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 2024 (Ended June 30, 2024)
Business Overview: Leading financial conglomerate in Colombia operating four commercial banks (Banco de Bogotá, Banco de Occidente, Banco Popular, Banco AV Villas), the largest private pension/severance fund manager (Porvenir), and the largest merchant bank (Corficolombiana). Operations also extend to Panama via Multibank.
Key Financial Metrics
| Metric | 2Q24 (Ps Billions) | 2Q23 (Ps Billions) | YoY Change |
|---|---|---|---|
| Net Income (Attributable to Parent) | 204.3 | 166.2 | +22.9% |
| Earnings Per Share (EPS) | Ps 8.6 | Ps 7.0 | +22.9% |
| Net Interest Income | 1,921.3 | 1,575.5 | +21.9% |
| Net Impairment Loss | 986.2 | 988.3 | -0.2% |
| Total Assets | 316,615.6 | 298,061.6 | +6.2% |
| Gross Loans | 193,171.1 | 184,409.6 | +4.8% |
| Customer Deposits | 198,365.4 | 180,244.5 | +10.1% |
Profitability and Efficiency Ratios
- Return on Average Assets (ROAA): 0.6% (Flat vs 2Q23)
- Return on Average Equity (ROAE): 4.9% (Up 85 bps vs 2Q23)
- Net Interest Margin (NIM): 3.4% (Up 5 bps vs 1Q24)
- Cost of Risk: 2.1% (Down 83 bps vs 1Q24; Down 10 bps vs 2Q23)
- Efficiency Ratio: 54.7% (Up 427 bps vs 1Q24 due to lower other income)
- 90+ Days Past Due Loans (PDL): 4.2% of Gross Loans (Up 10 bps vs 1Q24)
Material Changes vs. Prior Period
- Profitability Surge: Attributable net income jumped 79.6% quarter-over-quarter (vs 1Q24) and 22.9% year-over-year, driven by a 27.5% reduction in net impairment losses and a 21.9% increase in net interest income.
- Asset Growth: Gross loans grew 4.8% YoY, led by commercial loans (+5.9%) and mortgages (+10.8%). Consumer loans remained relatively flat (+0.9%).
- Deposit Expansion: Customer deposits grew 10.1% YoY, outpacing loan growth and improving the deposits-to-loans ratio to 1.08x.
- Asset Quality: While 30-day PDLs improved slightly (5.8% vs 5.9% in 1Q24), 90-day PDLs deteriorated to 4.2% (from 4.1% in 1Q24), primarily due to roll-forwards in commercial loans. However, the cost of risk decreased significantly to 2.1%.
- Non-Interest Income Volatility: Total other income collapsed to Ps 2.6 billion (from Ps 409.3 billion in 1Q24), largely due to foreign exchange losses and a reversal of derivative gains, negatively impacting the efficiency ratio.
Outlook, Risks, and Management Commentary
- Market Share Gains: Over the last 12 months, Aval banks gained 83 basis points in gross loan market share, with significant gains in commercial (108 bps) and consumer (125 bps) segments.
- Cost of Risk Trend: Management highlighted a decrease in cost of risk for consumer loans (down 194 bps) and commercial loans (down 57 bps) over the quarter.
- Infrastructure Sector: The merchant banking segment saw a 35% contraction in gross profit from sales of goods and services compared to 1Q24, attributed to lower construction progress and inflation metrics affecting concession assets.
- Risk Management: No material changes in market risk exposure were reported. The company maintains a double leverage ratio of 1.23x.
- Corporate Governance: New appointments to the Board of Directors and committees were made in April 2024, including the appointment of Mauricio Cárdenas Müller as Vice-president of the Board.
Investor Verification Checklist
- Asset Quality Deterioration: Verify the drivers behind the increase in 90+ day past due loans (4.2%) despite the overall reduction in cost of risk.
- Non-Interest Income Volatility: Assess the sustainability of earnings given the near-total collapse in "Total other income" (from Ps 409B to Ps 2.6B) due to FX and derivative fluctuations.
- Infrastructure Exposure: Review the impact of the 35% contraction in the infrastructure/concession segment on future merchant banking profitability.
- Deposit Mix: Analyze the composition of the 10.1% deposit growth to ensure stability in funding costs, noting the average cost of funds decreased to 8.2%.
- Non-Controlling Interest: Confirm the impact of minority interests (47.2% of total equity) on the attributable net income growth.