Grupo Aval Acciones Y Valores S.A. | CIK:0001504764 | 3

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    • ifrs-full:DisclosureOfDerivativeFinancialInstrumentsExplanatory

    NOTE 10 – DERIVATIVE INSTRUMENTS AND HEDGE ACCOUNTING
     
    10.1
    Derivative Instruments
     
    The tables below show fair values as of December 31, 2017 and 2016 of Grupo Aval´s outstanding forward contracts, futures, interest rate swaps and foreign currency swaps.
     
    Held-for-trading derivative financial instruments comprise the following:
     
     
     
    December 31, 2017
     
     
    December 31, 2016
     
    Item
     
    Notional Amount
     
     
    Fair Value
     
     
    Notional Amount
     
     
    Fair Value
     
    Assets
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Forward contracts
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Foreign currency to buy
     
    Ps.
    6,126,920
     
     
    Ps.
    60,799
     
     
    Ps.
    5,255,735
     
     
    Ps.
    118,568
     
    Foreign currency to sell
     
     
    10,769180
     
     
     
    163,156
     
     
     
    10,206,225
     
     
     
    272,803
     
    Debt securities to buy
     
     
    191,500
     
     
     
    357
     
     
     
    -
     
     
     
    -
     
    Debt securities to sell
     
     
    430,035
     
     
     
    374
     
     
     
    -
     
     
     
    -
     
    Subtotal
     
    Ps.
    17,517,635
     
     
    Ps.
    224,686
     
     
    Ps.
    15,461,960
     
     
    Ps.
    391,371
     
    Swap
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Cross currency
     
     
    1,534,252
     
     
     
    33,104
     
     
     
    1,288,048
     
     
     
    44,593
     
    Interest rate
     
     
    6,855,627
     
     
     
    52,970
     
     
     
    6,021,481
     
     
     
    39,780
     
    Subtotal
     
    Ps.
    8,389,879
     
     
    Ps.
    86,074
     
     
    Ps.
    7,309,529
     
     
    Ps.
    84,373
     
    Futures Contracts
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Foreign currency to buy
     
     
    1,192,880
     
     
     
    -
     
     
     
    1,069,003
     
     
     
    -
     
    Foreign currency to sell
     
     
    2,873,592
     
     
     
    -
     
     
     
    1,198,784
     
     
     
    -
     
    Debt securities to buy
     
     
    408,000
     
     
     
    -
     
     
     
     
     
     
     
     
     
    Debt securities to sell
     
     
    84,000
     
     
     
    -
     
     
     
    -
     
     
     
    -
     
    Subtotal
     
    Ps.
    4,558,472
     
     
    Ps.
    -
     
     
    Ps.
    2,267,787
     
     
    Ps.
    -
     
    Options Contracts
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Foreign currency to buy
     
     
    -
     
     
     
    -
     
     
     
    563,522
     
     
     
    10,769
     
    Interest rate to buy
     
     
    -
     
     
     
    -
     
     
     
    31,550
     
     
     
    152
     
    Debt securities to buy
     
     
    1,369,942
     
     
     
    17,632
     
     
     
    739,512
     
     
     
    15,544
     
    Debt securities to sell
     
     
    -
     
     
     
    -
     
     
     
     
     
     
     
     
     
    Subtotal
     
     
    1,369,942
     
     
     
    17,632
     
     
     
    1,334,584
     
     
     
    26,465
     
    Total Assets
     
    Ps.
    31,835,928
     
     
    Ps.
    328,392
     
     
    Ps.
    26,373,860
     
     
    Ps.
    502,209
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Liabilities
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Forward contracts
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Foreign currency to buy
     
    Ps.
    9,027,166
     
     
    Ps.
    120,083
     
     
    Ps.
    9,286,812
     
     
    Ps.
    247,967
     
    Sale of Foreign currency
     
     
    5,547,955
     
     
     
    24,489
     
     
     
    7,039,126
     
     
     
    160,936
     
    Debt securities to buy
     
     
    185,000
     
     
     
    171
     
     
     
     
     
     
     
     
     
    Debt securities to sell
     
     
    437,100
     
     
     
    936
     
     
     
    597,500
     
     
     
    1,492
     
    Subtotal
     
    Ps.
    15,197,221
     
     
    Ps.
    145,679
     
     
    Ps.
    16,923,438
     
     
    Ps.
    410,395
     
    Swap
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Cross currency
     
     
    1,574,121
     
     
     
    79,263
     
     
     
    1,771,324
     
     
     
    164,906
     
    Interest rate
     
     
    5,884,551
     
     
     
    40,693
     
     
     
    4,210,766
     
     
     
    25,827
     
    Subtotal
     
    Ps.
    7,458,672
     
     
    Ps.
    119,956
     
     
    Ps.
    5,982,090
     
     
    Ps.
    190,733
     
    Futures Contracts
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Foreign currency to buy
     
     
    4,508,630
     
     
     
    -
     
     
     
    1,995,604
     
     
     
    -
     
    Foreign currency to sell
     
     
    815,407
     
     
     
    -
     
     
     
    409,747
     
     
     
    -
     
    Subtotal
     
    Ps.
    5,324,037
     
     
    Ps.
    -
     
     
    Ps.
    2,405,351
     
     
    Ps.
    -
     
    Options Contracts
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Foreign currency to buy
     
     
    -
     
     
     
    -
     
     
     
    -
     
     
     
    -
     
    Foreign currency to sell
     
    Ps.
    1,035,376
     
     
    Ps.
    33,030
     
     
    Ps.
    447,818
     
     
    Ps.
    19,960
     
    Debt securities to sell
     
     
    -
     
     
     
    -
     
     
     
    556,310
     
     
     
    19,607
     
    Subtotal
     
    Ps.
    1,035,376
     
     
    Ps.
    33,030
     
     
    Ps.
    1,004,128
     
     
    Ps.
    39,567
     
    Total Liabilities
     
    Ps.
    29,015,306
     
     
    Ps.
    298,665
     
     
    Ps.
    26,315,007
     
     
    Ps.
    640,695
     
     
    Derivative Financial Instruments for hedging purposes comprise the following:
     
     
     
    December 31, 2017
     
     
    December 31, 2016
     
    Item
     
    Notional Amount
     
     
    Fair Value
     
     
    Notional Amount
     
     
    Fair Value
     
    Assets
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Forward contracts
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Foreign currency to buy
     
    Ps.
    11,164
     
     
    Ps.
    1
     
     
    Ps.
    474,412
     
     
    Ps.
    3,914
     
    Foreign currency to sale
     
     
    2,589,739
     
     
     
    55,260
     
     
     
    3,735,363
     
     
     
    124,565
     
    Subtotal
     
    Ps.
    2,600,903
     
     
    Ps.
    55,261
     
     
    Ps.
    4,209,775
     
     
    Ps.
    128,479
     
    Futures Contracts
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Foreign currency to buy
     
     
    29,840
     
     
     
    -
     
     
     
    150,036
     
     
     
    -
     
    Foreign currency to sell
     
     
    1,602,408
     
     
     
    -
     
     
     
    973,730
     
     
     
    -
     
    Subtotal
     
     
    1,632,248
     
     
     
    -
     
     
     
    1,123,766
     
     
     
    -
     
    Total Assets
     
    Ps.
    4,233,151
     
     
    Ps.
    55,261
     
     
    Ps.
    5,333,541
     
     
    Ps.
    128,479
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Liabilities
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Forward contracts
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Foreign currency to buy
     
     
    729,692
     
     
     
    5,455
     
     
     
    967,702
     
     
     
    28,297
     
    Foreign currency to sell
     
     
    1,106,975
     
     
     
    8,009
     
     
     
    1,536,849
     
     
     
    15,139
     
    Subtotal
     
    Ps.
    1,836,667
     
     
    Ps.
    13,464
     
     
    Ps.
    2,504,551
     
     
    Ps.
    43,436
     
    Future Contracts
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Foreign currency to buy
     
     
    387,920
     
     
     
    -
     
     
     
    363,086
     
     
     
    -
     
    Foreign currency to sell
     
     
    1,153,316
     
     
     
    -
     
     
     
    190,545
     
     
     
    -
     
    Subtotal
     
    Ps.
    1,541,236
     
     
    Ps.
    -
     
     
    Ps.
    553,631
     
     
    Ps.
    -
     
    Total Liabilities
     
    Ps.
    3,377,903
     
     
    Ps.
    13,464
     
     
    Ps.
    3,058,182
     
     
    Ps.
    43,436
     
     
    Derivative instruments contracted by Grupo Aval or its consolidated entities are generally traded in either domestic financial markets or in over-the-counter international markets. Derivative instruments have a net favorable position (asset) or a net unfavorable position (liability) as a result of fluctuations in exchange rates, in interest rates or other variables relating to market conditions. As a result, the aggregate amount of fair values of the assets and liabilities in derivative instruments may vary significantly from time to time.
     
    10.2
    Hedge Accounting
     
    In accordance with its risk management policies, Grupo Aval uses hedge accounting to manage foreign exchange risk relating to investments in foreign operations and in forecasted transactions of its subsidiary Promigas, as follows:
     
    10.2.1
    Hedges of net investment in foreign operations
     
    Banco de Bogotá, Banco de Occidente and Promigas are exposed to foreign exchange risk relating to its investments in foreign subsidiaries, whose functional currencies are the US dollar.
     
    The purpose of hedge accounting is to mitigate and offset any adverse changes resulting from the fluctuation in exchange rate of the Colombian Peso and the functional currency of such investments. The impacts of those movements are reflected in the cumulative translation adjustment in other comprehensive income of the consolidated financial statements.
     
    To cover this risk, Grupo Aval hedges its exposure through foreign currency financial liabilities expressed in U.S. dollars and forward contracts for the sale of U.S. dollars, as permitted under IAS 39.
     
    Changes in the fluctuation of the Colombian peso against the U.S. dollar are as follows:
     
    Date
     
    Value of USD 1
     
     
    Variation in pesos
     
    December 31, 2015
     
     
    3,149.47
     
     
     
    757.01
     
    December 31, 2016
     
     
    3,000.71
     
     
     
    (148.76
    )
    December 31, 2017
     
     
    2,984.00
     
     
     
    (16.71
    )
     
    According to information described above, the following table contains details of hedging operations carried out to cover foreign denominated equity investments. The analysis is presented gross of taxes:
     
    December 31, 2017
     
     
     
    Thousands of USD
     
     
    Ps. millions
     
    Detail of investment
     
    Investment
    amount
     
     
    Amount of
    hedge by
    financial
    liabilities in
    foreign
    currency
     
     
    Amount of
    hedge by
    forward
    contracts
     
     
    Cumulative
    translation
    adjustment
    of the
    investments
    (1)
     
     
    Exchange
     difference of
    financial
    liabilities (1)
     
     
    Exchange
    difference in
    forward
    contracts
     
     
    Net OCI
    account
     
    Leasing Bogotá Panamá
     
     
    3,781,475
     
     
     
    (2,067,100
    )
     
     
    (1,703,009
    )
     
     
    3,065,281
     
     
     
    (1,045,872
    )
     
     
    (2,155,488
    )
     
     
    (136,079
    )
    Other subsidiaries and branches Banco de Bogotá (2)
     
     
    113,909
     
     
     
    -
     
     
     
    (112,049
    )
     
     
    92,891
     
     
     
    -
     
     
     
    (90,431
    )
     
     
    2,460
     
    Occidental Bank Barbados
     
     
    26,396
     
     
     
    (26,396
    )
     
     
    -
     
     
     
    18,740
     
     
     
    (18,740
    )
     
     
    -
     
     
     
    -
     
    Banco de Occidente Panamá
     
     
    25,044
     
     
     
    (25,044
    )
     
     
    -
     
     
     
    29,979
     
     
     
    (29,979
    )
     
     
    -
     
     
     
    -
     
    Sociedad Portuaria El Cayao S.A. E.S.P.  (3)
     
     
    25,000
     
     
     
    (25,000
    )
     
     
    -
     
     
     
    2,207
     
     
     
    (2,207
    )
     
     
    -
     
     
     
    -
     
    Gases del Pacífico S.A.C. (3)
     
     
    10,214
     
     
     
    (10,214
    )
     
     
    -
     
     
     
    902
     
     
     
    (902
    )
     
     
    -
     
     
     
    -
     
    Gas Natural de Lima y Callao S.A.C.  – Calidda (3)
     
     
    15,895
     
     
     
    (15,895
    )
     
     
    -
     
     
     
    1,272
     
     
     
    (1,272
    )
     
     
    -
     
     
     
    -
     
    Total
     
     
    3,997,933
     
     
     
    (2,169,649
    )
     
     
    (1,815,058
    )
     
     
    3,211,272
     
     
     
    (1,098,972
    )
     
     
    (2,245,919
    )
     
     
    (133,619
    )
     
    (1)
    Includes exchange difference hedged
     
    (2)
    Includes Banco de Bogotá Panamá, Banco Bogotá Finance, Ficentro and contributions of foreign branches in Miami, New York and Nassau.
     
    (3)
    Includes only a portion of this investments hedged
     
    December 31, 2016
     
     
     
    Thousands of USD
     
     
    Ps. Millions
     
    Detail of investment
     
    Investment
    amount(1)
     
     
    Amount of
    hedge by
    financial
    liabilities in
    foreign
    currency
     
     
    Amount of
    hedge by
    forward
    contracts
     
     
    Cumulative
    translation
    adjustment
    of the
    investments
     
     
    Exchange
    difference of
    financial
    liabilities
     
     
    Exchange
    difference in
    forward
    contracts
     
     
    Net OCI
    account
     
    Leasing Bogotá Panamá
     
     
    3,436,658
     
     
     
    (2,074,100
    )
     
     
    (1,346,889
    )
     
     
    3,115,527
     
     
     
    (1,080,737
    )
     
     
    (2,171,234
    )
     
     
    (136,444
    )
    Other subsidiaries and branches Banco de Bogotá (2)
     
     
    100,827
     
     
     
    -
     
     
     
    (100,260
    )
     
     
    94,139
     
     
     
    -
     
     
     
    (91,517
    )
     
     
    2,622
     
    Occidental Bank Barbados
     
     
    25,401
     
     
     
    (25,401
    )
     
     
    -
     
     
     
    19,176
     
     
     
    (19,176
    )
     
     
    -
     
     
     
    -
     
    Banco de Occidente Panamá
     
     
    21,699
     
     
     
    (21,699
    )
     
     
    -
     
     
     
    29,627
     
     
     
    (29,627
    )
     
     
    -
     
     
     
    -
     
    Total
     
     
    3,584,585
     
     
     
    (2,121,200
    )
     
     
    (1,447,149
    )
     
     
    3,258,469
     
     
     
    (1,129,540
    )
     
     
    (2,262,751
    )
     
     
    (133,822
    )
     
    (1) Includes only exposure hedged under hedge accounting.
    (2) Includes Banco de Bogotá Panamá, Banco Bogotá Finance, Ficentro and contributions of foreign branches in Miami, New York and Nassau.
     
    10.2.2
    Hedging with Forward Contracts
     
    Forward contracts to sell U.S. dollars have been contracted to hedge part of the net foreign investment that Banco de Bogotá has in Leasing Bogotá Panamá and others foreign subsidiaries. The forward contracts were executed with counterparties from the financial sector and the hedge was documented as a "dynamic hedging strategy," where new forward contracts are signed simultaneously as the previous ones expire. According to IAS 39, changes in the fair value of derivatives due to changes in the peso/U.S. dollar exchange rate are registered under “Other Comprehensive Income” in equity and the ineffective part is recognized in the statement of income for the period
     
    10.2.3
    Hedging with Debt in Foreign Currency in U.S. dollars
     
    Debt financial instruments that are not derivatives can be designated as hedging instruments of changes in foreign currency exchange rates. According to this rule Banco de Bogotá and Banco de Occidente designed debt in U.S. dollar as hedging instruments of their foreign subsidiaries as follows:
     
    ·
    Bonds issued by Banco de Bogotá in the international market were designated as hedging instruments of its investment in Leasing Bogotá Panamá amounting US$2,067 million in 2017 and US$2,074 million in 2016.
     
    ·
    Other financial liabilities in the amount of $103 million as December 31, 2017 (US$47 million as of December 31, 2016) were used to hedge part of the net foreign investment that Banco de Bogotá, Banco de Occidente and Promigas has in foreign subsidiaries as part of a hedging strategy, by which when some obligations expire, new obligations will be designated to replace them.
     
    ·
    Between December 21, 2015 and November 2, 2016, financial liabilities designated as hedging instruments described above included an intra-group liability amounting to US$ 500 million that Banco de Bogotá had as a hedging instrument of its investment in Leasing Bogotá Panamá. This operation was eliminated in the consolidation process of Grupo Aval and was excluded of the foreign investment hedge accounting. Starting May 1st and up to November 2nd, 2016 Grupo Aval designated financial assets in foreign debt securities amounting to US$ 500 million as cash flow hedge, the foreign exchange differences of this intra-group liability were not eliminated in the consolidation process and recorded in Other Comprehensive Income in the amount of Ps. 73,705. This value would be realized in the future as income only when the investment in Leasing Bogotá Panamá is sold. On November 2nd, 2016 Banco de Bogotá cancelled the intragroup liability amounting to US$ 500 million which was replaced in the foreign investment hedge accounting with other obligations in foreign currency with third parties.
     
    10.2.4
    Hedging of Forecasted Transactions
     
    In the ordinary course of its operations Promigas S.A. and its subsidiaries receive income in U.S. Dollars derived from the transportation of gas in their gas pipelines. Promigas and its subsidiaries hedge the exchange risk arising in future transactions of highly probable gas transportation income, entered into forward contracts for the sale of U.S. dollars with financial entities different from the ones consolidated into Grupo Aval. During the years ended December 31, 2017, 2016 and 2015, an exchange difference recognized under “Other Comprehensive Income” as a result of cash flow hedge accounting of income from these highly probable transactions, was reclassified to profit or loss in the amounts of Ps. (26,846), Ps. 5,037 and Ps. (16,542) respectively.
     
    The following is the summary of Promigas and its subsidiaries open cash flow hedges:
     
     
     
    December 31,
    2017
     
     
    December 31,
    2016
     
    Income in U.S. dollars forecasted
     
     
    41,614
     
     
     
    142,731
     
    Notional amount contracts forward U.S. dollars
     
     
    41,614
     
     
     
    99,912
     
    % hedged
     
     
    100
    %
     
     
    70
    %
    Fair value in Colombian pesos
     
     
    4,303
     
     
     
    4,824
     
    # of contracts
     
     
    468
     
     
     
    892
     
     
    The movement of the accumulated OCI account related to cash flow hedges in Colombian pesos during the years ended on December 31, 2017, 2016 and 2015 is as follows:
     
     
     
    December 31,
    2017
     
     
    December 31,
    2016
     
     
    December 31,
    2015
     
    Balance at the beginning of the year
     
     
    6,210
     
     
     
    (11,757
    )
     
     
    (26,790
    )
    Changes in the fair value of the hedge forward contracts
     
     
    24,506
     
     
     
    12,930
     
     
     
    31,575
     
    Reclassified to profit or loss
     
     
    (26,846
    )
     
     
    5,037
     
     
     
    (16,542
    )
    Balance at the end of the year
     
    Ps.
    3,870
     
     
    Ps.
    6,210
     
     
    Ps.
    (11,757
    )
     
    10.2.5
    Testing of Hedge Effectiveness
     
    Grupo Aval considers hedging as highly effective if at the beginning and in subsequent periods, the hedging is highly effective at offsetting changes in fair value or in cash flows attributable to the risk hedged during the period for which the hedging has been designated. The hedging is considered as such if the effectiveness of the hedging is in a range between 80% and 125%. Such effectiveness is assessed by Grupo Aval‘s entities at least quarterly and at the end of each accounting period.
     
    Grupo Aval has documented the hedging effectiveness of its foreign currency denominated investments in based on the portion of the net investment hedged at the beginning of the hedging relationship. Since the net balance of these investments fluctuates during the year, Grupo Aval evaluates the hedging relationship on a daily basis as well as the result of the testing of hedge effectiveness.
     
    10.2.6
    Hedge Effectiveness with Forward Contracts
     
    Grupo Aval applies the method of the forward rate used in forward contracts to evaluate the hedge effectiveness; for such purpose, Grupo Aval measures the hedge ineffectiveness comparing the value of current forward contracts, which serve as hedge, with the change in the value of a hypothetical derivative with the same maturity.
     
    10.2.7
    Hedge Effectiveness with Debt Instruments in Foreign Currency
     
    For debt instruments in foreign currency designated as a hedging instrument, the gain or loss arising from the conversion of the debt to Colombian Pesos is based on the current exchange rate between the U.S. dollar and the Colombian Peso, which is the functional currency of Grupo Aval. If the notional amount of the hedging instrument exactly matches with the portion of the hedged investment in foreign operations, no ineffectiveness is registered in the statement of income.