What Grupo Aval Acciones y Valores (AVAL) Said on Its Q3 Earnings Call

Key Points

• Q3 net income fell 29% to COP 368 billion, with return on average equity at 7.9%, as weaker investment margins and costs tied to integrating Itaú’s retail portfolio weighed on results. Loan growth and repricing are expected to support improved profitability.
• Management projects ROAE of about 9% in 2026 and 12% in 2027, with consolidated net interest margins rising to approximately 4.1% and 4.4%, respectively. The outlook assumes benefits from the Itaú portfolio and loan repricing.
• Loan quality remained broadly stable, with loans at least 90 days past due at 3.15%. The company also reported strong trust-business growth, including fee revenue up 12.7% year over year.

Grupo Aval Acciones y Valores NYSE: AVAL reported a 29% decline in third-quarter attributable net income as weaker investment margins and costs associated with incorporating Itaú’s retail banking business weighed on results.

Net income was COP 368 billion, with a return on average equity of 7.9%, Chief Executive Officer María Lorena Gutiérrez Botero said on the company’s earnings call. Management expects profitability to improve next year as the company benefits from the acquired portfolio and loan repricing.

Gross loans rose 4.7% from the second quarter to COP 207 trillion, including approximately COP 6.3 trillion from Itaú. Deposits increased 1.3% to COP 224 trillion, with the acquired business contributing approximately COP 4.3 trillion.

Investment Margins Weigh on Results

Chief Financial Officer Diego Solano said consolidated net interest income fell 15% from a year earlier and 32.9% from the preceding quarter to COP 2.4 trillion. Rising rates across the Colombian yield curve weighed on fixed-income holdings.

The net interest margin on investments dropped to negative 0.1%, compared with 8.7% in what management described as an exceptional second quarter. That decline outweighed an improvement in the margin on loans, which expanded to 4.9% from 4.4%. Solano said the Itaú transaction contributed 11 basis points to the loan margin.

The consolidated net interest margin was 3.6%, down from the prior quarter and a year earlier. Solano said gains on hedging derivatives partly offset the weaker investment performance.

Grupo Aval’s net cost of risk rose to 2.5%. Excluding the Itaú transaction, it would have been approximately 2.1%, Solano said. Provisions related to the transaction added COP 217 billion to provision expense and were largely offset by other income.

During the question-and-answer session, Solano said the transaction generated no goodwill because Grupo Aval acquired a portfolio rather than a company. The after-tax effect of incorporating the Itaú business and its quarterly results was approximately COP 7 billion, making the impact on profit and loss “basically neutral,” he said.

Solano said loan quality remained stable overall. Loans past due by 90 days represented 3.15% of the portfolio, materially unchanged from the second quarter and 25 basis points lower than a year earlier.

Company Targets Higher Returns in 2027

For 2026, Grupo Aval expects loan growth of around 10.5%, a consolidated net interest margin of approximately 4.1% and return on average equity of about 9%. Management raised its expectation for the margin on loans but reduced the contribution expected from investments.

Its initial 2027 outlook calls for loan growth of approximately 9.5%, including 9% growth in commercial loans and 10% in retail loans. The company expects a consolidated net interest margin of around 4.4% and return on average equity of approximately 12%.

Solano said the forecast reflects the expected full benefit of the Itaú business and loan repricing. The guidance assumes a standard 35% tax rate and does not incorporate tax reductions next year, he said, adding that the company is watching proposed tax changes.

Trust Business and Corporate Developments

Aval Fiduciaria President Alejandro Gómez said the trust business recorded COP 486.7 billion in fee revenue, up 12.7% year over year, and COP 84.8 billion in net income, up 14.9%. As of September, it managed COP 211.8 trillion in assets, a 10% increase from December 2025.

Gómez said the integration of four trust companies, completed on Jan. 1, enabled synergies equivalent to 40% of the combined cost base. Aval Fiduciaria’s return on equity was 42.3%, he said.

Gutiérrez Botero also said Corficolombiana received an Oct. 26 court order dismissing the case associated with its deferred prosecution agreement with the U.S. Department of Justice concerning Ruta del Sol 2, after satisfying its obligations. She announced the appointment of María Fernanda Suárez as president of Banco de Bogotá.

Colombian Outlook Remains Challenging

Banco de Bogotá Chief Economist Camilo Pérez said the bank’s research team expects Colombian economic growth of around 2.3% in 2026 and potentially below 2% in 2027. He cited the effects of an August earthquake, softer spending, weak exports and difficulties across several industries.

The research team forecasts inflation of 6.8% at the end of 2026 and 5.2% at the end of 2027. Solano said Grupo Aval expects one final 25-basis-point central bank rate increase in December, followed by cuts beginning in the second half of 2027.

In response to an analyst’s question about investment opportunities, Solano said the group was positive about policies affecting energy and infrastructure and that its appetite could increase as the economy recovers. He also cited potential for broader loan growth if the fiscal deficit is controlled and the central bank lowers rates.

About Grupo Aval Acciones y Valores (NYSE:AVAL)

Grupo Aval Acciones y Valores is a Colombian financial holding company with businesses in banking, asset management, investment banking and infrastructure. Its financial services include commercial and consumer banking, pension and severance fund management, and services for businesses and institutional clients. In Colombia, the group's banking interests include Banco de Bogotá, Banco de Occidente, Banco Popular and Banco AV Villas. It also has a presence in Central America through BAC, which provides banking and other financial services in the region.

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