Grupo Aval(AVAL) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Attributable net income for Q3 2023 was COP 65 billion, or COP 2.7 per share, bringing year-to-date attributable net income to COP 656 billion, or COP 27.6 per share [15] - Return on average assets and return on average equity for the quarter were 0.4% and 1.6%, respectively, with year-to-date annualized return on average assets and return on average equity at 0.8% and 5.3% [15] - Quarterly NIM fell 63 basis points to 2.8%, driven by a negative NIM on investments due to poor capital markets performance [34] Business Line Data and Key Metrics Changes - Gross loans increased 1.1% during the quarter and 6.5% year-on-year, with peso-denominated loans increasing 1% during the quarter and 8.9% over the year [28] - Cost of risk increased to 2.53% in Q3, in line with expectations due to higher delinquency in unsecured consumer loans [22] - Net fee income increased 15.1% year-on-year but decreased 2.8% quarter-on-quarter, with banking fees increasing 1.1% in line with loan growth [36] Market Data and Key Metrics Changes - The Colombian peso appreciated approximately 18% during the year, dropping under COP 4,000 per dollar [13] - Inflation fell less than expected in Q3, reaching 11% in the previous 12 months, with expectations for annual inflation during 2023 revised upwards [10] - Employment data showed a decrease in the unemployment rate to 9.3% in September, but an increase to 11% is anticipated by year-end 2023 [12] Company Strategy and Development Direction - The company views 2024 as a transition year, aiming to return to profitability targets by 2025, with expectations of higher NIM and lower cost of risk [24] - The company plans to continue building its digital payments ecosystem, with digital clients surpassing 5 million and digital transactions exceeding 65% of total transactions [25] - The company is in the process of building a pipeline of projects and investments, both domestically and internationally, to enhance its non-financial sector investments [25] Management's Comments on Operating Environment and Future Outlook - Management anticipates GDP growth of approximately 1% in 2023 and 1.5% to 1.75% for 2024, with inflation expected to moderate to 6% in 2024 [10][11] - The management expressed optimism regarding the changes in leadership at three of the four Colombian banks, believing it will refresh corporate strategies [17] - The management highlighted the importance of cost control initiatives, which enabled a 4.1% reduction in operating expenses compared to the previous quarter [22] Other Important Information - The company experienced an unanticipated downturn in financial markets, negatively impacting investment portfolios and NIM on investments [19] - The company expects loan growth to remain soft across products and segments in line with central bank policies and a softer economic outlook [29] - The company’s guidance for 2023 includes a consolidated NIM in the 3.3% area and a cost of risk net of recoveries in the 2.1% area [41] Q&A Session Summary - No questions were raised during the Q&A session, and the call concluded with management expressing hope for a recovery in 2024 [43][46]