Grupo Aval(AVAL) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Grupo Aval reported its best quarterly results ever with attributable net income of approximately COP 950 billion, a 19.9% increase from the previous quarter and 2.9 times higher than a year earlier [25][18] - The return on average equity for the quarter was 18.2% and 16.7% year-to-date [18][46] - Total assets grew by 2.2% quarter-on-quarter and 3.4% year-on-year, with Colombian assets increasing by 2.3% and Central American assets by 0.1% in dollar terms [29] Business Line Data and Key Metrics Changes - Total loans grew by 2.1% over the quarter and 2.2% year-on-year, with Colombian gross loan portfolio increasing by 1% during the quarter [30] - Consumer loans in Colombia saw a 1.7% increase during the quarter and 11.3% year-on-year, while payroll lending grew by 3.1% over the quarter and 21.3% year-on-year [31] - In Central America, the gross loan portfolio increased by 2% over the quarter and 3.6% year-on-year, driven by a 2.9% growth in consumer loans [32] Market Data and Key Metrics Changes - The unemployment rate in Colombia fell to 14.4% in June, with an average rate of 15% during the second quarter, down from 20.3% a year earlier [10] - Inflation reached 3.63% year-on-year in June, driven by supply factors and food prices, with expectations for inflation to reach 4% by the end of 2021 [11][12] - The Colombian peso weakened to COP 4,000 per dollar but is expected to stabilize around COP 3,700 with anticipated monetary policy tightening [13] Company Strategy and Development Direction - The company is focused on digital transformation, with 60% of retail product sales in Colombia conducted through digital applications, and aims to increase profitability through digital client acquisition [20][22] - A new tax reform is expected to increase corporate tax rates to 35% starting in 2022, which may impact future profitability [14][15] - The company emphasizes cost containment and operational efficiency as key components of its strategy [26] Management's Comments on Operating Environment and Future Outlook - Management noted that the economic recovery in Colombia is supported by vaccination progress and improved consumer confidence, with GDP growth forecasted at approximately 7% for 2021 [9][10] - The company expects loan growth to be in the 9% to 10% range, with consumer loans projected to grow by 12% to 14% and commercial loans by 6% to 7% [46][53] - Management expressed cautious optimism regarding future ROE, influenced by operational improvements and potential impacts from tax reform [51][52] Other Important Information - The company has active loan reliefs representing approximately 11.5% of its total consolidated loan portfolio, with a low percentage of loans past due [18][34] - The digital client base increased by approximately 31% year-on-year, totaling 5.2 million active digital clients [22] - The company is experiencing a strong recovery in its non-financial sector, particularly in infrastructure and energy, contributing significantly to income [43] Q&A Session All Questions and Answers Question: Sustainability of ROE and Competition in Digital Platforms - Management discussed the sustainability of ROE and the challenges of monetizing digital clients in Colombia due to strict usury regulations, emphasizing the need for profitable client acquisition strategies [47][48][50] Question: Fee Income Growth Outlook - Management indicated that fee income growth is expected to lag behind loan growth, with economic activity and increased consumer product offerings driving future growth [54][57] Question: Cost of Risk Guidance - The company lowered its cost of risk guidance to 2.1% to 2.2%, citing improved loan portfolio performance and economic conditions [58][59] Question: 2022 Guidance and ROE Expectations - Management refrained from providing specific guidance for 2022 but expressed optimism about operational improvements and economic performance impacting future ROE [60][61] Question: Funding and NIM Outlook - Management expects to sustain deposit growth while noting that excess liquidity has been a burden on net interest margins, with potential benefits from rising interest rates [62][63]