Good morning, ladies and gentlemen, and welcome to the Grupo Aval Second Quarter 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 a 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, 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 our 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.…

Thank you, Luis Carlos. I will start with the evolution of the macroeconomic environment. I’ll move to the PowerPoint presentation on page 5. On that page, we present the evolution of some key macro drivers of our industry. Real GDP growth for the second quarter of 2016 was reported earlier this week at 2%, slightly below market expectations. Market consensus on real GDP growth as reported by Bloomberg remains stable at 2.3% for 2016 and 3% for 2017. We share this view expecting 2016 growth to be in the 2.25% to 2.5% area and a mild improvement during 2017. Some of the headwinds for recovery have lost strength. Improvement in international oil prices, the progress [indiscernible] fourth generation concessions, more stable Columbian peso, lower current account deficit, lower expected inflation and the end of the current interest rate cycle will favor recovery. Downsides will come from the potential impact of the terms of the tax reform and from oil price volatility as in the past. Regarding the unemployment rate, the last two months have shown the mild deterioration that we expected. Number of jobs continues to increase, though at a slower pace. The last data point I will level is that for July 2016 released yesterday. The figure reported was 9.8%, up from 8.8% reported for the same month a year earlier. Nevertheless, absolute current account figures continue to be fragile, relevant progress has been made since the peak of close to 8% in September 2015. First quarter of this year the current account deficit reached 5.6%. The Central Bank estimates points a further improvement throughout the year, going down to 5.3% by end of year. Lower demand of imported goods, the lower factory income outflows drove this improvement. On the financing side, the increase in direct and portfolio investments…

[Operator Instructions] And our first question in line comes from Carlos Macedo from Goldman Sachs.

One question really on margins. We saw in the quarter the margin, the net interest margin, was down and you attributed that a lot to the investment margin that was down as well. When we look at the sequential growth in NII and even the year over year growth, this is significant growth in the cost of deposits and that’s understandable given how far rates have moved. You don’t really see a comparable increase in the yields from loans. How do you expect that to behave going forward? I mean, first, what happened during the quarter, you had 15% expansion in cost of deposits and loan interest income was up only about 5%. Is your balance sheet more sensitive? Are your liabilities more sensitive to rates than your assets? How should we think about that? Luis Carlos Sarmiento Gutiérrez: Carlos, actually our balance sheet is asset sensitive. The reason for that is that we fund our operation with a substantial amount of checking accounts, retail saving accounts. Those accounts are not sensitive to the changes that we’ve experienced. Therefore, we end up with an asset sensitive balance sheet. This is a combination of a couple of situations. One, the reprising of funding happens much faster than the reprising of the lending side. Our portfolio has different kinds of performance. The corporate portfolio reprises with DTF and it reprises pretty fast, but just to follow the sequence. What you will find happening in Columbia, it happens around the world, is you get a Central Bank interest increase that is followed several weeks after by the benchmark rate, in our case, DTF catching up and then you have our portfolios that are based on – or floated on DTF reprising at different points in time, basically over a three-month horizon. In such…

Just to make it clear what you’re saying, the rate hikes may have paused, it might go up a little bit more, but eventually probably next year you’re going to start seeing rate cuts as inflation starts to recede. What you’re saying is that the inverse of what’s happening now should happen next year then, with your margins staying more resilient in the first part of the cut cycle as your liabilities reprise quicker than your loans. Would that be accurate? Luis Carlos Sarmiento Gutiérrez: Yeah, I believe so. Trying to summarize what we expect to see is further expansion on loans, as I mentioned before. I can’t just make a precision on the numbers that you stated at the beginning. Our average cost of funds has increased by 110 basis points, while our average yield on loans has increased by 140 basis points. This is a 30 basis points expansion over the last 12 months. In addition, we expect to see a further expansion in the 15 basis points to 20 basis points area. So we would end up with an expansion of around or close to half of a percent point.

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

My question is in loan loss provisions. So that increased to 2.1% of loans this quarter, you explained that this was related to provisions for Pacific Rubiales. I remember in the last conference call you guided for 1.7% of loans for this year. That number, the 1.7%, looking into next year, is that a reasonable number to assume for next year, the 1.7%? Luis Carlos Sarmiento Gutiérrez: Nicolas, you’re right. We had guided to a lower number. We actually reviewed our guidance in this call slightly up to reflect what has happened. It is not only the Pacific event what we’re basing this adjustment done, but also reflecting some deterioration on the consumer portfolio that you could expect with what we’ve seen in employment. Moving into next year, even though we are cautious on giving guidance on next year until we get more clarity throughout this quarter, our expectation is however that we should see improvement in the cycle. We believe we [might have seen] already what we were to see. We, as market consensus, believe that there could be around 100 basis points of further growth, GDP growth next year. And I went through [indiscernible] positives to this result. To summarize, yes, you’re right, we’re expecting to see some improvement. I would be careful on telling you we’re returning to this 1.7%, but it would be a fair estimate at this point.

Our next question comes from Sebastian Gallego from Credicorp.

I want to ask regarding on the effective tax rate. What can we expect for this year? And moving forward, can you provide a little bit more color on what could we expect in terms of effective tax rate, given the operations that you’re doing between Banco de Bogotá and Leasing Panama? Luis Carlos Sarmiento Gutiérrez: Sebastian, I believe what you’re pointing to is effective tax rate, am I right?

Right. Luis Carlos Sarmiento Gutiérrez: The way to think about our theoretical tax rate is you have to bear in mind that around 30% of our operation happens in Central America. And in that region, we have a tax rate of around, let’s say, 25%to 28%. The remaining is what happens in Columbia. Therefore, when you blend our Central American operation with our Columbian operation, the theoretical tax rate should be somewhere between 36% and 37%. The variations around this number depend on tax specific issues such as how tax returns are affected by depreciation and other specific issues, but the theoretical tax should be somewhere around that number. Up to this point, our effective tax rate has been around 35% in what has been happening throughout the year. There could be some increase during the second quarter. This is business as usual. However, this is something that we’re still working on and it is the potential impact of merging Banco de Bogotá with Leasing Bogotá Panama. That has a positive impact due to bringing the amortization of goodwill into Columbia, but we’re still in the process of making calculations on that. So once we have something clear there as in the past when we decided to deconsolidate Corficolombiana, we will be more precise on what we expect.

Our next question on line comes from Alonso Aramburu from BTG Pactual.

Just a follow-up on the margin question initially, is it your assumption that Central Bank will pause for the rest of the year or your 10 basis point to 15 basis point increase on the NIM? Related to that, this quarter in your deposits, we saw checking accounts decline about 8% quarter on quarter and time deposits increased close to 4%. I guess that’s in line with your comment that you’re being more aggressive on capturing deposits. Are you factoring that into your cost of funding for the second half of the year? Is this a trend that we should expect to continue? Luis Carlos Sarmiento Gutiérrez: Answer for both, yes. We believe this pause could be permanent. We believe that there might be at most an additional interest rate increase. We need to see more information coming out from the Central Bank. However, a six to one vote on pause is a relevant signal that this could be the end of the cycle. And we do expect to see inflation moving back down to the 7.5% area, therefore, more arguments why this could be the last pause. In factoring our changes in mix to net interest margin expectations, yes, there were rates factored in. And to tell you what’s happening there is part of what we’ve been working on is strengthening some of the funding structures of some of our banks, particularly Banco Popular where you will find this kind of a change. The other area we’re working on is on increasing deposits from our retail branch.

Our next question in line comes from Mr. Carlos Gomez from HSBC.

Two brief questions. First on the capital side, you show us the capital ratio for each of your banks and we see a particular decline in Banco de Bogotá, I believe it is 6.8% in the quarter. So I would like to understand exactly how the capital moves there. And second, could you clarify again on the tax side, you mentioned 36%, 37%, that is for the Columbian part of the business or for the company as a whole? Luis Carlos Sarmiento Gutiérrez: The tax is for the company as a whole. If you do the blended numbers of around 40% for Columbia and around 25%, 28% for Central America, you’ll end up with those numbers. Regarding the capital side, if you refer to the presentation, we included two columns for Banco de Bogotá, one as reported for June and the other a pro forma column once we capitalize the gains from the deconsolidation of Corficolombiana. The way it mechanically works is in our previous shareholders’ meeting we declared how much of our earnings we were to retain in the next shareholders’ meeting, but we were to capitalize in the next meeting. That was 50% in the case of Banco de Bogotá. Therefore, given that this earnings were generated end of semester before we had our shareholders’ meeting where we capitalized those earnings, this is presented as general earnings. Therefore, it only accounts for – or it only contributes at 50% of that value to secondary capital. Once we have a shareholders’ meeting and we capitalize those earnings, they move into Q1 100%. That’s the reason why you see a 6% that when you move to the right it becomes a 9% and this earnings haven’t yet become Tier 1 capitalization. The reason why you temporarily see those numbers falling is that we do get a negative effect when we deconsolidate Corficolombiana another way minority interest had contributed in the past to its capitalization. So that’s why you see a number that is temporarily low, but this number should move up within this month.

And our final question comes from Mayara Riddlebaugh from Wells Fargo.

My question is also on the solvency ratios related to Popular, there was almost 200 basis point decline on the solvency ratio quarter over quarter. I was wondering if you could explain that, give us a little bit more detail on that on what happened and if that’s the level that we should be going forward?

It’s a combination of two reasons. One, organic, it’s a bank that is growing the most. And then also in the process of deconsolidating Corficolombiana there is a change in the way the minority interest is treated, the way it is treated. What we’ve been looking into Popular as we’ve been looking into the rest of our banks is that in the past we haven’t seen secondary capitalization as much as we could and we’re studying what we could do on that front.

We have no further questions at this time. I’d like to turn the call over to Mr. Sarmiento for closing remarks. Luis Carlos Sarmiento Gutiérrez: Thank you very much, Richard. I think that’s basically very good questions. I hope we were able to provide answers. If not, we’ll be happy to take any questions offline to the extent that we can answer them. And nothing else, just to say thank you very much for attending our call and we’ll see you next quarter. Thank you, Richard.

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