Business Context and Reporting Period
Company: Grupo Aval Acciones Y Valores S.A.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Second Quarter 2016 (Ended June 30, 2016)
Accounting Basis: International Financial Reporting Standards (IFRS)
Context: Grupo Aval is Colombia's largest banking group, operating through four commercial banks in Colombia and BAC Credomatic in Central America. The filing reports consolidated results under full IFRS, noting that the group is a holding company and not regulated as a financial institution itself, though its subsidiaries are.
Key Financial Metrics
| Metric | 2Q 2016 | 1Q 2016 | 2Q 2015 |
|---|---|---|---|
| Net Income (Attributable to Parent) | Ps 601.1 billion | Ps 466.4 billion | Ps 569.0 billion |
| Earnings Per Share (EPS) | Ps 27.0 | Ps 20.9 | Ps 25.5 |
| Net Interest Income | Ps 2,198.3 billion | Ps 2,317.2 billion | Ps 1,992.4 billion |
| Total Assets | Ps 215,686.2 billion | Ps 214,872.2 billion | Ps 193,916.3 billion |
| Total Loans (Net) | Ps 142,286.7 billion | Ps 140,064.6 billion | Ps 125,631.6 billion |
| Total Deposits | Ps 137,016.2 billion | Ps 136,882.7 billion | Ps 122,541.8 billion |
| Return on Average Assets (ROAA) | 1.7% | 1.5% | 2.0% |
| Return on Average Equity (ROAE) | 16.3% | 12.9% | 16.6% |
| Net Interest Margin (Total) | 5.6% | 5.7% | 5.4% |
| Cost of Risk (Net of Recoveries) | 1.9% | 1.9% | 1.6% |
| Efficiency Ratio | 47.2% | 44.1% | 46.2% |
Material Changes vs. Prior Periods
- Profitability: Net income attributable to shareholders increased 28.9% quarter-over-quarter (vs. 1Q16) and 5.6% year-over-year (vs. 2Q15). The QoQ increase was driven by lower minority interest and higher trading income, despite a slight dip in net interest income.
- Loan Portfolio: Net loans grew 1.6% QoQ and 13.3% YoY. Excluding foreign exchange (FX) effects, the quarterly growth would have been 2.4%. Growth was led by consumer loans (+17.1% YoY) and mortgages (+23.2% YoY).
- Deposits: Deposits grew 0.1% QoQ and 11.8% YoY. Excluding FX, quarterly growth was 0.8%.
- Interest Rates: Average yield on loans increased 41 basis points QoQ to 11.3%, while the cost of funds rose 47 basis points to 4.5%. The spread expanded 30 basis points over the last twelve months.
- Asset Quality: Non-performing loans (NPL) ratio remained stable at 1.7% (down from 1.8% in 1Q16). The 30-day past due ratio increased slightly to 2.8%.
- Capitalization: All banking subsidiaries reported Tier 1 capital ratios exceeding 9.35%, with some reaching 10.1%.
Guidance, Outlook, and Risks
- Non-Recurrent Items: The cost of risk (2.1% before recoveries) was impacted by significant non-recurrent provisions. Excluding these, the cost of risk would have been 1.9% before recoveries. Additionally, Banco de Bogotá expects to capitalize a Ps 2.2 trillion non-recurrent gain from the deconsolidation of Corficolombiana following a shareholder meeting in September 2016.
- Consolidation Change: As of June 30, 2016, Grupo Aval controls and directly consolidates Corficolombiana, its merchant banking subsidiary.
- Efficiency: The efficiency ratio deteriorated to 47.2% from 44.1% in 1Q16, primarily due to a decrease in Net Interest Income, though it remains in line with full-year expectations.
- Macroeconomic Risks: The filing highlights sensitivity to exchange rate movements (Colombian Peso appreciation reduced reported growth in Central American operations), interest rate fluctuations (DTF rate increases), and general economic conditions in Colombia and Central America.
- Forward-Looking Statements: Management notes that actual results may vary due to changes in interest and currency rates. The company disclaims any obligation to update forward-looking information.
Investor Verification Checklist
- FX Impact: Verify the magnitude of foreign exchange effects on Central American operations (BAC Credomatic), as reported growth figures are significantly lower than organic growth when FX is excluded.
- Non-Recurrent Provisions: Assess the nature and sustainability of the "significant non-recurrent provisions" that inflated the cost of risk in 2Q16.
- Corficolombiana Deconsolidation: Confirm the timing and accounting treatment of the Ps 2.2 trillion gain from Corficolombiana's deconsolidation at Banco de Bogotá and its impact on future capital ratios.
- Net Interest Income Trend: Monitor the decline in Net Interest Income QoQ (-5.1%) and the compression in investment margins (down 50 bps QoQ) to understand pressure on core profitability.
- Asset Quality Coverage: Review the allowance coverage ratios (1.6x for NPLs) to ensure adequacy given the slight increase in 30-day past due loans.