Grupo Aval third-quarter profit falls 29% as investment margins weaken

By Marcus Bennett

COP 368 billion in third-quarter attributable net income marked a 29% decline for Grupo Aval Acciones y Valores, as weaker investment margins and costs from incorporating Itaú’s retail banking business weighed on results.

Chief Financial Officer Diego Solano said the after-tax effect of incorporating Itaú and its quarterly results was approximately COP 7 billion, making the profit-and-loss impact “basically neutral.”

Return on average equity (ROAE, profit measured against average shareholders’ equity) was 7.9%, Chief Executive Officer María Lorena Gutiérrez Botero said. Management expects profitability to improve next year as the acquired portfolio and loan repricing contribute more fully.

What drove the earnings decline?

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

Consolidated net interest income fell 15% from a year earlier and 32.9% from the preceding quarter to COP 2.4 trillion. Solano said rising rates across the Colombian yield curve, or interest-rate path across maturities, weighed on fixed-income holdings.

The net interest margin on investments dropped to negative 0.1%, compared with 8.7% in what management described as an exceptional second quarter. The decline outweighed an improvement in the loan margin to 4.9% from 4.4%. Solano said the Itaú transaction contributed 11 basis points, or 0.11 percentage points, to the loan margin.

Consolidated net interest margin (NIM, net interest income relative to earning assets) was 3.6%, below both the prior quarter and a year earlier. Solano said gains on derivatives used for hedging partly offset the weaker investment performance.

Grupo Aval’s net cost of risk, a measure of loan-loss provisions relative to the portfolio, rose to 2.5%. Excluding the Itaú transaction, it would have been approximately 2.1%; transaction-related provisions added COP 217 billion to expense but were largely offset by other income.

The Itaú transaction generated no goodwill—the balance-sheet premium recognized for acquired net assets—because Grupo Aval acquired a portfolio rather than a company, Solano said. The structure limits acquisition-accounting exposure but leaves future returns dependent on portfolio performance.

Loans past due by 90 days represented 3.15% of the portfolio, materially unchanged from the second quarter and 25 basis points lower than a year earlier. Solano described loan quality as stable overall, so the credit book showed no broad deterioration despite the higher reported cost of risk.

What do the 2026 and 2027 targets require?

Management’s operating targets set the path from about 9% ROAE in 2026 to approximately 12% in 2027:

• 2026: Loan growth of around 10.5%, consolidated NIM of approximately 4.1% and ROAE of about 9%.
• 2027: Initial targets call for total loan growth of approximately 9.5%, including 9% commercial-loan growth and 10% retail-loan growth; NIM of around 4.4% and ROAE of approximately 12%.

Management raised its expected loan margin but reduced the contribution expected from investments. The 2027 forecast assumes the full benefit of Itaú and loan repricing, shifting the recovery toward loan margins and the acquired portfolio rather than a rapid rebound in investment income.

Guidance assumes a standard 35% tax rate and excludes tax reductions next year. Solano said Grupo Aval is monitoring proposed tax changes, leaving any after-tax benefit outside the base case.

What do trust operations and legal developments change?

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

The integration of four trust companies, completed on Jan. 1, enabled synergies equivalent to 40% of the combined cost base. Aval Fiduciaria’s return on equity was 42.3%, adding a high-return fee operation to the group’s banking earnings.

Corficolombiana received an Oct. 26 court order dismissing the case associated with its deferred prosecution agreement—a legal arrangement requiring specified obligations—with the U.S. Department of Justice concerning Ruta del Sol 2. The company had satisfied those obligations. Gutiérrez Botero also appointed María Fernanda Suárez as president of Banco de Bogotá.

What does Colombia’s outlook mean for lending?

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

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

That rate path supports loan repricing but leaves broader credit expansion conditional on easing and fiscal discipline. Solano said Grupo Aval was positive about policies affecting energy and infrastructure, and its appetite could increase as the economy recovers. He also identified potential for wider loan growth if the fiscal deficit is controlled and the central bank lowers rates.

What is Grupo Aval?

Grupo Aval is a Colombian financial holding company with businesses in banking, asset management, investment banking and infrastructure. Its services include commercial and consumer banking, pension and severance fund management, and services for businesses and institutional clients.

Colombian banking holdings include Banco de Bogotá, Banco de Occidente, Banco Popular and Banco AV Villas. Through BAC, the group also provides banking and other financial services in Central America.