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 2019 (Ended September 30, 2019)
Submission Date: November 21, 2019
Accounting Standard: IFRS (Adopted IFRS 16 retrospectively from Jan 1, 2019; comparatives not restated).
Grupo Aval is Colombia's largest banking group and the largest in Central America via BAC Credomatic. The group operates four commercial banks in Colombia, manages pension funds (Porvenir), and owns a merchant bank (Corficolombiana). Results are reported in Colombian Pesos (Ps) billions.
Key Financial Metrics (3Q19)
| Metric | 3Q19 Value | 3Q18 Value | Change (YoY) |
|---|---|---|---|
| Net Income (Attributable to Parent) | Ps 743.2 billion | Ps 782.7 billion | -5.0% |
| Earnings Per Share (EPS) | Ps 33.4 | Ps 35.1 | -4.8% |
| Net Interest Income | Ps 2,829.3 billion | Ps 2,752.0 billion | +2.8% |
| Net Interest Margin (NIM) | 5.7% | 5.8% | -10 bps |
| Cost of Risk (Fully Loaded) | 2.5% | 2.3% | +20 bps |
| Efficiency Ratio | 47.9% | 41.6% | +630 bps |
| ROAA | 2.0% | 2.4% | -40 bps |
| ROAE | 15.8% | 19.1% | -330 bps |
| Total Assets | Ps 273,847.3 billion | Ps 241,487.0 billion | +13.4% |
| Total Loans (Net) | Ps 174,429.7 billion | Ps 158,265.1 billion | +10.2% |
| Customer Deposits | Ps 174,048.0 billion | Ps 153,188.5 billion | +13.6% |
| Tangible Equity Ratio | 8.9% | 8.6% | +30 bps |
Material Changes vs. Prior Period
- Profitability Decline: Attributable net income decreased 5.0% year-over-year and 8.6% quarter-over-quarter. This was primarily driven by a 16.5% increase in net impairment losses (Ps 1,088.8 billion) and a 17.4% increase in total operating expenses.
- Provisions Impact: Significant provisions for CRDS (Credit Risk Data System) impacted net income by Ps 148 billion. Excluding these, the Cost of Risk was 1.8%.
- Loan Growth: The loan portfolio grew 10.8% year-over-year, driven by commercial loans (+8.1%), consumer loans (+13.0%), and mortgages (+18.4%). Central American operations showed strong growth (21.1% YoY), partly due to FX effects.
- Expense Pressure: The efficiency ratio deteriorated to 47.9% from 41.6% in 3Q18, reflecting higher personnel and SG&A expenses (up 6.3% YTD) and increased depreciation/amortization due to IFRS 16 adoption.
- Asset Quality: The ratio of 90+ days past due loans (PDL) to total loans increased slightly to 3.3% from 3.2%. Coverage ratios remained strong at 153% for 90+ PDLs.
Outlook, Risks, and Unusual Items
- Acquisition Activity: On October 31, 2019, Grupo Aval announced an agreement to acquire Multi Financial Group (MFG), the holding company of Multibank Panama. The transaction, valued at 1.3x equity, is expected to close in Q2 2020. This will make Grupo Aval the second-largest player in Panama by assets.
- Accounting Changes: The adoption of IFRS 16 (Leases) resulted in the recognition of right-of-use assets and lease liabilities, impacting comparability with prior periods and increasing reported assets and liabilities.
- Macroeconomic Risks: The filing notes exposure to changes in general economic conditions, interest rates, and currency rates. Colombia's GDP growth and inflation expectations are monitored closely.
- Forward-Looking Statements: Management disclaims any obligation to update forward-looking statements regarding the MFG acquisition or future earnings, noting that actual results may differ materially.
Investor Verification Checklist
- CRDS Provisions: Verify the specific nature and duration of the Ps 148 billion CRDS provisions impacting 3Q19 net income.
- IFRS 16 Impact: Assess the long-term impact of IFRS 16 on future depreciation, interest expense, and leverage ratios.
- MFG Acquisition: Monitor regulatory approval status and integration costs for the Multibank Panama acquisition.
- Cost of Risk Trend: Track the "fully loaded" Cost of Risk (2.5%) versus the "ex-CRDS" metric (1.8%) to understand underlying asset quality trends.
- FX Sensitivity: Review the impact of exchange rate fluctuations on Central American operations, which contributed significantly to reported loan and deposit growth.