Interest income and expense are recognized in profit or loss using the effective interest rate method. The ‘effective interest rate’ is the rate that discounts the estimated future cash payments and receipts through the expected life of the financial asset or financial liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or financial liability. When calculating the effective interest rate, Grupo Aval estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses.
The calculation of the effective interest rate includes transaction costs and fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial liability.
Interest income and expense presented in the statement of profit or loss:
| (i) | interest on financial assets and financial liabilities measured at amortized cost calculated using the effective interest method; |
| (ii) | interest on available-for-sale debt securities calculated using the effective interest rate method; |
Interest income and expense on all trading assets and liabilities are considered to be incidental to Grupo Aval’s trading operations and are presented together with all other changes in the fair value of trading assets and liabilities in net trading income (Note 29).
Fair value changes on other derivatives held for risk management purposes, and other financial assets and financial liabilities carried at fair value through profit or loss (FVTPL), are presented in net income from other financial instruments at FVTPL in the statement of profit or loss and OCI.
‘Net trading income’ comprises net gains or losses related to held for trading assets and liabilities, and includes all realized and unrealized fair value changes, interest, dividends and foreign exchange differences.
| · | Revenue from commissions and fees |
Commissions and fees are recognized as revenue in profit or loss as follows:
| i. | Commissions for banking services: when services are rendered; |
| ii. | The commissions on credit cards are booked and amortized on a straight line basis during the estimated useful life of the product and; |
| iii. | The commissions and fees accrued on the granting of new loans, net of incurred cost, are deferred and recognized in profit or loss during the life of the loans, net of incurred cost, using the effective interest method. |
| · | Revenue from services and sales of goods |
Revenues are measured at fair value of the consideration received or receivable, and represent amounts to be collected for the delivered goods or rendered services, net of discounts, returns, and the value added tax.
Grupo Aval recognizes revenues when the amount can be measured in a reliable manner, when it is likely that future economic benefits will flow to the entity and when the specific criteria for each activity of the entities of Grupo Aval have been fulfilled a follows:
Grupo Aval renders services regarding several activities. Revenue from services is recognized in the period when the service is provided. The services are rendered, with reference to the completion stage of the specific transaction and assessed on the basis of the real service provided, as a proportion of all of the services that will be rendered. When the services are rendered through an undetermined number of acts, throughout a specific period of time, income is recognized on a straight line basis throughout the period.
| · | Customer loyalty programs |
Financial entities and hotels of Grupo Aval manage several loyalty programs in which the customers accumulate points for their purchases, entitling them to redeem such points for prizes in accordance with the policies and the prize plan in force as of the redemption date. Reward points are recognized as an identifiable component separate from income for the service rendered, at their fair value. Income from loyalty programs is deferred and recognized in profit or loss when the entity has fulfilled its obligations to supply the products under the terms of the program or when it is no longer probable that the points under the program will be redeemed.
Sale of goods
Revenue from the sale of goods from the non-financial sector is recognized when the risks and returns and control of the products are transferred to the buyer.
