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Industry Alert - #Colombian Banks - Profitability maintained a downward trend driven by lower NIM and higher provision expenses - Sebastian Gallego


October 19, 2017 ( Newswire) Results for the banking industry in Aug - 17 remain weak, in our view. Monthly net income for the industry reached COP 465.1 bn, equivalent to a 35.5% y/y decline. As a result, quarterly ROAE reached 8.2% relative to a recurring figure slightly above 11% during the same period of 2016. Loan growth maintained a downward trend and stood at 5.8% y/y, mainly driven by a subdued commercial segment (+2.8% y/y). Quarterly NIM showed a 6 bps decline vs Jul - 17 to 6.9%, while the quarterly cost of credit remained flat at 3.3%. Recall that these levels are the highest since 2009. That said, we highlight that there are some initial positive signs on the asset quality front: i) PDL ratio advanced 4 bps relative to a total increase of 122 bps on a YTD basis ii) NPL growth has stabilized around 60% y/y iii) consumer PDLs decreased 0.7% m/m. In any case, we will continue to monitor the asset quality cycle under current economic conditions. Finally, we maintain a neutral view towards the sector; we see some pressure on margins toward the year end and 1H18, while asset quality indicators may only improve in 2018. We stay OW Chilean banks vs the local ones.

Bancolombia (UPERF; T.P.: COP 34,000/share). The bank reported net earnings of COP 64.2 bn, equivalent to a 72.1% y/y decline. Furthermore, this was the weakest month on a YTD basis. Quarterly NIM declined 16 bps relative to Jul - 17 to 6.6%, while loan growth reached 6.6% y/y relative to a figure of 8.9% y/y reported a year ago. Quarterly NII advanced 18.2% y/y; however, quarterly OPEX and provision expenses climbed 29.9% y/y and 56.2% y/y, respectively. Asset quality for Bancolombia remains an issue as NPL growth reached 92.2% y/y (the highest pace on a YTD basis). The latter contrast to ~60% y/y from the industry. Our UPERF remains unchanged; we maintain a bearish view on margins and provisions towards year end.

Davivienda (HOLD; T.P.: COP 34,200/share). Loan growth continued to slow down (9.5% y/y vs 20.1% y/y one year ago), but continues to be driven by a 15.2% y/y growth on the consumer segment. On the other hand, Davivienda reported net earnings of COP 77.7 bn, equivalent to a 21.6% y/y decline but a +30% monthly recovery as July was the weakest month on a YTD basis. On a quarterly basis, NIM stayed flat compared to July, while efficiency showed a mild deterioration to 50.6% relative to 49.8% in the prior month. Provision expenses increased 61.0% y/y; however, cost of credit reached 3.6% relative to 3.7% in July. Our HOLD is unchanged primarily explained by relative valuation.

Grupo Aval (HOLD; T.P.: COP 1,330/share). Recovery in earnings relative to July (COP 179.5 bn vs COP 162.1 bn), but still weak vs 2016 (-28.5% y/y). Bogotá stayed more resilient as net earnings declined 7.0% y/y relative to high double digit in other banks of Aval. Cost of credit remains high at ~3.0%. On the positive side, the solvency ratio of Aval banks stand above 11%.

Corpbanca Colombia. Better results for Coprbanca as the company posted the first month of 2017 with net profits (COP 8.5 bn). However, the net loss on YTD basis reached COP 80.4 bn. The recovery in results during Aug - 17 was primarily explained by a 7 bps expansion on the quarterly NIM and lower provision expenses. We maintain a cautious view on this operation as it continues to integrate to the Itau Corpbanca platform.

For charts, tables and the full report, see the attached file.

Sebastian Gallego
+(571) 339 4400 Ext. 1594

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