Grupo Aval Acciones y Valores Q1 2026 Earnings Call Transcript

Quartr
Provided by Quartr
May 13, 2026

Key Takeaways

  • Positive Sentiment: MFG divestiture completed for $464 million, allowing Banco de Bogotá to sharpen its strategic focus and strengthen its capital position.
  • Negative Sentiment: First-quarter attributable net income fell 2.3% year over year to COP 336 billion, including a COP 210 billion impact from the one-time equity tax; reported ROAE was 7.4%, versus 12% excluding the tax.
  • Negative Sentiment: Colombia’s challenging macro backdrop includes projected 2026 GDP growth of about 2.4%, inflation of 6.2%, and a policy rate that could rise from 11.25% to roughly 12.25%, creating continued funding-cost and net-interest-margin pressure.
  • Positive Sentiment: Asset quality improved, with 90-day past-due loans declining to 3.33% and coverage rising to 137%, while gross loans grew 6% and deposits increased 11.7% year over year.
  • Positive Sentiment: Management expects 9.5% loan growth in 2026, supported partly by the pending Itaú retail banking acquisition, and is targeting COP 62 billion in group-wide savings through shared services, technology, and procurement efficiencies.
AI Generated. May Contain Errors.
Earnings Conference Call
Grupo Aval Acciones y Valores Q1 2026
00:00 / 00:00

There are 10 speakers on the call.

Operator

Welcome to Grupo Aval's first quarter 2026 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 Superintendencia Financiera de Colombia 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 International Accounting Standards Board. 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 27th, 2025, Banco de Bogotá 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. On March 18th, 2026, after obtaining the required regulatory authorizations and fulfilling all agreed conditions precedent, the transaction was completed. 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 is not intended 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 ending December 31st, 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, anticipate, believes, 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. 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 Superintendencia Financiera de Colombia, with the opinion of an external auditor. At the time of this solicitation, 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, everyone, and thank you for joining us for our first quarter 2026 conference call. I am here with Diego Solano, our CFO, Camilo Pérez, Chief Economist of Banco de Bogotá, and Jorge Castaño, Corporate Vice President of Financial Assets and e-Business. Before turning to our financial results, I would like to highlight two significant corporate developments of the quarter. First, on March 18, Banco de Bogotá completed the sale of 99.57% of MFG for $464 million, concentrating on its strategic focus and strengthening its capital position. Second, I am pleased to announce the appointment of Juan Carlos Echeverry as an incoming CEO of Banco de Bogotá, whose leadership we are confident will drive the next chapter of the bank's strategy.

Speaker 1

Our Q1 net income reached COP 336 billion, a decrease of 2.3% compared to the first quarter of 2025. During this quarter, we recorded the equity tax, which amounted to COP 312 billion in operating expenses with a COP 210 billion impact in accruable net income, reducing the quarter's ROAE by approximately 467 basis points. Excluding this one-time effect, our underlying performance reflects improving trends across our businesses. The quarter was characterized by improving asset quality and cost of risk, a strong contribution from our non-financial sectors, and continued progress on operational efficiency. Funding cost pressures driven by the renewed tightening cycle and the impact of the equity tax were the main headwinds. This is also a strategically significant quarter for Grupo Aval.

Speaker 1

We launched our 2026-2031 corporate strategy, a long-term framework that reflects our ambition to increase our relevance in the market where we operate to capture efficiencies and deploy technology in a structural and disciplined way, and to generate real impact for all of our stakeholders. Our strategy is organized around three core axes: relevance, opportunities, and impact, and materialized through 10 strategic pillars that will orient our evolution as a group over the next five years. Under the relevant axis, we are focused on strengthening our leadership position, deepening client centricity, and optimizing capital allocation. Under opportunities, we are accelerating efficiency and standardization, leading digital transformation, and turning data and artificial intelligence into competitive advantages. Under impact, we are committed to developing our talent, upholding the highest standards of corporate governance and risk management, and ensuring that our growth generates a positive impact for society and environment.

Speaker 1

This strategy is a shared commitment across Grupo Aval to consolidate our position as Colombia's leading financial group. Now, I would like to invite Jorge Castaño, our Vicepresidente Corporativo, to share our advancements in other strategic matters. Jorge?

Speaker 2

Thank you, Maria Lorena, and good morning, everyone. Turning to the first pillar that Maria Lorena mentioned, profitable business, the purchase and assumption transaction of Itaú's personal banking business by Banco de Bogotá marks a defining moment in Grupo Aval's retail banking strategy. Once fully executed, this transaction is expected to deliver COP 3.3 trillion in consumer portfolio growth, equivalent to 34 months of organic expansion, while adding COP 3.2 trillion in mortgage lending, positioning Banco de Bogotá in third place in the Colombian housing market with a 12.8% market share. On the deposit side, we expect personal deposits from individuals to grow by COP 4.1 trillion, representing around 20 months of accelerated organic growth and reaching a high of 9.3% market share.

Speaker 2

On the client side, the bank will add around 277,000 customers, double its premium segment with 35,000 new high-value clients, and expand the preferred segment by 60%, adding 97,000 clients. Taken together, these results confirm that this transaction is just a growth initiative. It is a structural repositioning of Banco de Bogotá as a relevant force in Colombian retail banking, a unique opportunity to upgrade and relaunch its personal banking business, and a key step in its evaluation as universal bank and flagship entity of Grupo Aval. We are expecting to receive regulatory authorization from both the competition authority and the financial regulator within the coming weeks. Once clearance is obtained, Banco de Bogotá is fully prepared to execute a disciplined 90 days integration roadmap.

Speaker 2

The operational groundwork covering system convergence, client migration protocols, and commercial team alignment is being developed in parallel with the regulatory process, ensuring zero lag between approval and execution. The Panama operations, comprising a $6.8 million loan portfolio and $140 million in deposits, will be incorporated in the consolidated balance sheet within the same window to enforce capital efficiency and cross-border synergies from day one. Now, turning to Aval Fiduciaria, our asset management entity. The company successfully completed the integration process on January 2, 2026, establishing a strong foundation with COP 198 trillion in assets under management, a platform of 33 collective investment funds, and 5,700 trust mandates. This milestone is further validated by the highest counterparty risk and portfolio management ratings given by Fitch Ratings and subsequently reaffirmed by S&P Global, reflecting the institution's commitment to operational excellence and investor confidence.

Speaker 2

During the first quarter of 2026, Aval Fiduciaria reinforced its industry leadership. The company holds a 19% market share in commissions, with revenue growing by 12.5% to reach COP 151.4 billion. Assets under management grew 4.2% in the quarter to COP 206.5 trillion, with collective investment funds gained 149 basis points of market share to reach 22.3%, capturing more than half of total market growth. The client base expanded 4.7% in the quarter and 13% year-over-year. On profitability, the company posts a ROE of 33%, with net income of COP 22 billion for the first quarter. Operational efficiency improved materially as well, bringing the cost-to-income ratio to 65%, an improvement of close to 10 percentage points.

Speaker 2

Looking ahead, Aval Fiduciaria continues to execute under its Destino 2031 strategy, highlighted by a collaboration with BlackRock through their Metaverse ETF solution, which gives Colombian retail investors access to balanced and global ETF portfolios, alongside continued investment in digital channels to democratize access to its full product suite. Now let me turn to our payment initiative business, GOU Payments. The company continues to strengthen its position as Grupo Aval's interoperable payments and value-added service platform. During the period, GOU secured two critical regulatory milestones: certification from the Superintendencia Financiera de Colombia and authorization from Banco de la República to operate with the Bre-B ecosystem. Commercial traction is already visible. Controlled pilots have engaged more than 120 users in an initial phase, designed to validate performance ahead of full rollout.

Speaker 2

On the collection side, GOU is enabled to Bre-B by Aval Valor across its existing base of 22,000 active agreements in Aval Pay Center, while 635 corporate clients with specialized integrations are currently progressing through final development and implementation, representing a significant near-term revenue opportunity as interoperable collections accelerate across the ecosystem. Underpinning this growth is a proprietary technology platform built to the highest standards of security, resilience, and operational capacity, capable of delivering value-added products and services to both financial and non-financial institutions. Finally, we are strengthening both the organizational structure and the executive team, bringing in senior professionals with a proven track record and strong recognition across the fintech payments industry. This investment in talent and infrastructure is designed to ensure best-in-class product development and the most effective commercial rollout possible as GOU Payments moves toward full scale deployment.

Speaker 2

Finally, turning to the efficiency segment, a central pillar of our 2026-2031 corporate strategy is the capture of efficiencies and synergies across the group through our shared service center, ACC. In procurement, we have already taken over processing Banco de Bogotá, Banco de Occidente, AV Villas, GOU Payments, and Aval Valor Compartido. During the second quarter, we will take over Banco Popular, Aval Fiduciaria, and Grupo Aval Holding, and we aim to close the year with Real Tali, Porvenir, and Corficolombiana and its subsidiaries. This center will operate on a controllable spending base of COP 1.4 trillion, and for 2026, we have a savings goal of COP 62 billion. Most of our contractual renegotiations are due in the fourth quarter, for which we project COP 32 billion in savings, equivalent to a 9% annual savings rate over the controllable spending base.

Speaker 2

In technology, during the second quarter, we began implementing a unified cloud migration roadmap for Grupo Aval. This initiative will optimize our technology infrastructure, including data centers, and modernize the telecommunications network across the group. In property management, we have already taken over and stabilized over four banks and Corficolombiana. These centers manage a COP 720 billion portfolio of assets, with a target to raise the commercialization rate from 27% to 37% by year-end. In human talent, we manage payroll for 40,000 employees. In attraction and selection, we are managing an average of 750 monthly openings with an internal satisfaction score of 4.7 out of five. We are also tracking a reduction in average time to fill from 24 days to 22 days. Physical channels that BAC overseas has taken control of 4,110 properties across all four banks, establishing an automation program through the new work.

Speaker 2

That concludes my segment. Across every pillar we discussed today, Grupo Aval is executing with discipline and building the foundation for sustainable, profitable growth. Back to you, Maria Lorena.

Speaker 1

Thank you, Jorge. Now let me walk you through the key macroeconomic developments of the quarter. The global environment has grown more complex since our last call. The escalation of the conflict in the Middle East has introduced a new layer of uncertainty, especially in oil prices and global supply chains. These dynamics are moderating global growth prospects for 2026. On the domestic front, GDP growth decelerated to 2.3% in the fourth quarter of 2025, down from 3.4% in the third quarter as private consumption moderated, and investment further declined amid deteriorating investor confidence. Early 2026 data reaffirms these trends. According to DANE's economic activity indicators, the economy grew just 1.5% in the January-February period, driven almost entirely by the service sector. We expect a 2026 full-year GDP growth of approximately 2.4%. On inflation, prices pressure have increased.

Speaker 1

Annual inflation reached 5.68% in April 2026, its highest reading since September 2024. We project inflation at 6.2% for 2026, with a gradual return towards the 4% range expected by 2028. The central bank raised the policy rate by cumulatively 200 basis points during the first quarter, above market expectations, and what was priced into the Issuer Default Rating, Issuer Default Rating. With these increases, the rate reached 11.25% at the end of March. In its most recent April meeting, against market expectations and with a tense relationship with the government, the central bank's board unanimously decided to maintain its intervention rate. This was the last rate decision meeting before the first and second presidential election rounds. As of March, the Colombian peso has strengthened nearly 13% over the past 12 months, supported by strong remittance inflows and a broadly weaker U.S. dollar, helping contain inflation on the import side.

Speaker 1

Camilo will elaborate on our economic outlook. Camilo?

Speaker 3

Thank you, Maria Lorena. Good morning to everyone. The Colombian economy registered growth slightly above 2% in the first quarter of the year, marking its slowest expansion rate in a year and a half as a result of the weakening of several key sectors. In particular, the performance of the agriculture, mining, manufacturing, and construction sectors largely explains the low growth. In the absence of investment, private consumption and public spending have consolidated as the driving forces of the Colombian economy. For households, in a scenario of double-digit wage growth and lower inflation for goods than for services, families have maintained their spending levels on durable goods, with some sectors of industry and commerce being the biggest beneficiaries. Meanwhile, despite its moderation due to the rapid increase of prices, household consumption of services remains positive, favoring sectors such as lodging and food services, entertainment, and professional activities, among others.

Speaker 3

Given that household spending is driven by income levels and not necessarily by borrowing, the financial sector continues to experience low growth. In fact, the continued weakness in investment due to the elevated uncertainty and higher interest rates poses challenges to the sector's performance. For the remainder of the year, amidst the impact of the war in the Middle East, tighter local financial conditions, a prolonged period of challenges for key sectors, and electoral uncertainty, the Colombian economy is expected to grow 2.4%. Turning to prices, inflation rebounded from 5.1% at the end of 2025 to 5.7% in April 2026 due to increased pressures in non-rental services, food, and goods.

Speaker 3

For the remainder of the year, the upward trending inflation is expected to continue due to the lagged effect of the minimum wage increase, higher energy commodity prices resulting from the conflict in the Middle East, the arrival of El Niño, and the potential depreciation of the peso. Inflation is expected to end 2026 at around 6.2% before slowly moderating toward the target starting in 2027. On the fiscal front, a slight improvement is projected compared to the previous year. In 2026, for the first time in four years, the government is expected to meet its revenue target, thanks to the adjustment made to its financial plan. Regarding spending, the failure to approve the 2025 financing law will force the government to implement a COP 16 trillion expenditure cut if it cannot secure sufficient revenue to support it. However, this cut will be insufficient to improve public finances.

Speaker 3

Thus, a primary fiscal deficit of 3.1% of GDP is estimated for 2026, lower than the 3.5% of GDP observed in 2025, representing a marginal improvement that does not alter the structural situation of the fiscal front. In fact, Standard & Poor's lowered Colombia's rating from BB to BB-, adjusting the outlook from negative to stable. Given the improvement in revenue and a containment of spending, the government has had sufficient liquidity to implement debt management operations, including dollar purchases to close the social return swap, repurchases and redemptions of domestic and external debt, as well as internal debt swaps. Thus, the performance of several local assets has been influenced by the government actions, particularly the exchange rate, public debt, and liquidity.

Speaker 3

Against this backdrop, with inflation and inflation expectations rebounding and the fiscal situation remaining vulnerable, Banco de la República raised its interest rate by 200 basis points in the first quarter to 11.25%. In a clash with the government and amid a political uncertainty surrounding the elections, the central bank's board unanimously opted to pause the rate hiking cycle in April, though this doesn't imply the end of the adjustments. The central bank would have additional room to increase its interest rate between 50 basis points and 100 basis points, which would bring the benchmark rate to around 12.25% by the end of the year. With a scenario of higher domestic interest rates and a favorable result of the March legislative elections, which confirmed the absence of absolute majorities in Congress, the local exchange rate extended its downward trend, reaching its lowest level since 2021, near 3,500 COP per dollar.

Speaker 3

However, this trend was contained by dollar purchases made by the government. Likewise, the uncertainties surrounding the presidential elections delayed the appreciation trend of the Colombian peso. But ultimately, the election results are increasingly becoming the main catalyst for the future of the country's economy and institutions. Also, high uncertainty persists just days before the first round. In a potential second round, the results appear quite close, so only after the election will the proposed macroeconomic scenario be validated. Back to you, Maria Lorena.

Speaker 1

Thank you, Camilo. Turning to our financial results. Gross loans end March of at 193.6 trillion Colombian pesos, increasing 6% compared to 2025, and deposits reached 216.9 trillion Colombian pesos, increasing 11.7% over the last 12 months. The Central Bank's strong shift toward a more restrictive monetary policy and the higher yield on Colombians, soaring the up pressure on our consolidated funding costs. Our banks have closely followed, reviewing pricing adjustments and setting action plans to navigate this environment. We continue to make progress in growing our save funding base, which provides a more stable and cost-effective source of funding. Notably, the spread between yield on loans and cost of deposits in our banking segment held steady at five. Regarding our non-banking subsidiaries, Corficolombiana delivered strong results despite significant volatility in both the equity and the fixed income markets.

Speaker 1

Corficolombiana had a strong quarter as well, boosted by seasonal dividends and high inflation expectations for 2026, which benefited revenues from the infrastructure sector. I would like to pass the call to Diego, who will give you the details of our results. Diego?

Speaker 4

Thank you, Maria Lorena. I will start on pages 9 and 10 with a few charts showing the growth rate and the 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 Superintendencia Financiera de Colombia. Starting on page 9. Over the 12-month period ending on February 2026, Grupo Aval, as well as the rest of the banking system, continues to gain momentum. Growth for the system was primarily driven by large corporates, institutional, and government in the commercial loans and by unsecured products in the consumer loans segment. Our strategy remains consistent. We have deliberately prioritized portfolio quality and risk-adjusted returns over volume growth. We are focused on local currency commercial loans and personal loans and credit cards in the consumer segment.

Speaker 4

We continue to be selective in corporate commercial loans given the aggressive pricing competition currently present. Our peso-denominated commercial loans market share increased by 10 basis points year-on-year to 26.3% and remained flat over the quarter. Regarding our dollar-denominated commercial loans, where we have historically been overweighted, we reduced our market share by 231 basis points to 36.8%. In addition, in peso terms, the balance of our dollar-denominated commercial loans were negatively impacted by an 8.9% appreciation of the Colombian peso over the year. As a result of the above, our market share for commercial loans fell 15 basis points over the year and increased three basis points over the quarter. In consumer loans, to reduce rate sensitivity, we continue diversifying our portfolio towards higher yielding and shorter-term loans, reducing our concentration in payroll lending.

Speaker 4

We gained 147 basis points of share in personal loans year-on-year and 49 basis points over the quarter, raising our market share to 22%. The Itaú retail banking business acquisition will take us to market weight in personal loans. As part of the effort to reinvigorate our credit card business, where we lost 11 basis points over the quarter and 151 basis points year-on-year, we launched the Visa and Grupo Aval alliance. Itaú retail banking business acquisition will add two percentage points of share in credit cards to the 17.3% we held at the end of this quarter. We maintain a leadership position in payroll lending with 41.7% market share. We reduced our share in payroll lending 49 basis points over the quarter, accumulating 138 basis points year-on-year.

Speaker 4

Overall, our market share for consumer loans closed at 28.7%, with a 17 basis points decrease over the quarter and 98 basis points decrease year-on-year. Moving on to mortgages, we continue to gain market share with 12 basis points increase over the quarter and 89 basis points year-on-year. As a result of the above mentioned, we close our market share in home loans at 25%, stable over the quarter and 30 basis points lower than a year earlier. On page 10, loan quality for both the system and the Aval banks continued to show an improvement across all loan categories. Our banks continue to exhibit better loan portfolio quality than the rest of the system in all categories. I will now move to the consolidated results of Grupo Aval under IFRS, starting on page 11.

Speaker 4

Assets grew 2.4% over the year to COP 338 trillion and contracted 3.2% over the quarter, impacted by the divestiture of MFG. Excluding the MFG assets in quarter and annual close were 2.1% and 1.2% respectively. In terms of mix, other assets, which include the assets held for sale related to MFG during the fourth quarter of 2025 declined 17.1% to 12.5% of total assets in first quarter 2026 as MFG assets were derecognized following the completion of the divestiture. On the bottom of the page, gross loans grew 6% over the year and 1.5% during the quarter. Our peso-denominated loans increased 8% and 2.2% respectively. Commercial loans grew 5% year-on-year and 1.6% over the quarter. Peso-denominated commercial loans grew 8.6% year-on-year and 2.9% quarter-on-quarter. While US dollar-denominated commercial loans grew 4.1% year-on-year and decreased 3.3% quarter-on-quarter in dollar terms.

Speaker 4

Our dollar-denominated loans account for 8.1% of our total portfolio after the MFG divestiture, and come primarily from the U.S. agencies of Banco de Bogotá, our trade finance activities, and the offshore subsidiaries of Banco de Bogotá and Banco de Occidente. These loans were affected by an appreciation of the Colombian peso of 12.7% year-on-year and 2.6% quarter-on-quarter. Consumer loans grew 4.2% year-on-year and 0.5% during the quarter. Payroll loans that account for 54% of our consumer loans grew 4.8% year-on-year and contracted 0.5% over the quarter. Personal loans that account for 27% of our consumer loans grew 14.1% over the year and 3.5% in the quarter. Credit cards that account for 11% of our consumer loans grew 1.2% year-on-year and contracted 0.4% quarter-on-quarter. Automobile loans that account for 7% of our consumer loans increased 1.3% year-on-year and 0.5% quarter-on-quarter. Finally, mortgages grew 16.8% year-on-year and 3.5% over the quarter.

Speaker 4

On page 12, we present funding and deposit evolution. Total funding reached COP 281 trillion, growing 8.9% year-on-year and 1.9% over the quarter. Total deposits, which account for around three-fourths of our funding, grew to COP 217 trillion at 11.7% year-on-year and 4.5% over the quarter. Savings deposits drove the overall deposit performance and gain share in our mix. Savings deposits grew 17.8% year-on-year and 6.2% during the quarter. A strong performance that reflects our continued efforts to deepen our retail funding business and diversify our funding mix. Our deposits to net loans increased to 116%, responding to higher volatility. This further pressed our NIM, adding to the challenge in benchmark rate increase. On page 13, we present the evolution of our total capitalization, our attributed shareholders equity, and the capital and equity ratio of our banks. During the quarter, dividends of COP 755 billion were declared to our shareholders.

Speaker 4

In addition, 708 billion COP of dividends were declared to the minorities at our subsidiaries. As a result, our total equity increased 3.3% over the quarter and increased 3% year-on-year. Our attributed shareholders equity increased 3.5% over the quarter and increased 3.6% year-on-year. Total solvency and Tier 1 ratios were relatively stable in most of our banks. In the case of Banco de Bogotá, the increase in solvency reflects the re-recognition of the risk-weighted assets coming from MFG after the sale was completed. In addition, Banco de Bogotá and Banco de Occidente solvency ratios reflect dividends distributed through March. On page 14, we present our NIM. Net interest income reached 2.2 trillion COP during the first quarter of 2026, increasing 14.3% compared to fourth quarter of 2025, and decreasing 4.1% compared to the first quarter of 2025.

Speaker 4

Total NIM increased 39 basis points to 3.34% quarter-on-quarter, and decreased 45 basis points year-on-year. Our consolidated NIM on loans contracted to 4.4% during the quarter, down from 5.05% in fourth quarter 2025, mainly driven by the ongoing repricing of our cost of funds in response to higher rate environment. Our NIM on investment recovered to a 0.25%, up from negative 3.1% in the fourth quarter 2025, reflecting a mild recovery in the local capital markets. The quarter was also marked by a strong performance from FX and realities that completed our banks trading strategies. Focusing on our banking segment, the total NIM of our banking segment expanded one basis point from the quarter to 4.15% due to the same dynamics that affected our consolidated NIM. NIM on loans was 4.98%, decreasing 55 basis points quarter-on-quarter.

Speaker 4

This incorporates a 59 basis points quarter-on-quarter decrease in NIM on retail loans to 6.47%, and a 46 basis points quarter-on-quarter decrease in NIM on commercial loans to 3.86%. The timing match between cash and repricing liability driven assets is a primary driver of NIM on loans compression observed this quarter. This effect will partially be reduced as commercial floating loans reprice with a lag of a few months. In addition, we have a relatively high liquidity profile to position our banks to event of volatility, further pressing our NIM. On page 15, we present yields and cost of funds. Interest rate dynamics on our loans and funding are driven by the movements in the average benchmark rate in Colombia. The average central bank intervention rate increased approximately 300 basis points from the first quarter, while our consolidated cost of deposits increased 16 basis points to 6.75%.

Speaker 4

On pages 16 to 18, we present several loan portfolio quality ratios. On page 16, credit quality continues to improve during the quarter. 90-day PDLs were 3.33%, a 16 basis points improvement relative to the last quarter and 68 basis points over 12 months. 30-day PDLs were 4.3%, a seven basis points improvement over three months and 94 basis points over 12 months. PDL formation continued to accelerate. New 90-day PDLs in the quarter were 766 billion COP. The coverage ratio on 90-day PDLs strengthened to 137%, up from 134% three quarter 2025. Commercial 30-day PDLs were 3.86%, a two basis points increase over three months. 90-day PDLs were 314 basis points decrease over the quarter. We recorded an 18 basis points decrease in consumer 30-day PDLs to 4.49%, and 90-day PDL decrease of 21 basis points to 2.58%.

Speaker 4

Mortgages, 30-day PDLs and 90-day PDLs improved 26 basis points and 19 basis points quarter-on-quarter. Finally, the ratio of charge-offs to average 90-day PDLs was 0.64 targets. On page 17, the share of our loan portfolio classified as Stage 1 continued to improve, reaching 90.3% of the total portfolio, up from 89% in first quarter 2025 and 89.8% in fourth quarter 2025, reflecting the ongoing improvement in credit quality across all segments. The allowances for Stages 2 and 3 as a percentage of loans classified at Stages 2 and 3 was materially stable in the quarter for total loans. On page 18, our net cost of risk was 1.8%, increasing six basis points quarter-on-quarter, including 36 basis points year-on-year. Our gross cost of risk was 2.1% in first quarter 2026, stable quarter-on-quarter.

Speaker 4

Net cost of risk for consumer loans was 4.1% in the quarter, a slight uptick from 3.8% in fourth quarter 2025, driven primarily by credit cards. Net cost of risk for commercial loans remained contained at 0.7%. On page 19, we present net fees and other income. Gross fee income grew 6.9% year-on-year and increased 1% quarter-on-quarter. Net fee income increased 10% and decreased 0.7% respectively. Gross fee income was driven by a 5% increase in banking fees, 6.9% in pension funds, and 14.3% in trust fees. Income from the non-financial sector was around 1.3 times of that reported during the first quarter 2025 due to a positive impact of higher inflation and concession revenues. Energy and gas contributed COP 255 billion, roughly in line with previous periods.

Speaker 4

Finally, on the bottom of the page, a year-on-year increase in operating income is mainly explained by lower derivatives and FX gains. By higher derivatives and FX gains. Net income from other financial instruments at fair value decreased COP 92 billion from COP 348 billion due to the one time fair value recognition of COP 303 billion related to the Promigas pipelines during fourth quarter 2025, as discussed on our previous call. On page 20, we present some efficiency ratios. Total other expenses reached COP 2,565 billion in first quarter 2026, increasing 20.3% year-on-year and 6.4% quarter-on-quarter. This is largely explained by the equity tax which was reported under general and admin expenses and accounts for COP 312 billion. Without the impact of the equity tax, OpEx grew 5.7% year-on-year and decreased 6% quarter-on-quarter versus a seasonally high fourth quarter.

Speaker 4

Underlying expense growth remains moderate and broadly in line with our cost control targets. Operating taxes, excluding the equity tax, accounted for 22.9% of total expenses. Personnel expenses increased 5.1% year-on-year to COP 820 billion, impacted by the 23% minimum wage increase on part of our workforce. Cost to assets for the quarter was 3%, including a 36 basis points negative impact from the equity tax, and remains stable year-on-year at 2.6% when excluding this expense. Our quarterly cost to income improved to 53.9%, mainly due to higher income from the non-financial sector and net fees. Excluding the equity tax, cost to income was 47.3%, following the same drivers. Finally, on page 21, we present our net income and profitability ratios. Attributable net income was COP 337 billion or COP 14.2 per share.

Speaker 4

This includes COP 351 billion from continuing operations and a net loss of COP 15 billion related to discontinued operations. The equity tax had a negative impact of COP 210 billion on our attributable net income for the quarter. Excluding this one-time impact, our net income from continuing operations would have been COP 561 billion. Return on average assets and return on average equity for the quarter were 0.9% and 7.4%, respectively. Excluding the effect of the equity tax, return on average assets and return on average equity would have been 1.2% and 12%. I will now summarize our general guidance for 2026. We expect loan growth in the 9.5% area. Commercial loans growing in the 6.5% area and retail loans growing in the 14% area. Our consolidated NIM in the 3.9% area, with NIM on loans in the 4.4% area.

Speaker 4

NIM of our banking segment in the 4.8% area, with NIM on loans in the 5.2% area. Cost of risk net of recovery in the 1.9% area. Cost to assets in the 2.85% area, incorporating a 9 basis point impact of the equity tax. Income from the non-financial sector of 1.3 times of that for 2025. Our GIIC income ratio in the 22% area. Finally, we expect our 2026 return on average equity to be in the 9 and a quarter area, incorporating 114 basis points impact from the equity tax. Back to Maria Lorena.

Speaker 1

Thank you, Diego. Before moving into questions and answers, I would like to share some final thoughts on Colombia and Grupo Aval in 2026. The environment we are navigating in 2026 is undeniably complex, with political and electoral uncertainty, persistent inflation, and a renewed monetary tightening cycle, and a challenging global backdrop. We have the experience and the tools to navigate it, and we are better positioned today than we were at the start of the previous cycle. Our balance sheet is more resilient, as shown by the diversification of our loan portfolio and our funding structure. We have decreased the duration of our loan book, which will enable us to reprice the cycle faster than before. On the funding side, we have reduced maturity and repricing gaps, growing in segments less sensitive to interest rates.

Speaker 1

In addition, we have reduced interest rate sensitivity using interest rate swaps, among other derivative tools. On profitability, we expect our ROAE in the 9%-9.5% area for the year, incorporating, first, the 114 basis points negative effect of the equity tax, and second, the impact of tightening cycle on our NIM over the following quarters. Looking ahead, our path is clear. We will deepen our relevance with clients, accelerate the capture of efficiency through technology and operational integration, and continue unlocking the value of our non-financial businesses through Corficolombiana. All of this is anchored in our 2026, 2031 corporate strategy, our roadmap to consolidate Grupo Aval as Colombia's leading financial group. Colombia's financial sector will continue to be a pillar of trust and investment regardless of the political cycle. Grupo Aval will continue playing that role with discipline and a long-term perspective. Now we are open for questions.

Operator

Thank you. We will now begin the question-and-answer session. If you have a question, please press star then the number 1 on your touch-tone 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, to ask a question, please press star then 1 on your touch-tone phone. Our first question will come from the line of Brian Flores with Citibank. Please go ahead.

Speaker 5

Hi, team. Thank you for the opportunity to ask questions. I have a first one, it's a clarification on the guidance. Just wanted to check with you if you mentioned that the group's NIM on loans for the year is expected at 4.4%, which is the level you finished this quarter. I think that's my first question. Depending on the answer, I have a follow-up.

Speaker 4

Yeah, the answer is yes. It is 4.4%.

Speaker 5

Okay, perfect.

Speaker 4

The main difference

Speaker 5

Just go ahead.

Speaker 4

No, go ahead, please. Go ahead.

Speaker 5

Just wanted to understand, how should we understand the positioning of the group in the cycle, right? Because the NIM level is coming from 4.6, went all the way to 5. Should we understand that now the sensitivity is a bit lower in the sense that as rates have continued to go up, you will have maybe muted effects on the NIM? Just wanted to clarify that.

Speaker 4

Yeah. Brian, I think that the best way to think about it is throughout the year you are going to see volatility throughout the next few quarters. The reason for this volatility is the repricing mismatch between assets and liabilities. For example, in this quarter, we had a strong repricing on our liability side and very mild on the asset side. What we started to see at the end of the quarter that will reflect on the next quarter is a recovery of NIM. However, we do expect, as Camilo Pérez mentioned before, a further central bank action. The central bank action, the last one that we had, did not reflect in the first quarter because it happened at the end of the first quarter. So we are going to see that happening, and that might also press the third quarter moving forward.

Speaker 4

That is the reason why I would say, again, that you are going to see volatility in the repricing process. I will stick to what we expect on average during the year.

Speaker 5

Okay, perfect. Then another clarification on the guidance. You mentioned the ROE for the year, your expectation is 9.25% with 14 basis points impact from the wealth tax, right?

Speaker 4

Yes. Before moving to that, I think you also asked regarding positioning, and I want to emphasize something that Maria Lorena Gutiérrez Botero mentioned. It is over these past years, we have been rebalancing our portfolio actively as well as our deposit side. Part of what we have done, and let me repeat part of what I said during the presentation, is to lower our exposure to payroll lending and increase our exposure to products on the retail side that reprice much faster. We also have reduced our position in dollar-denominated assets that have a lower NIM to try to enhance our NIM on the asset side. On the liability side, even though it takes much longer to be able to see consequences of what we are doing, we are strongly working on the retail side deposits.

Speaker 4

Regarding positioning, trying to summarize what I said is we expect this to be a milder cycle than what we saw the last time around, where we were much more liability sensitive than what we currently are. Then, regarding ROE, I am going to try to summarize what we are guiding into. Basically, you might have seen that there were some changes that we did in our guidance, but some of them compensate what we will feel from the equity tax and also the pressure from the central bank actions. I would say roughly, we already have a clear view on how to compensate at least half of what happened from the equity tax and continue to work actively in trying to compensate the rest.

Speaker 4

Our guidance for efficiency actually is not bringing down or being affected by the full impact of the equity tax, but we also already have around roughly half of that compensated. On the other hand, we are building in a tougher interest rate environment than what we expected before. Also, we are building in more liquidity in our balance sheets referring to the electoral volatility. You might imagine that this liquidity is very expensive because it has basically a zero NIM or slightly negative NIM that has affected us during this quarter. Perhaps after the electoral cycle, we might loosen that position. But we are seeing a tougher NIM environment. However, we have a few positives. One of the positives here is our cost of risk continues to behave better than what we expected before. That is coming in, and as I mentioned before, we are also working strongly on the efficiency side.

Speaker 4

You saw Jorge Castaño's presentation that focused on actions rather than the actual results. But these are the actions that will lead us to these kind of results.

Speaker 5

Yes.

Operator

Our next question will come from the line of Carlos.

Speaker 4

Yeah. A final one, for your very good question, Brian. If you take our previous guidance was 10.5%. We have roughly 1.2 percentage point impact from the equity tax. We have a strong impact from the NIM, and we are compensating now. All in all, if you strip away the equity tax, we actually lowered our guidance in roughly 20 basis points or something of that order of magnitude.

Operator

Our next question will come from the line of Carlos Gomez with HSBC. Please go ahead.

Speaker 6

Good morning, and thank you for taking my question. It was just a bit different. Can you tell us how the pension reform is going to affect your business, and whether you think that Porvenir should be part of your portfolio for the long run? Also, maybe this is not the right time, but what are the prospects of simplification of your structure and reducing the number of different units in the coming 3, 4 years, in your opinion?

Speaker 4

Let me take the easy one, and I am going to pass it down to Maria Lorena. Regarding the pension reform, as we have mentioned in the past, the pension reform actually balances out to, let us say, something similar from the value perspective. That is, the pension reform reduces growth long term, and I am going to qualify what long term means, but also increases returns in the short term. Long term means when you take into consideration that an average affiliate to the pension system is around 38 years old, and that the resources will be managed by pension funds for the remainder of their active life before they retire. The contraction of what we are going to see there with current affiliates will start being relevant around after year 10. So during the first years, you are going to see volumes that are not strongly affected by non-performing.

Speaker 4

However, it does change the expected sizes thereafter. Yes, Porvenir is actually a strong part of our business. It is both a Porvenir and as you see, the trust business are things we are working on. We are working not only on our intermediation business, but we are also considering as one of our pillars to work on the asset management and the fee-generating businesses in addition to what we do in intermediation.

Speaker 6

Okay.

Operator

Our next question will come from the line of Yuri Fernandes with JP Morgan. Please go ahead. Yuri, your line might be muted.

Speaker 7

Hi, guys. Sorry, I was on mute. My fault here. Hi, Diego, Maria Lorena. I have a question regarding loan growth on the guidance. If I heard correctly, I think you are still guiding for 9.5%. That is just small adjustments from the previous around 10% that you had before. Consumer loans are still growing fast on your guidance rate, 14%. My question is more in line with what Brian was talking about the cycle, right? If there is a higher uncertainty in Colombia, inflation, higher rates, everything that we are seeing, do you think that keeping this growth of consumer loans is the best move? I am just checking if maybe being a little bit more cautious and growing a little bit less would not be in this kind of framework. Just checking your comfort of accelerating the growth from consumer.

Speaker 7

I know Grupo Aval has been recovering market share, but again, just checking about the time and about the cycle. Then I had a second question regarding AV Villas. I was just checking the presentation, it caught a little bit my attention, the core capital of that unit. I know it is overall small for the group, but if you can comment about the core capital of AV Villas, why it is moved down while your other subsidiaries, they moved up. If you feel comfortable with that level of 9.3% character capital at Tier 1. Thank you.

Speaker 4

Yeah. I am going to start first with your last question. That is a very easy one. If you look at our solvency ratios, our banks use mainly core equity Tier 1 and are not strong users of Tier 1 or Tier 2 item. You also mentioned that AV Villas is a small operation, so we can act very easily on AV Villas regarding potential support, and it will likely come not from APV, but from hybrid bonds as we have seen in the past. AV Villas is doing very well from the commercial side. That is the reason why you see consumption of solvency, and it is consumption due to a very healthy growth. To your question, I should have clarified that this guidance includes Itaú as part of the numbers.

Speaker 4

Just going back to some of the numbers, the Itaú transaction will add around 2 percentage points in the share of credit cards. It will also add to our personal loans business. It is basically the main driver of that kind of flow. In absence of Itaú, you are right, we would have been guiding into much milder growth, more in line with a nominal GDP growth or something in that order of magnitude.

Speaker 7

No, that was clear. Thank you very much, Diego.

Operator

Our next question will come from the line of Daniel Mora with Credicorp Capital. Please go ahead.

Speaker 8

Hi, good morning, and thank you for the presentation. I have a couple of questions. The first one is regarding OpEx and efficiency. Can you please review what will be the OpEx savings per year during the next phase of the strategy with Aval Valor Compartido and efficiency target that you expect to reach in this year, 2026, and the medium term? That would be my first question. The second one is regarding Corficolombiana. Can you provide further color of the impact of inflation at Corficolombiana, especially in the infrastructure business? In the report, you mentioned that it considers the inflation expectations, but I would like to understand if it is in the expectations or they are full inflation. I would like to understand if this is just a one-off impact or considering the upward trend in inflation, we could expect higher increase in coming quarters.

Speaker 8

Thank you very much.

Speaker 4

Well, regarding OpEx, we are working on multiple fronts. Those that Jorge Castaño mentioned will be running by the end of this year, the run rate of around COP 30 million-COP 40 million per year. That is an initial phase of what we are going to be doing. Then, not included in what we discussed here, we are strongly working on the technology side, and in a later call, we can get back to that point where we see substantial opportunities to work on. Regarding Corfi, the way it works is these concessions, given that the rights received on the concessions, some of those are tied to inflation, do adjust up with expected annual inflation. That compensates in part the very strong increase in cost of funds that they have. So there is some sort of a net offset.

Speaker 4

But if you were to think only of Corficolombiana, not the financial sector as a line, but Corficolombiana as a whole, they are being affected by higher interest rates, and the income from inflation on the concessions is not enough to fully compensate what they are feeling from the funding side.

Operator

Again, if you would like to ask a question, press star, then the number 1 on your telephone keypad. Our next question is a follow-up on the line of Carlos Gomez with HSBC. Please go ahead.

Speaker 6

Hello. I came back to the line because I think there was a question that was not answered before, and I just wanted to know if there is something you would like to address regarding the possible consolidation of the group in the next 3 or 4 years.

Speaker 4

I am sorry, I missed the question.

Speaker 1

Yeah. This is a question that we hear all the time. We just are working on having efficiencies and on having synergies among banks. We have a good integration with the fiduciarias this year. We are on the way to be more efficient, to have more impact, and to have risk hate. We are working on that. But no more to say.

Speaker 6

Okay. Just wanted to make sure that you had the opportunity. Since we are at it, anything you can do to improve the liquidity of the stock?

Speaker 4

Yeah. Our liquidity has been increasing, not enough to our satisfaction. Part of what we are doing, the investors relationship side is working strongly on communication. There are further actions that we would need to do to increase liquidity. There is no plans for a secondary or an issue at this point, so the actions would be more on stock management rather than from additional stock issue.

Speaker 6

Very clear. Thank you so much.

Operator

Our next question will come from the line of Santiago Villanueva with Davivienda. Please go ahead.

Speaker 9

Yeah. Good morning, and thank you for taking my question. I just have two questions. My first question is, I see that in 2025, the four banks gained nearly 60 basis points in retail funding, market share, and by 2026, they have already gained 45 basis points. Most of that profit has come from Banco de Bogotá and Banco Popular. I would like to know what your market share expectations are for these segments in 2026 and what you have planned to help Banco de Occidente and to contribute a little bit more. My second question is, could you provide us a little more detail on the performance of the infrastructure segment in Corficolombiana for this quarter? Thank you.

Speaker 4

Yeah. I only have a figure. I am happy to give it out to you later on. That is public information. I just do not have the number here. You are right, we are being more successful on Banco Popular and Banco de Bogotá bringing in retail deposits. You can be sure that we are working with all of the banks to ensure that all contribute to these very relevant strategic objectives. Regarding infrastructure, I think that was covered in the previous question. You have the one-time effects of changes in inflation expectations that improve the performance of the infrastructure business. However, as I mentioned, over the year, we are going to have a higher interest rate environment that will partially offset what we received during the first quarter. It is very much related to what I discussed before.

Speaker 1

Regarding businesses in Corficolombiana, you know Colombia does not have new projects in infrastructure, given the government has not just opened one project in these last four years. Given that we are finishing our concessions, the construction of the concessions, we are looking for projects outside Colombia. This is part of our strategy. We hope that the new government, whatever, we will have new projects in infrastructure. Given that right now we do not have, we are looking at a route.

Operator

This will conclude our question and answer session. Ms. Maria Lorena Gutiérrez Botero, I turn the call back over to you.

Speaker 1

Thank you to you for being with us today, and see you in the next call. Have a good day.

Operator

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

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