Grupo Aval Acciones y Valores Q4 2025 Earnings Call Transcript

Quartr
Provided by Quartr
February 26, 2026

Key Takeaways

  • Positive Sentiment: 2025 net income rose 70% to COP 1.7 trillion, supported by improved banking results and a record year at Corficolombiana. Group ROAE increased to 9.6% from 6.0% in 2024.
  • Positive Sentiment: Banking fundamentals improved, with loan growth of 4.8%, a 41-basis-point expansion in the loan-yield/funding-cost spread, and cost of risk falling to 1.9% from 2.3%. Fourth-quarter loan NIM reached its highest level in three years, while 30- and 90-day delinquency metrics continued to improve.
  • Positive Sentiment: Grupo Aval advanced strategic portfolio actions, including the planned acquisition of Banco Itaú’s Colombia retail business, expected to add approximately 267,000 clients, COP 6.5 trillion in loans, and COP 4.1 trillion in deposits. It also agreed to sell underperforming Panamanian subsidiary Multi Financial Group and consolidated its fiduciary businesses to improve efficiency.
  • Positive Sentiment: Corficolombiana is pursuing growth through a 51% stake in Bogotá’s stadium redevelopment project, while Promigas agreed to acquire Zelestra’s renewable-energy platform, adding 1.4 gigawatts of contracted solar and storage capacity and more than 2.1 gigawatts under development, subject to approvals.
  • Negative Sentiment: Management lowered its 2026 outlook amid Colombia’s 23.7% minimum-wage increase, higher inflation and interest-rate expectations, fiscal risks, and election uncertainty. Guidance calls for approximately 10.5% ROAE and 10% loan growth, while a newly announced wealth tax could reduce ROAE by about one percentage point.
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Earnings Conference Call
Grupo Aval Acciones y Valores Q4 2025
00:00 / 00:00

There are 7 speakers on the call.

Operator

Welcome to Grupo Aval's fourth quarter 2025 consolidated results conference call. My name is Regina, 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 U.S. SEC. 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. Unconsolidated financial information of our subsidiaries and the Colombian banking system are presented in accordance with Colombian IFRS as reported to 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

On November 27, 2025, Banco de Bogotá's subsidiary, Multi Financial Holding, Inc., MFG, entered into a share purchase agreement with BAC International Corporation, BAC, a subsidiary of BAC Holding International Corp. for the disposal of 99.57% of the issued and outstanding shares of Multi Financial Group, Inc., MFG, the parent company of Multibank, Inc. For comparability purposes only, we have prepared and present supplemental unaudited pro forma financial information for the periods prior to 4Q 2025, which reflects the reclassification of the operations relating to MFG as non-current assets and liabilities held for sale and discontinued operations.

Operator

This supplemental unaudited pro forma financial information does not intend to represent and should not be considered indicative of the results of operations or financial position that would have been achieved had the transaction occurred on the dates assumed, nor is it intended to project our results of operations or financial position for any future period or date. The pro forma financial information is unaudited, and the completion of the external audit for the year ended December 31, 2025, may result in adjustments to the unaudited pro forma financial information presented herein. 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, believe, estimates, predicts, potential, or continue, or the negative of these and other comparable words.

Operator

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.

Operator

The financial statements of Grupo Aval Acciones y Valores S.A., in accordance with Colombian regulations, must be filed with the market and with the Superintendency of Finance with the opinion of an external auditor. At the time of this quarterly call, this process is still ongoing. 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. 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 Ms. Maria Lorena Gutiérrez Botero, Chief Executive Officer. Ms. Maria Lorena Gutiérrez Botero, you may begin.

Speaker 1

Thank you. Good morning, and thank you for joining Grupo Aval's fourth quarter and full year 2025 earnings call. I'm so sorry, but I have a little flu, or a terrible flu, but I'm trying that you can understand me. I am joined today by Diego Solano, our Chief Financial Officer, Camilo Pérez, Chief Economist at Banco de Bogotá, Paula Durán, Corporate Vice President of Sustainability and Strategic Projects. I would like to start by highlighting the positive evolution of our results during 2025, despite the challenging and volatile local and global environments. We reached COP 1.7 trillion in net income during 2025, a 70% increase compared to the previous year and more than twice that of 2023. This improvement was primarily driven by stronger contributions from our banking business and a record performance year by Corficolombiana.

Speaker 1

Since our last call, we completed important milestones in line with our strategic focus to strengthen our strategic priorities. First, we completed the merger of our trust companies. Second, we reached an agreement to acquire Banco Itaú's Colombia retail business. Third, we reached an agreement to divest MFG. Fourth, Corfi has successfully completed transactions that will grow in business in the short term. On January 2nd, 2026, we successfully merged our fiduciary businesses from Fiduciaria Bogotá, Fiduciaria de Occidente, and Fiduciaria Popular into Aval Fiduciaria. This transaction consolidates our trust services into a single strong entity, enhancing our value proposition for existing and new customers and generating operational efficiencies. We expect this to result in an increase of our market share in trust fee income and AUMs, and improve the profitability of this business.

Speaker 1

On December 23rd, 2025, Banco de Bogotá announced the acquisition of Banco Itaú with the banking business in Colombia and Panama. This move reinforces Banco de Bogotá's focus on the affluent segment, enhances the quality of our client mix, and strengthens our competitive positioning in Colombia. The acquisition is expected to add around 267,000 clients with $6.5 trillion in loans and $4.1 trillion in deposits. The deal excludes Itaú's corporate banking and is pending regulatory approval. On November 27, Banco de Bogotá announced that it has reached an agreement to sell MFG, a Panamanian bank, to BAC. That is the Central American bank. This unit has delivered modest results since its acquisition in 2020 and require large scale to achieve the desired performance.

Speaker 1

The divestment of Multi Financial Group strengthens Banco de Bogotá's position to pursue a stronger growth in its core market and reallocate capital towards businesses with a stronger strategic alignment and long-term potential. The sale process for this operation is expected to close over the following months, following regulatory approvals in Panama. This quarter, Multi Financial Group's balance sheet and P&L have been classified and discontinued operations. Corficolombiana announced two major acquisitions. The first one, Corficolombiana announced agreement to participate with a 51% stake in Sencia, the concessionaire of the 29-year public-private partnership for the renovation, construction, operation, and maintenance of Bogotá Nemesio Camacho Stadium complex. Sencia will develop a COP 2.4 trillion project, includes a new 50,000-seater stadium, cultural and commercial components, public space development, and mobility solutions.

Speaker 1

In the energy and gas sector, Promigas signed an agreement to acquire 100% of Zelestra's renewable energy generation platform, reinforcing its transformation into a multi-energy platform with operations in Colombia, Chile, and Peru. This transaction adds a portfolio of more than 19 solar and storage projects totaling 1.4 gigawatts of contracted capacity and over 2.1 gigawatts under development, supporting diversification of non-regulated businesses and a stable long-term contracted revenues, subject to regulatory approvals in Colombia and Peru. Results from continued operation for the quarter. Positive trends continued to consolidate during the quarter. Our risk-adjusted NIM on loans for the quarter stood at 3.34%, the highest level in three years, while our cost of risk continued its positive trend.

Speaker 1

Return on average equity came in slightly below our initial expectations, mainly due to a weaker than expected NIM on investments triggered by volatile local and international capital markets and the one-time effects related to the Multi Financial Group sale agreement, which Diego Solano will explain in detail. I will now pass on to Paula, who will go over our sustainability achievements for the year. Paula?

Speaker 2

Thank you, Maria Lorena. Good morning, everyone. In the fourth quarter, we closed an extraordinary year for sustainability, further consolidating our ESG strides. One world profitability built by integrating strong financial performance, measurable social impact, and responsible environmental management. Our framework is structured around three pillars, returns with purpose, opportunities for all, and environmental value. Under our first pillar, returns with purpose, we continue to scale sustainable finance. Our sustainable loan portfolio reached COP 44.9 trillion, including COP 36.2 trillion in social lending and COP 8.7 trillion in green lending. Social lending included targeted credit line for senior citizens, housing, women entrepreneurs, coffee growers, and micro-businesses. Green lending supported renewable energy, infrastructure, sustainable mobility and water management projects, among others. In our investment portfolio, Maria Lorena already mentioned our agreement with Zelestra that reinforces our commitment to clean energy. We also received important external recognitions.

Speaker 2

In the S&P Global Corporate Sustainability Assessment, we achieved a historic score of 81 out of 100 and were included in the S&P Global Sustainability Yearbook. Additionally, Banco de Bogotá, Bancolombia, Banco de Occidente, and Porvenir were also included in the yearbook, demonstrating the consistency and consolidation of our sustainability strategy across the group. In the MSCI assessment, we improved our rating to triple B, driven by strong social impact metrics and enhanced responsible investment practice. On our second pillar, opportunities for all, this pillar focuses on generating inclusive growth and shared value. We calculated the total economic value generated and distributed, which reached COP 41 trillion in 2025. This value distributed to more than 31,000 suppliers that received COP 11 trillion. Our 67,500 employees also earned COP 3.8 trillion. We also paid COP 3.4 trillion in taxes and generated COP 13 trillion in returns for our clients.

Speaker 2

Additionally, we invested COP 70 billion in voluntary social programs benefiting more than 2 million people, focusing on community infrastructure, education and research, socioeconomic development, and the promotion of culture, art, and sports. Through Misión La Guajira, the most significant private sector social initiative in Colombia, we fulfilled our commitment, benefiting more than 21,500 people across 80 communities with potable water, electricity, and connectivity. The program also included financial education initiatives and supported over 1,500 Wayuu artisans, fostering sustainable livelihoods. We also supported the Vamos Finanzas scholarship program, exceeding our fundraising goal and reaching COP 11.1 trillion, benefiting more than 1,200 students. On our third pillar, environmental balance, we joined the Partnership for Carbon Accounting Financials, PCAF, committing to measuring the emissions associated with our financial activities. We also launched our nature strategy aligned with TNFD, and began its pilot implementation with one of our entities.

Speaker 2

At the group level, we also achieved tangible eco-efficiency improvements. Energy consumption reduced by 9.6%, renewable energy use increased to 38%, water consumption reduced by 2%, and waste generation decreased by 9%. In summary, we closed 2025 with meaningful progress across all three pillars, reinforcing our position as the ally that drives, supports, and transforms cities. We continue to generate opportunities, promote sustainable development, and create long-term value for our shareholders and all stakeholders. Thank you.

Speaker 1

Thank you, Paula Durán. Now moving to the macro environment. A lot has happened since our last call that has changed our expectation for 2026. A massive and unexpected increase in minimum wages has triggered a substantial increase in inflation expectations and has prompted a stronger stance from the central bank to control inflation expectations. These recent events add to the increasing real interest rate expectations that result from growing concerns on the current administration's fiscal deficit. As a result, since our last call, we have raised 200 basis points our expectation on 2026 inflation and 350 basis points year-end 2026 central bank intervention rate, changing the improvement trends we previously anticipated. 2025 was characterized by elevated global uncertainty. The year was marked by abrupt changes in U.S. economy policy, increased trade tensions, and greater economic fragmentation.

Speaker 1

Despite these challenges, global growth proved resilient, reaching an estimated 3.3%, supported by a second half recovery, higher investment, and accelerated adoption of artificial intelligence technologies. In Colombia, economic activity remained resilient. GDP growth closed at 2.6% for 2025, driven primarily by household consumption and public spending. However, the GDP outlook remains challenging. Investment levels have stayed at historical low levels, and the country's fiscal deficit is among the largest globally, despite interest savings achieved through the government's liability management strategy. Household consumption and government spending alone cannot sustain a structured economic growth if investment remains absent and the government continues to crowd out the private sector. Inflation closed the year at 5.1%, remaining above the central bank's target range.

Speaker 1

Furthermore, inflationary pressures derived from the 23.7% increase in the minimum wage led to the beginning of a new restrictive cycle in monetary policy, as evidenced by 100 basis points increase in the central bank rate in January. Moving on to the exchange rate. The weaker U.S. dollar and the heavy dollar inflows from remittances and the national government liability management strategies led to 14.8% appreciation of the Colombian peso relative to the U.S. dollar. Camilo will now elaborate on our economic outlook. Camilo?

Speaker 3

Thank you, Maria Lorena. Good morning. The Colombian economy grew by 2.6% in 2025, below the consensus estimate and that of technical staff of the central bank. The surprise came from investment results, with gross fixed capital formation growing only 1.3%. The weak growth in investment was offset by the deliveries of machinery and equipment, which registered an annual increase of 9% due to the needs faced by businesses to meet higher domestic demand. Meanwhile, investment in housing, infrastructure, and intellectual property contracted annually. As a result, Colombia ended 2025 with an investment rate of 16.6% of GDP, the lowest level so far this century. Ultimately, high levels of uncertainty, elevated interest rates due to persistent inflation, and large fiscal deficits have led the country to face a complex investment landscape, with the financial, mining, and energy, construction, and communication sectors being the most impacted.

Speaker 3

Conversely, the economy found support in household and public sector spending. On the household side, higher income from wages, remittances, government transfers, coffee exports, and tourism led to an acceleration in private consumption growth from 1.6% in 2024 to 3.6% in 2025. The growth in goods expenditures surpassed that of services. As a result, sectors such as commerce, lodging, food, transportation, recreation, and services, in general, continued their upward trend. In manufacturing, while growth was observed in line with the increased household demand for goods, the appreciation of the peso reduced the competitiveness of local production. Meanwhile, amid the suspension of the fiscal rule and the higher budget execution, public spending increased from 0.6% growth in 2024 to 7.1% in 2025, the highest rate since 2021. Also, public spending boosted local activity. It was financed with increased debt, leading to a widening of the primary fiscal deficit.

Speaker 3

Thus, the fiscal stimulus appears unsustainable and ultimately displaced the private sector in an example of crowding out. In the external sector, lower national competitiveness, explained by the appreciation of the Colombian peso against the dollar and higher labor hiring costs, led to exports moderating its growth rate from 3.2% in 2024 to 1.8% in 2025. By 2026, amid more adverse financing conditions, weakening private consumption, a more challenging fiscal situation, and high uncertainty surrounding the elections, the Colombian economy is projected to moderate its growth rate to 2.4%. Turning to prices, inflation ended 2025 at 5.1%, virtually unchanged from 2024. Here, inflation improvements in rents and regulated prices were offset by increased pressure of food, goods, and services different from rents.

Speaker 3

At this point, higher labor costs resulting from the significant minimum wage increase, the reduction in working hours, and the approval of labor reform, weighed on inflation of goods and services. Meanwhile, high household and government spending limited the scope of improvement in inflation. By 2026, the minimum wage increase of over 23%, which in real terms was the highest in history, will lead to a resurgence of inflation. Specifically, inflation is expected to end 2026 at around 6.2%. The impact on inflation is also greater, thanks to the appreciation of the Colombian peso and its effect on the prices of imports, as well as the policy of reducing gasoline prices and the lower inflation base of rents. On the fiscal front, the government closed 2025 with the highest primary fiscal deficit, which excludes interest payments since the crisis of the 1990s and the pandemic.

Speaker 3

The government addressed the high spending pressures with active debt issues using alternative mechanisms such as the direct sale of debt to an important investment fund and swap of short and long-term debt during the year. Calculations by our economic research team indicate that the Ministry of Finance and Public Credit issued more than COP 110 billion of Treasury bonds in 2025, when the stipulated limit was COP 95 billion. For 2026, no major changes are anticipated on the fiscal front. In fact, the deficit could exceed 7% of GDP, given the absence of the fiscal rule, and again, considering high spending and weak revenues. With this scenario, where inflation is rebounding and the fiscal situation remains vulnerable, the central bank would consolidate an upward trend in interest rates.

Speaker 3

Our economic research team expects the benchmark interest rate to rise from 9.25% at the end of 2025 to 11.75% by mid-2026, a level at which it would remain for the remainder of the year. The risks are tilted upwards. Within a scenario of higher domestic interest rates, a weak dollar globally due to the United States trade policies, and expectations of lower rates from the Federal Reserve, the exchange rate closed 2025 at COP 3,780 per dollar, 50% lower than at the end of 2024. However, in the second half of the year, the downward trend in the exchange rate intensified due to the government's sale of dollars. In the second half of the year, the government sold more than $7 billion, an amount not seen since the pandemic.

Speaker 3

In 2026, the Colombian peso is expected to continue finding support from the wider interest rate differential, the international outlook, and the nation's ample dollar availability. However, the election results will be crucial. Currently, the exchange rate is expected to remain below COP 4,000 per dollar throughout the year. Regarding the dynamics of dollar flows in the Colombian economy, it is important to note that for the first time in history, remittances surpassed oil exports as the primary source of dollars of the economy. This further consolidated diversification of the export basket. Finally, the legislative and presidential elections to be held in the first half of 2026 will define the country's economic future.

Speaker 3

It is too early to draw conclusions about the election results, but the central scenario is based on the expectation that Colombia will have a more fiscally disciplined government, which will reduce uncertainty and promote investment, and in general, will make public policy decisions based on technical criteria that boost economic growth. Thank you. Back to you, Maria Lorena.

Speaker 1

Thank you, Camilo. Turning to our financial results, 2025 was a transition year. In the banking segment, gross loans ended the year at COP 190.1 trillion, increasing by 4.8% compared to 2024. Profitability improved meaningfully, supported by a sharp decline in funding costs that expanded the spread between loan yields and funding costs by 41 basis points. Cost of risk improved from 2.3% to 1.9%, reflecting a stronger consumer portfolio performance and discipline on the rate. Expense growth remained below the increase in the minimum wage, improving efficiency metrics. As a result, return on equity in the banking sector reached double digits. Banco Popular and Banco AV Villas returned to profitability, and Banco de Bogotá and Banco de Occidente continue improving their results. Despite upward markets results at year-end, Corficolombiana delivered its strongest annual performance to date. Assets under management reached COP 271.2 trillion, an increase. Pesos, sorry.

Speaker 1

An increase 14.9%, and ROAE reached 21.2%. Corficolombiana worked throughout the year to lay the foundation for a new growth cycle driven by portfolio rotation and entry into high-potential sectors. Deleveraging efforts and decline in rates led to a 16% reduction in funding costs, reflecting lower debt levels and more favorable interest rates. Finally, operational efficiencies continued to materialize following the exit from financial services. Now, I would like to pass the call to Diego, who will give details on our results. Diego?

Speaker 4

Thank you, Maria Lorena. I will start on pages 11 and 12 with a few charts showing growth rates 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. Starting on page 11, during 2025, loans for the banking system grew 2.1% in real terms, with mortgages growing 6.3%, consumer loans 1.48%, commercial loans 0.7%, all in real terms. During 2025, we continued to focus on profitable growth. We focused on local currency commercial loans in segments other than large corporates, and on personal loans and credit cards in consumer lending. Peso-denominated commercial loan market share remained unchanged at 26.3%. We are selective in large corporate commercial lending, given the aggressive pricing competition present throughout the year, where we lost 204 basis points.

Speaker 3

However, we gained 131 basis points of market share in local currency-denominated commercial loans other than large corporates. We gained market share in products and segments where we were underweight, such as factoring, where we gained 543 basis points to 24.2%, and government loans, where we gained 219 basis points to 23%. Regarding our USD-denominated commercial loans, where we have historically been overweight, we reduced our market share by 356 basis points to 35.3%. In addition, in peso terms, the balances of USD-denominated commercial loans were negatively impacted by the 14.8% appreciation of the Colombian peso over the year. As a result of the above, our market share for commercial loans fell 37 basis points. Consumer loans, we focused on diversifying our portfolio towards higher-yielding and short-term loans, reducing our concentration in payroll lending. We gained 138 basis points of market share on personal loans to 21.5%.

Speaker 3

The Itaú consumer business acquisition will take us to market weight. To strengthen our credit card business, where we lost 130 basis points to 17.4%, we launched the FIFA Visa alliance and other initiatives. All of this while maintaining our leadership position in payroll lending, where we have 42.2% market share. Overall, our market share for consumer loans closed at 28.9% with a 53 basis points decrease. Moving on to mortgages, we continued gaining market share with 117 basis points increase throughout the year. As a result of the above mentioned, we closed our market share in total loans at 25%, 28 basis points lower than in 2024.

Speaker 4

On page 12, loan quality for both the system and Aval banks showed an improvement in the year across all categories. Our banks continue to exhibit better loan quality portfolio than the system in all categories. I will now move to the consolidated results of Grupo Aval under IFRS. As mentioned by Maria Lorena, Banco de Bogotá entered into a share purchase agreement to sell Multi Financial Group, a Panamanian bank. As a result, in December 2025, we classified this operation as non-current assets and liabilities held for sale and discontinued operations. For reasons of comparison with previously reported periods, we are showing retrospectively on these pro forma balances and ratios, classifying Multi Financial Group as non-current assets and liabilities held for sale and discontinued operations. On page 13, we present assets and loans. Assets grew 6.4% year-on-year and 1.5% with a quarter to COP 349 trillion.

Speaker 4

Fixed income investments, which account for 15.8% of our assets, reached COP 55.2 trillion, growing 21.2% year-on-year and decreasing 0.2% over the quarter. Gross loans, which account for 54.7% of our assets, reached COP 190.9 trillion, growing 46% year-on-year and 1.5% over the quarter. Growth metrics were affected by a 44.2% appreciation of the Colombian peso during the quarter and 14.8% over the year. Peso-denominated loans that now account for 91.3% of gross loans grew 6.8% year-on-year and 1.7% during the quarter. Commercial loans expanded by 1.9% year-on-year and 1.1% over the quarter. Peso-denominated commercial loans that account for 84.7% of gross loans grew 5.5% year-on-year and 1.4% during the quarter. Dollar-denominated commercial loans, which account for 15.3% of commercial loans, grew 0.4% in dollar terms year-on-year and 3.9% during the quarter. In peso terms, our dollar-denominated loans contracted 14.5% year-on-year and 0.5% quarter-on-quarter.

Speaker 4

Consumer loans grew 4.7% year-on-year and 1.2% during the quarter. Personal loans grew 12% year-on-year and 5% during the quarter. Credit cards contracted 1.5% year-on-year and increased 2.9% during the quarter. Our loans grew 0.6% year-on-year and 1.1% during the quarter. Payroll loans increased 3.2% year-on-year and decreased 0.9% during the quarter. Mortgages grew 19.6% year-on-year and 3.9% during the quarter. On page 14, we present the evolution of funding and deposits. Total funding increased 8.7% year-on-year and 1.4% during the quarter. Bank borrowings grew 28% year-on-year in line with the expansion of our trading investment portfolio, as mentioned before, and account for 8.2% of total funding. Deposits that account for around three-fourths of our funding grew 11.2% year-on-year and 3.6% quarter-on-quarter. Our deposit to net loan ratio closed at 113%.

Speaker 4

On page 15, we present the evolution of our total capitalization, our attributable shareholders' equity, and the capital and equity ratio of our banks. Our total equity increased 0.3% over the quarter and 4.8% year-on-year, while our attributable equity increased 0.2% over the quarter and 5.7% year-on-year. Total solvency and Tier 1 ratios evidence a relative stability in most of our banks. On page 16, we present NIM, our net interest margin. Net interest income reached COP 59.3 billion for the year, increasing 17.4% compared to 2024. Total NIM for the year increased 28 basis points to 3.78% in 2025. Our consolidated NIM on loans expanded by 28 basis points year-on-year to 4.71%, while NIM on investments decreased by eight basis points to 20.82%.

Speaker 4

NIM on loans incorporates an 84 year-on-year expansion of NIM on retail loans to 6.33%, and an 18 basis points year-on-year contraction on NIM on commercial loans to 3.5%. Focusing on our banking segment, the total NIM of our banking segment expanded eight basis points over the year to 4.47% due to the same dynamics that affected our consolidated net interest margin. NIM on loans was 5.44%, increasing nine basis points year-on-year. This incorporates a 69 basis points year-on-year increase in NIM on retail loans to 6.9%, and a 39 basis points year-on-year decrease in NIM on commercial loans to 4.02%. Partly, NIM was negatively impacted by adverse capital market performance, driven by a 3.48% negative NIM on investments. In contrast, NIM on loans for the quarter reached 5.05% or eight basis points higher than the previous quarter and the best result in 12 quarters.

Speaker 4

As discussed by Maria Lorena Gutiérrez Botero, the recent shift in the monetary cycle in response to recent government decisions will act as a headwind for NIM over the next quarters. The development of our financial diversification strategic pillar continues to pay off. We have diversified our funding sources towards less sensitive non-maturing deposits, including deposits from individuals and cash management unit deposits. Our banks lowered maturities and repricing gaps and actively implemented interest rate hedging strategy. On page 17, we present our yield on loans, cost of funds, spreads. On a consolidated basis, the average yield on loans for the year decreased 126 basis points to 12.06%, while the annual average three-month IBR decreased 158 basis points to 9.4%. Consolidated cost of deposits decreased 148 basis points during the year to 6.63%, while our cost of funds decreased 141 basis points to 6.8%.

Speaker 4

On pages 18 through 20, we present several portfolio quality ratios. Sorry. Starting on page 11. Loan portfolio quality ratios continued to improve during the quarter. PDL metrics continued to improve in all categories. 30-day PDL formation for the year reached COP 4.2 trillion, 32.8% lower than for 2025. 30-day PDLs were 4.37%, a 98 basis points improvement over 12 months and 27 basis points over the quarter. 90-day PDLs were 3.29 at 77 basis points improvement for 12 months and 11 basis points improvement over the quarter. Commercial loans, 30-day PDLs were 3.84%, a 101 improvement year-on-year and 38 basis points improvement quarter-on-quarter. 90-day PDLs were 3.48 on 91 basis points improvements over the year and 19 basis points over the quarter. Consumer 30-day PDLs improved 117 basis points year-on-year and 16 basis points over the quarter to 4.67%.

Speaker 4

90-day PDLs improved 63 basis points year-on-year and five basis points during the quarter to 2.79%. Mortgage 30-day PDLs and 90-day PDLs improved eight basis points and 10 basis points respectively over the quarter to 6.18 and 3.75% respectively. Finally, the ratio of charge-offs to average 90-day PDLs for 2025 was 0.82 times. On page 19, the share of our portfolio classified as Stage 1 grew to 89.8%, while Stage 3 decreased for a six consecutive quarter to 5.7%, driven by improvements in our consumer portfolio. Coverage measured as allowances for Stages 2 and 3 as a percentage of Stages 2 and 3 was 33.6%, decreasing 545 basis points relative to a year earlier due to improvement in the mix. On page 20. In 2025, cost of risk net of recoveries of 38 basis points to 1.9%, in line with our expectation for the year.

Speaker 4

For consumer loans, cost of risk net of recoveries improved 157 basis points to 4.2. This includes a 449 basis points improvement in personal loans to 8.4%. For commercial loans, cost of risk net of recoveries was 0.7%. During the fourth quarter of 2025, cost of risk net of recoveries fell 27 basis points to 1.7%, the lowest in 12 quarters, driven by a decrease both in commercial and consumer portfolios of 36 basis points to 0.6% and 23 basis points to 3.8%, respectively. On page 21, we present net fees and other income. Annual gross fee income grew 6.8%, while net fee increased 5.3%. Quarterly gross and net fee income increased 8.5% and 9.6% year-on-year. In terms of annual gross fees, pension and trust fees grew 9.1% and 14.9%, boosted by performance-based management fees that followed the positive returns of the financial markets throughout the year.

Speaker 4

Our annual income from the non-financial sector was 84% of that recorded in 2024, mainly due to a lower contribution from the infrastructure sector. Quarterly income was affected by a lower income from the energy and gas sector and the infrastructure sector as well. This was partially offset by income from both of those. Finally, at the bottom of the page, the annual increase in the operating income is mainly driven by a COP 605 billion improvement in the relatives and FX gains. Hedging strategies relative to the non-financial sector are registered under foreign exchange gains and accounts for COP 863 billion yearly improvement. During the quarter, one of Promigas transportation pipelines measured as fair value, reverted to the company's PP&E and implied a one-time fair value recognition of COP 303 billion. This effect was registered under net income from other financial instruments mandatory at fair value to P&L.

Speaker 4

This positive effect was offset by a one-time remeasurement of the deferred tax liabilities to COP 359 billion. Net-net, the transaction had a COP 56 billion negative effect on net income and COP 12 billion negative effect on Grupo Aval's attributable to net income. On page 22, we present some efficiency ratios. Cost to assets remains flat at 2.6%. Annual cost to income improved 101 basis points to 52.2% over the quarter. On a quarterly basis, it reached 54.9%, 550 basis points lower than a year earlier. Annual expenses grew 9.6% during the year. General and admin expenses grew 9.4% year-on-year. Personnel expenses grew 6.9% year-on-year, well below the 9.5% increase in Colombia's minimum wage. Finally, on page 23, we present our net income and profitability ratios.

Speaker 4

Accrued all net income from continued operations for the quarter was COP 474 million, 67.5% higher than the same quarter of the previous year. Total accrual net income for the year reached COP 1.72 trillion or COP 72.5 per share, increasing close to 70% compared to the previous year. Our annual return on average assets was 1%, and our annual return on average equity was 9.6%, 48 basis points and 366 basis points above 2024 respectively. In terms of discontinued operations, the results contributed by Multi Financial Group's operations, as I said, our answer to total net income adding up COP 18 billion. To wrap up, we are updating our guidance to reflect changes in the macro environment impacting our business. We expect loan growth in the 10% area, with commercial loans growing at 7% and retail loans growing at 14%.

Speaker 4

Total NIM in the 4.3% area, with NIM loans in the 4.7% area. Our NIM of the banking segment in the 5.1% area, with NIM loans in the 5.4% area. Cost of risk net of recoveries in the 2% area. Cost to assets in the 2.8% area. Income from the non-financial sector 1.3 times that of 2025. Our fee income ratio in the 21% area. And finally, we expect our 2026 return on average equity to be in the 10.5% area. This guidance does not incorporate the recently announced wealth tax, which we estimate would have the impact on our ROE of one percentage point area. Back to you, Maria.

Speaker 1

Oh, Diego. Okay. Thank you, Diego. Before moving into questions and answers, I would like to share some financial of Colombia Grupo Aval in 2026. We expect 2026 to continue to be challenging in Colombia given the effects of political volatility and electoral uncertainty. Economic conditions are expected to remain challenging both locally and globally. We expect GDP growth to remain moderate in 2026 amid a restrictive monetary environment. The massive minimum wage increase will put pressure on our cost base that of our customers. Inflation will remain above the central bank's target range, which implies a return to a higher for longer interest rate environment. Despite this backdrop, we strongly believe that we should remain focused in our strategy on improving our business and abstain from echoing uncertainty. The financial sector will continue to be a pillar of trust and investment.

Speaker 1

We expect to continue growing our financial business and invest through Corficolombiana, the non-financial sector in the region during 2026. As a result, we expect to continue strengthening our core business, supported on an expansion of risk-adjusted NIM on loans, commercial and operational effectiveness, and a stronger fee generation. In 2026, we will continue delivering new and innovative products. In addition, during this year, we expect to see increases in efficiencies from shared services and IT integration initiatives, and strengthening a client-centered, unified corporate culture. We are now open for questions.

Operator

Thank you. We will now begin the question and answer session. If you have a question, please press star then 1 on your touchtone phone. If you wish to be removed from the queue, please press star then 1 a second time. 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 1 on your touchtone phone. Our first question will come from the line of Daniel Mora with Credicorp Capital. Please go ahead.

Speaker 5

Hi. Good morning. Thank you for the presentation. I have a couple of questions. The first one is regarding the new wealth tax for companies. I would like to know what did you understand for liquid equity, as it says that it is gross equity minus debt for the wealth tax. Also, I would like to understand how it will be applied for Bancos Aval. You already mentioned a 1 percentage point for the consolidated ROE, but I would like to understand what will be the impact across Bancos Aval. That will be the first question. Thank you. The second one is also on regulatory issues, and regarding taxes. Considering the previous economic emergency decree was put on hold, what is the effective tax rate that you are using in your numbers?

Speaker 5

Are you considering the 15% tax surcharge or paying, for example, deferred taxes? Thank you so much.

Speaker 4

Okay. As I try to answer your calls, I can't be a tax advisor here for you, but our understanding of how the net worth tax works is similar to what we've done, we've seen experienced in the past, and it says subtracting from the tax base, the equity tax base of a bank or the company. It's a tax, acquisition price of the shares it holds in its taxable balance sheet. That's the way it is expected to work, and it is similar to what it has been in the past. The kind of language that we've seen in what has come up to date is basically the same that we saw in 2014. Regarding what happens to the group, yes, attributable should be something in the order of magnitude, one percentage point.

Speaker 4

If you think that the attributable net, the attributable equity of Grupo Aval is roughly 55%-60% of the consolidated group. If you ask what our group will be contributing to the tax in that sense would be almost twice of what we do attributable to our shareholders. Regarding how we calculate our tax in our guidance, the number comes out something similar to 35%. That is a combination of the taxes that we have to pay for our financial companies that have a surcharge in our numbers of 5%, and then the taxes that other companies pay, less those that have some exceptions.

Speaker 5

But it means that is without the economic emergency.

Speaker 4

Exactly.

Speaker 4

For the situation that we had before.

Speaker 4

Exactly

Speaker 4

tax.

Speaker 4

Exactly. That is what we expect on our base, and as I mentioned, the equity tax would add up to that around 5 percentage points if we were to make our calculation and all based on marginal tax.

Speaker 5

Perfect. Thank you so much.

Speaker 4

Thank you.

Speaker 5

Thank you.

Operator

Our next question will come from the line of Brian Flores with Citibank. Please go ahead.

Speaker 6

Hi, team. Thank you for the opportunity. Could you provide an update on the guidance you provided in the third quarter regarding loan growth, cost of risk, and ROE? I think it would be very useful. Just to confirm, basically you're saying your base case is no change in the taxes, right? You're basically saying, we have no surcharge and we have no wealth tax. That is the base case in place in the guidance, right? Thank you.

Speaker 4

Yeah. You're right, the 10.5 basically takes taxes as were not the taxes from the emergency, and that's why we are guiding into an additional effect that we could have from the wealth tax. Regarding our guidance, we have slightly reduced our guidance and growth. Regarding ROE, there is an implied 150 basis points reduction in guidance on ROE compared to our last call.

Speaker 6

Okay. Just to confirm here, you were, if I am not mistaken, guiding for a range of 12%-12.5%. We are basically going to 11% or close to 11%. Is this

Speaker 4

Just restating. We are in the 10.5% area guiding. Last time we were in the 12% area, with an upward bias at that point.

Speaker 6

Okay. If I may, you basically are explaining that you are seeing no changes in the tax rate, slightly lower loan growth. Which is the driver here on the reduction? I know you are liability sensitive or not as asset sensitive as other banks, so it could be the NIM. Do you think this is more related to cost of risk? Because you mentioned efficiencies should be better in 2026 and onwards, from what I understood. No?Yeah. It is a combination of several things. One, and the main driver, is a better mix of our loan portfolio that is also helping us to cope with the kind of behavior of the central bank rate that will imply a relatively better NIM year-on-year. There could be a reduction if you take the numbers that we had for the fourth quarter. That was the best quarter in NIM, as I mentioned. However, year-on-year, there is an improvement. There are other things that are going to happen, and it is we expect Porvenir to have a better performance than what we had guided before. Basically for two reasons. One, higher minimum wage implies higher fees from contributions from our customers, and then a higher interest rate environment is positive for Porvenir.

Speaker 4

It is a combination of several things. One, and the main driver, is a better mix of our loan portfolio that is also helping us to cope with the kind of behavior of the central bank rate that will imply a relatively better NIM year-on-year. There could be a reduction if you take the numbers that we had for the fourth quarter. That was the best quarter in NIM, as I mentioned. However, year-on-year, there is an improvement. There are other things that are going to happen, and it is we expect Porvenir to have a better performance than what we had guided before. Basically for two reasons. One, higher minimum wage implies higher fees from contributions from our customers, and then a higher interest rate environment is positive for Porvenir.

Speaker 4

On top of that, we have the other inorganic discussions that Maria Lorena pointed out that we expect to help us. We expect to see our mix improve. You've seen that throughout the past years, we've been moving towards retail, to the retail segment. We've been working strongly on improving that organically and inorganically. That also improves our performance. Actually, when we compare our cost of risk, there is no change in cost of risk. The other area where we could see a substantial improvement is NIM coming from investments. In general terms, we've seen volatility this year, and there's been points in time as was fourth quarter where NIM and investments was negative on our result.

Speaker 6

No, super clear. I am very sorry to insist here. It's just that I don't understand, because if you're assuming no change in cost of risk and you're assuming a better mix and what I understood is a stable NIM, but then you're mentioning basically the reduction on ROAE is of 100 basis points year over year in the guidance. Is this only coming directly from a reduction in your expectations of loan growth, which I assume they were around 8% in the last call?

Speaker 4

Yeah, I have to correct myself. I just pulled out our guidance last time. We have actually a slight pickup on retail, and we also have, as I mentioned before, when you look at our effective tax rate, we're also building in a higher tax rate for this year.

Speaker 6

Understood. Thank you very much for the clarifications.

Speaker 4

Okay. Sorry to take so long.

Operator

Again, if you would like to ask a question, press star then the number 1 on your telephone keypad. There are no further questions at this time. Ms. Maria Lorena Gutiérrez Botero, I turn the call back over to you.

Speaker 1

I just want to say thank you for being here with us, and I'll see you in 3 months. Bye.

Operator

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

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