THE STRENGTH TO EMERGE

Colombia 2013 | ECONOMY | INTERVIEW

TBY talks to Luis Carlos Sarmiento Gutiérrez, CEO of Grupo Aval Acciones y Valores, on developing a wide range of financial services, expansion plans, and expectations for the Colombian economy.

Luis Carlos Sarmiento Gutiérrez
BIOGRAPHY
Since 2000, Luis Carlos Sarmiento Gutiérrez has been the CEO of Grupo Aval, Colombia’s largest financial conglomerate. He has 25 years of business experience in the banking, telecoms, and consumer-products sectors. Previously, he was the CEO of Cocelco, a cellular telecommunications firm. In the past he has served as Executive Vice-President at First Bank of the Americas in New York, and as an analyst and financial manager at Procter & Gamble’s corporate headquarters. He is also Chairman of the Board of Directors of Banco de Bogotá, and of Corficolombiana, the Group’s merchant bank, and is a member of the Board of Directors of Empresa de Energía de Bogotá. He has a degree in Civil Engineering from the University of Miami and an MBA specializing in finance from the Johnson Graduate School of Management at Cornell University.

The three largest banking groups in Colombia, which control around 60% of the country's banking operations, are all in the hands of Colombians. What are the strengths of the Colombian financial sector, and how would you assess the interest of foreign investors in recent years?

In general, Colombia's financial system has traditionally shown interesting growth and return opportunities in a stable regulatory environment. This makes it attractive for incumbent players, both local and international, and for new foreign participants alike. In particular, with regard to the Colombian financial system, there are two key points I would like to highlight. The first is strong growth. Six-year compound growth rates ranging from 15% to 20% for loans, deposits, equity, and net income are especially impressive considering this period included a global financial crisis. We expect this strong growth to continue over the medium to long term, given the positive prospects of the economy's growth, and the significant room for credit expansion in the country because of the low credit penetration of our financial system as a percentage of GDP when compared to other countries. Colombia's financial system gross loans represent 33% of GDP, lower than countries like Brazil (43%), and Chile (65%). Second, strong levels of capitalization, sound loan quality, and having gone through a mortgage crisis of our own in the late 1990s, Colombian financial institutions emerged stronger with healthy loan portfolios, with better provisioned balance sheets, and much higher levels of capitalization well above the minimums required by regulations.

What was the strategy behind Grupo Aval's purchase of BAC Credomatic?

Four to five years ago, Grupo Aval made the strategic decision to become a leading regional player, growing outside of Colombia. BAC Credomatic was the perfect target to launch that strategy as it provided us the leading regional player in Central America with a presence in all seven countries, in a market with strong connections to Colombia. Further, BAC Credomatic was, and continues to be, a very well-run business, with a very profitable credit card niche, and with significant growth potential both in its natural market and in new businesses arising from Colombian clients doing business in Central America. The results have proven us right. BAC's profits have grown from approximately $150 million when we acquired it in 2010, to over $260 million in 2012.

Is Grupo Aval planning to make further acquisitions in the short term, and are there any particular markets you're looking into?

Grupo Aval is constantly looking for acquisition opportunities to enhance and complement our financial service offerings in our current core markets of Colombia and Central America, and to expand, with a relevant presence, in new related markets. As such, under the right conditions, Grupo Aval would potentially make new acquisitions following the same rigorous process we've used successfully in the past.

“I expect the country to grow at approximately 4% in 2013."

Colombia's financial stability has positioned it well to play a more important role nationally as well as internationally. What is your outlook for Colombia's financial sector going forward?

Colombia's financial sector should continue to grow significantly in the medium term. The country has significant growth potential given the existing room for credit expansion to current clients and by introducing first-time users to the financial sector. Furthermore, Colombia has a strong financial regulatory environment that is constantly introducing new regulations to guarantee the strength of the bank's financial statements. This market will keep attracting new players that will increase competition and enhance value propositions to clients. Also, competition constantly makes us innovate and transform or else risk losing market share. Finally, this momentum will provide us with the resources and the competitive edge to continue the international expansion of Colombian financial institutions into relevant markets—Central America, the Caribbean, and other leading countries in South America.

What are Grupo Aval's short-term investment plans and how do you envision the future of the group?

In the short to medium term, Grupo Aval will be the leading regional financial player, offering, through our affiliates, the best financial services portfolio to our clients. For every financial need of a potential client in our regional markets, we strive to offer the right product and service through one of our affiliates. We will keep considering different alternatives to do so by designing those products and services in-house or by acquiring those that already provide them. In doing so, Grupo Aval's investors, both in equity and debt, will benefit as we consistently provide market-leading growth and returns. In the very short term, we will close on our latest $530 million acquisition of BBVA Horizonte, which will improve the position of our pension fund manager Porveni as the leader in Colombia.

What is your economic outlook for Colombia in 2013 and beyond?

We are bullish about Colombia's economy. I expect the country to grow at approximately 4% in 2013 and even better in subsequent years. This growth will be accompanied by contained inflation (less than 2% in the last 12 months) moderate unemployment rates (below 10%), a positive trade balance, contained fiscal deficit, and a steady exchange rate. In the following years, Colombia will take advantage of the conditions for sustained growth it has created through macro and fiscal prudency, the Central Bank's inflation monetary policies, the reduction of our sovereign risk regaining our investment grade status, key free trade agreements (FTAs) with core markets such as the US and Europe, and improved conditions for investors. More importantly, growth will come from a diverse base involving infrastructure, oil, mining, agribusiness, services, tourism, and more. Finally, I expect that the financial sector will be a critical driver of Colombia's growth by financing infrastructure and investment projects and the needs of our consumer clients.