Welcome to Grupo Aval's Fourth Quarter 2020 Consolidated Results Conference Call. My name is Richard, and I'll 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. Details of the calculations of non-GAAP measures such as ROAA and ROAE, among others, are explained when required in this report. This report includes forward-looking statements. In some cases, you can identify these forward-looking statements by words such as may, will, should, expects, plans, anticipates, believes, estimates, predicts, potential or continue, or the negative of these and other comparable words. Actual results and events may differ materially from those anticipated herein as a consequence of changes in general, economic and business conditions, changes in interest and currency rates and other risks described from time to time in our filings with the Registro Nacional de Valores y Emisores and the SEC. Recipients of this document are responsible for the assessment and use of the information provided herein. Matters described in this presentation and our knowledge of them may change extensively and materially over time. But we expressly disclaim any obligation to review, update or correct the information provided in this report, including any forward-looking statements, and do not intend to provide any update for such material developments prior to our next earnings report. The content of this document and the figures included herein are intended to provide a summary of the subjects discussed rather than a comprehensive description. When applicable, in this document, we refer to billions as thousands of millions. [Operator Instructions] I'll now turn the call over to Mr. Luis Carlos Sarmiento Gutiérrez, Chief Executive Officer. Mr. Luis Carlos Sarmiento Gutiérrez, you may begin.

Good morning, and thank you all for joining our fourth quarter 2020 conference call. I trust that all of you and your families are keeping healthy. The year 2020 will be infamously remembered as the year of the coronavirus, but above all, it will be remembered for the devastating loss of lives and the global economic crisis, which advanced rampant, heeding no attention to geographical borders or political inclinations. It is said that, on average, a pandemic hits humanity once every century. However, it's impossible to really know how well prepared one is to face the next to hit. In that respect, I am proud to say that Grupo Aval and its employees have endured, in exemplary fashion, the situation lived in the past 12 months. I don't mean to imply that Aval's results were not affected. Indeed, our results were negatively affected, as were our clients. However, as you will ascertain as we go through today's presentation, so many years of conservative risk management, a strategy of diversification among business lines and geographies and the adaptability of our employees to the new normal permitted us to face this past year with relative success when compared to the rest of the region's financial systems. In fact, despite multiple headwinds, our attributable net income for the year was COP 2.35 trillion, only 22.5% lower than the all-time high net income of COP 3 trillion recorded in 2019. This represented a return on average equity of 11.7% and a return on average assets of 1.5% for the year. Since the start of the first lockdown exactly 1 year ago, we had the opportunity to test our contingency procedures with very positive results. Throughout the year, we managed debt relief packages that involved over 30% of our Colombian loan portfolio and around 45%…

Thank you, Luis Carlos. I will now move to the consolidated results at Grupo Aval under IFRS. Starting on Page 10. Assets grew 15.8% during 2020 and decreased 3.3% during the quarter. Excluding the acquisition of MFG and FX movements of our Central American operations, total assets grew 8.4% during 2020. Colombian assets grew 7.5% year-on-year and decreased 0.9% during the quarter while Central American assets recorded a 29.3% year-on-year growth and a 4.1% quarterly increase, both in dollar terms. MFG contributed 19% of the year-on-year growth. A 4.7% depreciation over the last 12 months resulted in an annual growth in Colombian pesos of Central America of 35.4%. During the quarter, an 11.2% appreciation resulted in a 7.5% contraction in Colombian pesos. The weight of Central America decreased slightly during the quarter to 35% of our book. Moving to Page 11. Loans grew 12.5% over the year and decreased 3.9% during the quarter. The acquisition of MFG added COP 11.6 trillion or $3.4 billion to our loan portfolio and explains 6.5 percentage points of our 12-month consolidated growth in Colombian peso terms. Our Colombian gross loan portfolio grew 5.6% over the year and contracted 0.5% during the quarter. Our quarterly performance reflected a stronger dynamic in retail lending and a softer one in commercial lending, in line with the trends of the Colombian banking system. Demand for consumer loans was strong in Colombia, resulting in growth of 4.4% during the quarter and 8% for the full year. Growth remained driven mainly by secured products, particularly payable loans. Even though competition has begun to slightly open to other products and segments, the market's risk appetite remain focused on lower risk group markets. Nonetheless, credit lending that accounts for 58% of our Colombian consumer portfolio, grew 6.7% during the quarter, and other…

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

My first question is on the relief programs. And Luis Carlos and Diego, you mentioned some numbers that I want to make sure that I got correctly. So I understood that COP 26 trillion was the, I guess, the total portion of loans -- of the loan portfolio under relief. And that the -- post -- the portion that's post relief, 5.4% are past due more than 30 days. So I just want to confirm those numbers and just ask how that 5.4% past due number is comparing to what you were expecting previously. And my second question is on the nonfinancial sector results. Diego, you mentioned some of the drivers there, but perhaps you could give us some more color on what drove those really good results this quarter. And you said that we should expect these results to be strong, continue to be a good contributor. Does that mean it should be at the same level? Is that what you're talking about for 2021?

Okay, Jason. Let me start by the end with the nonfinancial sector. Yes. This was a particularly strong quarter for the nonfinancial sector, and that's why we actually pointed out that there were some strong results coming from the Peru operation. Part of that has to do with adjustments under IFRS 15 under better expectations of some of the concessions. In that sense, I would say that roughly half of the result then from Peru would be something that would be recurrent. The other piece has to do more with an adjustment that even though it could happen once again in the future, you can really build that into the numbers. That was perhaps the only thing that was particularly different from what we saw during the third quarter. And that's why we are actually guiding into something that would be similar to what has happened over the past couple of years rather than just what happened during 2019. Regarding reliefs, I think you never want to be overoptimistic, but we've had a pretty good performance of some of the portfolios. In addition, we've been able, through the kind of regulation that we had in place in Colombia, to reduce the reliefs in a very substantial manner. As I mentioned, the numbers went down to less than 3% of our portfolio being under holidays. That is perhaps the riskiest part of what the reliefs are. Because once you move into the more structural programs where actually the payment schedule becomes -- or moves into lower debt service, our customers become much stronger. And these are problems where you -- to be admitted, you need to really have a fair chance of succeeding in that process. So we don't want to claim that things are over at this point, but Colombia is moving in a very good fashion. Then there is an element that is bringing our numbers up in Central America. And it is Panama. If you take Central America as a whole, the kind of reliefs have different ways -- have different styles. Reliefs that are holidays or more structural ones, we're talking of around 23% of the portfolio. But ex Panama, we're talking of 17% and coming down. The Panama case is perhaps the one that has taken longer and the one that is pushing up the numbers of the region. It has to do with regulation that is taking holidays, payment holidays, longer than expected. So trying to wrap up, I would say that Colombia is behaving better than what we had expected. Central America, ex Panama, is behaving as expected, and Panama perhaps is a little slower than what we would have desired.

Jason, also you asked about the COP 26 trillion number, and that is the outstanding relief -- the outstanding loans under relief as of December 31, 2020. It was a much larger number when we started. And I think I mentioned that when we started, about 30% of the Colombian portfolio was under relief as well as about 40-something percent of the Central American portfolio. So it's really dropped, and it's now at COP 26 trillion.

Our next question comes from Mr. Brian Flores from Citibank.

Just wanted to know what is your take on the implementation of Basel III. We didn't see any comments. And I know some of your peers started or mentioned it during this quarter. So just wanted to know your stance given your conglomerate status. And did you have an estimate of impact? Or any color you might give us would be very appreciated.

Well, perhaps I went too rapidly over those numbers. But basically, what we're looking into is an increase from Banco de Occidente, Popular and Villas that will bring them up into numbers that are pretty strong on any metrics that we look at them. We're talking of numbers that are around 14.5% to 15% total solvency. And then if you're looking into core equity Tier 1, we're talking of numbers that are in the 12.5% to 13.5% range roughly. That implies very substantial increases in both -- under both metrics. Then Banco de Bogotá is starting above our numbers as of December, and actually those numbers depend very much on no changes in further regulation. But to give you more color, we should be increasing our core equity Tier 1 in more than 1 percentage point. And that will translate into a similar number in total solvency. So in general, we are coming out much better out of Basel III. In addition, this already is involving, including operational risk that deduct part of the solvency. So we are in a metric that we could say is very close to what would be a very good global practice in what Basel III looks like.

Just to complement what Diego just said, there is one thing in Banco de Bogotá. We're still negotiating with the superintendents of finance as to how Banco de Bogotá has to account for its investment in Corficolombiana regarding the solvency ratio, regarding regulatory capital, not -- obviously, not regarding just the -- its books, but that won't change. But regarding how to account for it to calculate its regulatory capital. So any negotiation that we finally achieve with the superintendents will serve to increase the 100 basis point increase in core equity Tier 1 that Diego referred to.

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

I have several questions. The first one regarding stages under IFRS 9. We saw a meaningful increase, particularly on stage 2 clients over the quarter. My specific question is, how likely is for those clients to go on to stage 3 during the upcoming quarters? That will be the first question. The second question is a more strategic question from a medium-term perspective. We saw this week the announcement of Davivienda and Rappi alliance for asking for a license. We know the entrants of new bank and we know also that there could be some additional competitors on the digital front. It seems that Aval continues to be a little bit behind the curve on that digital front. I would like to understand better the strategy to compete with those kind of initiatives. And finally, if you could comment a little bit more on the noncontrolling interest on whether the Porvenir results impacted or caused a higher noncontrolling interest during the quarter.

Okay. Let me take the 2 quantitative ones, and I'm going to pass the strategic one to Luis Carlos. Regarding stages, you're absolutely right. When you look at stage 2, what we have is we have tripled the percentage of stage 2 that we would have ex or previous to the pandemic. Part of that has to do with overlays that we practice at the end of the year. What I mean by overlays is under IFRS, you can be more cautious than what actually you would be required to do mechanically. And what we did was to bring all those that were relieved, even though they were on schedule and hadn't been delinquent in the past, but that we had rated as high risk. So that's the reason actually why our cost of risk during the third quarter -- during the fourth quarter was higher than in the previous quarters and why our previous guidance that we actually met had been 3% because that was basically what we expected to get done. Regarding stage 3. What we have in stage 3 depends very much on how our portfolio looks like. And going back to Jason's question. When you look at our number, our number built in, that we have some products and segments that have moved into stage 3 faster. For example, the unsecured consumer lending and the SMEs that are pushing that bracket when they go up. But all the products, such as our payroll lending and some of the segments that we serve in the corporate segment have actually performed pretty well and are not moving into stage 3. So I know your question was what to we expect moving forward. Moving forward, what we have looked into is we still have a part of the normal…

All right. Let me round it up with your question about digitalization. To start with, our digital strategy is rather simple, I would think. We based our strategy on 3 axis. The first one is the digitalization of legacy products and processes, and we are almost done. We have digitalized all our products or basically all our products on the liability and the asset side. We're working hard on digitalizing our processes, and some of that could be seen by -- with the savings of very, very significant cost savings of 2020. Some of those obviously were also driven by the pandemic. We have come up with the first 100% digital mortgage product, and our vehicle product is pretty good. So that's the first assessors of our strategy, and it's the one that we've been really investing most of our time in. Secondly, we have a group of people always thinking about new products or how to actually bring very innovative digital products from other countries to Colombia, and we have a group of people working on that. It's not that simple. We don't tend to go out and buy fintechs or buy initiatives of other people who try to develop in-house through our digital labs. And then thirdly, we're working very hard on putting together ecosystems. And there are 3 that obviously it's not that we came up with the ideas. The ideas have -- people -- other people in the world have come up with them. But we are close to launching, for example, a mobility ecosystem that includes a website for buying and selling automobiles, together with our vehicle loan product, together with insurance, et cetera, et cetera. We're thinking about others, real estate and employment digital ecosystem. So our strategy, we're very focused, and that's what…

[Operator Instructions] Our next question on the line comes from Yuri Fernandes from JPMorgan.

I have the first one regarding our credit card strategy. I was checking the data on regulator in Colombia. And it seems, of all banks, have been losing a little bit of market share over the years. And I know the message you have given the market is that you are more risk averse, more disciplined on capital. But just to have some color here, like what's the view of the bank here? Do you plan to recover market share, grow faster? How do you plan to achieve that, if that's the case? So I guess, this is somewhat related to the digital clients question, right, because it's a matter of number of clients, it's a matter of the limit you want to know the risk-taking the bank wants to take. So just an overview on the credit card because I know it's a pretty important business line. And my second question is regarding a more broader strategy of the different branches of banks. How do you see those different banks now with a more digital world where maybe branches, they are not as relevant? Like does -- the very recurring questions we used to see in the past for about, when should we see the banks consolidating in the same branch? Is that possible? Is that something you are thinking more clearly now? Or still you think there are advantages of having different branches today?

Okay. I think you have 2 different types of questions regarding credit cards, let me break it down into pieces. But I would say that the overarching thought is we are basically taking care of the riskier segments. Therefore, that has affected the credit card penetration. We did that very fast from the very beginning of the pandemic. And that was part of what helped us stop some of the deterioration by basically reacting pretty fast in the riskier products. So if you think of what you will see in Central America, particularly that was a strategic decision of trying to concentrate into the safest segments, and that did affect the credit card business. Then the other piece that has to do specifically with Aval is, following on Luis Carlos' comment on the number of users that you see in digital. We are actually also pruning those credit cards that are unused and actually looking into trying to find what the actual number of truly active customers looks like. And that's not only credit cards, but throughout what we're looking into. So that also ties to the actual numbers being reported. And finally, I think there's something that goes beyond Aval, and it has to do with how the economy is behaving. And there's a very close correlation between lockdowns and usage of credit cards. What we've seen is the number of transactions actually increasing in some cases, but the price tag of purchases falling, just because people are not going out into the shopping centers. People are not taking vacations, people are not using those kind of higher ticket items that they used to consume in the past. So when you look at the market as a whole, you also see a contraction in the market as a whole,…

[Operator Instructions] At this time, I see we have no further questions. I will now return the call to Mr. Sarmiento for closing remarks.

All right. As always, guys, thank you very much for your attendance. Thank you for your attention. Thank you for the questions. And nothing remains to be said except that we hope to keep delivering. We hope that 2021 will, in fact, materialize into a better year for humanity and for Colombia and for our banks. And we'll see you in the next call.

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