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 2021 (Ended September 30, 2021)
Business Overview: Colombia's largest banking group and a major financial conglomerate in Central America. Operations include four commercial banks in Colombia, pension fund management (Porvenir), and merchant banking (Corficolombiana). Financial statements are prepared under IFRS.
Key Financial Metrics
| Metric | 3Q 2021 | 3Q 2020 | YTD 2021 |
|---|---|---|---|
| Attributable Net Income | Ps 779.7 billion | Ps 690.9 billion | Ps 2.5 trillion |
| Earnings Per Share (EPS) | Ps 35.0 | Ps 31.0 | Ps 113.1 |
| Return on Average Equity (ROAE) | 14.2% | 13.6% | 15.9% |
| Return on Average Assets (ROAA) | 1.4% | 1.5% | 1.7% |
| Net Interest Margin (NIM) | 4.9% | 5.1% | 4.8% |
| Fee Income Ratio | 23.6% | 21.2% | N/A |
| Cost of Risk | 1.5% | 2.9% | 1.9% |
| Efficiency Ratio | 47.1% | 44.0% | 45.7% |
| Total Assets | Ps 351.7 trillion | Ps 333.9 trillion | N/A |
| Gross Loans | Ps 219.0 trillion | Ps 210.0 trillion | N/A |
| Customer Deposits | Ps 225.2 trillion | Ps 217.1 trillion | N/A |
Material Changes vs. Prior Period
- Profitability: Attributable net income increased 12.9% year-over-year (YoY) to Ps 779.7 billion. However, it decreased 17.9% quarter-over-quarter (QoQ) from 2Q21. Pre-tax income reached a record high for a quarter.
- Tax Impact: A one-time tax expense adjustment of Ps 200 billion was recorded due to a recent tax reform, increasing deferred tax liabilities by approximately Ps 485 billion. Excluding this adjustment, net income would have been Ps 980 billion.
- Asset Growth: Total assets grew 5.3% YoY. Gross loans increased 4.3% YoY, driven primarily by consumer loans (+10.0%) and mortgages (+6.7%). Commercial loans grew modestly by 0.5%.
- Asset Quality: Loan quality improved significantly. The 90-day past due loans (PDL) ratio decreased to 3.1% (down 11 bps YoY). The cost of risk improved to 1.5% (down 140 bps YoY).
- Non-Interest Income: Net fee income increased 12.0% YoY, with the fee income ratio rising to 23.6%. Conversely, gross profit from sales of goods and services (non-financial sector) decreased 3.2% YoY.
Guidance, Outlook, and Risks
- Economic Context: Colombia's GDP expanded 13.2% in 3Q21. Central American economies are projected to grow approximately 8% in 2021.
- Capital Adequacy: Banks ended the quarter with Core Equity Tier 1 ratios between 9.3% and 12.7%, and total solvency ratios between 11.7% and 13.5%.
- Corporate Restructuring: The filing details a planned spin-off of the Central American operations (BAC Credomatic) to simplify the corporate structure and unlock shareholder value. The transaction is expected to close in 1Q2022.
- Risks: The report includes standard forward-looking statement disclaimers regarding economic conditions, interest rates, and currency fluctuations. The recent tax reform introduced a significant one-time liability.
Investor Verification Checklist
- Tax Reform Impact: Verify the long-term implications of the Ps 485 billion increase in deferred tax liabilities beyond the one-time 3Q21 adjustment.
- BAC Spin-off Timeline: Monitor the progress of the BAC Credomatic spin-off and its expected closing in Q1 2022, including regulatory approvals.
- Non-Controlling Interest: Note that non-controlling interest represents approximately 41.8% of total equity; verify the attribution of earnings to the parent company versus minority shareholders.
- Cost of Risk Trajectory: Assess whether the 1.5% cost of risk is sustainable given the economic recovery and potential future credit cycle shifts.
- Efficiency Ratio: Investigate the drivers behind the 312 bps increase in the efficiency ratio YoY, which indicates higher operating expenses relative to income.