Welcome to the Second Quarter 2017 Consolidated Results under IFRS Conference Call. My name is Sylvia and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer-session. Grupo Aval Acciones Y Valores S.A Grupo Aval is an issuer of securities in Colombia and 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 Bogota, 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 unaudited consolidated financial information including in these quarterly reports in accordance with regulation of the Superintendency of Finance for financial institution 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…

Good morning, Sylvia, and thank you very much. And thank you everybody for joining our 2017 second quarter result call. Allow me to start by providing an update in reference to two recurring items in the agendas of our quarterly calls, Ruta del Sol and Electricaribe. In the first place, I would like to provide with the brief update on recent developments regarding Concesionaria Ruta del Sol or CRDS. As you may recall, in our previous call, I informed that in order for DIAN to authorize the first payment to the financial sector in an amount equivalent to approximately 50% to 60% of the $800 million in total debt owed by the CRDS, the Company has to complete the liquidation and payment of at least 70% of the employees and payment of at least 70% of the past two accounts to suppliers. I also told you that we have complied with the first requirement and we would start working hard on compliant with the second. After numerous obstacles, I'm pleased to report that we are almost there as a percentage of suppliers paid as up to approximately 65%. Borrowing on foreseen circumstances of which we've had a merit since we started to work in the solutions of the Ruta del Sol problem. We shouldn’t be able to obtain approval from the DIAN and a project technical supervisor named by DIAN to pay nearly $2 million to suppliers within the next few days in order to complete compliance of the mentioned conditions pursuant to which DIAN should authorize the first payment to the financial sector and the amount of COP1.4 billion approximately $467 million. That is the good news. Not so it's what has been happening in the arbitration proceeding where were expecting to receive ratification of the liquidation formula established…

Thank you, Luis Carlos. I will now move to a consolidated results of Grupo Aval under IFRS starting on Page 9 with our asset evolution. As mentioned by Luis Carlos consistent with the low GDP growth that has been prevailing during the first half of the year, this has been a low growth quarter. Total assets increased by 1.6% during the last quarter and 7% over the last 12 months. In absence of the effect of the Colombian peso fluctuation in Central America, assets were stable during the quarter and grew 5.7% during the last 12 months. Asset dynamics excluding FX during the quarter resulted from an increase of COP1.8 trillion or COP2.7 trillion, growth in gross loans, offset by decrease -- a increase of 8.2% or COP2.1 trillion in cash and 6.4% or COP1.5 trillion in fixed income portfolio. Other assets increased by 2.8%. Broken down by region our Colombian assets remained stable while our Central American assets grew at 0.2% in dollar terms, a 5.9 increase when translated into Colombian pesos. This happened over the quarter. As mentioned before reductions in cash positions particularly in Banco de Bogota determined the growth dynamics of our assets in Colombia. Colombian assets grew by 4.5% for the last 12 months although Central American assets grew by 8.1 in dollar terms, 13% increase when translated into Colombian pesos. Consolidated balance sheet structure continued shifting towards net loans, net loans account for 68.1% of our assets as of June 30, 2017, up from 66.6 on the previous quarter and 66% 12 months before. Fixed income investments particularly funded a net -- partially funded net loan growth over the quarter, accounting for 9.3% of total assets as of June 30, 2017, down from 10% a quarter earlier. Colombian assets accounted for 30.7% of our…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Nicolas Riva from Citi.

Yes, thanks Luis Carlos and Diego for taking my questions. Two questions for me and the first one is more general on the economy. We know that economic growth has been disappointing this year. I wanted you to discuss a bit more the expectations for economic growth for 2018, really, what should be the drivers of the expected pickup in economic growth, if it’s basically lower interest rates, lower corporate income taxes for more investment? And what should be the drivers becoming kind of growth next year? And the second question on margins which I think was one of the positive highlights this quarter. I was positively surprised by what happened there and we saw an expansion of 20 basis points quarter on quarter, 50 basis points year on year. Given that interest rates have been decreasing this year in Colombia. What really explained why there're net interest margins in the second quarter, if it was more on a less competitive scenario from their banks and what's the outlook for margins for next year? Thanks.

Thanks for your question Nicholas. And let me address the first question about economic growth, we are expecting, as I said that the last two quarters of this year, we'll grow better than, much better than the first two quarters and that those last two quarters will keep the momentum into next year in 2018, consequently. I think next year we should see growth closer to 2.25%, 2.3% and maybe as high as 2.4%. The drivers for that on the one hand I do insist that all these infrastructure doldrums will be dealt with before the end of this year. I see, although the Colombian financial system at least the larger banks waiting to get involved again in 4G infrastructure, but obviously holding out until the government solves this problem that we're having with Biani and their reluctance to honor the agreement that they had signed with us with respect to getting say, not only the first payments through the banking system which I believe that's going to happen probably soon, but the remaining payment to get the bank fully paid. And logically I think the rest of the banking system is waiting to see what happens with that and I think 4G will have a big impact. I also think that as the lower rates permeate the economy we'll see better consumer demand and we’ll see better quality on the consumer loan portfolio and I also finally think that once we start getting the full effect of the 2016 fiscal reform on corporate tax rates and doing away with the equity tax I think that we'll see corporations coming back to the game and putting through their expansion plans and obtaining financing to do so. So it'll come from various fronts and to summarize 4G better consumer demand and better corporate profitability. So having settled that I think as I said 2018 should be a better year. We will have obviously as we move on in this last two quarters of 2017 we'll have a much-much better indication from of what happens on next year. And just to finalize we now have about 40 political candidates wanted to be president that I think that, that will filter pretty soon as to elisions start to become pure. And when that happens I think that also tends to take away some of the anxiety of the economy and when you put all that together again and to finalize, we should have a better 2018.

We could have been moving to your second question on margins, perhaps what we're seeing here is a result of diversification. And we are in the thing interest rates on loans fund particularly on corporate loans they have fallen around a 40 basis points when you compared up to the quarter and quarter. There is some that we are pricing still to happen here and that there is a lag of around couple of months between the Central Bank adjusting rates and are being able to or risen us our floating rates to reprise. On the other hand, the funding side also has a lag slightly as shorter than the lag that we have seen on the corporate loans. On the other hand is the Central American prices have been slightly going up that has helped. And in Colombia and the consumer front, it's something that appears to be happening is pricing it has started to better incorporate the deterioration of the consumer portfolio that we've seen. You might have that you've been following than using Colombia has been a lot of pressure from a the government as with the banks to adjusted rates down that is actually happening on the corporate level, but on the consumer side given that the cost of it is has gone up and that's room and for that to happen. The way that translates into prices is a there is not a very aggressive a competition between the banks to put down the prices and to secure clients away that is actually the mechanics how that pricing happens. The explanation for that is it seems that most of the banks in the system are seeing company single to what we have seen regardless if that has already showing up in the numbers. And moving…

Our next question comes from Frederic de Mariz from UBS.

I have a few follow-up on the previous questions on the growth in Colombia. And you mentioned that there was a bit of concern on the consumer side and we see that might be related to VAT. However, we saw that most of the growth or the higher part of the growth in Colombia came from creditors and consumer lending. So, wanted to get your thoughts in terms of what kind of deceleration you would be expecting in consumer lending? Are you concerned with that portfolio? Are you doing -- are you changing anything to control the NPLs? And also on this question about the growth and potential in Colombia, if the slow economy continues for another two quarters, are you concerned that maybe the tax cut that we announced a few months could be revised or maybe we could have another fiscal reform down the road? So that’s for Colombia. And then just a final second question or second set of questions, on Central America. Could you just quickly comment in terms of trying that you're such expecting for the next two quarters especially what kind of ROEs would you be expecting in the same region? Thank you very much.

All right, let me try to answer your first question and then Diego can help me out, if I leave anything else. Yes, consumer grew more in relative terms, but in absolute terms it really didn’t grow all that much. But in terms of what concerns us and what could happen, Yes I think the first quarter we saw a effect from the increasing value added taxes and a nice thing that effected more consumer confidence than consumer ability to repay their loans. I think that that has been put in the back of their minds, but I do see as I said unemployment especially urban unemployment going up. When you look at the countries overall unemployment rate they don’t look alarming, but if you look specifically urban unemployment, and let’s be honest most consumers lending happens in cities not in the rural areas as much. So, obviously that, that is a concern to me. The other thing that on the contrary works well for this is that as Diego was saying, the Central Bank decreased in rate have not been transferred that much through a consumer loan portfolio rate. And when you combine a bit of a higher unemployment or not a bit higher unemployment with high consumer rates than obviously that doesn’t goes very well for the health of your portfolios. I think that as we move on we’ll start to see relief under consumer side because of that. What else was there?

Change in strategy and effect of a slow economy eventually on taxes?

Okay. Yes, well in strategy and that -- our strategy since in our strategy. What we have done is we are paying -- well first thing that we always do it, it takes a little bit of time to gear up, the one thing that we’re doing as we’re strengthen in collections and we’re doing a group wise revision of collections policies. As always, we tend to look at of all our banks of the four commercial banks here and the banking group in Central America. We tend to look who is doing better under distressed or stress that these economic environments. And we try to emulate that in the rest of our banks. So I think that we're starting to see some good consequences of that and I expect to see more. We're also as part of this digitalization strategy that it's important to us that we've been working with consultants for the last few months and we finally put together a executable digital strategy that has started to be executed by Banco de Bogota and BAC and we'll keep going with the other banks. As part of that digital strategy we're streamlining our processes around selections and that should help and we're also streamlining some of the credit granting processes and that should help. We try to do better what we always do and we're paying a lot of attention we're totally at a high level of discomfort with the current ratio of cost of risk but when we reach traditionally these high levels of discomfort we tend to do things to get things and line and we hope this won't be the exception. With regards to the tax reform, I wish I could say that there is no doubt in my mind that 2016 tax reform will…

Your final was on Central America. Central America has been running at around of 15% ROE. In Central America is quite different story than Colombia even though we have also seeing some delinquency picking up there. There have been a number of positives also happening our operations particularly has been a very keen on improving efficiency. So part of what has been able to allow them to compensate, the negative that they've seen on provision expenses has been a much tighter cost a platform. They also have a faster pace of growth and what we are seeing, and in general there is a number of items in different lines of the P&L that have compensated for what has happened. And so try to wrap it to your question, we expect Central America to continue performing well there is our couple countries that always that were putting some attention on and you saw some volatility either installed by year earlier or this year that is something that has been there and should remain on time. We've seen some discussions in Costa Rica also about a fiscal deficit that have been there we are watchful of what the implications of fiscal deficit looks like and then if Panama might be running at a lower growth rate however it's a country that continues to be quite healthy. All-in-all we have to deal with this differences and they are amongst countries but we continue seeing the region and particularly our operation in the region to be able to sustain this kind of ROEs.

Our next question comes from Jason Mollin from Scotiabank.

My question is related to kind of the run rate of profitability return on equity. Clearly the 12.5% to 13% that you are talking about for this year reflects, there is very high cost of risk related to --partially related to Electricaribe as well as being not so positive environment for the earnings related to Corficolombiana. So if we kind of maybe start with Electricaribe, if as I understand your statements that a third of the provisions -- the increase in provisions in this quarter were related to increasing provisions related to this exposure. So is that if provisions increased just over 300 and COP1 billion quarter-on-quarter, is that -- is that basically 1/3 of that 100 related, if we wanted to try and isolate the ROE excluding that, would that be the right calculation? And secondly maybe just normalizing adding on to that just thinking about this doesn’t seem like a normalize situation for Corficolombiana at all and the infrastructure side of things. Where should we think about the return on equity kind of excluding? And there is always something happens right, but just kind of in a more normalized or long-term perspective. How do you think about profitability for Grupo Aval?

It’s a great question, this one question that we asked ourselves every day. Let me try to answer because you hit exactly on the right point. On the one hand, much of the profitability of Aval and just about every profitable company in Colombia comes from the tax rate, if -- so, if you want to know a run-rate with bid full 2016 fiscal reform in place with Corficolombiana back to normal levels with the country growing at 3.5%. And with the -- and with the specific credit problems behind us, I think our run-rate should be 16%, I think our ROE, the ROE that we aspire to is 16% and I think we have the elements to get there. However, I -- there is a lot of risk if you heard me correctly there is lot of risk and -- will be put behind us eventually next year. I mean one way or another we get the problem solve that we fully provision the exposure. Infrastructure, as I said, has to get going. But I’ve also said that if the financial system is not willing or able to finance infrastructure and the 4G government program, we have an obligation which we will comply with to get the four 4G concession that were awarded to Corficolombiana going and right now we have the legal lending limits and we have the willingness because we see the huge benefits for Corficolombiana in the group. To finance ourselves, our own programs and we will get going and that will replace as you mentioned and replacing and exceed the decreasing profitability at the Corficolombiana level that have some regarding infrastructure on two fronts. On the one hand because it lasts the concessionary Ruta del Sol concession, which obviously did away with the profits that it was receiving from that and secondly because some of its own concessions -- old concessions are dwindling down like Bogota, Villavicencio, the original the original concession and others. So, that’s another we will get that going and we will get Corficolombiana back to its adequate levels. We will get this problem with Electricaribe behind us and the economy will rebound and with all that in mind, I think that again that’s our duration and we see a way to get to it. I don’t know if you have any…

Yes. I think those are the points and actually in the full tax reform would have been in phase, in place this year would have been running with an ROE that should be in access of 100 basis points above the kind of numbers that we’re looking into. So that gives you a starting base that adds to the different actions and the things that should happen that Luis Carlos pointed out.

Our next question comes from Cristina Manotas from Davivienda.

Good morning, I just have one question. I would like to know what explained the annual growth of 85% on Corficolombiana gross loan, and which type of loan is it?

Corficolombiana, when we look at Corficolombiana, and I want to make sure that I understand your question, Corficolombiana does consolidate some loans that are financial and others that are non-financial. The side that is financial comes from a small leasing company that they have in their belly, and the most relevant piece is the non-financial side that comes from Promigas. Promigas as we have mentioned in our past calls, it has some conflicts with some of their customers that are accounted for under IFRS as leasing contracts. Particularly there's something called the spec at TAT that is uploading unit of gas in the Colombian coast, that has contracts that generated this kind of accounting. So what you're seeing is particularly a growth in that side of the business.

Our final question comes from Herman Cristanoche from [indiscernible].

I would like to know more about the digitalization strategy and I don't know if you could give us some details maybe some about the impact on profitability ratios? What do you expect on the efficiency ratio? How will be the delivery of this strategy? And also do you expect branches closing, reduction of labor force and in general terms the digitalization strategy please? Thank you.

It's a great strategy I'll tell you that. We've been working very close with our consultants to put together, it's a multifaceted strategy as you can imagine with so many banks and also as you can imagine, as we put together our digital strategies we need to make sure that we are not making many double efforts. So that when one of our banks gets digital strategy in anything like in a new product or in collection processes or etc and anything that you can imagine. We got to make sure that we use that to apply in the other banks and not to do it again as that wouldn’t be cost effective. Obviously, as with all digital strategies the main fronts are achieving a better customer experience and that is done through streamlining processes with customers who for example open accounts. And I'll give you an idea, we now have new product that we launched some weeks ago. And through Banco de Bogota where our clients can now open their accounts in five minutes or less through an iPad sort of environment, and that is turning out to be very good. We’ve also done some streamlining in collections, if I said. So, it's too early to tell you exactly what goals we have because we hear or we license them everyday ourselves. We have very ambitious goals and obviously we are also very ambitious as to how much our investment will be, but where we've licensed that as well. And then finally, yes, we have seen some efficiencies, we have seen already opportunity of some personal reduction, which we already put in place first phase in Banco de Bogota. And we were able to liberate some resources there and obviously we will see the results of that starting next year once we've amortized the cost of the layouts. So, we will give more details in the near future and then I'm sure you will see in the to your own bank intelligence or all of that, that we are doing and hopefully we will be as successful as I think we can be and but will talk more about it as we move on and as we get things accomplished.

Our next question comes from Natalia Corfield from JP Morgan.

It's actually with regards to Ruta del Sol. I think I thought you didn’t guess everything that you expect or said during the call. If I understand that there is first thing is on 50% to 60% of the total loans and it's probably going to come soon because the suppliers and employees, they are reaching the threshold of 70%, and then the bank would be able to get their portion. Nevertheless, you mentioned that there was a problem with regards with the decision of the tribunal and there is going to be a hearing on September 1st. So I'm trying to understand, if this can be delayed the payment of the 50% to 60% of the loans that you are expecting to receive. And also if you have like what happens to the 40%, if you have any idea of when the remaining portion could be received by the banks? Thank you.

Look let me see if I understood. There are basically two questions. Number one is how we are doing on the 70 percentages of our employees and suppliers and whether if we get those done the first payment will be made is one question that I understood. And then the secondly, what should happen going forward in arbitration and how that's -- what repercussions should that happened on the remaining payment, right? That's more or less, okay. On the 70 percentages as I said number one employees are done. Suppliers, we're very closed, we're only about $2 million away from getting it done. It's a very, very painstaking process because their concessionary CRDS has to produce the bills which then are analyzed by an expert hired by DIAN, which then are -- then the experts conclusions are analyzed by DIAN, then DIAN has stakes around -- they've taken on average 43 days through a bill. We've sort of brought it down to about 30 days and then they give their authorizations to the fiduciary who finally authorizes the payment. But -- so, we’re finally sort of close to getting it done. Now, your question specifically is because of what happen in the -- in arbitration where DIAN did not comply with their obligation to present determination agreement as a settlement between the parts should that effect, the first payment. And the answer is categorically, no. It should not affect it. The first payment is not affected by it because the agreement is in place. It signed and so it’s a commitment and the agreement is specifically says that with the 270 percentages the first payment will be made. What have to be ratified specifically by the arbitration tribunal is the full value of liquidation formula, and basically that says, we…

We have no further questions at this time. I'd like to turn the call back to Mr. Luis Carlos Sarmiento.

Alright, I think that wraps it up, Sylvia. Thank you very much and thank you all for…