Business Context and Reporting Period
Company: Grupo Aval Acciones Y Valores S.A. (NYSE: AVAL)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Fourth Quarter and Full Year 2023 (Results released March 5, 2024)
Business Overview: Leading financial conglomerate in Colombia operating four commercial banks (Banco de Bogotá, Banco de Occidente, Banco Popular, Banco AV Villas), the largest private pension fund manager (Porvenir), and the largest merchant bank (Corficolombiana). Operations extend to Central America via Multibank in Panama.
Key Financial Metrics
All figures in Colombian Pesos (Ps) billions unless otherwise noted.
| Metric | 4Q 2023 | 4Q 2022 | Full Year 2023 | Full Year 2022 |
|---|---|---|---|---|
| Net Income (Attributable to Parent) | 82.9 | (330.4) | 739.0 | 2,482.9 |
| Net Income (Continuing Ops) | 82.9 | 310.2 | 739.0 | 1,888.9 |
| Net Interest Income | 1,530.3 | 1,765.2 | 6,287.0 | 7,738.6 |
| Net Impairment Loss | 1,235.3 | 653.0 | 4,182.4 | 2,493.1 |
| Total Assets | 301,181.6 | 295,591.2 | 301,181.6 | 295,591.2 |
| Gross Loans | 185,811.2 | 182,345.6 | 185,811.2 | 182,345.6 |
| Customer Deposits | 181,987.4 | 173,341.1 | 181,987.4 | 173,341.1 |
| ROAA (Annualized) | 0.5% | -0.6% | 0.7% | 1.6% |
| ROAE (Annualized) | 2.0% | -8.0% | 4.5% | 14.0% |
| Net Interest Margin (NIM) | 3.9% | 3.5% | 3.4% | 3.7% |
| Cost of Risk | 2.7% | 1.5% | 2.3% | 1.5% |
| Efficiency Ratio | 54.0% | 55.5% | 52.1% | 45.8% |
| 90+ Days PDL / Gross Loans | 4.0% | 3.3% | 4.0% | 3.3% |
Material Changes vs. Prior Period
- Profitability Decline: Full-year 2023 net income attributable to shareholders dropped 60.9% to Ps 739.0 billion compared to 2022. This was driven by a 29.2% decrease in non-financial sector income and higher impairment losses.
- Asset Quality Deterioration: The Cost of Risk rose to 2.3% in 2023 from 1.5% in 2022. Loans 90+ days past due increased to 4.0% of the portfolio from 3.3%.
- Margin Compression: Net Interest Margin (NIM) decreased to 3.4% in 2023 from 3.7% in 2022 due to steep increases in benchmark rates, slow repricing of consumer loans, and higher funding costs.
- Loan Growth: Gross loans grew 1.9% year-over-year. Peso-denominated loans grew 5.6%, while USD-denominated loans grew 8.7% in dollar terms (13.6% contraction in peso terms due to currency appreciation).
- Expense Management: Total operating expenses grew 12.6%, pressured by a 34.3% increase in operating taxes and deposit insurance. However, items other than taxes grew only 8.1%, below inflation.
- Discontinued Operations: 2022 results included significant income from discontinued operations (BHI equity method), which was absent in 2023, complicating year-over-year comparisons.
Outlook, Risks, and Commentary
- Economic Context: Colombia's economy slowed sharply in 2023 with 0.6% GDP growth. Inflation moderated to 8.35% in January 2024, and the Colombian Peso appreciated 20.5% against the USD in 2023.
- Management Commentary: The company noted that the loan portfolio structure was protective, resulting in a milder impact on Cost of Risk compared to local peers. CET1 solvency ratios for the four Colombian banks strengthened over the year.
- Forward-Looking Statements: The filing contains forward-looking statements subject to risks including changes in economic conditions, interest rates, and currency rates. The company disclaims any obligation to update these statements prior to the next earnings report.
- Debt Structure: Combined gross indebtedness for the Holding and Grupo Aval Limited was Ps 5,512.3 billion as of December 31, 2023. The double leverage ratio stood at 1.22x.
Investor Verification Checklist
- Non-IFRS Adjustments: Verify the reconciliation of "pro-forma" 2022 ratios, as the company adjusted denominators for comparability regarding discontinued operations.
- Currency Impact: Assess the impact of the 20.5% peso appreciation on the reported growth of USD-denominated loan and deposit portfolios.
- Asset Quality Trends: Monitor the trajectory of Stage 2 and Stage 3 loan classifications, which increased slightly, and the coverage ratio of allowances over 90+ day past due loans (1.36x).
- Non-Financial Sector: Review the 29.2% decline in income from the non-financial sector (infrastructure/concessions) and its sustainability.
- Discontinued Operations: Confirm that 2022 comparative figures exclude the BHI equity method income to ensure accurate trend analysis of continuing operations.