Grupo Aval Acciones y Valores S.A.
Q2 2017 Earnings Call Transcript

Published: 31 Aug 2017

[Operator:]

Welcome to the Second Quarter 2017 Consolidated Results under IFRS Conference Call. My name is Sylvia and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer-session. Grupo Aval Acciones Y Valores S.A Grupo Aval is an issuer of securities in Colombia and the United States, registered with Colombia's National Registry of Shares and Issuers, Registro Nacional de Valores Y Emisores, and the United States Securities and Exchange Commission SEC. As such, it is subject to the control of the Superintendency of Finance and compliance with applicable U.S. securities regulation as a foreign private issuer under Rule 405 of the U.S. Securities Act of 1933. Grupo Aval is not a financial institution and is not supervised or regulated as a financial institution in Colombia. As an issuer of securities in Colombia Grupo Aval is required to comply with periodic reporting requirements and corporate governance; however, it is not regulated as a financial institution or as a holding company of banking subsidiaries and, thus, is not required to comply with capital adequacy regulations applicable to banks and other financial institutions. All of our banking subsidiaries Banco de Bogota, Banco de Occidente, Banco Popular and Banco AV Villas, Porvenir and Corficolombiana, are subject to inspection and surveillance as financial institutions by the Superintendency of Finance. Although, we are not a financial institution until December 31, 2014, we prepared unaudited consolidated financial information including in these quarterly reports in accordance with regulation of the Superintendency of Finance for financial institution and generally accepted accounting principles for banks to operate in Colombia, also known as Colombian Banking GAAP, because we believe that presentation on that basis most appropriately reflected our activities as a holding company of a group of banks and other financial institutions. However, in 2009, the Colombian Congress enacted Law 1314, establishing the implementation of IFRS in Colombia. As a result, since January 1, 2015, financial entities and Colombian issuers of publicly traded securities such as Grupo Aval must prepare financial statements in accordance with IFRS. IFRS, as applicable under Colombian regulations, differs in certain aspects from IFRS as currently issued by the IASB. The unaudited consolidated financial information included in this document is presented in accordance with IFRS as currently issued by the IASB. Details of the calculations of non-GAAP measures such as ROAA and ROAE, among others, are explained when required in this report. Because of our recent migration to IFRS and recent implementation of IFRS accounting principles, the unaudited consolidated financial information for the first quarter and second quarter of 2017 and the second of 2016 may be subject to further amendment. This report may include forward-looking statements, which actual results may vary from those stated herein as consequence of changes in general, economic and business conditions, changes in interest and currency rates and other risk factors as evidenced in our Form 20-F available at the SEC webpage. Recipients of this document are responsible for the assessment and use of the information provided herein. Grupo Aval will not have any obligation to update the information herein and should not be responsible for any decision taken by investors in connection with this document. The content of this document and the unaudited figures included herein are not intended to provide full disclosure on Grupo Aval or its affiliates. When applicable, in this document, we refer to billions as thousands of millions. I will now turn the call over to Mr. Luis Carlos Sarmiento Gutiérrez. Mr. Luis Carlos Sarmiento Gutiérrez, you may begin.

[Luis Carlos Sarmiento Gutierrez:]

Good morning, Sylvia, and thank you very much. And thank you everybody for joining our 2017 second quarter result call. Allow me to start by providing an update in reference to two recurring items in the agendas of our quarterly calls, Ruta del Sol and Electricaribe. In the first place, I would like to provide with the brief update on recent developments regarding Concesionaria Ruta del Sol or CRDS. As you may recall, in our previous call, I informed that in order for DIAN to authorize the first payment to the financial sector in an amount equivalent to approximately 50% to 60% of the $800 million in total debt owed by the CRDS, the Company has to complete the liquidation and payment of at least 70% of the employees and payment of at least 70% of the past two accounts to suppliers. I also told you that we have complied with the first requirement and we would start working hard on compliant with the second. After numerous obstacles, I'm pleased to report that we are almost there as a percentage of suppliers paid as up to approximately 65%. Borrowing on foreseen circumstances of which we've had a merit since we started to work in the solutions of the Ruta del Sol problem. We shouldn’t be able to obtain approval from the DIAN and a project technical supervisor named by DIAN to pay nearly $2 million to suppliers within the next few days in order to complete compliance of the mentioned conditions pursuant to which DIAN should authorize the first payment to the financial sector and the amount of COP1.4 billion approximately $467 million. That is the good news. Not so it's what has been happening in the arbitration proceeding where were expecting to receive ratification of the liquidation formula established by the terms of the agreement signed with DIAN on February 22nd and modified on March 27th of this year. For background as part of the termination and liquidation of agreement between DIAN and CRDS, the parties agreed to mutually submit such agreement to the arbitral tribunal as the settlement arrangement to request the tribunals to approve the formula of liquidation of the concession and to withdraw their mutual additional claims. In ratification of the liquidations value by an arbitral tribunal carries the same weight as a sentence of the judge and therefore this ratification would be enough to proceed with payment to CRDS and the banks under the terms to which I have referred in several calls and meetings with investors. However on August 3, 2017, during the settlement here in conducted before the arbitral tribunal, DIAN stated its unwillingness to abide by the formula of liquidation as agreed in the termination and liquidation agreement. Because of DINA's reluctant to fulfill its obligations under the agreement, a hearing is expected to take place on September 1, 2017, in which the arbitral tribunal will decide on the extent of their competence and on the next steps regarding the arbitral proceeding. We have also mentioned on several occasions that a class action suit was filed against all the Odebrecht employees, government officials, CRDS and CRDS and shareholders and others. This proceeding is currently in the evidentiary stage in which the state court has ordered among others. The recollection of evidence to determine the alleged violation of collective rights and interests resulting from the conduct of Odebrecht and Colombian government officials and to determine the amount of damage is resulting from the foregoing. You might have also heard that a week ago, Mr. Joselier Melo, Corficolombiana's former President, was placed in preventive detention in relation to the decision of Colombia’s General Attorney's Office to include him in the investigation concerning corrupt practices conducted by Odebrecht and Colombian Government officials. As noted, in our press release and relevant information dated August 23, we are shocked by Mr. Melo's detention and hope that he may be able to prove his innocence. Mr. Melo has not admitted to the charges. With respect to this news, it is worth mentioning that our investigations with respect to this matter concluded that neither Grupo Aval as an institution nor any of its current employees participated in the corrupt practices associated with Ruta del Sol 2 concession contract or approved others to legally make payments to third parties regarding to Ruta del Sol 2 concession contract. Furthermore, Grupo Aval's corporate policies applicable to its subsidiaries strictly demand compliance with all laws and regulations in all the businesses they conduct. Finally, we have reaffirmed our commitment to cooperate with authorities in any matter they consider necessary or appropriate during this process. Secondly, with regard to Electricaribe, the most significant event that has occurred as of lately is that both the government and the financial system have agreed to work on a solution based on two premises, financially saving the Company and eventually paying the Company’s debt to the financial system. For this purpose, the collective group of affected banks on the one hand and the government on the other have higher investment banks to come up with possible solutions based on the premises mentioned. The government further appointed the Financiera de Desarrollo Nacional, FDN, headed by Mr. Clemente del Valle, to represent the government in the pursuit of a viable formula. We are confident that the FDN will do the best job possible to comply with this appointment and that it will work with the affected banks to find a mutually beneficial formula. Unfortunately, we also believe that the solution will not be put in place before a year and that the execution of the solution will take several years. This is why we have decided to constitute provision for up to 70% of our exposure before year-end. Currently, our exposure when considering principle plus interest amount to approximately COP600 billion or the equivalent up approximately $200 million. As of June 30, 2017, we had reserved 30% of that exposure. We will reach 55% by September and 70% by December. This means that we will have to book additional provisions with respect to this loan for a COP150 billion during this year’s third quarter and COP90 billion during this year’s last quarter. We will most probably revisit this two recurring items during our next call. I will now refer to the current macroeconomic environment. To start with, it is now clear that our expectation that the first two quarters of this year would continue to perceived reactivation of the economy observed in the last quarter of last year was a best optimistic. In fact, the first semester of this year instead showed only marginal growth at 1.2% and 1.3% during the first two quarters, significantly less than the 2.25% to 2.5% growth that we had expected. As we have often said, a slow moving economy always result in less commercial credit demand and also tends exacerbate credit problems such as the Electricaribe and to magnify the effect of these problems in the cost of respirations of the financial system. Additionally, 4G infrastructure construction and financing, which we consider of major importance to reactivate the economy, have been very slow to get going as a financial sector we'll probably wait until the resolution of the Ruta del Sol's first payment for approximately half of the $800 million outstanding debt. However, precisely because the last two quarters of last year showed mediocre growth at 1.2% and 1.6% respectively, as compared to the first two quarters of 2016 which grew at approximately 2.5%, our expectation is that the last two quarters of this year will grow closer to 2.5% and the 2017 growth will approximate 1.8%. We expect that the last two quarter growth indices of 2017 will transfer onto 2018. Inflation, on the other hand, keeps registering better result, and throughout July on our last 12 month basis is in the middle of the Central Bank's target of between 3 and 4%. However, taking into account that the months of August, September, October and the November of last year showed negative or close to zero inflation, we expect that those same months during 2017 will hardly continue to trend upwards until now. Therefore for the year we are expecting inflation of approximately 4.2%. As a result of the good inflation numbers thus far during 2017, the Central Bank continue to implement the more expansionary monetary policy as a result of which it has reduced its reference rate by 200 basis points this year. Consequently, our commercial loan rates variable in nature have dropped, but our consumer loan rate fixed in nature have proven more stable. However, we have benefited from lower rates in our cost of funds. Because we do not expect to see a further reduction in inflation, we believe that the Central Bank will only drop its reference rate by a final additional 25 basis points to 5.25% in the remaining months of this year and in fact this might happen as soon as during next meeting later on this week. As always, lower Central Bank rates will eventually transfer into consumer loan rates and this should alleviate the current consumer loan portfolio quality problems. We are very concerned with unemployment specifically urban employment, which is an indicator that has proven pretty resilient up to now. We have mentioned on repeated occasions that this indicator's deterioration was our main worry as is related to the health of our consumer loan portfolio. We have now seen urban unemployment rise close to 11% an increase of 60 basis points in the last year and 100 basis points through 2015 and we are starting to feel its effect on consumer lending PDLs and NPLs as Diego will refer to in detail during his presentation. Rising unemployment tends to accelerate consumer loan delinquencies and the booking of provisions for foreseeable loan losses. The oil prices have run on average $8 per barrel higher than in 2016, the country's traditional exports specifically oil exports have gained back momentum and the country's trade deficit is not under so much pressure anymore. Additionally, non-traditional exports have remained steady over the last two years. As a result, we expect that by year end this deficit will approximate 3% approximately 50 basis points better than the 2016 number. We continue to expect the current account deficit for 2017 will run at approximately 3.5%, a significant improvement when compared to the 2016 number. There is much needed relief in both deficits bode well for our recovering economies staring in 2018. With respect to our other major market, we continue to see growth in the Central American economies of approximately on average of 4% almost 4 times that have Colombia. We continue to closely monitor the qualities of our consumer portfolios in the region where we have seen some deterioration in country such as Panama and Costa Rico. Now turning to overall financial results, I will briefly run over the main highlights and then pass this over to Diego, who will refer in detail to our business results. Total gross loans grew by 2.7% in the first semester or 2.2% excluding the impact of FX movements in our Central American operations, after contracting 0.7% in the first quarter, which was a growth of 0.4% excluding the impact of FX, and growing 3.4% in the second quarter or 1.8% excluding FX. We now expect to see growth in our loan portfolios for the year excluding FX movements of 8%. During the second quarter, our 30-day PDLs and NPLs deteriorated by 17 basis points and 27 basis points, up to 3.8% and 2.5% respectively driven primarily by a deterioration in our consumer and microcredit portfolios. Consumer loan 30-day PDLs and NPLs deteriorated by 40 basis points and 37 basis points during the quarter, this worrisome deterioration, although typical of the Colombian financial system is currently our main area of focus. We have tightened collection processes and we are using big data analytics to better understand the creditworthiness of our customers under the current stressed economic environment. On the other hand, most of the deterioration in our commercial loan PDLs and NPLs in the last year has been driven by Electricaribe, who are exposure at mentioned the months to approximately $200 million. So result of the deterioration mentioned above, our consolidated cost of risk increased by almost 80 basis points during the quarter to 2.9% before recoveries and 2.7% after recoveries. Additional provisions in connection with Electricaribe accounted for 30 basis points of the increase and the general deterioration as I mentioned loan portfolios contributed with the rest. Taken into account what has already happened in the first semester and our expectation for the rest of the year, we now estimate cost of risk for 2017 of 2.45%. Total deposits grew by 4.3% in the first semester or 3.9% excluding the impact of FX movement in our Central American operation, so result of growth of 2% in the first quarter or 3.1% excluding the impact of FX and growth of 2.3% in the second quarter or 0.7% excluding the impact of FX. We expect that deposits will grow in line with loans for 2017. Partly as a consequence of the growth slowdown the second quarter was one in which are consolidated equity ratios improved our total equity to total assets ratio improved from 10.4% in March 31, 2017 to 10.7% as of June 30, 2017 in our tangible capital ratio improved from 7.4% to 7.6%. Furthermore as of June 30, 2017, all of our banks continue to show strong Tier 1 and full solvency levels between 9.4% and 11.2% and between 11.2% and 14.2% respectively. On a more positive note, the strength in our capital position drove two rating agencies to change throughout their outlook of both Banco de Bogota and Grupo Aval's ratings from negative to stable. The NIM of our consolidated operation improved by 22 basis points to 6.1% during the quarter and by 52 basis points versus the same ratio as of the second quarter of 2016. Our consolidated NIM and loan expanded by 14 basis points to 7% during the quarter and by 46 basis points versus second quarter of 2016. Our consolidated NIM and total investments expanded by 72 basis points to 1.4% during the quarter and by 57 basis points versus the first quarter of 2017. These increases were mainly driven by a 28 basis points decrease in our average cost of funds during the second quarter of 2017 and 21 basis points versus the second quarter of 2016. Although, we expect NIMs to decrease throughout the last two quarters as the lower Center Bank rate permits the economy. We now estimate that on average our 2017 consolidated NIM were run between 10 basis points and 20 basis points higher than 2016 number. Our gross fee income grew by 1.3% in the quarter when compared to the first quarter of 2017. This growth was supported on a strong performance of our banking fees, which are 73% of total fees, which increased 3.4% in the quarter. Given the good results that we are seeing so far especially in the Central American operation and in our pension fund manager, we now expect that the fee income growth will surpass the growth in our deposit and loan portfolios by approximately 100 basis points during 2017. Our other operating income for the period was COP483.1 billion for the quarter versus COP533.1 billion in the previous quarter. This result was mainly affected by the performance of Corficolombiana's investments in the infrastructure structure, delays in the 4G infrastructure concessions and by the effect of the general slowdown of the economy and the performance of other non-financial sectors in which Corficolombiana holds equity positions. As we have said in the past, we remain firm believers in the 4G infrastructure program and in the benefits that 4G construction and financing will have for the economy and for the banking sector. Corficolombiana will be largely benefited as well. Therefore, we are working feverishly to get going on three of the four projects awarded to Corficolombiana. Our conviction of the benefit is such that we will put forward our own financing capacity behind these projects, if need to be. Our consolidated efficiency ratio measured as cost to income was 46.9% in the second quarter of 2017 versus 45.95 during the first quarter of 2017 and 47.2% during the second quarter of 2017. This quarter deterioration is partially explained by the seasonality of the expenses. We are convinced that an income growth well executed the digitalization strategy is paramount to improve the client experience on the one hand and just as importantly to streamline cost. We have launched an effort in our largest bank as well as in our Central American operation and we expect to see clear results by the first quarter of next year. We will launch digitalization strategies in the rest of our banks during the next quarter and expect to see concrete results in the second quarter of next year. Attributable net income for the quarter was COP470.8 billion or 21% per share compared to COP587 billion in the first quarter of 2017. As mentioned before, that we saw through the quarter was negatively affected by a 42% increase in provision expenses, a third of which is explained by provision associated with Electricaribe, which amounted to about COP108 billion. Also by greater provisions required in our consumer portfolio and our SME portfolio, by the economy slowdown bearing of non-financial sector industries in which we participate through Corficolombiana and finally by the delay of the initiation of 4G in general and Corficolombiana project in particular. So, we sold our ROE for the quarter was 12.4%, for this year however we now expect an ROE closer to 13%. With that, I'll pass on the presentations to Diego who'll expand on the highlights that I just shared with you. Thank you and you have a good day.

[Diego Fernando Solano Saravia:]

Thank you, Luis Carlos. I will now move to a consolidated results of Grupo Aval under IFRS starting on Page 9 with our asset evolution. As mentioned by Luis Carlos consistent with the low GDP growth that has been prevailing during the first half of the year, this has been a low growth quarter. Total assets increased by 1.6% during the last quarter and 7% over the last 12 months. In absence of the effect of the Colombian peso fluctuation in Central America, assets were stable during the quarter and grew 5.7% during the last 12 months. Asset dynamics excluding FX during the quarter resulted from an increase of COP1.8 trillion or COP2.7 trillion, growth in gross loans, offset by decrease -- a increase of 8.2% or COP2.1 trillion in cash and 6.4% or COP1.5 trillion in fixed income portfolio. Other assets increased by 2.8%. Broken down by region our Colombian assets remained stable while our Central American assets grew at 0.2% in dollar terms, a 5.9 increase when translated into Colombian pesos. This happened over the quarter. As mentioned before reductions in cash positions particularly in Banco de Bogota determined the growth dynamics of our assets in Colombia. Colombian assets grew by 4.5% for the last 12 months although Central American assets grew by 8.1 in dollar terms, 13% increase when translated into Colombian pesos. Consolidated balance sheet structure continued shifting towards net loans, net loans account for 68.1% of our assets as of June 30, 2017, up from 66.6 on the previous quarter and 66% 12 months before. Fixed income investments particularly funded a net -- partially funded net loan growth over the quarter, accounting for 9.3% of total assets as of June 30, 2017, down from 10% a quarter earlier. Colombian assets accounted for 30.7% of our balance sheet as of June 2017 down from 31.9% three months earlier and 22.2% as of June 2016. Central American operation accounted for the remaining 29.3%. The quarterly increase in the weight of our Central American operation is attributable to the depreciation of currency and more dynamic growth in Central America. On Page 10 we present our loan portfolio evolution. As mentioned in the past, loan growth is totally linked to GDP growth. Low economic growth has underpinned the recent loan growth of our Colombian operation. Loan growth of our consumer portfolio has been stronger than that of our commercial book. Gross loans increased by 8.9% during the last 12 months, now since of the effective of peso depreciation in our Central American operation, 12 month growth would have been 7.6%. The last 12 months our Colombian book grew at 6.8% and our Central American book grew by 9.4% in dollar terms or 14.4% when translated into pesos. Consumer, mortgage and commercial loans grew at 12%, 13.5% and 6.7% respectively during the same period. Broken down by region mortgage loans grew at 16.4% in Colombia and 6.9% in dollar terms in Central America. Consumer loans grew at 10.2% in Colombia and 10.5% in U.S. dollar terms in Central America. Commercial loans grew at 4.8% in Colombia and 9.8% in dollar terms in Central America. During the second quarter of 2017, gross loans increased by 3.4%. In absence of the effect of the peso appreciation of our Central American operation, 3 months' growth would have been 1.8%. This increase resulted from the Colombian operation growing at 1.9% and the Central American operation increasing 1.5% in dollars terms and 7.3% in Colombian peso terms, even though it feels soft, this growth incorporate an achievement improvement in loan dynamics. The structure of our gross loan portfolio remained substantially stable when compared to the previous quarter. Commercial loans account for 58.8% of our portfolio, while consumer and mortgage loans account for 31.1% and 9.9%, respectively. Loans to individuals, which include consumer mortgage and microcredit loans, were 1.2 percentage points higher than 12 months earlier and 0.1 percentage points higher than the last quarter. Colombia accounted for 71% of our loan portfolio, materially the same level as 3 months and 12 months before. Variation in weight of our Central American operation has been mainly due to a Colombian peso fluctuation. We expect 2017 loan growth in absence of FX movements to be in the 8% area. On Page 11, we presented several loan portfolio quality ratios. During this quarter, we continue to experience some deterioration in the quality of our loan portfolio and an increase in our cost of risk. This performance is mainly explained by deterioration of a consumer loan portfolio in Colombia consistent with the softer urban labor market and sluggish GDP growth and increase in the consumer delinquencies in Central America in particular in Costa Rico and Panama. And in addition as anticipated on our last call our cost of REIT was influenced by Electricaribe. Starting at the top left of the page, you'll find the evolution of our loans past due more than 30 days and our nonperforming loans, both as a percentage of total loans, including interest account receivables. During this quarter, our delinquency ratio, measured as 30 days PDLs with total loans, increased by 17 basis points to 3.8%. Delinquency measured as NPLs to total loans deteriorated by 27 basis points from 2.2% in the first quarter of 2017 to 2.5% for the second quarter of 2017. Moving to the right, annualized net provision expenses net of recoveries of charged-off assets for the quarter were 2.7% of average loans, deteriorating from 1.9% three months earlier and four months earlier. The Electricaribe impairment for the period accounted for 30 basis points of the quarter of risk. Impairment of our consumer portfolio accounting for 32 basis points of incremental cost of risk during the quarter, of which, 20 are explained by Colombian and 12 by Central America. Incremental cost of risks of the consumer portfolio is mainly driven by the higher impairment of the credit card portfolio in both regions and in personal and automobile loans in Colombia. The bottom left, you'll find the annualized ratio of charge-offs as a share of average NPLs. This ratio was 0.7 times during the second quarter of 2017. Finally, on the bottom right, you will see several loan loss reserve coverage ratios. Our allowances were 3.1% of total loans and cover 1.3% of our NPLs and 0.8% of our 30-days PDLs. We expect out cost of risk, net of recoveries to be in the 2.4 to 2.5 area in 2017. On Page 10, you will find further detail on the quality of our loan portfolio. On this page, you will find the evolution of our loans pass-through more than 30 days and our NPLs as a percentage of total loans. Both ratios calculated including interest account receivables. As mentioned on the previous page, our overall end up period delinquency ratio measured as 30 days PDLs to total loans increased by 17 basis points to 3.8%. Deterioration was driven mainly by the consumer portfolios during the quarter. The right delinquency measured as NPLs to total deteriorated by 27 basis points to 2.5%, broken down by type of loan quarter-on-quarter, commercial loans experienced a five basis points deterioration to 3% when measured as three day PDLs and by -- and a 23 basis points deterioration of 2.5 when measured as NPLs. Consumer loans experienced our 40 basis deterioration to 5.21 measured as 30 days PDL. Colombia deteriorated 47 basis points to 5.6, while Central America deteriorated 31 basis points to 4.3%. Delinquency measured as NPLs to total loans deteriorated 37 basis points to 2.7%. Mortgage loans slightly deteriorated from 3.4% to 3.5% when measured as 30 days PDLs and from 1.7 to 1.9 when measured based on NPLs. The bottom of the page we present PDL evolution, consumer loans were the main driver of PDL formation during this quarter consistent with the soft economic performance, adding COP750 billion in new PDLs, 94% -- COP94 billion more than quarter earlier. Consumer PDL formation Colombia added COP492 billion while the Central American consumer PDL formation added COP257 billion in new PDLs. Electricaribe effected the previous quarter with close to have a COP1 trillion in PDL formation. On Page 13, we present funding and time deposit evolution. There were no substantial changes in funding and deposit structure during this quarter. This quarter reflects the overall economic growth in Colombia. Total funding grew by 7.5% over the last 12 months and by 1.9 during the last quarter. In absence of the effect of the Colombian peso exchange rate fluctuations on Central America 12 months and 3 months growth would have been 6.2% and 0.4% respectively. Broken by geography, Colombia funding grew by 5.4% over the last 12 months and increased by 0.6% during the quarter. Central American funding grew $8.3 billion terms or COP15.2 Colombian terms over the last 12 months and decrease 0.3% in dollar terms, 5.4 increase in Colombian pesos terms over the last quarter. Deposits increased at 9.6 for the last 12 months and 2.3 during the last quarter. In absence of the effect of the peso depreciation on Central America, 12 months and 3 months growth would have been 8.3% and 10.7% respectively. Broken by geography, Colombia counted by 71.6% of total deposits, Colombian deposits grew by 6.9% over the last 12 months and 0.5% through the quarter. Central American deposits grew 11.9 in dollar terms or 16.9 in Colombia peso terms over the last 12 months and increased 1.3 in dollar terms and 7.1% increase in Colombian peso terms through the quarter. Our funding structure has shifted slightly towards deposits for the year, our deposits now accounts for 76.6% of total funding up from 75.2% a year earlier as 76.4 earlier. Our deposits cover 96% of net loans. As mentioned earlier, our increasing cash mainly from the Colombian operations that will increase in our cash to deposit ratio back to back to 15.3% the same as a year before. We expect the fast growth to be at a similar pace as that of funds. On Page 14, we present the evolution of our total capitalization, our attributable of shareholders equity and the capital adequacy ratio of our banks. Our total equity defined as attributable equity plus minority interest was COP24.7 trillion as of the end of the second quarter of 2017. This implies a 4% increase over the last 12 months and a 4.3% increase during the last quarter. Attributable equity accounted for 62.8% of the total equity as of June 2017 and was COP15.5 trillion as of the end of June 2017, increasing 2.9% from the last 12 months and 4.3% during the last quarter. And this chart will also show the consolidated solvency of our banks. All of them show a profit Q1 and full solvency ratios. Q1 as of end of period ranged from 9.4 to 11.2%. Solvency ratios at the end of period were 14.24 Banco de Bogota, 12.7% for Banco de Occidente, 11.2% for Banco Popular and 12.4% for Banco AV Villas. Starting on Page 15, we present the evolution of net interest margin. Start of the page, we present the evolution of our average interest earning assets. Our financial sector entities explain close to 99% of interest earning assets. Our Promigas operation continues the interest earning assets from the non-financial sector. These assets are mainly items under IFRS that are considered financial leases provided by the Company. On the bottom of the page, we present the evolution of our average interest bearing liabilities. 5% of those are held on the balance sheet of our non-financial sector entities and our holding company. In general terms this financing has a longer maturity and carries a higher interest rate than those of our financial operation. The share of our liabilities has remained relatively stable over the last five quarters. However, we expect it to grow over the coming years to the impact of our financing to be taken by the upcoming quarter generation concession infrastructure projects. On Page 16, we present our yield on loans, cost of our funds and spreads. Our yield on loans in particular that of the Colombian commercial portfolio reflects the fluctuations of the Central Bank intervention rate. Colombian corporate loan portfolio which accounts for 47% of our total gross loans is over 90% floating right and with prices with a two month lag on average after the changes of the Central Bank intervention rate. The yield on consumer loans has been less sensitive to the Central Bank rate, reductions given that the substantial part of this portfolio has a fixed rate and that the market has been less aggressive in bidding down the prices of these loans, consistent with a higher delinquency ratios experienced over the past few quarters in this segment. Our average consolidated yield on loans of the second quarter was 11.6%, increasing 33 basis points compared to the same period of 2016 and decreasing 15 basis points as compared to the first quarter of 2017. Yield on commercial loans fell by 31 basis points quarter-on-quarter driven by a 38 basis points reduction in the yield of our Colombian commercial portfolio. The yield of our consumer portfolio increased 10 basis points driven by a 25 basis points increase in our Central American consumer portfolio. On average cost of funds for our consolidated operation was 4.3% for the second quarter of 2017, 21 basis points lower than the 4.5 reported a year earlier and 28 basis points below the 4.6 reported during the first quarter of 2017. These results from a 38 basis points improvement in the cost of funds in Colombia during the quarter and stability in Central America, isolating the effect of the non-financial sector funding, the cost of funds for our financial sector are 4.2% decreased 17 basis points when compared to a year earlier and 25 basis points when compared to a quarter earlier. The cost of funds for the non-financial sector involving company and net of eliminations, it was 6.1% decreasing by 101 basis points and 78 basis points over these periods. The sharp decline is mainly attributable to the non-financial sectors liability interest rate sensitivity through inflation and DTF. Finally on this page, our consolidated spreads increased by 13 basis points to the last quarter to 7.2% and increased by 44 basis points compared to the same quarter a year earlier. On Page 17, we present our net interest margin for the financial sector and Grupo Aval's consolidated operations. The net interest margin of our consolidated operations including net trading income from the investments held for trading through profit and loss expanded to 22 basis points during the first quarter from 5.9% to 6.1%. This increase resulted from a substantial expansion in the net interest margin and investments and a favorable performance of our net interest margin and loans. Consolidated net interest margin increased 52 basis points compared to a year earlier. NIM for financial sector expanded by 46 basis points to 6.3% versus 5.8% recorded a year earlier. Total net interest margin was 18 basis points wider and that of the previous quarter driven by a substantially stronger net interest margin on investments. Quarterly net interest income was COP2.8 trillion during the second quarter of 2017 a 16.9 to the same quarter a year earlier and 5.5 higher than the previous quarter. We expect full-year 2017 net interest margin to be slightly higher than the 5.6% reported for 2016. This is driven by a higher than expected net interest margin for the first half and beholds and the margin compression during the second half as a Central Bank rates adjustments are incorporated into our long portfolio. On Page 18, we present net fees and other income. Gross fee income grew by 8.9% compared to the same period a year earlier and 1.3% to the previous quarter. Sales grew by 10% and 1.4% respectively compared to those periods. When excluding the effect of the FX movements on Central America. Broken down by geography, Colombia accounted for 61% of total gross fees. Domestic fees grew by 9.3% compared to the same quarter or 12 earlier or Central American fees grew at 11% in dollar terms, and 8.2% increase in Colombian peso terms over the same period. The bottom of the page represents other income. Other income for the quarter was COP493 billion. This result was affected by a lower contribution of the non-financial sector and non-consolidated equity investments and other income when compared to the previous quarters included on this chart. The lower result of the non-financial sector was mainly due by lower contribution of our infrastructure sector. In particular, the relying initiation and ramp-up of our new total growth concessions has delayed income that should've replaced the phasing out of older concession such as for DIAN. In addition, the rest of our portfolio which includes hotels, agriculture industry has been negatively affected by the slow economic cycle. Lower income from the non-consolidated equity investments reflects the seasonality of dividends received in particular the 32 billion dividends from Empresa de Energia de Bogota received during the first quarter. Finally, other operating income for the second quarter of 2016 was particularly high given a strong performance in FX. In addition to that quarter included tax returns -- in addition that products included a return of COP60 billion, a Ruta del Sol for COP30 billion and other income. Moving to page 19 represents on efficiency rates. Our efficiency ratio measured as operating expenses to total income of 46.9% during the quarter improved from 47.2 reported 12 months earlier and deteriorated from 45.9 reported during the previous quarter. Improvement compared to a year ago or to the previous year results from a better performance of our Central American on this front. In Central America, this ratio improved to 51.8% during the quarter down from 54.8% a year earlier and then debt at 53.4% during the first quarter of 2013. In Colombia, this ratio deteriorated to COP44.5 million this quarter up from COP43.5 million a year earlier and 42.4 during the first quarter of 2017. Our efficiency measured as operating expense to average assets of 3.5% remain unchanged compared to the second quarter 2016 and increase from 3.4 in the first quarter of 2017. Central American -- Central America reported 4.4 during this quarter included 35 basis points from 4.8 reported during the second quarter of 2016 and remain substantially at the same level as the previous quarter. Colombia reported 3.1 during this quarter up from 2.9 for both the first quarter of 2017 and the same quarter of 2016. We expect 2017 efficiency measured on a cost to income base to 2016, these result deals on compensating for headwinds for salary adjustments powered by union agreement that were well in access of inflation. Finally, on Page 20, we present our net income and profitability ratios. Attributable net income for the quarter was COP471 billion or COP0.21 per share, return on average assets and return on average equity for the quarter were 1.3% and 12.4% respectively. Before moving to Q&A, I will now summarize our general guidance for 2017. We expect loan growth to be in the 8% area in 2017. Fee income is expected to grow at a slightly faster pace than loan volume. We expect 2017 cost of net recoveries to be in 2.4% to 2.5% value. We expect full year 2017 net interest margin to be slightly higher than that up for 2016. Regarding efficiency ratio, we expect them to be senior to 2016. We expect 2017, marginal tax rate to be in the 34% area. Finally, we expect our 2017 ROE to be in the 12.5% to 13% barrier, this incorporates the higher expectations of cost of risk than previously anticipated. I will now open it to questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Nicolas Riva from Citi.

[Nicolas Riva:]

Yes, thanks Luis Carlos and Diego for taking my questions. Two questions for me and the first one is more general on the economy. We know that economic growth has been disappointing this year. I wanted you to discuss a bit more the expectations for economic growth for 2018, really, what should be the drivers of the expected pickup in economic growth, if it’s basically lower interest rates, lower corporate income taxes for more investment? And what should be the drivers becoming kind of growth next year? And the second question on margins which I think was one of the positive highlights this quarter. I was positively surprised by what happened there and we saw an expansion of 20 basis points quarter on quarter, 50 basis points year on year. Given that interest rates have been decreasing this year in Colombia. What really explained why there're net interest margins in the second quarter, if it was more on a less competitive scenario from their banks and what's the outlook for margins for next year? Thanks.

[Luis Carlos Sarmiento Gutierrez:]

Thanks for your question Nicholas. And let me address the first question about economic growth, we are expecting, as I said that the last two quarters of this year, we'll grow better than, much better than the first two quarters and that those last two quarters will keep the momentum into next year in 2018, consequently. I think next year we should see growth closer to 2.25%, 2.3% and maybe as high as 2.4%. The drivers for that on the one hand I do insist that all these infrastructure doldrums will be dealt with before the end of this year. I see, although the Colombian financial system at least the larger banks waiting to get involved again in 4G infrastructure, but obviously holding out until the government solves this problem that we're having with Biani and their reluctance to honor the agreement that they had signed with us with respect to getting say, not only the first payments through the banking system which I believe that's going to happen probably soon, but the remaining payment to get the bank fully paid. And logically I think the rest of the banking system is waiting to see what happens with that and I think 4G will have a big impact. I also think that as the lower rates permeate the economy we'll see better consumer demand and we’ll see better quality on the consumer loan portfolio and I also finally think that once we start getting the full effect of the 2016 fiscal reform on corporate tax rates and doing away with the equity tax I think that we'll see corporations coming back to the game and putting through their expansion plans and obtaining financing to do so. So it'll come from various fronts and to summarize 4G better consumer demand and better corporate profitability. So having settled that I think as I said 2018 should be a better year. We will have obviously as we move on in this last two quarters of 2017 we'll have a much-much better indication from of what happens on next year. And just to finalize we now have about 40 political candidates wanted to be president that I think that, that will filter pretty soon as to elisions start to become pure. And when that happens I think that also tends to take away some of the anxiety of the economy and when you put all that together again and to finalize, we should have a better 2018.

[Diego Fernando Solano Saravia:]

We could have been moving to your second question on margins, perhaps what we're seeing here is a result of diversification. And we are in the thing interest rates on loans fund particularly on corporate loans they have fallen around a 40 basis points when you compared up to the quarter and quarter. There is some that we are pricing still to happen here and that there is a lag of around couple of months between the Central Bank adjusting rates and are being able to or risen us our floating rates to reprise. On the other hand, the funding side also has a lag slightly as shorter than the lag that we have seen on the corporate loans. On the other hand is the Central American prices have been slightly going up that has helped. And in Colombia and the consumer front, it's something that appears to be happening is pricing it has started to better incorporate the deterioration of the consumer portfolio that we've seen. You might have that you've been following than using Colombia has been a lot of pressure from a the government as with the banks to adjusted rates down that is actually happening on the corporate level, but on the consumer side given that the cost of it is has gone up and that's room and for that to happen. The way that translates into prices is a there is not a very aggressive a competition between the banks to put down the prices and to secure clients away that is actually the mechanics how that pricing happens. The explanation for that is it seems that most of the banks in the system are seeing company single to what we have seen regardless if that has already showing up in the numbers. And moving to next year or I believe that was at the end of your question but we expect to see it depends very much on what happens with inflation and what happens with the Central Bank on that front what we believe it should be happening is, there is little room for additional reductions during this year that could be on other quarter let's say, but nothing as substantial as what has happened before. For next year it is very much depends on the success on getting inflation in shape. We believe that is going to happen perhaps not as rosy as some of the analysts are pointing out too. We believe in more of inflation in the 3.5% area that would imply the Central Bank rates somewhere around 4.5% by year-end. In accompanying that, there should be a some additional adjustment in margins in the, if you like to compare full-year 2018 to full-year 2017 you have to bear in mind that we have had a particularly strong first half that implies that next year compared to this year could have -- this is very early to tell, but it could be somewhere around the 20 basis points difference it what happens this year. And this is a very preliminary estimate and depend very much on what we see by the end of the year.

[Operator:]

Our next question comes from Frederic de Mariz from UBS.

[Frederic de Mariz:]

I have a few follow-up on the previous questions on the growth in Colombia. And you mentioned that there was a bit of concern on the consumer side and we see that might be related to VAT. However, we saw that most of the growth or the higher part of the growth in Colombia came from creditors and consumer lending. So, wanted to get your thoughts in terms of what kind of deceleration you would be expecting in consumer lending? Are you concerned with that portfolio? Are you doing -- are you changing anything to control the NPLs? And also on this question about the growth and potential in Colombia, if the slow economy continues for another two quarters, are you concerned that maybe the tax cut that we announced a few months could be revised or maybe we could have another fiscal reform down the road? So that’s for Colombia. And then just a final second question or second set of questions, on Central America. Could you just quickly comment in terms of trying that you're such expecting for the next two quarters especially what kind of ROEs would you be expecting in the same region? Thank you very much.

[Luis Carlos Sarmiento Gutierrez:]

All right, let me try to answer your first question and then Diego can help me out, if I leave anything else. Yes, consumer grew more in relative terms, but in absolute terms it really didn’t grow all that much. But in terms of what concerns us and what could happen, Yes I think the first quarter we saw a effect from the increasing value added taxes and a nice thing that effected more consumer confidence than consumer ability to repay their loans. I think that that has been put in the back of their minds, but I do see as I said unemployment especially urban unemployment going up. When you look at the countries overall unemployment rate they don’t look alarming, but if you look specifically urban unemployment, and let’s be honest most consumers lending happens in cities not in the rural areas as much. So, obviously that, that is a concern to me. The other thing that on the contrary works well for this is that as Diego was saying, the Central Bank decreased in rate have not been transferred that much through a consumer loan portfolio rate. And when you combine a bit of a higher unemployment or not a bit higher unemployment with high consumer rates than obviously that doesn’t goes very well for the health of your portfolios. I think that as we move on we’ll start to see relief under consumer side because of that. What else was there?

[Frederic de Mariz:]

Change in strategy and effect of a slow economy eventually on taxes?

[Luis Carlos Sarmiento Gutierrez:]

Okay. Yes, well in strategy and that -- our strategy since in our strategy. What we have done is we are paying -- well first thing that we always do it, it takes a little bit of time to gear up, the one thing that we’re doing as we’re strengthen in collections and we’re doing a group wise revision of collections policies. As always, we tend to look at of all our banks of the four commercial banks here and the banking group in Central America. We tend to look who is doing better under distressed or stress that these economic environments. And we try to emulate that in the rest of our banks. So I think that we're starting to see some good consequences of that and I expect to see more. We're also as part of this digitalization strategy that it's important to us that we've been working with consultants for the last few months and we finally put together a executable digital strategy that has started to be executed by Banco de Bogota and BAC and we'll keep going with the other banks. As part of that digital strategy we're streamlining our processes around selections and that should help and we're also streamlining some of the credit granting processes and that should help. We try to do better what we always do and we're paying a lot of attention we're totally at a high level of discomfort with the current ratio of cost of risk but when we reach traditionally these high levels of discomfort we tend to do things to get things and line and we hope this won't be the exception. With regards to the tax reform, I wish I could say that there is no doubt in my mind that 2016 tax reform will be implemented in full and we'll be a happy family if that happens, but then again historical evidence in Colombia points to the contrary, we I think have had a tax reform every two years for the last 50 years or so, so it’s hard to say whether the new president that is elected by 2018, it'll be hard for a new president to run on a new tax reform that's for sure. So we'll probably have all the candidates saying that there won't be a new tax reform but we've heard that before as well. Your point is very valid. The hole in fiscal revenues that will be created by a lower corporate rate and by doing away the equity tax has to be compensated with something. I think that the good news is that with this lower rate and with a stable dollar and with a stable oil price and with the turn account and the trade balance deficit sort of getting aligned and getting better. We might get better corporate result because we might get the commercial side of the economy the business side of the economy going again, and if that happens well then they should produce better income before taxes and at any tax rate they will have better results and better tax collections. I have said in the past and by results to finish that then we have better income before taxes with the new tax rates we might compensate for the hole, but it's yet to be seen, we'll see how the economy keeps going in the next few quarters. One thing that I have said, I said probably in a year, two or three months ago and I still believe in that is that we're going to have to sit down and take a hard look at the fiscal rule under which we live which is a self-imposed constraint that I honestly don't think makes a lot of sense. I think that at some point we are going to have to revise what is our comfort level in terms of the fiscal deficit and I don’t see a reason to self-imposed than we have to bring it down to 1%, and that would give the country and ability to borrow and this country is very, very creditworthy. And if we can borrow then we can compensate the whole. And if we compensate the whole, we can live with the 2016 fiscal reform. I don’t know if my words just fall on deaf ears, but I'll keep insisting. I think that we have to take our hard look at that. And so, basically and just to summarize with your question with regarding the 2016 fiscal reform, what bunch of things have to fall in line. If they do, we're okay. If they don’t, we'll be having this conversation again in the next two quarters I'm sure.

[Diego Fernando Solano Saravia:]

Your final was on Central America. Central America has been running at around of 15% ROE. In Central America is quite different story than Colombia even though we have also seeing some delinquency picking up there. There have been a number of positives also happening our operations particularly has been a very keen on improving efficiency. So part of what has been able to allow them to compensate, the negative that they've seen on provision expenses has been a much tighter cost a platform. They also have a faster pace of growth and what we are seeing, and in general there is a number of items in different lines of the P&L that have compensated for what has happened. And so try to wrap it to your question, we expect Central America to continue performing well there is our couple countries that always that were putting some attention on and you saw some volatility either installed by year earlier or this year that is something that has been there and should remain on time. We've seen some discussions in Costa Rica also about a fiscal deficit that have been there we are watchful of what the implications of fiscal deficit looks like and then if Panama might be running at a lower growth rate however it's a country that continues to be quite healthy. All-in-all we have to deal with this differences and they are amongst countries but we continue seeing the region and particularly our operation in the region to be able to sustain this kind of ROEs.

[Operator:]

Our next question comes from Jason Mollin from Scotiabank.

[Jason Mollin:]

My question is related to kind of the run rate of profitability return on equity. Clearly the 12.5% to 13% that you are talking about for this year reflects, there is very high cost of risk related to --partially related to Electricaribe as well as being not so positive environment for the earnings related to Corficolombiana. So if we kind of maybe start with Electricaribe, if as I understand your statements that a third of the provisions -- the increase in provisions in this quarter were related to increasing provisions related to this exposure. So is that if provisions increased just over 300 and COP1 billion quarter-on-quarter, is that -- is that basically 1/3 of that 100 related, if we wanted to try and isolate the ROE excluding that, would that be the right calculation? And secondly maybe just normalizing adding on to that just thinking about this doesn’t seem like a normalize situation for Corficolombiana at all and the infrastructure side of things. Where should we think about the return on equity kind of excluding? And there is always something happens right, but just kind of in a more normalized or long-term perspective. How do you think about profitability for Grupo Aval?

[Luis Carlos Sarmiento Gutierrez:]

It’s a great question, this one question that we asked ourselves every day. Let me try to answer because you hit exactly on the right point. On the one hand, much of the profitability of Aval and just about every profitable company in Colombia comes from the tax rate, if -- so, if you want to know a run-rate with bid full 2016 fiscal reform in place with Corficolombiana back to normal levels with the country growing at 3.5%. And with the -- and with the specific credit problems behind us, I think our run-rate should be 16%, I think our ROE, the ROE that we aspire to is 16% and I think we have the elements to get there. However, I -- there is a lot of risk if you heard me correctly there is lot of risk and -- will be put behind us eventually next year. I mean one way or another we get the problem solve that we fully provision the exposure. Infrastructure, as I said, has to get going. But I’ve also said that if the financial system is not willing or able to finance infrastructure and the 4G government program, we have an obligation which we will comply with to get the four 4G concession that were awarded to Corficolombiana going and right now we have the legal lending limits and we have the willingness because we see the huge benefits for Corficolombiana in the group. To finance ourselves, our own programs and we will get going and that will replace as you mentioned and replacing and exceed the decreasing profitability at the Corficolombiana level that have some regarding infrastructure on two fronts. On the one hand because it lasts the concessionary Ruta del Sol concession, which obviously did away with the profits that it was receiving from that and secondly because some of its own concessions -- old concessions are dwindling down like Bogota, Villavicencio, the original the original concession and others. So, that’s another we will get that going and we will get Corficolombiana back to its adequate levels. We will get this problem with Electricaribe behind us and the economy will rebound and with all that in mind, I think that again that’s our duration and we see a way to get to it. I don’t know if you have any…

[Diego Fernando Solano Saravia:]

Yes. I think those are the points and actually in the full tax reform would have been in phase, in place this year would have been running with an ROE that should be in access of 100 basis points above the kind of numbers that we’re looking into. So that gives you a starting base that adds to the different actions and the things that should happen that Luis Carlos pointed out.

[Operator:]

Our next question comes from Cristina Manotas from Davivienda.

[Cristina Manotas:]

Good morning, I just have one question. I would like to know what explained the annual growth of 85% on Corficolombiana gross loan, and which type of loan is it?

[Luis Carlos Sarmiento Gutierrez:]

Corficolombiana, when we look at Corficolombiana, and I want to make sure that I understand your question, Corficolombiana does consolidate some loans that are financial and others that are non-financial. The side that is financial comes from a small leasing company that they have in their belly, and the most relevant piece is the non-financial side that comes from Promigas. Promigas as we have mentioned in our past calls, it has some conflicts with some of their customers that are accounted for under IFRS as leasing contracts. Particularly there's something called the spec at TAT that is uploading unit of gas in the Colombian coast, that has contracts that generated this kind of accounting. So what you're seeing is particularly a growth in that side of the business.

[Operator:]

Our final question comes from Herman Cristanoche from [indiscernible].

[Unidentified Analyst:]

I would like to know more about the digitalization strategy and I don't know if you could give us some details maybe some about the impact on profitability ratios? What do you expect on the efficiency ratio? How will be the delivery of this strategy? And also do you expect branches closing, reduction of labor force and in general terms the digitalization strategy please? Thank you.

[Luis Carlos Sarmiento Gutierrez:]

It's a great strategy I'll tell you that. We've been working very close with our consultants to put together, it's a multifaceted strategy as you can imagine with so many banks and also as you can imagine, as we put together our digital strategies we need to make sure that we are not making many double efforts. So that when one of our banks gets digital strategy in anything like in a new product or in collection processes or etc and anything that you can imagine. We got to make sure that we use that to apply in the other banks and not to do it again as that wouldn’t be cost effective. Obviously, as with all digital strategies the main fronts are achieving a better customer experience and that is done through streamlining processes with customers who for example open accounts. And I'll give you an idea, we now have new product that we launched some weeks ago. And through Banco de Bogota where our clients can now open their accounts in five minutes or less through an iPad sort of environment, and that is turning out to be very good. We’ve also done some streamlining in collections, if I said. So, it's too early to tell you exactly what goals we have because we hear or we license them everyday ourselves. We have very ambitious goals and obviously we are also very ambitious as to how much our investment will be, but where we've licensed that as well. And then finally, yes, we have seen some efficiencies, we have seen already opportunity of some personal reduction, which we already put in place first phase in Banco de Bogota. And we were able to liberate some resources there and obviously we will see the results of that starting next year once we've amortized the cost of the layouts. So, we will give more details in the near future and then I'm sure you will see in the to your own bank intelligence or all of that, that we are doing and hopefully we will be as successful as I think we can be and but will talk more about it as we move on and as we get things accomplished.

[Operator:]

Our next question comes from Natalia Corfield from JP Morgan.

[Natalia Corfield:]

It's actually with regards to Ruta del Sol. I think I thought you didn’t guess everything that you expect or said during the call. If I understand that there is first thing is on 50% to 60% of the total loans and it's probably going to come soon because the suppliers and employees, they are reaching the threshold of 70%, and then the bank would be able to get their portion. Nevertheless, you mentioned that there was a problem with regards with the decision of the tribunal and there is going to be a hearing on September 1st. So I'm trying to understand, if this can be delayed the payment of the 50% to 60% of the loans that you are expecting to receive. And also if you have like what happens to the 40%, if you have any idea of when the remaining portion could be received by the banks? Thank you.

[Luis Carlos Sarmiento Gutierrez:]

Look let me see if I understood. There are basically two questions. Number one is how we are doing on the 70 percentages of our employees and suppliers and whether if we get those done the first payment will be made is one question that I understood. And then the secondly, what should happen going forward in arbitration and how that's -- what repercussions should that happened on the remaining payment, right? That's more or less, okay. On the 70 percentages as I said number one employees are done. Suppliers, we're very closed, we're only about $2 million away from getting it done. It's a very, very painstaking process because their concessionary CRDS has to produce the bills which then are analyzed by an expert hired by DIAN, which then are -- then the experts conclusions are analyzed by DIAN, then DIAN has stakes around -- they've taken on average 43 days through a bill. We've sort of brought it down to about 30 days and then they give their authorizations to the fiduciary who finally authorizes the payment. But -- so, we’re finally sort of close to getting it done. Now, your question specifically is because of what happen in the -- in arbitration where DIAN did not comply with their obligation to present determination agreement as a settlement between the parts should that effect, the first payment. And the answer is categorically, no. It should not affect it. The first payment is not affected by it because the agreement is in place. It signed and so it’s a commitment and the agreement is specifically says that with the 270 percentages the first payment will be made. What have to be ratified specifically by the arbitration tribunal is the full value of liquidation formula, and basically that says, we have to agree on what the total liquidation value is going to be, but there is no doubt in anybody’s mind that it’s why the first payment will be made that the full liquidation value will amply exceed the first payment. Therefore, the first payment will be made as soon as we get that over and done with. With regards to the remaining payments, basically, so we said the banks are about $800 million. They’ll get paid call it $500 million in the first payment. There'll still be owned about $300 million and that has to be paid. Then what we had agreed to was the banks would be paid between now and the year 2021 and that’s what in the agreement and that was to be ratified by the -- by arbitration and by the tribunal. When DIAN didn't show up and did not present the agreement as settlement, then what is happening is that the arbitration tribunal is saying, okay, then we’ll go ahead and proceed with our own competence to decide on how the agreement has to be look and one of the things they’re going to decide is whether they like the agreement that we have signed. And they might still ratified not a settlement, but as a pronunciation of the tribunal. So, we hope -- and the problem with that is not necessarily that they will have to run the whole process. That’s okay, we are very confidence that the agreement is good enough, we’re confident that the liquidation formula is good enough because it is the liquidation formulation that was included in the contract, the concession contract to start with. So, we’re confident that these arbitraries from the tribunal -- from the arbitration tribunal will eventually ratify the agreement. Once they do, we’ll have -- will be a 100% confident that the banks will be paid in full. But then it’s got running its course and unfortunately this can take three, four, five, six months, whether if we have done it in settlement, it would have been just one setting with the judges and would have been done. Now, we got to wait for it run it for run its course, but as I said we are -- we’re pretty solid background to make sure that and reasoning to make sure that what’s in the agreement will eventually prevail and it will finally approved. To summarize, we are very confident that the banks will be paid in full, we're very confident that they will be paid in the next that the first payment will be received shortly. And that the remaining payments will be received in the next three years. And we just got to let it run its course through the tribunal now.

[Operator:]

We have no further questions at this time. I'd like to turn the call back to Mr. Luis Carlos Sarmiento.

[Luis Carlos Sarmiento Gutierrez:]

Alright, I think that wraps it up, Sylvia. Thank you very much and thank you all for…