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: Third Quarter 2015 (Ended September 30, 2015)
Accounting Standard: Full IFRS (First year of implementation in Colombia)
Currency: Colombian Pesos (Ps.) in billions
Grupo Aval is Colombia's largest banking group and a major player in Central America. The company is a holding company and is not regulated as a financial institution itself, though its banking subsidiaries (Banco de Bogotá, Banco de Occidente, Banco Popular, Banco AV Villas) are supervised by the Superintendency of Finance. The filing marks the first full quarter of reporting under IFRS, replacing Colombian Banking GAAP.
Key Financial Metrics
| Metric | 3Q 2015 | 2Q 2015 | 3Q 2014 |
|---|---|---|---|
| Net Income (Attributable to Owners) | Ps. 444.8 billion | Ps. 569.0 billion | Ps. 413.2 billion |
| Total Assets | Ps. 210.6 trillion | Ps. 194.7 trillion | Ps. 170.8 trillion |
| Total Loans (Gross) | Ps. 140.6 trillion | Ps. 128.8 trillion | Ps. 108.4 trillion |
| Total Deposits | Ps. 129.1 trillion | Ps. 122.6 trillion | Ps. 108.5 trillion |
| Total Equity (Shareholders + Minority) | Ps. 21.0 trillion | Ps. 21.4 trillion | Ps. 19.8 trillion |
| Net Interest Margin (NIM) | 5.3% | 5.4% | 5.7% |
| Cost of Risk (Net) | 1.4% | 1.9% | 1.6% |
| Non-Performing Loans (NPL) | 1.6% | 1.7% | 1.8% |
| Efficiency Ratio | 50.7% | 46.3% | 47.7% |
| ROAA | 1.5% | 1.8% | 1.8% |
| ROAE | 13.3% | 17.1% | 14.1% |
Material Changes vs. Prior Periods
- Profitability Decline QoQ: Net income attributable to owners decreased 21.8% quarter-over-quarter (QoQ) to Ps. 444.8 billion, driven by a 19.4% drop in "Other Income" and a 15.0% increase in operating expenses, despite a 12.4% increase in net interest income after provisions.
- Asset Growth: Total assets grew 23.3% year-over-year (YoY) and 8.2% QoQ. Management notes that excluding the 53% peso devaluation over the last 12 months, organic asset growth was 10.6% YoY.
- Loan Portfolio Expansion: Gross loans increased 29.7% YoY. Growth was led by Commercial loans (+26.8% YoY) and Mortgages (+52.7% YoY). Foreign loans (Central America) grew 73.4% YoY, largely due to currency translation effects.
- Asset Quality Improvement: The loan portfolio quality remained stable with NPLs decreasing to 1.6% (from 1.8% in 3Q14). The Cost of Risk improved significantly to 1.4% from 1.9% in 2Q15.
- Liquidity Tightening: The ratio of deposits to gross loans tightened to 94.2% in 3Q15 (down from 102.9% in 3Q14), though management noted a partial reversion in October and November 2015.
- Capital Ratios: The Tangible Capital ratio deteriorated to 5.7% (from 6.9% in 2Q15) due to asset growth, equity contraction from profit distributions, and the impact of peso devaluation on USD-denominated goodwill.
Outlook, Risks, and Management Commentary
- IFRS Implementation: The company is in its first year of IFRS implementation. Management warns that interim financial information for 2015 and comparative 2014 data may be subject to further amendments as the process continues. Previously published figures for 1Q15 and 2Q15 have already been revised.
- Currency Risk: The devaluation of the Colombian Peso (COP) is a significant factor. It inflated reported asset and loan growth figures. Conversely, it negatively impacted the tangible capital ratio due to the valuation of USD-denominated goodwill.
- Margin Pressure: Total NIM contracted to 5.3% from 5.4% in the prior quarter. While the yield on loans remained stable at 10%, the average cost of funds increased from 3.4% to 3.5%. NIM on fixed income investments declined sharply to 0.5%.
- Efficiency Deterioration: The efficiency ratio worsened to 50.7% (cost to income basis), reflecting higher operating expenses relative to income.
- Forward-Looking Statements: Actual results may vary due to changes in economic conditions, interest rates, and currency rates. The company disclaims any obligation to update this information.
Investor Verification Checklist
- IFRS Adjustments: Verify if further restatements of 2015 interim data or 2014 comparative data are issued, as the company is in the first year of IFRS adoption.
- Organic Growth vs. FX: Distinguish between organic loan/deposit growth and growth driven by the 53% peso devaluation over the last 12 months.
- Liquidity Trends: Monitor the deposit-to-loan ratio (currently 94.2%) to confirm if the tightening observed in 3Q15 has fully reversed as management suggested for Oct/Nov 2015.
- Cost of Risk Sustainability: Assess if the improved Cost of Risk (1.4%) is sustainable given the macroeconomic environment and the composition of the loan portfolio.
- Capital Adequacy: Review the impact of continued peso volatility on the Tangible Capital Ratio, which is sensitive to USD-denominated goodwill valuations.