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: Fourth Quarter (4Q) ended December 31, 2013, and Full Year 2013.
Filing Date: May 5, 2014
Accounting Basis: Colombian Banking GAAP (Consolidated).
Overview: Grupo Aval is Colombia's largest banking group and the largest in Central America via BAC Credomatic. It operates four commercial banks in Colombia (Banco de Bogotá, Banco de Occidente, Banco Popular, Banco AV Villas) and manages pension funds (Porvenir) and merchant banking (Corficolombiana).
Key Financial Metrics
| Metric | 4Q 2013 | Full Year 2013 | 4Q 2012 (Prior Year) |
|---|---|---|---|
| Net Income (Attributable to Shareholders) | Ps. 362.4 billion | Ps. 1,600.5 billion | Ps. 487.9 billion |
| Total Assets | Ps. 154,287.4 billion | N/A | Ps. 127,663.0 billion |
| Total Loans (Gross) | Ps. 96,513.8 billion | N/A | Ps. 80,029.4 billion |
| Total Deposits | Ps. 101,190.4 billion | N/A | Ps. 81,463.3 billion |
| Net Interest Income | Ps. 1,773.1 billion | Ps. 6,981.0 billion | Ps. 1,759.3 billion |
| Net Interest Margin (NIM) | 6.0% | 6.2% | 6.8% |
| Return on Assets (ROAA) | 1.5% (Quarterly) | 1.9% (Annualized) | 2.6% (Quarterly) |
| Return on Equity (ROAE) | 14.8% (Quarterly) | 17.3% (Annualized, adj.) | 22.3% (Quarterly) |
| Efficiency Ratio | 53.7% | 50.4% | 51.3% |
| Past Due Loans (PDL) / Total Loans | 2.4% | 2.4% | 2.3% |
| Non-Performing Loans (NPL) / Total Loans | 1.8% | 1.8% | 1.6% |
| Shareholders' Equity | Ps. 11,728.2 billion | N/A | Ps. 9,083.1 billion |
Material Changes vs. Prior Period
- Acquisitions: Closed acquisitions of Grupo Financiero Reformador and BBVA Panamá in Central America. These added Ps. 6.7 trillion in assets and Ps. 6.0 trillion in liabilities. While they did not impact the 2013 income statement, they significantly increased the balance sheet size.
- Capital Raise: Raised Ps. 2.4 trillion (USD 1.2 billion) in capital between December 2013 and January 2014 via ordinary share issuance. Proceeds were used to prepay financial obligations and replenish liquidity.
- Balance Sheet Growth: Total assets grew 20.9% year-over-year (YoY) to Ps. 154.3 trillion. Loans grew 20.6% YoY, and deposits grew 24.2% YoY.
- Profitability Decline (Quarterly): Net income attributable to shareholders for 4Q13 decreased 25.7% compared to 4Q12. This was primarily due to a significant drop in dividend income (from Ps. 127.6 billion in 3Q13 to Ps. 11.8 billion in 4Q13) and the absence of non-recurring gains present in 4Q12 (sale of land and securitization of Hoteles Estelar properties).
- Asset Quality: NPL ratio increased slightly from 1.6% in 4Q12 to 1.8% in 4Q13, driven mostly by the consumer loan portfolio. Provision expense increased 23.5% YoY.
Guidance, Outlook, and Risks
- Management Commentary: Management highlighted "solid financial results" for the full year 2013, with net income growing 5% YoY. The group emphasized strong balance sheet growth and a successful capitalization process.
- Macroeconomic Environment: Colombia's GDP growth was 4.0% in 2013. Inflation was 3.25% in 4Q13. The average DTF (interbank rate) contracted from 5.4% in 2012 to 4.2% in 2013, contributing to a compression in Net Interest Margin (NIM) for the full year.
- Operational Highlights: Porvenir successfully merged operations with AFP Horizonte. Checking accounts increased their weight in total deposits to 25%.
- Risks and Contingencies:
- Regulatory: Grupo Aval is not regulated as a financial institution itself but its subsidiaries are subject to the Superintendency of Finance. Capital adequacy regulations apply to subsidiaries, not the holding company.
- Accounting Differences: Financials are prepared under Colombian Banking GAAP, which differs significantly from U.S. GAAP. Reconciliations are provided in annual 20-F filings.
- Asset Quality: Slight deterioration in loan quality (NPLs) requires monitoring, particularly in the consumer segment.
Investor Verification Checklist
- Capital Adequacy: Verify the consolidated capital adequacy ratios of the banking subsidiaries (Tier 1 and Solvency ratios) to ensure compliance with Colombian regulations post-acquisition.
- Acquisition Integration: Assess the integration progress and future earnings contribution of the newly acquired Central American entities (Reformador and BBVA Panamá).
- Dividend Volatility: Review the sustainability of dividend income, noting the sharp decline from 3Q13 to 4Q13 which impacted quarterly net income.
- Asset Quality Trends: Monitor the NPL ratio trend, specifically within the consumer loan portfolio, to evaluate credit risk exposure.
- GAAP Reconciliation: For U.S. investors, review the reconciliation between Colombian Banking GAAP and U.S. GAAP in the annual Form 20-F to understand differences in net income and equity.