Grupo Aval and Banco de Bogota

Transcription

Equity Research
Colombia
Banks
SectorNote
05 May 2014
Multi-Banking in Colombia; Initiating Coverage
Initiating on Grupo Aval (Aval) and Banco de Bogota (Bogota) with Neutrals
We are initiating coverage of Grupo Aval, Colombia’s largest financial services group
(28% market share of the banking system), with a Neutral rating and a 12-month TP
Alonso Aramburu
New York – BTG Pactual US Capital LLC
alonso.aramburu@btgpactual.com
+1 646 924 2471
of COP$1,400 per preferred share, and of Banco de Bogota, Aval’s most important
bank (#2 in Colombia and controller of Central American assets), with a Neutral rating
and a 12-month TP of COP$72,000 per common share.
Grupo Aval: A multi-brand financial holding company
Aval operates under a multi-brand strategy that gives it broad exposure to the
Colombian economy and Central America, a positive feature given the current
economic recovery. Aval’s main appeal comes from the consistent delivery of a
higher ROE than its local peers, in part due to a more disciplined international
Mauricio Restrepo, CFA
Colombia - BTG Pactual
mauricio.restrepo@btgpactual.com
+574 356 7410
Eduardo Rosman
Brazil – Banco BTG Pactual S.A.
eduardo.rosman@btgpactual.com
+55 11 3383 2772
expansion, a more resilient NIM, and profitable merchant banking (Corficolombiana)
and pension fund businesses. IT and procurement synergies should add further
upside to ROE in coming years. However, a fair valuation (2014E P/E of 13.9x),
corporate complexity and limited catalysts leads us to our Neutral rating.
Banco de Bogota: Spearheading growth in Colombia and Central America
After doubling the net income of BAC Credomatic in 2 years, the bank is seeking to
increase its exposure to consumer, mortgages and financial leases and improve
efficiency in Colombia and Central America. This strategy, synergies from the
consolidation of the pension fund business, NIM stability, and improving asset quality
should drive earnings growth in 2014-2015. However, we are initiating with a Neutral
rating due to i) only 3.6% expected EPS growth in 2014 (affected by the recent share
issuance), ii) a full valuation (2014E P/E of 13.6x), iii) an expected drop in ROE in
2014 mainly due to a higher capital base, and iv) the shares’ low liquidity.
Industry: From headwinds in 2013 to tailwinds in 2014
2013 was a challenging year for banks. Profitability suffered from lower loan NIMs (on
the back of low interest rates), investment portfolio losses, higher capital needs and a
period of higher NPLs in 1H13. We believe 2014 will provide a friendlier operating
environment, with a growing economy, stable or higher margins, more moderate loan
growth, stronger capital ratios and healthy asset quality trends.
Table 1: Banco de Bogota and Grupo Aval Valuation
Rating
P/E
P/BV
Yield
ROE
Share Target
ADTV Mkt Cap
price Price Upside (US$mn) (US$mn) 2013E 2014E 2015E 2013E 2014E 2015E 2013E2014E 2015E 2013E 2014E 2015E
Ba nco de Bogota Neutra l 68,700 72,000
4.8%
0.90
10,304 15.1x 13.6x 11.5x 2.1x
2.0x
1.8x 3.5%
3.8%
4.2% 16.4% 15.1% 16.4%
Grupo Ava l
Neutra l 1,315 1,400
Source: BTG Pactual.
6.5%
1.92
13,890 15.2x 13.9x 11.2x 2.3x
2.1x
1.9x 4.0%
4.3%
4.9% 16.4% 15.6% 17.9%
ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 68
Banco BTG Pactual S.A. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of
interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
05 May 2014
Executive Summary
Grupo Aval is Colombia’s largest financial group, and Banco de Bogota is its largest
subsidiary and key asset for the development of the bank’s growth strategy. All of the
group’s recent acquisitions (both in Central America and Colombia) have been
carried out by Banco de Bogota. We think the main appeal of both names comes
from their (i) consistently better operating performance vs. Colombian peers and (ii)
their more disciplined approach to inorganic growth.
The former is a combination of good risk management, a more resilient NIM, and
larger sources of other operating income. The latter has been driven by a rational
attitude to a tangible risk in an industry that in recent year seems to have prioritized
international diversification over efficient capital allocation and value creation. Grupo
Aval’s international expansion has come at reasonable multiples with rapidly
earnings-accretive transactions.
We think both of these factors justify a “management premium” for both stocks
relative to their local competitors – but this premium already appears to be priced into
current valuations. What’s more, other considerations make the appeal of the stocks
less evident, including a complex holding organization, a dual-share structure (at
Aval), low share liquidity, and clearer but still less-than-optimal disclosure – all factors
that we do not expect to improve materially in the short term.
Our ratings also reflect our expectation of an economic recovery in Colombia, mostly
favorable industry trends in 2014 (mainly NIM and asset quality), a greater focus on
consumer lending, synergies from recent acquisitions, and a full valuation. Ultimately,
a balance of all these elements leads us to our view that opportunities and risks are
fairly reflected in the share prices, and we thus rate both stocks Neutral.
While our rating is the same for both stocks, we currently have a more positive bias
towards Grupo Aval due to i) its higher share liquidity, ii) a higher dividend yield, iii)
greater expected profitability and iv) greater exposure to Corficolombiana, an asset
we believe adds upside risk to earnings in the current favorable economic cycle. Aval
also has direct exposure to Bogota’s potential synergies from recent acquisitions and
upside from growth in consumer lending. Nevertheless, we note that Bogota has a
better alignment of interests with the controlling shareholder via the purchase of
common shares (Grupo Aval's liquidity is concentrated in the preferred shares, while
Banco de Bogota only has one class of share).
Industry tailwinds in 2014
In recent years, Colombian banks have operated in an environment of strong loan
growth but declining profitability. Slimmer margins (mainly on the back of lower rates)
have driven ROEs down. During this period, the largest Colombian banks embarked
on an expansion strategy focused on Central America. Grupo Aval, through Banco de
Bogota, has been an active player, with 3 acquisitions in this region in the last 3
years.
This combination of trends has prompted banks to tap equity markets multiple times
in recent years. The recent regulatory change that introduces Basel 3 standards has
made capital requirement calculations more stringent, spurring another round of
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05 May 2014
capital increases. Banco de Bogota raised US$650mn (COP$1.3tn) in December
2013, while Grupo Aval raised US$1.2bn (COP$2.4tn) on January 2014.
Looking at 2014, we like most of the industry’s operating dynamics:
Loan growth has decelerated, but we see current growth levels (around 15%) as
more sustainable, and the anticipated acceleration of GDP in 2014 provides upside
risk to this figure, in our view. The expected boost to infrastructure investments
should also start having some positive effects on volumes in 2H14 and/or 2015.
Asset quality is improving, and we foresee stability in an environment of improving
GDP growth and more sustainable levels of loan growth.
Margin pressure, which was particularly strong in 2013 due to the effect of 200bps of
reference rate cuts and aggressive pricing in mortgage loans, should recede as the
Central Bank continues the tightening cycle of monetary policy. The Central Bank
raised the monetary policy rate by 25bp to 3.5% in April 2014.
On the negative side, though banks’ treasuries have become more cautious about
investment strategies, higher interest rates could drive further investment losses.
Greater focus on returns vis-à-vis growth
In the next couple of years, we expect Grupo Aval and B. de Bogota to focus more on
integrating acquisitions than on seeking new ones. We believe this should foster a
better environment to create value, seek synergies and boost profitability. According
to management, the recently completed acquisitions in Guatemala and Panama give
them the scale they sought in Central America.
Corporate governance and complexity
Grupo Aval has a dual-share structure. This has become common practice in
Colombia, including at peers Davivienda and Bancolombia, but we would
nonetheless highlight it as a less-than-optimal structure for minority investors. Their
inability to subscribe to Aval’s recent equity offering of common shares is one
example of this disadvantage, as they were not granted preferential subscription
rights.
Though there has been a material improvement in disclosure, one of the main
drawbacks of investing in the group is the lack of disclosure for certain assets such
as Corficolombiana and the pension funds.
The group’s complexity, more so at Grupo Aval (which operates as a holding of 4
banks but as a whole consolidates more than 14 companies) but also at Banco de
Bogota (which consolidates the merchant bank, pension fund and international
operations), makes analyzing the companies more difficult. While Aval has practical
reasons not to merge its four banks (at least for now), there are clear costs of
operating 4 banks rather than one, such as redundancy, higher funding costs (at
smaller banks) and lost cross-selling opportunities (since not all banks operate in all
segments).
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05 May 2014
Introduction to Colombia’s largest banking group
Grupo Aval operates under a multi-brand strategy, where each bank targets
specific customers, geographic regions and/or products. The banks are encouraged
to compete among themselves while operating within central guidelines established
by the holding company and sharing a common network to serve clients. This has led
to specialization, which has contributed to the individual success and strong financial
performance of the banks and the diversity of Grupo Aval as a whole. However, we
also believe the structure creates inefficiencies that could be resolved if the banks
operated under a single entity. The expected convergence of IT platforms could be a
first step toward creating a single entity in the future.
Figure 1: Overview of Organizational Structure
Source: Corporate Presentation
•
Banco de Bogotá (Bogota) is Colombia’s oldest financial institution and the
second-largest bank in the country based on net income. As of 4Q13, the
bank had a market share of 13.9% of deposits and 13.6% of loans. Banco
de Bogotá serves all market segments but has a leading presence in
commercial loans (with a focus on large corporations), where the bank has
an 18.1% market share in Colombia’s system.
•
Banco de Occidente (Occidente) is the fifth-largest bank in Colombia, with
market shares of 6.5% of deposits and 7.4% of loans. Occidente is focused
on commercial and auto loans and financial leasing and is oriented toward
serving enterprise customers, state-owned entities and retail customers. The
bank’s operations have been oriented mainly toward the Cali and Valle
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05 May 2014
regions, but now with 196 branches it has expanded its presence to 61 cities
in the country.
•
Banco Popular (Popular) is the seventh-largest bank in Colombia. It is the
leader in payroll loans and middle-market commercial lending. Last year, it
had a market share of 4.1% of deposits and 4.3% of loans. Popular operates
primarily in the consumer and public sector businesses, with operations
across every region in Colombia.
•
Banco AV Villas (AV Villas) has evolved from being a traditional mortgage
lender to a diversified full-service consumer bank focused on mid- and lowincome consumer segments and SMEs. It is the most active bank in the
usage of non-traditional distribution channels (mobile banking, banking
correspondents and virtual branches). As of 4Q13, Banco AV Villas had a
market share of 2.8% of deposits, 2.3% of loans, 3.8% of consumer loans
and 4.0% of mortgages.
As of 4Q13, Aval as a consolidated entity is the leader in gross loans and deposits in
Colombia, with market shares of 26.5% and 28.4%, respectively, followed by
Bancolombia, with market shares of 24.5% and 23.5%, respectively. The third is
Davivienda, with 12.1% of loans and 10.4% of deposits, and the fourth is BBVA, with
market shares of 9.2% and 10.2%, respectively. Individually, Bancolombia is still the
largest bank in Colombia, with greater market shares than Banco de Bogotá.
Chart 1: Colombia’s Loan and Deposit Market Shares – 4Q13
28.4%
26.2%
30.0%
25.0%
24.5% 23.5%
20.0%
13.9%
15.0% 12.7%
10.0%
12.1%
10.4%
9.2% 10.2%
6.9% 6.5%
4.3% 4.1%
5.0%
2.3% 2.8%
0.3% 1.2%
0.0%
Loans
deposits
Source: Superfinanciera
Banco de Bogotá is Aval’s main asset, as it i) has the strongest position in Colombia
among the banks in the holding company (#2 in the country), ii) spearheads the
growth strategy of the group in Central America, and iii) has control of
Corficolombiana and Porvenir. Bogota contributes around 56% of Aval’s total
earnings.
•
Porvenir is the largest private pension fund manager in Colombia. As of
December 2013, it had a market share of 44.1% of mandatory pension fund
page 5
05 May 2014
page 6
individual customers and 49.8% of severance plan individual customers.
These figures include the acquisition of pension fund Horizonte, which
closed in April 2013.
•
Corficolombiana is the largest merchant bank in Colombia based on total
assets. The company is focused on four main business lines: 1) equity
investments in strategic sectors (financial services, infrastructure, electricity
and gas, agribusiness and hospitality); 2) investment banking; 3) treasury
operations; and 4) leasing, fiduciary and private banking.
•
Central America: BAC Credomatic (BAC) is one of the largest banking
groups in Central America. It’s a full-service financial institution with one of
the leading credit card issuance and merchant-acquiring businesses in the
region, and it offers commercial and retail banking, brokerage, insurance,
pension fund management and other financial services. BAC Credomatic
operates in Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and
Panama. It’s fully owned through Leasing Bogotá Panama, a 100%
subsidiary of Banco de Bogota. Banco de Bogota also completed the
acquisitions of Banco Reformador in Guatemala and BBVA Panama in
2013.
Grupo Aval key figures
Table 2: Grupo Aval Overview - Income Statement, COP$bn
Banco de
Banco de
2013
Bogotá
Occidente
Total interest income
6,226
2,051
Total interest expense
-2,242
-723
Net interest income
3,983
1,328
Total (provisions) reversals, net
-774
-321
Total fees and other services income, net
2,254
255
Total other operating income
1,037
321
Total operating income
6,500
1,583
Total operating expenses
-3,780
-1,010
Net operating income
2,720
573
Total non-operating income (expense), net
171
12
Income before income tax expense and non-cont rolling
2,891
interest
585
Income tax expense
-945
-156
Income before non-cont rolling interest
1,947
429
Non-cont rolling interest
-547
-1
Net Income attributable to shareholders
1,400
428
Net Income (adjusted by non controling int.)
931
309
% Net Income
58.1%
19.3%
Source: Grupo Aval
Banco
Popular
1,565
-459
1,106
-66
148
44
1,232
-716
516
93
609
-211
399
-2
396
371
23.2%
Banco AV
Grupo Aval
Villas
Eliminations Consolidated
947
-4
10,783
-223
-156
-3,802
724
-160
6,981
-133
0
-1,294
166
-8
2,814
6
-90
1,317
762
-258
9,819
-483
-39
-6,028
279
-298
3,790
3
-44
236
283
-341
4,027
-96
-7
-1,415
186
-349
2,612
0
-461
-1,011
186
-810
1,601
149
-159
1,601
9.3%
-9.9%
100.0%
05 May 2014
page 7
Table 3: Grupo Aval Overview – Balance Sheet and Key Ratios, COP$bn
2013
Loans:
Commercial
Consumer
Mortgages
Financial leases
Microcredit
Total Loans
% of Loans
Deposits:
Checking accounts
Savings accounts
Time deposits
Other deposits
Total Deposits
% of Aval Deposits
Assets
Liabilities
Equity
Banco de
Bogotá
Banco de
Occidente
Banco
Popular
Banco AV
Villas
Grupo Aval
Consolidated
36,211
13,940
5,392
2,363
316
58,222
60.3%
10,905
4,327
32
4,384
0
19,648
20.4%
5,202
6,509
100
266
14
12,091
12.5%
2,555
3,025
996
0
12
6,588
6.8%
Agregate
54,873
27,801
6,520
7,013
342
96,548
100.0%
16,591
22,202
24,682
619
64,094
63.3%
5,899
8,466
5,256
278
19,900
19.7%
1,547
8,406
1,160
105
11,217
11.1%
868
4,395
2,253
86
7,602
7.5%
24,905
43,469
33,351
1,088
102,813
101.6%
100,669
90,772
9,897
29,030
25,262
3,767
16,712
14,282
2,430
9,710
8,534
1,175
17.1%
15.4%
16.1%
11.9%
23.8%
20.8%
18.7%
17.3%
18.4%
18.6%
16.7%
16.1%
-
22.2%
18.5%
17.7%
17.1%
2.1%
2.1%
2.2%
1.6%
3.1%
2.8%
2.6%
2.5%
2.2%
2.3%
2.1%
2.0%
-
2.2%
2.2%
2.0%
1.9%
44.5%
46.0%
43.5%
45.6%
47.6%
50.5%
51.5%
53.1%
53.9%
59.2%
55.8%
51.6%
-
46.6%
52.7%
51.3%
50.4%
2.5%
2.4%
2.1%
2.1%
3.7%
3.8%
-
2.3%
2.4%
3.6%
3.2%
2.9%
2.5%
3.1%
3.2%
-
3.3%
3.5%
3.5%
3.7%
2.9%
2.9%
4.6%
5.0%
-
2.8%
2.9%
146.8%
146.9%
172.4%
176.1%
116.9%
118.2%
-
139.2%
133.3%
ROAE:
2010
24.9%
2011
17.7%
2012
18.1%
2013
17.1%
ROAA:
2010
2.9%
2011
2.6%
2012
2.3%
2013
2.1%
Operational efficiency
2010
40.1%
2011
50.9%
2012
49.6%
2013
49.0%
Asset Quality
Loans past due more than 30 days / gross loan portfolio
2012
2.1%
2013
2.3%
Loans rated C,D orE / gross loan portfolio
2012
3.4%
2013
3.9%
Provision expense / gross loan portfolio
2012
2.3%
2013
2.4%
Allowance / loans past due more than 30 days
2012
132.2%
2013
123.3%
Source: Grupo Aval; BTG Pactual. Some ratios could be different from which the companies have reported due to calculation methodologies.
54,856
27,801
6,520
6,995
342
96,514
100.0%
24,884
42,480
32,739
1,088
101,190
100.0%
154,287
142,559
11,728
05 May 2014
Strategic Focus: ST Opportunities and LT Growth
We believe the group’s leadership in both Colombia and Central America (markets
with a still relatively low penetration of financial services) provides a platform for
sustained earnings growth in the medium term. In the short term, we expect
management to focus on i) increasing penetration in consumer lending in Colombia,
ii) realizing synergies from recent acquisitions (BAC Credomatic, BBVA Panama,
pension funds in Colombia and Grupo Reformador in Guatemala), iii) exchanging
best practices between Central America and Colombia, iv) improving efficiency in
Central America, v) seeking IT convergences across subsidiaries in Colombia, and
vii) pursuing selective bolt-on acquisitions that can bring new growth opportunities
and/or additional scale to its operations.
Increasing penetration in new segments
We expect the group to seek to gain market share in segments and products that
have not traditionally been the focus in the past – mainly credit cards and mortgages.
This initiative goes hand in hand with efforts to expand cross-selling to its more than
10 million banking clients.
Part of these initiatives seek to increase non-interest income by expanding the selling
of insurance products through the group’s vast distribution network and boosting
credit card fee income by increasing credit card loan volumes across all its banks.
Aval is also studying initiatives to penetrate lower income segments that are currently
underpenetrated and is developing risk management tools that will enable the bank to
extend its banking services to this market. An interest rate cap around 30% poses a
challenge to develop this market profitably, but banks like Davivienda have been
active, and so far successful, at developing a mobile banking platform.
Synergies and improving cost-to-income ratio
In Central America, Grupo Aval will maintain the BAC Credomatic brand. It intends to
continue sharing group-wide commercial and operational standards and best
practices with the company while capitalizing on its regional expertise, brand
recognition, customer base, and services and products, such as credit card issuance
and merchant-acquiring businesses. We also expect to see greater efforts to lower
costs, as management believes there’s an opportunity to lower its efficiency ratio
(~56% in 2013E) to a level similar to the Colombian operations (49.8%).
Although Central America is growing at a slower pace than Colombia and some
markets have a higher penetration of financial services (sees chart 4 and 5 on page
11), we believe that BAC Credomatic can continue to gain market share, as in the
last few years.
page 8
05 May 2014
page 9
Chart 2: BAC Credomatic Net Loans – growth has accelerated after the acquisition in late 2010
9,000
25.0%
8,039
8,000
6,972
18.7%
7,000
5,873
6,000
4,521
5,000
5,198
5,013
4,898
10.9%
20.0%
15.3%15.0%
13.0%
10.0%
4,000
6.1%
3,000
5.0%
2,000
0.0%
1,000
-2.3%
-
-5.0%
2007
2008
2009
2010
2011
Net Loans
2012
2013E
y/y%
Source: BAC Credomatic, Figures in US$mn
Three years ago, Aval was the most efficient bank in Colombia due to better cost-toincome ratios at three of its four banks. This changed i) once Bogota, its biggest
bank, acquired BAC Credomatic and ii) efficiency suffered at Popular and AV Villas
due to lower NIMs.
Chart 3: Efficiency at Grupo Aval’s Banks Vs. Peers
70.0%
66%
Bogota's subsidiaries
60.0%
50.0%
54%
51% 50%
49%
44%45%
39%
40%
40.0%
30.0%
58% 57%
56%
59%
56%
53%
53%
53% 54%
53%
53% 51%
52%
52%
51%
51%
51%
50% 52%
50%50%
49%
48%
48%
47%
47%
45%
45%46%44%46%
24%
19%
15%
20.0%
10%
10.0%
0.0%
Bogota
Corficol
Porvenir
LB Panama
Occidente
2010
Popular
2011
2012
AV Villas
2013
Source: Grupo Aval; Companies
In 2010, Banco de Bogota was clearly the most efficient bank in Colombia, but the
consolidation of Central America in 2011 (reflected in LB Panama), and, to a lesser
extent, lower results from Corficolombiana, have led to a deterioration of the cost-toincome ratio. Currently, the company is seeking to improve efficiency by focusing
mainly on BAC Credomatic, information technology, and procurement of goods and
services for multiple subsidiaries.
Grupo Aval
Bancolombia
Dav iv ienda BBVA Colombia
05 May 2014
Table 4: BAC Credomatic Efficiency
US$mn
2006 2007 2008 2009 2010 2011 2012 2013E
Net Interest Income (before provisions) 292
388
495
492
541
594
654
752
Fees and other services income, net
173
225
253
252
255
292
336
386
Other operating income
46
90
136
85
58
69
82
95
Operating Income (before provisions)
510
703
884
829
853
955 1,073 1,234
Operating expenses
299
385
463
494
554
570
620
682
Depreciation and Amortization
22
26
33
35
40
44
44
44
Efficiency
54.2% 51.1% 48.6% 55.4% 60.3% 55.1% 53.8% 51.8%
Source: BTG Pactual, Based on Company Reports
Occidente is currently Aval’s most efficient bank, and it also boasts the lowest costto-income ratio among the industry’s main peers. At Popular and AV Villas,
management recognizes the need to improve efficiency and has thus become more
strict at tracking their performance.
An obvious topic when discussing efficiency is the possibility of merging Aval’s banks.
We think this makes sense and would add value in the medium term; however, initial
benefits would not be as visible due mainly to complexities and costs from the
integration process. Today, on a consolidated basis, Aval’s efficiency is similar to that
of its main peers, so operating multiple banks has not led to a clear disadvantage, but
the fact that its two largest banks are the most efficient points to the benefits of scale.
Management continuously evaluates this possibility, but we don’t expect it to take
action on this front in the short term. Some of the main complexities of merging the
banks arise from their different labor contracts and union agreements, different
minority shareholders, potential losses of market share and different technology
platforms.
Aval is currently migrating its banks to a common core banking platform, a process
that will be completed in seven years. This process has already started at Banco de
Occidente and Banco Popular and will continue with AV Villas and finally Banco de
Bogota, which is the largest and most complex bank. We believe management sees
the completion of this project as a necessary step before attempting a merger, as it
will make the potential integration more efficient and less traumatic.
Pursuing select acquisitions
Management will continue to evaluate new geographies, strategic investments,
alliances and acquisition candidates to leverage growth principally in Colombia,
Central America and other select LatAm countries. They may also continue acquiring
additional shares to increase their controlling interests in certain banking subsidiaries.
In fact, in the last few months, they announced 3 acquisitions (AFP Horizonte, Grupo
Reformador and BBVA Panama), and in 2Q13 Grupo Aval purchased shares of
Bogota and Occidente, increasing its stakes from 64.5% to 66.5% and from 68.2% to
72.0%, respectively.
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05 May 2014
page 11
Industry View: From headwinds in 2013 to tailwinds in 2014
The banking sector today: moderate penetration in Colombia and Central
America
In the last decade, the ratio of total loans to GDP in Colombia has trended
consistently upward, increasing to 40% in 2013, up more than 20 percentage points
since 2003. This evolution has been driven by a favorable macroeconomic
environment, lower unemployment, lower inflation and interest rates and a growing
middle class, among others. Despite this increase, we believe Colombia still has
plenty of room to expand, as it remains below other Latin American markets like Chile
and Brazil.
Chart 4: Colombia Banking Penetration – Loan to GDP
Chart 5: Domestic Credit to the Private Sector / GDP
45%
250%
40%
40%
38%
200%
194.4%
35%
35%
32%
31%
29%
30%
150%
30%
105.2%
100%
71.2%
23%
25%
20%
20%
20%
19%
50%
20%
61.4%
49.1% 47.6% 45.0%
39.6%
26.4% 26.1% 25.3% 23.4%
0%
15%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E
Source. DANE, Superfinanciera, IMF
Source: 2012 Wordl Bank Development Indicators Data as of December 2011
Loan Growth
Loans in the banking system grew at a nice pace in 1H13 (+15.6% y/y), driven mainly
by mortgages (+25.4% y/y), which were boosted by lower rates and government
subsidies for its social housing programs. Though the economy accelerated in 2H13
(GDP growth of 5.1% and 4.9% in 3Q13 and 4Q13), loan growth decelerated at the
end of the year. The deceleration was evident in consumer loans due to more
cautious disbursement policies from players like Davivienda and, more recently,
Bancolombia, but also as GDP growth was driven by civil works and public
consumption, sectors with less demand for credit. Despite the deceleration, the
system’s total loan growth ended 2013 at 13.6% y/y. Aval and Bogotá’s loan books in
Colombia grew basically in line with the system (12.4% y/y and 14.2% y/y,
respectively).
16.6%
05 May 2014
Chart 7: Colombia’s GDP Growth and Loan Growth
Commercial
Mortgage
2.0
1.4
Loans/GDP Growth
Source: Superfinanciera; Dane; BTG Pactual
asset quality trends make us believe that loans could expand around 15% in 2014.
Our local economics team is forecasting GDP growth of 4.5% for both 2014 and
2015, an acceleration versus the 4.3% in 2013.
Chart 8: Retail Sales
Chart 9: Manufacturing
Source: DANE, BTG Pactual
Margins
2013 was an atypically bad year for banks’ margins, as both loan and investment
margins were under pressure. On the loan side, margins were under pressure due
mainly to 200bps of rate cuts and increased competition in mortgages and consumer
lending (more visible in 1H13). However, we believe margin pressure from monetary
expansionary policy has bottomed, which paints a better picture for margins in 2014.
In fact, the Central Bank started hiking rates in April, which provides upside risk to
loan NIMs in 2H14 and 2015.
On the portfolio investments, banks suffered from increased volatility and rising
sovereign bond yields. This was particularly evident in 2Q13, following expectations
of a faster-than-anticipated tapering of stimulus in the US. Banks have adjusted their
portfolios (which had been positioned structurally long in recent years) to be more
neutral and of a shorter duration, so additional movements in rates will have less
GDP Growth
Loans
2015E
2014E
0.0
Good economic momentum as we enter 2014, stronger capital ratios and healthy
impact on P&L.
4.0
1.0
2002
Jul-13
System
Oct-13
Jan-13
Apr-13
Jul-12
Oct-12
Apr-12
Jan-12
Jul-11
Consumer
Oct-11
Jan-11
Apr-11
Jul-10
Oct-10
0.0%
Jan-10
Apr-10
-5.0%
Jul-09
5.0%
Oct-09
0.0%
Jan-09
Apr-09
10.0%
3.3
2.0
1.5
15.0%
5.0%
3.3
3.0
2.1
2013E
10.0%
20.0%
3.3
2012
13.6%
12.3%
11.9%
15.0%
3.8
3.3
2011
30.0%
25.0%
3.8
2010
20.0%
5.0
4.2
2009
25.0%
35.0%
6.0
5.0
4.8
40.0%
2005
28.2%
2004
30.0%
5.7
2008
45.0%
2007
50.0%
35.0%
2006
40.0%
2003
Chart 6: Loan Growth y/y%
page 12
05 May 2014
page 13
We note that both Banco de Bogota and Aval’s loan interest margins have been more
stable than their peers, partly due to their relatively lower exposure to mortgages and
consumer loans, segments that bore the bulk of the competitive pressures in 2013. In
addition, the DTF, the primary rate used to price commercial loans (where Aval has
greater exposure), had a delay to reflect the Central Bank’s rate cuts, while a lower
loan-to-deposit ratio provided a cost-of-funds advantage versus the competition.
Chart 10: Loan Interest margin
8.3%
8.5%
8.0%
Chart 11: Change in the MPR and DTF since July 2012
7.9%
7.5%
7.5%
7.7%
7.7%
1.00%
7.9%
7.5%
7.3%
7.9%
7.5%
7.0%
7.0%
6.7%
6.6%
6.7%
6.8%
8.0%
7.9%
7.6%
7.6%
7.9%
7.4%
0.50%
7.9%
7.5%
7.1%
7.6%
7.5%
7.1%
7.2%
6.9%
-0.22%
-0.50%
-0.50%
-1.00%
6.6%
6.4%
6.5%
-0.03%
0.00%
-1.25%
-1.50%
6.2%
6.0%
6.0%
-0.74%
-1.23%
-1.47%
-1.75%
-2.00% -2.00%
-2.00%
Grupo Aval
Banco de Bogota
Bancolombia
Source: Bancolombia, Grupo Aval and Bogota data was estimated by BTG Pactual
Source: Banrep
The industry’s PDL ratio visibly improved from 2008 to 2010, and since then has
been oscillating between 2.8% and 3.6%. There was an upward trend in
delinquencies in 2011 and 2012 due to a slowdown in GDP growth and consumption,
but asset quality has improved in recent quarters on the back of healthier economic
growth. We expect this trend to continue in 2014 driven by the currently healthy
economic momentum and a more conservative expansion policy from banks.
Chart 12: Colombia Industry PDLs and Coverage
5.5%
170.0%
160.0%
5.0%
150.0%
4.5%
140.0%
4.0%
130.0%
120.0%
3.5%
110.0%
3.0%
100.0%
90.0%
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
2.5%
Coverage
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
Jul-13
DTF
Aug-13
Sep-13
Oct-13
Nov-13
May-13
Jun-13
Mar-13
Apr-13
MPR
Asset Quality
PDL Ratio
Jan-13
Feb-13
Nov-12
Dec-12
Sep-12
Oct-12
Jul-12
2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
Aug-12
-2.50%
5.5%
05 May 2014
Profitability
The Colombian banking industry has undergone a period of declining profitability in
the last few years, driven mainly by gradually declining margins (due to lower interest
rates) and the inability of the sector to offset margin losses with better efficiency.
Many banks have also raised capital to accelerate growth in Colombia and, mainly, to
pursue inorganic growth in Central America, but the new capital has generated lower
returns, putting further pressure on ROEs.
Neither Banco de Bogota nor Aval have escaped this trend. The former saw its ROE
fall from 24.9% in 2010 to an estimated 16.7% in 2013, while the latter’s fell from
22.2% to 18.0% in the same period. Bogota's ROE has been affected by three main
factors: 1) lower NIMs, 2) the capital increase to fund the acquisition of BAC
Credomatic and 3) lower earnings from Corficolombiana. Similarly, Grupo Aval's ROE
has decreased as a consequence of the lower ROEs from its four banks and due to
the capital increase to capitalize Banco de Bogota after the acquisition of BAC.
Assuming there are no more acquisitions, we expect operating trends to improve in
2014 and 2015, mainly via better asset quality and more stable margins, but
profitability improvements may not be as visible, given the banks’ larger capital base.
Chart 13: Colombian Banks ROE
20.0%
18.0% 16.5%
16.0%
14.0%
18.1%17.8%
16.6%
15.1%15.6%
16.4%16.4%
14.9%
13.7%
13.0%
12.6%
17.9%
16.9%16.4%
14.1%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
2012
2013
Bancolombia
Davivienda
2014E
Bogota
2015E
Aval
Source: Companies and BTG Pactual
Capital
Colombian banks have been operating in an environment of strong loan growth but
declining profitability while they have focused on expanding internationally. These
trends have weakened capital ratios, despite periodic capital increases. As a
consequence of last year’s M&A activity and new regulation that eliminated goodwill
from the calculation of capital, Bancolombia, Banco de Bogota and Grupo Aval raised
capital again to strengthen their balance sheets.
page 14
05 May 2014
Chart 14: Capital Adequacy Ratios, 2013*
Chart 15: Primary Equity Issuance, Banking Sector, 2007-2013 (US$mn)
16.0%
14.0%
12.0%
page 15
7,000
14.0%
4.8%
6,000
10.8%
10.0%
3.8%
11.2%
5,000
3.7%
4,000
5,830
8.0%
3,000
6.0%
4.0%
2042
9.2%
2,000
7.0%
7.5%
2.0%
1,000
0.0%
0
Bancolombia*
Davivienda
Bogota
Source: Company reports.*Bancolombia Pro Forma with capital increase
269
Colombia
Banco de Bogota after closing the acquisitions and the capital increase ended up with
a Tier 1 ratio of 7.5% and a BIS ratio of 11.2%. Bancolombia recently disclosed that
its Tier 1 and BIS ratios (pro forma with the capital increase and capitalization of 2013
earnings) are 9.2% and 14%, respectively. Davivienda’s Tier 1 and BIS ratios as of
4Q13 were 7.0% and 10.8%, respectively, the lowest among the large local banks,
but we do not expect the bank to raise capital in 2014, as its capital ratios should
improve with the capitalization of 2013 earnings.
Chile
Source: Company reports, Bloomberg and BTG Pactual
Peru
05 May 2014
Business Strengths and Positives
Scale: Grupo Aval is the largest player in most financial sectors in Colombia
Grupo Aval is the largest participant in most sectors of the Colombian banking
market, with market-leading shares of 31.6% of commercial loans, 28.3% of
consumer loans, and 28.8% of deposits. Grupo Aval’s network is also the largest
combined ATM and branch network in the country, representing 25.0% and 25.8% of
total ATMs and branches in Colombia, respectively. In the pension fund business,
Porvenir and Horizonte are market leaders in funds under management, with a
combined market share of 43.9% in mandatory fund management and 49.7% in
severance fund management. In addition, Corficolombiana is the largest financial
merchant bank in Colombia.
Leadership in Central America
BAC Credomatic is one of the leading financial institutions in Central America, with
US$12bn in assets in 2013E and a track record of strong financial performance. The
operation posted an ROE of 21.8% in 2011, 23.4% in 2012, and we expect will report
~25% in 2013. This profitability compares favorably to both Bancolombia and
Davivienda’s operations in Central America, which have ROEs of ~16% and 9%,
respectively. BAC Credomatic’s market share in terms of gross loans (pro forma with
recent acquisitions in Guatemala and Panama) is as follows: Costa Rica 11.7%, El
Salvador 10.2%, Guatemala 10%, Honduras 12.9%, Nicaragua 26.5% and Panama
6.0%.
Above average profitability
Grupo Aval and Banco de Bogota have been able to achieve consistently higher
profitability than their Colombian peers. We think this stems mainly from scale, low
funding costs and contributions to income from profitable subsidiaries (mainly
Corficolombiana and Porvenir pension fund). Between 2010 and 2013, Grupo Aval
and Banco de Bogota’s ROA averaged 2.1% and 2.5%, respectively, which
compares to the average ROA of their main peers of 1.9% in the same period.
Centralized guidelines and best practices
Grupo Aval sets group-level policies focused on brand management, strategic
planning,
use
of
capital,
procurement,
risk
management,
convergence
of
technologies and cost controls that we believe promote best practices, realization of
synergies and efficiencies across the subsidiaries.
M&A discipline and track record integrating acquisitions
The history of Grupo Aval has been dynamic, and its success and leadership has
been built largely through acquisitions (more than 25). All of Aval’s banks have either
completed acquisitions or are the result of a business combination. A recent example
of the company’s ability to integrate new operations is the purchase of BAC
Credomatic in 2010 (at an implied 2009 P/E of 12.8x), which generated net income of
~US$150mn per year in both 2009 and 2010. In 2012, BAC Credomatic posted net
page 16
05 May 2014
income of US$265mn, 76% higher than in 2010. In 2013, net income reached
US$297mn.
Chart 16: BAC Credomatic Net Income and P/E Analysis
350
300
14.0x
12.8x
12.6x
12.0x
10.0x
250
8.8x
200
8.0x
7.2x
6.4x
150
6.0x
100
4.0x
50
2.0x
0.0x
0
2009
2010
Net Income
2011
2012
2013
Implied P/E (US$1,900mn Transaction)
Source: Grupo Aval and BTG Pactual
We also liked the strategic thinking behind this acquisition, as it i) provided exposure
to the whole region, not just a specific country, ii) was highly profitable (18.7% ROE in
2010), iii) had specific pockets of value, such as the sale of the Mexico subsidiary;
and iv) could add value from the transfer of best practices from the credit card
business. We also expect more recent acquisitions, such as the pension fund
Horizonte in Colombia, Grupo Reformador in Guatemala and BBVA Panama, to be
accretive to earnings in 2015.
Low funding cost
One of the group’s main strengths is its relatively lower funding cost, which is driven
mainly by its large deposit base. Aval’s market share of total deposits in Colombia is
~29%, with a proportionally higher share of low-cost demand and savings deposits.
Deposits represent ~77% and ~76% of Banco de Bogota and Grupo Aval’s total
funding.
page 17
05 May 2014
Chart 17: Grupo Aval and Peers Funding Mix, 2013
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
11.0%
13.8%
11.1%
8.5%
2.6%
1.0%
3.9%
13.7%
5.0%
page 18
Chart 18: Grupo Aval and Peers Deposit Mix, 2013
8.6%
9.2%
4.0%
100%
1.2%
1.2%
1.0%
1.1%
90%
80%
40.0%
70%
46.5%
34.6%
42.0%
60%
76.9%
77.5%
75.2%
78.2%
50%
40%
39.3%
30%
38.5%
32.4%
36.0%
20%
10%
Bancolombia
Davivienda
Bogota
Aval
Deposits
Interbank borrowings and overnight funds
Borrowings from banks and other
Bonds
19.4%
16.3%
Bancolombia
Davivienda
below 100%, which has made Banco de Bogota less dependent on more expensive
funding sources. In turn, this larger deposit base has been important in offsetting
margin pressure in an environment of declining rates. The group’s high proportion of
checking account deposits (~25% of the deposits) should also support NIM
expansion in a period of tightening monetary policy, as expected in 2H14.
Chart 19: Net Loans / Deposits 2013
108.7%
98.7%
88.3%
92.3%
80.0%
60.0%
40.0%
20.0%
0.0%
Bancolombia
Davivienda
Time deposits
Source: Company reports, BTG Pactual Estimates
The strong base of deposits has also led to a loan-to-deposits ratio consistently
100.0%
Bogota
24.6%
Bogota
Aval
0%
Checking accounts
25.9%
Aval
Grupo Aval has also been diversifying its sources of funding to support its business
expansion. On May 12, 2011, Aval completed an offering of preferred shares, raising
COP$2.1tn (US$1.1bn) in gross proceeds. On February 1, 2012, it completed its first
international bond offering of US$600mn of 5.25% Senior Notes due in 2017,
followed by a US$1.0bn issue of 4.75% Senior Notes due in 2022, on September 26.
Saving deposits
Other
05 May 2014
page 19
Risk management/asset quality
In general, Grupo Aval’s banks take a conservative approach in their banking
businesses and are generally more focused on protecting margins and asset quality
than on generating growth. The philosophy is similar for investments. The banks'
treasuries are typically more conservative than their peers, potentially giving up
extraordinary gains in some quarters but avoiding losses in others and thus
maintaining a more stable stream of income. As a result, they maintain a smaller
proportion of securities classified as trading versus peers.
Banco de Bogota has stood out for the good asset quality of its loan book, with a PDL
ratio consistently lower than that of its peers, though this is also explained by its
relatively higher exposure to less risky corporate loans. As of 4Q13, Bogota’s PDL
ratio (30+ days) in Colombia was 2.2%, lower than that of its main peers
(Bancolombia 2.7%, Davivienda 3.5%, BBVA Colombia 2.6%). Like Bogota, Aval also
stands out for its good asset quality. The asset quality of its diversified portfolio has
generally behaved better than the Colombian banking system.
Chart 20: Unconsolidated PDL ratio (PDL more than 30 days)
5.0%
Chart 21: Allowance / PDL more than 30 days
200.0%
190.0%
180.0%
170.0%
160.0%
150.0%
140.0%
130.0%
120.0%
110.0%
100.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
BOGOTA
POPULAR
BANCOLOMBIA
BOGOTA
POPULAR
BANCOLOMBIA
OCCIDENTE
DAVIVIENDA
BBVA
OCCIDENTE
DAVIVIENDA
BBVA
Source: Superfinaciera
Management believes that its reputation as a banking group that pursues
conservative policies has allowed them to consistently retain and attract new
customers. Each of its banks has a comprehensive risk management system that
management views as fundamental to long-term stability and viability and enables
them to identify risks and resolve potential problems on a timely basis. In addition,
they have established upward loan reporting processes, and the risk management
staff meets on a weekly basis to discuss the loan portfolio, developments in the
industry, risks and opportunities.
Experienced senior management team
Grupo Aval has an experienced management team, both at the group and operating
subsidiary levels. The chairman, Mr. Sarmiento Angulo, has over 55 years of
business experience, including 40 years in the banking and related financial services
industry. The president, Mr. Luis Carlos Sarmiento Gutiérrez, has over 15 years of
experience in the banking and related financial services industry and over 20 years of
business experience as a banking executive in Colombia and the United States.
05 May 2014
Negatives and Risks
Complex shareholding structure, related transactions and disclosure
Aval’s corporate structure makes analyzing it a difficult task, due to 1) shared
ownership of some subsidiaries, like Corficolombiana and Porvenir, 2) a large and
volatile minority income, 3) poor disclosure (not all companies report consolidated
results on a quarterly basis), 4) Grupo Aval’s transactions with subsidiaries, such as
lending, which are difficult to track as they are eliminated in the consolidated figures
and may not be reflected in the unconsolidated results (for example the offshore
operations), and 5) Corficolombiana, a relevant contributor to earnings, which doesn’t
publish quarterly consolidated results or guidance about the business plans of its
equity portfolio.
Inefficient structure
While Aval has practical reasons not to merge its four banks (at least for now), there
are clear costs of operating four banks rather than one, such as redundancy, higher
funding costs (at smaller banks) and lost cross-selling opportunities (since not all
banks operate in all segments).
Low share liquidity
Although Grupo Aval is the second-largest company in Colombia by market cap
th
th
(~US$13bn), its ordinary and preferred shares rank 27 and 13 in terms of liquidity,
respectively. In the last 6 months the ADTV for the ordinary and preferred shares has
been US$0.2mn (COP$440mn) and US$1.9mn (COP$3,932bn), respectively. We
think its lower liquidity is explained mainly by its low free float (estimated at 14.2%,
4.9% of the ordinary shares and 39.3% of the preferred shares). Banco de Bogota is
a similar case, ranking 22
nd
with an ADTV of US$0.9mn.
14.0
12.0
10.0
8.0
6.0
4.0
2.0
Market Cap
ADTV US$mn
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
ECOPETROL
PREC
PFBCOLOM
CEMARGOS
GRUPOSURA
PFCEMARGOS
EXITO
CLH
PFGRUPSURA
NUTRESA
ISAGEN
GRUPOARGOS
PFAVAL
PFDAVVNDA
PFAVH
CORFICOLCF
ISA
BCOLOMBIA
CELSIA
PFGRUPOARG
CNEC
BOGOTA
Market Cap US$bn
Chart 22: 20 Most Liquid Stocks in 2013: Market Cap vs. Liquidity
0.0
ADTV US$mn
Source: BVC; BTG Pactual
We believe the recent equity offerings will only have a marginally positive effect on
liquidity, as the controlling shareholder has subscribed to most of the offerings. In
page 20
05 May 2014
addition, we note that Bogota’s liquidity could have further downside because Grupo
Aval has been increasing its stake in the bank with open market purchases.
Dual-share structure
Grupo Aval has 2 classes of shares, common and preferred. We don’t particularly like
dual-share structures. LatAm offers plenty of examples of preferred shareholders
losing out relative to their common shareholder peers. For example, in the recently
announced Aval offering, holders of preferred shares did not get preferential
subscription rights. Furthermore, having two classes of shares divides up the liquidity
instead of aggregating it. Common and preferred shares have essentially the same
economics, except in the rare case in which the company doesn’t have enough cash
to distribute dividends, or in the case of bankruptcy, when preferred shares have
seniority. On the voting side of the equation, common shares can vote while preferred
cannot. Also, we understand that there are no tag-along rights in the event of a
change in control.
page 21
05 May 2014
page 22
Valuation
Initiating on Grupo Aval with a TP of COP$1,400/share and a Neutral rating
Our Grupo Aval target price of COP$1,400 per preferred share is based on a
Dividend Discount Model (DDM) with the following assumptions: 19.0% sustainable
ROE, 5% perpetuity growth rate, 10.5% cost of equity and a 65% long-term dividend
payout. Our TP implies 6.5% upside from its current price, including a 4.0% dividend
yield, a 2.2x 2014E P/BV (compared to the bank’s current 2013 2.3x P/BV) and a
11.9x 2015E P/E compared to the bank’s current 2014E 13.9x P/E.
Table 5: Grupo Aval - Dividend Discount Model
Net Income (COP$bn)
2011
2012
2013
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
1,291
1,527
1,601
1,930
2,395
2,567
2,754
2,955
3,174
3,381
3,603
3,842
18.2%
4.8%
20.6%
24.1%
7.2%
7.3%
7.3%
7.4%
6.5%
6.6%
6.6%
Growth
EPS
70
Growth
Dividend Payout Ratio
61.2%
DPS
2022E Perpetuity
82
79
95
117
126
135
145
156
166
177
188
18.2%
-3.6%
19.2%
24.1%
7.2%
7.3%
7.3%
7.4%
6.5%
6.6%
6.6%
59.8%
43
66.9%
49
60.1%
53
55.4%
57
60.0%
65
60.0%
60.0%
60.0%
65.0%
65.0%
65.0%
-
75
81
87
93
108
115
2,170
15.5%
7.9%
7.1%
14.3%
16.2%
7.3%
7.3%
7.4%
15.4%
6.6%
-
1.11
1.22
1.35
1.49
1.65
1.82
2.01
2.22
2.22
Growth
PV Factor
-
PV
51
53
56
54
53
51
54
52
976
12-month TP
NPV per Share
424
Perpetuity value per Share
976
Target Value per Share
1,400
Source: Grupo Aval; BTG Pactual
Initiating on Banco de Bogota with a TP of COP$72,000/share and Neutral rating
Our Banco de Bogota target price of COP$72,000 per common share is based on a
Dividend Discount Model (DDM) with the following assumptions: 18.0% sustainable
ROE, 5% perpetuity growth rate, 10.5% cost of equity and a 65% long-term dividend
payout. Our TP implies 4.8% upside from its current price, including a 3.5% dividend
yield, a 2.1x 2014E P/BV (compared to the bank’s current 2013 2.2x P/BV) and a
12.1x 2015E P/E compared to the bank’s current 2014E 13.6x P/E.
Table 6: Banco de Bogota – Dividend Discount Model
Net Income (COP$bn)
2011
2012
2013
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
1,146
1,326
1,400
1,554
1,835
1,988
2,156
2,340
2,523
2,701
2,869
3,050
15.7%
5.6%
11.0%
18.1%
8.3%
8.4%
8.6%
7.8%
7.0%
6.2%
6.3%
9,920
Growth
EPS
3,994
Growth
Dividend Payout Ratio
43.3%
DPS
4,623
4,553
5,055
5,968
6,466
7,012
7,612
8,206
8,783
9,331
15.7%
-1.5%
11.0%
18.1%
8.3%
8.4%
8.6%
7.8%
7.0%
6.2%
6.3%
43.9%
1,728
52.7%
2,028
52.2%
2,400
48.7%
2,640
50.0%
2,904
50.0%
50.0%
55.0%
60.0%
65.0%
65.0%
-
3,233
3,506
3,806
4,513
5,270
6,065
116,455
17.4%
18.3%
10.0%
10.0%
11.3%
8.4%
8.6%
18.6%
16.8%
15.1%
-
-
1.11
1.22
1.35
1.49
1.65
1.82
2.01
2.22
2.22
2,389
2,378
2,396
2,351
2,310
2,479
2,620
2,729
52,391
Growth
PV Factor
PV
-
12-month TP
NPV per Share
19,653
Perpetuity value per Share
52,391
Target Value per Share
72,000
Source: Banco de Bogota; BTG Pactual
2022E Perpetuity
-
-
0
05 May 2014
Grupo Aval SOTP Valuation
We have also done an SOTP valuation, using current market prices for its four banks,
book value for Porvenir (not listed) and the price of the acquisition for Horizonte. The
result is an implied value of COP$1,123/share, 13.8% lower than Aval’s current
market price.
Table 7: Grupo Aval SOTP Valuation
Stake %
66.5%
72.1%
93.7%
79.9%
20.0%
7.1%
Bogota
Occidente
Popular
Villas
Porvenir
Horizonte
Total Investments
Cash and Other Assets
Total Assets
Financial Debt
Other Liabilities
Equity
# Shares (mn)
Implied Price per share
Price
Difference
Source: BTG Pactual
Market
Price
69,500
39,500
525
8,000
Value
COP$mn
13,266,084
4,442,569
3,801,681
1,435,628
176,787
71,185
23,193,934
133,058
23,326,992
1,943,433
358,244
21,025,315
18,552
1,133
1,315
-13.8%
2012
15.0
11.8
10.7
10.4
4.1
11.3
P/E
2013E
14.2
14.4
10.3
9.7
4.6
24.5
2014E
12.8
12.5
8.9
8.4
3.7
16.9
2015E
10.9
9.8
7.0
6.6
3.1
13.8
Though this exercise has the advantage of identifying the value of each of the parts,
we don’t believe it is the best valuation approach, because the low liquidity of some of
the subsidiaries (Occidente is not liquid, while Banco Popular and Banco AV Villas
rarely trade on the exchange) likely discounts the value of these banks individually
(evidenced by the low P/E multiples) and, as such, does not allow investors to
replicate Aval’s portfolio.
Relative and Historical Valuation
A regression of P/BV and ROE adjusted by country risk for LatAm banks (excluding
Argentina) shows that both Aval and Banco de Bogota are fairly priced compared to
regional peers.
page 23
05 May 2014
page 24
Chart 23: Regression P/BV ‘14 vs. ROE ‘14 – Country Risk
4.0x
y = 9.8744x + 1.0023
R² = 0.8064
3.5x
Compartamos
3.0x
P/BV '14
Itau
Banorte
2.0x
Bradesco
1.5x
1.0x
Banco de Chile
Sant. Chile
Banregio Credicorp
2.5x
Bogota
IFS
BCII
Aval
Davivienda Sant. Mexico
Bancolombia
Itau CorpBanca
Sant. Brasil
Banco do Brasil
0.5x
–
(3.0%)
2.0%
7.0%
ROE '14 - Country Risk
12.0%
17.0%
Source: BTG Pactual. ItauCorpbanca assumes a proforma multiple of the combined entities.
A look at Aval’s historical multiples shows that the stock has steadily de-rated in
recent years and is currently trading at a four-year low and one standard deviation
below its historical average both on P/E and P/BV bases.
Chart 24: Grupo Aval’s Historical Forward P/E since 2010
Chart 25: Grupo Aval’s Historical P/BV since 2010
5.5
25.0
5.0
23.0
SD+2
4.5
21.0
SD+2
SD+1
4.0
19.0
17.0
SD+1
3.5
Average
Average
3.0
15.0
13.0
SD -1
2.5
SD -1
11.0
SD - 2
2.0
SD - 2
Source: BTG Pactual and Bloomberg
Apr-14
Oct-13
Jan-14
Jul-13
Apr-13
Jan-13
Jul-12
Oct-12
Apr-12
Oct-11
Jan-12
Jul-11
Apr-11
Banco de Bogota’s P/E is higher than its historical average, and its P/BV is slightly
below its historical average.
Jan-11
Jul-10
Oct-10
Apr-10
Jan-10
Apr-14
Jan-14
Jul-13
Oct-13
Apr-13
Jan-13
Jul-12
Oct-12
Apr-12
Oct-11
Jan-12
Jul-11
Apr-11
Jan-11
Jul-10
Oct-10
Apr-10
1.5
Jan-10
9.0
05 May 2014
Chart 26: Banco de Bogota’s Historical Forward P/E since 2010
Chart 27: Banco de Bogota’s Historical P/BV since 2010
page 25
Table 8: Banks Comparable Multiples
Target Stock PriceMarket Cap
1-May-14
Rating
Price
Local
(US$ mn)
P/E
2013
2014E
2015E
2013
P/BV
ROE (%)
2014E 2015E 2013
2014E 2015E
Div Yield
2013
EPS growth (%)
2014E 2015E
2013
ADTV
2014E 2015E(USD mn)
Mexico
Banorte
Buy
100
87.8
18,636
16.4x
15.4x
12.0x
2.3x
2.0x
1.8x
14.3% 13.9% 15.7%
0.7%
1.1%
1.6%
14.5%
Inbursa
Neutral
32
33.6
17,137
13.7x
16.9x
15.2x
2.7x
2.5x
2.3x
20.3% 15.6% 16.0%
5.5%
2.9%
3.1%
85.3%
-18.5% 11.1%
9.19
Banregio
Neutral
80
75.7
1,898
17.3x
15.2x
12.9x
3.1x
2.6x
2.2x
18.7% 18.7% 18.5%
1.8%
0.0%
1.3%
19.1%
13.8% 17.6%
2.81
Gentera
Buy
29
23.9
2,975
17.1x
15.3x
13.0x
4.3x
3.5x
3.1x
25.8% 25.2% 25.1%
4.4%
0.6%
3.9%
16.8%
11.9% 17.8%
8.75
6.2%
28.2%
42.02
Colombia
Bancolombia
Neutral
28,350
27,240
12,794
15.3x
12.6x
10.7x
1.9x
1.6x
1.4x
12.6% 13.0% 14.1%
2.8%
2.9%
3.0%
-9.2%
24.8% 10.9%
9.96
Banco Dav iv ienda
Buy
30,100
27,800
5,330
15.2x
11.5x
10.0x
2.0x
1.8x
1.6x
14.3% 16.6% 16.9%
1.8%
2.2%
2.9%
25.0%
33.3% 15.1%
1.91
Buy
161.0
149.3
11,904
19.0x
13.4x
11.1x
2.8x
2.4x
2.1x
14.8% 19.3% 20.1%
1.7%
1.9%
2.3%
-20.6%
41.8% 21.0%
47.39
Intercorp Financial Serv icesBuy
34.0
31.5
2,949
11.1x
10.7x
9.2x
2.7x
2.4x
2.1x
23.8% 23.8% 24.5%
5.1%
4.9%
5.1%
-1.1%
3.9%
1.06
34.0
32.1
10,747
15.8x
12.6x
11.3x
2.6x
2.3x
2.2x
17.1% 19.5% 19.9%
4.2%
4.1%
5.2%
-1.3%
25.7% 11.4%
5.35
6.7
6.4
3,900
15.0x
9.9x
8.8x
1.6x
1.4x
1.3x
11.5% 15.2% 15.7%
2.7%
3.4%
5.0%
5.3%
50.9% 13.2%
4.00
15.6x
13.4x
11.4x
2.6x
2.3x
2.0x
17.3% 18.1% 18.6%
3.1%
2.4%
3.4%
13.4%
19.4% 16.3%
68,700
10,304
15.1x
13.6x
11.5x
2.1x
2.0x
1.8x
16.4% 15.1% 16.4%
3.5%
3.8%
4.2%
-1.5%
11.0% 18.1%
Vs Latam (Ex-Brasil and Argentina)
-3.3%
1.8%
0.8%
-18.0% -12.5% -9.9% -5.5% -16.5% -12.0% 13.7%
60.1% 26.0% -111.3% -43.1% 11.2%
Vs Bancolombia
-1.6%
7.7%
7.2%
14.8% 24.4% 25.3% 30.1% 15.9% 16.2%
24.8%
33.4% 38.8% -83.6% -55.5% 65.7%
Vs Davivienda
-0.5%
18.6%
15.5%
4.8% 10.5% 14.6% 14.4% -9.2%
-2.7%
89.3%
78.0% 48.0% -106.0% -66.9% 20.1%
15.2x
13.9x
11.2x
2.3x
16.4% 15.6% 17.9%
4.0%
4.3%
Vs Latam (Ex-Brasil and Argentina)
-2.3%
4.1%
-1.9%
-13.1% -7.5% -4.7% -5.2% -13.8% -4.1%
31.4%
80.2% 47.3% -63.8% -50.4% 48.3%
Vs Bancolombia
-0.6%
10.2%
4.4%
21.7% 31.4% 32.5% 30.5% 19.6% 26.8%
44.3%
50.1% 62.2% -152.7% -61.2% 121.0%
Vs Davivienda
0.6%
21.3%
12.5%
11.1% 16.7% 21.2% 14.8% -6.3%
118.8% 100.3% 73.0% -80.6% -71.1% 60.2%
Peru
Credicorp
16.3%
Chile
Banco Santander Chile
Neutral
Corpbanca
Buy
Latam Banks (Ex-Brazil and Argentina)
Banco de Bogota
Grupo Av al
Source: BTG Pactual
Neutral
Neutral
72,000
1,400
1,315
13,890
2.1x
1.9x
6.1%
4.9%
4.8%
9.6%
24.1%
0.90
1.92
05 May 2014
page 26
Banco de Bogota Operational Trends and Earnings Outlook
Banco de Bogotá is Grupo Aval’s most important asset, as it has led its growth
strategy both domestically and internationally and has control of Corficolombiana,
Porvenir and Fidubogota. In 2014, we expect Banco de Bogota’s results to benefit
from industry tailwinds mainly in asset quality and margins, while the bank should
seek to capture synergies from its recent acquisitions. Overall, we expect net income
to expand 11.0%, but EPS to increase only 3.6% due to the capital increase
completed in December 2013. Moreover, we expect ROE to decline from 16.4% in
2013 to 15.1% in 2014, also owing to the capital increase.
Loan Growth and Mix
In the last two years, Bogota’s loan book has expanded at a double-digit rate, thanks
to healthy economic growth in Colombia, market share gains in Central America and
more aggressive growth in consumer and mortgage loans. In 2013, Bogota also
benefited from the 6.7% COP/USD depreciation, given its exposure to USD loans
through BAC Credomatic. We expect Colombia (71% of the loans) to be the main
driver of growth for Bogota, given the expected faster economic growth of this
economy. However, BAC Credomatic can also continue to be an important
contributor to growth. In 2012, BAC’s loan book grew 18.7% in US dollars, and we
forecast ended 2013 with 15.5% growth.
Chart 28: Bogota Consolidated Net Loans, COP$bn
Chart 29: BAC Credomatic Net Loans, US$mn
0.8
9,000
0.7
8,000
0.6
7,000
0.5
6,000
0.4
5,000
0.3
4,000
0.2
15.2%
0.1
3,000
80,000
75,087
72.0%
70,000
65,182
60,000
56,583
50,000
44,212
40,000
32,518
30,000
20,000
38,936
28.0%
19.7%
19,009
13.6%
15.2%
18,911
-0.5%
10,000
0
0
-0.1
2008
2009
2010
2011
Net Loans
2012
2013
2014E
2015E
8,053
6,972
18.7%
5,873
4,521
15.5%15.0%
13.0%
10.0%
5.0%
2,000
0.0%
1,000
-2.3%
-
-5.0%
2007
2008
2009
2010
Net Loans
Source: BAC Credomatic;; BTG Pactual
Banco de Bogotá’s growth strategy in Colombia has been historically focused on the
corporate segment, but after the BAC acquisition it has increased its focus on
consumer loans, BAC’s main segment. BAC’s loan book is 54% consumer (28% in
credit cards, 12% in autos and 14% in other consumer), while Bogota’s is only 25%,
despite a 5pp increase in the last 2 years.
Meanwhile, BAC has implemented the opposite strategy, taking advantage of
Bogota’s expertise with corporate clients, and in the last 2 years it has increased the
proportion of commercial loans from 32% to 37%. On a consolidated basis,
commercial loans remain the most important segment, representing 62% of the loan
portfolio.
20.0%
6.1%
Y/Y%
Source: Banco de Bogotá
5,198
5,013
4,898
10.9%
25.0%
2011
y/y%
2012
2013E
05 May 2014
Going forward, we expect to continue to see the same trends, with the bank putting
greater emphasis on growth in consumer loans, mortgages, and financial leases.
Currently, those three segments account for 24%, 8% and 5% of total loans,
respectively.
Bogota’s exposure to Central America is well diversified. Costa Rica and Panama
have the greatest shares, with 9% each, and the remaining 17% is split between
Guatemala, Honduras, El Salvador, and Nicaragua, with each from 3-7%. This
diversification allows the bank to take advantage of various opportunities that arise
from the commercial agreements involving Colombia, Central America and the rest of
the world.
Chart 30: Gross Loans by Country, 4Q13
El Salvador Nicaragua
3%
4%
Honduras
4%
Guatemala
7%
Chart 31: Gross Loans by Segment, 4Q13
Other
0%
Financial leases
4%
Mortage
9%
Costa Rica
9%
Panamá
9%
Microcredit
1%
Consumer
24%
Commercial
62%
Colombia
64%
Investments
The bank’s investment portfolio is comprised mainly of fixed income securities and, to
a lesser degree, equities, which is explained in great part by Corficolombiana’s
portfolio. Altogether, it accounts for about 18% of the bank’s assets. The equities
investments have increased substantially, from COP$2.1tn in 2010 to COP$3.6tn in
2013 due to Corficolombiana’s acquisition of a large stake in Promigas (Promigas
accounts for about 1/3 of the value of the equities portfolio).
The mix of the debt portfolio has played an important role in the bank’s results in
recent quarters, due to the volatility of debt securities, mainly in mid-2013. Bogota’s
policy has been to carry a larger mix of securities held-to-maturity and available-forsale, as oppose to trading, to limit the volatility of the P&L. The strategy led to
relatively more stable results in 2013 versus its Colombian peers.
page 27
05 May 2014
Chart 32: Debt and Equity Investments, COP$bn
page 28
Chart 33: Debt and Equity Investments as % of Assets
20,000
120.0%
18,000
100.0%
3,652
16,000
3,665
14,000
80.0%
12,000
8,000
40.0%
14,693
13,235
6,000
20.0%
9,381
9,379
4,000
25.8%
24.1%
25.6%
54.8%
56.6%
54.9%
56.2%
3.5%
15.8%
4.0%
13.6%
4.6%
16.4%
3.6%
14.6%
2010
2011
2012
2013
60.0%
2,771
2,101
10,000
25.9%
2,000
0.0%
0
2010
2011
2012
Total Debt Securities
2013
Total Equity Securities
Total Debt Securities
Total Equity Securities
Loans and financial lease losses, net
Other Asstes
Funding
In an environment of double-digit asset growth, like the one the Colombian banking
system has experienced in the last few years, having a large base of deposits has
been vital to maintaining competitive spreads. We think this is one of Bogota’s main
advantages over its peers. The bank’s deposit growth has been mostly in line with
that of loans, which has helped the bank to maintain a loan-to-deposits ratio
consistently below 100%.
Chart 34: Deposits, COP$bn
Chart 35: Gross Loans / Deposits
90,000
85,054
55.8%
80,000
73,834
70,000
0.5
64,094
60,000
0.4
51,022
50,000
37,992
40,000
30,000
0.6
22,151
20,000
43,367
0.3
14.1%
17.7%
15.2%
10.1%
10,000
90.0%
88.8%
88.3%
92.3%
89.1%
90.8%
2012
2013
80.7%
80.0%
70.0%
60.0%
50.0%
25.6%
24,382
100.0%
0.2
15.2%
0.1
40.0%
30.0%
20.0%
0
0
2008
2009
2010
2011
Deposits
2012
2013
2014E
2015E
Y/Y%
Source: Banco de Bogotá; BTG Pactual
10.0%
0.0%
2008
In 3Q13, deposits represented 71% of Bogota’s funding, with time deposits at 39%,
savings deposits at 35%, and checking accounts at 25%. The large proportion of
savings and demand deposits is another of the bank’s key competitive advantages,
and we think it will become more visible in an environment of rising rates, which we
expect in 2H14 and 2015. Other sources of funding are made up of interbank
deposits (7%), long-term bonds (4%) and banks and others (18%).
2009
2010
2011
05 May 2014
Chart 36: Deposits Breakdown, 4Q13
Chart 37: Funding Mix, 4Q13
Other
1%
Checking
Accounts
26%
page 29
Banks and Others
18%
Savings Deposits
35%
Long-Term Bonds
4%
Interbank
Borrowings
5%
Deposits
73%
Time Deposits
38%
Net Interest Income and NIM
In the last few years, Bogota, as well as its peers, has benefited from low interest
rates and high global liquidity, prompting a strong loan expansion. Loan growth has
been the main driver of NII, but until 2Q13, investment income also played an
important role (investment spreads reached 6.2% in 1Q13). Investment income has
been much more subdued in recent quarters (a trend seen throughout the industry),
partly due to a more conservative position from the bank’s portfolio and more stable
debt prices. 1Q13 was the last quarter with strong gains from debt securities, so
1Q14 will be the last quarter with difficult y/y comparable figures.
Chart 38: Net Interest Income and NIM COP$bn
Chart 39: NIM: Loan vs. Investment NIM
6,000
5,461
8.4%
5,000
4,689
7.4%
6.0%3,5106.1%
4,000
5.8%
2,317
9.0%
8.0%
8.0%
7.0%
7.0%
5.9%6.0%
5.0%
2,937
3,000
2,000
3,983
6.2%
9.0%
2,443
4.0%
3.0%
1,563
2.0%
1,000
0
2008
2009
2010
2011
Net interest income
2012
2,013
2014E
Net interest margin
Source: Banco de Bogotá, BTG Pactual
2015E
6.0%
5.0%
4.0%
8.2% 7.5% 7.3% 7.7% 7.5% 7.5% 7.6% 7.6% 7.4% 7.5% 7.1% 7.2%
7.4%
7.6%
6.9% 7.1%
6.5% 6.8% 6.4%
6.2% 6.1% 5.9% 6.0%
5.9%
5.6%
5.5%
5.0%
4.6%
3.1%
3.0%
2.3%
2.0%
1.0%
1.0%
0.0%
0.0%
-1.0%
-0.3%
-0.6%
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
NIM
Loans Interest Margin
Banks in Colombia are asset sensitive, so 200bps of rate cuts from the Central Bank
by 1Q13 put pressure on margins in 2H13. However, despite the expected drop in
loan yields, the bank has been more successful than the rest of the industry at
defending its margins. This has been partly driven by i) Bogota having more debt
securities categorized as available for sale and not as trading, thus reflecting some of
the fixed income losses in shareholders’ equity rather than in the income statement,
ii) a larger deposit base (lower LDR) to fund loan growth and iii) the Central American
assets, which have contributed about one third of NII and have not experienced the
same NIM pressure as Colombian operations.
2.3%
1.9% 2.1%
1.1%
Net Investment Margin
05 May 2014
Chart 40: DTF
page 30
Chart 41: Colombia Benchmark Interest Rate
6.00%
10
5.50%
8
5.00%
6
4.50%
4
3.50
2
0.72
4.00%
0
3.50%
0.36
-2
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
Apr-13
Apr-14
Apr-14
Jan-14
Jul-13
Oct-13
Apr-13
Jan-13
Jul-12
Oct-12
Apr-12
Jan-12
Jul-11
Oct-11
Apr-11
Jan-11
Jul-10
Oct-10
Apr-10
Jan-10
3.00%
Source: Banrep
Benchmark Rate
Real Rate (Headline inflation)
Real Rate (12 month exp)
For 2014, we estimate that the NIM will contract 40bps to 5.8% due to the
consolidation of the acquisitions in Central America and a lower investment margin
(which was particularly large in 1Q13 and declined only marginally during the 2Q13
selloff) and then recover in 2015 due to the expectation of higher rates in Colombia.
We see upside risk to these figures as the Colombian Central Bank started raising
rates in April. Still, even in this scenario, we think that Bogota's loan interest margin is
unlikely to expand until 2015 given the normal lag effect from interest rate cycles.
Asset Quality
Banco de Bogota has traditionally done an outstanding job of its risk management
practices, which we consider one of the bank’s main strengths. As a result, the bank
in many cases has been slow to enter the new lending segment aggressively, as with
consumer loans and mortgages. As previously mentioned, the bank has started
growing in these segments in the last couple of years, as it exploited BAC’s expertise
in consumer lending and became more comfortable with mortgages. We think this
cautious approach has paid off in helping the bank to maintain a relatively stable and
healthy PDL, which adds earnings visibility. However, the change in mix towards
riskier segments should generate higher levels of provisions and PDLs going forward.
2.20%
2.20%
124.60%
1.90%
125.00%
123.60% 123.30%
122.30%
1.80%
1.70%
2010
2011
2012
PDL
150,000
1Q13
2Q13
Allowance / PDL
3Q13
4Q13
120.00%
50,000
0
115.00%
-50,000
110.00%
-100,000
1.3%
1.8%
1.6% 1.5%
1.5%
218,384
189,706
204,224
165,488
168,679
200,000
100,000
127.90%
1.90%
135.00%
130.00%
132.20%
2.10%
2.10%
2.00%
140.00%
139,234
2.30%
2.30%
2.6%
105,659
2.30%
250,000
101,480
2.30%
300,000
21,528
140.90%
2.40%
145.00%
44,974
2.50%
2.50%
1.6%
3.0%
2.5%
2.0%
1.5%
1.0% 1.1%
1.0%
0.5%
-38,567
2.60%
Chart 43: Provisions and Cost of Credit, COP$mn
111,102
Chart 42: PDL and Coverage – Consolidated
0.5%
0.2%
0.0%
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
Total provisions, net
Cost of Credit (annualized)
05 May 2014
In 2012, provisions soared 270.4% y/y, which, albeit a deterioration, was a return to
normalized levels from the extremely low provisions in 2011, when the bank benefited
from a recovery of provisions from Corficolombiana’s investment securities (which
were in turn thanks to a prudent COP$245bn in provisions in 2010 and a recovery of
provisions for the investment in SIE). In 2013, provisions continued to climb due to a
period of gradual asset quality deterioration that started in 3Q12. As we start 2014,
we are seeing PDLs improve industry-wide. However, faster growth in riskier
segments may not make this trend as visible in Bogota, as already seen in 4Q13. We
forecast that the cost of credit will be ~1.4% in 2014, lower than the 1.6% for 2013,
though we think that both PDLs and credit costs should gradually increase going
forward as the bank’s loan mix continues to move deeper into riskier segments like
consumer lending.
Fee Income
Banco de Bogota’s fee income mainly reflects income generated by banking services
and credit cards, but a relevant portion also comes from Porvenir (pension fund) and,
to a lesser extent, Fidubogota (fiduciary activities). In recent quarters, fee income
growth has been driven mainly by credit card merchant fees, as the company has
narrowed its focus on consumer loans, fiduciary activities and pension plan
management fees after the consolidation of Horizonte in 2Q13.
Overall, fee income has been gradually increasing as a percentage of operating
income since 2009, a trend we expect to continue in 2014, though this year the effect
will be due more to a drop in other income (Bogota booked a higher-than-normal
dividend in 2013) than to recurring double-digit fee income growth. Fee income
expanded 17.2% in 2013 (boosted by the consolidation of Horizonte), but we think it
will slow down to what we think is a more sustainable organic pace of ~8.% in 2014
and 2015, respectively.
Chart 44: Fees and Other Services Income, COP$bn
3,000
34.6%
34.4%
Chart 45: Fees and Other Services Income Breakdown, 2013
34.5%
33.9%
2,500
33.1%
32.4%
2,000
1,757
2,434
33.1%
1,076
34.0%
33.0%
1,884
Warehouse services
5%
Fiduciary activities
6%
Branch network
services
1%
Credit card
merchant fees
32%
32.0%
30.4%
1,500
1,000
2,629
2,249
Other Checking fees
1%
4%
35.0%
1,155
31.0%
908
30.0%
500
29.0%
0
Commissions from
banking services
23%
28.0%
2008
2009
2010
2011
2012
2013
2014E
Pension plan
management
28%
2015E
% of Total Operating Income
Other Operating Income
Other operating income has been a volatile but important source of income for
Bogota in recent years and one of the main differentiating factors versus its local
peers. Bogota’s other operating income as a percentage of operating revenues (NII +
page 31
05 May 2014
page 32
fee income + other operating income) has averaged over 13% in the last 4 years
compared to 11% for Bancolombia and just 2.2% for Davivienda. The bank’s other
operating income primarily includes 1) results of FX transactions and derivatives, 2)
dividend income from some of Corficolombiana’s non-controlling investments, and 3)
income from Corficolombiana’s controlling investments that are not in the financial
sector.
Dividend Income
29%
164,039
212,249
162,414
236,979
298,584
189,757
177,830
137,588
182,516
2Q12
152,427
150,000
132,714
200,000
182,861
300,000
178,393
350,000
1Q12
289,873
400,000
Gains on sales
Other equity securities
2%
1%
184,956
450,000
250,000
Chart 47: Other Operating Income Breakdown, 2013
391,910
Chart 46: Other Operating Income, COP$mn
Income from nonfinancial sector
42%
100,000
50,000
4EQ14E
3Q14E
2Q14E
1Q14E
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
4Q11
3Q11
2Q11
1Q11
0
FX and Derivatives
26%
2013 results were particularly boosted by other operating income. In 1Q13, of the
dividend income reported that quarter (COP$184bn), we estimate that only
~COP$100bn was recurring. Though no disclosure was provided, we believe these
dividends came from Promigas (a Corficolombiana investment), which also
contributed to the good 3Q13 results, since the company changed its dividend
payments policy from an annual to a semiannual basis. There were also strong
results from FX and derivatives in 1H13 (COP$89bn in 1Q13 and COP$75bn in
2Q13). Overall, other operating income could have been higher, but we believe the
sale of a 4% stake in Occidente by Corficolombiana was included in income from
investments.
Chart 48: Total Other Operating Income, COP$bn
1,200
17.1%
16.3%
16.1%
1,048
14.3%
13.9%
1,000
12.2%
800
758
600
492
Chart 49: Total Operating Income Growth y/y
11.0%
776
676
816
10.3%
18.0%
60.0%
16.0%
50.0%
14.0%
40.0%
12.0%
10.0%
582
451
400
200
0
2009
2010
2011
2012
2013
2014E
2015E
20.0%
10.0%
8.0%
0.0%
6.0%
-10.0%
4.0%
-20.0%
2.0%
-30.0%
0.0%
2008
30.0%
2009
2010
2011
2012
2013
2014E
-40.0%
Net interest income after provisions
05 May 2014
page 33
For 2014, we are modeling a more conservative result, as we expect softer results
due to FX and derivatives and assume a normalized income from dividends at
Corficolombiana.
Efficiency
Though volatile from quarter to quarter, Bogota’s efficiency ratio has been very stable
in the last 3 years, an important achievement given the margin pressure experienced
by the banking system in recent quarters. This performance has been the result of a
combination of controlled expense growth, an inorganic expansion strategy, and the
ability of the bank to defend its NIM and good results from other operating income.
The bank’s efficiency ratio deteriorated noticeably after the BAC acquisition in late
2010. We expect the bank to keep up its great efforts in the next couple of years to
keep operating expenses under control while continuing to capture synergies in
Central America as it tries to return to its previous level of efficiency. We see the
efficiency ratio improving to 49.1% in 2015 from 49.6% in 2012, but we see downside
risk to the ratio if our expectations of higher interest rates starting in 2H14 materialize.
Chart 50: Operating Expenses, COP$bn
Chart 51: Efficiency Ratio, Quarterly
5,000
50.9%
4,500
4,000
3,500
49.6%
50.3%
4,196
4,615
49.1%
2,968
3,199
40.0%
2,500
2,000
60.0%
50.0%
3,782
40.1%
3,000
49.0%
30.0%
60.00%
56.00%
20.0%
1,500
1,000
10.0%
500
54.1%
50.7%
52.00%
48.6%
48.00%
53.7%
53.1%
54.00%
50.00%
1,758
57.3%
58.00%
49.9%
49.3%
48.1% 48.1%
46.5%
46.00%
44.00%
0
0.0%
2010
2011
2012
2013
2014E
Efficiency ratio
2015E
42.00%
40.6%
40.00%
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
Profitability
In 2013, Bogota’s net income was COP$1.40tn (+5.6% y/y), implying an ROE of
16.4%, 169bps lower than the 18.1% in 2012. However, the ROE contraction was
less pronounced than for peers because of 1) lower investment portfolio losses in
2Q13, 2) a more resilient loan NIM, 3) strong growth of other operating income
(+55.0% y/y), which benefitted from extraordinary dividends from Promigas on the
capitalization of the reappraisal of equity and the sale of one company, and 4) strong
results from Corficolombiana.
For 2014 and 2015, we expect 11.0% and 18.1% earnings growth, respectively.
However, for 2014 we expect the ROE to contract ~130bps to 15.1% due to the
capital increase completed in 4Q13 and softer other operating income, as dividends
from Promigas return to normal levels. In 2015, we expect ROE to start climbing
again (we expect 16.4%), as the bank deploys the recently raised capital, margins
expand due to higher interest rates and synergies from Central America, and the new
acquisitions continue to accrue.
05 May 2014
15.2%
12.1%
22.7%
14.0%
13.7%
15.8%
322,401
322,241
23.9%
21.6%
281,739
409,531
402,632
369,914
16.7%
200,000
22.3%
251,735
20.6%
262,150
300,000
195,375
400,000
262,905
317,519
500,000
Chart 53: Income Attributable to Minority Interest, COP$mn
473,641
Chart 52: Net Income COP$mn
14.2%
100,000
0
35.0%
350,000
30.0%
300,000 47.3%
25.0%
250,000
20.0%
200,000
15.0%
150,000
10.0%
100,000
5.0%
50,000
0.0%
Net Income
40.0%
39.9%
34.6%
31.5% 30.7%
23.7%
9.4%
34.2%
30.0%
20.5%
23.1%
12.1%
Income attributable to Minority Interest
Impact from Recent Transactions
In 2013, Bogota completed two acquisitions, Banco Reformador in Guatemala and
BBVA Panama. These acquisitions targeted increasing scale in the two Central
American countries where the group had a relatively weak position. Altogether, these
acquisitions add approximately 8% of assets and loans to Bogota.
Table 9: 2013 Central America Acquisitions – Acquired 100% by Banco de Bogota
1Q13 (US$mn)
Impact
Bogota
G. Reformador BBVA Panama G. Reformador BBVA Panama
Assets
43,771
1,542
1,935
3.5%
4.4%
Loans
27,980
907
1,485
3.2%
5.3%
Deposits
27,310
1,165
1,576
4.3%
5.8%
Liabilities
37,811
1,386
1,767
3.7%
4.7%
Minority Interest
1,582
0
0
0.0%
0.0%
Equity
4,378
156
167
3.6%
3.8%
Net Income 2012
724
18
36
2.5%
4.9%
Market Cap - Transactions
10,289
411
490
4.0%
4.8%
P/E 2012
15.0x
22.6x
13.8x
P/BV 2012
2.5x
2.6x
2.9x
Source: Company reports and BTG Pactual
We expect these transactions to be earnings accretive starting in 2015 and to have a
negative impact on ROE in 2014 due to 1) the multiples paid (slightly above
Bogota’s), 2) the recognition of goodwill amortization and 3) Bogota’s capital
20.0%
10.0%
3.1%
0.0%
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
ROE
50.0%
0
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
increase.
page 34
% Net Income befor MI
05 May 2014
page 35
Banco de Bogota Earnings Summary
Table 10: Banco de Bogota Earnings Summary, 2010-2015E, COP$bn
Total Interest Income
Total Interest expense
Net Interest Income
Operating expenses
Non-operating income/(expense), net
Income before income tax and Minority Interest
Income tax expense
Net Income before Minority interest
Net Income
EPS
ROE
Efficiency
Source: Company reports and BTG Pactual
2010
3,346
902
2,443
611
1,833
1,155
582
3,570
1,758
1,812
96
1,908
-510
1,398
483
915
3,841
24.9%
40.1%
2011
4,396
1,459
2,937
139
2,798
1,757
758
5,312
2,968
2,345
68
2,413
-737
1,676
530
1,146
3,994
17.7%
50.9%
2012
5,698
2,189
3,510
515
2,995
1,884
676
5,555
3,199
2,356
315
2,671
-919
1,752
426
1,326
4,623
18.1%
49.6%
2013
6,226
2,242
3,983
778
3,189
2,249
1,048
6,502
3,782
2,720
171
2,891
-945
1,947
546
1,400
4,881
16.4%
49.0%
2014E
7,272
2,583
4,689
840
3,849
2,434
776
7,059
4,196
2,863
84
2,947
-973
1,975
421
1,554
5,055
15.1%
50.3%
2015E
9,040
3,580
5,461
954
4,507
2,629
816
7,951
4,615
3,336
88
3,424
-1,130
2,294
459
1,835
5,968
16.4%
49.1%
2011
31.4%
61.8%
20.2%
-77.2%
52.6%
52.1%
30.1%
48.8%
68.8%
29.4%
-28.6%
26.4%
44.5%
19.8%
9.7%
25.2%
4.0%
-718
1,074
2012
29.6%
50.0%
19.5%
270.4%
7.0%
7.2%
-10.8%
4.6%
7.8%
0.5%
359.8%
10.7%
24.7%
4.5%
-19.7%
15.7%
15.7%
34
-133
YoY%
2013 2014E
9.3% 16.8%
2.4% 15.2%
13.5% 17.7%
51.0% 7.9%
6.5% 20.7%
19.4% 8.2%
55.0% -26.0%
17.1% 8.6%
18.2% 10.9%
15.5% 5.3%
-45.6% -50.9%
8.3% 1.9%
2.8% 2.9%
11.1% 1.4%
28.4% -23.1%
5.6% 11.0%
5.6% 3.6%
-169
-130
-58
128
2015E
24.3%
38.6%
16.5%
13.6%
17.1%
8.0%
5.2%
12.6%
10.0%
16.5%
5.0%
16.2%
16.2%
16.2%
9.2%
18.1%
18.1%
131
-119
05 May 2014
page 36
Banco de Bogota: Understanding sources of income and
consolidation
Aside from the results of its banking business, Banco de Bogota derives a significant
portion of its net income from the consolidation of Corficolombiana, Porvenir and
Leasing Bogota Panama. Altogether, these 3 assets explain about 66% of the bank’s
income before minority interest. This contribution is diluted to ~54% at the majority
net income level due to the large minority income generated by Corficolombiana and
Porvenir, which are consolidated but 37.7% and 46.9% owned by Bogota,
respectively. We find three areas of particular relevance for operating performance.
Table 11: Banco de Bogota, Corficolombiana, Porvenir and Leasing Bogota 2013 Income Statement; COP$bn
2013 Income Statement
Bogota Corficol % of Total Porvenir % of Total LB Panama % of Total
6,226
470
7.5%
24
0.4%
1,984
31.9%
-2,242
-307
13.7%
-14
0.6%
-606
27.0%
34.6%
Net interest income
3,983
163
4.1%
10
0.3%
1,377
-774
-1
0.1%
-5
0.6%
-244
31.6%
2,254
42
1.9%
611
27.1%
751
33.3%
1,037
783
75.5%
40
3.8%
114
11.0%
6,500
987
15.2%
656
10.1%
1,998
30.7%
-3,780
-157
4.1%
-367
9.7%
-1,360
36.0%
2,720
830
30.5%
289
10.6%
637
23.4%
171
8
4.7%
24
13.9%
8
4.6%
Income before income tax expense and minority interest
2,891
838
29.0%
313
10.8%
645
22.3%
Income tax expense
-945
-205
21.7%
-105
11.1%
-164
17.4%
Income before and minority interest
1,947
633
32.5%
208
10.7%
481
24.7%
minority interest on subsidiaries
-100
-94
93.3%
-7
6.6%
0
0.1%
Income before minority interest
1,846
539
29.2%
202
10.9%
481
26.0%
minority interest
-446
-336
75.2%
-130
29.2%
0
0.0%
Net income attributable to shareholders
1,400
203
14.5%
71
5.1%
481
34.3%
Source: Grupo Aval 20-F report
Chart 54: Banco de Bogota’s Income Before Minority Interest
Chart 55: Banco de Bogota’s Majority Net Income
Corficol
15%
Corficol
29%
Bogota Colombia
and Other
34%
Porvenir
5%
Bogota Colombia
and Other
46%
Porvenir
11%
LB Panama
34%
LB Panama
26%
Source: Grupo Aval 20-F report, BTG Pactual Calculations
Source: Grupo Aval 20F report, BTG Pactual Calculations
05 May 2014
1.
Corficolombiana is Bogota’s main driver of other operating income (75.5% of
the total in 2013), as it accounts for 100% of the income from its nonfinancial assets and around 98% of their dividends.
2.
Porvenir is an important contributor to fee income, and has become even
more relevant after the consolidation of Horizonte pension fund. Given the
high profitability of this business (ROE of ~20%), it also adds
disproportionately to income tax expenses.
3.
Leasing Bogota Panama is a relevant contributor to NII and fee income,
derived from its strong consumer franchise. It also contributes significantly to
operating expenses, which was reflected in the deterioration of Bogota’s
efficiency ratio after completing this acquisition in 2010. Bogota owns 100%
of LB Panama, so this subsidiary does not contribute minority interest and
thus also has a relevant effect on the bottom line, contributing about one
third of Bogota’s majority net income.
Table 12: Banco de Bogota Net Income Analysis, COP$bn
2010
Net income to Bogota:
Banco de Bogota
Corficolombiana
Porvenir
Fidubogota
Almaviva
LB Panama
Colombia Operations
2011
2012
2013
Chg
915
213
55
41
9
53
544
1,146
229
55
46
12
331
473
1,326
115
75
55
15
426
639
1,400
203
71
50
27
481
568
2011
2012
y/y % Chg
y/y % Chg
231 25.2%
180 15.7%
16 7.7%
-115 -50.0%
-1 -1.2%
21 38.5%
5 12.9%
9 20.3%
3 31.4%
3 23.1%
278 524.7%
95 28.8%
-71 -13.1%
166 35.2%
2013
y/y %
74
5.6%
89
77.1%
-4
-5.8%
-6 -10.2%
12
79.4%
55
12.8%
-71 -11.1%
Looking at the historical ROE contribution by subsidiary, the main drivers of the sharp
drop in profitability in 2011 were declining profitability at the Colombian assets and
the consolidation of BAC Credomatic in December 2010, as Bogota issued capital
(US$1.1bn) to fund the purchase (at 2.3x P/BV), which generated a lower ROE on
the new capital in 2011 (we estimate a return of 14.5%, assuming that the
COP$333bn of earnings at LB Panama were generated with the COP$2.29tn raised
in 2010 to fund the acquisition).
Table 13: Banco de Bogota ROE Analysis, COP$bn
2010
2011
2012
2013
Net income
ROE
Net income
ROE
Net income
ROE
Net income to
ROE
to Bogota Contribution to Bogota Contribution to Bogota Contribution
Bogota
Contribution
Banco de Bogota
915
24.9%
1,146
17.7%
1,326
18.1%
1,400
16.4%
Corficolombiana
213
5.8%
229
3.5%
115
1.6%
203
2.4%
Porvenir
55
1.5%
55
0.8%
75
1.0%
71
0.8%
Fidubogota
41
1.1%
46
0.7%
55
0.8%
50
0.6%
Almaviva
9
0.3%
12
0.2%
15
0.2%
27
0.3%
LB Panama
53
1.4%
331
5.1%
426
5.8%
481
5.6%
Colombia Operations
544
14.8%
473
7.3%
639
8.7%
568
6.6%
Equity Average
3,674
6,467
7,345
8,558
The strong growth of net income in Central America in the last two years (BAC
posted an ROE of 26.7% in 2013) has made this operation a more relevant
contributor to consolidated ROE. However, LB Panama, which consolidates BAC,
has an ROE below the average of the group, since it consolidates the capital used for
page 37
05 May 2014
the BAC acquisition as well as other assets in Central America. The volatility of
earnings and profitability at Corficolombiana has also played an important role in the
movement of the consolidated ROE of Bogota.
Chart 56: Banco de Bogota’s Subsidiaries – ROE 2013
30.0%
28.3%
25.0%
20.0%
20.0%
15.0%
18.0%
17.0%
14.4%
12.3%
10.0%
5.0%
0.0%
Corficol
Porvenir
Fidubogota
Almaviva
LB Panama*
Bogota
Consolidated*
Source: Company Reports, BTG Pactual Estimates.*Excluding the effects of the recent capitalization
page 38
05 May 2014
Banco de Bogota’s Recent Acquisitions
Grupo Financiero Reformador and BBVA Panama
Bogota made 2 international acquisitions in 2013: Grupo Financiero Reformador in
Guatemala and BBVA Panama in Panama.
Bogota announced the purchase of 100% of Grupo Financiero Reformador in
Guatemala in June 2013. The agreement was executed by Credomatic International
Corporation (CIC), a subsidiary of Banco de Bogotá and part of BAC Credomatic’s
operations in Central America.
Grupo Reformador has total assets of US$1.6bn and total equity of approximately
US$150mn. The purchase price for the acquisition was US$411mn, which implies a
P/BV multiple of 2.6x (BV of US$156mn as of March 2013) and a 2012 P/E of 22.6x.
Following the closing of the transaction, BAC´s presence in Guatemala will grow to
total assets of US$2.8bn, total equity of US$365mn and net income of US$94mn,
making BAC the third most relevant private financial group in that market. The
acquisition will be paid with CIC’s available funds.
The transaction looks expensive at first glance, but expected synergies are
substantial. Bogota believes it could more than double the net income of the new
consolidated operation in Guatemala by 2015 from a pro forma 2012 net income of
US$95mn to US$202mn.
The rationale behind the transaction includes: 1) Guatemala being the largest Central
American market by GDP and population and one of the most underpenetrated
(loans are 23% of GDP), 2) BAC having a low market share in Guatemala (less than
5%), which will increase to 10% in assets and 15% in profits to make the bank the 3
rd
largest financial group in the country, 3) Reformador’s portfolio, concentrated in the
top tier corporate segment, being complementary to BAC’s, which is focused on
retail, 4) Reformador’s broad and very well distributed network of more than 100
branches and close to 100 ATMs, and 5) identified synergies from lower funding
costs and reduction of expenses.
Table 14: BAC Guatemala + Grupo Financiero Reformador Proforma, US$mn
Loans
Assets
Deposits
Net Income
ROAA
ROAE
Growth:
Loans
Assets
Deposits
Net Income
Source: Grupo Aval
Proforma Consolidated
2012 2013E 2014E 2015E
1,671 1,972 2,267 2,562
2,781 3,282 3,774 4,265
1,960 2,313 2,660 3,006
95
112
152
202
3.7%
3.7%
4.3%
5.0%
27.40% 27.9% 32.6% 37.9%
18.0%
18.0%
18.0%
17.9%
15.0%
15.0%
15.0%
35.7%
13.0%
13.0%
13.0%
32.9%
page 39
05 May 2014
The second announcement came on July 19, when the bank disclosed the
agreement to purchase BBVA Panama for US$490mn (net of a possible distribution
of an extraordinary dividend of up to US$140mn). The payment of the extraordinary
dividend is supported by the bank’s high capital adequacy ratio (22.3% in 2012).
Leasing Bogotá Panama, a subsidiary of Banco de Bogotá, is the acquiring entity.
As of December, BBVA Panama has total assets of US$1.9bn and total shareholders’
equity of US$197mn. Reported net income for 2012 and 2013 was US$36mn and
US$29mn, respectively. The transaction implies a 2012 P/E of 13.6x and a P/BV
(May 2013) of 2.7x. We estimate that ROE after the dividend distribution will be
around 19-20%.
According to management, there are no specific cost synergies from this transaction,
as the bank is one of the most efficient in Panama. However, once the deal is
approved, Bogota will merge BBVA Panama and BAC International Bank, and their
combined operations will have assets of US$12.8bn, shareholders’ equity of
US$1.5bn and annual net income of US$301mn, making it the second-largest
financial group (by assets) with a local banking license in Panama.
Both acquisitions totaled around US$900mn and were partly funded by Bogota’s
equity offering completed on December 2013, when the company raised COP$1.3tn
(US$650mn) at COP$63,000/common share. Grupo Aval subscribed to the offering
and also completed a COP$2.4tn (US$1.2bn) equity offering of common shares in
the Colombian market in January 2014 at a price of COP$1,300/share.
BBVA Horizonte
In December 2012, Grupo Aval announced that Porvenir signed an agreement to
acquire BBVA Horizonte Sociedad Administradora de Fondos de Pensiones y
Cesantías S.A. (Horizonte) for US$530mn. The transaction closed on May 18, 2013,
at an adjusted price of US$541mn. According to Aval, Porvenir acquired 64.3% of the
company for US$348mn, paying US$164mn with internal resources and US$184mn
with debt contracted with the holding company. Banco de Bogotá, Banco de
Occidente and Grupo Aval purchased the remaining 16.8%, 11.1%, and 7.1%
respectively. These percentages were based on the stake that each company has in
Porvenir to guarantee that the transaction would be neutral for all its shareholders, as
each entity has different minorities.
Based on 2012 earnings, Aval paid a P/E of 11.2x. However, 2012 net income was
positively affected by strong income from investments that are not likely to be
recurring. Adjusting for non-recurring items, we estimate Aval paid 16.5x 2012 P/E.
We believe Horizonte is an important strategic fit for Aval, as it is expanding its
presence in a profitable and growing business and again becoming the largest
pension fund in Colombia (US$41bn in AUM), a position they lost after the merger of
Proteccion and ING in 2012. While not disclosed by the company, synergies should
be substantial on the cost side. Porvenir and Horizonte merged on January 1, 2014.
page 40
05 May 2014
page 41
Grupo Aval Operational Trends and Earnings Outlook
Many of Grupo Aval’s operating trends follow those of Banco de Bogota, which
generates about 70% of the group’s consolidated operating income, a figure that is
likely to increase in 2014 given that all of the group’s recent acquisitions were done
through Banco de Bogota. However, we note that due to Aval’s lower stake in Bogota
(66.5% versus 72.2%, 93.7% and 79.9% for Occidente, Popular and AV Villas,
respectively), the contribution to majority net income drops to around 58%, according
to our estimates.
The following table includes the consolidated figures of the 4 banks in the holding
company, which shows the relative importance of each bank in the group’s financial
results. The intercompany eliminations in this consolidation are caused by related
transactions, such as interest expenses paid to the holding company, some fees
charged among the entities for services, and intercompany dividends.
Table 15: Grupo Aval and Subsidiaries 2013 Income Statement, COP$bn
2013
Bogota % Occidente % Popular % AV Villas % Eliminations % Grupo Aval
6,226 57.7%
2,051 19.0%
1,565 14.5%
947 8.8%
-4 0.0%
10,783
-2,242 59.0%
-723 19.0%
-459 12.1%
-223 5.9%
-156 4.1%
-3,802
Net interest income
3,983 57.1%
1,328 19.0%
1,106 15.8%
724 10.4%
-160 -2.3%
6,981
-774 59.8%
-321 24.8%
-66 5.1%
-133 10.3%
0 0.0%
-1,294
2,254 80.1%
255 9.0%
148 5.2%
166 5.9%
-8 -0.3%
2,814
1,037 78.7%
321 24.4%
44 3.3%
6 0.5%
-90 -6.8%
1,317
6,500 66.2%
1,583 16.1%
1,232 12.5%
762 7.8%
-258 -2.6%
9,819
-3,780 62.7%
-1,010 16.8%
-716 11.9%
-483 8.0%
-39 0.7%
-6,028
2,720 71.8%
573 15.1%
516 13.6%
279 7.4%
-298 -7.8%
3,790
171 72.5%
12 5.2%
93 39.6%
3 1.4%
-44 -18.6%
236
Income before income tax and non-controlling interest 2,891 71.8%
585 14.5%
609 15.1%
283 7.0%
-341 -8.5%
4,027
Income tax expense
-945 66.8%
-156 11.0%
-211 14.9%
-96 6.8%
-7 0.5%
-1,415
Income before non-controlling interest
1,947 74.5%
429 16.4%
399 15.3%
186 7.1%
-349 -13.4%
2,612
Source: Grupo Aval 20-F report
Loan Growth and Mix
In the last five years Aval’s loan book has been dynamic, expanding at a CAGR of
15.4%, driven by strong growth in Colombia and the incorporation of BAC in 2010
(BAC’s loan book was the fastest growing at Aval in 2013). Due to its large market
share in Colombia (~28% of gross loans) and the diversification of exposure to 4
banks, loans usually grow in line with the Colombian system.
However, in the last few years, loan growth at Aval has slightly lagged that of the
industry, as Aval’s exposure to mortgages (6% of its loan book as of 3Q13) is less
than the industry’s 9% at a time when mortgages have been the fastest-growing
segment (up 28% in 2013 vs. 14% for total industry loans). The latter has also been
true of Aval’s loan book, as Aval’s mortgage portfolio in Colombia grew 65% y/y as of
3Q13. We expect this trend to continue in 2014.
05 May 2014
Chart 57: Gross Loans, COP$bn
Chart 58: Grupo Aval and Peers Loan Book Portfolio Breakdown 2012
120,000.00
39.9%
100,000.00
80,000.00
40,000.00
96,514
33,902
40,144
120%
0.4
100%
0.3
69,948
0.25
58,624
18.4%
0.45
0.35
80,029
60,000.00
page 42
20.6%0.2
19.3%
41,897
14.4%
0.15
0.1
20,000.00
80%
8%
5%
1%
3%
21%
53%
24%
60%
40%
0%
24%
63%
20%
56%
43%
14%
0%
5%
8%
9%
12%
19%
0%
29%
18%
30%
57%
61%
48%
38%
51%
0%
0.05
4.4%
0.00
0
2007
2008
2009
2010
Gross Loans
2011
2012
2013
y/y%
Source: Grupo Aval
Commercial
Source: Grupo Aval
Aval’s banks target different markets. Banco de Bogota has a concentrated portfolio
in commercial loans, though after the BAC acquisition it has moved more
aggressively into consumer, mortgages, and financial leases. Occidente has the
strongest operation of financial leases of the group, but it also has an important
contribution from consumer and commercial loans. Popular and AV Villas have an
important participation in consumer loans, with 53% and 48% of its loan book coming
from this segment, respectively. AV Villas has the greatest exposure to mortgages
(14% of its loan book). Microcredit is still in the early stages, adding up to only 0.4%
of gross loans.
For 2014, we expect Aval’s consolidated loan book to expand 15.2%, with similar
trends to 2013 – faster growth at Bogota (in part driven by Central America) and AV
Villas due to its exposure to mortgage loans. In 2013, loan growth was Bogota 28.1%
(~17% excluding acquisitions), Occidente 15.6%, Popular 2.9%, AV Villas 12.5%.
Asset quality
Like Bogota, Aval’s asset quality is outstanding. Aval’s PDL ratio has consistently
outperformed the Colombian banking system (excluding the four banks of Aval).
Despite the good performance in historical terms, a change in mix towards riskier
consumer loans is driving an increase in PDLs, a trend we are likely to continue to
see in 2014, particularly at Bogota. The PDL ratio in 2013 ended at 2.4%, 10bps
higher than in 2012, and we expect it will remain stable in 2014.
Consumer
Financial leasing
Mortgages
Microcredit
05 May 2014
Chart 59: PDL Aval vs. Colombia’s Banking System
page 43
Chart 60: Grupo Aval PDL – Commercial and Consumer
6.00%
6.00%
5.4%
5.00%
4.00%
5.00%
4.8%
4.7%
4.0%
3.5%
3.00%
3.5%
3.4%
2.9%
3.1%
2.6%
2.1%
2.00%
3.5%
3.6%
2.3%
2.4%
4.00%
4.9%
4.3%
4.2%
4.0%
3.8%
3.4%
3.00%
2.6%
2.00%
1.00%
2.1%
1.8%
1.7%
1.3%
1.00%
1.3%
1.3%
0.00%
2007
2008
2009
2010
2011
2012
2013
0.00%
2007
Asset Quality (PDL +30days) Grupo Aval
2008
Source: Grupo Aval
2009
2010
Commercial
Asset Quality (PDL +30days) Colombian banking system excluding Grupo Aval banks
2011
2012
2014
Consumer
Source: Grupo Aval
Funding
As with Bogota, Grupo Aval has diversified sources of funding, highlighted by its
strong base of deposits, 74% of the total funding mix. When compared with Bogota’s
funding, there’s a slight difference in the weight of bonds (8% vs. 4%) due to the
holding company’s international issues from 2012, while credit with banks and other
entities has a heavier weight in Bogota (14% vs. 18%).
Chart 61: Grupo Aval Funding Mix, 4Q13
Chart 62: Grupo Aval Deposits Breakdown, 4Q13
Banks and Others
14%
Checking
Accounts
25%
Long-Term Bonds
8%
Savings Deposits
42%
Interbank
Borrowings
4%
Deposits
74%
Source: Grupo Aval
Other
1%
Time Deposits
32%
Source: Grupo Aval
The strong base of deposits is reflected in its ratio of gross loans to deposits (below
100%), a competitive advantage relative to its Colombian peers. The resulting lower
cost of funding should continue to play an important role in sustaining Aval’s relatively
stronger profitability going forward, though given the greater emphasis on mortgages
in its portfolio mix, Aval should increasingly require longer-term wholesale funding.
05 May 2014
Chart 63: Gross Loans / Deposits
Chart 64: Cost of Funding
10.00%
120.0%
100.0%
page 44
98.5%
91.0%
89.1%
98.2%
92.1%
9.00%
95.4%
9.0%
9.3%
8.00%
84.9%
7.3%
7.00%
80.0%
6.2%
6.00%
5.00%
60.0%
5.0%
4.7%
4.00%
4.4%
4.4%
3.5%
3.00%
40.0%
5.3%
4.4%
2.7%
2.7%
2.9%
2.00%
1.00%
20.0%
0.00%
2007
0.0%
2007
2008
2009
2010
2011
2012
2013
Source: Grupo Aval
Capital
In August 2013, the local banking regulator implemented new rules following Basel 3
guidelines. The most relevant change from this regulation was the elimination of
goodwill from the calculation of regulatory capital, particularly due to the acquisitions
that Colombian banks had done in Central America in recent years. 3Q13 was the
first quarter that banks reported with the new regulation, and many showed sharp
drops in the capital adequacy ratio. This change prompted Bogota and Aval to raise
capital in 4Q13. Bancolombia also raised equity at the beginning of 2014.
Table 16: Capital Adequacy, 4Q13
18.0%
14.0%
14.0%
12.0%
4.8%
14.9%
12.9%
10.8%
11.2%
3.8%
3.7%
7.0%
7.5%
10.0%
8.0%
5.4%
3.8%
6.0%
4.0%
9.2%
9.1%
9.5%
Occidente
Popular
12.1%
1.4%
10.7%
2.0%
0.0%
Bancolombia* Davivienda
Bogota
2009
Other funding
Source: Grupo Aval
16.0%
2008
AV Villas
Source: Companies. *Bancolombia pro-forma with capital increase
Banco de Bogota is the only one of Aval’s banks to need to raise capital, mainly
because it has executed most of the group’s acquisitions. Bogota issued capital for
US$650mn (common shares), which took its solvency and Tier I ratio to 11.2% and
7.5%, respectively, as of 4Q13. These ratios are still relatively low by Latin American
standards but are nonetheless strong enough to continue growing organically in the
next couple of years. Grupo Aval fully subscribed to this offering. Since Grupo Aval
2010
2011
Total deposits
2012
2013
05 May 2014
page 45
operates as a holding company, it does not need to meet minimum capital
requirements.
Similarly, Grupo Aval completed a US$1.2bn equity offering of common shares in the
Colombian market. These resources were used to capitalize Banco de Bogota and
repay approximately US$0.7bn of debt. Aval’s controlling shareholder, Mr. Sarmiento
(owner of 95% of Aval’s ordinary shares), subscribed to the offering, so only a very
small part was placed in the market.
Net Interest Income and NIM
In the last few years, banks in Colombia, Central America, and the rest of the region
have benefited from a low interest rate environment and high liquidity worldwide. This
easy access to funding largely explains the strong asset growth of the financial
system and the performance of Aval’s NII, which has been growing in the doubledigits on the back of the credit expansion. Declining rates in Colombia also fostered
credit growth but led to a NIM contraction, due to the asset-sensitive nature of
Colombian banks. This negative effect on the NIM was compounded in 2013 by
losses generated from the investment portfolio as a result of rising spreads following
the start of tapering in the US.
Chart 65: Grupo Aval Net Interest Income and NIM, COP$bn
12,000
9.0%
8.8%
9,830
10,000
8,000
6,981
4,826
3,715
6,310
7.2%
5,469
4,629
6.5%
6.5%
8.5%
8.0%
8,126
7.8%
6,000
4,000
Chart 66: Grupo Aval’s Banks NIM
7.0%
6.4%
6.5%6.5%
6.2%
0
5.0%
2010
2011
Net interest income
2012
2013
2014E
Net interest margin
2015E
8.5%
7.5%
6.0%
5.5%
2009
9.5%
7.5%
2,000
2008
10.5%
6.5%
5.5%
1Q12
2Q12
Grupo Aval
3Q12
Bogota
4Q12
1Q13
Occidente
Source: Grupo Aval, Banco de Bogota, BTG Estimates
Aval’s NIM is higher than Bogota’s mainly due to Popular and AV Villas, which have
greater exposure to higher yielding consumer loans. In 2014, while we expect the
loan NIM to be mostly stable in Colombia, we expect Aval’s NIM to contract in line
with the trend seen in Bogota as a result of the consolidation of the recent
acquisitions in Guatemala and Panama and lower investment gains, which were
particularly strong in 1Q13.
Fee Income
Aval’s fee income is highly influenced by Bogota (79% of the total), as it includes the
fees of the banking operation, fiduciary activities of Fidubogota, pension plan
management at Porvenir, warehouse services from Almaviva, and other fees from
Corficolombiana. The other 21% is explained mainly by commissions from banking
services of the other 3 banks, and to a lesser extent by fees from fiduciary activities
(Fiduoccidente and Fidupopular), warehouse services (Alpopular), and Other.
2Q13
Popular
3Q13
4Q13
AV Villas
05 May 2014
Chart 67: Fees and Other Services Income, COP$bn
3,000
Chart 68: Fees and Other Services Income Breakdown 2013
28.7%
3,500
28.1%
27.8%
27.5%
2,500
26.9%
27.1%
2,000
25.5%
1,500
1,000
500
1,394
1,584
1,618
2008
2009
2010
2,234
2,382
2011
2012
2,814
2,994
2013
2014E
26.1%
3,233
0
page 46
29.0%
28.5%
28.0%
27.5%
27.0%
26.5%
26.0%
25.5%
25.0%
24.5%
24.0%
23.5%
2015E
Other
Warehouse 6%
services
6%
Checking fees
2%
Branch network
services
1%
Fiduciary activities
6%
Commissions from
banking services
46%
Credit card
merchant fees
12%
Pension plan
management
21%
Source: Grupo Aval
Total fee income has been growing steadily, but organic growth has trailed loan
growth. In 2011, fee income climbed 38.1% after the incorporation of BAC
Credomatic. In 2012, it slowed down to 6.6%, in line with a weaker economy and
greater regulatory oversight. In 2013, growth accelerated, driven by commissions
from banking services, credit card fees, and pension plan management (due to the
consolidation of Horizonte in 2Q13). In 2014, a healthier economy and faster growth
in consumer lending and mortgages could provide support for fee income growth, but
we still foresee growth in the mid-to-high-single-digits.
Other Operating Income
Other operating income is also highly influenced by Bogota (76% of the total), as it
reports dividend income from some Corficolombiana’s non-controlling investments
and income from Corficolombiana’s controlling investments that are not in the
financial sector. In addition, in the consolidation process there’s a significant amount
of intercompany eliminations caused by cross-holding among the subsidiaries.
Chart 69: Total Other Operating Income, COP$bn
Chart 70: Other Operating Income Breakdown, 2013
1,400
1,200
Gains on sales
equity securities
7%
Other
11%
16.0%
13.1%
12.2%
14.0%
11.6%
11.0%
1,000
13.4%
12.0%
10.2%
9.1%
800
8.2%
8.0%
1,317
600
958
400
613
684
786
969
886
10.0%
Income from nonfinancial sector
34%
1,020
6.0%
4.0%
200
2.0%
0
Dividend Income
25%
0.0%
2008
2009
2010
2011
2012
2013
2014E
2015E
FX and Derivatives
23%
Source: Grupo Aval
In 2013, other operating income jumped 48.7%, explained by non-recurring dividend
income from Promigas (Corficolombiana), strong results from FX and derivatives, and
gains on sales of investments related to the sale of a 4% stake of Occidente by
Corficol. Due to the lack of visibility for extraordinary gains (always a possibility given
05 May 2014
the
group’s
many
companies
and
the
merchant
banking
operation
page 47
of
Coficolombiana), we forecast a 27% contraction in 2014.
Efficiency
In 2013, Aval’s efficiency ratio ended at 50.1%, better than the 51.3% in 2012. One of
the main goals of the holding company in the mid-term is to keep operating expenses
under control while capturing synergies in Central America. The acquisition of BAC in
late 2010 was the main driver for the deterioration in efficiency in 2011.
Improvements since 2011 have been gradual, partly due to a difficult year for
operating income in 2013 on the back of lower NIMs and investment losses. For
2014, we actually foresee a slight deterioration of efficiency, since some of the other
operating income booked in 2013 is unlikely to be repeated in 2014 and, to a lesser
degree, due to the consolidation of 3 new acquisitions. However, we expect
management to focus more on capturing synergies than on inorganic growth in the
next couple of years, which should boost efficiency after 2014.
Chart 71: Operating Expenses and Efficiency Ratio, COP$bn
8,000
7,000
52.7%
49.0%
Chart 72: Efficiency Ratio Quarterly
60.0%
51.3%
50.4%
51.5%
46.6%
49.6%
50.0%
42.9%
6,000
4,000
3,000
4,933
3,028
3,292
5,300
6,028
6,659
7,458
30.0%
20.0%
10.0%
0
0.0%
2009
2010
53.8%
53.3%
52.5%
52.00%
50.9%
50.00%
51.0%
51.3%
50.3%
53.7%
51.1%
49.7%
48.00%
46.00%
3,520
1,000
2008
56.8%
56.00%
54.00%
40.0%
5,000
2,000
58.00%
2011
2012
Source: Grupo Aval, BTG Pactual
2013
2014E
Efficiency ratio
2015E
44.00%
43.8%
42.00%
40.00%
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
Source: Grupo Aval
Profitability
Grupo Aval’s earnings have many moving parts, and given the number of companies
it consolidates, it is characterized by the periodicity of non-recurring items, many of
which come from the merchant banking operation of Corficolombiana. Thus, it is
important to differentiate between operating and non-operating income. Despite this
inherent volatility (more so than at other local banks), the core banking assets are the
main drivers of earnings, and net income has been trending upward, in line with the
results of these businesses.
In 2013, Aval’s net income was COP$1.60tn (+4.8% y/y), implying an ROE of 17.5%
(including the recent capital increase, ROE was 16.4%), slightly lower than the 17.8%
in 2012, despite the negative operating trends in 2013. For 2014, though we foresee
improving operating trends at Aval’s banks, we expect ROE to drop to 15.6%,
primarily owing to capital increases at both Grupo Aval and Banco de Bogota.
05 May 2014
Chart 73: Net Income, Quarterly, COP$bn
600
400
300
Chart 74: Net Income and ROE, COP$bn
45%
39.7%
488
500
407
372
250 262
17.4%
16.4%
505
40%
403
380
341
24.4%
21.2%
317 22.0% 22.0%
402
14.5% 14.5%
14.3%
35%
30%
330
3,000
35.0%
29.2%
2,500
30.0%
25.4%
15.2%
200
20%
15%
18.5%
5%
0
0%
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
16.4%
1,000
500
757
1,065
957
2009
2010
1,291
1,526
1,601
17.9%
20.0%
2,395
15.0%
15.6%
1,930
10.0%
5.0%
0
0.0%
2008
ROE
Source: Grupo Aval, BTG Pactual
17.7%
1,500
10%
100
25.0%
22.2%
2,000
25%
18.0%
Net Income
page 48
2011
2012
Net Income
2013
2014E
2015E
ROE
Source: Grupo Aval
Grupo Aval Earnings Estimates
Table 17: Grupo Aval Earnings Summary, COP$bn
2010
2011
2012
2013 2014E 2015E
Total Interest Income
6,728 8,151 10,205 10,783 12,319 15,082
Interest expense
-2,099 -2,682 -3,895 -3,802 -4,193 -5,252
Net Interest Income
4,629 5,469 6,310 6,981 8,126 9,830
-1,027
-416
-917 -1,294 -1,427 -1,700
3,602 5,053 5,393 5,687 6,699 8,130
1,618 2,234 2,382 2,814 2,994 3,233
786
958
886 1,317
969 1,020
6,005 8,245 8,661 9,819 10,662 12,383
Operating expenses
-3,520 -4,933 -5,300 -6,028 -6,659 -7,458
2,485 3,312 3,361 3,790 4,003 4,926
Non-operating income/(expense), net
177
196
448
236
247
259
Income before income tax expense and non- controlling
2,662 3,508 3,809 4,027 4,250 5,185
Income tax expense
-831 -1,137 -1,372 -1,415 -1,403 -1,711
Net Income before Minority interest
1,831 2,372 2,438 2,612 2,848 3,474
874 1,080
911 1,011
918 1,079
Net Income
957 1,291 1,527 1,601 1,930 2,395
EPS
69
70
82
86
95
117
ROE
22.2% 18.5% 17.8% 16.4% 15.6% 17.9%
Eficiency
46.6% 52.7% 51.3% 50.4% 51.5% 49.6%
Source: Grupo Aval and BTG Pactual
2011
21.2%
27.8%
18.2%
-59.5%
40.3%
38.1%
21.9%
37.3%
40.1%
33.3%
11.0%
31.8%
36.8%
29.5%
23.6%
34.9%
1.4%
-370
612
2012
25.2%
45.2%
15.4%
120.3%
6.7%
6.6%
-7.5%
5.0%
7.4%
1.5%
128.2%
8.6%
20.7%
2.8%
-15.7%
18.2%
18.2%
-70
-143
YoY%
2013 2014E
5.7% 14.2%
-2.4% 10.3%
10.6% 16.4%
41.1% 10.3%
5.4% 17.8%
18.2% 6.4%
48.7% -26.4%
13.4% 8.6%
13.8% 10.5%
12.8% 5.6%
-47.3% 4.6%
5.7% 5.6%
3.1% -0.9%
7.2% 9.0%
11.0% -9.2%
4.8% 20.6%
4.8% 9.6%
-138
-83
-91
117
2015E
22.4%
25.3%
21.0%
19.1%
21.4%
8.0%
5.2%
16.1%
12.0%
23.0%
5.0%
22.0%
22.0%
22.0%
17.5%
24.1%
24.1%
230
-190
05 May 2014
Company Descriptions
Grupo Aval
Grupo Aval is Colombia’s largest banking group by total assets and a leading banking
group in Central America. It provides a comprehensive range of financial services
and products from traditional banking services, such as making loans and taking
deposits, to pension and severance fund management.
Grupo Aval currently consists of four commercial banks in Colombia (Banco de
Bogotá, Banco de Occidente, Banco Popular and Banco AV Villas) the largest
pension and severance fund manager in Colombia (Porvenir), the largest merchant
bank in Colombia (Corficolombiana), and a leading banking group in Central
America (BAC Credomatic), each of which it controls and consolidates.
The following chart presents the corporate structure on a simplified basis and a brief
description of the position and focus of each subsidiary.
Table 18: Summarized Organizational Structure
In 2013, it acquired Horizonte and BBVA Panama, strengthening its leadership in
pension funds in Colombia and its banking operation in Central America. Grupo Aval
acquired 99.99% of the outstanding shares of Horizonte on April 18, 2013, which on
an aggregate basis with Porvenir, positions it as the market leader in the
management of mandatory pension funds and severance funds in Colombia. On July
19, 2013, it announced the agreement to acquire 100% of BBVA Panamá through
Leasing Bogotá, a subsidiary of Banco de Bogotá.
page 49
05 May 2014
Grupo Aval’s network is the largest combined network of ATMs and branches in the
Colombia and has been a key element to its competitive positioning in the market,
with 1,317 branches and 3,086 ATMs as of December 31, 2012. Customers of any of
its banks may conduct basic banking transactions at any other bank in Grupo Aval’s
network.
Under a multi-brand strategy, each of the banks focuses on particular types of
customers, geographic regions and products. The banks are encouraged to compete
against each other and other market participants while operating within central
guidelines established by the holding company. The group believes this strategy has
contributed to its strong financial performance and allowed it to provide an integrated
service network to its customers.
Table 19: Multi-brand strategy
Source: Grupo Aval
Underlying Grupo Aval’s competitive strengths are group-level policies focused on
comprehensive brand management, strategic planning, general procurement, risk
management, convergence of technologies, and cost controls that we believe
promote best practices, the realization of synergies, and efficiency across the
subsidiaries.
Below, we include a detailed organization structure with the different investments of
each bank, which is helpful to understand how the conglomerate generates income
and earnings.
page 50
05 May 2014
Table 20: Grupo Aval Detailed Organization Structure
Banco de Bogotá – The second-largest bank in Colombia
Banco de Bogotá is Colombia’s oldest financial institution and the second largest
bank in the country based on net income, with a market share of 15.1% of deposits
and 13.5% of loans. In 2012, Banco de Bogotá had total assets of COP$80.51tn and
net income of COP$1.33tn.
Banco de Bogotá is a full-service bank with nationwide coverage and a
comprehensive portfolio of services and products distributed through a network of
638 branches and 1,289 ATMs in Colombia. While Banco de Bogotá serves all
market segments, it has historically had a leading presence in commercial loans, with
a focus on large corporations. In 2012, it had a market share of 18.5% of commercial
loans. Following its 2006 acquisition of Megabanco, Banco de Bogotá expanded its
consumer banking business and now has a market share of 9.3% of consumer loans.
Banco de Bogotá’s ROE of 18.1% and efficiency ratio of 49.6% in 2012 make it one
of the most profitable and efficient banks in Colombia.
Banco de Bogotá is the largest shareholder of Corficolombiana, with a 37.9% stake.
The remaining shares are 19.1% owned by Grupo Aval entities, 0.9% by funds
managed by Porvenir, 11.3% by other investors who have maintained ownership of
record of at least 1% in Corficolombiana over a significant period of time, 30.5% by
the general public, and 0.3% beneficially owned by Mr. Sarmiento Angulo.
page 51
05 May 2014
Banco de Bogotá directly owns 5.3% of Porvenir and indirectly owns 11.6% through
Fiduciaria Bogotá S.A. (Fidubogotá). The remaining shares of Porvenir are held by
Grupo Aval (20.0%) and Banco de Occidente and its subsidiaries (33.1%).
The bank directly owns 22.8% of Casa de Bolsa, the group’s brokerage firm in
Colombia. Other shareholders include Corficolombiana (38.9%), Banco de Occidente
(7.9%), Banco Popular (25.8%), other related individuals or entities (3.1%), and other
shareholders (1.5%).
Banco de Occidente – Focused on commercial and auto loans, and financial
leasing
Banco de Occidente is the fifth-largest bank in Colombia, with market shares in 2012
of 6.5% of deposits and 7.3% of loans. Banco de Occidente focuses on enterprise
customers, state-owned entities and retail customers and has a diversified revenue
stream. In 2012, its loan portfolio was 23.0% consumer and auto lending, 52.8%
corporate and public sector lending, and 24.3% SMEs. Last year, Banco de
Occidente had market shares of 7.3% of commercial loans and 5.3% of consumer
loans.
Banco de Occidente has had an average market share of approximately 13.5% of
checking accounts for the past five years. Additional areas of focus for future growth
include low-risk consumer loan services and products such as payroll loans and
loans to government agencies. Banco de Occidente’s ROE was 16.1% for 2012.
Banco Popular – Leader in payroll loans and growing in mid-market
commercial lending
Banco Popular is the seventh-largest bank in Colombia, with a market share in 2012
of 4.2% of deposits and 5.1% of loans. Banco Popular operates primarily in the
consumer and public sector businesses, with operations across all regions of
Colombia. Banco Popular is a premier provider of financial solutions to government
entities nationwide with a particular strength in public sector deposits and loans. A
significant part of its portfolio consists of payroll loans to public sector employees.
Banco Popular achieved improved returns on its consumer loan portfolio due to its
access to payroll deductions for the repayment of loans, which has resulted in
consumer loans with a substantially lower-risk profile for consumer loans (in
December 2012, consumer past-due loans were 2.7% compared to a banking system
average of 4.7%). In 2012, Banco Popular had total assets of COP$5.13tn, net
income of COP$377.9bn and 221 branches.
Banco Popular’s focus on consumer loans and institutional customers generates a
mix of well-diversified and stable sources of revenues, which contributed to its status
as the most profitable bank of its peers in 2012 (ROE of 18.7%).
Banco Popular’s strategy for the future is based on four pillars: 1) increase
participation in payroll loans; 2) further penetrate the medium-sized business sector;
3) maintain dynamic credit origination with Grupo Aval’s other banking subsidiaries;
and 4) continue to optimize its funding sources, taking advantage of currently low
interest rates and longer tenor for the issuance of bonds in Colombia.
page 52
05 May 2014
In 2011, Grupo Aval acquired ownership interests in Banco Popular to increase its
direct ownership in Banco Popular to 93.7%, consistent with Mr. Sarmiento’s
objective of consolidating ownership in the banking subsidiaries at the Grupo Aval
level. The acquisition was undertaken in two tranches with three entities, Rendifin
S.A., Popular Securities S.A. and Inversiones Escorial S.A., each of which is
beneficially owned by Mr. Sarmiento Angulo.
On January 31, 2011, Grupo Aval entered into a spin-off agreement with Rendifin
S.A. pursuant to which Grupo Aval agreed to acquire 43.5% of Banco Popular’s
outstanding shares held by Rendifin S.A. in exchange for 2,073,115,004 of preferred
shares at a ratio of 1.6 Banco Popular share per Grupo Aval preferred share. The
transaction was completed on June 23, 2011, and as a result, Grupo Aval increased
its direct ownership of Banco Popular to 74.1%.
On April 29, 2011, Grupo Aval entered into a second spin-off agreement with Popular
Securities S.A. and Inversiones Escorial S.A. to acquire an additional 19.6% of Banco
Popular in exchange for 934,669,126 preferred shares at the same ratio of 1.6 Banco
Popular share per Grupo Aval preferred share. The transaction closed on September
20, 2011 and increased the stake in the bank to 93.7%.
Banco AV Villas – Focused on mid- and lowincome consumer segments and
SMEs
Banco AV Villas has evolved from being a traditional mortgage lender to a diversified
full-service consumer bank targeting middle-income customers. It is Grupo Aval’s
most active bank in non-traditional distribution channels (mobile banking, banking
correspondents and virtual branches). Banco AV Villas has a broad service network
throughout central and northern Colombia, including Bogotá.
In 2012, Banco AV Villas had a market share of 3.0% of deposits, 2.5% of loans,
4.3% of consumer loans and 4.2% of mortgages. Last year, key figures also included
total assets of COP$8.92tn, net income of COP$172.3bn, ROE of 16.7%, and 268
bank branches. The efficiency ratio was 55.8%.
In the consumer segment, Banco AV Villas focuses on high-margin services and
products such as general purpose loans, payroll loans and credit cards, as well as its
traditional line of mortgages. It serves customers through a recently expanded sales
force, its traditional retail network, entrepreneurial business centers and instant credit
offices, known as “OCIs,” where credit applicants receive the outcome of their credit
application within two hours. Banco AV Villas also seeks to continue to expand in the
small- and medium-sized corporate segment. To increase transaction volume through
electronic channels and improve efficiency, Banco AV Villas has developed projects,
such as the Nearby Network (Red Cerca), that will allow it to increase coverage by
banking correspondents and offer a wide array of services to individuals and smalland medium-size businesses through its mobile banking platform.
Banco AV Villas has a simple structure, with a 40% investment in ATH (A Toda Hora
S.A). ATH is a wholly-owned indirect subsidiary of Grupo Aval and the administrator
of Grupo Aval’s ATMs and the transactional services that flow through the Red de
Grupo Aval (Grupo Aval network), such as internet, e-banking, electronic service
points and payment spots. ATH manages approximately 61% of Red de Grupo Aval’s
page 53
05 May 2014
3,086 ATMs. The remaining 60% of A Toda Hora S.A. is owned by Banco de Bogotá,
Banco de Occidente and Banco Popular.
Porvenir – Colombia’s largest pension fund manager
Porvenir is the leading private pension fund manager in Colombia, with a market
share in 2012 of 33.1% of mandatory individual pension fund customers and 29.0%
of individual severance plan customers. Porvenir also provides voluntary pension
funds and manages third-party sponsored pension funds. Pension funds provide
individual savings for retirement, and severance funds provide temporary income to
employees who lose their jobs. Through the company Gestión & Contacto, Porvenir
manages pension-related information systems designed to provide employees with
efficient payment solutions.
In 2012, Porvenir had COP$55.3tn in total assets under management, of which
COP$35.1tn was managed under the mandatory pension fund, COP$2.2tn was
managed under the severance fund, COP$2.2tn was managed under the voluntary
pension fund, and COP$15.8tn was managed as a third-party sponsored pension
liability fund.
In 2012, Porvenir reported net income of COP$214.0bn (ROE of 30.1%) and ended
up with a shareholders’ equity of COP$800bn. Since its inception, Porvenir has been
the leader in the Colombian private pension and severance fund markets.
On April 18, 2013, Porvenir, together with Grupo Aval and other Grupo Aval entities,
acquired Horizonte for US$541.4mn (COP$999.7bn as of the date of the acquisition),
consolidating its position in the sector.
Corficolombiana – Colombia’s largest merchant bank
Corficolombiana is the largest merchant bank in Colombia based on total assets. It
focuses on four main business lines: 1) equity investments in strategic sectors of the
Colombian economy, including financial services, infrastructure, electricity and gas,
agribusiness and hospitality; 2) investment banking, including services relating to
capital markets, mergers and acquisitions and project finance transactions; 3)
treasury operations; and 4) leasing, fiduciary and private banking.
In 2012, the company reported net income of COP$304.3bn. Its assets and
shareholders’ equity totaled COP$13.07tn and COP$3.02tn, respectively.
Grupo Aval indirectly controls 57% of Corficolombiana through Banco de Bogota
Banco de Occidente and Banco Popular, which own 37.9%, 13.5% and 5.6%,
respectively.
Corficolombiana’s business model is based on three premises: 1) investing in
businesses in strategic sectors of the Colombian economy; 2) distributing cash flows
generated by its equity investment portfolio to its shareholders; and 3) acting as an
investment fund and financial advisor listed on the Colombian Stock Exchange and
regulated by the Superintendence of Finance.
Corficolombiana’s equity investment strategy is to acquire and hold majority or
substantial
stakes
in
strategic
businesses.
These
investments
enable
page 54
05 May 2014
Corficolombiana to exert significant influence or control over these businesses’
operations and promote revenue growth, operational efficiencies and optimization of
the capital structures. It endeavors to achieve a balance between companies with
potential to generate cash and companies with the capacity to create value.
Corficolombiana’s funding strategy seeks to minimize liquidity risk by funding equity
investments using its own equity, principally retained earnings.
Equity Investment Portfolio: Corficolombiana primarily invests in five sectors of the
Colombian economy: infrastructure; electricity and gas; financial services; hotels; and
agribusiness. It generally seeks to invest in businesses with leading market positions,
strong cash flows and growth potential.
Corficolombiana’s infrastructure investments are concentrated in highway concession
projects, a sector in which it is the leading private investor in Colombia. Among other
investments, it has controlling ownership positions in four highway concession
projects. EPIANDES S.A., PISA S.A. and EPISOL S.A.S. are the companies that
stand out in this sector. Corficol controls each of them, with 94.9%, 88.3% and 98.6%
stakes, respectively.
EPIANDES controls the 85.6 kilometer highway between Bogotá and Villavicencio;
PISA controls the 57.0 kilometer highway between Buga, Tuluá and La Paila
(subsequently extended by 20.1 kilometers to La Victoria) and the 38.3 kilometer
highway between Fontibón and Facatativá; EPISOL has ownership of 33% of sector
2 of Ruta del Sol, which includes the 111 kilometer highway between Los Alpes and
Villeta, Chuguacal and Cambao. Corficolombiana’s infrastructure investments totaled
COP$400.9bn after provisions as of December 31, 2012 (on an unconsolidated
basis).
Corficolombiana’s main investments in the energy and gas sector include a 44.74%
minority stake in Promigas (34.16% directly and 10.58% indirectly), the secondlargest natural gas pipeline company in Colombia; a 3.56% stake in EEB, an
electricity and gas conglomerate; and an 83.38% majority stake in Gas Comprimido
del Peru S.A, a gas distribution company in northern Peru. Last year
Corficolombiana’s energy and gas investments totaled COP$2.67tn after provisions
(on an unconsolidated basis).
Corficolombiana’s principal investments in agribusiness are centered on forestry and
woodworking as well as the production of palm oil, rubber, rice and cotton. These
investments include a controlling stake in Organización Pajonales S.A. and minority
stakes in Pizano S.A. and Unipalma S.A. In 2012, investments in this sector totaled
COP$308.6bn after provisions (on an unconsolidated basis).
Corficolombiana also has investments in the hospitality sector. These include majority
stakes in Hoteles Estelar de Colombia S.A. (84.91%) and Promotora y
Comercializadora Turística Santamar S.A. (84.6%), which in 2012 totaled
COP$196.7bn after provisions (on an unconsolidated basis).
In the financial services sector, Corficolombiana offers leasing, trust, brokerage and
offshore banking services to third-party customers through three subsidiaries:
Leasing Corficolombiana S.A. (94.5%), Fiduciaria Corficolombiana S.A. (94.5%)
and
Banco
Corficolombiana
(Panama)
S.A.
(100%).
Last
December,
page 55
05 May 2014
Corficolombiana’s investments in these three subsidiaries totaled COP$370.7bn (on
an unconsolidated basis and after provisions).
BAC Credomatic – One of the largest and most profitable banking groups in
Central America
BAC Credomatic is one of the leading financial institutions in Central America, a fullservice financial institution with one of the leading credit card issuance and merchantacquiring businesses in the region. BAC Credomatic offers commercial and retail
banking, brokerage, insurance, pension fund management and other financial
services. Its coverage extends throughout Central America with operations in Costa
Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama, as well as Mexico
(with a small credit card-issuing operation) and the state of Florida (with a merchant
and card processing center). It also has a presence in the Bahamas and the Cayman
Islands. Its Credomatic brand has key alliances with major credit card networks, such
as Visa, MasterCard, American Express and Diners Club.
BAC Credomatic provides banking, credit card and other financial services mainly in
Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama. The BAC
Credomatic brand is widely recognized in Central America, a region that is
comparable to Colombia, with significant growth potential in financial services. In
2012, BAC Credomatic had assets of US$10.7bn, loans at book value of US$7.1bn,
deposits of US$7.3bn, shareholders’ equity of US$1,216mn and reported net income
of US$265mn.
Last year BAC Credomatic served more than 2.4mn customers through 492 points of
contact, including 228 full-service branches, 49 in-store branches offering teller
services in retail stores, 187 on-site branches offering full banking services for
corporate employees, and 28 auto/drive-thru branches throughout Central America
and a single technological platform that allows online transactions between countries
in the region. Through its merchant acquiring business, BAC Credomatic’s
processing volume amounted to US$10.996bn for the year ending December 31,
2012 (up 15.1% from US$9.66bn for the year ending December 31, 2011, mainly
driven by strong performances in Costa Rica, Guatemala and Honduras).
page 56
05 May 2014
Figure 2: BAC Credomatic Detailed Organization Structure
Source: Company Reports
Grupo Aval’s History
Grupo Aval was created by Mr. Sarmiento Angulo to consolidate his interests in the
Colombian financial sector. Milestones in the history of Grupo Aval:
•
Mr. Sarmiento Angulo established a real estate development firm in Bogotá
in 1956, and in 1959 founded Organización Luis Carlos Sarmiento Angulo,
which developed low- and middle-income housing neighborhoods in Bogotá
in the 1960s and 1970s.
•
In 1971, Mr. Sarmiento Angulo acquired a majority stake in Banco de
Occidente and in 1972 founded Corporación de Ahorro y Vivienda Las Villas
to focus on low- and middle-income mortgage financing.
•
In 1981, Mr. Sarmiento Angulo purchased a minority stake in Banco de
Bogotá, and in 1988 he acquired a majority stake and control, consolidating
a major participation in the banking system. Banco de Bogotá acquired a
substantial majority of, and absorbed, Banco del Comercio in 1992.
•
In 1991, Banco de Bogotá and Banco de Occidente founded Porvenir as a
severance fund manager, and following the creation in 1993 of the private
pension fund system in Colombia, it expanded the business to include
pension fund management in 1994.
•
Banco Popular was acquired in 1996 from the Colombian government
through a privatization process.
•
In 1997, Mr. Sarmiento Angulo acquired Corporación de Ahorro y Vivienda
Ahorramas, which later merged with Corporación de Ahorro y Vivienda Las
Villas in 2000 and became Banco AV Villas in 2002.
•
In 1998, Mr. Sarmiento Angulo contributed a majority of his direct and
indirect holdings in the financial institutions to Grupo Aval. Red de Grupo
page 57
05 May 2014
Aval (Grupo Aval network) was also established in 1998 to provide an
integrated service network of branches and ATMs.
•
In 1999, the company conducted its initial public equity offering in Colombia
and listed its common shares on the Colombian Stock Exchange under the
ticker
symbol
“GRUPOAVAL,”
raising
approximately
COP$62.5bn
(US$35.3mn) in gross proceeds.
•
Corficolombiana, which was founded in 1959 as an affiliate of Banco de
Bogotá, acquired and merged with several merchant banks between 1997
and 1999, including Corfitolima, Corfiprogreso, Corfes, Corfiboyacá,
Corfisantander, Corfiandes and Indufinanciera. In 2005, Corfivalle, also a
merchant bank, merged with Corficolombiana.
•
In 2007, Grupo Aval conducted its second public offering of common shares
to the Colombian public, raising approximately COP$372.0bn (US$210.4mn)
in gross proceeds.
•
On December 9, 2010, Grupo Aval acquired BAC Credomatic from GE
Consumer Finance Central Holdings Corp. and General Electric Capital
Corporation.
•
In 2011, it registered its preferred shares with the SEC.
•
In 2011, Grupo Aval concluded the first offering of preferred shares to the
Colombian public, raising COP$2.1tn (US$1.1bn) in gross proceeds.
•
In February 2012, the company completed its first international bond
offering, issuing US$600mn of 5.25% Senior Notes due in 2017. This was
followed by a second issuance in September 2012 of US$1.0bn of 4.75%
Senior Notes due in 2022.
•
On April 18, 2013, it announced the Horizonte acquisition and on July 19,
2013, it announced the agreement to acquire BBVA Panama through
Leasing Bogotá S.A. Panama, a subsidiary of Banco de Bogotá.
Since 1998, Grupo Aval has, directly and indirectly, made a series of acquisitions to
further extend and consolidate its position as the leading banking group in Colombia,
including Banco de Occidente’s acquisition of Banco Aliadas in 2005 and Banco
Unión in 2006, the merger of Corfivalle and Corficolombiana in 2005, and Banco de
Bogotá’s acquisition of Megabanco in 2006. Pursuant to its growth strategy, the
company acquired BAC Credomatic in 2010 and Horizonte and BBVA Panama in
2013.
Grupo Aval Acciones y Valores S.A. is a sociedad anónima, incorporated under the
laws of Colombia on January 7, 1994 under the name Administraciones Bancarias
S.A. On April 18, 1997, the company changed its name to Sociedad A.B. S.A., and
on January 8, 1998, to Grupo Aval Acciones y Valores S.A.
page 58
05 May 2014
Banco de Bogota’s History
•
Founded in 1870, Banco de Bogotá is the oldest and second-largest
financial institution in Colombia.
•
In 1922, it opened its first branch outside of Bogotá. Throughout the 1920s,
Banco de Bogotá’s network outside Bogotá expanded, due in part to a
series of acquisitions.
•
In 1967, Banco de Bogotá opened its first office in Panama; in 1974, it
opened a branch office in New York City; and in 1977, it founded Banco de
Bogotá Trust Company (subsequently sold).
•
In 1980, Banco de Bogotá Trust Company established Banco de Bogotá
International Corporation, an affiliate in Miami, Florida. The New York City
branch office and the Miami affiliate were subsequently converted into
agencies.
•
Banco de Bogotá was reorganized in 1988 following the acquisition of a
majority ownership interest by Mr. Sarmiento Angulo, Grupo Aval’s chairman
and majority shareholder, earlier that year.
•
Porvenir was formed in 1991 and began its operations as a severance fund
manager.
•
In 1992, Banco de Bogotá completed a merger with Bancomercio.
•
In 1998, Mr. Sarmiento Angulo contributed a majority of his Banco de
Bogotá ownership interest to Grupo Aval.
•
In 2006, Banco de Bogotá acquired and merged with Megabanco, which
expanded its services for lower income consumers.
•
In May 2010, Banco de Bogotá completed the merger of its wholly-owned
subsidiary, Leasing Bogotá, which allows it to perform leasing operations.
•
In December 2010, Banco de Bogotá acquired BAC Credomatic.
•
In December 2011, Banco de Bogotá completed its first international bond
offering, raising US$600mn. In February 2013, Banco de Bogotá completed
its second international bond offering, raising US$500mn in subordinated
notes.
•
Corficolombiana was founded in 1959 as an affiliate of Banco de Bogotá.
Since 1997, it has acquired and merged with seven financial institutions in
Colombia. In 2005, Corficolombiana completed its most recent merger, with
Corfivalle, which resulted in Corficolombiana becoming the largest financial
corporation in the country based on total assets. Following this merger,
Corficolombiana transferred its loan portfolio to Banco de Bogotá to focus on
its investment business.
•
As part of the government’s public auction of Megabanco, on June 21, 2006,
Megabanco
and
FOGAFIN
entered
into
an
assumption
of
legal
page 59
05 May 2014
contingencies agreement, whereby FOGAFIN committed to assume up to
80% of the losses and expenses derived from legal contingencies against
Megabanco, related to matters arising prior to the date of acquisition or
discovered within 24 months of the acquisition of Megabanco. The
guarantees will be effective up to the date in which all the covered legal
contingencies conclude.
Board of Directors
The board of directors of Grupo Aval is composed of seven principal members and
seven alternate members, each of whom serves a one-year term and may be
reelected indefinitely. The term for the current directors expires on March 31, 2014.
As a corporate practice, the president of each of the banking subsidiaries is
appointed as a member of the board of directors.
Table 21: Board of Directors
Board member
Luis Carlos Sarmiento Angulo
Alejandro Figueroa Jaramillo
Efraín Otero Álvarez
Álvaro Velásquez Cock
Julio Leonzo Álvarez Álvarez
Mauricio Cárdenas Müller
Esther América Paz Montoya
Alternate
Hernán Rincón Gómez
Juan María Robledo Uribe
Juan Camilo Ángel Mejía
Ana María Cuéllar de Jaramillo
Gabriel Mesa Zuleta
Enrique Mariño Esguerra
Germán Villamil Pardo
Source:
Luis Carlos Sarmiento Angulo, age 80, has served as the Chairman of the board of
directors of Grupo Aval since 1999. Mr. Sarmiento Angulo is the founder and
controlling shareholder of Grupo Aval and, since 1985, has served as a member of
the board of directors of Organización Luis Carlos Sarmiento Angulo Ltda., an affiliate
of the controlling shareholder. Since 2010 he has served as principal member of the
Board of Directors of Casa Editorial El Tiempo and of CEET TV. He also serves as
Chairman of the board of directors of four not-for-profit entities: Asociación Nacional
de Instituciones Financieras – ANIF, Fundación para el Futuro de Colombia –
Colfuturo; Fundación Grupo Aval and Fundación Luis Carlos Sarmiento Angulo,
through which he is sponsoring, among other initiatives, Grameen Aval Colombia, a
microfinance not-for-profit organization established in association with Grameen Trust
of Bangladesh. He holds a degree in Civil Engineering from Universidad Nacional de
Colombia. He is the father of the President of Grupo Aval, Mr. Luis Carlos Sarmiento
Gutiérrez.
Alejandro Figueroa Jaramillo, age 71, has served as a principal member on the
board of directors of Grupo Aval since 1999. Mr. Figueroa Jaramillo has been the
President of Banco de Bogotá since 1988. He has been employed with Banco de
Bogotá since 1978, where he also served as Executive Vice President and Vice
President of Finance. He is the Chairman of the board of directors of Porvenir and
has been a board member of Porvenir since 1991. He has also been a member of the
board of directors of Corficolombiana since 1998 and of Fundación Grupo Aval since
2011. He previously served as Vice-Minister of Economic Development of Colombia
page 60
05 May 2014
and President of Almaviva S.A., Banco de Bogotá’s bonded warehouse. He holds a
degree in Civil Engineering from Facultad de Minas de la Universidad Nacional in
Antioquia and a Master of Science degree in Economics from Harvard University.
Efraín Otero Álvarez, age 64, has served as a principal member on the board of
directors of Grupo Aval since 1999. Mr. Otero Álvarez has been the President of
Banco de Occidente since 1995. He has been employed with Banco de Occidente
since 1973, where he also served Vice President of Finance and as Executive Vice
President. He has also served as a member of the boards of directors of Porvenir
since 1995, of Corficolombiana since 1998, of Banco de Occidente – Panama since
2006 and of Fundación Grupo Aval since 2011. He previously worked as an
economist at Corporación Autónoma del Valle del Cauca. He holds a degree in
Economics and a Master’s degree in Industrial Engineering, both from the
Universidad del Valle.
Álvaro Velásquez Cock, age 73, has served as an alternate member on the board
of directors of Grupo Aval since 2008. Mr. Velásquez Cock has served as advisor to
Grupo Ethuss since 1994. He has acted as Dean of the Faculty of Economics of the
Universidad de Antioquia, Chief of the Departamento Nacional de Estadística–DANE,
President of Pedro Gómez & Cía. S.A. and as a member of the Advisory Committee
of the Superintendence of Finance. He has been a member of the board of directors
of Banco de Bogotá since 2001, of Banco de Bogotá – Panama since 1984, of
Corficolombiana since 1992 and of Unipalma since 1996. He holds a degree in
Economics from the Universidad de Antioquia.
Julio Leonzo Álvarez Álvarez, age 66, has served as a principal member of the
board of directors of Grupo Aval since 2013. Mr. Álvarez has previously occupied
several positions at Grupo Aval since 1998, including Vice President of Shared
Services, Chief Technology Officer and Vice President of Corporate Systems. Mr.
Álvarez Álvarez has acted as President of Avianca, Cervecería Unión S.A. and Pedro
Gómez & Cía. He has been a member of the board of directors of Porvenir since
2001 and of Banco Popular since 1996 and is a former member of the board of
directors of A Toda Hora S.A. – ATH. He holds a degree in civil engineering from the
Universidad Nacional de Colombia with studies in the Higher Management Program,
INALDE at the Universidad de la Sabana, Postgraduate Program in Financial
Management at the Universidad de Medellín, and Postgraduate Program in Statistics
Applied to Engineering at the Universidad Nacional de Colombia.
Mauricio Cárdenas Müller, age 43, has served as a principal member on the board
of directors of Grupo Aval since 2010, and previously as an alternate member thereof
since 2002. Mr. Cárdenas Müller has acted as chief advisor to the President of
Organización Luis Carlos Sarmiento Angulo Ltda. and as advisor to the Chairman
and the President of Grupo Aval since 2004. He served as a member of the board of
directors of Seguros Alfa S.A. and of Seguros de Vida Alfa S.A. from 2002 until 2011,
and he serves as a member of the board of directors of Fundación para el Futuro de
Colombia – Colfuturo since 2007, of Porvenir since 2008, of Empresa de Energía de
Bogotá ESP since 2010 and of Casa Editorial El Tiempo and CEET TV since 2011.
He holds a degree in Electrical Engineering from Universidad Javeriana and a
Master’s degree in Business Administration from Escuela de Dirección y Negocios de
la Universidad de la Sabana – INALDE.
page 61
05 May 2014
Esther América Paz Montoya, age 58, has served as a principal member on the
board of directors of Grupo Aval since 2010, and previously as an alternate member
thereof since 2005. Ms. Paz Montoya is a former President of Banco AV Villas, where
she also served as Vice President of Finance and Vice President of Operations, and
a former President of Ahorramás Corporación de Ahorro y Vivienda. She holds a
degree in Business Administration from the Universidad del Valle.
José Hernán Rincón Gómez, age 84, has served as an alternate member of the
board of directors of Grupo Aval since 2010 and previously as a principal member
thereof since 2005. Mr. Rincón Gómez has been the President of Banco Popular
since 1991. He has also served as a member of the board of directors of
Corficolombiana since 1998 and of Fundación Grupo Aval since 2011. He is the
former President of, among other entities, Banco Comercial Antioqueño (the
predecessor to Banco Santander Colombia), Avianca (airline company) and Banco
del Estado. He holds a degree in Economics from the Universidad de Antioquia and
is qualified as a public accountant.
Juan María Robledo Uribe, age 68, has served as an alternate member on the
board of directors of Grupo Aval since 2000. Mr. Robledo Uribe has acted as
Executive Vice President of Banco de Bogotá from 1990 to 1992, from 1993 to 2001
and since 2003. He has been employed with Banco de Bogotá for over 40 years,
where he has also served as Vice President of Banking Services and Vice President
of Commercial Banking. He has been a member of the board of directors of
Corficolombiana from 1993 to 2001 and since 2006, of Fidubogotá since 2007, of
Porvenir since 1991 and of Fundación Grupo Aval since 2011. He holds a degree in
Economics from the Universidad del Rosario. He is also the former President of
Banco del Comercio (which merged into Banco de Bogotá in 1992) and of
Corficolombiana from 2003 until 2005.
Juan Camilo Ángel Mejía, age 47, has served as an alternate member on the board
of directors of Grupo Aval since 2008. Mr. Ángel Mejía has been the President of
Banco AV Villas since 2007, and previously acted as its Vice President of Credit and
Portfolio, Vice President of Asset Regularization and Vice President of Real Estate.
Previously he was an advisor in the Offerings Department of Banco Central
Hipotecario and Project Manager in the Capital Markets division of Corfinsura. He
has also been a member of the board of directors of Asociación Bancaria de
Colombia since 2007, of Titularizadora Colombiana S.A. since 2008 and of
Fundación Grupo Aval since 2011. He holds a degree in Civil Engineering from the
Universidad de Medellín.
Gabriel Mesa Zuleta, age 46, has served as an alternate member on the board of
directors of Grupo Aval since 2004. Mr. Mesa Zuleta has been the President of
Sadinsa S.A. since 2003 and a member of the board of directors of Banco Popular
since 2004, of Seguros Alfa S.A. since 2004 and of Seguros de Vida Alfa S.A. since
2004. He previously acted as Director of the Administrative Department of the
President of the Republic of Colombia and as President of Empresa de
Telecomunicaciones de Colombia–Telecom. He holds a law degree from the
Universidad del Rosario.
page 62
05 May 2014
Ana María Cuéllar de Jaramillo, age 59, has served as an alternate member of the
board of directors of Banco de Bogotá since 2007 and also serves as a member of
the board of directors of Megalínea. Ms. Cuéllar de Jaramillo is an independent
consultant who specializes in systems and procedures for financial control and has
formerly served as Director of the Dirección de Impuestos y Aduanas Nacionales
DIAN and in several positions in Citibank. She holds a degree in accounting from
Universidad Jorge Tadeo Lozano.
Enrique Mariño Esguerra, age 87, has served as an alternate member on the board
of directors of Grupo Aval since 2006. Mr. Mariño Esguerra is a manager and partner
of Ingeniería CEISA. He is a former member of the board of directors of Corporación
de Ahorro y ViviendaAV Villas (the predecessor to Banco AV Villas), Cemento
Samper S.A., Seguros Alfa S.A. and Seguros de Vida Alfa S.A. He holds a degree in
Civil Engineering from the Universidad Nacional.
Germán Villamil Pardo, age 53, has served as an alternate member on the board of
directors of Grupo Aval since 2010 and previously as a principal member thereof
since 2006. Mr. Villamil Pardo is a partner of Gómez Pinzón Zuleta Abogados S.A.
He previously held severalpositions in the Ministry of Finance of Colombia as well as
in Banco de la República. He holds a law degree with a specialty in tax from the
Universidad de los Andes.
Luis Fernando Pabón Pabón, age 54, has served as Secretary of the Board of
Grupo Aval since 2000. Mr. Pabón Pabón formerly served as Legal Vice President of
Banco de Colombia and as Legal Counsel to the President of Banco de Bogotá. He
has been a member of the board of directors of Banco AV Villas since 1998, of
Porvenir since 2003, of Almaviva S.A. since 2007, of Organización Luis Carlos
Sarmiento Angulo Ltda. since 2006 and of Casa Editorial El Tiempo and CEET TV
since 2011. He also serves as legal counsel to Organización Luis Carlos Sarmiento
Angulo Ltda. Mr. Pabón Pabón holds a law degree from Universidad Javeriana and a
specialization in financial law from the Universidad de los Andes.
Senior Management
The following table includes a list of all of Grupo Aval’s Executive Officers. Their
biographical information is not included in this report but can be found in the F-1
report.
page 63
05 May 2014
Table 22: Executive Officers
Name
Luis Carlos Sarmiento Gutiérrez
Diego Fernando Solano Saravia
Diego Rodríguez Piedrahita
Rodolfo Vélez Borda
Carlos Ernesto Pérez Buenaventura
Jorge Adrián Rincón Plata
María Edith González Flórez
Rafael Eduardo Neira Torres
María José Arango Caicedo
Mauricio Maldonado Umaña Umaña
José Manuel Ayerbe Osorio Umaña
Juan Guillermo Amaya
Edgar Enrique Lasso Fonseca
Tatiana Uribe Benninghoff
Position
President
Chief Financial Officer
Chief Risk Management Officer
VP of Shared Services
Chief Strategy Officer
Chief Legal Counsel
VP of Accounting
VP of Interna lControl
VP of Procurement
VP of Strategy
VP of Marketing
VP of Technology
VP of Operational and Regulatory Risk Management
Financial Planning and Investor Relations Officer
Source:
The following table includes the name of the president of each of the subsidiaries,
followed by biographical information of those who were not described above as
members of the board of directors.
Table 23: Presidents of Grupo Aval Subsidiaries
Company
Banco de Bogotá
Banco de Occidente
Banco Popular
Banco AV Villas
Corficolombiana
Porvenir
BAC Credomatic
President
Alejandro Figueroa Jaramillo
Efraín Otero Álvarez
José Hernán Rincón Gómez
Juan Camilo Ángel Mejía
José Elías Melo Acosta
Miguel Largacha Martínez
Ernesto Castegnaro
Source:
José Elías Melo Acosta, age 53, has served as President of Corficolombiana since
2008. Mr. Melo is also a member of the board of directors of Leasing Corficolombiana
S.A., Fiduciaria Corficolombiana S.A., Promigas S.A., Banco AV Villas S.A. and
Sociedad Gas Natural de Lima y Callao S.A. and an alternate member of the board of
directors of Fundación Grupo Aval. Mr. Melo Acosta previously served as President
of Megabanco from 1999 to 2006, of Banco del Estado in 1999 and of Confederación
de Cooperativas de Colombia from 1994 to 1998. He has also served in several
positions within the Colombian government including as Minister of Employment and
Social Security, Superintendent of Finance, Vice Minister of Finance and Public
Credit and Secretary of the Monetary Board of the Banco de la República. He holds a
law degree with a specialty in socioeconomic sciences from Universidad Javeriana.
Miguel Largacha Martínez, age 50, has served as President of Porvenir since 2008.
Mr. Largacha Martínez previously served as President of Horizonte Sociedad
Administradora de Fondos de Pensiones y de Cesantías S.A., and held other
positions within BBVA Colombia S.A., including Executive Vice President and Legal
Vice President of Banco Ganadero (the predecessor to BBVA Colombia S.A.) and
page 64
05 May 2014
has been a member of the board of directors of Fundación Grupo Aval since 2011.
He holds a law degree from Universidad Javeriana and has further completed
postgraduate studies in Financial Legislation and Executive Management at the
Universidad de los Andes.
Ernesto Castegnaro, age 63, has served as President of BAC Credomatic since
1983. Mr. Castegnaro joined BAC Credomatic in 1976 and has over 30 years of
experience managing credit card operations and over 25 years of experience
managing banking operations. He is also a director on the MasterCard Latin America
Board of Directors. Mr. Castegnaro holds an MBA in Banking and Finance from
INCAE and a Civil Engineering degree from the University of Costa Rica.
page 65
05 May 2014
page 66
12/2012
3,509,650
2,560,022
6,069,672
(3,198,640)
2,871,032
(515,052)
2,670,921
1,326,048
12/2012
80,506,449
45,464,749
51,021,700
10,464,660
56.5%
63.4%
89.1%
13.00%
12/2012
69,131,883
8,250,223
9,068,096
11.9%
13.1%
1,326,051
(581,704)
12/2012
703,113
1,252,948
1.55%
178.20%
1.20%
-5.3%
12/2012
4,623.02
4,623.02
10,009.31
2,028.00
27,200.02
27,200.02
12/2012
4.70%
17.9%
18.1%
2.71%
2.31%
52.7%
12/2012
11.3%
15.6%
15.7%
17.4%
12/2013
3,983,183
3,297,050
7,280,233
(3,782,214)
3,498,019
(777,802)
2,891,403
1,400,022
12/2013
100,669,032
58,221,771
64,093,792
13,379,803
57.8%
63.7%
90.8%
13.29%
12/2013
84,920,570
6,376,262
9,516,212
7.5%
11.2%
1,400,022
(713,169)
12/2013
1,014,508
1,638,431
1.74%
161.50%
1.50%
-4.7%
12/2013
4,553.35
4,553.35
11,376.74
2,400.00
32,189.59
32,189.59
12/2013
4.40%
22.2%
16.4%
2.53%
2.19%
52.0%
12/2013
19.9%
21.8%
5.6%
22.6%
12/2014E
4,688,967
3,209,528
7,898,495
(4,195,646)
3,702,849
(839,522)
2,947,327
1,554,204
12/2014E
113,835,367
67,069,402
73,833,760
14,472,623
58.9%
64.9%
90.8%
12.71%
12/2014E
97,408,288
7,586,689
10,726,639
7.8%
11.0%
1,554,204
(811,724)
12/2014E
1,168,677
1,887,414
1.74%
161.50%
1.34%
-5.0%
12/2014E
5,054.80
5,054.80
12,042.92
2,640.00
34,724.39
34,724.39
12/2014E
4.37%
22.7%
15.1%
2.17%
1.82%
53.1%
12/2014E
8.5%
5.9%
11.0%
13.8%
12/2015E
5,460,570
3,444,419
8,904,990
(4,615,210)
4,289,779
(953,828)
3,424,151
1,835,110
12/2015E
128,958,151
77,261,557
85,053,856
15,694,536
59.9%
66.0%
90.8%
12.17%
12/2015E
111,743,416
8,936,274
12,076,224
8.0%
10.8%
1,835,110
(892,896)
12/2015E
1,346,275
2,174,234
1.74%
161.50%
1.32%
-5.3%
12/2015E
5,968.40
5,968.40
13,951.82
2,904.00
37,920.79
37,920.79
12/2015E
4.50%
22.2%
16.4%
2.19%
1.87%
51.8%
12/2015E
12.7%
15.9%
18.1%
10.0%
12/2016E
0
0
0
0
0
0
0
12/2016E
0
0
0
0
#
#
#
#
12/2016E
0
0
0
0
0
12/2016E
0
0
#
0.00%
#
12/2016E
0.00
0.00
0.00
0.00
0.00
0.00
12/2016E
0.00%
#
0.00%
#
12/2016E
-100.0%
-100.0%
-100.0%
12/2012
15,632,568
12/2013
21,984,179
12/2014E
21,123,260
12/2015E
21,123,260
12/2016E
0
2.6x
5.4x
11.8x
15.5x
3.72%
1.5x
1.5x
3.0x
6.3x
15.7x
17.9x
3.24%
1.6x
1.6x
2.7x
5.7x
13.6x
14.4x
3.84%
1.5x
1.5x
2.4x
4.9x
11.5x
12.1x
4.23%
1.3x
1.3x
-
Banco de Bogotá
Banc o de Bogotá
Income Statement (COPmn)
Net Interest Income
Other income
Total revenues
Expenses
Operating profit
Provisions and other items
Profit before tax
Pre-exceptional net income
Balance Sheet (COPmn)
Assets
Total loans
Total deposits
Shareholders equity
Loans : assets
Deposits : assets
Loans : deposits
Shareholders equity : assets
Asset Quality 1
Risk-weighted assets
Tier one capital
Total capital
Tier one ratio
Total capital ratio
Net profit after tax
Dividends
Asset Quality 2
Non-performing assets
Total risk reserves
NPLs : loans
NPL coverage
Provision charge : average loans
Net NPLs : shareholders' funds
Share Data
EPS (stated)
EPS (BTG Pactual adjusted)
GOPS
DPS
BVPS (stated)
BVPS (adjusted)
Returns
Net interest margin (avg assets)
Provisions : operating profit
RoE
RoAdjE
RoRWA
RoA
Cost : income ratio
Growth Rates
Revenue growth
Operating profit growth
Net profit growth
Dividend growth
Company Profile:
Banco de Bogotá is the second largest bank in Colombia. In
2012 had a market share of 15% of deposits and 13% of loans.
Banco de Bogotá serves all market segments, but with a
leading presence in commercial loans with a particular focus on
large corporations. Banco the Bogota is also the owner of BAC
Credomatic one of the largest banking groups in Central
America. BAC is a full-service financial institution with one of
the leading credit card issuance and merchant-acquiring
businesses in the region, and offers commercial and retail
banking, brokerage, insurance, pension fund management and
other financial services.
12/2009
12/2009
12/2009
12/2009
12/2009
12/2009
12/2009
-
12/2010
2,443,426
1,737,522
4,180,948
(1,757,919)
2,423,029
(610,612)
1,908,373
914,948
12/2010
59,346,616
33,548,540
37,992,337
6,220,410
56.5%
64.0%
88.3%
10.48%
12/2010
50,663,706
4,497,087
7,634,550
8.9%
15.1%
914,948
(420,459)
12/2010
605,954
1,030,727
1.81%
170.10%
-6.8%
12/2010
3,840.61
3,840.61
10,170.98
1,608.00
16,447.42
16,447.42
12/2010
25.2%
24.9%
2.90%
42.0%
12/2010
-
12/2011
2,936,701
2,514,632
5,451,333
(2,967,681)
2,483,652
(139,037)
2,413,105
1,145,713
12/2011
68,809,602
40,035,026
43,366,519
9,302,924
58.2%
63.0%
92.3%
13.52%
12/2011
59,961,060
7,174,741
7,997,901
12.0%
13.3%
1,145,714
(495,653)
12/2011
631,087
1,099,353
1.58%
174.20%
0.38%
-5.0%
12/2011
3,994.31
3,994.31
8,658.78
1,728.00
23,866.92
23,866.92
12/2011
4.58%
5.6%
17.7%
3.03%
2.55%
54.4%
12/2011
30.4%
2.5%
25.2%
17.9%
Valuation
Market capitalization (COPm)
Conventional valuation
Market cap./Revenues
Market cap./Operating profit
P/E (stated)
P/E (BTG Pactual adjusted)
Dividend Yield (net)
P/BV (stated)
P/BV (adjusted)
Source: Company reports and BTG Pactual estimates. Valuations: based on the last share price of that year(E)
based on share price as of 02 May 2014
05 May 2014
Grupo Aval
page 67
Grupo Aval
Income Statement (COPbn)
Net Interest Income
Other income
Total revenues
Expenses
Operating profit
Provisions and other items
Profit before tax
Pre-exceptional net income
Balance Sheet (COPbn)
Assets
Total loans
Total deposits
Shareholders equity
Loans : assets
Deposits : assets
Loans : deposits
Shareholders equity : assets
Asset Quality 1
Risk-weighted assets
Tier one capital
Total capital
Tier one ratio
Total capital ratio
Net profit after tax
Dividends
Asset Quality 2
Non-performing assets
Total risk reserves
NPLs : loans
NPL coverage
Provision charge : average loans
Net NPLs : shareholders' funds
Share Data
EPS (stated)
EPS (BTG Pactual adjusted)
GOPS
DPS
BVPS (stated)
BVPS (adjusted)
Returns
Net interest margin (avg assets)
Provisions : operating profit
RoE
RoAdjE
RoRWA
RoA
Cost : income ratio
Growth Rates
Revenue growth
Operating profit growth
Net profit growth
Dividend growth
Company Profile:
Grupo Aval (Aval) is Colombia’s largest banking group based
on total assets, and also a leading banking group in Central
America. Aval through its banks and subsidiaries provides a
comprehensive array of financial services and products, ranging
from traditional banking services, pension and severance fund
management and merchant banking. Grupo Aval consists of
four commercial banks in Colombia (Banco de Bogotá, Banco
de Occidente, Banco Popular and Banco AV Villas), the largest
pension and severance fund manager (Porvenir) in Colombia,
the largest merchant bank in Colombia (Corficolombiana) and a
leading banking group in Central America (BAC Credomatic).
12/2009
12/2009
12/2009
12/2009
12/2009
12/2009
12/2009
-
12/2010
4,629
2,403
7,032
(3,520)
3,512
(1,027)
2,662
957
12/2010
96,309
58,624
63,669
9,030
60.9%
66.1%
92.1%
9.38%
12/2010
0
0
0
957
(554)
12/2010
1,570
(2,184)
2.68%
-139.10%
+41.6%
12/2010
68.62
68.62
251.86
37.80
326.64
326.64
12/2010
29.2%
22.2%
2.20%
50.1%
12/2010
-
Valuation
Market capitalization (COPm)
Conventional valuation
Market cap./Revenues
Market cap./Operating profit
P/E (stated)
P/E (BTG Pactual adjusted)
Dividend Yield (net)
P/BV (stated)
P/BV (adjusted)
12/2011
5,469
3,192
8,661
(4,933)
3,728
(416)
3,508
1,291
12/2011
111,502
69,948
71,008
13,086
62.7%
63.7%
98.5%
11.74%
12/2011
0
0
0
1,291
(775)
12/2011
1,538
(2,307)
2.20%
-150.00%
0.65%
+29.4%
12/2011
69.61
69.61
200.96
42.60
439.80
439.80
12/2011
5.26%
11.2%
18.5%
2.24%
57.0%
12/2011
23.2%
6.2%
34.9%
39.8%
12/2012
6,310
3,268
9,578
(5,300)
4,278
(917)
3,809
1,527
12/2012
127,663
80,029
81,463
14,491
62.7%
63.8%
98.2%
11.35%
12/2012
0
0
0
1,526
(913)
12/2012
1,829
(2,546)
2.29%
-139.20%
1.22%
+30.2%
12/2012
82.28
82.28
230.62
49.20
489.61
489.61
12/2012
5.28%
21.4%
17.8%
2.00%
55.3%
12/2012
10.6%
14.8%
18.2%
17.8%
12/2013
6,981
4,132
11,113
(6,028)
5,085
(1,294)
4,027
1,601
12/2013
154,287
96,514
101,190
18,201
62.6%
65.6%
95.4%
11.80%
12/2013
0
0
0
1,600
(1,029)
12/2013
2,256
(3,073)
2.34%
-136.20%
1.47%
+29.3%
12/2013
86.27
86.27
251.98
53.10
581.23
581.23
12/2013
4.95%
25.5%
16.4%
1.86%
54.2%
12/2013
16.0%
18.8%
4.8%
12.7%
12/2014E
8,126
3,963
12,089
(6,659)
5,430
(1,427)
4,250
1,930
12/2014E
173,374
111,180
116,568
20,001
64.1%
67.2%
95.4%
11.54%
12/2014E
0
0
0
1,930
(1,161)
12/2014E
2,599
(3,540)
2.34%
-136.20%
1.37%
+30.7%
12/2014E
94.55
94.55
266.10
56.87
629.20
629.20
12/2014E
4.96%
26.3%
15.6%
1.72%
55.1%
12/2014E
8.8%
6.8%
20.6%
12.8%
12/2015E
9,830
4,253
14,083
(7,458)
6,625
(1,700)
5,185
2,395
12/2015E
195,651
128,076
134,282
21,747
65.5%
68.6%
95.4%
11.12%
12/2015E
0
0
0
2,395
(1,326)
12/2015E
2,994
(4,078)
2.34%
-136.20%
1.42%
+32.5%
12/2015E
117.35
117.35
324.67
64.97
686.39
686.39
12/2015E
5.33%
25.7%
17.9%
1.86%
53.0%
12/2015E
16.5%
22.0%
24.1%
14.3%
12/2016E
0
0
0
0
0
0
0
12/2016E
0
0
0
0
#
#
#
#
12/2016E
0
0
0
0
0
12/2016E
0
0
#
0.00%
#
12/2016E
0.00
0.00
0.00
0.00
0.00
0.00
12/2016E
0.00%
#
#
12/2016E
-100.0%
-100.0%
-100.0%
12/2012
23,931,779
12/2013
26,130,882
12/2014E
26,529,026
12/2015E
26,529,026
12/2016E
0
2.5x
5.6x
15.7x
22.2x
3.81%
1.7x
1.7x
2.4x
5.1x
16.3x
19.2x
3.94%
1.4x
1.4x
2.2x
4.9x
13.7x
15.8x
4.37%
1.3x
1.3x
1.9x
4.0x
11.1x
12.4x
5.00%
1.2x
1.2x
-
Source: Company reports and BTG Pactual estimates. Valuations: based on the last share price of that year(E)
based on share price as of 02 May 2014
05 May 2014
page 68
Required Disclosures
This report has been prepared by BTG Pactual US Capital LLC.
The figures contained in performance charts refer to the past; past performance is not a reliable indicator of future results.
BTG Pactual
Rating
Buy
Neutral
Sell
Definition
Coverage *1
IB Services *2
Expected total return 10% above the company’s sector
average.
Expected total return between +10% and -10% the
company’s sector average.
Expected total return 10% below the company’s sector
average.
55%
46%
41%
46%
4%
0%
1: Percentage of companies under coverage globally within the 12-month rating category.
2: Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months.
Absolute return requirements
Besides the abovementioned relative return requirements, the listed absolute return requirements must be followed:
a) a Buy rated stock must have an expected total return above 15%
b) a Neutral rated stock can not have an expected total return below -5%
c) a stock with expected total return above 50% must be rated Buy
Analyst Certification
Each research analyst primarily responsible for the content of this investment research report, in whole or in part, certifies that:
(i) all of the views expressed accurately reflect his or her personal views about those securities or issuers, and such recommendations were elaborated independently, including in relation to BTG
Pactual US or its affiliates, as the case may be;
(ii) no part of his or her compensation was, is, or will be, directly or indirectly, related to any specific recommendations or views contained herein or linked to the price of any of the securities
discussed herein.
The research analyst responsible for this report is registered/qualified as a research analysts by FINRA.
It is possible that research analysts contributing to this report are employed by a non-US broker-dealer. In this case the analysts will not be registered/qualified as research analysts under FINRA
rules and therefore will not be subject to the restrictions contained in the FINRA rules regarding communications with a subject company, public appearances, and financial interest in the securities
of the subject company.
Part of the analyst compensation comes from the profits of BTG Pactual US or its affiliates as a whole and/or its affiliates and, consequently, revenues arisen from transactions held by BTG Pactual
US or its affiliates.
Statement of Risk
Latin American banks can be affected by changes in both global and local economic conditions and are also subject to political,
interest rate, and foreign exchange risks. Our target prices are highly dependent on the level of country risk.
Company Disclosures
Company Name
Banco de Bogotá 1, 2, 4, 6, 18, 19, 20
Grupo Aval 1, 18, 20, 22
Reuters
N.A.
N.A.
12-mo rating
Neutral
Neutral
Price
COP68,520.00
COP1,300.00
Price date
5-5-2014
5-5-2014
1. Within the past 12 months, BTG Pactual US or its affiliates has received compensation for investment banking services from this company/entity.
2. BTG Pactual US or its affiliates expect to receive or intend to seek compensation for investment banking services and/or products and services other than investment services from this
company/entity within the next three months.
4. This company/entity is, or within the past 12 months has been, a client of BTG Pactual US or its affiliates, and investment banking services are being, or have been, provided.
6. BTG Pactual US and/or its affiliates receive compensation for any services rendered or presents any commercial relationships with this company, entity or person, entities or funds which
represents the same interest of this company/entity.
18. As of the end of the month immediately preceding the date of publication of this report, neither BTG Pactual US nor its affiliates or subsidiaries beneficially owned 1% or more of a class of this
company`s common equity securities.
19. Neither BTG Pactual US nor its affiliates or subsidiaries have managed or co-managed a public offering of securities for the company.
20. Neither BTG Pactual US nor its affiliates or subsidiaries engaged in market making activities in the subject company’s securities at the time this research was report was published.
22. BTG Pactual US or its affiliates or subsidiaries do not expect to receive or intends to seek compensation for investment banking services from the companies within the next 3 months.
05 May 2014
Banco de Bogotá
Stock Price (COP)
Price Target (COP)
80000.0
70000.0
60000.0
50000.0
40000.0
30000.0
20000.0
10000.0
5-May-14
5-Feb-14
5-Nov-13
5-Aug-13
5-May-13
5-Feb-13
5-Nov-12
5-Aug-12
5-May-12
5-Feb-12
5-Nov-11
5-Aug-11
5-May-11
0.0
Buy
Neutral
Sell
No Rating
Source: BTG Pactual and Economatica. Prices as of 05 May 2014
Grupo Aval
Stock Price (COP)
Price Target (COP)
1600.0
1400.0
1200.0
1000.0
800.0
600.0
400.0
200.0
Buy
Neutral
Sell
No Rating
Source: BTG Pactual and Economatica. Prices as of 05 May 2014
5-May-14
5-Feb-14
5-Nov-13
5-Aug-13
5-May-13
5-Feb-13
5-Nov-12
5-Aug-12
5-May-12
5-Feb-12
5-Nov-11
5-Aug-11
5-May-11
0.0
page 69
05 May 2014
page 70
Global Disclaimer
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05 May 2014
page 71
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Grupo Aval and Banco de Bogota

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