Grupo Aval Acciones y Valores S.A. (NYSE:AVAL) Q1 2020 Earnings Conference Call May 20, 2020 10:00 AM ET Company Participants Luis Carlos Sarmiento Gutiérrez - President Diego Fernando Solano Saravia - Chief Financial Officer Conference Call Participants Andres Soto - Santander Investment Securities, Inc. Adriana De Lozada - Scotiabank Gabriel da Nóbrega - Citibank Nicolas Riva - Bank of America Merrill Lynch Judy Fernandez - JPMorgan Chase & Co. Carlos Gomez-Lopez - HSBC Securities Johanna Castro - Itaú BB ...

[Presentation of Financial and Other Information](index=6&type=section&id=PRESENTATION%20OF%20FINANCIAL%20AND%20OTHER%20INFORMATION) [Financial Statements and Conventions](index=6&type=section&id=Financial%20statements%20and%20Conventions) Outlines the report's accounting conventions, currency translations, key definitions, and data sources - All peso amounts are translated to U.S. dollars at a rate of **Ps 3,277.14 per U.S.$1.00** as of December 31, 2019, unless otherwise noted[8](index=8&type=chunk) - The consolidated financial statements for the years ended December 31, 2019, 2018, and 2017 are prepared in accordance with **International Financial Reporting Standards (IFRS)** as issued by the International Accounting Standards Board (IASB)[11](index=11&type=chunk) - The company adopted **IFRS 16 (Leases)** on January 1, 2019, using a modified retrospective approach without restating prior period comparatives[12](index=12&type=chunk) - Market share and competitive performance data are based on separate financial information prepared under **Colombian IFRS** as reported to the Superintendency of Finance, which may differ from the consolidated IFRS statements[23](index=23&type=chunk) - Grupo Aval's principal competitors in Colombia are identified as **Bancolombia, Davivienda, and BBVA Colombia**, while in Central America, competitors include Bancolombia, Banco General, and Banco Industrial[26](index=26&type=chunk)[28](index=28&type=chunk) [Part I](index=15&type=section&id=PART%20I) [Item 3. Key Information](index=15&type=section&id=ITEM%203.%20KEY%20INFORMATION) Presents selected consolidated financial data and a detailed discussion of significant business and security-related risks [A. Selected financial data](index=15&type=section&id=A.%20Selected%20financial%20data) Provides a five-year summary of key financial data from audited consolidated statements under IFRS Consolidated Statement of Income (2017-2019) | | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | **Total interest income** | 19,552.7 | 18,356.6 | 18,741.8 | | **Total interest expense** | (8,267.2) | (7,484.8) | (8,227.7) | | **Net interest income** | 11,285.5 | 10,871.8 | 10,514.1 | | **Net impairment loss on financial assets** | (3,755.1) | (3,797.3) | (3,854.9) | | **Income before income tax expense** | 7,451.7 | 7,334.1 | 4,915.2 | | **Net income for the year** | 5,365.5 | 5,184.6 | 3,162.4 | | **Net income attributable to Owners of the parent** | 3,034.4 | 2,912.7 | 1,962.4 | Consolidated Statement of Financial Position (2017-2019) | | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | **Total loans, net** | 173,942.3 | 168,685.7 | 160,754.3 | | **Total assets** | 278,832.6 | 259,675.2 | 236,538.5 | | **Customer deposits** | 175,491.4 | 164,359.5 | 154,885.2 | | **Total liabilities** | 245,484.3 | 230,120.8 | 210,667.3 | | **Total equity** | 33,348.3 | 29,554.3 | 25,871.2 | | **Equity attributable to owners of the parent** | 19,850.6 | 17,789.7 | 16,287.0 | Key Profitability and Credit Quality Ratios (2017-2019) | Ratio | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | **ROAA** | 2.0% | 2.2% | 1.4% | | **ROAE** | 16.4% | 17.8% | 12.6% | | **Efficiency ratio** | 47.6% | 45.7% | 50.1% | | **Cost of risk (net)** | 2.2% | 2.4% | 2.5% | | **Loans past due > 90 days / gross loans** | 3.3% | 3.1% | 2.8% | [D. Risk factors](index=23&type=section&id=D.%20Risk%20factors) Details material risks related to operations in Colombia and Central America, the financial industry, and the company's securities [Risks relating to Colombia and other countries in which we operate](index=23&type=section&id=Risks%20relating%20to%20Colombia%20and%20other%20countries%20in%20which%20we%20operate) Details macroeconomic, political, and social risks in Colombia and Central America impacting performance - The company's results are **materially affected by economic and political conditions** in Colombia and Central America, including changes in monetary policy, exchange rates, and governmental influence[65](index=65&type=chunk)[70](index=70&type=chunk) - The company and its officers are subject to **ongoing investigations** by the DOJ, SEC, and Colombian authorities regarding the Ruta del Sol Project Sector 2, which could result in significant penalties and reputational harm[90](index=90&type=chunk)[93](index=93&type=chunk)[95](index=95&type=chunk) - Recent tax reforms in Colombia (Law 2010 of 2019) introduced changes including a **progressive reduction of the corporate income tax rate** and a temporary surtax for financial institutions[107](index=107&type=chunk) - The **COVID-19 outbreak** poses a significant risk, causing economic disruption that could adversely affect loan growth, fee income, and overall financial results[117](index=117&type=chunk)[118](index=118&type=chunk)[123](index=123&type=chunk) [Risks relating to our businesses and industry](index=38&type=section&id=Risks%20relating%20to%20our%20businesses%20and%20industry) Outlines operational and industry-specific risks including credit, market, competition, and cybersecurity threats - A deterioration in the asset quality of the banking subsidiaries' loan portfolios could lead to **increased impairment losses**, particularly from customers susceptible to economic downturns[127](index=127&type=chunk)[128](index=128&type=chunk) - The company is subject to regulatory changes, including the implementation of **Basel III capital requirements** in Colombia by 2021 and supervision as a financial conglomerate, which could require additional capital[152](index=152&type=chunk)[160](index=160&type=chunk)[164](index=164&type=chunk) - **Cybersecurity threats** have increased significantly, and a security breach could result in financial loss, regulatory sanctions, and reputational damage[246](index=246&type=chunk)[248](index=248&type=chunk) - The company faces **intense competition** from large local and foreign banks as well as non-traditional providers, which could affect market share and profitability[254](index=254&type=chunk)[257](index=257&type=chunk) - The company is controlled by Mr. Sarmiento Angulo, who beneficially owns **97.5% of common shares**, allowing him to determine the outcome of substantially all shareholder actions[264](index=264&type=chunk)[265](index=265&type=chunk)[266](index=266&type=chunk) [Risks relating to our preferred shares and ADSs](index=76&type=section&id=Risks%20relating%20to%20our%20preferred%20shares%20and%20ADSs) Details risks for preferred shareholders and ADS holders, including exchange rate volatility and limited voting rights - Significant fluctuations in the **Colombian peso to U.S. dollar exchange rate** could adversely affect the U.S. dollar value of dividends and the market price of ADSs[277](index=277&type=chunk)[278](index=278&type=chunk) - The Colombian securities market is **relatively small and illiquid**, which may impair the ability of shareholders to sell preferred shares at the desired price and time[280](index=280&type=chunk)[281](index=281&type=chunk) - Holders of preferred shares and ADSs have **limited rights**, including no voting rights for the election of directors, and may face difficulties protecting their interests[285](index=285&type=chunk)[286](index=286&type=chunk)[288](index=288&type=chunk) - As a foreign private issuer, the company follows **Colombian corporate governance practices**, which differ from NYSE standards and may offer fewer investor protections[293](index=293&type=chunk)[294](index=294&type=chunk) - **Enforcement of U.S. court judgments in Colombia is difficult** and not guaranteed, as there is no bilateral treaty for automatic recognition[304](index=304&type=chunk)[802](index=802&type=chunk) [Item 4. Information on the Company](index=82&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) Provides a comprehensive overview of the company's history, corporate structure, business strategy, and operational segments [A. History and development of the company](index=82&type=section&id=A.%20History%20and%20development%20of%20the%20company) Establishes the company's market leadership and details its history, multi-brand strategy, and key growth pillars - Grupo Aval is the **largest banking group in Colombia and Central America** by total assets as of December 31, 2019[307](index=307&type=chunk) - The company operates a **multi-brand strategy**, with each of its four Colombian banks focusing on specific customer segments while adhering to group-level policies[311](index=311&type=chunk)[332](index=332&type=chunk) - The company's growth strategy is based on five pillars: **Risk management, Innovation and Digitalization, Efficiencies, Talent management, and Sustainability**[336](index=336&type=chunk)[345](index=345&type=chunk) - Key historical milestones include the acquisition of **BAC Credomatic in 2010**, the initial public offering of ADSs on the NYSE in 2014, and becoming a supervised Financial Conglomerate in 2019[376](index=376&type=chunk)[377](index=377&type=chunk) [B. Business overview](index=99&type=section&id=B.%20Business%20overview) Details the company's operational structure, competitive positioning, lending activities, and regulatory environment [Our Operations and Competition](index=99&type=section&id=Our%20Operations%20and%20Competition) Presents the company's operational structure and competitive analysis with market share data for key segments Colombian Market Share - Deposits (Dec 31, 2019) | | Grupo Aval aggregate | Bancolombia | Davivienda | BBVA Colombia | | :--- | :--- | :--- | :--- | :--- | | **Checking accounts** | 37.5% | 24.0% | 9.7% | 10.8% | | **Savings accounts** | 25.7% | 27.2% | 13.2% | 10.4% | | **Time deposits** | 23.0% | 22.1% | 15.8% | 12.5% | | **Total deposits** | 26.4% | 24.8% | 13.7% | 11.2% | Central American Market Share (Dec 31, 2019) | | BAC Credomatic | Bancolombia | Banco General | Banco Industrial | | :--- | :--- | :--- | :--- | :--- | | **Loans, net** | 10.3% | 9.3% | 7.6% | 6.0% | | **Assets** | 9.4% | 8.0% | 7.4% | 7.0% | | **Deposits** | 9.7% | 8.1% | 7.0% | 6.5% | Porvenir Market Share - Assets Under Management (Dec 31, 2019) | Fund Type | Porvenir | Protección | Colfondos | Skandia | | :--- | :--- | :--- | :--- | :--- | | **Mandatory** | 44.3% | 35.9% | 13.5% | 6.3% | | **Severance** | 47.9% | 38.9% | 10.6% | 2.6% | | **Total AUM** | 42.9% | 36.6% | 12.9% | 7.6% | [Business Segments and Statistical Data](index=106&type=section&id=Business%20Segments%20and%20Statistical%20Data) Provides a detailed statistical breakdown of each business segment's loan portfolios, deposits, and distribution networks Consolidated Total Loans, Net by Segment (Dec 31, 2019) | Segment | Commercial | Consumer | Mortgages | Microcredit | Total Loans, Net | | :--- | :--- | :--- | :--- | :--- | :--- | | **Banco de Bogotá (Consolidated)** | 69,208.8 | 33,440.1 | 15,199.0 | 404.0 | 113,110.1 | | **Banco de Occidente** | 22,062.0 | 7,208.2 | 1,641.3 | — | 29,374.1 | | **Banco Popular** | 7,333.2 | 11,961.1 | 951.8 | 5.4 | 19,260.2 | | **Banco AV Villas** | 2,947.8 | 6,797.0 | 2,419.3 | 0.9 | 11,671.2 | | **Corficolombiana** | 1,693.0 | 434.1 | 10.2 | — | 2,115.9 | | **Grupo Aval Consolidated Total** | **101,655.7** | **59,840.5** | **20,221.7** | **410.3** | **173,942.3** | Consolidated Customer Deposits by Segment (Dec 31, 2019) | Segment | Checking accounts | Savings accounts | Time deposits | Total Deposits | | :--- | :--- | :--- | :--- | :--- | | **Banco de Bogotá (Consolidated)** | 33,990.7 | 34,744.9 | 48,739.5 | 117,795.0 | | **Banco de Occidente** | 6,366.4 | 12,574.6 | 9,728.0 | 28,726.4 | | **Banco Popular** | 1,101.0 | 8,300.2 | 7,573.3 | 16,988.9 | | **Banco AV Villas** | 1,072.5 | 6,156.9 | 4,618.2 | 11,851.4 | | **Corficolombiana** | — | 467.8 | 3,530.7 | 4,067.5 | | **Grupo Aval Consolidated Total** | **42,449.7** | **59,352.8** | **73,225.2** | **175,491.4** | - The loan portfolio is analyzed by risk categories from 'A' (Normal risk) to 'E' (Risk of non-recoverability); as of Dec 31, 2019, **90.6% of the portfolio was classified as 'A' (Normal risk)**[625](index=625&type=chunk)[629](index=629&type=chunk) [Supervision and regulation](index=156&type=section&id=Supervision%20and%20regulation) Outlines the regulatory framework, including supervision as a financial conglomerate and Basel III capital requirements - Grupo Aval and its subsidiaries are primarily regulated by the **Superintendency of Finance, the Central Bank, and the Ministry of Finance** in Colombia[666](index=666&type=chunk) - Since February 6, 2019, under Law 1870, Grupo Aval is supervised as the **financial holding company of the Aval Financial Conglomerate**, subject to consolidated supervision[681](index=681&type=chunk)[692](index=692&type=chunk) - Colombian credit institutions are transitioning to **Basel III capital requirements**, effective January 1, 2021, which includes higher minimum capital ratios and capital buffers[717](index=717&type=chunk)[719](index=719&type=chunk)[720](index=720&type=chunk) - Lending to a single borrower is generally limited to **10% of a bank's technical capital**, extendable to 25% with eligible collateral or for financing 4G infrastructure concessions[745](index=745&type=chunk)[746](index=746&type=chunk) - FOGAFIN provides deposit insurance covering up to **Ps 50 million** per individual or corporation in the event of a bank liquidation[781](index=781&type=chunk) [D. Property, plant and equipment](index=189&type=section&id=D.%20Property,%20plants%20and%20equipment) Details the carrying amount of property, plant, and equipment categorized by asset type and operating segment Property, Plant and Equipment by Segment (Dec 31, 2019, in Ps billions) | Segment | Buildings and land | Machinery | Equipment | Bearer plants | Other properties | Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Banco de Bogotá** | 1,225.7 | 6.4 | 679.1 | — | 188.5 | 2,099.7 | | **Banco de Occidente** | 357.4 | 0.0 | 95.8 | — | 11.3 | 464.6 | | **Banco Popular** | 444.0 | 0.7 | 69.8 | — | 13.2 | 527.7 | | **Banco AV Villas** | 248.3 | — | 36.7 | — | 13.3 | 298.3 | | **Corficolombiana** | 955.5 | 1,118.9 | 39.0 | 224.1 | 51.9 | 2,389.3 | | **Grupo Aval Total** | **3,231.0** | **1,126.5** | **922.1** | **224.1** | **279.6** | **5,783.2** | [Item 5. Operating and Financial Review and Prospects](index=189&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) Presents management's discussion and analysis of financial condition and results of operations for the last three years [A. Operating results](index=189&type=section&id=A.%20Operating%20results) Provides management's analysis of financial performance, including key economic factors and a segment-by-segment review [Principal Factors and Critical Accounting Policies](index=190&type=section&id=Principal%20Factors%20and%20Critical%20Accounting%20Policies) Discusses key macroeconomic drivers and critical accounting policies that require significant management judgment - Colombian GDP grew at a rate of **3.3% in 2019**, up from 2.5% in 2018, driven mainly by private domestic consumption[816](index=816&type=chunk)[817](index=817&type=chunk) - The Colombian Central Bank's interest rate remained stable at **4.25% throughout 2019**, while inflation closed the year at 3.80%[827](index=827&type=chunk)[828](index=828&type=chunk) - Critical accounting policies requiring significant judgment include **impairment of financial assets (ECL)**, fair value of financial instruments, goodwill impairment, and deferred tax assets[838](index=838&type=chunk)[840](index=840&type=chunk)[841](index=841&type=chunk) [Results of Operations for the Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018](index=195&type=section&id=Results%20of%20Operations%20for%20the%20Year%20Ended%20December%2031,%202019%20Compared%20to%20the%20Year%20Ended%20December%2031,%202018) Analyzes the consolidated and segment-level financial results for 2019 compared to 2018 Grupo Aval Consolidated Results (2019 vs 2018) | (in Ps billions) | 2019 | 2018 | Change (%) | | :--- | :--- | :--- | :--- | | **Net interest income** | 11,285.5 | 10,871.8 | 3.8% | | **Net impairment loss on financial assets** | (3,755.1) | (3,797.3) | (1.1)% | | **Net income from commissions and fees** | 5,455.3 | 4,839.6 | 12.7% | | **Other expenses** | (10,171.3) | (9,371.0) | 8.5% | | **Net income for the year** | 5,365.5 | 5,184.6 | 3.5% | | **Net income attributable to Owners of the parent** | 3,034.4 | 2,912.7 | 4.2% | - Banco de Bogotá's attributable net income **decreased by 5.8%**, impacted by higher operating expenses and impairment losses[903](index=903&type=chunk) - Banco de Occidente's attributable net income **increased by 36.3%**, driven by a significant decrease in net impairment loss and higher other income[985](index=985&type=chunk) - Corficolombiana's attributable net income **decreased by 5.5%**, mainly due to lower gross profit from its infrastructure projects compared to a strong 2018[1095](index=1095&type=chunk) [Results of Operations for the Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017](index=250&type=section&id=Results%20of%20Operations%20for%20the%20Year%20Ended%20December%2031,%202018%20Compared%20to%20the%20Year%20Ended%20December%2031,%202017) Analyzes the consolidated and segment-level financial results for 2018 compared to 2017 Grupo Aval Consolidated Results (2018 vs 2017) | (in Ps billions) | 2018 | 2017 | Change (%) | | :--- | :--- | :--- | :--- | | **Net interest income** | 10,871.8 | 10,514.1 | 3.4% | | **Net impairment loss on financial assets** | (3,797.3) | (3,854.9) | (1.5)% | | **Net income from sales of goods and services** | 2,643.9 | 757.0 | 249.3% | | **Other expenses** | (9,371.0) | (9,003.1) | 4.1% | | **Net income for the year** | 5,184.6 | 3,162.4 | 63.9% | | **Net income attributable to Owners of the parent** | 2,912.7 | 1,962.4 | 48.4% | - The strong performance in 2018 was driven by **Colombia's economic recovery**, lower interest rates, strong results from non-financial operations, and a favorable tax impact[1136](index=1136&type=chunk)[1141](index=1141&type=chunk) - Banco de Bogotá's attributable net income **increased by 53.9%**, largely due to a Ps 956.0 billion increase in other income from PP&E optimizations and equity method investments[1192](index=1192&type=chunk)[1193](index=1193&type=chunk) - Corficolombiana's net income attributable to owners **increased by 121.1%**, driven by a Ps 1,886.9 billion increase in gross profit from the construction phases of 4G infrastructure projects[1144](index=1144&type=chunk)

Financial Data and Key Metrics Changes - Grupo Aval's total net income for 2019 reached PS.3.03 trillion, marking a 4.2% increase compared to 2018, with a return on average equity of 16.4% [19][46] - Consolidated assets grew by 7.4% year-over-year, while consolidated loans increased by 6%, driven by an 8% rise in consumer loans and a 9% rise in mortgage loans [20][32] - The cost of risk improved to 2.2% from 2.4% in the previous year, with a notable decrease in the fourth quarter to 2.1% [21][37] Business Line Data and Key Metrics Changes - The Colombian consumer and mortgage business expanded by 9.8% and 14.1% respectively over the year, while commercial loans grew by 4.3% [33] - Net fee income increased by approximately 13% for the year, driven by strong banking and pension fund fees [21] - Non-recurrent expenses impacted the bottom line by approximately PS.190 billion, primarily due to provisions related to CRDS and SITP [20] Market Data and Key Metrics Changes - Colombia's GDP growth for 2019 was 3.3%, up from 2.5% in 2018, with private consumption and investment increasing by 4.6% and 4.3% respectively [8][11] - The trade deficit widened to 3.8% of GDP in 2019 from 2.7% in 2018, driven by a 5.7% decrease in exports [12] - Employment deteriorated, with an average unemployment rate of 10.5% for 2019, up from 9.7% in 2018 [13] Company Strategy and Development Direction - The company is focusing on digitalization and cost optimization, with a goal to enhance efficiency and customer service [23] - Grupo Aval is cautious about 2020 guidance due to uncertainties from global events, including COVID-19 and oil price fluctuations [6][31] - The company aims to protect employee health and client services through remote work and digital access [7][49] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns over the global impact of COVID-19 and the oil dispute, stating it is too early to revise 2020 guidance [6][7] - The company noted that while the Colombian economy showed resilience in 2019, the current environment poses risks to growth and fiscal stability [9][15] - Management highlighted the importance of proactive measures to manage credit risks and support clients in affected industries [51] Other Important Information - Grupo Aval issued a $1 billion bond in January 2020, with strong demand from international investors [28] - The company has fully provisioned all problem commercial loans, including Electricaribe, and is monitoring the impact of Ruta del Sol on its financials [20][66] Q&A Session Summary Question: What immediate strategies is the bank implementing during these uncertain times? - The bank is focusing on employee safety through remote work, enhancing digital services for clients, and proactively managing credit risks [49][51] Question: Can you elaborate on asset quality and NPL ratios? - The bank noted that while Electricaribe was written off, new loans like Ruta del Sol entered the books, affecting NPL ratios [53] Question: What is the potential short-term impact of market volatility on banking and pension management? - Management discussed the mixed effects of FX fluctuations on pension fund values and liquidity, as well as the impact on banking operations [55][57] Question: What is the exposure to oil and gas companies? - The bank's exposure to oil and gas is around 1.2% of the loan portfolio, primarily related to gas pipelines, with tourism exposure at 0.5% [66] Question: Update on the Multibank transaction and AT1 bond issuance? - The transaction is expected to proceed as planned, with ongoing discussions regarding the timing of the AT1 bond issuance by BAC Credomatic [66]

Financial Data and Key Metrics Changes - Attributable net income for Q3 2019 was Ps. 743 billion or Ps. 33.4 per share, with an adjusted figure of Ps. 891 billion or Ps. 40 per share excluding provisions for CRDS [16][35] - Unadjusted accumulated attributable net income for the nine months ended September 30 was Ps. 2.3 trillion, reflecting a 12.5% increase compared to the same period in 2018 [16] - Return on average equity for the quarter was approximately 16%, increasing to 19% when excluding provisions for CRDS [17] Business Line Data and Key Metrics Changes - Loan portfolio grew by approximately 11% year-on-year and 5% in the quarter, with notable growth in the commercial portfolio [17][26] - Net interest margin for the quarter was 5.7%, driven by a 6.4% NIM on loans and 2.3% NIM on investments [17][31] - Net fee income for the nine months ended September 30 increased by 12% compared to the same period in 2018 [17][32] Market Data and Key Metrics Changes - Colombian assets grew by 9.8% year-on-year and 1.2% in the quarter, while Central America delivered 4.5% and 0.5% growth in dollar terms [26] - The exchange rate fluctuated between Ps. 3,170 and Ps. 3,480 per dollar, averaging around Ps. 3,400 [15] - Central America is expected to grow slightly less than 3% during 2019, with Nicaragua's economy expected to contract by 5% [15] Company Strategy and Development Direction - The company announced an agreement to acquire Multi Financial Group holding of Multibank in Panama, aiming to strengthen its presence in Central America and expand its customer base [23] - The acquisition is expected to close in Q2 2020, pending regulatory approvals, and will add approximately $3.5 billion in loans and $3 billion in deposits to the consolidated balance sheet [24] - The company is focusing on digitalization, with digital sales in Colombia representing 40% of total retail sales, up from 23% in Q4 2018 [19] Management's Comments on Operating Environment and Future Outlook - The Colombian economy is expected to grow by 3.2% in 2019, with a slight improvement to 3.3% in 2020, driven by private consumption and investment [10][11] - Inflation is projected to be around 3.8% for 2019, with expectations of easing to 3.5% in 2020 [12] - The management expressed confidence in the stability of the Central Bank's repo rate at 4.25% throughout 2019 and most of 2020 [12] Other Important Information - The company has adopted IFRS 16 retrospectively from January 1, 2019, impacting the comparability of quarterly results for 2019 with previous periods [5] - The company recorded a provision expense of Ps. 295 billion for Ruta del Sol, reaching an 86% coverage [28] Q&A Session Summary Question: Financing options for the acquisition of Multibank Panama - The company confirmed that no new capital influx is needed for the acquisition and is considering various funding options, including upstreaming dividends from BAC [39] Question: Outlook for provisions and cost of risk - The guidance for cost of risk has been reduced from 2.3% to 2.2%, with major cases like Ruta del Sol expected to be fully provisioned by year-end [40][41] Question: Strategies to increase ROE for Multibank - The company plans to implement synergies with its shared services center in Costa Rica to improve efficiency and extend better funding rates to the acquired bank [46] Question: NIM guidance and competition impact - The expected NIM contraction is attributed to increased competition and a shift towards a more historical average NIM [47] Question: NPL ratio in Central America - The company acknowledged past increases in NPLs, particularly in Nicaragua and Costa Rica, but noted positive trends and improvements in both countries [50][51] Question: Capital planning ahead of Basel III implementation - The company plans to be an early adopter of Basel III, expecting a substantial increase in regulatory capital due to changes in risk-weighted assets and inclusion of OCI accounts [70]

Financial Performance - Grupo Aval's gross loans increased by 108% year-over-year from $1618 billion in 3Q18 to $1793 billion in 3Q19, and by 50% compared to the previous quarter[12] - The net interest margin decreased slightly from 58% in 3Q18 to 57% in 3Q19[12] - Attributable net income decreased by 50% year-over-year from $078 billion in 3Q18 to $074 billion in 3Q19[12] - Return on Average Equity (ROAE) decreased from 191% in 3Q18 to 158% in 3Q19[12] - Accumulated attributable net income for the nine months ended September 2019 increased 125% versus the same period in 2018[13] Loan Portfolio Quality - The 90-day past due loans (PDLs) to total loans ratio increased slightly from 32% in 3Q18 and 2Q19 to 33% in 3Q19[12] - The cost of risk increased from 23% in 3Q18 to 25% in 3Q19[12] - Allowances/90+ PDL's at 153%[13] Regional Performance - In Colombia, gross loans increased by 65% year-over-year and 26% compared to the previous quarter, reaching $1221 trillion in 3Q19[16] - In Central America, gross loans increased significantly by 211% year-over-year and 108% compared to the previous quarter, reaching $571 trillion in 3Q19[17] - Central America's attributable net income increased by 138% year-over-year and 68% compared to the previous quarter, reaching $023 billion in 3Q19[18] Funding and Capital - Total deposits increased by 136% year-over-year and 48% compared to the previous quarter[53] - The tangible equity ratio increased from 86% in 3Q18 to 89% in 3Q19[12]

Financial Performance - Total interest income for 2018 was Ps 18,356.6 billion, with total interest expense of Ps 7,484.8 billion, resulting in net interest income of Ps 10,871.8 billion[39]. - Net income for the year 2018 was Ps 1,595.4 billion, a decrease from Ps 5,184.6 billion in 2017, reflecting a significant decline in profitability[39]. - Earnings per 1,000 shares (basic and diluted) in 2018 were Ps 130,725.4, compared to Ps 88,075.6 in 2017, reflecting improved earnings per share[39]. - Dividends declared per 1,000 shares in 2018 were Ps 60,000.0, an increase from Ps 48,000.0 in 2017, indicating a commitment to returning value to shareholders[41]. - Net income for 2018 was Ps 5,184.6 million, an increase from Ps 3,162.4 million in 2017, representing a growth of 64%[56]. - Net income attributable to owners of the parent reached Ps 2,912.7 million in 2018, up from Ps 1,962.4 million in 2017, marking a 48.5% increase[56]. - Non-controlling interest in net income for 2018 was Ps 699.1 billion, down from Ps 2,271.9 billion in 2017, indicating a decrease in earnings attributable to minority shareholders[39]. Assets and Liabilities - Total assets as of December 31, 2018, amounted to Ps 259,675.2 billion, an increase from Ps 236,538.5 billion in 2017[42]. - Total loans increased to Ps 168,685.7 billion in 2018, up from Ps 160,754.3 billion in 2017, indicating growth in lending activities[42]. - Customer deposits reached Ps 164,359.5 billion in 2018, compared to Ps 154,885.2 billion in 2017, showing a strong deposit base[42]. - The company’s equity as of December 31, 2018, was Ps 28,401.3 billion, up from Ps 22,336.8 billion in 2017, reflecting a stronger capital position[42]. - The total liabilities and equity reached Ps 79,906.2 million in 2018, compared to Ps 78,842.2 million in 2017, indicating a growth of 1.3%[43]. Profitability Ratios - The return on average assets (ROAA) improved to 2.2% in 2018 from 1.4% in 2017[45]. - The return on average equity (ROAE) increased to 17.8% in 2018, compared to 12.6% in 2017[45]. - The efficiency ratio improved to 43.1% in 2018 from 46.5% in 2017, indicating better cost management[45]. - The tangible equity ratio improved to 8.4% in 2018 from 7.9% in 2017, reflecting a stronger capital position[45]. Customer and Employee Growth - The number of customers of the banks grew to 15,654,858 in 2018, an increase from 14,700,386 in 2017, representing a growth of 6.5%[45]. - The number of employees increased to 91,191 in 2018, up from 80,565 in 2017, showing a growth of 13.5%[45]. Risks and Economic Conditions - The company faces risks from adverse economic and political conditions in Colombia, which could impact financial performance and operational stability[65][66]. - The Colombian economy's growth rate and external shocks remain critical factors influencing the company's overall performance and market outlook[74][78]. - Political instability in Colombia and neighboring countries may adversely affect the company's operations and financial condition[84]. - Changes in U.S. immigration and remittance policies could impact the regions where the company operates, indirectly affecting the Colombian economy[85]. - Regulatory uncertainty and government actions in Colombia may significantly affect the local economy and the company's financial results[87]. - The Colombian government has historically influenced the economy, and its policies will continue to impact the company[88]. Regulatory and Compliance Issues - The company is subject to ongoing investigations related to the Ruta del Sol Project Sector 2, which could result in penalties and negatively impact financial results[94]. - The Colombian government enacted tax reforms that could increase the company's tax burden, including a reduction in corporate income tax rates from 37% in 2018 to 30% in 2022[108]. - New tax regulations may adversely affect the company's results of operations and financial condition, particularly regarding dividend distributions[107]. - Changes in tax haven regulations could adversely affect the company's operations and financial condition[109]. - Compliance with anti-money laundering and anti-terrorism financing laws is mandatory, and failure to comply could result in fines and damage to reputation[234]. Investment and Market Risks - The exposure to the oil sector represented only 1.2% of the consolidated loan portfolio, suggesting limited risk from fluctuations in oil prices[77]. - As of December 31, 2018, foreign investments accounted for 31.2% of Porvenir's total assets under management, highlighting the global investment strategy[75]. - The percentage of non-performing loans may increase in the future due to economic conditions and political events affecting Colombia, potentially leading to higher impairment losses[120]. - The principal sources of funding for the banking subsidiaries were savings deposits, time deposits, and checking accounts, which represented 71.2% of consolidated total liabilities at December 31, 2018[137]. - Regulatory capital ratios may require the banking subsidiaries to raise additional capital in the future, especially if asset quality deteriorates[142]. - The company is subject to liquidity risk, which may result in increased funding costs if there is a sudden shortage of funds in the banking systems[137]. Cybersecurity and Operational Risks - Cybersecurity threats pose a risk to the company's operations, as it relies heavily on information systems for transaction processing and customer service[226]. - The company has implemented risk analysis processes and established a Computer Security Incident Response Team (CSIRT) to manage cyber incidents, although past attacks have not materially impacted the business[228]. - Outsourcing certain services poses risks, as third-party cyberattacks could disrupt business operations and lead to financial losses or reputational damage[229]. - The ability to manage growth effectively is crucial, as failure to integrate and monitor expanded operations could materially affect reputation and financial results[221]. Market Competition - The Colombian and Central American banking industry is experiencing increased competition and consolidation, which may adversely affect the company's market position[235]. - New banking institutions targeting microcredit and small to medium enterprises could impact the company's market share in these segments[236]. - The pace of consolidation in the financial services industry is increasing, leading to heightened competition in the markets where the company operates[237].