Grupo Aval Acciones y Valores S.A. — FY2017 Form 20-F
Reporting period: Annual report for the fiscal year ended December 31, 2017, filed April 27, 2018. This is a full-year filing, not a standalone fourth-quarter report; the supplied text does not provide clear Q4-only financial results. Consolidated financial statements are audited under IFRS as issued by the IASB. Amounts below are Colombian pesos (Ps) unless stated otherwise; U.S. dollar translations are for convenience.
Business context and financial performance
Grupo Aval is a Colombian financial holding company with four Colombian banks, Corficolombiana, pension manager Porvenir and Central American banking operations through BAC Credomatic. Colombia represented about 70% of assets. The company reported total assets of Ps236.5 trillion and off-balance-sheet assets under management of Ps231.4 trillion.
| Metric | FY2017 / Dec. 31, 2017 | Prior comparable |
|---|---|---|
| Interest income | Ps18.742 trillion | Ps17.547 trillion in 2016 |
| Net interest income | Ps10.514 trillion | Ps9.155 trillion in 2016 |
| Net commission and fee income | Ps4.579 trillion | Ps4.260 trillion in 2016 |
| Net impairment loss on financial assets | Ps4.029 trillion | Ps2.832 trillion in 2016 |
| Income before tax | Ps4.915 trillion | Ps5.574 trillion in 2016 |
| Net income | Ps3.162 trillion | Ps3.517 trillion in 2016 |
| Net income attributable to parent owners | Ps1.962 trillion | Ps2.140 trillion in 2016 |
| Total assets | Ps236.539 trillion | Ps224.074 trillion in 2016 |
| Loans and receivables, net | Ps160.754 trillion | Ps150.899 trillion in 2016 |
| Customer deposits | Ps154.885 trillion | Ps143.887 trillion in 2016 |
| Total liabilities / total equity | Ps210.667 trillion / Ps25.871 trillion | Ps199.415 trillion / Ps24.659 trillion in 2016 |
Margins and returns: net interest margin rose to 5.8% from 5.4%; efficiency ratio improved to 46.5% from 47.3%. ROAA declined to 1.4% from 1.6%, and ROAE to 12.6% from 14.3%. Period-end equity was 10.9% of assets, versus 11.0% in 2016; tangible equity ratio was 7.9% in both years.
Cash flow from operating activities was Ps5.108 trillion, compared with Ps2.485 trillion in 2016. Investing activities used Ps3.610 trillion, versus Ps0.953 trillion; financing activities used Ps1.446 trillion, compared with Ps0.067 trillion provided. Cash and cash equivalents increased Ps143.8 billion during 2017, ending at Ps22.337 trillion. The filing reports long-term U.S.-dollar-denominated debt of about US$3.6 billion; consolidated bonds issued were Ps19.102 trillion.
Credit indicators weakened: loans past due more than 30 days were 3.9% of gross loans versus 3.0% in 2016, and the selected-data table reports loans past due more than 90 days at 3.6% versus 2.0%. Allowance coverage was 90.7% of loans past due more than 30 days, down from 95.0%, and 128.2% of loans past due more than 90 days, down from 143.9%. The filing also cites a 2.8% consolidated ratio for loans more than 90 days past due in another discussion; definitions or denominators may differ.
Material changes versus 2016
- Parent-attributable net income fell 8.3%; consolidated net income fell 10.1%. Net interest income rose 14.9%, and net fees rose 7.5%, but these gains were outweighed by a 42.3% increase in net impairment losses, a 24.0% decline in other income and a 3.6% increase in other expenses.
- Management attributed about half of the deterioration in cost of risk to broad portfolio delinquency in Colombia and Central America, and about half to specific corporate exposures, including Electricaribe, Ruta del Sol and Bogotá’s mass-transit system (SITP).
- Colombian loan growth slowed: Grupo Aval’s Colombian portfolio grew 4.0% in 2017 versus 8.3% in 2016. Colombia’s GDP growth was 1.8% versus 2.0%.
- Corficolombiana’s ROAE declined to 6.8% from 10.0% in 2016, with results affected by Ruta del Sol and Electricaribe impairments. BAC Credomatic’s net income attributable to owners increased 6.5% in 2017.
Outlook, commentary, risks and unusual items
- Outlook: The filing cites the Colombian Central Bank’s 2018 GDP growth range of 1.7%–3.7%, with 2.7% described as the most likely scenario. Management’s strategy includes digital banking and process digitization, improving efficiency, increasing fee income, expanding selected lending segments and pursuing selective acquisitions. It gives no specific Grupo Aval earnings or financial-ratio guidance.
- Ruta del Sol/Odebrecht: Investigations and litigation remain ongoing. In December 2017, the ANI authorized a partial payment of Ps0.8 trillion toward Ps2.7 trillion owed to financial entities; about Ps1.9 trillion remained outstanding, including approximately Ps0.9 trillion owed to Grupo Aval banking subsidiaries. Those subsidiaries had provisions of Ps121.3 billion, or 12.9%, against their exposure. Corficolombiana’s investment in the concessionaire was written down by Ps140.7 billion in 2017; its remaining carrying value was Ps111.8 billion. Outcomes and potential further liability remain uncertain.
- Other contingencies and unusual items: Provisions against Electricaribe exposure were Ps430.7 billion, or 68.8% of exposure. A bridge under construction on the Bogotá–Villavicencio route partially collapsed on January 15, 2018, causing casualties; the cause, costs and potential contingencies were not yet determined. The filing also describes an ongoing investigation and indictment of Corficolombiana’s former president in the Ruta del Sol matter, while stating that the company and subsidiaries had not been named in the criminal investigations as of the filing.
- Regulatory and accounting changes: Grupo Aval expected to come under financial-conglomerate supervision beginning in September 2018, with capital and other rules still to be developed. IFRS 9, effective January 1, 2018, was estimated to reduce opening total equity by approximately Ps806.7 billion, primarily due to expected-credit-loss provisions; management said the estimate remained preliminary.
- Macroeconomic and operating risks: Key exposures include Colombian and Central American economic and political conditions, credit quality, interest rates, foreign exchange, sovereign securities, short-term deposit funding, regulation and tax changes, competition, cyber incidents, operational failures, and the ability to enforce collateral. The filing notes Colombia’s 2017 inflation of 4.09% and policy-rate cuts during 2017 as contributing to repricing and margin trends.
- Reporting and controls: KPMG issued unqualified opinions on the consolidated IFRS financial statements and internal control over financial reporting as of December 31, 2017. Management also concluded disclosure controls and internal control over financial reporting were effective.
Important facts for investors to verify
- Reconcile the filing’s differing reported measures of loans past due more than 90 days, including the stated denominator and scope.
- Track delinquency, charge-offs, allowance coverage and further credit costs, especially for consumer lending and the Electricaribe, Ruta del Sol and SITP exposures.
- Review subsequent rulings, recoveries, provisions and potential liabilities related to Ruta del Sol/Odebrecht, including the investment impairment and remaining bank exposure.
- Assess the bridge-collapse investigation, insurance coverage, project impact and any claims or contingencies arising after year-end.
- Confirm the realized IFRS 9 adoption impact against the preliminary Ps806.7 billion estimated reduction in opening equity, and monitor financial-conglomerate capital requirements.
- Evaluate deposit stability and refinancing needs alongside foreign-currency exposures; confirm debt maturities, hedges and subsidiary dividend capacity.
- Consider that ADSs represent non-voting preferred shares, dividends depend on subsidiary distributions and Colombian approvals, and the controlling shareholder holds substantial voting control through common shares.