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: Second Quarter 2019 (Ended June 30, 2019)
Accounting Standard: IFRS (Adopted IFRS 16 retrospectively from Jan 1, 2019; comparatives not restated)
Operations: Colombia's largest banking group and a major player in Central America via BAC Credomatic. Operations include four Colombian banks (Banco de Bogotá, Banco de Occidente, Banco Popular, Banco AV Villas), pension fund manager Porvenir, and merchant bank Corficolombiana.
Key Financial Metrics (2Q2019)
| Metric | Value (Ps. Billions) | Value (Ratios/%) |
|---|---|---|
| Net Income (Attributable to Parent) | 813.2 | EPS: Ps 36.5 |
| Total Assets | 264,676.1 | YoY Growth: 12.8% |
| Net Interest Income | 2,831.3 | YoY Growth: 4.9% |
| Net Fee Income | 1,347.2 | YoY Growth: 12.4% |
| Net Impairment Loss | 911.1 | YoY Growth: 19.9% |
| Cost of Risk | - | 2.2% (Quarterly) |
| Net Interest Margin (NIM) | - | 5.9% (Quarterly) |
| Efficiency Ratio | - | 45.4% |
| Return on Average Equity (ROAE) | - | 18.3% |
| Return on Average Assets (ROAA) | - | 2.1% |
| Loan Portfolio (Gross) | 170,653.2 | YoY Growth: 6.5% |
| Customer Deposits | 166,000.8 | YoY Growth: 9.2% |
| Deposit/Loan Ratio | - | 1.00x |
| Tangible Equity Ratio | - | 8.7% |
| Liquidity Ratio | - | 18.0% |
Material Changes vs. Prior Periods
- Profitability: Attributable net income increased 19.3% year-over-year (vs. 2Q18) and 6.6% quarter-over-quarter (vs. 1Q19). ROAE improved to 18.3% from 17.7% in 2Q18.
- Asset Growth: Total assets grew 12.8% YoY, driven by a 5.1% increase in net loans and a 40.8% surge in cash and cash equivalents. Loan portfolio growth was 6.5% YoY, with retail segments (consumer and mortgages) outpacing commercial loans.
- Asset Quality: The 90+ days Past Due Loans (PDL) ratio increased slightly to 3.2% from 3.1% in the prior quarter and year-ago period. The Cost of Risk rose to 2.2% from 1.9% in 2Q18, primarily due to higher provisions in the Colombian retail portfolio.
- Non-Interest Income: Net income from sales of goods and services (non-financial sector) surged 131.6% YoY to Ps 599.7 billion, driven by Corficolombiana's equity investments. Net fee income grew 12.4% YoY.
- Expenses: Total other expenses increased 6.7% YoY. The efficiency ratio improved to 45.4% from 49.0% in 2Q18.
Outlook, Commentary, and Risks
- Strategic Initiatives: Management highlighted the upcoming launch of "DALE," a fintech platform expected to facilitate zero-cost P2P, P2C, and C2P money transfers to stimulate non-cash transactions.
- Regional Performance: Colombian operations contributed Ps 600.8 billion to attributable net income, while Central American operations (via BAC Credomatic) contributed Ps 212.4 billion (attributable share). Central America showed stronger loan growth (11.3% YoY) compared to Colombia (4.5% YoY).
- Capital Structure: The holding company maintains a double leverage ratio of 1.14x. Net debt to core earnings stands at 2.7x. The group guarantees USD 1.0 billion in bonds issued by Grupo Aval Limited.
- Risks and Contingencies:
- Accounting Changes: Adoption of IFRS 16 (Leases) impacts comparability with 2018 periods.
- Asset Quality: Slight deterioration in loan quality noted in Central America (specifically Nicaragua) and slow growth in the Colombian corporate loan book.
- Macroeconomic: Exposure to Colombian and Central American economic conditions, interest rate fluctuations, and currency exchange rates.
Investor Verification Checklist
- IFRS 16 Impact: Verify the specific impact of the new leasing standard on the balance sheet (Right-of-Use assets and lease liabilities) and its effect on comparability with 2018 data.
- Asset Quality Trends: Monitor the 90+ days PDL ratio (currently 3.2%) and Cost of Risk (2.2%) for further deterioration, particularly in the Central American region and Colombian corporate segment.
- Non-Financial Sector Volatility: Assess the sustainability of the 131.6% YoY growth in non-financial sector income, which is heavily influenced by Corficolombiana's equity market performance.
- Holding Company Liquidity: Review the debt service coverage for Grupo Aval Limited's USD 1.0 billion bond issuance and the reliance on subsidiary dividends for repayment.
- Fintech Execution: Track the launch and adoption metrics of the "DALE" fintech platform as a driver for future fee income and deposit growth.