Release Date: November 14, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Grupo Aval Acciones y Valores SA (NYSE:AVAL) reported a return on average equity of 9.7%, comparable to levels from the third quarter of 2022.
• The company continues to gain market share while growing at a prudent rate, with its banking segment returning to net income levels similar to late 2022.
• Grupo Aval's sustainable portfolio has strengthened, reaching 17.3 trillion pesos, supporting various sustainable initiatives.
• The company improved its score in the Dow Jones Sustainability Index, placing in the 90th percentile, reflecting advancements in environmental, social, and governance dimensions.
• Grupo Aval's financial system remains solid, with improvements in cost of risk and asset quality, particularly in consumer loans and mortgages.

Negative Points

• Loan growth remains subdued, with growth still in negative territory in real terms, and margins under pressure due to regulatory and monetary policy challenges.
• The fiscal situation in Colombia poses challenges, with taxation underperforming government estimates, necessitating deeper spending cuts.
• The commercial loan segment is lagging behind the consumer segment in recovery, with certain sectors still facing macroeconomic pressures.
• Grupo Aval's non-financial sector income contracted due to concessions transitioning from construction to operation phases.
• The Colombian financial system faces regulatory pressures such as changes in interest rate caps, affecting consumer loans and high liquidity and solvency requirements.

Q & A Highlights

• Warning! GuruFocus has detected 3 Warning Signs with AVAL.

Q: Can you elaborate on your strategy for the mortgage market in 2025, considering the current market conditions? A: We expect to continue outpacing the system in the mortgage market. We are underweighted compared to our peers, which allows us to better select our customers. We anticipate maintaining this trend into the future. Regarding ROE trends, the improvement will be driven by a combination of cost of risk, cost control, and market growth, with a significant contribution from the central bank's expected rate cuts.

Q: Why is the commercial segment taking longer to recover compared to the consumer segment, and when do you expect improvement? A: The commercial segment typically lags behind the consumer segment in the economic cycle. Households feel the impact first, followed by companies. We are exposed to all sectors, and while some are sensitive to macro conditions, we are not anticipating any large single events. Improvement is expected as the economy stabilizes.

Q: Can you provide more details on the NIM with and without trading income, and should we expect this improvement to continue? A: The NIM improvement is partly due to trading income, which can vary with interest rate movements. We expect NIM to improve as the central bank cuts rates. For 2024, we project a NIM of 3.6% overall and 4.35% on loans, with further improvements in 2025.

Q: What are the conditions of the loans under the government loan program, and do they include guarantees or subsidies? A: The loans under the government program have special conditions, such as lower rates for housing credit and guarantees for renewable energy projects. We are working with government entities to support agribusiness and the popular economy.

Q: What is your outlook for loan growth in the commercial and consumer segments, and how is the competitive environment? A: For 2024, we expect commercial loans to grow by 7.5-8% and retail loans by 5.5-6%. In 2025, commercial loans are projected to grow by 9% and retail loans by 11%. The Colombian market is competitive, especially in higher quality loan segments, but we are prepared to compete effectively.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.