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

Welcome to Grupo Aval's Second Quarter 2024 Consolidated Results Conference Call. My name is Regina, and I will be your operator for today's call. Grupo Aval Acciones y Valores S.A.A. is an issuer of securities in Colombia and in the United States . As such, it is subject to compliance with securities regulation in Colombia and applicable U.S. securities regulation. Grupo Aval is also subject to the inspection and supervision of the Superintendency of Finance as holding company of the Evolve Financial Conglomerate. The consolidated financial information included in this document is presented in accordance with IFRS as currently issued by the IASC. Unconsolidated financial information of our subsidiaries and the Colombian banking system are presented in accordance with Colombian IFRS as reported the Superintendency of Finance. Details of the calculations of non-IFRS measures such as ROAA and ROAE, among others, are explained when required in this report. 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, IEM Azores, 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. but 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. time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. With us today are Ms. Maria Lorena Gutierrez-Watero, Chief Executive Officer, Mr. Diego Solano, Chief Financial Officer, Mrs. Paula Duran, Corporate VP of Sustainability and Strategic Projects, and Mr. Camilo Perez, Banco de Bogotá's Chief Economist. I will now turn the call over to Ms. Maria Lorena Gutierrez-Watero, Chief Executive Officer. Ms. Maria Lorena Gutierrez-Watero, you may begin.

Good morning, everyone, and thank you for joining us for our second quarter clinical conference call. I am here with Diego Solano, our CFO, Camilo Pérez, Chief of Economies of Banco de Bogotá, Paula Organ, our corporate VP of Sustainability and Equity Services, and other people of the company. Let me start with some of the highlights. Today, for the execution of our strategy, we are taking actions to remain and strengthen our 19 teams at the first and second levels, both at our main businesses and our holding companies. Juan Camilo Angel designed a few of our agents after 30 years of training. Gerardo Hernández was appointed as . Gerardo is the former chief legal officer As part of the board of directors of the Colombian Central Bank and as a superintendent of science. We also appointed Elena Lopez. Elena has over 20 years of experience in the private and public sector. She has lived into 30 years of her career as a professor and scientist. In July, we strengthened our structure at the holding area with the creation of three new corporate vice presidents. The VP of the Community and Strategy Project led by Paula Udang and the Corporate VP of Financial Advances and Efficiency led by Jorge Cartan. Paula is the Corporate VP of Strategy and Community at Corte Colombiana, and she is the former financial superintendent. They both have more than 20 years of experience in the policy and policy sector. I am proud to say that the personal and professional qualities of our students, we continue to strengthen our market position and have achieved our group of our long-term strategic goals. Now, I will invite Paula to go over additional ESG achievements during this course. Thank you, Magdalena, and good morning to you all. First of all, I would like to congratulate Banco de Bogota on its issuance of $500 billion in sustainable senior bonds. Also, our banks presented their Principles of Responsible Banking report as part of their ADAC Unified. This implies that all our banks will have plans to move forward in terms of climate change, gender equality, financial inclusion, and sustainable finance among others. During this quarter, we received several recognitions for our advances in terms of diversity and inclusion. Grupo A ranked sixth in Latin America for its commitment in these areas, and Banco de Oaxaca ranked first. But the Colombiana was also recognized for its work towards closing the generational gap, and so the need successfully launched a drug site for employability of senior citizens. As for reaching advances in environmental input, Banjo-LaCiencias celebrated 30 years of the Planeta Azul Prize that recognizes initiatives aimed at water preservation and protection. Also, our road concessions successfully implemented several biodiversity projects in more than 700 hectares, as well as solar energy projects generating significant efficiencies in energy consumption. In terms of our social input, in addition to our programs implemented by our subsidiaries, we continue advancing in the Nucleon Aguajilla program. Up to now, we have benefited more than 340 families, that is 3,500 people, in clean drinking water solutions as well as food security. Finally, I would just like to highlight that at Grupo A, sustainability is not just a commitment. It's a core principle that drives our every decision. It's dedicated to building a future where financial strength and social and environmental resources go hand in hand, ensuring our positive interest for generations to come. We continue advancing the determination towards our sustainability interests and goals. Thanks, Paula. Now, on the macro side, let me mention some relevant issues that we've heard. Inflation continues to trend down in the U.S. Third, supporting our worldview upon our work. Careful central banks that could raise taxes, where you can really raise from current levels above 6% and continue to focus on banking sector and economic growth. Economic growth has continued to be low, and investment remains well below the social level. The country's fiscal accounts remain under pressure, The government is working on a second wave of pending cuts and considering a tax reform for financial loans, including for charging to additional sectors while lowering the general corporate tax rate. Camilo will further comment on this and share our view on the panel.

Thank you, Madam Mayor. Good morning to all attendees. Economic activity has turned out better than expected at the beginning of 2024. It's an outgrowth of 2% so far this year from May, compared with projections between 1.5% and 1.8% for the year. The improvement has been influenced first by the recovery of the global economy, which has been reflected in a better performance of foreign trade. The improvements have been, secondly, in local context, very dynamic in sectors such as public administration, agriculture, recreation and utilities, especially electricity, have also explained the positive surprise in economic performance. In contrast, most regional sectors of the economy, such as construction, commerce, and manufacturing, maintain contraction rates at the beginning of the year. This is evident at the current dispersion in sector performance. Growth in 2024 is likely to exceed the 0.6% of 2023. However, it will remain below that of the long term. Although recovering investment affected by low levels of confidence for both businesses and households, coupled with still high interest rates, has had a negative impact on the system and has also reduced the outlook for GDP growth. The platform aggregate investment rate as of March 2024 approached its lowest level since the beginning of the series in 2005, that is, 13% of GDP. It did have a negative impact on economic growth in the coming years. Thus, potential growth is now estimated to be between 2.5% and 3%, lower than the pre-pandemic estimate of between 2% and 3.5%. Nevertheless, a modest sign from the consumers is that the worst is behind us. The national employment rate showed an annual increase of just 0.2% response in the first half of 2024 to 11.1%, benefiting from higher public and service hiring, which has compensated to some extent for job losses in sectors that were traditionally the engine of the labor market. In addition, we expect lower rate household fire purchasing power as wages increase more than inflation and the exchange rate has revalued, and a reduction in the financial burden will allow for a change in the consumption cycle. This has been evident in the positive readings of inputs of consumer goods in the first half of the year. We have a greater estimate of growth for 2024 for around 1.75%, against a consensus just below that level. We will get the official numbers for growth in the second quarter later on today. In July, inflation will finish downward trend, falling below 7% after being stuck just above this level during the second quarter. Also, in this inflationary path, we will continue the indexation of surpluses, especially rents, the potential depreciation of the economy and debt, and the increase in business prices will only allow inflation to reach a central price target between 2% and 4% and reduce it up in time. For the year, our forecast for inflation to trend forward is 5.6%. The aforementioned macroeconomic balance has explained Banco de la República's caution in its process of easing monetary policy, where in July it completed four meetings with 50 basis points rate cuts. However, given the improvements in inflation and the convergence of extension to their target, the basis rate cut is set to accelerate to 75 basis points soon. Furthermore, the forecast of lower rates at a global level reinforces the above. For the year end, we expect the central bank rate to reach 8.75%. Instead of the external accounts, the country has seen a significant adjustment, with a reduction in the current account deficit to levels close to 2% of GDP. This can be explained by a combination of lower demand for goods sales abroad, especially inputs and capital goods, while the country has seen greater inflow of dollars from remittances and tourism. In net terms, these situations have resulted in a lower need for dollars, which have provided some support to the exchange rate. The other factors of pain to the currency behavior are potential interest rate cuts by the federal reserve. the United States election, with its situation and local uncertainty. If they talk too late, the Republican Donald Trump wins the presidency. If its situation deteriorates further and local political demands return, the exchange rate will tend to go down. For the time being, the aforementioned forces have found a fragile balance that enables a flat exchange rate with an upward bias in the midst of a recession period in the United States. Even though the government has traded out these accounts with a significant spending tax, risks are still present and compliance with the fiscal rules is at stake, as indicated by the autonomous committee of the fiscal rules. For the remainder of the year, business started to tax for tax collection to newly established targets, and for the government to restrain its spending in order to reach concerns about the sustainability of public finances. In any case, trading agencies are alert to any new developments, while the markets are already pricing a lower level for the foreign trading. Fiscal risks remain for 2025 due to potential budget financing issues. There is a need for the approval in Congress of our financing law and an earlier end to the transition period of the fiscal year. As of today, interest regarding the financing law are still limited. That sums up our economic view. Thank you. Thank you.

Thank you, Camilo. We strongly believe that a country's recovery needs to be driven by government policies that lead to a stronger investment, effective execution, and compliance of the legal environment and physical security. However, we believe that an additional to these foreign efforts, private sector initiatives will add to recovery. We have set ourselves to continue and support the country's economy recovery by launching a group-wide plan to contribute to the premium growth and employment generation in key sectors such as SMEs, housing, energy transition, agriculture, and the population reality economy. These sectors have immediate effect on economic activity and employment. We have committed to provide funds of preferential rates to the key growth sectors, ensuring a strong risk management process. We also continue our ambitious plan of more than $1.9 trillion in priority sectors such as infrastructure, gas, agribusiness, and tourism. Before we go over the highlights of our financial results, the second quarter showed a stronger loan defaulting flow that allowed us to continue increasing our market share. Over the quarter, Our bank combined growth loans through 1.8% reaching a 25% market share by March of this year. Progressives and asset quality improved relative to the previous quarter, and operating expenses remain under control. Regarding asset quality, it seems we have finally reached the peak in progressives and relief in people's continuing loans. on commercial loans, the increases and increases have been milder than what could be expected in this cycle. We remain vigilant for potential final figures over the next cycle. We are currently designing an ambitious, cooperative, synergistic, and efficient plan which we will launch over the I expect to provide new insights on our following goals. Finally, the central bank continues to be the lead bank to speed up interest rate reductions. We maintain our view that the central bank can cut rate classes, reducing the potential high real interest rates, which have been thought to be a lower net interest market value in the past. net interest margin on retained loans has benefited from the repricing process of loans. However, that doesn't mean that there's a predependency of finance. To this formula, you should determine if the rate tax has forced a super-deprived credit card, personal loan, and other types of consumer lending products. On the other hand, Net income margins of the major loans has been affected by competition, which puts personal risk, mainly in the high-grade quality corporate segment. As we saw, net income to our shareholders was $204 billion, and the total average equity was 4.9%. This result was obtained in the preliminary context of 10,000 total of 28, including the world's biggest since 2009. We expect the end of the trade cycle in consumer loans and the recovery of net interest markets in the next month. To position our bank for upcoming growth and increase capital in two of our banks, with this performance index in this cycle, we are strengthening the capital structure of Banco Occidental, Banco Popular, and Banco Aurelio. Now, I would like to pass the call to Diego, who will give the details on our results.

Thank you, Maria Lorena. I'll start in pages 8 and 9 with a few charts regarding the growth rate and quality of our known portfolio relative to the rest of the Colombian banking system. For comparative reasons, these figures are unconsolidated under Colombian IFRS as far as for this grand tendency of finance. In the same case, we continue to outgrow our competitors in all known categories. With the August by end of May, year-on-year market share gains of 53 basis points in all loans 180 basis points in commercial loans, 125 basis points in consumer loans, and 57 basis points in mortgages. On page 9, the quantity of consumer loans in the Colombian banking system, the commercial loans and mortgages slightly deteriorated. As mentioned in the past, our portfolio composition is tuned towards low-risk consumer products resulting in a better credit quantity than the system average. All in all, these are the estimated results of the qualified underlying arrest. Moving on to page 10. Assets grew 2.2% over the quarter to 300 cents in premium pesos, accumulating a 6.2% increase year-on-year. Close loans are main assets, which are 193 premium pesos, growing 2.4% year-on-year and 4.8% year-on-year. An 8% depreciation of the Columbia and Pasadena quarter had a positive impact on quarter and quarter metrics, contributing 1.2 percentage points to quarterly growth. Over the year, the first appreciator gained 7%, having no negative impact on growth metrics. Commercial loans and mortgages continued sliding on annual growth, while consumer loans received growth, following 2.2 quarters of protection. Commercial loans expanded 2.9% in the quarter and 5.9% year-on-year, with special appreciations continuing 1.8% experience with quarterly growth. Consumer loan growth, year-on-year yield, at a top 10.9% increase in the quarter. Federal loans and non-loans, new 1.6% and 2.6% respectively during the quarter, while personal loans and credit cards continue contracting 0.2% and 1.9% respectively during the quarter. Finally, mortgages grew 4.3% on the quarter and 10.8% year-on-year. We anticipate young birth rates to rise later this year and into 2025 due to an amalgamation of monetary policies, productivity growth, and excuse me, recession-involved funds. We expect a 2024 monetary growth to continue, outpacing the banking system. On page 11, we present funding and deposit revolutions. Only funding increased 3.4% in the quarter, accumulating 6.8% year-on-year. Deposits account for 3.4% of our funding, scoring 4.8% quarter-on-quarter and 10.1% year-on-year. Daily deposits were 7.3% in the quarter and 14.8% year-on-year, increasing their share of our deposit mix by 169 basis points and 94 basis points respectively for these students. High deposits to net loan ratio increased to 108%. On page 12, we present the evolutions of our total capitalization, our total and the capital equity ratio of our banks. Our total equity is 1.9% of the quarter and 3% year-on-year, while our total equity is 1.6% of the quarter and 1.5% year-on-year. We are in the process of strengthening the capitalization of our banks to position their interest rates from this low. Bankroll has created second-quality ratios with $125 million, carrying an accounting 145-15 note issued on May 7 that added 145 basis points to its halving fee. In addition, we recently announced interest rates of $100 billion, $13.8 billion, and $100 billion It's regulated bonds at Banco Populac to strengthen its capital position. Banco Populac's unconsolidated sovereignty ratio is 12.3% for bank sovereignty and 10.6% for Core 551. These issuances will add approximately 1% expense to unconsolidated sovereignty. Finally, we're also considering as a regulated bond issuance for Banco R&D. On page 13, we present our year-end loans, cost of funds, spread, and new. The new loan increased five basis points per quarter to 15.4%. The consolidated new loan loans were still at 13.3%. New monthly loan loans, the annual fee price at 6.8, extended 21 basis points to 5.1%. The new commercial loans, the annual fee floated over IBR, fell at 18 basis points to 15.7%. continues to be slow due to high funding costs in line with Shai Central Bank's intervention rate reduction fee. In addition, many ways have been pressed by a concentration of low-rate assets and by changes made by strengthening the finance in the formula used to determine interest rate caps affecting some credit cards and personal loans. We expect that the central bank will have room to accelerate its space in rate cuts as the year progresses during the particular year of inflation, the apparent high forward rate in real estate rate levels, and the recent reductions in the outage for years rate levels. These are my initial thoughts on the new expansion of the following quarters. Finally, concluding with the total new expansion, our new money deficit increased to 0.2% in the quarter. Regarding our banking segment, It's been one more than that. You know, you know, you know, you know, you know, you know, you know, you know, And pages of June 2016 UPCM Terrain Loan Portfolio Quality Rations. Targeting page 15. The original asset quality forms the end of the credit cycle for consumer loans, with 3-year rations and 3-year formation seeking to increase quarter 2024 across all products. 3-year formation for credit cards and personal loans was the lowest in seven quarters. 28 PELs increased to 5.8%, while 98 PELs increased to 4.2%. Consumable loans in the EFL Nation, both on a 30 and a 98 basis, was reduced. Promotion loans and mortgages showed mild deterioration over the quarter. The EFL Nation reconnects and presents with a re-agilizing, and they all forward to 98 of a portion of commercial loans that became delinquent since last quarter. Finally, the annualized ratio of charged jobs to average 90 and 3S was 0.64 times. On page 53, the share of our loan portfolio classified as Stage 1 portfolio in this slide here in the product may be proven by a better performance in consumer loans. Coverage measured by the analysis for Stage 2 and 3 loans and the percentage of Stage 3 and 3 loans, like we saw here in the product, is 77.4% with coverage for consumer and commercial loans at 35.9% and 35.4% respectively. On page 15, as anticipated, the cost of use increased in the quarter. We expect a positive trend over the following quarters, including a more favorable local market scenario. Cost of use with the consumer loans increased 193 basis points to 5.56%. Cost of use for credit cards and personal loans substantially increased for the quarter, falling 563 basis points to 9.6% and 233 basis points to 12.9% in seconds. The lowest possible risk in commercial loans is altering the business and credit rating of CBCC-related corporate clients that have, over time, a consistent risk-payment behavior. Risk-paying improvements of the anticipated points and lowest possible risk is the serial basis points for commercial loans during the flood. On page 17, you can find your fees and other income. Your fee income is between 2% quarter and quarter and 4% year-on-year. Next year's income increased 0.9% and 1.9% in the previous two years. Net pension and savings fees increased 0.7% quarter-on-quarter and increased 0.7% year-on-year due to higher mandatory pension funds management fees. Wealth management fees increased 2.1% quarter-on-quarter and 2.6% year-on-year due to higher compensation. Income from the non-financial sector contracted in 4.5 percent in the quarter given by some concessions that are transitioning from the construction phase to operation. Finally, on the bottom of the page, the total increase in our operating income is explained by, one, the negative finance losses that are negatively correlated with the high returns from the non-financial sector. Two, net losses on solar investments and NCI realizations associated with fixed income portfolio management. And H8Q represents some efficiency ratios. Relying on the cost of polyethics, general expenses increase 28% quarter-in-quarter and 1.2% year-on-year. General administrative expenses increase 2% quarter-in-quarter and 3.1% year-on-year. GMA expenses continue to be proven by operating taxes and deposit insurance that accounts for 38% of total GMA expenses. Cost of assets worth water was 2.7% between four basis points water and water and nine basis points UME. According to cost, the income increased to 54.7% due to a lower power operating income described on the previous chart. and 13.2% are low-income and particularly preventive. Achievement for low-income third quarter was $204 billion, or $8.6 billion per share. Returning average average and returning average average for the quarter were 86% and 4.9% respectively. Before passing it back to Maria Moreno, I will now summarize our general guidance for PNP-104. We expect low growth between 7.5% and 8%, with commercial loans going between $9.00 and $9.50, and full loans going between 5% and 6%. Leans in the 3 and 3 quarters area with minimum loans on the 4.5% area. Leans over 19 seconds in the 4.5% area with minimum loans in the 5.4% area. Cost of use, net of recoveries in the 2.2% area. Cost to assets in the 2.7% area. Impacts on the non-financial sector. of 80% of that for 2023. As you mentioned, between 20 and 25%. And finally, we expect our 2024 deferment average equity to be between 6 and 6.5%. I'll pass it back to Maria Moreno.

Thank you, Diego. Finally, let me mention that we are focused on sustainable growth and effects that are very much economic scenario in the second half of the year. We support various policies that we need to go into Thank you.

We will now begin the question and answer session. If you have a question, please press star then 1 on your touchtone phone. If you wish to be removed from the queue, please press star 1 again. If you are using a speakerphone, you may need to pick up a handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touch-tone phone. Our first question comes from the line of Julianoske, Javivian de Cortores. Please go ahead.

Hi, everyone, and thank you for having my question. First of all, I would like to confirm the guidance.

If you tell me what you're saying, could you speak a little higher, please?

Okay, can you hear me now? Is it better?

Let me go ahead, but it's difficult to understand.

Okay. So first of all, I would like to confirm the guidance in terms of NIMA and ROE. And my second question is regarding the impact of Banco Popular due to the equity issuings that was announced yesterday and what will be the participation that Grupo OAL would have to take in that sense. And the third question is regarding if you already have Any of you about 2025 results, so a little bit of what is the call or what are the expectations for 2025?

Could you repeat your first question? Okay.

Yeah. I will start with the six and a half. And in, as you might remember, we give out two different sorts of guidance for the banking segments and then for our total numbers in the areas of concerning ways for people in the area to chat, mainly if it expands and doesn't really intervene in the intervention. So, in our banking segments, we have four and a half percent area with minimum loans of the banking segments in the four and a quarter area. planning plans are still in a 3.75% area, with minimum loans in the 4.5% area. That's your question. Then, regarding Banco Popular, the issuance are supported by Group A1, as we've done it in the past. So, that's what we expect to see. We will be answering those, or suspecting them, too. And finally, of year 2045, here we can only be directional, as Maria Lorena mentioned, and Dr. Kelly emphasized, we see a positive trend in cost of goods and are returning to normal numbers from the central bank somewhere at the middle of next year. If we had a positive story, we haven't given out a quantitative guidance.

Okay, thank you.

Again, if you'd like to ask a question, press star, then the number 1 on your telephone keypad, and our next question comes from the line of Nick Dimitrov with Morgan Stanley. Please go ahead.

Hi there. Good morning. I have a couple of questions, and apologies. The connection seems to be pretty bad, so I don't know. You might have already answered this, but I have a question about your capital allocation decisions. So it became clear that Banco Popular shareholders have agreed to raise a hundred billion pesos yesterday. Can you walk me through the rationale for that? Because I know that the entity has been struggling for a year and a half, but when I look at capital, it's 18%, 18.2 to be exact. At the same time, this is the strongest or the best capitalized subsidiary within the group. At the same time, there's banks such as Banco de Occidentes whose capital is significantly lower. So I was just kind of wondering about the rationale to raise equity for Banco Popular when it's the strongest capitalized entity within the group, and why not Banco de Occidente? So that is the first question. And the second one is on, I understand that there is also a decision to raise 100 billion pesos of Tier 2 capital, again, for Banco Popular. So I was looking to get an update in terms of where you are in the process of raising the Tier 2 money. Thank you.

Could you go over the first question just to make sure I got it right?

I'm sorry, say that again?

Could you repeat your first question to make sure I got it right?

Yeah, so the first question is the rationale for Banque Populare to raise money when optically it looks like it's well-capitalized.

Sorry, number two. Let me answer the first two, and then you can answer the third one. My decision to strengthen Barco Popular is two-sided. Number one, we look not only at the consolidated numbers, but also at the unconsolidated numbers. And the only barco that there's a material difference between those numbers is Barco Popular. And that's the reason why when I went through numbers, I will stand out for Barco Popular. Then Barco Popular has a combination of two things happening with cycle. Number one, it's been losing money, therefore it's been destroying capital over several periods. And then it's a very strong potential for growth moving forward. So we're also capitalizing it because we're replenishing part of what was lost in the process, and also we expect management of the bank to be able to execute a much more aggressive growth strategy that will be requiring that sort of capitalization. Then moving into one for a cliente, one for a cliente is somehow different than Banco Popular because they've been quite profitable throughout the cycle. We will continue strengthening the bank if further required, if demanded by close. At this point, the use of capital seems to be the right amount, but as we've done in the past, if we see our banks being able to outflow our expectations, we can go back and review that plan. And then could you repeat the question?

Yeah, the second question is regarding 100 billion Colombian pesos of tier two capital for Banco Popular. Where are you in the process of raising the money?

Oh, okay. I think that was the previous question. We are ready to support it. It's only from the group, so we do not see a market execution risk in that instance.

Okay. Thank you.

There are no further questions at this time. Ms. Amadoria Lorraine Gutierrez-Botero, I turn the call back over to you.

No, thank you. Thank you, ladies and gentlemen.

This concludes today's conference. Thank you for joining. You may now disconnect.