Grupo Aval Acciones y Valores S.A. — 2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020; filed April 9, 2021. This is an annual report, not a standalone fourth-quarter filing. Financial statements are audited and prepared under IFRS as issued by the IASB. Grupo Aval is a Colombian financial holding company with banking, merchant banking, and pension and severance fund operations in Colombia and Central America.
Financial results and key metrics
Amounts are in Colombian pesos (Ps) unless noted. Consolidated results include seven months of Multi Financial Group (MFG), acquired by Grupo Aval subsidiary Leasing Bogotá Panamá in May 2020.
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total assets, year-end | Ps 322.9 trillion | Ps 278.8 trillion | Up 15.8% |
| Net loans, year-end | Ps 195.5 trillion | Ps 173.9 trillion | Up 12.4% |
| Customer deposits, year-end | Ps 211.8 trillion | Ps 175.5 trillion | Up 20.7% |
| Net interest income | Ps 12.0 trillion | Ps 11.3 trillion | Up 6.0% |
| Net impairment loss on financial assets | Ps 6.0 trillion | Ps 3.8 trillion | Up 60.2% |
| Net income | Ps 4.6 trillion | Ps 5.4 trillion | Down 13.7% |
| Net income attributable to parent owners | Ps 2.35 trillion | Ps 3.03 trillion | Down 22.6% |
| Net income per 1,000 shares | Ps 105,449.5 | Ps 136,188.1 | Down 22.6% |
| Dividends per 1,000 shares | Ps 54,000 | Ps 60,000 | Down 10.0% |
- Profitability and efficiency: Net interest margin declined to 5.1% from 5.6%; ROAA was 1.5% versus 2.0%; ROAE was 11.7% versus 16.4%. Cost-to-income improved to 46.0% from 47.6%.
- Credit quality: Cost of risk rose to 3.1% from 2.4%. Stage 2 loans were 13.2% of gross loans, up from 4.5%; Stage 2 and Stage 3 combined were 19.3%, versus 10.0%. Loans past due more than 90 days were 3.6% of gross loans, versus 3.3%. Allowance coverage of loans past due more than 90 days was 151.7%.
- Cash flow: Net cash provided by operating activities was Ps 10.0 trillion, compared with Ps 5.6 trillion in 2019. Cash and cash equivalents increased Ps 3.9 trillion to Ps 34.0 trillion. Net capital expenditures in tangible assets were Ps 491.7 billion.
- Funding, debt and liquidity: Customer deposits were 78.3% of total funding. Year-end financial obligations included Ps 27.8 trillion of bonds, Ps 19.7 trillion of borrowings from banks and others, Ps 7.2 trillion of interbank borrowings and overnight funds, and Ps 4.0 trillion of development-entity borrowings. Grupo Aval reported US$5.4 billion of long-term U.S.-dollar debt. Deposits were 108% of net loans, versus 101%; cash and cash equivalents were 16% of deposits, versus 17%.
- Capital: Total equity was Ps 35.4 trillion, up from Ps 33.3 trillion. Equity was 11.0% of assets versus 12.0%; the tangible equity ratio declined to 8.3% from 9.2%. Colombian banking subsidiaries exceeded their then-applicable regulatory capital minimums; Basel III requirements took effect January 1, 2021.
Material changes versus 2019
- Interest income increased 3.4%, while interest expense was nearly flat; higher average earning assets supported net interest income growth. Lower benchmark rates and loan repricing compressed margins.
- Loan impairment expense rose 49.4% to Ps 6.27 trillion, reflecting higher expected credit losses and worsening risk classifications amid the pandemic. Recoveries of charged-off assets declined 13.4%.
- Net commission and fee income fell 6.6% to Ps 5.09 trillion as lockdowns reduced branch, ATM, card-acquiring and other transaction activity, with temporary fee waivers and regulatory fee limits also weighing on results.
- Net trading income rose 70.0% to Ps 1.30 trillion. Other income increased 33.8%, including gains from sales of debt and equity securities and asset disposals. Gross profit from sales of goods and services increased 18.9%, supported in part by energy and gas operations.
- Other expenses increased 4.7% to Ps 10.65 trillion; management cited cost containment and lower expenses in Colombia and organic Central American operations, partly offset by MFG consolidation.
- MFG acquisition added scale in Panama and increased Central American assets and expenses. The purchase price was US$432.2 million after adjustment; LB Panamá held 99.6% at year-end.
Outlook, management commentary and risks
Management did not provide specific consolidated financial guidance. It said 2021 results would depend on loan volumes, margins, credit costs and expenses; infrastructure construction progress and energy and gas distribution; and pension-fund client growth and market performance. Management expected non-financial results in 2021 to be similar to 2020, while noting uncertainty around the economic recovery and borrowers’ ability to resume payments after relief programs expire.
- COVID-19: Colombia’s GDP contracted 6.8% in 2020; the report cites a 7.2% contraction estimate for Central America. Lower rates, unemployment, lockdowns and reduced business activity affected margins, fees and credit quality. At year-end, 7.1% of consolidated gross loans were under payment holidays and 5.8% under structural payment programs. The filing notes that some reliefs were scheduled to expire in the first half of 2021, subject to further regulatory extensions.
- Regional and regulatory exposure: Risks include economic and political conditions in Colombia and Central America, currency fluctuations, sovereign-credit deterioration, changing taxes and banking rules, and interest-rate or fee caps. Panama accounted for 75% of overdue payments arising from COVID-related relief measures in Central American operations at year-end.
- Legal contingency: The Ruta del Sol Sector 2 matter remains material. In December 2020, Colombia’s Superintendency of Industry and Commerce imposed fines on Corficolombiana and Episol of Ps 55.6 billion and Ps 33.8 billion, respectively. They appealed in January 2021; the filing says the amounts could affect Grupo Aval’s attributable net income if the appeal is unsuccessful. The report also describes a separate class action and ongoing U.S. DOJ and SEC investigations; outcomes and potential effects are uncertain.
- Other exposures: Management highlights credit, liquidity, sovereign-securities, currency, interest-rate, cybersecurity, operational, regulatory and reputational risks. The filing identifies Ps 54.2 trillion of assets and Ps 6.6 trillion of liabilities using LIBOR, plus related derivatives, with many contracts requiring amendments. Corficolombiana’s investments are concentrated in energy and gas and infrastructure.
- Accounting and controls: ECL estimates, concession-asset valuations, goodwill impairment, deferred taxes and provisions require significant judgment. The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting, but excluded MFG’s internal controls from its ICFR audit; MFG represented Ps 17.1 trillion of assets and Ps 1.0 trillion of revenue in 2020.
Most important facts for investors to verify
- Review the stage migration, relief-program exposures and subsequent payment performance as support measures expired; focus on Stage 2 loans and allowance adequacy.
- Check the status, appeal outcomes and potential financial exposure of the Ruta del Sol Sector 2 fines, class action and DOJ/SEC investigations.
- Assess 2021 Basel III capital ratios and liquidity at Grupo Aval and its regulated subsidiaries, including the impact of MFG consolidation and currency movements.
- Verify the sustainability of margins, fee income, trading gains and cost reductions after 2020’s exceptional conditions.
- Review MFG integration, purchase accounting and the auditor’s stated exclusion of MFG from the ICFR audit; also assess LIBOR transition plans and exposures.