Grupo Aval Acciones y Valores S.A.
Q1 2021 Earnings Call Transcript

Published: 20 May 2021

[Operator:]

Welcome to Grupo Aval's First Quarter 2021 Consolidated Results Conference Call. My name is and I will your operator for today’s call. Grupo Aval Acciones y Valores S.A., Grupo Aval, is an issuer of securities in Colombia and in the United States. As such, it is subject to compliance with securities regulation in Colombia and applicable U.S. securities regulation. Grupo Aval is also subject to the inspection and supervision of the Superintendency of Finance as holding company of the Aval financial conglomerate. The consolidated financial information included in this document is presented in accordance with IFRS as currently issued by the IASB. Details of the calculations of non-GAAP measures such as ROAA and ROAE, among others, are explained where required in this report. This report includes forward-looking statements.

[Luis Carlos Sarmiento Gutiérrez:]

Good morning and thank you all for joining our first quarter 2021 conference call. I trust that all of you and your families are keeping healthy. This is with great pride in our company and its employees that I will share with you our strong financial results for the quarter that ended on March 31. As I usually do, I will refer to the situation of economies of the countries in which we operate. I will provide an update on the status of our clients, loan reliefs, and our digitalization program, and I will refer to the main reasons for our financial results. Let's start with a view of the macro scenario during the quarter. To begin, I would venture to say that for the first time since the pandemic began over a year ago, the global outlook has become more favorable. In fact, the United States has set an example of efficacy in the mass production of the COVID-19 vaccine, in the inoculation of its citizens and citizens of many other parts of the world and in the distribution of the vaccine to other countries. This has without a doubt played a crucial role in the economic recovery of the USA, and has set in motion economic recoveries of many other countries and sectors.

[Diego Solano Saravia:]

Thank you, Luis Carlos. I will now move to our consolidated results of Grupo Aval under IFRS. Starting on Page 9, even though not yet back to historic levels, volume growth are increasingly gaining momentum. Our assets grew 4.3% over the quarter. With this result, we accumulate a 5.1% year-on-year growth. As mentioned over the last three calls, on May last year, we completed the acquisition of MSG contributing to our 12-month growth. Excluding this effect and that of FX movements of our Central American operations, total assets grew 2.8% year-on-year. Colombian assets grew 2.7% during the quarter and 0.3% year-on-year, while Central American assets recorded a 0.3% quarterly growth in direct turns and 0.7% year-on-year growth. MFG contributed with a 10 percentage points to the annual growth of Central America. Our of 7.2 and a 12-month appreciation of 9.2% quarterly and annual growth in pesos of Central America to 7.5% and 15.2%. The share of Central America of our book increased slightly during the quarter to 36%. Moving to Page 10, loan growth is aggressively recovering, mainly driven by a substantial performance of high quality retail lending products and information on loan growth in Colombia. Loans grew 3.8% over the quarter, reaching a 4.4% increase year-on-year. Excluding the acquisition of MFG and FX movements of our Central American operations, consolidated loans grew 1.4% over the quarter, the acquisition of MFG contributed with 6.3% of 12-month consolidated growth in special terms. Colombian gross loan portfolio increased 1.7% during the quarter, driven by the strong growth of our retail portfolio and an improvement in the dynamics of our commercial portfolio. 12-month low was 1.5%. Demand for consumer loans remains strong in Colombia resulting in a 2.7% increase in the quarter, and 8.1% year-on-year. Competition remains high, particularly on payroll lending. Payroll lending, that accounts for 60% of our Columbian consumer portfolio grew 5.7% over the quarter. Mortgages remain dynamic in Colombia expanding 2.6% over the quarter, and 10.9% year-on-year. Auto financing that accounts for 7% grew 0.6% over the quarter. In contrast, as has happened over the pandemic, credit cards and personal loans remained soft contracting systems 9% and 1% respectively during the quarter. These products account for 12% and 20% of our Colombian consumer portfolio. Colombian corporate portfolio slightly recovered its dynamic growing 1% during this quarter, after two consecutive periods of contraction. Cumulative 12-month growth was negative at minus 2.8% with a high comparison base a year ago. Moving to Central America, our gross loan portfolio increased 0.7% over the quarter and 21% year-on-year in dollar terms. MFG contributed 20 percentage points to a year-on-year growth. Quarterly performance resulted from a 1% growth of commercial loans and a 1.2% growth of mortgages. Consumer loans contracted by 0.2% over the quarter after a seasonally high fourth quarter. This performance was driven by a 0.9% or a 1% growth in payroll and other lending, respectively, and by a 1.4% contraction in credit cards. We expect commercial loan growth to continue recovering as economic activity and business confidence improves throughout the year. In the retail lending plant, we expect an improvement in employment will allow our banks to increase their risk appetites in products that were de-emphasized during the shock. In spite of our year-end view, we may face temporary acceleration in the speed of recovery during the second quarter associated with the reduction of the normal operation of some of our customers from April and May due to strikes and a new wave of COVID related mobility restrictions. On Pages 11 and 12, we present several loan portfolio quality ratios. The COVID-19 credit juncture continued unwinding during the first quarter. In the first phase of the pandemic last year, we put provisions ahead of in-line with our view on future deterioration, looking beyond those versions introduced by loan reliefs. The second phase actually delinquencies which we already began to provision during the first phase materialize once reliefs expire. This unwind has evolved primarily for our banks up to date or whether we're still cautious given that upper portion of release remains on the payment holidays, particularly in Central America, and that sanitary challenges are not left behind. As of March 31, we had 4.8% of our gross loans and the payment holidays, 230 basis points lower than last quarter and under structural basis points higher than that quarter. Together, these account of our loan portfolio. At the same day, 6.8% of loans that have returned to active pay lease schedules regarding the past have benefited either holidays were restructured that has been more than . They represent 1.7% of gross loans. While those numbers are 3.7% and 1% for loans has been more than 90-day. Payment holidays in Colombia are substantially over, down to 0.4% of gross loans. In addition, 5.5% of our gross loans were under structural payment problems, together of our loan portfolio. In Central America, payment holidays have extended longer accounting for 12.4% of gross loans, with Panama extending close to 90% of . In addition, 9.7% of those loans are under structural payments programs, together these two add to 22%. Regarding delinquency metrics, on 30 and 90 day past due loans we signed during the quarter expanding by a PDL formation similar to , the ratio of charge-offs to average nine year APLs returned to its five year average. Charge-offs between 2020 were associated with lease problems. Our announced coverage of 30 days and 90 days PDLs slightly improved during the quarter. Regarding PDL formation, 69% was sustained by retail products with a wide performance variation across products. completed 24% to PDL combination despite representing only 5% of our gross loans. Similarly, credit cards contributed 26% to PDL affirmation while accounting for 8% of our gross loans. In contrast, payroll lending and mortgages 16% and 12% of our expand 11% and 4% of PDL formation respectively. The quality of our loan portfolio on a 30-day PDL basis improved 14 basis points to 4.25% quarter-on-quarter, and 50 basis points to 3.41% on a 90 day PDL basis. Our 30 days and 90 day PDLs are now 59 basis points and 27 basis points higher than they were a year earlier. Competition our loan portfolio in terms of stages as measured by IFRS 9 remained relatively flat over the quarter with a slight increase in Stage 2 loans. Cost of risk, net of recoveries was 2.2%, a 129 basis points lower than the 3.5% in the previous quarter and 70 basis points higher than a year earlier, within corporate a 187 basis points, and improvement in retail and commercial lending respectively over the quarter. Quarterly cost of risk improved by 124 basis points in Columbia, and by 102 basis points in Central America. In Columbia, cost of goods for retail loans improved 196 basis points and our commercial launch loans improved 114 basis points. In Central America, the cost of risk of our retail portfolio equals 129 basis points and in commercial loans the cost of risk improved 13 basis points. On Page 13, represent funding and deposit evolution. Funding growth during the quarter continue to reflect the high liquidity environments. As a result, our deposits to net loans remain high, slightly increasing to 110% of our cash flow positive ratio ended the quarter at 15.8%. Funding structure maintain its concentration on deposits, which account for 78% of total funding. Deposits increased 4.8% in the quarter and 9.3% year-on-year. Columbia grew 1.6% in the quarter and Central America grew 2.8% in dollar terms. With the 12-month period, Columbia grew 1.8% and Central America 36% in dollar terms. 17 percentage points of growth in Central America are explained by MFG. On Page 14, we represent the evolution of our total capitalization, our affiliate shareholders equity, and the capital adequacy ratio of our banks. Our total equity grew 6.6% year-on-year, while our total equity increased 4.6%, mainly driven by earnings. We will inspire 1,203 billion pesos and our