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Quarterly Results: Davivienda - HOLD

Superb bottom-line growth, mitigated by relatively low Tier 1 ratio

Price: COP 32,140; Target Price: COP 32,000

August 13, 2014 ( newswire) Davivienda recorded COP 240 bn in profits in 2Q14, equivalent to a superb growth of 612% y/y. Results came 15% above our estimates, mostly as a result of lower than expected provision expenses, which decreased 4% y/y. According to the MD&A, the bank managed to free 50% of its additional provisions in the consumer loan book, lowering the NPL coverage ratio to 236% from 243% last year. The other lines of the income statement came in line, showing a notorious improvement given the harsh effects of the fixed-income portfolio fall in 2Q13, compared to a more "normal" quarter in 2Q14. The weak spot of the release was the relatively low Tier 1 ratio.

Is capital adequacy in the spotlight? With a Tier 1 ratio for the quarter at 6.9%, the odds of a capital injection increase. However, the bank has a relatively higher dividend payout and some reserves that could eventually be converted into Tier 1. Nonetheless, given the potential overhang risk from this low ratio, we maintain our HOLD rating.

Credicorp Capital

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To View Complete Report: Davivienda

More Info: Newswire

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