Grupo Aval's Q1 2025: Key Contradictions Unveiled on ROE, Pension Reform, and Loan Quality Trends

ROE and loan growth expectations, pension reform impact on Porvenir, provisions and loan quality trends, impact of pension reform on Porvenir, provision and cost of risk expectations are the key contradictions discussed in Grupo Aval's latest 2025Q1 earnings call.



Financial Performance and Loan Growth:
- Grupo Aval reported net income of Ps. 362 billion for Q1 2025, a 28% increase compared to Q4 2024, and 3.2x that of Q1 2024.
- The growth was driven by increased market share in loans, reaching a 25.3% share in loans and 16.6% in mortgages, as well as improved operating efficiency and a strong fee income from non-banking sectors.
- However, profitability was slightly slower than anticipated, affected by a lower-than-expected NIM on investments and lower-than-expected NIM on loans due to competitive pressure in the corporate segment.

Macroeconomic Environment and Central Bank Policy:
- The Colombian economy posted strong growth figures, with GDP growth forecast at 2.7% for 2025, driven by public administration, entertainment, and commerce sectors.
- Annual inflation slowed to 5.09% in March 2025, marking its lowest level since October 2021, which indicates stabilization efforts by the Central Bank.
- The Central Bank cut its policy rate by 25 basis points in April 2025, balancing recovery and fiscal challenges, and is expected to end 2025 at 8.5%, constrained by fiscal pressures.

Sustainability and ESG Achievements:
- Grupo Aval was recognized as the third-largest business conglomerate in Colombia for ESG impact, with Banco de Bogota ranked third and AV Villas in the top 10.
- Initiatives such as Mission La Guajira and water and energy solutions in indigenous communities demonstrated progress in addressing social and environmental impacts.
- The company enhanced its ESG management model with comprehensive reporting systems and dynamic dashboards to track progress in key ESG areas.

Digital Transformation and Strategic Priorities:
- The company successfully completed the migration of Banco de Bogota processes into Aval Valor Compartido, with plans to migrate to other banks in the following semesters.
- Progress was made in leveraging artificial intelligence and digital transformation initiatives, including a partnership with Microsoft to enhance customer experience and operational efficiency.
- Synergies and efficiencies were captured in the first quarter, with plans to continue capturing synergies in annual calendar year operations.