Grupo Aval Acciones y Valores S.A. — 2018 Form 20-F
Business context and reporting period. This is an annual report for the fiscal year ended December 31, 2018, not a standalone fourth-quarter filing. Grupo Aval is a Colombian financial holding company with four Colombian banks, BAC Credomatic in Central America, pension manager Porvenir and merchant bank Corficolombiana. Audited consolidated statements are prepared under IFRS as issued by the IASB. Peso amounts below are Colombian pesos; any U.S. dollar translations are for convenience.
Key financial metrics
| Metric | 2018 | 2017 | Change / context |
|---|---|---|---|
| Total assets | Ps 259.7 trillion | Ps 236.5 trillion | Up 9.8% |
| Total loans, gross | Ps 176.9 trillion | Ps 166.4 trillion | Up 6.3% |
| Customer deposits | Ps 164.4 trillion | Ps 154.9 trillion | Up 6.1% |
| Total interest income | Ps 18.36 trillion | Ps 18.74 trillion | Down 2.1% |
| Net interest income | Ps 10.87 trillion | Ps 10.51 trillion | Up 3.4% |
| Net impairment loss on financial assets | Ps 3.80 trillion | Ps 3.85 trillion | Down 1.5%; modest improvement |
| Net income | Ps 5.18 trillion | Ps 3.16 trillion | Up 63.9% |
| Net income attributable to parent owners | Ps 2.91 trillion | Ps 1.96 trillion | Up 48.4% |
| Net interest margin | 5.7% | 5.8% | Down 0.1 percentage point |
| ROAA / ROAE | 2.2% / 17.8% | 1.4% / 12.6% | Both improved |
| Efficiency ratio | 43.1% | 46.5% | Improved |
| Total equity | Ps 29.55 trillion | Ps 25.87 trillion | Up 14.2%; equity was 11.4% of assets |
Cash flow and liquidity. Net cash provided by operating activities was Ps 8.73 trillion. Investing activities used Ps 3.05 trillion and financing activities used Ps 1.00 trillion; exchange-rate effects added Ps 1.38 trillion. Cash and cash equivalents increased Ps 6.06 trillion to Ps 28.40 trillion. Deposits represented 76.2% of total funding, and deposits to net loans (excluding interbank and overnight funds) were 102.1%, compared with 100.9% in 2017.
Debt and capital. At year-end, consolidated financial obligations included Ps 20.14 trillion of bonds, Ps 20.61 trillion of borrowings from banks and others, Ps 6.81 trillion of interbank borrowings and overnight funds, and Ps 3.65 trillion of borrowings from development entities. Grupo Aval also reported approximately U.S.$3.5 billion of long-term U.S.-dollar-denominated debt. Reported solvency ratios for Colombian subsidiaries were 13.5% at Banco de Bogotá, 12.6% at Banco de Occidente, 10.1% at Banco Popular and 10.5% at Banco AV Villas. These are subsidiary ratios, not a consolidated Grupo Aval capital ratio.
Asset quality. Loans past due more than 30 days were 4.3% of gross loans, versus 3.9% in 2017; loans past due more than 90 days were 3.1%, versus 2.8%. Charge-offs as a share of average gross loans rose to 1.9% from 1.7%. The allowance was Ps 8.20 trillion, or 4.8% of gross loans, compared with Ps 5.62 trillion, or 3.5%, in 2017.
Material changes versus 2017
- Management described 2018 as a recovery from weak 2017 results, citing Colombian GDP growth of 2.7% versus 1.4%, stronger household demand and lower average Colombian policy rates.
- Parent-attributable earnings rose substantially, supported by higher net interest income, fees, non-financial-sector income and other income. Income from sales of goods and services rose Ps 1.89 trillion, primarily reflecting construction progress on Corficolombiana concessions and strong Promigas results; IFRS 15 also changed revenue presentation and recognition.
- Interest income declined as lower yields, particularly on commercial lending, more than offset loan growth; lower deposit and other funding costs supported net interest income.
- Reported credit allowances increased materially, in part because of IFRS 9 adoption: the opening allowance impact was Ps 1.16 trillion. IFRS 9 and IFRS 15 were adopted from January 1, 2018, and comparative figures were not restated, limiting direct comparability.
- Operating costs rose, but more slowly than income; efficiency improved. The company also cited branch and ATM optimization and migration of customer transactions to digital channels.
Outlook, commentary, risks and unusual items
- Outlook: The filing provides no formal quantified Grupo Aval earnings or revenue guidance. Management expected Colombian commercial loan growth to improve as investment decisions postponed amid election and tax uncertainty resumed; it expected consumer and mortgage lending to continue growing. Management also anticipated broadly stable net interest margin, some improvement in cost of risk, and continued construction progress on infrastructure concessions. These are expectations, not guarantees.
- Ruta del Sol Sector 2: Episol, a Corficolombiana subsidiary with a 33% stake in the concessionaire, was named in related proceedings. In December 2018, the Administrative Tribunal of Cundinamarca ordered Episol and other defendants jointly and severally to pay Ps 715.6 billion and imposed a 10-year debarment; the defendants appealed. The SIC antitrust proceeding and DOJ and SEC investigations were ongoing. Grupo Aval reported no accrual for the SIC proceeding or the class action, and stated the outcome of the U.S. investigations could not be predicted.
- Other credit exposures: At December 31, 2018, Electricaribe exposure of Ps 712.1 billion was fully provisioned; Ruta del Sol exposure of Ps 1.02 trillion was provisioned at 31.3%; and combined SITP exposure of Ps 518.9 billion was provisioned at 36.4%. Management noted uncertainty about timing and resolution and said Electricaribe could be charged off in 2019.
- Infrastructure and contingencies: The Chirajara bridge partially collapsed in January 2018 and an accident occurred during construction of La Pala bridge in November 2018, causing fatalities and injuries. The filing says insurance was in place but gives no assurance it will cover all contingencies.
- Regulation and macro risks: Grupo Aval became subject to Colombian financial-conglomerate supervision on February 6, 2019. New conglomerate capital and related-party rules were scheduled to take effect in November 2019 and February 2020; Colombian banking subsidiaries were also due to transition to Basel III requirements in 2020. Risks include loan deterioration, interest-rate and currency movements, economic or political disruption in Colombia and Central America, regulation and tax changes, cybersecurity and operational failures, and funding or liquidity pressures.
- Unusual tax and asset items: The Financing Law reduced future Colombian corporate tax rates, contributing to lower deferred tax expense; management also cited recovery of current taxes from prior periods. Asset sales and property, plant and equipment optimization contributed to other income. Episol fully impaired its Ps 111.8 billion Ruta del Sol investment by year-end.
Important facts for investors to verify
- Review the audited IFRS statements and notes for the IFRS 9 and IFRS 15 transition impacts, including the Ps 1.16 trillion opening loan-allowance increase and changes in concession revenue recognition.
- Track 30- and 90-day delinquency, charge-offs, allowance coverage and the resolution or charge-off of Electricaribe, Ruta del Sol and SITP exposures.
- Verify subsequent rulings, appeals, accruals and disclosures concerning Ruta del Sol, including the SIC, DOJ and SEC matters and the potential financial and operating consequences.
- Assess the maturity, currency and refinancing profile of financial obligations, alongside deposit trends, liquidity measures and subsidiary capital ratios under changing regulation.
- Test whether concession construction progress, related revenue recognition, project financing and insurance coverage support the reported non-financial contribution and management’s outlook.
- Confirm dividend declarations and cash availability at subsidiaries; Grupo Aval is a holding company dependent on subsidiary distributions, which may be constrained by law or capital requirements.