Grupo Aval Acciones y Valores Q1 2025 Earnings Results & Report

Grupo Aval Acciones y Valores EPS Results

• Actual EPS: $0.07
• Consensus EPS: $0.10
• Beat/Miss: Missed by -$0.03
• One Year Ago EPS: N/A
• EPS Beat Rate: 2 of last 8 quarters

Grupo Aval Acciones y Valores Revenue Results

• Actual Revenue: $1.06 billion
• Expected Revenue: $1.03 billion
• Beat/Miss: Beat by +$26.79 million
• YoY Revenue Growth: N/A

Grupo Aval Acciones y Valores (NYSE:AVAL) is a Colombian financial holding company with interests spanning commercial banking, investment banking, asset management and other financial services. Through its subsidiaries and affiliated companies, the group serves individuals, businesses and institutional clients with products such as deposits, loans, payment services, trust and fiduciary services, brokerage, pension and severance fund administration, and investment banking.

Its principal Colombian banking operations include Banco de Bogotá, Banco de Occidente and Banco Popular. Grupo Aval also owns or controls interests in Corporación Financiera Colombiana (Corficolombiana), which provides investment banking services and invests in infrastructure, energy, transportation and other sectors. Its broader financial-services platform includes Porvenir, a Colombian pension and severance fund administrator.

Grupo Aval’s operations are concentrated in Colombia, with additional exposure to Central America through its interest in BAC Credomatic and related businesses. The company was established in 1994 and is associated with the Sarmiento group. Grupo Aval is led by Luis Carlos Sarmiento Gutiérrez, who serves as its chief executive officer.

Grupo Aval Acciones y Valores Q1 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Net income rose sharply to COP 362 billion, up 28% quarter over quarter and 3.2 times year-ago levels, supported by improving core banking trends, controlled operating expenses, and stronger Corficolombiana contributions.
• Positive Sentiment: Grupo Aval gained market share, reaching 25.3% of total loans and a record 16.6% of mortgages. Loan quality improved across major categories, with 90-day past-due loan formation at its lowest level in two years.
• Neutral Sentiment: Management lowered its 2025 outlook modestly, now targeting roughly 9% loan growth and a 10%-11% return on equity, as slower-than-expected rate cuts and aggressive corporate-loan pricing pressure net interest margins.
• Positive Sentiment: The company expects 2025 cost of risk to improve to approximately 1.95%, while efficiency initiatives, fee-generation efforts, retail funding growth, and centralized support functions are intended to support profitability.
• Negative Sentiment: Colombia’s deteriorating fiscal outlook, political uncertainty, possible credit-rating downgrades, volatile local fixed-income markets, and potential global trade disruptions remain significant risks to interest rates, investment returns, and Grupo Aval’s earnings.

Presentation

[Operator]

Welcome to Grupo Aval's first quarter 2025 consolidated results conference call. My name is Rob and I will be your operator for today's call. Grupo Aval Acciones y Valores S.A. is an issuer of securities in Colombia and in the U.S. 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 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. Unconsolidated financial information of our subsidiaries in the Colombian banking system are presented in accordance with the Colombian IFRS, as reported by the Superintendency of Finance. Details of the calculations of non-IFRS measures such as ROAA and ROAE, among others, are explained when required in this report.

[Operator]

This report includes forward-looking statements. In some cases, you may 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.

[Operator]

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 other figures included herein are intended to provide a summary of the subjects discussed rather than a comprehensive description. When applicable in this document, we will refer to billions as thousands of millions. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. With us today are Ms. María Lorena Gutiérrez Botero, Chief Executive Officer, Mr. Diego Solano, Chief Financial Officer, Mrs. Paula Durán, Corporate VP of Sustainability and Strategic Projects, and Mr. Camilo Pérez, Banco de Bogotá's Chief Economist. I will now turn the call over to Ms. María Lorena Gutiérrez Botero, Chief Executive Officer.

[Operator]

Ms. María Lorena Gutiérrez, you may begin.

[María Lorena Gutiérrez Botero, CEO at Grupo Aval Acciones y Valores]

Thank you very much. Good morning, everyone, and thank you for joining us for our first quarter 2025 conference call. I am here with Diego Solano, our CFO, Camilo Pérez, Chief Economist of Banco de Bogotá, and Paula Durán, Corporate VP of Sustainability and Strategic Projects. I would like to start by highlighting this quarter's results. Our net income was COP 362 billion, a 28% increase compared to the fourth quarter of 2024, and 3.2 times that of the first quarter of 2024. We gained market share in deposits and loans, reaching a 25.3% share in loans and reaching 16.6% in mortgages, the highest level of our history. Core business trends evolved positively during the quarter, despite a persistent high interest rate environment and a poor performance of the capital markets during March. NIM on loans increased slightly during the quarter.

[María Lorena Gutiérrez Botero, CEO at Grupo Aval Acciones y Valores]

NIM on investment recovered as quality continued improving. Our non-financial sector was stronger than in the three previous quarters, and OpEx remained under control. During the quarter, NIM on retail loans of our banking services segment reached the highest level in two years. However, total NIM on loans remained flat due to pressures on commercial loans from a strong price competition in the corporate segment.

[María Lorena Gutiérrez Botero, CEO at Grupo Aval Acciones y Valores]

Even though our profitability continues to increase, the pace of improvement was slightly slower than initially anticipated, explained by a lower than expected NIM on investments due to the poor performance of local fixed income. A deterioration of the country's fiscal outlook and the resignation of the Minister of Finance affected the local markets during the second half of the quarter. This was clear in Porvenir's results for the quarter. Returns on Porvenir stabilization reserves were suffered during the last part of the quarter, negatively impacting profitability.

[María Lorena Gutiérrez Botero, CEO at Grupo Aval Acciones y Valores]

Corficolombiana contributes strongly due to seasonal deals, higher income from the infrastructure sector, and a reducing cost of funds which reached single digits in the quarter. Now moving on to our corporate priorities. I would like to give you a brief update. First, customer experience. In terms of customer experience, we systematically measure the Net Promoter Score, NPS, across all of our entities to assess customer satisfaction and loyalty. The consistent improvement in NPS results reflects our strong commitment to enhancing customer journeys. As part of this effort, we have implemented a comprehensive loyalty program that includes Aval Experiences, which provides customers with privileged access to events and concerts. Additionally, we have developed Augusta, a robust and integrated customer database that enables us to gain deeper insights into our clients' relationships across our entities and to serve them with great precision and relevance.

[María Lorena Gutiérrez Botero, CEO at Grupo Aval Acciones y Valores]

This year, we established a groupwide committee to promote the change of best practices in customer experience across our entities. As key steps in this effort, we are reviewing our entire voice of the customer model and standardizing Net Promoter Score or NPS measurements in line with the highest industry standards. Additionally, we will launch a comprehensive internal program to further embed a customer-centric culture throughout our entities, which includes a key training session, a strategic communication content, and technological tools. Second, financial diversification. On this front, we have been working over recent quarters in three fronts. First, improve our commercial and marketing capabilities around retail deposits. Second, reduce balance sheet sensitivity to interest rate risk volatility. And third, improve our non-banking fee generation capabilities. As part of our focus on increasing our share of retail funding, we have made changes in the incentive structure of our sales forces.

[María Lorena Gutiérrez Botero, CEO at Grupo Aval Acciones y Valores]

In addition, we are reviewing our product base to strengthen our value proposition for retail customers. In addition, our banks, particularly those focused on retail lending, continue deploying these efforts to reduce their sensitivity to interest rate risk. First, they have increased the mix of the time deposits in their overall funding mix. Second, increasing the tenures of new time deposits to lever closer to the duration of their loans. Third, using hedging strategies to swap fixed rate time deposits to IBR. The spirit deployment of this strategy has been mindful of the persistence of the higher for longer interest rate environment in Colombia. We continue strengthening our services offering and non-banking fee generation by improving our asset management and advisory services. As mentioned in our last call, Aval acquired the cession of [Corfic trust] and brokers business.

[María Lorena Gutiérrez Botero, CEO at Grupo Aval Acciones y Valores]

In addition, we incorporate Aval Banca de Inversión investment banking as a joint effort of the holding company and group. Third, synergies and efficiencies. During the quarter, we set ourselves to capture efficiencies in the following calendar year. The first wave of synergies will leverage on the centralization through Aval Valor Compartido of the group's procurement, facility, and property management, accounting function, cybersecurity, payroll, and recruitment. During the first quarter, we successfully migrated Banco de Bogotá's processes into Aval Valor Compartido. Next semester, we will migrate these processes to Banco de Occidente, Banco Popular and Banco AV Villas. Four, digital transformation and innovation. We aim to consolidate our culture of innovation and modern technology, capitalizing on the benefits of artificial intelligence, assuring technological stability and security, and promoting digital transformation to improve our business and product and service offerings.

[María Lorena Gutiérrez Botero, CEO at Grupo Aval Acciones y Valores]

On this front, I am proud to announce we've partnered with Microsoft to boost the usage of artificial intelligence in our everyday operations. This will leverage customer experience, operational efficiency, and enhance data-driven decision making. We actively support the real-time payment system led by Banco de la República, achieving significant progress in the creation and use of our alphanumeric key known as Tag Aval. As of today, we have enabled 8.9 million keys, an increase of 15% since December of last year, to receive near real-time transfer from other financial institutions. This has facilitated over 2.1 million transactions, a 70% increase compared to January. Fifth, corporate culture.

[María Lorena Gutiérrez Botero, CEO at Grupo Aval Acciones y Valores]

To support the strategic priorities that I have mentioned, we continue to strengthen our performance and customer-oriented culture. As part of this process, we have been working on promoting and improving the communication of our leadership across business units and throughout our organization around our strategic priorities as a group and key initiatives. In addition, we are advancing the process of refreshing part of the leadership teams and our banks, combining bringing in new talent that adds to existing leaders. These changes, combined with the refreshment of our board of directors and CEOs of our main business units, support alignment of our management teams to the new opportunities and challenges that we face. Finally, sustainability. We recently published our Management and Sustainability Report, a document that reflects our economic results and progress in ESG terms.

[María Lorena Gutiérrez Botero, CEO at Grupo Aval Acciones y Valores]

It reveals the impact we have on the millions of people who count on our endorsement to fulfill their dreams. I invite you to read it, if you have not already done so. The coming months will be key to consolidate an even more robust ESG strategy, aligned with the sustainability challenges facing the country and the world. Now, I would like to invite Paula to go over our ESG achievements to review this quarter.

[Paula Durán, Corporate VP of Sustainability and Strategic Projects at Grupo Aval Acciones y Valores]

Thank you, María Lorena. This quarter, we proudly received the results of the Merco ESG ranking, which recognizes the companies with the best reputation for their ESG impact in Colombia. In the ranking, Grupo Aval rose to 31st place, climbing 17 positions and positioning itself as the third largest business conglomerate in the country. In the financial sector, Banco de Bogotá ranked third, Banco Finandina and Banco de Occidente were in the top 10. Corficolombiana ranked eighth, and Porvenir reached second place in the AFP sector.

[Paula Durán, Corporate VP of Sustainability and Strategic Projects at Grupo Aval Acciones y Valores]

One of our most significant social initiatives, Misión La Guajira, advanced this quarter with registration and documentation programs with the National Registry Office and with financial education programs. During the quarter, we completed water solutions for 45 communities and energy solutions for 81 communities in Manaure and Uribia. Our commitment to diversity and inclusion continues to be an important driver for us.

[Paula Durán, Corporate VP of Sustainability and Strategic Projects at Grupo Aval Acciones y Valores]

Today, 35% of our management positions are held by women, and 55% of our employees are women. The percentage of women's participation in our boards increased from 24%-31% after the Q1 assemblies in which boards were elected. In addition, the percentage of independent members increased from 58%-60%. Regarding our progress in environmental issues, we continue to define our decarbonization route together with the group's entities, and we continue to implement eco-efficient projects such as the Banco Popular alliance with Celsia to generate solar energy for 13 of its franchisees. This initiative will allow them to generate more than 570,000 kW per year and avoid the emission of close to 300 tons of CO2. Finally, during the quarter, we enhanced our ESG management model by developing a comprehensive reporting system that enabled us to establish a baseline for more than 150 indicators across our entities.

[Paula Durán, Corporate VP of Sustainability and Strategic Projects at Grupo Aval Acciones y Valores]

This foundation has allowed us to build dynamic dashboards to track progress in the key ESG areas. We firmly believe that by working together with our entities, sharing best practices, and monitoring progress, we can amplify the impact of our efforts and drive meaningful, measurable change. We will continue to strengthen our internal capabilities, advance our environmental goals, deepen our social impact programs, and more accurately measure the value we generate. Thank you.

[María Lorena Gutiérrez Botero, CEO at Grupo Aval Acciones y Valores]

Thank you, Paula. Now, the market highlights, as we mentioned, some relevant issues during this quarter. The Colombian economy posts strong growth figures during the first quarter, driven by the public administration, entertainment, and commerce sectors. For 2025, we forecast a GDP growth of 2.7%. We anticipate moderation in the following quarters due to the potential negative effect of tariffs on global trade. Thus, despite the recovery, global and local uncertainty will continue to take a toll on investments. Annual inflation slowed to 5.09% in March 2025, down from 5.2% at the end of 2024, marking its lowest level since October 2021. This is a positive development, indicating that the central bank's efforts to stabilize prices are yielding results. However, regulated companies and food prices continue pressuring inflation. Our forecast for inflation is 4.7% for the end of the year.

[María Lorena Gutiérrez Botero, CEO at Grupo Aval Acciones y Valores]

In this context, the central bank cut its policy rate by 25 basis points in its April meeting, balancing between the recovery of the economy and fiscal challenges. The deterioration of the fiscal front remains the main stopper for a more dovish central bank. We expect the central bank rate to end 2025 in 8.5%. The fiscal deficits for this year will exceed 60% of GDP above the government target of 5.1%. Confidence in the government's fiscal adjustment plan has diminished amid high global uncertainty. We anticipate that pressure on long-term rates will continue in the coming months. Our belief is that the business sector must remain dedicated to executing their investment and strategies. As we enter the pre-electoral year, noise will continue to increase. However, we are confident in the resilience of the Colombian economy. Camilo will elaborate on our economic outlook. Camilo?

[Camilo Pérez, Chief Economist at Banco de Bogotá]

Thank you, María Lorena. Good morning. The improving trend the Colombian economy recorded in 2024 extended into early 2025. We estimate economic growth of 2.8% for the first quarter. The economy will have experienced its highest annual expansion since mid-2022. Similar to the beginning of 2024, public spending and household consumption were the main drivers. According to the Autonomous Committee for the Fiscal Rule, in the first quarter, public spending grew 21% annually, supporting the recovery phase. In fact, the best performing sector was public administration. On the other hand, the second most dynamic sector was trade, transportation, accommodation, and food services, explained by higher price and consumption of both goods and services.

[Camilo Pérez, Chief Economist at Banco de Bogotá]

Without a doubt, the strength of the labor market, which at the end of the quarter recorded the lowest unemployment rate since May 2016 at 9.1%, has been one of the major drivers of the government increased purchasing power. Furthermore, annual growth of 24% in remittances in pesos during the first quarter also contributed to this. In this context, sectors such as manufacturing, finance, and professional services also enjoyed an increase in their activity. Meanwhile, investment continued a modest recovery, supported by an increase in imported of capital goods for industry and agriculture, as well as the execution of infrastructure projects in the country's main cities. Thus, amid favorable domestic demand, but recognizing latent risks in the international front, growth of around 2.7% is expected for 2025, still below the country's potential.

[Camilo Pérez, Chief Economist at Banco de Bogotá]

For its part, the inflationary process paused in the first quarter, dropping from an inflation rate of 5.2% at the end of 2024 to 5.1% in March. The high indexation and the impact of the minimum wage on services, the increase in gas rates that pressure regulated prices, a slow but progressive transmission of the devaluation to prices of goods, and a modest increase in food services explain the above. Inflation is expected to be around 4.7% by the end of 2025, once again, outside the target range established by the central bank. Amid the described economic outlook and accompanied by a deterioration of Colombia's country risk due to a complex fiscal situation, the central bank paused its easing cycle, leaving the interest rate by 9.50%. New members appointed to the central bank's board in February with an orthodox view of the economy have added uncertainty to the decisions.

[Camilo Pérez, Chief Economist at Banco de Bogotá]

In April, an ample consensus expected a third stability decision, but the board unanimously opted to reduce the interest rate to 9.25%. Data dependence makes it difficult to forecast the interest rate. Despite this, it is expected to continue declining to around 8.50% at the end of the year, limited in part by a fiscal situation. Regarding the exchange rate, in line with global developments and prior to the burst of uncertainty, the Colombian peso has strengthened against the U.S. dollar in the first quarter. Compared to the end of 2024, while the dollar lost 4% against G7 currencies to March, the devaluation against the Colombian peso was 5%, as the exchange rate fell from COP 4,405 to COP 4,181 per dollar. However, the Colombian peso's performance was mixed.

[Camilo Pérez, Chief Economist at Banco de Bogotá]

Standard & Poor's ratification of the country's BB+ rating with a negative outlook and the upward adjustment of the rate expectations by the central bank supported the currency, with the exchange rate hitting a low of COP 4,060 in mid-February. However, the deterioration in fiscal outlook following the publication of the government's financial plan questioned the compliance with the fiscal rule in 2024 and put upward pressure on the currency. By 2025, the exchange rate is expected to average COP 4,300 against the dollar amid high global volatility, a challenging fiscal balance, and a widening of Colombia's external deficit. Indeed, we expect the current account deficit to fall from -1.8% of GDP in 2024 to -2.6% of GDP in 2025 due to a stronger recovery in imports than exports, both of goods and services, where the terms of trade will be affected by lower commodity prices.

[Camilo Pérez, Chief Economist at Banco de Bogotá]

Finally, the fiscal situation in 2025 does not appear far removed from that observed the previous year. In the first quarter, spending far exceeded revenue, resulting in record fiscal deficits and low cash flow levels. Unfortunately, the strategy for increased tax collection is not entirely clear, and the option of cutting spending has been postponed to a point where if it takes place, it could be insufficient and too late. Given the scenario, considering that the three major rating agencies, Fitch, Standard & Poor's, and Moody's, have a negative outlook for the country, the likelihood of a rating downgrade is increasingly likely. Thank you. Back to you, María Lorena.

[María Lorena Gutiérrez Botero, CEO at Grupo Aval Acciones y Valores]

Thank you, Camilo. Since our last call, we have continued to see positive trends in the consumer credit cycle, which have translated to lower cost of risk in the system and high profitability in the Colombian financial system. As of February, seven out of 29 banks accumulated net losses compared with 12 banks on February 2024. Although the system's profitability has improved, there is still a long way to go even more so as they incorporate during the first and second quarters of 2024 the reconstitution of countercycles provision that were released during 2023 and 2024. However, the system has sufficient solvency to absorb these cycles. Now, I would like to pass the call to Diego, who will give details of our results. Diego?

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

Thank you, María Lorena.

[María Lorena Gutiérrez Botero, CEO at Grupo Aval Acciones y Valores]

Yes.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

I will start on pages nine and 10 with a few charts showing the growth rate and quality of our loan portfolio relative to the rest of the Colombian banking system. For comparability reasons, these are unconsolidated figures under Colombian IFRS as published by the Superintendency of Finance of Colombia. For the 12 months ending in February 2025, commercial loans and mortgages for the system grew 0.5% and 3.4% in real terms, with consumer loans contracting 10.4% in real terms. We continue to outgrow our competitors in total loans and retail loans and have grown slightly slower in commercial loans. This yielded year-on-year market share gains of 32 basis points in total loans, 156 basis points in consumer loans, and 199 basis points in mortgages, while our share of commercial loans fell 48 basis points. Over the last three months, loans grew 1% in the system.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

Even though dynamics continued to show signs of recovery, real growth was weak, considering the 2.6% partly inflation. Mortgages grew 3% and commercial loans 1.4% in nominal terms over the quarter, while consumer loans contracted 0.9%. On page 10, loan quality for both the system and the Aval banks showed an improvement during the quarter for all loan categories. Our banks continue to exhibit better loan portfolio quality than the system in all main categories. I will now move to the consolidated results of Grupo Aval under IFRS. On page 11, assets grew 7.5% over the year and 0.6% over the quarter to COP 330 trillion. Gross loans, our main asset, reached COP 199 trillion, growing 5.4% year-on-year and decreasing 0.2% over the quarter. Mortgages and consumer loans drove our year-on-year growth.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

Aggressive pricing competition for corporate clients remained the main challenge to achieve stronger growth in commercial loans. This has taken a toll on our share of commercial loans considering our pricing discipline. Commercial loans expanded 3.6% year-on-year and contracted 1.8% over the quarter. Consumer loans grew 3.9% year-on-year and 0.7% during the quarter, with payroll loans growth continuing to recover, increasing 5.8% year-on-year and 1.6% during the quarter. Auto loans grew 7.7% year-on-year and contracted 1.2% during the quarter. Personal loans grew 3% year-on-year and 1.4% during the quarter. Credit cards contracted 5.8% year-on-year and 3.1% during the quarter. Finally, mortgages grew 22% year-on-year and 4.2% during the quarter. With that, our 2025 loan growth to be slightly lower than formerly estimated, in line with a tighter monetary policy and more volatile local and global environments.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

On page 12, we present the evolution of funding and deposits. Total funding increased 8.3% year-on-year and 1% during the quarter. Deposits that account for 75% of our funding grew 9.8% year-on-year and 3.5% quarter-on-quarter. Our deposits to net loans ratio closed at 109%. On page 13, we present the evolution of our total capitalization, our attributable shareholders' equity, and the capital and equity ratio of our banks. Our total equity decreased 1.6% over the quarter and increased 5% year-on-year. Our attributable equity decreased 1.6% over the quarter and increased 4.4% year-on-year. Dividends of COP 655 billion were declared to our shareholders during the quarter. In addition, minorities at our subsidiary level received dividends of COP 693 billion. Banco de Bogotá and Banco de Occidente declared dividends during the quarter.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

On page 14, we present our yield on loans, cost of funds, spreads, and NIMs. Total NIM increased 64 basis points to 3.5% quarter-on-quarter, mainly driven by an improvement in NIM investments to a still soft 0.3%. Our consolidated NIM on loans expanded 12 basis points year-on-year to 4.4% and was flat for the quarter. Over the year, NIM on retail loans expanded 96 basis points to 5.8%, and NIM on commercial loans decreased by 51 basis points to 3.4%. Over the quarter, NIM on retail loans expanded 19 basis points, and NIM on commercial loans contracted 14 basis points. Aggressive price competition on commercial loans, especially in the corporate segment, continued to press our NIM on commercial loans down. The benchmark rate for Colombia was last at 9.5% during the first quarter.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

However, as mentioned by Camilo, the central bank unanimously cut its rate by a quarter to 9.25% in its April meeting. Focusing on the banking segment, NIM loans of our banking segment was materially stable over the quarter at 4.9%. This incorporates a 7 basis points increase in NIM on retail loans to 6.4% and 13 basis points decrease in NIM on commercial loans to 3.9%. The total NIM of our banking segment expanded 53 basis points for the quarter to 4.2% due to the same dynamics that affected our consolidated NIM. On a consolidated basis, the average yield on loans for the quarter decreased 38 basis points over the three-month period to 11.6%, while the average three-month IBR decreased 5 basis points to 9.3%.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

Consolidated cost of funds fell 37 basis points quarter-on-quarter to 6.8%. Average rates on time deposits and saving accounts fell 43 basis points and 52 basis points quarterly, respectively. The modest reduction pace of the central bank implies a longer adjustment period to that initially anticipated. In this scenario, our NIM will continue to expand, though at a lower pace. On page 15 to 16, we present several loan portfolio quality ratios. Starting on page 15. PDL metrics continue to improve in all categories. 30-day PDLs were 5.18%, a 13 basis points improvement over three months and 68 basis points improvement over 12 months. 90-day PDLs were 3.74%, a 26 basis points improvement relative to the last quarter and 41 basis points improvement over 12 months.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

Commercial 30-day PDLs were 4.79%, a 16 basis point improvement over three months, and 31 basis points improvement year-on-year. 90-day PDLs were 4.06%, a 37 basis points improvement over the quarter. 90-day PDL formation reached the lowest level of the last two years and continues to show a positive trend. 30-day PDL formation for the quarter was the lowest for a first quarter since 2022. We recorded a 14 basis points decrease in consumer 30-day PDLs to 5.46% and 90-day PDLs decreased 10 basis points to 3.14%. Mortgages, 30-day PDLs and 90-day PDLs decreased 2 basis points and 14 basis points, respectively. Finally, the ratio of charge-offs to average 90-day PDLs was 0.88x.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

On page 16, the share of our portfolio classified as Stage 1 remains stable at 88.5%, while Stage 3 fell slightly over the quarter to 6.3%, driven by commercial and consumer loans. During the quarter, we reclassified a portion of Stage 1 commercial loans to Stage 2 due to an increase in expected credit loss following rating updates that incorporated these companies' 2024 financial performance information. As a result, coverage measured as allowances for Stage 2 and 3 as a percentage of Stage 2 and 3 loans slightly fell during the quarter to 33.3%. On page 17, cost of risk net of recoveries increased 21 basis points to 2%. We expect 2025 cost of risk to be slightly below this level.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

Cost of risk net for commercial loans increased by 50 basis points to 0.9% for the quarter, reflecting the reclassification to Stage 2 previously described. Cost of risk for consumer loans improved 32 basis points to 4.5%. The cost of risk for credit cards and other loans improved quarter-on-quarter, falling 89 basis points to 6.1% and 75 basis points to 3%, respectively. On page 18, we present NIM, net fees, and other income. Gross fee income grew 6.2% year-on-year and 0.6% quarter-on-quarter. Net fee income increased 0.9% and decreased 1%, respectively, over these time periods.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

Net pension and severance fees grew 9.1% for the quarter, mainly due to higher performance-based fees and higher collection of mandatory contributions related to the increase in minimum wage at the beginning of the year. Annual gross banking fees grew 1.4%. This incorporates 3.9% growth of commissions on banking services that was offset by a 2.1% annual decrease in credit cards and debit card fees. Our income for the non-financial sector was around 83% of that reported in the same period for 2024. Finally, at the bottom of the page, the year-on-year increase in other operating income is mainly explained by higher derivatives and FX gains. On page 19, we present time efficiency ratios. Total expenses decreased 5.2% quarter-on-quarter and increased 7.6% year-on-year.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

General administrative expenses decreased 8% quarter-on-quarter and increased 6.7% year-on-year, with operating taxes and deposit insurance accounting for 37% of this category. Cost to assets for the quarter was 2.7%, improving 19 basis points quarter-on-quarter. Our quarterly cost to income improved to 50.8% over the quarter. Finally, on page 20, we present our net income and profitability ratios. Attributable net income for the quarter was COP 362 billion, or COP 15.2 per share, increasing 28.5% relative to fourth quarter 2024 and 3.2 times that for first quarter 2024. Our return on average assets and return on average equity for the quarter were 1% and 8.4%, respectively.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

Before we move into questions and answers, I will now summarize our general guidance for 2025. We expect loan growth in the 9% area, with commercial loans growing in the 7% area and retail loans growing in the 11% area, slightly lower than our previous guidance. Our consolidated NIM in the 4% area, with NIM on loans in the 4.5% area. NIM of our banking segments in the 4.7% area, NIM on loans in the 5.3% area, affected by the central bank intervention rate expectations. Cost of risk net of recoveries at 19.5% area, better than our previous guidance. Cost to assets in the 2.75% area. Income from the non-financial sector of 85% of that for 2024, slightly improving from our previous guidance. Of the income ratio at the 21% area, better than our previous guidance.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

With this, our expectation for 2025 return on equity is expected to be in the 10%-11% range.

[María Lorena Gutiérrez Botero, CEO at Grupo Aval Acciones y Valores]

Thank you, Diego. Before moving into questions and answers, I would like to share some final thoughts of Colombia and Grupo Aval in 2025. The trend of improvement of our net income and return on equity will continue in the upcoming quarters. Despite the challenging economic conditions due to an increasing local and global uncertainty, we are focused on returning to double-digit profitability in 2025. Positive drivers for our results incorporate stable cost of risk, higher operational effectiveness, and a strong free income generation from non-banking segments of operations will contribute positively to the results. The main headwind for a more solid improvement of return on equity continues to be our NIM on loans. The persistently high real interest rate environment has slowed the recovery phase of our NIM on loans. As I mentioned earlier, one of our corporate priorities consists in financial diversifications.

[María Lorena Gutiérrez Botero, CEO at Grupo Aval Acciones y Valores]

Achievement of this goal will allow us to strengthen the mix of our deposits towards low cost and stable funding and reduce the cost of funding, thereby managing the impact of interest rate cycles. A looser monetary policy will support the recovery of NIMs on loans. However, the speed we initially anticipated is no faster than before given the speed at which rates will be cut. In addition, our guidance incorporates a stable spread from commercial loans, which will support the persistent recovery already happening in NIM on retail loans. We are now open to questions. Thank you very much.

[Operator]

Thank you. We will now begin the question-and-answer session. If you have a question, please press star then one on your touch tone phone. If you wish to be removed from the queue, please press star one again. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touch tone phone. Your first question comes from the line of Brian Flores from Citibank. Your line is open.

[Brian Flores, Analyst at Citibank]

Hi, team. Thank you for the opportunity to ask questions. I have two on my side. The first one is a bit on your guidance. From what I understand, the new ROE range is 10%-11%. I think it was closer to 11% in the previous quarter. I just want to understand if this is a correct reading, which is ROE could be weaker than you were expecting in the last quarter. As you mentioned, asset quality is perhaps a bit better than you were anticipating. But then as you mentioned, the key downside risk here seems to be NIM. Should we understand that at some point you need to accelerate in origination to kind of compensate what is happening with pricing? That is the first question. The second one is more on the macro side.

[Brian Flores, Analyst at Citibank]

We know the pension reform starts implementation in July. If you could elaborate any impacts you're seeing in Porvenir and also if this is already reflected in the guidance. Thank you.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

Your reading on ROE is right. Last time we had guided into 11% area. Now we're guiding slightly lower than that in the 10%-11% range. The reason I try to highlight when going line by line is we've experienced two negative things and some positives. The positive, you're absolutely on the spot. It is better performance and evolution of the quality of the loan portfolio. That's going to be a positive one. Then there's another one, and it is Corficolombiana. We had guided to a lower performance this year, and it has already performed better during the quarter. On the negative side, the slower pace of the central bank does affect our NIM on loans particularly, of consumer loans specifically. That's what we're bringing into this guidance.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

We had a slower first quarter in loan growth than what we were initially foreseeing. Then you said, should you guys be accelerating origination? I think that's something we're evaluating very carefully because part of the reason why we didn't grow as fast as we expected was that these are very aggressive pricing from some of our peers in particularly large corporate loans. We've been very disciplined with pricing to ensure that we're growing, but we're growing in a profitable way, so those are the kind of things we need to evaluate. However, we continue to work on origination and high quality, and high profitability origination very well.

[María Lorena Gutiérrez Botero, CEO at Grupo Aval Acciones y Valores]

Regarding the question about the pension reform, as you maybe know, given the ley was approved in the Congress. The fourth implementation of the form is the 1st of July. So we are waiting because there are some, we are waiting for the Constitutional Court because they are analyzing if the reform is okay with the Constitution. But we are prepared in Porvenir. The government has published a decree, with the main issue for us that is the commissions, and the commissions are set in the way that we were expecting. So I think we are waiting for the Constitutional Court, but Porvenir is prepared for both scenarios. With reform or without reform.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

And then you also asked about our guidance. Our guidance is basically taking a neutral scenario. The pension reform would be positive when our results is effective as planned. We've gone for our guidance on the prudent side.

[Brian Flores, Analyst at Citibank]

No, perfect. Super clear. If I can just follow up on that last comment. If it goes as you, let's say, the positive expectation that you have on the pension reform, do you have an estimate on the impact, particularly or not yet?

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

We need to see how regulation comes out before we get into those numbers. We will prepare to wait for that.

[Brian Flores, Analyst at Citibank]

That makes sense. Thank you.

[Operator]

Your next question comes from the line of Yuri Fernandes from JPMorgan. Your line is open.

[Yuri Fernandes, Analyst at JPMorgan]

Thank you all. Just to follow up on Porvenir, just to see if I understood correctly, it is positive the short term, but as the flows change in the future, it is negative, right, in the long run on Porvenir. I had a question on cost of risk. I think Diego Solano already mentioned this in the presentation regarding the increase in Stage 2. Just checking if this was one company or two or more companies. Which sector are those companies from? If this increase in Stage 2 should become Stage 3 at some point, like how you are seeing this? Are you comfortable with those? If you plan to review the coverage in the commercial Stage 2 and Stage 3 portfolio in your guidance, some outlook like this. Thank you.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

Let me start with your last one. This is actually a seasonal kind of review, so there is no reason to have any concern because of that, but there is a mechanic process where if companies did not perform as well last year, then their rating falls. Even though they might be up to date and well-performing with their loans, we need to change the rating, and that implies moving to the lower slice of Stage 2. The implication of that is we move from expected loss for 12 months to lifetime. Therefore, we increase the level of provisions. It is more of a updating process that reflects how last year was rather than how 2025, 2026 would look like. So not really a concern anymore. This is a change in trend.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

We obviously continue to be careful of other portfolios as we have done throughout this cycle, and we need to see the economy to continue to pick up to feel fully comfortable, but we are well on that track. You asked on Porvenir. The concise answer is it is a positive in the short term, in the long term, not the medium, but quite long term, we see a change because the volume that will go to a private sector will decrease. However, a substantial portion of current customers are part of the transition process, so the process of reducing the level of assets under management will take some time to offset the advantage of a better fee system.

[Yuri Fernandes, Analyst at JPMorgan]

No, super clear. Thank you for the clarification, Diego. If I may, just a final one, if you can provide some comment, and sorry if you already did before, regarding the political outlook in Colombia. I know probably it is too soon to have a view, but whatever you can comment, like for us who have some expectations, it is interesting for us here. Thank you.

[María Lorena Gutiérrez Botero, CEO at Grupo Aval Acciones y Valores]

I think Diego, he does not want to answer that question, but I would say that the political outlook is uncertainty now because you know that we have President Petro with this, I do not know how to say, consulta popular.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

Sort of a referendum.

[María Lorena Gutiérrez Botero, CEO at Grupo Aval Acciones y Valores]

Like a referendum that the Congress will discuss that all next week. We are waiting for that, and they are with the reforms, the labor reform and the health reform. We have, I do not know, 40 candidates for next year in the presidential election. What you will see in the following months is uncertainty about that and more uncertainty that President Petro will create.

[Yuri Fernandes, Analyst at JPMorgan]

Yeah. Uncertainty's been here for a while, right? Unfortunately, at some point. Well, thank you for the answer there, everyone.

[Operator]

Your next question comes from the line of Juan Dauder from Bank of Colombia. Your line is open.

[Juan Dauder, Analyst at Bank of Colombia]

Hello, everybody. Can you listen to me well?

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

Very low.

[Juan Dauder, Analyst at Bank of Colombia]

Okay.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

You cut.

[Juan Dauder, Analyst at Bank of Colombia]

Okay. I will proceed with the questions. I have a couple of questions. The first one is in regards to provisions. What is your expectation, and especially how do you read the balance of risk at this moment of the juncture in perspective of the changes of the monetary policy, path of rate cuts, also the country risk and the initiation of a trade war internationally? I mean, that reading of the environment could lead you to change your expectations towards provisions, which seem to have bottomed in the previous quarter. If you can give us some guidance in regards to that, I appreciate it. The other question is about commissions. We saw a decrease in the fee income ratio, in this quarter. I would like to hear you elaborating a little bit on that decrease and on your expectations on the ratio for 2025.

[Juan Dauder, Analyst at Bank of Colombia]

Also, you mentioned as a strategic pillar, improving the fees. So what could be your initiatives in that regard? Thank you very much.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

Well, regarding provisions, I think that something that differentiates Aval from other peers in the system is the structure of our portfolio. So our guidance is tied more to that than other products. For example, we are much more concentrated in the payroll loans that even though they do carry the effect that we've seen on NIM, are substantially better than some of the unsecured consumer lending and credit cards products that are also part of the system. So we are in a position to have a better view on that. Then on the mix of industries, we have a slightly lower exposure to SMEs than some of our peers, and that also helps us. So that's the rationale behind why our performance has been substantially better than the rest of the system throughout this cycle and why we are able to have a more positive view.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

Then, regarding fees, there is a mixture of effects here. If you have seen, what we did was we raised our fee ratio because we saw the NIM slightly falling. We are pointing basically to the same guidance that we had before. We are thinking in peso-denominated fees. Something that did affect us during the first quarter is, you might have seen that Colombia had a pretty tough March due to market volatility, and we have seen some months affecting performance-related fees. However, we are seeing a pickup in retail activity that allows us to expect also an improvement on that side. Then, there is something that is Aval specific, and it is, as you well highlighted, that is one of our pillars because we feel we are not doing enough on the fee side.

[Diego Solano, CFO at Grupo Aval Acciones y Valores]

Given that we are actively working on that is also part of our source of, I think, being much more constructive on what we can achieve on fees moving forward.

[Juan Dauder, Analyst at Bank of Colombia]

Thank you.

[Operator]

There are no further questions at this time. Ms. María Lorena Gutiérrez Botero, I turn the call back over to you.

[María Lorena Gutiérrez Botero, CEO at Grupo Aval Acciones y Valores]

No, thank you. Thank you to everyone who was with us in this call, and see you in three months.

[Operator]

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

Participants

Executives

• María Lorena Gutiérrez Botero, CEO
• Paula Durán, Corporate VP of Sustainability and Strategic Projects
• Diego Solano, CFO

Analysts

• Camilo Pérez, Chief Economist at Banco de Bogotá
• Brian Flores, Analyst at Citibank
• Yuri Fernandes, Analyst at JPMorgan
• Juan Dauder, Analyst at Bank of Colombia