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Grupo Aval Acciones y Valores Grupo (AVAL) Q4 2019 Earnings Call Transcript

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AVAL earnings call for the period ending December 31, 2019.

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Grupo Aval Acciones y Valores Grupo (NYSE: AVAL)
Q4 2019 Earnings Call
Mar 17, 2020, 9:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Welcome to Grupo Aval's Fourth Quarter 2019 Consolidated Results Conference Call. My name is Hilda and I will be your operator for today. Grupo Aval Acciones y Valores S.A., Grupo Aval, is an issuer of securities in Colombia and in the United States. As such, it is subject to compliance with securities regulation in Colombia and applicable U.S. securities regulation. Grupo Aval is also subject to the inspection and supervision of the Superintendency of Finance as holding company of the Aval financial conglomerate. The consolidated financial information included in this document is presented in accordance with IFRS as currently issued by the IASB. Details of the calculations of non-GAAP measures such as ROAA and ROAE, among others, are explained when required in this report.

This report includes forward-looking statements. In some cases, you can identify these forward-looking statements by words such as may, will, should, expects, plans, anticipates, believes, estimates, predicts, potential, or continue or the negative of these and other comparable words. Actual results and events may differ materially from those anticipated herein as a consequence of changes in general, economic, and business conditions, changes in interest and currency rates and other risks described from time to time in our filings with the Registro Nacional de Valores y Emisores and the SEC.

Recipients of this document are responsible for the assessment and use of the information provided herein. Matters described in this presentation and our knowledge of them may change extensively and materially over time, but we expressly disclaim any obligation to review, update, or correct information provided in this report, including any forward-looking statements and do not intend to provide any update for such material developments prior to our next earnings report. The content of this document and the figures included herein are intended to provide a summary of the subjects discussed rather than a comprehensive description. When applicable, in this document, we refer to billions as thousands of millions.

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I will now turn the call over to Mr. Luis Carlos Sarmiento Gutierrez, Chief Executive Officer, Mr. Sarmiento Gutierrez, you may begin.

Luis Carlos Sarmiento Gutierrez -- President

Thank you, Hilba. Good morning and thank you all for joining our fourth quarter 2019 conference call. Although it is my pleasure to share with you our strong financial results for the year 2019 and I'm also happy to say that the first two months of 2020 have us on track to meet our budgets, I can't minimize the concerns that we have over what is going on globally with a COVID-19 and the oil dispute between Saudi Arabia and Russia. From our perspective, because we haven't seen the full impact of this global pandemic and because we feel that there is still a lot to happen in the oil war, we believe that it is far too early and even imprudent to venture a revised prediction for Colombia's and Central America's economies, let alone a revision of our own 2020 guidance. We will therefore leave unchanged our 2020 guidance until we have a better grasp and more research on which to support any changes.

Today, we will address the macroeconomic performance during 2019 of those countries where we predominantly operate as well as our own financial results. We will refer to the billion dollar bond that we recently issued and as usual, we will provide an update regarding the legal processes of Ruta del Sol. I will just take an additional moment to stress that we are putting forth all possible and necessary efforts to protect the health of our employees via home office programs, health advice, and the elimination of practically all business traveling and live meetings, and we're also protecting our clients by placing at their disposal and emphasizing the use of all possible ways to digitally access their products and services.

Moving on to the macro scenario. Colombia's economy, where almost 70% of our consolidated business resides, continued its path of acceleration during 2019. GDP growth during the fourth quarter was 3.4%, bringing GDP growth for the year to 3.3%, up from 2.5% in 2018. This welcome level of growth was not evidenced since before 2015. It was precisely in 2015 that the Colombian economy had to adjust to the shock from a 70% decrease in oil prices. Just as importantly, Colombia's GDP growth during 2019 happened during the broad economic slowdown that especially affected all other Latin American economies. Additionally, last time they were measured in February, Colombia's fundamentals were still going strong and high frequency data showed positive momentum in consumer spending and private investment. However, as approximately 40% of Colombia's total exports are represented by oil and because Ecopetrol is a very significant taxpayer, a persistent decline in oil prices will most likely widen the country's trade and current account deficits, worsen next year's fiscal outlook, have an adverse effect on domestic demand, and curtail growth below 3%.

Having said that, if one was to find differences between the oil shock of 2015 and the one we are living through these days, two are perhaps of relative importance. One, one must recall that an oil barrel was priced in excess of $110 in mid-2014. By February 2016, right before oil prices started to rebound, oil had last $78 per barrel. This time around, the price of an oil barrel was around $55, just before Saudi Arabia and Russia refused to agree on production cuts. Simple math indicates that the 2015 scenario can't be relived.

Two, around September of 2014, the exchange rate in Colombia hovered around COP1,900 per dollar. By December of 2015, the peso had devalued by almost 75% to almost COP3,300 per dollar. We see a remote chance that on this occasion, the peso will devalue another 75% toward an exchange rate of COP6,000 per dollar in the next 12 months.

Those two differences alone might signify that this time the economy will hardly be impacted as much as in the previous 2014 to 2016 shock. Having said that, certain industries, especially the airlines, hotels, and other tourism dependent sectors, are disproportionately getting hurt.

Coming back to the country's GDP growth in 2019, this result was mainly driven by stronger private consumption and investment from the demand side, which increased by 4.6% and 4.3% respectively compared to 1.2% and 1% a year earlier. The increase in private consumption was driven by; one, the stability in monetary policy; two, the increase in remittances from abroad; three, the increase in expenditure of Venezuelan migrants; and four, a growth higher than the inflation in formal employee wages. From the supply side, GDP growth was driven by sectors such as commerce, which grew 4.9%, financial services that grew 7%, and professional services that grew 7.7%. Which -- all of these which grew at a stronger pace than average GDP, while sectors such as construction which decreased by 2.7% and communications that grew by 1.5% grew at a slower pace.

The country's trade deficit continue to be the weakest component from the demand side, increasing to 3.8% in 2019 from 2.7% in 2018, driven by weaker exports, which decreased by 5.7%, as Colombia has not been able to significantly increase exports of non-traditional products. Instead, imports increased by 2.7%, driven by strong private consumption. These factors explain the widening of the current account deficit that reached 4.3% of GDP in 2019 from 3.9% in 2018.

Employment continued to deteriorate in 2019 and they averaged 10.5% for the year, up from 9.7% in 2018. The average unemployment rate in the 13 metropolitan areas rose from 10.8% in 2018 to 11.2% in 2019. Lack of enough job creation and the impact of the migration of millions of Venezuelans to this country seemed to be the main causes for the resilience in unemployment. It must be noted, however, that during January of this year, average unemployment in the 13 principal cities in the country saw improvement as it dropped year-on-year by 80 basis points from 13.7% to 12.9%, the lowest there has been for the month of January in the last five years.

Annual inflation rose to 3.8% by the end of 2019 from 3.2% in 2018. Inflation started the year on a downward path, reaching 3% in February of 2019. However, in the second and third quarters, inflation increased mainly driven by pressures on food prices, which increased by 5.2% in 2019 versus 2.4% in 2018. We expect that for the most part, the transitory shocks that affected food prices in 2019 will dissipate in 2020. Additionally, the consumption basket, upon which inflation numbers are built, was recently redefined to decrease the share of tradable goods and increase the share of services. This implies that consumer prices are now less prone to fluctuations in the exchange rate. If inflation stays under 4% in 2020, we see no need for a change in monetary policy. However, the economic backlash from the dual shock mentioned before might result in a significant rise in consumer prices. Consequently, and although we do not expect to see inflation rise as much as it did in 2015, the Central Bank might be forced to restate its policy in the upcoming weeks as we have already seen in the USA and other countries.

The country's fiscal deficit was reduced from 3.1% in 2018 to 2.5% in 2019 even lower than the 2.7% limit established by the fiscal rule for the year. This positive behavior was driven by strong tax collections and higher-than-expected dividends paid by Ecopetrol. As mentioned in our previous calls, meeting 2020's target of 2.3% will be challenging without relying on one-off revenues. Additionally, current pressures from the recent oil price environment might significantly decrease Ecopetrol's profitability and with it its ability to pay taxes and dividends, which will in turn pose additional challenges to this year's fiscal rule target.

During 2019, the exchange rate was highly volatile, ranging between COP3,072 per dollar and COP3,522 per dollar. Although devaluation of the peso between December of 2018 and December of 2019 was on only 0.8%, on average, the exchange rate depreciated 11% during the year as a result of two very different trends. First, in the first months of the year, there was a strengthening of the peso against the dollar, mainly associated with the recovery of the price of oil, and in contrast, starting in the month of May, the dollar strengthened globally, driven by the scaling of the trade war between the United States and China. At year-end 2019, an exchange rate of approximately COP3,400 per dollar seems to be the new norm. However, the current shock to the economy has already driven closer to COP4,100 per dollar. It is tough to imagine that it will yield in the upcoming weeks.

Moving on to Central America. During 2019, the region's GDP grew 2.7%, less than it had grown in 2018 when it grew at 3.1% associated to the worldwide economic growth slowdown. It should be noted that growth was better in the second half of the year at 3% than in the first half at 2.6%. Within the region, as of September 2019 date, for which information by country is available, Guatemala was the best performer with GDP growth of 3.6%, followed by Panama with 2.9%, Honduras and El Salvador with 2.4%, Costa Rica at 1.7% and Nicaragua at minus 5%.

2020 should see somewhat better growth derived from the operation of a new copper mine, Cobre Panama and other infrastructure projects in Panama, a better performance from agriculture in Honduras, and the first year of a new government in El Salvador. The implementation of the 2019 fiscal reform in Costa Rica will remove the fiscal uncertainty that the country lived under last year. In Nicaragua, the economy is expected to moderately recover in 2020, but still contract around 1%. We therefore expect that regional growth for 2020 will be around 3%.

Moving on to financial highlights. Although Diego will refer in detail to our financial performance, these are a few highlights. In general, our results for 2019 were driven by: One, a better performance of the Colombian economy; two, better loan portfolio quality, which resulted in lower cost of risk; three, strong returns in our fixed income and equity portfolios; four, solid performance in commissions and fees; five, successful continuation of our digitalization and cost optimization efforts; and six, solid contribution from our non-financial entities. As a result, 2019 marked the first year in our history that our net income exceeded COP3 trillion. In fact, Aval's total net income among amounted to COP3.03 trillion or COP136 per share, an increase of 4.2% versus 2018. Consequently, the return on average equity for the year was 16.4%.

Non-recurrent expenses for the year affected the bottom line by approximately COP190 billion, mainly driven by provision expenses booked in relation to CRDS and SITP. For illustration purposes only, recurrent net income between 2018 and 2019 grew by more than 11%. By December, we had fully provisioned all the problem commercial loans that we have been talking about for the last three years. We also wrote off all loans to Electricaribe. At December, Aval's tangible capital ratio had risen to 9.2%. Consolidated assets grew by 7.4% and consolidated loans grew by 6%, driven by an 8% increase in consumer loans, a 9% increase in mortgage loans, and a 4% increase in the commercial loan portfolio. The 2019 net interest margin was 5.7% versus 5.67% in 2018, as a result of a 6.4% NIM on loans and a 2.3% NIM on investments.

30-day and 90-day past due loans were increased by the inclusion of COP762 billion in PDLs, as a result of the CRDS loans becoming due and then paid during the year. However, these indicators ended the year at 4.36% and 3.26% respectively, only 10 basis points and 19 basis points higher than in 2018. Allowances for 90-day PDLs reached 140% at year-end. Cost of risk for 2019 was 2.2% versus 2.4% a year earlier. Importantly, cost of risk for the fourth quarter was 2.1% compared to 2.5% in the previous quarter and 3.1% in the fourth quarter of 2018. Due mainly to strong banking and pension fund fees, net fee income for the year increased by approximately 13% or 15% in the fourth quarter versus the same quarter in 2018 and 10% versus the third quarter of 2019. Although income from Corficolombiana's non-financial sector investments declined, due mostly to the non-recurring income from these investments during 2018, Corficolombiana continued to contribute with the strong results during 2019, especially derived from its investments in toll road concessions. Personnel, including severance costs and SG&A expenses grew by 6.1% during the year but only 2%, when excluding FX. Finally, complementing our balance sheet, strong funding, and liquidity positions, the deposits to loans ratio finished 2019 at 1.1 times and the cash to deposits ratio at approximately 17.2%.

Moving on to the progress we made during 2019 in our digital efforts, these are a few highlights. Our consolidated digital clients increased to 3.5 million. We now offer 22 100% digital products through our banks, up from 15 at 2018. We now use advanced analytics in 31 of the most important operating processes in our banks, up from 14 in 2018. Our digital sales increased from 230,000 in 2018 to 940,000 during 2019. We continued to increase penetration of digital sales as a percentage of total sales and are now up to 35%, while 60% of total banking transactions are now digital in nature.

Our digital strategy is based on three objectives. First and foremost, we have been and will continue to digitalize all possible existing products and operations of our banks and pension fund manager. The execution of this first objective allows us to be more efficient and to offer a better service by improving customer journeys. However, we realize that this same effort is being undertaken by other banks around the world and by the top banks in Colombia. Accomplishing this objective is a bank's ticket to play for the future and therefore we are currently focusing most of our digitalization effort on this first objective.

The second objective to develop is new digital business models. This is the creation of new products and services such as Dale, 100% digital platform, which we launched a few weeks ago. Accomplishing this objective should allow us to serve new segments in markets, which we couldn't previously serve, mainly due to cost. Although these platforms should make clients out of people who have not wanted to work with traditional banks, younger generation is more inclined to maintain exclusively digital relations with our banks and people who have not been sort out by banks and therefore are still to become bank clients.

Third and final objective is to generate or participate in ecosystems. Accomplishing this objective entails offering our digital financial products and services as a complement and a way to generate added value to ecosystems through which other non-banking products and services are offered.

Moving on to legal. Regarding ongoing legal matters related to Ruta del Sol, I will briefly share with you an update on the most relevant developments. The main development is related to the Tribunal Administrativo de Cundinamarca or TAC. As you may recall, on December 2018, a class action suit was ruled in first instance against CRDS, its shareholders, including Episol and other individuals and entities not related to Aval or its affiliates, jointly and severally to pay damages to the nation for approximately COP715 billion. An appeal was filed on February 2019 and consequently, the first instance ruling was suspended until the appeal is decided by a higher court, Consejo

De Estado. However, in October 24, 2019 the Consejo de Estado, which has not yet ruled on the appeal, modified the suspended effect of the appeal. Changing the effect could be construed to mean that defined must be paid and other components of the ruling will take effect even before the appeal has been decided. Other parties involved submitted legal requests to get that decision overturned. On February 14, 2020, the Consejo de Estado ruled in relation to the effects of the appeal, stating that the decision of the first instance ruling will only become effective in the case that the appeal is lost. Consequently, the first instance ruling will continue on standby until the appeal is decided by the Consejo de Estado.

In the antitrust investigation conducted by the Superintendency of Industry and Commerce, in the next months or so, an informe motivado should be presented to the superintendent. This is a document prepared by the antitrust area within the SIC, recommending a course of action in reference to the investigation, including confirming the charges, imposing fines and/or discharging one or all the defendants.

Finally, on January 28, we issued a senior bond in the international capital markets for a total value of $1 billion, with a tenure of 10 years and a coupon of 4.375%. The demand for the notes, which reached 3 times the amount issued, came from more than 200 investors from the United States, Europe, Asia, and Latin America. The bonds were issued by Grupo Aval Limited, a subsidiary of Grupo Aval, guaranteed by Grupo Aval in accordance with Rule 144 A and Reg S issued under the Securities Act of 1933 of the United States of America. In line with the use of proceeds included in the offering memorandum, part of the net proceeds, approximately half, will be used to wholly subscribe a Basel III compliant AT1 at BAC Credomatic. The rest of the proceeds will be kept in highly liquid short-term investments and/or loan to some of our operating subsidiaries.

And with that, I'll pass it on to Diego, who will now explain in detail our business results.

Diego Fernando Solano Saravia -- Chief Financial Officer

Thank you, Luis Carlos. I will now move to the consolidated results of Grupo Aval under IFRS. 2019 has been our best year in net income so far. Four elements drove our performance. Number one, positive results in interest income, driven both by a pickup in loan growth and a strong valuation in OCI realization in our fixed income investment portfolios. Second, 20 basis points decrease in cost of risk. Third, strong contribution of net income from commissions and fees, particularly in pension fund management and banking fees from Central America. And fourth, a payroll impact of tax reform on our statutory tax rate.

We achieved these positive results amid a low loan growth scenario of our loan portfolio. Although we were positive on growth for 2020, given the recent developments, we're cautious on guiding on performance in this highly fluid environment. The global economy is expected to lose traction due to interruptions in trade and production as well as overall lower consumption that result from COVID-19. We're thus expecting a moderation in economic activity in Colombia as a result of the global scenario that could be exacerbated by the impact of low oil prices.

Moving to Page 10. Assets grew 7.4% over the year and 1.8% during the quarter. Colombian assets grew by 8.2% over the year and 3.7% during the quarter, driven by cash, fixed income investments, and net loans. Central America, which weighs close to 30% of our book, saw 4.7% and 3.5% growth in dollar terms over the year and the quarter respectively, driven as well by increasing investment portfolios and net loans. Excluding the 4.6% annual contraction of Nicaragua, total assets of Central American operations grew 5.3% in dollar terms. Finally, an annual 0.8% depreciation and quarterly appreciation of 5.8% of the Colombian peso brought annual growth up to 5.6% and led to a 2.5% quarterly contraction when translated into Colombian pesos.

Moving to Page 11. Loans, excluding repos, grew at 6% over the year and 0.1% during the quarter. Although improving compared to a year earlier, commercial loans continued to drive the soft dynamics of Colombian banking system. This low performance was partially compensated by a stronger growth of the consumer portfolio, supported on a positive trend in quality, especially in Colombia. Our Colombian consumer and mortgage business continues to be dynamic, expanding 9.8% and 14.1% respectively over the 12 months. Quarterly growth was consistent with this performance at 3% and 3.4% respectively. Our Colombian corporate loan portfolio, excluding repos, grew by 0.8% during the quarter and 4.3% over the year. Gross loan portfolios in Central America increased 3.7% in dollar terms over the year and 2.6% during the quarter. Nicaragua, that weighs 6% of our Central American assets, dampened the 12-month performance, contracting 19.8%, while the rest of the region expanded at 5.4%. We gained market share in every country, except Nicaragua and Panama.

On pages 12 and 13, we present several loan portfolio quality ratios. Delinquency metrics continued to improve during the quarter, both in Colombia and in Central America. In the fourth quarter, we charged off the full exposure to Electricaribe and Tranzit, one of the SITP companies, that combined amounted for COP908 billion. In addition, Ruta del Sol impacted new PDL formation as it became past due both on a 30-day and 90-day basis, with COP762 billion exposure. This loan was fully provisioned by year-end. Despite an improvement over the last quarter, delinquencies of Central America loan portfolio increased over the year. This was primarily driven by macro in Costa Rica and sociopolitical events in Nicaragua. As IFRS 9 reflects expected credit losses, this performance has been incorporated into our cost of risk during the second half of 2018 and the first quarter of 2019.

Our commercial loan portfolio showed an improvement of 31 basis points in 30 days PDLs and 10 basis points in 90 days PDLs over the quarter. We recorded a 26 basis points improvement in 30 days commercial loan PDLs and 3 basis points on 90-day PDLs in Colombia. Central America, 30-day commercial PDLs improved by 60 basis points and by 42 basis points for 90-day PDLs, driven by Guatemala and Panama. Delinquency ratios for consumer loans showed an improvement on a 30-day basis, more substantially stable on a 90-day basis over the quarter.

In Colombia, the improving trend in delinquency of consumer loans persisted with 30 days PDLs falling 27 basis points to 4.9% over the year and remaining stable over the quarter. 90-day PDLs were stable at 3.1% over the year and were 8 basis points higher over the quarter. In Central America, 30 days PDLs consumer loans improved 21 basis points to 4.7% over the quarter, while 90-day PDLs remained stable at 2.1%. Early deterioration of consumer in Central America was primarily driven by Costa Rica. Our mortgage PDLs increased during the quarter, driven by Central America. The cost of risk improved by 42 basis points in the quarter due to a 46 basis points improvement in Colombia and a 32 basis points improvement in Central America. Full year cost of risk improved by 17 basis points, driven by 23 basis points improvement in Colombia and 3 basis points improvement in Central America. Our PDL coverage of 90-day PDLs remained at 1.4%.

On Page 14, we present funding and deposit evolution. Funding dynamics were consistent with loan growth. Funding structure remained materially stable with deposits representing 76% of total funding and our deposit to net loan ratio reaching a 101%. Our liquidity position continues to be strong with cash to deposit ratios -- ratio at 17%. Deposits grew 0.8% in the quarter, accumulating 6.8% over the 12 months. Colombia grew at 1.3% in Colombia peso terms and Central America at 5.9% in dollar terms during the quarter. With a 12-month period, Central America grew at 10.2% in dollar terms, while Colombia grew at 4.8% in peso terms.

On Page 15, we present the evolution of our total capitalization, our attributable shareholders' equity, and capital adequacy ratio of our banks. During the year, our total equity grew by 12.8%, while our total equity grew at 11.6%, mainly driven by our earnings and our OCI growth related to valuation of our investment portfolio. Total equity and accrual equity grew 3% and 2.8% respectively over the quarter. As of December 2019, our banks show appropriate Tier 1 and total solvency ratios. On February 2020, we reported for the first time the Grupo Aval conglomerate adequacy capital to the Superintendency of Finance, showing an excess over minimum adequacy capital.

On Page 16, we present our yield on loans, cost of funds, spread, and net interest margin. Our yearly net interest margin increased 3 basis points to 5.7% during 2019, mainly driven by higher net interest margin on investments that was partially offset by a tighter net interest margin on loans. Quarterly net interest margin slightly decreased as a result of lower net interest margin on investments and a stable net interest margin on loans. As anticipated, pricing in Colombia continued to be aggressive during the last quarter due to the improvements in consumer loan quality and better outlook in the corporate portfolio resulting from a stronger GDP. This led to a 20 basis points compression in quarterly net interest margin on launch in Colombia and was partially offset by a higher net interest margin on loans in Central America, as some of the higher yielding countries grew faster in our portfolio. We continue to expect some pressure on net interest margin on loans as growth increases the share of newly priced loans in our mix.

On Page 17, we present net fees and other income. Gross fee income for 2019 grew 11.6% when compared to 2018 with gross fees in Colombia increasing 8.2% in pesos and by 5% in Central America in dollar terms. Growth in Colombia was driven by a particularly strong performance in pension fund management fees. The year [Indecipherable] was a strong year in other income from operations due to property, plant and equipment optimization in Banco de Bogota and Banco Popular. Also, the non-financial sector registered during 2018 a particularly high income explained by the initiation of construction of two of our [Phonetic] toll road concessions. The decreasing income from these transactions was partially offset by an increase in OCI realization from investments in debt securities, equity method, and dividends in 2019. Our infrastructure income decreased by 12.8% during 2019, mainly driven by income related to the initiation of construction of Covioriente and Pacifico 1 concessions during 2018. In addition, work in process during 2019 was lower than during 2018 due to variations in weather conditions that slowed progress [Indecipherable] when building bridges and tunnels in some of the roads. Our gas and energy sector maintained its strong contribution and our agro business returned to a positive contribution to the non-financial sector income during 2019.

On Page 18, we present some efficiency ratios. Personnel and SG&A expenses grew 6.1%, with 1.7% increase in Colombia and 2.4% in Central America in dollar terms during 2019. Personnel increased 5.4%, driven by a depreciation of peso on our Central American operation. In fact, personnel expense remained flat in Colombia and grew 2% in dollar terms in Central America. G&A expenses increased 3% in 2019 compared to a year earlier. This figure was 8.6% for Colombia and 4.9% for Central America in dollar terms when adding IFRS 16-related depreciation and amortization to administrative expenses. G&A includes an extraordinary non-income tax expense in order to raise the fiscal cost of certain fixed assets, which amounted to 1.9% growth in the Colombian operation. However, this was offset by a positive effect on income tax recovery that resulted in a net positive effect of COP57.6 billion in net income. Depreciation and amortization expense increased by 67%, mainly due to the adoption of IFRS 16 during 2019, which changed the accounting methodology of leases, now accounting the rights of use under depreciation and amortization. Finally, other expenses increased by 44% in 2019 compared to 2018, mainly explained by provisions of further need for expenses related to pension clients transfer from the private to the public pension fund system.

Finally, on Page 19, we present our net income and profitability ratios. Our triple net income for 2019 was COP3,034 billion or COP136 per share, COP5.5 higher than 2018 accumulated results. Attributable net income for the quarter was COP715 billion or COP32 per share. The non-recurring events that affected our net income during 2019 were the specific provision expenses in relation to Ruta del Sol and SITP that added COP328 billion on our cost of risk with a post-tax attributable net income negative effect of COP162 billion. Other non-recurring events had COP25 billion negative effect on attributable net income. Our return on average assets and our return on average equity for the year were 2% and 16.4% respectively.

We are now available to address your questions.

Questions and Answers:


Thank you. We will now begin the question-and-answer session. [Operator Instructions] We have a question from Gabriel Nobrega from Citibank.

Gabriel Nobrega -- Citibank -- Analyst

Hi, everyone. Good morning and thank you for the opportunity to ask questions. I'd actually like to ask a question looking at all of this uncertainty we are going through. These are very volatile times as well. I would just like to maybe understand what are the first immediate strategies that the bank has been implementing to sort of guide through these very uncertain times. And then I also have another question on your asset quality. You say in your press release that you fully wrote off Electricaribe and Tranzit, which represents more than 2% of your loans. However, your NPL ratio for the commercial line, they only decreased by 9 bps. So, is there something here that has deteriorated more than you were expecting? Also, is there may be a segment you were looking to more closely in the midst of all this uncertainty as well? Thank you.

Luis Carlos Sarmiento Gutierrez -- President

All right. Thank you. I'll take your first question. And regarding what the banks are doing right now with the -- with all the dual shocks that we're living through, that everybody is living through, the banks are concentrated basic -- concentrating on three aspects predominantly. On employees, on clients, and on the operations of -- or the continued operations of the banks. As far as employees, what we're doing is we are keeping out of the office every employee that we possibly can. We've enabled a lot of home office working. We've even established shifts for employees to come at different times than rush hours and the peak hours, so they don't have to use mass transportation with -- at peak hours. And obviously, we're keeping ourselves very, very aware of what's going on with the health of all of our employees. For now, I mean I'm happy to say that there's only been one case reported of all of our 100,000 plus employees, and that is a person that traveled to Spain and on the way back never made it to the bank, but showed symptoms and he's now in quarantine.

As far for our clients, as I said before, we are being very proactive in offering them and encouraging them to use all digital aspects of our platforms and we have seen a dramatic decrease in client usage of our branch network. So, it seems that it's working.

In terms of the operations of the banks, obviously, what we're doing and each bank is going through a deep analysis of all the clients, especially the credit clients that we have to make sure that we anticipate any loan problems and we've been proactive in contacting those clients and making sure that they have the proper circumstances under which they can still look after the credits and obviously, there are industries that we know are being hit harder than others. Any tourism-related industry is being hit with the latest announcement announcements of countries canceling flights to other countries. Obviously, the airlines are getting very much impacted. And also, independent workers, those that don't have a steady stream of cash coming in, but rather depend on daily or monthly performance are obviously seeing their businesses decrease.

So, we are on top of that. We haven't seen and it's one of the reasons that we don't change our guidance, we haven't seen any real impact in delinquencies or in non-payments or in cash withdrawals or in decrease in deposits. So basically, what we're doing is we're trying to be proactive and to predict anything that might be coming that way, and as I said, to act before it actually happens.

Diego Fernando Solano Saravia -- Chief Financial Officer

Regarding your second question on NPLs, you're absolutely right, there is something that did affect the numbers and it is that, at the same time, that Electricaribe and Tranzit were leaving our book because they were written off, Ruta del Sol entered the book. This loan was actually fully provisioned but hasn't been written off as of year-end. When this loan gets written off, you're going to get exactly the numbers that you're looking into.


Thank you. Our next question comes from Andres Soto from Santander.

Andres Soto -- Santander -- Analyst

Good morning. Thank you for the presentation. My question is related to current market volatility. Obviously, there are multiple uncertainties at this point, but considering recent movements in FX and Colombian rates, it will be great if you can provide some color on the potential short-term impact not only in your banking business, but also for the results in your pension management and infrastructure segments.

Luis Carlos Sarmiento Gutierrez -- President

Sure, Andres. Yeah, as you say -- first of all, it's tough to say where the FX might end up to -- might end up, whether it might even come back or it stays COP4,100 or even keep rising. But as you say, obviously, the impact on derived from FX are several. If you look at our pension fund, our pension funds, while some of the investments of the pension funds are dollar-related investments and those will --obviously, they tend to increase in value, but on the other hand, most of the dollar investments of the pension funds are covered with derivatives and that obviously when the exchange starts rising, that needs more liquidity to cover the derivatives, the hole that comes about when the exchange rate rises, and obviously that has the pension fund using up some of the liquidity that we had set aside. So, we see that.

Not only FX, obviously, that -- while you might have even a positive effect of uncovered FX exposure in the value of the pension funds, obviously, that's being offset by the drop in the prices in the stock market. And obviously, the prices of shares have dropped and with it the value of those investments in pesos in the local and foreign markets.

With regards to our banking operations, well, obviously, you also have different effects, because you translate the balance sheets and the income statements of our foreign to us -- of our Central American operation, then you see -- on the one hand, you see better contribution in pesos from the dollar results of our Central American operation, but on the other hand, you also see since we made that investment in dollars and that investment is covered by half on natural coverage by dollar denominated bonds and then half by derivatives in the book of Banco de Bogota, then you also see an effect on liquidity of the bank as the bank has to cover some of those derivatives.

Also, there is obviously a foreign exchange account in the OCI of the equity of the bank that moves as the FX increases. So, there are, as I said, it's tough to put it all in a nutshell. There is probably -- with every pesos that moves, probably eight or nine accounts move and what we're doing is we're staying on top of them and making sure that we understand where each vessel is going and we are obviously also in constant conversations with the Superintendence of Finance to make sure that the regulations that they pass are -- give the market and give the bank flexibility as to their coverage strategies, so that we can change our strategies if need be.


Thank you. Our next question comes from Adriana De Lozada from Scotiabank.

Adriana De Lozada -- Scotiabank -- Analyst

Good morning and congratulations on your results. At the beginning of the presentation, you mentioned that you do not expect the current oil price war shock to be -- to have such a big impact as 2015 and you also discussed the spike in inflation then. So, maybe you can remind us what inflation you consider in your 2020 guidance. And if you can give us a few words about consumer loan evolution and cost of risk this year. Thank you.

Luis Carlos Sarmiento Gutierrez -- President

In 2015, if you recall by September 2015, on a 12-month basis, inflation had risen to 9.2%. So when I said that I didn't expect this dual shock to take inflation to levels similar to those observed in 2015 was -- what I was referring to was that, that I don't foresee inflation doubling or tripling as a consequence of what's going on. And...

Diego Fernando Solano Saravia -- Chief Financial Officer

And if I understood right your question, what inflation was incorporated into our previous guidance, the number was 3.5%. And then what cost of risk evolution did we expect before this shock, we were expecting to see a 20 basis points improvement from 2.2% to 2%. That was what was incorporated in our guidance. And as was Carlos mentioned, at this point, we will refrain from giving you guidance because we see a panicked herd effect at this point. And many of these key variables might change, not only in magnitude, by directionally. Discussion on interest rates has many possible scenarios. Some of those could imply interest rates falling. Therefore, our fixed income investments not only recovering, but actually gaining value.

And the exchange rate side, I think it's anybody's bet what can happen at this point. We're just bystanders to what is happening between the Arabia and Soveit Union at this points -- or Russia.


Thank you. Our next question comes from Nicolas Riva from Bank of America. Mr. Riva, your line is open.

Nicolas Riva -- Bank of America -- Analyst

Yes, I was on mute, sorry. Thanks for the chance to ask questions and I had -- I wanted to ask on three topics, if I may. The first one, on some of your credit exposures, you mentioned some subs [Phonetic], which of course, are going to be [Indecipherable] oil and gas, tourism and hotels. If you could maybe talk us about your exposure to oil and gas companies, how much it is of your loan portfolio? If it's basically exposure to Ecopetrol or some oil and gas exploration and production companies. You are thinking of increasing loan of reserves for these in the first quarter. And the same thing also for airlines and if airlines have reached out to you to get lines of credit or additional liquidity. So that will be my first question on exposure to oil and gas and airlines.

The second one, on this corporate clients that you talked about in the press release and you mentioned in the call, just to make sure I got it right. So, you have already fully provisioned Ruta del Sol, Electricaribe, Tranzit and also some -- any other mass transportation companies, which have already been fully provisione. And also -- so that's one thing. And then in terms of which of these have been completely written off from the balance sheet, so we shouldn't see any impact on NPLs on the balance sheet. That would be Electricaribe and Tranzit, but Ruta del Sol, I understand, has not been written off.

And then the third topic, if I may, on Multibank, if you can provide us with an update on the transaction. I would assume that all of what happened doesn't change. I mean, you're still going to go through with the transaction. I remember the pricing was a bit more than $700 million. And you can give us an update on when BAC Credomatic is going to issue this AT1 bond and when do you expect to get approvals or all of this stuff to be done. Thank you.

Diego Fernando Solano Saravia -- Chief Financial Officer

Regarding the credit side. you were asking on exposures. We are pretty diversified in our portfolio from the sectors that you went through. Oil and gas might be the larger one, and at this point, it is around 1.2% of our loan portfolio, and a very substantial portion of that is the gas pipelines that we're exposed to. Therefore, we are less subject to the impact of prices of oil.

Then, the tourism side, it is around half of a percent of our loan portfolio and finally airlines, that is -- I assume you're referring to Avianca. We continue to have exactly the same that we've disclosed in the past. We are exposed to a syndicated loan from Taka that is guaranteed by receivables that's around $150 million that is in the banks, the books of Bogota back and Banco de Occidente. And then in Colombia, most of our loan, that is around COP96 billion, this is pesos, is guaranteed by the building that they have under way into the CD from the airport. So, that is regarding these exposures. As Luis Carlos mentioned. we are -- we have triggered all of our risk management procedures to go through all sectors that are exposed to the kind of risk factors that are at this point volatile such as oil. We are also looking into exchange rate in GDP growth dependent business.

Then, on the corporate client side, I think it's exactly as you described, except for SITP, we fully provisioned and rolled out Tranzit and the other two companies that were exposed to, we believe we have them rightly provisioned, and we have a good view under prospect of recovery, given that they were able to restructure their agreement with the local government. Electricaribe, as you said, was written off last year. Ruta del Sol was fully provisioned and will be written off at some point during this year.

Luis Carlos Sarmiento Gutierrez -- President

And regarding Multibank, yeah, we're subject to a contract and we're going through every single aspect of that contract, which has obviously a lot of precedent conditions that are being met by the purchasers ourselves and by the sellers. And there is also a drop-dead date for the contract that we're trying to obviously get to before it happens. And -- but things seem to be in line to get the deal done. There will be some price changes based on the very deep due diligence that we've undergone, since we signed the purchase agreement. That might change the price a little bit -- actually reduce the price a little bit, but other than that, as I said, both the sellers and ourselves are trying to comply with all the conditions precedent that were included in the selling and purchase agreement.


Thank you. Our next question comes from Yuri Fernandes from J.P. Morgan.

Yuri Fernandes -- J.P. Morgan -- Analyst

Thank you, gentlemen. I would like to make a follow-up regarding the asset quality topics. I got like the mass transportation. You had some renegotiations with the local government, but if there is a major curfew or if people they use less the public transportation systems, how big is our exposure? Like, how big could you be able to increase their provisions to this sector? Because I do believe that in addition to the airlines, tourists, oil and gas, there are other sensible sectors that were like in a very bad shape that could be not a very good position nowadays.

And regarding margins, I understood your concern on inflation, but with the Fed cutting rates, like most emerging markets cutting rates, should not us expect like the Banco de la Republica to cut rates in Colombia as well and system pressuring margins for 2020? Thank you.

Luis Carlos Sarmiento Gutierrez -- President

Okay, Yuri. Regarding asset quality, as we mentioned before, we're actually at the point of reviewing what are the sectors that would be sensitive to what has been going on. Two weeks ago, I would say there wouldn't be something that we would be highlighting at this point. We are at this -- this time we're just reviewing what will be happening. Obviously, those that will be affected most are those that are affected by the shutdown of the economy commerce and so one. The exchange side we are reviewing and the oil price, well, it's very direct, the impact that we have there.

Regarding margins, that is one of the main reasons why at this point we are refraining from giving guidance and it is, we have different scenarios. One scenario is Colombia follows what most of the countries are doing and we go into substantial interest rate cuts and that's why I mentioned we are going to even move into positive ground on income from fixed income investments. On the other hand, we've had a depreciation of COP4,000 -- up to COP4,000 or COP4,100 whatever the number is as of this call and that does have some impact on inflation. There is many numbers out there. There's numbers ranging between 50 basis points and 150 basis points of pressure on inflation, and it very much depends on how the Central Bank reacts, but at this point, this is binary. It's not something that we can project, but there is two different scenarios that could lead us in opposite directions.


Thank you. Our next question comes from Carlos Rodriguez from Ultraserfinco.

Carlos Rodriguez -- Ultraserfinco -- Analyst

[Technical Issues]


Mr. Rodriguez, if you can get closer to the phone, we're not able to hear you.

Carlos Rodriguez -- Ultraserfinco -- Analyst

[Technical Issues]


Seems to be having audio issues. We will move to the next question. It comes from Sebastian Gallego from CrediCorp Capital.

Sebastian Gallego -- CrediCorp Capital -- Analyst

Hi, good morning. Can you hear me there?

Luis Carlos Sarmiento Gutierrez -- President

Yes, we do.

Sebastian Gallego -- CrediCorp Capital -- Analyst

All right. Thank you for your presentation and yes, congratulations as well on results on 2019. Just three additional questions. The first one on a follow-up regarding Multibank. The question is, are you thinking about different strategies to actually pay the transaction in case it goes on. In previous calls, you mentioned that internal funds were going to be used, but I'm just wondering given the current conditions and volatile environment, if there are any considerations to be made regarding additional funds to be needed.

Second question, I know it's a very volatile environment and things might change as you have been mentioning through the call, but can you provide some color on what are your thoughts regarding, what banks will do particularly on the consumer and commercial segments here in Colombia, particularly taking into account all the competition that you mentioned and we have been observing particularly in the consumer segment.

And lastly, if you can provide an opinion on what the Central Bank here in Colombia should do under the current environment, where to cut rates or what other measures are you guys -- or will you guys be willing to propose to the Central Bank under current scenario? Thank you.

Luis Carlos Sarmiento Gutierrez -- President

All right, thanks for your questions. Let's start with Multibank. Multibank is already funded, if you will. We -- say, of a purchase price of about $700 million, BAC has already allocated and set aside about $200 million in dividends from -- actually excess capital that it has and the remaining $500 million, we already have on hand at Aval via the bond that we issued last month for the $1 billion and half of that we can use to complement the $200 million that BAC already has set aside as I said for the total of $700 million. So no, at this point, we are really not considering different strategies to pay the transaction. The money is already on hand.

And regarding -- and I'll jump to the third question, and then Diego can take the second one regarding consumer and commercial segments, but on the question as to what a Central Bank should do, I think that if I venture and answer, they might get mad at me, but I think that basically what we have to wait is to see the Central Bank has always been and I am a big admirer of the Central Bank because I believe they are very accurate when they impose monetary policy. I think themselves what they're waiting to see is not to succumb to a drop in rate, just because of what might happen, but they are waiting to see how inflation might and will be affected by everything that is going on and they'll probably react to it more than try to prevent that, but we'll see, actually, we will see. If inflation starts rising very fast, they will have to tighten monetary policy. That will obviously put a damper on growth, but their mandate -- their constitutional mandate is to protect the country against inflation, not to power growth. However, as you know, governance will put a lot of pressure, the executive arm will put a lot of pressure on getting the Central Bank to either maintain or decrease rate. So, you have the two opposite sides pulling in different directions. So, I think it's better to just wait and see what happens and obviously in the meantime, we'll be preparing ourselves for either scenario.

Diego Fernando Solano Saravia -- Chief Financial Officer

Regarding your question on color on what the banks will do in this volatile environment, I would say that the main thought here is Grupo Aval's banks have been in the country for a very, very long time. We lived through many cycles, positive and negative cycles. We are a very substantial portion of the banking system around a quarter of the system. I would say in that context, you have to bear in mind that our business is risk management. Therefore, at this point, we're being very careful on what kind of risks we are underwriting. However, we are present in Colombia and we are actually supporters of what is happening in Colombia. Therefore, we will continue actively lending as we've done over many cycles. I would say at this point regarding to what our strategy was before this couple of weeks, we had mentioned that we had seen the commercial sector is starting to get force, a force that was driven by consumer demand. Therefore, it was the kind of growth you want to see and we are ready to increase our activity in that segment.

On the consumer side, we had already seen much of the recovery that we are looking into and the quality of the portfolio continued to improve therefore client-by-client, product-by-product, we had been determining where our growth would be concentrated.


Thank you. Our next question comes from Julian Felipe from Corredores Davivienda.

Julian Felipe -- Corredores Davivienda -- Analyst

Hey, good morning. Thanks for having us and congratulations for the results for the fourth quarter. My question is very specific about what is the input that you might look about in terms of the funding costs due to the current situation. Thank you.

Diego Fernando Solano Saravia -- Chief Financial Officer

I would say at this point, it very much depends on Central Bank policy. Obviously, one of the areas that we triggered as areas of alert was not only credit risk, but also market risk and we are actually looking into what the Central Bank does and making sure that we are monitoring what is happening with liquidity, therefore with prices.


Thank you. And we have a question from Diego Andres from MCC Itau.

Diego Andres -- MCC Itau -- Analyst

Good morning. Thank you for taking my question. Regarding the 2030 [Phonetic] newly issued bonds, could you just mention the use of proceeds and on the other hand, could you also mention how you are planning to refinance or pay down the 2022 notes? Thank you.

Luis Carlos Sarmiento Gutierrez -- President

Okay. Let's start with the $1 billion bond that we just issued. That bond will be used about -- as I said about $500 million will be used to subscribe in an AT1 that BAC Credomatic will issue. With that -- with the proceeds of the bond that BAC issues, it will complement it with another $200 million and with that, they will have the money to pay for Multibank. The remaining $500 million will be used in the same way that we've been using monies that we obtain from global bonds that we issued. And that is -- we use that money to un-lend to our own affiliates, entities, subsidiaries that either don't have access to the capital markets or they do, but at rates even higher than those that we can obtain when we issue bonds. So, we do a bit of arbitrage there. We pay the rate that the market charges us and then we un-lend the money at higher rates to our own subsidiaries. We do that at tenures that are shorter than the tenures of our bonds, so that we get the money back from our subsidiaries before we have to pay the bonds and that brings us to the $1 billion that we have outstanding that mature in 2022. Those -- that $1 billion right now, we have about $700 million or so of those lent to our own institutions in the conditions that I just mentioned. They are lent at higher rates than the ones that bond is costing us. And secondly, the loans that we made will come due before 2022. So, with the liquidity that we have because about $200 million or so or $300 million or so are very liquid and available and between that and the loans that will be paid down by our entities, we'll have $1 billion to pay the 2022 bond when it comes due.


Thank you. Ladies and gentlemen, I will now return the call to Mr. Sarmiento for closing remarks.

Luis Carlos Sarmiento Gutierrez -- President

All right. Thank you, Hilda. Well, first, I wanted to thank you all for your attention and for the sake of all, let's hope that the COVID-19 pandemic is soon brought under control and that the world's superpowers find a way to manage -- work the national resources in a way that is conducive to economic growth and not toward its detriment. In the meantime, we will make sure to keep you posted if there are significant developments in any of the fronts that we covered today in our presentation. If not, we hope to continue meeting your expectations and we'll see you next time.


[Operator Closing Remarks]

Duration: 72 minutes

Call participants:

Luis Carlos Sarmiento Gutierrez -- President

Diego Fernando Solano Saravia -- Chief Financial Officer

Gabriel Nobrega -- Citibank -- Analyst

Andres Soto -- Santander -- Analyst

Adriana De Lozada -- Scotiabank -- Analyst

Nicolas Riva -- Bank of America -- Analyst

Yuri Fernandes -- J.P. Morgan -- Analyst

Carlos Rodriguez -- Ultraserfinco -- Analyst

Sebastian Gallego -- CrediCorp Capital -- Analyst

Julian Felipe -- Corredores Davivienda -- Analyst

Diego Andres -- MCC Itau -- Analyst

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