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: Third Quarter 2023 (Ended September 30, 2023)
Release Date: November 15, 2023
Grupo Aval is Colombia's leading financial conglomerate, 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 financial corporation (Corficolombiana). The consolidated financial information is presented in accordance with IFRS. The period includes the reclassification of BAC Holding International Corp (BHI) equity method results to discontinued operations following the disposal of the remaining interest in March 2023.
Key Financial Metrics
| Metric (COP Billions) | 3Q 2023 | 2Q 2023 | 3Q 2022 |
|---|---|---|---|
| Net Income Attributable to Parent | 64.8 | 166.2 | 408.1 |
| Earnings Per Share (COP) | 2.7 | 7.0 | 17.2 |
| Total Assets | 298,732.5 | 298,061.6 | 285,896.2 |
| Gross Loans (Excl. Interbank) | 186,480.4 | 184,409.6 | 175,094.0 |
| Customer Deposits | 180,296.3 | 180,244.5 | 166,533.2 |
| Net Interest Income | 1,632.4 | 1,575.5 | 1,918.5 |
| Net Impairment Loss | 1,172.3 | 988.3 | 577.9 |
Profitability and Efficiency Ratios
- Return on Average Assets (ROAA): 0.4% (3Q23) vs. 0.6% (2Q23) vs. 1.3% (3Q22)
- Return on Average Equity (ROAE): 1.6% (3Q23) vs. 4.1% (2Q23) vs. 9.8% (3Q22)
- Net Interest Margin (NIM): 2.8% (3Q23) vs. 3.4% (2Q23) vs. 3.5% (3Q22)
- Efficiency Ratio: 54.8% (3Q23) vs. 53.7% (2Q23) vs. 48.2% (3Q22)
- Cost of Risk (Net of Recoveries): 2.5% (3Q23) vs. 2.2% (2Q23) vs. 1.4% (3Q22)
Material Changes vs. Prior Period
Profitability Decline: Net income attributable to shareholders dropped 61.0% quarter-over-quarter (QoQ) and 84.1% year-over-year (YoY). This sharp decline is primarily driven by a 102.9% YoY increase in net impairment losses (COP 1,172.3 billion) and a 133.6% YoY swing in net trading income from a gain to a loss (COP -253.9 billion).
Asset Quality Deterioration: The ratio of loans 90+ days past due (PDL) to gross loans increased to 3.8% in 3Q23 from 3.6% in 2Q23 and 3.2% in 3Q22. The cost of risk rose to 2.5% in 3Q23, reflecting high interest rates and economic slowdown pressures.
Balance Sheet Growth: Total assets grew 4.5% YoY to COP 298.7 trillion. Gross loans increased 6.5% YoY, driven by commercial (7.2%) and mortgage (6.8%) segments. Deposits grew 8.3% YoY, maintaining a stable funding ratio of 1.01x against net loans.
Trading Volatility: Net trading income turned negative (COP -253.9 billion) due to high volatility in financial markets impacting debt and equity investment securities, contrasting with a positive COP 756.4 billion in 3Q22.
Guidance, Outlook, and Risks
Management Commentary: Management notes a weak performance across all loan types due to the economic slowdown trend. However, Grupo Aval gained market share in Colombia (27 bps in the quarter). The infrastructure sector (Corficolombiana) saw a 53.1% reduction in gross profit compared to 3Q22 due to softer inflation and FX metrics, as concessions move from construction to operation phases.
Regulatory Risks: The Financial Superintendence of Colombia issued Circular Externa 013 in September 2023, adjusting the Net Stable Funding Ratio (Cfen). This regulation increases the weight applicable to demand deposits from 0% to 25%, potentially impacting funding costs and liquidity management strategies over the next two years.
Market Risks: High interest rates and inflationary pressures continue to drive up the cost of funds (average cost of funds was 9.2% in 3Q23) and compress intermediation margins. Portfolio valuations experienced unfavorable movements due to market volatility.
Forward-Looking Statements: The filing contains forward-looking statements subject to risks including changes in economic conditions, interest rates, and currency rates. Actual results may differ materially from expectations.
Investor Verification Checklist
- Asset Quality Trends: Verify the trajectory of the 90+ days PDL ratio (currently 3.8%) and the adequacy of the allowance coverage (1.39x 90+ days PDL) given the rising cost of risk.
- Trading Income Volatility: Assess the sustainability of net trading income, which swung from a significant gain in 3Q22 to a loss in 3Q23 due to market volatility.
- Regulatory Impact: Evaluate the potential impact of Circular Externa 013 on the cost of deposits and liquidity ratios over the mandated 2-year compliance period.
- Non-Controlling Interest (NCI): Note that NCI represents 46.7% of total equity; verify the attribution of net income to the parent (COP 64.8 billion) versus the total net income (COP 300.7 billion).
- Infrastructure Sector Performance: Monitor the transition of Corficolombiana's concessions from construction to operation and its effect on gross profit margins.