International Finance
Banking

Grupo Aval — Central America’s largest financial conglomerate

Operates in 12 countries, serves more than 13 million banking customers, consolidates more than $68 billion in assets and has over $128 billion in assets under management February 8, 2016: Grupo Aval is Colombia and Central America’s largest financial conglomerate; it operates in 12 countries, serving more than 13 million banking customers and 11 million pension and severance fund affiliates. It consolidates more than $68...

Operates in 12 countries, serves more than 13 million banking customers, consolidates more than $68 billion in assets and has over $128 billion in assets under management

February 8, 2016: Grupo Aval is Colombia and Central America’s largest financial conglomerate; it operates in 12 countries, serving more than 13 million banking customers and 11 million pension and severance fund affiliates. It consolidates more than $68 billion in assets, with over $128 billion in assets under management. Grupo Aval posted a net income of $592 million in the last 12 months (LTM) ended on September 2015. Furthermore, the company has posted strong growth and profitability metrics, as evidenced by a compound annual growth rate of more than 20%[1] and a solid return on average equity currently standing at 13.5% (LTM).

Its current position within the markets it operates is the result of both the vision of Mr. Luis Carlos Sarmiento Angulo, founder, Chairman of the Board and majority shareholder of the group, and the leadership skills and tenacity of Mr. Luis Carlos Sarmiento Gutiérrez, CEO and President of Grupo Aval, who has led Aval into the international arena and who now leads the innovation strategy for the group, a key area of future success as traditional banking is being redefined and as the needs of the clients have to be met in diverse ways.

Grupo Aval consolidates four commercial banks in Colombia (Banco de Bogotá, Banco de Occidente, Banco Popular and Banco AV Villas); one bank in Central America: Banco de America Central (BAC) Credomatic with presence in Panama, Costa Rica, Guatemala, El Salvador, Nicaragua and Honduras; the largest private pension and severance fund manager (Porvenir); and the largest merchant bank (Corficolombiana), both in Colombia.

Grupo Aval operates through a multi-brand banking model that allows maximum penetration and profitability. Banco de Bogotá is a full-service bank with nationwide coverage and focuses on commercial lending; Banco de Occidente focuses on mid-market and affluent segments and has a leading presence in the southwest region of Colombia and in niche products, such as auto loans and leasing.

Banco Popular is the market leader in payroll loans and is the leading provider of financial solutions to government entities across Colombia; and finally, Banco AV Villas is a consumer-focused bank and targets mid-income segments of the population.

As of September 2015, Grupo Aval´s banks in Colombia held a 30% market share of loans and a 34% market share of net income and served more than 10 million banking clients through its 1,397 branches and 3,775 ATMs.

Grupo Aval’s merchant bank Corficolombiana holds investments in various sectors, such as energy and gas, infrastructure, agro-industrial and hospitality, among others. The company focuses mainly on two areas: infrastructure projects and energy. In infrastructure, Corficolombiana stands out as the largest concessionaire in the country, while in energy, it consolidates the largest gas pipeline in Colombia.

Grupo Aval´s Private Pension Fund Manager, Porvenir, is the largest private pension and severance fund manager in Colombia and holds close to 50% of market share in each category. Porvenir has 7.1 million affiliates in the mandatory pension fund, 3.8 million affiliates in the severance fund and 169 thousand affiliates in the voluntary pension fund.

Grupo Aval will continue to benefit from its scale and leadership position in Colombia as growth expectations in the country are amongst the strongest in the region despite the economic difficulties resulting from the drastic drop in oil prices and its implications on government revenues.

One of the main drivers of marginal GDP growth in the coming years in Colombia is the 4th generation concession program. This program includes the construction of more than 3,000 km of new roads and will demand at least $15 billion of capital investments. The program is expected to contribute with more than 100 pbs of GDP each year in the coming years and will increase the competitiveness of the country as it will decrease the transportation in a material form.

Grupo Aval will take part in the 4th generation concession program in two ways. On the one hand, it expects to participate, with its natural market share and through its four banks, providing funds to the constructors who were granted the concessions. On the other hand, it will participate as an equity investor through Corficolombiana, which has already been granted three concessions, which involve the construction of 366 kilometres of roads and will require demand CAPEX of approximately $2 billion.

Aside from a positive mid-term GDP scenario, banking penetration will continue to favour financial institutions in Colombia. Measured as total loans to nominal gross domestic product (GDP), banking penetration stands below 50% suggesting that loan growth can continue to outpace that of the economy. Furthermore, the country’s middle-income class is expected to continue to expand and unemployment is expected to improve in the mid-term, both positive for the financial industry.

On top of the Colombian story, new foreign winds are boosting the size and profitability of Grupo Aval thanks to a decision taken five years ago to diversify risks and sources of revenue. Back in 2010, Mr. Luis Carlos Sarmiento Gutiérrez decided to start the internationalisation process of Grupo Aval with the acquisition of BAC Credomatic, the leading and most profitable regional banking group in Central America with operations in six countries.

Central America, as a region, presented vast opportunities because of its size, low banking penetration and high returns. Having close ties to the United States, the region’s economy is expected to grow more than Colombia both in 2015 and 2016. Furthermore, being a net importer of oil the region has benefited from the decline in oil prices that affected Colombia negatively. From a macroeconomic standpoint the diversification option taken by Aval has proven to be successful.

Aside from the culture similarities, BAC Credomatic turned out to be the perfect fit for Grupo Aval. Led with solid corporate governance standards and similar risk and reporting models, BAC started to generate synergies almost immediately after the acquisition. Between 2010 and 2014, Grupo Aval was able to double the size of the bank in Central America and double its net income. It now serves more than 3 million clients in those six countries (on top of the 10 million it serves in Colombia), through 356 full-service branches and 1,736 ATMs.

Cross synergies include best in class credit card operations imported to Colombia and solid corporate banking practices exported to Central America. With room for further improvement, returns should remain strong over the coming years.

The internationalisation process of Grupo Aval has surpassed the M&A field. In 2012, Grupo Aval entered the debt capital markets when it issued two Reg S/144A senior bonds, and in 2014 it entered the equity capital markets when it issued fully registered ADRs in the NYSE.

The last five years have been transformational for this group and new projects are already on their way. Materialisation of further synergies among its Colombian and Central American subsidiaries and investments on innovation are on top of Mr. Sarmiento´s to-do list. Aside from this, the group will remain true to its core principles and continue to look for growth opportunities in close-by markets where it can achieve a dominant position with sizable market share.

To be noted

[1] Compound annual growth rate for the last 5 years

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