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Industry Alert - Colombian banking review Apr-18 - Solid results to kick off 2Q18; we expect the gradual recovery to continue, particularly in 2H18

 

June 28, 2018 (Investorideas.com Newswire) Results for the banking industry were positive, in our view. Net earnings for the month reached COP 846.1 bn, equivalent to a 47.2% y/y increase but a slight decline (4.6%) compared to the prior month. More importantly, average net earnings for the past two months were COP 866.4 bn compared to COP 570.9 bn in the first two months of 2018. The positive performance was primarily led by Bancolombia, which posted net earnings of COP 275.5 bn compared to COP 124.3 bn in Apr-17. Grupo Aval and Davivienda also posted solid results, in our view. Finally, Itau Corpbanca reported a monthly loss of COP 4.1 bn.

Loan growth during the month was 5.6% y/y, similar to the figures reported in previous months. Growth continued to be led by the mortgage segment (11.3% y/y), while the commercial segment maintained a weak trend (3.0% y/y). Quarterly NIM stayed relatively flat at 7.0%. On the other hand, provision expenses declined 8.3% m/m, and the quarterly cost of credit fell to 3.3% compared to an average of 3.5% between January and March. Despite this improvement, we acknowledge that asset quality indicators, particularly the 90-day NPL ratio, remained a source of concern (3.4% vs 3.2% in Mar-18). Finally, monthly OPEX climbed 5.6% y/y as quarterly efficiency reached 58.8%. Given this scenario, quarterly ROAE was 12.5% (the highest level since Mar-17).

We continue to expect profitability in 2018 to be slightly higher than in 2017 due to i) higher loan growth compared to 2017, ii) lower provision expenses, particularly coming from key corporate cases, and iii) better business and consumer confidence due to less political uncertainty. Finally, we continue to favor shares of Bancolombia and Davivienda over those of Aval because of relative valuation and the uncertainty related to the Ruta del Sol 2 case.

Bancolombia (BUY; T.P.: COP 33,800/share). It was a positive month for the bank as quarterly ROAE climbed to 11.4% compared to 8.0% reported in 1Q18. Results were mainly driven by a 19.4% m/m decline in provision expenses. Accordingly, quarterly cost of credit fell to 3.9% compared to 4.05% reported during the previous month. We also highlight that monthly OPEX decreased 1.3% y/y; we continue to expect a stronger delivery on the efficiency front. Finally, we will continue to monitor the evolution of asset quality figures as NPL exhibited an additional deterioration to 3.9% (3.5% in Mar-18), primarily driven by the commercial segment.

Davivienda (HOLD; T.P.: COP 34,200/share). It was a solid month for the bank; net earnings climbed 22.4% and 4.3% compared to Apr-17 and Mar-18, respectively. Operating income stayed relatively flat on a monthly basis, while the bank reported a 13.9% m/m decline in provision expenses.

Grupo Aval (HOLD; T.P.: COP 1,330/share). Occidente led net earnings growth (45.0% y/y), while Bogota posted a 14.0% quarterly ROAE.

Itau Corpbanca Colombia. Despite a positive month in Mar-18 (COP 0.9 bn), the bank returned to the red in Apr-18 (-COP 4.1 bn).

For charts, tables and the full report, see the pdf file

Sebastian Gallego
+(571) 3394400 ext 1594
sgallego@credicorpcapital.com


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