4Q Earnings Result Colombia's Grupo Aval Ltd (Ba2neg/NR/BB)
Fourth Quarter Earnings Results
Neutral for spreads
• Colombia holding company for four banks, including the third largest in the country Banco de Bogota. Senior unsecured 2030 bonds tightened 88 bps in the past three months, last quoted T+ 223bps, which is 10 bps lower in yield than the comparable maturity Colombia (COLOM; Baa2neg/BB+/BB+) sovereign bonds.
• Results overall were lackluster but not a credit event. Profitability improved y/y 37% but was still only 6% return on average equity while total net interest margin shrunk 6 bps to 3.4%. Gross loans were up 7.3% while deposits were up 10.4%. 90-day problem delinquent loans to assets ratio improved a little to 29 bps.
• Driver of ratings and bond performance going forward will likely be linked to the sovereign. The country’s fiscal budget deficit has worsened, but the government has not yet been able to implement necessary reforms so there is market concern about complying with the Fiscal Rule and the trajectory of debt/GDP.