March 28, 2017

Transcript 4Q2016

4Q2016 CONSOLIDATED EARNINGS RESULTS CALL TRANSCRIPT

MARCH 28TH, 2017

PARTICIPANTS

As an issuer of securities in Colombia, Grupo Aval is re-

Luis Carlos Sarmiento Gutiérrez quired to comply with periodic reporting requirements in

Grupo Aval Acciones y Valores S.A. corporate governance. However, it is not regulated as a

Chief Executive Officer financial institution or as a holding company of banking subsidiaries and, thus, is not required to comply with ca-

Diego Solano Saravia pital adequacy regulations applicable to banks and other

Grupo Aval Acciones y Valores S.A. financial institutions.

Chief Financial Officer

All of our banking subsidiaries - Banco de Bogota, Banco

Participants Question and Answer Session de Occidente, Banco Popular, and Banco AV Villas, Por- venir, and Corficolombiana - are subject to inspection

Carlos Macedo – Goldman Sachs and surveillance as financial institutions by the Super-

Domingos Falavina – JPMorgan intendency of Finance. Although we are not a financial

Alonso Aramburu – BTG institution, until December 31st, 2014, we prepared the

Frederic de Mariz – UBS unaudited consolidated financial information included in

Sebastian Gallego – Credicorp Capital this quarterly report in accordance with the regulations

Maria Rodriguez – Davivienda Corredores of the Superintendency of Finance for financial institu-

Jason Mollin – Scotiabank tions and generally accepted accounting principles for

Nicolas Riva – Citi banks to operate in Colombia, also known as Colombian banking GAAP, because we believe the presentation on

Operator that basis most appropriately reflected our activities as a holding company of a group of banks and other financial

Welcome to the Q4 2016 Consolidated Results Under institutions.

IFRS Conference Call. My name is Richard, and I will be your operator for today’s call. At this time, all participants However, in 2009, the Colombian Congress enacted Law are in a listen-only mode. Later, we will conduct a ques- 1314, establishing the implementation of IFRS in Colom- tion-and-answer session. Grupo Aval Acciones y Valores bia. As a result, since July 1st, 2015, financial entities and

S.A. or Grupo Aval is an issuer of securities in Colombia Colombian issuers of publicly traded securities such as and in the United States, registered with Colombia’s Na- Grupo Aval must prepare financial statements in accor- tional Registry of Shares and Issuers, “Registro Nacional dance with IFRS. IFRS, as applicable under Colombian de Valores y Emisores”, and the United States Securities regulations, differs in certain aspects from IFRS as cu- and Exchange Commission, SEC. rrently issued by the IASB.

As such, it is subject to the control of the Superintenden- The unaudited consolidated financial information in- cy of Finance and compliance with applicable US secu- cluded in this document is presented in accordance rities regulation as a foreign private issuer under Rule with IFRS as currently issued by the IASB. Details of the

405 of the US Securities Act of 1933. Grupo Aval is not a calculations of non-GAAP measures such as ROAA and financial institution and is not supervised or regulated as ROAE, among others, are explained when required in a financial institution in Colombia. this report. Because of our recent migration to IFRS and

2 recent implementation of IFRS accounting principles, than the previous three. All these events have had or will the unaudited consolidated financial information for the have important consequences in our numbers. first, second, third, and fourth quarter of 2016, and the comparative information for the relevant, unaudited, Let me briefly talk about each of these. For starters, let consolidated periods of 2015 presented herein may be me refer to Electricaribe. Electricaribe is a power utility subject to further amendments. company of the North West region of Colombia, which was acquired by Gas Natural Fenosa of Spain in the year

This report may include forward-looking statements, 2000. Gas Natural made commitments to make certain which actual results may vary from those stated herein investments in the power and distribution grid and at as a consequence of changes in general, economic, and some point stopped investing after Electricaribe’s past business conditions, changes in interest and currency due accounts receivable skyrocketed. Gas Natural de- rates, and other risks factors as evidenced in our Form manded that the government pass new regulations that

20-F available at the SEC webpage. Recipients of this do- would help in the collections process. cument are responsible for the assessment and use of the information provided herein. In the meantime, Electricaribe’s service degraded and clients complained and called for the government’s

Grupo Aval will not have any obligation to update the takeover of the Company. The government did not grant information herein and shall not be responsible for any the regulations that Electricaribe had asked for and ins- decision taken by investors in connection with this docu- tead intervened the company. At the time of the inter- ment. The content of this document and the unaudited vention, Electricaribe had billings of approximately $1.5 figures included herein are not intended to provide full billion, assets of approximately $2 billion, and financial disclosure on Grupo Aval or its affiliates. When applica- obligations of approximately $0.5 billion. Of all the banks, ble, in this document, we refer to billions as thousands we’re owed approximately $175 million, which repre- of millions. sents about 0.4% of our consolidated loan portfolio.

I’ll now turn the call over to Luis Carlos Sarmiento. You We have marked down the loan rating, and we’re cu- may begin. rrently awaiting the government’s decision with regards to the company’s fate. We hope that it won’t be long until

Luis Carlos Sarmiento Gutiérrez, it becomes clear when the banks can expect to be paid.

Chief Executive Officer During the fourth quarter, we booked approximately $15 million in provisions, and we’ll book an additional 8 mi-

Thank you very much, Richard. Good morning, and thank llion in provisions during this year’s first quarter regar- you for joining our call. 2016’s last quarter was incredibly ding these loans. dynamic for the country in general and for Grupo Aval specifically, as most of you already know. Events such With respect to Odebrecht, as we informed our investor as the government’s intervention of Electricaribe in the community and the general public, on February 22, we month of November, Odebrecht December 21st Plea reached an agreement with the Agencia Nacional de In- agreement with the Department of Justice in the USA, fraestructura, ANI, to terminate and liquidate the Ruta and Colombia’s Congress approval of the fiscal reform del Sol contract. The initial calculation of the liquidation on December 31st made the fourth quarter very different formula confirmed that the financial sector will be paid

3 in full and that the Ruta del Sol shareholders would re- to specific areas in the country where they will surrender cover approximately 70% of their investment. To account their arms and start the process of their integration into for this possible loss, Corficolombiana booked an im- mainstream society. pairment of approximately $33 million during December

2016. The effect of this impairment in Aval’s bottom line With regard to Colombia’s macroeconomic performance amounted to $15 million dollars. in the fourth quarter, I believe this quarter marked the beginning of the economy’s recovery as most of the re-

Just yesterday, we signed an addendum to the termina- levant economic trends began to improve. I also believe tion and liquidation agreement, as a result of which the that, barring unforeseen circumstances, these improve- orderly liquidation of the company will start immediately ments should consolidate during 2017. And in 2018, we and the banks will receive in a matter of weeks a first will once again see healthy growth in the country. We payment for approximately 60% of the total debt they are now know that the economy only grew by 2% in 2016, owed. The company’s total debt amounts to approxima- one of the lowest growths recorded in more than a de- tely $800 million, 50% of which are owed to Aval’s banks. cade. This low growth was accompanied by high inflation which, on a 12-month basis, peaked at 9% during July

Finally, the fiscal reform was approved by Congress in and also by a high trade balance deficit, which averaged the last day of 2016. This reform remedies some of the close to 4.5% during the year and by a fiscal deficit that most negative points of the 2014 fiscal reform. Most im- approached 4% throughout 2016. portantly, the 2016 fiscal reform abolishes the wealth tax after 2017, gradually reduces corporate income taxes However, as I said before, notable improvements were to 33% as opposed to the 2014 reform, which increased observed during the last quarter. On the one hand, a this tax to 43% by 2018. And finally, the reform increa- combination of events, including the relative stabiliza- ses the value-added tax to 19% from 16%. Raising that is tion of the price of oil, which resulted on a more stable significant, because it is the government’s signal that it FX rate, a decrease in imports, and the Central Bank’s wishes that more Colombians partake in the solution of contractionary monetary policy reversed the trend in in- the country’s fiscal deficit. The reform does establish a flation, which ended the year at 5.75% and by February new 5% tax on dividends, when these are paid to foreign 2017 had dropped to 5.18%. Thus, inflation is one of tho- individuals or corporations, and of between 5% to 10% se improving macroeconomic trends. In fact, we expect when paid to Colombian nationals. All in all, we estimate that this trend will continue throughout this year and that that the reform will be beneficial for Aval if one considers by year-end, inflation will approach 4.5%. that, for example, the wealth tax cost our company about

Ps. 8 per share in 2016 in earnings of PS. 96 per share. As a result of this new trend in inflation, the Central Bank

Also, Aval’s corporate tax rate should decrease from the decreased its reference rate by 25 basis points in December. current 36% to approximately 31% by 2019. It has since reduced it further by 50 basis points. We believe this trend of rate reductions will continue throughout 2017

Regarding the peace agreement with the FARC Guerri- and that by the end of this year, the rate will reach about lla, Congress approved the new draft presented by the 6.25%. With the decrease in imports and with oil at a more government in late October and, consequently, the de- stable price of approximately $50 per barrel, we have seen mobilization of the guerrillas has begun. Thousands of a reduction in the trade balance deficit to 3.1%. We expect men and women, members of the FARC, have relocated that this improving trend will continue in 2017.

Finally, we expect that the fiscal reform will produce we don’t expect major changes for our import and ex- an increase in fiscal revenues and, thus, a contraction port clients in the region. With regard to remittances, we in the fiscal deficit to levels closer to 3.3% for 2017. All remain observant as to any actual legal actions in the these improving trends should consolidate during 2017 USA that might affect these. We are, however, somewhat and, thus, in 2017, we should see GNP growth of around relieved that 75% of our Central American business resi-

2.25%. We also expect better loan growth at around 9%. des in Costa Rica, Panama, and Guatemala.

However, the full effect of the consolidation of positive Now, turning to Aval’s financial results, these are the macroeconomic trends should start to be seen in 2018, main highlights. Diego will refer to each of these in more when GNP growth should return to at least 3%. DTF is detail following this summary. Attributable net income now running at approximately 35 basis points under the for the year was PS. 2,139.9 billion or PS. 96 per share,

Central Bank’s rate and the three-month IBR rate is al- 4.8% larger than the result of 2015. Excluding the one-ti- ready discounting further Central Bank rate cuts. This me attributable wealth tax payment, attributable net in- trend should bring relief to borrowers and better loan come for the year was PS. 2,318.7 billion or PS. 104 per quality ratios to the banking system. We expect to see share. Attributable net income for the quarter was PS. downward NIM corrections throughout 2017. In fact, we 458.4 billion or PS. 21 per share. This quarter’s attribu- have estimated that a 100 basis point movements in the table net income was negatively impacted by the events

Central Bank rate moves our NIM on loans by approxi- to which I referred. mately 10 basis points. We expect, therefore, that our average NIM for 2017 will remain unchanged when com- Our total consolidated gross loan portfolio as of Decem- pared to our average NIM in 2016. ber 31st amounted to PS. 152 trillion, an increase of

7.2% versus a year before and up 5.2% in the quarter.

Unemployment at December 31st, 2016, was 8.7%, si- In absence of the period’s exchange rate movement, the milar to the same ratio as of December 31st, 2015, of gross loan portfolio would have grown by 8.7% in the last

8.6%. We are, therefore, not expecting significant dete- 12 months. As you can see most of the loan growth took rioration in the quality of our consumer loan portfolios place during the last quarter. in 2017. With respect to our other major market, the

Central American economy continues to grow at twice During the rest of the year, especially commercial loans the pace of Colombia’s growth. We remain cautious as growth was negatively impacted, as many borrowers to the effect of President Trump’s policies’ effects on the placed on hold their loan applications until the uncer-

Central American Free Trade Agreement, CAFTA, and on tainty surrounding the fiscal reform was removed. A the level of remittances sent by Central American immi- clear picture of what was to come only took place in the grants to their home countries, especially to countries last quarter. We’re now estimating loan growth excluding such as El Salvador and Honduras. exchange rate movements of around 9% for 2017.

However, after examining how CAFTA is affecting the US Our consolidated deposits amounted to PS. 144 trillion economy, it would appear that this trade agreement is as of December 31st, an increase of 5.8% versus a year highly beneficial to the US as it has resulted in a clear before and up 5.7% in the quarter, outpacing the growth positive trade balance towards that country. Therefore, of our loan book during that period. In absence of ex-

5 change rate movements, the deposits would have grown of our financial sector, which decreased from 1.5% in by 7.3% in the last 12 months. During 2017, we expect 2015 to 0.7% in 2016. growth in deposits similar to the expected growth in our loan portfolio. Now, our consolidated total NIM on loans, financial and non-financial sectors, was 6.6% in 2016 versus 6.3% in

AVAL’s average yield on loans made by our banks increa- 2015. Our consolidated NIM on investments, financial sed to 11.9% during the fourth quarter of 2016 versus and non-financial sectors, was 0.6% in 2016 versus 1.3% the 11.7% yield recorded in the third quarter of this year in 2015. Our consolidated total NIM was 5.6% in 2016 and 10.1% a year ago. The average cost of funding in our versus 5.4% in 2015. banks increased to 5% during the fourth quarter of 2016 versus the 4.8% yield recorded in the third quarter of this The 30 basis points difference between the NIMs of our year and 3.6% of a year-ago. The ratio of deposits-to-net consolidated results and the NIMs of exclusively our fi- loans closed at 95% in December 31st, 2016, unchanged nancial sector subsidiaries mainly reflect the impact of when compared with the same ratio on September 30th, the more expensive funding to which I alluded obtained

2016, and only slightly changed when compared to the by our non-financial consolidated subsidiaries, such as same ratio of 96% at the end of December 31st, 2015. Promigas and our toll road concessions. This funding is usually of a much longer tenure. Our average consolida-

Our liquidity position remained strong when measured ted NIM for the full year 2017 should be similar to 2016’s. by cash and cash equivalents to deposits, which closed However, we expect that this ratio will decrease as the the year at 15.4%, slightly less than the 16.1% observed year progresses. at September 30th, 2016. 5% of our total funding is more expensive funding obtained by the non-financial sector Cost of risk for 2016 was 2.1% before recoveries and subsidiaries of Corficolombiana, while our earning as- 1.9% after recoveries. These figures compared to 1.7% sets are almost exclusively the Bank’s assets. Therefo- and 1.5% in 2015 and were mainly affected by the gene- re, this is relevant, as our total consolidated NIM has not ral slowdown of the Colombian economy, the 86 billion traditionally broken out the NIM of our financial sector. impairment of the loans to Pacific Rubiales, and the 50

Because of this, starting this presentation, we will add billion impairment to the loans to Electricaribe and mass to our regular presentation an additional breakout to transportation companies in Bogota. The 50 billion im- distinguish the financial sector NIM from the total con- pairments were both booked in the last quarter of 2016. solidated NIM. As in the past, total consolidated NIM in- In absence of these provisions, our cost of risk for 2016 cludes earning assets and funding liabilities for both our would have been 2% gross of recoveries and 1.8% net of financial and non-financial subsidiaries. recoveries. For 2017, we are expecting a slight reduction in cost of risk before recoveries, which we are estimating

Having said that, in 2016, we saw the NIM on loans of our between 1.9% and 2%. financial sector expanding by close to 30 basis points, from 6.6% to 6.9%, partly as a result of a 243 basis points Fee income as a percentage of total operating income remai- increase in the average Central Bank rate from 4.7% du- ned strong during 2016 at 26.3%, slightly improving when com- ring 2015 to 7.1% during 2016. Total NIM for our financial pared to the 26.1% observed during 2015. We generally expect sector was 5.9% during 2016 versus 5.7% in 2015, largely fee income increases in line with our loan portfolio increases in due to a substantial decrease in the NIM on investments growth, and we don’t foresee an exception during 2017.

Our consolidated efficiency ratio measured as cost to 2016 GDP growth was affected by multiple factors, many income was 47.3% in 2016, slightly improving from the of those consequence of the oil shock suffered a cou-

47.6% for 2015. During the fourth quarter of 2016, we ple years ago. This included the low contribution of the saw a spike in our efficiency ratio due to an increase in IT oil sector to GDP and the lower government spending and marketing expenses in connection with our bank’s growth, consequence of the fiscal deficit generated from digital banking strategies, as well as expenses in Cen- the lower oil prices. In addition, high Central Bank rate, tral America associated with the sale of BAC’s credit card consequence of inflationary pressure, resulting from operation in Mexico. During 2017, we expect to register the aftermath of the Colombian peso depreciation, the similar efficiency ratios of approximately 47%. “El niño” phenomenon, and the truckers’ strike further slowed the Colombian economy.

As of December 31st, 2016, all our banks showed appro- priate Tier 1 capital ratios, between 9% and 10.3% levels, We expect 2017 to be a continuation of 2016 growth cycle with which we feel comfortable to support expected of which we believe we might have already seen the bo- growth during 2017. During 2016, excluding the effect ttom. Stronger growth is expected to be recorded during of the wealth tax, our return on average assets and our the latter part of the year. return on average equity were 1.7% and 15.5%. Inclu- ding this non-recurrent expense, our figures would have Three main drivers should contribute to stronger growth been 1.6% for return on assets and 14.3% for return on into the future. Number one, substantial reduction in in- average equity. In 2017, we expect an increase in average terest rates; number two, room for stronger government return on equity of approximately 75 basis points. spending relative to what was experienced during 2016; and third, lower taxes on businesses resulting from the

I now pass on the presentation to Diego, who will expand 2016 tax reform that should favor investment. Even thou- on the highlights that I just shared with you. Thank you. gh substantial, the positive effect of those forces will take

And have a great day. some time to materialize into actual economic output.

Diego Solano Saravia, Some challenges are still to affect the earlier part of

Chief Financial Officer this year, particular the real interest rate continues to be high. The initial impact of the VAT increase will be slight-

Thank you, Luis Carlos. I will now go to the presentation. ly negative on consumption, and consumer confidence

I will start with an update on the macro environment in is still low. Overall, we expect 2017 growth to be slightly

Colombia and Central America. stronger than last year. We estimate 2017 GDP growth to be in the 2.25 area. GDP growth should continue to acce-

On Page five, we present the evolution of lerate into 2018. some key macro drivers in Colombia.

2016 was slightly negative for the labor market, con-

Annual 2016 GDP growth came at 1.95%. This was the sistent with a sluggish economic growth. Average 2016 third lowest growth year in the last 15 years with grow- unemployment was 9.2%, 29 basis points higher than th only being lower during 2001 during the Colombian the 2015 figure. Recovery on this front should come later mortgage crisis and 2009 during the US financial crisis. this year as economic growth accelerates. On a positive note, the current account balance continues to improve.

The current deficit for the last quarter was 3.2%, 2.3 per- In addition, other events such as the expected interest centage points better than the 12-month figure repor- rate hikes in the US, fluctuations of capital flows to Co- ted earlier. Full-year current account deficit was 4.4%, lombia, and the US political cycle have recently driven a strong improvement compared to the 6.4% recorded the movement of the Colombian peso. We expect those during 2015. elements to continue determining FX volatility of the Co- lombian peso.

On page six, we present inflation and some interest rate benchmarks. On pages eight and nine, we present charts on Central America and the

Inflation continues to fall as expected. Prior shocks macroeconomic drivers. such as the strong depreciation of the Colombian peso, the truckers’ strike, and the El Niño phenomenon have We continue to expect a stronger 2017 gr owth in that re- faded. 2016 12-month inflation closed at 5.75%, impro- gion compared to Colombia. Having said so, remittances ving substantially from the 8.97% peak recorded during are key in countries such as El Salvador and Honduras

July last year. February 2017, the latest figure available and relevant sources of income in Guatemala. Econo- stands at 5.2%, as the market, we expect it to continue mic performance in those countries could be affected by declining throughout this year. We expect year end infla- President Trump’s view on this front. tion to be in the 4.5% area.

As in the past, we will continue to closely watch macro-

Last Friday, the Central Bank cut its intervention rate 25 economic and political events in the region and align our basis points, down to 7%, accumulating three quarters strategic decisions and growth expectations accordingly. decrease since our last call. We expect the Central Bank to continue cutting its rate throughout 2017 as inflation I will now move to the consolidated results continues to fall, likely reaching the 6 to 6.25 area by of Grupo Aval under IFRS. Starting on page year-end. Finally, DTF is currently at 6.65%, having star- 10 with our asset evolution. ted to react to the Central Bank interest rate policy.

Total assets grew by 3.4% during 2016 and 3.6% during

On page seven, you can find the evolution the last quarter. In absence of the effect of the Colombian of oil prices and Colombian peso to US peso fluctuation in Central America, assets would have dollar exchange rate. grown 4.9% and 2.4%, respectively.

The Colombian peso-US dollar exchange rate ended Broken down by region:

December at PS. 3,000 or 4.2% weaker than three mon- A. Over the past 12 months, our Colombian assets ths earlier and 4.7% stronger than a year earlier. Fourth grew at 4.2, while our Central American assets quarter average exchange rate was PS. 3,016 per dollar, grew at 6.2% in dollar terms, a 1.2% increase

2.3% weaker than the previous quarter and 1.5% stron- when translated into Colombia pesos. ger than four quarters earlier. More stable oil prices in B. Over the fourth quarter of 2016, our Colombian the $50 per barrel area have favored the reduction in vo- assets grew at 1.6%, while our Central Ameri- latility of the Colombian peso exchange rate relative to can assets grew at 4.1% in dollar terms (8.4% what we experienced over the past couple of years. growth when translated into Colombian pesos).

Our consolidated balance sheet structure as of Decem- rican operation, three-month growth would have been ber 2016 was similar to that in place at the end of 2015 4.4%. This growth resulted from the Colombian opera- and September 2016 with a slight increase in the wei- tion growing at 4% and the Central American operation ght of our loans and leases in total assets. Our net loans growing at 8.4%, this is 4.0% in dollar terms. The struc- accounted for 67.3% of our assets as of December 31, ture of our gross loan portfolio remained stable when

2016, up from 65.5% a year earlier and 66.2% on the pre- compared to the previous quarter. Commercial loans ac- vious quarter. count for 59.1% of our portfolio, while our consumer and mortgage loans account for 31% and 9.7% respectively.

Fixed income investments accounted for 10.1% of total assets as of December 31st, 2016, down from 11.3% as Loans to individuals, which include consumer, mortga- of December 2015. Colombian assets accounted for 71% ge, and microcredit loans were 1.3 percentage points hi- of our balance sheet as of December 2016, slightly up gher than a year earlier. Colombia accounted for 72% of from the 70.4% reported a year earlier. Central Ameri- our loan portfolio, stable compared to three months ear- can operation accounted for the remaining 29%. This mix lier and slightly up from 71% 12 months before. The va- has been relatively stable throughout this year. riation in weight of our Central American operation has been mainly due to a Colombian peso fluctuations. We

On page 11, we present our loan portfolio expect 2017 loan growth, in absence of FX movement, to evolution. Gross loans increased by 7.2% be in the 9% area. during 2016.

Moving to page 12, we present several loan

In absence of the effect of the peso appreciation on our portfolio quality ratios.

Central American operation, 12-month growth would have been 8.7%. Over this period, our Colombian book The overall quality of our loan portfolio was materially grew at 8.3% and our Central American book grew at stable during the quarter. On the top left of the page, you

9.5% in dollar terms or 4.3% when translated into pesos. will find the evolution of our loan past due more than 30 days and of our non-performing loans, both as a percen-

Consumer, mortgage, and commercial loans grew at tage of total loans, including interest account receivables.

11.1%, 9.4%, and 4.9% respectively during the same period. Broken down by region, mortgage loans grew During this quarter, our delinquency ratios measured as

20.3% in Colombia and 8.6% in US dollar terms in Cen- 30 days PDLs to total loans improved by 12 basis points tral America. Consumer loans grew 12.8% in Colombia to 3%. Delinquency measured as NPLs to total loans de- and 13.4% in dollar terms in Central America and com- teriorated 2 basis points to 2%. mercial loans grew 5.7% in Colombia and 6.6% in dollar terms in Central America. Moving to the right. Full year 2016 net provision expen- ses was 2.1%, up from 1.7 a year earlier. Net of recove-

The uncertainty generated by the 2016 tax reform dis- ries of charged-off assets, cost of risk was 1.9%. These cussion was one of the drivers of the slow growth in the ratios reflect the impact of Pacific exploration during the commercial book in Colombia. During the fourth quar- first half of the year and impairment losses of PS. 49 bi- ter of 2016, gross loans increased by 5.2%. In absence of llion for Electricaribe and the SITP companies during the the effect of the peso appreciation on our Central Ame- fourth quarter. Annualized net provision expenses net of

9 recoveries of charged-off assets for the quarter were 2% measured as 30 days PDLs and a 7 basis points deterio- of average loans deteriorating from 1.7% three months ration when measured as NPLs to 2.3%. earlier and 1.6% reported 12 months earlier.

Mortgage loans improved their quality from 3.3% to 3.1%

In the bottom left, you will find the ratio of charged-off when measured as 30 days PDLs and remain stable at assets as a share of average NPLs. Full year 2016 char- 1.7% when measured based on NPLs. ge-offs were 0.9 times average NPLs, slightly higher than the 0.8 times recorded a year earlier. Annualized Moving to page 14, we present funding and charge-offs were 0.9 times during the fourth quarter of deposit evolution.

2016.

Total funding grew 3.4% during 2016 and by 4.3% during

Finally, on the bottom right, you’ll see several loan loss the last quarter. In absence of the effect of the Colombian reserve coverage ratios. Our allowances are 2.8% of our peso fluctuations on Central America, 12-month and total loans and cover 1.4 times our NPLs and 1 time our three months growth would have been 4.8% and 3.2%,

30 days past due loans. We expect our cost of risk to be respectively. in the 1.9% to 2% area in 2017. This figure would be 20 basis points lower when accounting for recovery of char- Broken down by geography: ged-off assets. This cost of risk guidance incorporates Colombian funding grew 4.5% over the last 12 months additional provisions on Electricaribe and SITP of around and increased by 2.7% in the quarter.

10 basis points of our loan portfolio.

Central American funding grew 5.4% in dollar terms

On page 13, you will find further detail on or 0.5% in Colombian peso terms during 2016. Central the quality of our loan portfolio. American funding grew 4.6% in dollar terms (9% increa- se in Colombian peso terms) over the last quarter.

On this page, you will find the evolution of our loans past due more than 30 days and of our NPLs as a percentage Deposits increased at 5.8% during 2016 and 5.7% during of total loans. During this quarter, our overall end-of-pe- the last quarter. In the absence of the effect of the peso de- riod delinquency ratio measured as 30 days PDLs to total preciation on Central America, 12-month and three-month loans slightly improved by 12 basis points to 3%. During growths would have been 7.3 and 4.5, respectively. the quarter, our NPLs to Total Loans were materially at the same level recording a 2 basis points increase to Broken down by geography:

2.0%. Both ratios calculated as percent of Total Loans in- Colombia accounted for 72.3% of total deposits. cluding interest account receivables.

Colombian deposits grew at 7.3% over the last 12 months

Broken down by loan, on a quarterly basis: and 4.5% during the last quarter.

Commercial loans improved by 13 basis points to 2.1% Central American deposits grew at 7.4% in dollar terms, when measured as 30 days past due loans and remai- or 2.2% in Colombian peso terms, over 2016 and increased ned stable at 1.8% when measured as NPLs. Consumer 4.4% in dollar terms (8.8% in Colombian peso terms) over loans experienced a 9 basis points improvement when the quarter.

Our funding and deposit structure had minor changes funding between financial sector entities and non-finan-

during the quarter

cial sector plus hold.

Our deposits accounted for 76% of our total funding at On the top of the page, we present the evolution of our end of period, up from 74% a year earlier. Our deposits average interest-earning assets. Financial sector enti- covered 95% of our net loans. ties hold over 99% of interest-earning assets. Promigas’ operation contributes most of the interest-earning as-

And page 15 we present the evolution of our sets from the non-financial sector. capitalization, our attributable shareholders equity and the capital adequacy ratios of These assets are mainly items that under IFRS are con- our banks. sidered financial leases provided by the Company. Main items that are accounted in this manner are PS. 1.1 tri-

Our total equity defined as attributable equity plus mi- llion Liquefied Natural Gas regasification plant (SPEC) nority interest was PS. 24.7 trillion as of the end of 2016. and a PS. 74 billion BOMT gas treatment plant project.

This is a 7.7% increase during 2016 and a 3.7% increase Both of those were booked during the last quarter of during the last quarter. Attributable equity accounted for 2016. In addition, Promigas historically provides finan-

63.3% of total equity as of December 2016. cing mainly for appliances and home improvements to its customers. As of December 2016, these loans were

Attributable equity was PS. 15.6 trillion as of the end of PS. 303 billion.

December, increasing 7.1% during 2016 and 3% during the last quarter. On this chart, we also show the conso- On the bottom of page, we present the evolution of our lidated solvencies of our banks. All of them show appro- average interest-bearing assets. 5.1% of those are held priate Tier 1 total solvency ratios. Tier 1 as of the end of on the balance sheets of our non-financial sector enti- the year, ranged from 9% to 10.3%. The solvency ratio at ties and our holding company. end of period were 13.9% for Banco de Bogota, 12.8% for Banco de Occidente, 11.1% for Banco Popular, and In general terms, this financing has a longer maturity

11.5% for Banco AV Villas. and carries a higher interest rate than the funding used by our financial operation. The share of our liabilities has

Starting on page 16, we present the remained relatively stable over the past five quarters. evolution of our net interest margin. However, we expect it to grow over the coming years due to the impact of our financial closings in the upcoming

As mentioned by Luis Carlos, in the past, we have told fourth-generation concession infrastructure products. you that our numbers are influenced by our structure that includes in addition to our financial institutions, the On page 17, we present our yields on loans, impact of our investments in non-financial companies cost of funds, and spreads. and of our holding company.

Full-year yield on loans for our consolidated operations,

In order to quantify this impact, we have provided on including financial and non-financial operations, increa- page 16 a breakdown of our interest-earning assets and sed by 146 basis points, moving from 10% in 2015 to

11.4% in 2016. The figures for the financial sector were and cost of funds remained stable for the quarter and materially the same as for the consolidated operation. increased by 46 basis points compared to four quarters earlier.

Average yield on loans for the fourth quarter increased by 161 basis points compared to the same period of 2015 On page 18, we present our NIM for the fi- and slightly decreased by 19 basis points compared to nancial sector and Grupo Aval’s consolida- the third quarter, partly explained by the start of opera- ted operation. tions of the non-financial sector projects mentioned be- fore. Full-year NIM, including net trading income from invest- ments held for trading through profit and loss of our con-

Average yield on loans for the financial sector increased solidated operation, increased by 21 basis points from by 179 basis points relative to the same quarter of 2015. 5.4 in 2015 to 5.6 in 2016. This increase resulted from an

Full-year cost of funds, which is shown on the middle expansion on our NIM on loans and higher share of loans of the page, of our consolidated operations rose by 111 over average interest-earning assets. basis points, from 3.5% for 2015 to 4.6% in 2016. This re- sulted from our financial sector entities increasing 110 The non-financial operations of our holding company basis points from 3.3% to 4.4% and our non-financial en- had a 32 basis points negative effect on our consolida- tities and Holdco cost of our funding increasing 128 basis ted 2016 NIM figures. Full year 2016 NIM, including net points from 6% to 7.3%. income from investments held for trading through pro- fit and loss for financial operations, increased 22 basis

Our average cost of funds for our consolidated opera- points from 5.7% in 2015 to 5.9% in 2016. Full-year NIM tions was 5% for the fourth quarter compared to 3.6% a on loans of our financial operations increased 27 ba- year earlier and 4.8% in the third quarter. Cost of funds sis points to 6.9% in 2016. NIM on loans was 7% in the for the financial sector increased by 133 basis points and fourth quarter of 2016, up from 6.6% a year earlier and

14 basis points when compared to a year and a quar- stable compared to the previous quarter. Full-year NIM ter earlier. Cost of funds for the non-financial sector on investments of our financial operation contracted by and Holdco, net of eliminations, increased by 258 basis 78 basis points to 0.7% in 2016. The NIM on investments points and 83 basis points for the same period. was negative 0.4%, down from 1.1% a quarter earlier and 1.4% a year earlier.

Finally, full-year spreads are shown at the bottom of page. Full-year spreads between consolidated average Consolidated NIM increased 11 basis points compared yield on loans and cost of funds increased by 35 basis to four quarters earlier from 5.4% to 5.5%. Compared to points from 6.5% in 2015 to 6.9% in 2016. As for the fi- the previous quarter, total NIM decreased 29 basis points. nancial sector entities, full-year spreads increased by 34 NIM for the financial sector expanded during the quarter basis points, from 6.6% in 2015 to 7% in 2016. Spreads to 5.9% as compared to 5.7% reported during the same decreased by 36 basis points over the last quarter to quarter a year ago. Compared to the previous quarter,

6.7% and increased by 21 basis points compared to the total NIM have 20 basis points contraction, driven by a same quarter a year earlier. As mentioned, for the finan- lower net interest margin on investments. The quarter- cial sector entities the spread between yields on loans ly net interest income grew 5.3% from PS. 2.3 trillion in

12 fourth quarter 2015 to PS. 2.4 trillion in fourth quarter Seasonally higher expenses in certain items negatively

2016, decreased 2.9% versus the third quarter of 2016. affected our efficiency ratio during the fourth quarter.

Concentration of marketing and IT expenses in Colom-

On page 19, we present net fees and other bia and one-time expenses in Central America associa- income. ted with the sale of our credit card operation in Mexico, the disposal of non-core assets, and cost of termination

We present fee income on the top of the page. Gross fee of certain executives hindered our results on this front. income grew 8.4% compared to the same period a year Efficiency measured as operating expenses to total in- earlier and 6.3% compared to that received during the come was 52.1% in the quarter, up from 45.9% reported previous quarter. When excluding the effect of FX move- during the previous quarter. ments on our Central American operation, fees grew by

9.2% and 5.4% respectively compared to those periods. Full-year figures show a 33 basis points improvement closing at 47.3%. Efficiency measured as operating ex-

Broken down by geography Colombia accounted for 58% penses to average assets was 3.8% for the fourth quar- of total gross fees. Domestic fees grew 8% over the last ter compared to 3.4% in the third quarter of 2016 to 3.5% four quarters, while Central American fees grew 10.9% in the fourth quarter of 2015. We expect 2017 efficiency in dollar terms or 8.9% in peso terms over the same pe- measured on a cost-to-income basis to be stable com- riod. And the bottom of the page, we present other in- pared to 2016. This result builds on compensating for come. Other income for the quarter was PS. 773 billion headwinds from salary adjustments covered by union and includes the result of our non-financial companies agreements that were well in excess of inflation. consolidated and non-consolidated companies, mainly from Corficolombiana. Finally on page 21, we present our net income and profitability ratios.

On page 20, we present some efficiency ratios. Actual net income, net of the effect of PS. 179 billion, ac- tual equity tax was PS. 2,319 trillion, 3.1% higher than

Our consolidated efficiency ratio measured as cost-to-in- that for the same period a year earlier. For the full year, come improved 33 basis points to 47.3% in full year 2016, return on assets and return on equity were 1.6% and down from 47.6% for 2015. Full-year improved 108 ba- 14.3%. Excluding the wealth tax payment, such numbers sis points to 43.3% in Colombia. Full-year efficiency de- would have been 1.7% and 15.5% for 2016. teriorated 47 basis points to 55.1% in Central America.

For full year efficiency measured as operating expenses Return on average assets and return average equity for divided by average assets, efficiency was 3.5%, 15 basis this quarter were 1.5% and 11.9%. points higher than that of 2015 at 3.4%. Full-year effi- ciency remained stable in Colombia at 2.9%, while fu- Before we move to Q&A, I will summarize the general ll-year efficiency deteriorated 28 basis points to 4.6% in guidance given in the previous pages. We expect loan

Central America. growth in absence of FX to be in the 9% area for 2017.

We expect 2017 cost of risk, net of recoveries, to be -- to Diego Solano Saravia, stay at the same level at a comparable level to 2016’s le- Chief Financial Officer vel. We expect full year 2017 NIM on loans to be similar to 2016, resulting from a stronger first half and a lower Well, regarding the 9% loan growth, 2016 was a year, second half as the reduction of Central Bank rates are where we had a very different growth in the corporate priced into our loan portfolio. and the consumer portfolio. The consumer portfolio grew in the 12% to 13% range, while the corporate port-

Regarding efficiency ratios, we expect them to be sta- folio grew around 7%. We expect these numbers to con- ble compared to 2016. Finally, we expect 2017 return on verge to the average growth. We have lower growth from equity to be in the 14.5% to 15% range. Further increa- the consumer portfolio than what we had last year and ses in return on equity could be expected to materialize a slightly higher growth from the corporate segment. In as marginal tax rates in Colombia from 40% to 33% as order of segment such as the mortgage, loan portfolio incorporated in the 2016 fiscal report. will continue to outgrow both of the former.

I will now open it to questions. Luis Carlos Sarmiento,

Chief Executive Officer

Questions and Answers And regarding the strategic initiatives, we have under- taken; we’ve been working with a consultant, with Mc-

Kinsey to develop for quite some months now, we’ve

Operator been developing a digital strategy for the Group and for each one of our banks. And we expect that in the next

Our first question online comes from Jason Mollin from two or three months, we will start announcing some of

Scotiabank. Please, go ahead. our achievements. So stay put, and we will make sure to announce once we’re ready. We’re not quite ready to

Jason Mollin, Analyst announce exactly what it is that we’re working on. But hopefully, as I said, in the next two or three months, we

Hello, everyone. Thank you for the opportunity to ask will. questions. My first question is on this 9% loan grow- th outlook. Can you give us some color on what kind of

Operator segmentation? Where are the segments that you think you’re going to see the greatest growth in 2017?

Thank you. Our next question on line comes from Nico- las Riva from Citi. Please, go ahead.

And my second question is on strategic initiatives. You stated in your presentation that the efficiency ratio spi-

Nicolas Riva, Analyst ked in the fourth quarter, partially due to investments in

IT and marketing for digital initiatives. Can you talk about

Yeah. Thanks, Diego and Luis, for taking my questions. the digital strategy? What was spent in 2016? And what

The first one on operating expenses. If I look at the grow- are you expecting for 2017, I’m imagining that is in your th of OpEx, I mean, this is not something specific to a efficiency expectation? Thank you. lot, that we see in most Colombian banks. Compared

14 to inflation, OpEx really seems to be running quite abo- Other things that are in place, that are happening but ha- ve inflation. Your operating expenses grew 12% in ‘16. I ven’t been reflected, have been a freeze in certain coun- know in some prior years, there was some noise from tries, particularly in Central America, of the size of our the weaker Colombian peso. But that was not the case in payroll. And we are in the process of trying to materialize

2016. And so if you can discuss which factors are driving those. We prefer to stay at this point with our guidance on this OpEx growth quite above inflation? That’s my first stable cost-to-income, but we’re actually working very question. strong targeting to improve on that front.

And then my second question on Electricaribe. So you Luis Carlos Sarmiento, booked PS. 40 billion in loan loss provisions for this com- Chief Executive Officer pany. It looks like your exposure, the $175 million, is still much higher than this. So can you discuss how much of And regarding Electricaribe, as you said, our exposure to exposure now is covered with loan loss reserves and if Electricaribe is about $175 million dollars. And we did you expect to make further provisions in 2017 for this book approximately $15 million in provisions in 2016. company? Thank you. This year, before March 31st, we would book an additio- nal $8 million in provisions for a total of 23 million, which

Diego Solano Saravia, is about 13% of the size of the loan. At this point, and

Chief Financial Officer obviously, this is based on the conversations we’ve had with, one, the government and, secondly, the superin-

Okay. Let me take your first question on OpEx. We’ve had tendents of finance. What is going on is that the govern- a few negatives during 2016. Part of those, in fact, are ment is exploring the different alternatives as to what to related to what happened with the exchange rate. The do with Electricaribe. As you know and as I mentioned, it reason for that is our IT expenses in particular are do- was intervened, and the government is sort of running it. llar-denominated and were captured in different points in time depending on how contracts had been signed. What we have to wait and see is, what they decide to do with it. There are different alternatives. For example, they

The other element that we have actually had two years in could decide to sell the company as a whole in which a row has been that the increase in minimum wages has case, we would have to make sure that the repayment well exceeded inflation. In addition, some of our labor of our loans is guaranteed by the new owner. That’s best agreements have demanded additional increases on top scenario. They could break the company down and then of what the minimum wage increases were. These had sell it in different parts and then we will have to see if we been some of the drivers for 2016, and it’s a pity but they have to now negotiate with the new owners. will also be affecting our numbers in 2017. And that’s the reason why last year, even though we’d been targeting Thirdly, they could decide to just sell the assets of the to reduce 100 basis points our cost-to-income ratio, we company and in which case, we would have to negotiate only achieved one-third of that last year. And this year, we directly with the government to see how they can make are targeting to maintain it. We have some positive bias, us all in the banks. but we would like to perform before we get that done.

So for now, what the superintendents have decided is Luis Carlos discussed. At this point, there is a bit level that it is enough to rate the loan double C in which case of uncertainty of what the mechanism, particularly for

13% reserve is required. And obviously, as it becomes Electricaribe, will be. We have a lot of clarity of what’s ha- clearer to us what it is that it’s going to happen, we will ppening with Ruta del Sol. There was a previous concern then have to see where that takes us. And as soon as we that is no longer such. And then we have other corporate know, we’ll make sure to inform you. events that could be bumpier.

Operator Regarding the more statistic part, the consumer SME portfolio, what we expect to see is basically a better per-

Thank you. Our next question comes from Carlos Mace- formance during the second half of the year as the ma- do from Goldman Sachs. Please, go ahead. cro environment improves. This means we might have higher cost of risk on consumer during the beginning;

Carlos Macedo, Analyst the first half of the year, and slightly lower during the se- cond half of the year.

Thanks. Good morning, gentlemen. A couple of ques- tions. First, just a clarification on Nicolas’ recent ques- Operator tion. You talk about keeping your efficiency ratio flat year-over-year. What does that imply in terms of your Thank you. Our next question comes from Domingos Fa- target pace of growth for expenses? Are we going to see lavina from JPMorgan. Please, go ahead. it decelerate then? Or how do you expect to manage that?

Domingos Falavina, Analyst

Second question, thank you for the guidance for the year.

Just trying to get an idea how the pace is going to be for Hi, good morning, all. Thank you also for taking the call. the year. Are we going to start off the year at a slower My question is on NIMS. It seems to me the guidance pace and then build up for loan growth. Bound to see you provided makes a lot of sense. Given the DTF, they more provisions, cost of risk higher at the beginning, should be very similar in ‘17 versus ‘16, just different particularly if you provision for the remainder of the risk trends. They went up throughout ‘16 from 6 to 7 and that you mentioned before. I mean, how do we expect should reverse that when we look at ‘17. But once we go this to line up for the entire year? Thanks. into 2018, I am assuming that the reference rates and the

DTF they should continue to compress. So should we ex-

Diego Solano Saravia, pect more material NIM compression into 2018 or not?

Chief Financial Officer And then I have a second question.

Well, with regards to expense cost, in order to maintain Luis Carlos Sarmiento, the level given that as you might have noticed, our net Chief Executive Officer interest margin should be growing. This implies that we’re going to be growing above inflation in the 200 to So let’s address the first question first, Domingos. As you

300 basis points area our cost base. The pace of the cost say, we do expect inflation to keep dropping and, as such, of risk that you were referring to will be somehow bum- we do expect the Central Bank to continue cutting ra- py, I mean, on this kind of large corporate loans, as we tes. And that should affect DTF and IBR. So, yeah, in all,

16 because we have more of a percentage of commercial of the 33% in Aval’s bottom line, which corresponds to than consumer loans, we should see our NIMs continue about $15 million dollars. to drop. However, the one thing that we’ve noticed in this country is that when rates drop, we will see growth pic- Operator king up, which will give us more of a percentage of grow- th in loans and then we should see better quality due to Thank you. Our next question comes from Alonso Aram- lower rates. Just remember that, as I mentioned, we buru from BTG. Please, go ahead. have established that about 100 basis point movement in Central Bank rates, it has an effect of about 10 basis Alonso Aramburu, Analyst points in our NIM on loans.

Hi, good morning. Thank you for the call. I have two ques-

So that, yes, the answer is yes but we should be compen- tions: First, there is an other operating income result of sated with additional growth and better quality. And if you PS. 218.5 billion, which more than doubled from the pre- want, you can go ahead with the second question. vious quarter. So I was wondering if you can explain what drove that result.

Domingos Falavina, Analyst

And second, thinking about Corficolombiana, some of

Yeah. Awesome. Thank you. It’s very clear. Ruta del Sol, the 4G infrastructure projects, when should we seeing you mentioned, I think 33 million. And then I remember results in the P&L from some of the projects that are be- you mentioning that 25% would be the estimated impact ing developed over the next few years? Thank you. on equity and that that translated into 15 million of ear- nings. So my question is basically, is the 33 million the Diego Solano Saravia, full 25% rate incorporated? Or is there something that Chief Financial Officer will spill into other quarters? And why this 33 million im- pairment only translated into 15 million of earnings? I’ll take the first one and Luis Carlos will take the second.

On the other income, we had a fewer tax during the four-

Luis Carlos Sarmiento, th quarter. We have some offsetting, FX being the main

Chief Executive Officer two of those, a negative on Ruta del Sol that we mentio- ned of around $33 million dollars. And then we have a

Okay. So the answer is as follows. About 70% of the sha- positive on the valuation of Credibanco, which is a cre- reholders’ investment in the Company should be recove- dit card operation that was of around $60 million. So we red. So 30% of it should be lost. At this point, 30% of Cor- have those two offsetting things, being larger the positive ficolombiana’s investment is $33 million. Because we than the negative one. share 44% of the economics of Corficolombiana at the

Aval level, remembering that that we only own directly And the income from the non-financial companies, it’s and indirectly about 58% of Corficolombiana. But when basically Promigas and Epiandes, which had the higher you take into account that we don’t own 100% of the performance and that was what drove the change be- banks through which we own that 58%, then only 44% of tween the fourth and third quarter. it trickles up to Aval. And that’s why we only receive 44%

Luis Carlos Sarmiento, changed internally in terms of processes or any types of

Chief Executive Officer workflows since you’ve been aware -- made aware of the case? I know this impacted you and other players, other

With regard to the 4G concessions that Corficolombiana banks in the country. So I’m curious to see what steps was awarded, mainly Villavicencio-Yopal, Pacífico 1, Mu- you have taken internally. laló-Loboguerrero, and the 30 kilometers of Bogota-Vi- llavicencio for the additional lanes that are to be built. And then my second question has to do with competition.

Two of those projects have started and are moving on ni- I just wanted to get your thoughts, any color on the latest cely, those being Pacifico and Bogota-Villavicencio. Villa- debts in competition, especially on the funding side, if vicencio-Yopal will start in the fourth quarter of this year you’re seeing any changes; if the other banks, the other and then Mulaló-Loboguerrero at this point it depends financial groups are being more aggressive, more pre- on a whole bunch of consultations that are being carried sent, or it’s pretty stable? Thank you. on with the local communities, and that has been a tou- gh process, but our expectation is that we will start, say, Luis Carlos Sarmiento, the third quarter of 2018. Therefore, those projects, they Chief Executive Officer start generating construction income as they start to be built. Therefore three of those will have some income All right. So let me take the first question on the Odebre- this year. The fourth one will only start generating inco- cht catastrophe. The one thing that we’ve got to bear in me in truth in about 2019. We do expect that, in all, those mind and is that, that is the only concession in which we four projects in the next three to four years will double have participated, where we were not majority sharehol- the income that we’re now receiving from concessions, ders or controllers. That being the case in this conces- toll roads, and airports as compared to what we are see- sion, in all honestly, we did not control, did not consoli- ing today in 2016. So we should start to, to answer your date, and didn’t even have the legal possibility to block question, we should start receiving income in 2017. And decisions. But having said that, that really has not given by 2020-’21, we should have doubled the income that us an excuse to not do something. we’re receiving from our concessions to-date based on those four new projects. So the one thing that we have changed is that we are now, and we have decided that from now on forward we

Operator will require from potential partners, be it that they are majority or minority shareholders. We will require that

Thank you. Our next question comes from Frederic de their code of ethics is at least as strong as ours. And we

Mariz from UBS. Please, go ahead. will just require that they certify that before we solidify a partnership relationship.

Frederic de Mariz, Analyst

Obviously with Odebrecht, and anybody who is read

Thank you. Good morning, everyone. And I have two enough about it, will know that basically they kept this questions, actually follow-ups on the previous ones. The very well disguised. They had a department, an area of first one has to do with Ruta del Sol and the Odebrecht the company in Brazil that was solely dedicated to that case that you’ve provided a lot of details on. My question so that their foreign partners, as ourselves, didn’t even is quite generic. I’m curious to understand what you have have an idea that that was going on, because obviously

18 we weren’t given an opportunity to conduct due diligen- Luis Carlos Sarmiento, ce in Brazil of their companies. And even if we had, they Chief Executive Officer would have probably hidden it very well, because they’d been doing it for many many years and nobody had really On the timing for Ruta del Sol, I think the addendum that caught on. But in any case we’re not going to remain just we signed to the contract yesterday is of key importance with our arms across our chest. We will take actions, and because it means that we will have the funds to start an we have started to take actions. orderly liquidation of the company as soon as next Mon- day. That means that we will finally be able, because we

Diego Solano Saravia, were precluded by law before, but we will finally be able

Chief Financial Officer to start terminating the jobs of all the employees at the construction company, and bear in mind, that’s about

With regards to your second question on competition, 6,000 laymen. And we will be able to start liquidating the

Colombia has always been quite competitive. We have employees of that concessionaire. That’s not too many the market if you break it down into the five main players: people, about 100 people. this is Aval, Bancolombia, Davivienda, BBVA, and Corp- banca/Itaú, you’re adding up around 80% of the market. Once we do that, and that can be done fairly quickly, we

We expect the market to continue being quite competiti- will immediately, and by immediately, I mean in the next ve as had been in the past. No real changes in structure two days, pay the banks their first payment, which is of competition are foreseen at this point. about 60% of the total that is owed to the banks. There is a schedule of payments that guarantee that the banks

Operator will then receive a second payment in 2017. And by then, the remaining loan won’t be that big. But it will take ano-

Thank you. Our next question on mic comes from Sebas- ther two or three years to finish paying for it. tian Gallego from Credicorp Capital. Please, go ahead.

Obviously, when you take into account that according

Sebastian Gallego, Analyst to the current terms of the syndicated loans, the banks would have been paid by the year 2029 or so. They are

Good morning everyone. Thanks for the presentation. I really receiving the money much much quicker than they

have two questions

My first question is, if you can pro- would have, had they stayed in the project. So that’s the vide a timeline or timing regarding the decision by the thing. legal authorities regarding Ruta del Sol and the timing also for the payments for the banks. And as far as financial closings on the second wave of

projects

some of them are occurring as we speak. I can’t

And a follow-up on that actually is, when do you expect really assure you of what would happen with those that projects from the second wave to start reaching financial are not our second wave projects. But I do know that close? Thank you. Corficolombiana is getting ready to close on Pacifico 1 and will close very quickly on Bogotá-Villavicencio.

So that I would imagine, and I’m sure your question has Diego Solano Saravia, to do with probably you’ve heard that financial closings Chief Financial Officer aren’t as easy as they used to be. But what I have heard from most of the financial sector, from our competitors, Okay. Regarding the additional provisions on the SITP, and from foreign banks is that they were all very, very ex- it’s basically basing around $15 million dollars additional pectant to see what would happen to the Ruta del Sol provisions during this year. Regarding Central America, loan. I think that as they see these payments coming in, we expect Central America to continue contributing si- they should be able to relax and see that, that in fact an milar to what we had last year, given that our base case infrastructure project that virtually failed not because of is a pretty stable FX scenario. Central America might ou- the project itself but because of what happened before. tperform Colombia slightly but not enough to change the

In any case signifies that banks will be paid regardless. numbers materially.

And I think that, that will open the gate again to finish these financial closings that everybody is so dependent on. To clarify my answer to Carlos Macedo from before, I wanted to make sure that I was clear that I was referring

Operator to the trailing inflation, therefore, at 300 basis point in- crease would being the 8% to 9% increase of growth rate

Thank you. Your last question comes from Maria Rodri- in expenses. It might be misunderstood if you were to guez from Davivienda Corredores. Please, go ahead. adjust that to 2017 inflation.

Maria Rodriguez, Analyst Operator

Hello. Thank you very much for the call. I have actually Thank you. We have no further questions at this time. I’d two questions. The first one is regarding additional pro- like to turn the call over to Mr. Sarmiento for closing re- vision expenses with Bogota’s massive transportation marks. system for the first quarter of the year. And the second one is regarding your NIM guidance and the NIM guidan- Luis Carlos Sarmiento, ce for Central America and from Colombia. Thank you. Chief Executive Officer

Diego Solano Saravia, Alright, Richard. Well, thank you very much. Sorry, we

Chief Financial Officer took a little bit longer than usual with our presentation.

Please, forgive us. We’ll try to make it a little bit more

Okay. I think I understood your first question. But could summarized, going forward. But excellent questions you rephrase the second one? I didn’t get it. from everybody today. And we’ll hope to see in the next one. Thank you very much.

Maria Rodriguez, Analyst

Operator

Yeah. In terms of guidance, you are expecting to keep simi- lar guidance for 2017. I was wondering how much is it from Thank you, ladies and gentlemen. This concludes today’s

Central America, the contribution from Central America conference. Thank you for participating. You may now and the contribution from Colombia? Thank you. disconnect.

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