Welcome to Grupo Aval's First Quarter 2023 Consolidated Results Conference Call. My name is Sherly and I will 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 SEC. As such, it is subject to compliance with securities regulations in Colombia and applicable U.S. Securities Regulation. Grupo Aval is also subject to the inspection and supervision of the superintendency of finance as a 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-IFRS 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 may differ materially from those anticipated herein as consequence of changes in general, economic and business conditions, changes in interest in 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 the use of the information provided here in. Matters described in this presentation and our knowledge of those 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 1,000s of millions. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. I will now turn the call over to Mr. Luis Carlos Sarmiento Gutierrez, Chief Executive Officer. Mr. Luis Carlos Sarmiento Gutierrez, you may begin.

Good morning and thank you all for joining our first quarter 2023 conference call. This first quarter confirmed our estimation of the economy slow down in a scenario where inflation has been resilient and only started to subside in April and consequently the Central Bank applied another 25 basis points increase to its repo rate. However, because inflation and GDP growth have been in line with the Central Bank's estimates, this last rate increase should be the last one. And depending on inflation for the remainder of the year, we should start to see slight rate decreases. Additionally, bank's costs of funds continued to rise, but it finally shown signs of tapering off. Although GDP grew 3% in the quarter compared to the same quarter last year, it is the consensus of economic analysts that this will be the highest growth quarter of 2023 especially because those sectors that were pushing economic growth will not contribute much during the remainder of 2023. With what I just mentioned as background, I will provide a slightly more in-depth overview of Colombia's macro scenario. I will then give a quick update of our digital efforts, and we'll end with an overview of our financial performance during the quarter. So moving on to the macro environment, although monetary policies have started to slightly lower inflation in the major economies globally, the outlook for the world economy has not changed much. Even though it is expected that most Central Banks are close to the end of this reactionary monetary cycle, policy continues to be restrictive and economies are growing moderately. Because the outlook for some regions of the world have slightly improved in recent months and its latest forecast to review, the International Monetary Fund expects that global growth will bottom out at 2.8% in…

Thank you, Luis Carlos. Beginning on Page 6, assets grew 1.1% during the quarter and 14.5% over the year. Over the quarter, our mix increased in cash and decreased in net loans. Moving to Page 7, we present the evolution of our loans. Gross loans grew 1.2% during the quarter and 16.6% over the year. Higher interest rates the slowdown in economic activity and a lower macro outlook drove the software quarterly growth. In addition, since the fourth quarter of last year, our banks have reduced their appetite for riskier consumer products. Commercial loan growth which 1.3% over the quarter and 16.6% over 12 months, consumer loans grew 1.3% over the quarter and 15.8% year-on-year. Federal loans are our largest consumer lending product with 55.4% of the total, followed by personal loans and credit cards with 23.2% and 12% respectively. Auto loans represent 9% for consumer book. Payroll also grew 0.2% over the quarter adding 8.1% for 12 months, personal loans at the strongest dynamism growing at 4.1% during the quarter and to be 4.1% year-on-year. Credit cards and automobile loans grew 2.4% and 0.3% over the quarter taking annual growth to 21.2% and 19.3% respectively. Finally, mortgages grew 0.8% over the quarter and 20.1% year-on-year. Loan growth is expected to remain soft across products and segments in line with the Central Bank's policy and software local and global economic outlook. On Pages 8 and 9, we present several loan portfolio quality ratios. The quality of our loan portfolios, remain relatively stable measured by stages. However, PDL metrics, particularly and 30-day horizons, started to deteriorate consistent with a substantial increase in interest rates and a weaker macro environment. Our overall mix by stages had divergent performances across loan categories. Commercial loans improved while retail loans deteriorated. However, the wait on…

Thank you. [Operator Instructions] Your first question is from Juan Recalde of Scotiabank. Please go ahead. Your line is open.

Hello, good morning and thank you for taking my question. My question is - my first question is related to the non-financial sector income, which was particularly strong in - energy and gas and also the infrastructure. So my question is how sustainable are these levels? And how do you see these lines going forward?

Well one, we are maintaining our annual guidance of 70% of what we had last year. You're right, this was a particularly strong quarter, but we are not moving the overall year guidance.

Your next question is from [Nicolas Rivia] of Bank of America. Please go ahead. Your line is open.

Thanks very much. Diego and Luis Carlos for taking my questions. My first question is on your double leverage ratio for the Holdco which I see is now at 127%. For memory, I believe that the threshold for the rating agencies to make more differences between the Holdco and [indiscernible] terms of ratings would be 120%, so you would be above that level. And I wanted to ask if you're considering any actions to reduce double leverage at the holding company? And if there are any plans to buy back some of your 20, 30 bonds as they are trading in the 70s? And then the second question, a few other Colombian banks have mentioned in the first quarter earnings call. Some pressures on net interest margins specifically coming besides higher interest rates, but also coming from the implementation of the net stable funding ratio in Colombia's banks for long term liabilities. If you can comment on the impact on your banks from implementation of the net stable fund duration, Colombia? Thanks very much.

Okay. Regarding double leverage, you're right, we're targeting to get back into 120. Getting back into 120 incorporates a couple of things. One is a buildup of equity through net income. And the other part that could affect the double leverage is, we have an 81 that has its whole period coming in a couple of years. So this kind of events should help us speed up the process of getting it back into 120, but you're absolutely right. We target 120, and we believe we can get there in the short or medium term. Regarding buying back bonds, we will look into those kind of opportunities however we have to bear in mind that the liquidity of those bonds is quite slim. So if at any time we decide to try to buy back any substantial amount, we will make that information public. And then finally to your question on the net stable funding ratio, you're absolutely on the spot. It has distorted the cost of funds in a very substantial way. There is two sorts of distortions. One was a short term distortion that came from building up an unusual crisis, particularly of time deposits through last quarter of last year and first quarter of this year. I mentioned it on the call, it went up to around 450 basis points this portion in the price of time deposits and it also forced us to increase the percentage of time deposits in our deposit mix. Deposits are roughly 70% of our total funding and time deposits used to be around one-third of our mix of deposits and it grew up to a short of 50%. So you can imagine that overpriced time deposits that became heavier in the mix are a big explanation of what we've been looking…

Your next question is from Daniel Mora from Credicorp Capital. Please go ahead. Your line is open.

Hi. Good morning. And thank you for the presentation. I have three questions, if I may. The first one is regarding asset quality indicators. I will let to know for you, what do you expect to be -- when do you expect to be the pick in asset quality deterioration given the increase in NPLs that we have been observing in recent quarters? And also if do you feel that this cycle of deterioration will have an impact also in 2024 and if you feel comfortable with the current coverage ratio, that will be my first question. The first one is regarding margins. Can you provide further color of what will be the performance of each bank of about in the coming quarters? We have the performance of Villas and Popular but also of Banco de Occidente, we're going to different performances in the coming quarters. And the third one is regarding profitability. What do you expect to be the long term target profitability and what are the key indicators to reach to that figure in terms of margins, cost of risk, loan growth? Thank you so much.

Okay. That's a - that's several questions. So regarding quality, when should we pick, we are expecting this to happen either during this current quarter, second quarter or into next quarter. That is consistent with our expectation of GDP growth of 1% to 1.5%. So regarding the part B of your question, will this affect 2024? It is very much related to what happens with GDP growth in the remainder of this year. To put in context why we think that these quarters could be those where we're picking is, a lot of what we're seeing going tower has to do with vintages that were given out particularly of personal loans. August through roughly October last year, so a lot of that has already entered the cycle of 30 days and passing to 90 days in this process. So that's the reason why we believe this to be a short lived cycle if the economy behaves as expected. Then regarding current coverage, once we move it into IFRS in 2015, we don't really think about coverage as a target. It's rather the way mechanically you have to provision for different stages of loans. And then inside stages, you also have different probabilities or expected losses. So the coverage mainly reflects the profile of the loans that you have in each one of the banks. So banks that have shorter maturities and less expected loss end up with lower coverages. Then moving into margin of banks, we do not have that guidance handy. I can give you more of a conceptual view of what we expect. When you look into the banks that are more retail oriented, more present in retail products that are fixed rate, those are taking a much stronger hit of the cost of funds cycle. So you're on the spot. Those are a Popular and Villas. That conflicts with what happens with the more commercial lending banks such as Banco de Bogotá, Banco de Occidente. Those banks will recover much faster because they've heard that - at time with what I mentioned regarding the very high time deposits that we had to pay to adjustment to the net stable funding ratio. But they have a substantial floating rate portfolio that benefits from higher rates. So those are like the two different buckets of banks that we have. Then you also asked for a profitability in long term. We're basically expecting to go back to 15%. Going back to 15% takes basically two things into account. Number one, to see margins approaching not necessarily meeting pre-cycle levels. What we're looking into is around the 200 basis points distortion at this point and we expect to see that recovering in the following quarters. The other indicator that also plays there is as you are asking your first question to see the quality of the portfolio basically going back to more normal levels around next year.

There are no further questions at this time. I will now turn the call over to Mr. Sarmiento for closing remarks.

Thank you so much, Sheryl. Thank you all for attending the call. We have an interesting year in front of us. We'll be very watchful of all the reforms that are being passed. In Congress, that will probably take - will have a direct effect on the banking business, on the pension fund business. And other businesses outside the banking world that up, but they do have consequences for the banking world such as their health reform. On the other hand, we are optimistic with inflation having peaked and with the Central Bank rates having peaked. And as Diego was saying that should immediately start relieving net interest margins for our consumer oriented banks in the sense that the cost of funds will probably taper off. And at the same time, there are longer - the longer it takes for the consumer fixed rate portfolios to reprice, will be compensated by the relief in the rates they get. The commercial banks keep doing well. The pension fund administrator has done very well this first quarter. And if Diego was saying, we haven't changed our guidance regarding our Corficolombiana, which is something like 70% of the net income they produced last year. With all that in mind, we do expect to hit our ROE targets for this year and return gradually to the 15% target. With that, I thank you all for joining our call, and we'll see you next quarter. Thank you so much.

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