Transcript Ingles 3Q18

to build

‘Pacifico 1’ and ‘Chirajara- risk assumed in the first five years of

Fundadores’. Completion of the construction construction from those incurred during the phase of these two projects is estimated by other thirty years of operating the road. the end of the year 2023, the National

In terms of net income, before adopting IFRS

Infrastructure Agency (ANI) signed two days

15 the bulk of it came during the last ago, the go-ahead to initiate the construction operating years of each concession, reflecting of a third 4G project ‘Villavicencio-Yopal’ and something similar to a cash accounting therefore we will commence construction of treatment. that road in a week or two, we expect to complete it by the year 2024. The After IFRS 15, despite the fact that total construction of a fourth project ‘Mulaló- returns of each concession project stayed the

Loboguerrero’ should commence in the third same, the recognition of returns accelerate quarter of 2019 and be completed by the year during construction in line with the level of

2025. ‘Corficolombiana’ is the sole risk assumed, it is important to clarify that the shareholder in three of these projects and a timing of the cash received by the concessions

90% shareholder of the fourth. does not change.

The strong revenue generated by these Upon the adoption of IFRS 15, COP$ 330 concessions and those to come, especially billion pesos in retracted net income going during the time that it takes to build the roads back to the beginning of 2018, was recognized is largely explained in the full adoption of IFRS in ‘Corficolombiana’ during the third quarter.

15. These accounting rule requires This amount positively impacted ‘Grupo

‘Corficolombiana’ to differentiate the phases Aval’s net income by COP$ 125 billion pesos, of the concession project namely in the this was a one-time adjustment to our net construction phase and the operation phase. income for the year.

Each phase represents a different service

Additionally, during the third quarter provided to the contracting party, in this case recurrent net income of COP$ 220 billion the Colombian government. In fact, in the pesos was generated at the ‘Corficolombiana’ construction phase, the service provided is level, as a result of construction progress in the building of the road while in the operating the mentioned 4G projects, which phase the service consists of operating represented recurrent net income of collecting tolls and maintaining the road. approximately COP$ 88 billion pesos at the

Returns to the contractor during each phase

‘Grupo Aval’ net income level. In summary, 4G must be proportionate to the risk incurred by projects added COP$ 550 billion pesos to such contractor. In essence, one could argue

Corficolombiana’s bottom-line which that the operating years relate to a quasi-risk- represented COP$ 213 billion pesos of net free business while most of the risk is incurred income to ‘Aval’. Out of the COP$ 213 billion during the construction phase. pesos, COP$ 88 billion pesos is recurrent net

Before adopting IFRS 15, ‘Corficolombiana’ income. treated each 35-year concession project as

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As the construction of the other two 4G new functionalities and intelligent targeted- projects get under way, and as the current marketing spending. ones pick-up steam, another boost will be

We have launched a service chatbot which given to Corficolombiana’s and Aval’s bottom only five months after its launch, it has lines. In fact, in our estimation 4G will add processed more than one-hundred and approximately COP$ 115 billion pesos per twenty thousand sessions without human month to Corficolombiana’s net income interaction. during 2019 or approximately COP$ 45 billion pesos at Grupo Aval’s attributable net income The combination of applied analytics in digital per month or COP$ 24 pesos per share in the collections has helped us achieved greater year for ‘Grupo Aval’. productivity in our contact centers, we have been able to process 22% more accounts with

On another note, it is important to note that

14% less personnel. our 2Q results showed slight changes in our net interest margin, cost-of-risk, and quality These data points are just some of the of the loan portfolio for the quarter but no examples we have to show for advances in change in our bottom line. These changes are digital, the true efficiency improvement has consequence of KPMG’s issuance after our 2Q also come from an eight-hundred head count results call of its practical guide to account reduction in the last three years and by being and implement IFRS 9 into a resulting better able to grow a balance sheet without an understanding of how we should treat the increase in our physical footprint. Our focus is provisioning expenses of stage 3 loans. We we will continue to serve our customers in the are confident that our current interpretation least costly manner and the most effective of IFRS 9, which is generating headaches to way. worldwide is now accurate.

In Colombia, we started our digitalization

With regards to our digitalization efforts, I effort over a year ago through the creation of would like to point out that our digital two digital labs and soon to merge into Aval’s transformation continues to advance. In digital lab. Some results of this effort are as

Central America, which is where our follows: digitalization efforts of our group began,

More than 25% of Banco de Bogota’s savings

results are clear

accounts openings are now done digitally, of

One of every three clients of BAC is digital. these openings 94% of our clients are new to

Our goal is to surpass the one-million digital the bank. clients before year-end and hope to grow this

More than 25% of new credit cards at ‘Banco figure by 25% in 2019. de Bogotá’ are acquired digitally, at a fraction

By the end of this year, we will be able to of the cost of other channels. place more than one-hundred fifty thousand

More than 30% of new vehicles loans at products through digital channels, which is

‘Banco de Occidente’ are now produced

60% more than in 2017 with a combination of

Página 6 de 16 through the digital platform launched last manager of the National Institute of

June. Concessions (INCO) a government agency later replaced by the National Infrastructure

We expect that in 2019, 40% of total credit

Agency. cards placed in ‘Banco de Occidente’,

‘Popular’ and ‘Villas’ will be done digitally. On September 14, 2018, the SIC

(Superintendence of Industry and Commerce)

As in Central America, in Colombia we have held a press conference in which it reported combined our digitalization efforts with a its decision to present charges for three migration of transactions in the reformatting alleged violations of the Colombian legal of the branches. During the last eighteen regime of free economic competition months, we have closed about fifty ‘Banco de associated to Ruta del Sol Sector 2, against

Bogota’ branches, close to 8% of its footprint,

Odebrecht, members of their management, we are in the process of closing 16 ‘Banco and Concesionaria Ruta del Sol S.A.S.

Popular’ branches, 7% of its footprint, we

Corficolombiana, Episol and members of their have closed thirteen ‘Banco de Occidente’ management were charged with two of these branches 6% of its footprint, and we have three violations and Grupo Aval and members closed nine ‘Banco AV Villas’ branches, 3% of of our management were charged with one its footprint. We will continue these violation. An employee of the World Bank optimization efforts in 2019. through the IFC, and José Elías Melo, former

As I offered, now let me briefly address the president of Corficolombiana were also

antitrust charges

charged.

On January 20th, 2017 the Superintendence The alleged violations naming ‘Grupo Aval’ of Industry and Commerce [SIC] initiated a and its affiliates and their management are as non-public administrative proceeding to follows: investigate whether any anticompetitive

First, collusive practices for which Odebrecht, behavior had been conducted in the public members of their management, bidding process for the awarding of

‘Corficolombiana’, ‘Episol’, and Jose Elias concession contract No. 001 of 2010 for the

Melo were charged. construction of the ‘Ruta del Sol’ sector 2 toll road concession awarded to Concessionaire Secondly, taking advantage of a conflict of

‘Ruta del Sol’ CRDS for short, a company interest, for which ‘Grupo Aval’, controlled by Odebrecht with a 62% stake in ‘Corficolombiana’, ‘Episol’, myself, Diego which ‘Episol’, a subsidiary of Solano, Gustavo Ramirez, Alejandro Sanchez,

‘Corficolombiana’, held a minority of 33%. both VPs at ‘Corficolombiana’, Jose Elias Melo and an employee of the IFC were charged.

This administrative proceeding commenced primarily based on the admissions made by ‘Grupo Aval’, ‘Corficolombiana’, ‘Episol’, as

Odebrecht and Gabriel Garcia Morales, a well as the members of our management recipient of Odebrecht’s bribes, former Vice- charged by the SIC, have already contested minister of transportation, and then acting these accusations laying out the initial legal

Página 7 de 16 basis for their defense, as well as submitting And lastly our expectations about 2019: and requesting documental and testimonial

During 2019, I see a year in which Colombia’s evidence in support of their defense. growth will speed up to 3.25%, in Central

We cannot predict how long this proceeding America somewhat decelerate to between will last, even though we believe that the legal 2% and 3% percent. basis and evidence supporting our defense

Our expectation is for our core assets to grow should achieve the dismissal of these charges, between 8% and 10% percent. if we are not successful, our companies may face the payment of fines for up to the In our net interest margin, we see offsetting equivalent of approximately USD$ 24.5 forces: on the one hand, an increase in million dollars per charge and our employees interest rate scenario which should favor our may be responsible for fines about to the corporate portfolio, and on the other hand a equivalent of approximately USD$ 490,000 stronger competitive scenario which could thousand dollars. force the yields to lower. In all, we believe that the competitive forces should weight

Moving on, allow me to share with you our more, and thus that the net interest margin general guidance for 2018: will decline by ten basis points.

Real GDP growth between 2.6% and 2.7%.

We expect the quality of our loans to improve,

Inflation 3.3%. throughout 2019 and in turn the cost-of-risk we expect this ratio to move within the 1.9%

Loan portfolio growth between 3% and 5%. to 2% percent range, this number includes an

Net interest margin approximately 5.7%. estimated additional provisioning of 15% for

‘Ruta del Sol’ to bring its coverage up to 40%

Cost-of-risk 2.1%, which could go up to 2.3% percent, not because we believe that there is as we will most probably book additional a lesser chance to recover our money, but provisions to bring ‘Electricaribe’ to a because it is required as time passes and no provision coverage of 100%, CRDS to a new payments are received. If this situation coverage of 25%, and ‘SITP’ to a combined changes, so will our estimation for additional coverage of 35% percent. provisions. Also, included in this cost-of-risk estimate, it is our intention to increase the

Opex growth 3.5% due to cost reduction coverage of ‘SITP’ related loans as follows: initiatives, such as personnel cuts, branch

Tranzit to a 100%, Consorcio Express to 60%, reductions and other. and ETIB to 40% percent.

Income from non-financial associated with

We expect our OPEX to grow at close to 8%

4G, at the ‘Corficolombiana’ level we expect percent, mainly as a consequence of our

COP$ 1.2 billion pesos from 4G in 2018, and expected faster growth, and also due to the

COP$ 1.3 billion pesos of net income during implementation of IFRS 16.

2019. Of these numbers ‘Grupo Aval’ consolidates 38% percent.

The return on equity for the year is expected at approximately 16.5% percent.

Return on average equity 16% percent.

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With that, I will pass this conference call to dollar terms driven by the political cycle in

Diego and I thank you for your time Nicaragua. Nicaragua accounts for less than

2% of our total assets.

Diego Solano Saravia, Moving to page 10, loans excluding repos

Chief Financial Officer grew at a modest 0.9% during the quarter.

Commercial loans continue to drive the soft

Thank you Luis Carlos. growth dynamics in Colombia. This is partially compensated by a stronger performance of

I will now move to the consolidated results of our consumer portfolio supported in a

Grupo AVAL under IFRS. positive trend in its quality. We will continue

As mentioned by Mr. Sarmiento, figures for to focus on profitable growth and expect the 2Q2018 have been adjusted with no momentum to pick-up through 2019. impact on net income to better reflect the

Our Colombian consumer and mortgage effect of IFRS 9 provisions on stage 3 loans. As business continued to be dynamic, expanding a result, higher net interest margin, cost-of-

2.4% at 4.3% during the quarter, and 8.3% and risk and PDLs are recorded for the 2Q2018 as

20.1% percent respectively over the 12- previously reported. month period. In contrast, our Colombian

Moving to our results for this quarter, five corporate portfolio contracted by 0.7% during elements drove our performance. the quarter and by 0.8% over the year.

First, a still low momentum of the corporate Central America grew 0.5% in dollar terms loan portfolio in Colombia. during the quarter, accumulating 5.5% over the last 12 months. This 12-month

Second, stability in the quality of our loan performance was driven by a 7.2% portfolio in Colombia and some deterioration contraction in Nicaragua and a 6.8% in Central America. expansion in the rest of the region.

Third, stable NIM,

We expect 2018 loan growth to be in the 3%

Fourth, continuing cost control efforts, to 5% area, and to pick-up 8% to 10% percent during 2019.

And fifth, a strong contribution of our non- financial activities reflecting the impact of On pages 11 and 12 we present several loan

IFRS 15 and our increasingly important 4G portfolio quality ratios. road concession construction activity in

We experienced a slight increase in our PDL

‘Corficolombiana’. ratios. A deterioration in Central America and

Starting on page 9, assets grew 3% during the a contraction of our Colombian corporate quarter, driven by an increase in cash and book drove this behavior. Deterioration in cash equivalents, Fixed income investments Central America came mainly from Nicaragua and the value of our concession arrangement and Costa Rica as described by Luis Carlos, rights. Central America which weights close to due to the political volatility and some

29% of our book, saw a 0.5% contraction in corporate clients in the region. In contrast,

Página 9 de 16 the improvement in quality of our consumer On page 13, we present funding and deposits portfolio in Colombia, continues to evolution. Funding dynamics were consistent consolidate with faster loan ratios improving with loan growth. Our funding structure

27 basis points to 5.5% on a 30-days basis and remains relatively stable with deposits

16 basis points to 3.4% on a 90-day basis. representing 76% of total funding. In addition, our liquidity position slightly improved with

Our PDL coverage remains stable while our our deposits to net-loan ratio reaching 97%, cost of risk deteriorated 37 basis points due to and our cash-to-deposits ratio at 16%. a 72 basis points deterioration in Central

America. Deposits grew by 0.8% during the quarter accumulating 4.3% over the last twelve

In spite of this slight deterioration in Cost of months. Colombia and Central America grew risk, we continue to see an improvement in at similar paces during the quarter. Over the new PDLs formation, especially in our twelve-month period, Central America was

Colombian operation. Relative to the previous more dynamic than Colombia growing a 7.9% quarter, our new PDL formation in Colombia in dollar terms, while Colombia grew at 2.4% improved 12% to COP$ 656 billion pesos on a percent.

30-day basis, and 28% to COP$ 664 billion pesos on a 90-day basis. Our overall new PDL We expect deposits to continue growing at a formation improved by 6% on a 30-day basis similar pace, for loan portfolio during and 23% on a 90-day basis. remainder of 2018 and 2019.

With regards to coverage ratios of the three On page 14, we present the evolution of our corporate cases that we have been following total capitalization, our attributable for the last conference calls, ‘Electricaribe’ shareholders’ equity and the capital adequacy and ‘RDS’ were stable at 80% and 13% percent ratio of our banks. respectively while our coverage for ‘SITP’

Our total equity grew 10.4% while our companies reached 29% up from 21% a attributable equity grew 6.7% over the quarter earlier. The coverages for ‘SITP’ quarter, mainly driven by earnings during the companies were 67%, 35% and 13% for period. In addition, the equity issues in

‘Tranzit’ ‘Consorcio Express’ and ‘ETIB’

‘Corficolombiana’ contributed close to a COP$ respectively, as described by Luis Carlos we trillion pesos to capitalization and COP$ 138 expect to increase our coverage ratios for billion pesos to our attributable shareholders’

‘CRDS’ ‘Electricaribe’ and some ‘SITP’ equity. companies by year-end. These additional provisions could imply approximately 20 basis All of our banks showed appropriate Tier 1 points additional to our cost-of-risk this year. and total solvency ratios.

We expect 2018 cost-of-risk net of recoveries On pages 15 and 16 we present our yield on to be in the 2.3% area, including these loans, cost of funds, spreads and net interest additional twenty basis points. For next year, margins. we expect our cost-of-risk to be in the 2% area.

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Interest rates and margins were stable phase. In contrast, the previous methodology relative to the previous quarter, and the required that construction activity profits stability of the Central Bank’s intervention were distributed throughout the life of the rate experienced throughout the recent concession. months. The average yield on loans cost of

During this quarter ‘Corficolombiana’ booked funds spreads were substantially stable. an after-tax net income of COP$ 550 billion

Moving forward, through 2019 we expect an pesos or COP$ 0.8 trillion Colombian pesos expansion of new corporate loans as the pretax towards its new toll road concessions,

Central Bank starts to raise its rates, while our of which approximately to COP$ 213 billion consumer portfolio we see increased pricing pesos or 38% are attributable to ‘Grupo Aval’ competition as the improvement in quality of shareholders. the consumer loans consolidates into a more

Income from this source was particularly high dynamic growth increases the share of newly during the quarter given that it incorporates 9 priced loans in our mix. months of income from two of our

We expect full year 2018 NIM to be in the concessions.

5.7% area slightly higher as previously guided,

In absence of the income from previous and in the 5.6% area for 2019. quarters, after tax net income from these

On page 17 we present net fees and other concessions would have been COP$ 220 income. A substantially better performance of billion pesos, of which approximately COP$ 88 the infrastructure sector, will step income billion pesos were attributable to Aval’s from the non-financial sector during the shareholders. quarter. This positive performance reflects

We expect contribution of our toll road the application of IFRS 15 into the progress concessions to increase as the ‘Villavicencio- made in the new 4G concessions and our

Yopal’ concession, which reached its

Private-Public initiative toll road concessions. construction phase initiation this week, starts

Relative to the previous methodologies, IFRS to contribute during this quarter.

15 results in a higher recognition of profits

Finally, in other sectors of the non-financial during the construction phase offset by lower activity a better performance of our operation profits during the operation and maintenance in energy and gas and hotels also contributed phase. ‘Corficolombiana’ expects to benefit to better results of our non-financial sectors over the following five to six years from the in the quarter. recognition of its construction activity at its currently contracted concessions. Also, on this page, gross fee income dynamics were consistent with the balance sheet

IFRS 15 requires the concessionaire to performance decreasing COP$ 10 billion recognize separate profits and losses from pesos or 0.7% during the quarter, mainly different obligations under the contract. As a driven by the contraction of the banking fees result, profits from construction are fully in Colombia. recognized throughout the construction

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This was offset by other operating income In spite of the low asset growth that we have that increased COP$ 23 billion pesos driven by experienced so far, we expect to maintain our a stronger contribution of the FX and hedging cost to assets basis at 3.5% for the full year activity and a mixed performance of other line 2018 and a slight improvement in 2019. items.

Finally, on page 19 we present our net income

On page 18 we present some efficiency ratios. and profitability ratios.

We continue to emphasize our operation Our total net income for the 3Q18 was COP$ efficiency initiatives both in Colombia and in 783 billion pesos, or $35 pesos per share.

Central America with positive results

Our return on average assets was 2.4% and throughout most of our banking subsidiaries. our return on average equity was 19.1%.

The progress of our digital efforts and cost control initiatives throughout our subsidiaries In the absence from the income of non- have been key drivers of this progress. financial sector from previous quarter, our

Personnel and administrative expenses total net income for 3Q2018 would have been decreased by 1.6% during the quarter and COP$ 658 billion pesos or COP$ 29 pesos per increased 1.7% when compared to a year share, our return on average assets would earlier. Initiatives behind these results have been 1.9% and our return on average included head-count reductions in certain equity would have been 16.1% percent. areas, formatting and closure of branches,

Before we move into questions and answers, migration of transactions to ATM and digital

I will now summarize our general guidance for channels.

2018 and 2019:

As a result, our efficiency ratio measured as

We expect loan growth to be in the 3% to 5% operating expense to average assets a 3.5% percent area in 2018 and 8% to 10% area for for 3Q2018 improved 12 basis points from the

2019. previous quarter. Central America and

Colombia reported ratios of 3.1% and 4.4%

We expect our cost-of-risk, net up recoveries respectively for 3Q2018. to be in the 2.3% area in 2018 including 20 basis points from the large corporate cases

Our efficiency ratio measured as an operating mentioned before and improve to 2% area in expense to total income showed an

2019. improvement of 700 basis points to 39%, compared to the previous quarter, and 770

We expect full year net interest margin to be basis points through the same quarter a year in the 5.7% area in 2018 and in the 5.6% area earlier. Our efficiency ratio was positively for 2019. impacted by the increase in income from our non-financial sector described earlier. Central Regarding efficiency ratios, we expect cost to

America and Colombia reported ratios of 35% assets to be in the 3.5% area in 2018 and and 49% respectively for 3Q18. slightly improve through next year.

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Finally, we expect a return on equity to be in accelerate at some point either later this year the 16% area this year and 16.5% area next or throughout next year. So, in summary year. basically we are expecting to see a continuation of what we have seen over the

We are now available to address your past few quarters. questions.

Regarding the eventual tax reform, it is tough to say at this point given that there is a

Q&A number of issues still to be discussed, obviously if you take money away from the

Operator

Thank you. We will now begin the consumers’ pockets there could be some

Q’s & A’s session. If you have a question, expectation of pressure on consumer growth, please press * and 1 on your touchtone but I would prefer to wait to see the phone. Please, limit yourself to one question discussion on the tax reform before we give and can be queued for follow up question. If any guidance there. you wish to be removed from the queue please press the # or the hash key, if you are Operator: Thank you. Our next question using a speaker phone you may need to pick comes from Yuri Fernandes from J.P. Morgan, up the handset first, before pressing the please go ahead. numbers. Once again, if you have a question

Yuri Fernandes

Thank you gentlemen I had a please press * and 1 on your touchtone question on these IFRS 15 changes and phone. Standing by for question… specifically the effect for ‘Banco de Bogota’.

Our first question comes from Andrés Soto My question is this accounting change held from Santander, please go ahead: from the capitalization of ‘Banco de Bogota’, how this can affect capital ratios because

Andrés Soto: Thank you for the presentation. looking here, I saw some decline on the

My question is regarding your loan-growth capitalization rate for ‘Banco de Bogota’ and guidance in 2019, can you please break-down it was not clear for me if that may help on the this 8% to 10% amongst your preferred loan potential base implementation for your segments, I’m curious to hear your views subsidiaries. Thank you. about how sensitive is this outlook to the implementation of the tax reform next year. Tatiana Uribe: Hi Yuri, this is Tatiana. The

Thank you. impact on ‘Banco de Bogota’s’ current capitalization level is actually negative,

Diego Solano

Andrés, regarding growth as because under current capital regulations or you might have seen in our numbers, we standards, the full value of ‘Corficolombiana’ expect the growth for the corporate segment investment is deducted from core equity Tier to continue to be very low, these means low

1, so actually that is one of the points that we single digits, while our consumer and want to see changed going into Basel 3, mortgage performance have been closer to because the full deduction is not even Basel 8,

10% in an area where we believe our numbers so to answer your question, we currently will continue to perform and eventually affect ‘Banco de Bogota’s’ capital position.

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Luis Carlos Sarmiento

It does obviously have Diego Solano: No, not at all…actually what a positive impact coming from Bogota’s we have done is change that does not affect participation in ‘Corficolombiana’ thru a equity, nor it affects earnings, it’s a

‘método de participación - participation presentation difference basically where the methodology’, meaning obviously as long as difference lays are in those net numbers, are

‘Corficolombiana’ yields more net income, the same gross numbers as presented

‘Banco de Bogota’ will book more net income changed, so you end up exactly in the same itself by 38%, no…it’s less, about 32% of what earnings, and you end up exactly in the same

‘Corficolombiana’ yields us in net income, so equity, but when you present your P&L it has a positive effect in net income, and then numbers are opened up in a different manner as Tatiana was saying, the bigger the

Operator

Our next question comes from investment in ‘Corficolombiana’ becomes in

Sebastián Gallego from ‘Credicorp Capital’,

‘Banco de Bogota’s balance sheet, the less please go ahead

Tier 1 ratio will produce because it’s got to be deducted off. We are, as Tatiana says, in Sebastián Gallego: Hi, good morning, thanks conversations with the Superintendence of for the presentation. I have two questions,

Finance to try to change that point, the first one regarding your guidance on ROE specifically. for next year, should we expect that to be a recurring ROE or should we expect that to be

Operator

Our next question comes from also influenced by the accounting treatment

Rodrigo Sánchez from ‘Davivienda of ‘Corficolombiana’ that you mentioned and

Corredores’, please go ahead the second question is regarding ‘CRDS 2’, I’d

Rodrigo Sánchez: Good morning, thank you like to have a sense of your base-case scenario for taking my question. Construing your in terms of timing and potential additional presence in the U.S. through the ADR, I would investigation and what could be the outcome, like to know if at some point, any institution particularly regarding the payments that the such as the SEC or Department of Justice have banks are still awaiting, thank you. requested any information regarding the

Luis Carlos Sarmiento

OK, let me address investigation in Colombia regarding the SIC both questions. In terms of the ROE for next

Luis Carlos Sarmiento

Oh Great, thank you year no, on the contrary, we expect especially for your question. The answer is NO given two issues, one: that the provisions that we’re booking in addition to normal

Operator

Our next question comes from provisions. Or three issues, secondly, we are

Carlos Gómez from HSBC, please go ahead expecting the quality of our loan portfolios to

Carlos Gómez: I would like to clarify a bit become better and thirdly, the positive further the changes you have made regarding impact that we’ll have based on this fiscal

IFRS, so you have restated the second quarter reform, if it passes, the answer is no, on the figures, has there been any impact on equity contrary we will expect ROE to get better in compared to what you have reported before? the following years. It’s hard to say up to what it will come, but you know…it wouldn’t be too

Página 14 de 16 hard to predict a pickup of about 100 to 200 So, to answer your question, the arbitration hundred basis points, but for now we are tribunal is very important with regards to the confident that with next year’s guidance and monies that are going to be paid to the banks, as we know a tax reform will be more secondly we expect a second payment to be confident on following years’ ROE made between now and May of June of next expectations. year, and thirdly we expect it at the latest May or June of next year we’ll have the final

With regards to ‘CRDS’, I think the most payment to be made. important thing that is happening is that the arbitration tribunal is back with three judges. Operator: Our next question comes from

I don’t know how public this is… this is public Jason Mollin from Scotiabank, please go information but I don’t know how much ahead you’re aware of it, but the third judge in the

Jason Mollin

Hi, my question is related to arbitration tribunal passed away, so there’s a accounting changes for IFRS we now see in new judge that just accepted the post. He has

IFRS 9 and 15. What should we expect going requested that he needs another six months, forward, are there additional IFRS that you and it’s one of the reasons that this thing is are discussing, implementing or how should getting delayed, and so we expect that we’ll we take that. Clearly it seems that just in this have a pronouncement by say May of next quarter you stripped out the retroactive year. In the meantime, because that numbers, that the numbers are pretty pronouncement coming out of the arbitration comparable, but how should we think about tribunal will be final with respect to what the earnings and equity going forward from liquidation value of the contract is. That’s very further changes, thank you. important because then we’ll know with certainty exactly how much money will be Diego Solano: These changes are something paid to the banks, but in the meantime, we that actually has happened when we are fairly confident that a second payment in migrated to IFRS that we were not addition to the payment made back in accustomed to see when we were looking at

December of 2017 to the banking system, our reconciliation to U.S. GAAP and it is that fairly confident that a second payment will be IFRS constantly comes around with numerals made. It’s tough to know the amount of that that do affect our numbers. At this point we payment, but the reason that we are pretty are aware that, not only for us but around the confident that a second payment will be made world, there is a new IFRS rules coming is because there is some money sitting in bank around, for example IFRS 16, that changes the accounts relating to monies that have already way that some leases are taken care of, that been transferred from the government to a might have some impact, we are not trust account in relation to that completed foreseeing any substantial impact on our construction of ‘CRDS’ which just hasn’t been figures at this point, but it’s coming around. disbursed and I think that we have enough

IFRS 9 is also coming around, not only for us push from the government to get it disbursed. but for the rest of the world, and I’d say in this case IFRS 15 has been relevant for us because

Página 15 de 16 it came at a time where we were starting a Luis Carlos Sarmiento Gutiérrez bunch of new roads where construction was

Chief Executive Officer being deployed and it had a particularly high impact for us. That’s why in this case we went Ok, Jessie thank you very much. into detail in to trying to understand how

I’d like to thank everybody who was on the should we be dealing with these rules and try call, and obviously we are always open to to be as transparent as possible, therefore additional questions that did not come up and showing what part of our revenue from this we’ll be happy to answer those and if not, quarter came from previous quarters, what until next call and if anything happens in the part we believed was something that should meantime, we’ll let you know and thank you be recurrent moving into the future and very much. actually gave you a time frame of what the construction period of these toll roads that

Operator

Thank you ladies and gentlemen. we have contracted at this point will be, as I

This concludes today’s conference. Thank you mentioned in 5 to 6 years, depends very much for participating. You may now disconnect. on our ability to generate new businesses in the future to understand if beyond those 5 years if we will continue to have this kind of benefit.

This transcript may not be entirely accurate. Grupo

Regarding Basel III these changes do not have Aval retains all rights to this transcript and provides it solely for personal, non-commercial or these accounting changes do not have a use. Grupo Aval, its suppliers and third-party substantial impact on technical capitalization agents shall not be liable for errors in this beyond what we have disclosed in the past. transcript or any actions based on the information

With Basel III coming into Colombia, as we contained herein. have mentioned in our past calls we do expect

to see some impact

positive on most of our banks, close to neutral in ‘Banco de Bogota’ and that’s about what we can say at this point.

Luis Carlos Sarmiento

Obviously as we have estimations of specifically on IFRS 16 on the way that we have to book specially leasing contracts for our real-estate or our branches going forward we will pass that amount to the market.

Operator

Thank you, we have no further question at this time. I would like to turn the call back over to Mr. Sarmiento for closing remarks.

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