Business Context and Reporting Period
Company: Grupo Aval Acciones Y Valores S.A. (Colombia's largest banking group).
Reporting Period: First Quarter 2018 (ended March 31, 2018).
Filing Type: Form 6-K (Report of Foreign Private Issuer).
Accounting Standards: Unaudited consolidated financial information presented under IFRS. Results for 1Q2018 are not directly comparable to prior periods due to the prospective adoption of IFRS 9 and IFRS 15 effective January 1, 2018.
Regulatory Status: As of 2018, the holding company is subject to supervision by the Superintendency of Finance under the Law of Financial Conglomerates.
Key Financial Metrics
| Metric (Ps. Billions) | 1Q18 | 4Q17 | 1Q17 |
|---|---|---|---|
| Net Income (Attributable) | 597.7 | 466.7 | 587.0 |
| Earnings Per Share (Ps.) | 26.8 | 20.9 | 26.3 |
| Total Assets | 232,279.0 | 236,538.5 | 227,112.6 |
| Total Loans & Receivables (Net) | 156,099.6 | 160,754.3 | 151,304.0 |
| Total Deposits | 151,771.6 | 154,885.2 | 146,736.3 |
| Net Interest Income | 2,728.3 | 2,661.8 | 2,539.8 |
| Impairment Loss (Net) | 873.4 | 1,203.7 | 742.9 |
Key Ratios
- Return on Average Equity (ROAE): 15.3% (vs. 11.6% in 4Q17).
- Return on Average Assets (ROAA): 1.6% (vs. 1.3% in 4Q17).
- Net Interest Margin (NIM): 5.8% (vs. 5.9% in 4Q17).
- Cost of Risk: 2.3% (vs. 2.7% in 4Q17).
- Efficiency Ratio: 45.9% (vs. 46.3% in 4Q17).
- Tangible Equity Ratio: 7.4% (vs. 7.9% in 4Q17).
- Non-Performing Loans (90+ days): 2.86% of total loans.
- 30 Days Past Due: 4.25% of total loans.
Material Changes vs. Prior Period
- Profitability: Attributable net income increased 28.1% quarter-over-quarter (vs. 4Q17) and 1.8% year-over-year (vs. 1Q17). The QoQ increase was driven by a 27.4% reduction in net impairment losses.
- Asset Growth: Total assets decreased 1.8% QoQ but increased 2.3% YoY. Net loans decreased 2.9% QoQ but grew 3.2% YoY.
- Loan Quality: The 30-day past due ratio increased to 4.25% (from 3.9% in 4Q17), and the 90-day NPL ratio rose to 2.86% (from 2.8% in 4Q17). However, the volume of new loans becoming 90 days past due decreased for the third consecutive quarter.
- Impairment: Net impairment losses dropped significantly to Ps 873.4 billion from Ps 1,203.7 billion in 4Q17, primarily due to lower provisions on specific large corporate exposures (Concesionaria Ruta del Sol and Electricaribe).
- Accounting Impact: The adoption of IFRS 9 resulted in a one-time adjustment to the allowance for impairment, increasing the allowance to gross loans ratio from 3.5% to 4.4%.
Guidance, Outlook, and Risks
- Outlook: Management expects loan growth recovery to gain momentum in the second half of 2018, driven by positive macroeconomic trends and reduced political and fiscal uncertainty.
- Cost Control: The improved efficiency ratio reflects continuous cost control initiatives expected to remain effective in a low-growth scenario.
- Macro Risks: Results are subject to changes in general economic conditions, interest rates, and currency rates. The filing notes that actual results may vary from forward-looking statements.
- Specific Exposures: The cost of risk included a 24 basis point impact from specific large corporate exposures, primarily Electricaribe.
- Regulatory: The group is now subject to consolidated supervision as a financial conglomerate, requiring compliance with capital adequacy and governance standards at the holding level.
Investor Verification Checklist
- IFRS 9 Impact: Verify the sustainability of the allowance for impairment levels post-IFRS 9 adoption and the specific impact on the Tangible Equity Ratio.
- Loan Quality Trends: Monitor the 30-day past due ratio (4.25%) and the trend of new loans entering the 90-day past due bucket to confirm the "end of the cycle" thesis.
- Corporate Exposures: Assess the status and provisioning adequacy for large corporate exposures, specifically Electricaribe and Concesionaria Ruta del Sol.
- Loan Growth: Confirm if the projected loan growth recovery materializes in 2H2018, particularly in the corporate segment which has shown slow growth.
- Non-Controlling Interest: Review the composition of non-controlling interest (38.0% of total equity) and its impact on attributable earnings.