EM LATAM CREDIT: Grupo Aval: 2Q 2025 Earnings - Positive
(AVALCB; Ba2/NR/BB+neg)
Improving profitability as problem asset ratios continued to decline with 90 day PDLs dropping 73bp YoY amid slow loan growth and an expanding net interest margin.
Slow loan growth reported but improving net interest margin led to a 641bp improvement in ROE and 49bp better ROA vs last year. Loan growth was better in Consumer and Mortgage loans relative to the rest of the banking system but slower in commercial loans.
Net interest margin improved 9bp in the banking segment sequentially and YoY.
Capitalization improved and remained solid in Aval's main banks Banco de Bogota, Banco de Occidente and Banco Popular. Bogota's Tier 1 capital rose to 13.3% from 12.3% a year ago.
AVALCB 2030s were last quoted T+249bp, 24bp tighter QTD and 32bp tighter YTD. Spread to the Colombia sovereign (COLOM; Baa3/BBneg/BB+neg) was 31bp and has ranged between 0 and 50bp YTD.
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GBP: Break to New Lows as EUR/GBP Closes Range With Multi-Year High
- A phase of selling pressure tilts GBP to new pullback lows, pressuring GBP/USD to 1.3447 on generally very light volumes. No specific newsflow or headlines behind the move. The Times reported that Chancellor Reeves is "poised to force firms to pay more into staff pensions" - a concept that, while not new, would add to pressure on smaller firms already pressured by the increase in employers' NICs in last year's budget, adding to the downside risk to the UK jobs market this year.
- Consequently, EUR/GBP has broken and cleared above the early July high - putting the cross at the best levels since early April and narrowing the gap with 0.8738 in the process. The bull trigger above remains 0.8738, the 2025 high and near-term upside target.
- BoE's Bailey flagged the MPC's potential responsiveness to further jobs declines in his interview with The Times earlier: "The Bank of England is ready to make larger cuts to interest rates if the jobs market shows signs of a pronounced slowdown", adding that there was “consistent” evidence of businesses “adjusting employment” after Rachel Reeves increased employers’ national insurance contributions (NICs).
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