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 2022 (ended September 30, 2022)
Context: Grupo Aval is Colombia's leading financial conglomerate, operating four commercial banks, a pension fund manager (Porvenir), and a financial corporation (Corficolombiana). The filing includes supplemental unaudited pro forma financial information for 3Q21 to ensure comparability following the March 2022 spin-off of BAC Holding International (BHI). BHI is now reported as discontinued operations for prior periods.
Key Financial Metrics (3Q22)
| Metric | Value (Ps Billions) | Ratio / % |
|---|---|---|
| Attributable Net Income | 408.1 | Ps 17.2 per share |
| Return on Assets (ROAA) | - | 1.3% |
| Return on Equity (ROAE) | - | 9.8% |
| Gross Loans | 175.1 | 16.5% YoY growth |
| Customer Deposits | 166.5 | 14.4% YoY growth |
| Net Interest Margin (NIM) | - | 3.52% (Total); 4.55% (Loans) |
| Cost of Risk | - | 1.4% (Net of recoveries) |
| Efficiency Ratio | - | 47.7% |
| 90+ Days Past Due Loans | - | 3.23% of Gross Loans |
Material Changes vs. Prior Periods
- Profitability Decline: Attributable net income decreased 39.6% quarter-over-quarter (vs. 2Q22) and 47.7% year-over-year (vs. pro forma 3Q21). This was driven by a significantly higher effective tax rate and increased costs.
- Margin Compression: Total Net Interest Margin contracted 11 basis points to 3.52% due to a sharp rise in the cost of funds (5.7% in 3Q22 vs. 4.2% in 2Q22). NIM on loans contracted 36 bps to 4.55%.
- Expense Growth: Total expenses grew 6.8% quarter-over-quarter, primarily due to an 8.0% increase in personnel expenses linked to new union negotiations.
- Loan Quality Improvement: Despite economic headwinds, asset quality improved. The +30 days past due ratio improved by 64 bps YoY to 4.33%, and +90 days past due improved by 57 bps YoY to 3.23%.
- Non-Financial Sector Volatility: Income from the Non-Financial Sector increased 65% YoY but decreased 19.1% quarter-over-quarter, driven by Corficolombiana's infrastructure concessions.
Outlook, Risks, and Management Commentary
- Macroeconomic Environment: Colombia's GDP growth accelerated to 7.1% in 3Q22. However, the company faces rising inflation and interest rates, which have increased the cost of funds.
- 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.
- Discontinued Operations: Results for periods prior to the BHI spin-off are presented on a pro forma basis excluding BHI. The company retains an indirect 17.2% stake in BHI, reported under equity method accounting.
- Liquidity and Debt: Combined gross indebtedness for the holding company and Grupo Aval Limited was Ps 6,260.7 billion as of September 30, 2022. The company maintains liquid assets of Ps 1,767.2 billion.
Investor Verification Checklist
- Pro Forma Adjustments: Verify the impact of the BHI spin-off on year-over-year comparisons, as reported 3Q21 figures include BHI while 3Q22 figures do not.
- Tax Rate Impact: Investigate the specific drivers of the "significantly higher effective tax rate" cited as a cause for the net income decline.
- Cost of Funds Trajectory: Monitor the trend of the cost of funds (5.7% in 3Q22) and its potential further impact on Net Interest Margins in a high-interest-rate environment.
- Personnel Costs: Assess the long-term impact of the new three-year union negotiations on the efficiency ratio, which rose to 47.7%.
- Non-Financial Sector Performance: Review the volatility in infrastructure concession income (Corficolombiana) and its contribution to total earnings stability.