)

Loan Portfolio Collateral: The Bank has credit risk coverage in order to reduce its exposure to said risk. The effective coverage as of December 31, 2019 is the following:

Table No.13

Credit Risk Coverage (Millions of US$)

Loans in arrears and non-accrual status: The evolution of CABEI's loan portfolio credit quality is measured mainly through the Non-Accrual6 and Arrears7 Ratios, which as of December 31, 2019 stood at 0.01% (0.00% in 2018) and 0.01% (0.00% in 2018), respectively. At the end of December 2019, the balance of the loan portfolio in arrears amounted to US$0.6 million.

6 Interest recognition on all loan installments is discontinued when they are 90 days or more in arrears on principal and/or interest based on contractual terms, for private sector loans, and when they are 180 days or more in arrears for public sector loans.

At the end of December 2018, there were no outstanding balances in arrears. On the other hand, loans in non-accumulation status at the end of 2019 amount to US$0.8 million, corresponding in its entirety to the private financial sector. At the end of December 2018, there were no loans in non-accrual status. The composition of loans by market sector in arrears and in non-accrual status is presented below:

Table No.14

Loans in Arrears (Millions of US$)

Table No.15 Loans in non-accrual status

(Millions of US$)

D) Allowance for loan losses: The allowance for loan losses decreased by US$2.2 million, reaching US$246.6 million as of December 31, 2019 (US$248.9 million at the end of 2018). As shown in the following table, the decrease in the allowance balance of US$2.2 million is composed of a decrease of US$2.1 million and US$0.2 million in the balance of allowance for the public and private sector, respectively. The decrease in the generic allowance for public sector loan losses is mainly due to the aggregate effect of net flow, changes in loan durations and in probabilities of default. Therefore, the decrease in the allowance for public sector loan losses is explained entirely by the downward variation in the sector’s generic allowance, while the decrease in the allowance for private sector loan losses results from a decrease in the generic allowance of US$7.6 million offset by an increase in the sector’s specific allowance of $ 7.4 million, as shown below:

7 Loan installments are considered in arrears the moment there is a default in their effective date of payment.

Country Amount % Amount % Amount %

Guatemala . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,036.4 13.5% 1,066.0 14.2% (29.6) (2.8%)

El Salvador . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,232.0 16.0% 1,167.2 15.6% 64.8 5.5%

Honduras . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,471.1 19.1% 1,414.3 18.9% 56.9 4.0%

Nicaragua . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,369.3 17.8% 1,253.4 16.7% 115.9 9.2%

Costa Rica . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,435.7 18.6% 1,338.7 17.9% 97.0 7.2%

Dominican Republ ic . . . . . . . . . . . . . . . . . . . . . . . . . . . . 437.4 5.7% 452.0 6.0% (14.5) (3.2%)

Panama. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420.1 5.5% 476.7 6.4% (56.6) (11.9%)

Bel ize . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.3 0.2% 13.2 0.2% (0.9) (6.6%)

Colombia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182.6 2.4% 183.7 2.5% (1.1) (0.6%)

Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104.8 1.4% 119.8 1.6% (15.0) (12.5%)

Argentina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 0.0% 2.5 0.0% 0.0 0.3%

Total 7,704.3 100.0% 7,487.4 100.0% 216.9 2.9%

Variation2019 2018

Currency Amount Amount Amount %

U.S. Dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,538.0 7,357.3 180.7 2.5%

Currencies from Central American countries 165.1 128.2 36.9 28.8%

Euros . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 1.9 (0.7) (34.8%)

Total Loans 7,704.3 7,487.4 216.9 2.9%

Variation2019 2018

Country Guarantee Instrument Amount

El Salvador SovereignUS Treasury Zero-Coupon

Bond31.7

Honduras SovereignUS Treasury Zero-Coupon

Bond263.2

Nicaragua SovereignUS Treasury Zero-Coupon

Bond25.5

Total 320.4

Amount % Amount % Amount %

Financial Private Sector . . . . . . . . . . . . . . . . . . . . . . 0.6 100.0% 0.0 0.0% 0.6 -

Coporate Private Sector . . . . . . . . . . . . . . . . . . . . . . 0.0 0.0% 0.0 0.0% 0.0 0.0%

Total 0.6 100.0% 0.0 0.0% 0.6 -

Concept

2019 2018 Variation

Amount % Amount % Amount %

Financial Private Sector . . . . . . . . . . . . . . . . . . . . . 0.8 100.0% 0.0 0.0% 0.8 -

Coporate Private Sector . . . . . . . . . . . . . . . . . . . .. . 0.0 0.0% 0.0 0.0% 0.0 0.0%

Total 0.8 100.0% 0.0 0.0% 0.8 -

2018 Variation

Concept

2019

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Table No.16 Allowance for Loan Losses

(Millions of US$)

E) Derivative Financial Instruments: The Bank uses derivative and hedging instruments to reduce its risk exposure to changes in interest rates and foreign exchange rates. The Bank does not use derivative instruments for trading or speculative purposes. As of December 31, 2019, the effect of mark-to-market and collateral, after offsetting, amounted to US$18.9 million, which represents a decrease of US$6.6 million (25.8%) with respect to the balance as of December 31, 2018 for US$25.5 million. The breakdown of the variation in the derivative financial instrument account with respect to 2019 year-end is presented below:

Table No.17 Derivative Financial Instruments

(Millions of US$)

As seen in table No.17, the variation in derivative financial instruments with respect to 2018 results from a decrease in the gross balance of such instruments for US$116.3 million (27.1%), and the offsetting effect which increased by US$109.8 million (27.2%). F) Equity Investments: As of December 31, 2019, and 2018, the Bank's investments in shares and participations reached a balance of US$29.3 million and US$31.1 million, respectively.

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Table No.18 Equity Investments

(Millions of US$)

As seen in Table No.18, there were no significant variations.

G) Other Assets: Other assets as of December 31, 2019 and 2018, is detailed as follows:

Table No.19 Other Assets

(Millions of US$)

As shown in Table No.19, the most significant variation corresponds to advances to suppliers, which increased by US$8.6 million at the end of December 31, 2019, reaching a balance of US$14.1 million compared to US$5.5 million at the end of 2018. Another significant variation corresponds to the surplus of assets over actuarial liabilities of Social Benefit Fund which increased by US$4.7 million to US$8.0 million at December 31, 2019, from US$3.3 million at the end of 2018. H) Endorsements, Guarantees Granted and Letters of Credit: CABEI grants direct or indirect guarantees to institutions and public or private companies to support, among others, the following obligations: a) Contracted debt with financial institutions: granting

guarantees in order to facilitate the obtaining of resources that come from sources acceptable to CABEI.

b) Issuance of Securities: granting of guarantees, total or partial, to back issued securities.

c) Any operation of a similar nature whose objective is to contribute to the economic and social development of the founding members and/or non-founding regional members or to be framed in the conditions of eligibility established to deal with operations in non-regional members, including, among others, guarantees of participation and guarantees of compliance.

In addition, CABEI provides support, in the form of a credit/risk guarantee, to operations in which, i) a benefit is assured to the obligee through competitive financial conditions, ii) the diversification of funding resources for the obligee is encouraged, iii) the development of regional capital markets is promoted and, iv) CABEI's role as a catalyst is reinforced through the attraction of financial entities or private investors that would otherwise not be willing to participate in financing operations.

Table No.20 Endorsements, Guarantees and Letters of Credit

(Millions of US$)

LIABILITIES:

Table No.21

Total Liabilities (Millions of US$)

Concept Amount % Amount % Amount %

Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 17.2% 3.8 22.8% 3.4 91.6%

Advances to suppliers . . . . . . . . . . . . . . . . . . . . . . . . . 14.1 33.8% 5.5 33.5% 8.6 156.1%

Foreclosed assets, net of fair value adjustments. . . . . . 11.6 27.8% 12.2 73.8% (0.5) (4.1%)

Surplus of assets over actuarial liabil i ties of Social

Benefit Fund . . . . . . . . . . 8.0 19.1% 3.3 20.2% 4.7 139.7%

Fees paid in advance . . . . . . . . . . . . . . . 0.9 2.0% 1.0 5.9% (0.1) (11.3%)

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 0.1% 0.0 0.1% 0.0 75.0%

Total 41.8 100.0% 16.5 100.0% 25.4 154.1%

2019 2018 Variation

Concept Amount % Amount % Amount %

Endorsements and guarantees granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53.0 79.2% 62.0 46.1% (8.9) (14.4%)

Letters of credit . . 14.0 20.8% 72.6 53.9% (58.6) (80.8%)

Total 67.0 100% 134.5 100% (67.5) (50.2%)

2019 2018 Variation

Amount Amount Amount %

Loans payable . . . . . . . . . . . . . . . . . . . . . . . . . 1,160.0 1,321.4 (161.4) (12.2%)

Bonds payable . . . . . . . . . . . . . . . . . . . . . . . . 5,512.0 4,893.5 618.5 12.6%

Commercial paper program . . . . . . . . . . . . . . . . . 59.4 25.0 34.5 138.0%

Certificates of deposit . . . . . . . . . . . . . . . . . . . . . 1,327.1 1,298.4 28.6 2.2%

Certificates of investment . . . . . . . . . . . . . . . . 0.3 0.5 (0.2) (40.1%)

Accrued interest payable . . . . . . . . . . . . . . . . . 52.4 59.8 (7.3) (12.3%)

Derivative financial instruments . . . . . . . . . . . . . 1.4 0.3 1.1 407.5%

Other liabi lities. . . . . . . . . . . . . . . . . . . . . . . . . . . 55.1 53.3 1.8 3.3%

Total Liabilities 8,167.6 7,652.1 515.5 6.7%

ConceptVariation2019 2018

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Debt: The debt acquired in a given year is mainly used to finance the Bank's lending operations. At the end of 2019, CABEI received an aggregate amount of US$1,229.0 million in medium and long-term instruments, of which US$1,116.3 million comes from bond issuances in international markets, and US$112.7 million comes from long-term loans payable. In addition to medium- and long-term financing and considering the diversification of instruments required by the Funding Strategy, short-term liability transactions were carried out. At the end of 2019, Certificates of Deposit and Investment increased by US$28.5 million (2.2%), reaching US$1,327.4 million (US$1,298.9 million at the end of 2018). Commercial Paper Programs increased by US$34.5 million (138.0%), reaching US$59.4 million at the end of 2019 (US$25.0 million at the end of 2018). During 2019, there were no additional proceeds from short-term financing through bilateral lines with international commercial banks and their balance stood at US$200.0 million (US$305.0 million at the end of 2018).

Table No.22

Debt (Millions of US$)

On the other hand, as shown in Graph No.11, after giving effect to cross-currency swaps, debt is mostly denominated in U.S. dollars (97.9%), while the remaining 2.1% is denominated in other currencies.

Graph No.11 Debt by Currency

I) Loans Payable: Loans payable are made up of short-term bilateral lines or bank advances, as well as medium- and long-term loans payable. As of December 31, 2019, the balance of short-term loans payable was US$200.0 million, which represents a US$105.0 million decrease with respect to the balance of US$305.0 million as of December 31, 2018. On the other hand, medium- and long-term loans payable presented a decrease of US$56.4 million, from US$1,016.4 million at the end of 2018 to US$960.0 million at the end of 2019. As shown in Table No.23, during 2019, the Bank executed medium- and long-term loans payable for an aggregate amount of US$112.7 million.

Table No.23 Sources of Loans Payable

(Millions of US$)

J) Bonds Payable: As of December 31, 2019, Bonds Payable stood at US$5,512.0 million, representing an increase of US$618.5 million (12.6%) with respect to the balance at the end of 2018 (US$4,893.5 million). As seen in Table No.24, in 2019, bonds were issued in international markets for an aggregate amount of US$1,116.3 million. Historically, CABEI has made debt placements in 24 different currencies and 23 different markets.

The objective of CABEI's Financing Strategy is and has been to ensure that the necessary and available resources exist to fulfill its obligations and provide financing at the lowest and most stable cost possible to benefit the borrowing countries. In light of this objective, the Bank seeks to diversify its sources of financing based on the diversification of markets, types of instruments and maturities. In addition, the Bank's funding structure, like the rest of Multilateral Development Banks, prefers stable funding sources by concentrating financing on long-term sources. This structure allows the reduction of volatility of the Net Financial Income and propitiates a low exposure to liquidity risk while managing the cost of liquidity.

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Table No.24 Bond Issuances (Millions of US$)

Graph No.12 Bond Issuances by Currency

K) Commercial Paper Programs: The Bank has a Global Commercial Paper Program for a total amount of up to US$500.0 million with short-term ratings of A-1 and P-1 by Standard & Poor's and Moody's Investors Service, respectively, and a Regional Commercial Paper Program for a total amount of up to US$200.0 million. As of December 31, 2019, the balances of the Commercial Paper Programs amounted to US$59.4 million, representing an increase of US$34.5 million (138.0%), compared to the balance of US$25.0 million observed at the end of 2018. L) Certificates of Deposit and Investment: Regarding the Certificates of Deposit and Investment, they stood at US$1,327.4 million as of December 31, 2019, representing an increase of US$28.5 million (2.2%) with respect to the balance of US$1,298.9 million observed at the end of 2018. M) Derivative Financial Instruments: As of December 31, 2019, the effect of mark-to-market and collateral, after offsetting, amounted to US$1.4 million, a figure that represents an increase of US$1.1 million (407.5%) with respect to the balance as of December 31, 2018 for US$0.3 million. This variation results from a decrease in the gross

balance of derivative financial instruments for US$108.7 million (26.9%), and the offsetting effect which increased by US$109.8 million (27.2%).

Table No.25 Derivative Financial Instruments

(Millions of US$)

N) Other Liabilities: The balance of other liabilities as of December 31, 2019 and 2018, is detailed as follows:

Table No.26

Other Liabilities (Millions of US$)

Other liabilities increased by US$1.8 million (3.3%), from US$53.3 million at the end of 2018 to US$55.1 million as of December 31, 2019.

Amount % Amount % Amount %

Other creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38.2 69.3% 37.4 70.1% 0.8 2.1%

Financial cooperation to founding countries . . . . . . . . . 6.2 11.3% 5.6 10.6% 0.6 10.4%

Bonuses and supplemental compensation . . . . . . . . . . 4.0 7.3% 3.6 6.7% 0.5 12.6%

Technical assitances . . . . . . . . . . . . . . . . . . . . . . 2.9 5.2% 2.8 5.2% 0.1 3.1%

Other provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8 5.0% 1.6 3.1% 1.1 69.4%

Provision for contingencies. . . . . . . . . . . . . . . . . . . . . . . . . . 0.7 1.3% 2.0 3.7% (1.3) (64.7%)

Transitory deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 0.6% 0.3 0.6% 0.0 2.3%

Deferred fees over contigent commitments . . . . . . . . . . . 0.0 0.0% 0.0 0.0% (0.0) (100.0%)

Total 55.1 100.0% 53.3 100.0% 1.8 3.3%

Concepto2019 2018 Variation

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EQUITY: As of December 31, 2019, CABEI's equity amounted to US$3,443.0 million, representing an increase of US$244.7 million (7.7%) with regards to the balance of US$3,198.3 million as of December 31, 2018. This increase in equity is mainly due to a US$294.0 million increase of the general reserve, which corresponds to the transfer of net income for year-end 2018 of US$223.5 million and the retained earnings from previous years of US$70.6 million, corresponding to the integration of the Special Fund for the Social Transformation of Central America (FETS) into the Bank’s ordinary capital. Additionally, the increase in equity is complemented by the increase of US$27.8 million corresponding to paid-in capital, an increase of US$22.4 million corresponding to the unrealized gain (loss) on securities available for sale, an increase of US$4.7 million in change in actuarial valuation of the social benefits plan and an increase of US$4.9 million in net income. The increase in equity is mainly offset by a decrease of US$38.5 million corresponding to the change in credit risk of debt instruments at fair value.

Table No.27

Equity (Millions of US$)

The Bank's equity base serves as a buffer against unexpected losses and is essential to support the future growth of the Institution. The Bank manages its capital mainly through the capital adequacy ratio. As presented in Table No.28 and Graph No.13, the Capital Adequacy Ratio as of December 31, 2019 was 41.8%, while as of December 2018 it was 40.8%; both in compliance with the provisions set forth in the Bank’s ALM Policy to maintain a level of capital adequacy over 35%, as well as with the 38% established by the Risk Appetite. Additionally, and based on the provisions of the aforementioned ALM Policy, it should be noted that the Bank monitors the compliance with the capital adequacy guidelines established in the framework of the Basel II and III Accords. On this regard, the Capital Adequacy Ratio calculated under the

methodology established by said Committee in the aforementioned accords was 35.5% at the end of 2019.

Table No.28

Capital Adequacy (Millions of US$)

Graph No.13 Evolution of Capital Adequacy

Capitalization: One of the ways that member countries grant support to the Bank is mainly reflected in the capital contributions made to the Institution. In accordance with CABEI’s Constitutive Agreement, the Bank’s Authorized Capital is US$5,000.0 million, of which 51.0% (equivalent to US$2,550.0 million) corresponds to the founding countries through the issuance of "A" Series Shares, while the remaining 49.0% (equivalent to US$2,450.0 million) corresponds to the non-founding regional members and non-regional members through the issuance of "B" Series Shares. In addition, there are “C” Series Shares issued in favor of the holders of the “A” and “B” Series Shares with a face value of zero, which will have the purpose of aligning the equity value of the shares with their nominal value and will be issued as the result of a periodic assignment process, as regulated and approved by the Board of Governors. The "C" Series Shares are assigned proportionally to the number of "A", "B" and "C" Series Shares of each shareholder. The "C" Series Shares cannot be used as

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payment to subscribe "A" or "B" Series Shares and do not generate callable capital. Each share of Series "A", "B" and "C" confers one (1) vote. In addition, there are "E" Series Certificates, issued in favor of "A" and "B" shareholders, to recognize the retained earnings attributable to their capital contributions to the Bank over time. These certificates do not grant voting rights and are untransferable. The "E" Series Certificates may be used by the shareholders owners of "A" and "B" Series Shares to pay, totally or partially, the subscription of new non-subscribed authorized capital shares made available by the Bank in accordance with the mechanisms determined by the Board of Governors. The "E" Series Certificates pending to be used to subscribe new capital shares are part of the Bank's General Reserve. Likewise, the authorized capital is divided into shares of paid-in capital and callable capital as follows: 25.0%, equivalent to US$1,250.0 million, corresponds to paid-in capital and 75.0%, equivalent to US$3,750.0 million, corresponds to callable capital. The capital contributions are made as follows: Paid-in Capital: The paid-in portion shall be made in U.S. dollars8 in up to four annual, equal, and consecutive installments or pursuant to the terms and conditions that to such effect are approved by the Board of Governors. In conformity with the mechanism established by the Board of Governors, the paid-in portion corresponding to “A” and “B” Series Shares may be paid by using the "E" Series Certificates. Callable Capital: The portion of capital corresponding to callable capital shall be subject to request for payment when needed to satisfy obligations acquired by the Bank in the capital markets or which corresponds to loans obtained for the purpose of forming part of the Bank’s resources, or which result from guarantees that commit said resources. Payment demands for callable capital shall be proportionately uniform for all shares. As of December 31, 2019, subscribed capital amounted to US$4,883.2 million, of which US$1,220.8 million constitutes paid-in capital and US$3,662.4 million corresponds to callable capital. Regarding the paid-in capital portion, US$1,102.1 million has been received.

8 Capital installments by the Republic of Cuba are made in Euros.

STATEMENTS OF INCOME

Net Income: Net income includes net financial income, reversal of provision for loan losses, administrative expenses, other operating income and expenses, as well as the effect of the valuation of derivative financial instruments and debt. Table No.29 shows a detail of the statement of income for the years ended December 31, 2019 and 2018.

Table No.29

Statements of Income (Millions of US$)

As seen in the previous table, in 2019, net income increased by US$4.9 million (2.2%) with respect to 2018, which stood at US$223.5 million. The variation in net income is mainly due to an increase in loan interest income of US$38.6 million (9.5%), an increase in investments income of US$27.1 million (40.3%), an increase in income from the valuation of derivative financial instruments and debt of US$22.2 million (301.7%) and an increase in other operating income of US$5.4 million (153.0%), offset by an increase in financial expenses of US$41.1 million (17.8%), a decrease in the reversal of provisions for credit losses of US$40.5 million (91.8%), an increase in administrative expenses of US$4.7 million (9.5%) and an increase in special contributions of US$2.0 million (21.3%). A) Loan Interest Income: For the year ended December 31, 2019, the Bank's loan portfolio generated interest income of US$443.2 million, which represents an increase of US$38.6 million (9.5%) with respect to 2018 (US$404.6 million). This results from an increase in interest income on public sector loans of US$23.8 million (volume effect of

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US$19.8 million and interest rate effect of US$4.0 million), and in interest income on private sector loans of US$14.8 million (volume effect of US$11.5 million and interest rate effect of US$3.3 million).

Table No.30

Portfolio and Income by Institutional Sector (Millions of US$)

Table No.31 Volume-Rate Income Analysis on Loans

(Millions of US$)

B) Investments Income: During 2019, a scenario of decreasing market interest rates was observed. For year-end 2019, the investment portfolio generated an income of US$94.5 million, of which US$53.0 million came from money-market instruments, US$30.9 million from securities portfolio, US$7.8 million from investment funds and US$2.9 million from funds in administration. When comparing these results with those of 2018, there is a US$27.1 million (40.3%) increase in income from investments. This increase is mainly due to a higher income in money-market instruments of US$12.4 million.

Table No.32

Liquid Investments Portfolio (Millions of US$)

Table No.33 Volume-Rate Income Analysis on Investments

(Millions of US$)

C) Financial Expenses: As shown in Table No.34, financial expenses increased by US$41.1 million (interest rate effect of US$19.7 million and volume effect of US$21.4 million), from US$230.2 million in December 2018 to US$271.3 million in December 2019. This increase is mainly due to higher expenses in bonds payable of US$31.0 million, in certificates of deposit and investment of US$8.5 million, in loans payable of US$1.4 million, and commercial paper programs of US$0.2 million.

Table No.34

Volume-Rate Income Analysis on Financial Expenses (Millions of US$)

D) Net Financial Income: Table No.35 shows the balances of assets and liabilities that accrue interest and expenses, as well as their respective returns and costs for 2019 and 2018. The ratio of net financial income to average productive assets is also presented.

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Table No.35 Evolution of Net Financial Income

(Millions of US$)

For the year ended December 31, 2019, Net Financial Income increased by US$ 24.6 million with respect to the one observed the previous year. This increase is composed of increases in loan interest income of US$38.6 million and investments income of US$41.1 million. E) Administrative Expenses and Other Income: The main components of administrative expenses and other income are presented in the following table:

Table No.36

Administrative Expenses and Other Income (Millions of US$)

For the year ended December 31, 2019, administrative expenses and other income decreased by US$20.8 million (33.4%) with respect to the previous year. This decrease resulted mainly due to an increase on the valuation of derivative financial instruments and debt of US$22.2 million (301.7%) and other operating income (expenses) of US$5.4 million (153.0%), mainly form financial services and other fees, partially compensated by an increase in administrative expenses of US$4.7 million (9.5%) and special contributions and others by US$2.0 million (21.3%).

F) Valuation of Derivative Financial Instruments and Debt: Regarding the valuation of derivative financial instruments and debt, for year-end 2019, there was an increase of US$22.2 million (301.7%) compared to 2018, which results mainly from an increase in the valuation of cross-currency swap and debt instruments, which stood at US$14.8 million at the end of 2019 (-US$6.8 million at the end of 2018). The detail of these variations is presented below:

Table No.37 Valuation of Derivative Financial Instruments and

Debt (Millions of US$)

Administrative Expenses Index (IGA, as per its acronym in Spanish): The IGA represents the relationship between administrative expenses and the Bank’s average net productive assets. This index is the indicator for monitoring the strategic objective of improving institutional efficiency, as reflected in the Balanced Scorecard (BSC) of the Bank's Institutional Strategy. In this sense, as can be seen in Graph No.14, this index has presented a favorable evolution during the last 5 years.

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Graph No.14 Administrative Expenses Index

Subsequent Events: The Bank has evaluated subsequent events as of the date of the balance sheet up to February 28, 2020, date on which the financial statements were ready for their issuance, and the following was identified: On January 10, 2020, CABEI received the capital payment in cash for US$28.1 million corresponding to the first of four consecutives capital installments of paid-in capital corresponding to the capital subscription of 45,000 “B” Series Shares by the Republic of Korea.