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

Welcome to Grupo Eval's second quarter 2023 Consolidated Results Conference Call. My name is Regina, and I will be your operator for today's call. Grupo Eval Acciones y Valores S.A. Grupo Eval is an issuer of securities in Colombia and in the United States SEC. As such, it is subject to compliance with securities regulation in Colombia and applicable U.S. securities regulation. Grupo Eval is also subject to the inspection and supervision of the Superintendency of Finance as holding company of the Aval Financial Conglomerate. The consolidated financial information included in this document is presented in accordance with IFRS as currently issued by the IASB. Details of the calculations of non-IFRS measures, such as ROAA and ROAE, among others, are explained when required in this report. Banco de Bogotá executed a spinoff of a 75% equity stake in BAC Holding International Corp., BHI, to its shareholders and Grupo Aval subsequently spun off its equity interest to its shareholders on March 29, 2022. On December 19, 2022, Banco de Bogota sold 20.89% of the outstanding investment of BHI through a tender offer. As of December 31, 2022, Banco de Bogota held 4.11% of BHI. This investment is reflected as an investment at fair value through other comprehensive incomes. Following the sell, the equity method recognized under the Share Profit of Equity Accountant Investees Net of Tax Equity Method between April and November was reclassified to discontinued operations. For comparability purposes of this presentation, we have reclassified BHI's equity method for the second and third quarter of 2022 to net income from discontinued operations. Banco de Bogotá's remaining 4.11% interest in BHI was disposed of in March 2023. 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, predicts, potential, or continue, or the negative of these and other comparable words. Actual results and events may differ materially from those anticipated herein as a consequence of changes 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 y Emisores and the SEC. Recipients of this document are responsible for the assessment and use of the information provided herein. Matters described in this presentation and our knowledge of them may change extensively and materially over time. We expressly disclaim any obligation to review, update, or correct the 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 Armiento Gutierrez, you may begin.

Luis Carlos Armiento Gutierrez Good morning, and thank you all for joining our second quarter 2023 conference call. On today's call, I will limit my intervention to three main points, an outlook of the economy, a summary of recent legal resolutions, including Grupo Avale and Confi Colombiana, and a brief review of our performance during this quarter. I will try to be as comprehensive as possible regarding legal issues, and I ask for your understanding as I am sure you know that we are constrained by our resolution agreements to take questions in that reference. As we had been anticipating, the economy took a dive during the second quarter. GDP growth was only 0.3% when compared to the same quarter last year and contracted 1% on a quarterly basis as consumer demand dropped. Conversely, public spending increased significantly, particularly in social services, which helped to mitigate the slowdown. More importantly, the nation's budget execution was staggeringly low. Consequently, liquidity to the tune of 45 trillion pesos approximately remains frozen in the central bank, thus causing a liquidity crunch in the financial system. Logically, this crunch resulted in a new surge of cost of funds, especially when comparing average funding rates versus sovereign debt yields. In sharp contrast, the global economy has continued to exceed expectations. Despite tight global monetary policy, economies around the world are trending upward. Additionally, a soft landing of the U.S. economy appears now to be the likelier scenario as market participants have revised downward the probability of a recession occurring in the coming months. Meanwhile, in Colombia, high interest rates and persistent inflation have affected downward domestic demand, affecting particularly the purchase of durable goods such as vehicles. The most dynamic sector during the quarter was government services that grew 4.4% and represented 15.9% of GDP. The least dynamic sectors in the second quarter were commerce and manufacturing, which accounted for 17.5% and 11.6% of GDP. and contracted 3.7% and 3.1% respectively. Gross capital formation decreased 22.2% for the same period, driven by weak investment in machinery and equipment. Based on the aforementioned, we anticipate the GDP growth in 2023 will be in the 1.5% area. As we had anticipated, annual inflation continues to decline. In July, inflation for the last 12 months decreased to 11.78%, down from 12.13% in June. Notably, food prices, which were a significant driver of consumer price increases in 2022, have now become the main source of disinflation, with a monthly variation of 0.22% in July. However, transportation has continued to exert upward pressure on the overall price index, resulting in a monthly reading of 1.07% in July. Going forward, market expectations and our own view indicate that annual inflation will continue to decrease over the next few months, reaching around 9% by year end. Notably, This number will oscillate depending on the government's commitment to increase the price of gasoline and maybe also diesel, thus decreasing very popular subsidies, which currently produce a deficit of two and a half trillion pesos per month in an effort to reduce its gigantic debt with Ecopetrol. Notwithstanding the inflation trend, In its meeting at the end of July, the central bank maintained the repo rate at 13.25% in a unanimous decision. Analysts and interest rate swap markets now point to the beginning of an easing cycle in September or October. In line with market consensus, We anticipate that the interest rate cuts will start during the fourth quarter, eventually reaching a range of 11.5% to 12% by year end. June labor market data published by DANI reported that employees increased to 23.1 million in June, which implies 1 million more jobs than a year earlier. The stronger than expected job creation pushed the unemployment rate down to 9.3%, which is two percentage points lower than the rate reported one year ago, particularly strong in public administration, defense, professional activities, transportation, and entertainment. These sectors combined accounted for 76% of the positions added. Going forward, as business activity decelerates, we expect weaker job numbers. As a result, we expect average annual unemployment in 2023 at 11.2%, similar to 2022. Regarding the exchange rate on a year-to-date basis, the Colombian peso is the most revalued in the region with a 20% appreciation. A key driving force behind this trend appears to be a sentiment that the government will be unable to get its reform agenda approved through Congress in its current form. This sentiment prompted a reassessment of risk related to Colombian assets during the first half of the year, a correction of the value of the Colombian peso, and a rally in the test market. With material volatility, the peso has recently hovered around 4,000 pesos per dollar. We believe that at current exchange rate levels, there is less room for a relevant correction of the Colombian peso. Once this process is over, we foresee the peso to reestablish a depreciation path. Although the depreciation of the peso will reduce pressures on government overall financing needs, Colombia's external financing needs, longer than expected high interest rates in developed economies, a decrease in oil exports, and persistent inflation will result in a relatively high current account deficit of around 4% of GDP by the end of this year. Finally, on the fiscal front, the deficit of the central government for 2023 was revised to 4.3% of GDP, up from the previous estimate of 3.8%. Let's move on to legal matters related to Ruta del Sol. These are the most relevant and, in our opinion, very positive developments. Let's start with a class action suit. As you may recall, In January 2017, the Procuraduría General de la Nación filed a class action suit against Concesionaria Ruta del Sol, CRDS, its shareholders, including Episol, and others, for the violation of certain collective rights. No other group of all companies were mentioned in that lawsuit. The Tribunal Administrativo de Cundinamarca, or TAC, a lower judicial instance, produced a first ruling in December 2018 in which it found CRDS, its shareholders, including Episol, and other individuals and entities not related to Aval or its affiliates jointly and individually liable in order that the defendants pay damages to the nation for the violation of collective interests in the amount of approximately 716 billion pesos. In addition, The tag ruled the debarment of the defendants from contracting with the Colombian government for a term of 10 years. Episol, as well as other defendants, appealed the decision to the Consejo de Estado, the highest court in the country that reviews these administrative decisions. On July 27, 2023, The Consejo de Estado issued a final non-appealable ruling revoking several of the tax rulings, such as the order to pay any amount of damages, the Department of EPISOLE and others from contracting with the government, and the joint and several liability nature of the rulings. It also revoked several injunctions or interim measures and confirmed that certain collective rights were affected. As a result, EPISOLE will not have to pay any damages pursuant to this action and may continue to contract with the government. Let's move on to investigations by United States authorities. On August 10, 2023, Grupo Aval and its subsidiary, Corpi Colombiana, announced the end after five years of the investigations of the U.S. government through the U.S. Department of Justice, DOJ, and the U.S. Securities and Exchange Commission, SEC, regarding Grupo Abad en Corficolombiana related to Ruta del Sol II. These resolutions are the result of previously and abundantly disclosed investigations by the DOJ and the SEC related to the construction of the Ruta del Sol Sector II by a joint venture in which Corficolombiana, through its subsidiary, EpiSol, held a minority interest And the resolutions are based on information gathered by U.S. authorities, including testimonial evidence from third parties related to actions taken by a former Corfi Colombiana executive in connection with an Odebrecht-led bribery scheme related to Ruta del Sol 2. Importantly, as a result of the investigations, the DOJ and SEC resolutions do not contain any allegation of corrupt knowledge or intent against any officer, director, or shareholder of Grupo Aval, nor any officer, director, or shareholder of Corfe Colombiana other than the former CFC executive. Additionally, the DOJ did not bring any enforcement action against Grupo Aval in connection with the RDS2 project. Corfe Colombiana did enter into a resolution with the DOJ and Grupo Aval and Corpi Colombiana entered into civil administrative resolutions with the SEC. The resolutions with the SEC established an amount of $40.2 million to be paid to the SEC, and the resolution with the DOJ established an amount after credits to be paid to the DOJ of $20.3 million for a total amount of $60.5 million which will be paid by Corfi Colombiana and was provisioned on its June 30, 2023 financial statements. Because of its ownership stake in Corfi Colombiana, the amount to be paid has an approximate impact of $24 million on Grupo Aval's June 30, 2023 attributable net income. In entering into these resolutions, Corfi Colombiana and Grupo Aval recognized and accepted the responsibility under U.S. law for the actions of the former Corfi Colombiana executive. From my point of view, equally noteworthy is the fact that the DOJ and SEC recognized Corfi Colombiana's and Grupo Aval's extensive cooperation with the investigations and that in the many years since the events occurred, Corfi Colombiana and Grupo Aval have enhanced their compliance programs and internal controls. Again, the resolutions with the DOJ and SEC conclude those U.S. agencies' investigations into Grupo Aval and Corfi Colombiana related to Ruta del Sol 2. Additionally, Corfi Colombiana and Grupo Aval consider this painful chapter closed. As I explained at the beginning, other than the facts that I just mentioned, I will not address any questions regarding this matter. Before passing on this call to Diego, I will briefly address Aval's financial results in the second quarter. I guess I will divide our performance into positives and negatives. Let's start with the negatives. First, The cost of funds continues to be a challenge for the industry, and our banks are not the exception, especially those with majority fixed rate consumer loan portfolios. Because of the obligation to comply with NSFR requirements, between the third quarter of last year and the first quarter of 2023, the banking system loaded their balance sheets with time deposits at exorbitant costs when compared to the yields of government-issued fixed-rate debentures. Consequently, a relevant portion of the system's time deposits are set to mature between June and October 2023. A mad dash has already begun to replace those with new time deposits. As a result, Since mid-June, the banking system has experienced a steep increase in spreads between cost of funds and sovereign debt yields, even beyond those seen during the first quarter. This need for funding could not come at a worse moment. Very low public budget execution results in funds that do not circulate in the economy, but rather stay deposited in the central bank. As of last week, these deposits amounted to approximately 45 trillion pesos. Even though the central bank makes available a portion of these funds through repo operations, they are short-term in nature and do not contribute to the liquidity coverage ratios. Second, our bank's cost of risk increased to 2.16% in the second quarter as certain loan portfolios started to struggle because of the economy's degradation. Third, as a result of the resolutions with the DOJ and SEC, our infrastructure sector results include an extraordinary 253 billion pesos negative impact, the equivalent of $60.5 million, which upon consolidation translates into a one-time negative impact of 102.5 billion pesos, the equivalent of $24 million in avals net attributable net income. In addition, the contribution of our infrastructure non-financial sector investments was lower than in the past, explained by projects starting to move from the construction to the operation phase. There are, however, some positives. First, growth of our loan portfolios during the quarter, excluding the steep revaluation of the peso, rose to 1.2%, which compares favorably to GDP growth. Second, although credit quality deterioration continued during the quarter, particularly in consumer loan portfolios, in the last two months, PDL formation has started to stabilize in unsecured consumer loans. Our portfolios are further benefited by our loan mix. We foresee the peak in cost of risk in the third quarter. Third, if our views are correct, The cost of funds will begin to subside after the third quarter once the government starts to execute budgets and the central bank starts cutting rates. Fourth, during the quarter, we saw a positive performance of NIM on loans from our banking operations as it reverted to the level of last year's last quarter. Furthermore, for the first time in 10 quarters, we saw a slight increase in NIM on retail loans as old portfolios come due and new ones are booked at current higher rates. We foresee that our total banking name will increase during the last quarter of this year. Fifth, our banks continue to deploy cost control initiatives that enable OPEX to remain materially flat quarter over quarter. And finally, our pension fund administrator had a strong quarter as commissions and contributions evolved favorably and stabilization reserves posted returns in excess of 10%. Going forward, Porvenir could benefit from improving asset valuations in a falling interest rate environment. I thank you for your attention, and now I'll pass on the presentation to Diego, who will explain in detail our business results and provide guidance for the remainder of 2023. Thank you, Luis Carlos. Beginning on page six.

Assets decreased 0.3% during the quarter and grew 7.9% over the year. Over the quarter, our mix slightly increased in net loans and increased in fixed income investments. Moving to page seven, we present the evolution of our loans. Gross loans contracted 0.1% during the quarter and grew 10.7% year on year. Peso-denominated loans increased 1.2% in the quarter and 12.1% over the year. The 10.1% quarterly appreciation of the Colombian peso led to an 8.5% decrease in the balance of our dollar-denominated loans, which grew 1.8% in dollar terms. 12-month depreciation of the Colombian peso was 0.6% and had no material effect on dollar-denominated loans growth in peso terms. Quarterly growth was led by a recovery in demand for commercial loans. On the other hand, high interest rates, slow economic activity, and a lower macro outlook drove us after performance of retail loans. Commercial loan growth reached 0.2% over the quarter and 10.8% over 12 months. Consumer loans contracted 0.3% over the quarter and grew 10.2% year-on-year. Payroll loans continue to be our main consumer lending product, accounting for 54.7% of the total, followed by personal loans and credit cards that account for 23.8% and 12.3% of our consumer portfolio, respectively. Auto loans represent 8.8% of our consumer book. Payroll loans fell 1.6% over the quarter, and grew 2.5% over 12 months. Personal loans increased 2.2% quarter on quarter and 27.8% year on year. Credit cards grew 3% quarter on quarter and auto loans contracted 2.6%. Auto loans have been affected by a decrease in car sales. Year on year credit card and auto loans have increased 18% and 10.5% respectively. Finally, mortgages contracted 1.5% of the quarter and increased 11.8% year on year. We expect loan growth to remain soft across products and segments in line with the central bank's policy and software local and global economic outlook. On pages eight and nine, we present several loan portfolio quality ratios. The quality of our loan portfolios measured by stages improved as Stage 2 loans rolled to Stage 3 and were ultimately charged up. Although still high, PEL formation on a 30-day horizon decelerated during the quarter. Regarding delinquencies, 30-day PEL increased to 5.1%, a 23 basis points duration over three months, and 71 basis points over 12 months. 90-day PELs were 3.6%. a 12 basis points deterioration over three months, and a 24 basis points deterioration over 12 months. PDL formation reflects an improvement in the 30-day horizon and the roll forward to 90 days of a portion of loans that became delinquent last quarter. Regarding 38 PDL formation, the improvement was driven by a decrease in commercial PDLs and a slight increase in consumer PDLs. Cost of risk, net of recoveries, was 2.2% up from 1.7% a quarter earlier and 1.4% in second quarter 2022. This was mainly driven by personal loans and credit cards. Our loan mix, overweighted in payroll lending and underweighted in personal loans and credit cards, has been protected during this credit cycle. However, even though milder than our peers, We expect pressures and cost of risk to continue into third quarter as consumer PELs roll forward and require further impairment charges. Finally, the ratio of charge-offs to average 98 PELs was 0.78 times. On page 10, we present funding and deposit evolution. Funding contracted 0.5% during the quarter and grew 8.1% over the year. Peso-denominated funding increased 0.4% from the quarter and 8.7% over the year. Over the quarter, the balance of our dollar-denominated funding decreased 0.3% in dollar terms and 10.3% in Peso terms. Deposits account for 73% of our funding, increasing 1.1% quarter-on-quarter and 12.6% year-on-year. Time deposits continue to be the largest component of our funding. Pressure on cost of funds eased during the quarter, following the steep effort to adjust to a more demanding net stable funding ratio by the end of March. This allowed spreads for new time deposits relative to the sovereign debt to return close to historical levels. During the second quarter, our banks were able to reduce part of the expensive savings accounts that now have no contribution to net stable funding ratio. However, pressure has built up again over the past few months as liquidity in the system tightened due to lower government budgeted execution and concentration of time deposits that were issued last year to adjust to the new net stable funding ratio coming due. To cope with the pressure derived from the new net stable funding ratio requirements while positioning for the expected interest rate reduction, our banks have increased the average maturity of time deposits focusing on floating rates. At end of June, 73% of our time deposits were due in less than one year, and 35% had floating rates. Our deposit to net loans ratio increased to 101%. On page 11, we present the evolution of our total and attributable equity and the capital equity ratio of our banks. Both our total equity and attributable equity grew 1.8% over the quarter, with favorable valuations of fixed income investments held at fair value through OCI contributing to the growth during the quarter. All of our banks have an adequate Q1 capital. The total solvency ratio of our banks, except Banco Popular, were slightly higher than three months earlier. Banco Popular, the most affected by NIMH contraction, has seen pressure on its separate and consolidated total solvency ratio due to the net losses accumulated over recent quarters. On page 12, we present our yield and loans, cost of funds, spreads, and NIMH for our banking operation and for Grupo Hawaii. Colombia Central Bank increased its reference rate by 25 basis points to 13.25% in April, marking the end of the current cycle according to market consensus. As mentioned on our last call, an exceptional pressure on demand for time deposits to comply with more demanding net stable funding ratio requirements built up throughout the banking system up to March 2023. This pressure raised the spread between the time deposits and the Colombian sovereign debt, reaching close to 450 basis points above historical levels. Once banks complied with the new net stable ratio requirements, this level receded to 60 basis points by the beginning of April. This allowed the Neiman Loans for our banking operation to improve in second quarter 2023, the first time in more than a year. In addition, the cost increases of the central bank intervention rate allowed the repricing of loans to reduce the gap with the repricing of IBR-based funding. As a result, our loans increased 64 basis points during the quarter, while our cost of funds increased 16 basis points. NIMA and commercial loans of our banking segment increased 60 basis points over the quarter. Our NIMA and retail loans of our banking segment expanded 21 basis points, their first increase in more than 10 quarters. However, the liquidity in the system tightened again, renewing pressure on cost of funds and spreads of time deposits to sovereign debt. This spread has reached 370 basis points by the end of June and 520 basis points as of last week. We expect this portion to reduce third quarter results. We expect that the relief in cost of funds could come by mid-October. As the concentration of time deposit maturities is over, the government budget execution increases, allowing these funds to flow into the economy, and the central bank intervention rate starts to fall. This quarter's NIM of the banking operation remained flat, as NIM on investments of our banking segment contracted to 0.8%, following a milder downward movement in the yield curve relative to a quarter earlier. Moving to page 13, we present net fees and other income. Gross fee income increased 2.2% quarter-on-quarter and 21.5% year-on-year. Net fee income increased 4.9% quarter-on-quarter and 26.8% year-on-year. Pension fees increased over the quarter due to higher mandatory pension fund management fees driven by wage increases and a resilient labor market. Trust fees decreased over the quarter, explained by lower performance-based fees. Income from the non-financial sector, specifically infrastructure, was negatively impacted by the $60.6 million or 253 billion Colombian pesos negative impact of the resolution agreements with the DOJ and the SEC. Given its characteristics, this was considered a subsequent event that was accounted for as part of our second quarter results. In addition, results for infrastructure fell due to, first, a lower interest income and financial assets due to a lower inflation. Second, the negative impact of FX appreciation and concession arrangement assets with dollar exposure, which was hedged with a positive effect in other income from FX and derivatives. And third, a slower construction progress in Covey Oriente due to unfavorable weather conditions. The bottom of the page, quarter-on-quarter variation of other operating income, is mainly explained by a higher income from derivatives and FX gains related with our non-financial sector, hedging the negative impact of FX appreciation on our concession arrangement assets. In addition, the first quarter incorporates the positive seasonal effect of dividends received by our subsidiaries. On page 14, we present some efficiency ratios on comparable basis. Cost to assets of 2.8% remain flat quarter on quarter, incorporating the results of our group-wide cost containment efforts. Cost to income increased to 53.7% on the quarter. Close to half of the quarterly increase is explained by the impact of the resolutions with the U.S. agents. Quarterly expenses increased 0.6% quarter-on-quarter and 19.1% year-on-year. Administrative expenses grew 0.1% quarter-on-quarter and 24.5% year-on-year. Administrative expenses growth had been pressured by a 55% year-on-year increase in operating taxes, particularly the industry and commerce tax, and by increases in the deposit insurance costs associated with deposit growth. These explain 12.4 percentage points and 2.6 percentage points of the administrative expense year-on-year growth. In addition, further pressure on administrative expenses growth came from the 16% minimum wage increase, the 13.1% 2022 inflation, and the impact on our U.S.-denominated expenses of a 12.9% year-on-year average depreciation of the Colombian peso for the quarter. Personnel expenses increased 16.2% year-on-year, in line with the 16% increase in minimum wage in Colombia. Over the quarter, personnel expenses grew 1.1%. Finally, on page 15, we present our net income and profitability ratios as reported. Attribute of net income for the quarter was 166 billion pesos or seven pesos per share. The negative effect on our attributable net income of the resolutions with the U.S. agencies was 102.5 billion Colombian pesos, or 4.3 pesos per share. Our return on average assets and return on average equity for the quarter were 0.6% and 4.1% respectively. This incorporated the negative effect of the resolutions of the U.S. agencies of 0.3 percentage points on our return on average assets, and of 2.5 percentage points on a return on average equity. I will now summarize our general guidance for 2023. We expect loan growth to be in the 4 to 5% range with commercial loans growing in the 5 to 6% range and retail loans growing in the 3 to 4% range. We expect our cost of risk net of recoveries to be in the 2% area. We expect full year NIM of our banking operation to be in the 4.3% area with NIM on loans in the 5% area. We expect full year consolidated NIM to be in the 3.5% area with consolidated NIM on loans in the 4% area. This incorporate the interest expenses of our non-financial activity. We expect our cost to assets to be in the 2.8% area. we expect our income from the non-financial sector to be 60% of that for 2022. We expect our free income ratio to be in the 20% to 25% range, with a 19% for our banking segment. Finally, we expect our full-year reported return on average equities to be in the 6% to 6.5% range, or 6.5% to 7%, excluding the negative effect of the resolution agreements with the U.S. agent. We are now open for questions and answers.

Thank you. We will now begin the question and answer session. If you have a question, please press star then one on your touchtone phone. If you wish to be removed from the queue, please press star one again. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touchtone phone. Your first question comes from the line of Nicholas Riva with Bank of America. Please go ahead.

Thanks, for taking my questions. My first question is from the investigation related to Ruta del Sol. So, of course, you did reach the settlement with the U.S. authorities, with the SEC, the Department of Justice to pay in total $60 million. and that investigation appears to be closed. Now separately, there were comments this week from President Petro saying that he does want the Colombian authorities to assess any fines that potentially should be paid to the Colombian authorities as well related to this case. My question there is how should we assess the likelihood of APAL having to pay any fines related to this case in Colombia and also potential size of these fines. Then my second question on a different topic, and this is not new, but this loan that you have provided for your controlling shareholder for $300 million, I was looking at the standalone balance sheet of the holding company, and I see loans to related parties for about $500 million, which is a bit more than 10% of the equity standalone of the holding company. My question there is, if there's a policy really in terms of providing loans to related parties. And the driver for my question really is there's been some considerations raised by investors, especially by credit investors, related to this loan to your controlling shareholder or to the investment vehicle owned by your controlling shareholder. So if you have any comments on this, that would be helpful. Thanks.

Hi, Nicolas. Yeah, thank you. I'll take your first question regarding, as you said, the matters in the United States have been settled. And in Colombia, that has happened as well. We went to an arbitrage tribunal and it had its own decision. And all that was pending was the Consejo de Estado appeal. And with that, the bulk of... of anything pending in Colombia will be and has been resolved. So if you ask me what we expect, we expect nothing more.

And regarding you.

Yes, sorry. Go ahead. Yeah, if I can just follow up on that. Can you remind us if you had been, if Aval and or Corfe Colombiana had paid then any fines related to this investigation in Colombia in the past?

Yes, yes. As we announced some meetings ago, we paid a superintendent of industry and commerce, not Avala. Avala was not brought up on any charges, but Corficor was, and Corficolombiana paid to the superintendency of industry and commerce about 84 billion pesos. And then the Archive Tribunal, and its ruling quantified the amount that had to be paid back to that concessionaria of about, I can't say the numbers exactly because I do not remember them, but it was maybe about 2 trillion pesos, but then it quantified damages and all that was left was about 200 billion pesos, and those 200 billion pesos are being used to liquidate the company. So that's been settled as well. So, yeah, to answer your question, that, and if you read the Consejo de Estado, its ruling, you will see that even the Consejo de Estado has determined that as far as fines associated with the contract, that has been taken care of by its natural judge, as it's called, the natural judge has already ruled, and that natural judge of the contract is the Arbitrage Tribunal. So that's been settled as well.

And regarding your second question on loans to related parties, there's a few things to mention. To do that, the company went through not only its internal control process, but also through controls by regulation. In addition, those funds were paid at a rate that was above what the capacity of generating revenue for the company was at that point, and it was strongly supported by guarantees.

Thanks very much, Leo.

Again, to ask a question, press star, then the number one on your telephone keypad. Your next question will come from the line of Yuri Fernandez with JPMorgan. Please go ahead.

Hello, everyone. Good morning. I have a question regarding dividends. I guess you already announced the dividends this year, I think April, so the next quarter is already know. But given you are having these six, six and a half hourly guidance, My question is regarding 2023, so 2024 payout, right? What should we expect? Because in the previous years, you have been paying 40%, 45% of previous year's payout. But given that it will be lower and given you have, you know, debt at the family, the holding, I'm not sure if you need to have like a higher payout. to continue to serve, you know, this debt in a moment that ROE are very, are lower, right, because of all the issues, you know, in Colombian rates, on asset quality. So, my question is, what should we expect on the dividend front, and thinking also about capital? Thank you.

Thanks, Judy. Two things. Number one, we can speculate about that because it's a shareholder decision. However, what we have done in the past has been based on cashing based on a cash equivalent to cash out based on how much dividends our banks can pay. Obviously, as you mentioned, we have to take into consideration the capacity of each one of the banks to pay dividends, growth expectations, and also their expected solvency moving forward. So I know I haven't been specific on what you were asking, but those have been the guidelines we've used in the past to make sure that the company is balanced in cash in, cash out.

And Diego, can you add something similar to what you did last year? I guess there was a year that you didn't pay data and you just issued shares. Like, would that be something for you to consider also?

I think we are ahead of time to have that discussion. Each decision is taken on an annual basis based on the juncture. The reason why that happened in the past had to do with the VHI spin-off, so it had special considerations.

No, perfect. And if I may, a second one on operating trains here on asset quality. like you have a guidance on cost of risk, right? The 2% you just mentioned. What is the curve for that? Like should we expect the 32 to be better on asset quality than this quarter? Because my concern here is that inflation is still very high in Colombia. So my concern is that maybe cost of risk is just higher, right? The economy is still slowing down, although growing a little bit. So what is our level of confidence that cost of risk will be, you know, and not higher in the coming quarters. Thank you.

Now, let me walk you through the logic of our guidance. Basically, the way we think about it is we look into a PEL formation and a 30-day horizon. We know that there's a percentage of that that needs to roll into 90-day PEL formation, and that's precisely the point where we get the highest cost of risk. There's a few things that, even though it's early to go home about that, but are positive signs and a test. End of second quarter, beginning of fourth quarter, we've seen a change in the trend of PEL formation, particularly personal installment loans and credit cards that have been accountable for most of the cost of risk. That's looking at our own numbers, so just Due to math, if you see PEL formation falling in that horizon, you should expect three months out to see 98 PEL formation also coming down, therefore, cost of risk coming down. On the other hand, there is a series of macro factors that can give us some positive view, and it says, number one, we see unemployment holding much better than what we expected initially on the positive note. We also see that the end of the cycle might be soon because we've seen the central bank flattening down. We would expect to see changes in monetary policy closer to the end of this year. And then government execution of budget should help GDP perform better. You might, I can't give you numbers, but qualitatively in this first half, government execution of budget has been a lag, but there's a decisive action from the president that points into government execution of budgets increasing during the second half. So those are some elements that give us some comfort on an improvement in the cycle. And as interest rates are able to come down due to monetary policy and also the distortions I mentioned when we went through the presentation, that should give some support to an improvement in cost of risk. Very long explanation, but just to let you know how we think about it.

No, that's clear and that's helpful. Thank you, Diego.

Once again, to ask a question, press star, then the number one on your telephone keypad. Your next question is a follow-up from the line of Yuri Fernandez with JP Morgan. Please go ahead.

Hey, Diego, it's me again. Just on this topic on margins and lower rates, can you just refresh the sensitivity for lower rates for Grupo Valpo? Like how much one of the dips cuts help you on margins?

Drury, that has become a real problem in Colombia because we've seen that cost of funds detached in a very relevant manner with central bank rates since we had changes in the net stable funding ratio. The sort of distortion that we saw first quarter was up to 400 basis points. And as of last week, we were at around 500 basis points. We do expect that this portion to fade away around October. And that has become actually a stronger driving force than what the central bank rate looks like. So we do expect that marginal cost falling. You have to bear in mind that time deposits are close to 48% of our deposits. So it's very relevant what happens there. But that should be helping our margins in a very substantial way. So summarizing, we look forward to an adjustment back to a less distorted price of time deposits due to an improvement in the overall interest rate environment. And on the other hand, we also expect on top of that, interest rate cuts by the end of this year.

There are no further questions at this time. Mr. Luis Carlos Armando Gutierrez, I turn the call back over to you.

Thank you so much, Regina, and thank you all for joining our call today. We expect to see better financial times coming in the last quarter, and hopefully we'll return to the numbers that we're accustomed to see. Thank you so much, and hope to see you again next time.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.