Report Grupo Aval (AVAL) – Investment Opportunity?

Grupo Aval Acciones y Valores S.A. is the largest financial conglomerate in Colombia and one of the banking leaders in Central America. Through its subsidiaries, it controls four Colombian banks — Banco de Bogotá, Banco de Occidente, Banco Popular, and Banco AV Villas — in addition to the pension fund administrator Porvenir and the financial corporation Corficolombiana.

It also has a significant international presence through BAC Credomatic, a banking group operating in six Central American countries. Combined, Grupo Aval offers a wide range of financial services (commercial banking, insurance, pensions, investments) to both public and private sector clients, with geographic strength concentrated in Colombia and the Central American region.

Fundamental Analysis

Grupo Aval posted a remarkable recovery in its results. In the first quarter of 2025, it reported a consolidated net income of COP 362 billion, a 217.8% increase compared to the same period the previous year (COP 113.7 billion). Even compared to the prior quarter, profits rose by 28%.

This strong rebound is partially due to extraordinary costs that affected 1Q2024 (e.g., new taxes on the financial sector), while 2025 shows a normalization of profitability. According to management, these results confirm a “recovery trend” and support projecting an ROE above 10% once again.

Revenue and Margins

Total revenues also increased, supported by a higher financial margin. Gross loan portfolio grew 5.4% year-over-year to COP 198.8 trillion as of 1Q2025. Despite the high interest rate environment in Colombia during 2023–2024, Aval managed to maintain a resilient net interest margin (NIM) and improve efficiency. The company highlights a “positive trend” in banking operations, with higher margins, better asset quality, and controlled operating costs.

Delinquency (NPL >90 days) reached 4.3% as of September 2024 (up from 3.8% a year earlier due to challenging conditions), but Fitch Ratings expects a slight improvement in 2025 as inflation falls and credit activity picks up. Provision coverage is sound at 125%, providing a buffer against defaults.

Profitability, Debt, and Solvency

For full-year 2024, Grupo Aval posted consolidated profits of COP 1.01 trillion, a +37.4% annual growth. This improvement occurred despite elevated provisioning costs in 2023–2024, reflecting the resilience of its financial business and stronger returns from non-banking investments (Corficolombiana’s infrastructure and energy assets contributed higher earnings).

The holding’s leverage is manageable: as of September 2024, its tangible capital-to-assets ratio was 8.6%, in line with historical averages, and expected to improve further with margin stabilization and lower funding costs. Holding-level financial debt totaled ~COP 5.8 trillion, but is well covered by cash and dividend flows from subsidiaries.

Fitch affirmed Aval’s international credit rating at BB+ (non-investment grade/high speculative), with a negative outlook (March 2025), citing Colombian macro risks despite Aval’s solid liquidity and debt servicing ability. S&P Global Ratings also maintained Aval at BB+ with a negative outlook (January 2024). These ratings indicate adequate solvency, but sensitive to domestic country risk.

Business Model Strengths

Grupo Aval maintains a leadership position in the local market, with about 25% market share in deposits and loans across the Colombian financial system. This gives it significant market power and a strong funding base (about two-thirds of its liabilities are low-cost deposits). Its diversified portfolio — universal banking, pensions, fiduciary services, leasing, and investments — allows for synergies and offsets underperformance in one segment with strengths in others.

For instance, in 2024, its pension subsidiary Porvenir managed ~46.9% of the country’s mandatory pension funds, generating stable fee income. Geographically, its presence via BAC Credomatic in Central America provides revenue in dollarized or differently cycled economies, reducing exclusive dependence on Colombia.

Historically, the Central American business has contributed a significant portion of Aval’s total assets and earnings — BAC has been seen as a growth engine and value generator.

Key Risks

Despite its strengths, Aval faces several challenges. In Colombia, economic growth has slowed amid high interest rates (Banco de la República’s policy rate hit 13.25% in 2023) and high inflation, which weigh on credit demand and borrowers’ repayment capacity. Although the situation appeared to bottom out in late 2023, there is still risk of asset deterioration in certain segments (unsecured consumer credit, SMEs), requiring elevated provisioning.

Political and regulatory risk is relevant: the current government implemented tax and pension reforms that directly impact the sector. The 2024 pension reform, effective July 2025, stipulates that contributions from workers earning up to 2 minimum wages will be directed to the public fund (Colpensiones), reducing flows to private funds like Porvenir. This could cut fee income from the pensions unit moving forward.

On the tax side, financial institutions now face surtaxes that increase the effective corporate tax burden, affecting comparative net income. In Central America, risks include potential currency devaluations or political instability in certain countries, though BAC operates mainly in relatively stable jurisdictions (Panama, Costa Rica).

Interest Rate Impact

The interest rate cycle is a double-edged sword. In 2022–2023, high rates boosted financial income (active interest) but also raised funding costs and delinquency. Looking ahead to 2025, a rate-cutting cycle is anticipated in Colombia (the central bank may lower rates if inflation moves closer to target).

This would benefit Aval via:

1. Lower funding costs (deposits and floating-rate bonds fall),
2. Increased credit demand as the economy reactivates, and
3. Reduced pressure on non-performing loans as financial burdens on clients ease.

Fitch projects that under this scenario, Aval’s consolidated operating ROA could return to 2.5–3%, compared to recent depressed levels (~2% or less). However, a steep rate cut could slightly compress NIMs in the medium term if lending rates fall faster than funding costs — Aval must therefore carefully manage its asset/liability duration gap.

Geographic Exposure – Colombia vs. Central America

Most of Aval’s assets, loans, and deposits are concentrated in Colombia, its main market. For instance, Banco de Bogotá — its largest banking subsidiary — holds about 83% of its loan portfolio in Colombia.

However, through BAC Credomatic, Aval maintains a significant presence in Panama, Costa Rica, Guatemala, and El Salvador. Prior to 2022, BAC represented nearly one-third of Banco de Bogotá’s operating earnings. In 2022, Grupo Aval distributed a majority stake in BAC Holding International to its shareholders, retaining an indirect minority stake. As a result, Central America is no longer fully consolidated into Aval’s financials but remains economically significant for shareholders.

In short, Colombia generates most of Aval’s current results, while Central America offers diversification and long-term growth potential. Any economic improvement in the region (e.g., recovery in Panama or Costa Rica) or strategic monetization of the remaining BAC stake would be an additional tailwind for the holding.

12-Month Price Targets for AVAL

Analyst consensus reflects moderate expectations for Aval. According to MarketScreener, the average 12-month price target is COP 620 per local share (~$3.10 USD per ADR), with a range from COP 600 to COP 640. This suggests limited upside (~+3%) from the current price (~COP 600), and a general recommendation of “Hold”.

International coverage of Aval is limited. J.P. Morgan and Scotiabank are among the few firms covering the stock. J.P. Morgan took a cautious view, downgrading Aval to Underweight after weak results in mid-2023, with a price target of COP 550 (~$2.75 USD per ADR), citing concerns about slow growth and Colombian political risk.

Scotiabank and other regional firms maintain more neutral stances, recognizing Aval’s franchise strength but also acknowledging the uncertainties.

While the consensus does not forecast a major rally in Aval’s stock over the next 12 months, these projections could be revised upward if macro conditions improve more than expected (e.g., faster rate cuts or favorable corporate developments).

A moderately aggressive investor should weigh the limited analyst upside against the potential for positive surprises if Aval exceeds earnings expectations or sentiment toward Colombia improves.

What’s Being Said About Grupo Aval – Rumors

A variety of rumors and market speculation have emerged around Grupo Aval’s potential corporate strategies:

• Spin-off or sale of BAC Credomatic: There is anticipation that Aval may complete the separation of its Central American business, BAC Credomatic. In 2022, Aval already distributed ~75% of BAC’s shares to its shareholders. Now, it is rumored that the group could monetize the remainder through an IPO or a sale on NYSE.
  • Impact: Potentially positive, as a full spin-off could unlock value for shareholders (BAC is a valuable asset that could trade at higher multiples than currently reflected in AVAL’s valuation). However, it would reduce Aval’s geographic diversification, leaving it more Colombia-centric in the medium term.
    
• Internal bank mergers within the group: Since Aval operates four commercial banks in Colombia, rumors periodically surface about potential internal consolidation — for example, merging Banco AV Villas with Banco de Bogotá or Banco de Occidente with Banco Popular. The goal would be to eliminate redundancies, cut operating costs, and gain efficiency through scale.
  • Impact: Could be positive in terms of cost savings and client base consolidation. However, banking mergers involve operational and regulatory risks (Superfinanciera approvals, system integration, possible layoffs). So far, Aval hasn’t announced anything concrete — it remains speculative.
    
• Fintech alliances or digital banking ventures: Aval has reportedly been exploring strategic alliances with fintechs or in-house tech development to accelerate its digital transformation. It already launched initiatives such as the digital wallet “dale!” and Tags Aval, its instant payment platform, which reached 8.9 million users in 2025.
  • Impact: Generally positive, as greater digitalization improves competitiveness versus fintechs and digital-native banks. Partnerships with established fintechs could boost innovation and attract younger clients. Risks include execution costs and cultural integration. However, any bold fintech move by Aval would likely be well received by the market, showing adaptability.
    
• Pension reform and insurance sector changes: While not strictly a rumor, it’s a structural factor. Colombia’s 2024 pension reform will affect Aval’s pension fund Porvenir. Analysts speculate that Aval may seek to reorganize, find partners, or even partially divest Porvenir to mitigate the impact. No confirmation exists.
  • Impact: Proactive moves (e.g., launching voluntary pension products or forming public-private partnerships) could soften revenue loss and be seen positively. Conversely, lack of action or weak results post-reform may pressure the stock (negative impact).
    
• Possible ADR delisting from NYSE: Given AVAL’s low ADR price (< $3 USD) and modest trading volume, fears have emerged that the company could voluntarily delist from the NYSE to cut regulatory costs. Some Colombian issuers have taken that route in recent years.
  • Impact: Negative in the short term for the ADR, as international investors may rush to exit due to liquidity concerns. In the long term, it would reduce Aval’s global visibility. However, investors would still own local shares on Colombia’s BVC. The company has reaffirmed compliance with NYSE standards, but the rumor lingers as a source of uncertainty.
    

In summary, these rumors span from transformative corporate moves (spinning off BAC, bank mergers) to strategic responses to regulatory and tech shifts. For investors with a moderate-aggressive profile, many represent optional upside catalysts — not guaranteed, but valuable if realized. On the downside, items like a potential delisting could generate short-term volatility. The best course is to monitor official announcements and financial news closely.

---

Technical Analysis of AVAL Stock

So far in 2025, Grupo Aval’s ADR has staged a moderate recovery from lows, though it continues to move within a medium-term consolidation range. As of May 2025, the ADR trades near $2.80–$2.85, close to the midpoint of its 52-week range (low ~$1.94, high ~$3.32).

Key technical indicators:

• Trend and Moving Averages: The short-term trend improved after the 1Q25 results. In early May, the stock rose ~5% and broke above its 50-day moving average (~$2.60). It is now nearing the 200-day average (~$2.90). A confirmed breakout above the 200 MA would signal a long-term bullish shift. NYSE trading volume is light (20k–80k shares/day), implying moderate liquidity and potential volatility.
  
• Relative Strength Index (RSI): The 14-day RSI is currently in the neutral zone (50–60), after recovering from oversold levels in April. This suggests no extreme buying or selling pressure. The RSI supports a consolidation scenario: the stock may continue ranging while awaiting a new catalyst.
  
• MACD (Moving Average Convergence Divergence): The MACD histogram turned negative in late February but has since shown convergence toward a bullish crossover. While no clear buy signal has emerged, momentum is improving. A crossover above the signal line later in May could strengthen the technical case.
  
• Support and Resistance: On the Colombian BVC, PFAVAL has critical support around COP 560 (~$2.80 per ADR), aligning with current ADR prices. Holding above this level avoids downside breakouts. If it breaks below $2.70, the next support lies around COP 500 (~$2.50). Resistance is seen around COP 620–640 ($3.10–$3.20), where the stock peaked in November 2024 and analysts have set their consensus targets. A breakout above $3.20 would be technically significant, opening room toward $3.32 (annual high) or even $4.00, if supported by a strong fundamental catalyst.
  

Conclusion (Technical): Most indicators suggest a neutral-to-slightly-positive technical setup. There’s no strong “buy” signal yet, but also no red flags. For moderate-aggressive investors, this may be an opportunity to accumulate at support levels, with a stop-loss below $2.70, anticipating a breakout in the coming months if fundamentals improve.

12-Month Outlook for Grupo Aval – Scenarios

Grupo Aval’s 12-month outlook holds a slightly positive bias under the base-case scenario:

• Base Case: Colombian macro stabilizes, inflation falls, and rate cuts begin gradually. Aval posts modest earnings growth, maintains a ~10% ROE, and offers ~5–6% dividend yield. Stock trades in a $2.80–$3.20 range. Analysts maintain Hold ratings.
  
• Bullish Scenario: Faster-than-expected rate cuts, recovery in credit demand, and successful BAC monetization or merger news. Stock breaks above resistance levels, re-rates to $3.50–$4.00, delivering +20% to +30% total return including dividends.
  
• Bearish Scenario: Policy missteps, recession, worsening credit quality, and adverse reforms (e.g., pensions). Profits decline, market sentiment deteriorates, and the stock revisits lows near $2.00. Dividend cuts are possible. Temporary loss of investor confidence.
  

Conclusion – A Moderately Aggressive Opportunity

Grupo Aval (AVAL) currently presents a moderately aggressive investment opportunity, where the potential upside comes with manageable risks. Its diversified business, earnings rebound, and potential macro tailwinds (lower rates) support the investment case.

The stock trades at modest multiples, offers stable dividends (~5%), and could see valuation expansion if strategic catalysts materialize (e.g., BAC monetization, digital transformation, merger efficiencies). Risks include Colombian policy shifts, execution challenges, and thin ADR liquidity.

For investors seeking emerging market financial exposure with structured upside optionality, AVAL offers a compelling setup — provided that positions are sized appropriately, with active monitoring of political and macro signals.

Why AVAL?

1. Undervalued financial leader in a large LatAm economy
2. Earnings recovery underway with macro normalization
3. Hidden value in assets like BAC, Porvenir, Corficolombiana
4. Dividend flow while waiting for re-rating
   

With patience and discipline, AVAL may reward investors who enter during this consolidation window and position for a 12-month revaluation based on improving fundamentals.