Grupo Aval Earnings Call: Profits Surge, Outlook Cautious

Grupo Aval Acciones Y Valores Sa Pfd ((AVAL)) has held its Q4 earnings call. Read on for the main highlights of the call.

Grupo Aval Acciones Y Valores S.A. delivered a solid rebound in profitability, underpinned by stronger margins, better asset quality, and standout pension-fund results. Management, however, balanced this optimism with a sober assessment of macro headwinds, market volatility, and lower return guidance that together temper the otherwise constructive outlook for 2026.

Strong Profitability Recovery

Grupo Aval reported consolidated attributable net income of COP 1.7 trillion for 2025, about 70% higher than in 2024, equal to COP 72.5 per share. Quarterly attributable net income from continuing operations also surged 57.5% year over year, reaching COP 474 billion in Q4.

Record Pension Business Performance (Porvenir)

Pension manager Porvenir posted its strongest year ever, with assets under management rising 14.9% to COP 271.2 trillion. Profitability followed suit as Porvenir’s return on average equity climbed to 21.2%, making it a key driver of Aval’s earnings momentum.

Improved Net Interest Margins and Income

Total net interest income grew 17.4% year over year to COP 9.3 trillion as funding costs eased and margins widened. Consolidated NIM rose 28 basis points to 3.78%, with NIM on loans also up 28 bps to 4.71% and the banking segment showing broad-based margin gains.

Asset Quality and Credit Metrics Improved

Credit performance strengthened, with cost of risk net of recoveries falling 38 basis points to 1.9% in 2025. Early and late-stage delinquencies declined sharply, with 30-day PDLs down to 4.37% and 90-day PDLs to 3.29%, while Stage 1 loans rose to nearly 90% of the book.

Loan, Deposit and Funding Growth

Gross banking loans hovered around COP 190 trillion, with peso-based lending now exceeding 91% of the portfolio as the group tilts toward local currency risk. Deposits rose 11.2% year over year and total funding increased 8.7%, leaving a comfortable deposit-to-net-loan ratio of 113%.

Operational Efficiency Trends

Cost discipline contributed to earnings, as the annual cost-to-income ratio improved by 101 basis points to 52.2%. Operating expenses rose 9.6%, but personnel costs grew only 6.9%, below the 9.5% minimum wage increase, keeping cost-to-assets flat at 2.6%.

Strategic Corporate Actions and M&A Progress

The group consolidated its fiduciary units into Aval Fiduciaria and agreed to buy Banco Itau’s Colombian retail business, adding over 260,000 clients, subject to approvals. It also agreed to divest MFG and, through Corfi, committed capital to infrastructure and energy platforms including Sencia and Promigas’ Zelestra acquisition.

Sustainability and ESG Momentum

Aval expanded its sustainable loan book to COP 44.9 trillion, heavily weighted toward social projects with a growing green component. ESG ratings improved, with a strong S&P sustainability score and better MSCI rating, alongside tangible efficiency gains in energy, water, and waste usage across the group.

Volatile Capital Markets Hurt Investment NIM

The quarter’s weak spot was investments, where NIM on investments turned negative at -3.48% in Q4 and averaged just 0.82% for the year. Management blamed adverse capital market moves and one-off effects, which weighed on quarterly earnings despite core operating strength.

One-Time Transaction-Related Effects

The planned MFG sale triggered fair-value and tax remeasurements, including a COP 303 billion reclassification at a Promigas asset and a COP 359 billion deferred tax adjustment. Net, these one-time items shaved COP 56 billion off net income and COP 12 billion off attributable net income, partially offset by prior contributions classified as discontinued.

Macro and Policy Headwinds

A sharp 23.7% rise in the minimum wage has lifted inflation expectations and pushed the bank to assume higher rates for longer. Management highlighted growing fiscal risks, warning that persistent deficits and policy uncertainty could keep inflation elevated and the Central Bank’s rate path higher than previously expected.

Guidance, ROE Downgrade and Tax Risk

Grupo Aval cut its 2026 return guidance, now targeting a ROAE of about 10.5%, roughly 150 basis points below prior expectations. Executives also warned that a new wealth tax could reduce ROE by another percentage point, a hit not yet reflected in guidance and adding further pressure to shareholder returns.

Market Share Losses and Coverage Compression

Despite overall strength, Aval lost ground in some segments, with large corporate commercial lending and credit cards both seeing notable market share declines. Coverage ratios on riskier stages fell to 33.6%, reflecting better portfolio quality but leaving less cushion if credit conditions deteriorate.

Loan Yields and Weak Investment Environment

Average loan yields dropped 126 basis points to 12.06% year on year as competition and mix changes pressured pricing. At the macro level, Colombian investment remains subdued, with investment rates at multi-decade lows and election uncertainty clouding the outlook for growth and capital formation.

Forward-Looking Guidance and Outlook

For 2026, Aval guides to around 10% loan growth, with faster expansion in retail than commercial, and a total NIM near 4.3% and NIM on loans around 4.7%. The group expects cost of risk close to 2%, cost-to-assets near 2.8%, stronger nonfinancial income, fees near 21% of revenue, and a ROAE of about 10.5% before any wealth tax impact.

Grupo Aval’s latest call paints a picture of a bank that has rebuilt profitability and strengthened its balance sheet but now faces a more demanding macro and regulatory backdrop. Investors will weigh the improved margins, asset quality, and strategic moves against lower return guidance, market share erosion in select segments, and elevated macro uncertainty.