Welcome to Grupo Aval's Third Quarter 2020 Consolidated Results Conference Call. My name is Silvia. I'm going to be your Operator for today’s call. Grupo Aval Acciones y Valores S.A., Grupo Aval, 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 Aval financial conglomerate. The consolidated financial information included in this document is presented in accordance with IFRS as currently issued by the IASB. Luis Carlos Sarmiento Gutiérrez: Good morning and thank you all for joining our third quarter 2020 conference call. I hope that all of you and your families are keeping healthy. During the third quarter, several of the countries where we operate started to ease their mandatory quarantine and the effect on their economies was felt almost immediately, more so after the sharp contraction experience during the second quarter. Our subsidiaries are also benefited, as evidenced by the pickup in banking fees and revenues from infrastructure. We are however months, if not years, away from returning to business as usual as economic recovery and health challenges remain ahead of us. In today's presentation I will cover the following, a macro review of the economy during the third quarter of 2020, a quick update of our loan relief programs, the progress of our digital efforts, and the main highlights of our financial performance. I will spare you of Ruta del Sol-related topics because there have been no new developments since we last spoke.

Thank you, Luis Carlos. I will now move to our consolidated results that filed under IFRS. Grupo Aval's third quarter results reflect the positive impacts of the economic recovery as lockdowns ended boosting non-financial sector and fee income performance. In addition, falling interest rates allowed our banks to improve their trading income and realize OCI gains on fixed income. However, cost of risk remained high and asset quality regarding through evidence anticipated deterioration that results from the lease expiring as one of the negative impact of economic cycle on a customer’s payment behavior. Starting on page eight, our quality asset growth was 0.3% while 12 month growth reached 21.9%. As mentioned in our last call, the MFG acquisition was closed last May. During the acquisition of MFG and Fx movements of our Central American operations, total assets grew 11% over 12 months. Our Colombian assets decreased 0.6% during the quarter and grew 12.5% year-on-year. Our Central American assets recorded a 1% quarterly decrease in dollar terms and a 28.5 year-on-year growth. MFG concluded with 20.4% of the year-on-year growth. Depreciation of 11.2% for 12 months and a 2.9% for three months take our annual and quarterly growths in pesos of Central America to 42.8% and 1.9% respectively. The rate of Central America increased slightly during the quarter to 36% of our book. Moving to page nine, our loan book grew slightly over the quarter reflecting an improvement in dynamics of the retail lending in Colombia while incorporating the charge-off of retail loan. Central American operations maintained stringent underwriting thresholds with loans contracting in dollars terms and growing 2.3% when translated into Colombian pesos. Loans increased 0.4% on the quarter, reaching a 17.2% growth year-on-year. The acquisition of MFG added COP13.1 trillion or $3.4 billion our year-on-year loan portfolio growth and…

Thank you. We will now begin the question-and-answer session. And our first question comes from Jason Mollin from Scotiabank.

Yes, hi. Thank you for the opportunity to ask questions. My question is on the level of provisioning, and provisioning is high relative to past levels, and you talk about cost of risk potentially around 3% this year, declining to 2.5% next year. I mean one question is how should we feel about the level being sufficient that you have now, especially relative to some of your peers who are making higher provisions if you want to measure it as a percentage of NPLs, which is complicated at this point because if they’re rescheduling, it's hard to look at that ratio in my view, also as a percentage of net interest income or as a percentage of total loans. How can you give investors assurance that the provisioning levels you have now are sufficient?

Thank you, Jason. I will try to summarize some of the things we've said in the past that have become apparent throughout this cycle, and it is we have a different structure of our loan portfolio, where we are overweighted in some of the safest products, and underweighted in some of the products and segments that are riskier. Particularly, we have a higher portion of payroll loans to government employees and retirees, and we have as well a smaller portion of a unsecured consumer lending as well as we are underweighted in the SME segment. So, part of what you’re seeing at this point is the way our portfolio is evolving, and the way that different portfolios have behaved. We’re not covering this in the call, but when you look at a micro level, there's a wide variation in the sort of provisions needed for the different products and segments that I mentioned before. Then, as you might have seen, there's an implied -- a slight pickup in provisioning during the fourth quarter to be able to get to the 3%, and what we’re doing at that point is particularly raising some of the provisions that we have in Central America as well as there's a process of stage 2 loans migrating into stage 3 that should also imply additional provisions. And finally, something that we’ve mentioned in the past that is changing already is the speed at which we’re growing. Part of the lower provisions that we had in the past was a -- basically shrinking our riskier portfolios, particularly the credit card portfolios during the second quarter, the order of magnitude was around 5%, then this quarter, it was around 1%, the quarter we're reporting, but moving into the fourth quarter, we’ve begun to see a additional growth, and as employment is improving, our willingness to start lending more is there. So, you've seen that part of what has been happening has been recoveries, recoveries particularly linked to some of these portfolios that we are shrinking. So, what I can tell you is at this point, obviously it's not over. You can see that our guidance for this year is still at 3% and the guidance for next year is halfway of where we should be running this year. So, it's going down to around 2.5%. That implies that we might have a few additional quarters with higher levels of provisioning than migrating into something more -- at the kind of levels that we used to run before.

The next question comes from Gabriel Nobrega from Citigroup.

Hi, everyone. Good morning and thank you for the opportunity to ask questions. I actually have two questions. The first of them is on asset quality. We have noticed that's this quarter, but we still saw you have 90 days until ratio increasing. So, I wanted to understand the 20 bps increase in the quarter is mainly due to Avianca? And then, as for my second question, it's actually on the NIMs, you were guiding that NIMs are going to remain stable through the end of the year, and also in 2021, but as your stage 3 loan portfolio starts increasing, we have to remember that these loans also don’t accrue interest rates, and then, there's also another important part that your banks are going to start re-pricing their loans for the lower interest rate environment, and so, I just wanted to maybe pick your brain and understand where are you trying to maybe work harder to be able to maintain net interest margin? Thank you.

Okay. So, let me try to answer your question on the asset quality, and if I didn’t get your question right, please correct me. What is going on now is that we've begun to get -- the reliefs, therefore the calendar starts ticking first for the 30-day past due loans, and then migrates to higher 90-day PDLs. Historically, a kind of transition that we’ve had from a 30-day past due loans to 90-day past due loans could be somewhere around 60% to 70% or something of that order or magnitude. So, it's a matter of time for some of these to migrate into the 90-day past due category, and that's the reason why we’ve also guided into higher provisions into the fourth quarter. Regarding where things should end, we are fairly comfortable that at this point, we have more visibility and the absence of new countrywide lockdowns, we should be evolving as I described previously. Now, moving into your question on net interest margin, there's a number of forces happening here. We had a big hit from re-pricing our loans in advance to re-pricing of our deposits in the past. That we’ve already been able to catch up, and there's some room for additional reduction in cost of funds that will continue helping us. On the other hand, we had, I would say, a temporary effect of reliefs that we’re reducing our net interest margin as we had conditions that in the present value were reducing the value of those loans and we had to pass that through our interest income, and finally, more structural -- during this month, we have been prioritizing, growing in very high quality loans. Therefore, when you see our loans that are sort of flattish during this quarter, what you have is a combination of…

Our next question comes from Yuri Fernandes from J.P. Morgan.

Thank you, Diego, Luis Carlos, good morning. So very quickly here on the cost of risk, so if I got correctly cost of risk should be around 3% by year-end. So this basically imply that for the first Q we should see the cost of risk around 3.5%-3.6%, as you said in page three, and also Central America, right, so that's the first question I have. My second question is regarding a second wave. We are seeing some countries getting more concerned on that, like the hospital utilization moving in Brazil, and we discussed this in Europe, and in the U.S. What about Colombia, what is the outlook here for COVID? And do you think like if a vaccine is approved globally Colombia will be able to get the vaccine quickly, because when we talked to some investors there is a concerns that maybe for the developed world, like U.S. and Europe, we could see a vaccine being quickly deployed, but about other not developed countries that's not clear. So my concern here is that if 2021 could also imply like a second wave, further lockdowns, so just to pick your brain here, and to help understand how you are seeing the outlook for Colombia. Thank you.

Okay, Yuri, regarding your numbers on cost of risk, you're right. That's what is implied for fourth quarter, and on the second one, I'm sorry to -- not to be able to answer your question, but I think we're not qualified to opine on the health side. We see differences in the initial cycle of what happened in Europe compared to what happened in Colombia, but at this point it's a combination of what we hear from public policy, where public policy is trying to defend employment and activity, and then on the health side, I really, I am unqualified to answer your question. Luis Carlos Sarmiento Gutiérrez: We're obviously looking with a lot of optimism at the result of the COVID vaccine tests, and hopeful that the smaller countries, the developing countries will have access to the vaccines almost as fast as the developed countries, and that might be the answer to not having to go through additional lockdowns and stuff like that.

At least not countrywide lockdowns. Luis Carlos Sarmiento Gutiérrez: At least not countrywide, exactly.

Our next question comes from .

Hello, guys. Thank you for letting me ask you a question. So I also have some question regarding the provision and the risk of the loan book. So the first one is, if I understand well what that you mentioned, this imply a 3.5% cost of risk in the four quarter, right. So this would mean the highest provision expenses should be in the first quarter. So the question is that, if that is correct the question is why the provision was not done before? Because if I understand IFRS 9 you should anticipate the provisions with those macro assumptions, say, on maybe GDP assumptions and stuff like that. So that's the first thing, and maybe linked to that, I understand that you have given your GDP assumptions for the next 12 months. So, you are expecting 2.2%, and it's not really easy to compare it with the other banks that are only giving for 2020 GDP numbers. So what GDP assumptions have you used for 2020 in order to estimate the provision expenses of the -- according to IFRS 9 -- sorry, to expected losses? And yes, that's the main thing. Thank you very much.

So let me try to take it piece by piece. Regarding provisioning and timing, I mentioned there's forces happening here. Some of those forces are things that are only started to be known now, and some things that even though you have not materialized, we are starting to see that that could be the way they evolve. So cost of risk will have a combination of several things. One, that is the least, is what happens with macro outlook. The macro outlook is one of the components of what goes into IFRS 9, but not the full component, and you have to bear in mind that it's actually forward-looking. So, at this point when we end the fourth quarter, we're actually looking into 12 months forward, that are the full 2021, and that's where you're talking of around 4% GDP growth. So we'd say it's one of the other pieces that need to fall in place in your calculation, and then there's you know this year will be, I would say, horrible in Colombian standards. Most of that has already happened; therefore it doesn’t build into IFRS 9. Then regarding why hadn’t we provisioned before, I would say because the performance, as we're looking into, indicated that that was the adequate level of provisioning, and I actually cued into where it will come from, and part of what I said is it's coming from Central America, where the initial forecasts from most analysts were much better than what we're currently looking at as a consensus. So, that counts into why our numbers look that way. Then I also mentioned some things that are, I would say, good quality provisioning, and it is provisions linked to moving from contracting some of our portfolios to start growing. So mathematically that implies that change. And regarding this quarter, perhaps what -- we didn’t emphasize during the call part, when you look at the numbers that we provided, there is basically a flat gross provision expense that is improving with recoveries, and also with some of the provisions not related to loans, particularly provisions based on country risk of some fixed income portfolios that are not present during this quarter. Therefore, when you look at provisions, this quarter comes with some slightly slower rate of provisioning. However, at a gross level it is flat compared to the second quarter. Luis Carlos Sarmiento Gutiérrez: He wanted to know about our GDP predictions.

Yes, I think I mentioned that by end of this year, our GDP projections for next year would be in the 4% level, that's what we're looking into, and that's what's going to build into the IFRS numbers of year-end. Luis Carlos Sarmiento Gutiérrez: Right, 6.5% contraction this year, exactly, in Colombia.

Our next question comes from Andres Soto from Santander.

Good morning, Luis Carlos, Diego. Thank you for the presentation. I have a few questions. The first one related to expenses. If I heard correctly, your expenses in Colombia declined 9% on annual basis. I would like to understand what are the measures that you guys implemented to achieve such an important result? The second question is regarding your guidance for loan growth next year. Try to understand how that's breaking down between countries, in general, between Colombia and Central America, and also in-between segments? And finally, when I look at, I mean, numbers, looking into 2022, I assume that for 2022 you guys will be having a cost of risk already below the level you had in 2019, and with that, the ROE that you should be getting is in the area of 15%. I would like to confirm if that's the number, and more importantly, if this is what you believe is the potential ROE for Grupo Aval or is there any potential for additional increase in this number? I was kind of surprised, when I asked this question to one of your competitors in terms of potential ROE long-term for Colombia banks and that competitor said that they believe that the potential for ROE of Colombian banks have diminished as a consequence of a more difficult competitive environment and lower rates overall. So I would like to confirm that that’s the view you guys have in your sight. Thank you.

I think there is a lot of questions, I am going to try to go them briefly. Expense, I think something you mentioned we should have highlighted before because we have a very positive year-on-year comparison when we take the third quarter because during the third quarter of last year, we had some benefits of a tax program that ended up generating benefits from the expense side. However, for the sake of completeness when you take OpEx year-to-date to try to strip those things out, we are contracting something short of 1% is what’s happening. So, that gives you a better idea, and there was some seasonality there particularly last year, and I think that’s a relevant point that you brought up there. Then, regarding segment and country growth, what we expect to see is Central America growing something slightly on the lower side of the range that we mentioned. Something in the order of 9% - 9.5% in dollar terms, and Colombia should be growing faster. What will be happening with Colombia is basically we had shutdown during this year or the second half of this year the corporate growth. Therefore as that growth is coming back, what we are looking into for Colombia is something more in the 10% area. So, it’s basically taking the range with Central America growing at the lower side, and Colombia growing at the higher side of that spectrum. Inside Colombia what we should start to see is corporate loans recovering some of the room that they had let go and have been letting go throughout the second half of the year. Then moving into cost of risk for 2019, I have to go back into history, and when you are looking at our numbers, our numbers have these three large cases that we have been tracking over many of our calls that basically we got done with last year. So, if you think of what we were looking into was this year absent of COVID, we should have been around 2%. Two percent implying that we are already done with Electricaribe, Ruta del Sol, and the SITP. So, the kind of recovery that we are looking into is halfway of what we should have been this year. This year we are going up to 3%, and next year, we are recovering half of that room concentrated in the narrow part of the year. And finally ROE potential, we can’t agree with our peers there. The way we look into those numbers is it very much depends and ROE potential for each one of the institutions and that’s linked to the kind of portfolio each of them has. At least in our case, we think that we can aspire too much higher levels than perhaps some of our peers have said.

Our next question comes from Nicolas Riva from Bank of America.

Thanks very much for taking my questions. I have two questions. On the first one, I apologize if you already mentioned this. I joined the call a bit late. It’s on the relief program. You mentioned that the increase in the 20 bps in the NPL ratio this quarter was mainly driven by clients exceeding the relief program. I was wondering what’s the percentage of loans which are still in your relief program as of the end of the quarter, and how many of the regional clients already exited that program, and also, what’s the plan for the remaining portion or plans which are still in the relief program if the idea would be to restructure these loans? And then, second question at the end of your initial remarks, you provided guidance for next year. I believe you said 12.5% to 13%. If I just look at the third quarter, you already made an ROE above that in the third quarter; close to 14% this quarter, and I will imagine that things from here -- should improve from here assuming that there are no more lockdowns in Colombia. The reason for this guidance, which looks a bit conservative for next year, is that basically related to cost of risk that you probably expect to still remain high based on this immigration of loans to stage 3, or is there anything else there going on as well? Thanks.

Okay. So, regarding the relief programs, the number that we mentioned in the call was as at as of the end of September, we had around 17% of our loan portfolio relieved, and this number is more of an order of magnitude, but end of October, the numbers that we had estimated would be around 15%, so we're seeing, I would say, a return to normal, that is happening at that sort of pace, and if you're thinking of what percentage of the reliefs have expired, I would say that around half of those have expired. So when you look at the numbers of the reliefs that we gave out. There's a portion of that, that went back to pay and have already amortized. There's a portion that are paying again, and then, within the release there's a combination of some of the older reliefs there and some of the more structural ones being a given out that will remain for some time after we're done with this cycle. Then regarding the ROE, perhaps to break down what happened this quarter, and why we are guiding into a shire quarter next year, next day, or for the fourth quarter. This quarter included the realization of OCI gains on our fixed income portfolio that should add up to roughly I would say 130 billion, 140 billion in a trivial earnings core group to Aval, so that in fact gave us a particularly strong quarter, that when we split that out, and then we keep up slightly our provision expenses we come up with the numbers that we guided into. Then I think your deeper question is what's going to happen next year and next year yes, you're right, I would say that at this point we can't be extremely aggressive with the rate of recovery and that's why we are standing these kind of numbers.

Our next question comes from Sebastian Gallego from Credicorp Capital.

Hi, Good morning everyone. Thanks for the presentation. I have couple of questions or several questions. The first one is just a follow-up on probably the most relevant question. My colleagues have asked about provision expenses. I understand your explanation about a more defensive portfolio, but still you have lower coverage, higher PDLs and higher release compared to peers. Why do you remember confident that the cost of risk should be at 2.5% next year? Second question is regarding ROE, you mentioned that you don't agree with peers and it depends on the institution, so I would like to know what would be the outlook for ROE next year, when excluding the non-financial sector. And finally, my last question would be, at the holding level, we have seen some deterioration on net debt to core earnings, net debt to cash dividends and double leverage as well. Can you provide an outlook on those measures and if you're comfortable, or the levels you feel comfortable at this point? Thank you.

Okay. Regarding your question on provision expenses, it's something that you have to keep an eye on is a number one, the relative movement of what the coverage ratios look like, because coverage ratios are not the same for each one of the products and then perhaps with a risk of reiterating the kind of provision that you need for a payroll loan is widely different from the kind of provisions that you need for an unsecured consumer loan. So, the kind of numbers that we come up are build up from the bottom of what happens with each one of those segments and products, and as I mentioned when we look at our numbers, numbers vary, very widely there, just to give you some more flavor. You're looking into payroll lending and you're comparing a portfolio that is government and employees and retirees, that kind of provisions that we've had to spend are wildly different from those, when you have to pay rolls for the private sector, so this is very much, of a micro discussion rather than a macro discussion, and I would invite you to look at historic a comparison between what we have and what our peers have. And then, look from that point on, and how things should be evolving. So that's the reason why we feel comfortable with what we said there, and then, regarding our ROE is something that we have mentioned in the past, it's not only the non-financial, it is diversification of our full book. It is what we have coming from Porvenir that behaves as well as the non-financial has been behaving positively. Then Central America is not equal throughout the countries and throughout the banks. Our performance from our Central American operation has been quite positive, and the countries in which we are operating are also behaving better. So when you have to think of ROE, I wouldn't split out any one of the components. We emphasize that we've had a portfolio that is a diversified portfolio, perhaps one might contribute better one year and then the following year the other one should turn around. And then regarding the holding level, you're giving us a very good question particularly for those of you guys on the call that are from the fixed income side, and when you look at the way that we repaid our dollar denominated bonds, it is basically with dollar denominated assets that we hold inside, Grupo Aval Limited. So Grupo Aval Limited is a combination of a interest yielding investments. Those investments are mainly deposits or loans to our own entities, and then we have dollar-denominated liabilities that at this point are yielding a positive carry. So that's the way that we repaid those bonds. If you're looking into a dividend, that's a discussion that comes on next year, but that in no way affects the way that we are serving the principal and interests of our bonds.

Our next question comes from Carlos Gomez from HSBC.

Thank you very much for the presentation. Two specific questions, one is the level of activity that you are seeing into this fourth quarter, both in Colombia and in Central America. In some countries, we have started to see activity falter after the recovery, and we wanted to know how you are seeing your own numbers internally?

Your question was the levels of GDP?

Level of activity or rigid sections, activities -- I'm sorry if it was not clear.

Okay. Yes, well, you're right. The levels of activity are something that varies widely in the regions that we operate. We've already mentioned a lot of Colombia, then if we are going to assume into Central America, the kind of our behavior we've seen there is a -- this year and things will vary next year on Honduras and El Salvador are the stronger performers they're growing roughly I would say this year will be a 6% growth. Then you have second to, that would be Panama Costa Rica, Guatemala growing at around three-and-a-half, and then you have Nicaragua, whether that he is contracting roughly as well 3.5. Then moving into next year where we see most of the growth coming from is Guatemala and Panama that we're estimating should be growing north of 10%. Then we have a next year that would be Costa Rica, Honduras, and El Salvador that should be closer to 8%, and Nicaragua should be somewhere between flatten and slightly positive. So yes, we're looking into different kinds of growth when we compare the countries in which we operate.

Our next question comes from Piedad Alessandri from CrediCorp Capital.

Hi, thank you very much for allowing the questions. I had a question regarding the addition to the Pat program, and you could give us a bit more detailed on that. Then I wanted to ask, when do you expect to have the peak NPLs for the bank? And finally, what is your exposure to real estate in Central America specifically in Panama?

Okay, and the last one I will give you a quantitative answer and it we are perhaps the lowest in the market there in relation to the size. I can't give you a number, but that's been a business that we've shied away from the very beginning, and as we've bought banks, we've reduced those portfolios. Then your question on the more structural loans in Colombia, we are in the process of migrating some of our loans there. We are smaller than what our peers have done at this point, but we are indeed starting to use that much more. Percentage wise, we could be somewhere around 1% or 2% of our portfolio that has gone into the past. And I'm missing one. Regarding the pickup of NPLs that you said there, at this point we are watchful on how things should evolve, and we should expect to see NPLs to go up during the fourth quarter, and to remain relatively high during the first-half of next year. Then the numbers should start to come back to much more normal figures. So, I'm sorry not to give you a precise quarter or to see that, but I would say during the next three quarters we could be seeing still high numbers as they get digested. That cycle will end up synching with what is happening with provisions, where we've begun to provision in advance to some of that deterioration.

Our next question comes from Julián Ausique from Davivienda Corredores. Julián Ausique: Hi, everyone, and thanks for having my question. I have a really specific question about the Panama operation, because in conversation with your peers, the outlook in this country is a little bit worse than others, and so I would like to know what is your expectation in Panama specifically, and what is your expectation in provisions, because some of the relief funds will end in December or in January? Thank you.

You are right, Panama has been hit strongly. If you're looking into GDP growth expectations for this year, let's say in order of magnitude the region could be contracting around, let's say, 6%, but Panama should be contracting around 10%. The reason for that happening is that the quarantine in Panama has been much more stringent than throughout the region. However, when you look into next year, next year the regional GDP growth could be somewhere at the 3.5% area, with Panama growing at around 5%. So I would say it's a combination of how much they got hurt this year compared to what is going to happen next year, where perhaps they will be one of the countries, with Honduras, that might be growing the fastest in the region. And the reason why we might be seeing a different story than others, as one of your colleagues asked before, is because we've been away from some businesses that have been particularly risky in Panama, particularly mortgage lending was something that we took off our portfolio, some of the exporters who also took away from our portfolio when we acquired the banks in the past. Julián Ausique: Okay, and I know that you already mentioned, but I couldn’t get it because I have some connection problems. What is the reason that the efficiency rate here in Colombia was too low? I heard something about actually but I couldn’t get it -- well, I don’t know if you can repeat this.

Yes, I would say it hasn’t been low this year. It was particularly low during the third quarter of last year. That's why we used that question to give some information on year-to-date performance. Luis Carlos Sarmiento Gutiérrez: Do we mean it's good or bad?

Yes. Yes, that's a clarification question. When you mean low, you mean a negative ratio or you mean a loan figure.

Our final question comes from Brian Flores from Citibank.

Hi, thank you. Just a quick follow-up on Avianca, could you repeat the level of coverage that position has particularly?

35.

Okay, thank you.

We have no further questions. I will now turn the call over to Mr. Sarmiento for closing remarks. Luis Carlos Sarmiento Gutiérrez: Thanks. Thanks again, guys, and great questions as always. We're happy to take more of them if you wish, on a one-to-one basis, and you can contact the team through Diego, and in the meantime we expect to keep it up, and hopefully have you all back in our next quarterly call. I want to thank you again. I'll see you next time then.

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