Welcome to the Q4 2016 Consolidated Results under IFRS Conference Call. My name is Richard, and I'll be your operator for today's call. [Operator Instructions] Grupo Aval Acciones y Valores S.A., 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 Emisores, and the United States Securities and Exchange Commission, SEC. As such, it is subject to the control of the Superintendency of Finance and compliance with applicable U.S. securities regulation as a foreign private issuer under Rule 405 of the U.S. Securities Act of 1933. Grupo Aval is not a financial institution and is not supervised or regulated as a financial institution in Colombia. As an issuer of securities in Colombia, Grupo Aval is required to comply with periodic reporting requirements and corporate governance. However, it is not regulated as a financial institution or as a holding company of banking subsidiaries and thus, is not required to comply with capital adequacy regulations applicable to banks and other financial institutions. All of our banking subsidiaries, Banco de Bogotá, Banco de Occidente, Banco Popular and Banco AV Villas, Porvenir and Corficolombiana, are subject to inspection and surveillance as financial institutions by the Superintendency of Finance. Although we are not a financial institution, until December 31, 2014, we prepared the unaudited consolidated financial information included in these quarterly reports in accordance with the regulations of the Superintendency of Finance for financial institutions and generally accepted accounting principles for banks to operate in Colombia, also known as Colombian banking GAAP, because we believe that presentation on that basis most appropriately reflected our activities as a holding company of a group of banks and other financial institutions. However, in 2009, the Colombian Congress enacted Law 1314,…

Thank you very much, Richard. Good morning, and thank you for joining our call. 2016's last quarter was incredibly dynamic for the country in general and for Grupo Aval specifically as most of you already know. Events such as the government's intervention of Electricaribe in the month of November, Odebrecht December 21 plea agreement with the Department of Justice in the U.S.A. and Colombia's Congress approval of the fiscal reform on December 31 made the fourth quarter very different than the previous 3. All these events have had or will have important consequences in our numbers. Let me briefly talk about each of these. For starters, let me refer to Electricaribe. Electricaribe is a power utility company of the Northwest region of Colombia, which was acquired by Gas Natural Fenosa of Spain in the year 2000. Gas Natural made commitments to make certain investments in the power and distribution grids and at some point, stopped investing after Electricaribe's past due accounts receivable skyrocketed. Gas Natural demanded that the government pass new regulations that would help in the collections process. In the meantime, Electricaribe's service degraded and clients complained and called for the government's takeover of the company. The government did not grant the regulations that Electricaribe had asked for and instead intervened the company. At the time of the intervention, Electricaribe had billings of approximately $1.5 billion, assets of approximately $2 billion and financial obligations of approximately $0.5 billion. Aval's banks were owed approximately $175 million, which represents about 0.4% of our consolidated loan portfolio. We have marked down the loan rating and we're currently awaiting the government's decision with regards to the company's fate. We hope that it won't be long until it becomes clear when the banks can expect to be paid. During the fourth quarter, we booked…

Thank you, Luis Carlos. I will now go through the presentation. I will start with an update on the macro environment in Colombia and Central America. Page 5, we present the evolution of some key macro drivers in Colombia. Annual 2016 GDP growth came at 1.95%, this was the third lowest growth year in the last 15 years, with growth only being lower during 2001 during the Colombian mortgage crisis and 2009 during the U.S. financial crisis. 2016 GDP growth was affected by multiple factors, many of those consequence of the oil shock suffered a couple of years ago. These included the low contribution of the oil sector to GDP and the lower government spending growth consequence of the fiscal deficit generated from the lower oil prices. In addition, high Central Bank rate, consequence of inflation pressure resulting from the aftermath of the Colombian peso depreciation, El Niño phenomena and the truckers' strike further slowed the Colombian economy. We expect 2017 to be a continuation of the 2016 growth cycle, of which we believe we might have already seen the bottom. Stronger growth is expected to be recorded during the latter part of the year. Three main drivers should contribute to stronger growth into the future: number one, substantial reduction in interest rates; number two, room for stronger government spending relative to what was experienced during 2016; and third, lower taxes on businesses resulting from the 2016 tax reform that should favor investment. Even though substantial, the positive effect of those forces will take some time to materialize into actual economic output. Some challenges are still to affect the earlier part of this year, particular the real interest rate continues to be high, the initial impact of the VAT increase will be slightly negative on consumption and consumer confidence still…

[Operator Instructions] Our first question on line comes from Jason Mollin from Scotiabank.

My first question is on this 9% loan growth outlook. Can you give us some color on what kind of segmentation -- where the segments that you think you're going to see the greatest growth in 2017? And my second question is on strategic initiatives. You stated in your presentation that the efficiency ratio spiked in the fourth quarter, partially due to investments in IT and marketing for digital initiatives. Can you talk about the digital strategy, what was spent in 2016 and what are you expecting for 2017? I'm imagining that is in your efficiency expectation.

Well, regarding the 9% loan growth in -- 2016 was a year where we had a very different growth in the corporate and the consumer portfolio. The consumer portfolio grew in the 12% to 13% range while the corporate portfolio grew around 7%. We expect these numbers to converge to the average growth, with lower growth from the consumer portfolio than what we had last year and a slightly higher growth from the corporate segment. Other segments such as the mortgage loan portfolio will continue to outgrow, both of the other form.

And regarding the strategic initiatives, we have undertaking -- we've been working with a consultant, with McKinsey, to develop -- for quite some months now, we've been developing a digital strategy for the group and for each one of our banks, and we expect that in the next 2 or 3 months, we'll start announcing some of our achievements. So stay put and we will make sure to announce once we're ready. We're not quite ready to announce exactly what it is that we're working on, but hopefully as I said in the next 2 or 3 months, we will.

Our next question on line comes from Nicolas Riva from Citi.

The first one on operating expenses, if I look at the growth of OpEx, and this is not something specific to Aval but we see it in most Colombian banks. Compared to inflation, OpEx growth seems to be running quite above inflation. Your operating expenses grew 12% in '16. I know in some prior years, there was some noise from the weaker Colombian peso, but that was not the case in 2016. So if you can discuss which factors are driving this OpEx growth quite above inflation? That's my first question. And then my second question on Electricaribe. So you booked COP 40 million in loan loss provisions for this company. It looks like your exposure, the $175 million is still much higher than this. So can you discuss how much of exposure now is covered with loan loss reserves? And if you expect to make further provisions in 2017 for this company?

Okay, let me take your first question on OpEx. We've had a few negatives during 2016. Part of those, in fact, are related to what happened with the exchange rate. The reason for that is our IT expenses, in particular, are dollar-denominated and were captured in different points in time depending on how contracts have been signed. The other element that we have actually had 2 years in a row has been that the increase in minimum wages has well exceeded inflation. In addition, some of our labor agreements have demanded additional increases on top of what the minimum wage increases were. These have been some of the drivers for 2016 and it's a pity, but they will also be affecting our numbers in 2017, and that's the reason why last year even though we've been targeting to reduce 100 basis points our cost income ratio, we only achieved 1/3 of that last year. And this year, we're targeting to maintain it with some positive bias, but we would like to perform before we get that done. Other things that are in place that are happening but haven't been reflected has been a freeze in certain countries, particularly in Central America of the size of our payroll, and we're in the process of trying to materialize those. We prefer to stay at this point with the guidance on stable cost to income, but we're actually working very strong, targeting to improve on that front.

And regarding Electricaribe, as you said, our exposure to Electricaribe is about $175 million, and we did book approximately $15 million in provisions 2016. This year, before March 31, we would book an additional $8 million in provisions for a total of $23 million, which is about 13% of the size of the loan. At this point, and obviously, this is based on conversations we've had with, one, the government and secondly, the superintendents of finance. The -- what is going on is that the government is exploring the different alternatives as to what to do with Electricaribe, as you know, and as I mentioned, it was intervened and the government is sort of running it. What we have to wait and see is what they decide to do with it. There are different alternatives, for example, they could decide to sell the company as a whole, in which case we would have to make sure that the repayment of our loans is guaranteed by the new owner. That's best scenario. They could break the company down and then sell it in different parts and then we will have to see if we have to now negotiate with the new owners. Thirdly, they could decide on a route to just sell the assets of the company and in which case, we would have to negotiate directly with the government to see how they can make us whole in the banks. So for now, what the superintendents has decided is that it is enough to rate the loan CC, in which case 13% reserve is required. And obviously, as the -- as it becomes clearer to us, what it is that it's going to happen, we will then have to see where that takes us. And as soon as we know, we'll make sure to inform you.

Our next question comes from Carlos Macedo from Goldman Sachs.

A couple of questions. First, just a clarification on Nicolas' recent question. You talked about keeping your efficiency ratio flat year-over-year. What does that imply in terms of your target pace of growth for expenses? Are we going to see it decelerate then? Or how do you expect to manage that? Second question, you gave -- thank you for the guidance for the year. Just trying to get an idea how the pace is going to be for the year. Are we going to be -- are we going to start out the year at a slower pace and then build up for loan growth? Bound to see more provisions, cost of risk higher in the beginning particular if you provision for the remainder of the risk that you mentioned before? I mean, how do we expect this to line up for the entire year?

Well, with regards the expense cost, in order to maintain the level given that as you might have noticed, our net interest margin should be growing. This implies that we're going to be growing above inflation in the 200 to 300 basis points area, our cost base. The pace of the cost of risk that you were referring to will be somehow bumpy, I mean, on these kind of large corporate loans as Luis Carlos discussed at this point is a big level of uncertainty of what the mechanism, particularly for the Electricaribe, will be. We have a lot of clarity of what's happening with Ruta del Sol, there was a previous concern that is no longer such and then we have other corporate events that could be bumpier. Regarding the more statistic part, the consumer SME portfolio, what we expect to see is basically a better performance through the second half of the year as the macro environment improves. This means we might have higher cost of risk on consumer during the beginning, the first half of the year and slightly lower during the second half of the year.

Our next question comes from Domingos Falavina from JPMorgan.

My question is on NIMs. It seems to me the guidance you provided makes all the sense given the DTF, they should be very similar in '17 versus '16 just different trends. They went up throughout '16 from 6 to 7 and should reverse that when we look at '17. But once we go into 2018, I'm assuming that the reference rates and the DTF they should continue to compress. So should we expect more material NIM compression into 2018 or not? And then I have a second question.

So let's address the first question first, Domingos. Yes, as you say, we do expect inflation to keep dropping, and as such, we do expect the Central Bank to continue to cutting rate and that should affect DTF and IBR. So yes, in all because we have more of a percentage of commercial than consumer loans, we should see our NIMs continue to drop. However, the one thing that we've noticed in this country is that when rates drop, we will see growth picking up, which will give us more of a percentage of growth in loans and then we should see better quality due to lower rates. Just remember that as I mentioned, we have established that about 100 basis points movement in Central Bank rate has an effect of about 10 basis points in our NIM on loans. So that -- so yes, the question is yes, but we should be compensated with additional growth and better quality. And if you want, you can go ahead with the second question.

Yes. Sure. Ruta del Sol, you mentioned, I think, $33 million and then I remember you mentioning that 25% would be the estimated impact on equity and that, that translated into $15 million of earnings. So my question is basically to -- is the $33 million the full 25% rate incorporated or is there something that will spill into other quarters? And why does $33 million impairment only translate into $15 million of earnings?

Okay, so the answer is as follows. Yes, about 70% of the shareholders' investment in the company should be recovered, so 30% of it should be lost. At this point, 30% of Corficolombiana's investment is $33 million because we share 44% of the economics of Corficolombiana at the Aval level, remembering that we only own directly and indirectly about 58% of Corficolombiana, but when you take into account that we don't own 100% of the bank [ is true ] which we own that 58%, then only 44% of it trickles up to Aval, and that's why we only received 44% of the [ 33% ] in Aval's bottom line, which corresponds to about $15 million.

Our next question comes from Alonso Aramburú from BTG. Alonso Aramburú: I have 2 questions. First, there's other operating income result of COP 218.5 billion, which more than doubled from the previous quarter. So I was wondering if you can explain what drove that result. And second, thinking about Corficolombiana some of the 4G infrastructure projects. I mean, when should we start seeing results in the P&L from some of the projects that are being developed over the next few years?

Hello, let me take the first one, and Luis Carlos will take the second. The other income we had a few effects during the fourth quarter. We have some offsetting effects being the main 2 of those are negative on Ruta del Sol that we mentioned of around $33 million and then we have a positive on the valuation of Credibanco, which is a credit card operation that was of around $60 million, so we have those 2 offsetting being larger the positive than the negative one. On the income from the nonfinancial companies, it's basically Promigas and [indiscernible] which have the higher performance and that was what drove the change between the fourth and the third quarter.

With regard to the 4G confessions that Corficolombiana was awarded, namely, Villavicencio-Yopal, Pacifico 1, Mulaló-Loboguerrero and the third 30 kilometers of Bogotá-Villavicencio for the additional lanes that are to be built. Two of those projects have started and are moving on nicely, those being Pacifico and Bogotá-Villavicencio. Villavicencio-Yopal will start in the fourth quarter of this year and then Mulaló-Loboguerrero at this point, it depends on a whole bunch of consultations that are being carried on with the local communities and that has been a tough process. But our expectation is that we will start, say, the third quarter of 2018. Therefore, those projects, they start generating construction income as they start to be built. Therefore, 3 of those will have some income this year. The fourth one will only start generating income interest in truth in about 2019. We do expect that in all, those 4 projects in the next 3 to 4 years will double the income that we're now receiving from concession toll roads and airports as compared to what we're seeing today in 2016. So we should start -- to answer your question, we should start receiving income in 2017. And by 2020, '21, we should see -- we should have doubled the income that we're receiving from our concessions to date based on those 4 new projects.

Our next question comes from Frederic De Mariz from UBS.

I have 2 questions, actually follow-ups on the previous ones. The first one has to do with Ruta del Sol and that Odebrecht case that you've provided a lot of details on. My question is quite generic. I'm curious to understand what you have changed internally in terms of processes or any types of work flows since you've been aware, made aware of the case. I know this impacted you and other players, other banks in the country. So I'm curious to see what steps you have taken internally. And then my second question has to do with competition. Just wanted to get your thoughts, any color on the latest stats in competition, especially on the funding side, if you're seeing any changes, if the other banks -- the other financial groups are being more aggressive, [ more present towards ] pretty stable?

All right. So let me take the first question on the Odebrecht catastrophe. The one thing that we've got to bear in mind is that, that is the only concession in which we have participated, where we're not majority shareholders or controllers. That being the case in this concession, in all honesty, we did not control, did not consolidate and didn't even have the legal possibility to block decisions. But having said that, that really has not given us an excuse to not do something, so the one thing we have changed is that we are now -- and we have decided that from now on forward, we will require from potential partners be it that they are majority or minority shareholders, we will require that their code of ethics is at least as strong as ours, and we will just require that they certify that before we solidify a partnership relationship. Then, obviously, with Odebrecht and anybody who's read enough about it will know that basically they kept it very well disguised. They had a department, an area of the company in Brazil that was solely dedicated to that so that their foreign partners as ourselves didn't even have an idea that, that was going on because, obviously, we weren't given an opportunity to conduct due diligence in Brazil of their companies and even if we had, they would have probably hidden it very well because they've been doing it for many, many years and nobody had really caught on. But in any case, we're not going to remain just with our arms crossed around our chest, we will take actions, and we have started to take actions.

With regards to your second question on competition, Colombia has always been quite competitive. We have the market, you break it down into the 5 main players, this is Aval, Bancolombia, Davivienda, BBVA and CorpBanca/Itau, we're adding up around 80% of the market. We expect the market to continue being quite competitive as has been in the past. No real changes in structure of competition are foreseen at this point.

Our next question on line comes from the line of Sebastián Gallego from CrediCorp Capital.

I have 2 questions. My first question is if you can provide a timeline or timing regarding the decision by the legal authorities regarding Ruta del Sol and the timing also for the payments for the banks. And a follow-up on that actually is when do you expect projects from the second wave to start reaching financial close?

On the timing for Ruta del Sol, I think the addendum that we signed to the contract yesterday is of key importance because it means that we will have the funds to start an orderly liquidation of the company as soon as next Monday. That means that we will finally be able -- because we were precluded by law before, but we will finally be able to start terminating the jobs of all the employees of the construction company and bear in mind that's about 6,000 laymen, and we will be able to start liquidating the employees of the concessionaire. That's not too many people, about 100 people. Once we do that, and that can be done fairly quickly, we will immediately, and by immediately, I mean, in the next 2 days, pay the banks their first payment, which is about 60% of the total that is owed to the banks. There is a schedule of payments that guarantee that the banks will then receive a second payment in 2017. And by then the remaining loan won't be that big, but it will take another 2 or 3 years to finish paying for it. Obviously, when you take into account that according to the current terms of the syndicated loans, those -- the banks would have been paid by the year 2029 or so. They are really receiving the money much, much quicker than they would have had they stayed in the project, so that's the thing. As far as financial closings on the second wave of projects, some of them are occurring as we speak. I can't really assure you of what would happen with those that are not our second wave projects, but I do know that Corficolombiana is getting ready to close on Pacifico 1 and will close very quickly on Bogotá-Villavicencio, so that I would imagine and obviously, and I'm sure your question has to do with probably you've heard that financial closings aren't as easy as they used to be, but the -- what I have heard from most of the financial sector, from our competitors and from foreign banks is that they were all very, very -- expecting to see what would happen to the Ruta del Sol loan. I think that as they see these payments coming in, they should be able to relax and see that, in fact, an infrastructure project that virtually failed not because of the project itself, but because of what happened before, in any case signifies that banks will be paid regardless. And I think that, that will open the gate again to finish these financial closings that everybody is so dependent on.

And our last question comes from Maria [ Rodriguez ] from Davivienda Corredores.

I have actually 2 questions. The first one is regarding additional provision expenses with Bogotá's massive transportation system for the first quarter of the year. And the second one is regarding your NIM guidance, NIM guidance, for Central America and from Colombia.

Okay, I think I understood your first question, but could you rephrase the second one? I didn't get it.

Yes. In terms of guidance, you're expecting to give similar guidance for 2017. I was wondering how much, is it from Central America, the contribution from Central America and the contribution from Colombia?

Okay. Regarding the additional provisions on the SITP, it's basically baked in around $15 million additional provisions during this year. Regarding Central America, we expect Central America to continue contributing similar to what we had last year given that our base case is a pretty stable FX scenario. Central America might outperform Colombia slightly, but not enough to change the numbers materially. Just to make sure, to clarify my answer to Carlos Macedo from before I wanted to make sure that I was clear, that I was referring to the trailing inflation therefore a 300 basis points increase would be in the 8% to 9% increase -- growth rate in expenses. It might be misunderstood if you were to adjust that to 2017 inflation.

We have no further questions at this time. I'd like to turn the call over to Mr. Sarmiento for closing remarks.

All right, Richard. Well, thank you very much. Sorry, we took a little bit longer than usual with our presentation. Please forgive us, we'll try to make it a little bit more summarized going forward, but excellent questions from everybody today, and we hope to see you in the next one. Thank you very much.

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