The National Bank of Washington yesterday added $12 million to its reserves against possible losses on $77 million in loans to Latin America, an action that will cause a $9 million loss in the second quarter.
Despite the loss, NBW said it expects to be profitable in 1987. NBW is the District's third-largest bank. Last year it earned $8.2 million and had $1.8 billion in assets.
NBW's decision comes several weeks after Citicorp and other major U.S. bank companies added billions of dollars to loan-loss reserves to recognize the rising risk they face on loans to Brazil, Mexico and other economically troubled countries in South America. Other Washington-area banks previously have taken writeoffs more gradually.
But NBW Chairman Luther H. Hodges Jr. said NBW's action more than mimics a trend among lenders to Latin American. It also reflects a major restructuring to strengthen the bank's balance sheet, he said.
"We're going to take a number of steps over the next few months to maximize our strengths and eliminate our weaknesses," Hodges said. "Instead of worrying about whether we're going to be sold, we're going to do what we should do. We're going to define our market and strengthen our niche."
Hodges said that the bank will concentrate on serving area businesses and professionals. To that end, NBW in recent week has sold its individual trust division to MNC Financial Inc., the largest bank holding company in Maryland, for an undisclosed amount. MNC recently bought American Security Bank, the District's second-largest bank.
The sale of the division with 11 employes will be completed July 1. NBW will keep its corporate trust division.
NBW also has reversed an earlier decision and voted against contributing $2 million in loans to Mexico under a plan proposed by Treasury Secretary James A. Baker III to continue lending to debtor nations in return for major economic reforms in those countries.
Major D.C. banks that have the Mexican Embassy's banking business were not joining the plan, Hodges said he learned. So he asked the Mexican embassy to transfer its banking business to NBW in recognition of the bank's willingness to lend money.
The embassy refused, so Hodges said he decided NBW had no incentive to support the loan plan. "We don't do business with people who don't do business with us or who have lost us money," Hodges said.
The addition of $12 million to NBW's loan-loss reserve brings the total reserves to $30 million. The reserves include about 25 percent of the bank's $77 million in loans to Brazil, Mexico and other countries in Latin America and the Caribbean and 2.4 percent of the bank's total outstanding loans of $1.25 billion.
Other banks in the Washington area that have outstanding loans to debtor nations say they plan to continue to increase their loan-loss reserves slowly, as they already have been doing for two years.
Sovran of Norfolk, the largest bank company in the region and considered to be in the best shape as far as foreign loans go, had $28 million in outstanding loans to Latin America on Dec. 31. Its total loans were $10 billion, and total assets were $15 billion.
Riggs National Bank, the largest bank based in the District, has about $25 million in outstanding loans to Mexico. Riggs officials said that its Latin American debt equals less than 1 percent of the $5.4 billion in assets held on Dec. 31.