Grupo Aval Acciones y Valores S.A. ADR (Each representing 20 preferred shares)

Welcome to Grupo Aval's third quarter 2019 consolidated results conference call. My name is Sylvia and I'll be operating for today's call. Grupo Aval, Acciones y Valores DSA, Grupo Aval is an issuer of securities in Colombia and in the United States, registered with Colombia's National Registry of Shares and Issuers, Registro Nacional de Valores y Mesores, and the United States Securities and Exchange Commission, SEC. As such, it is subject to compliance with securities regulation in Colombia and applicable U.S. securities regulation. All of our bank subsidiaries, Banco de Bogota, Banco de Occidente, Banco Popular, and Banco Abrevillas, Borbidín, and Corfe Colombiana are subject to inspection and supervision as financial institutions by the Superintendency of Finance. Grupo Aval is now also subject to the inspection and supervision of the Superintendency of Finance as a result of Law 1870 of 2017, also known as Law of Financial Conglomerates, which came into effect on February 6, 2019. Grupo Aval, as the holding company of his financial conglomerate, is responsible for the compliance with capital equity fee requirements, corporate governance standards, risk management, and internal control and criteria for identifying, managing, and revealing conflicts of interest applicable to his financial conglomerate. The consolidated financial information included in this document is presented in accordance with the IFRS as currently issued by the IASB. Details of the calculations of the non-GAAP measures such as ROAA and ROAE among others are explained when required in this report. Grupo VAR has adopted IFRS 16 retrospectively from January 1, 2019 but has not restated comparatives for the 2019 reporting period as permitted under the specific transitional provisions in the standards. The reclassifications and adjustments arising from the new leasing rules are therefore recognized in the opening condensed consolidated statement of financial position on January 1, 2019. Consequently, quarterly results of 2019 are not fully comparable to previous periods. IFRS 16 introduces single on-balance state accounting model for leases. As a result, Grupo Valdez's leases has recognized wide-of-use assets representing its rights to use the underlying assets and lease liabilities representing its obligations to make lease payments. Lesser accounting remains similar to previous accounting policies. Assets and liability deriving from a lease are initially measured on a present value basis. The lease payments are discounted using the interest rate implicated in the lease, if that rate can be determined or the group's incremental borrowing rate. This report includes forward-looking statements. In some cases, you can identify these forward-looking statements by words such as may, will, should, expects, plans, anticipates, believes, estimates, and predicts, potential or continue, or the negative of these other comparable words. Actual results and investments may differ materially from those anticipated herein as consequence of exchanges in general, economic and business conditions, changes in interest and currency rates, and other risks described from time to time in our filings with the Registro Nacional de Valores, Invisores, and the SEC. Recipients of this document are responsible for the assessment and the use of the information provided herein. Matters described in this presentation and our knowledge of them may change intensively and materially over time, but we expressly disclaim any obligations to review, update, or correct information provided in this report, including any forward-looking statements and do not intend to provide any update for such material developments prior to our next earnings report. The content of this document and the figures included herein are intended to provide a summary of the subjects discussed rather than a comprehensive description. When applicable in this document, we refer to billions as thousands of millions. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I will now turn the call over to Mr. Luis Carlos Sarmiento Gutierrez, Chief Executive Officer. Mr. Luis Carlos Sarmiento Gutierrez, you may begin.

Good morning, CBM. Thank you. Apologize in advance because I'm getting rid of a cold, so I'm all stuffed up. But here we go. Good morning, all, and thank you for joining us in our third quarter 2019 conference call. Once again, it is my pleasure to share with you our strong financial results for the quarter that ended on September 30. Today, I will cover the following subjects, an overview of the country's macro scenario, highlights of our results, an update regarding the legal processes of Ruta del Sol, and also our recent announcement of the agreement to acquire a multifinancial group holding up multibanks in Panama. Let's start with a macro scenario. Colombia's economy, where almost 70% of our consolidated business resides, continues its path of acceleration despite a worldwide broad-based economic growth slowdown. In fact, as all of you already know, GDP growth during the third quarter accelerated to 3.3%, the strongest quarter in the last four years, and higher than the 3% average of the first half of this year. This result was mainly driven by stronger private consumption and investment, from the demand side, while driven by commerce and financial services from the supply side. In fact, sectors such as commerce, financial services, and professional services grew at a stronger pace than average GDP, while sectors such as construction, industry, oil, and mining, and communications grew at a slower pace. The biggest drag on the economy continues to be the country's trade deficit amid weak exports and robust imports. All in all, we continue to expect that GDP will grow 3.2% during the year. Assuming a slowdown in government spending next year, a slow recovery in the trade deficit, but sustained private consumption and growth contribution from infrastructure, we forecast a slight improvement in GDP growth to 3.3% in 2020. Employment continues to be soft, with unemployment currently averaging 10.4%. As mentioned in previous calls, we believe that this indicator is being impacted by the notorious inflow of Venezuelan immigrants and the consistent minimum wage increases in excess of inflation. Unemployment numbers will only start to improve as the labor-intensive sectors of the economy gain momentum. As such, we currently expect a slight and only a slight improvement in unemployment for next year. Twelve-month inflation continues to push towards the 4% upper limit of the central bank's closing at 3.86% in October as compared to last year's inflation of 3.2%. However, the pickup in core inflation has been moderate, while food prices have accounted for approximately 90% of the increase. Also, contributing to the acceleration in inflation is a pass-through of the devaluation of the currency, resulting in more costly imports when nominated in Colombian pesos. we expect inflation for 2019 to be 3.8%. Food prices should somewhat ease in 2020 and thus we expect inflation to return to the 3.5% area next year. Despite higher inflation pressures, due to the yet to consolidate economic recovery and the worldwide trend of monetary policy easing, We believe that the central bank will continue with a stable repo rate of four and a quarter throughout the remainder of 2019 and most, if not all, of 2020. As I briefly mentioned before, current account deficit continues to be one of the major vulnerabilities of Colombia's economy. Despite a significant increase in foreign direct investment during 2019, Colombia's internal demand growth continues to push for the importation of more expensive goods while weakening external economies and lower oil prices have precluded an increase in exports and export revenues at a similar pace. Finally, on the fiscal front, tax revenues for a year have been a positive surprise, thus increasing the probability that the government will meet its expectation of achieving a lower fiscal deficit than the 2.7% demanded by the fiscal rule target. However, bidding 2020's targets of 2.3% will pose a bigger challenge due to the recent revocation by Columbia's Constitutional Court of the December 2018 financing law. I must note that the effects of this law were not revoked for 2019, except for the surcharge income tax of 4% that the law imposed on the financial sector. The biggest challenge for the government arises from the need to get a new or the same law approved by Congress during the remainder of this year to take effect on January 1st, 2020. This was a quarter of high volatility in the exchange rate ranging between 3,170 and 3,480 pesos per dollar and recently averaging in the 3,400 pesos per dollar area. The devaluation of the Colombian peso has been driven by a strengthening of the U.S. dollar globally and a higher risk perception for emerging economies. Given the current economic indicators, we expect the exchange rate to hover around 3400 and 3500 pesos per dollar for the remainder of the year and for 2020. Moving on to Central America, our growth outlook continues to be positive. We expect that the region's economy will grow slightly less than 3% during 2019 and closer to 3% in 2020. A contributor to the region's slow growth is Nicaragua, whose economy is expected to continue contracting as much as 5% in 2019 and to not grow during 2020. On the other hand, we were pleasantly surprised by the appointment of the new finance minister, Rodrigo Chavez, in Costa Rica after the resignation of the previous minister. Mr. Chavez is currently a high-ranking official of the World Bank in Asia, and according to his first public statement, his mandate points towards austerity in public spending and macroeconomic stability. It is believed that he will continue to work on solving Costa Rica's pronounced fiscal deficit. Moving on to our financial highlights. To highlight a few of our figures, our attributable net income for the quarter was 743 billion pesos, or 33.4 pesos per share. Excluding provisions for CRDS, this number approximated 891 billion pesos for the quarter, or 40 pesos per share. Unadjusted accumulated attributable net income for the nine months ended September 30 was 2.3 trillion pesos, showing an increase of 12.5% versus the same period in 2018. Return on average equity for the quarter was approximately 16% and approximately 19% when excluding the mentioned provision for CRDS. Our unadjusted cumulative return on average equity for the year is 17%. Our loan portfolio grew strongly close to 11% year on year and 5% in the quarter with a distinct pickup in the commercial portfolio. Our net interest margin for the quarter was 5.7%, in line with our expectations, as a result of a 6.4% NIM on loans and 2.3% NIM on investments. As expected, our cost of risk, excluding CRDS provisions, was 1.8% for the quarter and 2.5% if unadjusted. Cumulative cost of risk for the first three quarters was 2.2% and 1.9% excluding provisions for CRDS. Our net fee income for the nine months ended September 30 increased by 12% when compared with the same period in 2018. Almost 14% increase versus the same quarter in 2018. and remain stable versus the previous quarter due mainly to strong banking and pension fund fees. Corfi Colombiana's non-financial sector investments continue to contribute during the quarter, and thus income from non-financial investments increased 10% versus the previous quarter. Personnel, including severance costs and SG&A expenses, grew by 6.2% for the nine months ended September 2019 versus the same period in 2018. Allowances for pass-through loans more than 90 days at 153%, our deposit-to-loan ratio at one times, liquidity at approximately 16%, and tangible equity at 8.9%, all of this as of September 30, 2019, complemented the balance sheet strength. Diego will refer later to each of these points in a few minutes. With regards to digitalization, Our digitalizing efforts continue to show results as evidenced by figures such as the following. In Colombia, digital sales in the third quarter represented 40% of our total retail sales, up from 23% in the last quarter of 2018, 28% in the first quarter of 2019, and 31% in the second quarter of 2019. We now have close to 2 million digital customers in our Colombian banks, increasing 13% in the last 12 months. In Central America, 40% of the transactions are done through digital channels, and we now have in excess of 1.3 million digital customers. Moving on to legal matters. Regarding ongoing legal matters related to Ruta del Sol, I will briefly share with you an update on the most relevant development since our last call. The main development is related to the Tribunal Administrativo de Cundinamarca, or TAC, where last December a class action suit was ruled in first instance against CRDS, its shareholders including Episol, and other individuals and entities not related to Avalor, its affiliates, jointly and severally, to pay damages to the nation for approximately 715 billion pesos. A subsequent appeal to this ruling was granted by the TAC on February 2019, and the effects of the ruling were suspended until the appeal is decided by a higher court, in this case, the Consejo de Estado. On October 24, 2019, the Consejo de Estado, which has not yet ruled on the appeal, modified the suspended effects of the appeal. Immediately, the lawyers of all the parties involved submitted legal requests to get that decision overturned. We're still waiting to hear the court's decision regarding those requests. However, if the decision is upheld, The first instance ruling will become immediately effective with respect to the ineligibility of the defendants to contract with the Colombian government for a term of 10 years. The ruling should only affect contracts held directly by EPISOL and not by any of its affiliates. In that respect, EPISOL has never directly contracted with the government. Just as importantly, the eventual payment of damages by the defendants will only become effective in the case that the appeal against the first instance decision is lost. On other fronts, in the antitrust investigation, during the last three months, the Superintendency of Industry and Commerce, SEEK, has conducted hearings to ratify previous testimonies and has formally interviewed new witnesses. In the Arbitration Tribunal, Nearly a dozen appeals were filed for the annulment of the arbitration ruling. Among those filing appeals were episodes and our banking subsidiaries. Recurring reasons to justify the appeals included gross arithmetic errors, lack of competence of the tribunal to decide over certain matters, and decisions of the tribunal not based on the applicable legal statutes. The Consejo de Estado will hear the appeal and reach a final decision, which could take several months. Moving on to our acquisition. On October 31st, we announced that Banco de Bogota, through one of its holding on affiliates, had entered into an agreement to acquire MFG Holdings of Multibank Panama. This transaction represents an important step in strengthening our presence in Central America. In fact, we will become the second largest player in terms of assets in Panama with a market share of almost 11%. Just as important, this transaction is highly complementary to our own operation in Panama as it expands our customer base and expands also our product offering and capabilities, particularly in the commercial and corporate segments. As of June 30, 2019, MFG had consolidated assets of approximately $5 billion and total shareholders' equity of $560 million. In the last 12 months, end of June 30, 2019, MSG's income amounted to approximately $60 million. The price offered, which may be adjusted as a result of certain events, represents 1.3 times its total shareholders' equity. Through this acquisition, we will add to our consolidated balance sheet approximately $3.5 billion in loans and approximately $3 billion in deposits. In Central America, as of June 30, 2019, we held, through BAC Credomatic, $16 billion in loans and $16 billion in deposits. After this transaction, 13 of our total consolidated loan exposure will be in Panama and 35% in Central America. The transaction is expected to close in the second quarter of 2020 after the required regulatory approval processes are completed. And with that, I'll pass this to Diego, who will explain in detail our business results.

Thank you, Luis Carlos. I will now move to the consolidated results of Grupo Aval under IFRS and wrap up with our guidance for 2019 and 2020. Third quarter 2019 was a strong quarter for Grupo Aval when taking into account that we recorded 148 billion pesos impact on the triple net income of Ruta del Sol's provisions. The solid performance was driven by a strong pickup of our loan dynamics during the quarter in Colombia and Central America, in particular that of our corporate portfolio. Improving cost of risk aside of Ruta del Sol loan. Solid performance of our fixed income portfolio and at the same contribution from our non-financial sector investments. Starting on page nine, assets grew 13.4% over the year and 3.5% during the quarter. Colombian assets grew by 9.8% over the year and 1.2% during the quarter, driven by cash, net loans, and intangibles and financial assets from our concessions and right-of-use assets. In spite of our annual and quarterly contraction of 14.8% and 4.4% of Nicaraguan assets, Central America delivered a 4.5% and 0.5% 12-month and 3-month growth in dollar terms. Moving to page 10, loans excluding repos grew 10.8% over the year and increased 5% during the quarter. Loan dynamics in Colombia posted solid growths, and Central America picked up from the lackluster activity evidenced throughout the first half of the year. As anticipated, the Colombian corporate loan portfolio growth accelerated to 2.6% over the quarter and 4% over the year. The Colombian retail portfolios posted strong growths with consumer and mortgage businesses expanding 9.8% and 15.7% respectively over the 12 months. Quarterly growths were 2.2% and 3.8% respectively. Our Central American operations, excluding Nicaragua, expanded 5.9% in dollar terms over the year and 2.6% during the quarter. Nicaragua, which weighs approximately 5% of our Central American loans, contracted 26.7% and 5.6% during the quarter. On pages 11 and 12, we present several loan portfolio quality ratios. Over all 30 and 90 days, PDLs remain relatively stable. Commercial loan portfolios showed a mild deterioration during the quarter. We recorded a 13 basis points increase in 30-days commercial PDLs and 12 basis points in 90-days PDLs in Colombia. In Central America, 30-day and 90-day commercial PDLs showed some deterioration with 30-days PDLs increasing seven basis points and a 90-day 11 basis points. Mentioned by Luis Carlos, we substantially increased our provision for Ruta del Sol this quarter, recording 295 billion pesos provision expense, reaching an 86% coverage. We expect to fully provision the remaining 102 billion pesos of Ruta del Sol during the fourth quarter of 2019. Our coverage for SIPP companies stood at 40% at end of quarter. Delinquency ratios for consumer loans continued improving during the quarter. In Colombia, the improving trend in delinquency of consumer loans persisted, with 30 days past due loans falling 30 basis points to 4.9%, accumulating a reduction of 112 basis points since peak in first quarter 2018. Ninety days past due loans improved two basis points to 3% relative to second quarter 2019, and were 36 basis points lower than a year earlier. In Central America, 38 PDLs for consumer loans increased five basis points to 4.9, while 98 PDLs increased eight basis points to 2.1. Our mortgage PDLs increased during the quarter driven by Central America. Both 30 and 98 new PDL formations improved in both geographies when excluding FX movements. Our new 38 past year loan formation in absence of FX movements was 1.2 trillion pesos during the quarter, 122 billion pesos lower than the previous period. Our cost of risk was 2.5%, with a quarterly increase of 26 basis points driven by commercial loans in Colombia, stability in Central America, and improvement in Colombian consumer loans. The Ruta del Sol provision accounted for 68 basis points of cost of risk during the quarter. PDL coverage for 90-day PDLs was stable at 1.53 points. On page 13, we present funding and deposit evolution. Funding dynamics were consistent with loan growth. Our funding structure remained materially stable with deposits representing 76% of total funding, and our deposits to net loan ratio stable at 1 times. Our liquidity position continues to be strong with cash-to-deposit ratio at 16%. Deposits increased 4.8% in the quarter and 13.6% over the last 12 months. During the quarter, Colombia grew at 2.3% and Central America grew at 2% in dollar terms. The 12-month period, Colombia grew at 9% while Central America grew 6.6% in dollar terms. On page 14, we present the evolution of our total capitalization, our shareholder's equity, and the capital and equity ratio of our banks. Our total and our total equity increased during the quarter, mainly driven by our net income. Our total equity increased by 1 trillion pesos, while our total equity increased by 1.8 trillion pesos. OCI also contributed to our equity during the quarter. As of third quarter 2019, our banks show appropriate tier one and total sovereignty ratios. On page 15, we present our yield on loans, cost of funds, spread, and net interest margins. Our net interest margin increased 17 basis points to 5.7%, mainly driven by a tighter net interest margin and loans in Colombia. Our name and investments continue to be particularly strong at 2.3%. As anticipated, pricing in Colombia became more aggressive during the quarter due to the improvement in consumer loan quality and a better outlook of the corporate portfolio resulting from stronger GDP. We continue to expect some pressure on our minimum loans as growth increases and the share of newly-priced loans enters our mix. On page 16, we present net fees and other income. Gross fee income grew 13.7% when compared to a year earlier and was slightly higher than that of a particularly strong second quarter. Roski increased 10.1% in Colombia and 5.7% in dollar terms in Central America compared to first quarter 2018. In addition, our non-financial sector continues to be a strong contributor to our income, adding 10% more than in the previous quarter. Finally, our other operating income was particularly strong this quarter as our banks realized gains on fixed income investments, taking advantage of the current interest rate environment. On page 17, we present some efficiency ratios. Year-to-date personnel and general and administrative expenses increased 6.3%, with a 2.1% increase in Colombia and a 1.2% increase in Central America in dollar terms. FX fluctuations explain the remainder of this graph. Year-to-date personnel expenses increased 6.8%, with 2.1% increase in Colombia, affected by termination expenses. and a 1.2% increase in Central America in dollar terms. Year-to-date, general and administrative expenses increased 5.9%. When adding IFRS 16-related depreciation and amortization to administrative expenses, this figure was 7.9% in Colombia and 8.2% in Central America in dollar terms. Certain non-recurrent expenses increased our Colombian expenses while Central America incorporated the introduction of VAT and services in Costa Rica and a temporary increase in marketing expenses. Non-recurrent events that affected our expenses in this quarter include, first, a 63 billion pesos non-income tax expense reported as a general administrative expense was incurred in order to raise the fiscal cost of certain fixed assets, which will enable us to sell them in the future with a lower income tax expense. This charge was offset by deferred income tax recoveries of 99 billion pesos, resulting in a 29 billion pesos positive net effect and an attributable net income. Second, we recorded 18 billion pesos of termination expenses in Banco Popular. Year-to-date, total other expenses that include personnel, general and administrative depreciation and amortization and other expenses grew 9.6% relative to a year earlier. Total expenses grew 5% in Colombia and 4.8% in Central America in dollar terms during this period. FX fluctuations explain the remainder of this graph. Finally, on page 18, we present our net income and profitability ratios. True net income for the third quarter 2019 was 743 billion pesos or 33 pesos per share. Year to date, the true net income was 2,319 billion pesos or 104 pesos per share. Return on average equity and return on average assets for the quarter were 15.8% and 2% respectively. This incorporates 314 basis points of negative impact of brutal soil provisions and return on average equity. Before we move into questions and answers, I will now summarize our general guidance for the remainder of 2019 and for 2020. We expect low growth to be in the 9% area in 2019 and picking up to 10 to 12% in 2020. We expect our cost of risk net of recoveries to be in the 2.2% area in 2019, falling to 1.9% area in 2020. We expect fully net interest margin to be in the 5.7% area in 2019, contracting to 5.6% in 2020. Finally, we expect a return on average equity to be in the 16.25% area in 2019 and in the 15.75% area in the 2020 year. Now I will open it to questions.