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: First Quarter 2019 (Ended March 31, 2019)
Accounting Standard: IFRS (Adopted IFRS 16 retrospectively from Jan 1, 2019; comparatives not restated).
Grupo Aval is Colombia's largest banking group and a leading financial conglomerate in Central America. The group operates through four commercial banks in Colombia (Banco de Bogotá, Banco de Occidente, Banco Popular, Banco AV Villas), a pension fund manager (Porvenir), and a merchant bank (Corficolombiana). As of February 6, 2019, the holding company is subject to the Law of Financial Conglomerates.
Key Financial Metrics (1Q2019)
| Metric | 1Q2019 | 1Q2018 | 4Q2018 |
|---|---|---|---|
| Net Income (Attributable to Parent) | Ps 762.9 billion | Ps 597.7 billion | Ps 850.7 billion |
| Earnings Per Share (EPS) | Ps 34.2 | Ps 26.8 | Ps 38.2 |
| Return on Equity (ROAE) | 17.4% | 15.3% | 19.6% |
| Return on Assets (ROAA) | 2.1% | 1.6% | 2.6% |
| Net Interest Income | Ps 2,729.5 billion | Ps 2,663.4 billion | Ps 2,757.0 billion |
| Net Interest Margin (NIM) | 5.7% | 5.6% | 5.6% |
| Cost of Risk (Net) | 2.0% | 2.2% | 3.1% |
| Total Assets | Ps 258,263.0 billion | Ps 232,279.0 billion | Ps 259,675.2 billion |
| Gross Loans (Excl. Interbank) | Ps 168,446.4 billion | Ps 157,037.7 billion | Ps 169,246.7 billion |
| Customer Deposits | Ps 163,255.1 billion | Ps 151,771.6 billion | Ps 164,359.5 billion |
| Deposit to Loan Ratio | 0.99x | 0.97x | 0.97x |
| Liquidity Position | 16.5% | 14.3% | 17.3% |
| Tangible Equity Ratio | 8.3% | 7.4% | 8.4% |
Material Changes vs. Prior Periods
- Profitability Growth: Net income attributable to shareholders increased 27.6% year-over-year (YoY) to Ps 762.9 billion, driven by improved net interest income and lower cost of risk. However, it decreased 10.3% quarter-over-quarter (QoQ) compared to 4Q2018.
- Asset Expansion: Total assets grew 11.2% YoY. Gross loans increased 7.3% YoY, primarily driven by a 17.7% increase in mortgages and an 11.9% increase in consumer loans.
- Cost of Risk Improvement: The net cost of risk improved to 2.0% in 1Q2019 from 3.1% in 4Q2018 and 2.2% in 1Q2018, supported by better consumer loan vintages and reduced marginal provisions on specific exposures.
- Non-Financial Sector Volatility: Net income from sales of goods and services (non-financial) surged 179.1% YoY to Ps 574.5 billion but dropped 52.4% QoQ. The QoQ decline is attributed to the absence of a one-time toll road contribution in 4Q2018 and slower construction due to weather.
- Loan Quality: The ratio of loans 90+ days past due (PDL) to total loans remained stable at 3.1% (vs 2.9% in 1Q2018). Coverage of 90+ PDLs increased to 1.6x.
Outlook, Risks, and Management Commentary
- IFRS 16 Impact: The adoption of IFRS 16 resulted in the recognition of right-of-use assets and lease liabilities, impacting the balance sheet. Consequently, 2019 quarterly results are not fully comparable to prior periods.
- Macroeconomic Context: Management notes stable interest rates in Colombia. In Central America, results were affected by the appreciation of the Costa Rican Colón against the US Dollar, reducing foreign exchange gains.
- Operational Strategy: The group continues to focus on cost improvements (Efficiency Ratio at 44.7%) and profitable growth in retail banking (payrolls, credit cards, mortgages) while maintaining a marginal growth strategy in the commercial loan book.
- Risks: Forward-looking statements are subject to risks including changes in economic conditions, interest rates, and currency rates. Specific risks include loan quality deterioration in Central America (notably Nicaragua) and seasonality.
Investor Verification Checklist
- IFRS 16 Adjustments: Verify the specific impact of IFRS 16 on the opening balance sheet and how it affects the comparability of leverage and asset ratios.
- Non-Financial Sector Sustainability: Assess the sustainability of the 179% YoY growth in non-financial income given the QoQ decline and reliance on construction progress/toll road operations.
- Central American FX Exposure: Monitor the impact of currency fluctuations (specifically Costa Rican Colón) on consolidated earnings and asset valuations.
- Loan Quality Trends: Track the 90+ days PDL ratio and cost of risk, particularly in the Central American region where deterioration was noted.
- Dividend Policy: Note that the decrease in attributable equity QoQ was partly due to dividends declared in 1Q2019; verify future dividend payout expectations.