Grupo Aval Acciones y Valores S.A. Q1 FY2026 earnings call

Corporate Strategic Update

• Launched the 2026-2031 corporate strategy, organized around three core axes: (1) Relevance: strengthen leadership, deepen client centricity, optimize capital allocation; (2) Opportunities: accelerate efficiency/standardization, lead digital transformation, leverage data and AI for competitive advantage; (3) Impact: uphold high corporate governance and risk management standards, deliver positive social and environmental impact
• Completed the sale of 99.57% of Multifinancial Group Inc. (MFG) in March 2026 for $464 million, strengthening Banco de Bogota's capital position and refocusing on core strategic priorities
• Announced the appointment of Juan Carlos Echeverri as incoming CEO of Banco de Bogota

Key Strategic Transactions

• Banco de Bogota agreed to acquire Itaú's Colombian personal banking business, expected to add $3.3 trillion in consumer loans, 3.2 trillion pesos in mortgage lending, 4.1 trillion pesos in personal deposits, and 277,000 total customers. The transaction will lift Banco de Bogota to 3rd place in Colombian mortgage lending with 12.8% market share and 9.3% market share in personal deposits. Regulatory approval is expected in the coming weeks, with a 90-day integration roadmap ready for immediate execution after clearance

Operational Milestones

• Aval Fiduciaria completed full integration, with top-tier risk and portfolio management ratings from Fitch Ratings and S&P Global, and launched a collaboration with BlackRock to offer global ETF access to Colombian retail investors
• Group-wide shared efficiency initiatives are underway, including a unified group cloud migration roadmap starting Q2 2026 to modernize technology infrastructure

Macroeconomic Outlook

• Global growth is moderated by the escalating Middle East conflict, which creates upward pressure on oil prices and disrupts supply chains
• Domestic Colombian 2026 full-year GDP growth is projected at 2.4%, with slow growth driven by weak performance in agriculture, mining, manufacturing, and construction, while private consumption and public spending remain the primary growth drivers
• Inflation is projected to reach 6.2% for full-year 2026, gradually moderating to the 4% range by 2028. The Central Bank of Colombia raised the policy rate by 200 bps in Q1 2026 to 11.25%, and held rates steady in April, with potential for additional 50-100 bps hikes by end-2026
• The Colombian peso appreciated ~13% over the 12 months to March 2026, but electoral uncertainty has paused the appreciation trend, with election results expected to be the main near-term macroeconomic catalyst

Banking Segment: Total gross loans reached 193.6 trillion Colombian pesos, up 6% year-over-year (YoY). Peso-denominated commercial loans grew 8.6% YoY, while dollar-denominated commercial loans declined 3.3% quarter-over-quarter (QoQ) due to peso appreciation. Consumer loans grew 4.2% YoY, with personal loans (27% of consumer loans) up 14.1% YoY. Mortgages grew 16.8% YoY, and the segment gained 12 basis points (bps) QoQ and 89 bps YoY in mortgage market share. Total deposits reached 216.8 trillion pesos, up 11.7% YoY, with savings deposits growing 17.8% YoY. 90-day past-due loans (PDLs) improved 16 bps QoQ to 3.38%, with a coverage ratio of 137%. Net interest margin (NIM) on banking segment loans was 4.98% this quarter, down 55 bps QoQ. Net cost of risk was 1.8% this quarter, up 6 bps QoQ.

Aval Fiduciaria: Post full integration completed January 2, 2026, assets under management (AUM) grew 4.2% QoQ to 206.5 trillion pesos, holding a 19% market share in commissions. Revenue grew 12.5% YoY to 151.4 billion pesos, net income was 22 billion pesos, with a 33.0% return on equity (ROE). The firm gained 149 bps of collective investment fund market share to reach 22.3%, capturing over half of total market growth. Cost-to-income ratio improved 1000 bps to 65.0%. This segment contributes ~2.2% of total group net income excluding the one-time equity tax impact.

GoPayment: The firm secured two key regulatory approvals to operate in Colombia's private payment ecosystem. Initial controlled pilots have engaged over 120 users, with 635 corporate clients currently in final integration, representing near-term revenue opportunity. It operates a proprietary security-focused technology platform serving financial and non-financial institutions, and has strengthened its executive team with industry veterans ahead of full-scale rollout.

Shared Services Center (AVC): Currently manages procurement for 5 group entities, will take over 3 more in Q2 2026 and target full group inclusion by year-end, with a 1.4 trillion peso controllable spending base and 2026 savings target of 62 billion pesos. It manages a 720 billion peso property portfolio targeting an increase in commercialization rate from 27% to 37% by year-end, and manages payroll for 40,000 group employees. Non-banking subsidiaries Porvenir and Corfi Colombiana delivered strong results, with Corfi Colombiana's infrastructure revenue boosted by seasonal dividends and higher inflation expectations, and energy/gas contributing 255 billion pesos in line with prior periods.

• Overall loan growth is projected around 9.5% for full-year 2026, with commercial loans growing ~6.5% and retail loans growing ~14% (the Itaú acquisition accounts for the higher retail growth guidance; organic retail growth would be much closer to nominal GDP growth without the transaction)
• Consolidated NIM is guided around 3.9% for 2026, with NIM on total loans at 4.4%, matching the Q1 2026 end-of-period level. Banking segment NIM is projected at ~4.8%, with banking segment loan NIM at ~5.2%
• Net cost of risk net of recoveries is expected around 1.9% for 2026
• Cost-to-assets is guided around 2.85%, including a 9 bps impact from the one-time equity tax
• Non-financial sector income is projected to be 1.3x 2025 levels, with fee income as a percentage of total income expected in the 22% range
• Full-year return on average equity (ROAE) is projected between 9% and 9.5%, incorporating a 114 bps negative impact from the equity tax. Excluding the equity tax impact, ROAE guidance was lowered by ~20 bps from prior projections, reflecting a tougher than expected interest rate environment, partially offset by better than expected cost of risk and half of the equity tax impact already compensated by efficiency savings
• The group has built higher liquidity buffers ahead of electoral uncertainty, which temporarily pressures NIM, but positioning is expected to be adjusted after the electoral cycle

• Persistent inflationary pressure from the Middle East conflict, minimum wage increases, El Niño weather patterns, and potential peso depreciation could lead to higher than expected interest rates and further NIM compression
• Elevated political and electoral uncertainty in Colombia creates macroeconomic volatility and may lead to tighter financial conditions, negatively impacting loan growth and asset quality
• Colombia's public fiscal position remains structurally vulnerable, with a projected 2026 primary deficit of 3.1% of GDP, and a required $16 trillion expenditure cut if the 2025 financing law is not approved, which could negatively impact market confidence
• Higher interest rates partially offset the inflation-linked revenue gains for Corfi Colombiana's infrastructure concessions, pressuring profitability for that segment
• Pricing competition in commercial lending is aggressive, pressuring margins and requiring deliberate selectivity in underwriting
• Long-term, the approved pension reform reduces expected long-term asset growth for Porvenir, though material impacts are not expected for approximately 10 years
• The completion of the 2025 full-year external audit may result in adjustments to the unaudited pro forma financial information for the MFG divestiture

Q: How should investors understand Grupo Aval's positioning in the current rate cycle, and is sensitivity to further rate hikes lower than in past cycles? / A: Management noted that current quarter NIM was impacted by fast repricing of liabilities and slow repricing of assets, with NIM recovery expected next quarter. Further rate hikes from the Central Bank could pressure NIM in Q3, leading to expected volatility through the year, so the full-year average guidance is the best reference for expectations. Over recent years, the group has rebalanced its portfolio to lower exposure to slow-repricing payroll lending, increased allocation to faster-repricing retail products, reduced low-NIM dollar-denominated assets, and grown stable retail deposits. This makes the current cycle much milder than prior cycles, with lower liability sensitivity overall.

Q: How will the Colombian pension reform impact Porvenir, and is Porvenir still a core long-term part of Grupo Aval's portfolio? Do you expect group structural consolidation over the next 3-4 years? / A: Management stated that the pension reform balances out in terms of value: it reduces long-term asset growth for Porvenir, but increases short-term returns, and material impacts to asset volumes are not expected for roughly 10 years, since the average pension affiliate is 38 years old. Porvenir remains a core part of Grupo Aval's asset management and fee-generating business, along with the trust business. For group consolidation, management confirmed they are actively working on capturing synergies and efficiencies across the group's business units as part of the new 5-year strategy, and are on track to deliver a more streamlined, efficient structure. For stock liquidity, management noted liquidity has improved but remains below target, with no current plans for a new issuance or secondary offering, and improvements will come from active stock management rather than new supply.

Q: Why is the group still guiding for high 14% retail loan growth amid elevated economic uncertainty, and would more conservative slower growth be preferable? Can you also comment on the Tier 1 capital level at Banco Avillas? / A: Management clarified that the 14% retail growth guidance includes the impact of the pending Itaú personal banking acquisition, which is the main driver of the high growth number. Without the Itaú transaction, organic retail growth would be much milder, aligned with nominal GDP growth. For Banco Avillas, the lower Tier 1 ratio reflects healthy growth-driven capital consumption, and Banco Avillas is a small operation so the group can easily provide additional capital support via hybrid instruments as it has done in the past, and the bank is performing well commercially.

Q: What is the 2026 and medium-term OPEX savings target from the new shared services efficiency strategy, and how does inflation impact Corfi Colombiana's infrastructure business? / A: Management stated that the first phase of shared services efficiency initiatives will deliver an annual run-rate savings of 30 to 40 billion pesos by end-2026, with additional larger savings opportunities on the technology side that will be shared in a future call. For Corfi Colombiana's infrastructure concessions, concession revenue is adjusted annually based on expected inflation, which offsets part of the impact of higher funding costs from higher interest rates. The inflation adjustment is not enough to fully offset higher interest rate costs, so the net impact is still negative for profitability, and there are no new domestic infrastructure projects available so the firm is pursuing growth via international projects.