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: Fourth Quarter and Full Year 2019 (Results released March 16, 2020)
Business Overview: Colombia's largest banking group and the largest banking group in Central America (via BAC Credomatic). Operations include four commercial banks in Colombia, pension fund management (Porvenir), and merchant banking (Corficolombiana). Financials are presented in Colombian Pesos (Ps) billions under IFRS.
Key Financial Metrics
| Metric | Full Year 2019 | Full Year 2018 | Change |
|---|---|---|---|
| Net Income (Attributable to Parent) | Ps 3,034.4 billion | Ps 2,912.7 billion | +4.2% |
| Earnings Per Share (EPS) | Ps 136.2 | Ps 130.7 | +4.2% |
| Return on Equity (ROAE) | 16.4% | 17.8% | -140 bps |
| Return on Assets (ROAA) | 2.0% | 2.2% | -20 bps |
| Net Interest Margin (NIM) | 5.70% | 5.67% | +3 bps |
| Cost of Risk | 2.2% | 2.4% | -20 bps |
| Efficiency Ratio | 47.6% | 45.7% | +190 bps |
| Total Assets | Ps 278,832.6 billion | Ps 259,675.2 billion | +7.4% |
| Gross Loans (Excl. Interbank) | Ps 179,409.2 billion | Ps 169,246.7 billion | +6.0% |
| Customer Deposits | Ps 175,491.4 billion | Ps 164,359.5 billion | +6.8% |
| Tangible Capital Ratio | 9.2% | 8.4% | +80 bps |
Material Changes vs. Prior Period
- Profitability: Full-year net income surpassed Ps 3 trillion for the first time, driven by a 13% increase in net fee income and stable NIM. However, results were impacted by non-recurrent provision expenses of Ps 328 billion (post-tax impact of Ps 162 billion) related to CRDS and SITP, plus Ps 25 billion in other non-recurrent expenses.
- Loan Portfolio Growth: Consolidated loans grew 6.0%, driven by an 8% increase in consumer loans, 9% in mortgages, and 4% in commercial loans. Interbank and overnight funds decreased significantly by 64.4%.
- Asset Quality: Despite an increase in 30 and 90-day past due loans (PDLs) due to CRDS becoming due, the 90+ day PDL ratio remained stable at 3.3% (up 19 bps YoY). The allowance coverage for 90+ PDLs reached 140%.
- Non-Interest Income: Net fee income increased 13% YoY. Conversely, gross profit from sales of goods and services (non-financial sector) decreased 55.3% in 4Q19 compared to 4Q18, largely due to lower construction progress in toll road concessions and higher income recognized in 4Q18.
- Trading Income: Net trading income turned negative in 4Q19 (Ps -36.2 billion) compared to a positive Ps 318.9 billion in 4Q18, primarily due to losses on financial derivatives.
Guidance, Outlook, and Risks
- Recent Capital Markets Activity: On January 28, 2020, the company issued US$ 1.0 billion in 10-year Senior Notes with a 4.375% coupon. Proceeds are expected to fund a Basel III compliant AT1 issuance at BAC Credomatic and be lent to operating subsidiaries.
- Liquidity and Funding: The company maintains strong liquidity with a Deposits/Loans ratio of 1.01x and Cash/Deposits at 17.2%. Average cost of funds remained stable at 3.8% in 4Q19.
- Digital Transformation: 20% of clients are now digital, and 60% of transactions are digital. The company continues to invest in analytics and digital product redesign.
- Risks and Contingencies:
- Macroeconomic: Exposure to Colombian and Central American economic conditions, including GDP growth, inflation, and exchange rate volatility.
- Credit Risk: Specific mention of fully provisioned problem commercial loans and the write-off of the Electricaribe loan.
- Forward-Looking Statements: The filing includes standard disclaimers that actual results may differ due to changes in economic conditions, interest rates, and currency rates.
Investor Verification Checklist
- Non-Recurrent Items: Verify the specific impact of the Ps 328 billion provision for CRDS and SITP on future quarters and the status of these exposures.
- Asset Quality Trends: Monitor the 90+ day PDL ratio (currently 3.3%) and the allowance coverage ratio (140%) to ensure stability despite the increase in past due loans.
- Non-Financial Sector Performance: Assess the sustainability of the decline in gross profit from sales of goods and services (toll roads/construction) and its impact on future earnings.
- Trading Volatility: Review the drivers of the negative net trading income in 4Q19 and the exposure to financial derivatives.
- Capital Adequacy: Confirm the utilization of the new US$ 1.0 billion bond proceeds for the BAC Credomatic AT1 issuance and its effect on the group's leverage ratios.