Non-GAAP measures reconciliation

The tables in this section and elsewhere in this annual report provide a reconciliation of non-GAAP measures to GAAP measures. For a reconciliation of certain capitalization ratios described in “Item 5. Operating and Financial Review and Prospects—B. Liquidity and capital resources,” see “Item 4. Information on the Company—B. Business overview—Supervision and regulation—Capital adequacy requirements.”

ROAA and ROAE

We believe ROAA, which is calculated as net income before non-controlling interest divided by average assets, provides a more meaningful measure of return on assets than a calculation based on net income over average assets because, although non-controlling interests affect the amount of reported net income attributable to Grupo Aval’s shareholders, they do not affect the profitability of assets. We believe ROAE, which is calculated as net income divided by average shareholders’ equity, provides a meaningful measure of the return generated for our shareholders.

The following table illustrates ROAA and ROAE for our banking subsidiaries, Grupo Aval (consolidated) and our principal competitors, for the periods listed below.

	Year ended December 31,
	2012			2011			2010
	(in Ps billions, except where otherwise indicated)
Banco de Bogotá:
Average assets(1)		74,658			64,078			47,911
Average equity(2)		7,324			5,382			3,679
Net income		1,326			1,146			915
Net income divided by average assets		1.8	%		1.8	%		1.9	%
Non-controlling interest		426			530			483
ROAA(1)		2.3	%		2.6	%		2.9	%
ROAE(2)		18.1	%		21.3	%		24.9	%
Non-controlling interest divided by income before non-controlling interest		24.3	%		31.6	%		34.6	%
Banco de Occidente:
Average assets(1)		23,509			20,409			18,356
Average equity(2)		3,236			2,799			2,263
Net income		520			432			386
Net income divided by average assets		2.2	%		2.1	%		2.1	%
Non-controlling interest		2			2			2
ROAA(1)		2.2	%		2.1	%		2.1	%
ROAE(2)		16.1	%		15.4	%		17.1	%
Non-controlling interest divided by income before non-controlling interest		0.4	%		0.4	%		0.5	%
Banco Popular:
Average assets(1)		14,690			13,487			11,937
Average equity(2)		2,024			1,789			1,516
Net income		378			372			362
Net income divided by average assets		2.6	%		2.8	%		3.0	%
Non-controlling interest		4			5			4
ROAA(1)		2.6	%		2.8	%		3.1	%
ROAE(2)		18.7	%		20.8	%		23.8	%
Non-controlling interest divided by income before non-controlling interest		1.0	%		1.3	%		1.0	%

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	Year ended December 31,
	2012			2011			2010
	(in Ps billions, except where otherwise indicated)
Banco AV Villas:
Average assets(1)		8,269			7,288			6,504
Average equity(2)		1,033			886			786
Net income		172			165			144
Net income divided by average assets		2.1	%		2.3	%		2.2	%
Non-controlling interest		0			0			0
ROAA(1)		2.1	%		2.3	%		2.2	%
ROAE(2)		16.7	%		18.6	%		18.4	%
Non-controlling interest divided by income before non-controlling interest		0.1	%		0.1	%		0.3	%
Grupo Aval (consolidated):
Average assets(1)		119,582			103,906			83,651
Average equity(2)		8,621			6,357			4,319
Net income		1,526			1,291			957
Net income divided by average assets		1.3	%		1.2	%		1.1	%
Non-controlling interest		911			1,080			874
ROAA(1)		2.0	%		2.3	%		2.2	%
ROAE(2)		17.7	%		20.3	%		22.2	%
Non-controlling interest divided by income before non-controlling interest		37.4	%		45.6	%		47.7	%
Bancolombia:
Average assets(1)		91,690			76,779			64,980
Average equity(2)		10,300			8,470			7,490
Net income		1,702			1,664			1,436
Net income divided by average assets		1.9	%		2.2	%		2.2	%
Non-controlling interest		6			11			13
ROAA(1)		1.9	%		2.2	%		2.2	%
ROAE(2)		16.5	%		19.6	%		19.2	%
Non-controlling interest divided by income before non-controlling interest		0.3	%		0.7	%		0.9	%
Davivienda:
Average assets(1)		41,890			33,134			27,884
Average equity(2)		5,063			4,182			3,133
Net income		696			630			579
Net income divided by average assets		1.7	%		1.9	%		2.1	%
Non-controlling interest(4)		8			8			6
ROAA(1)		1.7	%		1.9	%		2.1	%
ROAE(2)		13.7	%		15.1	%		18.5	%
Non-controlling interest divided by income before non-controlling interest(4)		1.1	%		1.2	%		1.0	%

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	Year ended December 31,
	2012			2011			2010
	(in Ps billions, except where otherwise indicated)
BBVA Colombia:
Average assets(1)		28,324			24,103			20,559
Average equity(2)		2,711			2,409			2,138
Net income		454			486			424
Net income divided by average assets		1.6	%		2.0	%		2.1	%
Non-controlling interest		2			1			1
ROAA(1)		1.6	%		2.0	%		2.1	%
ROAE(2)		16.7	%		20.2	%		19.8	%
Non-controlling interest divided by income before non-controlling interest		0.3	%		0.2	%		0.2	%

Source: Company calculations based on Grupo Aval’s and each bank’s consolidated financial statements for the period indicated.

(1)	For methodology used to calculate ROAA, see note (2) to the table under “Item 3. Key Information—A. Selected financial data—Other financial and operating data.”

(2)	For methodology used to calculate ROAE, see note (3) to the table under “Item 3. Key Information—A. Selected financial data—Other financial and operating data.”

The following table illustrates ROAA and ROAE using monthly consolidated information for average assets and equity for Grupo Aval for the periods indicated.

	Year ended December 31,
	2012			2011			2010
	(in Ps billions, except where otherwise indicated)
Grupo Aval (consolidated):
Average assets(1)		118,210.0			102,576.0			76,622.5
Average equity(2)		8,580.2			5,429.8			4,112.7
Net income		1,526.4			1,291.2			956.9
Net income divided by average assets		1.3	%		1.3	%		1.2	%
Non-controlling interest		911.1			1,080.2			874.2
ROAA(1)		2.1	%		2.3	%		2.4	%
ROAE(2)		17.8	%		23.8	%		23.3	%
Non-controlling interest divided by income before non-controlling interest		37.4	%		45.6	%		47.7	%

(1)	For methodology used to calculate ROAA, see note (2) to the table under “Item 3. Key Information—A. Selected financial data—Other financial and operating data.”

(2)	For methodology used to calculate ROAE, see note (3) to the table under “Item 3. Key Information—A. Selected financial data—Other financial and operating data.”

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	Year ended December 31, 2012
	Banco de Bogotá			Banco de Occidente			Banco Popular			Banco AV Villas
	(in Ps billions)
Average assets (1)		73,426.0			23,004.0			15,126.8			8,305.5
Average equity (2)		7,269.8			3,172.2			2,026.0			996.2
Net income		1,326.0			520.3			377.9			172.3
Net income divided by average assets		1.8	%		2.3	%		2.5	%		2.1	%
Non-controlling interest		425.6			2.0			3.8			0.2
ROAA(1)		2.4	%		2.3	%		2.5	%		2.1	%
ROAE(2)		18.2	%		16.4	%		18.7	%		17.3	%
Non-controlling interest divided by income before non-controlling interest		24.3	%		0.4	%		1.0	%		0.1	%

(1)	For methodology used to calculate ROAA, see note (2) to the table under “Item 3. Key Information—A. Selected financial data—Other financial and operating data.”

(2)	For methodology used to calculate ROAE, see note (3) to the table under “Item 3. Key Information—A. Selected financial data—Other financial and operating data.”

Efficiency ratio

The following table illustrates the efficiency ratio of our banking subsidiaries, Grupo Aval and our principal competitors at December 31, 2012.

	At December 31, 2012
	Banco de Bogotá			Banco de Occidente			Banco Popular			Banco AV Villas			Grupo Aval consolidated			Bancolombia			Davivienda			BBVA Colombia
	(in Ps billions)
Total operating expenses		3,199			937			669			456			5,300			4,162			2,164			1,173
Depreciation		117			133			24			22			297			320			113			46
Goodwill amortizations		74			1			–			–			93			46			140			155
Operating expenses before depreciation and amortization		3,008			803			645			434			4,910			3,797			1,912			973
Total operating income		5,555			1,621			1,162			690			8,661			6,296			3,040			-
Provisions, net		515			224			91			88			917			1,111			854			-
Operating income before provisions		6,070			1,845			1,252			778			9,578			7,407			3,894			2,015
Efficiency ratio (1)		49.6	%		43.5	%		51.5	%		55.8	%		51.3	%		51.3	%		49.1	%		48.3	%

(1)	Efficiency ratio is calculated as operating expenses before depreciation and amortization divided by operating income before net provisions.

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Tangible equity ratio

The following table illustrates the tangible equity ratio of our subsidiaries, the aggregate of our subsidiaries, Grupo Aval and our principal competitors at December 31, 2012.

	At December 31, 2012
	Grupo Aval entities
	Banco de Bogotá			Banco de Occidente			Banco Popular			Banco AV Villas			Grupo Aval aggregate			Grupo Aval consolidated			Bancolombia			Davivienda			BBVA Colombia (2)
	(in Ps billions)
Shareholders' equity		7,802			3,458			2,164			1,132			14,556			9,083			11,607			5,331			2,857
Non-controlling interest		2,663			9			60			4			2,735			5,408			81			97			6
Total assets		80,506			24,837			15,129			8,920			129,393			127,663			97,916			47,122			30,539
Shareholders' equity + Non-controlling interest / Assets		13.0	%		14.0	%		14.7	%		12.7	%		13.4	%		11.4	%		11.9	%		11.5	%		9.4	%
Goodwill		2,411			24			–			–			2,435			2,843			571			1,135			312
Shareholders' equity + Non-controlling interest – Goodwill		8,054			3,442			2,224			1,136			14,856			11,648			11,117			4,293			2,551
Total assets – Goodwill		78,095			24,813			15,129			8,920			126,958			124,820			97,345			45,987			30,227
Tangible equity ratio (1)		10.3	%		13.9	%		14.7	%		12.7	%		11.7	%		9.3	%		11.4	%		9.3	%		8.4	%

(1)	Tangible equity ratio is calculated as shareholders' equity plus non-controlling interest minus goodwill, divided by total assets minus goodwill.

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Exchange rates

The Colombian foreign exchange system allows the purchase and sale of foreign currency and the international transfer of pesos by any person or legal entity, regardless of the amount, subject to certain regulatory procedures.

The Superintendency of Finance calculates the representative market rate based on the weighted averages of the buy/sell foreign exchange rates quoted daily by certain financial institutions, including certain of our banking subsidiaries, for the purchase and sale of U.S. dollars. On April 15, 2013, the representative market rate was Ps 1,827.79 per U.S.$1.00, and on December 31, 2012, the representative market rate was Ps 1,768.23 per U.S.$1.00. The Federal Reserve Bank of New York does not report a noon buying rate for pesos/U.S. dollars.

The following table presents the monthly high and low representative market rate during the months indicated.

Recent exchange rates of peso per U.S. dollar	Low		High
Month:
November 2012		1,814.21		1,831.25
December 2012		1,768.23		1,813.73
January 2013		1,758.45		1,779.84
February 2013		1,775.65		1,818.54
March 2013		1,797.28		1,832.20
April 2012 (through April 15, 2013)		1,813.11		1,832.20

Source: Superintendency of Finance.

The following table presents the average peso/ U.S. dollar representative market rate for each of the five most recent years, calculated by using the average of the exchange rates on the last day of each month during the period, and the representative year-end market rate for each of the five most recent years.

Peso/ U.S.$1.00 representative market rate	Average		Year-end
Period:
2008		1,989.35		2,243.59
2009		2,180.19		2,044.23
2010		1,902.50		1,913.98
2011		1,854.02		1,942.70
2012		1,798.73		1,768.23

Source: Superintendency of Finance.

Exchange rate fluctuation will affect the U.S. dollar value of any distributions we make with respect to our shares of preferred stock. See “—D. Risk factors—Risks relating to our preferred shares.”

B.	Capitalization and indebtedness

Not applicable.

C.	Reasons for the offer and use of proceeds

Not applicable.

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D.	Risk factors

Our business, financial condition and results of operations could be materially and adversely affected if any of the risks described below occur. As a result, the market price of our preferred shares could decline, and you could lose all or part of your investment. We may face additional risks and uncertainties that are not presently known to us, or that we currently deem immaterial, which may also impair our business.

Risks relating to Colombia and other countries in which we operate

Adverse economic and political conditions in Colombia and other countries in which we operate, including the Central American region, may have an adverse effect on our results of operations and financial condition.

Our principal subsidiaries in Colombia are financial institutions (four commercial banks, a pension and severance fund administrator and a merchant bank), and a substantial majority of our operations, properties and customers are located in Colombia. As a consequence, our results of operations and financial condition are materially affected by economic and political conditions in this country.

Colombia is subject to economic, political and other uncertainties, including changes in monetary, exchange control and trade policies that could affect the overall business environment in Colombia, which would, in turn, affect our results of operations and financial condition. For example, the Colombian Central Bank could sharply raise or lower interest rates, which could negatively affect our net interest income and asset quality and also restrict our growth. Extreme variations in exchange rates could also negatively affect the foreign currency position of our borrowers. Any of these events could have an adverse effect on our results of operations and financial condition.

Decreases in the growth rate of the Colombian economy, periods of negative growth, or material increases in inflation or interest rates could result in lower demand for, or affect the pricing of, our services and products. Because a large percentage of the costs and expenses of our subsidiaries is fixed, we may not be able to reduce costs and expenses upon the occurrence of any of these events, in which case our profitability could be affected.

In the case of our pension and severance fund business, economic conditions may affect the businesses and financial capacity of employers, which might result in a drop in employee-contributor head counts or decrease the ability of employers to create new jobs or increase employee incomes.

BAC Credomatic’s results of operations and financial condition depend on economic, political and social conditions in the countries where BAC Credomatic operates, mainly in Central America. The political, economic and social environments in such countries are affected by many different factors, including significant governmental influence over local economies, substantial fluctuations in economic growth, high levels of inflation, exchange rate movements, exchange controls or restrictions on expatriation of earnings, high domestic interest rates, drug trafficking and other forms of organized crime, wage and price controls, changes in tax policies, imposition of trade barriers, and unexpected changes in regulation. BAC Credomatic’s results of operations and financial condition could be affected by changes in economic and other policies of each country’s government, which have exercised and continue to exercise substantial influence over many aspects of the private sector, and by other social and political developments in each such country. During the past several decades, El Salvador, Guatemala, Honduras, Nicaragua and Panama have experienced civil strife and political instability that have included a succession of regimes with differing economic policies and programs. Previous governments have imposed, among other measures, controls on prices, exchange rates, local and foreign investment and international trade, restricted the ability of companies to dismiss employees, expropriated private sector assets and prohibited the remittance of profits to foreign investors.

Adverse economic, political and social developments in Central America may adversely affect demand for banking services and create uncertainty regarding our operating environment, which could have a material adverse effect on BAC Credomatic and, consequently, our company. In addition, changes in political administrations may result in changes in governmental policy, which could affect BAC Credomatic or our business.

The Colombian and Central American economies remain vulnerable to external shocks.

A significant decline in economic growth of any of Colombia’s or Central America’s major trading partners—in particular, the United States, China, Ecuador and Venezuela—could have a material adverse effect on each country’s balance of trade and economic growth. In addition, a “contagion” effect, under which an entire region or class of

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investments becomes less attractive to, or subject to outflows of funds by, international investors could negatively affect Colombia or Central American countries. Lower economic growth may result in asset quality deterioration and could negatively affect our business.

Pension funds, such as those managed by Porvenir, are global investors and thus are affected by regional and global economic factors. Lower economic growth of Colombia’s major trading partners or a contagion effect in the region or globally may lead to lower pension fund returns, which may, in turn, result in decreases in assets under management and impair our businesses or financial condition. In recent years, pension fund returns have been subject to increased volatility in international financial markets. Foreign investments represented 13.5% and 11.1%, respectively, of Porvenir’s total assets under management at December 31, 2012 and 2011.

The recent global economic and financial crisis, which began in the U.S. financial system and spread to different economic sectors and countries around the world, has had negative effects on the Colombian economy and the economies of Central American countries. During 2009, the economies of the United States and some European countries contracted, which, in turn, affected the Colombian and Central American economies. Although there have recently been signs of recovery in the global economy, this recovery may be fragile and also may reflect temporary benefits from government stimulus programs that may not be sustained. Moreover, in recent months, several European Union members have been obliged to reduce their public expenditures due to their high indebtedness rates, which has negatively affected the Eurozone’s economy. The ability of certain countries, such as Greece, Italy, Portugal, Spain and Cyprus, and companies in those countries and in the Eurozone to repay their debt obligations remains uncertain. In addition, certain events, such as the outbreak of civil and political unrest in several countries in Africa and the Middle East, including Bahrain, Egypt, the Ivory Coast, Libya, Syria and Tunisia, might further strain and affect the global economy and the global financial system.

Even though exports from Colombia have grown at an accelerated rate in recent years, commodity prices fluctuations pose a significant challenge to their sustainability. Unemployment continues to be high in Colombia compared to other economies in Latin America. Furthermore, recent political and economic actions in the Latin American region, including actions taken by the Argentine government, may negatively affect the perception of the region. We cannot assure you that growth achieved over the past decade by the Colombian economy will continue in future periods. A reversal of the rate of growth of the Colombian economy, a slowdown in the growth of customer demand, an increase in market competition or changes in governmental regulations, could adversely affect the rate of growth of our loan portfolio and our risk index and, accordingly, increase our required allowances for loan losses. All this could in turn lead to decreased demand for borrowings in general.

The long-term effects of the global economic and financial crisis on the international financial system remain uncertain. In addition, the effect on consumer confidence of any actual or perceived deterioration of household incomes in the Colombian or Central American economies may have a material adverse effect on our results of operations and financial condition.

Colombia has experienced internal security issues that have had or could have a negative effect on the Colombian economy.

Colombia has experienced internal security issues, primarily due to the activities of guerrilla groups such as the Revolutionary Armed Forces of Colombia (Fuerzas Armadas Revolucionarias de Colombia), or “FARC,” paramilitary groups and drug cartels. In remote regions of the country with minimal governmental presence, these groups have exerted influence over the local population and funded their activities by protecting, and rendering services to drug traffickers. Even though the Colombian government’s “democratic security” program has reduced guerilla and criminal activity, particularly in the form of terrorism attacks, homicides, kidnappings and extortion, such activity persists in Colombia, and possible escalation of such activity and the effects associated with them have had and may have in the future a negative effect on the Colombian economy and on us, including our customers, employees, results of operations and financial condition. The Colombian government commenced peace talks with the FARC in August 2012. Current peace negotiations between the Colombian government and the FARC may indirectly result in agreements that are adverse to our interests or that result in an increase of our tax burden.

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Tensions with Venezuela, Ecuador and Nicaragua may affect the Colombian economy and, consequently, our results of operations and financial condition.

Diplomatic relations with Venezuela and Ecuador, two of Colombia’s main trading partners, have from time to time been tense and affected by events surrounding the Colombian armed forces combat of the FARC throughout Colombia, particularly on Colombia’s borders with Venezuela or Ecuador.

On November 19, 2012, the International Court of Justice placed a sizeable area of the Caribbean Sea within Nicaragua’s exclusive economic zone, that until then had been deemed by Colombia as part of its own exclusive economic zone. A worsening of diplomatic relations between Colombia and Nicaragua could result in the Nicaraguan government taking measures, or a reaction among the Nicaraguan public, which is detrimental to Colombian-owned interests in that country, including those owned by us through BAC Credomatic.

Any future deterioration in relations with Venezuela, Ecuador and Nicaragua may result in the closing of borders, the imposition of trade barriers or a breakdown of diplomatic ties, any of which could have a negative effect on Colombia’s trade balance, economy and general security situation, which may adversely affect our results of operations and financial condition.

Government policies and actions, and judicial decisions, in Colombia could significantly affect the local economy and, as a result, our results of operations and financial condition.

Our results of operations and financial condition may be adversely affected by changes in Colombian governmental policies and actions, and judicial decisions, involving a broad range of matters, including interest rates, exchange rates, exchange controls, inflation rates, taxation, banking and pension fund regulations and other political or economic developments affecting Colombia. The Colombian government has historically exercised substantial influence over the economy, and its policies are likely to continue to have a significant effect on Colombian companies, including us. The president of Colombia has considerable power to determine governmental policies and actions relating to the economy, and may adopt policies that negatively affect us. Future governmental policies and actions, or judicial decisions, could adversely affect our results of operations or financial condition.

New or higher taxes resulting from changes in tax regulations or the interpretation thereof in Colombia could adversely affect our results of operations and financial condition.

New tax laws and regulations, and uncertainties with respect to future tax policies, pose risks to us. In recent years, Colombian tax authorities have imposed additional taxes in a variety of areas, such as taxes on financial transactions and taxes to fund Colombia’s war against terrorism. Changes in tax-related laws and regulations, and interpretations thereof, can affect tax burdens by increasing tax rates and fees, creating new taxes, limiting tax deductions, and eliminating tax-based incentives and non-taxed income. In addition, tax authorities or courts may interpret tax regulations differently than we do, which could result in tax litigation and associated costs and penalties. In order to avoid double taxation, our Colombian subsidiaries usually distribute dividends from profits that have already been subject to income tax. These dividends are usually not taxable for Grupo Aval in Colombia, and dividends paid by Grupo Aval to its shareholders in Colombia from these sources of income also are usually not taxable, in each case provided that such profits have been taxed at the subsidiary level. This tax treatment may not be maintained in the future, and any change could have a material adverse effect on our results of operations and financial condition.

On December 26, 2012, the Colombian Congress approved a number of tax reforms. These changes include, among others, VAT rate consolidation, a reduction in corporate income tax, changes to transfer pricing rules, the creation of a new corporate income tax to pay for health, education and family care issues, modifications to the individual income tax rules, new “thin capitalization” rules and a reduction of social contributions paid by certain employees. The implementation of such tax reforms requires further administrative regulation. Although as of the date of this annual report we cannot estimate the full impact of these recent tax reforms on our Colombian operations, they are expected to have a negative impact on the business of our pension fund manager subsidiary, as they impose more burdensome conditions for obtaining tax deductions for contributions made to the voluntary pension funds. Considering our banking operations, there can be no assurance that the implementation of the tax reforms will not have an adverse impact on our revenues in Colombia.

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Natural disasters in Colombia could disrupt our businesses and affect our results of operations and financial condition.

We are exposed to natural disasters in Colombia, such as earthquakes, volcanic eruptions, tornadoes, tropical storms and hurricanes. Heavy rains in Colombia, attributable in part to the La Niña weather pattern, have resulted in severe flooding and mudslides. La Niña is a recurring weather phenomenon, and it may contribute to flooding, mudslides or other natural disasters on an equal or greater scale in the future. In the event of a natural disaster, our disaster recovery plans may prove to be ineffective, which could have a material adverse effect on our ability to conduct our businesses, particularly if such an occurrence affects computer-based data processing, transmission, storage and retrieval systems or destroys customer or other data. In addition, if a significant number of our employees and senior managers were unavailable because of a natural disaster, our ability to conduct our businesses could be compromised. Natural disasters or similar events could also result in substantial volatility in our results of operations for any fiscal quarter or year.

Risks relating to our businesses and industry

Risks relating to our banking business

A decline in asset quality, including the loan portfolios of our banks, may have an adverse effect on our results of operations and financial condition.

Changes in the financial condition or credit profiles of customers of our banking subsidiaries and increases in inflation or interest rates could have a negative effect on the quality of our banks’ loan portfolios, causing them to increase loan loss provisions and resulting in reduced profitability. In particular, the level of non-performing loans may increase in the future as a result of factors beyond our control, such as economic conditions and political events affecting Colombia generally or specific sectors of the economy.

A substantial number of our banks’ customers consist of individuals and small- and medium-sized enterprises, or “SMEs,” and these customers are more likely to be adversely affected by downturns in the Colombian economy than large corporations and high-income individuals. For example, unemployment directly affects the ability of individuals to obtain and repay consumer and residential mortgage loans. Consequently, our banking subsidiaries may experience higher levels of non-performing loans, which could result in increased loan loss provisions due to defaults by, or deterioration in the credit profiles of, individual borrowers. Non-performing loans and resulting loan losses may increase materially in the future and adversely affect our results of operations and financial condition.

Existing loan loss allowances may not be adequate to cover any increases in non-performing loans or deterioration in the credit quality of loan portfolios. As a result, our banking subsidiaries may be required to increase loan loss provisions, which may adversely affect our results of operations and financial condition.

In addition, there is no precise method for predicting loan and credit losses, such that loan loss allowances may not be sufficient to cover actual losses. If we and our banking subsidiaries are unable to manage the level of non-performing or other poor credit quality loans, our results of operations and financial condition would be materially and adversely affected.

The loan portfolios of our banking subsidiaries have grown substantially in recent years. See “Item 4. Information on the Company––B. Business overview––Selected statistical data.” As default rates generally increase with the age of loans, the level of non-performing loans may lag behind the rate of growth in loans but may increase when growth slows or the loan portfolios become more mature. As a result, historic loan loss experience may not necessarily be indicative of future loan loss experience.

Our banking subsidiaries may be unable to realize on collateral or guarantees securing loans, which may adversely affect our results of operations and financial condition.

Our banking subsidiaries make loans that are secured by collateral, including real estate and other assets that are generally located in Colombia and the countries where we operate. The value of collateral may significantly fluctuate or decline due to factors beyond our control, including, for example, economic and political conditions in the country. At December 31, 2012, 37.6% of our total past due loans (including our foreign operations) were secured. An economic slowdown may lead to a downturn in the Colombian or Central American real estate market, which may, in turn, result

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in declines in the value of real estate securing loans to levels below the principal balances of these loans. Any decline in the value of the collateral securing loans may result in reduced recoveries from collateral realization and have an adverse effect on our results of operations and financial condition. We may also not have sufficiently recent information on the value of collateral, which may result in an inaccurate assessment for impairment losses of our loans secured by such collateral. If this were to occur, we may need to make additional provisions to cover actual impairment losses of our loans, which may materially and adversely affect our results of operations and financial condition.

Our banking subsidiaries also make loans on the basis of guarantees from relatives, affiliates or associated persons of borrowers. To the extent that guarantors encounter financial difficulties due to economic conditions, personal or business circumstances, or otherwise, the ability of our banks to enforce such guarantees may be impaired.

In addition, our banking subsidiaries may face difficulties in enforcing their rights as secured creditors against borrowers, collateral or guarantees. In particular, timing delays and procedural problems in realizing against collateral, as well as a debtor-protective judicial interpretations of the law, may make it difficult to foreclose on collateral, realize against guarantees or enforce judgments in our favor, which could materially and adversely affect our results of operations and financial condition.

A new insolvency law in Colombia may limit the ability of our banking subsidiaries to collect monetary obligations and enforce rights against collateral or under guarantees.

Colombian insolvency laws provide that creditors of an insolvent debtor in default are prohibited from initiating collection proceedings outside the bankruptcy or reorganization process of such debtor. In addition, all collection proceedings outstanding at the beginning of the bankruptcy or reorganization process must be suspended and any creditors are prevented from enforcing their rights against the collateral and other assets of the debtor.

On July 12, 2012, the Colombian Congress enacted Law 1564, which provides insolvency protection for non-merchant individuals. Under the new insolvency regulation, which came into effect on October 1, 2012, once a non-merchant individual has ceased paying his or her debts, that individual can initiate a voluntary insolvency proceeding before a notary public or mediator to reach an agreement with its creditors. The terms of any agreement reached with a group (two or more) of creditors that represent more than 50% of the total amount of the claims will be mandatorily applicable to all relevant creditors. The law also provides for increased debtor protections, including an automatic stay for a maximum of 90 days. A perception that loans to individuals may be difficult or impossible to recover could cause our banking subsidiaries to enhance credit requirements and result in decreased lending to individuals by making it more expensive. In addition, increased difficulties in enforcing debt and other monetary obligations due to this new insolvency law could have an adverse effect on our results of operations and financial condition.

Any failure of risk management processes, including credit and market risk, could materially and adversely affect our banking businesses, results of operations and financial condition.

Credit risk is a principal risk inherent in the business of our banks. Although we have groupwide risk management guidelines, each bank is responsible for its own risk management. Each bank’s policies and procedures, which are designed to identify, monitor and manage risk, may prove to be insufficient. Furthermore, our banks may not be able to upgrade, on a timely basis, risk management systems. For example, the risk management systems utilize an internal credit rating system to assess the risk profile of each customer. As this process involves detailed analyses of the customer’s credit risk, taking into account quantitative and qualitative factors, it is necessarily subject to human error. Due to limitations in the availability of information and the developing information infrastructure in Colombia, our assessment of credit risk associated with a particular customer may not be based on complete, accurate or reliable information. Personnel of our banking subsidiaries may fail to detect risks before they occur, or may not effectively implement their risk management systems, which may increase exposure to credit risk. As a result, any failure by our banking subsidiaries to effectively implement or consistently follow or refine risk management systems may result in higher risk exposures for our banking subsidiaries, which could materially and adversely affect our results of operations and financial condition.

Declines in the value of our banks’ sovereign debt securities portfolios could have an adverse effect on our results of operations.

Our banks’ debt securities portfolio primarily consists of sovereign debt securities, mainly securities issued or guaranteed by the Colombian government. LB Panama’s debt securities portfolios primarily consist of private issuers of

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corporate debt securities. We are exposed to significant credit, market and liquidity risks associated with sovereign debt. At December 31, 2012 and December 31, 2011, debt securities represented 15.4% and 14.6%, respectively, of our consolidated total assets, and approximately 58.2% and 64.0%, respectively, of these securities were issued or backed by the Colombian government. A significant decline in the value of these government securities could materially and adversely affect our debt securities portfolio and, consequently, our financial condition and results of operations. See “Item 4. Information on the Company––B. Business overview––Supervision and regulation—Mandatory investments.”

We are subject to market risk in our banking business.

Our banks are directly and indirectly affected by changes in market conditions. Market risk, or the risk that the value of assets and liabilities or revenues will be adversely affected by variation in market conditions, is inherent in the products and instruments associated with our operations, including loans, deposits, securities, bonds, long-term debt, short-term borrowings, proprietary trading in assets and liabilities and derivatives. Changes in market conditions that may affect our financial condition and results of operations include fluctuations in interest and currency exchange rates, securities prices, changes in the implied volatility of interest rates and foreign exchange rates, among others.

We are subject to counterparty risk in our banking business.

Our banks and, to a lesser extent, Porvenir and Corficolombiana are exposed to counterparty risks in addition to credit risks associated with lending activities. Counterparty risk may arise from, for example, investing in securities of third parties, entering into derivative contracts under which counterparties have obligations to make payments to us, or executing securities, futures, currency or commodity trades from proprietary trading activities that fail to settle at the required time due to non-delivery by the counterparty or systems failure by clearing agents, exchanges, clearing houses or other financial intermediaries. These risks could materially and adversely affect our results of operations and financial condition.

Our banks are subject to market and operational risks associated with derivative transactions.

Our banks and, to a lesser extent, Porvenir and Corficolombiana, enter into derivative transactions primarily for hedging purposes and, on a limited basis, on behalf of customers. They are subject to market and operational risks, including basis risk (the risk of loss associated with variations in the spread between the asset yield and the funding and/or hedge cost) and credit or default risk (the risk of insolvency or other inability of a counterparty to perform its obligations to us).

Market practices and documentation for derivative transactions in Colombia may differ from those in other countries. For example, documentation may not incorporate terms and conditions of derivatives transactions as commonly understood in other countries. In addition, the execution and performance of these transactions depend on our banks’ ability to develop adequate control and administration systems, and to hire and retain qualified personnel. Moreover, our banks’ ability to monitor and analyze these transactions depends on their information technology systems. These factors may further increase risks associated with derivative transactions and could materially and adversely affect our results of operations and financial condition.

Our banking subsidiaries are subject to liquidity risk, which may result in increases to funding costs.

The principal sources of funding for our banking subsidiaries are savings deposits, time deposits and checking accounts, that together represented approximately 67.8% and 67.7% of consolidated total liabilities at December 31, 2012 and 2011, respectively. Because our banking subsidiaries rely primarily on short-term deposits for funding, a sudden or unexpected shortage of funds in the banking systems in which we operate and money markets may prevent our banking subsidiaries from meeting their obligations or obtaining necessary funding without incurring higher costs or selling certain assets at prices below prevailing market values, which could materially and adversely affect our results of operations and financial condition.

Default by one or more of our largest borrowers could adversely affect our results of operations and financial condition.

The aggregate outstanding loans to our banks’ ten largest borrowers represented 5.9% of our consolidated total loan portfolio at December 31, 2012. Default on loans by one or more of these borrowers may adversely affect our results of operations and financial condition.

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Downgrades in our credit ratings or in the credit ratings of our banking subsidiaries would increase the cost of, or impair access to, funding.

Our credit ratings and those of our banking subsidiaries are an important component of our and our banking subsidiaries ability to obtain funding. Our banking subsidiaries’ ability to compete successfully in the marketplace for deposits depends on various factors, including their financial stability as reflected by their credit ratings. A downgrade in credit ratings may adversely affect perception of their financial stability and ability to raise deposits. Adverse changes in credit ratings could also increase the cost of raising funds in the capital markets or borrowing funds for our subsidiaries and for us. In addition, lenders and counterparties in derivative transactions are sensitive to the risk of a rating downgrade. Any downgrade in our credit rating or in any of our banking subsidiaries’ credit ratings could materially and adversely affect our results of operations and financial condition.

Our banking subsidiaries’ loan portfolios are subject to risk of prepayment, which may result in reinvestment of assets on less profitable terms.

The loan portfolios of our banking subsidiaries are subject to prepayment risk, which results from the ability of a borrower to pay a loan prior to maturity. Generally, in a declining interest rate environment, prepayment activity increases with the effect of reducing weighted average lives of interest earning assets and adversely affecting results. Prepayment risk also has an adverse effect on credit card and collateralized mortgage obligations, since prepayments could shorten the weighted average life of these portfolios, which may result in a mismatch in funding or in reinvestment at lower yields.

The credit card industry is highly competitive and entails significant risks, including the possibility of over-indebtedness of customers, which could have a material adverse effect on us.

The credit card business is subject to a number of risks and uncertainties, including the possibility of over-indebtedness of our customers, despite our focus on low-risk, medium- and high-income customers.

The credit card industry is characterized by higher consumer default than other credit industries, and defaults are highly correlated with macroeconomic indicators that are beyond our control. Part of our current growth strategy is to increase volume and number of cards in the credit card portfolio, at the same or a higher rate than the market, which may increase our exposure to risk in our loan portfolio. If Colombian and Central American economic growth slows or declines, or if we fail to effectively analyze the creditworthiness of our customers (including by targeting certain sectors), we may be faced with unexpected losses that could have a material adverse effect on us.

Changes in banking laws and regulations in Colombia and the other countries in which we operate could adversely affect our consolidated results.

Banking and financial services laws and regulations are subject to ongoing review and revision, including changes in response to global regulatory trends and, more recently, the global economic and financial crisis. In the wake of this crisis, governments have been actively considering new banking laws and regulations, and reviewing and revising existing laws and regulations, particularly in relation to capital adequacy and accounting standards, including Basel III. The adoption of new laws or regulations, or changes in the interpretations or enforcement of existing laws or regulations, may have an adverse effect on our results of operations and financial condition.

Regulatory actions may result in fines, penalties, and restrictions that could materially and adversely affect our businesses and financial performance.

Our Colombian banks, as well as Porvenir and Corficolombiana, are subject to regulation and supervision by Colombian financial authorities. These regulatory authorities have broad powers to adopt regulations and other requirements affecting or restricting virtually all aspects of our subsidiaries’ organization and operations, including, for example, the imposition of anti-money laundering measures and the authority to regulate the terms and conditions of credit that can be applied by Colombian banks. Failure to comply with applicable regulations could subject our banking subsidiaries to fines or sanctions or even revocation of licenses or permits to operate their businesses. In the event that any of these subsidiaries encounters significant financial problems, is in danger of insolvency or becomes insolvent, or is otherwise not deemed to be viable, the financial authorities would have broad powers to intervene in their management and operations, including by suspending or removing management and, in extreme circumstances, putting our banks, Porvenir and Corficolombiana, into conservatorship or receivership or taking control of our banks, Porvenir and

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Corficolombiana. Grupo Aval is required, as an issuer of securities in Colombia, to submit information to the Superintendency of Finance and comply with corporate governance requirements; however, we are not regulated as a financial institution or as a bank holding company, and we are not required to comply with capital adequacy regulations applicable to banks and other financial institutions. We may, however, become subject to more stringent regulation in the event that our status as a non-financial entity is not maintained by Colombian authorities in the future.

We may face legal and other challenges to maximizing revenue from credit card fees and other fees from customers.

As part of their credit card business, our banks face risks relating to the pricing of fees and commissions charged to merchants (merchant discounts) and the pricing of bank interchange fees charged by issuer banks to acquiring banks. Banks and card processors in Colombia have been subject to administrative investigations regarding the fees and commissions that are charged to the merchants by the acquiring banks and in respect to the banking interchange fees.

In the past, the Superintendency of Industry and Commerce (Superintendencia de Industria y Comercio) has conducted investigations on the practices of Asociación Gremial de Instituciones Financieras Credibanco (Visa franchisee in Colombia) and Redeban Multicolor S.A. (MasterCard franchisee in Colombia), the entities chosen by most Colombian banks to manage the credit card system in Colombia, relating to alleged price fixing agreements among Colombian banks relating to fees and commissions charged to merchants. The Superintendency of Industry and Commerce has also conducted investigations into certain Colombian banks in the past, including our Colombian banking subsidiaries, for alleged price fixing of bank interchange fees charged during the period from May 2007 to October 2008.

Although we have not been subject to any fine or penalty as a result of these investigations, it is possible that similar investigations be carried out by the relevant authorities in the future resulting in a decrease of the fees charged to merchants and bank interchange fees could decrease, which could also lead to changes in commercial strategies that could affect our results of operations and financial condition. We may also be subject to financial penalties in connection with such future investigations. In addition, fees charged for other banking services may continue to be reduced in the future as a result of regulatory measures and/or pressure from retailers and interest groups.

Failure to protect personal information could adversely affect our reputation and our business.

Our banks manage and hold confidential personal information of customers in the conduct of their banking operations. Although our banks have procedures and controls to safeguard personal information in our possession, unauthorized disclosures or unauthorized access to privileged information, fraud or interfering with regular banking and other services could subject our banks and us to legal actions and administrative sanctions as well as damages. Any failure to protect personal information could result in reputational damage and have an adverse effect on our results of operations and financial condition.

Risks relating to our merchant banking business

Difficult market conditions can adversely affect Corficolombiana’s business.

Corficolombiana may be affected by lower than expected returns on investments, reduced opportunities to realize value from investments, and failure to find suitable investments so as to deploy capital effectively. During periods of difficult market conditions (which may span across one or more industries, sectors or geographies), portfolio companies may experience adverse operating performance, decreased revenues, financial losses, difficulty in obtaining access to financing or increased funding costs. Negative financial performance of portfolio companies may materially and adversely affect Corficolombiana’s results of operations and cash flow. To the extent the operating performance of those portfolio companies (as well as valuation multiples) does not improve or other portfolio companies experience adverse operating performance, it may sell those assets at values that are less than projected or even at a loss. Portfolio companies may also have difficulties in expanding their businesses and operations or meeting debt service and other obligations as they become due. Furthermore, negative market conditions could potentially result in a portfolio company entering bankruptcy proceedings, thereby potentially resulting in a complete loss of the investment. Although market conditions have recently shown some signs of improvement, economic and market conditions may not continue to improve. Even if such conditions do improve broadly and significantly over the long term, adverse conditions and/or other events in particular sectors may cause our performance to suffer further.

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Corficolombiana’s due diligence process for evaluating prospective investments may not identify all risks or ensure investment returns.

Before making investments, Corficolombiana conducts due diligence that it deems reasonable and appropriate based on the facts and circumstances applicable to each investment. When conducting due diligence, it may be required to evaluate important and complex business, financial, tax, accounting, environmental and legal issues. Outside consultants, legal advisors, accountants and investment banks may be involved in the due diligence process to varying degrees depending on the type of investment, but we may be unable to engage these third parties in a timely manner, or at all. Nevertheless, the due diligence investigation carried out by Corficolombiana with respect to any investment opportunity may not reveal or highlight all relevant risks of such investment opportunity. Moreover, such an investigation will not necessarily result in the investment being successful.

A significant part of Corficolombiana’s investments are primarily in relatively illiquid assets, and it may fail to realize any profits from these activities for a considerable period of time or lose some or all of the principal amount of these investments.

At December 31, 2012, approximately 46.9% of Corficolombiana’s investments was in securities of privately held companies, for which there often are no readily ascertainable market prices. As a result, there may be limited or no marketability for these investments, and these investments may decline in value while Corficolombiana is seeking to dispose of them. Because there is significant uncertainty as to the valuation of illiquid investments, the stated values of such investments may not necessarily reflect the values that could actually be realized by Corficolombiana. In addition, in some cases, Corficolombiana may be prevented by contract from selling such securities for a period of time. Corficolombiana’s ability to dispose of investments may also be dependent on factors beyond its control. Thus, investments may only be disposed of over a substantial length of time, exposing the investment returns to risks of declines in market prices during the intended disposition period. Accordingly, under certain conditions, Corficolombiana may be forced to either sell securities at lower prices than it had expected to realize or defer—potentially for a considerable period of time—sales that it had planned to make.

Corficolombiana makes minority investments in companies that it does not control.

Corficolombiana’s investments include non-controlling equity interests, and it may also dispose of a portion of its majority equity investments in portfolio companies over time in a manner that results in Corficolombiana retaining minority investments. Those investments will be subject to the risk that the company in which the investment is made may make business, financial or management decisions with which we do not agree. Similarly, the majority stakeholders or the management of the company may take risks or otherwise act in a manner contrary to our interests. If any of the foregoing were to occur, the values of these investments could decrease or we may not be able to dispose of them, which would adversely affect our results of operations and financial condition.

Most of Corficolombiana’s investments are concentrated in three industries.

At December 31, 2012, approximately 82.7% of Corficolombiana’s investment portfolio was concentrated in the infrastructure, energy and gas, and financial sectors. During periods of difficult market conditions or slowdowns in these sectors, Corficolombiana may experience decreased revenues, difficulty in obtaining access to financing and increased funding costs.

Risks relating to our pension and severance fund management business

Porvenir operates in a highly regulated market, which limits its flexibility to manage its businesses.

Porvenir’s operations are regulated by Law 100 of 1993, the Organic Statute of the Financial System (Estatuto Orgánico del Sistema Financiero), or “EOSF,” issued by the Ministry of Finance, Decree 2555 of 2010, or “Decree 2555,” and regulations issued by the Superintendency of Finance and, to the extent applicable, Colombian Corporation Law. These regulations limit the range of assets in which pension fund administrators, or “AFPs,” can invest and also set investment limits. In addition, each AFP is legally required to provide a minimum return on investment for each of its pension and severance funds. This minimum return is determined pursuant to specified formulas established in Decree 2555, which vary according to the type of fund. If a fund’s return for any month is lower than the minimum return, the AFP must cover the difference within a period of five days. To do so, the AFP must first apply funds from a stabilization reserve (a portion of the AFP’s capital invested in the fund equal to 1% of the value of each pension fund

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under management). If the stabilization reserve is insufficient to cover the difference, the AFP must provide resources from its own capital. If the AFP does not have enough resources to cover the difference, the Superintendency of Finance may order the capitalization of the AFP. If, notwithstanding the above, an AFP fails to observe either the minimum return or the stabilization reserve requirements or the order of capitalization, the Superintendency of Finance may take possession (tomar posesión) of the AFP, in which case the Colombian Deposit Insurance Fund (Fondo de Garantías de Instituciones Financieras), or “FOGAFIN,” must supply funds to cover the shortfall. Although Porvenir has never failed to meet the minimum requirement, failure to do so could require us to increase our investment in Porvenir, seek capital from alternative sources or forfeit our investment, or lead to dissolution of the AFP and transfer of the fund to another AFP. If Porvenir is unable to fulfill the minimum return or the stabilization reserve requirements, or if new laws or decrees impose more onerous requirements, Porvenir’s respective business may be materially adversely affected.

In addition, there are regulatory limitations on the amount of commissions that Porvenir may charge for its services. For example, we may only retain 300 basis points of the 16.0% (up to 17.0% for employees meeting a certain salary threshold) of the base contribution to a mandatory pension fund, a portion of which (currently 160 basis points) we are required to pay to an insurer for life and disability coverage. The percentage that we pay for this insurance may increase or decrease depending on market conditions and other factors. Life and mortality rate tables have been adopted in Colombia and became effective on October 1, 2010. These tables account for longer life expectancy trends, which may result in an increase in the amount we pay for insurance and may affect our results of operations.

In 2009, the regulatory system began to shift from an obligatory pension system to a multi-funds system, allowing pension funds to be more specifically tailored to the individual needs of customers according to their risk profiles. Regulations related to the establishment of the multi-funds system are continuing to be developed. These regulations or their interpretation by the Ministry of Finance or the Superintendency of Finance may not provide a favorable business environment for Porvenir.

A significant amount of debt securities in pension and severance funds managed by Porvenir is issued or guaranteed by the Colombian government.

Porvenir, like our banks and other participants in the banking industry, is subject to the risk of loss in value of sovereign debt securities. At December 31, 2012, total debt securities of Porvenir represented 66.1% of the total assets of the funds managed by Porvenir, and 62.2% of total debt securities were issued or backed by the Colombian government. A significant decline in the value of the securities issued or guaranteed by the Colombian government could adversely affect the debt securities portfolio of Porvenir and, consequently, our results of operations and financial condition.

Other risks relating to our business

We are subject to fluctuations in interest rates and other market risks, which may materially and adversely affect our results of operations and financial condition.

Market risk refers to the probability of variations in income or in the market value of assets and liabilities due to changes in markets, including variations in market rates of interest and foreign currency exchange rates. Changes in interest rates affect the following areas, among others, of our banks’ businesses: net interest income; the volume of loans originated; market value of securities holdings; asset quality; and gains from sales of loans and securities. We do not manage market risk on a groupwide basis and are not subject to regulation or supervision of market risk on a groupwide basis.

Changes in short-term interest rates may affect interest margins quickly and, therefore, net interest income, which comprises the majority of our revenue. Increases in interest rates may reduce the volume of loans originated by our banking subsidiaries. Sustained high interest rates may discourage customers from borrowing and may result in increased delinquencies in outstanding loans and deterioration in the quality of assets. Increases in interest rates may reduce the value of our assets, including the financial assets of our banks, the assets managed by Porvenir and the investments of Corficolombiana. Our banking subsidiaries hold a substantial portfolio of loans and debt securities that have both fixed and floating interest rates. In addition, we may incur costs (which, in turn, will affect our results of operations) if our banking subsidiaries implement strategies to reduce future interest rate exposure. Increases in interest rates may reduce gains or require our banking subsidiaries to record losses on sales of their loans or securities.

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High interest rates have historically been common in many countries in Latin America. We have regional exposure to fluctuations in interest rates. To the extent that there are significant increases in such rates in any of the countries in which BAC Credomatic operates, our operating margins may be adversely affected and our results of operations may experience significant adverse consequences.

We face exposure to fluctuations in foreign currency exchange, particularly in light of the fact that the currencies in countries where we and BAC Credomatic operate have historically experienced significant devaluations. The types of instruments exposed to foreign exchange rate risk include, for example, investments in foreign subsidiaries, foreign currency-denominated loans and securities, foreign currency-denominated debt and various foreign exchange derivative instruments whose values fluctuate with changes in the level or volatility of currency exchange rates or foreign interest rates.

We may be adversely affected by fluctuations between the value of the Colombian peso or other local currencies in which we operate and the U.S. dollar as a result of U.S. dollar-denominated indebtedness.

We financed our acquisition of BAC Credomatic, in part, through the incurrence of approximately U.S.$1.3 billion of U.S. dollar-denominated debt. Because the substantial majority of our revenue is in Colombian pesos, we will be exposed to fluctuations in the exchange rate between the Colombian peso and the U.S. dollar and the uncertainty of the amount of Colombian pesos that will be required to service the principal and interest payments on this debt. On a consolidated basis, we and our subsidiaries have U.S.$2,387.8 million of long-term debt denominated in U.S. dollars as of December 31, 2012. Fluctuations in the peso/dollar exchange rate may affect the value of this debt on our balance sheet and cause us to recognize gains or losses on our income statement. Any substantial increase in the U.S. dollar relative to the Colombian peso could affect our results of operations and our ability to meet our future payment obligations on this debt.

A substantial portion of BAC Credomatic’s earnings, assets and liabilities are in Costa Rican colones, Guatemalan quetzals, Honduran lempiras, Nicaraguan cordobas, Panamanian balboas and U.S. dollars. As a result, we are subject to risks relating to foreign currency exchange rate fluctuations between these currencies and Colombian pesos. Nevertheless, as described in “Item 4. Information on the Company––B. Business overview––BAC Credomatic—Foreign exchange rate risk related to the BAC Credomatic acquisition,” BAC Credomatic maintains a U.S. dollar net asset position, which is intended to hedge at least 60% of its shareholders’ equity against the possible devaluations of each of these local currencies.

We are subject to trading risks with respect to our trading activities.

Our banks, Corficolombiana and Porvenir engage in proprietary trading, and we derive a portion of our profits from such trading activities. As a result, any reduction in trading income could adversely affect our results of operations and financial condition. Our trading income is volatile and dependent on numerous factors beyond our control, including, among others, market trading activity, interest rates, exchange rates and general market volatility. A significant decline in our trading income, or large trading losses, could adversely affect our results of operations and financial condition.

Declines in the market price for securities could result in our recording impairment losses as well as increased unrealized losses on other securities. Losses in the Colombian equity markets could result in further losses from impairment or sale of these securities. Any significant increases in exposure to any of these non-traditional risks, or a significant increase in credit risk or bankruptcy of any of the counterparties, could materially and adversely affect our results of operations and financial condition.

Colombian law imposes limitations on interest rates, and future additional restrictions on interest rates or banking fees could negatively affect our profitability.

The Colombian Commercial Code limits the amount of interest that may be charged in commercial transactions, including transactions of our banking subsidiaries. In the future, regulations in Colombia could impose increased limitations regarding interest rates or fees. Law 1430 of December 2010 authorizes the Colombian government to impose or place limits on tariffs and fees charged by banks and other financial institutions where the government has determined that there is insufficient competition in a relevant market. Additionally, the law requires the Superintendency of Finance to implement a monitoring scheme of the tariffs and fees charged by the financial institutions in their relevant markets and to report the results of this evaluation semi-annually to the Colombian government. The Colombian government issued Decree 4809 of 2011, which (1) requires banks to provide each of their

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clients with statements of all fees charged to such clients on an annual basis, (2) sets a limit on the fees that banks may charge to their clients for withdrawals on automated teller machines, or “ATMs,” of other banks and (3) establishes that transactions through the internet may not cost more than those made through other channels. A significant portion of our banks’ revenues and operating cash flow is generated by credit services and any such increased limitations would materially and adversely affect our results of operations and financial condition.

The Colombian Central Bank may impose requirements on the ability of Colombian residents, including us, to obtain loans denominated in foreign currency.

Under Colombian exchange control operations, the Colombian Central Bank may impose certain mandatory deposit requirements in connection with foreign currency-denominated loans obtained by Colombian residents, including us. Most recently, when the peso appreciated against foreign currencies in 2008, such mandatory deposit requirement was set at 40% of the amounts to be disbursed under any credit facility denominated in a foreign currency. Future measures or requirements imposed by the Colombian Central Bank, such as mandatory deposit requirements, may adversely affect our and our clients’ ability to obtain loans in foreign currency.

We face uncertainty regarding new consumer protection laws.

Law 1328 of 2009, also referred to as the “financial reform law,” created a new customer protection regime with respect to financial institutions. The financial reform law provides a bill of rights for consumers of financial services and products, including the right to receive clear, complete and reliable information about the services and products offered by financial institutions. The law also contains specific new obligations for financial institutions, including a duty to maintain a financial ombudsman in charge of consumer protection and procedures regulating the responsibilities and functions of the ombudsman, a duty to create a financial consumer attention center pursuant to terms set by the Superintendency of Finance, an obligation to provide services and products under the same conditions offered to the general public, and a prohibition on the inclusion of predatory or abusive clauses in contracts with consumers. Any violation of this law and its implementing regulations by our banking subsidiaries could result in monetary or administrative sanctions or restrictions on our operations.

Decree 4809 of 2011 regulates certain fees charged by Colombian financial institutions. The most salient of these regulations include a cap of 20 Unidades de Valor Real or “UVR” (an inflation indexed unit) for ATM fees charged to clients for transactions conducted through ATMs owned by a third party, the requirement that ATM fees be disclosed to clients with the possibility to opt-out of the transaction before it takes place, and the prohibition of charging higher fees for internet transactions than for non-internet transactions as well as charging fees for failed internet transactions. These restrictions could affect the profitability of our business by decreasing our fee income.

Additionally, Law 1555 of 2012 allows consumers of financial services to prepay obligations denominated in Colombian pesos owed to financial institutions without incurring any penalty. The law also requires that financial institutions disclose the possibility of such prepayment to borrowers prior to the extension of any loan. Although this law does not apply to loans having a balance that exceeds 880 times the legal monthly minimum wages, nor to financial obligations acquired prior to its effective date (July 9, 2012), its implementation may substantially affect our banking business profits.

Our businesses may face constitutional actions, class actions and other legal actions involving claims for significant monetary awards against financial institutions, which may affect our businesses.

Under the Colombian Constitution, individuals may initiate constitutional actions (acciones populares), or class actions (acciones de grupo), to protect their collective or class rights, respectively. Colombian financial institutions, including our banking subsidiaries, have been, and continue to be, subject to these actions with regard to fees, financial services, mortgage lending and interest rates, the outcomes of which are uncertain. In addition, the number of such actions could increase in the future and could significantly affect our businesses.

Acquisitions and strategic partnerships may not perform in accordance with expectations, may fail to receive required regulatory approvals or may disrupt our operations and adversely affect our credit rating and profitability.

A component of our strategy is to identify and pursue growth-enhancing strategic opportunities. As part of that strategy, we have acquired interests in various financial institutions in recent years. We regularly evaluate strategic

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acquisitions and alliances, in and outside of Colombia. Strategic acquisitions and alliances could expose us to risks with which we have limited or no experience, such as in the case of any significant acquisition outside of Colombia. In addition, potential acquisitions in Colombia and elsewhere may be subject to regulatory approval. We may be unsuccessful in obtaining any such approval or we may not obtain approvals on terms that are optimal for us—particularly in view of our subsidiaries’ and our combined significant market share in the Colombian banking industry.

We must necessarily base any assessment of potential acquisitions and alliances on assumptions with respect to operations, profitability and other matters that may subsequently prove to be incorrect. Future acquisitions and alliances, as well as other investments, may not produce anticipated synergies or perform in accordance with our expectations and could adversely affect our operations and profitability. In addition, new demands on our existing organization and personnel resulting from the integration of new acquisitions, including our recent acquisition of Horizonte, could disrupt our operations and adversely affect our operations and profitability.

We may not be able to manage our growth successfully.

We have been expanding the scope of our operations over the past few years, and we expect that this expansion will continue. As we continue to grow, we must improve our operational, technical and managerial knowledge and compliance systems in order to effectively manage our operations across the expanded group. Failure to integrate, monitor and manage expanded operations could have a material and adverse effect on our reputation and financial results. Our future growth will also depend on our access to internal and external financing sources. We may be unable to access such financing on commercially acceptable terms or at all.

We are subject to operational risks.

Our business depends on the ability of our banking subsidiaries to process large numbers of transactions efficiently and accurately. Operational risks and losses can result from fraud, employee error, failure to properly document transactions or to obtain proper internal authorization, failure to comply with regulatory requirements, breaches of conduct of business rules, equipment failures, natural disasters or the failure of external systems, among others. Our, and our banking subsidiaries’ currently adopted procedures may not be effective in controlling each of the operational risks faced by our banking subsidiaries.

Failure of our information systems could materially and adversely affect the effectiveness of our risk management and internal control processes as well as our results of operations and financial condition.

We and our subsidiaries are highly dependent on the ability to collect and process, on a timely basis, a large amount of financial and other information, and services and products, at a time when transaction processes have become more complex with increasing volumes. A partial or complete failure of any of these systems could materially and adversely affect our decision-making process, risk management and internal control systems as well as our ability to respond on a timely basis to changing market conditions.

In addition, our subsidiaries’ ability to remain competitive will depend in part on their ability to upgrade information technology infrastructure on a timely and cost-effective basis. Our subsidiaries must continually make significant investments and improvements in their information technology infrastructure in order to ensure the proper functioning of financial control, accounting and other data collection and processing systems and to remain competitive. In particular, as our banking subsidiaries continue to open new branches, they need to improve their information technology infrastructure, including maintaining and upgrading their software and hardware systems and their back-office operations.

Any failure to effectively improve or upgrade our subsidiaries’ information technology infrastructure and management information systems in a timely manner could damage their reputation and materially and adversely affect their results of operations and financial condition.

Our subsidiaries also rely on information systems to operate their websites, process transactions, respond to customer inquiries on a timely basis and maintain cost-efficient operations. Our subsidiaries may experience operational problems with their information systems as a result of system failures, viruses, computer “hackers” or other causes. While, in 2012, we have not experienced a material breach of cyber security, any material disruption or slowdown of our subsidiaries’ systems could cause information, including data related to customer requests, to be lost or to be

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delivered to our customers with delays or errors, which could reduce demand for their services and products and could materially and adversely affect our results of operations and financial condition.

Our policies and procedures may not be able to detect money laundering and other illegal or improper activities fully or on a timely basis, which could expose us to fines and other liabilities.

We, our banking subsidiaries, Corficolombiana, Porvenir and BAC Credomatic are required to comply with applicable anti-money laundering laws, anti-terrorism financing laws and other regulations. These laws and regulations require us, among other things, to adopt and enforce “know your customer” policies and procedures and to report suspicious or large transactions to the applicable regulatory authorities. While we, our banking subsidiaries, Corficolombiana, Porvenir and BAC Credomatic have adopted policies and procedures aimed at detecting and preventing the use of banking networks for money laundering activities and by terrorists and terrorist-related organizations and individuals generally, such policies and procedures have in some cases only been recently adopted and may not completely eliminate instances where they may be used by other parties to engage in money laundering and other illegal or improper activities. To the extent that we, our banking subsidiaries, Corficolombiana, Porvenir or BAC Credomatic fail to fully comply with applicable laws and regulations, the relevant government authorities to which they report have the power and authority to impose fines and other penalties. In addition, our businesses and reputation could suffer if customers use our banking subsidiaries, Corficolombiana, Porvenir or BAC Credomatic for money laundering or illegal or improper purposes.

Competition and consolidation in the Colombian and Central American banking and financial industry could adversely affect our market position.

We operate in a competitive market. Since the 1990s, when the Colombian financial system was deregulated, there has been an ongoing process of consolidation that has included foreign bank participants entering the market. We expect that consolidation to lead to the creation of larger local financial institutions, including additional foreign banks, presenting the risk that we could lose a portion of our market share in the industry, affecting our results of operations.

Various banking institutions, which have recently been incorporated in Colombia, target the microcredit and small and medium enterprises segments. These institutions include Banco de las Microfinanzas-Bancamía S.A., Banco WWB S.A. and Banco Coomeva S.A. In addition, three newly incorporated financial corporations, JP Morgan Corporación Financiera S.A., BNP Paribas Colombia Corporación Financiera S.A. and Itaú BBA Colombia S.A. Corporación Financiera, which are local subsidiaries of international financial institutions, have entered the market targeting corporate clients. Recently, Banco Santander filed a petition with the Superintendency of Finance to obtain a bank license in order to incorporate a new bank aimed primarily toward corporate clients. The business of these new credit institutions may affect our market position in the individual, small and medium enterprises and merchant banking segments. To a lesser extent, we also face competition from non-bank competitors, such as brokerage companies, department stores (for some credit products), leasing and factoring companies, mutual fund and pension fund management companies and insurance companies.

In addition, the pace of consolidation in the Colombian and Central American financial services industry has increased, which may also increase competition in the markets where we operate. In the pension and severance fund management market, Grupo de Inversiones Suramericana agreed to acquire ING’s pension fund operations in Colombia (which on December 31, 2012 was merged by absorption into Protección) and Scotiabank agreed to buy Colfondos. On April 18, 2013, Grupo Aval and its subsidiaries, including Porvenir, acquired Horizonte. Also, in the wholesale banking market in 2011, Scotiabank agreed to acquire a controlling stake in Banco Colpatria and Banco Santander S.A. agreed to sell Banco Santander Colombia S.A. to Corpbanca S.A., a Chilean financial services company, which subsequently, in 2012, agreed to buy Helm Bank S.A. In 2012, HSBC agreed to sell HSBC Colombia S.A. to Banco GNB Sudameris S.A. and in 2012, HSBC agreed to sell HSBC Bank (Panamá) S.A. to Bancolombia.

Our ability to maintain our competitive position depends mainly on our ability to anticipate and fulfill the needs of new and current customers through the development of innovative services and products, and our ability to offer adequate services and strengthen our customer base through cross-selling. Our businesses will be adversely affected if we are unable to retain current customers and attract new ones.

In addition, our efforts to offer new services and products may not succeed if product or market opportunities develop more slowly than expected or if the profitability of these opportunities is undermined by competitive pressures. As we expand the range of our products and services, some of which may be at an early stage of development in the

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Colombian and Central American market, we will be exposed to new and potentially increasingly complex risks and development expenses. Our employees and our risk management systems may not be adequate to handle such risks. In addition, the cost of developing products that are not launched is likely to affect our results of operations. Any or all of these factors, individually or collectively, could have a material adverse effect on us.

We depend on our chairman, our president and our senior management, and the loss of their services would have a material adverse effect on our business.

We are highly dependent on our founder and chairman, Mr. Sarmiento Angulo (80 years old), our president, Mr. Sarmiento Gutiérrez (51 years old), and members of our senior management teams at both the group and subsidiary levels, all of whom possess considerable experience and expertise and have strong relationships with customers, participants of the Colombian business.

Our president, Mr. Luis Carlos Sarmiento Gutiérrez has been responsible for our day-to-day management over the last 12 years and has acted as president of companies controlled by Mr. Sarmiento Angulo for the past 20 years. Mr. Sarmiento Gutiérrez, who became president of Grupo Aval in 2000, and our chairman, Mr. Sarmiento Angulo, are responsible for the overall strategic direction of the group.

In addition, our senior managers at the subsidiary levels are responsible for implementing strategies and for the day-to-day operations of the companies they run. Although Grupo Aval does not require that its employees mandatorily retire at a certain age, the presidents of our four banks (who have an average tenure of 25 years with these banks) and other members of the senior management are not obliged to remain employed with us.

The loss of the services of any of these members of our, or our subsidiaries’ senior management, in particular of our chairman, or our president, could have an adverse effect on our business. Accordingly, our success is dependent on appropriately managing the risks related to executing a succession plan for our chairman, our president and our senior management on a timely basis.

We are subject to reputational risk, and our reputation also is closely tied to that of our founder and chairman, Mr. Sarmiento Angulo, and our president, Mr. Sarmiento Gutiérrez, and that of our subsidiaries.

Damage to our reputation may limit our ability to attract customers, employees and investors. Harm to our reputation can arise from employee misconduct, legal and regulatory requirements, ethical issues, money laundering, and failing to deliver minimum standards of service and quality, among others. In particular, our success has been attributable, in part, to the high esteem in which Mr. Sarmiento Angulo, Mr. Sarmiento Gutiérrez and our subsidiaries are held in Colombia. Reputation plays an integral role in our business operations, which are based on customer confidence and trust. If the public image or reputation of Mr. Sarmiento Angulo, Mr. Sarmiento Gutiérrez, Grupo Aval or any of our subsidiaries is damaged as a result of adverse publicity or otherwise, business relationships with customers of the entire group may deteriorate, which would adversely affect our results of operations and financial condition. Any perceived or real difficulties experienced by any one of our subsidiaries would harm the reputation of Grupo Aval as a whole, which would also have an adverse effect on our results of operations and financial condition.

We are controlled by Mr. Sarmiento Angulo, whose interests could differ from the interests of preferred shareholders.

Mr. Sarmiento Angulo beneficially owns 95.0% of our common shares, as of April 15, 2013, and, accordingly, controls our group. See “Item 7. Major Shareholders and Related Party Transactions—A. Major shareholders.” The preferred shares do not have any voting rights and thus will not affect such control of our group. Mr. Sarmiento Angulo will continue to have the right to control decisions, regardless of how our minority shareholders may vote on these issues and regardless of the interests of such shareholders, including preferred shareholders. In addition, Mr. Sarmiento Angulo beneficially owns interests in certain of our subsidiaries through entities other than Grupo Aval: 9.6% of Banco de Bogotá, 13.3% of Banco de Occidente, 15.4% of Banco AV Villas, 0.8% of Banco Popular and 0.3% of Corficolombiana as of December 31, 2012.

Circumstances may occur in which Mr. Sarmiento Angulo may have an interest in pursuing transactions that, in his judgment, enhance the value of his several investments in the banking sector. These transactions may not necessarily be in Grupo Aval’s interest or that of its shareholders. Due to his control, Mr. Sarmiento Angulo has, and will have, the power to:

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elect a majority of our directors and appoint our executive officers, set our management policies and exercise overall control over our company and subsidiaries;

agree to sell or otherwise transfer his controlling stake in our company; and

determine the outcome of substantially all actions requiring shareholder approval, including transactions with related parties, corporate reorganizations, acquisitions and dispositions of assets, and dividends.

In addition, the concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our shareholders of an opportunity to receive a premium for the preferred shares as part of a sale of our company and might ultimately affect the market price of the preferred shares.

We plan to engage in additional transactions with our controlling shareholder, including repayment of debt.

We engage in business and financial transactions with our controlling shareholder and other shareholders that may create conflicts of interest between our company and these shareholders. For example, we may (1) repay loans owed to companies beneficially owned by Mr. Sarmiento Angulo; (2) acquire from Adminegocios & Cia. S.C.A., an entity controlled by Mr. Sarmiento Angulo and a direct shareholder of Grupo Aval, shares of Banco de Bogotá; and (3) acquire from entities controlled by Mr. Sarmiento shares in Banco de Bogotá, Banco de Occidente and Banco AV Villas, that are not owned by us, as described under “Item 7. Major Shareholders and Related Party Transactions—B. Related party transactions.” While we believe that these transactions will be carried out on an arm’s-length basis, commercial and financial transactions between us and our controlling shareholder could create the potential for, or could result in, conflicts of interests between us and our controlling shareholder. To the extent that the price we pay for any assets acquired from our controlling shareholder exceeds the market value of such assets or is not as productive a use of our cash as other uses, our results of operations and financial condition could be adversely affected.

Certain risks relating to our operation of BAC Credomatic

We may be unsuccessful in addressing the challenges and risks presented by our operations in countries outside Colombia.

As a result of our acquisition of BAC Credomatic, we conduct banking businesses outside our historical home market of Colombia. BAC Credomatic’s operations may involve risks to which we have not previously been exposed. Some of BAC Credomatic’s operations are in countries that may present different or greater risks than those in Colombia, including, for example, in terms of competition. BAC Credomatic has, in particular, a significant consumer finance business, including credit card operations, in the Central American countries in which it operates. At December 31, 2012, BAC Credomatic’s consumer loan portfolio totaled U.S.$2.8 billion (including mortgages, vehicles and other personal loans), which represented 39.2% of BAC Credomatic’s total loan portfolio, and U.S.$1.7 billion in credit card loans, which represented 24.4% of BAC Credomatic’s total loan portfolio. We have limited experience conducting credit card and consumer finance businesses in countries outside Colombia. Accordingly, we may not be successful in managing credit card and consumer finance operations outside of our traditional domestic market. We may face delays in payments by customers and higher delinquency rates in these countries, which could necessitate higher provisions for loan losses and, consequently, have a negative effect on our financial performance.

In addition, we may not be able to realize all of the anticipated benefits from our acquisition of BAC Credomatic. Achieving such benefits will depend, to a large extent, on our ability to run a business outside Colombia. Any failure to do so could adversely affect our margins, results of operations and financial condition.

We depend on BAC Credomatic’s current senior management, and the loss of their services would have a material adverse effect on BAC Credomatic’s business.

We have retained the current senior management of BAC Credomatic, who have worked on average 15 years at BAC Credomatic, and most of whom pre-date GE Capital’s 2005 investment in BAC Credomatic. The loss of services of any of BAC Credomatic’s senior officers could have an adverse effect on BAC Credomatic’s business.

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Changes in credit card regulations may adversely affect BAC Credomatic’s business.

The credit card business is an important business segment for BAC Credomatic, representing 24.4% and 23.3% of its total loan portfolio at December 31, 2012 and 2011, respectively, the adoption of new laws and regulations or the revision of the current regulatory regime for credit cards in any of the jurisdictions in which BAC Credomatic operates may have an adverse effect on BAC Credomatic’s results of operations and financial condition.

BAC Credomatic is subject to significant compliance risks in connection with a multi-jurisdictional regulatory regime.

BAC Credomatic’s businesses are subject to regulation under Bahamian, Costa Rican, Guatemalan, Grand Cayman, Honduran, Mexican, Nicaraguan, Panamanian, Salvadoran and U.S. federal, state and other foreign laws, regulations and policies. BAC Credomatic thus is subject to a multi-jurisdictional regulatory regime, with which we have had little or no experience, and, accordingly, following the recent acquisition of BAC Credomatic, we are subject to increased compliance risks. In addition, any changes to the regulatory regime of one of the Central American countries may lead to corresponding changes to the regulatory regime of other countries in the region. BAC Credomatic’s businesses are regularly reviewed or investigated by regulators, which could lead to enforcement actions, fines and penalties or the assertion of private litigation claims and damages.

We are subject to the consequences of consolidated supervision due to regulatory asymmetries.

Regulation of financial institutions varies across the different jurisdictions in which BAC Credomatic operates. These differences are particularly pronounced in the assessment of credit risk and investments. These asymmetries may affect the expected results of operations of BAC Credomatic in each jurisdiction, and as a consequence could adversely affect BAC Credomatic’s consolidated results of operations.

Risks relating to our preferred shares

Exchange rate volatility may adversely affect the Colombian economy.

Pursuant to Colombian law, the Colombian Central Bank maintains the power to intervene in the exchange market in order to consolidate or dispose of international reserves, as well as to control any volatility in the exchange rate, acting through a variety of mechanisms, including discretionary ones. During recent years, the Colombian Central Bank has employed a floating exchange rate system with periodic interventions. From time to time, there have been significant fluctuations in the exchange rate between the Colombian peso and the U.S. dollar. For example, the peso depreciated 11.4% against the U.S. dollar in 2008, appreciated 8.9% against the U.S. dollar in 2009, appreciated 6.4% against the U.S. dollar in 2010 depreciated 1.5% against the U.S. dollar in 2011 and appreciated 9.0% against the U.S. dollar in 2012. Unforeseen events in international markets, fluctuations in interest rates, changes in capital flows, political developments or inflation rates may cause exchange rate instability that could, in turn, depress the value of the Colombian peso, thereby decreasing the U.S. dollar value of the dividends paid.

Restrictions on purchasing our preferred shares may affect the market liquidity of our preferred shares.

Under Colombian securities regulations, any transaction involving the sale of publicly traded shares of any Colombian company, including any sale of our preferred shares for the equivalent of 66,000 Unidades de Valor Real, or “UVRs,” (approximately U.S.$7,920), or more, must be effected through the Colombian Stock Exchange. UVR is a Colombian inflation-adjusted monetary index calculated by the board of directors of the Colombian Central Bank and generally used for pricing home-mortgage loans (one UVR = Ps 204.20 (U.S.$0.12) at December 31, 2012). Any transfer of preferred shares may be required to be sold through the Colombian Stock Exchange, which could limit their liquidity or affect their market price.

The relative illiquidity of the Colombian securities markets may impair the ability of preferred shareholders to sell preferred shares.

Our preferred shares have been listed since February 1, 2011 on the Colombian Stock Exchange, which is relatively small and illiquid compared to securities exchanges in major financial centers. In addition, a small number of issuers represent a disproportionately large percentage of market capitalization and trading volume on the Colombian Stock Exchange. A liquid trading market for the preferred shares might not develop on the Colombian Stock Exchange.

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A limited trading market could impair the ability of a holder of preferred shares on the Colombian Stock Exchange in the amount and at the price and time desired by such holder, and could increase the volatility of the market price of our preferred shares.

An active market for our preferred shares may not continue to develop or be maintained and the market price of our preferred shares may fluctuate in response to numerous factors.

Although our preferred shares were listed on the Colombian Stock Exchange on February 1, 2011, an active public market for the preferred shares may not continue to develop or be maintained. The market price of our preferred shares may fluctuate significantly in response to numerous factors, many of which are beyond our control, including actual or anticipated fluctuations in our operating results, economic downturns, political events in Colombia or other jurisdictions in which we operate, developments affecting the banking industry, changes in financial estimates by securities analysts or our failure to perform in line with such estimates, departures of key personnel, and sales of our preferred shares in the future, including by our banking subsidiaries who may have to sell our preferred shares obtained from investors who entered into loans with them to acquire our preferred shares in our offering of 1,600 million preferred shares on May 12, 2011, or the “Preferred Shares Local Offering.” Our banking subsidiaries extended a total of Ps 654.3 billion (U.S.$363.8 million at the representative market rate on May 12, 2011) of credit disbursed through 14,533 loans to finance the acquisition of preferred shares in the Preferred Shares Local Offering. Depending on the characteristics of the borrower, our banking subsidiaries may have required collateral, which may have included a pledge of the preferred shares that were subject to the financing. Such a pledge would permit our banking subsidiaries to repossess the preferred shares if the borrower defaults. Our banking subsidiaries had, on an aggregate basis, pledges over 160,501,261 preferred shares at December 31, 2012. Under Colombian law, our banking subsidiaries must sell any repossessed shares as banks are not permitted to hold shares in their parent. If changes in general economic conditions or other factors cause these borrowers to default on their loans, our subsidiaries will have to sell our preferred shares into the market and the market price of our preferred shares may decline as a result.

Holders of our preferred shares have limited rights and may be subject to different corporate rules and regulations than those available in other jurisdictions.

Under Colombian law, our preferred shareholders may have fewer rights than shareholders of a corporation incorporated in the United States. A holder of our preferred shares under Colombian law may have fewer alternatives to protect its interests relative to actions by our board of directors or executive officers, and these alternatives may be less well-defined than under the laws of those other jurisdictions.

The Colombian securities markets are not so highly regulated and supervised as the U.S. securities markets or the markets in some other jurisdictions. In addition, rules and policies against self-dealing or for preserving shareholder interests may be less well-defined and enforced in Colombia than in the United States and certain other countries, which may put holders of our preferred shares at a potential disadvantage. Corporate disclosures also may be less complete or informative than for a public company in the United States or in certain other countries.

Grupo Aval’s by-laws contain an arbitration clause that provides for the exclusive jurisdiction of an arbitral tribunal to be seated at the Bogotá Chamber of Commerce. The arbitration provision provides that any conflict arising among shareholders, or between shareholders and Grupo Aval in connection with the by-laws must be resolved by an arbitral tribunal.

In addition, holders of our preferred shares are not entitled to vote for the election of directors or to influence our management policies. Under our by-laws and Colombian law, holders of preferred shares have no voting rights in respect of preferred shares, other than in limited circumstances.

Our ability to pay dividends on our preferred shares may be limited by Colombian law and because we are a holding company dependent on dividends from subsidiaries.

Under Colombian law, a company may only distribute dividends to the extent such distribution is fully supported by accurate financial statements demonstrating the financial condition of the company. Any dividends distributed in violation of this norm may not be reclaimed from shareholders who received such payments in good faith, and any subsequent distribution of profits may be suspended. In addition, dividends may not be distributed until losses from previous fiscal years have been absorbed.

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Our ability to pay dividends on the preferred shares will be contingent upon the financial condition of our subsidiaries. In addition, we conduct substantially all of our operations through subsidiaries and are dependent upon dividends from our subsidiaries to meet our obligations.

Our status as a foreign private issuer allows us to follow local corporate governance practices which may limit the protections afforded to investors.

We currently follow Colombian practices concerning corporate governance and intend to continue to do so. Accordingly, you will not have the same protections afforded to shareholders of U.S. public or of foreign private issuers subject to corporate governance requirements of stock exchanges located in the United States.

Preemptive rights may not be available to holders of preferred shares.

Colombian law and our by-laws require that, whenever we issue new common shares, we must offer to the holders of common shares the right to subscribe a number of shares of such class sufficient to maintain their existing percentage ownership of our aggregate share capital. On the other hand, holders of preferred shares are entitled to preemptive rights only when so declared at a common shareholders’ meeting. Our common shareholders’ may decide not to provide for such preemptive rights.

Banking regulations, accounting standards and corporate disclosure applicable to us differ from those in the United States and other countries.

Colombian banking regulations may differ in material respects from regulations applicable to banks in other countries, including those in the United States. For example, in Colombia, Grupo Aval is not subject to regulation applicable to financial institutions, although its banking subsidiaries, Corficolombiana and Porvenir are subject to such regulations. In addition, capital adequacy requirements for banks under Colombian regulations differ from those under U.S. regulations and may differ from those of other countries.

Although we are required to prepare our financial statements in accordance with Colombian GAAP, we also prepare our audited consolidated financial statements included in this annual report in accordance with Colombian Banking GAAP, which differs in significant respects from U.S. GAAP and International Financial Reporting Standards as issued by the International Accounting Standards Board, or IASB, or “IFRS.” As a result, financial statements of Colombian companies, such as ours, may differ from those of companies in other countries.

We prepare our financial statements in accordance with Colombian Banking GAAP, which differs in certain significant respects from IFRS. The adoption of IFRS may differ significantly from previous amounts reported under Colombian Banking GAAP in our total shareholders’ equity and net income, which may materially and adversely affect our financial condition.

In 2009, the Colombian congress passed Law 1314 and in 2012, the Colombian Government enacted Decree 2784 which established the implementation of IFRS in Colombia. Colombian authorities have proposed a schedule for the implementation of IFRS in which Colombian issuers of securities in the public market (such as Grupo Aval) shall (i) prepare an opening balance sheet beginning on January 1, 2014 in accordance with IFRS, and (ii) prepare financial statements in full compliance with IFRS no later than December 31, 2015.

Considering the above and current SEC regulations, and assuming that we will be required to comply with IFRS, as issued by the IASB, as our basis of presentation, Grupo Aval will no longer be required to include a reconciliation note of equity and income under U.S. GAAP in our annual consolidated financial statements. There can be no assurance however, that IFRS as applicable to us under Colombian regulations will not differ from IFRS as issued by the IASB, in which case we may be required to continue to include a U.S. GAAP reconciliation note in our annual consolidated financial statements.

Furthermore, Decree 2784 also established an additional six-month period for the Colombian Government to regulate the implementation of IFRS in companies, such as our banks, under the surveillance of the Superintendency of Finance. The Colombian Government may decide to implement a partial application of IFRS for these entities and if this is the case, Grupo Aval’s consolidated financial statements will have to include homogenization adjustments considering that Grupo Aval will be subject to a full implementation of IFRS whereas its financial subsidiaries will be subject to a partial implementation of IFRS.

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Even though there are certain similarities between IFRS and U.S. GAAP, adoption of IFRS may have an effect on, for example, among others, the following items of our consolidated financial statements on January 1, 2014 and subsequently: (i) loan loss reserves, (ii) business combinations, (iii) valuation of securities, (iv) calculation of employee benefit liabilities, (v) consolidation of structured entities, (vi) deferred taxes, (vii) calculation and presentation of equity regarding non-controlling interest (viii) loan origination fees, and (ix) increased disclosures on our financial statements. Moreover, under Colombian Banking GAAP, allowances for non-performing loans are computed by establishing the inherent risk in each non-performing loan, using criteria established by the Superintendency of Finance that differ from criteria used, for example, under U.S. GAAP. See “Presentation of Financial and Other Information.”

Furthermore, Grupo Aval’s implementation of IFRS will require significant changes in our information technology and operational processes requiring additional efforts and investments from the management of Grupo Aval.

Judgments of Colombian courts with respect to our common and preferred shares will be payable only in pesos.

If proceedings are brought in the courts of Colombia seeking to enforce the rights of holders of the preferred shares, we will not be required to discharge our obligations in a currency other than pesos. Under Colombian laws, an obligation in Colombia to pay amounts denominated in a currency other than pesos may only be satisfied in Colombian currency at the exchange rate, as determined by the Colombian Central Bank and published by the Superintendency of Finance, also known as Tasa Representativa del Mercado, in effect on the date the judgment is obtained, and such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then-prevailing exchange rate may not afford non-Colombian investors with full compensation for any claim arising out of or related to our obligations under the preferred shares.

U.S. investors in our preferred shares may find it difficult or impossible to enforce service of process and enforcement of judgments against us and our officers and directors.

We are incorporated under the laws of Colombia, and all of our subsidiaries are incorporated in jurisdictions outside the United States. In addition, our executive offices are located outside of the United States. All of our directors and officers reside outside of the United States, and all or a substantial portion of our assets and the assets of most of our officers and directors are, and will most likely continue to be, located outside of the United States. As a result, it may be difficult or impossible for U.S. investors to serve legal process within the United States upon us or any of these persons or to enforce a judgment against us for civil liabilities in U.S. courts. In addition, you should not assume that courts in the countries in which we or our subsidiaries are incorporated or where our or our subsidiaries’ assets are located (1) would enforce judgments of U.S. courts obtained in actions against us or our subsidiaries based upon the civil liability provisions of applicable U.S. federal and state securities laws or (2) would enforce, in original actions, liabilities against us or our subsidiaries based on those laws.

There is also substantial doubt that the courts of Colombia would enter judgment in original actions brought in those courts predicated on U.S. federal or state securities laws. We have been advised by our Colombian counsel that there is no legal basis for original actions to be brought against us or our directors and executive officers in a Colombian court predicated solely upon the provisions of the U.S. securities laws. In addition, certain remedies available under provisions of the U.S. securities laws may not be admitted or enforced by Colombian courts.

See “Item 4. Information on the Company—B. Business overview—Service of process and enforcement of judgments.”

ITEM 4. INFORMATION ON THE COMPANY

A.	History and development of the company

Our company

Grupo Aval is Colombia’s largest banking group; and, through our BAC Credomatic operations we are also a leading banking group in Central America. Our registered and principal executive offices are located at Carrera 13 No. 26A - 47, Bogotá D.C., Colombia, and our general telephone number is (+57) 1 241-9700.

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Colombian operations

Grupo Aval is Colombia’s largest banking group based on total assets, and its most profitable based on ROAE, as compared to our principal competitors, in each case at and for the years ended December 31, 2012, 2011 and 2010. Grupo Aval provides a comprehensive range of financial services and products across the Colombian market, ranging from traditional banking services, such as loans and deposits, to pension and severance fund management.

Grupo Aval currently consists of four commercial banks in Colombia (Banco de Bogotá, Banco de Occidente, Banco Popular and Banco AV Villas), as well as the largest pension and severance fund manager in Colombia (Porvenir) and the largest merchant bank in Colombia (Corficolombiana), each of which we control and consolidate into our results. Grupo Aval and its subsidiaries, including Porvenir, acquired 99.99% of the outstanding shares of Horizonte on April 18, 2013. See “—Recent developments—Horizonte acquisition.”

Our Red de Grupo Aval (Grupo Aval network) is the largest combined ATMs and branch network in the country and has been a key element of our competitive positioning in the Colombian market, with 1,317 branches and 3,086 ATMs at December 31, 2012. Customers of any of our banks may access Grupo Aval’s other bank branches to carry out basic banking transactions throughout our Red de Grupo Aval (Grupo Aval network).

Under our multi-brand strategy, each of our banks focuses on particular types of customers, geographic regions and products. Our banks are encouraged to compete among themselves and with other market participants, while remaining subject to group-level oversight and direction. We believe that this strategy has contributed to our strong financial performance and allowed us to provide an integrated service network to our customers. Underlying Grupo Aval’s competitive strengths are group-level policies focused on comprehensive risk management, convergence of technologies and cost controls that we believe promote best practices, realization of synergies and efficiency across our subsidiaries.

The following table shows market shares of our Colombian banking subsidiaries and principal competitors at December 31, 2012.

	At December 31, 2012
	Grupo Aval entities										Bancolombia		Davivienda		BBVA Colombia
	Banco de Bogotá		Banco de Occidente		Banco Popular		Banco AV Villas		Aggregate (1)
	(in percentages)
Colombian market share:
Deposits		15.1		6.5		4.2		3.0		28.8		21.4		10.7		10.9
Gross loans and financial leases		13.5		7.3		5.1		2.5		28.4		23.0		12.4		9.2
Assets		14.7		7.0		4.5		2.6		28.8		22.3		11.7		9.0
Branches		12.5		3.7		4.3		5.3		25.8		15.5		11.2		7.2
ATMs		10.4		2.0		8.2		4.4		25.0		26.8		12.3		8.2

Source: Company calculations based on Superintendency of Finance data, except for figures relating to branches and ATMs, which are derived from company data.

(1)	Reflects aggregated unconsolidated amounts of our banking subsidiaries.

Central American operations

We are one of the leading banking groups in Central America based on consolidated assets. We believe that the BAC Credomatic acquisition provides us with a leading Central American presence with operations that are complementary to our Colombian businesses and with the opportunity to enter the consumer and credit card banking businesses in this region.

BAC Credomatic has operations in each of the six Central American countries: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama. BAC Credomatic is one of the leading credit card issuance and merchant-acquiring franchises in Central America. BAC Credomatic has the only network that processes all major credit card brands in the region.

Through a network of 492 points of contact (including 228 full-service branches, 49 in-store branches, 187 on-site branches and 28 auto/drive-thru branches) and 1,242 ATMs at December 31, 2012, BAC Credomatic provides us with

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more than two million additional customers and access to a region with a population of approximately 43 million, providing significant opportunity for growth in financial services.

While our primary focus will continue to be the Colombian market, our BAC Credomatic acquisition extends our franchise to an important contiguous economic region. BAC Credomatic represented the equivalent of 17.8% of our assets at December 31, 2011 and 17.6% of our assets at December 31, 2012.

By implementing our best practices, we believe we can improve BAC Credomatic’s efficiency ratio of 57.1% compared to 49.8% for our Colombian operations, each at December 31, 2012.

Recent developments

Banco de Bogotá debt offering

On February 11, 2013, our subsidiary, Banco de Bogotá completed an offering of U.S.$500 million of 5.375% Subordinated Notes due 2023, The notes were offered pursuant to Rule 144A and Regulation S under the United States Securities Act of 1933. Banco de Bogotá used the net proceeds to repay its outstanding obligations under a U.S.$500 million credit facility it entered into with certain banks to finance the acquisition of BAC Credomatic.

Horizonte Acquisition

Grupo Aval, Banco de Bogotá, Banco de Occidente and Porvenir acquired Horizonte on April 18, 2013 pursuant to a stock purchase agreement entered into by Porvenir, and guaranteed by Grupo Aval, with BBVA and Compañía Chilena de Inversiones S.L., an affiliate of BBVA, to acquire 99.99% of the outstanding shares of Horizonte for on December 24, 2012. The total purchase price was U.S.$541.4 million. As of December 31, 2012, Horizonte is the third largest pension fund administrator in Colombia, based on assets under management, with a 15.1% market share and 18.5% share of all net income generated by pension funds in Colombia. According to market share data published by the Superintendency of Finance, the acquisition will consolidate Porvenir’s position as the leading pension fund administrator with the largest market share of net income in Colombia. See “—B. Business Overview—Competition—Pension and severance fund management—Porvenir.” Horizonte had net income of Ps 88.3 billion for the year-ended December 31, 2012. Horizonte had shareholders’ equity of Ps 431.9 billion and its ROAA at December 31, 2012 was 18.0%.

Grupo Aval entered into the stock purchase agreement as guarantor of the obligations of Porvenir, including payment of the purchase price. The stock purchase agreement permits the assignment of Porvenir’s obligations under the stock purchase agreement to any subsidiaries of Grupo Aval incorporated in Colombia.

On February 20, 2013, Porvenir (as assignor) entered into an assignment agreement with Banco de Bogotá, Banco de Occidente and Grupo Aval (as assignees), according to which the assignees agreed to acquire a percentage of the shares of Horizonte substantially similar to their respective current participation in Porvenir’s equity.

On April 17, 2013, Grupo Aval granted a loan to Porvenir in an amount of U.S.$184 million.

We have begun to integrate Horizonte into our operations. Similar risks as those applicable to Porvenir apply to the activities of Horizonte.

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Capitalization ratios

The following table presents consolidated capitalization ratios for our banking subsidiaries, Grupo Aval and our principal competitors at the dates indicated.

	At December 31, 2012
	Grupo Aval entities
Colombian Banking GAAP	Banco de Bogotá	Banco de Occidente	Banco Popular	Banco AV Villas	Aggregate (1)	Grupo Aval consolidated	Bancolombia	Davivienda	BBVA Colombia
	(in percentages)
Tangible equity ratio (2)	10.3	13.9	14.7	12.7	11.7	9.3	11.4	9.3	8.4
Tier 1 ratio (3)	11.9	8.5	9.3	11.5	10.9	–	10.4	10.1	8.5
Solvency ratio (4)	13.1	10.5	11.5	13.7	12.5	–	15.8	15.2	11.3

Source: Company calculations based on each entity’s respective financial statements for the period indicated.

(1)	Reflects the summation of calculated amounts for each line item for each of our banking subsidiaries.

(2)	Tangible equity ratio is calculated as total shareholders’ equity plus minority interest minus goodwill, divided by total assets minus goodwill. See “Item 3. Key Information—A. Selected financial data—Non-GAAP measures reconciliation.”

(3)	Tier 1 ratio is calculated as primary capital divided by risk-weighted assets. Tier 1 ratio for BBVA is based on unconsolidated figures.

(4)	Solvency ratio is calculated as technical capital divided by risk-weighted assets. For a definition of technical capital, see “—B. Business overview—Supervision and regulation—Capital adequacy requirements.”

Tangible solvency ratio differs from solvency ratio. Tangible solvency ratio is calculated as technical capital minus goodwill, divided by risk-weighted assets minus goodwill. The tangible solvency ratios for the following entities at December 31, 2012 were: Banco de Bogotá 10.0%, Banco de Occidente 10.4%, Banco Popular 11.5%, Banco AV Villas 13.7%, Grupo Aval (aggregate) 10.5%, Bancolombia 15.2%, Davivienda 12.9% and BBVA Colombia 10.1%.

Solvency ratio and tangible solvency ratio for BBVA are based on unconsolidated figures.

Our business strengths

We believe that we have achieved our leading positions in the Colombian and Central American banking industry through the following competitive strengths.

Our multi-brand business model

Our differentiated multi-brand business model builds on the individual strengths of our banks and the market-wide recognition of their brands. Each of our banks has developed a focus on particular and, to a degree, overlapping market sectors, geographic regions, services and products. We believe that this specialization has contributed to the individual success of our banks and the diversity of Grupo Aval as a whole. Our banking subsidiaries operate as four independent banks that are encouraged to compete among themselves and with other market participants, while operating within central guidelines established by us in the areas of internal control, credit risk management, brand management, strategic planning, general procurement and information technology. These guidelines, together with group support services, are designed to allow each bank to achieve economies of scale and benefit from cross-bank synergies and groupwide best practices without affecting individual competition and the decision-making abilities of each bank’s management. We may, in the future, consider merging one or more of our subsidiaries in our group or additional business we may acquire if meaningful improvements in efficiencies, revenue or other benefits could be achieved.

Largest player in most banking sectors in Colombia

We are the largest participant in most sectors of the Colombian banking market, with market-leading shares of 31.6% of commercial loans and 28.3% of consumer loans, at December 31, 2012. We also have the largest market share of deposits at 28.8% at December 31, 2012. Our Red de Grupo Aval (Grupo Aval network) is the largest combined ATM and branch network in the country and has been a key element of our competitive positioning in the Colombian market. At December 31, 2012 our ATMs and branches had market shares of 25.0% and 25.8%, respectively.

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Strong track record of financial performance

We believe that our leading position in the Colombian market, cross-bank synergies, economies of scale, low-cost funding and operating efficiencies have assisted us in achieving higher and more stable profits compared to our competitors. Our average ROAE of 20.1% and average ROAA of 2.2% for the 2010 to 2012 period, and our ROAE of 17.7% and ROAA of 2.0% for the year ended December 31, 2012, have been the highest among our direct competitors in the Colombian market, and our consolidated net interest margin (net interest income divided by total average interest-earning assets) has ranged from 7.2% at December 31, 2010 to 6.5% at December 31, 2012. We believe that our ROAA and ROAE have outperformed those of our competitors mainly due to better yields on loans (from our diversified loan portfolio), significant yields from our investment portfolio, lower net provisions (due to a lower ratio of charge-offs to total loans) and better efficiency margins. Our total assets have grown at a CAGR of 15.1% from December 31, 2010 to December 31, 2012 (16.0% excluding BAC). During the same period, our total deposits have grown at a CAGR of 13.1% (14.7% excluding BAC). Our consolidated delinquency ratio past due more than 30 days slightly deteriorated from 2.2% at December 31, 2011 to 2.3% at December 31, 2012 and is among the lowest among our direct competitors in the Colombian market.

Diversified sources of funding

We have diverse sources of funding, including deposits and debt securities placed in the Colombian market, which result in a competitive cost of funding. At December 31, 2012, in Colombia, our market share of deposits was 28.8%, supported by a 36.5% market share in checking accounts and 29.0% in savings accounts. Deposits represented 76.2% of our total funding at that date, compared to 77.0% at December 31, 2010, which provides us with a stable and cost-effective funding base. As a result of our efforts to broaden our funding base, we increased our funding from Ps 82.6 trillion (U.S.$46.7 billion) at December 31, 2010 to Ps 106.9 trillion (U.S.$60.4 million) at December 31, 2012. On May 12, 2011, we completed an offering of 1.6 billion preferred shares, raising an aggregate amount of Ps 2.1 trillion (U.S.$1.1 billion), before deducting brokerage commissions and discounts, and expenses of the offering. On February 1, 2012, we successfully completed our inaugural international bond offering of U.S.$600 million of 5.25% Senior Notes due 2017 and on September 26, 2012, we issued U.S.$1.0 billion of our 4.75% Senior Notes due 2022 in the international bond markets. We believe that our funding base supports our initiatives to expand our businesses.

Sound risk management

We believe that we have asset quality that is superior to the market average. We have maintained our relative asset quality, as evidenced by our ratio of non-performing loans to total loans of 1.6% for December 31, 2012, and a ratio of charge-offs to average outstanding loans (annualized) of 1.0% at December 31, 2012, respectively. In addition, we believe that our reputation as a conservative banking group has allowed us to consistently retain and attract new customers. Each of our banking subsidiaries has a comprehensive risk management system, which we view as fundamental to their long-term stability and viability, and enables them to identify risks and resolve potential problems on a timely basis. In addition, we have established upward loan reporting processes, and Grupo Aval’s risk management staff meets on a weekly basis to discuss the loan portfolio, developments in the industry, risks and opportunities.

Each of our banks and Grupo Aval has strong capital adequacy ratios. The aggregate solvency ratio of our banks on an unconsolidated basis was 13.9% at December 31, 2012, compared to 9.0%, Colombia’s minimum regulatory requirement.

Focus on best practices

Grupo Aval applies groupwide best practices for all of its operating subsidiaries. These practices are designed to encourage a consistent approach with respect to effective risk management, efficient use of capital, cost control, brand management, general procurement and integration of information technology. We believe that these practices have helped us to achieve economies of scale and synergies to reduce operating and administrative costs. At December 31, 2012, we had a consolidated efficiency ratio of 51.3%, and our banking subsidiaries had efficiency ratios ranging from 43.5% (Banco de Occidente) to 55.8% (Banco AV Villas).

Leading banking operations in Central America

BAC Credomatic is one of the leading financial institutions in Central America with a record of strong financial performance. It has achieved an average of 23.0% in annual ROAE for the period from 2007 to 2012 (excluding

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extraordinary gains in 2007 and 2008). BAC Credomatic is a full-service financial institution with one of the leading card-issuing and acquiring businesses in the region. Its Credomatic brand has key alliances with major credit card networks, such as Visa, MasterCard, American Express and Diners Club, and has the only network that processes all major credit card brands in the region. BAC Credomatic customer base and distribution network are sizable when compared to our Colombian banks. At December 31, 2012, it served more than 2.4 million customers through 492 points of contact throughout Central America, connected through a single technological platform that allows online transactions between countries in the region. BAC Credomatic’s market share in terms of gross loans varies in the different countries as follows, as of December 31, 2012: Costa Rica 11.7%, El Salvador 10.2%, Guatemala 4.8%, Honduras 12.9%, Nicaragua 26.5% and Panama 3.0%.

Experienced management teams

Our qualified and experienced management teams, both at the group and operating subsidiary levels, have played a key role in guiding our growth. Our chairman, Mr. Sarmiento Angulo, has over 55 years of business experience, including 40 years in the banking and related financial services industry. Our president Mr. Luis Carlos Sarmiento Gutiérrez, has over 15 years of experience in the banking and related financial services industry and over 25 years of business experience as a banking executive in Colombia and the United States. The presidents of our four banks have an average tenure of over 25 years with these banks, and the president of BAC Credomatic has a tenure of over 35 years with BAC Credomatic. We believe that the strength of management at all levels within Grupo Aval has enabled us to become Colombia’s largest banking group and its most profitable based on return on ROAE as compared to our principal competitors. Our and each of our operating subsidiaries’ management teams are dedicated to formulating and executing business strategies through a culture of excellence, innovation and cooperation, which has served as our guiding vision throughout the various acquisitions and initiatives undertaken by Grupo Aval.

Our strategy

Our overall objectives are to build upon our competitive strengths to pursue opportunities for growth and to enhance our long-term financial performance. To achieve these objectives, we intend to pursue a strategy with the following principal elements:

Further penetrate the Colombian market

We believe that Colombia offers significant opportunities to expand our business because of the country’s strong economic fundamentals and low penetration rates for banking and other financial services and products, as compared to other countries in the region. For example, according to the 2011 World Bank Development Indicators, domestic credit to the private sector accounted for 45.3% of GDP in Colombia as compared to 89.3% for Chile, 61.4% for Brazil and 26.4% for Peru at December 31, 2012. See “Item 4. Information on the Company—B. Business overview—Industry—Colombia—Credit volumes.” We anticipate that demand for such services and products will increase across all customer sectors. As Colombia’s leading banking group, and drawing upon our distinctive multi-brand business model, we believe that we are well-positioned to take advantage of this significant growth potential.

Continue capitalizing on synergies and improving efficiencies

We believe that there is additional room to create synergies among our subsidiaries and leverage their combined strength without affecting our multi-brand business model. We intend to continue identifying and working on groupwide projects, mainly in information technology, and we will continue to seek economies of scale by fostering procurement of goods and services for multiple subsidiaries, which we believe have contributed to improvements in our efficiency ratios. As an example, we are in the process of replacing the core banking systems in our subsidiaries to converge to a common platform.

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Expand our services offerings and diversify our sources of income

We believe that we offer the most comprehensive range of banking services and products in Colombia, and we continually seek to expand these offerings to meet evolving customer needs and enhance our profitability. For example, we are currently implementing initiatives to increase our non-interest income, which consists primarily of net fee income. Net fee income accounted for 24.9% of our consolidated total operating income before net provisions for the year ended December 31, 2012. We believe that we can expand the contribution of non-interest income to our profitability in future periods by, for example, expanding bancassurance (i.e., bank-offered third-party insurance products) through our distribution networks and credit card fee income through an increase in credit card loan volume across all of our banks.

Integrate BAC Credomatic and further penetrate the Central American market

We plan to continue executing our multi-brand business model by maintaining the BAC Credomatic brand and integrating it into our operations. We intend to capitalize on the expansion of the Central American market as we believe the BAC Credomatic acquisition will offer us significant opportunities for organic and acquisition growth in financial services in this region. In order to improve operational efficiency and increase market share in key sectors, we intend to share our groupwide commercial and operational standards and best practices with BAC Credomatic, while capitalizing on its regional expertise, brand recognition, customer base, and services and products, such as credit card issuance and merchant-acquiring businesses. We believe that we can continue improving BAC Credomatic’s efficiency ratio, which at December 31, 2012 was 57.1%, compared to 49.8% for Grupo Aval’s Colombian operations, by implementing our best practices at BAC Credomatic.

Pursue other selected acquisitions

We have a proven track record of identifying, acquiring and integrating interests in companies that we believe have strategic value to us. We are interested in expanding our businesses in Colombia and Central America and to other regions. We regularly evaluate acquisition candidates that may permit us to expand the services and products we offer and markets we can access, such as BAC Credomatic and Horizonte. We actively consider additional strategic investments, alliances and acquisitions, principally in Colombia, Central America and other selected Latin American countries, and anticipate we will enter into such transactions, which may be material, if we believe that they will be both strategic and accretive.

Oversight

As the holding company of the group, we closely monitor the performance of our banking subsidiaries. We actively participate in developing each banking subsidiaries’ long-term business plan, and we require each of our banking subsidiaries to present us with a yearly budget and profitability targets. We develop our own independent profitability targets for each banking subsidiary before discussing and recommending any changes thereto with its management team. In addition, we make recommendations for setting the compensation of management in each of our banking subsidiaries annually, and link incentive compensation to achieving budget goals and other financial and strategic performance targets.

Our banking subsidiaries are required to report their financial performance to us on a regular basis, including daily summaries and monthly detailed information. We monitor the performance of our banks against their respective budgets and the performance of our competitors. This systematic control process is complemented by ad-hoc analyses of key operational drivers, such as the loan portfolio quality of each banking subsidiay relative to the others and our competitors. When a banking subsidiary deviates from its plan or when weaknesses are identified, we meet with the respective bank’s management to discuss remedial measures and a course of action. Similarly, when a banking subsidiary finds itself in a new or unfamiliar situation, such as the mortgage and financial crisis of 1999, we provide guidance. Our senior management and management of the banking subsidiaries meet at least twice a month to discuss strategy, opportunities and current operations.

Our internal control department regularly audits our banks, Porvenir, Corficolombiana and BAC Credomatic, as well as their operating subsidiaries, to provide objective assurance to our management and board of directors regarding the effectiveness of our subsidiaries’ financial reporting and control mechanisms as well as to monitor compliance with our best practices and guidelines. Our internal control department also plays an integral part in our

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corporate governance. When our internal control department discovers deviations from our best practices and guidelines, we recommend remedial measures and enhance our monitoring of the respective entity.

Strategic focus

From time to time, our banks explore merger and acquisition opportunities and, as part of its equity portfolio management activities, Corficolombiana makes investments in strategic sectors. We provide support to our banking subsidiaries management teams in identifying opportunities, negotiating favorable outcomes and implementing acquisitions. We independently assess a prospective target’s strategic fit with the acquiring banking subsidiary and within our group as a whole. In addition, we explore new business initiatives and often recommend new product lines and services to our banks, such as bancassurance, and provide assistance to our banks in evaluating, negotiating and implementing acquisitions such as Banco de Bogotá’s acquisition of Megabanco and Banco de Occidente’s acquisition of Banco Unión and the acquisition of Horizonte. Our acquisition of BAC Credomatic illustrates our approach to identifying and pursuing growth opportunities outside of our existing portfolio.

Credit risk management

Although each banking subsidiary is responsible for its credit decisions and risk management, we oversee the implementation of appropriate risk management controls at our banks and have established upward loan reporting processes. Our risk management staff meets on a weekly basis to discuss our subsidiaries’ loan portfolio, developments in the industry, risks and opportunities. For potential loan transactions that would result in an aggregated exposure to a single issuer exceeding Ps 30 billion at the group level, our risk management staff will evaluate the transaction and will often make recommendations with respect to the structure of the loan (such as guarantees, interest rates, commissions and covenants). We also coordinate loan syndication among our banks to effectively leverage the combined equity of our banks and manage any risk issues. For a discussion of our risk management guidelines, see “Item 11. Quantitative and Qualitative Disclosures About Risk—Risk management.”

Marketing

Our centralized marketing strategy pursues two main objectives: to increase the competitiveness of our banks and to strengthen our corporate image. To achieve these objectives, we negotiate with third parties for the provision of certain marketing services and to design and implement advertising campaigns for the launch of new services and products. We have set up marketing guidelines and pursue communications that increase the exposure of our brands and those of our subsidiaries. Our service efforts are aimed at achieving customer and shareholder satisfaction.

Network integration

Each banking subsidiary is responsible for its information technology systems and distribution network; however, we seek to maximize the effectiveness of our distribution network and the levels of customer service and customer retention across all our banks through our Red de Grupo Aval (Grupo Aval network), which connects all of our banks’ networks. Our network allows each of our banking subsidiaries’ customers to access basic banking services at any ATM or branch office in any of our banks. Although each banking subsidiary maintains its own information technology system, Grupo Aval works to identify potential synergies and assists in the implementation of technology and products developed at the Grupo Aval level within our banks, and the standardization of technology and processes across our banks. For example, we are developing a new technology model based on service-oriented architecture for our institutions. For a discussion of our current technology projects, see “––B. Business overview—Other corporate information—Technology.”

Risk factors

We face risks and uncertainties that may affect our future financial and operating performance, including, among others, the following: economic and political conditions in Colombia and other countries in which we operate; internal security issues affecting the countries in which we operate; governmental and regulatory actions and developments affecting our operating subsidiaries and our industry; natural disasters; declines in the quality of our loan portfolio and other assets; adequacy of risk management procedures and systems; counterparty risks; exposures in derivatives transactions; increases in funding costs; changes in interest and exchange rates and other market risks; losses from trading operations; completion and integration of acquisitions; failures of information technology and other systems; competition; loss of key members of senior management; and litigation and other legal proceedings. One or more

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of these matters could negatively affect our business or financial performance as well as our ability to successfully implement our strategy. See “Item 3. Key Information—D. Risk factors.”

Our markets

The majority of our operations are in Colombia, representing 82.0% and 84.3% of our net income and gross loan portfolio respectively, and in the six countries in Central America, representing 18.0% and 15.7% of our net income and gross loan portfolio in each case at and for the year ended December 31, 2012.

We believe that Colombia’s financial system presents significant growth potential given its favorable economic conditions and one of the lowest penetration rates for banking and financial services in Latin America. According to International Monetary Fund data, at December 31, 2012, Colombia’s population and economy were the third and fourth largest in Latin America, respectively. According to DANE, in 2011 Colombia’s population was approximately 46.0 million people and its nominal GDP was Ps 615.7 trillion (U.S.$333.2 billion). Colombia’s nominal GDP per capita increased from Ps 7.93 million in 2005 (U.S.$3,416 using the average exchange rate for that year) to Ps 13.4 million in 2011 (U.S.$7,236 using the average exchange rate for that year).

During the ten-year period ended December 31, 2011, Colombia outperformed the average GDP growth rate for Latin America by 1.1 percentage points, while reducing the country’s dependency on foreign financing as reflected in an external debt to GDP ratio of 22.9% at December 31, 2011 (and 21.5% at September 30, 2012). According to IMF data, Colombia has achieved GDP growth every year during the last half century (other than 1999). Unlike other emerging Latin American countries, Colombia has regularly met all principal and interest payments on external debt and has avoided hyperinflation, maintaining a single-digit inflation rate for the ten years ended December 31, 2012. According to the Central Bank of Colombia, or the “Colombian Central Bank,” Colombia’s annual inflation rate for 2012 was 2.4%, close to the 50-year low of 3.2% in 2010 and down from 3.7% for 2011. These economic fundamentals, together with Colombia’s record as a stable democracy, account for Colombia’s relative strength during the recent global economic and financial crisis.

During the ten-year period ended December 31, 2012, according to the Superintendency of Finance, Colombia’s financial system grew at a compounded annual growth rate, or “CAGR,” of 12.8% in terms of loans and 10.4% in terms of deposits, on an inflation-adjusted basis, compared to 4.7% for the country’s GDP during the same period ended December 31, 2012. Despite this recent growth, Colombia’s bank-loans-to-GDP ratio remains relatively low, with an approximate 34.8% ratio at December 31, 2012, according to the Superintendency of Finance. Using the ratio of domestic credit to the private sector to GDP, provided by the World Bank, Colombia stands at 45.0% compared to 71.2% for Chile, 61.4% for Brazil, 26.4% for Peru and 26.1% for Mexico at December 31, 2011. As the second largest bank in Colombia, we believe that Banco de Bogotá is well-positioned to take advantage of Colombia’s potential for growth in financial products and services. The capitalization of Colombia’s banking sector consists mostly of primary capital (Tier I) with a primary capital (Tier I) to risk-adjusted assets ratio of 10.9% at December 31, 2012, according to the Superintendency of Finance.

We view Central America as a strategic region that meets our expansion criteria. At December 31, 2012, Central America had a total population of approximately 43.5 million, making it the fourth largest market in Latin America by population. At the same date, Central America posted an estimated combined GDP of U.S.$180.0 billion, ranking the region as the eighth largest economy in Latin America. According to estimates prepared by the IMF, Central America’s GDP is expected to grow at an annual average rate of 4.2% between 2013 and 2015, compared to Colombia’s expected average growth rate of 4.5% during the same period. In terms of banking penetration, Central America had a ratio of private credit to GDP of 49.5% as of December 31, 2011, mainly driven by Panama’s 105.2% ratio. This indicator for the other countries in the region ranges from 23.4% to 49.1%, leading us to believe that growth in the financial sector could outperform GDP growth. We also see the additional penetration of credit cards in the population as an important growth opportunity in Central America.

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Our history

Grupo Aval was created by our chairman, Mr. Sarmiento Angulo, to consolidate his interests in the Colombian financial sector. The milestones in the formation of Grupo Aval were the following:

Mr. Sarmiento Angulo established a real estate development firm in Bogotá in 1956, and in 1959 founded Organización Luis Carlos Sarmiento Angulo, which developed low- and middle-income housing neighborhoods in Bogotá in the 1960s and 1970s;

In 1971, Mr. Sarmiento Angulo acquired a majority stake in Banco de Occidente, and in 1972 founded Corporación de Ahorro y Vivienda Las Villas to focus on low- and middle-income mortgage financing;

In 1981, Mr. Sarmiento Angulo purchased a minority stake in Banco de Bogotá, and in 1988 he acquired a majority stake and control, consolidating a major participation in the banking system. Banco de Bogotá acquired a substantial majority of, and absorbed, Banco del Comercio in 1992;

In 1991, Banco de Bogotá and Banco de Occidente founded Porvenir as a severance fund manager, and following the creation in 1993 of the private pension fund system in Colombia, expanded the business to include pension fund management in 1994;

Banco Popular was acquired in 1996 from the Colombian government through a privatization process;

In 1997, Mr. Sarmiento Angulo acquired Corporación de Ahorro y Vivienda Ahorramas and merged it with Corporación de Ahorro y Vivienda Las Villas in 2000 to form Banco AV Villas in 2002;

In 1999, Grupo Aval conducted an initial public offering in Colombia and listed its common shares on the Colombian Stock Exchange under the ticker “GRUPOAVAL.” Grupo Aval’s initial public offering was the first large-scale equity offering of a Colombian company to the general public, which allowed several thousand investors to become our shareholders;

Corficolombiana, which was founded in 1959 as an affiliate of Banco de Bogotá, acquired and merged with several merchant banks between 1997 and 1999, including Corfitolima, Corfiprogreso, Corfes, Corfiboyacá, Corfisantander, Corfiandes and Indufinanciera. In 2005, Corfivalle, also a merchant bank, and Corficolombiana merged;

Grupo Aval concluded its third public offering of shares to the Colombian public on May 12, 2011, consisting of 1.6 billion preferred shares at a price of Ps 1,300 (U.S.$0.72 at the representative market rate at such date) per share;

On December 19, 2011, Banco de Bogotá completed its first international bond offering, raising U.S.$600 million of 5.00% Senior Notes due 2017;

On February 1, 2012, we completed our first international bond offering, raising U.S.$600 million of 5.25% Senior Notes due 2017;

On September 19, 2012, we completed our second international bond offering, raising U.S.$1.0 billion of 4.75% Senior Notes due 2022;

On February 11, 2013, Banco de Bogotá completed its second international bond offering, raising U.S.$500 million of 5.375% Subordinated Notes due 2023; and

On April 18, 2013, Grupo Aval, Banco de Bogotá, Banco de Occidente and Porvenir acquired Horizonte.

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In order to provide a single administrative platform for his financial institution holdings, in 1998, Mr. Sarmiento Angulo contributed a majority of his direct and indirect holdings in the financial institutions to Grupo Aval. The Red de Grupo Aval (Grupo Aval network) was also established in 1998 to integrate the branches and ATM networks of our banks. In 1999, Grupo Aval listed its shares on the Colombian Stock Exchange, where 2.4% of its share capital was sold to the general public. In 2007, we completed a follow-on offering resulting in a total public float of 7.5% of the total share capital.

Mr. Sarmiento Angulo’s son, Luis Carlos Sarmiento Gutiérrez, became our president in 2000. He is responsible for our day-to-day management.

Since 1998, Grupo Aval has, directly and indirectly, made a series of acquisitions to further extend and consolidate its position as the leading banking group in Colombia, including Banco de Occidente’s acquisition of Banco Aliadas in 2005 and Banco Unión in 2006, the merger of Corfivalle and Corficolombiana in 2005, and Banco de Bogotá’s acquisition of Megabanco in 2006. Pursuant to our growth strategy, on July 15, 2010, we entered into a stock purchase agreement with GE Capital for the acquisition of all of the outstanding shares of BAC Credomatic. We completed the acquisition of BAC Credomatic on December 9, 2010.

On June 23, 2011, Grupo Aval acquired 43.5% of Banco Popular’s outstanding shares held by Rendifin S.A. in exchange for 2,073,115,004 of our preferred shares at a ratio of 1.62 Banco Popular share per Grupo Aval preferred share, and as a result, we increased our direct ownership in Banco Popular to 74.2%. On September 20, 2011, Grupo Aval acquired additional ownership interests in Banco Popular to increase its direct ownership in Banco Popular to 93.7%. See “Item 7. Major Shareholders and Related Party Transactions—B. Related party transactions—Other transactions with Mr. Sarmiento Angulo and his affiliates—Banco Popular share ownership reorganization.”

Grupo Aval Acciones y Valores S.A. is a sociedad anónima, incorporated under the laws of Colombia on January 7, 1994 under the name Administraciones Bancarias S.A. On April 18, 1997, the company changed its name to Sociedad A.B. S.A., and on January 8, 1998, to Grupo Aval Acciones y Valores S.A.

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B.	Business overview

Our operations

We conduct our operations through our four banks (Banco de Bogotá, Banco de Occidente, Banco Popular and Banco AV Villas), a pension and severance fund manager (Porvenir), our merchant bank (Corficolombiana) and our Central American banking group, BAC Credomatic. On April 18, 2013 we acquired Horizonte, another pension and severance fund manager, which on an aggregate basis positions Grupo Aval as the market leader in mandatory pension funds management and severance funds management. The following chart presents our ownership structure.

Source: Company data at December 31, 2012.

(1)	Corficolombiana held an additional 4.0% beneficial interest in Banco de Occidente at December 31, 2012, due to the merger of Leasing de Occidente into Banco de Occidente in June 2010. These shares are expected to be sold in open-market transactions.

(2)	Porvenir and Corficolombiana are subsidiaries of Banco de Bogotá, whose financial data is consolidated into Banco de Bogotá’s results. Ownership percentages shown include direct and indirect participation.

(3)	This acquisition was completed on December 9, 2010. BAC Credomatic’s results of operations prior to December 1, 2010 are not included in Grupo Aval’s and Banco de Bogotá’s results that are described in this annual report.

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We own 64.4% of the share capital of Banco de Bogotá, 68.2% of Banco de Occidente, 93.7% of Banco Popular, 79.9% of Banco AV Villas, 100.0% of Porvenir (20.0% directly and the remainder indirectly through our banks) and 57.0% of Corficolombiana indirectly through our banks, at December 31, 2012. In addition to his interest in Grupo Aval, Mr. Sarmiento Angulo beneficially owns 9.6% of Banco de Bogotá, 13.3% of Banco de Occidente, 0.8% of Banco Popular, 15.4% of Banco AV Villas and 0.3% of Corficolombiana, at December 31, 2012.

We believe that each of our banks, as well as Porvenir, Corficolombiana and BAC Credomatic has an excellent reputation in the market within their individual sectors. Each of our banks and Corficolombiana are publicly-traded on the Colombian Stock Exchange, and the remaining shares in these companies that are not beneficially owned by Mr. Sarmiento Angulo are held by minority shareholders.

Banco de Bogotá, founded in 1870, is Colombia’s oldest financial institution and the second largest bank in the country based on total consolidated assets at December 31, 2012 and net income for the year ended December 31, 2012. Banco de Bogotá had market shares of 15.1% of deposits and 13.5% of loans at December 31, 2012. It is also the largest financial institution within our group by assets and the largest contributor of net income before income tax expense and non-controlling interest. Banco de Bogotá is a full-service bank with nationwide coverage and a comprehensive portfolio of services and products, distributed through a network of 638 branches and 1,289 ATMs. While Banco de Bogotá serves all segments in the market through differentiated service and product offerings, it is particularly focused on commercial lending with a market share of 18.5% of commercial loans at December 31, 2012. Banco de Bogotá’s ROAE averaged 21.4% between 2010 and 2012 and was 18.1% for the year ended December 31, 2012. Its efficiency ratio worsened from 40.1% in 2010 to 49.6% for the year ended December 31, 2012 primarily due to the acquisition of BAC Credomatic. The ratio of operating expenses before depreciation and amortization as a percentage of average earning assets improved from 5.6% for the year ended December 31, 2011 to 5.2% for the year ended December 31, 2012.

Banco de Occidente is the fifth largest bank in Colombia, based on assets and loans at December 31, 2012. It focuses on enterprise customers, state-owned entities and retail customers. Banco de Occidente has strong market shares in the financial leasing business (19.1%, the second largest market share in the Colombian leasing market, which is comprised of leasing companies and banks). Banco de Occidente’s ROAE averaged 16.2% between 2010 and 2012 and was 16.1% for the year ended December 31, 2012. Its efficiency ratio improved from 44.5% in 2010 to 43.5% for the year ended December 31, 2012. The ratio of operating expenses before depreciation and amortization as a percentage of average earning assets improved from 4.1% for the year ended December 31, 2011 to 4.0% for the year ended December 31, 2012.

Banco Popular is the pioneer of, and the market leader in, payroll loans and is a premier provider of financial solutions to government entities throughout Colombia. Banco Popular achieved strong returns on its consumer loan portfolio due to its access to payroll deductions for repayment of loans, which results in consumer loans with a substantially lower-risk profile (consumer past due loans of 2.7% compared to a banking system average of 4.7% at December 31, 2012). Banco Popular’s ROAE averaged 21.1% between 2010 and 2012 and was 18.7% for the year ended December 31, 2012. Its efficiency ratio changed from 47.6% in 2010 to 51.5% for the year ended December 31, 2012. The ratio of operating expenses before depreciation and amortization as a percentage of average earning assets improved from 5.0% for the year ended December 31, 2011 to 4.8% for the year ended December 31, 2012.

Banco AV Villas is a consumer-focused bank, which targets mid- and low-income segments of the population and serves its clients through a nationwide service-point network and an advanced mobile banking platform. It is also Grupo Aval’s most active bank in terms of usage of non-traditional channels (mobile banking, banking correspondents and virtual branches). Over the past decade, Banco AV Villas has evolved from being a lender exclusively focused on mortgages to a diversified full-service consumer bank. Banco AV Villas’ risk management systems provide the bank with real-time and in-depth credit quality analyses that allow the bank to approve consumer loans on an accelerated basis. Banco AV Villas’ ROAE averaged 17.9% between 2010 and 2012 and was 16.7% for the year ended December 31, 2012. Its efficiency ratio changed from 53.9% in 2010 to 55.8% for the year ended December 31, 2012. The ratio of operating expenses before depreciation and amortization as a percentage of average earning assets improved from 6.5% for the year ended December 31, 2011 to 5.9% for the year ended December 31, 2012.

Porvenir operates a leading pension and severance fund management business in Colombia, with a 27.4% market share of assets under management at December 31, 2012. Pension funds provide individual savings for retirement, while severance funds provide temporary income to employees who lose their jobs. Porvenir has experienced an increase in earnings with a 17.0% CAGR for the 2010 to 2012 period. Porvenir is the most profitable and efficient pension

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and severance fund manager in the market, with an ROAE that averaged 29.9% between 2010 and 2012 and was 30.1% for the year ended December 31, 2012.

Corficolombiana is a merchant bank that primarily invests in strategic sectors of the Colombian economy, including infrastructure, energy and finance, and also provides treasury, investment banking and private banking services. Corficolombiana provides Banco de Bogotá with a consistent dividend stream, having declared dividends totaling more than Ps 204 billion (approximately U.S. $116 million) payable to Banco de Bogotá for the year ended December 31, 2012. Corficolombiana’s ROAE averaged 17.6% between 2010 and 2012 and was 10.2% for the year ended December 31, 2012.

BAC Credomatic is a leading Central American banking group with operations in Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama. BAC Credomatic is a full-service financial institution with one of the leading credit card issuance and merchant-acquiring franchises in Central America. It has achieved processing volumes of U.S.$10,996 million for the year ended December 31, 2012 in the merchant acquiring business, which compares favorably to processing volumes of other leading Latin American issuers. BAC Credomatic’s ROAE averaged 23.0% between 2007 and 2012 (excluding extraordinary gains in 2007 and 2008) and was 23.4% for the year ended December 31, 2012.

Competition

We operate in a competitive market. Our principal competitors in Colombia are Bancolombia, Davivienda, and BBVA Colombia, which are the three leading banking groups in Colombia following Grupo Aval.

We are the market leader in Colombia in terms of market share of deposits, loans and our distribution network. Despite the expansion and contraction of recent economic cycles, since 1996, our banks have been more profitable than our principal competitor banks as measured by ROAE. Recently, we have outperformed one or more of our principal competitors under key operational metrics such as the ratio of loans past due more than 30 days over gross loan portfolio and operational efficiency. We believe that these results have been achieved due to our banks’ historically strong franchises, results-oriented philosophy and the Grupo Aval multi-brand business model. These features have also allowed our banks to increase their deposit and loan portfolio market share organically over time, and during times of contraction, our strong balance sheets have allowed for inorganic growth through acquisitions.

Since 2000 through December 2012, we have increased our market share by 6.3% in deposits and 5.9% in loans. Acquisitions have accounted for 3.3% of the increase in deposit market share and 4.1% of the increase in loan market share.

Except where otherwise indicated, the balance sheet and statement of income data for each of our banking subsidiaries included in this annual report reflects its consolidated Colombian Banking GAAP information, while comparative disclosures of the financial and operating performance of our banking subsidiaries and that of our competitors are based on unconsolidated information prepared on the basis of Colombian Banking GAAP reported to the Superintendency of Finance. Our banking subsidiaries report unconsolidated financial data to the Superintendency of Finance; however, Grupo Aval, as a holding company, is not required to report such data. Unless otherwise indicated or the context otherwise requires, market share and other data comparing our performance and that of our competitors reflects the unconsolidated results of our banking subsidiaries.

Banks, financing companies and finance corporations are deemed credit institutions under Colombian banking regulations, and are the principal institutions authorized to accept deposits and make loans in Colombia. Banks undertake traditional deposit-taking and lending activities. Financing companies place funds in circulation by means of active credit operations, with the purpose of fostering the sale of goods and services, including the development of leasing operations. Finance corporations invest directly in the economy and thus are the only vehicle through which a bank may invest in non-financial sectors. See “—Supervision and regulation.” We operate four banks, one financing company and one finance corporation, and our market share is determined by comparing our banks to other banks reporting their results to the Superintendency of Finance; however, if market share data including financing companies and finance corporations is considered, our market shares would generally be lower than in a bank-only comparison and the gaps between our market shares and those of our competitors would be smaller, but our market leadership in most market categories would be unaffected.

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In addition to our market-leading banking business, we are the market leader in the pension and severance fund management market through Porvenir. Porvenir also has the largest share of individual customers and funds under management in the severance fund and mandatory pension fund markets.

Corficolombiana is the largest finance corporation in Colombia, with the largest equity portfolio primarily invested in five sectors of the Colombian economy: infrastructure, electricity and gas, financial services, hotels and agribusiness. Corficolombiana complements its core investment management business with treasury and investment banking operations.

Market share and other data from unconsolidated financial information

The following market share and other data comparing us and our banking subsidiaries to our competitors is based on information derived from unconsolidated financial information reported to the Superintendency of Finance by commercial banks based on Colombian Banking GAAP.

Deposits

We have the largest market share of total deposits, with an aggregate of 28.8% of all deposits in Colombia at December 31, 2012. Our principal competitor banks—Bancolombia, Davivienda and BBVA Colombia—had market shares of 21.4%, 10.7%, and 10.9%, respectively at December 31, 2012. At December 31, 2012, we had increased our market share of total deposits by 6.3% since 2000.

The following graph presents the market share of deposits in Colombia for the period from 2008 to 2012.

Market share by deposits

Source: Company calculations based on information published by the Superintendency of Finance.

(1)	Grupo Aval figures reflect aggregated amounts of our banking subsidiaries.

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The following table presents a breakdown of market share of deposits by type of deposit at December 31, 2012.

	At December 31, 2012
	Grupo Aval (aggregate) (1)		Bancolombia		Davivienda		BBVA Colombia		Rest of the Colombian market
	(in percentages)
Checking accounts		36.5		24.0		9.0		9.1		21.4
Savings accounts		29.0		23.0		12.3		12.7		23.0
Time deposits		26.1		18.2		10.0		9.6		36.2
Other deposits (2)		10.0		12.9		4.1		4.4		68.6
Total deposits		28.8		21.4		10.7		10.9		28.2

Source: Company calculations based on information published by the Superintendency of Finance.

(1)	Grupo Aval figures reflect aggregated amounts of our banking subsidiaries.

(2)	Other deposits consist of correspondent bank deposits, cashier checks and collection services.

At December 31, 2012, deposits represented a larger share of our total funding than that of our principal competitor banks, and we had a higher concentration of checking accounts, which are generally the lowest cost source of funds. Our funding mix yielded a competitive average cost of funds than that of most of our principal competitor banks at December 31, 2012. The table below presents the total funding mix of the market at December 31, 2012.

	At December 31, 2012
	Grupo Aval (aggregate) (1)		Bancolombia		Davivienda		BBVA Colombia		Rest of the Colombian market
	(in percentages)
Funding:
Deposits		83.8		79.4		73.7		91.7		78.3
Other funding		16.2		20.6		26.3		8.3		21.7
Total funding		100.0		100.0		100.0		100.0		100.0
Deposits:
Checking accounts		22.4		19.8		14.8		14.9		13.5
Savings accounts		49.3		52.7		56.0		57.1		39.9
Time deposits		27.2		25.5		27.9		26.6		38.7
Other deposits		1.1		2.0		1.2		1.3		7.9
Total deposits		100.0		100.0		100.0		100.0		100.0
Average funding rate:
Average deposit rate		3.7		3.3		3.3		3.8		3.9
Average other funding rate		5.8		5.7		6.1		6.1		5.4
Average total funding rate		4.1		3.9		4.1		4.1		4.2

Source: Company calculations based on information published by the Superintendency of Finance.

(1)	Grupo Aval figures reflect aggregated amounts of our banking subsidiaries.

Loans

We have the largest market share of loans, with an aggregate of 28.4% of all loans at December 31, 2012. Our principal competitors banks—Bancolombia, Davivienda and BBVA Colombia—had market shares of 23.0%, 12.4% and 9.2%, respectively. At December 31, 2012, we had increased our market share of loans by 5.9% since 2000.

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The following graph presents the market share of loans in Colombia for the period from 2008 to 2012.

Market share by loans

Source: Company calculations based on information published by the Superintendency of Finance.

(1)	Grupo Aval figures reflect aggregated amounts of our banking subsidiaries.

The following table presents a breakdown of the market share of loans by category at December 31, 2012.

	At December 31, 2012
	Grupo Aval (aggregate) (1)		Bancolombia		Davivienda		BBVA Colombia		Rest of the Colombian market
	(in percentages)
Commercial		31.6		30.3		11.0		6.2		21.0
Consumer		28.3		14.1		14.1		11.2		32.4
Microcredit		4.4		4.5		1.3		0.0		89.7
Mortgages		5.0		27.0		15.4		25.6		27.1
Financial leases		44.6		1.2		19.5		9.0		25.8
Total		28.4		23.0		12.4		9.2		27.0

Source: Company calculations based on information published by the Superintendency of Finance.

(1)	Grupo Aval figures reflect aggregated amounts of our banking subsidiaries.

Our banks have been strategically focused on developing commercial and consumer loans, including credit card and payroll loans, and are beginning to increase their exposure to mortgage loans.

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The following table presents the distribution by loan category of the market at December 31, 2012.

	At December 31, 2012
	Grupo Aval (aggregate) (1)		Bancolombia		Davivienda		BBVA Colombia		Rest of the Colombian market
	(in percentages)
Commercial		61.1		72.1		48.7		36.9		42.7
Consumer		28.4		17.4		32.2		34.6		34.2
Microcredit		0.4		0.6		0.3		0.0		9.6
Mortgages		1.5		9.7		10.2		23.1		8.3
Financial leases		8.6		0.3		8.6		5.4		5.2
Total		100.0		100.0		100.0		100.0		100.0

Source: Company calculations based on information published by the Superintendency of Finance.

(1)	Grupo Aval figures reflect aggregated amounts of our banking subsidiaries.

Loan portfolio quality

We believe that the credit quality of our loan portfolio compares favorably with that of our principal competitors. The following table presents credit quality metrics for our loan portfolio at the dates indicated.

	At December 31,
	Loans past due more than 30 days / gross loan portfolio				Loans rated C, D or E / gross loan portfolio				Provision expense / gross loan portfolio				Allowance / loans past due more than 30 days
	2012		2011		2012		2011		2012		2011		2012		2011
	(in percentages)
Banco de Bogotá		2.1		1.6		3.1		2.7		2.8		2.8		155.7		194.0
Banco de Occidente		2.5		2.5		3.6		4.0		3.5		3.6		146.6		158.1
Banco Popular		2.1		2.1		2.9		3.2		2.9		2.9		172.3		182.3
Banco AV Villas		3.7		3.6		3.1		3.1		4.7		4.2		116.9		133.1
Grupo Aval (aggregate) (1)		2.3		2.1		3.2		3.2		3.2		3.1		150.5		171.8
Bancolombia		2.6		2.2		3.7		3.3		3.3		3.0		175.5		199.5
Davivienda		4.0		3.9		3.5		3.5		6.4		6.2		123.6		125.9
BBVA Colombia		2.6		2.4		2.3		2.5		3.2		2.9		145.3		161.5
Rest of the Colombian market		4.3		3.6		5.0		5.0		4.8		4.3		133.6		151.4

Source: Company calculations based on information published by the Superintendency of Finance.

(1)	Grupo Aval figures reflect aggregated amounts of our banking subsidiaries.

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Branches and ATM network

Through our banking subsidiaries, we have the largest combined banking network in Colombia, with 1,317 branches and 3,086 ATMs at December 31, 2012. The following table presents the distribution of branches and ATMs across the market at December 31, 2012.

	At December 31, 2012
	Branches				ATMs
	# of branches		Market share %		# of ATMs		Market share %
Grupo Aval (aggregate) (1)		1,317		25.8		3,086		25.0
Bancolombia		790		15.5		3,307		26.8
Davivienda		572		11.2		1,524		12.3
BBVA Colombia		368		7.2		1,010		8.2
Rest of the Colombian market		2,053		40.3		3,418		27.7

Source: Company calculations based on information published by the Superintendency of Finance, except for information for Grupo Aval which reflects aggregate data obtained from our banking subsidiaries.

(1)	Grupo Aval figures reflect aggregated amounts of our banking subsidiaries.

Competition and other data from consolidated financial information

The following information on Grupo Aval and our subsidiaries is based on consolidated financial information at and for the years ended December 31, 2012, 2011 and 2010. Competition and other data that compare us and our subsidiaries to Bancolombia, our main competitor, is readily obtained given that Bancolombia also prepares and publishes detailed consolidated financial information. Our other principal competitors, Davivienda and BBVA, publish financial information with a lesser degree of detail; therefore, we only refer to these competitors where applicable based on publicly available information.

Profitability

We are the most profitable banking group in Colombia based on ROAE, as compared to our principal competitors, for the years ended December 31, 2012, 2011 and 2010.

ROAE

The following table presents the ROAE for each of our banks, Grupo Aval, and our principal competitors for the periods indicated.

	Year ended December 31,
	2012		2011		2010
ROAE (1)	(in percentages)
Banco de Bogotá		18.1		21.3		24.9
Banco de Occidente		16.1		15.4		17.1
Banco Popular		18.7		20.8		23.8
Banco AV Villas		16.7		18.6		18.4
Grupo Aval		17.7		20.3		22.2
Bancolombia		16.5		19.6		19.2
Davivienda		13.7		15.1		18.5
BBVA Colombia		16.7		20.2		19.8

Source: Company calculations based on publicly available consolidated financial statements of Grupo Aval and each bank for the periods indicated.

(1)	For methodology used to calculate ROAE, see note 3 to the table under “Item 3. Key Information—A. Selected financial data—Other financial and operating data.”

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ROAA

The following table presents the ROAA for each of our banks, Grupo Aval and our principal competitors, for the periods indicated.

	Year ended December 31,
	2012		2011		2010
ROAA (1)	(in percentages)
Banco de Bogotá		2.3		2.6		2.9
Banco de Occidente		2.2		2.1		2.1
Banco Popular		2.6		2.8		3.1
Banco AV Villas		2.1		2.3		2.2
Grupo Aval		2.0		2.3		2.2
Bancolombia		1.9		2.2		2.2
Davivienda		1.7		1.9		2.1
BBVA Colombia		1.6		2.0		2.1

Source: Company calculations based on publicly available consolidated financial statements of Grupo Aval and each bank for the periods indicated.

(1)	For methodology used to calculate ROAA, see note (2) to the table under “Item 3. Key Information—A. Selected financial data—Other financial and operating data.”

Regulatory capital

Banks in Colombia are required to have regulatory capital of at least 9.0% of risk-weighted assets plus a risk premium calculated pursuant to the rules of the Superintendency of Finance. For a description of these requirements, see “—Supervision and regulation—Capital adequacy requirements.” Our banks are well-capitalized under Colombian regulatory capital requirements, and we believe that our current capitalization provides us with substantial flexibility to expand our operations.

The tables below present our capitalization (on an aggregate basis), the capitalization of our banking subsidiaries, and the capitalization of our principal competitors at December 31, 2012. Grupo Aval is not subject to capital requirements other than those that apply to its subsidiaries; therefore, we believe that our capitalization on an aggregate basis provides a more meaningful measure than our regulatory capital adequacy.

	At December 31, 2012
	Grupo Aval entities										Bancolombia		Davivienda		BBVA Colombia (4)
	Banco de Bogotá		Banco de Occidente		Banco Popular		Banco AV Villas		Aggregate (3)
	(in percentages)
Consolidated:
Primary capital (Tier I) (1)		11.9		8.5		9.3		11.5		10.9		10.4		10.1		8.5
Secondary capital (Tier II) (2)		1.2		2.0		2.2		2.2		1.5		5.4		5.1		2.8
Total consolidated capitalization		13.1		10.5		11.5		13.7		12.5		15.8		15.2		11.3

Source: Company calculations based on consolidated financial statements of each bank for the period indicated.

(1)	Includes primary capital and reserves. See “—Supervision and regulation—Capital adequacy requirements.”

(2)	Includes primarily subordinated debt and unrealized gains on certain assets, including real estate. See “—Supervision and regulation—Capital adequacy requirements.”

(3)	Grupo Aval figures reflect aggregated regulatory capital of our banking subsidiaries.

(4)	Information for BBVA Colombia is based on unconsolidated figures.

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Porvenir and Corficolombiana are controlled by Banco de Bogotá. Banco de Occidente and Banco Popular hold non-controlling interests in Corficolombiana and Banco de Occidente holds a non-controlling interest in Porvenir. In calculating a bank’s regulatory capital, Colombian regulations require banks to deduct from capital the corresponding amount of their non-controlling interests, regardless of whether these investments and the bank are controlled by the same entity. See “—Supervision and regulation—Capital adequacy requirements.” This accounting treatment lowers Banco de Bogotá’s, Banco de Occidente’s and Banco Popular’s consolidated regulatory capital by 29 basis points, 397 basis points and 182 basis points, respectively, at December 31, 2012.

Capitalization ratios

The following table presents consolidated capitalization ratios for our banking subsidiaries, Grupo Aval and our principal competitors at December 31, 2012.

	At December 31, 2012
	Grupo Aval entities
Colombian Banking GAAP	Banco de Bogotá		Banco de Occidente		Banco Popular		Banco AV Villas		Aggregate (1)		Grupo Aval consolidated		Bancolombia		Davivienda		BBVA Colombia
									(in percentages)
Tangible equity ratio (2)		10.3		13.9		14.7		12.7		11.7		9.3		11.4		9.3		8.4
Tier 1 ratio (3)		11.9		8.5		9.3		11.5		10.9		–		10.4		10.1		8.5
Solvency ratio (4)		13.1		10.5		11.5		13.7		12.5		–		15.8		15.2		11.3

Source: Company calculations based on each entity’s respective financial statements for the period indicated.

(1)	Reflects the summation of calculated amounts for each line item for each of our banking subsidiaries.

(2)	Tangible equity ratio is calculated as total shareholders’ equity plus minority interest minus goodwill, divided by total assets minus goodwill. See “Item 3. Key Information—A. Selected financial data—Non-GAAP measures reconciliation.”

(3)	Tier 1 ratio is calculated as primary capital divided by risk-weighted assets. Tier 1 ratio for BBVA is based on unconsolidated figures.

(4)	Solvency ratio is calculated as technical capital divided by risk-weighted assets. For a definition of technical capital, see “—Supervision and regulation—Capital adequacy requirements.”

Solvency ratio and tangible solvency ratio for BBVA are based on unconsolidated figures.

Operational efficiency

Grupo Aval’s efficiency ratio of 51.3% for the year ended December 31, 2012 makes us one of the most efficient banking groups in Colombia. Efficiency ratio is calculated as operating expense minus depreciation and goodwill amortization divided by total operating income plus total net provisions.

The following table presents efficiency ratios for our banks, Grupo Aval, Bancolombia, Davivienda and BBVA at December 31, 2012, 2011 and 2010.

	At December 31,
	2012		2011		2010
	(in percentages)
Banco de Bogotá		49.6		50.9		40.1
Banco de Occidente		43.5		46.0		44.5
Banco Popular		51.5		50.5		47.6
Banco AV Villas		55.8		59.2		53.9
Grupo Aval		51.3		52.7		46.6
Bancolombia		51.3		53.2		51.7
Davivienda		49.1		47.2		50.8
BBVA		48.3		49.9		50.2

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Source: Company calculations based on each bank’s respective consolidated financial statements for the period indicated. Efficiency ratio is calculated as operating expenses less depreciation and goodwill amortization, divided by the sum of total operating income and total net provisions. See “Item 3. Key Information—A. Selected financial data—Non-GAAP measures reconciliation.”

Loan portfolio quality

We believe that the credit quality of our loan portfolio compares favorably with that of our principal competitor. The following table presents credit quality metrics for the loan portfolio of our banks and for Bancolombia, at December 31, 2012 and 2011.

	At December 31,
	Loans past due more than 30 days / gross loan portfolio				Loans rated C, D or E / gross loan portfolio				Provision expense / gross loan portfolio				Allowance / loans past due more than 30 days
	2012		2011		2012		2011		2012		2011		2012		2011
	(in percentages)
Banco de Bogotá		2.1		1.9		3.4		2.8		2.3		2.3		132.2		140.9
Banco de Occidente		2.5		2.5		3.6		4.1		3.5		3.6		146.8		158.4
Banco Popular		2.1		2.1		2.9		3.2		2.9		2.8		172.4		184.3
Banco AV Villas		3.7		3.6		3.1		3.1		4.6		4.2		116.9		133.1
Grupo Aval		2.3		2.2		3.3		3.2		2.8		2.8		139.2		150.0
Bancolombia		2.6		2.2		4.0		3.8		–		2.9		177.3		209.8

Source: Company calculations based on publicly available consolidated financial statements of Grupo Aval and each bank for the periods indicated.

Pension and severance fund management – Porvenir

Porvenir is a leading pension fund administrator in Colombia in terms of funds under management and has the largest share of earnings in the pension and severance fund management market in Colombia. Porvenir’s principal competitors are other pension fund administrators, including Protección, Horizonte, Colfondos and Skandia. ING’s pension fund operations merged by absorption into Protección on December 31, 2012. On April 18, 2013, we acquired Horizonte. Following the completion of the Horizonte acquisition, Grupo Aval, on a consolidated basis, will be the largest pension fund administrator in Colombia in terms of funds under management.

Porvenir also has under management the largest share of individual customers of mandatory pension funds and assets. It also has had a higher ROAE than the average of the AFPs in Colombia in 2011 and 2012.

The following table presents the market shares of the main market participants with respect to assets under management and individual customers of mandatory pension funds at December 31, 2012, and net income for the year ended December 31, 2012.

	At and for the year ended December 31, 2012
	Porvenir		Protección		BBVA Horizonte		Colfondos		ING		Skandia		Protección + ING		Horizonte + Porvenir
	(in percentages)
Individual customers to pension funds:
Mandatory		33.1		21.4		17.8		15.2		11.8		0.7		33.2		50.9
Severance		29.0		21.0		28.3		10.1		10.9		0.7		31.9		57.3
Voluntary		22.6		37.2		9.4		8.5		5.8		16.6		43.0		32.0
Funds under management:
Mandatory		27.9		25.5		16.0		14.1		11.3		5.2		36.8		43.9
Severance		33.5		26.7		16.3		9.8		11.6		2.2		38.3		49.8
Voluntary		18.7		33.3		4.1		4.5		4.8		34.6		38.1		22.8
Total		27.4		26.2		15.1		13.1		10.8		7.4		37.0		42.5
Net income:		44.6		14.7		18.6		11.3		-		10.8		14.6		62.9

Source: Information published by the Superintendency of Finance, except for Porvenir figures, which were derived from Company data. Information does not include data from third-party pension liability funds, which do not comprise a material portion of the market.

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Merchant banking – Corficolombiana

Corficolombiana is the largest merchant bank in Colombia in terms of assets and equity at December 31, 2012. Corficolombiana faces competition from local and global banks focused on merchant and investment banking. Bancolombia, through its subsidiary Banca de Inversión Bancolombia S.A., is Corficolombiana’s largest local competitor. On an international level, Corficolombiana faces competition from global banks with local investment banking operations. In addition, as an equity investor, Corficolombiana faces competition from other equity investors such as hedge funds, private equity firms and others.

The following table presents the market shares of Corficolombiana and its principal competitors by assets, liabilities and equity at December 31, 2012, 2011 and 2010.

	Assets						Liabilities						Equity
	At December 31,						At December 31,						At December 31,
	2012		2011		2010		2012		2011		2010		2012		2011		2010
	(in percentages)
Corficolombiana		86.6		85.8		83.7		96.1		92.8		88.0		70.7		76.8		79.1
Banca de Inversión Bancolombia S.A.		4.2		5.5		6.0		0.3		0.9		1.2		10.7		11.4		11.1
J.P. Morgan Corporación Financiera S.A.		5.0		7.6		10.3		3.0		6.2		10.8		8.3		9.2		9.7
BNP Paribas Colombia Corporación Financiera S.A.(1)		0.9		1.2		–		0.2		0.1		–		2.2		2.6		–
Itaú BBA Colombia S.A.(2)		3.3		–		–		0.3		–		–		8.1		–		–

Source: Information published by the Superintendency of Finance.

(1)	BNP Paribas Corporación Financiera S.A. was incorporated in 2011.

(2)	Itaú BBA Colombia S.A. was incorporated in 2012.

Colombian banking business overview

Our differentiated multi-brand business model builds on the individual strengths of our banks and the wide recognition of their brands. Each of our banks has developed over time a focus on particular and, to a degree, overlapping market sectors, geographic regions and services and products. As a group, we are present in all banking businesses in Colombia, as shown in the following chart.

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Through the subsidiaries of our banks, we also offer fiduciary, bonded warehousing and brokerage transactions, and provide deposit and lending operations in foreign currencies. Through Corficolombiana, we operate as a merchant and investment bank, and, through Porvenir, we participate in pension and severance fund management.

Enterprise customers

Our banks provide services and products to public and private sector customers. Our banks segment their enterprise customers into separate categories based principally on their annual revenues. We believe that these customer classifications, which are unique to each bank, allow our entities to tailor their services and products to the needs of each customer classification sector.

At December 31, 2012, our banks had an aggregate of approximately 290,700 enterprise customers, which may include customer overlap among our banks, an increase of 15.8% over approximately 251,100 enterprise customers at December 31, 2011. The following table presents the number of enterprise customers that our banks served at December 31, 2012 and 2011.

	Grupo Aval
	Banco de Bogotá		Banco de Occidente		Banco Popular		Banco AV Villas		Aggregate (1)
	(in thousands)
Total enterprise customers:
2012		190.7		68.0		8.0		24.1		290.7
2011		153.6		62.5		7.3		27.7		251.1

(1)	Reflects aggregated amounts of our banking subsidiaries.

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Individual customers

Our banks provide services and products to individuals throughout Colombia. Our banks classify their individual banking customers into separate categories based principally on income.

At December 31, 2012, our banks had a total of approximately 7,626,600 individual customers, an increase of 6.8% over approximately 7,143,600 individual customers at December 31, 2011. Customers of more than one of our banking subsidiaries are counted separately for each banking subsidiary.

The following table presents the number of individual customers that our banks served at December 31, 2012 and 2011.

	Grupo Aval
	Banco de Bogotá		Banco de Occidente		Banco Popular		Banco AV Villas		Aggregate (1)
	(in thousands)
Total individual customers:
2012		3,454.9		463.6		2,518.5		1,189.5		7,626.6
2011		3,071.9		441.8		2,533.8		1,096.1		7,143.6

(1)	Reflects aggregated amounts of our banking subsidiaries.

Lending activities

In accordance with Superintendency of Finance guidelines, we classify our banks’ loans into the following categories: commercial, consumer, microcredit, mortgages and financial leasing.

The following table presents our loan portfolio at December 31, 2012.

	At December 31, 2012
	Grupo Aval entities										Grupo Aval consolidated (3)(4)
	Banco de Bogotá		Banco de Occidente		Banco Popular		Banco AV Villas		Aggregate (2)		Grupo Aval consolidated (3)(4)
	(in Ps billions)
Commercial		28,721.9		9,487.5		5,101.4		2,224.0		45,534.8		45,514.2
Consumer		10,862.0		3,492.5		6,217.3		2,808.5		23,380.2		23,380.2
Microcredit (1)		257.0		–		15.5		18.4		290.9		290.9
Mortgages		3,448.7		1.8		92.4		805.4		4,348.3		4,348.3
Financial leasing		2,175.2		4,016.6		322.3		–		6,514.0		6,495.7
Total		45,464.7		16,998.3		11,748.9		5,856.3		80,068.3		80,029.4

(1)

Microcredit loans are issued for the purpose of encouraging the activities of small businesses and are subject to the following requirements: the maximum amount to be lent is equal to 25 times the minimum wage (salario mínimo mensual legal vigente) without the balance of one single borrower exceeding such amount at any time, and the main source of payment for the corresponding obligation shall be the revenues obtained from the activities of the borrower’s micro business. The borrower’s outstanding indebtedness may not exceed 120 times the minimum wage.

(2)	Reflects aggregated amounts of our banking subsidiaries.

(3)	Includes eliminations for intercompany or intra-group operations between Grupo Aval subsidiaries.

(4)	Reflects Banco de Bogotá consolidated figures which include BAC Credomatic’s operations.

As of December 31, 2012, the aggregate outstanding loans to our banks’ ten largest borrowers, our 11th to 50th largest borrowers and our 51st to 160th largest borrowers, represented 5.9%, 8.1% and 9.0%, respectively, of our consolidated total loan portfolio.

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Commercial loans

Our commercial loan portfolio consists of general purpose loans (loans with a maturity of over one year), working capital loans (loans with a maturity of up to one year), loans funded by development banks, corporate credit cards and overdraft loans. Loans funded by development banks are loans granted to customers and focused on specific economic sectors and are funded by national or international government or government-related institutions.

The following table presents our commercial loan portfolio at December 31, 2012.

	At December 31, 2012
	Grupo Aval entities
	Banco de Bogotá (3)		Banco de Occidente		Banco Popular		Banco AV Villas		Aggregate (1)(3)		Grupo Aval consolidated (2)(3)
	(in Ps billions)
General purpose loans		19,604.3		6,836.7		3,698.4		2,138.1		32,277.5		32,256.9
Loans funded by development banks		839.6		299.8		448.1		74.3		1,661.9		1,661.9
Working capital loans		7,924.1		2,241.4		943.4		–		11,108.9		11,108.9
Credit cards		188.9		49.7		2.1		1.8		242.6		242.6
Overdrafts		165.0		59.8		9.4		9.8		244.0		244.0
Total		28,721.9		9,487.5		5,101.4		2,224.0		45,534.8		45,514.2

(1)	Reflects aggregated amounts of our banking subsidiaries.

(2)	Includes eliminations for intercompany or intra-group operations between Grupo Aval subsidiaries.

(3)	Reflects Banco de Bogotá consolidated figures which include BAC Credomatic’s operations.

Consumer loans

Our consumer loan portfolio consists of personal loans, automobile and other vehicle loans, credit cards, overdrafts, loans funded by development banks and general purpose loans. Our personal loans consist primarily of payroll loans. A payroll loan is a short- or medium-term loan, where payments are deducted directly from an employer’s salary.

The following table presents our consumer loan portfolio at December 31, 2012.

	At December 31, 2012
	Grupo Aval entities
	Banco de Bogotá (4)		Banco de Occidente		Banco Popular		Banco AV Villas		Aggregate (1)(4)		Grupo Aval Consolidated (2)(4)
	(in Ps billions)
Personal loans		4,857.5		1,469.9		6,121.3		2,511.3		14,960.1		14,960.1
Automobile and other vehicle loans		1,517.3		1,286.8		20.6		3.3		2,828.1		2,828.1
Credit cards		4,423.5		572.4		68.6		292.0		5,356.6		5,356.6
Overdrafts		62.3		10.7		1.2		1.8		76.0		76.0
Loans funded by development banks		–		–		0.2		–		0.2		0.2
General purpose loans		–		152.6		5.3		–		157.9		157.9
Working capital loans		1.4		–		–		–		1.4		1.4
Total (3)		10,862.0		3,492.5		6,217.3		2,808.5		23,380.2		23,380.2

(1)	Reflects aggregated amounts of our banking subsidiaries.

(2)	Includes eliminations for intercompany or intra-group operations between Grupo Aval subsidiaries.

(3)	Includes microcredit loans.

(4)	Reflects Banco de Bogotá consolidated figures, which include BAC Credomatic’s operations.

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Mortgages

Banco AV Villas is our principal provider of loans to customers for the purchase of real estate secured by mortgages, and Banco de Bogotá is gradually entering this business. We have implemented strict underwriting standards: we do not offer mortgage loans in amounts greater than 70% of the value of the property to be purchased, and all of our mortgage loans have maturities of between five and fifteen years. The average maturity at December 31, 2012 was 128 months. Borrowers must also meet certain minimum income levels, and payments may not exceed 30% of the borrower’s monthly income. As a result, our average loan-to-value ratio was 41.8% at December 31, 2012.

Financial leases

Pursuant to Law 1328 of 2009, also referred to as the “financial reform law,” commercial banks are permitted to offer leasing products. In 2010, to take advantage of our banks’ lower cost of funding, wider distribution network and centralized administration, we merged the majority of our leasing subsidiaries with our banks. Prior to 2010, our banks offered leasing products through independent subsidiaries.

The following table presents our leasing portfolio at December 31, 2012.

	At December 31, 2012
	Grupo Aval entities
	Banco de Bogotá		Banco de Occidente		Banco Popular		Banco AV Villas		Aggregate (1) (3)		Grupo Aval consolidated (2) (3)
	(in Ps billions)
Commercial leases		2,105.5		4,006.8		307.6		–		6,419.9		6,401.5
Consumer leases		69.7		9.8		14.7		–		94.2		94.2
Total		2,175.2		4,016.6		322.2		–		6,514.0		6,495.7

(1)	Reflects aggregated amounts of our banking subsidiaries.

(2)	Includes eliminations for intercompany or intra-group operations between Grupo Aval subsidiaries.

(3)	Reflects Banco de Bogotá consolidated figures which include BAC Credomatic’s operations.

Credit cards

We provide credit card services to our bank customers in Colombia through the Visa and MasterCard networks. The following table presents the number of active issued credit cards of our banks in Colombia at December 31, 2012.

	Active issued credit cards
Bank	December 31, 2012
Banco de Bogotá		673,810
Banco de Occidente		433,771
Banco Popular		61,666
Banco AV Villas		272,528
Total Colombian active issued credit cards (1)		1,441,775

(1)	BAC Credomatic had approximately 1,170,000 credit card accounts in Central America at December 31, 2012. See “―BAC Credomatic operations―Lending activities― Credit cards.”

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Deposit-taking activities

Deposits

Our banks offer traditional deposit services and products, including checking accounts, savings accounts, time deposits and other deposits. Checking accounts typically bear very low or no interest. Checking accounts and savings accounts are payable on demand, although a significant portion of these accounts tend to be stable in amount over time. Time deposits typically have a maturity up to 12 months and earn interest at a fixed rate.

The following table presents our deposits by product type at the dates indicated.

	At December 31,
	Banco de Bogotá				Banco de Occidente				Banco Popular				Banco AV Villas				Aggregate (1)				Consolidated (3) (4)
	2012		2011		2012		2011		2012		2011		2012		2011		2012		2011		2012		2011
	(in Ps billions)
Checking accounts		13,112.6		12,510.6		4,819.6		4,897.7		1,518.7		1,493.3		680.8		535.2		20,131.7		19,436.8		20,102.4		19,417.8
Savings accounts		18,794.7		14,805.4		6,450.8		5,729.0		5,910.9		5,751.2		3,706.5		3,286.0		34,862.9		29,571.6		33,545.9		27,912.0
Time deposits (CDs)		18,557.4		15,450.3		4,652.2		3,002.7		1,922.2		1,916.5		2,338.7		2,279.5		27,470.5		22,649.0		26,865.0		22,630.5
Other deposits		557.0		600.2		248.9		291.1		84.7		94.3		59.5		61.8		950.2		1,047.4		950.0		1,047.4
Total (2)		51,021.7		43,366.5		16,171.6		13,920.5		9,436.6		9,255.3		6,785.4		6,162.5		83,415.3		72,704.8		81,463.3		71,007.6

(1)	Reflects aggregated amounts of our banking subsidiaries.

(2)	Interbank deposits have been excluded.

(3)	Includes eliminations for intercompany or intra-group operations between Grupo Aval subsidiaries.

(4)	Reflects Banco de Bogotá consolidated figures which include BAC Credomatic’s operations.

Treasury operations

Our banks’ treasury departments are responsible for managing their proprietary trading activities, liquidity and distribution of treasury services and products to customers and are focused on fixed-income securities, foreign exchange transactions and derivatives. Our banks’ proprietary trading activities include fixed income trading, derivatives and foreign exchange operations. We do not have any proprietary trading activities in equities and each of our banks have implemented trading activities policies. Our banks also accept deposits from financial institutions as part of their treasury operations. These deposits are represented by certificates of interbank deposit, or “CDIs,” and earn interest at the interbank deposit rate. Banco de Bogotá and Banco de Occidente have active treasury operations, while Banco Popular and Banco AV Villas have small treasury operations.

Distribution

Our banks provide services and products to their customers through our network. Each of our banks manages its own distribution network. In 1998, we created the Red de Grupo Aval (Grupo Aval network) which allows customers of any of our banks to make transfers, payments and undertake other basic banking functions in the networks of our other banks, through traditional channels and electronic networks, with results posting in real time to the accountholder’s bank with no additional fees. Red de Grupo Aval (Grupo Aval network) services vary for each channel.

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The following chart shows the distribution channels of our network.

Distribution channel		Description
Full-service branches		We had 1,317 full-service branches at December 31, 2012. Red de Grupo Aval (Grupo Aval network) service points across our banks allow our bank customers to perform check cashing, deposits, savings account withdrawals, loan and credit card payments, transfers and advances at any of our branches.

ATMs and electronic service points		We had 3,086 ATMs and 404 other electronic service points (non-cash dispensing teller machines) at December 31, 2012. Through our ATMs and electronic service points, all of our bank customers can, among other services, consult their balances, execute loan and credit card payments, transfers and advances, and pay for certain third-party services where we have a payment collection agreement in place (such as utility service companies).

Payment collection centers (Centros de pagos)		We had 105 payment collection centers at December 31, 2012, which allow our customers to pay for certain third-party services where we have a payment collection agreement in place (such as utility service companies).

Banking correspondents (Corresponsales bancarios)		We had 15,004 banking correspondents at December 31, 2012. Our banks enter into agreements with various third parties, including convenience store owners, to provide all of our bank customers with certain services which can include checking and savings account withdrawals, account balance consultation, loan and credit card payments, transfers and advances, and payments for certain third-party services where we have a payment collection agreement in place with such third-party (such as utility service companies).

Automated telephone banking, mobile banking and online banking		Through our banks’ websites, mobile banking services and automated telephone banking, customers may pay loan and credit card balances, make transfers between accounts and make payments for collection agreements originated in any of our banks. In addition, for customers who have bank accounts with one or more of our banks, our website (www.grupoaval.com) allows for simultaneous consultation of balances and transactions from a single portal.

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The following map presents our banks’ points of service across the principal regions of Colombia, at December 31, 2011 and 2012.

Source: Grupo Aval

Note: Other points of service include banking correspondents including our Red Cerca operations, (corresponsales bancarios) or “CBs,” electronic service points (agilizadores electrónicos) and payment collection centers (centros de pago). The increase in total points of service from 2010 to 2011 was due to an increase of our Red Cerca operations.

The following table presents transaction volumes through our branches and ATMs at December 31, 2012 and 2011.

	Transactions				% of total transactions
	At December 31,				At December 31,
Grupo Aval	2012		2011		2012		2011
	(in thousands)
Branches		261,732		252,853		34.6		36.1
ATMs		140,554		136,157		18.6		19.4
Other		58,706		40,557		7.8		5.8
Total service points		460,992		429,567		60.9		61.4

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In addition, the following table presents transaction volumes for online banking, mobile banking and automated telephone banking channels which, pursuant to our growth strategy, are expected to grow on an annual basis relative to total transactions, at December 31, 2012 and 2011.

	Transactions				% of total transactions
	At December 31,				At December 31,
Grupo Aval	2012		2011		2012		2011
	(in thousands)
Online banking		277,933		248,021		36.7		35.4
Mobile banking		4,912		9,058		0.6		1.3
Automated telephone banking		13,395		13,525		1.8		1.9
Total		296,240		270,604		39.1		38.6

In 2012, a total of 27.2 million messages were sent through our mobile phone banking system, an increase of approximately 19.1% as compared to 22.8 million messages in 2011.

Our call centers provide our customers with assistance relating to bank services and products, information updates, service-related complaints, payment or account linkages, and credit card blockage. Our call centers are also used for telemarketing, collection of past-due loans and customer loyalty initiatives. In 2012, the number of inbound calls to our call centers was 9.4 million and the number of outbound calls was 29.6 million. In 2011, the number of inbound calls to our call centers was 7.3 million and the number of outbound calls was 24.6 million.

Banco de Bogotá

Banco de Bogotá is Colombia’s oldest financial institution and the second largest bank in the country based on net income, with a market share of 15.1% of deposits and 13.5% of loans at December 31, 2012.

At and for the year ended December 31, 2012, Banco de Bogotá had total assets of Ps 80,506.4 billion and net income of Ps 1,326.0 billion.

Banco de Bogotá is a full-service bank with nationwide coverage and a comprehensive portfolio of services and products, distributed through a network of 638 branches and 1,289 ATMs in Colombia at December 31, 2012. While Banco de Bogotá serves all market segments, it has a leading presence in commercial loans historically, with a particular focus on large corporations and a market share of 18.5% of commercial loans at December 31, 2012. Following its 2006 acquisition of Megabanco, Banco de Bogotá expanded its consumer banking business and now has a market share of 9.3% of consumer loans as of December 31, 2012. Banco de Bogotá’s ROAE of 18.1% and efficiency ratio of 49.6% for the year ended December 31, 2012 make it one of the most profitable and efficient banks in Colombia.

Ownership

The following table presents the share ownership structure of Banco de Bogotá at December 31, 2012.

	Banco de Bogotá ownership
	(in percentages)
Grupo Aval		64.4
Mr. Sarmiento Angulo (additional beneficial ownership)		9.6
Subtotal		74.0
Other investors (1)		13.3
General public		12.7
Total		100.0

(1)	Based on publicly available information, we have identified a group of investors who have maintained ownership of record of at least one percent in Banco de Bogotá over a significant period of time.

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History

Founded in 1870, Banco de Bogotá is the oldest and second largest financial institution in Colombia. In 1922, it opened its first branch outside of Bogotá. Throughout the 1920s, Banco de Bogotá’s network outside Bogotá expanded, due in part to a series of acquisitions. In 1967, Banco de Bogotá opened its first office in Panama; in 1974, it opened a branch office in New York City; and in 1977, it founded Banco de Bogotá Trust Company (subsequently sold). In 1980, Banco de Bogotá Trust Company established Banco de Bogotá International Corporation, an affiliate in Miami, Florida. The New York City branch office and the Miami affiliate were subsequently converted into agencies. Banco de Bogotá was reorganized in 1988 following the acquisition of a majority ownership interest by Mr. Sarmiento Angulo, Grupo Aval’s chairman and majority shareholder, earlier that year. Porvenir was formed in 1991 and began its operations as a severance fund manager. In 1992, Banco de Bogotá completed a merger with Bancomercio. In 1998, Mr. Sarmiento Angulo contributed a majority of his Banco de Bogotá ownership interest to Grupo Aval. In 2006, Banco de Bogotá acquired and merged with Megabanco, which expanded its services for lower income consumers. In May 2010, Banco de Bogotá completed the merger of its wholly-owned subsidiary, Leasing Bogotá, which allows it to perform leasing operations. In December 2010, Banco de Bogotá acquired BAC Credomatic. In December 2011, Banco de Bogotá completed its first international bond offering raising U.S.$600 million. In February 2013, Banco de Bogotá completed its second international bond offering raising U.S.$500 million.

Corficolombiana was founded in 1959 as an affiliate of Banco de Bogotá. Since 1997, it has acquired and merged with seven financial institutions in Colombia. In 2005, Corficolombiana completed its most recent merger, with Corfivalle, which resulted in Corficolombiana becoming the largest financial corporation in the country based on total assets. Following this merger, Corficolombiana transferred its loan portfolio to Banco de Bogotá to focus on its investment business.

As part of the government’s public auction of Megabanco, on June 21, 2006, Megabanco and FOGAFIN entered into an assumption of legal contingencies agreement, whereby FOGAFIN committed to assume up to 80% of the losses and expenses derived from legal contingencies against Megabanco, related to matters arising prior to the date of acquisition or discovered within 24 months of the acquisition of Megabanco. The guarantees will be effective up to the date in which all the covered legal contingencies conclude.

Business overview and operations

In addition to deposits and loans, Banco de Bogotá offers its enterprise customers a broad range of services and products focused on cash management, collection solutions and payment solutions, namely tax and customs services, consignment services, online and bar code collection, web services, credit card collection, electronic collection, automatic debit, third-party electronic payments, programmed service payments, social security payments and prepaid cards. Banco de Bogotá also performs various services in connection with customers’ import/export activities, including general purpose loans, foreign exchange services, documentation services and guarantees. For individual customers, it offers general purpose loans, auto financing, payroll loans, credit cards and different deposit and basic treasury products.

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The following chart presents Banco de Bogotá’s principal subsidiaries as of December 31, 2012.

Source: Banco de Bogotá data at December 31, 2012.

(1)	The remaining shares of Casa de Bolsa S.A. Sociedad Comisionista de Bolsa, or “Casa de Bolsa,” are held 38.9% by Corficolombiana, 7.9% by Banco de Occidente, 25.8% by Banco Popular, 3.1% by other related individuals or entities and 1.5% by other shareholders.

(2)

The ownership in Porvenir includes the shares that Banco de Bogota owns directly (35.3%) and indirectly through Fiduciaria Bogotá S.A., or “Fidubogotá,” a subsidiary of Banco de Bogotá (11.6%). The remaining shares of Porvenir are held by Grupo Aval (20.0%) and Banco de Occidente and its subsidiaries (33.1%).

(3)

The remaining shares of Corficolombiana are 19.1% owned by Grupo Aval entities, 0.9% by funds managed by Porvenir, 11.3% by other investors who have maintained ownership of record of at least one percent in Corficolombiana over a significant period of time, 30.5% by the general public, and 0.3% beneficially owned by Mr. Sarmiento Angulo.

Enterprise customers

Banco de Bogotá’s enterprise customers are classified as follows: very large corporations, with annual incomes in excess of Ps 50 billion; large corporations, with annual incomes of between Ps 8 billion and Ps 50 billion; public sector customers and cooperative institutions; small- and medium-size enterprises, with revenues of between Ps 0.5 billion and Ps 8 billion; and very small businesses, with revenues under Ps 0.5 billion. Banco de Bogotá’s primary focus is on very large corporations, large corporations, public sector customers and cooperative institutions, which represented 54.1% of its total loan portfolio at December 31, 2012 on an unconsolidated basis.

At December 31, 2012, Banco de Bogotá had a total of approximately 190,700 enterprise customers, an increase of 24.2% over the approximately 153,600 enterprise customers at December 31, 2011 on an unconsolidated basis. The following table presents the number of Banco de Bogotá’s enterprise customers at the dates indicated on an unconsolidated basis.

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	Grupo Aval consolidated excluding LB Panama												LB Panama (1)
	Year ended December 31,						Change, 2011 vs. 2010						Year ended December 31,					Change, 2011 vs. 2010
	2011			2010				#		%				2011		2010			#
	(in Ps billions)												(in Ps billions)
Fees and other services income:
Commissions from banking services		873.8			878.0			(4.2	)		(0.5	)		416.2		37.9			378.3
Branch network services		35.0			22.2			12.8			57.9			–		–			–
Credit card merchant fees		146.9			147.0			(0.0	)		(0.0	)		173.4		18.6			154.8
Checking fees		74.4			69.5			4.8			7.0			–		–			–
Warehouse services		175.0			147.5			27.5			18.7			–		–			–
Fiduciary activities		149.9			146.9			3.0			2.1			–		–			–
Pension plan administration		448.4			409.9			38.4			9.4			9.8		–			9.8
Other		115.0			97.6			17.4			17.9			55.0		5.7			49.3
Total fees and other services income		2,018.4			1,918.6			99.8			5.2			654.4		62.3			592.1
Fees and other services expenses		(383.4	)		(355.9	)		27.4			7.7			(55.0	)	(7.2	)		47.8
Total fees and other services income, net		1,635.0			1,562.7			72.4			4.6			599.3		55.1			544.3

(1)

LB Panama’s financial information is prepared in accordance with Colombian Banking GAAP and primarily reflects BAC Credomatic’s consolidated results, which are consolidated in LB Panama’s results from December 1, 2010. At December 31, 2011, LB Panama had Ps 2,017.3 billion of goodwill associated with the BAC Credomatic acquisition and Ps 524.5 billion of indebtedness that it incurred to finance, in part, the BAC Credomatic acquisition. Goodwill amortization and interest expense associated with the BAC Credomatic acquisition for the year ended December 31, 2011 were Ps 49.1 billion and Ps 19.4 billion, respectively.

Total fees and other services income, net increased by 38.1% to Ps 2,234.4 billion for the year ended December 31, 2011. Total fees and other services income increased by Ps 691.1 billion to Ps 2,672.8 billion, while fees and other services expenses increased by Ps 75.2 billion to Ps 438.4 billion. Of the total fees and other service income, net our operations excluding LB Panama contributed Ps 1,635.0 billion (reflecting an increase of Ps 72.4 billion or 4.6% from Ps 1,562.7 billion in 2010), and LB Panama contributed Ps 599.3 billion.

In our operations excluding LB Panama gross total fees and other services income increased by Ps 99.8 billion or 5.2% to Ps 2,018.4 billion, while fees and other services expenses increased by Ps 27.4 billion or 7.7% to Ps 383.4 billion for the year ended December 31, 2011. The main drivers of the increase in fee and other services income were (1) an increase of Ps 38.4 billion or 9.4% to Ps 448.4 billion in 2011 in fees from the pension plan administration (for further detail see Porvenir 2011-2010 results of operations discussion), (2) an increase in warehouse services of Ps 27.5 billion or 18.7% to Ps 175.0 billion in 2011 from Almaviva and Alpopular, (3) an increase in Others of Ps 17.4 billion or 17.9% to 115.0 billion (of which Ps 10.8 billion correspond to Banco AV Villas) and (4) an increase of 12.8 billion or 57.9% in branch network services.

LB Panama accounted for Ps 416.2 billion in income from commissions from banking services, Ps 173.4 billion in income from credit card merchant fees, Ps 55.0 billion in “Other” fee income and Ps 55.0 billion in fees and other services expenses, each for the year ended December 31, 2011.

Other operating income

	Year ended December 31,					Change, 2011 vs. 2010
	2011			2010			#		%
	(in Ps billions)
Foreign exchange gains (losses), net		206.4			49.5		156.9			316.9
Gains (losses) on derivative operations, net		(18.8	)		92.9		(111.7	)		(120.3	)
Gains on sales of investments in equity securities, net		41.9			87.5		(45.6	)		(52.1	)
Income from non-financial sector, net(1)		441.7			294.8		146.9			49.8
Dividend income		78.9			43.5		35.4			81.3
Other		208.0			217.4		(9.4	)		(4.3	)
Total other operating income		958.0			785.5		172.5			22.0

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	Grupo Aval consolidated excluding LB Panama											LB Panama (2)
	Year ended December 31,					Change, 2011 vs. 2010						Year ended December 31,					Change, 2011 vs. 2010
	2011			2010			#		%				2011		2010			#
	(in Ps billions)											(in Ps billions)
Foreign exchange gains (losses), net		105.6			34.2		71.4			208.6			100.9		15.3			85.5
Gains on derivative operations, net		(14.3	)		90.9		(105.1	)		(115.7	)		(4.6	)	2.0			(6.6	)
Gains on sales of investments in equity securities, net		41.9			87.5		(45.6	)		(52.1	)		–		(0.0	)		0.0
Income from non-financial sector, net(1)		441.7			294.8		146.9			49.8			–		–			–
Dividend income		78.9			43.5		35.4			81.3			–		–			–
Other		207.8			217.3		(9.6	)		(4.4	)		0.2		0.0			0.2
Other operating income		861.5			768.2		93.3			12.1			96.5		17.3			79.2

(1)

Income from non-financial sector reflects the operating results of Corficolombiana ( Banco de Bogotá’s subsidiary) in its consolidated investments in companies not related to the financial sector such as Epiandes, Hoteles Estelar and Organización Pajonales, among others. This result is net of the following operating and administrative expenses in the year ended December 31, 2011 and 2010: Ps 852.7 billion and Ps 644.3 billion, respectively. For a description of these investments, see “Item 4. Information on the Company—B. Business overview—Corficolombiana—Equity investment portfolio.”

(2)

Total other operating income increased by 22.0% to Ps 958.0 billion for the year ended December 31, 2011. Our operations excluding LB Panama contributed Ps 861.5 billion (showing an increase of Ps 93.3 billion or 12.1% versus the results in 2010) and LB Panama contributed Ps 96.5 billion.

The increase (including LB Panama) was primarily due to Ps 146.9 billion increase in income from non-financial sector investments attributable to better operating results of Epiandes, Episol, Pisa, Unipalma and Hoteles Estelar, whose results are consolidated in Corficolombiana’s financial statements, a Ps 35.4 billion or 81.3% increase in dividend income which primarily reflects dividend income from Promigas, a non-consolidated company of Corficolombiana which in 2010 was classified as “trading” and thus its dividend income was registered as interest income from investment securities, and a Ps 45.2 billion or 31.7% increase in net foreign exchange and derivative operations.

The increase in net foreign exchange and derivative operations was mainly due to a Ps 156.9 billion increase in net foreign exchange gains, as a result of the volatility of the Colombian peso - U.S. dollar exchange rate (“Item 3. Key Information—A. Selected financial data—Exchange rates”). This was partially offset by the Ps 111.7 billion decrease in gains on derivative operations (primarily forward contracts in foreign currency). In the ordinary course of business, we enter into forward contracts and other derivative transactions in foreign currency through our treasury departments almost entirely for hedging purposes and on behalf of clients.

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Operating expenses

	Year ended December 31,						Change, 2011 vs. 2010
	2011			2010				#	%
	(in Ps billions)
Salaries and employee benefits		(1,773.7	)		(1,262.4	)		511.3		40.5
Bonus plan payments		(104.5	)		(45.1	)		59.4		131.5
Termination payments		(23.9	)		(11.6	)		12.3		106.3
Administrative and other expenses		(2,476.8	)		(1,817.1	)		659.7		36.3
Deposit security, net		(162.8	)		(133.1	)		29.7		22.3
Charitable and other donation expenses		(21.9	)		(7.2	)		14.8		204.9
Depreciation		(276.7	)		(214.8	)		61.9		28.8
Goodwill amortization		(92.6	)		(28.6	)		64.0		223.7
Total operating expenses		(4,932.9	)		(3,520.0	)		1,413.0		40.1

	Grupo Aval consolidated excluding LB Panama												LB Panama (1)
	Year ended December 31,						Change, 2011 vs. 2010						Year ended December 31,					Change, 2011 vs. 2010
	2011			2010				#		%				2011		2010			#
	(in Ps billions)												(in Ps billions)
Salaries and employee benefits		(1,322.7	)		(1,226.7	)		96.0			7.8			(451.0	)	(35.7	)		415.3
Bonus plan payments		(50.6	)		(42.3	)		8.3			19.6			(53.9	)	(2.9	)		51.1
Termination payments		(6.6	)		(7.7	)		(1.0	)		(13.6	)		(17.3	)	(3.9	)		13.4
Administrative and other expenses		(1,986.0	)		(1,753.8	)		232.3			13.2			(490.7	)	(63.3	)		427.4
Deposit security, net		(154.2	)		(132.4	)		21.8			16.5			(8.6	)	(0.7	)		7.8
Charitable and other donation expenses		(20.2	)		(7.0	)		13.3			190.7			(1.7	)	(0.2	)		1.5
Depreciation		(219.8	)		(210.4	)		9.4			4.5			(56.9	)	(4.4	)		52.5
Goodwill amortization		(38.3	)		(25.8	)		12.5			48.4			(54.4	)	(2.8	)		51.5
Total operating expenses		(3,798.4	)		(3,406.0	)		392.5			11.5			(1,134.5	)	(114.0	)		1,020.5

(1)

Total operating expenses for the year ended December 31, 2011 increased by 40.1%, or Ps 1,413.0 billion, to Ps 4,932.9 billion. Our operations excluding LB Panama contributed Ps 3,798.4 billion (reflecting an increase of Ps 392.5 billion or 11.5% as compared to the year ended December 31, 2010) and LB Panama’s operations contributed Ps 1,134.5 billion, to total operating expenses for the year ended December 31, 2011.

In our operations excluding LB Panama, total operating expenses increased primarily due to a Ps 232.3 billion or 13.2% rise in administrative and other expenses to Ps 1,986.0 billion and a Ps 96.0 billion or 7.8% increase in salaries and employee benefits to Ps 1,322.7 billion.

The increase in administrative and other expenses in our operations excluding LB Panama was mainly driven by the increase in the Equity Tax paid by Grupo Aval and its subsidiaries. In 2011, the Equity Tax was levied on each entity based on its adjusted net worth as of January 1, 2011, while in 2010, the Equity Tax was calculated based on each entity’s adjusted net worth as of December 31, 2006. The tax rate applicable to Grupo Aval and its subsidiaries for 2011 was 4.8% of each entity’s net worth. In addition, in December 2010 the Colombian Government enacted Decree No. 4825, creating an additional surcharge to the Equity Tax in order to fund certain costs that resulted from natural disasters in Colombia. The surcharge rate applicable to Grupo Aval and its subsidiaries is an additional 1.2%, resulting in an aggregate rate of 6.0%. This tax (including the surcharge) is payable in four separate

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installments commencing in May 2011 through to May 2014 (4 yearly payments of 1.5% of the adjusted net worth at January 1, 2011 per entity). See “—Principal factors affecting our financial condition and results of operations—Tax policies.” On a consolidated basis, Grupo Aval accrued a liability of Ps 783.4 billion as of January 1, 2011 for the payment of the Equity Tax and as of December 31, 2011, such liability had decreased to Ps 587.5 billion, reflecting the payment of the first installment. (See “—Principal factors affecting our financial condition and results of operations—Tax policies.”).

Salaries and employee benefits in our operations excluding LB Panama increased 7.8% during 2011. They customarily increase on a yearly basis using as basis the previous year’s Consumer Price Index (CPI), which was 3.2% in 2010. Total Colombian headcount increased by 3.3% from 37,710 at December 31, 2010 to 38,965 at December 31, 2011, and on a per capita basis salary and employee benefits increased by 4.4%.

Because our total operating expenses before depreciation and amortization grew at 39.3%, while our operating income before provisions increased by 23.2% (both including LB Panama), our efficiency ratio deteriorated at December 31, 2011 compared to December 31, 2010 from 46.6% to 52.7% at December 31, 2011. The efficiency ratio of our operations excluding LB Panama deteriorated from 46.1% to 51.4% while LB Panama’s efficiency ratio at December 31, 2011 was 57.6%. The deterioration in our efficiency ratio was associated with the contraction in the net interest margin explained in the net interest income subsection. The ratio of operating expenses before depreciation and amortization as a percentage of average earning assets excluding LB Panama was 5.0% for both 2010 and 2011.

Non-operating income (expense)

Total net non-operating income (expense) for the year ended December 31, 2011 was Ps 196.2 billion, which represents a Ps 19.3 billion or 10.9% increase from total net non-operating income of Ps 176.9 billion for the year ended December 31, 2010. This increase was primarily due to a one-time income caused by the difference between the conversion price of Banco de Bogota’s BOCEAS and the intrinsic value of Banco de Bogotá’s shares in Grupo Aval’s financial statements, which was responsible for generating Ps 43.5 billion of income, partially offset by Ps 25.4 billion decrease in reversals associated with LB Panama (further explained in “—Segment results of operations for the year ended December 31, 2011 compared to the year ended December 31, 2010—Banco de Bogotá subsidiary analysis—LB Panama”).

Income tax expense

Income before income tax expense and non-controlling interest, including LB Panama, increased by Ps 846.1 billion or 31.8% from Ps 2,662.1 billion for the year ended December 31, 2010 to Ps 3,508.0 billion for the year ended December 31, 2011. Our income tax expense increased by 36.8% to Ps 1,136.7 billion for the year ended December 31, 2011. Our effective tax rate increased from 31.2% for the year ended December 31, 2010 to 32.4% for the year ended December 31, 2011 due to higher non-tax deductible expenses such as Equity Tax.

Non-controlling interest

Income before non-controlling interest increased by 29.5% from Ps 1,831.1 billion for the year ended December 31, 2010 to Ps 2,371.5 billion in for the same period in 2011, and the value of our non-controlling interest increased by 23.6% to Ps 1,080.2 billion for the year ended December 31, 2011. Factors such as the acquisition of BAC and the increase of Grupo Aval’s ownership in Banco Popular during 2011 were responsible for decreasing the ratio of our non-controlling interest over income before non-controlling interest from 47.7% to 45.6% between December 31, 2010 and December 31, 2011.

Segment results of operations for the year ended December 31, 2012 compared to the year ended December 31, 2011

Banco de Bogotá

Overview

Banco de Bogotá’s net income attributable to its shareholders in the year ended December 31, 2012 increased by 15.7%, or Ps 180.3 billion, to Ps 1,326.0 billion compared to the year ended December 31, 2011. This increase

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reflects an increase of Ps 573.0 billion in net interest income, an increase of Ps 246.5 billion in total non-operating income, an increase of Ps 126.9 billion in total net fees and other service income, and a decrease of Ps 104.6 billion in non-controlling interest. These increases were offset in part by an increase of Ps 376.0 billion in total net provisions (mainly related to lower net reversals by Corficolombiana with respect to its equity investments during 2012), a Ps 230.7 billion increase in total operating expenses, a Ps 182.1 billion increase in income tax expense, and a decrease of Ps 81.8 billion in total other operating income.

The following discussion describes the principal drivers of Banco de Bogotá’s consolidated results of operations for the year ended December 31, 2012 versus the year ended December 31, 2011. Further detail is provided in the discussion of the results of operations of LB Panamá, Porvenir and Corficolombiana.

	Banco de Bogotá consolidated
	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#		%
	(in Ps billions)
Total interest income		5,698.5			4,395.9			1,302.6			29.6
Total interest expense		(2,188.8	)		(1,459.2	)		729.6			50.0
Net interest income		3,509.7			2,936.7			573.0			19.5
Total (provisions)/reversals, net		(515.1	)		(139.0	)		376.0			270.4
Total fees and other services income, net		1,883.7			1,756.8			126.9			7.2
Total other operating income		676.3			758.1			(81.8	)		(10.8	)
Total operating income		5,554.6			5,312.6			242.0			4.6
Total operating expenses		(3,198.6	)		(2,968.0	)		230.7			7.8
Net operating income		2,356.0			2,344.6			11.4			0.5
Total non-operating income (expense), net		314.9			68.5			246.5			359.8
Income before income tax expense and non-controlling interest		2,670.9			2,413.1			257.8			10.7
Income tax expense		(919.3	)		(737.2	)		182.1			24.7
Income before non-controlling interest		1,751.6			1,675.9			75.7			4.5
Non-controlling interest		(425.6	)		(530.2	)		(104.6	)		(19.7	)
Net income attributable to shareholders		1,326.0			1,145.7			180.3			15.7

Net interest income

	Year ended December 31,				Change, December 2012 vs. December 2011
	2012		2011			#	%
	(in Ps billions)
Interest income:
Interest on loans		4,503.6		3,618.6		885.1		24.5
Interest on investment securities		850.9		552.2		298.7		54.1
Interbank and overnight funds		138.4		98.2		40.3		41.0
Financial leases		205.5		127.0		78.5		61.8
Total interest income		5,698.5		4,395.9		1,302.6		29.6

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	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#	%
	(in Ps billions)
Interest expense:
Checking accounts		(123.3	)		(66.0	)		57.2		86.7
Time deposits		(935.7	)		(571.7	)		363.9		63.7
Savings deposits		(572.5	)		(421.7	)		150.8		35.8
Total interest expense from deposits		(1,631.4	)		(1,059.4	)		572.0		54.0
Borrowing from banks and others		(262.7	)		(204.0	)		58.7		28.8
Interbank and overnight funds (expenses)		(170.2	)		(111.1	)		59.1		53.2
Long-term debt (bonds)		(124.4	)		(84.6	)		39.8		47.0
Total interest expense		(2,188.8	)		(1,459.2	)		729.6		50.0
Net interest income		3,509.7			2,936.7			573.0		19.5

Banco de Bogotá’s net interest income increased by 19.5% from Ps 2,936.7 billion in the year ended December 31, 2011 to Ps 3,509.7 billion in the year ended December 31, 2012. This increase is due to a 29.6% or Ps 1,302.6 billion increase in total interest income partially offset by an increase of 50.0%, or Ps 729.6 billion, in total interest expense.

Total interest income increased by 29.6%, or Ps 1,302.6 billion, from Ps 4,395.9 billion in the year ended December 31, 2011 to Ps 5,698.5 billion in year ended December 31, 2012, due to (i) an increase in interest income from loans and financial leases, which rose by Ps 963.6 billion to Ps 4,709.2 billion in the year ended December 31, 2012; (ii) an increase in interest income from investment securities of Ps 298.7 billion to Ps 850.9 billion, and (iii) an increase in interest income from interbank and overnight funds of Ps 40.3 billion to Ps 138.4 billion.

The increase in interest income from loans and financial leases of Ps 963.6 billion was a result of an increase of Ps 5,998.1 billion, or 16.9%, in the average balance of interest earning loans and financial leases from Ps 35,483.1 billion as of December 31, 2011 to Ps 41,481.2 billion as of December 31, 2012, which resulted in an increase of Ps 681.7 billion in interest income. The balance of commercial loans and consumer loans increased by Ps 3,287.5 billion, or 12.9%, and Ps 1,579.9 billion, or 17.0%, respectively. The remaining Ps 281.9 billion of increase in interest income from loans and financial leases was a result of a higher average yield on loans and financial leases, which increased from 10.6% for the year ended December 31, 2011 to 11.4% for the year ended December 31, 2012. Banco de Bogotá’s average yield on loans and financial leases excluding LB Panamá’s operation increased from 9.4% for the year ended December 31, 2011 to 10.8% for the year ended December 31, 2012, in line with an increasing interest-rate environment where the average DTF rate increased by 115 basis points from 4.21% for the year ended December 31, 2011 to 5.35% for the year ended December 31, 2012. The average yield on loans and financial leases for LB Panama’s operation decreased from 13.4% for the year ended December 31, 2011 to 12.9% for the year ended December 31, 2012, this decrease was the result of a change in the mix in the loan and financial lease portfolio from 2011 to 2012 (further explained in “—Banco de Bogotá subsidiary analysis—LB Panama—Net interest income”). The increase in interest income from investment securities of Ps 298.7 billion, or 54.1%, to Ps 850.9 billion was a result of an increase in the average yield from 4.7% to 6.0% and of a 20.9%, or Ps 2,447.7 billion, increase in the average volume of investment securities from Ps 11,704.1 billion for the year ended December 31, 2011 to Ps 14,151.8 billion for the year ended December 31, 2012. The increase in yield contributed Ps 154.7 billion and the increase in the average volume contributed Ps 144.0 billion to the total increase in interest income investment securities.

Interest income derived from the fixed income portfolio of Banco de Bogotá’s operations increased by 41.8%, or Ps 223.7 billion, driven by both an increase in the average balance and an increase in the average yield of the fixed income investment portfolio. Interest income from equity investments from Banco de Bogotá’s operations increased by Ps 75.0 billion to Ps 92.7 billion mainly as a result of Porvenir’s and Corficolombiana’s higher income from their equity investment portfolios (further explained in “—Banco de Bogotá subsidiary analysis—Corficolombiana—Net interest income” and in “—Banco de Bogotá subsidiary analysis—Porvenir—Net interest income”).

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Total interest expense in Banco de Bogotá increased by Ps 729.6 billion, or 50.0%, from Ps 1,459.2 billion in the year ended December 31, 2011 to Ps 2,188.8 billion in the year ended December 31, 2012 as a result of a Ps 363.9 billion increase in interest paid for time deposits, a Ps 150.8 billion increase in interest paid for savings deposits, a Ps 57.2 billion increase in interest paid in checking accounts and a Ps 157.6 billion increase in interest paid for other funding, which includes borrowings from banks and other, interbank and overnight funds and long-term debt. Ps 373.1 billion of the increase in interest expense is explained by a Ps 8,225.2 billion, or 18.0%, increase in the average balance of total interest-bearing liabilities from Ps 45,621.1 billion for the year ended December 31, 2011 to Ps 53,846.3 billion for the year ended December 31, 2012. Ps 356.5 billion of the increase in total interest expense is the result of an increase of 87 basis points in the average cost of funding, in line with an increasing rate environment, from 3.2% paid during the year ended December 31, 2011 to 4.1% paid during the year ended December 31, 2012.

The Ps 363.9 billion increase in interest paid for time deposits resulted from a Ps 4,243.9 billion, or 31.2%, increase in the average balance of time deposits from Ps 13,582.4 billion for the year ended December 31, 2011 to Ps 17,826.4 billion for the year ended December 31, 2012, and from an increase of 104 basis points in the average interest rate, increasing from 4.2% paid during the year ended December 31, 2011 to 5.2% paid during the year ended December 31, 2012. The above-mentioned increase in the average balance contributed Ps 235.9 billion of the increase in total interest expense, while the increase in the average interest rate contributed the remaining Ps 128.0 billion of such increase.

The Ps 150.8 billion increase in interest paid for savings deposits resulted from an increase of 68 basis points in the average interest rate, increasing from 2.9% paid during the year ended December 31, 2011 to 3.6% paid during the year ended December 31, 2012 and from a Ps 1,479.5 billion, or 10.3%, increase in the average volume of savings deposits from Ps 14,390.9 billion for the year ended December 31, 2011 to Ps 15,870.4 billion for the year ended December 31, 2012. The above-mentioned increase in the average interest rate contributed Ps 101.3 billion of the increase in total interest expense, while the increase in the average balance contributed Ps 49.5 billion.

The Ps 57.2 billion increase in interest paid for checking accounts resulted from a Ps 1,594.6 billion, or 29.7%, increase in the average balance of checking accounts from Ps 5,373.5 billion for the year ended December 31, 2011 to Ps 6,968.1 billion for the year ended December 31, 2012, and from an increase of 54 basis points in the average interest rate, increasing from 1.2% paid during the year ended December 31, 2011 to 1.8% paid during the year ended December 31, 2012. The above-mentioned increase in the average balance contributed Ps 44.9 billion of the increase in total interest expense, while the increase in the average interest rate contributed the remaining Ps 12.4 billion of such increase.

The Ps 157.6 billion increase in interest paid for interest-bearing liabilities other than deposits resulted from a Ps 59.1 billion increase in interest paid for interbank and overnight funds, a Ps 58.7 billion increase in interest paid for borrowings from banks and others, and a Ps 39.8 billion increase in interest paid for long-term debt (bonds). The main driver of such increases was higher interest rate paid on interest-bearing liabilities other than deposits, which increased from 3.3% in 2011 to 4.2% in 2012, resulting in a Ps 114.8 billion increase in interest expense. The rates paid showed the following increases: in borrowings from banks and others from 2.8% to 3.8% (2.5% to 3.7% excluding LB Panamá’s operation), in interbank and overnight funds (expenses) from 3.3% to 4.1% (3.2% to 4.1% excluding LB Panamá’s operation), and in long-term debt from 5.2% to 6.0% (4.9% to 5.9% excluding LB Panamá’s operation), all for the year ended December 31, 2011 to the year ended December 31, 2012 and consistent with an increasing interest-rate environment in Colombia. For LB Panama’s operations, the interest rate paid on interest-bearing liabilities other than deposits increased from 3.9% in 2011 to 4.1% in 2012, the rates paid showed the following increases: in borrowings from banks and others from 3.5% to 3.8%, in interbank and overnight funds (expenses) from 6.0% to 6.7%, and in long-term debt from 6.3% to 6.5%, all for the year ended December 31, 2011 to the year ended December 31, 2012. The average balance of interest-bearing liabilities other than deposits increased by 7.4% to Ps 13,181.4 billion for the year ended December 31, 2012, contributing with a Ps 42.8 billion increase in interest expense.

Despite the increase in cost of funds, Banco de Bogotá’s net interest margin (calculated as net interest income divided by total average interest-earning assets) increased from 6.0% for the year ended December 31, 2011 to 6.1% for the year ended December 31, 2012. The spread between the yield earned on loans and financial leases and the rate paid on deposits slightly decreased from 7.38% for the year ended December 31, 2011 to 7.34% for the year ended December 31, 2012.

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Provisions

Total net provisions increased by Ps 376.0 billion to Ps 515.1 billion in the year ended December 31, 2012, driven primarily by a Ps 300.3 billion increase in net provisions for foreclosed assets and other assets. This increase was driven by a Ps 311.2 billion decrease in recovery of provisions for foreclosed assets and other assets from Ps 340.8 billion for the year ended December 31, 2011 to Ps 29.7 billion for the year ended December 31, 2012 mainly due to the reversals during 2011 of (i) the cautionary Ps 245 billion market risk provision established by Corficolombiana in December 2010 and (ii) the Ps 69.7 billion provision established by Corficolombiana in 2010 associated with its investment in SIE. (see “—Segment results of operations for the year ended December 31, 2010 compared to the year ended December 31, 2009—Banco de Bogotá—Banco de Bogotá subsidiary analysis—Corficolombiana—Provisions”).

Also contributing to the increase in total net provisions was the increase in net provisions for loans and financial lease losses of Ps 84.6 billion from Ps 434.4 billion for the year ended December 31, 2011 to Ps 519.0 billion for the year ended December 31, 2012. This increase was primarily due to an increase in the average volume of loans, as Banco de Bogotá’s net provisions for loans and financial lease losses as a percentage of its average balance of loans and financial leases remained unchanged at 1.2% for both the years ended December 31, 2011 and 2012, and not due to a decrease in the overall credit quality, as Banco de Bogota’s delinquency ratio closed at 2.1% as of December 31, 2012 versus 1.9% as of December 31, 2011. The slight increase in the delinquency ratio was due to a higher growth rate in consumer loans (which experience higher delinquency levels) than in commercial loans.

Banco de Bogotá’s charge-offs decreased by Ps 22.3 billion from Ps 377.5 billion for the year ended December 31, 2011 to Ps 355.3 billion for the year ended December 31, 2012. Its annualized ratio of charge-offs to average balance of loans and financial leases ratio decreased from 1.0% for the year ended December 31, 2011 to 0.8% for the year ended December 31, 2012.

Banco de Bogotá’s allowance for loans and financial leases increased by Ps 153.6 billion to Ps 1,252.9 billion at December 31, 2012 and its coverage ratio over past due loans remained strong at 132.2% at December 31, 2012. The coverage ratio at December 31, 2011 was 140.9%.

Net provisions for accrued interest and other receivables decreased by Ps 13.2 billion to a net expense of Ps 36.3 billion as of December 31, 2012 from Ps 49.5 billion as of December 31, 2011. This decrease was mainly driven by higher reversal of provisions in 2012 than in 2011. The recovery of charged-off assets decreased from the year ended December 31, 2011 to the year ended December 31, 2012 by Ps 4.3 billion to Ps 47.9 billion.

Total fees and other services income

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#		%
	(in Ps billions)
Fees and other services income:
Commissions from banking services		1,014.7			943.1			71.6			7.6
Branch network services		27.4			35.0			(7.6	)		(21.6	)
Credit card merchant fees		254.8			228.6			26.1			11.4
Checking fees		38.3			42.4			(4.2	)		(9.8	)
Warehouse services		113.5			114.7			(1.1	)		(1.0	)
Fiduciary activities		118.7			99.7			19.0			19.1
Pension plan administration		485.9			457.1			28.8			6.3
Other		92.4			90.1			2.3			2.6
Total fees and other services income		2,145.6			2,010.6			135.0			6.7
Fees and other services expenses		(261.9	)		(253.8	)		8.1			3.2
Total fees and other services income, net		1,883.7			1,756.8			126.9			7.2

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Total fees and other services income, net increased by 7.2% to Ps 1,883.7 billion in the year ended December 31, 2012, primarily as a result of higher fee income derived from commissions from banking services, pension plan administration, and credit card merchant fees.

Commissions from banking services and credit card merchant fees increased by Ps 71.6 billion and Ps 26.1 billion, respectively, from the year ended December 31, 2011 and the year ended December 31, 2012 in line with the organic growth of the loan portfolio and deposits. LB Panamá accounted for Ps 54.3 billion and Ps 21.3 billion of the increase in commissions from banking services and credit card merchant fees, respectively (further explained in “—Banco de Bogotá subsidiary analysis—LB Panamá— Total fees and other services income”) while Banco de Bogotá’s operations in Colombia accounted for the rest.

The 6.3%, or Ps 28.8 billion, increase in pension plan administration fees was mainly a result of higher fee income generated by Porvenir consisting of commissions earned on the administration of third-party liability pension funds (which increased by Ps 17.1 billion to Ps 38.6 billion in the year ended December 31, 2012), other administration fees (which increased by Ps 7.2 billion to Ps 21.0 billion in the year ended December 31, 2012), severance funds (which increased by Ps 5.1 billion to Ps 65.9 billion in the year ended December 31, 2012), voluntary pension funds (which increased by Ps 2.2 billion to Ps 48.1 billion in the year ended December 31, 2012), and mandatory pension funds (which decreased by Ps 4.5 billion to Ps 300.6 billion in the year ended December 31, 2012), as further explained in “—Banco de Bogotá subsidiary analysis—Porvenir—Total fees and other services.”

Other operating income

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#		%
	(in Ps billions)
Foreign exchange gains (losses), net		(40.5	)		186.9			(227.4	)		(121.7	)
Gains (losses) on derivative operations, net		178.7			(22.8	)		201.5			882.8
Gains on sales of investments in equity securities, net		7.4			41.8			(34.4	)		(82.3	)
Income from non-financial sector, net (1)		379.3			431.8			(52.5	)		(12.2	)
Dividend income		103.8			78.7			25.0			31.8
Other		47.7			41.8			5.9			14.1
Other operating income		676.3			758.1			(81.8	)		(10.8	)

(1)

Income from non-financial sector reflects the operating results of Corficolombiana in its consolidated investments in companies not related to the financial sector such as Epiandes, Hoteles Estelar, Organización Pajonales, Pizano S.A. (“Pizano”), Plantaciones Unipalma de los Llanos S.A. (“Unipalma”), Valora S.A.S. (“Valora”), and Industrias Lehner S.A. (“Lehner”), among others. This result is net of the following operating and administrative expenses in the year ended December 31, 2012 and 2011: Ps 1,117.8 billion and Ps 852.7 billion, respectively. For a description of these investments, see “Item 4. Information on the Company—B. Business overview—Corficolombiana—Equity investment portfolio.”

Total other operating income decreased by 10.8%, or Ps 81.8 billion, to Ps 676.3 billion in the year ended December 31, 2012, mainly due to a Ps 52.5 billion decrease in income from the non-financial sector, which reflected the net operating income result of non-financial companies consolidated by Corficolombiana such as Pizano (Ps 16.8 billion), Unipalma (Ps 10.1 billion), Valora (Ps 7.0 billion) and Lehner (Ps 5.7 billion) (further explained in “—Banco de Bogotá subsidiary analysis—Corficolombiana”).

Also contributing to the decrease in other operating income was a Ps 34.4 billion decrease in gains on sales of investments in equity securities, net. During the year ended December 31, 2012, Corficolombiana recognized a gain of 5.7 billion associated with the sale of its stake in Proenergía, whereas during the year ended December 31, 2011, it recognized a gain of Ps 38.2 billion for the sale of its stake in both Colombina and SIE.

Net foreign exchange and derivative operations, which are related to Banco de Bogotá’s use of derivative operations to hedge foreign exchange risk, showed a net decrease of Ps 25.9 billion in the year ended December 31, 2012 compared to the year ended December 31, 2011 contributing also to the decrease in other operating income.

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Partially offsetting the above-mentioned was a Ps 25.0 billion increase dividend income from Ps 78.7 billion for the year ended December 31, 2011 to Ps 103.8 billion for the year ended December 31, 2012 mainly driven by a Ps 58.5 billion increase in dividends received from CFC Limited, and CFC Gas Holding SAS during 2012, offset in part by a Ps 36.0 billion decrease in the dividend income from Promigas (further explained in “—Banco de Bogotá subsidiary analysis—Corficolombiana”).

Operating expenses

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#		%
	(in Ps billions)
Salaries and employee benefits		(1,166.8	)		(1,068.0	)		98.8			9.2
Bonus plan payments		(67.6	)		(73.2	)		(5.7	)		(7.8	)
Termination payments		(17.9	)		(19.5	)		(1.6	)		(8.0	)
Administrative and other expenses		(1,645.5	)		(1,518.6	)		126.9			8.4
Deposit security, net		(101.1	)		(85.0	)		16.2			19.1
Charitable and other donation expenses		(8.7	)		(12.6	)		(3.9	)		(30.7	)
Depreciation		(117.1	)		(116.0	)		1.1			1.0
Goodwill amortization		(74.0	)		(75.2	)		(1.2	)		(1.6	)
Total operating expenses		(3,198.6	)		(2,968.0	)		230.7			7.8

Total operating expenses increased by 7.8% to Ps 3,198.6 billion in the year ended December 31, 2012. This increase primarily reflected an 8.4%, or Ps 126.9 billion, and a 9.2%, or Ps 98.8 billion, increase in administrative and other expenses and salaries and employee benefits, respectively. Both increases are associated with the organic growth of the business and its personnel. Between December 31, 2011 and December 31, 2012 a total of 2,745 people entered to work in the Bank and its consolidated subsidiaries, which represents an increase of 8.4% from 32,763 in 2011 to 35,508 in 2012. On a per capita basis, salaries and employee benefits increased by 0.8%.

Banco de Bogotá’s efficiency ratio improved from 50.9% for the year ended December 31, 2011 to 49.6% for the year ended December 31, 2012, and the ratio of annualized operating expenses before depreciation and amortization as a percentage of average interest-earning assets improved from 5.6% for the year ended December 31, 2011 to 5.2% for the year ended December 31, 2012.

Non-operating income (expense)

Total non-operating income (expense) increased by Ps 246.5 billion from Ps 68.5 billion in the year ended December 31, 2011 to Ps 314.9 billion in the year ended December 31, 2012. This increase results from (1) Corficolombiana where non-operating income increased Ps 151.2 billion and (2) in Banco de Bogotá’s unconsolidated results reflecting an increase of Ps 82.7 billion in non-operating income. The increase in Corficolombiana is primarily attributable to leaseback operations done by Hoteles Estelar, two leaseback operations done by Pizano and higher income from its highway concession projects in Episol during the year ended December 31, 2012 (further explained in “—Banco de Bogotá subsidiary analysis—Corficolombiana”). The increase in Banco de Bogotá was mainly driven by the Ps 84.4 billion recorded form the sale during 2012 of the foreclosed asset “Guayuriba.”

Income tax expense

Income before income tax expense and non-controlling interest increased 10.7% from Ps 2,413.1 billion for the year ended December 31, 2011 to Ps 2,670.9 billion for the year ended December 31, 2012. Income tax expense, in turn, increased by 24.7% to Ps 919.3 billion for the year ended December 31, 2012, resulting in an increase of Banco de Bogotá’s effective tax rate from 30.5% for the year ended December 31, 2011 to 34.4% for the year ended December 31, 2012. This increase was mainly due to an increase in the effective tax rate of Banco de Bogotá’s unconsolidated results which increased from 22.9% to 24.5% due to higher income before income tax expense and to lower adjustments to tax provisions during the year ended December 31, 2012 as compared to the year ended December 31, 2011. Also contributing to the increase in the effective tax rate was the increase in the

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effective tax rate of Corficolombiana, associated with higher taxable income recorded and lower tax exemptions in some of its consolidated entities during the year ended December 31, 2012 as compared to the year ended December 31, 2011.

Non-controlling interest

Banco de Bogotá’s non-controlling interest decreased by Ps 104.6 billion, or 19.7%, to Ps 425.6 billion in the year ended December 31, 2012 compared with the year ended December 31, 2011. The decrease in non-controlling interest was primarily a result of a lower net income from Corficolombiana’s operation in the year ended December 31, 2012 as compared to the same period in 2011, as further described in “Banco de Bogotá subsidiary analysis—Corficolombiana.”

Banco de Bogotá subsidiary analysis

Banco de Bogotá’s results of operations are significantly affected by the results of operations of its subsidiaries, Corficolombiana, Porvenir and LB Panamá. In order to fully disclose the effect of these subsidiaries on Banco de Bogotá, the following is an analysis of the results of operations of each of Corficolombiana, Porvenir and LB Panamá in the year ended December 31, 2012 compared to the year ended December 31, 2011.

Corficolombiana

Net income

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#		%
	(in Ps billions)
Total interest income		454.5			270.2			184.3			68.2
Total interest expense		(375.9	)		(197.1	)		178.9			90.7
Net interest income		78.6			73.1			5.4			7.4
Total (provisions)/reversals, net		2.4			285.5			283.1			(99.2	)
Total fees and other services income, net		44.1			46.7			(2.6	)		(5.6	)
Total other operating income		450.9			573.4			(122.4	)		(21.4	)
Total operating income		576.0			978.7			(402.7	)		(41.1	)
Total operating expenses		(143.3	)		(137.2	)		6.1			4.5
Net operating income		432.6			841.5			(408.9	)		(48.6	)
Total non-operating income (expense), net		144.8			(6.3	)		151.2			2,386.8
Income before income tax expense and non-controlling interest		577.5			835.2			(257.7	)		(30.9	)
Income tax expense		(175.1	)		(150.5	)		24.6			16.4
Income before non-controlling interest		402.4			684.7			(282.3	)		(41.2	)
Non-controlling interest		(98.1	)		(76.6	)		21.4			28.0
Net income attributable to shareholders		304.3			608.1			(303.8	)		(50.0	)

Corficolombiana’s net income decreased by 50.0% to Ps 304.3 billion in the year ended December 31, 2012 when compared to the year ended December 31, 2011. The most significant drivers of the decrease in net income were (i) an increase of Ps 283.1 billion in total net provisions for loans and other assets from a Ps 285.5 billion net reversal in the year ended December 31, 2011 to a Ps 2.4 billion net reversal in the year ended December 31, 2012. This increase is mainly due to the reversals in the year ended December 31, 2011, of (1) the cautionary Ps 245 billion market risk provision established by Corficolombiana in December 2010 and (2) the Ps 69.7 billion provision established by Corficolombiana in 2010 associated to its investment in SIE (see “—Segment results of operations for the year ended December 31, 2011 compared to the year ended December 31, 2010—Banco de Bogotá—Banco de Bogotá subsidiary analysis—Corficolombiana—Net interest income”); (ii) the decrease of Ps 122.4 billion in total other operating income from Ps 573.4 billion for the year ended December 31, 2011 to Ps 450.9 billion for the year ended December 31, 2012; and (iii) an increase in income tax expense of Ps 24.6 billion to Ps 175.1 billion for the year ended December 31, 2012; and (iv) an increase in non-.controlling interest of Ps 21.4 billion to Ps 98.1 billion

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for the year ended December 31, 2012. All of the above were partially offset by an increase in total non-operating income of Ps 151.2 billion to Ps 144.8 billion for the period ended December 31, 2012.

Net interest income

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#	%
	(in Ps billions)
Interest income:
Interest on loans		21.0			13.8			7.2		52.3
Interest on investment securities		307.6			161.7			145.9		90.2
Interbank and overnight funds		57.8			43.1			14.7		34.1
Financial leases		68.1			51.6			16.5		32.0
Total interest income		454.5			270.2			184.3		68.2
Interest expense:
Time deposits		(168.4	)		(91.6	)		76.7		83.8
Savings deposits		(18.3	)		(2.7	)		15.6		585.6
Total interest expense on deposits		(186.6	)		(94.3	)		92.4		98.0
Borrowing from banks and others		(56.8	)		(35.6	)		21.2		59.7
Interbank and overnight funds (expenses)		(123.4	)		(60.6	)		62.8		103.6
Long-term debt (bonds)		(9.1	)		(6.6	)		2.5		37.1
Total interest expense		(375.9	)		(197.1	)		178.9		90.7
Net interest income		78.6			73.1			5.4		7.4

Net interest income increased by Ps. 5.4 billion, or 7.4%, to Ps 78.6 billion in the year ended December 31, 2012 compared to the year ended December 31, 2011. Total interest income, which consists of income from loans, investment securities, interbank and overnight funds and financial leases, increased by 68.2% or Ps 184.3 billion to Ps 454.5 billion in the year ended December 31, 2012. This increase was mainly driven by a Ps 145.9 billion increase in income on investment securities from Ps 161.7 billion in the year ended December 31, 2011 to Ps 307.6 billion in the year ended December 31, 2012; a Ps 23.7 billion increase in interest income from loans and financial leases from Ps 65.4 billion in the year ended December 31, 2011 to Ps 89.2 billion in the year ended December 31, 2012; and a Ps 14.7 billion increase in interest income from interbank and overnight funds to Ps 57.8 billion for the year ended December 31, 2012. Partially offsetting the increase of Ps 184.3 billion in total interest income was an increase of Ps 178.9 billion increase in total interest expense. The increase in total interest expense was attributable to an increase in total interest expense on deposits, on interbank and overnight funds and on borrowings from banks and others consistent with an increase of Ps 2,310.3 billion in the average balance of total interest-bearing liabilities from Ps 5,029.2 billion to Ps 7,339.5 billion between December 31, 2011 and December 31, 2012, incurred to support the growth of the investment securities’ portfolio.

Interest income from investment securities increased by Ps 145.9 billion to Ps 307.6 billion for the year ended December 31, 2012. Corficolombiana’s average investment portfolio increased by Ps 1,739.5 billion, contributing Ps 83.3 billion of the increase in interest income from investment securities. Also contributing to the increase in income from investment securities was the increase in the average yield on investment securities from 3.4% for the year ended December 31, 2011 to 4.7% for the year ended December 31, 2012, which resulted in a Ps 62.5 billion increase in interest income from investment securities.

Of the Ps 307.6 billion interest income on investment securities recorded in the year ended December 31, 2012, Corficolombiana’s debt securities portfolio generated Ps 273.3 billion, reflecting a Ps 116.6 billion increase from the Ps 156.7 billion recorded in the year ended December 31, 2011. The increase in income from the debt securities portfolio was driven both by an increase in the balance of debt securities, which increased by Ps 1,161.8 billion to Ps 4,077.9 billion as of December 31, 2012, and by an increase in the average yield earned on its debt securities portfolio.

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Corficolombiana’s equity securities portfolio generated Ps 34.3 billion in income in the year ended December 31, 2012, reflecting a Ps 29.3 billion increase from the Ps 5.0 billion yielded in the year ended December 31, 2011. The increase in income from the equity portfolio was primarily the effect of the following: (i) while in 2011 Corficolombiana had to record an unrealized loss of Ps 122.1 billion from its investment in Promigas due to a reclassification from “medium” to “low” liquidity, this investment did not experience a change in its liquidity during 2012 and thus did not impact the interest on investment securities line item; (ii) during 2011, Corficolombiana recorded a Ps 44.3 billion mark-to-market loss on its investment in Banco de Occidente (which at December 31, 2011 was classified as “trading”) while during 2012 it recorded a mark-to-market gain of Ps 6.3 billion, after various changes in its liquidity levels in 2012 which ended with the investment being classified as “available for sale” as of December 31, 2012; (iii) during 2011 Corficolombiana recorded a mark-to-market loss of Ps 34.7 billion associated with its investment in SIE. Since this investment was sold in October, 2011, no amounts were recorded during 2012; (iv) during 2012 Corficolombiana recorded a mark-to-market gain of Ps 27.4 billion associated with its investment in Mineros, while during the year ended December 31, 2011 this investment did not record any market-to-market gain or loss; (v) during 2011 Corficolombiana’s investment in a private investment fund managed by Corredores Asociados (“Fondo de Capital Privado Corredores Capital 1” or “FCP”) generated a Ps 136.7 billion gain while in 2012 it generated a loss of Ps 1.2 billion in 2012. The loss generated during the year ended December 31, 2012 was mainly driven by a decrease in the funds’ valuation of its investment in Promigas S.A. E.S.P., as Promigas S.A. E.S.P. price per share in the Colombian Stock Exchange decreased from Ps 26,784 as of December 31, 2011 to Ps 25,608 as of December 31, 2012; and (vi) finally, during 2011 Corficolombiana recorded a mark-to-market gain on its investment in Proenergía of Ps 67.2 billion and since the company´s stake in Proenergía was sold early in the first six months of 2012 it did not have a meaningful impact on interest income in 2012.

Also contributing to an increase in interest income was an increase in income from loans and financial leases of Ps 23.7 billion from Ps 65.4 billion for the year ended December 31, 2011 to Ps 89.2 billion for the year ended December 31, 2012. This increase was driven by both a Ps 150.2 billion increase in the average balance of loans and financial leases to Ps 733.6 billion for the year ended December 31, 2012, which resulted in a Ps 18.0 billion increase in interest income from loans and financial leases, and a 94 basis points increase in the average yield of loans and financial leases to 12.2% for the year ended December 31, 2012, which contributed with a Ps 5.7 billion increase in interest from loans and financial leases.

Partially offsetting the Ps 184.3 billion increase in total interest income was an increase of total interest expense of Ps 178.9 billion from Ps 197.1 billion in the year ended December 31, 2011 to Ps 375.9 billion in the year ended December 31, 2012. The increase in total interest expense is attributable to an increase in interest paid for time deposits of Ps 76.7 billion, an increase in interest paid for interbank and overnight funds of Ps 62.8 billion, an increase in interest paid for borrowing from banks and other of Ps 21.2 billion, an increase in interest paid for savings deposits of Ps 15.6 billion, and an increase in interest paid for long-term debt of Ps 2.5 billion.

The increase in total interest expense reflects both an increase in the average balance of interest-bearing liabilities from Ps 5,029.2 billion for the year ended December 31, 2011 to Ps 7,339.5 billion for the year ended December 31, 2012, and an increase in the average rate paid on interest-bearing liabilities, which was consistent with a 115 basis points increase in the average DTF between the year ended 2011 and the year ended 2012. Interbank and overnight funds’ average balance increased from Ps 2,063.9 billion for the year ended December 31, 2011 to Ps 3,190.2 billion for the year ended December 31, 2012 and time deposits’ average balance increased from Ps 1,872.0 billion for the year ended December 31, 2011 to Ps 2,637.6 billion for the year ended December 31, 2012. The increase in leverage was driven by the growth of the average balance of Corficolombiana´s average interest earning assets from Ps 5,936.6 billion for the year ended December 31, 2011 to Ps 7,762.8 for the year ended December 31, 2012.

Provisions

Corficolombiana’s net provisions increased by Ps 283.1 billion from a Ps 285.5 billion net reversal in the year ended December 31, 2011 to a Ps 2.4 billion net reversal in the year ended December 31, 2012. Net Provision expense for foreclosed assets and other assets increased by Ps 299.0 billion from a net recovery of Ps 294.5 billion for the year ended December 31, 2011 to a net expense of Ps 4.5 billion for the year ended December 31, 2012. This increase was mainly attributable to the reversals in the year ended December 31, 2011 of (i) the cautionary Ps 245 billion market risk provision established by Corficolombiana in December 2010 and (ii) the Ps 69.7 billion provision established by Corficolombiana in 2010 associated to its investment in SIE. The provision associated to

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Corficolombiana’s investment in SIE was reversed to the sale of this investment in October 2011 (see “—Segment results of operations for the year ended December 31, 2010 compared to the year ended December 31, 2009—Banco de Bogotá—Banco de Bogotá subsidiary analysis—Corficolombiana—Provisions”).

Also contributing to the increase in net provision expense was a Ps 4.7 billion increase in net provision expense for loans and financial leases from a net recovery of Ps 1.3 billion for the year ended December 31, 2011 to a net expense of Ps 3.3 billion for the year ended December 31, 2012 explained by lower reversals of provisions of Ps 3.1 billion and higher gross provisions of Ps 1.6 billion.

Partially offsetting these increases was a Ps 19.4 billion decrease in net provision expense for accrued interest and other receivables from a net expense of Ps 11.1 billion for the year ended December 31, 2011 to a net recovery of Ps 8.3 billion for the year ended December 31, 2012. This decrease was mainly driven by higher recoveries during 2012 than the ones recorded in 2011. The largest recovery in the year ended December 31, 2012 was a Ps 8.0 billion recovery from tax provisions.

Total fees and other services income

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#		%
	(in Ps billions)
Fees and other services income:
Commissions from banking services		0.8			2.5			(1.7	)		(69.1	)
Fiduciary activities		34.7			32.6			2.2			6.6
Other		15.7			18.8			(3.1	)		(16.4	)
Total fees and other services income		51.2			53.8			(2.7	)		(4.9	)
Fees and other services expenses		(7.1	)		(7.1	)		(0.0	)		(0.5	)
Total fees and other services income, net		44.1			46.7			(2.6	)		(5.6	)

Net fee and other services income showed a slight decrease from Ps 46.7 billion for the year ended December 31, 2011 to Ps 44.1 billion for the year ended December 31, 2012. The Ps 2.6 billion decrease in total fees and other service income, net is mainly attributable to a decrease in other fees and other service income of Ps 3.1 billion and a decrease of Ps 1.7 billion in commission from banking services, partially offset by an increase of Ps 2.2 billion in income fees from fiduciary activities.

The decrease in other fees and other service income was mainly driven by a Ps 2.7 billion decrease in commissions from investment banking, which are recorded under this line item. The decrease in commissions from banking services was mainly driven by a Ps 1.1 billion decrease in commissions from banking guarantees.

Other operating income

	Year ended December 31,					Change, December 2012 vs. December 2011
	2012			2011			#		%
	(in Ps billions)
Foreign exchange gains (losses), net		(27.8	)		4.8		(32.6	)		(677.7	)
Gains on derivative operations, net		(19.4	)		22.9		(42.3	)		(184.8	)
Gains on sales of investments in equity securities, net		6.1			41.2		(35.1	)		(85.1	)
Income from non-financial sector, net		379.4			422.7		(43.3	)		(10.2	)
Dividend income		102.5			76.2		26.3			34.6
Other		10.1			5.6		4.5			81.1
Total other operating income		450.9			573.4		(122.4	)		(21.4	)

Total other operating income decreased by 21.4%, or Ps 122.4 billion, from Ps 573.4 billion for the year ended December 31, 2011 to Ps 450.9 billion for the year ended December 31, 2012. The decrease is a result of a decrease

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in net foreign exchange and derivative operations from a net gain of Ps 27.7 billion during the year ended 2011 to a net loss of Ps 47.2 billion of which Ps 22.4 billion was incurred in the year ended 2012 attributable to the change in value of US dollar-denominated investments in AEI Promigas Holdings Ltd., AEI Promigas Ltd. and AEI Promigas Investments Ltd. and Ps 24.8 billion of which was principally due to the change in value of fixed income derivatives (mainly in non-deliverable forward government-issued treasuries, or “TES”), associated with the appreciation of the Colombian peso.

The Ps 22.4 billion net loss in 2012 attributable to the change in value of US dollar-denominated investments in AEI Promigas Holdings Ltd., AEI Promigas Ltd. and AEI Promigas Investments Ltd was partially offset by a Ps 19.7 billion dividend income paid by CFC Limited. CFC Limited was a fully owned subsidiary of Corficolombiana to which Corficolombiana transferred, through an escisión, its indirect ownership in Promigas (through AEI Promigas Holdings Ltd., AEI Promigas Ltd. and AEI Promigas Investments Ltd.) on June 5, 2012. On June 13, 2012, CFC Limited paid dividends of Ps 19.7 billion representing a foreign exchange gain caused by the peso-U.S. dollar appreciation that was recorded in the accounting records of AEI Promigas Holdings Ltd., AEI Promigas Ltd. and AEI Promigas Investments Ltd. CFC Limited was later merged into CFC Gas Holdings SAS, a Colombian fully owned subsidiary of Corficolombiana, on June 26, 2012.

Income from non-financial sector investments decreased by Ps 43.3 billion associated due to a decrease in the operating performance of the non-financial subsidiaries consolidated by Corficolombiana, mainly Pizano (which decreased Ps 16.8 billion), Unipalma (which decreased Ps 10.1 billion), Valora (which decreased Ps 7.0 billion) and Lehner (which decreased Ps 5.7 billion).

Also contributing to total other operating income was a Ps 35.1 billion decrease in the “Gains on sales of investments in equity securities, net” line item. This decrease was mainly driven by the Ps 21.1 billion and the Ps 17.1 billion gains on the sale of Corficolombiana’s investment in Colombina S.A. and in SIE, respectively, recorded during the year ended December 31, 2011. During 2012, the only sale recorded was a Ps 5.7 billion gain on the sale of part of Corficolombiana’s investment in Proenergía in 2012. Partially offsetting these decreases was the Ps 26.3 billion increase in dividend income, which was the result of (i) an increase in dividend income from CFC Limited and CFC Gas Holding SAS of Ps 19.7 billion (which partially offset the Ps 22.4 billion net loss in foreign exchange and derivative operations) and Ps 38.8 billion (representing dividends declared by Promigas to Promigas Holding, Promigas Investment and Promigas Ltd., before the escisión, on their 10.58% economic interest), respectively (see note 4 to our annual consolidated financial statements), and (ii) a decrease in dividend income from Promigas, since due to low liquidity levels and a negative revaluation balance, Corficolombiana was not able to record the dividend income it received from Promigas during 2012 while in 2011 it had recorded a Ps 36.0 billion dividend income from this investment. The reason for the negative revaluation balance associated with this investment was the decline in its share price from Ps 31,428 per share in March 31, 2011 to Ps 27,984 per share in March 31, 2012, dates on which dividends were declared. The dividend income received in 2012 from Promigas was recorded on the balance sheet.

Operating expenses

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#		%
	(in Ps billions)
Salaries and employee benefits		(52.1	)		(49.7	)		2.4			4.8
Bonus plan payments		(3.9	)		(3.7	)		0.2			5.7
Termination payments		(0.4	)		(1.0	)		(0.6	)		(58.2	)
Administrative and other expenses		(73.0	)		(71.9	)		1.1			1.6
Deposit security, net		(8.8	)		(5.8	)		3.1			53.5
Charitable and other donation expenses		(0.6	)		(0.8	)		(0.2	)		(25.2	)
Depreciation		(4.4	)		(3.7	)		0.6			17.3
Goodwill amortization		0.0			(0.5	)		(0.5	)		(100.0	)
Total operating expenses		(143.3	)		(137.2	)		6.1			4.5

Corficolombiana’s total operating expenses increased by Ps 6.1 billion or 4.5% from Ps 137.2 billion for the year ended December 31, 2011 to Ps 143.3 billion for the year ended December 31, 2012. This increase was mainly

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driven by a Ps 3.1 billion increase in deposit security, net. Also contributing to the increase in total operating expense was a Ps 2.4 billion increase in salaries and employee benefits due to the organic growth of the business which resulted in the total number of employees increasing from 871 people in December 31, 2011 to 881 people in December 31, 2012. On a per capita basis, salaries and employee benefits increased by 3.6%.

Non-operating income (expense)

Total non-operating income (expense), increased by Ps 151.2 billion to Ps 144.8 billion in the year ended December 31, 2012. This increase is mainly explained by a Ps 87.2 billion income registered in Hoteles Estelar due to leaseback operations of Hotel La Fontana Bogotá and Hotel Intercontinental Cali to a trust company for its securitization. Also contributing to the increase was a Ps 22.4 billion income recorded by Pizano due to income associated with two leaseback operations on their manufacturing plants Tablex II and Tablex III. Finally the Ps 22.1 billion of income recorded by Episol due to higher income from its highway concession projects also contributed to the increase in non-operating income.

Income tax expense

Income tax expense increased by Ps 24.6 billion to Ps 175.1 billion for the year ended December 31, 2012. Corficolombiana’s effective tax rate, calculated before non-controlling interest, increased from 18.0% for the year ended December 31, 2011 to 30.3% for the year ended December 31, 2012, since in 2011 there was higher non-taxable income recorded mainly attributable to Corficolombiana’s investment in FCP and Proenergía, and due to fewer tax exemptions in 2012 in Episol, a consolidated subsidiary of Corficolombiana.

Non-controlling interest

Non-controlling interest increased by Ps 21.4 billion to Ps 98.1 billion in the year ended December 31, 2012. This increase is explained by an increase in net income from Corficolombiana’s consolidated subsidiaries, mainly Hoteles Estelar (which contributed with increase of Ps 12.2 billion in non-controlling interest), Epiandes (which contributed with increase of Ps 6.2 billion in non-controlling interest) and Episol (which contributed with increase of Ps 5.6 billion in non-controlling interest).

Porvenir

Porvenir generates income primarily from fees on its customers’ pension contributions, which consist predominantly of monthly mandatory contributions. It also generates net interest income, composed almost entirely of investment income from the appreciation of Porvenir’s proprietary trading portfolio, which can be divided into two components: (1) income from its stabilization reserve, which is the legally required proprietary stake (1% of assets under management) in its funds that are subject to a minimum return guarantee; and (2) direct investment portfolio income, which includes income from fixed income securities and money market instruments. As a result, Porvenir’s revenue is mainly affected by the number of contributors, the salaries of contributors, any changes in applicable fee rates and the rate of return of its assets under management.

Net income

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#		%
	(in Ps billions)
Total interest income		74.5			17.7			56.8			320.2
Total interest expense		(2.0	)		(2.9	)		(0.9	)		(32.3	)
Net interest income		72.5			14.8			57.7			389.2
Total (provisions) / reversals, net		(2.1	)		(1.0	)		1.0			97.6
Total fees and other services income, net		422.4			406.3			16.1			4.0
Total other operating income		26.3			13.3			13.0			97.7
Total operating income		519.1			433.3			85.8			19.8
Total operating expenses		(209.7	)		(202.3	)		7.5			3.7
Net operating income		309.4			231.1			78.3			33.9

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	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#		%
	(in Ps billions)
Total non-operating income (expense), net		11.5			12.2			(0.7	)		(5.6	)
Income before income tax expense and non-controlling interest		320.9			243.2			77.6			31.9
Income tax expense		(106.6	)		(88.5	)		18.1			20.4
Non-controlling interest		(0.3	)		(0.2	)		0.1			54.3
Net income		214.0			154.5			59.5			38.5

Porvenir’s net income increased by 38.5%, or Ps 59.5 billion, to Ps 214.0 billion for the year ended December 31, 2012 as compared to the year ended December 31, 2011. This increase was mainly due to an increase of Ps 57.7 billion in net interest income, an increase of Ps 16.1 billion in total fees and other services income, net, and an increase of Ps 13.0 billion in total other operating income, all partially offset by an increase of Ps 18.1 billion in income tax expense and a Ps 7.5 billion increase in total operating expense.

Net interest income

Net interest income increased by Ps 57.7 billion to Ps 72.5 billion in the year ended December 31, 2012. This increase was primarily due to an increase in the rate of return of Porvenir’s mandatory investment in its stability reserve as prevailing market conditions during 2011 were depressed due to local and global equity market conditions. Porvenir’s rate of return on its investment portfolio increased from 2.2% in the year ended December 31, 2011 to 9.5% in the year ended December 31, 2012. Also contributing to the increase in interest on investment securities was the average balance of the investment portfolio, which grew by 15.3% from Ps 661.2 billion at December 31, 2011 to Ps 762.1 billion at December 31, 2012.

Total fees and other services income

Total net fees and other services income consist primarily of commissions earned on the administration of mandatory pension funds, severance funds, voluntary pension funds and third-party liability pension funds. Porvenir’s total net fees and other services income increased by Ps 16.1 billion, or 4.0%, to Ps 422.4 billion in the year ended December 31, 2012 versus the year ended December 31, 2011, driven primarily by the increase in the revenues received from the administration of third-party liability pension funds, which rose by Ps 17.1 billion, from Ps 21.5 billion in the year ended December 31, 2011 to Ps 38.6 billion in the year ended December 31, 2012. This increase was mainly due to an increase in the commissions earned from the third-party liability pension funds whose rate of return is linked to prevailing local and global market conditions which during the year ended December 31, 2012 were more favorable than during the year ended December 31, 2011.

Also contributing to the increase in fee income was a Ps 7.2 billion increase in other fees associated with pension fund administration, such as non-contributor affiliate fees and transfer fees, which increased from Ps 13.8 billion for the year ended December 31, 2011 to Ps 21.0 billion for the year ended December 31, 2012. Non-contributor affiliate fees are charged on income generated by the managed funds. Because returns on funds were higher in 2012 than in 2011, the fees charged were higher in 2012 than in 2011.

Fee income from severance fund management increased by Ps 5.1 billion from Ps 60.8 billion in the year ended December 31, 2011 to Ps 65.9 billion in the year ended December 31, 2012. This increase was mainly due to an increase in the balance of assets under management in the severance fund, which increased by 15.0% in the year ended December 31, 2012 as compared to the year ended December 31, 2011.

Revenue associated with the management of voluntary pension funds increased by Ps 2.2 billion from Ps 46.0 billion in the year ended December 31, 2011 to Ps 48.1 billion in the year ended December 31, 2012.

Fee income received from the administration of mandatory pension funds decreased by Ps 4.5 billion from Ps 305.2 billion in the year ended December 31, 2011 to Ps 300.6 billion in the year ended December 31, 2012. This decrease was mainly due to a 10.0% increase in the compensation paid to insurance companies for life and disability coverage from 1.45% in 2011 to 1.60% in 2012 (see “Item 4. Information on the Company—B. Business

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overview—Colombian banking business overview—Porvenir”), the combined fee charged for administration and for insurance is 3.0%. This resulted in a decrease in the administration fee charged by Porvenir from 1.55% in 2011 to 1.40% in 2012.

Commissions from banking services, consisting primarily of fees charged to customers for the processing of information and the early withdrawal of pensions, decreased by Ps 7.1 billion to Ps 0.5 billion in the year ended December 31, 2012. This decrease was due to a reclassification of income from Gestión y Contacto S.A., which was included as commissions from banking services for the year ended December 31, 2011 and is classified as “other operating income” for the year ended December 31, 2012.

Fees and other service expenses increased by Ps 3.9 billion, from Ps 50.5 billion for the year ended December 31, 2011 to Ps 54.4 billion for the year ended December 31, 2012 mainly due to the increase in securities custody fees driven by a 34.2% increase in total assets under management.

Operating expenses

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#		%
	(in Ps billions)
Salaries and employee benefits		(84.1	)		(79.8	)		4.3			5.4
Bonus plan payments		(1.7	)		(1.4	)		0.3			22.9
Termination payments		(0.0	)		(0.1	)		(0.0	)		(56.5	)
Administrative and other expenses		(115.9	)		(112.5	)		3.4			3.0
Deposit security, net		-			-			-			-
Charitable and other donation expenses		(0.6	)		(2.2	)		(1.6	)		(74.0	)
Depreciation		(7.5	)		(6.4	)		1.1			17.4
Goodwill amortization		-			-			-			-
Total operating expenses		(209.7	)		(202.3	)		7.5			3.7

Porvenir’s total operating expenses in the year ended December 31, 2012 increased by 3.7%, or Ps 7.5 billion, to Ps 209.7 billion due primarily to the 5.4%, or Ps 4.3 billion, growth in salaries and employee benefits to Ps 84.1 billion and a Ps 3.4 billion increase in administrative and other expenses, which were consistent with the organic growth of the business. Porvenir’s employees increased from 2,119 as of December 31, 2011 to 2,195 as of December 31, 2012.

Porvenir’s efficiency ratio in the year ended December 31, 2012 improved in comparison to the same period in 2011, decreasing from 45.1% to 38.8%.

Other operating income

Total other operating income for the year ended December 31, 2012 increased by Ps 13.0 billion from Ps 13.3 billion in the year ended December 31, 2011 to Ps 26.3 billion. This increase was primarily due to the reclassification of income from Gestion & Contacto and to a higher recovery of provisions.

Non-operating income (expense, net)

Total non-operating income (expense), net includes provisions, gains on sale of property, administrative authority fines, and labor demand penalties. Total non-operating income (expense), net in the year ended December 31, 2012 decreased by Ps 0.7 billion from Ps 12.2 billion in the year ended December 31, 2011 to Ps 11.5 billion.

Income tax expense

Income tax expense increased by 20.4% to Ps 106.6 billion for the year ended December 31, 2012. This increase was primarily due to higher income before income tax expense and non-controlling interest. Porvenir’s effective tax rate, calculated before non-controlling interest, decreased from 36.4% for the year ended December 31, 2011 to 33.2% for the year ended December 31, 2012, primarily due to the fact that Porvenir accelerated the payment of the

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Equity Tax and as such recorded the aggregate amount due in the year ended December 31, 2011. The Equity Tax would have otherwise been paid in annual installments with the last payment in 2014.

LB Panama

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#		%
	(in Ps billions)
Total interest income		1,571.2			1,415.0			156.2			11.0
Total interest expense		(423.9	)		(335.1	)		88.8			26.5
Net interest income		1,147.3			1,079.8			67.4			6.2
Total (provisions) / reversals, net		(146.9	)		(165.0	)		(18.2	)		(11.0	)
Total fees and other services income, net		673.7			599.3			74.3			12.4
Total other operating income		110.5			96.5			14.0			14.5
Total operating income		1,784.6			1,610.6			174.0			10.8
Total operating expenses		(1,208.5	)		(1,134.5	)		74.0			6.5
Net operating income		576.0			476.1			99.9			21.0
Total non-operating income (expense), net		20.5			2.9			17.6			615.1
Income before income tax expense and non-controlling interest		596.5			479.0			117.5			24.5
Income tax expense		(169.4	)		(147.9	)		21.5			14.6
Income before non-controlling interest		427.1			331.1			96.0			29.0
Non-controlling interest		(0.1	)		(0.1	)		(0.0	)		(6.1	)
Net income attributable to shareholders		427.0			331.0			96.0			29.0

LB Panama’s financial information is prepared in accordance with Colombian Banking GAAP and primarily reflects BAC Credomatic’s consolidated results, which have been consolidated into LB Panama’s results since December 1, 2010. As of December 31, 2012, LB Panama had Ps 1,786.2 billion of goodwill associated with the BAC Credomatic acquisition and Ps 477.4 billion of indebtedness incurred to partly finance the BAC Credomatic acquisition. Goodwill amortization and interest expense associated with the BAC Credomatic acquisition for the year ended December 31, 2012 were Ps 52.3 billion and Ps 19.2 billion, respectively, compared to Ps 54.4 billion and Ps 19.4 billion, respectively, for the year ended December 31, 2011. Between October 16, 2012 and December 31, 2012, LB Panamá entered into term loans in an aggregate principal amount of U.S.$1.0 billion (Ps 1,768.2 billion), each with a term of five years, and pre-payable at any time by LB Panama facilities with Grupo Aval Limited, a wholly owned subsidiary of Grupo Aval. Disbursements under the intercompany loans were completed during the fourth quarter of 2012. As of December 31, 2012, LB Panama invested the proceeds of this intercompany loan in fixed income securities, 97% of which were investment grade,of Latin American governments and corporate issuers, pursuant to Banco de Bogotá’s investment guidelines. LB Panama also entered into hedging arrangements with Grupo Aval International Limited, a wholly owned subsidiary of Grupo Aval, backstopped by collateral, whereby Grupo Aval International Limited assumes the market risk in the fluctuation of the market price of the notes.

LB Panama’s net income attributable to its shareholders in the year ended December 31, 2012 increased by 29.0%, or Ps 96.0 billion, to Ps 427.0 billion mainly due to an increase in total fees and income from services, net, an increase in net interest income, a decrease in total net provisions, an increase in total non-operating income and an increase in total other operating income. Partially offsetting these increases was an increase in total operating expenses and an increase in income tax expense.

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Net interest income

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#		%
	(in Ps billions)
Interest income:
Interest on loans		1,455.4			1,319.0			136.4			10.3
Interest on investment securities		66.0			52.8			13.1			24.9
Interbank and overnight funds		28.3			23.0			5.3			23.2
Financial leases		21.5			20.1			1.4			6.8
Total interest income		1,571.2			1,415.0			156.2			11.0
Interest expense:
Checking accounts		(30.2	)		(29.6	)		0.6			2.2
Time deposits		(214.5	)		(164.9	)		49.7			30.1
Savings deposits		(31.3	)		(31.5	)		(0.2	)		(0.7	)
Total interest expense from deposits		(276.0	)		(226.0	)		50.1			22.2
Borrowing from banks and others		(121.5	)		(83.4	)		38.1			45.7
Interbank and overnight funds (expenses)		(5.9	)		(7.0	)		(1.1	)		(16.3	)
Long-term debt (bonds)		(20.5	)		(18.7	)		1.8			9.4
Total interest expense		(423.9	)		(335.1	)		88.8			26.5
Net interest income		1,147.3			1,079.8			67.4			6.2

LB Panama’s net interest income increased by 6.2%, or Ps 67.4 billion, from Ps 1,079.8 billion in the year ended December 31, 2011 to Ps 1,147.3 billion in the year ended December 31, 2012. This increase was primarily driven by a Ps 156.2 billion increase in total interest income, of which Ps 137.8 billion was attributable to an increase in interest income from loans and financial leases. Total interest income was partially offset by a Ps 88.8 billion increase in total interest expense.

Interest income from loans and financial leases increased by 10.3%, or Ps 137.8 billion, to Ps 1,476.9 billion for the year ended December 31, 2012. LB Panama’s average loans and financial lease portfolio grew by 15.1%, or Ps 1,504.5 billion, to Ps 11,465.8 billion for the year ended December 31, 2012, resulting in a Ps 193.8 billion increase in interest income from loans and financial leases. Partially offsetting this increase was the decrease in average yield from 13.4% for the year ended December 31, 2011 to 12.9% for the year ended December 31, 2012, which resulted in a Ps 56.0 billion decrease in interest income from loans and financial leases. The change in the average yield was the result of a change in the mix in the loan and financial lease portfolio as commercial loans as a proportion of total gross loans increased from 32.4% as of December 31, 2011 to 34.1% as of December 31, 2012. Consumer and mortgage loans as an aggregate proportion of total gross loans, and which in comparison to commercial loans have a higher yield, decreased from 65.5% as of December 31, 2011 to 63.7% as of December 31, 2012.

Interest income from investment securities increased by Ps 13.1 billion to Ps 66.0 billion for the year ended December 31, 2012. This increase was the result of a combined effect of an increase in the average volume of the investment portfolio of Ps 468.7 billion, or 35.2%, from Ps 1,333.4 billion for the year ended December 31, 2011, to Ps 1,802.1 billion for the year ended December 31, 2012, and a decrease in the average yield of the investment portfolio from 4.0% in 2011 to 3.7% in 2012. The increase in the portfolio is primarily attributable to the acquisition of investment securities resulting from the intercompany loan described above. The fixed income portfolio generated Ps 61.0 billion of interest income from investment securities, accounting for 92.5% of LB Panama’s earnings on investment securities for the year ended December 31, 2012. This result was 17.1% higher than the Ps 52.1 billion of interest income generated by fixed income securities for the year ended December 31, 2011 mainly attributable to income from the investment securities portfolio associated to the intercompany loan described above. LB Panama’s equity portfolio generated the remaining Ps 5.0 billion, or 7.5%, of income from investment securities for the year ended December 31, 2012.

Interest income from interbank and overnight funds increased by Ps 5.3 billion from Ps 23.0 billion for the year ended December 31, 2011 to Ps 28.3 billion for the year ended December 31, 2012. The increase in interest income from interbank and overnight funds was mainly driven by an increase in the average rate on interbank and overnight funds from 2.2% for the year ended December 31, 2011 to 3.5% for the year ended December 31, 2012.

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In sum and mainly driven by the decrease in the average yield on the loan and financial lease portfolio, the average yield earned on interest-earning assets decreased from 11.5% for the year ended December 31, 2011 to 11.2% for the year ended December 31, 2012.

Total interest expense increased by Ps 88.8 billion to Ps 423.9 billion for the year ended December 31, 2012 as compared to the year ended December 31, 2011. This increase was mainly driven by a Ps 49.7 billion increase in interest expense on time deposits and a Ps 38.1 billion increase in interest expense on borrowings from banks and others.

The Ps 49.7 billion increase in interest expense on time deposits was driven by an increase in the average balance of time deposits from Ps 4,079.5 billion for the year ended December 31, 2011 to Ps 4,628.7 billion for the year ended December 31, 2012, which contributed with an increase of Ps 25.5 billion in interest expense, and by an increase in the average interest rate paid which rose from 4.0% for the year ended December 31, 2011 to 4.6% for the year ended December 31, 2012 resulting in a Ps 24.2 billion increase in interest expense.

The increase in interest expense on borrowings from banks and others of Ps 38.1 billion was driven by an increase in the average balance of borrowings from banks and others from Ps 2,358.2 billion to Ps 3,201.0 billion and by an increase in the average interest rate paid which rose from 3.5% for the year ended December 31, 2011 to 3.8% for the year ended December 31, 2012. While the increase in the average balance of borrowings from banks and others contributed with an increase of Ps 32.0 billion in interest expense, the increase in the cost of these funds contributed with of the additional Ps 6.1 billion.

The average rate paid on interest-bearing liabilities increased from 2.5% for the year ended December 31, 2011 to 2.8% for the year ended December 31, 2012.

Average total interest-earning assets in Leasing Bogotá Panamá increased by 14.1% or Ps 1,741.3 billion for the year ended December 31, 2012 compared to the year ended December 31, 2011, while net interest income between the same periods increased by 6.2%. The above-mentioned resulted in a contraction of the net interest margin from 8.8% for the year ended December 31, 2011 to 8.2% for the year ended December 31, 2012. Showing a similar tendency, the interest spread between the average rate on loans and financial leases and the average rate paid on deposits decreased from 11.3% to 10.5%. The decrease in spread is mainly due to the change in the mix of the loan and financial lease portfolio described above.

Provisions

Total net provisions decreased by Ps 18.2 billion to Ps 146.9 billion for the year ended December 31, 2012, driven primarily by a Ps 14.8 billion decrease in net provisions for loans and financial leases to Ps 146.6 billion as of December 31, 2012.

The decrease in the net provision for loan and financial lease losses was explained by an increase in reversals of Ps 15.0 billion to Ps 24.1 billion for the year ended December 31, 2012. The increase in reversals was a result of an improvement in the quality of the loan and financial lease portfolio during 2012.

LB Panama’s past due loans and financial leases decreased by 9.3% between December 31, 2011 and December 31, 2012, while total loans increased in the same period of time by 7.9%. LB Panama’s delinquency ratio, thus, improved from 2.8% as of December 31, 2011 to 2.4% as of December 31, 2012. This improvement was primarily a result of a lower delinquency ratio in mortgage loans from 3.0% to 2.4% and a lower delinquency ratio in commercial loans from 2.5% to 1.7%. The decrease in LB Panama’s delinquency ratio was mainly driven by the stable growth of the Central American economies.

Charge-offs decreased from Ps 165.1 billion for the year ended December 31, 2011 to Ps 126.7 billion for the year ended December 31, 2012 due to the improvement in the quality of LB Panama’s loan and financial lease portfolio described above. LB Panama’s charge-offs to average loans and financial leases ratio decreased from an annualized 1.6% for the year ended December 31, 2011 to 1.1% for the year ended December 31, 2012. Since LB Panama’s net provisions for loan and financial lease losses decreased more than its charge-offs, the allowance for loan and financial lease losses slightly decreased from Ps 213.5 billion as of December 31, 2011 to Ps 212.7 billion as of December 31, 2012. LB Panama’s coverage ratio over its past due loans, however, showed an improvement from 64.3% as of December 31, 2011 to 70.7% as of December 31, 2012.

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Net provisions for accrued interest and other receivables decreased by Ps 4.7 billion to a net expense of Ps 1.8 billion as of December 31, 2012 from a net expense of Ps 6.4 billion as of December 31, 2011 due to a lesser provision expense of Ps 4.7 billion.

Net provisions for foreclosed assets and other assets decreased by Ps 0.1 billion to a net expense of Ps 0.5 billion as of December 31, 2012 from Ps 0.6 billion as of December 31, 2011.

The recovery of charged-off assets decreased between the years ended December 31, 2011 and the year ended December 31, 2012 by Ps 1.4 billion to Ps 2.1 billion.

Total fees and other services income

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#	%
	(in Ps billions)
Fees and other services income:
Commissions from banking services		470.5			416.2			54.3		13.0
Branch network services		–			–			–		–
Credit card merchant fees		194.7			173.4			21.3		12.3
Checking fees		–			–			–		–
Warehouse services		–			–			–		–
Fiduciary activities		–			–			–		–
Pension plan administration		11.5			9.8			1.8		18.2
Other		57.2			55.0			2.3		4.1
Total fees and other services income		734.0			654.4			79.6		12.2
Fees and other services expenses		(60.3	)		(55.0	)		5.3		9.6
Total fees and other services income, net		673.7			599.3			74.3		12.4

Total net fees and other services income increased by 12.4%, or Ps 74.3 billion, to Ps 673.7 billion in the year ended December 31, 2012. Total fees and other services income increased by Ps 79.6 billion mainly as a result of higher commissions from banking services of Ps 54.3 billion, higher credit card merchant fees of Ps 21.3 billion, and higher pension plan administration fees of Ps 1.8 billion. These were partially offset by a Ps 5.3 billion increase in fees and other service expenses. The increase in commissions from banking services and in credit card merchant fess were consistent with LB Panama’s organic growth.

Other operating income

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#	%
	(in Ps billions)
Foreign exchange gains (losses), net		113.6			100.9			12.7		12.6
Gains on derivative operations, net		(3.3	)		(4.6	)		1.3		(28.3	)
Gains on sales of investments in equity securities, net		–			–			–		–
Income from non-financial sector, net		–			–			–		–
Dividend income		–			–			–		–
Other		0.2			0.2			0.0		9.2
Other operating income		110.5			96.5			14.0		14.5

Total other operating income, net increased by Ps 14.0 billion to Ps 110.5 billion in the year ended December 31, 2012 due primarily to a Ps 14.0 billion increase associated with foreign exchange gains (losses), net. In the ordinary course of business, LB Panama enters into forward contracts and other derivative transactions in foreign currency through its treasury department almost entirely for hedging purposes and on behalf of clients.

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Operating expenses

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#		%
	(in Ps billions)
Salaries and employee benefits		(484.4	)		(451.0	)		33.4			7.4
Bonus plan payments		(54.5	)		(53.9	)		0.6			1.1
Termination payments		(16.3	)		(17.3	)		(1.0	)		(5.8	)
Administrative and other expenses		(536.0	)		(490.7	)		45.2			9.2
Deposit security, net		(8.9	)		(8.6	)		0.3			4.0
Charitable and other donation expenses		(2.1	)		(1.7	)		0.4			20.7
Depreciation		(54.1	)		(56.9	)		(2.8	)		(4.9	)
Goodwill amortization		(52.3	)		(54.4	)		(2.1	)		(3.9	)
Total operating expenses		(1,208.5	)		(1,134.5	)		74.0			6.5

Total operating expenses increased by 6.5%, or Ps 74.0 billion, to Ps 1,208.5 billion for the year ended December 31, 2012. The increase is mainly due to a Ps 45.2 billion increase to Ps 536.0 billion in administrative and other expenses principally driven by the organic growth of the business and particularly associated with managing LB Panama’s larger loan portfolio. Also contributing to the increase in total operating expense was a Ps 33.4 billion increase to Ps 484.4 billion in salaries and employee benefits. While LB Panama’s number of employees increased from 15,498 for the year ended December 31, 2011 to 16,669 for the year ended December 31, 2012, on a per capital basis, salaries and employee benefits decreased by 0.1% between 2011 and 2012. LB Panama’s efficiency ratio for the year ended December 31, 2012 was 57.1%, improving from the 57.6% ratio for the year ended December 31, 2011.

Non-operating income (expense)

Total net non-operating income (expense) increased by Ps 17.6 billion to a net income of Ps 20.5 billion for the year ended December 31, 2012. This increase was mainly driven by a reversal of a provision for deferred taxes resulting from the reconciliation of U.S. GAAP to Colombian Banking GAAP accounting standards.

Income tax expense

Income tax expense for LB Panama increased by 14.6%, or Ps 21.5 billion, to Ps 169.4 billion for the year ended December 31, 2012. This increase was primarily due to higher income before income tax expense and non-controlling interest which increased by 24.5%. LB Panama’s effective tax rate, calculated before non-controlling interest, decreased from 30.9% for the year ended December 31, 2011 to 28.4% for the year ended December 31, 2012.

Non-controlling interest

LB Panama’s non-controlling interest is not material. It totaled Ps 0.08 billion for the year ended December 31, 2012.

Banco de Occidente

Net income

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#	%
	(in Ps billions)
Total interest income		2,028.6			1,592.7			435.9		27.4
Total interest expense		(745.5	)		(525.5	)		220.0		41.9
Net interest income		1,283.2			1,067.2			216.0		20.2
Total (provisions) / reversals, net		(223.6	)		(176.6	)		47.0		26.6

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	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#		%
	(in Ps billions)
Total fees and other services income, net		229.0			198.5			30.5			15.3
Total other operating income		332.7			314.3			18.4			5.9
Total operating income		1,621.3			1,403.5			217.8			15.5
Total operating expenses		(937.2	)		(846.3	)		91.0			10.8
Net operating income		684.0			557.2			126.8			22.8
Total non-operating income (expense), net		12.9			15.5			(2.6	)		(16.5	)
Income before income tax expense and non-controlling interest		697.0			572.7			124.2			21.7
Income tax expense		(174.7	)		(139.0	)		35.7			25.7
Income before non-controlling interest		522.3			433.7			88.6			20.4
Non-controlling interest		(2.0	)		(1.6	)		0.4			24.0
Net income attributable to shareholders		520.3			432.1			88.2			20.4

Banco de Occidente’s net income attributable to its shareholders increased by 20.4%, or Ps 88.2 billion, to Ps 520.3 billion for the year ended December 31, 2012. This increase was primarily due to an increase in net interest income, an increase in total fees and other services income and an increase in total other operating income, offset in part by an increase total operating expenses, an increase in total net provisions and an increase in income tax expense.

Net interest income

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#		%
	(in Ps billions)
Interest income:
Interest on loans		1,395.6			1,080.2			315.4			29.2
Interest on investment securities		174.1			177.1			(3.0	)		(1.7	)
Interbank and overnight funds		45.7			29.2			16.5			56.4
Financial leases		413.1			306.1			107.0			35.0
Total interest income		2,028.6			1,592.7			435.9			27.4
Interest expense:
Checking accounts		(9.7	)		(7.3	)		2.4			32.9
Time deposits		(206.9	)		(116.5	)		90.4			77.6
Savings deposits		(268.2	)		(188.5	)		79.7			42.3
Total interest expense on deposits		(484.8	)		(312.3	)		172.5			55.2
Borrowing from banks and others		(76.2	)		(75.3	)		0.9			1.1
Interbank and overnight funds (expenses)		(22.0	)		(14.6	)		7.4			50.8
Long-term debt (bonds)		(162.5	)		(123.3	)		39.2			31.8
Total interest expense		(745.5	)		(525.5	)		220.0			41.9
Net interest income		1,283.2			1,067.2			216.0			20.2

Banco de Occidente’s net interest income grew by 20.2%, or Ps 216.0 billion, from Ps 1,067.2 billion for the year ended December 31, 2011 to Ps 1,283.2 billion for the year ended December 31, 2012. This increase was driven primarily by a Ps 435.9 billion increase in total interest income, Ps 422.4 billion of which was attributable to an increase in interest income from loans and financial leases. Total interest income’s increase was partially offset by an increase in total interest expense of Ps 220.0 billion.

Interest income from loans and financial leases increased by 30.5%, or Ps 422.4 billion, to Ps 1,808.8 billion for the year ended December 31, 2012. Banco de Occidente’s average loans and financial lease portfolio grew by 21.6%, or Ps 2,732.0 billion, to Ps 15,406.7 billion, resulting in a Ps 330.9 billion increase in interest income from

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loans and financial leases. The balance of commercial loans (including financial leases) and consumer loans increased by Ps 1,596.2 billion and Ps 686.5 billion, respectively. Also contributing to the increase in interest income from loans and financial leases was the increase in the average yield on loans and financial leases from 10.9% for the year ended December 31, 2011 to 11.7% for the year ended December 31, 2012, which resulted in a Ps 91.5 billion increase in interest income from loans and financial leases. The increase in yields was a result of an increasing rate environment where average DTF rate increased from 4.21% for the year ended December 31, 2011 to 5.35% for the year ended December 31, 2012.

Also contributing to the increase in interest income was a Ps 16.5 billion increase in income from interbank and overnight funds to Ps 45.7 billion for the year ended December 31, 2012. This increase was mainly driven by the increase in the average yield from 5.5% in 2011 to 8.3% in 2012.

Interest income from investment securities decreased by Ps 3.0 billion to Ps 174.1 billion for the year ended December 31, 2012. The fixed income portfolio generated Ps 173.7 billion, or 99.8% of Banco de Occidente’s earnings on investment securities for the year ended December 31, 2012, while the equity portfolio generated Ps 0.4 billion, or 0.2% of earnings from investment securities, showing a composition in line with historical results. The Ps 3.0 billion decrease was explained by a decrease in the average balance of the investment portfolio of Ps 488.1 billion, or 10.7%, to Ps 4,072.6 billion for the year ended December 31, 2012, offset in part by an increase in its yield from 3.9% for the year ended December 31, 2011 to 4.3% for the same period of 2012

The average yield earned on interest-earning assets increased from 9.0% for the year ended December 31, 2011 to 10.1% for the year ended December 31, 2012, primarily as a result of the increases in the yield of the loan portfolio as described above.

The 41.9%, or Ps 220.0 billion, increase in total interest expense to Ps 745.5 billion for the year ended December 31, 2012 as compared to the year result as of December 31, 2011 partially offset the increase in total interest income. This increase was mainly driven by a Ps 90.4 billion increase in time deposits’ interest expense, a Ps 79.7 billion increase in savings deposits’ interest expense and a Ps 39.2 billion increase in long-term debt’s interest expense.

The increase in interest expense on time deposits of Ps 90.4 billion was driven by an increase in the average balance of time deposits from Ps 2,804.9 billion for the year ended December 31, 2011 to Ps 3,943.8 billion for the year ended December 31, 2012, which contributed Ps 65.9 billion in interest expense. Also contributing to the increase in interest expense on time deposits was an increase in the average interest rate paid which increased from 4.2% for the year ended December 31, 2011 to 5.2% for the year ended December 31, 2012. The 109 basis points of higher average interest rate contributed to an increase of Ps 24.4 billion in interest expense and is consistent with the increase in the average DTF rate described above.

The Ps 79.7 billion increase in interest expense on savings deposits was driven by an increase in the average interest rate paid from 3.4% for the year ended December 31, 2011 to 4.2% for the year ended December 31, 2012. This increase in costs was, as in the case of time deposits, consistent with an increasing interest-rate environment and resulted in a Ps 43.4 billion increase in interest expense. Also contributing to the increase in interest expense on savings deposits was an increase in the average balance of savings deposits from Ps 5,514.7 billion for the year ended December 31, 2011 to Ps 6,387.8 billion for the year ended December 31, 2012 contributing with an increase of Ps 36.3 billion in interest expense.

The increase in interest expense on long-term debt of Ps 39.2 billion was driven by a 25.1%, or Ps 434.1 billion, increase in the average balance of long-term debt to Ps 2,164.0 billion for the year ended December 31, 2012, which resulted in a Ps 32.6 billion increase in interest expense, and a 38 basis points increase in the nominal interest rate paid from 7.1% for the period ended December 31, 2011 to 7.5% for the period ended December 31, 2012, and resulted in a Ps 6.6 billion increase in interest expense.

The average rate paid on interest-bearing liabilities increased from 4.1% for the year ended December 31, 2011 to 4.9% for the year ended December 31, 2012.

The average total interest-earning assets for the year ended December 31, 2012 compared to the year ended December 31, 2011 increased by 12.8% or Ps 2,269.4 billion, and net interest income between the same periods increased by 20.2%, which resulted in an increase in the net interest margin from 6.0% for the year ended December

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31, 2011 to 6.4% for the year ended December 31, 2012. The interest spread between the average rate on loans and financial leases and the average rate paid on deposits slightly decreased from 7.4% in 2011 to 7.3% in 2012.

Provisions

Total net provisions increased by Ps 47.0 billion to Ps 223.6 billion for the year ended December 31, 2012, driven by a Ps 31.0 billion increase in net provisions for loans and financial leases to Ps 236.2 billion, a Ps 5.8 billion increase in net provisions for accrued interest and other receivables, a Ps 5.2 billion increase in net provisions foreclosed assets and other assets, and a Ps 5.0 billion decrease in recovery of charged-off assets.

The Ps 31.0 billion increase in the net provision for loan and financial lease losses was driven by an increase in the average volume of loans and financial leases and was not due to a decrease in credit quality. Banco de Occidente’s past due loans increased by 14.9% from December 31, 2011 to December 31, 2012, while total loans increased in the same period of time by 15.5%. The bank’s delinquency ratio remained unchanged at 2.5% as of December 31, 2011 and 2012.

Charge-offs increased from Ps 167.8 billion for the year ended December 31, 2011 to Ps 198.4 billion for the year ended December 31, 2012. Banco de Occidente’s charge-offs to average balance of loans and financial leases ratio remained unchanged at an annualized 1.3% for both the year ended December 31, 2011 and 2012. Since charge-offs were only a fraction of net provisions for loans and financial leases, total allowance for loans and financial lease losses showed an increase from Ps 574.2 billion as of December 31, 2011 to Ps 611.3 billion as of December 31, 2012. Banco de Occidente’s coverage ratio over its past due loans remained strong at 146.8% as of December 31, 2012. The coverage ratio at December 31, 2011 was 158.4%.

Net provision expense for accrued interest and other receivables increased by Ps 5.8 billion to Ps 30.8 billion for the year ended December 31, 2012 from Ps 25.1 billion for the same period in 2011 due to a combination of a higher provision expense of Ps 7.9 billion and higher reversals of provisions of Ps 2.1 billion. This increase in net provision expense is mainly attributable to an increase in the balance of accrued interest and other receivables.

Net provision expense for foreclosed assets and other assets increased by Ps 5.2 billion to Ps 8.5 billion for the year ended December 31, 2012 from Ps 3.3 billion for the same period in 2011 due to a combination of a higher provision expense of Ps 1.5 billion and lesser reversals of provisions of Ps 3.7 billion.

The recovery of charged-off assets decreased between the year ended December 31, 2011 and the year ended December 31, 2012 by Ps 5.0 billion to Ps 51.9 billion. The ratio of recovered charged-off assets to average loans and financial leases slightly decreased from 0.6% for the year ended December 31, 2011 to 0.5% for the year ended December 31, 2012.

Total fees and other services income, net

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#		%
	(in Ps billions)
Fees and other services income:
Commissions from banking services		163.2			140.6			22.7			16.1
Branch network services		-			-			-			-
Credit card merchant fees		81.7			75.3			6.4			8.5
Checking fees		22.1			23.7			(1.7	)		(7.0	)
Warehouse services		-			-			-			-
Fiduciary activities		46.0			38.5			7.5			19.6
Pension plan administration		-			-			-			-
Others		33.4			29.6			3.7			12.6
Total fees and other services income		346.5			307.7			38.7			12.6
Fees and other services expenses		(117.5	)		(109.2	)		8.3			7.6
Total fees and other services income, net		229.0			198.5			30.5			15.3

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Total fees and other services income, net increased by 15.3%, or Ps 30.5 billion, to Ps 229.0 billion for the year ended December 31, 2012. This increase was primarily due to a Ps 22.7 billion increase in commissions from banking services to Ps 163.2 billion, mainly as a result of Banco de Occidente’s organic growth and higher commissions charged on different products such as management fees, a Ps 7.5 billion increase in fiduciary activities to Ps 46.0 billion, and a Ps 6.4 billion increase in credit card merchant fess to Ps 81.7 billion. Partially offsetting these increases was the Ps 8.3 billion increase in fees and other services expenses to Ps 117.5 billion for the year ended December 31, 2012.

Other operating income

	Year ended December 31,				Change, December 2012 vs. December 2011
	2012		2011			#		%
	(in Ps billions)
Foreign exchange gains (losses), net		6.6		18.6		(12.1	)		(64.7	)
Gains on derivative operations, net		30.4		4.3		26.1			614.4
Gains on sales of investments in equity securities, net		-		3.7		(3.7	)		(100.0	)
Income from non-financial sector, net		2.2		2.0		0.2			11.3
Dividend income		133.6		126.7		6.9			5.5
Other		159.9		159.1		0.8			0.5
Total other operating income		332.7		314.3		18.4			5.9

Total other operating income increased by 5.9%, or Ps 18.4 billion, to Ps 332.7 billion for the year ended December 31, 2012. This increase was primarily a result of a Ps 14.1 billion increase in net foreign exchange and derivative operations and a Ps 6.9 billion increase in dividend income, partially offset by a Ps 3.7 billion decrease in net gains on sales of investments in equity securities (During 2011, Banco de Occidente sold its investment in VISA Inc. recording a gain of Ps 3.7 billion).

Operating expenses

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#		%
	(in Ps billions)
Salaries and employee benefits		(327.9	)		(298.1	)		29.8			10.0
Bonus plan payments		(22.0	)		(24.6	)		(2.6	)		(10.4	)
Termination payments		(2.8	)		(2.9	)		(0.1	)		(2.4	)
Administrative and other expenses		(408.8	)		(363.6	)		45.3			12.4
Deposit security, net		(39.0	)		(34.1	)		4.9			14.3
Charitable and other donation expenses		(1.8	)		(3.7	)		(1.8	)		(49.9	)
Depreciation		(133.3	)		(117.9	)		15.4			13.0
Goodwill amortization		(1.4	)		(1.4	)		0.1			6.6
Total operating expenses		(937.2	)		(846.3	)		91.0			10.8

Total operating expenses increased by 10.8%, or Ps 91.0 billion, to Ps 937.2 billion for the year ended December 31, 2012 primarily due to a Ps 45.3 billion increase in administrative and other expenses, to Ps 408.8 billion, principally driven by the organic growth of the business and particularly as a result of the Bank’s larger loan and financial lease portfolio. Salaries and employee benefits increased by Ps 29.8 billion or 10.0% to Ps 327.9 billion, which was explained by an increase in headcount from 9,002 at December 31, 2011 to 10,876 at December 31, 2012. On a per capita basis, salaries decreased by 9.0%. Depreciation expense increased by Ps 15.4 billion to Ps 133.3 billion explained by a Ps 13.4 billion increase in depreciation expense from operating leases. Banco de Occidente’s efficiency ratio improved from 46.0% at December 31, 2011 to 43.5% at December 31, 2012. The annualized ratio of operating expenses before depreciation and amortization as a percentage of average earning assets improved from 4.1% for the year ended December 31, 2011 to 4.0% for the year ended December 31, 2012.

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Non-operating income (expense)

Total non-operating income (expense) includes gains (losses) from the sale of foreclosed assets, property, plant and equipment and other assets. Total non-operating income slightly decreased to Ps 12.9 billion for the year ended December 31, 2012, from a total net non-operating income of Ps 15.5 billion for the year ended December 31, 2011.

Income tax expense

Income tax expense for Banco de Occidente increased by Ps 35.7 billion to Ps 174.7 billion for the year ended December 31, 2012. This increase was primarily due to higher income before income tax expense and non-controlling interest. Banco de Occidente’s effective tax rate, calculated before non-controlling interest, increased from 24.3% for the year ended December 20, 2011 to 25.1% for the year ended December 31, 2012.

Non-controlling interest

Banco de Occidente’s non-controlling interest increased by Ps 0.4 billion to Ps 2.0 billion for the year ended December 31, 2012. Non-controlling interest is not a significant contributor to net income for Banco de Occidente, responsible for only 0.4% of net income before non-controlling interest for the year ended December 31, 2012.

Banco Popular

Net income

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#		%
	(in Ps billions)
Total interest income		1,613.2			1,403.2			210.0			15.0
Total interest expense		(554.9	)		(417.8	)		137.1			32.8
Net interest income		1,058.3			985.4			72.9			7.4
Total (provisions) / reversals, net		(90.7	)		(67.3	)		23.4			34.8
Total fees and other services income, net		145.0			150.7			(5.7	)		(3.8	)
Total other operating income		48.9			51.8			(2.9	)		(5.7	)
Total operating income		1,161.6			1,120.7			40.9			3.6
Total operating expenses		(669.2	)		(623.2	)		46.0			7.4
Net operating income		492.4			497.5			(5.1	)		(1.0	)
Total non-operating income (expense), net		77.1			57.2			19.9			34.8
Income before income tax expense and non-controlling interest		569.5			554.7			14.8			2.7
Income tax expense		(187.7	)		(177.5	)		10.2			5.8
Income before non-controlling interest		381.8			377.2			4.6			1.2
Non-controlling interest		(3.8	)		(5.0	)		(1.1	)		(22.8	)
Net income attributable to shareholders		377.9			372.2			5.7			1.5

Banco Popular’s net income attributable to its shareholders increased by 1.5% to Ps 377.9 billion for the year ended December 31, 2012. This increase was mainly due to an increase in net interest income, offset in part by an increase in total operating expenses and an increase total net provision expense.

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Net interest income

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#	%
	(in Ps billions)
Interest income:
Interest on loans		1,415.7			1,215.4			200.3		16.5
Interest on investment securities		141.9			141.6			0.2		0.2
Interbank and overnight funds		18.7			16.2			2.5		15.1
Financial leases		37.0			30.0			7.0		23.4
Total interest income		1,613.2			1,403.2			210.0		15.0
Interest expense:
Checking accounts		(23.8	)		(8.4	)		15.4		183.3
Time deposits		(129.1	)		(89.7	)		39.4		43.9
Savings deposits		(237.6	)		(205.2	)		32.4		15.8
Total interest expense on deposits		(390.5	)		(303.3	)		87.2		28.7
Borrowing from banks and others		(37.3	)		(15.3	)		22.0		143.6
Interbank and overnight funds (expenses)		(8.0	)		(6.7	)		1.3		19.6
Long-term debt (bonds)		(119.1	)		(92.4	)		26.6		28.8
Total interest expense		(554.9	)		(417.8	)		137.1		32.8
Net interest income		1,058.3			985.4			72.9		7.4

Banco Popular’s net interest income grew by 7.4%, or Ps 72.9 billion, from Ps 985.4 billion for the year ended December 31, 2011 to Ps 1,058.3 billion for the year ended December 31, 2012. This increase was driven primarily by a Ps 210.0 billion increase in total interest income, Ps 207.3 billion of which was attributable to an increase in interest income from loans and financial leases. The increase in total interest income was partially offset by an increase in total interest expense of Ps 137.1 billion.

Interest income from loans and financial leases increased by 16.6%, or Ps 207.3 billion, to Ps 1,452.7 billion for the year ended December 31, 2012. Banco Popular’s average interest earning loans and financial leases portfolio grew by 18.2%, or Ps 1,674.3 billion, to Ps 10,867.4 billion, resulting in a Ps 228.6 billion increase in interest income from loans and financial leases. The balance of consumer loans and commercial loans increased by Ps 805.4 billion and Ps 693.7 billion, respectively. Partially offsetting this increase was a slight decrease in the average yield of loans and financial leases from 13.5% for the year ended December 31, 2011 to 13.4% for the year ended December 31, 2012, which resulted in a Ps 21.3 billion decrease in interest income from loans and financial leases.

Interest income from investment securities remained basically unchanged increasing by 0.2% to Ps 141.9 billion for the year ended December 31, 2012. The fixed income portfolio generated Ps 139.9 billion of interest income from investment securities, accounting for 98.6% of Banco Popular’s earnings on investment securities for the year ended December 31, 2012. This interest income was 1.0%, or Ps 1.4 billion, higher than the Ps 138.5 billion of income generated by fixed income securities for the year ended December 31, 2011. Partially offsetting the increase generated by the fixed income portfolio was Banco Popular’s equity portfolio which generated the remaining Ps 2.0 billion, or 1.4%, of income from investment securities for the year ended December 31, 2012. This interest income was Ps 1.2 billion lower than the Ps 3.2 billion of income generated by the equity portfolio for the year ended December 31, 2011.

Interest income from interbank and overnight funds increased by Ps 2.5 billion to Ps 18.7 billion for the year ended December 31, 2012 mainly driven by an increase in the average balance of interbank and overnight funds from Ps 150.9 billion as of December 31, 2011 to Ps 247.7 billion as of December 31, 2012.

As a result of an increasing rate environment, where the average DTF increased by 115 basis points from 4.21% for the year ended December 31, 2011 to 5.35% for the year ended December 31, 2012, the average yield earned on interest-earning assets increased from 11.6% for the year ended December 31, 2011 to 12.1% for the year ended December 31, 2012.

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Total interest expense increased by Ps 137.1 billion to Ps 554.9 billion for the year ended December 31, 2012 as compared to the year ended December 31, 2011. This increase was explained by a Ps 39.4 billion increase in time deposits’ interest expense, a Ps 32.4 billion increase in savings deposits’ interest expense, a Ps 26.6 billion increase in long-term debt’s interest expense, a Ps 22.0 billion increase in borrowings from banks and others’ interest expense and a Ps 15.4 billion increase in checking accounts’ interest expense.

The Ps 39.4 billion increase in interest expense on time deposits was driven by an increase in the average interest rate paid on those deposits which increased from 5.0% for the year ended December 31, 2011 to 6.2% for the year ended December 31, 2012 and due to an increase in the average balance of time deposits from Ps 1,802.7 billion to Ps 2,068.9 billion. The increase of 126 basis points in the cost of these funds, which contributed with an increase of Ps 22.8 billion in interest expense, was mainly a result of the above-mentioned increasing rate environment. The increase in the average balance of time deposits contributed with the additional increase of Ps 16.6 billion of interest expense in time deposits.

The increase in interest expense on saving deposits of Ps 32.4 billion was driven by an increase in the average interest rate paid for savings deposits which increased from 3.4% for the year ended December 31, 2011 to 4.0% for the year ended December 31, 2012. The increase in the interest rate paid was, as in the case of the time deposits, consistent with an increasing interest-rate environment and resulted in a Ps 32.4 billion increase in interest expense. The average balance of saving deposits remained basically unchanged between the year ended December 31, 2011 and the year ended December 31, 2012 at 5,950.0 billion.

The Ps 26.6 billion increase in interest expense on long-term debt was driven by a 18.5%, or Ps 267.9 billion, increase in the average balance of long-term debt to Ps 1,718.1 billion for the year ended December 31, 2012, which resulted in a Ps 18.6 billion increase in interest expense paid on long-term debt and to a 56 basis points increase in the average interest rate paid from 6.4% for the period ended December 31, 2011 to 6.9% for the period ended December 31, 2012, and resulted in a Ps 8.1 billion increase in interest expense. The increase in the interest rate paid was also consistent with an increasing interest-rate environment.

The increase in interest expense on borrowings from banks and others of Ps 22.0 billion was driven by a 50.8% increase in the average balance borrowings from banks and others to Ps 566.3 billion for the year ended December 31, 2012, which resulted in a Ps 15.9 billion increase in interest expense, and to an increase in the average interest rate paid from 4.1% for the period ended December 31, 2011 to 6.6% for the period ended December 31, 2012, and resulted in a Ps 6.1 billion increase in interest expense. The increase in the interest rate paid was consistent with an increasing interest-rate environment.

The Ps 15.4 billion increase in interest expense on checking accounts was driven by a 69.2%, or Ps 135.1 billion, increase in the average balance of checking accounts to Ps 330.4 billion for the year ended December 31, 2012, resulting in a Ps 9.7 billion increase in interest expense and an increase in the average interest rate paid from 4.3% for the period ended December 31, 2011 to 7.2% for the period ended December 31, 2012, and resulted in a Ps 5.7 billion increase in interest expense. The increase in the interest rate paid was consistent with an increasing interest-rate environment.

The average rate paid on interest-bearing liabilities increased from 4.2% for the year ended December 31, 2011 to 5.2% for the year ended December 31, 2012.

While average total interest-earning assets for the year ended December 31, 2012 compared to the year ended December 31, 2011 increased by 10.3% or Ps 1,251.6 billion, the increase in net interest income between the same periods was 7.4% affected by the increase in the cost of funding and the decrease in yields on loans and financial leases. This resulted in a tightening of the net interest margin from 8.1% for the year ended December 31, 2011 to 7.9% for the year ended December 31, 2012. Showing a similar tendency, the interest spread between the average rate on loans and financial leases and the average rate paid on Deposits decreased from 9.7% to 8.7%.

Provisions

Total net provisions increased by Ps 23.4 billion to Ps 90.7 billion for the year ended December 31, 2012, driven primarily by a Ps 9.0 billion increase in net provisions for loans and financial leases to Ps 99.0 billion. The increase in the net provision for loan and financial lease losses is mainly due to an increase in the average volume of

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loans and not due to a decrease in the credit quality of the Bank, as Banco Popular’s delinquency ratio remained basically unchanged at 2.1% as of December 31, 2011 and 2012.

Charge-offs showed an increase from Ps 51.9 billion for the year ended December 31, 2011 to Ps 57.8 billion for the year ended December 31, 2012. Banco Popular’s charge-offs to average loans and financial leases ratio decreased from an annualized 0.6% for the year ended December 31, 2011 to 0.5% for the year ended December 31, 2012. Since Banco Popular’s net provisions for loan and financial lease losses increased, in absolute terms, more than the amount increased by its charge-offs, the allowance for loan and financial lease losses increased from Ps 389.3 billion as of December 31, 2011 to Ps 430.1 billion as of December 31, 2012. Banco Popular’s coverage over its past due loans closed at 172.4% as of December 31, 2012. The coverage ratio at December 31, 2011 was 184.3%.

Net provisions for accrued interest and other receivables increased by Ps 8.5 billion to a net expense of Ps 4.5 billion as of December 31, 2012 from a net recovery of Ps 3.9 billion as of December 31, 2011 due to a combination of lesser reversals of provisions of Ps 7.1 billion and higher provision expense of Ps 1.4 billion.

Net provisions for foreclosed assets and other assets increased by Ps 3.5 billion to a net expense of Ps 2.8 billion as of December 31, 2012 from a net recovery of Ps 0.7 billion as of December 31, 2011 due to a combination of lesser reversals of provisions of Ps 2.1 billion and higher provision expense of Ps 1.4 billion.

The recovery of charged-off assets decreased between the year ended December 31, 2011 and the year ended December 31, 2012 by Ps 2.4 billion to Ps 15.7 billion.

Total fees and other services income, net

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#		%
	(in Ps billions)
Fees and other services income:
Commissions from banking services		83.6			88.8			(5.3	)		(5.9	)
Branch network services		–			–			–			–
Credit card merchant fees		6.1			5.4			0.7			12.4
Checking fees		3.7			4.1			(0.4	)		(8.6	)
Warehouse services		62.2			61.1			1.1			1.8
Fiduciary activities		13.8			11.8			2.0			16.8
Pension plan administration		0.7			1.1			(0.4	)		(36.8	)
Others		10.0			10.7			(0.7	)		(6.5	)
Total fees and other services income		180.0			182.9			(2.9	)		(1.6	)
Fees and other services expenses		(35.0	)		(32.2	)		2.8			8.5
Total fees and other services income, net		145.0			150.7			(5.7	)		(3.8	)

Total net fees and other services income decreased by 3.8%, or Ps 5.7 billion, to Ps 145.0 billion for the year ended December 31, 2012. This decrease was primarily due to a Ps 5.3 billion decrease in commissions from banking services to Ps 83.6 billion and a Ps 2.8 billion increase in total fees and other services expenses to Ps 35.0 billion. Partially offsetting these was a Ps 2.0 billion increase in fees from fiduciary activities.

The Ps 5.3 billion decrease in commissions from banking services was mainly due to a Ps 2.6 billion decrease in commissions charged on ATM transactions and a Ps 1.2 billion decrease on management fees charged on debit card transactions. Additionally, during 2011, Banco Popular had Ps 1.5 billion in income from capital markets services.

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Other operating income

	Year ended December 31,					Change, December 2012 vs. December 2011
	2012			2011			#		%
	(in Ps billions)
Foreign exchange gains (losses), net		(0.6	)		0.3		(0.8	)		(305.5	)
Gains on derivative operations, net		0.1			0.0		0.1			2,053.7
Gains on sales of investments in equity securities, net		(0.0	)		–		(0.0	)		–
Income from non-financial sector, net		4.4			7.9		(3.5	)		(44.4	)
Dividend income		31.5			31.6		(0.1	)		(0.2	)
Other		13.4			12.0		1.4			11.3
Total other operating income		48.9			51.8		(2.9	)		(5.7	)

Total other operating income decreased by 5.7%, or Ps 2.9 billion, to Ps 48.9 billion for the year ended December 31, 2012. This decrease was primarily a result of a Ps 3.5 billion decrease in net income from non-financial sector interests, (corresponding to income contributed by Inca S.A., a subsidiary of which Banco Popular owns approximately 44.6%), and a Ps 0.7 billion decrease in net foreign exchange and derivative operations. Partially offsetting these decreases was a Ps 1.4 billion increase in “other” income.

Operating expenses

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#		%
	(in Ps billions)
Salaries and employee benefits		(259.3	)		(244.9	)		14.4			5.9
Bonus plan payments		(3.9	)		(4.8	)		(0.9	)		(18.8	)
Termination payments		(0.4	)		(0.2	)		0.2			100.8
Administrative and other expenses		(350.2	)		(321.5	)		28.8			8.9
Deposit security, net		(29.5	)		(27.2	)		2.4			8.8
Charitable and other donation expenses		(1.4	)		(1.6	)		(0.2	)		(13.8	)
Depreciation		(24.5	)		(23.1	)		1.3			5.8
Goodwill amortization		–			–			–			–
Total operating expenses		(669.2	)		(623.2	)		46.0			7.4

Total operating expenses increased by 7.4% to Ps 669.2 billion for the year ended December 31, 2012 versus the year ended December 31, 2011. Administrative and other expenses increased by Ps 28.8 billion to Ps 350.2 billion, principally driven by the organic growth of the business and particularly due to Banco Popular’s larger loan and financial lease portfolio. Salaries and employee benefits increased by Ps 14.4 billion to Ps 259.3 billion, which was partially explained by the increase in headcount from 6,414 at December 31, 2011 to 6,674 at December 31, 2012. On a per capita basis, salaries and employee benefits increased by 1.8%. Banco Popular’s efficiency ratio worsened slightly from 50.5% at December 31, 2011 to 51.5% at December 31, 2012 as operating income before provisions grew less than operating expenses. The annualized ratio of operating expenses before depreciation and amortization as a percentage of average earning assets improved from 5.0% for the year ended December 31, 2011 to 4.8% for the year ended December 31, 2012.

Non-operating income (expense)

Total net non-operating income (expense) increased by Ps 19.9 billion to Ps 77.1 billion for the year ended December 31, 2012, mainly driven by a Ps 13.0 billion one-time adjustment to the value of Inca Fruenhauf S.A., a consolidated entity of Banco Popular which prior to 2012 was registered at historical cost and in 2012 was subject to an impairment.

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Income tax expense

Income tax expense for Banco Popular increased by Ps 10.2 billion to Ps 187.7 billion for the year ended December 31, 2012. This increase was primarily due to higher income before income tax expense and non-controlling interest. Banco Popular’s effective tax rate, calculated before non-controlling interest, increased from 32.0% for the year ended December 31, 2011 to 33.0% for the year ended December 31, 2012 due to an increase in non-tax deductible expenses and a decrease in non-taxable income.

Non-controlling interest

Banco Popular’s non-controlling interest decreased by Ps 1.1 billion to Ps 3.8 billion. Non-controlling interest is not a significant contributor to net income for Banco Popular, responsible for only 1.0% of net income before non-controlling interest for the year ended December 31, 2012.

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Banco AV Villas

Net income

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#		%
	(in Ps billions)
Total interest income		868.5			717.6			150.9			21.0
Total interest expense		(254.2	)		(169.0	)		85.2			50.4
Net interest income		614.3			548.6			65.7			12.0
Total (provisions) / reversals, net		(88.0	)		(33.4	)		54.6			163.4
Total fees and other services income, net		159.4			151.2			8.3			5.5
Total other operating income		4.2			3.4			0.9			25.5
Total operating income		690.0			669.7			20.2			3.0
Total operating expenses		(455.7	)		(436.0	)		19.8			4.5
Net operating income		234.3			233.8			0.5			0.2
Total non-operating income (expense), net		16.2			7.1			9.2			129.8
Income before income tax expense and non-controlling interest		250.5			240.8			9.7			4.0
Income tax expense		(78.0	)		(75.4	)		2.6			3.4
Income before non-controlling interest		172.5			165.5			7.1			4.3
Non-controlling interest		(0.2	)		(0.2	)		(0.0	)		(9.4	)
Net income attributable to shareholders		172.3			165.2			7.1			4.3

Banco AV Villas’ net income attributable to its shareholders increased by 4.3%, or Ps 7.1 billion, to Ps 172.3 billion for the year ended December 31, 2012 as compared to the year ended December 31, 2011. The increase was primarily due to an increase in net interest income, in total fees and other service income, net and in non-operating income (expense) net, offset in part by an increase in total net provisions and an increase in operating expenses.

Net interest income

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#	%
	(in Ps billions)
Interest income:
Interest on loans		732.1			600.7			131.3		21.9
Interest on investment securities		128.5			111.9			16.6		14.8
Interbank and overnight funds		7.9			4.9			3.0		60.6
Financial leases		–			–			–		–
Total interest income		868.5			717.6			150.9		21.0
Interest expense:
Checking accounts		(2.4	)		(0.7	)		1.8		265.6
Time deposits		(129.2	)		(91.6	)		37.6		41.0
Savings deposits		(87.1	)		(55.1	)		31.9		57.9
Total interest expense from deposits		(218.7	)		(147.4	)		71.3		48.3
Borrowing from banks and others		(6.9	)		(6.8	)		0.1		2.0
Interbank and overnight funds (expenses)		(28.6	)		(14.8	)		13.8		93.3
Long-term debt (bonds)		–			–			–		–
Total interest expense		(254.2	)		(169.0	)		85.2		50.4
Net interest income		614.3			548.6			65.7		12.0

Banco AV Villas’ net interest income increased by 12.0%, or Ps 65.7 billion, from Ps 548.6 billion for the year ended December 31, 2011 to Ps 614.3 billion for the year ended December 31, 2012. This increase was primarily driven by a Ps 150.9 billion increase in total interest income, Ps 131.3 billion of which was attributable to an increase in interest income from loans. Total interest income was partially offset by an increase in total interest expense of Ps 85.2 billion.

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Interest earned on loans increased by 21.9%, or Ps 131.3 billion, to Ps 732.1 billion for the year ended December 31, 2012 as compared to the year ended December 31, 2011. The increase in interest earned on loans was due to a 16.0%, or Ps 739.6 billion, increase in Banco AV Villas’ average interest bearing loan portfolio to Ps 5,355.7 billion as of December 31, 2012, which resulted in an increase of Ps 101.1 billion in interest income on loans. The balance of consumer loans, mortgage loans and commercial loans increased by Ps 572.5 billion, Ps 124.5 billion and Ps 105.0 billion, respectively. Also contributing to the increase in interest earned on loans was a 66 basis points increase in the average yield for loans from 13.0% for the year ended December 31, 2011 to 13.7% for the year ended December 31, 2012 contributing with an increase of Ps 30.2 billion in interest income on loans. The change in the average yield was the result of a change in the mix in the loan and financial lease portfolio as consumer loans as a proportion of total gross loans increased from 44.2% as of December 31, 2011 to 48.0% as of December 31, 2012. Commercial loans as an aggregate proportion of total gross loans, and which in comparison to consumer loans have a lower yield, decreased from 41.9% as of December 31, 2011 to 38.0% as of December 31, 2012.

Interest income from investment securities increased by 14.8%, or Ps 16.6 billion, to Ps 128.5 billion for the year ended December 31, 2012 as compared to the year ended December 31, 2011. The fixed income portfolio generated Ps 128.2 billion, or 99.8%, of Banco AV Villas’ earnings on investment securities for the year ended December 31, 2012 while the equity portfolio generated Ps 0.2 billion or 0.2% of total earnings from investment securities. The increase in interest income from investment securities was a result of a higher average of the investment portfolio, which increased by Ps 171.3 billion or 10.1%, and a higher yield on investments from 6.6% for the year ended December 31, 2011 to 6.9% for the year ended December 31, 2012.

The average yield earned on interest-earning assets increased from 11.2% for the year ended December 31, 2011 to 11.7% for the year ended December 31, 2012, mainly driven by the increase in the average yield on loans described above.

Total interest expense increased by 50.4%, or Ps 85.2 billion, to Ps 254.2 billion for the year ended December 31, 2012 as compared to the year ended December 31, 2011. This increase was mainly driven by a Ps 37.6 billion increase in time deposits’ interest expense, a Ps 31.9 billion increase in savings deposits’ interest expense and a Ps 13.8 billion increase in interbank and overnight funds interest expense.

The Ps 37.6 billion increase in interest expense on time deposits was driven by an increase in the average interest rate paid which increased from 4.4% for the year ended December 31, 2011 to 5.5% for the year ended December 31, 2012 and by an increase in the average balance of time deposits from Ps 2,077.5 billion to Ps 2,335.1 billion. The increase of 112 basis points in the cost of these funds, which resulted in an increase of Ps 23.3 billion in interest expense from time deposits, was mainly a result of an increase of 115 basis points in the average DTF rate from 4.21% for the year in December 31, 2011 to 5.35% for the year ended December 2012. The increase in the average balance of time deposits contributed with an additional Ps 14.3 billion increase in interest expense.

The increase in interest expense on saving deposits of Ps 31.9 billion was driven by a 66 basis points increase in the average interest rate paid from 1.9% for the period ended December 31, 2011 to 2.6% for the period ended December 31, 2012, and resulted in a Ps 19.2 billion increase in interest expense from saving deposits. Also contributing to the increase in interest expense was a 17.1%, or Ps 495.9 billion, increase in the average balance of saving deposits to Ps 3,399.6 billion for the year ended December 31, 2012, which resulted in a Ps 12.7 billion increase in interest expense. As in the case of time deposits, increase in the cost of saving deposits was driven by an increasing rate environment.

The Ps 13.8 billion increase in interest expense on interbank and overnight funds was driven by an increase in the average balance of interbank and overnight funds from Ps 409.6 billion to Ps 582.9 billion resulting in a Ps 8.5 billion increase in interest expense. Also contributing to the increase in interest expense was the increase in the average interest rate paid on those funds which increased from 3.6% for the year ended December 31, 2011 to 4.9% for the year ended December 31, 2012, resulting in an increase of Ps 5.3 billion in interest expense.

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The average rate paid on interest-bearing liabilities increased from 3.0% for the year ended December 31, 2011 to 3.9% for the year ended December 31, 2011, which was consistent with the above-mentioned increasing rate environment.

While the average total interest-earning assets for the year ended December 31, 2012 compared to the year ended December 31, 2011 increased by 15.0% or Ps 965.6 billion, net interest income increased at a slower pace (12.0%). Net interest margin for the period ended December 31, 2012 was 8.3%, showing a slight deterioration from the 8.5% of the year ended December 31, 2011, but still remained at a very competitive level. Also showing a slight deterioration was the interest spread between the yield earned on loans and the cost of deposits, which decreased from 10.1% in 2011 to 9.9% in 2012.

Provisions

Total net provisions increased Ps 54.6 billion from Ps 33.4 billion for the year ended December 31, 2011 to Ps 88.0 billion for the year ended December 31, 2012. The increase was primarily driven by a Ps 41.6 billion increase in net provisions for loan losses, from Ps 67.6 billion for the year ended December 31, 2011 to Ps 109.2 billion for the year ended December 31, 2012. The increase in the net provision for loan losses was primarily due to an increase in the average volume of loans and not due to a decrease in the credit quality of the Bank, as Banco AV Villas’ delinquency remained practically unchanged and closed at 3.7% as of December 31, 2012.

Charge-offs increased from Ps 79.4 billion for the year ended December 31, 2011 to Ps 101.6 billion for the year ended December 31, 2012 and the ratio of charge-offs to average loans showed a slight increase from 1.7% to 1.9% as of December 31, 2011 and 2012, respectively. Since Banco AV Villas’ net provisions for loan and financial lease losses increased, in absolute terms, more than the amount increased by its charge-offs, the allowance for loan losses increased from Ps 243.7 billion as of December 31, 2011 to Ps 251.2 billion as of December 31, 2012. As of December 31, 2012 Banco AV Villas had sufficient coverage over its past due loans with a ratio of 116.9%.

The recovery of charged-off assets decreased between the year ended December 31, 2011 and the year ended December 31, 2012 by Ps 13.1 billion to Ps 27.1 billion due to a decrease in the volume of charged-off loans subject to recovery.

Net provisions for foreclosed assets and other assets increased by Ps 0.3 billion to a net recovery of Ps 0.8 billion for the year ended December 31, 2012 due to a combination of lesser provision expense of Ps 0.6 billion and lesser reversals of provisions of Ps 0.8 billion.

Net provisions for accrued interest and other receivables decreased by Ps 0.4 billion to a net expense of Ps 6.7 billion for the year ended December 31, 2012 from Ps 7.1 billion for the same period in 2011.

Total fees and other services income, net

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#	%
	(in Ps billions)
Fees and other services income:
Commissions from banking services		149.8			143.8			6.0		4.2
Branch network services		-			-			-		-
Credit card merchant fees		13.6			11.1			2.5		22.5
Checking fees		7.9			4.2			3.7		89.4
Warehouse services		-			-			-		-
Fiduciary activities		-			-			-		-
Pension plan administration		-			-			-		-
Other		45.3			39.7			5.6		14.1
Total fees and other services income		216.5			198.7			17.8		9.0
Fees and other services expenses		(57.1	)		(47.5	)		9.6		20.2
Total fees and other services income, net		159.4			151.2			8.3		5.5

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Total fees and other services income, net increased by 5.5% or Ps 8.3 billion, to Ps 159.4 billion for the year ended December 31, 2012. This was primarily due to a Ps 6.0 billion increase in commissions from banking services, a Ps 5.6 billion increase in “other” fees which includes fees received from social security payments, a Ps 3.7 billion increase in checking fees, and a Ps 2.5 billion increase in credit card and merchant fees. This was partially offset by a Ps 9.6 billion increase in fees and other services expenses.

Other operating income

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#		%
	(in Ps billions)
Foreign exchange gains (losses), net		(0.5	)		0.6			(1.1	)		(189.3	)
Gains on derivative operations, net		1.5			(0.3	)		1.8			702.5
Gains on sales of investments in equity securities, net		-			-			-			-
Income from non-financial sector, net		-			-			-			-
Dividend income		3.3			3.0			0.2			8.0
Other		0.0			0.0			0.0			5.6
Other operating income		4.2			3.4			0.9			25.5

Total other operating income increased by 25.5% or Ps 0.9 billion to Ps 4.2 billion for the year ended December 31, 2012. This increase was mainly driven by an increase in net foreign exchange and derivatives operations.

Operating expenses

	Year ended December 31,						Change, December 2012 vs. December 2011
	2012			2011				#		%
	(in Ps billions)
Salaries and employee benefits		(152.5	)		(144.9	)		7.7			5.3
Bonus plan payments		(1.2	)		(1.9	)		(0.7	)		(36.2	)
Termination payments		(0.4	)		(1.4	)		(1.0	)		(69.9	)
Administrative and other expenses		(263.7	)		(247.7	)		16.0			6.4
Deposit security, net		(15.5	)		(16.5	)		(1.0	)		(5.8	)
Charitable and other donation expenses		(0.8	)		(4.0	)		(3.3	)		(81.3	)
Depreciation		(21.6	)		(19.6	)		2.0			10.4
Goodwill amortization		-			-			-			-
Total operating expenses		(455.7	)		(436.0	)		19.8			4.5

Total operating expenses for the year ended December 31, 2012 increased by 4.5% or Ps 19.8 billion to Ps 455.7 billion. Administrative and other expenses increased by Ps 16.0 billion to Ps 263.7 billion, principally driven by the organic growth of the business and particularly due to Banco AV Villas’ larger loan portfolio. Salaries and employee benefits increased by Ps 7.7 billion, or 5.3%, to Ps 152.5 billion, which was partially explained by the growth in the number of Banco AV Villas’ employees from 6,160 on December 31, 2011 to 6,211 on December 31, 2012. On a per capita basis, salary and employee benefits increased by 4.4%. Charitable and other donation expenses decreased by Ps 3.3 billion, due to a one time Ps 4.0 billion donation made by Banco AV Villas for the benefit of the victims of the floods in Colombia during 2011. As Banco AV Villas’ total operating expenses before depreciation and amortization grew by 4.5%, while its operating income before net provisions increased by 10.6%, Banco Av Villas’ efficiency ratio improved at December 31, 2012 as compared to December 31, 2011, decreasing from 59.2% to 55.8%. The ratio of annualized operating expenses before depreciation and amortization as a percentage of average interest-earning assets also showed an improvement from 6.5% for the year ended December 31, 2011 to 5.9% for the year ended December 31, 2012.

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Non-operating income (expense)

Total non-operating income (expense) increased by Ps 9.2 billion to Ps 16.2 billion for the year ended December 31, 2012. This increase was driven by a Ps 5.9 billion increase in non-operating income and a decrease of Ps 3.2 billion in non-operating expenses. The increase in income during the year ended December 31, 2012 was mainly due to a Ps 4.9 billion increase in recoveries from provisions from other assets and a Ps 1.6 billion gain on the sale of foreclosed assets.

Income tax expense

Income tax expense increased by Ps 2.6 billion to Ps 78.0 billion for the year ended December 31, 2012. This was primarily due to higher income before income tax expense and non-controlling interest. The effective tax rate decreased from 31.3% for the year ended December 31, 2011 to 31.1% for the year ended December 31, 2012.

Non-controlling interest

Banco AV Villas’ non-controlling interest, responsible for only 0.1% of its net income before non-controlling interest for the year ended December 31, 2012, remained basically unchanged at Ps 0.2 billion for years ended December 31, 2011 and 2012. Banco AV Villas’ non-controlling interest reflects other Grupo Aval banks’ ownership in A Toda Hora S.A.

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Segment results of operations for the year ended December 31, 2011 compared to the year ended December 31, 2010

Banco de Bogotá

Overview

Banco de Bogotá’s net income attributable to its shareholders in the year ended December 31, 2011 increased by 25.2%, or Ps 230.8 billion, to Ps 1,145.7 billion. Banco de Bogota’s operations excluding LB Panama contributed Ps 814.7 billion and LB Panama’s operation contributed Ps 331.0 billion.

Net income from Banco de Bogotá’s operations excluding LB Panama decreased by 5.5%, or Ps 47.2 billion, in the year ended December 31, 2011. The primary reasons for this decrease were a decrease in income from investment securities, an increase in interest expense and an increase in operating expenses only partially offset by higher income from loans and financial leases, lower net provisions (indicating a recovery) and higher net fee income.

The following discussion describes the principal drivers of Banco de Bogotá’s consolidated results of operations for the years ended December 31, 2011 and 2010. Further detail is provided in the discussion of the results of operations of LB Panama, Porvenir and Corficolombiana.

Banco de Bogotá’s results of operations in 2011 include 12 months of BAC Credomatic operations whereas the 2010 results include only one month of BAC Credomatic operations. In order to provide a meaningful comparison, we present in the following tables information that shows “Banco de Bogota consolidated”, “Banco de Bogotá consolidated excluding LB Panama” and “ LB Panama’s” results. “Banco de Bogotá consolidated excluding LB Panama” is the result of subtracting “LB Panama” results from “Banco de Bogotá consolidated” results.

	Banco de Bogotá consolidated
	Year ended December 31,						Change, 2011 vs. 2010
	2011			2010				#		%
	(in Ps billions)
Total interest income		4,395.9			3,345.6			1,050.3			31.4
Total interest expense		(1,459.2	)		(902.1	)		557.1			61.8
Net interest income		2,936.7			2,443.5			493.2			20.2
Total provisions (reversals), net		(139.0	)		(610.6	)		(471.6	)		(77.2	)
Total fees and other services income, net		1,756.8			1,155.1			601.7			52.1
Total other operating income		758.1			582.4			175.8			30.2
Total operating income		5,312.6			3,570.3			1,742.3			48.8
Total operating expenses		(2,968.0	)		(1,757.9	)		1,210.0			68.8
Net operating income		2,344.6			1,812.4			532.2			29.4
Total non-operating income (expense), net		68.5			96.0			(27.5	)		(28.6	)
Income before income tax expense and non-controlling interest		2,413.1			1,908.3			504.8			26.5
Income tax expense		(737.2	)		(510.0	)		227.2			44.5
Income before non-controlling interest		1,675.9			1,398.3			277.6			19.8
Non-controlling interest		(530.2	)		(483.4	)		46.8			9.7
Net income attributable to shareholders		1,145.7			914.9			230.8			25.2

	Banco de Bogotá excl. LB Panama												LB Panama (1)
	Year ended December 31,						Change, 2011 vs. 2010						Year ended December 31,					Change, 2011 vs. 2010
	2011			2010				#		%				2011		2010			#
	(in Ps billions)												(in Ps billions)
Total interest income		2,981.0			3,226.6			(245.7	)		(7.6	)		1,415.0		119.0			1,296.0
Total interest expense		(1,124.1	)		(873.2	)		250.9			28.7			(335.1	)	(29.0	)		306.2
Net interest income		1,856.9			2,353.5			(496.6	)		(21.1	)		1,079.8		90.0			989.8

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	Banco de Bogotá excl. LB Panama												LB Panama (1)
	Year ended December 31,						Change, 2011 vs. 2010						Year ended December 31,					Change, 2011 vs. 2010
	2011			2010				#		%				2011		2010			#
	(in Ps billions)												(in Ps billions)
Total provisions (reversals), net		26.0			(608.3	)		(634.3	)		(104.3	)		(165.0	)	(2.3	)		162.7
Total fees and other services income, net		1,157.4			1,100.0			57.4			5.2			599.3		55.1			544.3
Total other operating income		661.7			565.1			96.6			17.1			96.5		17.3			79.2
Total operating income		3,701.9			3,410.2			291.8			8.6			1,610.6		160.1			1,450.5
Total operating expenses		(1,833.4	)		(1,643.9	)		189.5			11.5			(1,134.5	)	(114.0	)		1,020.5
Net operating income		1,868.5			1,766.3			102.2			5.8			476.1		46.1			430.0
Total non-operating income (expense), net		65.6			67.7			(2.1	)		(3.0	)		2.9		28.3			(25.4	)
Income before income tax expense and non-controlling interest		1,934.1			1,833.9			100.2			5.5			479.0		74.4			404.6
Income tax expense		(589.3	)		(488.6	)		100.7			20.6			(147.9	)	(21.4	)		126.5
Income before non-controlling interest		1,344.8			1,345.4			(0.5	)		(0.0	)		331.1		53.0			278.1
Non-controlling interest		(530.1	)		(483.4	)		46.7			9.7			(0.1	)	(0.0	)		0.1
Net income attributable to shareholders		814.7			862.0			(47.2	)		(5.5	)		331.0		53.0			278.0

(1)

Net interest income

	Year ended December 31,						Change, 2011 vs. 2010
	2011			2010				#		%
	(in Ps billions)
Interest income:
Interest on loans		3,618.6			2,040.9			1,577.6			77.3
Interest on investment securities		552.2			1,156.7			(604.5	)		(52.3	)
Interbank and overnight funds		98.2			67.8			30.3			44.7
Financial leases		127.0			80.1			46.9			58.6
Total interest income		4,395.9			3,345.6			1,050.3			31.4
Interest expense:
Checking accounts		(66.0	)		(22.4	)		43.6			194.3
Time deposits		(571.7	)		(374.0	)		197.8			52.9
Savings deposits		(421.7	)		(290.4	)		131.3			45.2
Total interest expense from deposits		(1,059.4	)		(686.8	)		372.7			54.3
Borrowing from banks and others		(204.0	)		(62.2	)		141.9			228.1
Interbank and overnight funds (expenses)		(111.1	)		(86.6	)		24.5			28.3
Long-term debt (bonds)		(84.6	)		(66.6	)		18.1			27.1
Total interest expense		(1,459.2	)		(902.1	)		557.1			61.8
Net interest income		2,936.7			2,443.5			493.2			20.2

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	Banco de Bogotá excl. LB Panama												LB Panama (1)
	Year ended December 31,						Change, 2011 vs. 2010						Year ended December 31,					Change, 2011 vs. 2010
	2011			2010				#		%				2011		2010			#
	(in Ps billions)												(in Ps billions)
Interest income:
Interest on loans		2,299.5			1,929.5			370.0			19.2			1,319.0		111.4			1,207.6
Interest on investment securities		499.4			1,152.6			(653.3	)		(56.7	)		52.8		4.1			48.7
Interbank and overnight funds		75.2			65.9			9.3			14.0			23.0		1.9			21.1
Financial leases		106.9			78.5			28.4			36.1			20.1		1.6			18.6
Total interest income		2,981.0			3,226.6			(245.7	)		(7.6	)		1,415.0		119.0			1,296.0
Interest expense:
Checking accounts		(36.4	)		(22.4	)		14.0			62.4			(29.6	)	–			29.6
Time deposits		(406.8	)		(358.9	)		48.0			13.4			(164.9	)	(15.1	)		149.8
Savings deposits		(390.2	)		(285.2	)		105.0			36.8			(31.5	)	(5.2	)		26.3
Total interest expense from deposits		(833.5	)		(666.5	)		167.0			25.1			(226.0	)	(20.3	)		205.7
Borrowing from banks and others		(120.7	)		(55.7	)		65.0			116.7			(83.4	)	(6.5	)		76.9
Interbank and overnight funds (expenses)		(104.1	)		(86.2	)		17.9			20.8			(7.0	)	(0.4	)		6.6
Long-term debt (bonds)		(65.9	)		(64.8	)		1.1			1.7			(18.7	)	(1.8	)		17.0
Total interest expense		(1,124.1	)		(873.2	)		250.9			28.7			(335.1	)	(29.0	)		306.2
Net interest income		1,856.9			2,353.5			(496.6	)		(21.1	)		1,079.8		90.0			989.8

(1)

Banco de Bogotá’s net interest income increased by 20.2% from Ps 2,443.5 billion in the year ended December 31, 2010 to Ps 2,936.7 billion in the year ended December 31, 2011. Banco de Bogotá’s operations excluding LB Panama contributed Ps 1,856.9 billion (a decrease of 21.1% or Ps 496.6 billion from Ps 2,353.5 billion for the year ended December 31, 2010) and LB Panama contributed Ps 1,079.8 billion. The decrease in Banco de Bogotá’s operations excluding LB Panama was driven by a 7.6%, or Ps 245.7 billion, decrease in total interest income to Ps 2,981.0 billion for the year ended December 31, 2011 and a 28.7%, or Ps 250.9 billion, increase in total interest expense to Ps 1,124.1 billion for the year ended December 31, 2011.

Total interest income increased by 31.4%, from Ps 3,345.6 billion in the year ended December 31, 2010 to Ps 4,395.9 billion in the year ended December 31, 2011, primarily due to an increase in interest income from loans and financial leases, which rose by Ps 1,624.6 billion to Ps 3,745.6 billion in the year ended December 31, 2011. Of the total interest income from loans and financial leases for the year ended December 31, 2011, Ps 2,406.4 billion were contributed by Banco de Bogotá’s operations excluding LB Panama (an increase of 19.8% or Ps 398.4 billion from Ps 2,008.0 billion for the year ended December 31, 2010) and Ps 1,339.2 billion were contributed by LB Panama’s operations.

The increase generated in Banco de Bogotá’s operations excluding LB Panama primarily reflected a 23.7%, or Ps 4,883.6 billion growth of the combined average of the loans and financial leases portfolios from Ps 20,638.2 billion in 2010 to Ps 25,521.9 billion in 2011, which increased interest income by Ps 440.8 billion. Partly offsetting this increase was a decrease in the annualized yield on loans and financial leases of Banco de Bogotá’s operations excluding LB Panama from 9.7% in the year ended December 31, 2010 to 9.4% in the same period in 2011, which decreased interest income from loans and financial leases by Ps 42.4 billion. The decrease in the yield on loans and financial leases in Banco de Bogotá’s operations excluding LB Panama primarily reflects a declining interest rate environment in the second half of 2010 and early 2011 together with the strong growth of our loan portfolio during 2011. The average interest yield on loans and financial leases for Banco de Bogotá excluding LB Panama was 10.0% during the last quarter of 2011. The reasons for the decrease in the average yield on loans and financial leases

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are further discussed under “—Results of operations for the year ended December 31, 2011 compared to the year ended December 31, 2010—Grupo Aval—Net interest income.”

During 2011, the average portfolio loans and financial leases for LB Panama was Ps 9,961.3 billion and the annualized yield on its loans and financial leases was 13.4%.

Partially offsetting the increase in interest income from loans and from financial leases was a 52.3% decrease in income from investment securities, from Ps 1,156.7 billion to Ps 552.2 billion for the years ended December 31, 2010 and 2011 respectively. Under Colombian Banking GAAP, interest income from investment securities includes accrued interest on debt instruments, valuation adjustments and gains (losses) realized on debt and equity securities that are accounted for as “available for sale,” gains (losses) on repurchase transactions (i.e., repos), gains (losses) realized on the sale of debt securities, and mark-to-market gains (losses) on the trading securities portfolio.

Of the Ps 552.2 billion of interest income from investment securities, Banco de Bogotá’s operations excluding LB Panama contributed Ps 499.4 billion (a decrease of 56.7% or Ps 653.3 billion from Ps 1,152.6 billion for the year ended December 31, 2010) while LB Panama contributed Ps 52.8 billion.

Interest income from equity investments from Banco de Bogotá’s operations excluding LB Panama decreased by Ps 662.9 billion, or 97.5%, to Ps 17.0 billion mainly as a result of Corficolombiana having realized mark-to-market gains on its investments in Sociedad de Inversiones en Energía S.A. or “SIE,” Banco de Occidente, Empresa de Energía de Bogotá or “EEB” and Promigas during 2010 and realizing mark-to-market losses for those investments during 2011(further explained in “—Segment results of operations for the year ended December 31, 2011 compared to the year ended December 31, 2010—Banco de Bogotá subsidiary analysis—Corficolombiana—Net interest income”). Interest income derived from the fixed income portfolio of Banco de Bogotá’s operations excluding LB Panama increased by 2.0% or Ps 9.6 billion driven by an increase in the average fixed income investment portfolio.

Total interest expense in Banco de Bogotá increased by Ps 557.1 billion or 61.8% from Ps 902.1 billion in the same period in 2010 to Ps 1,459.2 billion in the year ended December 31, 2011 out of which Ps 1,124.1 billion was incurred by Banco de Bogotá’s operations excluding LB Panama (an increase of Ps 250.9 billion or 28.7% from Ps 873.2 billion in the year ended December 31, 2010) and Ps 335.1 billion was incurred by LB Panama.

Total interest expense in Banco de Bogotá’s operations excluding LB Panama increased due to the combined effect of a 20.3%, or Ps 5,450.3 billion, increase in the average balance of interest-bearing liabilities increasing to Ps 32,334.6 billion at December 31, 2011, and an increase in the average cost of funding from 3.2% in the year ended December 31, 2010 to 3.5% in the year ended December 31, 2011. The main reason for the increase in the average cost of funding in Banco de Bogotá’s operations excluding LB Panama was increase of the average DTF as discussed under “—Results of operations for the year ended December 31, 2011 compared to the year ended December 31, 2010—Grupo Aval.”

During 2011, the average balance of interest-bearing liabilities for LB Panama was Ps 13,286.5 billion and the annualized cost of funds was 2.5%.

Banco de Bogotá’s net interest margin (calculated as net interest income divided by total average interest-earning assets) decreased from 7.4% in the year ended December 31, 2010 to 6.0% in the same period in 2011. The net interest margin of Banco de Bogotá’s operations excluding LB Panama decreased from 7.3% to 5.0%, mainly driven by a decrease in the annualized yield of its investment portfolio from 11.7% in 2010 to 4.8% in 2011 due to Corficolombiana’s equity investments results, as discussed above and further explained under “—Segment results of operations for the year ended December 31, 2011 compared to the year ended December 31, 2010—Banco de Bogotá subsidiary analysis—Corficolombiana.” LB Panama’s net interest margin was 8.8% for the year ended December 31, 2011.

Provisions

Total net provisions decreased by 77.2% to Ps 139.0 billion in the year ended December 31, 2011, driven primarily by a Ps 613.4 billion decrease in net provisions for foreclosed assets and other assets. This decrease was driven by a Ps 306.9 billion decrease in provision expense and a Ps 306.5 billion increase in recovery of provisions in the year ended December 31, 2011. These changes are associated with Corficolombiana’s gross provision made

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during 2010 for covering risk associated with potential future fluctuations on the share price of its equity investment and the gross provision made during 2010 on its investment in SIE, both provisions were reversed during 2011 (further explained in “—Banco de Bogotá subsidiary analysis—Corficolombiana—Provisions”).

Partially offsetting the decrease in total net provisions for foreclosed assets and other assets was the increase in net provisions for loan and financial lease losses which increased by Ps 147.8 billion from Ps 286.6 billion for the year ended December 31, 2010 to Ps 434.4 billion for the year ended December 31, 2011.

Out of the Ps 434.4 billion of net provisions for loans and financial leases for the year ended December 31, 2011, Ps 273.0 billion were generated by Banco de Bogotá’s operations excluding LB Panama (a decrease of 4.5% or Ps 12.9 billion from Ps 285.9 billion for the year ended December 31, 2010) and Ps 161.4 billion was generated by LB Panama’s operations.

Banco de Bogotá’s past due loans at December 31, 2011 decreased by 5.6% to Ps 780.4 billion and its delinquency ratio improved by 60 basis points from 2.5% at December 31, 2010 to 1.9% at December 31, 2011. Banco de Bogota’s delinquency ratio excluding LB Panama was 1.6% at December 31, 2011, and LB Panama’s was 2.8% at December 31, 2011. LB Panama’s higher delinquency ratio is due to a greater concentration of consumer loans in BAC Credomatic’s business (including credit cards) than in Banco de Bogota’s operations excluding LB Panama.

Banco de Bogotá’s charge-offs increased by Ps 131.9 billion from Ps 245.7 billion in December 31, 2010 to Ps 377.5 billion in December 31, 2011. Out of the Ps 377.5 billion of charge-offs for the year ended December 31, 2011, Ps 212.5 billion were generated by Banco de Bogotá’s operations excluding LB Panama (a decrease of 6.9% or Ps 15.7 billion from Ps 228.2 for the year ended December 31, 2010) and Ps 165.1 billion was generated by LB Panama’s operations.

Banco de Bogotá’s charge-offs to average loan ratio decreased from 1.1% in December 31, 2010 to 1.0% in December 31, 2011. Banco de Bogotá’s operations excluding LB Panama charge-offs to average loan ratio decreased from 1.1% in December 31, 2010 to 0.8% in December 31, 2011.

Banco de Bogotá’s allowance for loans and financial leases increased by Ps 68.6 billion to Ps 1,099.4 billion at December 31, 2011 increasing Banco de Bogotá’s coverage ratio from 124.6% at December 31, 2010 to 140.9% at December 31, 2011.

In its Banco de Bogotá’s operations excluding LB Panama, Banco de Bogotá’s net provisions for loan and financial lease losses were greater than its charge-offs, which resulted in a 7.5% increase in its allowance for loan financial lease losses to Ps 885.9 billion at December 31, 2011. This growth combined with the decrease in past due loans resulted in an increase in its coverage ratio from 160.7% at December 31, 2010 to 197.5% at December 31, 2011.

LB Panama’s coverage ratio for the year ended December 31, 2011 was 64.3% compared to 65.7.% for the year ended December 31, 2010.

Banco de Bogotá’s net provisions for accrued interest and other receivables increased by Ps 16.6 billion, or 50.3%, to Ps 49.5 billion, Ps 10.4 billion of this increase was driven by Banco de Bogotá’s operations excluding LB Panama and Ps 6.2 billion was driven by LB Panama’s operations. The recovery of charged-off assets increased by Ps 22.6 billion, or 76.3%, to Ps 52.2 billion primarily as a result of a more successful recovery effort by Banco de Bogotá.

Total fees and other services income

	Year ended December 31,				Change, 2011 vs. 2010
	2011		2010			#	%
	(in Ps billions)
Fees and other services income:
Commissions from banking services		943.1		557.9		385.2		69.0
Branch network services		35.0		22.2		12.8		57.9
Credit card merchant fees		228.6		70.3		158.4		225.4

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	Year ended December 31,						Change, 2011 vs. 2010
	2011			2010				#	%
	(in Ps billions)
Fees and other services income:
Checking fees		42.4			42.0			0.5		1.1
Warehouse services		114.7			92.2			22.5		24.4
Fiduciary activities		99.7			98.3			1.3		1.4
Pension plan administration		457.1			408.3			48.8		11.9
Other		90.1			37.1			52.9		142.5
Total fees and other services income		2,010.6			1,328.2			682.4		51.4
Fees and other services expenses		(253.8	)		(173.2	)		80.7		46.6
Total fees and other services income, net		1,756.8			1,155.1			601.7		52.1

	Banco de Bogotá’s operations excluding LB Panama										LB Panama (1)
	Year ended December 31,						Change, 2011 vs. 2010				Year ended December 31,					Change, 2011 vs. 2010
	2011			2010				#	%			2011		2010			#
	(in Ps billions)										(in Ps billions)
Fees and other services income:
Commissions from banking services		526.8			519.9			6.9		1.3		416.2		37.9			378.3
Branch network services		35.0			22.2			12.8		57.9		–		–			–
Credit card merchant fees		55.2			51.6			3.6		7.0		173.4		18.6			154.8
Checking fees		42.4			42.0			0.5		1.1		–		–			–
Warehouse services		114.7			92.2			22.5		24.4		–		–			–
Fiduciary activities		99.7			98.3			1.3		1.4		–		–			–
Pension plan administration		447.3			408.3			39.0		9.6		9.8		–			9.8
Other		35.1			31.4			3.7		11.7		55.0		5.7			49.3
Total fees and other services income		1,356.2			1,265.9			90.3		7.1		654.4		62.3			592.1
Fees and other services expenses		(198.8	)		(166.0	)		32.9		19.8		(55.0	)	(7.2	)		47.8
Total fees and other services income, net		1,157.4			1,100.0			57.4		5.2		599.3		55.1			544.3

(1)

Total net fees and other services income increased by 52.1% to Ps 1,756.8 billion in the year ended December 31, 2011, primarily as a result of higher commissions from banking services and increased credit card merchant fees.

For the year ended December 31, 2011, Banco de Bogotá’s operations excluding LB Panama contributed Ps 1,157.4 billion in total fees and other income, net which includes Ps 526.8 billion in commissions from banking services and Ps 55.2 billion in credit card merchant fees. LB Panama, in turn, contributed Ps 599.3 billion in total fees and other income, net which includes Ps 416.2 billion in commissions from banking services and Ps 173.4 billion in credit card merchant fees.

The 11.9% (9.6% in Banco de Bogota’s operations excluding LB Panama) increase in pension plan administration fees is mainly as a result of higher fee income produced by Porvenir consisting of commissions earned on the administration of mandatory pension funds, severance funds, voluntary pension funds and third-party liability pension funds, further explained in “—Banco de Bogotá subsidiary analysis—Porvenir—Net income.”

The Ps 52.9 billion, or 142.5%, increase to Ps 90.1 billion in “Other” fees is primarily attributable to a Ps 49.3 billion increase in income generated by LB Panama, which includes insurance sales commissions, investment fund administration fees, travel agency fees and others.

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Warehouse services fees increased by Ps 22.5 billion, or 24.4%, to Ps 114.7 billion due to fees contributed by Almaviva, Banco de Bogota’s warehouse subsidiary. This rise in the income of warehouse services resulted from greater imports / exports from existing clients and the addition of new clients.

Other operating income

	Year ended December 31,					Change, 2011 vs. 2010
	2011			2010			#		%
	(in Ps billions)
Foreign exchange gains (losses), net		186.9			32.6		154.3			473.8
Gains (losses) on derivative operations, net		(22.8	)		63.6		(86.4	)		(135.9	)
Gains on sales of investments in equity securities, net		41.8			112.1		(70.3	)		(62.7	)
Income from non-financial sector, net (2)		431.8			289.8		142.0			49.0
Dividend income		78.7			44.1		34.6			78.4
Other		41.8			40.3		1.5			3.8
Other operating income		758.1			582.4		175.8			30.2

	Banco de Bogotá’s operations excluding LB Panama											LB Panama (1)
	Year ended December 31,					Change, 2011 vs. 2010						Year ended December 31,					Change, 2011 vs. 2010
	2011			2010			#		%				2011		2010			#
	(in Ps billions)											(in Ps billions)
Foreign exchange gains (losses), net		86.0			17.3		68.8			398.4			100.9		15.3			85.5
Gains (losses) on derivative operations, net		(18.3	)		61.5		(79.8	)		(129.7	)		(4.6	)	2.0			(6.6	)
Gains on sales of investments in equity securities, net		41.8			112.1		(70.3	)		(62.7	)		–		(0.0	)		0.0
Income from non-financial sector, net		431.8			289.8		142.0			49.0			–		–			–
Dividend income		78.7			44.1		34.6			78.4			–		–			–
Other		41.6			40.3		1.3			3.3			0.2		0.0			0.2
Other operating income		661.7			565.1		96.6			17.1			96.5		17.3			79.2

(1)

(2)

Income from non-financial sector reflects the operating results of Corficolombiana in its consolidated investments in companies not related to the financial sector such as Epiandes, Hoteles Estelar and Organización Pajonales, among others. This result is net of the following operating and administrative expenses in the year ended December 31, 2011 and 2010: Ps 852.7 billion and Ps 644.3 billion, respectively. For a description of these investments, see “Item 4. Information on the Company—B. Business overview—Corficolombiana—Equity investment portfolio.”

Total other operating income, net increased by 30.2% to Ps 758.1 billion in the year ended December 31, 2011 due primarily to a Ps 142.0 billion increase in income from the non-financial sector, which reflected the net income growth of non-financial companies consolidated by Corficolombiana further explained in the Corficolombiana 2011-2010 discussion.

Also contributing to the increase in other operating income was a Ps 67.9 billion increase in net foreign exchange and derivative operations. Foreign exchange gains (losses) and gains on derivative operations, which are related as Banco de Bogotá employs derivative operations to hedge foreign exchange risk, netted a gain of Ps 164.0 billion for the year ended December 31, 2011 as compared to Ps 96.1 billion for the year ended December 31, 2010. Net foreign exchange and derivative operations for Banco de Bogotá’s operations excluding LB Panama decreased by Ps 11.0 billion from Ps 78.8 billion for the year ended December 31, 2010 to Ps 67.8 billion for the year ended December 31, 2011. During 2011, LB Panama’s operations netted a gain of Ps 96.3 billion.

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The increase in dividend income of Ps 34.6 billion was mainly attributable to dividend income from Promigas, a non-consolidated company of Corficolombiana which in 2010 was classified as “trading” and thus its dividend income was registered as interest income from investment securities (further explained in “—Banco de Bogotá subsidiary analysis—Corficolombiana”).

Partially offsetting the increase in other operating income was a Ps 70.3 billion decrease in gains on sales of equity securities, resulting from Corficolombiana’s gains from the sale of part of its stake in Banco de Occidente and Proenergía in 2010 (further explained in “—Banco de Bogotá subsidiary analysis—Corficolombiana—Other operating income”).

Operating expenses

	Year ended December 31,						Change, 2011 vs. 2010
	2011			2010				#	%
	(in Ps billions)
Salaries and employee benefits		(1,068.0	)		(612.3	)		455.7		74.4
Bonus plan payments		(73.2	)		(19.6	)		53.7		274.0
Termination payments		(19.5	)		(5.8	)		13.7		235.7
Administrative and other expenses		(1,518.6	)		(968.3	)		550.3		56.8
Deposit security, net		(85.0	)		(68.3	)		16.7		24.4
Charitable and other donation expenses		(12.6	)		(4.0	)		8.6		217.0
Depreciation		(116.0	)		(57.9	)		58.1		100.4
Goodwill amortization		(75.2	)		(21.8	)		53.3		244.3
Total operating expenses		(2,968.0	)		(1,757.9	)		1,210.0		68.8

	Banco de Bogotá’s operations excluding LB Panama										LB Panama (1)
	Year ended December 31,						Change, 2011 vs. 2010				Year ended December 31,					Change, 2011 vs. 2010
	2011			2010				#	%			2011		2010			#
	(in Ps billions)										(in Ps billions)
Salaries and employee benefits		(617.0	)		(576.6	)		40.4		7.0		(451.0	)	(35.7	)		415.3
Bonus plan payments		(19.3	)		(16.7	)		2.6		15.5		(53.9	)	(2.9	)		51.1
Termination payments		(2.2	)		(1.9	)		0.3		16.6		(17.3	)	(3.9	)		13.4
Administrative and other expenses		(1,027.8	)		(905.0	)		122.9		13.6		(490.7	)	(63.3	)		427.4
Deposit security, net		(76.4	)		(67.5	)		8.8		13.1		(8.6	)	(0.7	)		7.8
Charitable and other donation expenses		(10.9	)		(3.7	)		7.1		191.2		(1.7	)	(0.2	)		1.5
Depreciation		(59.1	)		(53.4	)		5.6		10.5		(56.9	)	(4.4	)		52.5
Goodwill amortization		(20.8	)		(19.0	)		1.8		9.5		(54.4	)	(2.8	)		51.5
Total operating expenses		(1,833.4	)		(1,643.9	)		189.5		11.5		(1,134.5	)	(114.0	)		1,020.5

(1)

Total operating expenses increased by 68.8% to Ps 2,968.0 billion in the year ended December 31, 2011 out of which Ps 1,833.4 billion were incurred by Banco de Bogotá’s operations excluding LB Panama and Ps 1,134.5 billion were incurred by LB Panama.

The increase in total operating expenses primarily reflected a 74.4% or Ps 455.7 billion and a 56.8% or Ps 550.3 billion increase in salaries and employee benefits, and administrative and other expenses, respectively. Salaries and employee benefits from Banco de Bogotá’s operations excluding LB Panama increased by 7.0% or Ps 40.4 billion to Ps 617.0 billion in the year ended December 31, 2011 due to an increase in personnel, while administrative and other expenses grew by 13.6% or Ps 122.9 billion to Ps 1,027.8 billion in the year ended December 31, 2011 due

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primarily to additional costs associated with growth of Banco de Bogotá’s loan portfolio and the increase in the Equity Tax (further explained in “Results of operations for the year ended December 31, 2011 compared to the year ended December 31, 2010—Grupo Aval—Net interest income”). LB Panama’s salaries and employee benefits and administrative and other expenses totaled Ps 451.0 billion and Ps 490.7 billion, respectively, for the year ended December 31, 2011.

Banco de Bogotá’s efficiency ratio deteriorated from 40.1% at December 31, 2010 to 50.9% at December 31, 2011. Banco de Bogotá’s efficiency ratio for its Banco de Bogotá’s operations excluding LB Panama deteriorated from 39.1% to 47.7% during these same periods and LB Panama’s efficiency ratio at December 31, 2011 was 57.6% associated with the contraction in net interest margin explained in the net interest subsection. Depreciation and goodwill amortization increased by Ps 111.4 billion from Ps 79.7 billion in the year ended December 31, 2010 to Ps 191.1 billion in the year ended December 31, 2011, primarily due to LB Panama’s acquisition which impacts LB Panama’s results. The ratio of operating expenses before depreciation and amortization as a percentage of average earning assets excluding LB Panama improved from 4.9% in 2010 to 4.7% in 2011.

Non-operating income (expense)

Total non-operating income (expense) decreased by Ps 27.5 from Ps 96.0 billion to Ps 68.5 billion in the year ended December 31, 2011 due to a decrease in reversals associated with LB Panama (further explained in “——Banco de Bogotá subsidiary analysis—LB Panama”).

Income tax expense

Income before income tax expense and non-controlling interest increased 26.5% from Ps 1,908.3 billion for the year ended December 31, 2010 to Ps 2,413.1 billion for the year ended December 31, 2011. Income tax expense, in turn, increased by 44.5% to Ps 737.2 billion for the year ended December 31, 2011. Accordingly, Banco de Bogotá’s effective tax rate increased from 26.7% for the year ended December 31, 2010 to 30.5% for the year ended December 31, 2011, due to an increase in non-tax deductible expenses in Banco de Bogotá’s operations excluding LB Panama, such as the increase in the Equity Tax (further explained in “Results of operations for the year ended December 31, 2011 compared to the year ended December 31, 2010—Grupo Aval”), and a higher effective tax rate of 30.9% in LB Panama’s operations.

Non-controlling interest

Banco de Bogotá’s non-controlling interest increased by Ps 46.8 billion, or 9.7%, in the year ended December 31, 2011. The increase in non-controlling interest was primarily a result of Corficolombiana achieving better results in the year ended December 31, 2011 as compared to the same period in 2010 (Ps 608.1 billion as compared to Ps 564.8 billion, respectively) as further described in “—Banco de Bogotá subsidiary analysis—Corficolombiana.”

Banco de Bogotá subsidiary analysis

Banco de Bogotá’s results of operations are significantly affected by the results of operations of its subsidiaries, LB Panama, Corficolombiana and Porvenir. In order to fully disclose the effect of these subsidiaries on Banco de Bogotá, the following is an analysis of the results of operations of each of LB Panama, Corficolombiana and Porvenir in the year ended December 31, 2011 compared to the year ended December 31, 2010.

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Corficolombiana

Net income

	Year ended December 31,						Change, 2011 vs. 2010
	2011			2010				#		%
	(in Ps billions)
Total interest income		270.2			858.3			(588.1	)		(68.5	)
Total interest expense		(197.1	)		(161.8	)		35.3			21.8
Net interest income		73.1			696.5			(623.3	)		(89.5	)
Total provisions (reversals), net		285.5			(321.6	)		(607.1	)		(188.8	)
Total fees and other services income, net		46.7			43.6			3.0			7.0
Total other operating income		573.4			435.2			138.2			31.8
Total operating income		978.7			853.7			125.0			14.6
Total operating expenses		(137.2	)		(118.8	)		18.4			15.5
Net operating income		841.5			734.9			106.6			14.5
Total non-operating income (expense), net		(6.3	)		(3.2	)		(3.2	)		(99.5	)
Income before income tax expense and non-controlling interest		835.2			731.8			103.4			14.1
Income tax expense		(150.5	)		(104.2	)		46.3			44.4
Income before non-controlling interest		684.7			627.6			57.1			9.1
Non-controlling interest		(76.6	)		(62.8	)		13.8			22.0
Net income attributable to shareholders		608.1			564.8			43.3			7.7

Corficolombiana’s net income increased by 7.7% to Ps 608.1 billion in the year ended December 31, 2011 as compared to the year ended December 31, 2010. The most significant drivers of the increase in net income were the decrease of 89.5% or Ps 623.3 billion in net interest income, which was primarily due to a reduction in interest income from investment securities, was partially offset by a decrease of Ps 607.1 billion in total provisions (reversals), net (reflecting a recovery of Ps 285.5 billion in 2011) and an increase in total other operating income, which reflected an increase in dividend income and net income from the non-financial sector.

Net interest income

	Year ended December 31,				Change, 2011 vs. 2010
	2011		2010			#		%
	(in Ps billions)
Interest income:
Interest on loans		13.8		10.6		3.2			30.0
Interest on investment securities		161.7		753.9		(592.2	)		(78.5	)
Interbank and overnight funds		43.1		43.0		0.1			0.3
Financial leases		51.6		50.8		0.8			1.5
Total interest income		270.2		858.3		(588.1	)		(68.5	)

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	Year ended December 31,						Change, 2011 vs. 2010
	2011			2010				#		%
	(in Ps billions)
Interest expense:
Checking accounts		–			–			–			–
Time deposits		(91.6	)		(74.7	)		17.0			22.7
Savings deposits		(2.7	)		(5.5	)		(2.8	)		(51.4	)
Total interest expense on deposits		(94.3	)		(80.1	)		14.1			17.7
Borrowing from banks and others		(35.6	)		(9.5	)		26.1			274.7
Interbank and overnight funds (expenses)		(60.6	)		(63.6	)		(3.0	)		(4.7	)
Long-term debt (bonds)		(6.6	)		(8.6	)		(2.0	)		(23.1	)
Total interest expense		(197.1	)		(161.8	)		35.3			21.8
Net interest income		73.1			696.5			(623.3	)		(89.5	)

Net interest income decreased by 89.5% to Ps 73.1 billion in the year ended December 31, 2011. Total interest income, which consists of income from loans, investment securities, interbank and overnight funds and financial leases, decreased by 68.5% to Ps 270.2 billion in 2011. This decline was almost entirely due to the Ps 592.2 billion decrease in income on investment securities from Ps 753.9 billion in the year ended December 31, 2010 to Ps 161.7 billion in the year ended December 31, 2011. The decrease in income from investment securities was due to a decline in income from the equity portfolio, partially offset by an increase in income from the fixed income portfolio.

Corficolombiana’s equity portfolio generated Ps 5.0 billion in income in the year ended December 31, 2011, which represented a 99.2% decrease from the Ps 616.3 billion yielded in the year ended December 31, 2010. The primary reason for the decrease was the fact that in the year ended December 31, 2010 Corficolombiana recorded a Ps 199.1 billion gain associated with its investment in Sociedad de Inversiones en Energía S.A., or “SIE,” the majority of which was related to the reclassification of SIE in February 2010 from “available for sale” to “trading,” while in the year ended December 31, 2011 Corficolombiana recorded a Ps 34.7 billion mark-to-market loss from this investment. This investment was sold in October 2011.

Corficolombiana recorded a Ps 44.3 billion mark-to-market loss on its investment in Banco de Occidente in the year ended December 31, 2011 as compared to a Ps 186.0 billion mark-to-market gain for the year ended December 31, 2010. In November 2010, the Colombian Stock Exchange reclassified Banco de Occidente’s stock from “low” to “medium” liquidity (bursatilidad) and Colombian regulations require the owner of an investment that has had its liquidity classification increase to “medium” by the Colombian Stock Exchange to reclassify its investment as trading and realize the unrealized gains (losses) associated with this investment as gains (losses) on the income statement. At December 31, 2011, Corficolombiana continued to have Banco de Occidente classified as “trading.”

Corficolombiana did not record any income from investment securities related to its investment in Empresa de Energía de Bogotá S.A. E.S.P., or “EEB,” in the year ended December 31, 2011 as it was classified as “available for sale” since late December 2010. By contrast, in the year ended December 31, 2010 it recorded Ps 209.0 billion in mark-to-market gain from this investment as it was classified as “trading” (further explained in “—Segment results of operations for the year ended December 31, 2010 compared to the year ended December 31, 2009—Banco de Bogotá—Banco de Bogotá subsidiary analysis—Corficolombiana—Net interest income”).

Additionally, in the year ended December 31, 2011 Corficolombiana recorded a Ps 122.1 billion loss from its investment in Promigas, while in the year ended December 31, 2010 Promigas generated a Ps 14.4 billion gain. In February 2011, the Colombian Stock Exchange reclassified Promigas’ stock from “medium” to “low” liquidity (bursatilidad) and Colombian regulations require the owner of an investment that has had its liquidity classification decreased to “low” by the Colombian Stock Exchange to realize the unrealized gains (losses) associated with that investment as gains (losses) on the income statement, regardless of its balance sheet classification. As a result, despite the fact that Promigas had been classified as “available for sale” since December 2010 (and remains classified as “available for sale”), Corficolombiana was required to realize its Ps 122.1 billion unrealized loss associated with this investment.

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Partially offsetting these declines in interest income from investment securities was the recording of Ps 136.7 billion in income stemming from Corficolombiana’s private investment fund, which is independently directed by Corredores Asociados. This private investment fund was created in 2011.

Corficolombiana also recorded Ps 67.2 billion in income from investment securities related to mark-to-market gains on its investment in Proenergia, which Corficolombiana classified as “trading” in January 2011. The investment has experienced changes in liquidity (bursatilidad) since then and at December 31, 2011 it was classified as “available for sale.” Proenergia was not listed on the Colombian Stock Exchange until November 2010 and as a result it did not generate any mark-to-market gains / losses in the year ended December 31, 2010.

Corficolombiana’s fixed income portfolio generated Ps 156.7 billion of income in the year ended December 31, 2011, which was Ps 19.2 billion higher than the Ps 137.6 billion generated in the year ended December 31, 2010. This was primarily due to an increase in the average yield earned on its fixed income portfolio in the year ended December 31, 2011.

Interest expense increased by 21.8% to Ps 197.1 billion in the year ended December 31, 2011 as compared to the year ended December 31, 2010, primarily due to a Ps 26.1 billion increase in expenses from borrowings from banks and others to Ps 35.6 billion.

Provisions

Corficolombiana’s net provisions decreased by Ps 607.1 billion to Ps (285.5) billion (indicating a recovery of Ps 285.5 billion) in the year ended December 31, 2011 as compared to the year ended December 31, 2010. This decrease was attributable in part to the reversal of the cautionary Ps 245 billion market risk provision established by Corficolombiana in December 2010 (see “—Segment results of operations for the year ended December 31, 2010 compared to the year ended December 31, 2009—Banco de Bogotá—Banco de Bogotá subsidiary analysis—Corficolombiana—Net interest income”).

In addition, provisions were higher than usual in the year ended December 31, 2010 due to a Ps 69.7 billion gross provision established by Corficolombiana related to the realization of income stemming from its investment in SIE (see “—Segment results of operations for the year ended December 31, 2010 compared to the year ended December 31, 2009—Banco de Bogotá—Banco de Bogotá subsidiary analysis—Corficolombiana—Net interest income”). During the year ended December 31, 2011, all of this provision was reversed due to the sale of this investment in October 2011.

Total fees and other services income

	Year ended December 31,						Change, 2011 vs. 2010
	2011			2010				#		%
	(in Ps billions)
Fees and other services income:
Commissions from banking services		2.5			4.4			(1.9	)		(43.2	)
Fiduciary activities		32.6			33.8			(1.2	)		(3.5	)
Other		18.8			12.4			6.3			51.1
Total fees and other services income		53.8			50.6			3.2			6.4
Fees and other services expenses		(7.1	)		(6.9	)		0.2			3.0
Total fees and other services income, net		46.7			43.6			3.0			7.0

Net fee and other services income increased by Ps 3.0 billion to Ps 46.7 billion in the year ended December 31, 2011. This increase was primarily due to a Ps 6.3 billion increase in the “Other” fee line-item, which principally reflected an increase in investment banking advisory fees in the year ended December 31, 2011 as compared to the year ended December 31, 2010.

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Other operating income

	Year ended December 31,					Change, 2011 vs. 2010
	2011		2010				#		%
	(in Ps billions)
Foreign exchange gains (losses), net		4.8		(37.8	)		42.6			112.7
Gains on derivative operations, net		22.9		29.6			(6.7	)		(22.7	)
Gains on sales of investments in equity securities, net		41.2		109.6			(68.4	)		(62.4	)
Income from non-financial sector, net		422.7		289.8			132.9			45.9
Dividend income		76.2		38.5			37.6			97.7
Other		5.6		5.4			0.1			2.7
Total other operating income		573.4		435.2			138.2			31.8

Total other operating income increased by 31.8% to Ps 573.4 billion in the year ended December 31, 2011. This increase was driven by an increase of Ps 132.9 billion in net income from non-financial sector, Ps 37.6 billion in dividend income and Ps 35.9 billion in net foreign exchange and derivative operations. Partially offsetting this increase was a Ps 68.4 billion decrease in gains on sales of investments in equity securities.

Net income from the non-financial sector increased by 45.9% to Ps 422.7 billion in the year ended December 31, 2011, primarily as a result of a rise in the operational income of Epiandes, Episol, Pisa, Unipalma and Hoteles Estelar (some of Corficolombiana’s consolidated non-financial-sector investments).

The Ps 37.6 billion increase in dividend income to Ps 76.2 billion reflects Promigas’ investment accounting reclassification in 2010. In the year ended December 31, 2010, Promigas’ dividends were not recorded under the dividend income line-item because at the time this investment was classified as “trading,” and as a result of Colombian accounting regulations, its dividends were recorded under the line-item “interest from investment securities.” In the year ended December 31, 2011, Promigas’ contributed Ps 36.0 billion in dividends that were recorded under the “dividend income” line-item, since Promigas’ is, now classified as “available for sale.”

Net foreign exchange losses in 2010 decreased by Ps 42.6 billion resulting in a Ps 4.8 billion gain in 2011 due to the lower appreciation of the Colombian Peso in the year ended December 31, 2011 as compared to the year ended December 31, 2010. This gain was partially offset by lesser gain on net gains on derivative operations, which declined by Ps 6.7 billion to Ps 22.9 billion, as a result of the above-mentioned lower appreciation of the Colombian peso and lesser profits generated by local currency fixed income derivative positions.

The Ps 68.4 billion decrease in gains on sales of investments in equity securities was mainly driven by the Ps 62.8 billion and the Ps 19.0 billion gains on the sale of part of Corficolombiana’s investment in Banco de Occidente and in Proenergía, respectively, in the year ended December 31, 2010. These decreases were partially offset by the Ps 17.1 billion gain on the sale of Corficolombiana’s investment in SIE in the year ended December 31, 2011.

Operating expenses

	Year ended December 31,						Change, 2011 vs. 2010
	2011			2010				#		%
	(in Ps billions)
Salaries and employee benefits		(49.7	)		(45.2	)		4.6			10.1
Bonus plan payments		(3.7	)		(4.7	)		(0.9	)		(20.1	)
Termination payments		(1.0	)		(0.4	)		0.7			186.2
Administrative and other expenses		(71.9	)		(58.1	)		13.8			23.9
Deposit security, net		(5.8	)		(5.5	)		0.3			5.5
Charitable and other donation expenses		(0.8	)		(1.9	)		(1.1	)		(56.8	)
Depreciation		(3.7	)		(3.2	)		0.6			17.5
Goodwill amortization		(0.5	)		–			0.5			–
Total operating expenses		(137.2	)		(118.8	)		18.4			15.5

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Corficolombiana’s total operating expenses increased by 15.5% to Ps 137.2 billion in the year ended December 31, 2011 as compared to the year ended December 31, 2010. This increase was almost entirely due to a Ps 13.8 billion increase in administrative and other expenses, almost entirely attributable to the additional Equity Tax imposed on Colombian institutions in 2011, as explained in further detail in Grupo Aval’s discussion of results of the year ended December 31, 2011. Total operating expenses before depreciation and goodwill amortization grew more rapidly than total operating income before provisions, worsening Corficolombiana’s efficiency ratio by increasing from 9.8% in the year ended December 31, 2010 to 19.2% in the year ended December 31, 2011.

Non-operating income (expense)

Total non-operating income (expense) decreased by Ps 3.2 billion to Ps (6.3) billion (reflecting a net non-operating expense of Ps 6.3 billion) in the year ended December 31, 2011, mainly due to a decrease in non-operating income from Ps 54.2 billion in 2010 to Ps 53.2 billion in 2011 and an increase in non-operating expenses from Ps 57.4 billion in 2010 to Ps 59.6 billion in 2011.

Income tax expense

Income tax expense increased by Ps 46.3 billion to Ps 150.5 billion for the year ended December 31, 2011. This increase was primarily due to higher income before income tax expense and non-controlling interest. Corficolombiana’s effective tax rate, calculated before non-controlling interest, increased from 14.2% for the year ended December 31, 2010 to 18.0% for the year ended December 31, 2011, primarily due to an increase in non-tax deductible expenses such as the Equity Tax (further explained in “Results of operations for the year ended December 31, 2011 compared to the year ended December 31, 2010—Grupo Aval”).

Porvenir

Net income

	Year ended December 31,						Change, 2011 vs. 2010
	2011			2010				#		%
	(in Ps billions)
Total interest income		17.7			58.7			(40.9	)		(69.8	)
Total interest expense		(2.9	)		(0.2	)		2.7			1,234.0
Net interest income		14.8			58.5			(43.6	)		(74.6	)
Total provisions (reversals), net		(1.0	)		(0.0	)		1.0			–
Total fees and other services income, net		406.3			373.6			32.6			8.7
Total other operating income		13.3			2.7			10.6			385.9
Total operating income		433.3			434.8			(1.4	)		(0.3	)
Total operating expenses		(202.3	)		(197.5	)		4.7			2.4
Net operating income		231.1			237.3			(6.2	)		(2.6	)
Total non-operating income (expense), net		12.2			1.3			10.8			811.5
Income before income tax expense and non-controlling interest		243.2			238.6			4.6			1.9
Income tax expense		(88.5	)		(82.1	)		6.4			7.8
Non-controlling interest		(0.2	)		(0.1	)		0.1			40.9
Net income		154.5			156.4			(1.8	)		(1.2	)

Porvenir’s net income decreased by 1.2% to Ps 154.5 billion in the year ended December 31, 2011 as compared to the year ended December 31, 2010. This fall was primarily driven by a decrease in net interest income and an increase in total operating expenses, offset, in most part, by an increase in net fee income, other operating income and non-operating income.

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Total fees and other services income

Total net fees and other services income consist primarily of commissions earned on the administration of mandatory pension funds, severance funds, voluntary pension funds and third-party liability pension funds. Porvenir’s total net fees and other services income increased by 8.7% to Ps 406.3 billion in the year ended December 31, 2011, driven primarily by the increase in the revenues received from the administration of mandatory pension funds, which rose by Ps 38.8 billion, from Ps 266.4 billion in the year ended December 31, 2010 to Ps 305.2 billion in the year ended December 31, 2011, due to a 7.9% increase in the average number of contributors and a 3.8% increase in the average wage earned per contributor to Ps 1.2 million.

Also contributing to the increase in fee income was a Ps 5.1 billion increase in fees from severance fund management, which rose from Ps 55.7 billion in the year ended December 31, 2010 to Ps 60.8 billion in the year ended December 31, 2011. This increase was mainly due to the migration of assets from the short-term portfolio to the long-term portfolio and the rise in the assets under management in the severance fund, which increased by 0.3% in the same period of time.

Additionally, an increase in revenue associated with the management of voluntary pension funds, which rose by Ps 1.5 billion, from Ps 44.5 billion in the year ended December 31, 2010 to Ps 46.0 billion in the year ended December 31, 2011, also contributed to the increase in fee revenue.

Third-party liability pension funds decreased by Ps 0.5 billion from Ps 22.0 billion in the year ended December 31, 2010 to Ps 21.5 billion in the year ended December 31, 2011. This fall was due to a decrease in the commissions earned from the third-party liability pension funds that depend on the rate of return of the portfolios as prevailing local and global market conditions during 2011 were not particularly favorable.

Other fees associated with pension fund administration, such as non-contributor affiliate fees and transfer fees, decreased by Ps 5.8 billion from Ps 19.7 billion for the year ended December 31, 2010 to Ps 13.8 billion for the year ended December 31, 2011. Non-contributor affiliate fees are charged on income from the managed funds. Because returns on funds were lower in 2011 than in 2010 the fees charged were lower in 2011 than in 2010.

Commissions from banking services, consisting primarily of fees charged to customers for the processing of information and the early withdrawal of pensions, decreased by Ps 6.3 billion to Ps 7.6 billion in the year ended December 31, 2011. This decrease was mainly due to a Ps 8.5 billion reclassification of income from Gestión y Contacto S.A., which was included as commissions from banking services in 2010 and is classified as “other operating income” in 2011.

Fees and other service expenses increased marginally from Ps 50.1 billion for the year ended December 31, 2010 to Ps 50.5 billion for the year ended December 31, 2011.

Net interest income

Net interest income decreased by Ps 43.6 billion to Ps 14.8 billion in the year ended December 31, 2011. This decrease was primarily due to the decline in the rate of return of Porvenir’s mandatory investment in its stability reserve as prevailing market conditions during 2011 were not particularly favorable, in the local and global equity markets. In the local market, income from fixed income investments decreased due to the increase in the average Colombian Central Bank intervention and income from equity portfolios decreased due to the 17.6% decrease in the Colombian stock exchange index, or “IGBC,” during 2011. Porvenir’s rate of return on its investment portfolio decreased from 11.5% in the year ended December 31, 2010 to 2.2% in the year ended December 31, 2011. This effect was partially offset by an increase in the average volume of the investment portfolio, which grew by 30.4% from Ps 507.1 billion at December 31, 2010 to Ps 661.2 billion at December 31, 2011.

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Operating expenses

	Year ended December 31,						Change, 2011 vs. 2010
	2011			2010				#		%
	(in Ps billions)
Salaries and employee benefits		(79.8	)		(77.5	)		2.3			3.0
Bonus plan payments		(1.4	)		(3.7	)		(2.3	)		(62.8	)
Termination payments		(0.1	)		(0.5	)		(0.4	)		(85.6	)
Administrative and other expenses		(112.5	)		(110.8	)		1.7			1.5
Deposit security, net		–			–			–			–
Charitable and other donation expenses		(2.2	)		(0.1	)		2.0			1,412.8
Depreciation		(6.4	)		(5.0	)		1.4			28.6
Goodwill amortization		–			–			–			–
Total operating expenses		(202.3	)		(197.5	)		4.7			2.4

Porvenir’s total operating expenses in the year ended December 31, 2011 increased by 2.4% to Ps 202.3 billion due primarily to the 3.0% growth of salaries and employee benefits to Ps 79.8 billion, which was consistent with the organic growth of the business. Also contributing to this increase in operating expenses was a Ps 2.0 billion increase in charitable and other donation expenses, which rose from Ps 0.1 billion in the year ended December 31, 2010 to Ps 2.2 billion in the year ended December 31, 2011 due to increased charitable donations related to the Colombian floods in 2011. Porvenir’s efficiency ratio in the year ended December 31, 2011 worsened in comparison to the same period in 2010, increasing from 44.3% to 45.1%.

Other operating income

Total other operating income in the year ended December 31, 2011 increased by Ps 10.6 billion from Ps 2.7 billion in the year ended December 31, 2010 to Ps 13.3 billion. This increase was mainly due to a Ps 8.5 billion reclassification of income from Gestión y Contacto S.A., which was included as commissions from banking services in 2010 and is classified as “other operating income” in 2011.

Non-operating income (expense, net)

Total non-operating income (expense), net includes provisions, gains on sale of property, administrative authority fines, and labor demand penalties. Total non-operating income (expense), net in the year ended December 31, 2011 increased by Ps 10.8 billion from Ps 1.3 billion in the year ended December 31, 2010 to Ps 12.2 billion. This increase was due to reversals of provisions.

Income tax expense

Income tax expense increased by 6.4% to Ps 88.5 billion for the year ended December 31, 2011. This increase was primarily due to higher income before income tax expense and non-controlling interest. Porvenir’s effective tax rate, calculated before non-controlling interest, increased from 34.3% for the year ended December 31, 2010 to 36.4% for the year ended December 31, 2011, primarily due to an increase in non-tax deductible expenses such as the Equity Tax (further explained in “Results of operations for the year ended December 31, 2011 compared to the year ended December 31, 2010—Grupo Aval.”

LB Panama

The following information is presented to illustrate the impact that LB Panama had on Banco de Bogotá’s consolidated results for the years ended December 31, 2011 and December 31, 2010. The results of operations in 2011 of LB Panama include twelve months of results of BAC Credomatic as compared to one month of BAC Credomatic’s operations in 2010. At December 31, 2011, LB Panama had U.S.$903 million of goodwill associated with the BAC Credomatic acquisition and U.S.$270 million of indebtedness that it incurred to finance, in part, the BAC Credomatic acquisition.

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	Year ended December 31,						Change, 2011 vs. 2010
	2011			2010				#
	(in Ps billions)
Total interest income		1,415.0			119.0			1,296.0
Total interest expense		(335.1	)		(29.0	)		306.2
Net interest income		1,079.8			90.0			989.8
Total provisions (reversals), net		(165.0	)		(2.3	)		162.7
Total fees and other services income, net		599.3			55.1			544.3
Total other operating income		96.5			17.3			79.2
Total operating income		1,610.6			160.1			1,450.5
Total operating expenses		(1,134.5	)		(114.0	)		1,020.5
Net operating income		476.1			46.1			430.0
Total non-operating income (expense), net		2.9			28.3			(25.4	)
Income before income tax expense and non-controlling interest		479.0			74.4			404.6
Income tax expense		(147.9	)		(21.4	)		126.5
Income before non-controlling interest		331.1			53.0			278.1
Non-controlling interest		(0.1	)		(0.0	)		0.1
Net income attributable to shareholders		331.0			53.0			278.0

(1)

LB Panama’s net income attributable to its shareholders in the year ended December 31, 2011 increased by Ps 278.0 billion, to Ps 331.0 billion mainly due to an increase of Ps 989.8 billion in net interest income and an increase of Ps 544.3 billion in total fees and income from services, net partially offset by an increase in total net provisions of Ps 162.7 billion, an increase in total operating expenses of Ps 1,020.5 billion and an increase of income tax expense of Ps 126.5 billion.

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Net interest income

	LB Panama (1)
	Year ended December 31,						Change, 2011 vs. 2010
	2011			2010				#
	(in Ps billions)
Interest income:
Interest on loans		1,319.0			111.4			1,207.6
Interest on investment securities		52.8			4.1			48.7
Interbank and overnight funds		23.0			1.9			21.1
Financial leases		20.1			1.6			18.6
Total interest income		1,415.0			119.0			1,296.0
Interest expense:
Checking accounts		(29.6	)		-			29.6
Time deposits		(164.9	)		(15.1	)		149.8
Savings deposits		(31.5	)		(5.2	)		26.3
Total interest expense from deposits		(226.0	)		(20.3	)		205.7
Borrowing from banks and others		(83.4	)		(6.5	)		76.9
Interbank and overnight funds (expenses)		(7.0	)		(0.4	)		6.6
Long-term debt (bonds)		(18.7	)		(1.8	)		17.0
Total interest expense		(335.1	)		(29.0	)		306.2
Net interest income		1,079.8			90.0			989.8

(1)

LB Panama’s net interest income increased by Ps 989.8 billion from Ps 90.0 billion in the year ended December 31, 2010 to Ps 1,079.8 billion in the year ended December 31, 2011.

Total interest income increased by Ps 1,296.0 billion, from Ps 119.0 billion in the year ended December 31, 2010 to Ps 1,415.0 billion in the year ended December 31, 2011, primarily due to an increase in interest income from loans and financial leases, which rose by Ps 1,226.2 billion to Ps 1,339.2 billion in the year ended December 31, 2011. During 2011, the average balance of loans and financial leases for LB Panama was Ps 9,961.3 billion and the annualized yield on its loans and financial leases was 13.4%.

Interest on investment securities and income from interbank and overnight funds increased by Ps 48.7 billion and Ps 21.1 billion, respectively, during 2011. The average balance of investment securities during 2011 was Ps 1,333.4 billion and the average yield on investments was 4.0%.

Partially offsetting the increase in interest income from loans and financial leases, investment securities and overnight funds was a Ps 306.2 billion increase in total interest expense from Ps 29.0 billion in 2010 to Ps 335.1 billion in 2011. The average balance of interest-bearing liabilities was Ps 13,286.5 billion and the annualized rate paid on interest-bearing liabilities was 2.5%.

LB Panama’s net interest margin (calculated as net interest income divided by total average interest-earning assets) was 8.8% in the year ended December 31, 2011. The spread between the yield earned on its loans and financial leases and the cost of its interest-bearing liabilities was 10.9% in the year ended December 31, 2011.

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Provisions

Total net provision increased by Ps 162.7 billion to Ps 165.0 billion for the year ended December 31, 2011. Net Provisions for loans and financial leases contributed Ps 161.4 billion of this total. LB Panama’s past due loans improved from 3.1% of total loans in 2010 to 2.8% of total loans in 2011. LB Panama’s charge offs were Ps 165.1 billion in 2011, equivalent to 1.6% of average outstanding loans. LB Panama’s coverage ratio for the year ended December 31, 2011 was 64.3% compared to 65.7% for the year ended December 31, 2010.

Total fees and other services income

	LB Panama (1)
	Year ended December 31,						Change, 2011 vs. 2010
	2011			2010				#
	(in Ps billions)
Fees and other services income:
Commissions from banking services		416.2			37.9			378.3
Branch network services		–			–			–
Credit card merchant fees		173.4			18.6			154.8
Checking fees		–			–			–
Warehouse services		–			–			–
Fiduciary activities		–			–			–
Pension plan administration		9.8			–			9.8
Other		55.0			5.7			49.3
Total fees and other services income		654.4			62.3			592.1
Fees and other services expenses		(55.0	)		(7.2	)		47.8
Total fees and other services income, net		599.3			55.1			544.3

(1)

Total net fees and other services income increased by Ps 544.3 billion to Ps 599.3 billion in the year ended December 31, 2011, primarily as a result of higher commissions from banking services and increased credit card merchant fees.

Other operating income

	LB Panama (1)
	Year ended December 31,						Change, 2011 vs. 2010
	2011			2010				#
	(in Ps billions)
Foreign exchange gains (losses), net		100.9			15.3			85.5
Gains (losses) on derivative operations, net		(4.6	)		2.0			(6.6	)
Gains on sales of investments in equity securities, net		–			(0.0	)		0.0
Income from non-financial sector, net		–			–			–
Dividend income		–			–			–
Other		0.2			0.0			0.2
Other operating income		96.5			17.3			79.2

(1)

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Total other operating income, net increased by Ps 79.2 billion to Ps 96.5 billion in the year ended December 31, 2011 due primarily to a Ps 85.5 billion increase associated with foreign exchange gains (losses), net. In the ordinary course of business, LB Panama enters into forward contracts and other derivative transactions in foreign currency through its treasury department almost entirely for hedging purposes and on behalf of clients.

Operating expenses

	LB Panama (1)
	Year ended December 31,					Change, 2011 vs. 2010
		2011		2010			#
	(in Ps billions)
Salaries and employee benefits		(451.0	)	(35.7	)		415.3
Bonus plan payments		(53.9	)	(2.9	)		51.1
Termination payments		(17.3	)	(3.9	)		13.4
Administrative and other expenses		(490.7	)	(63.3	)		427.4
Deposit security, net		(8.6	)	(0.7	)		7.8
Charitable and other donation expenses		(1.7	)	(0.2	)		1.5
Depreciation		(56.9	)	(4.4	)		52.5
Goodwill amortization		(54.4	)	(2.8	)		51.5
Total operating expenses		(1,134.5	)	(114.0	)		1,020.5

(1)

Total operating expenses increased by Ps 1,020.5 billion to Ps 1,134.5 billion in the year ended December 31, 2011. The increase is mainly due to a Ps 427.4 billion increase to Ps 490.7 billion in administrative and other expenses and to a Ps 415.3 billion increase to Ps 451.0 billion in salaries and employee benefits. LB Panama’s number of employees decreased from 15,755 in 2010 to 15,498 in 2011. LB Panama’s efficiency ratio at December 31, 2011 was 57.6%, which improved from the 65.7% ratio at December 31, 2010, but still higher than Grupo Aval’s Colombian operations.

Non-operating income (expense)

Total non-operating income (expense) decreased by Ps 25.4 billion to Ps 2.9 billion for the year ended December 31, 2011 because at December 2010 LB Panama registered non-recurring income associated with a reversal of provisions for withholding taxes on dividends paid to BAC Credomatic by its subsidiaries.

Income tax expense

Income before income tax expense and non-controlling interest increased by Ps 126.5 billion to Ps 147.9 billion for the year ended December 31, 2011. LB Panama’s effective tax rate was 30.9% for the year ended December 31, 2011.

Non-controlling interest

LB Panama’s non-controlling interest is not material. It accounted for Ps 0.1 billion for the year ended December 31, 2011.

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Banco de Occidente

Net income

	Year ended December 31,						Change, 2011 vs. 2010
	2011			2010				#		%
	(in Ps billions)
Total interest income		1,592.7			1,403.9			188.8			13.5
Total interest expense		(525.5	)		(457.2	)		68.2			14.9
Net interest income		1,067.2			946.7			120.6			12.7
Total provisions (reversals), net		(176.6	)		(192.3	)		(15.7	)		(8.2	)
Total fees and other services income, net		198.5			186.6			11.9			6.4
Total other operating income		314.3			316.7			(2.3	)		(0.7	)
Total operating income		1,403.5			1,257.6			145.9			11.6
Total operating expenses		(846.3	)		(764.4	)		81.8			10.7
Net operating income		557.2			493.2			64.0			13.0
Total non-operating income (expense), net		15.5			21.4			(5.9	)		(27.6	)
Income before income tax expense and non-controlling interest		572.7			514.6			58.1			11.3
Income tax expense		(139.0	)		(126.2	)		12.8			10.2
Income before non-controlling interest		433.7			388.4			45.3			11.7
Non-controlling interest		(1.6	)		(2.0	)		(0.4	)		(21.1	)
Net income attributable to shareholders		432.1			386.4			45.7			11.8

Banco de Occidente’s net income attributable to its shareholders increased by 11.8% to Ps 432.1 billion for the year ended December 31, 2011. The most important drivers of this increase were the growth in net interest income and a decrease in total net provisions, offset in part by an increase in total operating expense and an increase in income tax expense.

Net interest income

	Year ended December 31,						Change, 2011 vs. 2010
	2011			2010				#		%
	(in Ps billions)
Interest income:
Interest on loans		1,080.2			945.3			134.9			14.3
Interest on investment securities		177.1			193.9			(16.7	)		(8.6	)
Interbank and overnight funds		29.2			8.4			20.8			247.1
Financial leases		306.1			256.3			49.8			19.4
Total interest income		1,592.7			1,403.9			188.8			13.5
Interest expense:
Checking accounts		(7.3	)		(4.9	)		2.4			50.1
Time deposits		(116.5	)		(137.6	)		(21.1	)		(15.3	)
Savings deposits		(188.5	)		(141.6	)		46.9			33.2
Total interest expense from deposits		(312.3	)		(284.1	)		28.3			9.9
Borrowing from banks and others		(75.3	)		(76.8	)		(1.4	)		(1.9	)
Interbank and overnight funds (expenses)		(14.6	)		(6.7	)		7.9			118.0
Long-term debt (bonds)		(123.3	)		(89.7	)		33.6			37.4
Total interest expense		(525.5	)		(457.2	)		68.2			14.9
Net interest income		1,067.2			946.7			120.6			12.7

Banco de Occidente’s net interest income increased by 12.7% from Ps 946.7 billion for the year ended December 31, 2010 to Ps 1,067.2 billion for the year ended December 31, 2011. This increase was primarily driven by a 15.4% increase in the interest earned on loans and financial leases to Ps 1,386.3 billion for the year ended

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December 31, 2011. A 17.8% growth of Banco de Occidente’s average loan and financial lease portfolio to Ps 12,674.7 billion on December 31, 2011 resulted in a Ps 196.1 billion increase in interest income from loans and financial leases over the same period. Partially offsetting this increase was the decrease in average yield on loans and financial leases from 11.2% for the year ended December 31, 2010 to 10.9% for the same period in 2011, which resulted in a Ps 11.3 billion decrease in interest income from loans and financial leases. The decrease in the yield for loans and financial leases reflects a declining rate environment in the second half of 2010 and early 2011 together with the strong growth of our loan portfolio during 2011. The average interest yield on loans and financial leases for Banco de Occidente was 10.9% during the last quarter of 2011 as previously discussed in “Results of operations for the year ended December 31, 2011 compared to the year ended December 31, 2010—Grupo Aval—Net interest income.”

Also contributing to the increase in interest income was a Ps 20.8 billion increase in income from interbank and overnight funds to Ps 29.2 billion for the year ended December 31, 2011. This increase was mainly driven by the increase in the average yield from 2.1% in 2010 to 5.5% in 2011.

Interest income from investment securities decreased by 8.6% to Ps 177.1 billion for the year ended December 31, 2011. The fixed income portfolio generated Ps 177.1 billion, or 99.99%, of Banco de Occidente’s earnings on investment securities in December 31, 2011, which was 8.6% lower than the Ps 193.8 billion earned on fixed income investments in December 31, 2010 due to a decrease in the average balance. The equity portfolio generated the remaining Ps 0.01 billion, or 0.01%, of the interest income from investment securities, which was marginally down from the Ps 0.05 billion produced by the equity portfolio in December 31, 2010.

The 14.9% increase in total interest expense to Ps 525.5 billion for the year ended December 31, 2011 partially offset the increase in interest income. The increase in interest paid on interest-bearing liabilities was concentrated in savings deposits, for which interest expense increased by Ps 46.9 billion (Ps 25.0 billion due to an increase in rate paid and Ps 21.9 billion due to an increase in their average balance) and long-term debt, for which interest expense increased by Ps 33.6 billion (Ps 30.9 billion due to an increase in their average balance and Ps 2.6 billion due to a decrease in rate paid). These increases were partially offset by a Ps 21.1 billion decrease in interest expense for time deposits (Ps 16.3 billion due to a decrease in rate paid and Ps 4.9 billion due to a decrease in average balance). The increase in the average balance of time deposits was driven by the issuance of Ps 647.1 billion in bonds during 2011 to cover long-term operations on loans and financial leases.

The average rate paid on interest-bearing liabilities remained basically unchanged at 4.1% for the year ended December 31, 2011 as compared to the year ended December 31, 2010, and the average yield earned on interest-earning assets increased from 8.8% for the year ended December 31, 2010 to 9.0% for the year ended December 31, 2011.

For the reasons explained above, the spread between the yield earned on its loans and financial leases and the cost of its interest-bearing liabilities decreased by 21 basis points from 7.1% for the year ended December 31, 2010 to 6.9% for the year ended December 31, 2011 due to the fact that the yield on loans and financial leases decreased by 23 basis points while the cost of funds remained basically unchanged. Banco de Occidente’s net interest margin, however, remained unchanged at 6.0% at December 31, 2011 and December 31, 2010.

Provisions

Total net provisions decreased by 8.2%, or Ps 15.7 billion, to Ps 176.6 billion for the year ended December 31, 2011, mainly driven by an increase in recovery of charged-off assets, which increased by Ps 17.7 billion to Ps 57.0 billion for the year ended December 31, 2011 primarily as a result of the improving Colombian economy and a more effective recovery effort by Banco de Occidente.

Net provisions for loan and financial lease losses, the main component of total net provisions, increased by 0.5%, or Ps 1.0 billion, to Ps 205.2 billion for the year ended December 31, 2011. Despite an increase in past due loans, in line with general growth of the loan portfolio, Banco de Occidente’s delinquency ratio improved from 2.8% at December 31, 2010 to 2.5% at December 31, 2011. This improvement was primarily a result of a reduction in past due commercial loans, which decreased by 8.4% to Ps 122.3 billion (with a drop in their delinquency ratio from 1.9% to 1.4%) due to the improvement of the Colombian economy.

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	Colombian Stock Exchange
	High		Low		Average daily trading volume
	(Ps per share)				(in shares)
Year
2011 (beginning May 12)		1,320		1,120		3,363,366
2012		1,325		1,130		3,077,023
Quarter
Second Quarter 2011 (beginning May 12)		1,315		1,250		4,392,269
Third Quarter 2011		1,320		1,120		2,281,321
Fourth Quarter 2011		1,300		1,130		3,916,467
First Quarter 2012		1,325		1,160		3,914,596
Second Quarter 2012		1,315		1,145		2,917,731
Third Quarter 2012		1,210		1,130		2,364,517
Fourth Quarter 2012		1,300		1,205		3,092,296
First Quarter 2013		1,305		1,255		3,799,814
Second Quarter 2013 (through April 15, 2013)		1,280		1,240		2,205,455
Month
October 2012		1,300		1,205		4,395,320
November 2012		1,275		1,205		1,896,644
December 2012		1,300		1,220		2,842,113
January 2013		1,305		1,255		4,448,597
February 2013		1,295		1,270		4,195,227
March 2013		1,295		1,265		2,603,555
April 2013 (through April15, 2013)		1,280		1,240		2,205,455

Source: Colombian Stock Exchange.

On April 15, 2013, the last reported closing sale price on the Colombian Stock Exchange was Ps 1,240 per preferred share.

Trading history of our common shares.

The principal trading market for our common shares is the Colombian Stock Exchange. Shares of our common shares began trading on the Colombian Stock Exchange in 1999 and are listed under the symbol “GRUPOAVAL.” The following table presents the high and low closing sales prices and average daily trading volume for shares of our common shares on the Colombian Stock Exchange for the periods indicated.

	Colombian Stock Exchange
	High		Low		Average daily trading volume
	(Ps per share)				(in shares)
Year
2007		697		570		1,638,804
2008		645		388		1,378,067
2009		785		450		1,781,899
2010		1,770		745		2,069,109
2011		1,715		1,125		1,492,887
2012		1,330		1,130		496,621
Quarter
First Quarter 2011		1,715		1,345		1,669,916
Second Quarter 2011		1,370		1,255		1,805,270
Third Quarter 2011		1,315		1,125		1,119,850
Fourth Quarter 2011		1,270		1,135		1,384,055
First Quarter 2012		1,330		1,160		597,033
Second Quarter 2012		1,310		1,135		516,583
Third Quarter 2012		1,200		1,130		489,485
Fourth Quarter 2012		1,300		1,185		382,392
First Quarter 2013		1,295		1,260		627,895
Second Quarter 2013 (through April 15, 2013)		1,285		1,240		422,507

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	Colombian Stock Exchange
	High		Low		Average daily trading volume
	(Ps per share)				(in shares)
Month
October 2012		1,300		1,200		556,112
November 2012		1,285		1,185		260,211
December 2012		1,290		1,210		309,853
January 2013		1,295		1,260		326,516
February 2013		1,295		1,265		586,797
March 2013		1,290		1,265		1,025,170
April 2013 (through April 15, 2013)		1,285		1,40		422,507

Source: Colombian Stock Exchange.

On April 15, 2013, the last reported closing sale price on the Colombian Stock Exchange was Ps 1,240 per common share.

Trading history of common shares of our subsidiaries

The common shares of five of our subsidiaries are listed on the Colombian Stock Exchange, as follows:

Banco de Bogotá, under the symbol “BOGOTA”;

Banco de Occidente, under the symbol “OCCIDENTE”;

Banco Popular, under the symbol “POPULAR”;

Banco AV Villas, under the symbol “VILLAS”; and

Corficolombiana, under the symbol “CORFICOLCF.”

The following tables set forth the high and low closing sales prices, and average daily trading volume for the common shares of Banco de Bogotá, Banco de Occidente, Banco Popular, Banco AV Villas and Corficolombiana on the Colombian Stock Exchange for the periods indicated. Due to a relatively low public float (approximately 12.7% of the total share capital of Banco de Bogotá, approximately 4.4% of the total share capital of Banco Popular, approximately 9.1% of the total share capital of Banco de Occidente and approximately 4.7% of the total share capital of Banco AV Villas), the shares of these banking subsidiaries have historically traded at low volumes and traded at prices that we believe should not be a meaningful factor in determining the price for our preferred shares. Very few of the shares of Banco Popular not owned or controlled by us or our controlling shareholder are held by the public; rather, they are held by Colombian governmental institutions. Approximately 30.5% of the total shares of Corficolombiana is held by the public.

Banco de Bogotá

	Colombian Stock Exchange
	High		Low		Average daily trading volume
	(Ps per share)				(in shares)
Year
2010		59,000		33,100		22,523
2011		56,000		47,300		15,547
2012		54,800		48,000		18,706

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	Colombian Stock Exchange
	High		Low		Average daily trading volume
	(Ps per share)				(in shares)
Quarter
First quarter 2012		52,060		48,000		18,688
Second quarter 2012		51,780		49,700		16,105
Third quarter 2012		51,460		49,140		18,050
Fourth quarter 2012		54,800		50,680		21,895
First quarter 2013		59,420		54,180		19,069
Second quarter 2013 (through April 15, 2013)		58,300		57,700		11,456

Source: Colombian Stock Exchange.

On April 15, 2013, the last reported closing sale price on the Colombian Stock Exchange was Ps 58,300 per common share.

Banco de Occidente

	Colombian Stock Exchange
	High		Low		Average daily trading volume
	(Ps per share)				(in shares)
Year
2010		38,900		27,780		18,251
2011		38,800		28,940		6,650
2012		32,000		28,220		2,659
Quarter
First quarter 2012		30,500		28,400		2,940
Second quarter 2012		32,000		30,000		2,266
Third quarter 2012		31,000		28,220		2,446
Fourth quarter 2012		32,000		31,000		2,969
First quarter 2013		34,500		31,120		2,485
Second quarter 2013 (through April 15, 2013)		33,700		32,020		1,557

Source: Colombian Stock Exchange.

On April 9, 2013, the last reported closing sale price on the Colombian Stock Exchange was Ps 33,000 per common share.

Banco Popular

	Colombian Stock Exchange
	High		Low		Average daily trading volume
	(Ps per share)				(in shares)
Year
2010		560		300		80,055
2011		770		499		31,010
2012		520		500		99,155
Quarter
First quarter 2012		520		520		291,076
Second quarter 2012		520		500		8,527
Third quarter 2012		500		500		31,488
Fourth quarter 2012		500		500		59,411
First quarter 2013		480		475		400,383
Second quarter 2013 (through April 15, 2013)		500		500		38,989

Source: Colombian Stock Exchange.

The last reported closing sale price on the Colombian Stock Exchange, which was on April 12, 2013, was Ps 500 per common share.

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Banco AV Villas

	Colombian Stock Exchange
	High		Low		Average daily trading volume
	(Ps per share)				(in shares)
Year
2010		8,200		3,205		3,751
2011		8,200		6,500		894
2012		7,990		5,210		528
Quarter
First quarter 2012		7,990		5,210		861
Second quarter 2012		7,990		6,000		725
Third quarter 2012		7,980		6,520		246
Fourth quarter 2012		7,890		7,100		280
First quarter 2013		7,500		7,100		195
Second quarter 2013 (through April 15, 2013)		7,500		7,500		158

Source: Colombian Stock Exchange.

The last reported closing sale price on the Colombian Stock Exchange, which was on April 12, 2013, was Ps 7,500 per common share.

Corficolombiana

	Colombian Stock Exchange
	High		Low		Average daily trading volume
	(Ps per share)				(in shares)
Year
2010		36,460		22,540		117,254
2011		35,600		31,600		79,754
2012		36,480		30,140		82,143
Quarter
First quarter 2012		34,880		33,600		67,773
Second quarter 2012		34,360		30,140		49,584
Third quarter 2012		35,500		31,300		84,180
Fourth quarter 2012		36,480		32,980		126,202
First quarter 2013		36,380		34,760		114,493
Second quarter 2013 (through April 15, 2013)		34,960		34,300		89,659

Source: Colombian Stock Exchange.

On April 15, 2013, the last reported closing sale price on the Colombian Stock Exchange was Ps 34,300 per common share.

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Trading on the Colombian Stock Exchange

The Colombian Stock Exchange is the sole market for the common and preferred shares of Grupo Aval and the common shares of our banking subsidiaries and Corficolombiana. There are no official market makers or independent specialists on the Colombian Stock Exchange to assure market liquidity and, therefore, orders to buy or sell in excess of corresponding orders to sell or buy will not be executed. The aggregate equity market capitalization of the 82 companies listed on the Colombian Stock Exchange at April 15, 2013 was Ps 429.5 trillion (U.S.$242.9 billion). See “Item 4. Information on the Company—B. Business overview—Industry—Colombia—Recent developments in the Colombian stock market.”

Regulation of Colombian securities markets

Colombian securities markets are subject to the supervision and regulation of the Superintendency of Finance, which was created in 2005 following the merger of the Superintendency of Banking and the Superintendency of Securities. The Superintendency of Finance is an independent regulatory entity ascribed to the Ministry of Finance and Public Finance. The Superintendency of Finance has the authority to inspect, supervise and control the financial, insurance and securities exchange sectors and any other activities related to the investment or management of public savings. Accordingly, we are subject to the supervision and control of the Superintendency of Finance as an issuer of securities, and our subsidiaries are subject to its supervision and regulation as financial institutions and issuers of securities. See “Item 4. Information on the Company—B. Business overview—Supervision and regulation—Colombian banking regulators—Ministry of Finance and Public Credit” and “—Superintendency of Finance.”

Investment in our preferred shares by non-residents of Colombia

The International Investment Statute of Colombia as provided by Decree 2080 of 2000, as amended, regulates the manner in which foreign investors may participate in the Colombian securities markets and undertake other types of investment, prescribes registration with the Colombian Central Bank of certain foreign exchange transactions and specifies procedures under which certain types of foreign investments are to be authorized and administered.

A preferred shareholder may under certain circumstances be required to comply directly with certain registration and other requirements under the foreign investment regulations. Under these regulations, the failure of a non-resident investor to report or register foreign exchange transactions relating to investments in Colombia with the Colombian Central Bank on a timely basis may prevent the investor from obtaining remittance rights, including for the payment of dividends, and constitute an exchange control violation and/or result in a fine.

Under Colombian law, foreign investors receive the same treatment as Colombian citizens with respect to the ownership and voting of our preferred securities. See “Item 3. Key Information—D. Risk factors—Risks relating to our preferred shares.”

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Preferred Shares Local Offering

Grupo Aval concluded the Preferred Shares Local Offering on May 12, 2011, selling 1,600 million preferred shares and raising an aggregate amount of Ps 2.1 trillion (U.S.$1.1 billion at the representative market rate on such date), before deducting brokerage commissions and discounts, and transaction expenses. The Preferred Shares Local Offering was conducted at a fixed price of Ps 1,300 (U.S.$0.72 at the representative market rate on such date) on a public basis in Colombia and also made to institutional investors in Chile and Peru. At the time of the offering, the Preferred Shares Local Offering was the largest offering of shares ever made by a privately owned company in Colombia.

Grupo Aval’s banking subsidiaries extended a total of Ps 654.3 billion (U.S.$363.8 million at the representative market rate on May 12, 2011) of credit disbursed through 14,387 loans to finance the acquisition of preferred shares in the Preferred Shares Local Offering. The term of the financing offered ranged from one year to three years. Depending on the characteristics of the borrower, our banking subsidiaries may have required collateral, which may have included a pledge of the preferred shares that were subject to the financing. Such a pledge permits the banking subsidiary to seek the sale of the preferred shares if the borrower defaults. All the loans are full-recourse loans. Under the terms of the pledge, the shareholders are limited from selling their shares until the loans are repaid. Our banking subsidiaries will immediately seek, directly or through judicial process, the sale of the preferred shares as banks are not permitted to hold shares in their parent under Colombian law. Our banking subsidiaries have, on an aggregate basis, pledges over 160,501,261 preferred shares at December 31, 2012. For the performance of our preferred shares, see “Item 9. The Offer and Listing—C. Markets.” The proceeds of the Preferred Shares Local Offering have been used for the payment of certain outstanding loans and general corporate purposes.

D.	Selling shareholders

Not applicable.

Dilution

Not applicable.

F.	Expenses of the issue

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

A.	Share capital

Not applicable.

B.	Memorandum and articles of association

The following is a summary of certain significant provisions of our by-laws, Colombian corporate law, the rules and regulations of the Superintendency of Finance and the Listing Rules of the Colombian Stock Exchange that pertain to our capital, management, periodical and occasional disclosures, as well as other corporate issues applicable to us. The description below includes the material provisions of our by-laws and Colombian corporate law. In Colombia, by-laws are the principal governing document of a corporation.

Our by-laws provide for an authorized share capital of 120,000,000,000 shares of par value of Ps 1.00 each, which may be either of two classes: common shares or shares with a preferred dividend, liquidation preference and no voting. At April 9, 2013, we had 13,578,142,886 common shares outstanding, and 4,973,623,567 preferred shares outstanding.

Our by-laws also provide for the conversion of common shares into preferred shares. A shareholders’ meeting must define, in each case, the procedure to be followed for such conversion and must determine, among other matters, the maximum number or percentage of shares that may be converted. The shareholders’ meeting may also

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authorize the Board of Directors or the President of our Company to approve the agreements, forms and other documents to be executed in order to give effect to a conversion.

Our shareholders’ meeting held on December 7, 2010, determined that outstanding common shares may be converted into preferred shares on a 1-to-1 basis. Conversion of common shares into preferred shares may only be made once a month, provided that, as required by Colombian law and in accordance with our by-laws, our preferred shares shall not exceed 50% of our subscribed capital.

Voting rights

Common shares

The holders of common shares are entitled to vote on the basis of one vote per share on any matter subject to approval at a general shareholders’ meeting. These general meetings may be ordinary meetings or extraordinary meetings. Ordinary general shareholders’ meetings occur twice a year, no later than the last business day of March and September, for the following purposes:

to consider the approval of our report for the preceding six months ending on June 30 or December 31, as applicable, including the financial statements for the above-mentioned term;

to review the report prepared by the external auditor for the preceding six months ending on June 30 or December 31;

to elect directors and the external auditor (on an annual basis);

to determine the compensation of the members of the board of directors and the external auditor (on an annual basis); and

to determine the dividend policy and the allocation of profits, if any, of the preceding six months ending on June 30 or December 31, respectively, as well as any retained earnings from previous six months.

Pursuant to Law 964 of 2005, at least 25% of the members of our board of directors must be independent within the meaning of Colombian rules. A person who is an “independent director” is understood to mean a director who is not:

an employee or director of the issuer or any of its parent or subsidiary companies, including any person acting in such capacity during the year immediately preceding that in which they were appointed to the board, except in the case of an independent member of the board of directors being re-elected;

a shareholder, who either directly or by virtue of an agreement directs, guides or controls the majority of the entity’s voting rights or who determines the majority composition of the administrative, directing or controlling bodies of this same entity;

a partner or employee of any association or firm that provides advisory or consultancy services to the issuer or to companies belonging to the same economic group to which such issuer belongs, in the event that income obtained from such services represent for said association or firm at least twenty percent (20.0%) of its total operating income;

an employee or director of a foundation, association, partnership or corporation that receives significant donations from the issuer. The term “significant donations” is quantified as twenty percent (20.0%) or more of the total amount of donations received by the respective institution;

an administrator of any entity on whose board of directors a legal representative of the issuer participates; or

a board member who receives from the issuer any kind of remuneration other than fees as a member of the board of directors, member of the audit committee or any other committee established by the board of directors.

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Pursuant to Decree 3923 of 2006, the election of independent directors must be in a ballot separate from the ballot to elect the rest of the directors, unless the reaching of the minimum number of independent directors required by law or by the by-laws is assured, or when there is only one list that includes the minimum number of independent directors required by law or by the by-laws.

Both elections are made under a proportional representation voting system named electoral quotient—“cociente electoral” (except for the elections unanimously approved by the general shareholders’ meeting). Under that system:

each holder of common shares is entitled at the first annual general shareholders’ meeting to nominate candidates for the election of directors;

each nomination of one or more directors by a shareholder constitutes a list for the purposes of the election;

each list of nominees must contain a hierarchy as to the order of preference for nominees in that list to be elected;

once all lists have been nominated, holders of common shares may cast one vote for each common share held in favor of a particular list of nominees. Votes may not be cast for particular nominees in a list; they may be cast only for the entire list;

the total number of votes cast in the election is divided by the number of directors to be elected. The resulting quotient is the quota of votes necessary to elect particular directors. For each time that the number of votes cast for a list of nominees is divisible by the quota of votes, one nominee from that list is elected, in the order of the hierarchy of that list; and

when no list has enough remaining votes to satisfy the quota of votes necessary to elect a director, any remaining board seat or seats are filled by electing the highest remaining nominee from the list with the highest number of remaining votes cast until all available seats have been filled.

Extraordinary general shareholders’ meetings may take place when duly called for a specified purpose or purposes, or, without prior notice, when holders representing all outstanding shares entitled to vote on the issues presented are present at the meeting. Extraordinary meetings of shareholders may be called by our board of directors, by our president or by our external auditor, directly or by request of a plural number of shareholders representing no less than 25.0% of the company’s capital. In addition, meetings may be called by the Superintendency of Finance, directly or by request of shareholders holding at least 15.0% of the shares outstanding. Notice of extraordinary meetings should be given at least five days in advance.

Quorum for both ordinary and extraordinary general shareholders’ meetings to be convened at first call requires the presence of two or more shareholders representing at least 50.0% plus one of the outstanding shares entitled to vote at the relevant meeting. If no quorum is present for a general shareholders’ meeting, a subsequent meeting may be called within 10 to 30 business days at which the presence of two or more shareholders entitled to vote at the relevant meeting constitutes quorum, regardless of the number of shares represented.

Notice of ordinary general meetings must be published in one newspaper of wide circulation, at least 15 business days prior to the proposed date of a general shareholders’ meeting. Notice of extraordinary general meetings, listing the matters to be addressed at such meetings, must be published in one newspaper of wide circulation, at least five calendar days prior to the proposed date of an extraordinary general shareholders’ meeting.

Except where Colombian law requires a supermajority, decisions made at a shareholders’ meeting must be approved by a majority of the shares present. Pursuant to Colombian law and/or our by-laws, special-majorities are required in the following cases:

the vote of at least 70.0% of the shares present and entitled to vote at a shareholders’ meeting is required to approve the issuance of common shares not subject to preemptive rights;

the Company must distribute (1) at least 50.0% of the semester’s net profits according to Article 155 of the Colombian Code of Commerce, or (2) at least 70.0% of the semester’s net profits if the total amount

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segregated in the legal, statutory and other reserves exceeds the Company’s outstanding capital, according to Article 454 of the Colombian Code of Commerce; however, the vote of at least 78.0% of the shares represented and entitled to vote may approve the distribution of a lower percentage of dividends;

The vote of at least 80.0% of the shares present and entitled to vote is required to approve the payment of dividends in shares; however, according to Law 222 of 1995, if a “situation of control” exists, whereby the decision-making power is subject to the will of a person or group of persons, a company may only pay dividends by issuing shares, to the shareholders that so accept;

unanimity is required to replace a vacancy on the board of directors without applying the electoral quotient system described above; and

the vote of 70.0% of the issued and outstanding common shares and 70.0% of the outstanding and issued preferred shares is required to approve any amendment that may impair the rights of the preferred shares.

The adoption by a shareholders’ meeting of certain corporate actions such as mergers, escisiones, and share conversions are also subject to authorization by the Superintendency of Finance.

Preferred shares

The holders of preferred shares are not entitled to receive notice of, attend to or vote at any general shareholders’ meeting of holders of common shares, except as described below.

The holders of preferred shares will be entitled to vote on the basis of one vote per share at any shareholders’ meeting, whenever a shareholder vote is required on the following matters:

in the event that amendments to our by-laws may impair the conditions or rights assigned to such preferred shares and when the conversion of such shares into common shares is to be approved. In both such cases, the vote of 70.0% of the outstanding and issued preferred shares is required; and

if at the end of any six-month period, our profits are not sufficient to pay the minimum dividend on the preferred shares and the Superintendency of Finance, by its own decision or upon request of holders of at least 10.0% of preferred shares, determines that benefits were concealed or shareholders were misled with regard to benefits thereby decreasing the profits to be distributed, the Superintendency of Finance may resolve that holders of preferred shares should participate with speaking and voting rights at the general shareholders’ meeting, in the terms established by law.

We must issue a notice of any meeting at which holders of preferred shares are entitled to vote, which notice must be published in a newspaper of wide circulation. Depending on the matters to be subjects of the shareholders meeting, notice to preferred shareholders must be delivered at least 15 business days or 5 calendar days before the meeting. Each notice must contain the following:

the date of the meeting;

a description of any resolution to be proposed for adoption at the meeting on which the holders of preferred shares are entitled to vote; and

instructions for the delivery of proxies.

Redemption

All shareholders (whether holders of common or preferred shares) have, at their option, a redemption right in the following cases:

If, as a result of a merger, transformation or escisión of the Company, (a) the shareholders must assume a higher level of liability (i.e., by transforming a corporation into a partnership), or (b) the economic rights of the shareholders are impaired. In these events, the shareholders that were not present at the meeting in which the decision was taken or voted against it, may exercise the redemption right.

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Pursuant to Colombian Law (Article 12 of Law 222 of 1995), the economic rights of shareholders are deemed to be impaired if:

their ownership percentage is reduced as a consequence of the merger, transformation or escisión of the Company;

the equity value or the par value of the shares is reduced (in the latter case, only to the extent that the reduction of the par value implies a decrease in the Company’s stock capital); and

the negotiability of the shares is restricted or diminished.

If the Company decides to withdraw the listing of its shares from a stock exchange or its registration before the National Registry of Shares and Issuers (Registro Nacional de Valores y Emisores).

The exercise of this right is regulated by Articles 15 and 16 of Law 222 of 1995. According to Article 15, within five days following notice of the exercise of this right by a shareholder, the Company must offer to the other shareholders the shares owned by the exercising shareholder. Within the following 15 days, the other shareholders may acquire the shares on a pro rata basis. If all or a part of the shares are not acquired by the other shareholders, then the Company must reacquire them to the extent there are profits or reserves built up by the Company for those purposes. If neither the shareholders nor the Company acquires all of the shares owned by the exercising shareholder, then pursuant to Article 16 of Law 222 of 1995, such exercising shareholder is entitled to the reimbursement of the capital contributions made to the Company.

In both cases, the redemption price of the shares will be established by the agreement of seller and buyer. In the absence of such agreement, the redemption price will be determined by an expert appraiser. Notwithstanding the above, the by-laws may establish other methods for determining the redemption price to be paid in the foregoing circumstances. Our current by-laws do not contemplate such other methods.

Dividends

Common shares

Following the approval of the financial statements at a general shareholders’ meeting, shareholders may determine the allocation of distributable profits, if any, of the preceding six months by a resolution approved by the majority of the holders of common shares present at the ordinary general shareholders’ meeting, pursuant to the recommendation of the board of directors and management.

Under the Colombian Code of Commerce, a company must, after payment of income taxes and appropriation of legal reserves, and after off-setting losses from prior terms, distribute at least 50.0% of net profits to all shareholders, payable in cash, or as determined by the shareholders, within a period of one year following the date on which the shareholders determine the dividends. If the total amount segregated in the legal, statutory and occasional reserves of a company exceeds its outstanding capital, this percentage is increased to 70.0%. The minimum common shares dividend requirement of 50.0% or 70.0%, as the case may be, may be waived by a favorable vote of the holders of 78.0% of a company’s common shares present at the meeting, in which case the shareholders may distribute any percentage of the net profits.

Under Colombian law and our by-laws, net profits obtained in each semester are to be allocated as follows:

first, an amount equivalent to 10.0% of net profits is segregated to build a legal reserve, until that reserve is equal to at least 50.0% of our paid-in capital;

second, payment of the minimum dividend on the preferred shares; and

third, allocation of the balance of the net profits is determined by the holders of a majority of the common shares entitled to vote on the recommendation of the board of directors and the president and may, subject to further reserves required by the by-laws, be distributed as dividends.

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Under Colombian law, the dividends payable to the holders of common shares, for each common share, cannot exceed the dividends payable to holders of the preferred shares, for each preferred share. All common shares that are fully paid-in and outstanding at the time a dividend or other distribution is declared are entitled to share equally in that dividend or other distribution. Common shares that are only partially paid-in participate in a dividend or distribution in the same proportion as the shares have been paid in at the time of the dividend or distribution.

The general shareholders’ meeting may allocate a portion of the profits to, among others, welfare, education or civic services.

Preferred shares

Holders of preferred shares are entitled to receive a minimum dividend after deducting losses affecting the capital, and deducting any amounts set aside for legal reserve, but before creating or accruing for any other reserve and before any declared dividends are paid to holders of common shares. Dividends to holders of common shares must be approved by the shareholders. If no dividends are declared, no holder of Grupo Aval’s preferred or common shares will be entitled to payment. The minimum dividend will be equal to Ps 1.00 in each calendar semester, so long as this value is higher than the dividend paid to the holders of common shares. If the minimum preferred dividend is not equal or higher than the per share dividend on the common shares, the minimum dividend will be equal to the dividend paid to the holders of common shares, if any.

Payment of the preferred dividend shall be made at the time and in the manner established in the general shareholders’ meeting and with the priority indicated by Colombian law.

Grupo Aval is under a “situation of control” (whereby the decision-making power is subject to the will of a person or group of persons). As a result, the Company may only pay stock dividends to the shareholders that so accept it. Those shareholders that do not accept to receive a stock dividend, are entitled to receive their dividend in cash.

For additional information regarding dividends, see “Item 10. Additional Information—F. Dividends and paying agents—Dividend policy.”

General aspects involving dividends

The dividend periods may be different from the periods covered by the general balance sheet. In the general shareholders’ meeting, shareholders will determine such dividend periods, the effective date, and the method and the place for payment of dividends.

Dividends declared on the common shares and the preferred shares will be payable to the record holders of those shares, as they are recorded on our share registry, on the appropriate dates as determined in the general shareholders’ meeting. However, in accordance with Decree 4766 of December 14, 2011 (which amended articles 2.23.1.1.4 and 2.23.1.1.5 of Decree 2555 of 2010), issued by the Ministry of Finance and Public Credit:

companies whose shares are registered with the National Registry of Shares and Issuers must establish a period of at least three trading days between the date that they receive approval to distribute profits from the General Shareholders Assembly and the date of payment; and

the ex-dividend period (fecha ex-dividendo) is the period during which it is understood that a purchase of shares does not include the right to receive dividends. The ex-dividend date shall be set forth by stock exchanges, and it cannot be less than two trading days. According to Colombian Stock Exchange regulations, a transaction is “ex-dividend” if it takes place between the first day of dividend payment and the four trading days preceding that date.

Liquidation rights

We will be dissolved if certain events take place, including the following:

our term of existence, as stated in our by-laws, set at May 25, 2044, expires without being extended by the shareholders prior to its expiration date;

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losses cause the decrease of our shareholders’ equity below 50% of the amount of outstanding share capital, unless one or more of the corrective measures described in the Colombian Code of Commerce are adopted by the shareholders within six months;

by decision at the general shareholders’ meeting; and

in certain other events expressly provided by law and in the by-laws.

Upon dissolution, a liquidator must be appointed by a general meeting of the shareholders to wind up the affairs of our company.

Upon liquidation, and out of the surplus assets available for distribution to shareholders, holders of fully paid preferred shares are entitled to a preference in the reimbursement of their contribution (“aporte” as provided by article 63 of Law 222 of 1995) to Grupo Aval. This reimbursement, if any, is payable in pesos before any distribution or payment may be made to holders of common shares. If, upon any liquidation, assets that are available for distribution among the holders of preferred shares are insufficient to pay in full their respective liquidation preferences, such assets will be distributed among those holders pro rata.

Subject to the preferential liquidation rights of holders of preferred shares, and provided there are still sufficient assets remaining, all fully paid common shares will be entitled to participate in any distribution upon liquidation. Partially paid common shares must participate in a distribution upon liquidation in the same proportion that those shares have been paid at the time of the distribution.

To the extent there are surplus assets available for distribution after full payment to the holders of preferred and common shares of their contribution to Grupo Aval, the surplus assets will be distributed among all holders of shares of share capital (common or preferred), pro rata, in accordance with their respective holdings of shares.

Preemptive rights and other anti-dilution provisions

Pursuant to the Colombian Code of Commerce, we are allowed to have an outstanding amount of share capital that is less than the authorized share capital set out in our by-laws. Under our by-laws, the holders of common shares determine the amount of authorized share capital, and our board of directors has the power to (1) order the issuance and regulate the terms of subscription of common shares up to the total amount of authorized share capital, and (2) regulate the issuance of preferred shares, when expressly delegated at the general shareholders’ meeting. The issuance of preferred shares must be approved by the general shareholders’ meeting, which shall determine the nature and extent of any rights, according to our by-laws and Colombian law.

At the time of incorporation of a Colombian company, its outstanding share capital must represent at least 50% of the authorized capital. Any increases in the authorized share capital or decreases in the outstanding share capital must be approved by the majority of shareholders required to approve a general amendment to the by-laws.

Colombian law requires that, whenever we issue new common shares, we must offer to the holders of common shares the right to subscribe a number of common shares sufficient to maintain their existing ownership percentage of the aggregate share capital. These rights are preemptive rights. On the other hand, holders of preferred shares are entitled to preemptive rights only on the specific situations that the shareholders’ meeting so decides. See “Item 3. Key Information—D. Risk factors—Risks relating to our preferred shares.”

Common shareholders at a general shareholders’ meeting may waive preemptive rights with respect to a particular capital increase by the favorable vote of at least 70.0% of the shares represented at the meeting. Preemptive rights must be exercised within the period stated in the share placement terms of the increase, which cannot be less than 15 business days following the publication of the notice of the public offer of that capital increase. From the date of the notice of the share placement terms, preemptive rights may be transferred separately from the corresponding shares.

The Superintendency of Finance will authorize a decrease in the outstanding share capital approved by the holders of common shares only if:

we have no outstanding liabilities;

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our creditors consent in writing; or

the outstanding share capital remaining after the reduction represents at least twice the amount of our liabilities.

Restrictions on purchases and sales of share capital by related parties

Pursuant to the Colombian Code of Commerce, the members of our board of directors and certain of our principal executive officers may not, directly or indirectly, buy or sell shares of our share capital while they hold their positions, unless they obtain the prior approval of the board of directors passed with the vote of two-thirds of its members (excluding, in the case of transactions by a director, such director’s vote). Furthermore, pursuant to Article 262 of the Colombian Code of Commerce, Grupo Aval’s subsidiaries are prohibited from owning (directly or indirectly) shares of Grupo Aval.

In addition, as our shares are publicly traded on the Colombian Stock Exchange, the transfer of the shares is subject to the tender offer rules.

Pursuant to Article 23 of Law 222 of 1995, the members of our board of directors and our legal representatives generally must perform their duties according to the principles of good faith, due diligence and loyalty. In particular, the directors and legal representatives must refrain from entering into any transaction (including any sale and purchase of shares) which may imply competition with the Company or a conflict of interests, unless they obtain the prior approval of the General Shareholders Meeting, which, in any case, shall only be granted if the respective transaction does not harm the Company’s interests.

Transfer and registration of shares

Grupo Aval’s common and preferred shares are listed on the Colombian Stock Exchange. According to Colombian regulations, shares listed on a stock exchange must be sold and transferred only through such exchange, unless such shares were issued outside Colombia and are transferred outside Colombia, or unless the share purchase transaction amounts to a value that is lower than the regulatory threshold of 66,000 UVRs, as required by Article 6.15.1.1.2 of Decree 2555 of 2010. In addition, the following transactions are not required to be effected through the relevant stock exchange:

transfers between shareholders with the same beneficial owner;

transfers of shares owned by financial institutions that are being liquidated under the control and supervision of the Superintendency of Finance;

issuer repurchases;

transfers by the State; and

any other transactions as may be authorized by the Superintendency of Finance.

Under Colombian law, shares may be traded either in physical form or electronic form. Transfers of shares are subject to a registry system which differs depending on whether the shares are evidenced in electronic form or physical form. Transfers of shares evidenced by electronic certificates must first be registered with a securities central depositary through a stockbroker. The main purpose of the securities central depositary is to receive, safe keep and manage securities certificates issued by corporations in order to keep a record of the transactions undertaken over such securities, including transfers, pledges and withdrawals. Accordingly, they are not allowed to hold, invest or otherwise use the securities held under their custody.

Transfer of shares evidenced by electronic or physical certificates, as the case may be, must be registered on the company’s share ledger. Only those holders registered on the share ledger are recognized as shareholders. Registration requires endorsement of the certificates or a written instruction from the holder. In the case of electronic certificates, the securities central depositary notifies us regarding the transfer of shares after registering it in its system.

All of our shares are currently deposited with the securities central depositary (Deceval).

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C.	Material contracts

On July 15, 2010, we entered into a stock purchase agreement with GE Consumer Finance Central Holdings Corp. and General Electric Capital Corporation (collectively, “GE Capital”), to acquire all of the outstanding shares of BAC Credomatic GECF Inc., a company incorporated under the laws of the British Virgin Islands, for U.S.$1.92 billion, subject to certain adjustments. BAC Credomatic is a Central American banking group. We completed the acquisition on December 9, 2010. See “Item 4. Information on the Company—B. Business overview—BAC Credomatic.” As part of the financing of this acquisition, our indirect subsidiary LB Panama entered into two U.S.$135 million (Ps 243.0 billion), totaling U.S.$270 million (Ps 486.0 billion), five-year term loans, respectively, with Bancolombia S.A. and Bancolombia Miami Agency at 180-day LIBOR plus 3.125% on November 26, 2010.

On November 24, 2010, Grupo Aval and Adminegocios & Cia. S.C.A., an entity controlled by Mr. Sarmiento Angulo, our controlling shareholder, entered into an agreement whereby Grupo Aval assigned to Adminegocios & Cia. S.C.A. its right to acquire up to 2,605,000 mandatorily convertible bonds issued by Banco de Bogotá (convertible into 5,542,553 shares of Banco de Bogotá shares). Under the put/call agreement, we had an option to purchase from Adminegocios & Cia. S.C.A., and they had the right to sell, 2,605,000 convertible bonds (or the underlying shares, if converted). In either case, the purchase price that would have been payable to Adminegocios & Cia. S.C.A. was the subscription price paid by Adminegocios & Cia. S.C.A. at the time of acquiring the mandatorily convertible bonds issued by Banco de Bogotá plus a premium of 6.5% per annum up to the date of acquisition. The option expired on February 2, 2013, and it was not exercised either by us or by Adminegocios & Cia. S.C.A. including the 2,605,000 convertible bonds assigned by us, Adminegocios & Cia. S.C.A. acquired a total of 4,249,965 convertible bonds issued by Banco de Bogotá. The mandatorily convertible bonds were acquired by Adminegocios & Cia. S.C.A. in order to finance the BAC Credomatic acquisition.

On February 1, 2012, we entered into an indenture in connection with our issuance of U.S.$600 million of 5.25% Senior Notes due 2017. The indenture was among us, as guarantor, Grupo Aval Limited, as Issuer, Deutsche Bank Trust Company Americas, as Trustee, Registrar, Paying Agent and Transfer Agent and Deutsche Bank Luxembourg S.A., as Luxembourg Paying Agent and Transfer Agent.

On September 19, 2012, we entered into an indenture in connection with our issuance of U.S.$1.0 billion of 4.75% Senior Notes due 2022. The indenture was among us, as guarantor, Grupo Aval Limited, as Issuer, Deutsche Bank Trust Company Americas, as Trustee, Registrar, Paying Agent and Transfer Agent and Deutsche Bank Luxembourg S.A., as Luxembourg Paying Agent and Transfer Agent.

D.	Exchange controls

Restrictions on foreign investment in Colombia

Colombia’s foreign investment statute regulates the manner in which non-residents are permitted to invest in Colombia and participate in the Colombian securities market. Among other requirements, Colombian law requires foreign investors to register certain foreign exchange transactions with the Colombian Central Bank and obtain authorization for certain types of investments. Certain foreign exchange transactions, including those between residents and non-residents, must be made through authorized foreign exchange market intermediaries.

Non-residents are permitted to hold portfolio investments in Colombia, through either a registered stock brokerage firm, a trust company or an investment firm. Investors would only be allowed to transfer dividends abroad after the foreign investment registration procedure with the Colombian Central Bank has been completed. The

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failure of a non-resident investor to report or register foreign exchange transactions with the Colombian Central Bank relating to investments in Colombia on a timely basis may prevent the investor from remitting dividends, or an investigation that may result in a fine, may be commenced.

Taxation

The following summary contains a description of certain Colombian and U.S. federal income tax consequences of the acquisition, ownership and disposition of preferred shares. The summary is based upon the tax laws of Colombia and regulations thereunder and on the tax laws of the United States and regulations thereunder as of the date hereof, which are subject to change.

Colombian tax considerations

For purposes of Colombian taxation, residence consists of the continuous presence in the country for more than six months either within a fiscal year or consecutive fiscal years, or the presence, whether or not continuous, in the country for more than six months within a fiscal year. Colombians who maintain their immediate family or their principal place of business in Colombia are considered residents for tax purposes, even if they are not present in the country during the fiscal year. For purposes of Colombian taxation, a legal entity is a resident of Colombia if it is organized under the laws of Colombia.

Pursuant to the Colombian Fiscal Statute, resident individuals and Colombian entities are subject to Colombian taxes on income earned in Colombia and worldwide, while non-resident individuals and foreign entities are only taxed on their Colombian-source income.

Taxation of dividends

In Colombia, dividends received by foreign companies or other foreign entities, non-resident individuals and successors of non-residents are not subject to income taxes, insofar as the profits from which they are paid have been taxed at the corporate level (Articles 48, 49 and 245 of the Fiscal Statute). However, if those profits were not taxed at the corporate level, the amount paid as a dividend will be subject to a withholding tax at a rate of 33% (or whatever is the income tax rate at the moment of the accrual or payment of dividends), according to Article 245 of the Fiscal Statute. Foreign companies, foreign investment funds, and individuals that are not Colombian residents are not required by law to file an income tax return in Colombia either when the dividends received by them have been subject to withholding taxes or when dividends are paid out of profits subject to income tax at the corporate level.

Taxation of sales of shares

Pursuant to Article 36-1 of the Fiscal Statute, gains derived by a non-resident of Colombia from the sale of stock are not subject to income, withholding, remittance or other taxes in Colombia when the stock is listed in the Colombian Stock Exchange and the transaction does not involve the sale of 10% or more of the company’s outstanding stock by the same beneficial owner in the same taxable year.

In the case of foreign capital portfolio investments, gain realized on a sale of shares will be taxed as described below.

Tax on foreign capital investment portfolio income

The 2012 Tax Reform (see “—Supervision and regulation—2012 Tax Reform”) established a new tax regime for foreign capital portfolio investments. These investors will be required to pay income tax for the profits obtained in the development of their activities, regardless of the vehicle used to carry them out, pursuant to Article 18-1 of the Fiscal Statute. The rate of such tax is generally 14%; for income other than dividends, however, a 25% rate will apply to investors domiciled in a tax haven jurisdiction. For income resulting from dividends subject to taxation, a general tax rate of 25% will apply.

Payment of this tax will be accomplished through withholding that is carried out on a monthly basis by the administrator of such investment portfolio, based on the profits earned by the investor during the corresponding

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month. When the income results from dividends subject to taxation, the withholding will be made by the company paying the dividend, at the time of payment.

The withholding, performed according to the rules established in the Fiscal Statute, shall constitute the final tax and investors will not be required to file an income tax return. However, if the investor sells shares of stock that are listed on the Colombian Stock Exchange in an amount that is above the 10% limit set forth in Article 36-1 of the Fiscal Statute (as described in the above paragraph under “—Taxation of sales of shares”), the investor will be required to file the corresponding income tax return, which will be filed by the administrator of the portfolio on his behalf.

Other Colombian taxes

At the date of this annual report, there is no income tax treaty and no inheritance or gift tax treaty in effect between Colombia and the United States. There are no Colombian stamp, issue, registration, transfer or similar taxes or duties payable by holders of preferred shares.

According to Law 1430 of 2010, enacted on December 29, 2010, gains derived from the sale of derivatives that are considered securities under Colombian law are not subject to income, withholding, remittance or other taxes in Colombia when the underlying asset consists exclusively of shares that are listed on the Colombian Stock Exchange, indexes or participations in mutual funds reflecting the behavior of such shares.

United States federal income taxation considerations for U.S. holders

In general

The following is a description of the material U.S. federal income tax consequences to the U.S. Holders described below of owning and disposing of our preferred shares, but it does not purport to be a comprehensive description of all tax considerations that may be relevant to a particular person’s decision to acquire the shares. This discussion applies only to a U.S. Holder that holds our preferred shares as capital assets for tax purposes. In addition, it does not describe all of the tax consequences that may be relevant in light of the U.S. Holder’s particular circumstances, including alternative minimum tax consequences, the potential application of certain provisions of the Internal Revenue Code of 1986, as amended (the “Code”) known as the Medicare contribution tax, and tax consequences applicable to U.S. Holders subject to special rules, such as:

certain financial institutions;

dealers in securities or currencies or traders in securities who use a mark-to-market method of tax accounting;

persons holding preferred shares as part of a hedging transaction, straddle, wash sale, conversion transaction or integrated transaction or persons entering into a constructive sale with respect to the preferred shares;

persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;

entities classified as partnerships for U.S. federal income tax purposes;

tax-exempt entities, including “individual retirement accounts” or “Roth IRAs”;

persons that own or are deemed to own ten percent or more of our voting stock; and

persons holding our preferred shares in connection with a trade or business conducted outside of the United States.

If an entity that is classified as a partnership for U.S. federal income tax purposes holds our preferred shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding our preferred shares and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences of holding and disposing of the preferred shares.

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This discussion is based on the Code, administrative pronouncements, judicial decisions, and final, temporary and proposed Treasury regulations, all as of the date hereof, any of which is subject to change, possibly with retroactive effect.

A “U.S. Holder” is a beneficial owner of our preferred shares who is:

a citizen or individual resident of the United States;

a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or

an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.

U.S. Holders should consult their tax advisers concerning the U.S. federal, state, local and foreign tax consequences of owning and disposing of our preferred shares in their particular circumstances.

Taxation of dividends

The preferred shares constitute equity of our company for U.S. federal income tax purposes. Therefore, subject to the passive foreign investment company, or “PFIC”, rules described below, distributions paid on our preferred shares will be treated as dividends to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, it is expected that distributions generally will be reported to U.S. Holders as dividends. Subject to applicable limitations, dividends paid by qualified foreign corporations to certain non-corporate U.S. Holders may be subject to U.S. federal income tax rates applicable to long-term capital gains if certain conditions are met. However, because our preferred shares are not tradable on an established securities market in the United States and there is no income tax treaty between Colombia and the United States, we do not expect to be a qualified foreign corporation for this purpose. Accordingly, dividends paid on our preferred shares will be taxed at ordinary income rates.

The amount of a dividend will include any amounts withheld by our company in respect of Colombian taxes. The amount of the dividend will generally be treated as foreign-source dividend income to U.S. Holders and will not be eligible for the dividends-received deduction generally available to U.S. corporations under the Code. Dividends will be included in a U.S. Holder’s income on the date actually or constructively received by the U.S. Holder. The amount of any dividend income paid in pesos will be the U.S. dollar amount calculated by reference to the exchange rate in effect on the applicable date of receipt, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the applicable date of receipt, a U.S. Holder should not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt.

Subject to applicable limitations (including a minimum holding period requirement), some of which vary depending upon the U.S. Holder’s circumstances, Colombian income taxes withheld from dividends on preferred shares will be creditable against the U.S. Holder’s U.S. federal income tax liability. In lieu of claiming a foreign tax credit, U.S. Holders may, at their election, deduct foreign taxes, including the Colombian tax, in computing their taxable income, subject to generally applicable limitations under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all taxes paid or accrued in the taxable year to foreign countries and possessions of the United States. The rules governing foreign tax credits are complex, and U.S. Holders should consult their tax advisers regarding the creditability of foreign taxes in their particular circumstances.

Sale or other taxable disposition of preferred shares

Subject to the PFIC rules described below, for U.S. federal income tax purposes, gain or loss realized on the sale or other taxable disposition of our preferred shares will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder held the preferred shares for more than one year. The amount of the gain or loss will equal the difference between the U.S. Holder’s tax basis in the preferred shares disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. This gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes.

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Passive foreign investment company rules

Based on proposed Treasury regulations, which are proposed to be effective for taxable years beginning after December 31, 1994, and on management estimates, we believe we were not a PFIC for U.S. federal income tax purposes for the 2012 taxable year. However, because the proposed Treasury regulations may not be finalized in their current form, because the application of the proposed regulations is not entirely clear and because the composition of our income and assets will vary over time, there can be no assurance that we were not or will not be a PFIC for any taxable year. The determination of whether we are a PFIC, however, is made annually and is based upon the composition of our income and assets (including, among others, entities in which we hold at least a 25% interest), and the nature of our activities. In general, we will be a PFIC for any taxable year in which at least 75% of our gross income is passive income, or at least 50% of the value (determined on a quarterly basis) of our assets is attributable to assets that produce or are held for the production of passive income.

If we are a PFIC for any taxable year during which a U.S. Holder held our preferred shares, any gain recognized by a U.S. Holder on a sale or other taxable disposition of preferred shares would be allocated ratably over the U.S. Holder’s holding period for the preferred shares. The amounts allocated to the taxable year of the sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to all other taxable years would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed on the amount allocated to those taxable years. Further, any distribution in respect of preferred shares in excess of 125% of the average of the annual distributions on preferred shares received by the U.S. Holder during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, would be subject to taxation as described immediately above with respect to gains. Certain elections may be available that would result in alternative treatments (such as mark-to-market treatment) of the preferred shares. U.S. Holders should consult their tax advisers to determine whether any of these elections would be available and, if so, what the consequences of the alternative treatments would be in their particular circumstances.

If we were a PFIC for any taxable year during which a U.S. Holder held the preferred shares, such U.S. Holder may be required to file a report containing such information as the U.S. Treasury may require.

Information reporting and backup withholding

Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting, and may be subject to backup withholding, unless (1) the U.S. Holder is an exempt recipient or (2) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the holder’s U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely furnished to the Internal Revenue Service.

Certain U.S. Holders who are individuals may be required to report information relating to their ownership of an interest in certain foreign financial assets, including stock of a non-U.S. person, subject to certain exceptions (including an exception for stock held in custodial accounts maintained by a U.S. financial institution). Certain U.S. Holders who are entities may be subject to similar rules in the future. U.S. Holders should consult their tax advisers regarding their reporting obligations with respect to the preferred shares.

F.	Dividends and paying agents

Dividend policy

The amount of dividends, if any, that we pay will be dependent, in large part, on the amount of dividends received from our subsidiaries. From 2008 to 2012, the amount of dividends that we have paid increased at a compound annual growth rate of 21.5%. Dividends are declared semi-annually in March and September of each year, and we do not declare dividends quarterly. Our subsidiaries declared Ps 800.6 billion in 2012 and Ps 711.4 billion in 2011 of dividends payable to us, and we declared an aggregate of Ps 913.0 billion in 2012 and 790.3 billion in 2011 of dividends to our shareholders.

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Unless noted otherwise, the following tables present the net profits of, and dividends declared by, each of our banks and Porvenir, and the amount of dividends that we would be entitled to receive from each of them during the periods indicated. Dividends are paid to us on a monthly basis.

	For the year ended December 31,
	2012			2011			2012			2011			2012			2011			2012			2011			2012			2011			2012		2011
	Banco de Bogotá						Banco de Occidente						Banco Popular						Banco AV Villas						Porvenir						Total
	(in Ps billions, except percentages)
Direct ownership interest held by Grupo Aval		64.4	%		64.4	%		68.2	%		68.2	%		93.7	%		93.7	%		79.9	%		79.9	%		20.0	%		20.0	%		–		–
Unconsolidated net profits		1,351			1,100			511			441			369			367			172			165			212			153			2,615		2,227
Dividends declared		582			495			226			205			180			177			78			71			206			152			1,271		1,100
Dividends contributed to Grupo Aval		375			319			154			140			169			166			62			57			41			30			801		711
Dividends declared by Grupo Aval		–			–			–			–			–			–			–			–			–			–			913		790

The allocation of our distributable profits, if any, is determined by our common shareholders following approval of our semi-annual financial statements. Our general shareholders’ meetings generally occur in March and September, three months after the close of the semi-annual period. As such, dividends declared in one year may relate to the results of the previous year.

In the past we have paid dividends on a monthly basis. We have not, however, adopted a specific dividend policy with respect to future dividends. The amount of any distributions will depend on many factors, such as the results of operations and financial condition of our company and our subsidiaries, their cash requirements, their prospects and other factors deemed relevant by our board of directors and shareholders.

Our company pays dividends based on the results shown in our semi-annual unconsolidated audited financial statements prepared under Colombian GAAP for companies other than financial institutions. See “Presentation of Financial and Other Information—Financial statements.”

The principal differences between Colombian Banking GAAP and Colombian GAAP for companies other than financial institutions are the following:

Valuation of Investments in securities: Under Colombian GAAP, all investments in debt securities are accounted for at book value, as opposed to Colombian Banking GAAP, according to which, depending on how the securities are classified, investments may be accounted for at market value. Therefore, in our financial statements prepared under Colombian GAAP, investments in debt securities that at the bank’s level had been accounted for at market value, are re-expressed at book value.

Deferred assets: Under Colombian GAAP deferred assets are amortized in full on a yearly basis. Under Colombian Banking GAAP deferred assets can be amortized in periods longer than one year. Therefore, in our financial statements prepared under Colombian GAAP, the bank’s deferred assets are fully amortized each year.

In addition there are other differences related to the general provision for loans and inflation adjustments that do not have a material effect on our financial statements.

Net income as reported in our consolidated Colombian GAAP financial statements differed from net income as reported in our consolidated Colombian Banking GAAP financial statements by Ps 30.0 billion (2.0%) and Ps 5.0 billion (0.4%) for the years ended December 31, 2012 and 2011, respectively.

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We expect that differences between Colombian GAAP and Colombian Banking GAAP will continue to occur in future periods.

The amount of dividends expected from our subsidiaries will also depend on the future share ownership in our subsidiaries.

Dividend history of Grupo Aval

The following table presents the annual cash dividends paid by Grupo Aval on each share during the periods indicated.

Dividends declared with respect to net income:	Cash dividends per share		Cash dividends per share
	(Ps)		(U.S.$)
Year ended:
2008		30.00		0.013
2009		33.24		0.016
2010		37.80		0.020
2011		42.60		0.022
2012		49.20		0.028

Dividend history of our banking subsidiaries

The following tables set forth the annual cash dividends paid by each of our banks on each share during the periods indicated.

Banco de Bogotá

Dividends declared with respect to net income:	Cash dividends per share		Cash dividends per share
	(Ps)		(U.S.$)
Year ended:
2008		1,500.00		0.669
2009		1,566.00		0.766
2010		1,608.00		0.840
2011		1,728.00		0.889
2012		2,028.00		1.146

Banco de Occidente

Dividends declared with respect to net income:	Cash dividends per share		Cash dividends per share
	(Ps)		(U.S.$)
Year ended:
2008		1,134.00		0.505
2009		1,158.00		0.566
2010		1,233.00		0.644
2011		1,314.00		0.676
2012		1,452.00		0.821

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Banco Popular

Dividends declared with respect to net income:	Cash dividends per share		Cash dividends per share
	(Ps)		(U.S.$)
Year ended:
2008		11.52		0.005
2009		16.98		0.008
2010		21.84		0.011
2011		22.92		0.012
2012		23.28		0.013

Banco AV Villas

Dividends declared with respect to net income:	Cash dividends per share		Cash dividends per share
	(Ps)		(U.S.$)
Year ended:
2008		233.08		0.104
2009		249.06		0.122
2010		285.81		0.149
2011		315.00		0.162
2012		345.00		0.195

Dividend history of Porvenir and Corficolombiana

The following tables present the annual cash dividends paid by Porvenir and Corficolombiana during the periods indicated.

Porvenir

Dividends declared with respect to net income:	Cash dividends per share		Cash dividends per share
	(Ps)		(U.S.$)
Year ended:
2008		771.00		0.344
2009		1,301.98		0.637
2010		918.00		0.480
2011		972.00		0.500
2012		–		–

Corficolombiana

Dividends declared with respect to net income:	Cash dividends per share		Cash dividends per share
	(Ps)		(U.S.$)
Year ended:
2008		1,038.00		0.463
2009		1,332.00		0.652
2010		882.00		0.461
2011		1,464.00		0.754
2012		882.00		0.499

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Dividend history of BAC Credomatic

As of December 31, 2012, BAC Credomatic had declared U.S.$488.36 of cash dividends per share.

General aspects involving dividends

The dividend periods may be different from the periods covered by the general balance sheet. At the general shareholders’ meeting, shareholders will determine such dividend periods, the effective date, the system and the place for payment of dividends.

Dividends declared on the shares of common and preferred shares will be payable to the record holders of those shares, as they are recorded on our stock registry, on the appropriate record dates as determined at the general shareholders’ meeting. However, pursuant to External Circular 13 of 1998 issued by the former Superintendency of Securities (currently, the Superintendency of Finance), if a shareholder sells shares during the ten business days immediately preceding the payment date, dividends corresponding to those shares will be paid by us to the seller.

The vote of at least 80.0% of the shares present and entitled to vote is required to approve the payment of dividends in shares; however, according to Law 222 of 1995, if a “situation of control” exists, whereby the decision-making power is subject to the will of another person or group of persons, a company may only pay dividends by issuing shares, to the shareholders that so accept.

G.	Statement by experts

Not applicable.

H.	Documents on display

We are subject to the information requirements of the Exchange Act, except that as a foreign issuer, we will not be subject to the proxy rules or the short-swing profit disclosure rules of the Exchange Act. In accordance with these statutory requirements, we will file or furnish reports and other information with the SEC. You may inspect and copy reports and other information filed with the SEC at the Public Reference Room at 100 F Street NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet website that contains reports and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.

I.	Subsidiary information

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK

Risk management

The guiding principles of risk management at Grupo Aval and our banks have been the following:

· collective decision making for commercial lending at the board level of each of our banks;

· extensive and in-depth market knowledge, the result of our market leadership and our experienced, stable and seasoned senior management;

· clear top-down directives with respect to:

· compliance with know-your-customer policies; and

· commercial loan credit structures based on the clear identification of sources of repayment and on the cash-flow generating capacity of the borrower;

· use of common credit analysis tools and loan pricing tools across all our banks;

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· diversification of the commercial loan portfolio with respect to industries and economic groups;

· specialization in consumer product niches;

· extensive use of continuously updated rating and scoring models to ensure the growth of high-credit quality consumer lending;

· use of our extensive market presence in the identification and implementation of best practices for operational risk management; and

· conservative policies in terms of:

· the trading portfolio composition, with a bias towards instruments with lower volatility;

· proprietary trading; and

· the variable remuneration of trading personnel.

Unless otherwise indicated, risk management figures for Banco de Bogotá consolidate financial data of BAC Credomatic. BAC Credomatic has in place its own risk management controls for credit risk, market risk and operational risk.

With respect to credit risk, BAC has a centralized structure with a Regional Risk Director reporting to the CEO of BAC, who chairs the Regional Credit Committee and is responsible for setting out credit policies and procedures applicable at the local (individual country) level and defining growth strategies in accordance with country risk. While local credit-risk managers report to the country head, compliance with the credit policies is reported directly to the Regional Risk Director.

With respect to market risk, there are Regional Investment Policies and Regional Asset and Liability Management Policies which set out the guidelines for establishing country risk and issuer limits as well as limits on foreign currency positions and general guidelines for the administration of liquidity, interest rate and exchange-rate risks. The establishment and administration of the regional policies is the responsibility of the Regional Asset and Liability Committee, which is comprised of BAC Credomatic board members.

Daily compliance to these policies in all countries is carried out with the investment portfolio control management module, which documents the entire investment process. The monitoring of exposures is the responsibility of the Regional Financial Director through the local assets and liabilities committees.

Operating Risk Management at BAC Credomatic is carried out using the conceptual methodology of Basel II guidelines and the elements of COSO integral risk management. A centralized operating risk management unit ensures that there are in place policies to ensure a standardized treatment of operating risks including methodologies for the timely recognition of the principal exposures, the ownership of operational risks by functional units, accountability throughout the organization and effective procedures to collect information on operational losses. The centralized operating risk committee is also responsible for putting in place an effective business continuity plan.

Credit risk

The credit-risk management process at all our banks takes into consideration the requirements of the Superintendency of Finance, the guidelines of Grupo Aval credit-risk management and the composition of each of the banks’ loan portfolio, which, in turn, is the result of the execution of each bank’s strategy.

Commercial lending

56.9% of our total loan portfolio is composed of commercial loans to corporate and small- and medium-sized enterprises. However, the level of commercial loans varies in each of our banks. At December 31, 2012, the proportion of commercial loans was 63.2%, 55.8%, 43.4% and 38.0% at Banco de Bogotá, Banco de Occidente, Banco Popular and Banco AV Villas, respectively.

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The credit approval process for commercial loans at each of our banks follows the policies and lending authorities established by each bank. The highest lending authority at all banks, other than the board of directors, is the national credit committee (Comité Nacional de Crédito at Banco de Bogotá, Banco Popular and Banco AV Villas or Comité de Crédito Dirección General at Banco de Occidente), which has lending limits that range between Ps 1.6 billion (approximately U.S.$0.9 million) at Banco Popular and Ps 8.0 billion (approximately U.S.$4.4 million) at Banco de Bogotá and Banco de Occidente.

Following the approval of a transaction by the credit committee of any of our banks, information regarding the loan is sent to the Grupo Aval risk management committee if the loan would result in aggregate exposure to the borrower in excess of Ps 5.0 billion. For commercial loans, the credit approval process includes the presentation to the Grupo Aval risk management committee of all potential credit exposures per client that, across all of our banks, represent an exposure in excess of Ps 30.0 billion (approximately U.S.$17 million). This committee, which is composed of the vice presidents of credit of each of our banks and the risk management staff of Grupo Aval, meets on a weekly basis to discuss general developments in the industry and economy, risks and opportunities, and the structure of credit transactions, as well as to consult on and evaluate potential business opportunities. The committee consolidates requests for loans across all banks and evaluates our total exposure to potential borrowers. In each case, the committee evaluates the relevant bank’s application of its credit analysis policy and it may make recommendations with respect to the structure of the loan (such as guarantees, interest rates, commissions and covenants). The risk management committee will then submit the transaction to the Grupo Aval advisory board.

The Grupo Aval advisory board, which is composed of the presidents of our banks and the vice presidents of Grupo Aval, meets on a bimonthly basis to discuss the adoption of policies for risk management and how to accommodate clients with large credit needs, as well as to advise the banks with respect to defaults or other credit risk issues. The advisory board also evaluates transactions submitted to it by the Grupo Aval risk management committee for compliance with applicable policies and makes recommendations to the banks with respect to such loans. The boards of the banks make the ultimate decisions with respect to such loans.

In order to facilitate the analysis of commercial loans which meet the threshold and are thus reviewed by Grupo Aval, we have developed certain tools, including a standardized “proyecto de crédito,” a stand-alone document containing all of the information considered necessary for us to make a credit decision. We have also developed financial projection models and pricing models that assist us in analyzing potential loans and comparing the estimated return on a loan with that of a comparable risk-free instrument.

We seek to achieve a profitable, high-quality commercial loan portfolio and an efficient procedure for analyzing potential loans across our banks. To that end, we have established policies and procedures for the analysis and approval of potential commercial credit transactions that seek to focus lending on the following principles:

borrowers whose shareholders and management are, in our opinion, of the highest integrity (taking into account not only an analysis of the borrower’s credit profile but also their reputation in the business community and other factors);

borrowers which participate in key industries;

borrowers which are leaders or major players in the industries in which they participate;

transaction structures, including covenants and guarantees, which provide adequate protection; and

pricing which compensates adequately for capital invested and the market and credit risks incurred.

In addition, we make loans to public sector entities. For purposes of evaluating the extension of credit to public sector entities, our banks follow three criteria: (1) the loan must be used to finance an investment that has been approved by local authorities; (2) a source of repayment must be clearly identified, such as tax revenues; and (3) the source of repayment so identified must be pledged to secure the loan.

Consumer lending

Consumer lending represented 29.2% of the total loan portfolio at December 31, 2012; however, the participation and specialization by product varies in each of our banks. At December 31, 2012, Banco Popular

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consumer lending represented 52.9% of the total loan portfolio and was concentrated on payroll deduction loans (libranzas), a product in which it is the leader in Colombia. At Banco AV Villas and Banco de Bogotá, consumer lending represented 48.0% and 23.9% of their total loan portfolio, respectively. At Banco de Occidente, 20.5% of the total loan portfolio consisted of consumer loans, with motor vehicle financing representing 7.6% of the total loan portfolio.

The credit approval process for consumer loans at each of our banks follows the policies and lending authorities established by each bank. The highest lending authority at all banks, other than the board of directors, is the national credit committee (Comité Nacional de Crédito at Banco de Bogotá, Banco Popular and Banco AV Villas or Comité de Crédito Dirección General at Banco de Occidente), which have lending limits that range between Ps 1.6 billion (approximately U.S.$0.9 million) at Banco Popular, and Ps 8.0 billion (approximately U.S.$4.4 million) at Banco de Bogotá and Banco de Occidente.

For consumer banking, each bank has developed a business model designed to take into consideration the product offering. Banco Popular, for which payroll deduction loans represent 51.8%, has developed a business model which concentrates its analysis on the credit and operational risks of the payee (the employer) supported with statistical origination and behavior models. Banco AV Villas is the bank with the most diversified consumer loan portfolio. After being exclusively a mortgage lending institution until 2000, it has developed different niches in consumer lending. The fast growth of consumer lending with above average credit quality has been the result of the development of in-house statistical origination and behavior models and the development of a multiple view vintage analysis tool, which has allowed the sale of consumer loan products to the lower income population, which is a more profitable customer segment in which relatively few banks compete. Banco de Bogotá has successfully integrated Megabanco’s operations into its full-service consumer loan portfolio of credit cards, personal loans, automobile loans and overdrafts. Banco de Occidente has become a leader in motor vehicle financing by maintaining an independent motor vehicle financing unit which has developed its own statistical models and its own origination and collection strategies.

Mortgage lending

Mortgage lending represented 5.4% of the total loan portfolio at December 31, 2012, with Banco AV Villas being the only one of our banks with a significant participation. At Banco AV Villas mortgage lending represents 13.8% of its loan portfolio, a percentage that has decreased consistently since 2005 when it was 44.5%. Although the year-end balance of mortgage loans at Banco AV Villas has decreased consistently over the last five years, there have been new disbursals for approximately Ps 1,081.0 billion during this same period. In order to ensure an adequate mortgage loan portfolio quality, Banco AV Villas has developed statistical models for the origination and follow-up on new mortgage loans, which has resulted in a very low past due to total loan ratios for recently originated loans.

Financial leases

Financial leases represented 8.1% of the total loan portfolio at December 31, 2012 and corresponded to the financial leasing transactions processed through Banco de Bogotá’s, Banco de Occidente’s and Banco Popular’s respective leasing divisions and Leasing Corficolombiana, a subsidiary of Corficolombiana which consolidates with Banco de Bogotá. All leasing subsidiaries have independent credit approval processes and their own credit policies, which in turn are closely supervised by their parent companies.

Microcredit lending

Microcredit loans represented 0.4% of the total loan portfolio at December 31, 2012.

Credit classification and provisioning

Our banks continually engage in the determination of risk factors associated with their credit-related assets, through their duration, including restructurings. For such purposes, they have designed and adopted the SARC in accordance with Superintendency of Finance guidelines. The SARC has integrated credit policies and procedures for the administration of credit risks, models of reference for the determination and calculation of anticipated losses, provisions for coverage of credit risks and internal control procedures.

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Our banks are required to classify the loan portfolio in accordance with the rules of the Superintendency of Finance, which established the following loan classification categories: “AA,” “A,” “BB,” “B,” “CC” and “Default,” depending on the strength of the credit and, after the loan is disbursed, its past due status.

Each bank reviews outstanding loan portfolio components under the above-mentioned criteria and classifies individual loans under the risk-rating categories below on the basis of minimum objective criteria, such as balance sheet strength, profitability and cash generation capacity. The classification of new commercial loans is made on the basis of these objective criteria. The criteria are also evaluated on an ongoing basis, together with loan performance, in reviewing the classification of existing commercial loans.

Category	Approval	Commercial loan portfolio	Consumer loan portfolio
“AA”	New loans with risk rating at approval of “AA”	Outstanding loans and financial leases with past due payments not exceeding 29 days (i.e., between 0 and 29 days past due). The debtor’s financial statements or its projected cash flows, as well as all other credit information available to the financial subsidiaries, reflect excellent paying capacity.	Loans whose risk rating is “AA” according to the methodology of the Consumer Reference Model, or “MRCO,” as established by the Superintendency of Finance
“A”	New loans with risk rating at approval of “A”	Outstanding loans and financial leases with delayed payments in excess of 30 days but not exceeding 59 days (i.e., between 30 and 59 days past due). The debtor’s financial statements or its projected cash flows, as well as all other credit information available to the financial subsidiaries, reflect appropriate paying capacity.	Loans whose risk rating is “A” according to the methodology of the MRCO as established by the Superintendency of Finance
“BB”	New loans with risk rating at approval of “BB”	Outstanding loans and financial leases past due more than 60 days but less than 90 days (i.e., between 60 and 89 days past due). Loans in this category are acceptably serviced and collateralized, but there are weaknesses which may potentially affect, on a transitory or permanent basis, the debtor’s ability to pay or its projected cash flows, to the extent that, if not timely corrected, would affect the normal collection of credit or contracts.	Loans whose risk rating is “BB” according to the methodology of the MRCO as established by the Superintendency of Finance
“B”	New loans with risk rating at approval of “B”	Outstanding loans and financial leases past due over 90 days but less than 120 days (i.e., between 90 and 119 days past due). The debtor shows insufficient paying capacity of its obligations.	Loans whose risk rating is “B” according to the methodology of the MRCO as established by the Superintendency of Finance
“CC”	New loans with risk rating at approval of “CC”	Outstanding loans and financial leases past due more than 120 days but less than 150 days (i.e., between 120 and 149 days past due). Loans in this category represent grave insufficiencies in the debtors’ paying capacity or in the project’s cash flow, which may compromise the normal collection of the obligations.	Loans whose risk rating is “CC” according to the methodology of the MRCO as established by the Superintendency of Finance

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Category		Approval		Commercial loan portfolio		Consumer loan portfolio
“Default”		—		Outstanding loans and financial leases past due for 150 days or more. This category is deemed uncollectible. These loans are considered in default.		Consumer loan portfolio past due over 90 days

For new consumer loans, the banks use their internal statistical origination models to develop an initial classification category (“AA,” “A,” “BB,” “B” and “CC”). Once the loan is disbursed, the banks use formulas provided by the Superintendency of Finance, which incorporate payment performance of the borrower to calculate a score which in turn is used to determine the loan classification.

For financial leases the risk categories are established in the same manner as commercial or consumer loans.

For financial statement reporting purposes, the Superintendency requires that loans and leases be given a risk category on the scale of “A,” “B,” “C,” “D” and “E.” As a result, the risk classifications are aligned to the risk categories as follows.

	Risk classification
Risk category	Commercial	Consumer
“A	“AA”	“AA”
		“A” – between 0 and 30 days past due
“B”	“A”	“A” – more than 30 days past due
	“BB”	“BB”
“C”	“B”	“B”
	“CC”	“CC”
“D”	“Default”	“Default” – all other past due loans not classified in “E”
“E”	“Default”	“Default” – past due loans with a Loss given default (LGD) of 100% (1)

(1)	LGD is defined as a percentage to reflect the credit loss incurred if an obligor defaults. LGD for debtors depends on the type of collateral and as a percentage would gradually increase depending on the number of days elapsed after being classified in each category.

For our mortgage and microcredit loan portfolios the risk categories in effect at December 31, 2012, based on past due status, are as follows.

Category	Microcredit	Mortgage
“A” Normal Risk	In compliance or up to date and up to 30 days past due	In compliance or up to 60 days past due
“B” Acceptable Risk	Past due between 31 and 60 days	Past due between 61 and 150 days
“C” Appreciable Risk	Past due between 61 and 90 days	Past due between 151 and 360 days
“D” Significant Risk	Past due between 91 and 120 days	Past due between 361 and 540 days
“E” Uncollectable	Past due over 120 days	Past due over 540 days

Loan loss provisions

Our banks follow the norms of the Superintendency of Finance for the establishment of loan loss provisions. There are separate rules for commercial loans and leases, consumer loans and mortgage loans.

For commercial loans and financial leases, the process is as follows:

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· determination of the loan classification (“AA,” “A,” “BB,” “B,” “CC” or “Default”) based on the repayment capacity and payment record, among other considerations, of the borrower;

· determination of the probability of default from tables provided by the Superintendency of Finance which take into account the loan classification (“AA” through “Default”) and the size of the borrower in terms of assets (large, medium or small business);

· determining the loss given default based on the type of credit support (guarantees) and the past due status of the loan, using guides (tables) provided by the Superintendency of Finance; and

· based on the expected loss given default and the exposure at default, the amount of the loan provision for the individual loan is determined and booked.

For consumer loans, the process is as follows:

· determination of the loan classification (“AA,” “A,” “BB,” “B,” “CC” or “Default”) based on the score generated by the bank’s internal statistical origination model (for new loans) or on a score determined by a formula provided by the Superintendency of Finance, which incorporates the payment performance of the borrower;

· determining the probability of default from tables provided by the Superintendency of Finance which take into account the loan classification (“AA” through “Default”);

· determining the loss given default based on the type of credit support and past due status using tables provided by the Superintendency of Finance; and

· based on the expected loss given default and the exposure at default, the amount of the loan provision for the individual loan is determined and booked.

For microcredit and mortgage loans, the provision as a percentage of the principal is determined in accordance with the following table.

		Microcredit loans		Mortgage loans
Risk Category		Provision as % of principal		Provision as % of principal covered by guarantee		Provision as % of principal not covered by guarantee
	“A”		0.0		1.0		1.0
	“B”		1.0		3.2		100.0
	“C”		20.0		10.0		100.0
	“D”		50.0		20.0		100.0
	“E”		100.0		30.0		100.0

Liquidity risk

As a holding company, Grupo Aval’s liquidity requirements are limited to dividends, debt-service payments and operational expenses. Our liquidity is derived entirely from dividends from subsidiaries, which management believes is sufficient for these purposes. Grupo Aval is not required to maintain minimum liquidity positions. Subject to the capital requirements of each of our banks, there are no limitations on our banks’ ability to pay dividends to Grupo Aval.

Banks controlled by Grupo Aval are required to, and maintain adequate liquidity positions based on the Superintendency of Finance’s liquidity parameters, as follows:

Until 2009, banks were required to determine liquidity gap, which is the difference between the expected cash flow disbursements from assets and the expected cash flow disbursements from liabilities, classified by time bracket, including in the calculation of both on- and off-balance sheet assets and liabilities as well as contingent assets and liabilities. Cumulative liquidity gap is defined as the sum of liquidity gap for the current and previous periods.

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Banks were generally required to have a positive three-month cumulative liquidity gap and, if this measure was negative, its absolute value was accounted for as “Liquidity Value at Risk.” No bank was allowed to have two consecutive evaluations of Liquidity Value at Risk which exceeded its “Net liquid assets” defined as net interbank loans, tradable debt securities that mature in more than three months, and available cash.

In 2009, a short-term liquidity index (Indicador de Riesgo de Liquidez), or “IRL,” that measures 7-, 15- and 30-day liquidity was established. This index is defined as the difference between adjusted liquid assets and net liquidity requirements. Liquid assets include total debt securities adjusted by market liquidity and exchange rate, excluding investments classified as “held to maturity” different from mandatory investments, Central Bank deposits and available cash. Net liquidity requirements are the difference between expected contractual asset and contractual and non-contractual liability cash flows. Cash flows from past due loans are not included in this calculation.

In 2011, the Superintendency of Finance implemented changes to liquidity reporting requiring the calculation of a new IRL ratio, or “IRL Ratio,” defined as adjusted liquid assets divided by the net liquidity requirements (in each case, as defined above), expressed as a percentage. The IRL Ratio may not fall below 100% for two consecutive weeks.

The Superintendency of Finance additionally adjusted the components of the IRL and IRL Ratio. The adjusted liquid assets now have to be classified as “high quality” or “other,” and high quality assets must represent at least 70% of the adjusted liquid assets. In addition, non-contractual outflows (demand and savings deposits outflows) have to be calculated using the median of the fifth percentile of the series of the largest outflows since December 31, 1996.

Our banks have adequate liquidity, as shown in the following table. The three-month cumulative liquidity gap values for our banks for year-end 2012, 2011 and 2010 and reflect unconsolidated figures for each of our banks.

	Year ended December 31,
Three-month cumulative liquidity position	2012			2011			2010
	(in Ps billions)
Banco de Bogotá
Total assets and contingencies		10,767			11,941			7,685
Total liabilities, equity and contingencies		11,067			9,960			8,094
Liquidity gap		(300	)		1,981			(409	)
Net liquid assets (NLA)		2,308			1,662			2,059
Liquidity gap plus NLA		2,008			3,643			1,650
Banco de Occidente
Total assets and contingencies		7,088			5,692			4,183
Total liabilities, equity and contingencies		3,468			3,917			2,874
Liquidity gap		3,620			1,775			1,309
Net liquid assets (NLA)		1,471			1,430			1,849
Liquidity gap plus NLA		5,091			3,205			3,157
Banco Popular
Total assets and contingencies		2,741			2,361			2,602
Total liabilities, equity and contingencies		1,423			855			1,429
Liquidity gap		1,318			1,506			1,173
Net liquid assets (NLA)		1,061			1,163			945
Liquidity gap plus NLA		2,379			2,669			2,118
Banco AV Villas
Total assets and contingencies		1,281			1,354			1,511
Total liabilities, equity and contingencies		2,167			1,561			2,025
Liquidity gap		(885	)		(207	)		(514	)
Net liquid assets (NLA)		2,876			809			1,074
Liquidity gap plus NLA		1,991			602			560

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The following table shows the short-term liquidity index and the IRL Ratio at December 31, 2012 and 2011 for each of our banks.

	Banco de Bogotá				Banco de Occidente				Banco Popular				Banco AV Villas
	At December 31,
	2012		2011		2012		2011		2012		2011		2012		2011
	(in Ps billions)
IRL – 7 days		7,498		6,345		2,789		2,709		1,975		2,740		1,939		2,026
IRL – 15 days		6,785		6,013		2,641		2,363		1,733		2,407		1,812		1,759
IRL – 30 days		6,655		5,395		2,324		1,677		1,504		1,781		1,668		1,639

	Banco de Bogotá						Banco de Occidente						Banco Popular						Banco AV Villas
	At December 31,
	2012			2011			2012			2011			2012			2011			2012			2011
	(in Percentages)
IRL – 7 days		2,482	%		2,230	%		1,360	%		682	%		3,206	%		3,525	%		1,080	%		2,583	%
IRL – 15 days		760	%		1,054	%		816	%		391	%		667	%		684	%		658	%		606	%
IRL – 30 days		675	%		532	%		439	%		213	%		381	%		271	%		455	%		450	%

Operational risk management

The policies with respect to operational risk at Grupo Aval and our banks are directed at complying with the norms established by the Superintendency of Finance (which, in turn, follow the Basel II Accord of 2004), and the U.S. Sarbanes-Oxley Act of 2002. These norms require that Colombian banks establish a system for the administration of operational risks, or “SARO,” which includes the identification, measurement, control and monitoring functions as well as a business continuity plan.

In order to comply with these norms, each of our banks established within its organizational structure an operational risk unit independent of the operational and control areas of each bank. The responsibilities of these units are the establishment and definition of policies and methodologies and the procedures for communicating within each organization all information related to operational risk. In addition to the staff of each operational risk unit, the banks have established the role of operational risk advisors, which are employees in key areas who, in addition to their functional responsibilities, are required to report events or situations which may result in operational losses. Additionally, each bank has an operational risk management committee composed of selected members of the board of directors, the internal auditor, external auditor and selected vice presidents, which meets on a quarterly basis to review operational risks policies and follow up on the execution of action plans.

At Grupo Aval, an operational risk management committee, composed of the heads of the operational risk units of each bank and staff of Grupo Aval risk management, was established. The principal activities of this committee, which meets on a semi-monthly basis, are as follows:

advisory in the engagement of external consultants for the identification of gaps with international standards and the development of work plans to close the gaps;

coordinated analysis of norms and the impact in each of Grupo Aval’s banks;

identification and application of best practices;

identification and implementation of operational risk management tools;

unification of criteria in the search of business continuity tools;

economies of scale in the engagement of consultants and the acquisition of tools; and

coordination in the preparation of requests for proposals and the evaluation of proposals.

We implement, from time to time, best practices that result from meetings of the Grupo Aval operational risk management committee.

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Market risk management

Grupo Aval does not manage market risk at a consolidated level. Rather each bank monitors its market risk. Grupo Aval on an unconsolidated basis does not have material market risk; however, our banking subsidiaries have substantial market risk, primarily as a result of our banks’ lending, trading and investments businesses. The primary market risks to which we are exposed are interest rate risk, foreign exchange rate risk, variations in stock price risk and investment fund risk.

We are exposed to interest rate risk whenever there is a mismatch between interest-rate-sensitive assets and liabilities, subject to any hedging we have engaged in using interest rate swaps or other off-balance sheet derivative instruments. Interest rate risk arises in connection with both trading and non-trading activities.

We are exposed to foreign exchange rate risk as a result of mismatches between assets and liabilities, and off-balance sheet items denominated in different currencies. We are exposed to variations in stock price risk in connection with investments in equity securities, including our merchant banking investments. We are exposed to fund risk primarily from investments in mutual funds.

We and our banks’ respective boards of directors, through their risk management committees, are responsible for establishing policies, procedures and limits with respect to market risk. These committees also monitor overall performance in light of the risks assumed. These policies and procedures describe the control framework used by us and each of our banks to identify, measure and manage market risk exposures inherent in our and their activities. The main purpose of these policies and procedures is to set limits on risk. All risk managers within Grupo Aval must ensure that each business activity is performed in accordance with the policies established by the relevant bank and also Grupo Aval. These policies and procedures are followed in market risk decision-making in all business units and activities. All of our banks comply with the requirements of SARM (Sistema de Administración de Riesgos de Mercado) of the Superintendency of Finance.

Each bank is responsible for setting market risk limits and monitoring market risk.

Risk management personnel at Grupo Aval and each of our banks are responsible for the following:

identification, measurement and management of the market risk exposures inherent in their businesses;

analyzing exposures under stress scenarios;

confirming compliance with applicable risk management policies, reporting violations of such policies, and proposing new policies;

designing of methodologies for valuing securities and financial instruments; and

reporting daily to senior management as to the levels of market risk associated with trading instruments.

Our banks hold trading and non-trading instruments. Trading instruments are recorded in our banks’ “treasury books” and non-trading instruments are recorded in their “banking books.”

Trading instruments

Trading instruments include our proprietary positions in financial instruments held for sale and/or acquired to take advantage of current and/or expected differences between purchase and sale prices. The tables in this section include certain investments recorded under Colombian Banking GAAP in “Held to maturity” and recorded under U.S. GAAP in “Trading” and “Available for sale.” As a result of trading fixed income and floating rate securities, equity securities, investment funds and foreign exchange, we and our banks are exposed to interest rate, variations in

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stock prices, investment fund and foreign exchange rate risks, as well as volatility risk when derivatives are used. Our banks trade foreign exchange, fixed income instruments, floating rate securities and basic derivative instruments (forwards, options, cross currency swaps and interest rate swaps).

Our banks use VaR to measure their exposure to market risk in trading instruments. VaR is an estimate of the expected maximum loss in market value of a given portfolio over a time horizon at a specific confidence interval, subject to certain assumptions and limitations discussed below.

VaR models have inherent limitations, including the fact that they rely on historical data, which may not be indicative of future market conditions or trading patterns. As a result, VaR models could overestimate or underestimate the value at risk and should not be viewed as predictive of future results. Furthermore, our banks may incur losses materially in excess of the amounts indicated by the VaR models on a particular trading day or over a period of time. VaR does not calculate the greatest possible loss. In addition, VaR models are subject to the reasonable judgment of our bank’s risk management personnel.

Each bank’s board of directors, assets and liabilities committee, or “ALCO,” and risk management committee establishes the maximum VaR for each type of investment and for each type of risk using their own internal VaR models as well as the Superintendency of Finance methodology, or the regulatory VaR. Our banks use VaR estimates to alert senior management whenever the statistically estimated losses in the banks’ portfolios exceed pre-established levels. Limits on VaR are used to control exposure on a portfolio-by-portfolio basis.

In order to strictly control the trading portfolios, each entity has limits for every risk factor. To determine the limits, the impact of the variation (dollar value for 1 basis point or DV01) in each risk is taken into account. These risk limits are validated through stress testing based on historical extreme scenarios.

As described below, our banks measure interest rate risk, foreign exchange risk, variations in stock price risk and investment fund risk in accordance with VaR models. We use two types of approaches to measure VaR: (1) regulatory VaR methodology and (2) internal VaR models.

The regulatory VaR used in the calculation of the capital ratio (solvency ratio) follows the methodology established by the Superintendency of Finance. The Superintendency methodology is based on the Basel II model. The Superintendency of Finance has not made publicly available technical information on how it determines the volatilities used in this model, and only limited information is available. The volatilities used in the Superintendency of Finance’s model are of a magnitude similar to those observed in very high volatility or stress periods. These parameters are seldom changed by the Superintendency of Finance. See “—Regulatory VaR” below.

In addition, our banks use internal models to manage market risk. Parameters are set to adapt to the evolution of volatility of the risk factors over time using statistical methods to estimate them. Our banks generally give recent data more weight in calculations to reflect actual market conditions. The corporate governance bodies of our banks set limits based on this VaR measure in order to control the market risks. Parametric VaR and historical simulation methodologies are also used.

Regulatory VaR

The Regulatory VaR calculation is primarily used for the Superintendency of Finance’s solvency ratio calculations.

The Superintendency of Finance methodology is based on the Basel II model. This model applies only to the banks’ investment portfolio and excludes investments classified as “held to maturity” and any other non-trading positions included in the “Trading” and “Available for sale” portfolios. Total market risk is calculated on a daily basis by aggregating the VaR for each risk exposure category on a ten-day horizon using risk factors calculated in extreme market stress scenarios. VaR at month-end comprises part of the capital adequacy ratio calculation (as set forth in Decree 2555). The Superintendency of Finance’s rules require our banks to calculate VaR for the following risk factors: interest rate risk, foreign exchange rate risk, variations in stock price risk and fund risk; correlations between risk factors are not considered. The fluctuations in the portfolio’s VaR depend on sensitivity factors

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determined by the Superintendency of Finance, modified duration and changes in balances outstanding. The ten-day horizon is defined as the average time in which an entity could sell a trading position on the market.

The VaR calculation for each bank is the aggregate of the VaR of the bank and its subsidiaries. Trust companies (fiduciarias), our pension and severance fund manager, Porvenir, and our brokerage firm, Casa de Bolsa, are not included in this calculation as the risk of their proprietary portfolios is not material to Grupo Aval.

Interest Rate Risk

Our banks’ exposure to interest rate risk in their trading portfolios primarily arises from investments in securities (floating and fixed rate) and derivative instruments. In accordance with the Superintendency of Finance rules, our banks calculate interest rate risk for positions in pesos, foreign currency and UVRs separately. UVR is a Colombian inflation-adjusted monetary index calculated by the board of directors of the Colombian Central Bank and generally used for pricing home-mortgage loans. The interest rate risk model is designed to measure the risk of loss arising from changes in market interest rates. It includes the sum of the net short or long position in the whole trading book, a proportion of the matched positions in each time band (the “vertical disallowance”) and a proportion of the matched positions across different time bands (the “horizontal disallowance”). The interest rate sensitivity factors and vertical and horizontal disallowances are not updated frequently by the Superintendency of Finance because those are calculated based on extreme historical market situations; the most recent update was made in November 2010 and published in External Circular 42.

A significant portion of the market risk of our banks is interest rate risk VaR as quantified in the tables below. The interest rate risk of our banks is primarily generated by long positions held in Peso-denominated Colombian government debt. Our banks have a preference for these securities as the government debt market is the largest and most developed of the local financial markets. Additionally, government debt securities support the liquidity management of our banks as they are eligible for Colombian Central Bank overnight repo funding and are classified as high-quality liquid assets. Government debt securities also carry a zero weight for capital adequacy calculations making them attractive in terms of utilization of capital. These factors provide a strong incentive for our banks to invest in government debt securities and diversify less into other debt securities that do not possess these characteristics.

Foreign exchange rate risk

Our banks use a sensitivity factor to calculate the probability of losses as a result of fluctuations in currencies in which our banks hold positions. Regulatory VaR is computed daily by multiplying the net position by the maximum probable variation in the price of such positions on a ten-day horizon, determined by the Superintendency of Finance as shown in the following table.

U.S. dollar	5.5	%
Euro	6.0	%
Other currencies	8.0	%

Our banks’ exposure to foreign exchange rate risk arises primarily from changes to the U.S. dollar/peso exchange rate. Our banks use an approximation to estimate the risk in exchange-rate-related option positions based on delta, gamma and vega sensitivities, which is included in foreign exchange risk.

The foreign exchange rate risk VaR calculation under the standard model of the Superintendency of Finance includes both the trading and non-trading book.

Equity price risk

In determining regulatory VaR variations in stock price risk, certain investments are excluded: (a) equity investments in financial institutions that are supervised by the Superintendency of Finance and (b) equity investments derived from corporate restructuring processes (under Law 550 of 1999) or received as in-kind payment for non-performing loans. In addition, as part of the solvency ratio calculation, equity investments in entities supervised by the Superintendency of Finance that do not consolidate are deducted from primary capital. Investments in entities that consolidate but are not supervised by Superintendency of Finance (non-financial investment) are included in VaR calculations.

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Variations in stock price risk in Grupo Aval come primarily from Corficolombiana’s non-financial investment portfolio. This risk is factored into Banco de Bogotá variations in stock price risk VaR as it consolidates Corficolombiana and is excluded from Banco de Occidente’s and Banco Popular’s variations in stock price risk calculation.

The Superintendency of Finance’s methodology for determining VaR for variations in stock price risk outlined above results in the inclusion of Corficolombiana’s consolidated and non-consolidated equity investments in non-financial institutions.

In December 2010, the Superintendency of Finance issued a revised methodology that excludes from the VaR calculation investments that are available-for-sale equity securities that are acquired as strategic investments and intended to be held on a long-term horizon. Grupo Aval has historically considered in its internal models that Corficolombiana’s consolidated equity investments and our investments that are held on a long-term horizon should have more limited variations in stock price risk on us.

Variations in stock price risk VaR is computed daily by multiplying the net position by the maximum probable variation in the price of such positions on a ten-day horizon, determined by the Superintendency of Finance to be 14.7%. This coefficient is based on historic volatilities and is seldom adjusted.

Investment fund risk

Investment fund risk comes from temporary investment of cash in portfolios managed by trust companies.

Investment fund risk VaR is computed daily by multiplying the net position by the maximum probable variation in the price of such positions on a ten-day horizon, determined by the Superintendency of Finance to be 14.7%.

The following tables show the VaR calculation relating to each of the risk factors described above and based on the Superintendency of Finance Methodology (Regulatory VaR) for the years ended December 31, 2012 and December 31, 2011, for a ten-day horizon for each of our banks. The averages, minimums and maximums are determined based on end-of-the-month calculations.

Banco de Bogotá

	Year ended December 31,								At December 31,
	2012								2011
	Period end		Average		Maximum		Minimum		Period end
	(in Ps millions)
Interest rate risk VaR		446,665		485,832		522,658		446,665		441,638
Foreign exchange rate risk VaR		7,544		16,046		31,052		6,468		23,339
Variations in stock price risk VaR		11,718		9,457		17,865		287		15,911
Fund risk VaR		88,040		90,891		97,709		82,180		85,161
Total market risk VaR		553,968		602,225		631,450		553,968		566,049

Banco de Occidente

	Year ended December 31,								At December 31,
	2012								2011
	Period end		Average		Maximum		Minimum		Period end
	(in Ps millions)
Interest rate risk VaR		80,478		67,949		81,880		60,436		63,893
Foreign exchange rate risk VaR		262		707		1,560		223		596
Variations in stock price risk VaR		11		12		12		11		12
Fund risk VaR		–		–		–		–		–
Total market risk VaR		80,751		68,667		72,672		61,107		64,502

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Banco Popular

	Year ended December 31,								At December 31,
	2012								2011
	Period end		Average		Maximum		Minimum		Period end
	(in Ps millions)
Interest rate risk VaR		84,655		87,894		100,903		71,736		99,298
Foreign exchange rate risk VaR		1,199		1,046		1,255		532		1,128
Variations in stock price risk VaR		14		11		15		6		12
Fund risk VaR		711		744		841		681		697
Total market risk VaR		86,579		89,695		103,013		72,955		101,134

Banco AV Villas

	Year ended December 31,								At December 31,
	2012								2011
	Period end		Average		Maximum		Minimum		Period end
	(in Ps millions)
Interest rate risk VaR		96,735		80,785		97,672		61,829		54,775
Foreign exchange rate risk VaR		59		84		107		59		119
Variations in stock price risk VaR		–		–		–		–		–
Fund risk VaR		3		3		3		2		2
Total market risk VaR		96,797		80,872		97,748		61,938		54,896

Banco Popular’s regulatory VaR is greater than Banco de Occidente’s despite having a smaller portfolio, which is explained by Banco Popular’s average duration being greater than four years while Banco de Occidente’s is slightly above two years.

The regulatory VaR of Banco AV Villas (almost exclusively interest rate risk) increased 76.3% between December 31, 2011 and December 31, 2012. Increases in the size and duration of the local currency debt securities (primarily TES) are the reason for the growth of the regulatory VaR.

Internal models for VaR calculation

In addition to Regulatory VaR, our banks use internal models to measure VaR in order to determine and control their main risks under normal operating conditions. In particular, all of our banks use internal models to oversee the interest rate risk of their investment portfolio. Banco de Bogotá, Banco de Occidente and Banco Popular use internal models to measure VaR of their full investment portfolio on a daily basis, while Banco AV Villas uses an internal model to measure VaR only for its government debt securities position.

We use methodologies such as Parametric VaR and historical simulation. The Parametric VaR, which is based on Riskmetrics Group, Inc.’s methodology, involves the identification of specific risks, such as interest and exchange rate risks that could affect the value of assets included in the trading book. The volatility of each factor, measured as a standard deviation, and the correlation with other factors are determined by using an exponentially weighted moving average, or “EWMA,” model. Once this is determined, the expected cash flow of each security included in the portfolio is determined. These cash flows are classified into categories for each risk identified and multiplied by the corresponding volatility to calculate the VaR per factor. The VaR for the various factors is then aggregated using a correlation matrix to identify the overall standard deviation of the bank’s treasury book. The VaR of the bank’s treasury book is determined based on the standard deviation subject to a confidence level of 99% and a one-day horizon.

The historical simulation calculates daily VaR based on the historical behavior of the one-day variations of prices in the market. This methodology does not assume any statistical distribution function for the earnings and loss of a portfolio. This simulation assumes that the market is stable during a period of time and infers the market’s future behavior based on historical data.

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Back testing is required by the Superintendency of Finance to establish the validity of the internal models used for VaR calculations. The Superintendency of Finance requires two sets of tests: so called “dirty tests,” which compare the value at risk estimated for the day against the result effectively obtained (profit and loss) of the same day using the previous day’s portfolio; and “clean tests,” which compare the value at risk estimated for the day against an estimated result (profit and loss) based on the previous day’s portfolio. These tests are performed on a daily basis, although the requirement for the “clean” test is on a monthly basis. The methodology and results of these tests are available for review by the Superintendency of Finance.

The following table shows the interest rate VaR calculation based on internal models for 2012 and 2011 on a ten-day horizon (using an adjustment factor applied to VaR on a one day horizon). The values presented for Banco AV Villas were calculated on Banco de Bogotá’s model. Values for all other banks are based on their internal models. The averages, minimums and maximums are determined based on daily calculations except for BAC Credomatic, which are determined based on end-of-the-quarter calculations.

Interest rate risk VaR (per internal model)

	Banco de Bogotá		Banco de Occidente		Banco Popular (1)		Banco AV Villas
	(in Ps millions)
2012
As of December 31		184,587		34,501		20,738		23,775
Average		109,034		28,273		11,651		–
Maximum		236,373		37,767		23,557		–
Minimum		60,651		22,638		7,954		–
2011
As of December 31		94,009		27,202		13,637		8,862

(1)

Banco Popular’s internal VaR data reflects Banco Popular’s unconsolidated results. The regulatory VaR, however corresponds to consolidated figures. Banco Popular (unconsolidated) accounts for over 98% of the consolidated regulatory VaR at year-end 2012 and 2011. Banco Popular’s VaR results are lower than Banco de Occidente’s as a significant portion of Banco de Occidente’s portfolio is held in foreign currencies through its subsidiaries in Panama and the Bahamas, resulting in increased volatility. In comparison, an immaterial amount of Banco Popular’s portfolio is denominated in foreign currencies.

Considerations on equity price risk regulatory VaR

As stated above, variations in equity price risk measured based on the regulatory VaR methodology include both equity investments held for trading and non-strategic holdings. In addition, it does not discriminate between listed and unlisted equity investments or between those which consolidate and those which do not. It focuses on investments in non-financial institutions.

Holding periods for many of Corficolombiana’s equity investments exceed ten years. Its largest investments have remained in the portfolio for several years and are intended to remain as permanent investments. At December 31, 2011, the investment subject to regulatory VaR was holdings on Proenergía Internacional, and at December 31, 2012, the investments subject to regulatory VaR was holdings on Mineros S.A.

The following table breaks down our investments subject to regulatory VaR by time since initial investment at December 31, 2012 and 2011.

	At December 31,
	2012							2011
	Investment subject to Regulatory VaR		Regulatory VaR		Percentage of portfolio			Investment subject to Regulatory VaR		Regulatory VaR		Percentage of portfolio
Less than 18 months		-		-		-			–		–		–
18 - 36 months		-		-		-			–		–		–
More than 36 months		77,671		11,418		100.0	%		106,499		15,655		100.0	%
Total		77,671		11,418		100.0	%		106,499		15,655		100.0	%

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Non-trading instruments

Non-trading instruments consist primarily of loans and deposits. Our banks’ primary market risk exposure in their non-trading instruments is interest rate risk, which arises from the possibility of changes in market interest rates. Such changes in market interest rates affect our banks’ net interest income due to timing differences on the repricing of their assets and liabilities. Our banks are also affected by gaps in maturity dates and interest rates in the different asset and liability accounts. As part of their management of interest rate risk, our banks analyze the interest rate mismatches between their interest earning assets and their interest-bearing liabilities.

Superintendency of Finance rules require our banks to measure foreign exchange rate risk VaR not only for treasury book positions but also for all assets and liabilities denominated in foreign currencies. Our non-trading instruments are exposed to foreign exchange rate risk primarily from loans and deposits denominated in dollars. This foreign exchange rate risk is monitored under the VaR methodology described above.

Sensitivity of fair value is determined using either one of two methodologies: (1) determining the difference between the fair value and the net present value of the expected cash flows using a discount rate of 50 basis points and 100 basis points higher than that used for the original calculation; or (2) determining the sensitivity of the remaining cash flows (modified duration), multiplied by the fair value, multiplied by the increase in discount rate for each scenario (50 basis points and 100 basis points). Methodology 1 is in some cases more precise while methodology 2 is a good approximation for moderate variations in the discount rate.

Sensitivity of certain instruments is assumed to be zero because its fair value is equal to its book value as instruments with maturities of 90 days or less, or loans and borrowings from development banks.

Our sensitivity analysis methodology should be interpreted in light of the following limitations: (1) we have assumed a uniform interest rate change for assets and liabilities of varying maturities; and (2) we have assumed that the modified duration of variable rate assets and liabilities is the time remaining until the next interest reset date.

An increase in interest rates negatively affects the value of our banks’ assets and positively affects the value of our banks’ liabilities, as an increase in interest rates decreases the fair value of both assets and liabilities.

The following table presents our sensitivity analysis based on hypothetical changes of 50 and 100 basis point shifts in interest rates on the net present value of interest rate sensitive assets and liabilities for the periods indicated.

	December 31, 2012									December 31, 2011
Grupo Aval (aggregated) (1)	Fair value			+50 basis points			+100 basis points			Fair value			+50 basis points			+100 basis points
	(in Ps millions)
Assets
Held-to-maturity securities		3,140,271			(9,270	)		(18,521	)		2,965,733			(12,674	)		(25,298	)
Loans		81,018,997			(664,898	)		(1,307,851	)		72,638,770			(567,306	)		(1,086,986	)
Short-term funds		3,517,858			-			-			2,944,277			–			–
Customer’s acceptances		68,472			-			-			116,625			–			–
Total interest rate sensitive assets		87,745,599			(674,168	)		(1,326,372	)		78,665,404			(579,980	)		(1,112,284	)
Liabilities
Checking accounts, savings deposits and other		55,944,831			-			-			50,055,718			–			–
Time deposits		27,636,082			(136,005	)		(267,117	)		22,731,759			(67,833	)		(140,008	)
Bank acceptances outstanding		86,905			-			-			123,075			–			–
Short-term funds		5,164,523			-			-			3,244,247			–			–
Borrowings from banks		12,312,762			(96,495	)		(198,911	)		11,563,521			(53,775	)		(105,705	)
Long-term debt		10,288,150			(96,847	)		(191,846	)		6,799,462			(70,279	)		(138,891	)
Total interest rate sensitive liabilities		111,433,253			(329,347	)		(657,874	)		94,517,782			(191,887	)		(384,605	)
Total net change		(23,687,655	)		(344,820	)		(668,498	)		(15,852,377	)		(388,093	)		(727,679	)

(1)	Grupo Aval aggregated reflects the sum of the fair values of each of our Colombian Banking GAAP subsidiaries and of Grupo Aval.

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ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A.	Debt securities

Not applicable.

B.	Warrants and rights

Not applicable.

C.	Other securities

Not applicable.

D.	American Depositary Shares

Not applicable.

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PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Defaults

No matters to report.

B.	Arrears and delinquencies

No matters to report.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not applicable.

ITEM 15. CONTROLS AND PROCEDURES

A.	Disclosure Controls and Procedures

As of December 31, 2012, under the supervision and with the participation of our management, including our President and Chief Financial Officer, we performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). There are inherent limitations to the effectiveness of any disclosure controls and procedures system, including the possibility of human error and circumventing or overriding them. Even if effective, disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives.

Based on such evaluation, our President and Chief Financial Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that the information we are required to disclose in the reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management to allow timely decisions regarding required disclosures.

B.	Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining an adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act.

Our internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes, in accordance with generally accepted accounting principles. These include those policies and procedures that:

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of our assets;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements, in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorization of our management and directors; and

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, effective control over financial reporting cannot, and does not, provide absolute assurance of achieving our control objectives. Also, projections of, and any evaluation of effectiveness of the internal controls

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in future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We have adapted our internal control over financial reporting based on the guidelines set by the Internal Control – Integrated Framework of the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Under the supervision and with the participation of our management, including our President, our Chief Financial Officer, our Chief Risk Management Officer and our Vice-President of Internal Control, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2012, based on the guidelines set forth by the COSO.

Based on this assessment, management believes that, as of December 31, 2012, its internal control over financial reporting was effective based on those criteria.

C.	Attestation Report of the Registered Public Accounting Firm

The effectiveness of the internal control over financial reporting, as of December 31, 2012, has been audited by KPMG Ltda., an independent registered public accounting firm, which appears on page F-2.

D.	Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16. [RESERVED]

ITEM 16A. Audit committee financial expert

The board of directors has determined that Esther América Paz Montoya is an audit committee financial expert. While Grupo Aval is not a listed issuer, Esther América Paz Montoya is an independent audit committee member under the standards of the New York Stock Exchange, which applies the audit committee independence requirements of the Securities and Exchange Commission.

ITEM 16B. Code of ethics

We have not adopted a written code of ethics because Colombian law does not require us to have a code of ethics.

ITEM 16C. Principal Accountant Fees and Services

Amounts billed to KPMG for audit and other services were as follows:

	2012		2011
	(In Ps millions)
Audit fees		12,246		10,455
Audit-related fees		–
Tax fees		28		45
Other fees paid		74		10

The aggregate fees billed under the caption audit fees for professional services rendered to Grupo Aval for the audit of its financial statements and for services that are normally provided to Grupo Aval, in connection with statutory or regulatory filings or engagements totaled Ps 12.246 and Ps 10.455 million for the years 2012 and 2011, respectively.

Additionally other fees paid totaled Ps 74 million and Ps 10 million for the years ended 2012 and 2011, respectively, and tax fees paid totaled Ps 28 million and Ps 45 million for the years ended 2012 and 2011, respectively. Grupo Aval paid no audit-related fees for the years 2011 and 2009, respectively.

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The services commissioned from our auditors meet the independence requirements stipulated by the Board of Accountants (Junta Central de Contadores) and by SEC rules and regulations, and they did not involve the performance of any work that is incompatible with the audit function.

If we are required to engage an auditing firm for audit and audit-related services, those services have to be pre-approved by the Audit Committee.

The Audit Committee is regularly informed of all fees paid to the auditing firms by us.

ITEM 16D. Exemptions from the listing standards for audit committees

Not applicable.

ITEM 16E. Purchases of equity securities by the issuer and affiliated purchasers

Grupo Aval may repurchase its shares only with retained earnings. On the other hand, Colombian law prohibits the repurchase of shares of entities under the comprehensive supervision of, and subject to inspection and surveillance as financial institutions by, the Superintendency of Finance. As such, Banco de Bogotá, Banco de Occidente, Banco Popular, Banco AV Villas, and their respective financial subsidiaries, including Porvenir and Corficolombiana are not permitted to repurchase their shares or Grupo Aval’s shares.

In 2012, Grupo Aval did not repurchase any of its shares.

ITEM 16F. Change in registrant’s certifying accountant

Not applicable.

ITEM 16G. Corporate governance

Not applicable.

ITEM 16H. Mine safety disclosure

Not applicable.

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PART III

ITEM 17. Financial statements

We have responded to Item 18 in lieu of this item.

ITEM 18. Financial statements

Financial Statements are filed as part of this annual report, see page F-1.

ITEM 19. Exhibits

1.1		English translation of By-laws of Grupo Aval (incorporated by reference to our Registration Statement on Form 20-F (File No. 000-54290) filed with the SEC on March 7, 2011).
2.1		Indenture among Grupo Aval Limited, as Issuer, Grupo Aval Acciones y Valores S.A., as Guarantor, Deutsche Bank Trust Company Americas, as Trustee, Registrar, Paying Agent and Transfer Agent and Deutsche Bank Luxembourg S.A., as Luxembourg Paying Agent and Transfer Agent, dated as of February 1, 2012 (incorporated by reference to our Annual Report on Form 20-F filed with the SEC on April 30, 2012 (File No. 000-54290)).
2.2.		Indenture among Grupo Aval Limited, as Issuer, Grupo Aval Acciones y Valores S.A., as Guarantor, Deutsche Bank Trust Company Americas, as Trustee, Registrar, Paying Agent and Transfer Agent and Deutsche Bank Luxembourg S.A., as Luxembourg Paying Agent and Transfer Agent, dated as of September 26, 2012.
4.1		Stock purchase agreement dated as of July 15, 2010 among GE Consumer Finance Central Holdings Corp., General Electric Capital Corporation and Grupo Aval Acciones y Valores S.A. (incorporated by reference to our Registration Statement on Form 20-F (File No. 000-54290) filed with the SEC on March 7, 2011).
4.2		Loan Agreement between Bancolombia S.A. and Leasing Bogota S.A. – Panama, dated as of November 26, 2010 (incorporated by reference to our Registration Statement on Form 20-F (File No. 000-54290) filed with the SEC on March 7, 2011).
4.3		Loan Agreement between Bancolombia S.A. and Leasing Bogota S.A. – Panama, dated as of November 26, 2010 (incorporated by reference to our Registration Statement on Form 20-F (File No. 000-54290) filed with the SEC on March 7, 2011).
4.4		Agreement between Grupo Aval Acciones y Valores S.A. and Adminegocios & Cia. S.C.A. regarding mandatorily convertible bonds issued by Banco de Bogota, dated as of November 24, 2010 (incorporated by reference to our Registration Statement on Form 20-F (File No. 000-54290) filed with the SEC on March 7, 2011).
8.1		List of subsidiaries.
12.1		Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
12.2		Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
13.1		Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
13.2		Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

Grupo Aval Acciones y Valores S.A.


By:	/s/ Luis Carlos Sarmiento Gutiérrez
	Name:	Luis Carlos Sarmiento Gutiérrez
	Title:	President

Date: April 26, 2013

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(1)	ORGANIZATION AND BACKGROUND

Organization

Grupo Aval Acciones y Valores S.A. (the “Company” or “Grupo Aval”) was incorporated under Colombian law on January 7, 1994 with a registered office and business address in Bogotá, Colombia. The main purpose of Grupo Aval’s consolidated banking subsidiaries (Banco de Bogotá S.A., Banco de Occidente S.A., Banco Popular S.A. and Banco Comercial AV Villas S.A.) is to carry out all transactions, acts and services inherent to the banking business according to applicable laws and regulations. Through its investments in Corporación Financiera Colombiana S.A. (“Corficolombiana”) and Sociedad Administradora de Fondos de Pensiones y Cesantías Porvenir S.A. (“Porvenir”), Grupo Aval is also present in the merchant banking and pension and severance fund management businesses in Colombia. Through its investments in BAC Credomatic, Grupo Aval is also present in the Central American banking market in seven countries of the region.

The corporate purpose of Grupo Aval’s (parent company) includes the purchase and sale of stock, bonds and other securities issued by financial and other commercial entities.

In exercising its activities, and pursuant to its by-laws, Grupo Aval may (i) promote the creation of all types of companies related to its corporate purpose; (ii) represent individuals or legal entities that engage in activities that are similar to those mentioned above; (iii) take or grant loans with or without interest; (iv) create liens on its properties as collateral; (v) issue, endorse, acquire, accept, cancel, collect, contest or pay drafts, checks, promissory notes or any other securities, or deliver them in payment; (vi) acquire, divest, encumber, lease or manage all kind of assets; (vii) subscribe or acquire all types of securities and sell or otherwise dispose of them; (viii) participate in companies that seek similar or complementary corporate purposes and freely divest its capital participations in all such companies, (ix) provide services in those areas related to the activities, experience and knowledge of the company; and (x) in general, enter into and execute all actions and agreements directly related to the above purposes in order to permit the exercise of its rights or compliance with its obligations.

BAC Credomatic Inc., formerly known as BAC Credomatic GECF Inc. (“BAC” or “BAC Credomatic”) acquisition

On July 15, 2010, Grupo Aval entered into a stock purchase agreement with GE Capital to acquire all of the outstanding shares of BAC Credomatic for U.S$1.90 billion (Ps 3,573,558), subject to certain adjustments. Grupo Aval completed the acquisition on December 9, 2010 for U.S$ 1.92 billion (Ps. 3,611,174). BAC Credomatic is a leading Central American financial group by total assets, loans and deposits, with principal operations in Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama, as well as a credit card-issuing operation in Mexico, a merchant and card processing center in the State of Florida, and certain offshore subsidiaries. At June 30, 2010, BAC Credomatic had approximately two million credit card and debit card accounts, of which approximately half were debit card accounts and approximately half were BAC Credomatic’s credit card accounts.

By means of a communication dated December 2, 2010, the Colombian Superintendency of Finance authorized the increase of the capital investment of Banco de Bogotá in Leasing Bogotá S.A. Panamá for Ps. 3,090,000 or approximately U.S.$ 1.64 billion, with the purpose of providing the latter with resources enough to acquire all shares of Sociedad BAC Credomatic GECF, Inc.

The Colombian Superintendency of Finance authorized Banco de Bogotá S.A. on December 3, 2010, to make the indirect investment through Leasing Bogotá S.A., on BAC Credomatic GECF, Inc., holding of Grupo Financiero Centroamericano BAC Credomatic.

On December 9, 2010, Leasing Bogotá S.A. Panamá purchased all shares of BAC Credomatic GECF, Inc., in conformity with the terms of the shares purchase contract. The Superintendency of Finance authorized Grupo Aval to include in its consolidated statements of income a one month period ended December 31, 2010. As a result, the 2010 financial statements are not comparable with other years.

BAC Credomatic consolidated financial statements are prepared under general accepted accounting principles in the United States of America “US GAAP” as permitted by Panamanian rules, where BAC Credomatic holding is incorporated. According to Colombian Banking Rules those financial statements must be converted to Colombian Banking GAAP to be consolidated into Grupo Aval´s financial statements.

F-10

GRUPO AVAL ACCIONES Y VALORES S.A. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

Grupo Aval and its consolidated subsidiaries

These Consolidated Financial Statements include the assets, liabilities, earnings, contingent accounts and memorandum accounts of Grupo Aval Acciones y Valores S.A. and its majority-owned subsidiaries in which it holds, directly or indirectly, 50% or more of the outstanding voting shares as well as companies that Grupo Aval controls despite holding less than 50% of their outstanding voting shares, except private capital funds and other special purposes entities that are not considered societies under Colombian law.

All significant inter-company transactions and balances have been eliminated in consolidation.

The following chart shows the banking subsidiaries that Grupo Aval directly consolidates and its share in each of their shareholders’ equity as of December 31, 2012, 2011 and 2010:

	2012	2011	2010

Banco de Bogotá S.A. (1)	64.44%	64.44%	65.33%
Banco de Occidente S.A. (2)	68.24%	68.24%	67.97%
Banco Popular S.A. (3)	93.73%	93.73%	30.66%
Banco Comercial AV Villas S.A.	79.85%	79.85%	79.85%
Grupo Aval Limited	100.00%	0.00%	0.00%
Grupo Aval International Limited	100.00%	0.00%	0.00%

(1)

On November 24, 2010 Grupo Aval and Adminegocios & Cia. S.C.A., an entity controlled by Mr. Sarmiento Angulo, our controlling shareholder, entered into an agreement whereby Grupo Aval transferred to Adminegocios & Cia. S.C.A its right to acquire up to 2,605,000 mandatorily convertible bonds issued by Banco de Bogotá (convertible into 5,542,554 shares of Banco de Bogotá S.A.). On March 1, 2011, Adminegocios & Cia. S.C.A. converted all of its 2,605,000 mandatorily convertible Banco de Bogotá bonds, into 5,542,554 common shares of Banco de Bogotá and, as a direct consequence of this operation, Grupo Aval´s direct share of Banco de Bogotá S.A. was diluted to 64.44%.

(2)

On September 22, 2011, Banco de Occidente raised Ps 200,000 million (U.S.$106 million) in an equity offering of 6,060,606 ordinary shares. Grupo Aval subscribed for Ps 149,639 million (U.S.$80 million) of shares, and its ownership in Banco de Occidente increased slightly from 67.97% at December 31, 2010 to 68.24% at December 31, 2011.

(3)	Escisión process related to Banco Popular

In these notes we refer to escisión as the process whereby, pursuant to Colombian commercial law, a company segregates a portion of its assets for the benefit of another company.

Banco Popular share ownership reorganization

On September 20, 2011, Grupo Aval completed its acquisition of additional ownership interests in Banco Popular S.A. to increase its direct ownership in Banco Popular S.A. to 93.73%. The acquisition was undertaken in two tranches with three entities, Rendifin S.A., Popular Securities and Inversiones Escorial S.A. An exchange ratio of 1.62 Banco Popular shares to one Grupo Aval preferred share was applied.

On June 22, 2011, Rendifín S.A. (“Rendifín”) transferred to Grupo Aval 3,358,446,312 shares of Banco Popular capital stock, representing 43.47% of Banco Popular’s capital stock pursuant to an Escisión Agreement (the “First Escisión Agreement”). As consideration, Grupo Aval issued 2,073,115,004 preferred shares (the “Preferred Shares”) to Rendifín’s shareholders, at an exchange ratio of one (1) Preferred Share per 1.62 common shares of Banco Popular, per the exchange ratio contained in the First Escisión Agreement. The transaction was approved by the Superintendency of Corporations and the Superintendency of Finance.

On September 20, 2011, Inversiones Escorial S.A. and Popular Securities S.A, , (together with Rendifin S.A. defined as “Sociedades Escindentes”) transferred to Grupo Aval 1,514,163,994 shares of Banco Popular capital stock, representing 19.6% of Banco Popular’s capital stock, pursuant to the second escisión agreement (the “Second Escisión Agreement”). As consideration, Grupo Aval issued 934,669,126 Preferred Shares to the Sociedades Escindentes’ shareholders, at an exchange ratio of one (1) Preferred Share per 1.62 common shares of Banco Popular, per the exchange ratio contained in the Second Escisión Agreement. The transaction was approved by the Superintendency of Corporations and the Superintendency of Finance of Colombia.

Upon completion of the aforementioned transactions the total amount of Grupo Aval’s outstanding shares is of 18,551,766,453 (including common and preferred shares) and Grupo Aval increased its participation in Banco Popular from 30.66% at December 31, 2010 to 93.73% at December 31, 2011.

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GRUPO AVAL ACCIONES Y VALORES S.A. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

Banco de Bogotá S. A. was incorporated as a banking establishment in Bogotá on November 15, 1870. Banco de Bogotá’s business purpose is to engage and carry out all transactions and contracts legally authorized for commercial banks, subject to limitations and requirements imposed by Colombian laws and regulations.

Banco de Occidente S. A. was incorporated as a banking establishment on September 8, 1964, and it is authorized to operate under the terms of the Resolution for Renewal No. 2345 dated June 29, 1990 issued by the Superintendency of Finance. Banco de Occidente’s business purpose is to engage and carry out all transactions and contracts legally authorized for commercial banks, subject to limitations and requirements imposed by Colombian laws and regulations.

Banco Popular S. A. was incorporated as a banking establishment on July 5, 1950. Banco Popular is currently a public/private partnership (98% stake owned by private entities and 2% by governmental entities). Its main business purpose is to engage and carry out all transactions and contracts legally authorized for commercial banks, subject to limitations and requirements imposed by Colombian laws and regulations.

Banco Comercial AV Villas S. A. was incorporated on November 24, 1972. Banco Comercial AV Villas’s business purpose is to engage and carry out all transactions and contracts legally authorized for commercial banks, subject to limitations and requirements imposed by Colombian laws and regulations.

Grupo Aval Limited was incorporated in the Cayman Islands in January 2012 as a special purpose vehicle. In exercising its activities, and pursuant to its by-laws, Grupo Aval Limited may issue debt and grant loans to related companies.

Grupo Aval International Limited was incorporated in the Cayman Islands in October 8, 2012 as a special purpose vehicle.

The following chart shows the assets, liabilities, shareholders’ equity and net income of all the subsidiaries consolidated by Grupo Aval through the above-mentioned entities for the year ended December 31, 2012:

For the year ended December 31, 2012		Assets	%		Liabilities	%		Equity	%		Net Income	%
Banco de Bogotá S.A. (unconsolidated)	Ps.	49,588,722	38.84%	Ps.	40,191,322	33.89%	Ps.	9,397,400	103.46%	Ps.	1,350,847	88.50%
Almaviva S.A. and subsidiaries		206,303	0.16%		51,095	0.04%		155,208	1.71%		15,918	1.04%
Banco de Bogotá S.A.- Panamá and subsidiaries		1,474,019	1.15%		1,368,436	1.15%		105,583	1.16%		10,264	0.67%
Bogotá Finance Corp.		147	0.00%		-	0.00%		147	0.00%		1	0.00%
Casa de Bolsa S.A.		67,484	0.05%		37,194	0.03%		30,290	0.33%		456	0.03%
Corficolombiana S.A. and subsidiaries		13,068,810	10.24%		10,050,568	8.48%		3,018,242	33.23%		304,315	19.94%
Corp. Financiera Centroamericana FICENTRO		5	0.00%		5	0.00%		-	0.00%		-	0.00%
Fiduciaria Bogotá S.A.		210,124	0.16%		51,473	0.04%		158,651	1.75%		58,201	3.81%
Leasing Bogotá S.A. - Panamá and subsidiaries		22,437,686	17.58%		18,984,632	16.01%		3,453,054	38.02%		426,976	27.97%
Megalínea S.A.		8,236	0.01%		5,898	0.00%		2,338	0.03%		215	0.01%
Porvenir S.A. and subsidiaries		917,110	0.72%		117,116	0.10%		799,994	8.81%		214,024	14.02%
Eliminations from consolidation		(7,472,197)	(5.85%)		1,846,761	1.56%		(9,318,958)	(102.60%)		(1,055,169)	(69.13%)
Banco de Bogotá S.A. consolidated	Ps.	80,506,449	63.06%	Ps.	72,704,500	61.30%	Ps.	7,801,949	85.90%	Ps.	1,326,048	86.86%
Banco de Occidente S.A. (unconsolidated)		23,610,192	18.49%		20,131,141	16.98%		3,479,051	38.30%		511,126	33.49%
Banco de Occidente S.A. – Panamá		1,396,589	1.09%		1,341,161	1.13%		55,428	0.61%		3,997	0.26%
Fiduoccidente S.A.		135,026	0.11%		41,917	0.04%		93,109	1.03%		32,744	2.15%
Occidental Bank Barbados Ltd.		384,020	0.30%		345,380	0.29%		38,640	0.43%		3,596	0.24%
Ventas y Servicios S.A.		24,676	0.02%		16,587	0.01%		8,089	0.09%		1,527	0.10%
Eliminations from consolidation		(713,114)	(0.56%)		(496,612)	(0.42%)		(216,501)	(2.38%)		(32,685)	(2.14%)
Banco de Occidente S.A. consolidated	Ps.	24,837,389	19.45%	Ps.	21,379,574	18.03%	Ps.	3,457,816	38.08%	Ps.	520,305	34.10%

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GRUPO AVAL ACCIONES Y VALORES S.A. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

For the year ended December 31, 2012		Assets	%		Liabilities	%		Equity	%		Net Income	%
Banco Popular S.A. (unconsolidated)		15,024,194	11.77%		12,878,856	10.86%		2,145,338	23.62%		369,320	24.20%
Alpopular S.A.		134,911	0.11%		15,485	0.01%		119,426	1.31%		4,799	0.31%
Fiduciaria Popular S.A.		67,662	0.05%		13,143	0.01%		54,519	0.60%		6,341	0.42%
INCA S.A.		47,856	0.04%		7,141	0.01%		40,715	0.45%		3,428	0.22%
Eliminations from consolidation		(146,038)	(0.11%)		49,738	0.04%		(195,776)	(2.16%)		(5,972)	(0.39%)
Banco Popular S.A. consolidated	Ps.	15,128,585	11.86%	Ps.	12,964,363	10.93%	Ps.	2,164,222	23.82%	Ps.	377,916	24.76%
Banco Comercial AV Villas S.A. (unconsolidated)		8,885,497	6.96%		7,753,476	6.54%		1,132,021	12.46%		172,172	11.28%
A Toda Hora S.A. (ATH)		40,071	0.03%		33,320	0.03%		6,751	0.07%		343	0.02%
Eliminations from consolidation		(5,163)	0.00%		1,550	0.00%		(6,714)	(0.07%)		(206)	(0.01%)
Banco Comercial AV Villas S.A. consolidated	Ps.	8,920,405	6.99%	Ps.	7,788,346	6.57%	Ps.	1,132,058	12.46%	Ps.	172,309	11.29%
Grupo Aval Acciones y Valores S.A. (unconsolidated)		13,939,867	10.92%		2,232,447	1.88%		11,707,420	128.89%		588,332	38.54%
Grupo Aval Limited		2,812,315	2.20%		2,873,379	2.42%		(61,063)	(0.67%)		(61,274)	(4.01%)
Grupo Aval International Limited		90,419	0.07%		101,619	0.09%		(11,200)	(0.12%)		(11,200)	(0.73%)
Eliminations from consolidation		(18,572,472)	(14.55%)		(1,464,373)	(1.22%)		(17,108,100)	(188.36%)		(1,386,048)	(90.81%)
Grupo Aval Consolidated	Ps.	127,662,957	100.00%	Ps.	118,579,855	100.00%	Ps.	9,083,102	100.00%	Ps.	1,526,388	100.00%

The following chart shows the assets, liabilities, shareholders’ equity and net income of all the subsidiaries consolidated by Grupo Aval through the above-mentioned banks for the year ended December 31, 2011:

For the year ended December 31, 2011		Assets	%		Liabilities	%		Equity	%		Net Income	%
Banco de Bogotá S.A. (unconsolidated)	Ps.	43,264,854	38.80%	Ps.	35,164,553	34.03%	Ps.	8,100,301	99.28%	Ps.	1,100,397	85.22%
Almaviva S.A. and subsidiaries		201,572	0.18%		52,798	0.05%		148,774	1.82%		12,929	1.00%
Banco de Bogotá S.A.- Panamá and subsidiaries		1,428,409	1.28%		1,314,481	1.27%		113,929	1.40%		9,159	0.71%
Bogotá Finance Corp.		161	0.00%		-	0.00%		161	0.00%		1	0.00%
Casa de Bolsa S.A.		32,414	0.03%		4,138	0.00%		28,276	0.35%		348	0.03%
Corficolombiana S.A. and subsidiaries		10,280,332	9.22%		7,349,963	7.11%		2,930,368	35.92%		608,076	47.09%
Corp. Financiera Centroamericana FICENTRO		6	0.00%		6	0.00%		-	0.00%		-	0.00%
Fiduciaria Bogotá S.A.		183,575	0.16%		48,998	0.05%		134,576	1.65%		48,395	3.75%
Leasing Bogotá S.A. - Panamá and subsidiaries		19,380,965	17.78%		16,377,752	15.85%		3,453,213	42.32%		330,990	25.63%
Megalínea S.A.		8,058	0.01%		5,935	0.01%		2,123	0.03%		482	0.04%
Porvenir S.A. and subsidiaries		801,808	0.72%		181,499	0.18%		620,309	7.60%		154,545	11.97%
Eliminations from consolidation		(7,222,551)	(6.48%)		1,463,585	1.42%		(8,686,136)	(106.46%)		(1,119,609)	(86.71%)
Banco de Bogotá S.A. consolidated	Ps.	68,809,602	61.71%		61,963,708	59.96%		6,845,894	83.90%		1,145,713	88.73%
Banco de Occidente S.A. (unconsolidated)		20,950,830	18.79%		17,920,268	17.34%		3,030,562	37.14%		441,280	34.18%
Banco de Occidente S.A. – Panamá		1,274,137	1.14%		1,219,546	1.18%		54,591	0.67%		1,547	0.12%
Fiduoccidente S.A.		112,422	0.10%		30,390	0.03%		82,032	1.01%		28,313	2.19%
Occidental Bank Barbados Ltd.		355,290	0.32%		319,035	0.31%		36,255	0.44%		2,326	0.18%
Ventas y Servicios S.A.		15,589	0.01%		10,747	0.01%		4,842	0.06%		1,256	0.10%
Eliminations from consolidation		(528,180)	(0.47%)		(334,944)	(0.32%)		(193,236)	(2.37%)		(42,613)	(3.30%)
Banco de Occidente S.A. consolidated		22,180,088	19.89%		19,165,042	18.55%		3,015,046	36.95%		432,109	33.47%
Banco Popular S.A. (unconsolidated)		14,151,426	12.69%		12,286,211	11.89%		1,865,215	22.86%		366,545	28.39%
Alpopular S.A.		114,842	0.10%		18,599	0.02%		96,243	1.18%		5,912	0.46%
Fiduciaria Popular S.A.		58,159	0.05%		8,974	0.01%		49,185	0.60%		4,660	0.36%
INCA S.A.		51,774	0.05%		18,139	0.02%		33,635	0.41%		5,404	0.42%
Eliminations from consolidation		(124,767)	(0.11%)		36,160	0.03%		(160,927)	(1.97%)		(10,317)	(0.80%)
Banco Popular S.A. consolidated		14,251,434	12.78%		12,368,083	11.97%		1,883,351	23.08%		372,204	28.83%
Banco Comercial AV Villas S.A. (unconsolidated)		7,600,089	6.82%		6,665,346	6.45%		934,743	11.46%		165,074	12.78%

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GRUPO AVAL ACCIONES Y VALORES S.A. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

For the year ended December 31, 2011		Assets	%		Liabilities	%		Equity	%		Net Income	%
A Toda Hora S.A. (ATH)		23.061	0.02%		16.563	0.02%		6.498	0.08%		377	0.03%
Eliminations from consolidation		(4.903)	0.00%		1.769	0.00%		(6.672)	(0.08%)		(226)	(0.02%)
Banco Comercial AV Villas S.A. consolidated		7.618.247	6.83%		6.683.678	6.47%		934.569	11.45%		165.225	12.79%
Grupo Aval Acciones y Valores S.A. (unconsolidated)		13.972.578	12.53%		2.718.887	2.63%		11.253.691	137.93%		416.243	32.24%
Eliminations from consolidation		(15.330.082)	(13.75%)		443.343	0.43%		(15.773.425	(193.32%)		(1.240.268)	(96.06%)
Grupo Aval Consolidated	Ps.	111.501.867	100.00%	Ps.	103.342.741	100.00%	Ps.	8.159.126	100.00%	Ps.	1.291.226	100.00%

(2)	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a)	Basis of presentation

Grupo Aval has prepared these financial statements in accordance with the regulations of the Superintendency of Finance for financial institutions (Resolution 3600 of 1988 and External Circular 100 of 1995) and, on issues not addressed by these regulations, generally accepted accounting principles in Colombia, or “Colombian GAAP” and, together with such regulations, “Colombian Banking GAAP”.

The financial statements of foreign subsidiaries have been adjusted in order to adopt uniform accounting policies as required by Colombian Banking GAAP.

b)	Translation of foreign currency transactions and consolidated balances

Translation of financial statements in foreign currency

Financial statements of Grupo Aval’s subsidiaries with functional currencies different from the Colombian peso are translated to pesos as follows:

Balance sheet accounts are translated to pesos using the “Tasa Representativa de Mercado” or market exchange rate applicable at the end of the year, as established by the Superintendency of Finance (except equity accounts which are translated at the historical exchange rate). The market exchange rates at December 31, 2012, 2011 and 2010 were Ps 1,768.23, Ps 1,942.70 and 1,913.98 per US$1.00, respectively. Consolidated statements of income accounts for the years ended December 31, 2012, 2011 and 2010 were translated to pesos using average monthly historical rates, this average year was Ps 1,802.27, Ps 1,857.47 and 1,897.89 per US$1.00, respectively. Exchange differences originated in the balance sheet accounts, are recorded as “Cumulative translation adjustments” in Shareholders’ Equity, and exchange differences originated in the statement of income accounts are recorded as “Foreign exchange gains (losses), net”.

Transactions and balances in foreign currency by Grupo Aval and its local subsidiaries

Transactions and balances in foreign currency are translated by Grupo Aval and its banking subsidiaries to pesos using the market exchange rates applicable on the corresponding dates, as established by the Superintendency of Finance. The exchange rates at December 31, 2012, December 31, 2011 and December 31, 2010 are as stated above. Exchange rate differences arising from the translation of assets and liabilities denominated in foreign currency to pesos are recorded in the account “Foreign exchange gains (losses), net” on the consolidated statements of income.

c)	Convenience translation to U.S. dollars

Grupo Aval and its banking subsidiaries present their financial statements in Colombian pesos. The U.S. dollar amounts disclosed in the accompanying consolidated financial statements are presented solely for the convenience of the reader, dividing the peso amounts by the exchange rate of Ps.1,768.23 per US$1.00, which is the market exchange rate at December 31, 2012, as calculated by the Superintendency of Finance. The use of this methodology in translating Colombian pesos to U.S. dollars is referred to as the “U.S. dollar translation methodology,” and should not be construed as a representation that the Colombian peso amounts actually represent or have been, or could be converted into U.S. dollars at that or any other rate.

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GRUPO AVAL ACCIONES Y VALORES S.A. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

d)	Use of estimates in the preparation of consolidated financial statements

The preparation of consolidated financial statements, according to Colombian Banking GAAP, requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates.

e)	Real Value Unit rate (UVR)

The transactions that Grupo Aval’s banking subsidiaries carry out with regard to mortgage loans linked to the Unidad de Valor Real (the “Real Value Unit” or “UVR”) are adjusted on a daily basis based on the daily value of the UVR, as published by the Central Bank. The values assigned by the Central Bank to the UVR, in Colombian pesos, at December 31, 2012, 2011 and 2010 were Ps. 204.2017, Ps. 198.4467 and 190.8298, respectively. The UVR reflects the monthly variance of the IPC (Colombian Consumer Price Index).

f)	Cash and cash equivalents

Cash and cash equivalents consist of cash and due from banks that are highly liquid investments with a maturity of three months or less at the date of acquisition. Interbank borrowings and overnight funds, explained in note 2(g) below, are also included in the “Cash and cash equivalents” account in the consolidated balance sheets.

g)	Money market transactions

Money market transactions involve interbank and overnight funds, repurchase and resale (repo) transactions, simultaneous transactions and transactions involving the temporary transfer of securities.

Interbank and overnight funds

Interbank and overnight funds consist of funds either received from or placed in, directly, by any of Grupo Aval’s banking subsidiaries, other financial institutions. These transactions are undertaken for periods no longer than 30 calendar days, seeking to either take advantage of excess liquidity positions or compensate for liquidity deficiencies. Interest from interbank and overnight funds operations is recorded as income in the consolidated statements of income.

Repurchase and resale (repo) transactions

A repo transaction is defined as the acquisition or transfer of securities, in exchange for the delivery of liquid funds (with or without a discount), assuming at that time and by virtue of such action, the commitment to transfer or acquire from the counterparty, on either the same day or at a later date, without at any time exceeding the term of one year, at an established price, the securities subject to the transaction or other securities of similar kind. Under the terms of certain repo transactions, securities may be exchanged for other securities, and restrictions may be imposed as to the transferability of such securities. The value of the securities granted or received to support repo transactions is registered in the “Memorandum accounts”. The returns agreed upon for these transactions are based on the Superintendency of Finance rules and regulations and are recorded as income (in the case of lending operations) or expense (in the case of borrowing operations) in the consolidated statements of income.

h)	Investment securities

1. Classification

Investment securities are classified as “trading”, “available for sale” or “held to maturity”.

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GRUPO AVAL ACCIONES Y VALORES S.A. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

1.1.	Trading securities

Trading securities are those acquired mainly with the purpose of obtaining profits from short-term price fluctuations and are accounted for at fair value.

1.2.	Available for sale securities

Available for sale securities are those for which the investor has both a clear intention and legal, contractual, financial and operational capacity to hold for at least one year since the date investments are classified as available for sale. On the first business day after a year has passed since the initial classification of the securities as available for sale, investors decide whether to leave them in this category or reclassify them as trading or held to maturity. If and on the day an available for sale security is reclassified as trading, unrealized gains or losses must be recognized as either income or expense in the consolidated statements of income.

Available for sale securities include, in accordance with the Bolsa de Valores de Colombia, (Colombian Stock Exchange), low liquidity level and unquoted equity securities.

These securities can be used in liquidity transactions, including repo and simultaneous transactions. They can also be used as guarantees for derivative transactions if and when the counterparty is a clearinghouse.

1.3.	Held to maturity securities

Held to maturity securities are debt securities acquired with the stated purpose and legal, contractual, financial and operational capacity to hold until maturity. These securities are accounted for at their acquisition cost plus accrued interest using the effective interest rate method and may not be used for liquidity operations, unless they are mandatory investments entered into on the primary market, provided that the counterparty for the transaction is the Colombian Central Bank, institutions overseen by the Superintendency of Finance or, in exceptional cases, as otherwise determined by the Superintendency of Finance.

2.	Initial measurement

Securities are initially accounted for at their acquisition cost. Subsequent recognition depends on their classification.

2.1.	Debt securities

Available for sale and trading debt securities are appraised and valued on a daily basis. Grupo Aval and its banking subsidiaries determine the fair value of these securities by using the prices, reference rates and spreads that “Información para Valoración” or “Infoval” (entity created as provider of market prices by the Colombian Stock Exchange) calculates and publishes daily.

Held to maturity debt securities are accounted for at their acquisition cost plus accrued interest using the internal rate of return calculated on the purchase date.

2.2.	Equity securities

The Superintendency of Finance mandates that equity investments are to be marked to market on a daily basis. However, in the case of investments in securities that have low liquidity levels, or that are not listed on a securities exchange, and whose only source of valuation are the financial statements of the issuing company, Grupo Aval and its banking subsidiaries regularly conduct valuations of such investments, recording the amounts thus appraised in their consolidated financial statements.

On August 24, 2009, the Superintendency of Finance eliminated the trade-weighted stock index that was previously used as a benchmark for valuing shares and instead established the following stock valuation method:

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GRUPO AVAL ACCIONES Y VALORES S.A. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

a. Listed equity securities, issued and traded in Colombia

Securities are valued daily based on prices published by authorized entities (i.e., the Colombian Stock Exchange). In the absence of a price calculated for the day on which these securities are appraised, the last known valuation price is to be used. In the case of a listed equity security not reporting any trades on the secondary market as of its issue date, and for which there is no indicated market price for its primary issue, it should be appraised based on the guidelines stipulated in 2.2.b below.

b. Non-listed equity securities, issued in Colombia

Securities are valued based on acquisition cost which is later increased or decreased depending upon the investor’s percentage stake in all subsequent changes in the issuer’s shareholders’ equity.

For this purpose, the issuer’s shareholders’ equity is calculated based on audited financial statements at the cut-off dates of June 30 and December 31 of each year. However, when more recent audited financial statements are released, these financial statements may be used to calculate the latest changes to the equity of the issuer. Entities have a maximum allowed time of three months, subsequent to the cut-off date of the financial statements, to update the valuations of their investments.

Prior to August 24, 2009, equity securities were valued based on a liquidity-weighted stock index, calculated by the Colombian Stock Exchange, applicable on each of the dates on which such valuations were conducted. Depending on their liquidity levels, equity securities were valued as follows:

High-liquidity equity securities: based on the last daily average trade-weighted price published by the Colombian Stock Exchange.

Medium-liquidity equity securities: based on the average price published by the Colombian Stock Exchange, which corresponded to the average trade-weighted price for the last five days on which such securities were traded.

Low-liquidity equity securities or those not listed on a stock exchange: based on the increase or decrease of an investor´s percentage stake in the issuers’ shareholders’ equity updated using the latest audited financial statements released by the issuer.

c. Listed equity securities, issued and traded in countries other than Colombia

Securities are valued based on their respective closing prices, and if not available, based on the latest prices reported in the securities exchange where they trade. If there is no price reported for five days preceding each valuation, the securities are valued based on the average reported price of the last 30 days. If there is no price reported for the last 30 days, then securities are valued based on the methodology described in 2.2.b. above for non-listed equity securities.

The value of such securities is translated to pesos using the market exchange rate of the day they are valued, as published by the Superintendency of Finance.

2.3. Private Investment Funds

Private Investment Funds are valued by multiplying the number of units owned by the value of the unit provided by the administrator of the fund at the date of the closing of its financial statements period.

3. Subsequent measurement

As described above, security investments are initially accounted for at their acquisition cost. Subsequent measurement and recording depend upon how they are classified by the investor as follows:

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GRUPO AVAL ACCIONES Y VALORES S.A. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

3.1 Trading securities

These investments are recorded on a daily basis at fair value and include investments in debt and equity securities acquired for short-term trading purposes. Unrealized gain or losses resulting from differences in fair values are included in the consolidated statement of income for the year.

Trading investments are valued at fair value using referential prices published daily by the Bolsa de Valores de Colombia. Debt investments issued by foreign entities are valued using reference published prices sourced from Bloomberg or Reuters.

Dividends in kind, including those that stem from the revaluation of equity accounts do not create income and only affect the number of shares owned of the investment. Dividends in cash, when paid, decrease the value of the investment and affect the income statement at the income on investment securities line item.

3.2 Available-for-sale securities

3.2.1 Debt securities

Differences between the present value of the valuation date and the last present value calculated and recorded are registered as increases or decreases in the “investment securities” account in the balance sheet and are also accounted for in the consolidated statements of income. Differences arising between the market value and the present value are reported as “unrealized gains (losses) on investment securities available for sale” in the investors’ shareholders’ equity. This procedure is performed on a daily basis.

3.2.2 Equity securities

Changes in the value of equity securities depend on their liquidity levels, as reported by the Colombian Stock Exchange, as follows:

3.2.2.1 Securities with low liquidity levels or securities not listed in a stock exchange

If the value of the investment, based on the latest audited financial statements available and released by the issuer, exceeds the investment, the difference reduces the devaluation account of the investment. If the increase in value of the investment exceeds the total value of its devaluation account, this difference is accounted for as a reduction of the investment’s valuation surplus.

If the value of the investment, based on the latest audited financial statements available and released by the issuer, reflects a lesser value than the cost of the investment, the difference reduces the valuation surplus account of the investment. If the decrease in the value of the investment exceeds the total value of its valuation surplus, any excess is recorded as an increase of the investment’s devaluation account.

When dividends or earnings are distributed in cash, including those resulting from the capitalization of the equity revaluation account, the amount recorded in valuation surplus is accounted for as income, that valuation surplus is reversed, and the dividend excess amount is recorded as a lesser value of the investment. When dividends or earnings are distributed in kind, the portion that was accounted for as valuation surplus is recorded as income with a charge against the investment, and the valuation surplus is reversed.

3.2.2.2 Securities with high or medium liquidity levels

Differences between current and previous mark-to-market valuations of these securities are recorded daily as “Unrealized gains or losses on investment securities available for sale”, within the shareholders’ equity accounts, and crediting or debiting the investment securities account.

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GRUPO AVAL ACCIONES Y VALORES S.A. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

The changes in allowance for accrued interest receivable on loans and financial leases and accounts receivable were as follows:

		December 31,		December 31,		December 31,
		2012		2011		2010
Balance at beginning of period	Ps.	171,202	Ps.	151,657	Ps.	176,565
BAC Credomatic’s acquisition		-		-		3,456
Increase due to addition or merger		1,024		-		-
Provision for uncollectible amounts		168,396		155,818		151,034
Charge-offs		(55,929)		(61,814)		(81,516)
Recovery of provisions		(88,566)		(78,077)		(97,231)
Reclassification – Securitization		(6,485)		(83)		(9,117)
Effect of changes in foreign exchange rate		7,368		3,701		8,466
Balance at end of period	Ps.	197,010	Ps.	171,202	Ps.	151,657

(7)	BANKERS’ ACCEPTANCES, SPOT TRANSACTIONS AND DERIVATIVES

Grupo Aval’s rights and obligations from bankers’ acceptances, spot transactions and derivatives as of December 31, 2012 and 2011 were as follows:

		December 31,		December 31,
		2012		2011

Bankers’ acceptances	Ps.	68,278	Ps.	116,597
Total bankers’ acceptances		68,278		116,597
Derivatives at fair value
Spot transactions, net
Foreign exchange rights contracts-purchased		27,597		127,994
Foreign exchange rights contracts-sold		3,714		-
Investment securities rights sold (peso-denominated)		6,000		-
Total rights		37,311		127,994
Foreign exchange commitments contracts sold		(3,714)		-
Foreign exchange commitments contracts purchased		(27,548)		(127,944)
Investment securities commitments-purchased (peso-denominated)		(6,000)		-
Total obligations		(37,262)		(127,944)
Total spot transactions, net		49		50
Forward contracts
Foreign exchange rights contracts purchased (peso-denominated)		108,723		6,383,940
Foreign exchange rights contracts sold (peso-denominated)		10,169,709		2,459,477
Foreign exchange rights contracts purchased		228,041		62,030
Foreign exchange rights contracts sold		148,508		142,761
Investment securities rights-purchased (peso-denominated)		84,205		29,570
Investment securities rights-sold (peso-denominated)		-		455,221
Others - rights		1,968		-
Total rights		10,741,154		9,532,999
Foreign exchange commitments contracts purchased (peso-denominated)		(108,605)		(6,195,322)
Foreign exchange commitments contracts sold (peso-denominated)		(9,866,165)		(2,443,594)
Foreign exchange commitments contracts purchased		(223,426)		(61,593)
Foreign exchange commitments contracts sold		(142,116)		(139,493)

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

		December 31,		December 31,
		2012		2011

Investment securities commitments purchased (peso-denominated)		(82,787)		(29,358)
Investment securities commitments sold (peso-denominated)		-		(453,290)
Other commitments		(1,997)		-
Total obligations		(10,425,096)		(9,322,650)
Total forward contracts, net		316,058		210,349
Futures contracts
Foreign exchange rights contracts purchased		102,858		716,413
Foreign exchange rights contracts sold		856,424		9,689
Investment securities commitments purchased (local currency)		4		3,420
Investment securities rights sold		-		41,651
Total rights		959,286		771,173
Foreign exchange commitments contracts purchased		(102,858)		(716,303)
Foreign exchange commitments contracts sold		(856,346)		(9,689)
Investment securities commitments purchased (local currency)		(4)		(3,420)
Investment securities commitments sold		-		(41,651)
Total obligations		(959,208)		(771,063)
Total future contracts		78		110
Swaps
Foreign exchange right contracts		623,895		389,789
Interest rate rights contracts		240,932		656,335
Foreign exchange commitments contracts		(579,265)		(351,203)
Interest rate commitments contracts		(226,079)		(643,536)
Total swaps, net		59,483		51,385
Options
Foreign exchange call options		1,745		6,256
Call option - Others		2,543		32,436
Foreign exchange put options		5,449		1,626
Put options - Others		623		-
Total options, net		10,360		40,318
Total bankers’ acceptances, spot transactions and derivatives	Ps.	454,306	Ps.	418,809

(8)	PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment as of December 31, 2012 and 2011 consisted of the following:

		December 31,		December 31,
		2012		2011
Land (1)	Ps.	376,684	Ps.	335,241
Buildings		1,030,424		978,389
Furniture, equipment and fixtures		569,519		576,035
Computer equipment		761,068		727,495
Vehicles		78,339		66,863
Construction in progress (2)		45,479		36,478
Machinery and equipment		339,443		281,738
Equipment in transit (2)		87,792		234,798
Total		3,288,748		3,237,037
Less accumulated depreciation		(1,486,697)		(1,471,022)
Allowance for impairment		(7,114)		(4,706)
Property, plant and equipment, net	Ps.	1,794,937	Ps.	1,761,309

(1)	Not a depreciable asset.

(2)	These assets begin to depreciate when the constructions are completed and/or the assets are ready for use.

Property, plant and equipment depreciation expense for the years ended December 31, 2012, 2011 and 2010, amounted to Ps. 191,799, Ps. 185,765 and Ps.120, 923, respectively.

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GRUPO AVAL ACCIONES Y VALORES S.A. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

(9)	OPERATING LEASES, NET

Operating leases where the Grupo Aval’s banking subsidiaries act as lessors as of December 31, 2012 and 2011 consisted of the following:

		December 31,		December 31,
		2012		2011
Machinery and equipment	Ps.	79,539	Ps.	78,229
Vehicles		55,490		29,195
Furniture, equipment and fixtures		85,066		77,869
Computer equipment		362,383		329,922
Total		582,478		515,215
Less accumulated depreciation		(201,245)		(187,180)
Allowance for impairment		(5,526)		(4,786)
Operating leases, net	Ps.	375,707	Ps.	323,249

Operating lease depreciation expense for the years ended December 31, 2012, 2011 and 2010 amounted to Ps.104,844, Ps. 90,905 and Ps. 93,867, respectively.

(10)	FORECLOSED ASSETS, NET

Foreclosed assets as of December 31, 2012 and 2011 consisted of the following:

		December 31,		December 31,
		2012		2011
Foreclosed assets:
Real estate	Ps.	217,566	Ps.	214,620
Other assets		16,532		6,214
Total		234,098		220,834
Allowance		(142,108)		(143,073)
Total foreclosed assets, net	Ps.	91,990	Ps.	77,761

The changes in allowance for foreclosed assets were as follows:

		December 31,		December 31,		December 31,
		2012		2011		2010
Balance at beginning of year	Ps.	143,073	Ps.	130,004	Ps.	123,524
BAC Credomatic’s acquisition		-		-		23,215
Acquisition or merger		1,213		-		-
Provision		43,386		36,533		12,974
Charge-offs		(3,058)		(5,994)		(184)
Recovery of provisions		(33,110)		(25,103)		(19,856)
Reclassifications		643		(5,812)		(6,512)
Provision used on sales		(7,474)		(1,187)		(2,749)
Effect of changes on foreign exchange rates		(2,565)		14,632		(408)
Balance at the end of year	Ps.	142,108	Ps.	143,073	Ps.	130,004

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

(11)	PREPAID EXPENSES AND DEFERRED CHARGES, NET

Prepaid expenses and deferred charges as of December 31, 2012 and 2011 consisted of the following:

		December 31,		December 31,
		2012		2011
Prepaid expenses:
Insurance premiums	Ps.	17,879	Ps.	15,124
Interest		13,846		4,511
Leases		1,128		1,281
Equipment maintenance		1,322		2,340
Commissions		23,155		26,526
Other		10,036		47,408
Total prepaid expenses		67,366		97,190
Deferred charges:
Pre-operating and reorganization expenses		11,127		5,421
Remodeling expenses		13,281		17,016
Computer programs		82,221		78,691
Improvements on road constructions and inflation adjustments (1)		962,496		669,214
Leasehold improvements		72,945		47,003
Advertising		1,819		9,127
Deferred income tax asset (2)		118,456		132,667
Fees and commissions		8		43
Studies and projects		182,424		144,565
Equity tax (3)		391,677		587,516
Other		57,860		167,751
Total deferred charges		1,894,314		1,859,014
Total prepaid expenses and deferred charges	Ps.	1,961,680	Ps.	1,956,204

(1)

In 1993, “Proyecto de Infraestructura S.A. Pisa”, entered into an agreement with “Departamento del Valle de Cauca”, for the construction, operation and maintenance of a public highway. According to the agreement “Proyecto de Infraestructura S.A. Pisa” would fund all the construction costs in exchange for the right to charge and collect a toll to the users of the highway for a period of about fourteen years.

In 1994, “Sociedad Concesionaria Vial de los Andes S.A.” entered into an agreement with “Instituto Nacional de Vías”, for the construction, operation and maintenance of a public highway. According to the agreement “Sociedad Concesionaria Vial de los Andes S.A.”, would fund all the construction costs in exchange for the right to charge and collect a toll to the users of the highway for a period of about fifteen years.

In 1995, “Concesiones CCFC S.A.”, entered into an agreement with “Instituto Nacional de Vías”, for the construction, operation and maintenance of a public highway. According to the agreement “Concesiones CCFC S.A.”, would fund all the construction costs in exchange for the right to charge and collect a toll to the users of the highway for a period of twenty years.

(2)	Deferred income tax assets relates to the following temporary differences:

		December 31,		December 31,
		2012		2011
Deferred income tax asset
Estimated liabilities	Ps.	53,859	Ps.	55,954
Bankers’ acceptances and derivatives		7,407		22,319
Deferred charges		3,737		1,802
Other		53,453		52,592
Total deferred income tax asset	Ps.	118,456	Ps.	132,667

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GRUPO AVAL ACCIONES Y VALORES S.A. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

(3)

In December 30, 2009, the Congress of Colombia enacted Law No. 1370, which added a net worth tax on the wealth of corporate entities (hereinafter referred to as the “Equity Tax”). The Equity Tax accrued on January 1, 2011 amounted to Ps. 783,354 payable in four equal installments through 2014 (one per year). The tax rate to be paid by Grupo Aval and its subsidiaries, each on an unconsolidated basis, is 6.0% of their net fiscal worth as of January 1, 2011. As of December 31, 2012, Grupo Aval had a consolidated liability of Ps. 391,677, having paid Ps. 195,839 during 2012.

In accordance with Colombian Banking GAAP, the equity tax liability was recorded as a deferred charge and has been and will continue to be amortized on a straight monthly basis until 2014. Colombian Banking GAAP regulations allow companies to charge the amortized portion against the “equity inflation adjustments” line item in the shareholders’ equity account, but since most of the companies consolidated by Grupo Aval had already used up their “equity inflation adjustments” account, they charged the expense in the consolidated statement of income.

(12)	GOODWILL, NET

Goodwill, net as of December 31, 2012 and 2011 was as follows:

		December 31,		December 31,
		2012		2011
Goodwill related to BAC Credomatic GEFC Inc. acquisition (recorded in Leasing Bogotá Panamá)	Ps.	1,786,174	Ps.	2,017,279
Goodwill related to Megabanco acquisition (Recorded in Banco de Bogotá S.A.)		489,100		510,799
Goodwill related to Banco Popular and Banco Comercial AV Villas acquisitions (Recorded in Grupo Aval)		407,253		424,954
Goodwill related to Banco Aliadas and Banco Unión acquisitions (Recorded in Banco de Occidente S.A.)		24,272		25,720
Goodwill related to Intrex acquisition in Panamericana (recorded into Banco de Bogota S.A. trough Corficolombiana)		128,076		131,945
Goodwill related to Proyectos de Infraestructura and Hoteles Estelar’s acquisitions (Recorded into Banco de Bogotá S.A. through Corficolombiana.)		7,658		48
Total goodwill, net	Ps.	2,842,533	Ps.	3,110,745

Goodwill attributable to Grupo Aval´s shareholders was Ps. 1,943,362 and Ps. 2,122,956 for the years ended December 31, 2012 and 2011, respectively.

The movements in goodwill were as follows:

		December 31,		December 31,		December 31,
		2012		2011		2010
Balance at beginning of period	Ps.	3,110,745	Ps.	3,031,446	Ps.	1,020,143
Goodwill acquired in business combination (*)		8,479		135,590		2,005,601
Exchange difference		(146,813)		36,343		35,360
Amortization expenses		(93,109)		(92,634)		(28,620)
Other related expenses		(36,769)		-		(1,038)
Balance at end of period	Ps.	2,842,533	Ps.	3,110,745	Ps.	3,031,446

(*)

In 2012, goodwill recorded of Ps. 8,479 was associated to an adjustment identified in the acquisition of Compañìa Hotelera de Cartagena de Indias by Hoteles Estelar. In 2011, goodwill originated in the acquisition of Concesionaria Pananamericana Ps. 21,672 and Intrex Investments INC Ps. 113,918. In December 2010 goodwill for the acquisition of BAC Credomatic was recorded of US$ 1,066,344, equivalent to Ps. 2,005,601.

Grupo Aval’s goodwill

Grupo Aval (parent company) records the amounts paid in excess of book value in the acquisition of shares, which mainly arose from the Banco Popular S.A. acquisition in the years 2008, 2006 and 2005. As of December 31, 2012 and 2011, the value of goodwill registered in Grupo Aval was Ps. 407,253 and Ps. 424,954, respectively.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

Banking subsidiaries’ goodwill

Banco de Bogotá S.A. and its subsidiaries acquired Megabanco on June, 2006, recording Goodwill by Ps. 613,294.

On December 2010 Banco de Bogotá S.A. registered goodwill for the acquisition of BAC Credomatic for US$ 1,066,344, equivalent to Ps. 2,005,601.

The following table shows the goodwill calculations in the BAC Credomatic acquisition as of November 30, 2010, as permitted by the Colombian Superintendency:

(In thousands of U.S. dollars as of November 30, 2010)			Equivalent in millions of Ps. (2)
Purchase price	US$	1,920,000	Ps.	3,611,174
Carrying value of assets acquired minus liabilities assumed under US GAAP		902,699		1,697,814
Adjustments to COL GAAP:		(49,043)		(92,241)
Loans origination fees (Note 30 f)		(3,103)		(5,836)
Allowance for loan losses (Note 30 e)		(20,220)		(38,030)
Reappraisal of assets (Note 30 d)		69,552		130,815
Fair value of loans (1)		(2,272)		(4,273)
Allowance for foreclosed assets (Note 30 e)		(6,558)		(12,334)
Pre-existing goodwill-business combination (Note 30 m)		(96,831)		(182,122)
Impairment of investments (Note 30 i)		(2,681)		(5,042)
Deferred income tax (Note 30 a)		12,413		23,347
Guarantees (Note 30 o)		657		1,234
Net assets acquired		853,656		1,605,573
Excess of purchase price over net assets acquired (Goodwill)	US$	1,066,344	Ps.	2,005,601

(1)	Under US GAAP, certain loans were recorded by BAC at fair value, Under COL GAAP, it is not permitted to fair value loans, and therefore, they were recorded at cost.

(2)	Translated using an exchange rate of Ps. 1,880.82 per USD, TRM as of November 30th, 2010.

Banco de Bogotá S.A. began amortizing the goodwill under the exponential method over a period of twenty years since the date of each acquisition. Goodwill is allocated among several business lines which are subject to impairment tests in which Grupo Aval compares its book value (including the assigned goodwill) to technical studies prepared annually by independent experts. At the end of each reporting period or when there is any indication of impairment (i.e. a reduction in its recoverable amount to below its carrying amount) any impairment is written off. As of December 31, 2011 and 2010, no impairment was recognized.

Banco de Occidente S.A. recorded goodwill when it acquired Banco Aliadas and Banco Unión Colombiano by Ps. 41,935.

Banco Popular S.A. and Banco Comercial AV Villas S.A., as of December 31, 2012, do not have goodwill registered in their financial statements.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

(13)	OTHER ASSETS, NET

Other assets as of December 31, 2012 and 2011 consisted of the following:

		December 31,		December 31,
		2012		2011
Assets held for sale	Ps.	481,431	Ps.	402,472
Value added tax deductible and withholding taxes		64,848		38,692
Restricted deposits		155,433		109,115
Investment in trust		28,675		32,808
Prepaid taxes		55,199		65,507
Assets available for lease contracts		279,442		338,739
Joint ventures (1)		29,285		75,663
Other		94,537		67,689
Total		1,188,850		1,130,685
Less: Allowance for impairment		(60,237)		(58,075)
Total other assets, net	Ps.	1,128,613	Ps.	1,072,610

(1)	Include capitalized expenses related to a toll road operated by Corficolombiana.

(14)	REAPPRAISAL OF ASSETS

The following table describes reappraisals of assets as of December 31, 2012 and 2011:

		December 31,		December 31,
		2012		2011
Reappraisal of property plant and equipment	Ps.	2,200,218	Ps.	2,126,951
Revaluation of investments		106,827		131,991
Reappraisal of other assets		10,767		10,759
Total reappraisal of assets		2,317,812		2,269,701
Less: Non-controlling interests		(1,374,011)		(1,250,140)
Total equity revaluations	Ps.	943,801	Ps.	1,019,561

The amount of reappraisal of assets attributable to non-controlling interests reflects third-party participation in Banco de Bogotá and its subsidiaries (including Corficolombiana and its subsidiaries), Banco de Occidente and its subsidiaries, Banco Popular and its subsidiaries and Banco Comercial AV Villas.

(15)	TIME DEPOSITS

Time deposits (classified per maturity at the issuance date) as of December 31, 2012 and 2011 were as follows:

		December 31,		December 31,
		2012		2011
Less than six months	Ps.	5,720,675	Ps.	6,940,221
Between six to twelve months		4,986,990		4,389,043
Between twelve and eighteen months		3,338,467		2,930,874
More than 18 months		12,818,835		8,370,355
Total certificates of time deposits (*)	Ps.	26,864,967	Ps.	22,630,493

(*) See level of cash reserves established by central banks in countries where Grupo Aval banking subsidiaries operate in Note 3.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

(16)	INTERBANK BORROWINGS AND OVERNIGHT FUNDS

Interbank borrowings and overnight funds as of December 31, 2012 and 2011 were as follows:

		December 31,		December 31,
		2012		2011
Ordinary interbank funds purchased	Ps.	310,116	Ps.	594,116
Commitments of investment in simultaneous operations		2,911,178		1,936,713
Commitments of closed repo operations (*)		825,636		593,857
Commitments of open repo operations (*)		1,109,551		100,459
Total interbank and overnight funds	Ps.	5,156,481	Ps.	3,225,145

(*) Increase primarily corresponds to the constitution of repos operations by Corficolombiana with Banco de la Republica.

(17)	BORROWINGS FROM BANKS AND OTHERS

Borrowings from banks and others as of December 31, 2012 and 2011 were as follows:

	Interest rates				December 31,		December 31,
	Interest rates				2012		2011
Banco de Comercio Exterior - “Bancoldex”	0.0%	to	17.8%	Ps.	789,761	Ps.	1,224,976
Fondo para el Financiamiento del Sector Agropecuario - “FINAGRO”	0.5%	to	15.7%		549,105		601,895
Financiera de Desarrollo Territorial “FINDETER”	0.0%	to	9.6%		996,305		1,075,625
Foreign Banks	0.0%	to	15.0%		5,076,933		5,798,864
Other financial institutions	0.1%	to	33.0%		1,817,904		1,292,271
Indebtedness to related parties	DTF + 3%				1,150,918		1,444,120
Total borrowings from banks and others				Ps.	10,380,926	Ps.	11,437,751

The Colombian Government has established programs to promote the development of specific sectors of the economy, including foreign trade, agriculture, tourism and many other industries. These programs are managed by the Colombian Central Bank and various government entities such as Banco de Comercio Exterior (“Bancoldex”), Fondo para el Financiamiento del Sector Agropecuario (“FINAGRO”) and Financiera de Desarrollo Territorial (“FINDETER”).

Maturities of borrowings from banks and others as of December 31, 2012 were as follows:

2013		380,082
2014		2,137,275
2015		3,034,121
2016		737,842
2017 and thereafter		4,091,606
Total borrowings from banks and others	Ps.	10,380,926

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

(18)	ACCOUNTS PAYABLE

Accounts payable as of December 31, 2012 and 2011 were as follows:

		December 31,		December 31,
		2012		2011
Dividends payable (See note 23)	Ps.	421,028	Ps.	377,815
Suppliers		410,430		551,476
Contribution on financial transactions		34,603		31,995
Taxes (1)		801,213		915,168
Collections for third parties		104,449		152,826
Withholdings and labor contributions		42,987		48,977
Insurance (2)		289,504		236,604
Pending checks		43,813		45,235
Commissions and fees		35,561		39,269
Rents		5,127		5,172
Contributions and affiliations		8,516		15,213
Excess compensations		103,790		115,414
Cedulas cafeteras		85,150		42,793
Time deposits due		30,098		30,129
Principal and interest bonds (paz)		28,573		28,433
Principal and interest bonds (seguridad)		7,229		6,996
Other		553,232		450,434
Total accounts payable	Ps.	3,005,305	Ps.	3,093,949

(1)

Includes Ps. 391,677 at December 31, 2012 associated with the Equity Tax. In December 30, 2009, the Congress of Colombia enacted Law No. 1370, which added a net worth tax on the wealth of corporate entities or Equity Tax. The Equity Tax accrued on January 1, 2011 amounted to Ps. 783,354 payable in four equal installments through 2014 (one per year). The tax rate to be paid by Grupo Aval and its subsidiaries, each on an unconsolidated basis, is 6.0% of their net fiscal worth as of January 1, 2011. As of December 31, 2012, Grupo Aval had a consolidated amount of Ps.391,677, having paid Ps. 195,839 during 2012.

In accordance with Colombian Banking GAAP, the equity tax liability was recorded as a deferred charge and as an account payable. It has been and will continue to be amortized on a straight monthly basis until 2014. Colombian Banking GAAP regulations allow companies to charge the amortized portion against the “equity inflation adjustments” line item in the shareholders’ equity account. Since most of the companies consolidated by Grupo Aval had already used up their “equity inflation adjustments” account. The equity tax amortization was charged as an expense.

(2)	Includes BAC Credomatic insurance premium related to loans granted to its clients.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

(19)	OTHER LIABILITIES

Other liabilities as of December 31, 2012 and 2011 were as follows:

		December 31,		December 31,
		2012		2011
Consolidated severance and interest on severance	Ps.	100,347	Ps.	87,290
Accrued vacations		73,755		69,197
Other labor benefits		75,599		70,493
Unearned interest (a)		58,456		56,076
Unapplied payments from customers		286,330		296,738
Deferred income		5,604		7,228
Dormant deposits		25,804		25,562
Pension obligations (b)		306,777		298,994
Deferred income tax (c)		217,300		183,691
Interest		9,894		8,592
Joint ventures		21,787		21,106
Income received by Coviandes term reduction		67,033		152,978
Transport, freights and carries		16,608		17,424
Contribution for future works - Epiandes		237,087		-
Other´s		198,189		152,395
Total other liabilities	Ps.	1,700,570	Ps.	1,447,764

(a)	Unearned interest primarily consists of prepayments of interest by customers.

(b)	The following table shows Grupo Aval’s banking subsidiaries pension obligations as of December 31, 2012 and 2011:

		Pension liability		Deferred cost		Net pension Liability
Balance at December 31, 2009	Ps.	291,591	Ps.	(13,030)	Ps.	278,561
Adjustment per actuarial valuation		86,949		(86,949)		-
Benefits paid		(30,544)		-		(30,544)
Pension expense		-		32,564		32,564
Balance at December 31, 2010	Ps.	347,996	Ps.	(67,415)	Ps.	280,581
Adjustment per actuarial valuation		51,586		(51,586)		-
Benefits paid		(32,662)		-		(32,662)
Pension expense		-		51,075		51,075
Balance at December 31, 2011	Ps.	366,920	Ps.	(67,926)	Ps.	298,994
Adjustment per actuarial valuation		36,650		(36,650)		-
Benefits paid		(33,622)		-		(33,622)
Pension expense		-		41,405		41,405
Balance at December 31, 2012	Ps.	369,948	Ps.	(63,171)	Ps.	306,777

In compliance with Colombian law, the present value of the expected pension payments was determined on the basis of actuarial calculations. The significant assumptions used in the actuarial calculations were the following:

	December 31,			December 31,			December 31,
	2012			2011			2010
Discount rate	5.6%	to	6.4%	4.8%	to	8.7%	4.5%	to	7.7%
Future pension increases	3.0%	to	3.2%	2.0%	to	6.5%	3.2%	to	4.5%

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

(c)	Deferred income tax liability relates to the following temporally differences:

		December 31,		December 31,
		2012		2011
Deferred income tax liabilities
Unrealized gains on investment securities	Ps.	31,720	Ps.	4,255
Property, plant and equipment		32,128		38,096
Unrealized gains on derivatives		40,805		5,522
Deferred charges		9,884		10,401
Pension plan		20,008		21,052
Allowance for loan losses		6,449		6,657
Accrued expenses		-		6,509
Other		76,306		91,199
Total deferred income tax liabilities	Ps.	217,300	Ps.	183,691

(20)

BONDS

Companies are authorized by the Superintendency of Finance to issue secured and unsecured bonds. As of December 2012 and 2011, the majority of the bonds issued by Grupo Aval and its subsidiaries are unsecured and are solely obligations of each issuer.

As of December 31, 2012 and 2011, bond issued were as follows:

Issuer	Issuance date		December 31, 2012		December 31, 2011	Maturity	Interest Rate

BAC Honduras	oct-09	Ps.	-	Ps.	14,163	oct-12	14.49% to 14.99%
	nov-09		-		11,303	oct-12	14.49%
	dec-09		-		26	oct-12	14.49%
	dec-12		10,586		-	dec-15	14.00%
			10,586		25,492
Banco de America Central	mar-07		-		19,427	mar-12	4,19%
	may-07		-		19,427	may-12	3.58%
	jan-08		17,682		19,427	jan-13	2.44% to 2.69%
	nov-08		26,523		29,141	nov-13	2,33%
	feb-09		26,523		29,141	feb-14	2.41%
	dec-10		-		23,170	jan-12	4.00%
	dec-11		7,073		7,771	dec-16	4,25%
	feb-12		3,536		-	feb-17	4.25%
	mar-12		7,073		-	mar-17	4.25%
	may-12		10,339		-	may-17	4.25%
	dec-12		23,475		-	jan-13 to dec-14	4.00% - 5.00%
			122,224		147,504
Banco de Bogotá S.A.	apr-08 (1)		212,313		209,960	apr-15	ICP+7.00% to UVR+7.00% to DTF+3.00%
	feb-10 (1)		209,758		206,545	feb-17 to feb-20	ICP + 5.33% to ICP +5.45% UVR + 5.29% to UVR +5.45%.
	dec-11 (2)		1,060,938		1,165,619	jan-17	5.00%
			1,483,009		1,582,124
Banco de Occidente S.A.	aug-06 (1)		75,000		75,000	aug-13	ICP + 5.58%
	aug-07 (1)		80,000		80,000	sep-14	ICP + 5.90%
	aug-08		186,910		186,910	aug-13 to aug-18	DTF + 3.10% ICP + 6.60% ICP + 7.00%
	jun-07		53,842		135,406	jun-14	ICP + 6.60%
	mar-09		174,536		236,439	mar-14 to mar-19	ICP + 5.00% ICP + 6.00% ICP + 5.75%
	may-05 (1)		-		40,000	may-12	ICP + 5.09%

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

Issuer	Issuance date	December 31, 2012	December 31, 2011	Maturity	Interest Rate

	nov-10	550,000	550,000	nov-13 to nov-15	ICP + 2.72% ICP + 3.15% DTF + 1.35% IBR + 1.42%
	oct-06 (1)	44,680	44,680	oct-13	ICP + 5.75%
	mar-11	387,000	400,000	mar-14 to mar-16	ICP+2.49% ICP +3.05%, IBR + 1.50%
	sep-11	247,119	247,119	sep-14 to sep-21	6.65% EA 7.25% EA ICP + 4.00% ICP + 4.20% ICP + 4.50% IBR + 1.80%
	feb-12 (1)	200,000	-	feb-19 to feb-22	ICP + 4.34% ICP + 4.65%
	ago-12	300,000	-	ago-15 to ago-27	ICP + 4.10% ICP + 4.27% DTF + 1.67%
		2,299,087	1,995,554
Banco Popular S.A.	sep-06 (1)	100,000	100,000	sep-13	ICP + 5.49%
	jul-08 (1)	100,000	100,000	jul-15	ICP + 7.00%
	jun-10	47,575	151,158	jun-13	ICP + 3.23%
	oct-10	189,500	300,000	oct-13	IBR + 1.40% ICP+2.64%
	feb-10	260,800	400,300	feb-13 to feb-15	ICP + 3.30% ICP + 3.90% IBR + 1.44%

	aug-11	400,000	400,000	feb-13 to aug-15	ICP + 3.68% IBR + 1.71% IBR + 1.81%
	jan-12	400,000	-	jun-13 to jan-17	IBR + 1.80% DTF + 1.82% ICP +3.90%
	sep-12	400,000	-	sep-14 to sep-17	6.30% 6.39% ICP+3.69%
		1,897,875	1,451,458
Concesionaria Vial de los Andes S.A.	jul-07	29,150	47,700	jul-14	ICP + 5.70%
		29,150	47,700
BAC Credomatic Guatemala	jan-11	45	11,365	jan-13	7.02%
	feb-11	-	10,989	feb-12	6.31% to 8.50%
	mar-11	-	9,722	mar-12	6.31% to 8.69%
	apr-11	-	12,224	apr-12	6.31% to 8.69%
	may-11	-	11,866	may-12	6.31% to 8.50%
	jun-11	-	16,191	jun-12	4.89% to 8.69%
	jul-11	-	15,663	jul-12	4.65% to 8.25%
	aug-11	-	15,675	aug-12	4.75% to 8.25%
	sep-11	-	18,471	sep-12	4.75% to 8.45%
	oct-11	-	15,790	oct-12	4.65% to 8.45%
	nov-11	-	13,676	nov-12	4.65% to 8.30%
	dec-11	-	13,136	dec-12	4.65% to 8.22%
	jan-12	12,122	-	jan-13	5.84% to 8.25%
	feb-12	14,116	-	feb-13	5.84% to 8.40%
	mar-12	11,372	-	apr-13	5.84% to 8.25%

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

Issuer	Issuance date		December 31, 2012		December 31, 2011	Maturity	Interest Rate

	apr-12		12,596		-	may-13	5.84% to 8.25%
	may-12		15,326		-	may-13	5.84% to 8.50%
	jun-12		21,508		-	jun-13	5.84% to 8.50%
	jul-12		18,100		-	aug-13	4.75% to 8.50%
	aug-12		19,910		-	sep-13	4.75% to 8.40%
	sep-12		25,881		-	oct-13	4.89% to 8.50%
	oct-12		23,239		-	nov-13 to apr-14	4.75% to 8.50%
	nov-12		14,999		-	dec-13	4.65% to 8.50%
	dec-12		9,979			dec-13	4.65% to 8.25%
			199,193		164,768
Grupo Aval Acciones y Valores S.A.	apr-05		-		94,700	apr-12	ICP + 5.60%
	oct-05		100,000		100,000	oct-15	ICP + 3.37%
	dec-09		624,249		749,733	dec-14 to dec-24	ICP + 3.69% a 5.20%
			724,249		944,433
Grupo Aval Limited (3)	feb-12		1,060,938		-	feb-17	5.25%
	sep-12		1,736,402		-	sep-22	4.75%
			2,797,340		-
Industrias Lenher S.A. (4)	jun-00		1,053		1,053	jun-13	DTF + 5.22%
			1,053		1,053
Leasing Corficolombiana	jun-05		9,203		10,117	jan-13 to may-14	DTF 2.20% to DTF 3.10%
	mar-09		116,032		116,032	mar-13 to oct-14	DTF 1.80% to DTF 2.10%
			125,235		126,149
Proyectos de Infraestructura S.A	may-09		80,000		80,000	may-16 to may-19	ICP + 6.59% to ICP + 6.90
			80,000		80,000
		Ps.	9,769,001	Ps.	6,566,235

(1)	Subordinated Bonds.

(2)	On December 2011, Banco de Bogotá S.A. issued a five year bond of US$600 million (Ps. 1,060,938 as of December 31, 2012) in the international market under rule 144-A/Reg S with a coupon of 5%, at 98.898% of its nominal value.

(3)

On January 23, 2012, Grupo Aval through its subsidiary in Cayman Island, Grupo Aval Limited, issued a five year bond of US$600 million (Ps. 1,060,938 as of December 31, 2012) in the international market under rule 144-A/Reg S with a coupon of 5.25% at 99.458% of its nominal value. In addition, on September 19, 2012, Grupo Aval issued a ten year bond of US$ 1,000 million (Ps. 1,736,402 as of December 31, 2012) in the international market under rule 144A/Reg S with a coupon of 4.75% at 99.607% of its nominal value.

(4)

As part of its restructuring process, Industrias Lenher S.A. issued convertible bonds for Ps. 13,464 in April 2002. These bonds were offered to Lenher´s creditors to cover all or part of the accounts receivable that they had with the company. All bondholders had the right to exchange their bonds into shares at any time. The amount outstanding of Ps. 1,053 reflects the portion of the issuance that has not yet been converted.

In the table above “IBR” refers to the Colombian interbanking short-term borrowing rate.

Interest accrued for bonds for 2012, 2011 and 2010 amounted to Ps. 543,689, Ps. 339,631 and Ps. 278,118, respectively.

The scheduled maturities of bonds as of December 31, 2012 are as follows:

2013	Ps.	1,909,646
2014		885,713
2015		873,185
2016		379,033
2017 and thereafter		5,721,424
Total bonds	Ps.	9,769,001

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

(21)	ESTIMATED LIABILITIES

Estimated liabilities as of December 31, 2012 and 2011 consisted of the following:

		December 31,		December 31,
		2012		2011
Labor obligations	Ps.	30,416	Ps.	27,798
Income tax payable		410,782		435,099
Trade tax and other		18,334		16,071
Contingencies, fines and other (1)		64,419		61,204
Other		287,760		315,089
Total estimated liabilities	Ps.	811,711	Ps.	855,261

(1)

Includes disputes and litigations which are considered probable (50% or higher) and for which the amount can be reasonably estimated. Additionally, a contingent liability for disputes or litigations must be recorded in the balance sheet when a court takes a position against Grupo Aval or any of its subsidiaries.

Income tax

Consolidated income tax reporting is not permitted under Colombian tax regulations and, as a result, losses incurred by any consolidated subsidiary may not be used to offset taxable income from another consolidated subsidiary. For consolidated Colombian subsidiaries, the applicable tax rate in 2012, 2011 and 2010 was 33%, for BAC Credomatic and its subsidiaries, which operate in Central America, the applicable tax rate in 2012 was 0.0% to 35%. Other income tax matters in Colombia are as follows:

The basis for determining income tax may not be lower than 3% of the taxpayer’s net equity after certain adjustments on the last day of the immediately preceding fiscal year. Should the income tax falls under this threshold, the taxpayer is required to pay a minimum tax of 3% of the net equity (Presumptive Tax).

A special deduction of 30.0%, during 2004 through 2006, of 40.0%, during 2007 through 2009, of 30% for 2010 and after January 2011, of all investments made in fixed assets does not represent any taxable income for shareholders or partners. This deduction was suspended for investments in assets made after January 1, 2011. According to applicable legislation, fixed assets subject to this deduction must be depreciated for tax purposes using the straight-line method and are not entitled to any audit benefit even upon complying with provisions in the tax code. Should these assets cease to be used to produce income or are divested before the end of their useful lives, fiscal revenue is recorded on recovering the proportion of the deduction corresponding to the asset’s remaining useful life when sold or otherwise transferred. Senior management considers that the assets for which such deduction was obtained to be used as part of Grupo Aval’s banking subsidiary’s normal course of business and, therefore, is not expected to be sold off before the end of their useful life. For this reason no provision has been set up for any possible reimbursed deductions.

Income tax expense from continuing operations under Colombian Banking GAAP for the years ended December 31, 2012, 2011 and 2010 was comprised of the following components:

		2012		2011		2010
Current income tax expense	Ps.	1,323,918	Ps.	1,168,598	Ps.	794,014
Deferred income tax (benefit) expense		47,821		(31,850)		36,975
Total income tax expense	Ps.	1,371,739	Ps.	1,136,748	Ps.	830,989

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GRUPO AVAL ACCIONES Y VALORES S.A. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

Deferred income tax expense for the years ended December 31, 2012, 2011 and 2010 was comprised by the changes of the following components detailed in the following table:

		December 31,		December 31,		December 31,
		2012		2011		2010
Temporary differences on tax assets
Bankers’ acceptances, spot transactions and derivatives	Ps.	14,913	Ps.	38,766	Ps.	4,267
Estimated liabilities		2,094		(51,687)		1,600
Deferred charges		(1,936)		(659)		(855)
Other		(860)		(2,243)		(64,351)
Total temporary differences on tax assets		14,211		(15,823)		(59,339)
Temporary differences on tax liabilities
Unrealized gains on investment securities		27,465		27,541		3,904
Property, plant and equipment		(5,968)		(15,608)		14,298
Bankers` acceptances, spot transactions and derivatives		35,283		(38,652)		5,705
Deferred charges		(517)		(43,053)		6,701
Pension plan liabilities		(1,044)		4,710		11,920
Allowance for loan losses		(208)		12,498		15,314
Accrued expenses		(6,509)		(10,309)		16,817
Other		(14,893)		46,846		21,655
Total temporary differences on tax liabilities		33,610		(16,027)		96,314
Net change in temporary differences (Total income tax (benefit) expense)	Ps.	47,821	Ps.	( 31,850)	Ps.	36,975

Income taxes for the years ended December 31, 2012, 2011 and 2010 are subject to review by the tax authorities. Grupo Aval’s banking subsidiaries’ management and their legal advisors believe that no significant additional liabilities could arise from such a review.

The following table presents the tax losses carry-forward and excess of presumptive income over taxable income of Grupo Aval´s subsidiaries as of December 31, 2012:

Expiration Date		Carryforward losses		Excess of presumptive income over taxable income
2012	Ps.	3,638	Ps.	1,837
2013		9		9,339
2014		89		30,884
2015		-		47,770
2016		-		55,842
2017		-		46,651
No expiration date		229,582		-
Total	Ps.	233,318	Ps.	192,323

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GRUPO AVAL ACCIONES Y VALORES S.A. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

(22)	NON-CONTROLLING INTEREST

Non-controlling interest as of December 31, 2012 and 2011 was originated as follows:

		December 31,		December 31,
		2012		2011
Banco de Bogotá S.A. and its subsidiaries	Ps.	4,349,818	Ps.	4,031,852
Banco de Occidente S.A. and its subsidiaries		663,097		561,147
Banco Comercial AV Villas S.A. and its subsidiaries		227,861		192,125
Banco Popular S.A. and its subsidiaries		166,921		141,905
Total non-controlling interest	Ps.	5,407,697	Ps.	4,927,029

(23)	SHAREHOLDERS’ EQUITY

Authorized, issued and outstanding shares as of December 31, 2012, 2011 and 2010 consisted of the following:

	December 31,	December 31,	December 31,
	2012	2011	2010
Authorized shares	120,000,000,000	120,000,000,000	120,000,000,000

Subscribed fully paid shares	18,551,766,453	18,551,299,996	13,943,980,671
Subscribed but pending to be paid shares	-	466,457	1,652
Total outstanding shares	18,551,766,453	18,551,766,453	13,943,982,323

The outstanding shares are as follows:
Common voting shares (1)	13,622,022,124	13,806,691,240	13,943,982,323
Preferred non-voting shares (2)	4,929,744,329	4,745,075,213	-

(1)	Since 2011, Grupo Aval allows its shareholders to convert their common shares into preferred shares. For the years ended as of December 31, 2012 and 2011 were converted 184,669,116 and 137,291,083 common shares into preferred shares, respectively.

(2)

On May 12, 2011, Grupo Aval completed an offering of 1,600,000,000 preferred shares, raising an aggregate amount of Ps 2.1 trillion (U.S.$1.1 billion equivalent to Ps. 1,300 or U.S.$0.72 per share (at the representative market rate at such date) before deducting brokerage commissions and discounts, and expenses of the offering. Additionally, 3,007,784,133 preferred shares were issued in connection with the Escisión agreement with Rendifin S.A., Inversiones Escorial S.A. and Popular Securities S.A. ´s shareholders (see note 1 (c) for more details). During 2012, 184,669,116 common shares were converted in preferred shares.

Appropriated retained earnings

Appropriated retained earnings, as of December 31, 2012, 2011 and 2010 consisted of the following:

		December 31,		December 31,		December 31,
		2012		2011		2010
Legal reserve	Ps.	9,276	Ps.	6,972	Ps.	6,972
Statutory and voluntary reserves		2,902,064		2,325,058		1,923,354
Total	Ps.	2,911,340	Ps.	2,332,030	Ps.	1,930,326

Retained earnings

Legal reserves

In accordance with applicable legal requirements, Grupo Aval and its banking subsidiaries must create a legal reserve through the allocation of 10% of the liquid earnings of each fiscal period up to the amount of 50% of subscribed common stock. This reserve may be reduced to less than 50% of subscribed common stock for purposes of amortization loss of excess retained earnings. The legal reserve may not be reduced to less than the indicated percentage, except to cover losses in excess of undistributed earnings.

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GRUPO AVAL ACCIONES Y VALORES S.A. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

Statutory and voluntary reserves

Statutory and voluntary reserves are determined by the shareholders in their semi-annual meetings.

Equity inflation adjustments

From January 1992 to December 2000, Grupo Aval and its consolidated banking subsidiaries’ financial statements were subject to inflation adjustments. The cumulative effect of such adjustments in non-monetary assets and liabilities is included in each of the adjusted accounts. Adjustments on the equity accounts are included in the “equity inflation adjustments” line item. According to Law 1111 of 2006, all entities subject of the “equity tax” are allowed to charge those taxes against the “equity inflation adjustments” rather than an expense in the consolidated statements of income. During 2012, 2011 and 2010, the amount of this account decreased due to a payment of the “equity tax” mandated by law.

Dividends declared

The consolidated financial statements are prepared for the presentation to the shareholders, but are not taken as a basis for the distribution of dividends or appropriation of profits. Dividends are distributed based on Grupo Aval’s unconsolidated financial statements.

Grupo Aval declares dividends on a semiannual basis. Dividends are declared and paid to shareholders based on the adjusted unconsolidated net income from the previous semester. The dividends were paid as follows:

		2013		2012		2011
Unconsolidated earnings from first semester	Ps.	-	Ps.	718,518	Ps.	582,658
Unconsolidated earnings from second semester		-		777,842		667,562
Dividends in cash (in Colombian pesos)		Ps. 25.2 per ordinary and preferred shares payable in six installments of Ps. 4.20 per month from October 2012 to march 2013, based on second semester net income of 2012.		Ps. 24.0 per ordinary and preferred shares payable in six installments of Ps. 4.00 per share from October 2012 to march 2013, based on first semester net income of 2012. Ps. 21.60 per ordinary and preferred shares payable in six installments of Ps. 3.60 per share from April 2012, based on second semester net income of 2011.		Ps. 19.50 per share payable in six installments of Ps. 3.25 per share from April 2011 based on second semester net income of 2010. Ps 21.00 per share payable in six installments of Ps. 3.50 per share from October 2011, based on first semester net income of 2010.
Common shares outstanding		13,622,022,124		13,806,691,240		13,943,982,323
Preferred shares issued on April 2011		4,929,744,329		4,745,075,213		3,673,115,007
Total dividends declared		-		467,505		702,509
Dividends payable at December 31		-		421,028		377,815

The amount of dividends payable at December 31 of each year is recorded as an account payable in the consolidated balance sheets.

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GRUPO AVAL ACCIONES Y VALORES S.A. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Stated in millions of Colombian pesos and U.S. dollars)

(24)	MEMORANDUM ACCOUNTS

Memorandum accounts as of December 31, 2012 and 2011 are broken as follows:

		December 31,		December 31,
		2012		2011
Assets in trusts:
Investment funds and assets from third parties held in trusts	Ps.	64,312,485	Ps.	47,724,152
Commitments receivable:
Securities transferred in repos and simultaneous transactions		4,198,706		3,318,200
Interests on loans		327,756		274,317
Rights in options		1,027,956		1,162,905
Lease rents receivable		8,285,419		7,330,035
Call options receivable		422,467		385,309
Other		854,427		1,136,560
Total commitments receivable		15,116,731		13,607,326
Commitments payable:
Unused credit card limits		10,931,976		9,538,766
Civil demands against the bank		657,534		646,367
Issued and confirmed letters of credit		529,208		638,059
Unused lines of credit		3,093,254		2,807,012
Bank guarantees		2,113,102		1,906,647
Approved credits not disbursed		1,820,964		2,013,505
Other		2,062,049		2,190,532
Total commitments payable		21,208,087		19,740,888
Total commitments accounts		36,324,819		33,348,214

Memorandum accounts in favor:
Tax value of assets		107,394,300		92,288,818
Assets and securities given in custody		6,026,815		6,312,275
Assets and securities given as a collateral		1,427,298		444,257
Trading investments in debt securities		4,322,995		3,354,678
Written-off assets		4,254,737		3,997,275
Investments held to maturity		2,981,567		3,019,305
Adjustments for inflation of assets		1,044,323		1,048,890
Investments available for the sale in debt securities		6,819,994		6,686,579
Amortized debt securities investment		1,973,486		1,829,104
Other		78,822,479		62,578,098
Total memorandum accounts in favor		215,067,994		181,559,279
Memorandum accounts against:
Assets and securities received as collateral		54,391,148		47,129,540
Loans plus interest receivable on loans		80,337,758		70,229,105
Assets and securities received in custody		6,141,590		7,608,787
Tax value of shareholders’ equity		17,421,898		14,085,921
Adjustment for inflation of equity		1,897,704		1,896,223
Merchandise in owned warehouses		1,876,757		1,880,832
Other		25,413,836		20,409,929
Total memorandum accounts against		187,480,691		163,240,337
Total memorandum accounts		402,548,684		344,799,616
Total assets in trusts, commitments and memorandum accounts	Ps.	503,185,988	Ps.	425,871,982

(30)	DIFFERENCES BETWEEN COLOMBIAN ACCOUNTING PRINCIPLES FOR GRUPO AVAL AND SUPPLEMENTAL DISCLOSURE REQUIRED BY U.S. GAAP

Grupo Aval’s Consolidated Financial Statements have been prepared in accordance with Colombian Banking GAAP. See Note 2 to the Consolidated Financial Statements. These principles and regulations differ in certain significant respects from generally accepted accounting principles in the United States of America (“U.S. GAAP”). The principal differences between Colombian Banking GAAP and U.S. GAAP and the effect on consolidated net income and consolidated shareholders’ equity attributable to Grupo Aval are presented below, with an explanation of the adjustments.

Reconciliation of Consolidated Net Income:

The table below presents the reconciliation of consolidated net income as per Colombian Banking GAAP to consolidated net income under U.S. GAAP attributable to Grupo Aval for the years ended December 31, 2012, 2011 and 2010:

	2012(1)			2011(1)			2010(1)
Net income attributable to controlling interest under Colombian Banking GAAP	Ps.	1,526,388		Ps.	1,291,226		Ps.	956,850
Pre-1992 inflation adjustment to fixed assets (2)		(22,707	)		(7,351	)		(10,043	)
Net income attributable to controlling interest under Colombian Banking GAAP after pre-1992 inflation adjustment		1,503,681			1,283,875			946,807
U.S. GAAP adjustments:
a) Income taxes:
1) Deferred income taxes		(176,158	)		(21,286	)		(53,915	)
2) Uncertainty in income taxes		(9,444	)		(26,884	)		(8,446	)
b) Employee benefit plans		(7,674	)		11,353			(17,890	)
c) Fixed assets		40,981			22,695			34,594
d) Reappraisal of assets		-			-			-
e) Allowance for loans, lease losses and foreclosed assets		(98,365	)		40,565			64,264
f) Loan origination fees and costs		22,740			9,302			30,833
g) Interest recognition on non-accrual loans		2,427			(266	)		(2,447	)
h) Deferred charges and other assets
1) Deferred charges		(37,736	)		(23,351	)		(21,535	)
2) Other assets		(760	)		209			4,078
i) Investment securities and derivatives
1) Investment securities		(530	)		(328,541	)		323,986
2) Derivatives		1,038			(2,082	)		1,168
j) Investments in unaffiliated companies		37,790			123,535			(364,690	)
k) Investments in affiliated companies		66,656			26,454			(4,803	)
l) Lessor accounting		(2,234	)		2,807			(3,477	)
m) Business combinations		333,316			(66,161	)		(6,593	)
n) Non-controlling interest		(117,838	)		263,496			61,110
o) Guarantees and contingencies		(5,019	)		25,515			(7,359	)
p) Equity tax		120,178			(483,741	)		(1,220	)
q) Securitizations		-			-			(6,382	)
r) Variable interest entities		(127,166	)		(5,351	)		35,823
s) Cumulative translation adjustment		18,593			33,199			(38,587	)
Net income attributable to controlling interest under U.S. GAAP		1,564,476			885,342			965,319
Net income attributable to non-controlling interest under U.S. GAAP		1,028,897			816,747			813,122
Net income under U.S. GAAP	Ps.	2,593,373		Ps.	1,702,089		Ps.	1,778,441

(1)	Includes the result for the year ended December 31, 2012, 2011 and one month period ended December 31, 2010 related with BAC Credomatic acquisition.

(2)	Inflation adjustment to fixed assets

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Non-monetary assets (e.g., property, plant and equipment, equity investments, etc.) of Grupo Aval under Colombian Banking GAAP were adjusted for inflation based on the variation in the IPC for middle income-earners, on a prospective basis from January 1, 1992, to December 31, 2000, when under Colombian Banking GAAP the country was no longer considered a highly inflationary economy. Colombia had been considered a highly inflationary country since the 1960’s, therefore, the adjustment is related to property, plant and equipment purchased before January 1, 1992. This adjustment recognizes the portion of inflation accumulated before this date, less the associated accumulated depreciation which would have been reported, with the purpose of presenting financial statements on a constant currency basis. The remaining accumulated pre-1992 inflation effect in fixed assets to be amortized in future years is not considered material.

ii)	Reconciliation of Consolidated Shareholders’ Equity:

The table below presents the reconciliation of the Consolidated Shareholders’ Equity as per Colombian Banking GAAP to the Consolidated Shareholders’ Equity under U.S. GAAP attributable to Grupo Aval for the years ended December 31, 2012, and 2011:

	2012			2011
Shareholders’ equity attributable to controlling interest under Colombian Banking GAAP	Ps.	9,083,103		Ps.	8,159,126
Pre-1992 inflation adjustment to fixed assets (1)		242,728			265,435
Shareholders’ equity attributable to controlling interest under Colombian Banking GAAP after pre-1992 inflation adjustment to fixed assets		9,325,831			8,424,561
U.S. GAAP Adjustments:
a) Income taxes:
1) Deferred income taxes		(912,597	)		(257,723	)
2) Uncertainty in income taxes		(68,677	)		(59,233	)
b) Employee benefit plans		(331,444	)		(255,481	)
c) Fixed assets		220,676			179,695
d) Reappraisal of assets		(943,800	)		(1,019,561	)
e) Allowance for loans, lease losses and foreclosed assets		354,342			452,707
f) Loan origination fees and costs		170,673			147,933
g) Interest recognition on non-accrual loans		13,734			11,307
h) Deferred charges and other assets:
1) Deferred charges		(144,668	)		(106,932	)
2) Other assets		(10,240	)		(9,477	)
i) Investment securities and derivatives:
1) Investment securities		8,575			8,359
2) Derivatives		(1,565	)		(2,351	)
j) Investments in unaffiliated companies		26,909			25,546
k) Investments in affiliates companies		30,229			(207,492	)
l) Lessor accounting		6,301			8,535
m) Business combinations		300,549			(213,913	)
n) Non-controlling interest		(27,577	)		15,842
o) Guarantees and contingencies		16,977			21,996
p) Equity tax		(329,613	)		(477,368	)
q) Securitization		2			2
r) Variable interest entities		(70,279	)		26,560
s) Cumulative translation adjustment		(114	)		3,194
t) Receivables for issuance of equity		(207,999	)		(250,031	)
Controlling interest shareholders’ equity under U.S GAAP		7,426,225			6,466,675
Non-controlling interest under U.S. GAAP		6,369,913			4,151,724
Total shareholders’ equity under U.S. GAAP	Ps.	13,796,138		Ps.	10,618,399

(1)	Inflation adjustment to fixed assets, see comment (2) above.

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iii)	Supplemental Condensed Consolidated Financial Statements under U.S. GAAP

iii) 1. Supplemental Condensed Consolidated Balance Sheets:

The following are the Condensed Consolidated Balance Sheets under U.S.GAAP as of December, 31, 2012 and 2011:

	2012			2011
Assets
Cash and cash equivalents (1)	Ps.	10,146,015		Ps.	8,771,593
Trading securities		5,833,777			3,980,419
Investment securities		15,709,387			13,488,810
Loans		78,333,277			68,067,042
Financial leases		7,650,714			6,392,754
Allowance for loans, financial leases and other receivables losses		(2,350,394	)		(2,012,927	)
Property, plant and equipment, net		4,652,452			1,867,326
Other assets, net		11,777,510			9,226,173
Total assets	Ps.	131,752,738		Ps.	109,781,190
Liabilities and shareholders’ equity
Liabilities
Deposits	Ps.	81,463,293		Ps.	71,017,425
Long-term debt		28,801,137			19,785,587
Other liabilities		7,692,170			8,359,779
Total liabilities		117,956,600			99,162,791
Shareholders’ equity
Controlling interest shareholders’ equity		7,426,225			6,466,675
Non-controlling interest		6,369,913			4,151,724
Total shareholders’ equity		13,796,138			10,618,399
Total liabilities and shareholders’ equity	Ps.	131,752,738		Ps.	109,781,190

(1)

Under Colombian Banking GAAP, interbank loans and remittances of negotiated checks in transit are considered as cash equivalents. These loans and remittances do not meet the definition of cash equivalents under U.S. GAAP, and therefore were reclassified to the loan portfolio. This reclassification amounted to Ps. 3,524,296 and Ps. 2,928,356 as of December 31, 2012 and 2011, respectively. In addition, at December 31, 2012 and 2011 cash and cash equivalents includes Ps. 23,008 and Ps. 1,362 from VIEs consolidated under U.S. GAAP, respectively.

iii) 2. Supplemental Condensed Consolidated Statements of Income:

The following are Condensed Consolidated Statements of Income under U.S.GAAP for the years ended December 31, 2012, 2011 and 2010:

		2012(1)			2011(1)			2010(1)
Total interest income	Ps.	8,897,567		Ps.	7,106,441		Ps.	5,036,536
Total interest expense		(3,894,673	)		(2,681,931	)		(1,913,799	)
Net interest income		5,002,894			4,424,510			3,122,737
Provision for loans, leases and other receivables		(971,727	)		(670,011	)		(613,959	)
Net interest income after provision of loans, leases and other receivables		4,031,167			3,754,499			2,508,778
Income from investment portfolio (2)		1,407,022			1,155,012			1,090,360
Other income		4,011,182			3,414,776			2,689,437
Other expenses		(5,298,657	)		(5,437,280	)		(3,616,784	)
Income before income taxes		4,150,714			2,887,007			2,671,791
Income tax expense		(1,557,341	)		(1,184,918	)		(893,350	)
Net income		2,593,373			1,702,089			1,778,441
Net income attributable to non-controlling interest		(1,028,897	)		(816,747	)		(813,122	)
Net income attributable to Grupo Aval’s shareholders	Ps.	1,564,476		Ps.	885,342		Ps.	965,319

(1)	Includes the results for year ended December 31, 2012, 2011 and a month period ended December 31, 2010 related to acquisition of BAC Credomatic effective December 9, 2010 (see Note 1). And one month related to the acquisition of Promigas in 2012 (See note m).

(2)

Income from investment portfolio primarily includes valuation adjustments and gains (losses) realized on debt and equity securities that are accounted for as “available for sale,” gains (losses) on repurchase transactions (repos), gains (losses) realized on the sale of debt securities, and mark-to-market gains (losses) on trading securities portfolio.

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iii) 3. Supplemental Condensed Consolidated Statements of Cash Flows

The following are the Supplemental Condensed Consolidated Statements of Cash Flows under U.S.GAAP for the years ended December 31, 2012, 2011 and 2010:

	2012(1)			2011(1)			2010(1)
Net income	Ps.	2,593,373		Ps.	1,702,089		Ps.	1,778,441
Adjustments to reconcile net income to net cash used by operating activities		1,144,698			1,649,176			516,727
Net cash provided by operating activities		3,738,072			3,351,265			2,295,168
Net cash used in investing activities		(17,726,675	)		(12,661,350	)		(12,977,686	)
Net cash provided by financing activities		15,878,221			10,799,162			10,507,767
Effect of exchange rate changes on cash and cash equivalents		(515,194	)		104,959			33,331
Increase (decrease) in cash and cash equivalents		1,374,422			1,594,036			(141,420	)
Cash and cash equivalents at beginning of year		8,771,593			7,177,557			7,318,977
Cash and cash equivalents at end of year	Ps.	10,146,015		Ps.	8,771,593		Ps.	7,177,557
Non-cash transactions:
Foreclosed assets	Ps.	96,456		Ps.	87,359		Ps.	48,132
Bonds converted in shares	Ps.	-		Ps.	910,524		Ps.	-
Acquisition of non-controlling interest in Banco Popular by issuance of shares	Ps.	-		Ps.	797,118		Ps.	-
No monetary transactions in Promigas business combination (Net) See note (m).	Ps.	1,779,567		Ps.	-		Ps.	-

(1)	Includes the cash flows for year ended December 31, 2012, 2011 and a month period ended December 31, 2010 related to acquisition of BAC Credomatic effective December 9, 2010 (see Note 1). And one month related to the acquisition of Promigas in 2012 (See note m).

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iii) 4. Supplemental Consolidated Statements of Shareholders’ Equity

The following are the Supplemental Condensed Consolidated Statements of Changes in Shareholders’ Equity under U.S. GAAP for the year ended December 31, 2012 and 2011:

	December 31, 2012			December 31, 2011
Controlling interest shareholders’ equity under U.S. GAAP
Balance at the beginning of the year	Ps.	6,466,675		Ps.	3,949,527
Issuance of shares in cash		-			2,079,370
Issuance of shares to acquire non-controlling interest		169,959			797,118
Receivables for issuance of equity		42,032			(250,031	)
Net income		1,564,476			885,342
Dividends declared		(845,959	)		(702,509	)
Other comprehensive income		29,042			(292,142	)
Balance at the end of the year		7,426,225			6,466,675
Non-controlling interest under U.S GAAP:
Balance at beginning of year		4,151,724			5,068,818
Net income attributable to non-controlling interests		1,028,897			816,747
Other comprehensive income attributable to non-controlling interests		94,759			(456,028	)
Acquisition of Banco Popular non controlling interests (See note n)		-			(797,118	)
Participation of non-controlling interest in business combination of Promigas (See note 30 m))		1,928,546			-
Increase in paid capital in subsidiaries		-			131,586
Dividends paid and others, net		(834,013	)		(612,281	)
Balance at the end of the year		6,369,913			4,151,724
Total shareholders’ equity under U.S. GAAP	Ps.	13,796,138		Ps.	10,618,399

iii) 5. Supplemental Consolidated Comprehensive Income:

The following are the Supplemental Consolidated Statements of Comprehensive Income under U.S. GAAP for years ended December 31, 2012, 2011 and 2010:

	2012			2011			2010
Net income	Ps.	2,593,373		Ps.	1,702,089		Ps.	1,778,441
Other comprehensive income (loss), net of deferred income tax:
Unrealized gain or loss on securities available for sale (1)		198,062			(718,107	)		251,124
Pension plan and other benefits to employees		(43,556	)		(13,208	)		1,390
Foreign currency translation adjustments		(340,485	)		31,854			30,592
Derivatives – Hedge accounting		309,780			(48,709	)		(5,298	)
Other comprehensive (loss) income		123,801			(748,170	)		277,808
Total comprehensive income		2,717,174			953,919			2,056,249
Net income attributable to non-controlling interest		(1,028,897	)		(816,747	)		(813,122	)
Other comprehensive income attributable to non-controlling interest		(94,759	)		456,028			(90,460	)
Comprehensive income attributable to non-controlling interest		(1,123,656	)		(360,719	)		(903,582	)
Comprehensive income attributable to Grupo Aval	Ps.	1,593,518		Ps.	593,200		Ps.	1,152,667

(1)	See changes in unrealized gain (losses) in the Section i) investment securities and derivatives.

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A detail of the changes during the period in Accumulated Other Comprehensive Income (loss), including the related income tax effects, is presented below:

	2012
	Before – tax Amount			Tax (expense) Benefit			Net-of-tax Amount
Unrealized gain on securities available for sale	Ps.	335,612		Ps.	(137,550	)	Ps.	198,062	(1)
Addition (Reduction) pension liability		(68,291	)		24,735			(43,556	)
Derivatives – Hedge accounting		309,780			-			309,780
Cumulative translation adjustment		(340,485	)		-			(340,485	)
Accumulated other comprehensive income	Ps.	236,616		Ps.	(112,815	)	Ps.	123,801

	2011
	Before – tax Amount			Tax (expense) Benefit		Net-of-tax Amount
Unrealized loss on securities available for sale	Ps.	(756,365	)	Ps.	38,258	Ps.	(718,107	)
Addition (Reduction) pension liability		(19,714	)		6,506		(13,208	)
Derivatives – Hedge accounting		(48,709	)		-		(48,709	)
Cumulative translation adjustment		31,854			-		31,854
Accumulated other comprehensive income	Ps.	(792,934	)	Ps.	44,764	Ps.	(748,170	)

	2010
	Before – tax Amount			Tax (expense) benefit			Net-of-tax Amount
Unrealized gain on securities available for sale	Ps.	237,516		Ps.	13,608		Ps.	251,124
Additional pension liability		2,074			(684	)		1,390
Derivative – hedge accounting		(5,298	)		-			(5,298	)
Cumulative translation adjustment		30,562			-			30,592
Accumulated other comprehensive income (loss)	Ps.	264,854		Ps.	12,924		Ps.	277,808

(1)	The following table relates to the accumulated unrealized gain on securities available for sale, which explain the changes during 2012 and 2011in Accumulated Other Comprehensive Income (loss):

				2012								2011								2010
	Before - tax amount			Tax (expense) benefit			Net-of-tax amount		Before - tax amount			Tax (expense) benefit			Net-of-tax amount		Before - tax amount			Tax (expense) benefit			Net-of-tax amount
Unrealized taxable net gain on securities available for sale	Ps.	432,174		Ps.	(146,939	)	Ps.	285,235	Ps.	28,452		Ps.	(9,389	)	Ps.	19,063	Ps.	144,385		Ps.	(47,647	)	Ps.	96,738
Unrealized non-taxable net gain on securities available for sale		256,764			-			256,764		324,874			-			324,874		965,306			-			965,306
Accumulated other comprehensive income	Ps.	688,938	(1)	Ps.	(146,939	)	Ps.	541,999	Ps.	353,326	(1)	Ps.	(9,389	)	Ps.	343,937	Ps.	1,109,691	(1)	Ps.	(47,647	)	Ps.	1,062,044

(1)	See changes in unrealized gain (losses) in the Section i) investment securities and derivatives

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Components of Accumulated Other Comprehensive Income for the years ended at December 31, 2011, 2010 and 2009 are comprised of the following:

	Unrealized gains on securities net of taxes			Additional minimum pension liability			Cumulative translation adjustment(*)			Less: Accumulated other comprehensive income attributable to non-controlling interests			Total accumulated other comprehensive income attributable to Grupo Aval
Beginning balance 2009	Ps.	810,920		Ps.	(89,765	)	Ps.	11,578		Ps.	435,328		Ps.	297,405
Current-period change		251,124			1,390			25,294			90,460			187,348
Ending balance 2010		1,062,044			(88,375	)		36,872			525,788			484,750
Current-period change		(718,107	)		(13,208	)		(16,855	)		(456,028	)		(292,142	)
Ending balance 2011		343,937			(101,583	)		20,017			69,760			192,611
Current-period change		198,062			(43,556	)		(30,705	)		94,759			29,042
Ending balance 2012	Ps.	541,999		Ps.	(145,139	)	Ps.	(10,688	)	Ps.	164,522		Ps.	221,650

(*)	Cumulative translation adjustment is presented net of Ps. 266,461, Ps. (74,024) and Ps. (42,170) in 2012, 2011 and 2010, respectively, as part of the hedge of net investments in foreign operations made during the year ended December 31, 2012 and 2011, respectively. See Note 30.t)

iv) Summary of significant differences and required U.S. GAAP disclosures

a)	Income taxes:

Deferred income taxes

Under Colombian Banking GAAP, deferred income taxes are generally recognized only for certain timing differences, such as carry-forward losses and the excess of minimum presumptive income tax. Just a few items are recognized as deferred income tax assets and liabilities under Colombian Banking GAAP, and they relate mainly to estimated liabilities and investment fair value.

Under U.S. GAAP, specifically ASC 740, deferred tax assets or liabilities must be recorded for all temporary differences between the financial and tax bases of assets and liabilities. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized and settled as prescribed in ASC 740 “Income taxes”. A valuation allowance is provided for deferred tax assets to the extent that it is more likely than not that they will not be realized. During 2012, 2011 and 2010, Grupo Aval calculated deferred income taxes based on the tax benefits received upon the acquisition of certain property and equipment in accordance to ASC 740-10-25-51.

The difference between the deferred income tax balance as per Colombian Banking GAAP and the balance for U.S. GAAP is associated to two different effects, one of them is the different methods used to recognize and measure deferred income tax, and the second effect is for the tax effect of pre-tax accounting differences between U.S. GAAP and Colombian Banking GAAP.

The current income tax expense was determined using the statutory income tax rate of 33.0% for year 2012, 2011 and 2010.

According to a tax law issued in Colombia in December 2012, starting 2013 the income tax rate will decrease from 33% to 25%. In addition, a new income tax for equality (CREE, for its acronym in Spanish) was created through this amendment. The rate for this new tax will be 9% for 2013, 2014 and 2015, and will decrease to 8% from 2015. The CREE does not allow to discount carry forward losses neither the excess of presumptive income to establish the related taxable income. Therefore, deferred income tax expense (benefit) at December 31, 2012 was determined using 25% rate for carryforward

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losses and excess of presumptive income and 34% for other temporary differences other than carry forward losses; the deferred income tax at December 31 2011 and 2010, was determined using 33%.

Also, in December 2012, another change to the income tax law in Colombia was issued regarding the income tax rate for occasional gains, this tax rate decreased from 33% in 2012 to 10% in 2013 and the following years.

Income tax expense from continuing operations under U.S. GAAP for the years ended at December 31, 2012, 2011 and 2010 is comprised of the following:

	2012		2011			2010
Domestic pre-tax income		3,526,188		2,415,905			2,611,107
Foreign pre-tax income		624,526		471,102			60,684
Total pre-tax income	Ps.	4,150,714	Ps.	2,887,007		Ps.	2,671,791

Domestic current income tax expense	Ps.	1,168,875	Ps.	1,045,759		Ps.	799,635
Foreign current income tax expense		164,488		149,723			3,005
Total current income tax expense		1,333,363		1,195,482			802,640
Domestic deferred income (benefit) expense		210,161		(2,804	)		83,846
Foreign deferred income (benefit) expense		13,817		(7,760	)		6,864
Total deferred income (benefit) expense		223,978		(10,564	)		90,710
Total	Ps.	1,557,341	Ps.	1,184,918		Ps.	893,350

For the years ended December 31, 2012, 2011 and 2010, Grupo Aval recorded Ps. (112,815), Ps. (44,764) and Ps. (12,924), respectively of deferred income tax expense (benefit) in Other Comprehensive Income. Income tax expenses in the Colombian jurisdiction represented 92.3% of the total amounts reported by the Group.

Temporary differences between the amounts reported in the Consolidated Financial Statements and the tax bases for assets and liabilities result in deferred taxes. Deferred tax assets and liabilities at December 31, 2012 and 2011 were as follows:

	2012			2011
Deferred tax assets:
Accrual of employee benefits	Ps.	92,257		Ps.	50,005
Fixed assets		-			127,340
Carryforward losses and excess of minimum presumptive income tax		102,797			113,356
Accrued expenses		132,556			80,390

Foreclosed assets		-			1,405
Trust Assets		13,626			13,352
Other		7,462			5,680
Total gross deferred tax assets		348,698			391,528
Less valuation allowance		(84,335	)		(60,354	)
Net deferred tax assets		264,363			331,174

Deferred tax liabilities:
Allowance for loans, leases and other receivables		(146,676	)		(173,685	)
Fixed assets		(238,827	)		-
Foreclosed assets		(2,315	)		-
Derivatives		(48,422	)		(15,199	)
Fair value of assets acquired in business combination		(59,571	)		(73,385	)
Intangible assets and deferred charges, net		(208,857	)		(36,034	)
Investment securities		(12,938	)		(18,121	)
Unrealized gain on investment securities		(160,176	)		(24,886	)
Inflation adjustments		(545	)		(470	)
Outside basis (1)		(76,229	)		-
Total deferred liabilities		(954,556	)		(341,780	)
Net deferred tax (liability) under U.S. GAAP	Ps.	(690,193	)	Ps.	(10,606	)

(1)	The deferred tax liability related with the outside basis corresponds to retained earnings from subsidiaries abroad

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Goodwill recognized as a result of business combination is not amortized for tax purposes.

Under Colombian tax law, certain acquisitions of property plant and equipment have an additional deduction over the total depreciation of such assets, equivalent to 30% for property plant and equipment purchased from 2004 through 2006, 40% from 2007 through 2009 and 30% during 2010. After 2010, this additional deduction was eliminated. This additional deduction is recognized in the income tax return on the year when such assets are purchased. Under Colombian Banking GAAP, there is an immediate recognition in the income statement of such deduction through the current income tax expense.

Under U.S. GAAP, specifically ASC 740-10-25-51, the tax effect of asset purchases that are not business combinations in which the amount paid differs from the tax basis of the asset shall not result in immediate income statement recognition. The simultaneous equations method shall be used to record the assigned value of the asset and the related deferred tax asset. Therefore, for the purpose of this reconciliation, the initial book value of such deduction calculated according to ASC 740-10-25-51 is recorded as deferred tax asset decreasing the book value of such assets. Thereafter, the deductions taken to current income tax expense for Colombian Banking GAAP are reversed which decreases the corresponding deferred tax asset under U.S. GAAP.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal over an entity level of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes that Grupo Aval will not recover a portion of its future net operating tax loss carryforward with taxable income. Therefore, a valuation allowance was provided against this amount for a total of Ps. 84,335 and Ps. 60,354 as of December 31, 2012 and 2011, respectively. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry-forward period are not achieved.

The U.S. GAAP adjustments shown in the shareholders’ equity reconciliation for deferred income taxes of Ps. (912,597) and Ps. (257,723) in 2012 and 2011, respectively, are determined as the difference between the U.S. GAAP net deferred tax (liability) asset balances for both 2012 and 2011 and the Colombian Banking GAAP net deferred tax liability balances for the corresponding years; both adjusted for the cumulative effects derived from the amortization of the deferred tax assets recognized upon the acquisition of the underlying property and equipment pursuant to ASC 740-10-25-51 and the impact of the deferred tax assumed from the BAC Credomatic acquisition, as shown in the following table:

	2012			2011
Net deferred tax (liability) under U.S. GAAP	Ps.	(690,193	)	Ps.	(10,606	)
Reclassification from property, plant and equipment of gross additional tax deduction according to ASC 740-10-25-51		(369,233	)		(351,334	)
Deferred income tax from prior years		48,385			53,193
Net deferred tax liability under Colombian Banking GAAP		98,444			51,024
Difference to be recognized under U.S. GAAP shareholders´ equity	Ps.	(912,597	)	Ps.	(257,723	)

The activity of the difference to be recognized under U.S. GAAP shareholders´ equity during 2012, 2011 and 2010 was as follows:

	2012			2011			2010
Balance at the beginning of the year	Ps.	(257,723	)	Ps.	(281,201	)	Ps.	(217,170	)
Adjustment to reconciliation of consolidated net income		(176,158	)		(21,286	)		(53,915	)
Business combination		(365,902	)		-			(23,040	)
(Increase) decrease in Other Comprehensive Income		(112,815	)		44,764			12,924
Balance at the end of the year	Ps.	(912,597	)	Ps.	(257,723	)	Ps.	(281,201	)

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The statutory income tax rate was 33.0% for year 2012, 2011 and 2010 which differs from the 37,52%, 41.04% and 33.43% effective tax rates for years 2011, 2010 and 2009, respectively, due to the following permanent differences which reconcile the statutory income tax with the income tax expense:

	2012			2011			2010
Income before income tax under U.S. GAAP	Ps.	4,150,714		Ps.	2,887,007		Ps.	2,671,791
Income tax as per statutory rate	Ps.	1,369,735		Ps.	952,712		Ps.	881,691
Tax effect on non-deductible expenses
Non deductible expenses (1)		269,582			85,861			127,465
Translation adjustment		-			-			12,734
Equity Tax		6,555			212,349			-
Other		4,808			-			2,854
Total tax effect on non-deductible		280,945			298,210			143,053
Tax effect on non- taxable income (2)
Securities income recorded by equity method		-			(41,894	)		(24,697	)
Profit on investment securities sold		(1,894	)		(5,837	)		(36,370	)
Dividends received		(20,384	)		(6,863	)		(54,897	)
Recovery of profits		(16,091	)		(18,704	)		(22,652	)
Other		-			(5,173	)		(20,312	)
Total effect on non-taxable income		(38,369	)		(78,470	)		(158,928	)
Enacted tax rate		(78,951	)		-			-
( Decrease) increase in the valuation allowance		23,981			12,466			27,534
Income tax expense	Ps.	1,557,341		Ps.	1,184,918		Ps.	893,350

(1)	Non deductible expenses include allowance over assets, local taxes and other expenses that are not deductible for tax purposes. And included Ps. 269,802 corresponding to pre-existing participation in Promigas see note (m).

(2)	For years ended December 31, 2012, 2011 and 2010, non-taxable income includes off-shore subsidiaries’ income, dividend income, gain on sales of securities, interest income over mortgage securities, and reversal of accruals.

ASC 740-10 “Uncertainty in income taxes”

Provisions contained in ASC 740 – 10 with regard to uncertainty in income taxes, prescribe a comprehensive model for the recognition, measurement, financial statement presentation and disclosure of unrecognized tax benefits taken or expected to be taken in a tax return. The amount of unrecognized tax benefits identified at December 31, 2012, 2011 and 2010, respectively, would affect the effective tax rate, if recognized.

The total amount of unrecognized tax benefits in 2012, 2011 and 2010 were as follows:

	2012		2011		2010
Unrecognized tax benefits, opening balance	Ps.	44,535	Ps.	23,858	Ps.	18,867
Gross increases - current-period tax positions		24,521		42,216		19,090
Reclassification from guarantees liabilities		-		1,049		-
Unrecognized tax benefits ending balance		69,056		67,123		37,957
Interest and penalties		28,674		17,080		7,944
Reclassification from guarantees liabilities		-		1,111		-
Total		97,730		85,314		45,901
Unrecognized tax benefits recognized through business combination adjustment (1) (2) (3)		29,053		26,081		15,712
Difference to be recognized under U.S. GAAP shareholders’ equity	Ps.	68,677	Ps.	59,233	Ps.	30,189

(1)	Includes Ps. 28,697 of taxes, interest and penalties Ps. 5,847 related to BAC Credomatic as at December 31, 2012.

(2)	Includes Ps. 22,588 and Ps. 14,099 of taxes, and Ps. 3,492 and Ps. 1,613 of interest and penalties, as at December 31, 2011 and 2010, respectively.

(3)	Includes Ps. 18,531 of taxes and Ps. 10,522 of interest and penalties.

The business combination amount relates to the portion of the difference between Colombian Banking GAAP and U.S. GAAP relating to business combinations and is included within note (m) of the U.S. GAAP reconciliations.

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Included in the balance of total unrecognized tax benefits at December 31, 2012, are potential benefits of Ps. 50,525 and Ps. 18,152 of interest and penalties, that if recognized, would affect the effective tax rate on income from continuing operations.

Ps. 3,361, Ps. 6,207, and Ps. 3,455 of interests and penalties related to unrecognized tax benefits were recognized in income tax expense for 2012, 2011 and 2010, respectively.

Grupo Aval is not aware of positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will be significantly increased or decreased within the next 12 months of the reporting date.

The open tax years of the major companies of Grupo Aval are as follows:

Company	Open tax year

Banco de Bogotá S. A.	2012 to 2010 and 2008
Banco Comercial AV Villas S. A.	2012 to 2009 and 2007 to 2005 and 2003
Banco Popular S. A.	2012 to 2010 and 2006
Banco de Occidente S. A.	2012 to 2010
Grupo Aval Acciones y Valores S. A.	2012

b)	Employee benefit plans:

The following tables provide the components of the net periodic benefit costs charged to the consolidated Statement of Income:

	Pension plans									Other benefits
	2012			2011			2010			2012			2011			2010
Components of net periodic benefit cost
Service cost	Ps.	59		Ps.	19		Ps.	18		Ps.	20,234		Ps.	27,964		Ps.	21,065
Interest cost		27,239			27,476			27,892			21,330			20,874			22,963
Amortization of net transition obligation		5,911			5,965			5,979			1,845			1,976			1,821
Amortization of net actuarial (gain) or loss		6,261			(1,940	)		9,594			15,003			(2,618	)		(2,282	)
Net periodic pension cost under U.S. GAAP		39,470			31,520			43,483			58,412			48,196			43,567
Net periodic pension cost under Colombian Banking GAAP		(43,271	)		(51,076	)		(34,630	)		(46,937	)		(39,993	)		(34,530	)
Difference recognized under U.S. GAAP	Ps.	(3,801	)	Ps.	(19,556	)	Ps.	8,853		Ps.	11,475		Ps.	8,203		Ps.	9,037

The following table provides a reconciliation of the changes in the pension and other benefit obligations for the years ended December 31, 2012 and 2011, and a statement of funded status as of December 31, 2012 and 2011:

	Pension plans						Other benefits
	2012			2011			2012			2011
Change in projected benefit obligation
Unfunded benefit obligation at beginning of year	Ps.	385,768		Ps.	371,077		Ps.	201,208		Ps.	187,189
Service cost		59			19			20,234			27,964
Interest cost		27,239			27,476			21,330			20,874
Actuarial (gain)/loss, net		45,937			19,621			51,370			3,520
Benefits paid		(33,622	)		(32,425	)		(37,133	)		(38,338	)
Unfunded benefit obligation at end of year		425,381			385,768			257,009			201,209
Accrued benefit cost under Colombian Banking GAAP		(306,777	)		(298,994	)		(44,169	)		(32,502	)
Difference recognized under U.S. GAAP shareholders’ equity	Ps.	118,604		Ps.	86,774		Ps.	212,840		Ps.	168,707

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Pension Plan

The measurement for pension plan obligations differs from Colombian Banking GAAP to U.S. GAAP basically due to the fact that Colombian Banking GAAP requires a calculation of the estimated liability using the actuarial methodology mortality data and projection rates determined by law, including but not limited to, actuarial assumptions or increase rates. For U.S. GAAP purposes, actuarial valuation of pension plan are performed annually using the projected unit credit method, which requires the use of entity, as well as, market specific assumptions.

Other benefits

Under Colombian labor regulations, employees are entitled to receive one month’s salary for each year of service. This benefit is accumulated annually, transferred to a contribution pension fund and paid to the employees upon their termination or retirement from Grupo Aval. No differences are recognized for U.S. GAAP purposes. However, employees hired before 1990 are subject to a different regulation under which Grupo Aval has the obligation to pay the accumulated benefits upon their termination or retirement calculated based on the last salary of the employee and multiplied by the years of service rendered. Under Colombian Banking GAAP, this benefit is accrued on an annual basis not considering possible future obligations or increases in salaries. Under U.S. GAAP, these benefits are recognized using the projected unit credit method.

Under Colombian labor regulations, employers and employees are entitled to negotiate compensation other than benefit plans stated by the law by means of private agreements. Based on such agreements, Grupo Aval recognizes an additional premium to its employees once and for all at the moment of the retirement date. Calculation of the premium pension plan varies from Colombian Banking GAAP to U.S. GAAP because the latter is performed using the projected unit credit method, while under Colombian Banking GAAP benefits are recognized when paid.

Active Grupo Aval employees are entitled to a seniority bonus which depends on the number of years of service with Grupo Aval. Benefits are calculated as days of salary (between 15 and 180) and paid at the moment the employee has completed a specific period of service years. Calculation of the seniority bonus differs from Colombian Banking GAAP to U.S. GAAP because the latter applies requirements from ASC 710-10-25.Grupo Aval, for the purpose of this calculation, uses the projected unit credit method, while under Colombian Banking GAAP the seniority bonus is recognized when paid.

Some retirees pensioned by Grupo Aval receive payments related to medical treatment, hospitalization and surgical events. Calculations differ between Colombian Banking GAAP to U.S. GAAP because the latter is performed using the projected unit credit method, while under Colombian Banking GAAP benefits are recognized when paid.

Disclosure and calculation of differences under U.S. GAAP

	Pension Plans									Other Benefits
	2012			2011			2010			2012			2011			2010
Net amount recognized in the Consolidated Balance Sheet at December 31,
Statement of Financial Position
Current liabilities	Ps.	34,169		Ps.	32,643		Ps.	31,583		Ps.	43,280		Ps.	23,444		Ps.	32,704
Noncurrent liabilities		391,212			353,125			339,494			213,729			177,765			154,484
Amount recognized in financial position	Ps.	425,381		Ps.	385,768		Ps.	371,077		Ps.	257,009		Ps.	201,209		Ps.	187,188
Accumulated other comprehensive income
Net actuarial gain	Ps.	98,057		Ps.	58,380		Ps.	36,816		Ps.	53,163		Ps.	16,796		Ps.	10,850
Net transition obligation		55,056			60,966			66,934			13,632			15,478			17,306
Total at December 31		153,113			119,346			103,750			66,795			32,274			28,156
Deferred income tax		(52,058	)		(39,386	)		(34,238	)		(22,710	)		(10,651	)		(9,293	)
Accumulated other comprehensive income	Ps.	101,054		Ps.	79.960		Ps.	69.512		Ps.	44,085		Ps.	21,623		Ps.	18,863

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Changes in the accumulated other comprehensive income before income tax during the years 2012, 2011 and 2010 are described as follows:

	Pension Plans									Other Benefits
	2012			2011			2010			2012			2011			2010
(Increase) decrease in
accumulated other comprehensive income
Recognized during year - transition obligation	Ps.	(5,911	)	Ps.	(5,965	)	Ps.	(5,979	)	Ps.	(1,845	)	Ps.	(1,976	)	Ps.	(1,821	)
Recognized during year - net actuarial losses/(gains)		45,937			19,621			(538	)		51,370			3,476			(2,133	)
Occurring during year - net actuarial (losses)/gains		(6,261	)		1,940			4,843			(15,003	)		2,618			3,554
Accumulated other comprehensive income before income tax	Ps.	33,765		Ps.	15,596		Ps.	(1,674	)	Ps.	34,522		Ps.	4,118		Ps.	(400	)

The effect of a one-percentage-point increase and the effect of a one-percentage-point decrease in the assumed health care cost trend rates on the aggregate of the service and interest cost components of net periodic postretirement health care benefit costs and the accumulated postretirement benefit obligation for health care benefits. Measuring the sensitivity of the accumulated postretirement benefit obligation and the combined service and interest cost components to a change in the assumed health care cost trend rates requires remeasuring the accumulated postretirement benefit obligation as of the beginning and end of the year.

Assumed health care cost trend rates have an effect on the amounts reported for the health care planes. One percentage point change in assumed health care cost trend rates would have the following effects:

	1% Percentage Point
	Increase		Decrease
Total of service and interest cost	Ps.	811	Ps.	688
Total projected benefit obligation	Ps.	11,251	Ps.	13,000

Grupo Aval expects the following amounts in other comprehensive income to be recognized as components of net periodic pension cost related with the pension plan and other benefits during 2013:

	Pension		Other benefits
Net transition obligation	Ps.	1,277	Ps.	1,328
Net gain		19,030		15,571
Total	Ps.	20,307	Ps.	16,899

The economic assumptions adopted (shown below in nominal terms) are used in determining the actuarial present value of pension obligation and the projected pension obligations for the plan years:

	Pension Plans						Other Benefits
	2012			2011			2012			2011
Discount rate		6.45	%		7.39	%		6.45	%		7.39	%
Rate of compensation increases		3.00	%		3.26	%		3.00	%		3.26	%
Rate of pension increases		3.00	%		3.26	%		3.00	%		3.26	%

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Estimated Future Benefit Payments

The benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:

	Pension Benefits		Other Benefits
2013	Ps.	34,169	Ps.	43,280
2014		32,813		32,723
2015		31,348		30,343
2016		29,754		29,793
2017		28,072		30,659
Years 2018 – 2022		97,162		170,131

c)	Fixed assets:

The following table shows the adjustments for each item:

	Net income								Shareholders’ equity
	2012			2011		2010			2012		2011
Reversal of depreciation recorded under Colombian Banking GAAP on property, plant and equipment acquired with income tax benefits	Ps.	55,556		Ps.	17,744	Ps.	34,379		Ps.	213,990	Ps.	158,434
Impairment of fixed assets		-			-		(4,895	)		-		-
Reversal of provisions under Colombian Banking GAAP		(14,575	)		4,951		5,110			6,686		21,261
Total	Ps.	40,981		Ps.	22,695	Ps.	34,594		Ps.	220,676	Ps.	179,695

Depreciation adjustment on property, plant and equipment purchased with income tax benefits

Under Colombia tax law, certain acquisitions of property plant and equipment have an additional deduction over the total depreciation of such assets, recognized in the income tax return on the year when such assets are purchased. Under U.S. GAAP, specifically ASC 740-10-25, the tax effect of asset purchases that are not business combinations in which the amount paid differs from the tax basis of the asset does not result in immediate income statement recognition and, thus, is recorded as a deferred tax asset, which results in a decrease in the book value of such assets.

This adjustment relates to the lower amount of depreciation expense of certain property, plant and equipment to be recognized for U.S. GAAP purposes, due to the fact that the book value of these assets, is lower than the amount presented under Colombian Banking GAAP based on the recognition under U.S. GAAP of the related deferred tax asset on additional tax deductions (See literal a)(1) above). Since 2011, this deduction was discontinued by the authorities.

Impairment of fixed assets and reversals of provisions recorded under Colombian Banking GAAP

Under Colombian Banking GAAP, technical appraisals for property, plant and equipment are performed every three years. If the value from the appraisal is lower than the carrying value, the difference is recorded as an allowance in the consolidated balance sheet with the corresponding debit entry to equity. Reversal of the allowance is permitted for subsequent recoveries of the appraised asset.

Under U.S. GAAP, in accordance with ASC 360-10, Property, Plant, and Equipment, “Impairment or Disposal of Long-Lived Assets” an impairment test for a long-lived asset must be performed whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is recognized only if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value. Reversal of impairment is not permitted for subsequent recoveries in the fair value of the asset.

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Under U.S. GAAP and based on triggering events and subsequent calculations following the above-mentioned guidance, Grupo Aval recorded impairments in long-lived assets in 2010. This adjustment relates to the timing differences since while under Colombian Banking GAAP impairment is reviewed every three years, impairment under U.S. GAAP is based on triggering events.

d)	Reappraisal of assets:

In accordance with Colombian Banking GAAP, reappraisals of a portion of Grupo Aval’s property, plant and equipment, equity investments and other non-monetary assets are made periodically. The surplus between the appraisal and the book value of the asset is recorded in the balance sheet of each individual company of Grupo Aval under the asset caption “reappraisal of assets” and the shareholders’ equity under the caption “Equity Surplus: reappraisals of assets”. Technical appraisals for PP&E are performed every three years. In the consolidation process, the portion of equity surplus from reappraisal of assets acquired in business combination is eliminated while the portion related with the “reappraisal of assets” remains in the balance sheet until the asset is sold. Another portion of “Equity Surplus of Reappraisal of Assets” from subsidiaries not wholly owned for Colombian Banking GAAP is reclassified as part of the non controlling interest liability.

Under U.S. GAAP, such reappraisals of assets are not allowed and, therefore, are reversed for the purpose of this U.S. GAAP reconciliation. This adjustment does not have impact on the reconciliation of the Statement of Income because under Colombian Banking GAAP, reappraisals are not amortized. The total effect of this adjustment decreases the shareholders´ equity under U.S. GAAP by Ps. 943,800 and Ps. 1,019,561 as of December 31, 2012 and 2011, respectively.

e)	Allowance for loan, lease losses and foreclosed asset:

As established by the Superintendency of Finance, the methodology for evaluating loans and financial leases under Colombian Banking GAAP is based on their inherent risk characteristics and serves as a basis for recording provisions based on loss percentage estimates. Under Colombian Banking GAAP, the loan loss allowance is determined and monitored on an ongoing basis, and is established through periodic provisions charged to the Statement of Income. For microcredit and mortgage loans, there are no models for provisioning such loans; therefore, the Superintendency of Finance has established certain percentages of provision according with the risk category established based on its past due days and a general additional provision of 1% of the total of these loans.

Under Colombian regulations to restructure troubled loans, financial entities should comply with certain local legal requirements. Once in compliance, troubled loans that have been restructured are assigned a risk category in the same way that the other loans and the allowance are established according to each type of credit and risk category assigned. Recoveries of provisions previously recognized are not permitted until the customer complies with the restructured terms, with the exception of certain loans with the guarantees granted by the National Government.

ASC 310 Subsequent measurement analysis

For U.S. GAAP, management uses a systematic methodology to establish the amount of allowance for loan losses and the resultant provisions for loan losses it considers appropriate to provide for probable inherent losses in the portfolio.

Loans are considered impaired when, based on current information and events, it is probable that the banking subsidiaries will be unable to collect all amounts due according to the contractual terms of the original loan agreement, including contractual interest payments. When a loan has been identified as impaired, the amount of impairment is measured using cash flow of expected repayments discounted using the loan’s contractual interest rate at the time of the calculation or at the fair value of the underlying collateral less estimated selling costs when it is determined that the source of repayment is the liquidation of the underlying collateral.

The allowance consists of specific, historical, and subjective components. The methodology includes the following elements:

–

A periodic detailed analysis of the loan portfolio

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–

A systematic loan grading system

–

A periodic review of the summary of the allowance for loan loss balance

–

Identification of loans to be evaluated on an individual basis for impairment under ASC Section 310-10-35, “Subsequent Measurement” of ASC Topic 310, “Receivables”

–

Consideration of internal factors such as our size, organizational structure, loan portfolio structure, loan administration procedures, past due and delinquency trends, and historical loss experience

–

Consideration of risks inherent in different kinds of lending

–

Consideration of external factors such as local, regional, and national economic factors

ASC 450 Loss Contingency Analysis

To calculate the allowance required for smaller-balance, (less than two million Colombian pesos) impaired loans and all performing loans, Grupo Aval performs an analysis of historical losses from our consumer and performing commercial loan portfolios in order to estimate losses for U.S. GAAP purposes resulting from loan losses that had been incurred in such loan portfolios at the balance sheet date, but which had not been individually identified. Loss estimates are analyzed by loan type and thus for homogeneous groups of clients. Historical loss rates used in the process are updated to incorporate the most recent data reflecting current economic conditions, industry performance trends, geographic or obligor concentrations within each portfolio segment, and any other pertinent information that may affect the estimation of the allowance for loan losses. Many factors can affect Grupo Aval’s estimates of allowance for loan losses, including volatility of default probability, migrations and estimated loss severity. Loans are charged-off when deemed uncollectible. Recoveries of previously charged-off loans are recorded by increasing the allowance.

In addition, under Colombian Banking GAAP , Grupo Aval maintains a provision for credit losses on off-balance sheet credit instruments, including commitments to extend credit, guarantees granted, standby letters of credit and other financial instruments. For U.S. GAAP purposes this provision is recorded as a liability. Grupo Aval follows the same methodology described for allowance for loans losses, including an estimated probability of drawdown by the borrower.

The following summarizes the allowance for loan and lease losses and foreclosed assets under Colombian Banking GAAP and U.S. GAAP:

	2012			2011
Allowance for loans losses, financial leases losses and other receivables under Colombian Banking GAAP:
Allowance for loans and financial lease losses	Ps.	(2,545,565	)	Ps.	(2,306,500	)
Allowance for accrued interest and other receivables		(197,010	)		(171,202	)
		(2,742,575	)		(2,477,702	)
U.S. GAAP adjustments:
Business combination		131,410			131,410
Difference recognized in shareholders’ equity under U.S. GAAP		285,994			372,456
Allowance for certain variable interest entities (See iv)r)		(25,224	)		(39,091	)
Allowance for loans losses, financial leases losses and other receivables under U.S. GAAP		(2,350,395	)		(2,012,927	)
Allowance for foreclosed assets under Colombian Banking GAAP		(142,108	)		(143,073	)
Difference recognized in shareholders’ equity under U.S. GAAP		68,348			80,250
Allowance for certain variable interest entities (See iv)r)		(23,814	)		(28,187	)
Allowance for foreclosed assets under U.S. GAAP		(97,574	)		(91,010	)
Total difference recognized in shareholders’ equity under U.S. GAAP	Ps.	354,342		Ps.	452,707

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The following table summarizes the U.S GAAP allowance adjustment for loan, financial lease, loans and foreclosed assets to the consolidated income statement:

	2012			2011			2010
Provision for loan and financial lease losses	Ps.	(94,044	)	Ps.	(1,943	)	Ps.	137,617
Accounts receivables		(210	)		1,293			1,070
Non-performing loans securitization		(952	)		(373	)		880
Foreclosed assets		(11,903	)		13,613			16,774
Adjustment for VIE´s		8,744			27,975			(44,793	)
Business combination		-			-			(51,196	)
Securitization		-			-			3,912
	Ps.	(98,365	)	Ps.	40,565		Ps.	64,264

	2012			2011			2010
Gross loans and financial leases	Ps.	85,983,991		Ps.	74,459,796		Ps.	61,799,583
Allowance at the end of the period as a percentage of gross loans		2.73	%		2.70	%		3.26	%

Foreclosed assets

In accordance with Colombian Banking GAAP, foreclosed assets are recognized at fair value and should be sold within two years from the date of foreclosure. During the first year following the date of foreclosure of a real estate asset, a provision equal to 30% of the carrying value of the asset at the time of receipt is recognized in the Consolidated Statement of Income in proportional monthly installments. This provision increases by an additional 30% in proportional monthly installments within the second year following date of foreclosure of the asset. Once the legal term for sale has expired an authorization for extension is required by the Superintendency of Finance. If the authorization is not granted, a provision equal to 80% of the carrying value of the asset should be recognized. If the extension is granted, the remaining 20% of the provision should be recognized by the end of the extension period.

For foreclosed assets that are not real estate, the provision is equal to 35% of the carrying value of the asset at the time of foreclosure and should be constituted in proportional monthly installments within the first year following the receipt. This provision should be increased by an additional 35% within the second year. Once the legal term for sale has expired without authorization for extension, the provision should be increased up to 100%. If extension is granted, the remaining 30% of the provision should be recognized by the end of the extension period.

Under U.S. GAAP ASC 310-40, foreclosed assets shall be classified as assets “held-for-sale” and recognized at the lower of its carrying amounts at foreclosure or fair value less the cost to sell, in the period in which all of the following criteria are met: (a) management, having the authority to approve the action, commits to a plan to sell the asset; (b) the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; (c) an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated; (d) the sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year; (e) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (f) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. If at any time the criteria in the paragraph above are no longer met, a long-lived asset classified as held for sale is reclassified to in use.

Therefore, the foreclosed assets population analysis is the same under both Colombian Banking GAAP and U.S. GAAP the adjustment reflects the reversal of a portion of the provisions recorded under Colombian Banking GAAP to adjust the value of the asset to the lower of its carrying amount at the date of foreclosure or fair value less costs to sell.

Additional disclosures under ASU 2010-20

The following summarizes each class of financing receivable and the allowance for loan losses under Colombian Banking GAAP and U.S. GAAP as of December 31, 2012 and 2011:

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Loan Portfolio Breakdown - by type of loan as of 31 December 2012

	Commercial			Consumer			Residential Mortgage			Microcredit			Financial Leasing			Total
Loans and financial leases portfolio recorded under Colombian Banking GAAP	Ps.	45,514,192		Ps.	23,380,194		Ps.	4,348,334		Ps.	290,916		Ps.	6,495,718		Ps.	80,029,354
U.S. GAAP adjustments and reclassifications:
Leasing operations		-			-			-			-			376,892			376,892
Adjustments related to consolidation of VIEs		15,480			19,931			19,106			-			-			54,517
Payments on behalf of customers		63,692			144,061			614			1,005			4,846			214,218
Loan origination costs		104,472			52,603			4,223			120			9,255			170,673
Loans to finance preferred shares		-			(207,999	)		-			-			-			(207,999	)
Business combination		140,000			316,736			(49,241	)		-			-			407,495
Interest received in advance		(23,511	)		(30,326	)		(1,869	)		(18	)		(2,732	)		(58,456	)
Suspension of accruals		1			10,368			1,403			1,643			318			13,733
Loan installments pending application		(11, 706	)		(272,360	)		(471	)		(109	)		-			(284,646	)
Reclassifications under U.S. GAAP(*)		4,102,713			356,687			36,358			6,036			766,417			5,268,210
Gross loan and financial leases portfolio under U.S. GAAP		49,905,332			23,769,895			4,358,457			299,593			7,650,714			85,983,991
Allowance for loan and financial lease losses:
Principal – Colombian Banking GAAP		(1,180,003	)		(1,125,062	)		(40,143	)		(26,018	)		(174,338	)		(2,545,565	)
Interest – Colombian Banking GAAP		(37,986	)		(32,971	)		(1,575	)		(954	)		(3,744	)		(77,230	)
U.S. GAAP adjustments:
Other concepts– Col GAAP		(24,831	)		(74,350	)		(10,309	)		(857	)		(9,432	)		(119,779	)
Reduction of allowance for loan, lease losses for U.S. GAAP purposes.		134,056			96,300			(7,604	)		(1,176	)		64,419			285,994
Adjustment related to consolidation of VIEs		(8,919	)		(15,578	)		(730	)		-			-			(25,224	)
Business combination		131,410			-			-			-			-			131,410
Allowance for loan and financial lease losses under U.S. GAAP		(986,273	)		(1,151,662	)		(60,361	)		(29,005	)		(123,093	)		(2,350,394	)
Net book value under U.S. GAAP	Ps.	48,919,059		Ps.	22,618,233		Ps.	4,298,096		Ps.	270,588		Ps.	7,527,622		Ps.	83,633,597

Loan Portfolio Breakdown - by type of loan as of December 31, 2011

	Commercial		Consumer		Residential Mortgage			Microcredit		Financial Leasing			Total
Loans and financial leases portfolio recorded under Colombian Banking GAAP	Ps.	40,545,544	Ps.	19,735,885	Ps.	4,218,377		Ps.	284,167	Ps.	5,163,767		Ps.	69,947,740
U.S. GAAP adjustments and reclassifications:
Leasing operations		119		-		-			-		331,027			331,146
Adjustments related to consolidation of VIEs		45,520		12,524		23,297			-		-			81,341
Payments of behalf of customers		58,326		136,774		521			577		4,441			200,639
Loan origination costs		37,405		98,129		3,898			1,287		7,014			147,733
Suspension of accruals		117		9,621		1,281			1,066		(778	)		11,307
Business combination		-		-		(98,676	)		-		-			(98,676	)

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	Commercial			Consumer			Residential Mortgage			Microcredit			Financial Leasing			Total
Loans to finance preferred shares		-			(250,031	)		-			-			-			(250,031	)
Interest received in advance		(33,335	)		(17,930	)		(1,842	)		(27	)		(2,942	)		(56,076	)
Loan installments pending application		(156,063	)		(139,567	)		(1,030	)		(79	)		-			(296,739	)
Reclassifications under U.S. GAAP(*)		3,295,386			224,711			25,613			5,477			890,225			4,441,412
Gross loans and financial leases portfolio under U.S. GAAP		43,793,019			19,810,116			4,171,439			292,468			6,392,754			74,459,796

Allowance for loan and financial lease losses:
Principal – Colombian Banking GAAP		(1,070,507	)		(799,555	)		(48,117	)		(10,701	)		(377,620	)		(2,306,500	)
Interest – Colombian Banking GAAP		(33,715	)		(21,867	)		(1,656	)		(581	)		(3,337	)		(61,156	)
U.S. GAAP adjustments:
Other concepts– Col GAAP		-			(110,046	)		-			-			-			(110,046	)
Reduction allowance for loans, Lease losses for U.S. GAAP purposes		167,761			186,290			4,735			(2,028	)		38,749			395,507
Adjustment related to consolidation of VIEs		(40,028	)		(12,524	)		(9,590	)		-			-			(62,142	)
Acquisition of BAC Credomatic – reversal of allowances recorded under Colombian Banking GAAP		131,410			-			-			-			-			131,410
Allowance for loan and financial lease losses under U.S. GAAP		(845,079	)		(757,702	)		(54,628	)		(13,310	)		(342,208	)		(2,012,927	)
Net book value under U.S. GAAP	Ps.	42,947,940		Ps.	19,052,414		Ps.	4,116,811		Ps.	279,158		Ps.	6,050,546		Ps.	72,446,869

(*)

These reclassifications are mainly related to interbank loans which are recorded as cash equivalents under Colombian Banking GAAP. Under U.S. GAAP, these loans do not meet the definition of cash equivalents, and therefore are recorded and presented as loans in the consolidated condensed balance sheet.

An analysis of the activity in the allowance for loans and financial lease losses under U.S. GAAP for the years ended December 31, 2012 and 2011 is as follows:

	Commercial			Consumer			Residential mortgage			Leasing transactions			Microcredit			Total
Allowance for loan and financial lease losses

Balance as of December 31, 2010	Ps.	(1,126,877	)	Ps.	(737,480	)	Ps.	(31,202	)	Ps.	(92,252	)	Ps.	(24,561	)	Ps.	(2,012,372	)

Charge-offs		397,429			414,180			586			17,812			20,697			850,704
Recovery of charge-offs		(89,395	)		(65,000	)		(2,969	)		(8,330	)		(1,804	)		(167,498	)
Provision recorded during the period		(237,082	)		(333,971	)		(41,998	)		(45,403	)		(11,557	)		(670,011	)
Foreign exchange difference		(8,283	)		(5,467	)		-			-			-			(13,750	)
Balance as of December 31, 2011		(1,064,208	)		(727,738	)		(75,583	)		(128,173	)		(17,225	)		(2,012,927	)

Charge-offs		117,375			642,687			(44,649	)		26,939			12,773			755,126
Recovery of charge-offs		(67,671	)		(61,422	)		(3,696	)		(8,329	)		(1,532	)		(142,650	)
Provision recorded during the period		13,639			(1,010,750	)		62,918			(14,269	)		(23,265	)		(971,727	)
Foreign exchange difference		14,592			5,562			647			739			244			21,784
Balance as of December 31, 2012	Ps.	(986,273	)	Ps.	(1,151,661	)	Ps.	(60,363	)	Ps.	(123,093	)	Ps.	(29,005	)	Ps.	(2,350,394	)

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The following table summarize the allowance for loans losses, financial leases losses and other receivables for the years ended December 31, 2012, 2011and 2010.

	2012			2011			2010
Allowance at the beginning of the year	Ps.	(2,012,927	)	Ps.	(2,012,372	)	Ps.	(2,001,951	)
Provisions recorded during the year		(971,727	)		(670,011	)		(613,959	)
Charge-offs		755,126			850,704			759,074
Foreign exchange difference		21,784			(13,750	)		(46,573	)
Recovery of charge-offs		(142,650	)		(167,498	)		(108,963	)
Allowance at the end of the year	Ps.	(2,350,394	)	Ps.	(2,012,927	)	Ps.	(2,012,372	)

Loans and asset quality

The following tables are presented for each class of financing receivable, and provide additional information about Grupo Aval´s credit risks and the adequacy of our allowance for credit losses.

Allowance for loan losses

The following table sets forth the allocation of the allowance by loan category as of December 31, 2012 and 2011:

Allowance for Loan Losses and Outstanding Gross Loan Portfolio as of December 31, 2012

	Commercial			Consumer						Residential mortgage		Leasing transactions		Microcredit		Total
				Credit Card		Automobiles		Personal Loans
Allowance for loan losses under U.S. GAAP:
Evaluated individually for impairment	Ps.	166,278		Ps.	-	Ps.	-	Ps.	54	Ps.	-	Ps.	27,111	Ps.	-	Ps.	193,443
Collectively evaluated for impairment		819,994			273,118		94,913		783,576		60,363		95,982		29,005		2,156,951
Total allowance for loan losses under U.S. GAAP	Ps.	986,272		Ps.	273,118	Ps.	94,913	Ps.	783,630	Ps.	60,363	Ps.	123,093	Ps.	29,005	Ps.	2,350,394

Gross Loan Portfolio under U.S. GAAP:
Ending balance: individually evaluated for impairment	Ps.	29,251,360	(1)	Ps.	313	Ps.	13	Ps.	144,074	Ps.	-	Ps.	3,137,725	Ps.	-	Ps.	32,533,485
Ending balance evaluated collectively for impairment		20,653,972			5,517,357		2,181,087		15,927,050		4,358,457		4,512,989		299,593		53,450,506
Total Gross Loan Portfolio under U.S. GAAP:	Ps.	49,905,332		Ps.	5,517,670	Ps.	2,181,100	Ps.	16,071,124	Ps.	4,358,457	Ps.	7,650,714	Ps.	299,593	Ps.	85,983,991

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Allowance for Loan Losses and Outstanding Gross Loan Portfolio at December 31, 2011 and for the year then ended

	Commercial			Consumer						Residential mortgage		Leasing transactions		Microcredit		Total
				Credit Card		Automobiles		Personal Loans
Allowance for loan losses under U.S. GAAP:
Evaluated individually for impairment	Ps.	246,149		Ps.	-	Ps.	-	Ps.	10	Ps.	-	Ps.	15,376	Ps.	-	Ps.	261,535
Collectively evaluated for impairment		598,930			148,598		57,474		551,620		54,628		326,832		13,310		1,751,392
Total allowance for loan losses under U.S. GAAP	Ps.	845,079		Ps.	148,598	Ps.	57,474	Ps.	551,630	Ps.	54,628	Ps.	342,208	Ps.	13,310	Ps.	2,012,927

Gross Loan Portfolio under U.S. GAAP:
Ending balance: individually evaluated for impairment	Ps.	27,190,339	(1)	Ps.	-	Ps.	-	Ps.	40	Ps.	-	Ps.	86,408	Ps.	-	Ps.	27,276,787
Ending balance evaluated collectively for impairment		16,602,680			4,595,410		1,435,668		13,778,998		4,171,439		6,306,346		292,468		47,183,009
Total Gross Loan Portfolio under U.S. GAAP:	Ps.	43,793,019		Ps.	4,595,410	Ps.	1,435,668	Ps.	13,779,038	Ps.	4,171,439	Ps.	6,392,754	Ps 292,468		Ps.	74,459,796

(1)	Loans individually evaluated for impairment that they do not considered impaired, additionally are evaluated collectively for impairment according to historical losses experience adjusted to reflecting current economic conditions.

Past due loans

The table below sets forth information about Grupo Aval´s past due loans as of December 31, 2012 and 2011:

Analysis of Loan Portfolio by tenor of payment default as of December 31, 2012

	Between 31 and 60 days		Between 61 and 90 days		Over 90 days		Total Past Due		Current loan portfolio		Total loan Portfolio
Commercial
Commercial - Non Real Estate	Ps.	84,198	Ps.	18,279	Ps.	420,553	Ps.	523,030	Ps.	42,842,973	Ps.	43,366,003
Commercial Real Estate – Construction		5,774		1,451		22,350		29,575		1,411,340		1,440,915
Commercial Real Estate - Other		24,916		9,959		49,329		84,204		5,014,211		5,098,415
Total commercial		114,888		29,689		492,232		636,809		49,268,524		49,905,332
Consumer
Consumer - Credit Card		96,254		22,281		113,448		231,983		5,285,686		5,517,670
Consumer – Automobile		28,185		13,498		39,427		81,110		2,099,989		2,181,100
Consumer – Personal loans		108,395		133,039		374,449		615,883		15,455,241		16,071,124
Total consumer		232,834		168,818		527,325		928,977		22,840,916		23,769,893
Residential mortgages		21,065		35,379		315,449		371,893		3,986,564		4,358,457
Leasing transactions		39,372		17,671		77,698		134,741		7,515,973		7,650,714
Microcredit		8,854		5,085		21,362		35,301		264,293		299,593
Total	Ps.	417,013	Ps.	256,641	Ps.	1,434,066	Ps.	2,107,721	Ps.	83,876,269	Ps.	85,983,991

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Analysis of Loan Portfolio by tenor of payment default as of December 31, 2011

	Between 31 and 60 days		Between 61 and 90 days		Over 90 days		Total Past Due		Current loan portfolio		Total loan Portfolio
Commercial
Commercial - Real Estate	Ps.	86,545	Ps.	9,665	Ps.	408,049	Ps.	504,259	Ps.	38,073,222	Ps.	38,577,481
Commercial Real Estate – Construction		1,315		1,352		14,178		16,845		647,126		663,971
Commercial Real Estate - Other		8,621		8,741		45,445		62,807		4,488,760		4,551,567
Total Commercial		96,481		19,758		467,672		583,911		43,209,108		43,793,019

Consumer
Consumer - Credit Card		98,714		20,799		86,555		206,068		4,389,341		4,595,410
Consumer – Automobile		22,788		12,136		32,448		67,372		1,368,296		1,435,668
Consumer – Personal loans		73,505		82,463		271,542		427,511		13,351,528		13,779,038
Total consumer		195,007		115,398		390,545		700,951		19,109,165		19,810,116
Residential mortgages		26,539		35,458		153,402		215,399		3,956,040		4,171,439
Leasing transactions		35,340		27,102		64,883		123,325		6,265,429		6,392,754
Microcredit		3,924		1,949		8,437		14,310		278,158		292,468
Total	Ps.	357,291	Ps.	199,665	Ps.	1,084,939	Ps.	1,637,896	Ps.	72,817,900	Ps.	74,459,796

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Credit quality indicators

The following table illustrates credit risks by category and internally assigned grades for the year ended December 31, 2012 and 2011:

Loan Portfolio Quality Ratios as of the closing of December 31, 2012 and 2011

Exposure in the form of Commercial Loan Portfolio

Loan Portfolio Risk Profile by Credit Rating

	Commercial				Commercial financial leasing
	December 31, 2012		December 31, 2011		December 31, 2012		December 31, 2011
A	Ps.	47,219,495	Ps.	41,151,332	Ps.	7,149,268	Ps.	5,929,522
B		1,393,288		1,438,243		237,902		261,730
C		652,936		532,302		75,077		57,923
D		362,981		373,104		126,624		98,736
E		276,632		298,038		24,556		36,554
Total	Ps.	49,905,332	Ps.	43,793,019	Ps.	7,613,427	Ps.	6,384,465

Exposure in the form of Residential mortgage Loan Portfolio

Loan Portfolio Risk Profile by Credit Rating

	Residential Mortgages
	December 31, 2012		December 31, 2011
Rating
A	Ps.	4,007,130	Ps.	3,908,926
B		96,665		121,819
C		202,697		72,338
D		17,675		18,805
E		34,290		49,551
Total	Ps.	4,358,457	Ps.	4,171,439

Consumer

	Credit Card		Automobile		Personal loans		Total consumer		Consumer financial leasing		Microcredit
	December 31, 2012
Performing (up to 90 days)	Ps.	5,404,222	Ps.	2,141,673	Ps.	15,696,675	Ps.	23,302,054	Ps.	29,435	Ps.	278,231
Non-performing (over 90 days)		113,448		39,427		374,449		467,838		7,852		21,362
Total	Ps.	5,517,670	Ps.	2,181,100	Ps.	16,071,124	Ps.	23,769,893	Ps.	37,287	Ps.	299,593

Consumer

	Credit Card		Automobile		Personal loans		Total consumer		Consumer financial leasing		Microcredit
	December 31, 2011
Performing (up to 90 days)	Ps.	4,508,855	Ps.	1,403,220	Ps.	13,507,496	Ps.	19,419,571	Ps.	7,190	Ps.	283,939
Non-performing (over 90 days)		86,555		32,448		271,542		390,545		1,099		8,529
Total	Ps.	4,595,410	Ps.	1,435,668	Ps.	13,779,038	Ps.	19,810,116	Ps.	8,289	Ps.	292,468

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Internally assigned grades are described in the “loans and financial leases” section of this document.

Impaired loans

The following table presents loans individually evaluated and considered impaired with the corresponding allowance for loan losses for years ended December 31, 2012 and 2011:

2012
	Gross book value		Outstanding principal		Loan loss reserve		Average book value for the period ending December 31, 2012		Recognized interest income
Without provision recorded
Commercial	Ps.	122,930	Ps.	121,028	Ps.	-	Ps.	105,351	Ps.	5,811
Leasing		43,096		42,050		-		38,579		3,598
		166,026		163,078		-		140,930		9,409
With provision recorded
Commercial		1,729,216		1,697,689		166,278		1,653,138		28,409
Leasing		134,653		104,464		27,110		104,877		12,620
Consumer		185		180		55		107		2
		1,864,054		1,802,333		193,443		1,758,122		41,031
Total
Commercial		1,852,146		1,818,717		166,278		1,758,490		34,220
Leasing		177,749		146,514		27,110		140,456		16,218
Consumer		185		180		55		107		2
	Ps.	2,030,080	Ps.	1,965,411	Ps.	193,443	Ps.	1,899,052	Ps.	50,440

2011
	Gross book value		Outstanding principal		Loan loss reserve		Average book value for the period ending December 31, 2011		Recognized interest income
Without provision recorded
Commercial	Ps.	106,733	Ps.	105,753	Ps.	-	Ps.	108,698	Ps.	2,671
Leasing		25,361		25,172		-		21,983		2,699
		132,094		130,924		-		130,682		5,370
With provision recorded
Commercial		1,415,444		1,382,221		248,673		1,237,052		65,586
Leasing		61,046		60,015		12,852		59,979		3,973
Consumer		40		699		10		20		24
		1,476,530		1,442,935		261,534		1,297,051		69,583
Total
Commercial		1,522,177		1,487,973		248,673		1,345,750		68,257
Leasing		86,407		85,187		12,852		81,963		6,672
Consumer		40		699		10		20		24
	Ps.	1,608,524	Ps.	1,573,859	Ps.	261,534	Ps.	1,427,733	Ps.	74,953

As of December 31, 2012 there were not loans individually evaluated and considered impaired without provision reserves.

The interest income that would have been recorded for impaired loans in accordance with the original contractual terms amounted to Ps. 168,568, Ps. 259,207and Ps. 133,822 for the year ended 2012, 2011 and 2010, respectively.

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Non-performing loans

The following table summarizes the amount of non-performing loans by loan category for years ended December 31, 2012 and 2011:

	December 31, 2012		December 31, 2011
Commercial non real estate	Ps.	420,553	Ps.	408,049
Commercial - Real Estate
Construction		22,350		14,178
Other		49,329		45,445
Consumer
Consumer –Credit card		113,448		86,555
Consumer – Automobiles		39,427		32,448
Consumer – Personal loans		374,449		271,542
Residential mortgage
Normal (Prime)		313,634		153,402
Subnormal (Subprime)		1,815		-
Leasing transactions		77,698		64,883
Microcredit		21,362		8,437
Total	Ps.	1,434,066	Ps.	1,084,939

Trouble debt restructurings

The following table summarizes the total of troubled debt restructured loans and its amounts by loan category:

	Number of loans Restructured		Amounts before the restructuring		Amounts after the restructuring
Commercial
Commercial - Real Estate- Other		14	Ps.	2,539	Ps.	2,586
Construction		10		4.319		2,595
Commercial non real Estate		1,287		316,544		328,160
Consumer
Consumer -Credit card		11,486		50,900		38,644
Consumer – Automobiles		718		13,777		12,761
Consumer – Personal loans		16,178		138,072		155,280
Residential mortgage
Normal (Prime)		270		24,474		23,743
Subnormal (Subprime)		313		5,559		5,831
Leasing transactions		91		40,786		41,756
Microcredit		651		16,739		14,558
Total		31,018	Ps.	613,709	Ps.	625,915

Trouble debt restructurings

Upon identifying those receivables as troubled debt restructurings, Grupo Aval identified them as impaired under the ASC 310-10-35. The amendments in Accounting Standards Update No. 2011-02 require prospective application of the impairment measurement guidance in Section 310-10-35 for those receivables newly identified as impaired.

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The following table summarizes the total of receivables restructured as troubled debt during 2011 that do not complied the restructuring agreement during the year ended December 31, 2012 and its amounts by loan category:

	Number of trouble debt Restructurings		Amount as of December 31,2012		Restructured loans charge-off from January 1st to December 31, 2012
Commercial
Commercial – Non-Real estate		1,277	Ps.	298,692	Ps.	2,215
Other		4		139		75
Consumer
Consumer -Credit card		6,219		11,788		2,371
Consumer – Automobiles		518		9,406		116
Consumer – Personal loans		10,731		76,686		33,905
Residential mortgage
Normal (Prime)		95		6,769		-
Subnormal (Subprime)		147		2,676		-
Leasing transactions		35		15,080		18,603
Microcredit		601		5,297		226
Total		19,627	Ps.	426,535	Ps.	57,511

As a result of adopting the amendments in Accounting Standards Update No. 2011-02, Grupo Aval reassessed all restructurings that occurred on or after the beginning of year 2012 for identification as troubled debt restructurings. Grupo Aval identified as troubled debt restructurings certain receivables for which the allowance for credit losses had previously been measured under a general allowance for credit losses methodology. Upon identifying those receivables as troubled debt restructurings, Grupo Aval identified them as impaired under the guidance in Section 310-10-35. The amendments in Accounting Standards Update No. 2011-02 require prospective application of the impairment measurement guidance in Section 310-10-35 for those receivables newly identified as impaired.

f)	Loan origination fees and costs:

Under Colombian Banking GAAP, Grupo Aval recognizes in the income statement, loan origination fees, lines of credit and letters of credit, when collected and records related direct costs when incurred.

Under U.S. GAAP, specifically ASC 310-20-50 “Accounting for Non-Refundable Fees and Costs Associated with Origination or Acquiring Loans and Initial Direct Costs of Leases”, loan origination fees and certain direct loan origination costs that are required to be recognized as a yield adjustment over the life of the related loans are recognized by the interest method, except for certain loan agreements, such as revolving lines of credit and credit cards, which are recognized in the Consolidated Statement of Income on a straight-line basis over the life of the product. For certain consumer loans with a history of prepayment the amortization period was adjusted according to that history. The total effect of this adjustment increases the shareholders´ equity under U.S. GAAP by Ps.170,673 and Ps. 147,933 as of December 31, 2012 and 2011, respectively. The increase in the adjustment for the year ended December 31, 2012, 2011 and 2010 mainly relates to (i) an increase in loans granted during the year which represents an adjustment for U.S. GAAP purposes in the consolidated statement of income of Ps. 22,740, Ps. 9,302 and Ps. 30,833, respectively.

g)	Interest recognition on non-accrual loans:

For Colombian Banking GAAP purposes, Grupo Aval established that interest ceases to be accrued in the consolidated Statement of Income and begins to be recorded in Memorandum Accounts until effective payment is collected, after a loan is in arrears for more than a certain time:

Type of loan and financial lease	Arrears in excess of:
Residential mortgage	60 days
Consumer	60 days
Microcredit	30 days
Commercial	90 days

For this reconciliation to U.S. GAAP, Grupo Aval discontinues accrual of interest income once a loan becomes more than 90 days past due in accordance with managements estimations about the recoverability of such interest costs, which is also aligned to customary practices for U.S. banks.

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h)	Deferred charges and other assets:

For Colombian Banking GAAP purposes, Grupo Aval has deferred certain expenses and other charges, including among others, remodeling, pre-operating expenses, and certain costs of studies and projects including administrative projects, improvement of internal processes related to clients, multiple services and benchmark analysis. These charges are expensed as incurred under U.S. GAAP. The increase in the U.S. GAAP adjustment at December 31, 2012 as compared to 2011 is mainly related to an increase in remodeling expenses incurred during 2012 (see Note 11). Which were expensed for reconciliation purposes.

Debt issuance costs are amortized, using the effective interest method, over the life of the related debt by which the costs were incurred under Colombian Banking GAAP and U.S. GAAP.

i)	Investment securities and derivatives:

1) Investment securities

The table below provides details regarding the differences in investment securities between Colombian Banking GAAP and U.S. GAAP:

	Net income								Shareholders´ equity
	2012			2011			2010		2012		2011
Differences in classification of held to maturity investments and fair value adjustment (a)	Ps.	(3,121	)	Ps.	1,690		Ps.	2,361	Ps.	1,782	Ps.	3,716
Impairment on investments (b)		2,754			(2,900	)		-		6,793		4,643
Cautionary provisions (b)		-			(315,040	)		315,040		-		-
Foreign exchange differences on available for sale investments (c)		(163	)		(12,291	)		6,585		-		-
	Ps.	(530	)	Ps.	(328,541	)	Ps.	323,986	Ps.	8,575	Ps.	8,359

(a)

These adjustments relate to investments in debt securities, equity securities with readily determinable fair value:

Under U.S. GAAP and Colombian Banking GAAP, investment securities are classified and measured in a similar manner, except for the following:

Certain investment securities, classified as held to maturity under Colombian Banking GAAP, are presented under U.S. GAAP as “available for sale” with an adjustment in the related fair value against OCI.

Under Colombian Banking GAAP, the Superintendency of Finance allows recognition at amortized cost of certain investment securities classified as trading or available for sale. Under U.S. GAAP, all debt securities classified as trading or available for sale are recorded at fair value determined according to ASC 820-10 requirements.

In addition under Colombian banking GAAP available for sale securities held must be kept in the category for at least one year, while U.S. GAAP has no such requirement.

(b)

This adjustment relates to the reversal of an impairment charge on investments and cautionary provisions that are not allowed under US GAAP.

Impairment on investments

Under Colombian Banking GAAP, Grupo Aval follows the requirements of the Superintendency of Finance to account for impairment of securities. Based on such guidance, a credit risk qualification analysis is performed for both debt and equity securities, based on this analysis a credit risk rating will be assigned to each investment, setting mandatory provisions depending on the credit risk level determined for the investment.

Under U.S. GAAP, a decline in the estimated fair market value of held to maturity or available for sale debt or equity securities compared with the amortized cost is charged to earnings for the year management considers that this decrease is other than temporary. Management evaluates securities for other than temporary impairment at each balance sheet date or sooner when conditions require such evaluation. Factors considered in determining whether impairment is other than temporary include: (1) the length of time and the extent to which the fair value has been less than cost; (2) the financial condition and the near term prospects of the issuer; and (3) the intent and ability of Grupo Aval to hold the investment for a period of time sufficient to allow full recovery in fair value.

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For debt securities, when an entity does not intend to sell an impaired debt security, and it is more likely than not it will be required to sell the security prior to recovery, the entity must determine whether it will recover its amortized cost basis. If it concludes it will not, a credit loss exists and the resulting Other Than Temporary Impairment is separated into the amount representing the credit loss, which is recognized in earnings, and the amount related to all other factors, which is recognized in Other Comprehensive Income (OCI).

The guidance requires that the total Other Than Temporary Impairment (difference between the fair value and the amortized cost of the security) be presented in the Consolidated Statement of Income with an offset in a separate line item for any amount of the total Other Than Temporary Impairment that is recognized in other comprehensive income. Therefore, based on the analysis performed, under U.S. GAAP, Other Than Temporary Impairment has been recognized for available for sale equity securities.

Therefore, the U.S. GAAP adjustment refers to the reversal of mandatory provisions set by the Superintendency of Finance. See additional disclosures on unrealized loss position for more than and less than twelve months.

Cautionary provisions

During 2011, the prudent provision or Ps 315,040 recorded during 2010 was fully reversed based on two circumstances: (i) On February of 2011, Promigas was reclassified from medium to low marketability and, as a result, Corficolombiana booked a loss of Ps 122,000, according to Colombian Banking GAAP, to offset such loss, the Company reversed an equal amount of the prudent provision established during the previous year; (ii) During 2011 Corficolombiana assessed its investment in Promigas as strategic, and as such, it reclassified it as “Available for Sale” under Colombian Banking GAAP which means that the volatility in the price of its shares affected the equity directly as opposed to the income statement. In addition, Corficolombiana had already recognized a negative impact of $187,836 in its equity associated to its investment in EEB, no further impairment in this investment was expected to occur. Having these two events occurring during 2011, Corficolombiana decided to reverse the remaining portion of the cautionary provision in December 2011, related to investment such as Empresa de Energia de Bogotá, and Sociedad de Inversiones en Energía (“SIE"), considering that the risk associated with fluctuations of the price of its investments was no longer material.

(c)

Foreign exchange differences on available for sale investments

Under Colombian Banking GAAP, fluctuations in fair value resulting from changes in foreign currency exchange rates on available for sale debt securities are reflected in the Consolidated Statements of Income. In accordance with U.S. GAAP, based on ASC 320-10 and ASC 830-20, changes in the fair value of available for sale debt securities as a result of changes in foreign currency exchange rates are reflected in shareholders’ equity. The U.S.GAAP adjustment reflects reclassifications of these effects from net income to shareholders´ equity.

Additional disclosures for investment securities

The following tables are included with the purpose of providing ASC 320-10 complementary disclosure requirements of investment securities:

As of December 31, 2012

Available for sale securities

	Cost Basis		Unrealized Gains		Unrealized Losses			Fair value
Debt securities
Securities issued or secured by Colombian Government	Ps.	6,990,002	Ps.	395,958	Ps.	(729	)	Ps.	7,385,231
Securities issued or secured by Colombian government entities		209,794		2,340		(810	)		211,324
Securities issued or secured by other financial entities		1,754,948		15,657		(3,560	)		1,767,045
Securities issued or secured by foreign governments		997,718		8,790		(4,895	)		1,001,613
Other		1,555,217		10,640		(17,762	)		1,548,401
		11,507,679		433,385		(27,450	)		11,913,614
Equity securities
Bolsa de Valores de Colombia S.A.		13,021		12,018		-			25,039
Empresa de Energía de Bogotá S.A. E.S.P.		218,027		197,454		-			415,481
Bladex S.A		129		72		-			201
Gas Natural S.A. E.S.P.		29,225		45,033		-			74,258
Mineros S.A.		50,258		27,413		-			77,671
Mastercard INT		68		1,013		-			1,081
		310,728		283,003		-			593,731
Total investments available for sale and unrealized gains (losses ) in other comprehensive income	Ps.	11,818,407	Ps.	716,388	Ps.	(27,450	)	Ps.	12,507,345

Held-to-maturity securities

			Gross		Gross
	Cost Basis		unrealized gains		unrealized losses			Fair value
Securities issued or secured by Colombian Government	Ps.	631,814	Ps.	658	Ps.	(51,265	)	Ps.	581,181
Securities issued or secured by Colombian Government entities		2,194,173		-		(32,513	)		2,161,660
Securities issued or secured by other financial entities		336,656		3,309		(628	)		339,337
Securities issued or secured by foreign governments		14,347		3		-			14,350
Other		25,052		590		(9	)		25,633
	Ps.	3,202,042	Ps.	4,560	Ps.	(84,415	)	Ps.	3,122,187

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As of December 31, 2011

Available for sale securities

	Cost Basis		Unrealized Gains		Unrealized Losses			Fair value
Debt securities
Securities issued or secured by Colombian Government	Ps.	7,422,316	Ps.	64,263	Ps.	(33,505	)	Ps.	7,453,074
Securities issued or secured by Colombian government entities		128,481		1,350		(2,018	)		127,813
Securities issued or secured by other financial entities		774,141		1,583		(1,511	)		774,213
Securities issued or secured by foreign governments		851,877		117		(159	)		851,835
Other		499,495		4,579		(5,503	)		498,571
		9,676,310		71,892		(42,696	)		9,705,506
Equity securities
Bolsa de Valores de Colombia S.A.		12,136		10,784		-			22,920
Empresa de Energía de Bogotá S.A. E.S.P.		218,028		166,374		-			384,402
Bladex S.A		165		26		-			191
Gas Natural S.A. E.S.P.		29,225		47,886		-			77,111
Mineros S.A.		50,258		37,647		-			87,905
Mastercard INT		74		827		-			901
Proenergía Internacional S.A.		52,279		60,586		-			112,865
		362,165		324,130		-			686,295
Total investments available for sale and unrealized gains (losses ) in other comprehensive income	Ps.	10,038,475	Ps.	396,022	Ps.	(42,696	)	Ps.	10,391,801

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Held-to-maturity securities

			Gross		Gross
	Cost Basis		unrealized gains		unrealized losses			Fair value
Securities issued or secured by Colombian Government	Ps.	817,510	Ps.	595	Ps.	(48,000	)	Ps.	770,105
Securities issued or secured by Colombian Government entities		2,252,168		56		(40,654	)		2,211,570
Securities issued or secured by other financial entities		9,964		376		-			10,340
Securities issued or secured by foreign governments		9,841		-		-			9,841
Other		7,526		242		-			7,768
	Ps.	3,097,009	Ps.	1,269	Ps.	(88,654	)	Ps.	3,009,624

The scheduled maturities of debt securities at December 31, 2012 were as follows:

	Available for sale				Held to maturity
	Cost basis		Fair value		Amortized cost		Fair value
Due in one year or less	Ps.	1,687,044	Ps.	1,689,102	Ps.	2,707,949	Ps.	2,674,882
Due from one year to five years		2,795,574		2,862,766		493,797		446,980
Due from five years to ten years		6,272,148		6,561,967		296		325
Due more than ten years		752,913		799,779		-		-
Total	Ps.	11,507,679	Ps.	11,913,614	Ps.	3,202,042	Ps.	3,122,187

Unrealized Losses Disclosure

The following table presents debt securities classified as available for sale and held to maturity that have unrealized losses as of December 31, 2012 and 2011 are:

Unrealized losses as of December 31, 2012	Cost basis		Unrealized			Fair value
			Loss
Available for sale - Debt securities less than 12 months
Securities issued or secured by Colombian Government	Ps.	295,500	Ps.	(411	)	Ps.	295,089
Securities issued or secured by government entities		94,342		(515	)		93,827
Securities issued or secured by other financial entities		304,470		(3,101	)		301,369
Securities issued or secured by foreign governments		367,041		(4,886	)		362,155
Other		770,328		(17,243	)		753,085
		1,831,681		(26,156	)		1,805,525

Available for sale - Debt securities more than 12 months
Securities issued or secured by Colombian Government		27,365		(318	)		27,047
Securities issued or secured by government entities		11,725		(295	)		11,430
Securities issued or secured by other financial entities		105,483		(459	)		105,024
Securities issued or secured by foreign governments		4,557		(9	)		4,548
Other		26,477		(213	)		26,264
		175,607		(1,294	)		174,313
Total securities available for sale		2,007,288		(27,450	)		1,979,838

Securities held to maturity less than 12 months
Securities issued or secured by Colombian Government		-		-			-
Securities issued or secured by government entities		781,479		(10,611	)		770,868
Securities issued or secured by financial entities		62,165		(161	)		62,004
Securities issued or secured by foreign governments		3,594		-			3,594
Other		16,707		(9	)		16,698
		863,945		(10,781	)		853,164
Securities held to maturity more than 12 months
Securities issued or secured by Colombian Government		623,623		(51,265	)		572,358
Securities issued or secured by government entities		1,412,695		(21,902	)		1,390,793
Securities issued or secured by financial entities		5,155		(467	)		4,688
		2,041,473		(73,634	)		1,967,839
Total securities held to maturity		2,905,418		(84,415	)		2,821,003
Total investments with unrealized losses		4,912,706		(111,865	)		4,800,841
Total investments with unrealized losses more than 12 months	Ps.	2,217,080	Ps.	(74,928	)	Ps.	2,142,152

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Unrealized losses as of December 31, 2011	Cost basis		Unrealized loss			Fair value
Available for sale - Debt securities less than 12 months
Securities issued or secured by Colombian Government	Ps.	784,828	Ps.	(7,510	)	Ps.	777,318
Securities issued or secured by government entities		3,233		(8	)		3,225
Securities issued or secured by other financial entities		77,785		(506	)		77,279
Securities issued or secured by foreign governments		48,685		(156	)		48,529
Other		125,634		(1,796	)		123,838
		1,040,165		(9,976	)		1,030,189
Available for sale - Debt securities more than 12 months
Securities issued or secured by Colombian Government		2,327,753		(25,995	)		2,301,758
Securities issued or secured by government entities		55,009		(2,010	)		52,999
Securities issued or secured by other financial entities		84,052		(1,005	)		83,047
Securities issued or secured by foreign governments		2,283		(3	)		2,280
Other		197,093		(3,707	)		193,386
		2,666,190		(32,720	)		2,633,470
Total securities available for sale		3,706,355		(42,696	)		3,663,659
Securities held to maturity less than 12 months
Securities issued or secured by Colombian Government		74,644		(1,153	)		73,491
Securities issued or secured by government entities		1,946,642		(32,199	)		1,914,440
Securities issued or secured by other financial entities		543		-			543
Securities issued or secured by foreign government		5,956		-			5,956
Others		44		-			44
		2,027,829		(33,352	)		1,994,474
Securities held to maturity more than 12 months
Securities issued or secured by Colombian Government		693,812		(46,847	)		646,965
Securities issued or secured by government entities		302,952		(8,455	)		294,497
		996,764		(55,302	)		941,462
Total securities held to maturity	Ps.	3,024,593	Ps.	(88,654	)	Ps.	2,935,936
Total investments with unrealized losses	Ps.	6,730,948	Ps.	(131,350	)	Ps.	6,599,595
Total investments with unrealized losses more than 12 months	Ps.	3,662,954	Ps.	(88,022	)	Ps.	3,574,932

The amount of realized gain or (loss) on trading securities included in earnings during 2012, 2011 and 2010 was Ps. 388,508, Ps. 273,258 and Ps. 214,246, respectively.

The amount of realized gain or (loss) on available for sale included in earnings during 2012, 2011 and 2010 was Ps. 265,996, Ps. 252,824 and Ps. (145,709), respectively.

As of December 31, 2012 losses with more than twelve months amounted to Ps. 74,928 are represented primarily by mandatory securities issued or secured by the Colombian Government. Grupo Aval considers this decline in fair value as temporary, due to the fluctuations in the interest rates; however, those events do not affect the issuer´s creditworthiness. Grupo Aval has the ability and intent to hold these securities for a period of time sufficient to recover all unrealized losses. Accordingly, Grupo Aval has not recognized any other-than temporary impairment for these securities. These securities pay a fixed interest rate and have an average maturity less than five years.

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2)	Derivatives

Fair value of derivative instruments

Under Colombian Banking GAAP, the fair value of derivative instruments is similar to U.S. GAAP, specifically ASC 820, except for the fact that Colombian Banking GAAP does not consider in the determination of fair values the company´s own credit risk, counterparty risk and consideration of collateral in addition to any prior mentioned difference.

In addition, since January 1, 2010 and following new rules established by the Superintendency of Finance to measure the fair value of derivative instruments under Colombian Banking GAAP, any day one gain or losses derived from the new valuation requirements on Swaps are deferred and amortized during the life of the instrument.

For U.S. GAAP purposes, such deferrals are reversed through the consolidated income statement as these derivative instruments were classified as trading under U.S. GAAP.

The impact of the abovementioned differences in shareholders´ equity as of December 31, 2012 and 2011 consisted of Ps. (1,565) and Ps. (2,351) decrease, respectively, and the impact in the consolidated statements of income for the year ended December 31, 2012, 2011 and 2010 was Ps. 1,038, Ps. (2,082) and Ps. 1,168, respectively.

Hedge of a Net Investment in a Foreign Operation

Grupo Aval did designate foreign exchange forwards and foreign currency denominated debt to hedge the foreign exchange risk associated with Grupo Aval´s investments in non-Colombian Peso functional currency subsidiaries; in the case of the designated forwards, these are entered into for a short term period and as they do expire, new forwards are again entered into (known as “rolling hedge” strategy), as to preserve the portion of the net equity investment in term of Colombian Pesos if the USD depreciates against Grupo Aval’s functional currency. See Note 30 t), for differences between Colombian Banking GAAP and U.S. GAAP in relation to hedge accounting.

Additional disclosures for derivatives

The tables below is included in accordance with ASC 820-10 disclosures requirements and present the financial position of the derivatives contracts recorded to the caption “other assets” and “other liabilities” as of December 31, 2012 and 2011 and their gain and loss recognized in the Consolidated Statement of Income:

	Asset
As of December	December 31, 2012								December 31, 2011
	Notional amount			Fair Value			Average maturity (days)		Notional Amount			Fair Value			Average maturity (days)
Interest rate contracts (1)	Ps.	1,113,014		Ps.	22,203			360	Ps.	1,355,788		Ps.	18,582			551
Foreign exchange contracts (1)		10,526,604			359,823			103		10,552,445			281,677			155
Total	Ps.	11,639,618		Ps.	382,026				Ps.	11,908,233		Ps.	300,259

	Liability
Interest rate contracts (2)	Ps.	(1,564,968	)	Ps.	(52,254	)		312	Ps.	(1,870,988	)	Ps.	(39,462	)		527
Foreign exchange contracts (2)		(3,692,978	)		(268,638	)		103		(11,493,289	)		(306,896	)		176
Total	Ps.	(5,257,946	)	Ps.	(320,892	)			Ps.	(13,364,277	)	Ps.	(346,358	)

(1)	Presented in the balance sheet within “Other assets”.

(2)	Presented in the balance sheet within “Other liabilities”.

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The following table presents the gain or (loss) from derivatives not designated as hedging instruments:

	2012			2011			2010
Presentation of Gain or (loss) recognized in income on derivative	Amount of gain or (loss) recognized in income on Derivative			Amount of gain or (loss) recognized in income on derivative			Amount of gain or (loss) recognized in income on Derivative
Gain from fair value adjustment	Ps.	3,391,603		Ps.	3,336,464		Ps.	4,801,021
Loss from fair value adjustment		( 3,360,000	)		(3,357,364	)		(4,706,960	)
	Ps.	31,603		Ps.	(20,900	)	Ps.	94,061

The following table presents the derivatives notional amounts as of December 31, 2012 and 2011:

	2012		2011
Derivatives not designated as hedging instruments under ASC 815
Interest rate contracts	Ps.	2,677,981	Ps.	3,226,777
Foreign exchange contracts		12,533,569		20,760,855
	Ps.	15,211,550	Ps.	23,987,632

	2012			2011
Derivatives designated as hedging instrument
Foreign exchange contracts to sell	Ps.	(1,686,014	)	Ps.	(1,284,878	)
	Ps.	(1,686,014	)	Ps.	(1,284,878	)

Embedded derivatives

Unlike Colombian Banking GAAP, U.S. GAAP requires the separation of embedded derivatives from the host contract with the embedded derivatives carried at fair value if the economic characteristics of the derivative are not clearly and closely related to the economic characteristics of the host contract. As of December 31, 2012 and 2011, no embedded derivatives requiring bifurcation have been detected by Grupo Aval.

j)	Investments in unaffiliated companies:

Under Colombian Banking GAAP, these investments are initially recognized at cost and subsequently measured depending on the liquidity of the security and the market of reference where it is traded in Colombia or countries other than Colombia. Equity securities listed, issued and traded in Colombia are mainly valued on a daily basis using prices published by authorized entities (i.e., the Colombian Stock Exchange). Equity securities non-listed, issued and traded in Colombia are valued based on acquisition cost which is later increased or decreased depending upon the investor’s percentage stake in all subsequent changes in the issuer’s shareholders’ equity. For this purpose, the issuer’s shareholders’ equity is calculated based on audited financial statements at the cut-off dates of December 31 of each year.

Under U.S. GAAP, investments where an investor does not have significant influence over the investee’s operations are accounted for at fair value if their fair value is readily determinable. The U.S. GAAP adjustment reflects on shareholders’ equity the difference between fair value under U.S. GAAP and the equity method of accounting recognized under Colombian Banking GAAP as well as differences in the fair value under Colombian Banking and U.S. GAAP. Depending on the classification under U.S. GAAP, trading or available for sale, the adjustment will remain in shareholders’ equity or be reclassified to the income statement as necessary.

Certain reclassifications made under Colombian Banking GAAP purposes from available for sale to trading described in Note 4 have been reversed for U.S. GAAP purposes.

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The U.S. GAAP adjustment on the consolidated statements of income for the years ended December 31, 2012, 2,011 and 2010 relates to the following unaffiliated companies:

Equity securities	2012			2011			2010
Promigas S.A.	Ps.	-		Ps.	-		Ps.	8,187
Empresa de Energía de Bogotá S. A.		-			-			(197,876	)
Mineros S.A.		(27,413	)		-			-
Proenergía Internacional S.A. (1)		65,203			(65,203	)		-
Sociedad de Inversiones en Energía S.A.(*)		-			188,738			(188,738	)
Tableros y Maderas de Caldas S. A.(*)		-			-			13,737
Total	Ps.	37,790		Ps.	123,535		Ps.	(364,690	)

(1)	During 2012 the investment in Proenergía Internacional was sold and the adjustment recorded were reversed against income.

(*)	During 2011 and 2010 the investment in SIE and Tablemac, respectively, were sold and the adjustment recorded were reversed against income.

The U.S. GAAP adjustment on shareholders´ equity relates to the following unaffiliated companies:

	December 31, 2012								December 31,2011
Equity securities	Amount under Colombian Banking GAAP		U.S. GAAP adjustments		Amount under U.S. GAAP		Amount under Colombian Banking GAAP		U.S. GAAP adjustments			Amount under U.S. GAAP
Empresa de Energía de Bogotá S. A.	Ps.	415,481	Ps.	-	Ps.	415,481	Ps.	384,402	Ps.	-		Ps.	384,402
Gas Natural S. A. E.S.P.		53,480		20,778		74,258		53,480		23,631			77,111
Mineros S. A.		77,671		-		77,671		87,905		-			87,905
Proenergia Internacional S. A.		-		-		-		117,482		(4,617	)		112,865
Bladex S.A.		201		-		201		191		-			191
Mastercard INT		68		1,013		1,081		74		827			901
Bolsa de Valores de Colombia S. A.		19,920		5,118		25,039		17,215		5,705			22,920
Total	Ps.	566,821	Ps.	26,909	Ps.	593,731	Ps.	660,749	Ps.	25,546		Ps.	686,295

(1)	See note iv k below.

The following is the effect of the adjustment in the Statement of Income of non-affiliates companies:

	2012			2011			2010

Balance at the beginning of the year U.S. GAAP adjustment	Ps.	(25,546	)	Ps.	(91,553	)	Ps.	(223,365	)
Adjustment recorded during the year to statement of income		(37,790	)		(123,535	)		364,690
Adjustment recorded to OCI under USGAAP (unrealized gains (losses) on available for sale securities)		36,427			442,201			(232,878	)
Reclassification to investment in affiliate companies U.S. GAAP adjustment (1)		-			(252,659	)		-
Balance at the end of the year	Ps.	(26,909	)	Ps.	(25,546	)	Ps.	91,553

(1)	Reclassification made due to increase of Grupo Aval in Promigas shareholders. See note i, k.

k)	Investments in affiliated companies:

This adjustment relates to investments in equity securities where Grupo Aval exercises significant influence over the investee’s operations.

Under Colombian Banking GAAP, investments in affiliated companies are recorded at their fair value similar to investments in unaffiliated companies, recording any effects derived from these adjustments on reappraisal of assets within the shareholders’ equity.

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Under U.S. GAAP, these investments are recognized under the equity method of accounting determined using the latest audited financial statements issued by the investees adjusted to U.S. GAAP, with effect in the Consolidated Statement of Income or OCI for unrealized gains or losses.

As of December 31, 2010, Corficolombiana held a 14.39% direct equity stake in Promigas. As of that date, this investment was classified as available for sale and affected the unrealized gains account in the “other comprehensive income”.

On February 10, 2011, Corficolombiana, Empresa de Energia de Bogotá and two Colombian private investment funds, purchased from AEI three Special Purpose Vehicles located in Cayman Islands (AEI Promigas Holdings Ltd., AEI Promigas Ltd. and AEI Promigas Investments Ltd.) which together held a 52.13% stake in Promigas SA ESP. Corficolombiana acquired 20.3% percent of the three Special Purpose Vehicles which resulted in an additional indirect stake in Promigas of 10.58% for a total direct and indirect economic interest of 24.9%.

Additionally, Corficolombiana, together with some Investments Funds managed by Porvenir, and Corredores Asociados (an independent brokerage firm in Colombia), invested in a private investment fund which bought an additional stake in the three Special Purpose Vehicles mentioned above. The private investment fund, independently managed by Corredores Asociados, acquired 47.9% of the three Special Purpose Vehicles (acquiring an indirect investment in Promigas of 24.97%). The investment associated with this transaction totaled US$ 792.8 million of which Corficolombiana contributed with US$ 388.7 million and the Investments Funds managed by Porvenir with US$ 151.6 million. Through its participation in this private investment fund, Corficolombiana acquired an additional exposure of 14.94% to Promigas for a total of 39.91% direct and indirect stake.

Due to the increase in the equity stake of Promigas, during the year ended December 31, 2011 and up until November 30, 2012, Corficolombiana’s investment in Promigas was recorded under the equity method (No retroactive impacts were included as they were deemed immaterial). In November 30, 2012, and as further explained in the “business combination” section, Grupo Aval acquired control, under US GAAP regulations, (no under Colombian regulations) of Promigas by acquiring an additional 10.32% of the company through two tender offer processes done in the local capital market. After Corficolombiana acquired control of Promigas, the USGAAP adjustment to this investment was reclassified from the “equity method” caption to the “business combination” caption.

U.S. GAAP adjustment on the consolidated statements of income for the years ended December 31, 2012, 2011 and 2010 relate to the following affiliated companies:

	2012			2011			2010
Equity securities	U.S. GAAP adjustments			U.S. GAAP adjustments			U.S. GAAP adjustments
A.C.H. Colombia S.A.	Ps.	(95	)	Ps.	(566	)	Ps.	(1,496	)
Aerocali S.A.		1,167			(486	)		(327	)
Colombiana de Extrusión S.A. Extrucol		168			(450	)		254
Compañía Aguas de Colombia		45			49			95
Concesionaria Ruta del Sol SA		5,437			4,394			-
Concesionaria Tibitoc S.A.		1874			(1,990	)		(151	)
Fidecomiso Meléndez		65			31			29
Fondo Capital I Corredores Investment fund (*)		42,716			(118,440	)		-
Promigas LTD (*)		-			3,565			-
Promigas Holdings LTD (*)		-			3,998			-
Promigas Investments LTD (*)		-			3,565			-
Promigas S.A. (*)		14,554			132,040			-
Redeban Multicolor SA		725			12			724
Sociedad Transportadora de Gas del Oriente S.A.		-			732			(3,931	)
Total	Ps.	66,656		Ps.	26,454		Ps.	(4,803	)

(*)	See Note 30 m) “Business combination”

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The U.S. GAAP adjustment on shareholders´ equity relates to the following affiliated companies:

	December 31, 2012
Equity securities	Amount under Colombian Banking GAAP		Accumulated U.S. GAAP adjustments of prior year			Adjustments to equity accounts			Adjustments under equity method of 2012			Reclassifications to business combination Adjustments			Total U.S. GAAP adjustments			Amount under U.S. GAAP
A.C.H. Colombia S.A.	Ps.	2,379	Ps.	2,033		Ps.	-		Ps.	(95	)	Ps.	-		Ps.	1,938		Ps.	4,317
Aerocali S.A.		2,474		2,223			-			1,167			-			3,390			5,864
Colombiana de Extrusión S.A. Extrucol		1,785		1,288			-			168			-			1,456			3,241
Compañía Aguas de Colombia		1,097		23			-			45			-			68			1,165
Concesionaria Ruta del Sol SA		87,013		4,809			416			5,437			-			10,662			97,675
Concesionaria Tibitoc S.A.		9,823		3,599			-			1,874			-			5,474			15,297
Fidecomiso Meléndez		14,825		(256	)		-			65			-			(192	)		14,633
Fondo Capital I Corredores Investment Fund. (*)		583,013		(115,848	)		-			42,716			(509,881	)		-			-
Promigas S.A. . (*)		1,462,556		(112,071	)		(14,530	)		14,554			(1,350,507	)		-			-
Redeban Multicolor SA		4,552		6,708			-			725			-			7,433			11,984
Total	Ps.	2,169,517	Ps.	(207,492	)	Ps.	(14,116	)	Ps.	66,656		Ps.	(1,860,388	)	Ps.	30,229		Ps.	154,176

(*)	See Note 30 m) “Business combination”

	December 31, 2011
Equity securities	Amount under Colombian Banking GAAP		U.S. GAAP adjustments			Amount under U.S. GAAP
A.C.H. Colombia S.A.	Ps.	2,032	Ps.	2,379		Ps.	4,411
Aerocali S.A.		2,474		2,223			4,697
Colombiana de Extrusión S.A. Extrucol		1,785		1,288			3,073
Compañía Aguas de Colombia		1,097		23			1,120
Concesionaria Ruta del Sol SA		41,534		4,809			46,343
Concesionaria Tibitoc S.A.		9,823		3,599			13,422
Fidecomiso Meléndez		14,825		(256	)		14,569
Fondo Capital I Corredores Investment Fund.		561,315		(115,848	)		445,467
Promigas LTD.		100,351		4,153			104,504
Promigas Holdings LTD.		112,524		4,657			117,181
Promigas Invesments LTD.		100,351		4,153			104,504
Promigas S.A. .		533,165		(119,916	)		413,249
Redeban Multicolor SA		4,552		1,244			5,796
Total	Ps.	1,485,828	Ps.	(207,492	)	Ps.	1,278,336

l)	Lessor accounting:

Under Colombian Banking GAAP, from the standpoint of the lessor, leases are classified as either financial or operating leases based on legal terms. Agreements with bargain purchase option are recognized as direct financial leases. Other agreements are recognized as operating leases. Assets provided through financial lease agreements are recorded as loans while assets provided through operating lease agreements are recorded as property, plant and equipment.

Under U.S. GAAP, leases are classified as either financial or operating leases based on the economic substance of the agreements using criteria established by ASC 840-10. Direct financing leases are carried at the aggregate of lease payments receivable plus estimated residual value of the leased property less unearned income.

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The reconciliation adjustment relates to differences in the book value of certain operating lease agreements classified from the standpoint of the lessor, under Colombian Banking GAAP as a fixed asset in the balance sheet (cost less accumulated depreciation), which under U.S. GAAP, those leases are classified as direct leases, not recognizing the fixed assets posted under Colombian Banking GAAP and recording the corresponding account receivable.

This difference increases shareholders´ equity under U.S. GAAP by Ps. 6,301 and Ps. 8,535 in 2012 and 2011, respectively, and increases (decreases) the consolidated statements of income by Ps. (2,234), Ps. 2,807 and Ps. (3,477) in 2012, 2011 and 2010, respectively, due to the treatment from the U.S. GAAP standpoint.

The following lists the components of net investment in direct financial leases for the year ended December 31, 2012 and 2011:

	2012			2011
Total minimum lease payments to be received	Ps.	10,157,821		Ps.	7,379,684
Less: Amount representing estimated executory cost (such as taxes, maintenance, or insurance) including profit thereon, included total minimum lease payments		(231,402	)		(196,397	)
Minimum lease payments receivable		9,926,419			7,183,287
Estimated residual values of leased property (unguaranteed)		(100,838	)		(103,070	)
Less: Unearned income		(2,174,867	)		(687,463	)
Net investment in direct financial leases	Ps.	7,650,714		Ps.	6,392,754

The following schedule shows the future minimum lease payments to be received on direct financial leases and operating leases for each of the next five years and thereafter.


For the year ended December 31, 2012	Financial leases		Operating leases
2013	Ps.	2,948,694	Ps.	2,668
2014		1,660,231		2,153
2015		1,392,353		1,819
2016		1,240,247		1,236
2017		732,756		717
2018 and thereafter		2,183,540		-
Total minimum future lease payments to be received	Ps.	10,157,821	Ps.	8,593

The total rental expense for all operating leases, except those with terms of a month or less that were not renewed, for 2012, 2011 and 2010 was Ps.29,564, Ps. 24,408 and Ps. 27,204, respectively

m)	Business combinations

Acquisition method of accounting

Under Colombian Banking GAAP, the accounting for business combinations requires the purchase price to be allocated among the acquired assets and liabilities on the basis of their book values. The difference between the purchase price, excluding acquisition costs, is recognized as goodwill. Goodwill generated in acquisitions prior 2006 is amortized over a 10-year period and goodwill generated in acquisitions after 2006 is amortized over a period of 20 years.

U.S. GAAP requires the purchase price to be allocated among the identifiable assets acquired, including any intangible assets and liabilities assumed, on the basis of their respective fair values. The difference between such amount and the purchase price is recognized as goodwill. Goodwill is not amortized but is subject to an annual impairment test.

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Promigas acquisition

As mentioned on“k) Investments in affiliated companies”, in November 27, 2012 an additional 10.32% stake in Promigas S.A. was acquired by Corficolombiana through two tender offer processes which led it to a direct and indirect stake in Promigas of 50.23%. As a result, under US GAAP, Corficolombiana acquired control of Promigas and began accounting this business combination using the acquisition method. It is important to note that under Colombian regulations and Banking GAAP, Corficolombiana does not control nor consolidates Promigas as: (i) under Colombian Banking GAAP control results from one beneficial owner having an equity stake higher than 50%, and (ii) a 5.58% stake of the 50.23% stake mentioned above is held by a private investment fund whose beneficial owner is not Grupo Aval.

Under U.S. GAAP, ASC paragraph 805-10-25-10 provides that in a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss, if any, in earnings. As a result, the gain on valuation of the 39.91% pre-existing participation in Promigas before income tax that was recognized in net income was Ps. 269,802.

Additionally, the consideration being transferred is measured; the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree are measured and recognized; the resulting goodwill is recognized, and the acquirer consolidates the acquire since the date of acquisition. At November 27, 2012, the acquisition of the controlling interest in Promigas, under U.S. GAAP, generated goodwill of Ps. 2,504,680 and had an impact on non-controlling interest of Ps.1,925,314 at the acquisition date.

The following table discloses the main adjustments to U.S. GAAP at the date of the transaction related with the acquisition of Promigas:

39.91% investment in Promigas under Colombian Banking GAAP before business combinations (1)	Ps.	1,696,639
Accumulated US GAAP adjustments under equity method before business combination (1)		(185,181	)
Remeasurement at fair value of previously held equity interest in Promigas at acquisition-date recognized in income		269,802
Acquisition cost taken to income		(1,693	)
Acquisition-date fair value of the acquirer's previously held equity interest in Promigas		1,779,567
Consideration transferred for the additional 10.32% acquired (1)		348,930
Fair value of 49.77% noncontrolling interest in Promigas		1,925,314
		4,053,812
Fair value identifiable assets acquired and liabilities assumed in Promigas		(1,549,132	)
Goodwill	Ps.	2,504,680

(1)	Total adjustment of Ps. 1,860,388 reclassified from affiliated company (see note (k) above)

The following table discloses the total assets acquired and liabilities assumed from Promigas under U.S. GAAP before and after the acquisition on November 27, 2012:

	US GAAP Book value			Adjustment to fair value			Fair value
Cash and due from banks	Ps.	207,773		Ps.	-		Ps.	207,773
Investments		325,405			107,737			433,142
Account receivables		894,429			-			894,429
Property plan and equipment, net		1,931,356			631,745			2,563,101
Intangibles (*)		-			287,711			287,711
Other assets		646,835			-			646,835
Financial obligations		(1,612,102	)		-			(1,612,102	)
Bonds		(550,015	)		-			(550,015	)
Other liabilities		(995,428	)		-			(995,428	)
Deferred tax		2,920			(329,233	)		(326,313	)
Identifiable assets acquired and liabilities assumed in Promigas measured in accordance with ASC 805 20-30	Ps.	851,173		Ps.	697,959		Ps.	1,549,132

(*)	Include intangible assets by rights in connection Ps. 2,984, costumer relationship Ps. 283,584 and other Ps. 1,143.

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For the period from the acquisition date of Promigas up to December 31, 2012, Promigas contributed to Grupo Aval´s recorded a net income of Ps. 9,492 and an decrease in other comprehensive income of Ps. (11,657).

BAC Credomatic acquisition

On December 9, 2010, Leasing Bogota –Panama acquired 100% of preferred shares issued by BAC Credomatic GECF, Inc. (hereinafter “BAC”), a financial and banking group provider of a series of products and services for distribution in Central America. Through this acquisition, Banco de Bogotá, S. A. expands its operations outside Colombia. The consolidated results posted by BAC have been included in the financial statements since such date. The goodwill in the amount of US$913,709,140, equivalent to Ps. 1,718,522 under U.S. GAAP that resulted from such acquisition does primarily consist of the potential future business of BAC and the synergies and economies of scale expected from the combined operation of Leasing Bogota - Panamá and BAC. The premium value so acknowledged is nondeductible for tax purposes. The price paid for the acquisition was US$1,920 million, equivalent to Ps. 3,611,174, fully paid in cash.

The following chart summarizes the amount paid for the acquisition of BAC and the value of assets acquired and liabilities assumed on December 9, 2010, date of acquisition:

	Book value as of December 9, 2010 (US$)		Adjustments to fair value (US$)			Fair value as of December 9, 2010 (US$)		Equivalent to millions of Colombian pesos
Purchase price						US$ 1,920,000,000		Ps.	3,611,174

Assets acquired and liabilities assumed
Assets
Cash and cash equivalents	US$1,743,312,897		US$ -			US$ 1,743,312,897		Ps.	3,278,858
Term deposits		10,474,404		-			10,474,404		19,700
Investments in Securities		491,612,673		-			491,612,673		924,635
Loan Portfolio		5,323,504,175		(135,268,946	)		5,188,235,229		9,758,137
Properties and Equipment		179,009,299		66,783,116			245,792,415		462,291
Intangible Assets		-		206,600,000			206,600,000		388,577
Assets held for sale		28,915,034		(1,363,920	)		27,551,114		51,819
Other Assets		235,606,751		48,260,353			283,867,104		533,903
Total Assets Acquired		8,012,435,233		185,010,603			8,197,445,836		15,417,920
Liabilities
Deposits		5,643,240,740		15,747,329			5,658,988,069		10,643,538
Obligations		1,091,347,445		5,878,085			1,097,225,530		2,063,684
Other Liabilities		374,017,624		60,424,991			434,442,615		817,108
Total Liabilities Assumed		7,108,605,809		82,050,405			7,190,656,214		13,524,330
Non-controlled Participation		498,762		-			498,762		938
Total Net Assets Acquired	US$ 903,330,662		US$ 102,960,198			US$ 1,006,290,860		Ps.	1,892,652
Goodwill							913,709,140		1,718,522
Fair value of assets acquired and liabilities assumed						US$ 1,920,000,000		Ps.	3,611,174

During 2011 the appraisal of assets acquired and liabilities assumed and the allocation of amount paid was completed and as result a credit was made to goodwill by $21,650 with charge to intangible asset by $25,643 and a credit to other asset by $3,993.

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The methods used for determination of the fair value of assets acquired and liabilities assumed are described below:

Loan portfolio

The fair value of loan portfolio was determined on the basis of discounted cash flows through utilization of net returns. The portfolio was segmented in sets of loans with similar characteristics, including, but not limited to, the type of loan, its currency of disbursement, applicable interest rate, collateral, amongst other factors. The estimated flows for each set of loans were prepared done the basis of the outstanding principal amount pending payment, the weighted average interest rate applicable, prepayments and the remaining weighted tenor for maturity. Forecasted cash flows were discounted at a market rate deemed appropriate for each specific group of loans under analysis. Market rates were established through utilization of observable market prices and internal pricing policies for extension of such loans.

Methods used for estimation of fair values are extremely sensitive to the assumptions and assessments made. Although it was the intention of the administration to use those assumptions and assessments that best reflect the loan portfolios acquired as well as current market conditions, a higher degree of subjectivity is nevertheless inherent to those values when compared to values determined in active markets.

Securities

Securities are predominantly valued at the prices quoted by market. In the case of non-availability of a given price, the fair value is determined using the market price of a similar instrument. In the events in which the most significant elements of valuation are not directly observable in the market, the incumbent securities are valued through use of the best information available for determination of the fair value. Such information may be developed internally and does take into account the premiums that would be required by a market participant.

Relationship with depositors

The relationship with depositors (hereinafter “CDI”) is a measure of the value of sight deposits, savings deposits and monetary market deposits that are acquired through business combinations. The fair value of CDI was determined on the basis of the present value of cost savings attributable to financing received from depositors, as compared with an alternative financing source.

Relationship with customers

Relationship with credit cards, commercial customers and affiliated commerce establishments, measure the value of those relationships for the BAC Credomatic given the history of recurrent cash flows derived from current customers and the likelihood that those customers continue generating flows in the future. The reasonable value of intangible assets was established through use of the methodology of multi-period excess income, which basic assumption is that the fair value of a customer relationship may be determined on the basis of the present value of net future flows collected through the life of the underlying asset.

Trademarks and brands

A brand or trademark of high recognition in the market has considerable value for an entity. The determination of the fair value of trademarks and brands takes into consideration, amongst other factors, the royalty payment rate comparable for the industry and the total forecasted income flows to be generated by the banking business.

Assets held for sale

Assets held for sale include real estate properties acquired in lieu of payment of loans. Assets assigned were booked at their estimated fair value less the cost of their sale on the date of acquisition, through estimations conducted by the administration, on the basis of available appraisals or on the opinion of real estate brokers. Estimated sales cost are based on the divestiture experience of properties of similar nature and on regular market conditions for real estate transactions.

Deposit liabilities

Fair value used for sight and savings deposits is, by definition, equal to the amount payable at sight as of the date of acquisition. The fair value for fixed term deposits is estimated through utilization of the method of discounted cash flows using interest rates offered by similar banks operating in each country and each currency, applicable to the different groups of outstanding maturities. In those cases in which there are no available market interest rates for a particular maturity, rate extrapolation was conducted on the basis of available interest rates.

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Deferred taxes

Deferred income taxes are those arising from differences between amounts registered in the financial statements and the amounts registered on the fiscal basis of assets acquired and liabilities assumed as a result of the acquisition.

Debt instruments

The reasonable value of debt instruments was estimated through utilization of discounted cash flows. Contractual interest rates were compared to market interest rates on the date of valuation. Those debt instruments whose contractual interest rate were either above or below market rates were adjusted to reflect either a premium or a discount.

Other assets and liabilities

Due to the relative short term nature of both other assets and liabilities, it is considered that their book value fairly approaches their fair value.

The table below presents a condensed income statement data of BAC Credomatic for the year ended December 31,2012, 2011 and for a month period ended December 31, 2010 from the date of acquisition, which represents the U.S. GAAP results of BAC Credomatic since the acquisition date included in Grupo Aval´s consolidated income statement for the year ended December 31, 2012, 2011 and 2010.

	Year ended December 31, 2012 (unaudited)			Year ended December 31, 2011 (unaudited)			One month period ended December 31, 2010 (unaudited)
Total interest income	Ps.	1,482,418		Ps.	1,340,876		Ps.	117,274
Total interest expense		(393,562	)		(315,400	)		(28,178	)
Net interest income		1,088,856			1,025,476			89,096
Total provisions, net		(164,783	)		(153,448	)		(698	)
Net interest income after provisions		924,073			872,028			88,398
Income from investment portfolio		89,921			71,491			4,162
Total other income		754,384			667,891			69,638
Total operating expenses		(1,118,209	)		(1,058,950	)		(115,321	)
Income before income tax expense		650,169			552,461			46,877
Income tax expense		(173,253	)		(153,603	)		(8,127	)
Net income		476,916			398,857			38,750
Less: net income attributable to non controlling interest		(165,414	)		(138,340	)		(13,449	)
Net income attributable to Grupo Aval´s shareholders	Ps.	311,502		Ps.	260,517		Ps.	25,301

The following is a detailed reconciliation of the adjustments between Colombian Banking GAAP and U.S. GAAP related to business combinations:

	December 31, 2012			December 31, 2011
U.S. GAAP adjustment in goodwill (1)	Ps.	2,302,994		Ps.	(233,841	)
Purchase price allocated to intangible assets identified (2)		778,966			463,539
Fair value of other assets acquired and liabilities assumed (3)		(1,524,388	)		(443,918	)
Other net adjustment in Promigas business combinations (4)		(1,257,330	)		-
Deferred income tax		307			307
	Ps.	300,549		Ps.	(213,913	)

(1)

Goodwill

This adjustment represents the difference in the amount of goodwill under Colombian Banking GAAP, purchase price less book value of net assets acquired and related goodwill amortization, with U.S. GAAP which recognizes calculates goodwill as the purchase price less fair value of net assets acquired including intangible assets not recognized on books prior to the acquisition.

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The details of goodwill under U.S. GAAP during years ended December 31, 2012 and 2011 follow:

	2012			2011			2010
Balance at beginning of year	Ps.	2,876,904		Ps.	2,734,492		Ps.	986,648
Additions related to business acquisitions		2,504,680			-			1,718,522
Subsidiary acquired by Corficolombiana subsidiary (a)		-			131,465			-
Reclassification to intangibles assets and deferred income tax (b)		(69,860	)		-			-
Effects of foreign exchange rates		(166,197	)		32,597			29,322
Adjustment to goodwill		-			(21,650	)		-
Balance at end of year		5,145,527			2,876,904			2,734,492
Goodwill under Colombian Banking GAAP		2,842,533			3,110,745			3,031,446
Adjustment recorded under U.S. GAAP	Ps.	2,302,994		Ps.	(233,841	)	Ps.	(296,954	)

(a)	This amount represents the business combination of “Proyectos de Infraestructura” in Colombia, subsidiary which operates in the non-financial sector.

(b)	This amount represents the business combination of “Intrex Investment INC” and “Concesionaria Panamericana” who acquired concession road in Colombia, which operates in the non-financial sector.

Goodwill under U.S. GAAP, allocated by segments, as of December 31, 2012 and 2011 were:

	December 31, 2012		December 31, 2011
Banco de Bogotá	Ps.	4,911,372	Ps.	2,642,749
Banco de Occidente		116,845		116,845
Banco Popular		117,310		117,310
Total Goodwill	Ps.	5,145,527	Ps.	2,876,904

Under U.S. GAAP, Grupo Aval tests goodwill for impairment at least annually using a two-step process that begins with an estimation of the fair value of a reporting unit. The first step is a screen for potential impairment and the second step measures the amount of impairment. Grupo Aval conducted qualitative impairment test of goodwill which indicated that there is not goodwill impairment for the years ended December 31, 2012 and 2011.

(2)	Intangible Assets:

This adjustment represents the difference in the amount of intangible assets under Colombian Banking GAAP and U.S. GAAP. Colombian Banking GAAP does not require the recognition of intangible assets, while U.S. GAAP requires identification and valuation of intangibles in a business combination.

The changes of Grupo Aval’s intangible assets, net under U.S. GAAP for the years ended December 31, 2012, 2011 and 2010 were as follows:

	2012			2011			2010
Balance at beginning of year	Ps.	463,539		Ps.	493,325		Ps.	110,844
Reclassifications (a)		118,024			-			-
Additions related with business combinations		287,711			25,643			395,428
Effect of foreign change rate		(27,833	)		5,902			-
Amortization		(62,475	)		(61,331	)		(12,948	)
Balance at end of year	Ps.	778,966		Ps.	463,539		Ps.	493,325

(a) This amount represents the business combination , “Intrex Investment INC” and “Concesionaria Panamericana” who acquired concession road in Colombia, which operates in the non-financial sector.

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Below is a detailed description of each intangible asset recognized.

Brands

Grupo Aval determines brand value through the royalty savings method (relief from royalties). This method measures the savings a company generates as a result of not having to pay for a license to use such brand. The value of the brands is equal to the sum of the net present value of the after-tax savings a company generates during the period in question as a result of not having to pay for the use of such a brand plus the net present value of the after-tax savings a company would generate in perpetuity after the last year of the period in question.

Core Deposit

Core deposit intangibles, defined as the premium paid to acquire the core deposits of an institution, was determined by using the alternative funding method, which estimates the net present value of the cost difference or “spread” between the cost of using the core deposit intangibles and the cost of an alternative source of funding under current market conditions.

Concession roads

Grupo Aval through its subsidiary Corficolombiana has entered into the road concession business which involves construction, operation and maintenance in public toll road granted by the Colombian Government. Road concession arose from contractual rights related to the acquisition of Concesionaria Panamericana and Intrex Investment INC.

Customer relationships

Customer relationship is defined as the relationship that Grupo Aval has established with its customers through contracts. Customer relationship arise from contractual rights, thus are classified as intangible assets that meet the contractual-legal criterion.

Intangibles are calculated based on the expected gains to be received from these relationships for a specific period of time.

Intangible assets under U.S. GAAP were as follows:

	December 31, 2012
	Gross carrying amount		Accumulated amortization			Net
Non-amortizable intangible assets	Ps.	104,219	Ps.	-		Ps.	104,219
Amortizable intangible assets		831,013		(156,266	)		674,747
	Ps.	935,232	Ps.	(156,266	)	Ps.	778,966

	December 31, 2011
	Gross carrying amount		Accumulated amortization			Net
Non-amortizable intangible assets	Ps.	113,913	Ps.	-		Ps.	113,913
Amortizable intangible assets		453,944		(104,318	)		349,626
	Ps.	567,857	Ps.	(104,318	)	Ps.	463,539

The following table shows the intangible assets gross amount under U.S. GAAP, detailed with their respective useful lives:

					Weighted average useful life (months)
	2012		2011		Weighted average useful life (months)
Brands	Ps.	104,219	Ps.	113,913		-
Core deposits		181,127		188,699		138
Road concessions (a)		121,008		-		161
Customer relationships (b)		508,992		244,652		127
Other		19,886		20,593		60
	Ps.	935,232	Ps.	567,857

(a)	This amount represents the business combination of “Intrex Investment INC” and “Concesionaria Panamericana” who acquired concession road in Colombia, which operates in the non-financial sector.

(b)	This amount includes Ps. 283,584 from Promigas business combination.

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Grupo Aval expects that the estimated aggregate amortization expense for intangible assets for the next five fiscal years to be as shown in the following table.

Fiscal year ending December 31	Aggregate amortization expense
2013	Ps.	109,469
2014		99,164
2015		84,817
2016		81,145
2017		66,918
Total	Ps.	441,513

(3)	Fair value of other asset acquired and liabilities assumed

The following is the consolidated movement of fair value of assets acquired and (liabilities) assumed in business combination

	2011			Additions(1)			Effect of foreign exchange rates			Amortization			2012
Investment securities	Ps.	(3,887	)	Ps.	107,737		Ps.	-		Ps.	622		Ps.	104,472
Loan portfolio		(124,295	)		-			12,101			37,343			(74,851	)
Allowance		41,250			-			(3,704	)		(5,087	)		32,459
Fixed assets		199,617			631,745			(10,104	)		14,569			835,827
Other assets		47,645			-			(5,567	)		(25,619	)		16,459
Reappraisal of assets		(426,300	)		-			12,978			(31,252	)		(444,574	)
Deposits		(9,811	)		-			903			3,454			(5,454	)
Other liabilities		(103,873	)		-			9,306			18,312			(76,255	)
Non controlling interest		(64,263	)		(1,848,208	)		-			-			(1,912,471	)
	Ps.	(443,917	)	Ps.	(1,108,726	)	Ps.	15,913		Ps.	12,342		Ps.	(1,524,388	)

(1)	This amount represents the business combination of Promigas, which operates in the non-financial sector

	2010			Effect of foreign exchange rates			Amortization/ Adjustments			2011
Investment securities	Ps.	(4,938	)	Ps.	-		Ps.	1,051		Ps.	(3,887	)
Loan portfolio		(190,627	)		(2,806	)		69,138			(124,295	)
Allowance		160,307			2,405			(121,462	)		41,250
Fixed assets		253,175			1,692			(55,250	)		199,617
Other assets		69,834			1,088			(23,277	)		47,645
Reappraisal of assets		(440,084	)		(2,371	)		16,155			(426,300	)
Deposits		(34,638	)		(272	)		25,099			(9,811	)
Other liabilities		(123,751	)		(2,104	)		21,982			(103,873	)
Non controlling interest		(64,263	)		-			-			(64,263	)
	Ps.	(374,985	)	Ps.	(2,368	)	Ps.	(66,564	)	Ps.	(443,917	)

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Under Colombian Banking GAAP assets acquired and liabilities assumed are recorded at its carrying amount. Under U.S. GAAP, fair value adjustments are allocated to each acquired asset and liability and the differences between the fair value and book value of the depreciable assets are amortized during the estimated period of useful life.

(4)	This table related with other net adjustment in Promigas business combinations

Promigas consolidated net assets, net whose fair value is the same as their book value (a)	Ps.	788,238
Promigas investment under Colombian Banking GAAP		(2,045,568	)
	Ps.	(1,257,330	)

(a)	Includes net income of Promigas from the acquisition date to December 31, 2012 for an amount of Ps.9,492

The following is the movement of business combinations adjustment under U.S. GAAP.

	2012			2011			2010

Balance at the beginning of the year U.S. GAAP adjustments	Ps.	213,913		Ps.	178,326		Ps.	132,911
Adjustment recorded during the year to statement of income (*)		(333,316	)		66,161			6,593
Adjustment recorded to OCI under U.S. GAAP (Unrealized gains (losses) on available for sale securities		(425	)		(36,769	)		(8,414	)
Additional Paid in Capital		-			6,195			-
Reclassifications from affiliated investment caption of Ps. 185,181 and deferred taxes caption of Ps. (365,902).		(180,721	)		-			-
Adjustment recorded for BAC		-			-			47,236
Balance at the end of year	Ps.	(300,549	)	Ps.	213,913		Ps.	178,326

(*)

In 2012 this amount mainly include the remeasurement at fair value of previously held equity interest in Promigas at acquisition-date recognized in income. In 2011 the increase occurs in the variation of the fair value of investments acquired in the process of combination of business with Corfivalle were sold during the year.

n)	Non-controlling interest

Under Colombian Banking GAAP, the non-controlling interest is presented as a separate line within total liabilities and thus, does not comprise part of shareholders’ equity.

For U.S. GAAP purposes, as of January 1, 2009, Grupo Aval adopted ASC 810-10-65-65-1 which requires the non-controlling interest in subsidiaries to be classified as a separate component of shareholders’ equity in the consolidated financial statements. Additionally, consolidated net income and comprehensive income are reported with separate disclosures of the amounts attributable to the parent company and the non-controlling interest.

The following is the reconciliation of non-controlling interests between Colombian Banking GAAP and U.S. GAAP:

	December 31, 2012			December 31, 2011
Non-controlling interest under Colombian Banking GAAP	Ps.	5,407,697		Ps.	4,927,029
Adjustments incorporated under U.S. GAAP reconciliation:
Non-controlling interest in reappraisal of assets (1)		(986,766	)		(975,478	)
Non-controlling interest participation in U.S. GAAP adjustments		(69,060	)		(15,842	)
Business combination (2) (3)		2,013,044			64,263
Changes in participation acquired by the controlling interest		-			151,752
Non-controlling interest in variable interest entities		4,998			-
		962,216			(775,305	)
Non-controlling interest under U.S. GAAP	Ps.	6,369,913		Ps.	4,151,724

(1)

As explained in note (iv) (d) above, under Colombian Banking GAAP the surplus between the appraisal and the book value of the asset is recorded in the unconsolidated balance sheet under the asset caption “Reappraisal of assets” and the shareholders’ equity under the caption “Equity surplus: reappraisals of assets”. This adjustment relates to the reversal of the participation of the non-controlling interest in reappraisal of assets.

(2)

During 2012, Corporación Financiera Colombiana acquired the control of Promigas and measured the assets acquired and liabilities assumed at its fair value including those relating with non controlling interest The 2012 balance includes Ps. 1,925,314 of non-controlling interest from Promigas (See note m above).

(3)

During 2005, Corporación Financiera del Valle “Corfivalle” (an entity not controlled by Grupo Aval) acquired the shares of Corporación Financiera Colombiana (a subsidiary of Grupo Aval) with an exchange of equity interest. With this transaction Grupo Aval acquired the control of “Corfivalle”, (transaction commonly referred to as reverse acquisition) which was recorded for U.S. GAAP reconciliation purposes according to ASC 323 (previously EITF 98-13), determining the fair value of the asset given, of the net assets acquired and the fair value of the non-controlling interest after the merger process.

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As discussed in Note (1) c., Grupo Aval acquired during 2011an additional 63.07% of Banco Popular through an ex-change non-monetary transaction by Grupo Aval with preferred shares’. This operation was recorded at its carrying amount, the difference between Colombian banking GAAP and U.S. GAAP relates to the adjustments of the reconciliation between both principles.

Under Colombian Banking GAAP, an agreement whereby Grupo Aval assigned to Adminegocios & Cia. S.C.A. its right to acquire up to 2,605,000 mandatorily convertible bonds issued by Banco de Bogotá by $118,450 is regarded as the sale of a stake of Banco de Bogotá by Grupo Aval, as a direct consequence of this transaction, Grupo Aval recognized a gain of Ps. 61,222 and reduced its stake in Banco de Bogotá from 65,33% to 64,44%. Under US GAAP this agreement is considered, in substance, a loan in accordance with ASC 470 and thus no gain was recognized and Grupo Aval´s stake in Banco de Bogotá was not reduced.

o)	Guarantees and contingencies:

Guarantees

Grupo Aval provides its clients with a variety of guarantees and similar arrangements, including stand-by letters of credit and bank guarantees.

Under Colombian Banking GAAP, at the inception of the guarantees, Grupo Aval recognizes in Memorandum Accounts the full guaranteed amount. Any premium received is recognized as collected in the Consolidated Statements of Income.

Under U.S. GAAP, at the inception of a guarantee, Grupo Aval recognizes in its Consolidated Balance Sheet a liability for all guarantees granted. The liability recognized is the premium received or receivable which represents the fair value of the guarantee at its inception and it is subsequently amortized over the term of the guarantee.

The table below shows guarantees by expiration dates and maximum potential amount of future losses:

	Expire within one year				Expire after one year				Total amount outstanding				Maximum potential amount of future losses
	2012		2011		2012		2011		2012		2011		2012		2011
Financial standby letters of credit	Ps.	290,492	Ps.	487,080	Ps.	238,716	Ps.	147,020	Ps.	529,208	Ps.	634,010	Ps.	529,208	Ps.	634,010
Bank guarantees		868,266		1,551,889		1,238,078		358,882		2,106,344		1,910,771		2,106,344		1,910,771
Total	Ps.	1,158,758	Ps.	2,038,969	Ps.	1,476,794	Ps.	552,808	Ps.	2,635,552	Ps.	2,544,872	Ps.	2,635,552	Ps.	2,544,872

	Notional amount		Fair value		Notional amount		Fair value
	2012				2011
Financial standby letters of credit	Ps.	529,208	Ps.	5,933	Ps.	634,010	Ps.	376
Bank guarantees		2,106,344		30,735		1,910,771		12,734
Total	Ps.	2,635,552	Ps.	36,668	Ps.	2,544,872	Ps.	13,110

Contingencies

Under Colombian Banking GAAP, contingencies are recognized in the following events:

Information available prior to issuance of the financial statements indicates that it is probable (>50%) that an asset had been impaired or a liability had been incurred at the date of the financial statements; and the amount of loss can be reasonably estimated;

A provision for contingent event is recorded at the time judgment is issued against Grupo Aval, without reference to the evaluation of the provable final outcome.

For U.S. GAAP, ASC 450, “Accounting for Contingencies”, provides guidance for recording contingencies. Under ASC 450, there are three levels of assessment of contingent events – probable, reasonably possible and remote. The term “probable” in ASC 450 is defined as “the future event or events are likely to occur”. The term “reasonably possible” is defined as “the chance of the future event or events occurring is more than remote but less than likely”. In addition, the term “remote” is defined as “the chance of the future event or events occurring is slight”.

Under ASC 450, an estimated loss related to a contingent event is to be accrued by a charge to income if both of the following conditions are met:

Information available prior to issuance of the financial statements indicates that it is probable (>75%) that an asset had been impaired or a liability had been incurred at the date of the financial statements; and

The amount of loss can be reasonably estimated.

The amount recorded is an estimate of the amount of loss at the date of the financial statements. If the contingent event is evaluated to be reasonably possible, no provision for the contingent event may be made, but disclosure of the event is required.

Loyalty Programs

Under Colombian Banking GAAP, the Grupo Aval´s Banking subsidiaries have customer loyalty programs that assign points for credit card purchases and for the use of some financial services granted by their banks. The maturity of the points ranges between 18 and 36 months and allows customers to exchange them for prizes such as miles, hotels and other awards.

Under U.S. GAAP recorded a liability for the value of the existing points which are earned and expected to be redeemed based on the statistics of redemption. The estimated cost per point includes the average cost of the awards. Periodic adjustments to this liability are recorded as other operating expenses on the Consolidated Statement of Income based on the award earned, awards redeemed, awards expired, changes in the cost base and changes in the award system. The liability is recorded under the accrued liabilities and provisions account in the Consolidated Balance Sheets.

	Net Income								Shareholders’ equity
	2012			2011		2010			2012			2011
Guarantees	Ps.	(343	)	Ps.	1,093	Ps.	(2,350	)	Ps.	(1,924	)	Ps.	(1,581	)
Contingencies		(1,143	)		21,237		6,017			28,578			29,721
Loyalty programs		(3,533	)		3,186		(11,026	)		(9,678	)		(6,144	)
	Ps.	(5,019	)	Ps.	25,516	Ps.	(7,359	)	Ps.	16,977		Ps.	21,996

p)	Equity tax:

In accordance with Law 1111 of 2006, companies and individuals who possess liquid equity in excess of Ps. 3,000 were subject to a special equity tax during 2011. Under Colombian Banking GAAP, the equity tax was recorded against deferred charges and amortized on straight monthly basis between 2011 to 2014 with taxes charged to the consolidated statement of income.

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Under U.S. GAAP, tax expense derived from the equity tax is recorded directly on the Consolidated Statements of Income, discounted at its present value.

The adjustment to Shareholders´ Equity under U.S. GAAP by Ps. (329,613) and Ps. (477,368) as of December 31, 2012 and 2011, respectively, and in Consolidated Statements of Income of Ps. 120,178, Ps. (483,741) and Ps. (1,220) in 2012, 2011 and 2010, respectively.

q)	Securitizations:

Grupo Aval, through its subsidiary Banco Comercial AV Villas, securitizes performing and non-performing mortgage housing loans through third parties. These securitizations are a source of funding for Grupo Aval in addition to transferring the economic risk of the performing mortgage housing loans to third parties.

Under Colombian Banking GAAP, securitizations of performing and non-performing mortgage loans are recorded as sales and, therefore, securitized loans are removed from Grupo Aval’s balance sheet. Additionally, Grupo Aval recognizes in the Consolidated Statement of Income, at the moment of the operation, the difference between the book value of the securitized portfolio and the cash received in consideration.

Under U.S. GAAP, since January 2010 when an entity transfers financial assets should evaluate them for consolidation under the VIE consolidation guidance. The party that has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE, is considered to have a controlling financial interest and, thus, is the primary beneficiary and should consolidate the VIE.

The table below presents a summary of the assets and liabilities and related net income in trust funds which have been included on Grupo Aval’s Consolidated Balance Sheet at December 31, 2012 and 2011, for U.S. GAAP purpose:

	December 31, 2012		December 31, 2011
Total assets	Ps.	2	Ps.	2
Total liabilities		-		-
Total shareholders’ equity		2		2
Total liabilities and shareholders´ equity	Ps.	2	Ps.	2
Net income	Ps.	-	Ps.	-

r)	Variable interest entities:

Under Colombian Banking GAAP, consolidation is required when an entity holds the majority of voting rights of another entity.

Under U.S. GAAP, application of the majority voting interest requirement to certain types of entities may not identify the party with a controlling financial interest because that interest may be achieved through other arrangements. Although ASC 810-10-15-14 states that consolidated financial statements include subsidiaries in which Grupo Aval has a controlling financial interest, (i.e., a majority voting interest), U.S. GAAP also requires a company to consolidate a variable interest entity (“VIE”) if that company is a primary beneficiary that has the power to direct the activities of a variable interest entity that most significantly impact the entity's economic performance and has the power to direct the activities of a variable interest entity that most significantly impact the entity's economic performance and has the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest. Under Colombian Banking GAAP, no such concept as a variable interest entity exists.

The overall methodology for evaluating transactions and relationships under the VIE requirements includes the following two steps:

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Determine whether the entity meets the criteria to qualify as a VIE; and

Determine whether Grupo Aval is the primary beneficiary of the VIE.

In performing the first step, significant factors and judgments were considered in making the determination as to whether an entity is a VIE.

For each VIE identified, Grupo Aval performs the second step and evaluates whether it is the primary beneficiary of the VIE by considering the following significant factors and criteria:

Whether the Grupo Aval has the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity;

Whether Grupo Aval has the right to receive benefits from the entity that could potentially be significant to the variable interest; and

Whether Grupo Aval has the power to direct the activities of the variable interest entity that most significantly impact the entity's economic performance has.

Grupo Aval’s management has identified the following VIEs in accordance with the variable interest model as prescribed in U.S. GAAP, and concluded that Grupo Aval itself should be regarded as primary beneficiary. The table below provides details regarding the nature, purpose, size, activities of the entity and nature of Grupo Aval´s involvement with each entity.

Entity

Nature

Purpose

Activities of the entity

Nature of Grupo Aval´s involvement with the entity

Total assets

2012

2011

Megabanco Foreclosed Assets Trust

Trust managed by Helm Fiduciaria

Sale of non- performing assets

Administration and sale of non performing assets

Primary beneficiary of expected losses and returns

Ps.

385

Ps.

5,791

Corficolombiana Banco de Bogotá A Trust

Trust managed by Fiduciaria Bogotá

Collection of non -performing loans

Administration and collection of non- performing loans

Primary beneficiary of expected losses and returns

(4,386

)

499

Fiduciaria de Occidente

Trust managed by Fiduciaria de Occidente

Sale of non-performing assets and Collection of non-performing loans

Administration and collection of non-performing loans

Primary beneficiary of expected losses and returns

21,924

15,730

Patrimonio Autonomo Corficolombiana

Trust managed by Fiduciaria Colpatria

Collection of non -performing loans

Administration and collection of non- performing loans

Primary beneficiary of expected losses and returns

54,440

Total

Ps.

72,363

Ps.

22,020

In addition and due to the consolidation of certain VIEs, Grupo Aval recognized additional allowances under U.S. GAAP of Ps. 69,655 and Ps. 62,142 for 2012 and 2011, respectively.

The table below presents a summary of the assets and liabilities of VIEs under U.S. GAAP which have been consolidated on Grupo Aval’s Consolidated Balance Sheet for the years December 31,2012 and 2011:

	December 31, 2012			December 31, 2011
Assets
Loans and other receivables	Ps.	54,517		Ps.	81,341
Foreclosed assets		27,316			32,224
Allowance for loan losses of loans, and other receivables		(25,224	)		(62,142	)
Allowance for foreclosed assets		(23,814	)		(28,188	)
Other assets		39,568			(1,215	)
Total assets	Ps.	72,363		Ps.	22,020
Total liabilities	Ps.	137,644		Ps.	18,513
Total controlling interests shareholders’ equity		(70,279	)		26,560
Total non-controlling interests (see note iv) n))		4,998			(23,353	)
Total shareholders’ equity		(65,281	)		3,507
Total liabilities and Shareholders’ equity	Ps.	72,363		Ps.	22,020
Net income Attributable to Grupo Aval	Ps.	(127,166	)	Ps.	(5,351	)

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Grupo Aval´s maximum exposure to loss as a result of its involvement with VIEs was Ps.137,644 and Ps. 18,513 at December 31, 2012 and 2011, respectively.

Grupo Aval did not provide any additional financial support to these or other VIEs during 2012. Further, Grupo Aval does not have any contractual commitments or obligations to provide additional financial support to these VIEs. Investors in debt securities issued by the securitization entities have no recourse to other assets of Grupo Aval.

s)	Cumulative translation adjustment:

The following table presents the U.S. GAAP adjustment in the consolidated net income for the years ended December 31, 2012, 2011 and 2010 related to cumulative translation adjustments:

	2012			2011			2010
Translation of financial statements (1)	Ps.	348,898		Ps.	(43,143	)	Ps.	(43,885	)
Hedge of Net Investment in Foreign Operations (2)		(330,305	)		76,342			5,298
Total U.S. GAAP income statement adjustment	Ps.	18,593		Ps.	33,199		Ps.	(38,587	)

(1) Translation of financial statements

For Colombian Banking GAAP purposes, translation adjustments originated in the statement of income accounts resulting from subsidiaries with a functional currency different from the reporting currency (Colombian pesos) are included in the consolidated statement of income.

Under U.S. GAAP, according to ASC 830 and ASC 220, translation adjustments are presented as a component of shareholders’ equity within other comprehensive income.

(2) Hedge of Net Investment in Foreign Operations

In relation with the acquisition of BAC Credomatic and the related capital investment of Banco de Bogotá in Leasing Bogotá Panamá of Ps. 3,428,037 equivalent to U.S.$ 1.76 billion (the “Hedged Item”) (see Note 1(b)), Grupo Aval Credit Risk Committee designated U.S. dollar forwards for heading of one portion of the hedged item and U.S. dollar denominated debts to hedge other portion as accounting hedges under U.S. GAAP, to hedge the exchange rate exposure of positions in U.S. dollars against the Colombian Peso. As of December 31, 2011, of the Ps. 3,428,037 investment in Leasing Bogotá Panamá, Ps. 1.66 billion represents the portion of the net investment being hedged through the aforementioned strategy.

The increase in 2010 is because of the effect of the foreign exchange hedge from the acquisition of BAC (one month was recognized), while 2011 includes the effect for twelve months.

The variation is due to the fluctuation of the Colombian peso exchange rate against the U.S. dollar as described in the table below:

2012 1,768.23

2011 1,942.70

2010 1,913.98

Forwards

Since December 30, 2010, for both Colombian Banking GAAP and U.S. GAAP, U.S. dollar forward contracts were formally designated as hedging instruments over a portion of the net investment in Leasing Bogotá Panamá. As of December 31, 2011, the notional amounts of the U.S. dollar forwards amounted to U.S. $658 million which were used to hedge a corresponding portion of the foreign net investment. These forwards are entered into with other financial counterparties and do follow a documented “rolling hedge” strategy, by means of entering into new forwards simultaneously as the prior forwards expire. This hedge strategy mitigates the risk that the USD depreciates against the Colombian Peso, which does creates a loss within the Cumulative Translation Adjustment reflected within the Other Comprehensive Income in Shareholders Equity.

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As mentioned in Note 2(k), under Colombian Banking GAAP, changes in fair value of derivatives used as hedges of net investment in foreign operations, to the extent ineffective, are recorded as a component of stockholders’ equity, and to extent effective are recorded in the income statement In addition and derived from the amendments introduced in November, the daily accrued amount resulting from the implicit devaluation or revaluation agreed upon in the initial contract is recognized in the income statement.

Under U.S. GAAP, changes in the fair values of derivative and non-derivative financial instruments used as hedges of net investments in foreign operations are, to the extent ineffective, recorded in the income statement. However, in accordance with ASC 815-35-35-16 “Method based on Changes in Forward Exchanges Rates”, all changes in fair value relating solely to the foreign exchange rate portion of the hedge relationship are recorded in the foreign currency translation adjustment account within accumulated other comprehensive income (loss).

Foreign currency denominated debt

Under Colombian Banking GAAP, only derivative financial instruments can be designated as accounting hedges. Under U.S. GAAP (ASC 815 “Derivatives and Hedging”), entities may designate a non-derivative financial instrument that gives rise to a foreign currency transaction gain or loss, in accordance with ASC 830 “Foreign Currency Matters,” as a hedge of the foreign currency exposure of a net investment in a foreign operation.

On December 7, 2010, and only for U.S. GAAP purposes, the related U.S. dollar denominated debt incurred by Banco de Bogotá for capitalizing Leasing Bogotá Panamá was designated as an accounting hedge over a portion of the net investment in Leasing Bogotá Panamá. The initial borrowing was paid on December 20, 2011 and the hedge was replaced for a new borrowing of $ 408,7 and the issuance of bonds in the international market through a Rule 144-A offering by $591,3 million.

Therefore, while under U.S. GAAP exchange rate fluctuations derived from the U.S. dollar denominated debt designated as the hedging instrument are recorded in shareholders' equity in accordance with requirements for hedge accounting, under Colombian Banking GAAP no hedge accounting is applied and therefore any exchange rate fluctuation is recorded in the consolidated statement of income.

Effectiveness test

As mentioned in Note 2(k), Colombian Banking GAAP requires entities to perform effectiveness tests on a monthly basis and for each reporting period retrospective and prospective, in order to assess whether the derivative used in its hedging transaction is expected to be and has been highly effective, in a range between 80% and 100%, in offsetting changes in the fair value of the hedged item. Colombian Banking GAAP does not require or recommends the application of any specific effectiveness test method for net investment hedges.

U.S. GAAP requires entities to perform effectiveness testing whenever earnings or financial statements are reported and at least every three months. For U.S. GAAP purposes, Grupo Aval documented the effectiveness of its hedge of its investment in Leasing Bogotá Panamá contemporaneously and its assessment is based on the beginning balance of the portion of net investment hedged at the inception of the hedge relationship. Since Banco de Bogotá´s investment in Leasing Bogotá Panamá will fluctuate during the year, Grupo Aval will evaluate the hedging relationship at least every three months or earlier depending on the maturity of the hedging instruments and the result of monthly effectiveness test. In addition, effectiveness range for U.S. GAAP is set between 80% and 125%, in offsetting changes in the fair value of the hedged item.

Effectiveness test - Forwards

For U.S. GAAP purposes, Grupo Aval follows the forward-rate method for the U.S. dollar forwards in order to test effectiveness.

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For the U.S. dollar forwards designated as hedging instrument, any ineffectiveness could be generated between the hedging instrument and the hedged item if both have different notional amounts or different currencies. Grupo Aval will measure hedge ineffectiveness by comparing the change in the value of the actual derivative with the change in value of a hypothetical derivative with the same maturity.

Under Colombian Banking GAAP and as stated previously, there are no specific requirements regarding the application of a particular effectiveness test and therefore, Grupo Aval will follow also the forward-rate method.

Effectiveness test - Foreign currency denominated debt

For U.S. GAAP purposes, Grupo Aval follows the spot exchange rate method for the U.S. dollar denominated debt instrument in order to test effectiveness.

For the U.S. dollar denominated debt instrument designated as hedging instrument, the translation gain or loss that is recorded in the foreign currency translation adjustment account is based on the spot exchange rate between the functional currency of Leasing Bogotá S.A. Panamá and the investor´s functional currency. To the extent the notional amount of the hedging instrument exactly matches the hedged net investment and the underlying exchange rate of the derivative hedging instrument relates to the exchange rate between the functional currency of the net investment and the investor´s functional currency (or, in the case of a non-derivative debt instrument, such instrument is denominated in the functional currency of the net investment), no ineffectiveness is recorded in earnings.

U.S. GAAP adjustment for the year ended December 31, 2012

For the year ended December 31, 2012, Ps. (253,257) related to (i) foreign exchange differences of the U.S. dollar denominated debt and (ii) changes in the fair value of U.S. dollar forwards contracts, which were both recorded in the income statement for Colombian Banking GAAP purposes, were reclassified to the cumulative translation adjustment account within accumulated other comprehensive income (loss) for U.S. GAAP purposes.

t)	Receivables for Issuance of Equity

During 2011 and in connection with its issuance of preferred shares, Grupo Aval provided to its clients, the option of financing the acquisition of the mentioned shares through credit facilities that ranged from 1 to 3 years. As part of the financing program, shares were pledged until the extinguishment of the liability by the creditor.

Under Colombian Banking GAAP, any issuance of shares payable in notes, is recognized directly as an increase in equity, debiting loans.

Under U.S. GAAP, in accordance to ASC 505-10-45, if notes received in exchange of an issuance of shares, are not convertible into cash in the short-term, it is required to offset the notes and stock issued in the equity section. As of December 31, 2012 and 2011, an adjustment of Ps. 207,999 and Ps.250,031, respectively were posted reducing equity to recognized notes received under U.S. GAAP.

u)	Earnings per share

Under Colombian Banking GAAP, earnings per share (“EPS”) are computed by dividing net income by the weighted-average number of common and preferred shares outstanding for each period presented.

U.S. GAAP requires dual presentation of basic and diluted EPS for entities with complex capital structures, as well as a reconciliation of the basic EPS computation to the diluted EPS computation. Basic EPS is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding. Diluted EPS assumes the issuance of common shares for all dilutive potential common shares outstanding during the reporting period. For the years ended December 31, 2012, 2011 and 2010, Grupo Aval had a simple capital structure and there were no outstanding dilutive instruments. Therefore, there was no difference between basic or diluted EPS for these years.

Up to December 31, 2010, Grupo Aval only had common shares outstanding. During 2011, Grupo Aval issued non-voting preferred shares, which according to the local law has the right to receive a non-cumulative minimum preferential dividend equivalent of Ps. 1 per semester (one Colombian peso) and also participate in the same proportion that the common shares in the net income which will be distributed.

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Based on the above, the following table of net income per common share for years ended December 31, 2012, 2011 and 2010 (in millions of pesos, except per share data):

	2012			2011			2010
U.S. GAAP consolidated net income	Ps.	2,593,373		Ps.	1,702,089		Ps.	1,778,441
Less: participation of non-controlling interest		(1,028,897	)		(816,747	)		(813,122	)
Net income attributable to controlling interest	Ps.	1,564,476		Ps.	885,342		Ps.	965,319

Weighted average number of shares outstanding used in basic EPS calculation (1)		18,551,656,161			16,306,613,443			13,943,980,671
Basic and diluted earnings per share (U.S. GAAP):
Net income per share attributable to controlling interest (pesos)	Ps.	84.33	(2)	Ps.	54.29	(2)	Ps.	69.23

(1)	The balance of outstanding shares of Grupo Aval is 18,551,766,453 at December 31, 2012, and the average number of shares during 2012 was 18,551,656,161, this is due that at the first quarter of 2012, Grupo Aval had 466.457 shares in treasury.

(2)

Our by-laws provide for two classes of shares: common shares and shares with a preferred dividend, liquidation preference and no voting power (except in limited, extraordinary circumstances). Holders of preferred shares are entitled to receive a minimum dividend after deducting losses affecting the capital, and deducting any amounts set aside for legal reserve, but before creating or accruing for any other reserve and before any declared dividends are paid to holders of common shares. Dividends to holders of common shares must be approved by the shareholders. If no dividends are declared, no holder of Grupo Aval’s preferred or common shares will be entitled to payment. The minimum dividend will be equal to Ps 1.00 in each calendar semester, so long as this value is higher than the dividend paid to the holders of common shares. If the minimum preferred dividend is not equal or higher than the per share dividend on the common shares, the minimum dividend will be equal to the dividend paid to the holders of common shares, if any.

As such, Grupo Aval’s non-voting, preferred shares do not meet the definition of preferred shares under US GAAP, which would normally have priority to receive dividends. In addition, preferred shares under US GAAP would have a minimum dividend - similar to the coupon on a bond- , for which unpaid dividends would accumulate to subsequent periods, characteristics that are not found in Grupo Aval’s non-voting preferred shares. For these reasons, under U.S. GAAP non-voting preferred shares issued by Grupo Aval are considered “Participating securities”. Due to the aforementioned considerations, net income per share for 2011 has been calculated dividing the net income attributable to controlling interest under U.S.GAAP by the combined weighted average of common and preferred shares for that year.

v)	Estimated Fair Value of Financial Instruments

Fair value of financial instruments

Effective January 1, 2008, Grupo Aval adopted ASC 820 - Fair Value Measurements (incorporated in ASC 820). Among other things, ASC 820 defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis.

The framework for measuring fair value under Colombian Banking GAAP is consistent with ASC 820, except for considerations about own credit risk, counterparty risk and valuation of collaterals in the valuation of derivatives.

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Fair-Value Hierarchy

ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Grupo Aval’s market assumptions. The three levels of the fair value hierarchy under ASC 820 are described below:

Level 1- Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2- Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Inputs include the following:

(a)	Quoted prices for similar assets or liabilities in active markets;

(b)	Quoted prices for identical or similar assets or liabilities in non-active markets;

(c)	Pricing models whose inputs are observable for substantially the full term of the asset or liability;

(d)	Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means.

Level 3- Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Grupo Aval considers relevant and observable market prices in its valuations where possible. The frequency of transactions, the size of the bid-ask spread and the amount of adjustment necessary when comparing similar transactions are all factors in determining the liquidity of markets and the relevance of observed prices in those markets.

Determination of Fair Value

Fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, fair value is based upon internally developed models that use primarily market-based or independently-sourced market parameters, including interest rate yield curves, option volatilities and currency rates. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments include, among others, amounts to reflect counterparty credit quality, liquidity and unobservable parameters that are applied consistently over time.

The following section describes the valuation methodologies used by Grupo Aval, including an indication of the level in the fair-value hierarchy in which each instrument is generally classified. Where appropriate, the description includes details of the valuation models, the key inputs to those models, as well as any significant assumptions.

1.	Fair value measurement on a recurring and non-recurring basis (ASC 820)

Investment securities

Debt securities:

When available, Grupo Aval uses quoted market prices to determine the fair value and such items are classified in Level 1 of the fair value hierarchy. For not-traded or over-the–counter securities, Grupo Aval generally determines fair value utilizing industry standard valuation models and standard techniques. These techniques include determination of expected future cash flows which are discounted using curves of the applicable currencies and interest.

Grupo Aval may also use quoted prices for recent trading activity of assets with similar characteristics to the security. If deem appropriate, Grupo Aval adjusts these values for liquidity risks using their own methodologies. These securities priced using such methods are generally classified as Level 2. However, when less liquidity exists for a security, a quoted price is stale or prices from independent sources vary, a security is generally classified as Level 3.

Derivatives

The fair values of derivative assets and liabilities traded in the over-the-counter market are determined using industry standard valuation models that require the use of multiple market inputs including interest rates, prices and indices to generate continuous yield and volatility factors. The majority of market inputs is actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. Estimation risk is greater for derivative asset and liability positions that are either option-based or have longer maturity dates where observable market inputs are less readily available or are unobservable, in which case, quantitative-based extrapolations of rate, price or index scenarios are used in determining fair values. The fair values of derivative assets and liabilities include adjustments for market liquidity, counterparty credit quality and other deal specific factors, where appropriate. Derivatives are classified in level 2 and level 3.

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Credit Valuation Adjustment

Under Colombian Banking GAAP, the measurement of the fair value of derivatives does not include the credit valuation adjustment “CVA”. Under U.S. GAAP, Grupo Aval is measuring the effects of the credit risk of its counterparties and its own creditworthiness in determining fair value of the swap and forward derivatives.

On December 31, 2012, 2011 and 2010, the total adjustment on CVA was Ps.(1,846) Ps. (940) and Ps. (416), respectively.

Counterparty credit-risk adjustments are applied to derivatives when Grupo Aval’s position is an asset and its credit risk is incorporated when the position is a liability. Grupo Aval attempts to mitigate credit risk with third parties which are international banks by entering into master netting agreements. When assessing the impact of credit exposure, only the net counterparty exposure is considered at risk due to the offsetting of certain same-counterparty positions and the application of cash and other collateral. Grupo Aval generally calculates the asset’s credit risk adjustment for derivatives transacted with international financial institutions by incorporating indicative credit related pricing that is generally observable in the market such as Credit Default Swaps spreads (“CDS”). The credit-risk adjustment for derivatives transacted with non-public counterparties is calculated by incorporating unobservable credit data derived from internal credit qualifications to financial institutions and corporate companies located in Colombia.

A hundred basis points reduction in our own credit spreads when determining the fair value of the liabilities associated with derivative contracts could result in an increase of the associated liability of approximately Ps. (213), Ps. 704 and Ps. 608 in 2012, 2011 and 2010, respectively.

A hundred basis points increase in the counterparty credit spreads when determining the fair value of the assets associated with derivative contracts could result in a reduction of the associated asset of approximately Ps. (526), Ps. 532 and Ps. 668 in 2012, 2011 and 2010, respectively.

Impaired loans measured at fair value

Grupo Aval measured certain impaired loans based on the fair values of the collateral less costs of sale. The fair values of the collateral were determined using internal valuation techniques. Grupo Aval may also use experts to validate the prices obtained using internal valuation techniques.

Asset-backed securities

Grupo Aval invests in asset-backed securities with underlying assets corresponding to mortgages issued by financial institutions. The asset-backed securities are denominated in local market as Titulos Inmobiliarios Participativos (and can be classified as available for sale securities). These asset-backed securities have different vintages and are generally classified as AAA by credit rating agencies. Grupo Aval does not expect significant changes in those ratings. Fair values were estimated using discounted cash flow models having as key economic assumptions estimates of prepayment rates, weighted-average lives of the securitized mortgage portfolio, probability of default and interest rate curves.

2.	Fair value disclosures

ASC 825 requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized in the statement of financial position, for which it is practicable to estimate fair value. Fair value disclosures are within the scope of ASC 820; therefore, Grupo Aval applies ASC 820 when performing fair value measurements for disclosure purposes. The financial instruments below are not recorded at fair value on a recurring and nonrecurring basis:

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Short-term financial instruments

Short-term financial instruments are valued at their carrying amounts included in the Consolidated Balance Sheet, which are reasonable estimates of fair value due to the relatively short maturities. This approach was used for cash and cash equivalents, accrued interest receivable, customers’ acceptances, accounts receivable, accounts payable, accrued interest payable, and bank acceptances outstanding.

Deposits

The fair value of time deposits was estimated based on the discounted cash flow values determined using the current offering rate for the corresponding maturity as the discount rate. Fair value of deposits with undefined maturities represents the amount payable on demand as of the Balance Sheet date.

Interbank borrowings and borrowings from banks and others

Short-term interbank borrowings and borrowings from banks and others have been valued at their carrying amounts because of their relatively short-term nature. The long-term debts were determined based on the discounted value of cash flows using the rates currently offered for debt of similar remaining maturities and its own creditworthiness.

Long-term debt

The fair value of long-term debt, which comprises bonds issued by Grupo Aval and its subsidiaries, was estimated substantially based on quoted market prices. Certain bonds which are not publicly traded were determined based on the discounted value of cash flows using the rates currently offered for debt of similar remaining maturities and its own creditworthiness.

Items Measured at Fair Value on a Recurring Basis

The following table presents, for each of the fair-value hierarchy levels, Grupo Aval’s assets and liabilities measured at fair value on a recurring basis at December 31, 2012 and 2011 based on the Consolidated Balance Sheets under Colombian Banking GAAP.

Fair value measurements at December 31, 2012

	Level 1		Level 2			Level 3		Balance
Assets
Trading securities	Ps.	3,450,909	Ps.	2,382,868		Ps.	-	Ps.	5,833,777
Investments securities available for sale
Debt securities		7,107,467		4,753,990			52,156		11,913,614
Equity securities		519,473		74,258			-		593,731
Derivatives		-		382,026			-		382,026
Liabilities
Derivatives		-		(320,892	)		-		(320,892	)
Total	Ps.	11,077,849	Ps.	7,272,250		Ps.	52,156	Ps.	18,402,256

Fair value measurements at December 31, 2011

	Level 1		Level 2			Level 3		Balance
Assets
Trading securities	Ps.	2,985,393	Ps.	994,965		Ps.	61	Ps.	3,980,419
Investments securities available for sale
Debt securities		9,187,464		462,765			55,277		9,705,506
Equity securities		609,184		77,111			-		686,295
Derivatives		-		229,799			70,460		300,259
Liabilities
Derivatives		-		(346,358	)		-		(346,358	)
Total	Ps.	12,782,041	Ps.	1,418,282		Ps.	125,798	Ps.	14,326,121

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The table below presents a roll forward for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during 2012:

	2012
	Available for sale			Trading			Derivatives contracts			Total
Beginning balance	Ps.	55,277		Ps.	61		Ps.	70,460		Ps.	125,798
Transfer into level 3		-			(61	)		-			(61	)
Transfer out of level 3		(1,056	)		-			(23,531	)		(24,587	)
Total Gains or Losses		(284	)		-			-			(284	)
Included in earnings (or changes in net assets)		-			-			-			-
Included in other comprehensive income		-			-			-			-
Purchases, issuances, sales and settlements:		-			-			-			-
Purchases		-			-			-			-
Issuances		-			-			-			-
Sales		-			-			-			-
Settlements		(1,781	)		-			(46,929	)		(48,710	)
Ending Balance	Ps.	52,156		Ps.	-		Ps.	-		Ps.	52,156

The following methods and assumptions were used to estimate the fair value of each class of financial instruments.

Investment securities: Equity securities classified as trading and available for sale are measured at fair value using market quotes and margins of similar assets. The methodology used is based on the present value of future cash flows considering the facial features of each title, for which the discount rates are constructed from curves of prices of similar assets in an active market, such as:

– Curved zero coupon TES UVR

– Reference curve Bloomberg for banks of rating BBB (C883 Composite)

– Curve IRS (Interest Rate Swap) USD LIBOR

– Curve CDS (Credit Default Swap) of the Republic of Colombia

Derivative instruments. Grupo AVAL ranked as level 3 financial derivatives traded on the OTC market (forward currency, on Interest Rate Swaps “IRS” and swaps on rate of Cross Currency Swap “CCS”) with customers in the real sector (manufacturing), that require the addition of no observable market inputs for the determining of the “CVA” Credit Value Adjustment. Those inputs are, the administrative costs for the placement of credits portfolio, Except that the curves of interest rates and exchange rates, are observable in the market.

	2011
	Available for sale		Trading			Investment securities			Derivatives contracts			Total
Beginning balance	Ps.	47,266	Ps.	122		Ps.	-		Ps.	64,268		Ps.	111,656
Transfer into level 3		-		-			8,544			-			8,544
Transfer out of level 3		-		-			-			-			-
Total Gains or Losses		601		-			-			-			601
Included in earnings (or changes in net assets)		-		(6	)		-			(1,763	)		(1,768	)
Included in other comprehensive income		-		-			(1,144	)		-			(1,144	)
Purchases, issuances, sales and settlements:		-		-			-			-			-
Purchases		-		-			-			50,898			50,898
Issuances		-		-			-			-			-
Sales		-		-			-			(42,943	)		(42,943	)
Settlements		-		-			-			-			-
Prepaids		-		(56	)		-			-			(56	)
Ending Balance	Ps.	47,867	Ps.	61		Ps.	7,410		Ps.	70,460		Ps.	125,798

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Trading securities and available for sale changes in the fair value level 3 are included in the consolidated statement of income as part of income from investment portfolio and changes of fair value of derivatives level 3 are included in the consolidated statement of income as part of the other income.

Items Measured at Fair Value on a Nonrecurring Basis

In February 2008, the FASB issued Staff Position No. 157-2, “Effective Date of FASB Statement No. 157” (ASC 820, or “FAS 157-2”). FSP FAS 157-2 delayed the effective date of ASC 820 for non-financial assets and liabilities, except for items that are recognized or disclosed at fair value in the Consolidated Financial Statements on a recurring basis. The provisions of FSP FAS 157-2 are adopted by Grupo Aval from the fiscal year beginning on January 1, 2009. This guidance established the authoritative definition of fair value by setting out a framework for measuring fair value and expanding the required disclosures about fair value measurement.

ASC 825 Disclosures

The table below presents the disclosures required by ASC 825 for all financial instruments assets and liabilities based on the Supplemental Condensed Consolidated Balance Sheets under U.S. GAAP and comparing amounts presented to fair values calculated for U.S. GAAP purposes under ASC 820:

	December 31, 2012				December 31, 2011
	Book value under U.S GAAP		Estimated fair value		Book value under U.S GAAP		Estimated fair value
Financial assets:
Cash and due from banks	Ps.	10,146,015	Ps.	10,146,015	Ps.	8,771,593	Ps.	8,781,960
Investment securities, net		21,543,163		21,463,309		17,469,229		17,383,056
Loans, net		83,633,597		84,558,367		72,446,869		72,577,585
Derivatives		382,026		382,026		416,457		418,809
Financial liabilities:
Deposits		81,463,293		81,628,900		71,017,425		71,090,349
Interbank borrowings and overnight funds		5,156,483		5,156,483		3,225,145		3,225,146
Derivative and banker´s acceptances outstanding, net		407,660		407,660		469,413		469,413
Borrowings from banks and other		14,027,640		14,018,411		11,438,327		11,506,594
Bonds		9,769,001		10,243,322		6,566,235		6,799,195

w)	Related party transactions:

We currently engage in, and expect from time to time in the future to engage in, financial and commercial transactions with “related parties” (within the meaning of the SEC rules). Unless otherwise indicated below, such transactions are conducted on an arm’s-length basis in the ordinary course of business, on terms that would apply to transactions with third parties.

Loans or deposits involving related parties

The following chart presents outstanding amounts of related party transactions involving loans or deposits between Grupo Aval and its consolidated subsidiaries, on one hand, and each of the following individuals and entities.

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	Transaction between Grupo Aval and its subsidiaries, and
	Grupo Aval’s directors and key management and their affiliate (1)		Close family members of Mr. Sarmiento Angulo and their affiliates		Mr. Sarmiento Gutiérrez and his affiliates		Mr. Sarmiento Angulo and his affiliates
	December 31, 2012
Outstanding loans guaranteed by us (2)	Ps.	7,334	Ps.	43,429	Ps.	5	Ps.	1,046,000
Outstanding loans guaranteed to us (3)		-		-		-		1,150,918
Deposits (4)		9,989		4,084		7,768		2,556,000

	December 31, 2011
Outstanding loans guaranteed by us (2)	Ps.	11,310	Ps.	42,212	Ps.	26	Ps.	1,067,000
Outstanding loans guaranteed to us (3)		-		-		-		1,444,120
Deposits (4)		10,165		9,332		182		2,104,000

(1)	Excludes Mr. Sarmiento Angulo and Mr. Sarmiento Gutiérrez and their affiliates. Key management includes executive officers of Grupo Aval as well as each of the presidents of our banks, Porvenir and Corficolombiana.

(2)	Includes loans approved but not yet disbursed. See “—Loans granted to related parties by our banking subsidiaries.”

(3)	Includes loans approved but not yet disbursed. See “—Loans granted to Grupo Aval and its subsidiaries by shareholders of Grupo Aval and their affiliates.”

(4)	All deposits, including time deposits and investment portfolios, of all related parties held with us are made in the ordinary course of business, held at market rates and on terms and conditions not materially different from those available to the general public.

For information on related party transactions in accordance with Colombian disclosure rules, see note 26 to our audited consolidated financial statements. Required Colombian disclosures as to related party transactions differ from those required by the SEC. For the purposes of note 26 to our audited consolidated financial statements, “related parties” includes the principal shareholders of Grupo Aval, members of the board of directors, individuals who are legal representatives of Grupo Aval and companies in which Grupo Aval, its principal shareholders or board members have a direct equity interest of at least 10.0%. For the purposes of this section, and as required by SEC rules, “related parties” includes enterprises that control, or are under common control with Grupo Aval, associates, individuals owning directly or indirectly an interest in the voting power that gives them significant influence over Grupo Aval, close family members, key management personnel (including directors and senior management) and any enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any of the persons listed above. We determine beneficial ownership under SEC rules. See “—A. Major shareholders.”

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Certain members of our board of directors and key management own shares of Grupo Aval which, other than in the case of Mr. Sarmiento Angulo, were acquired in the open market and represent less than 0.1% of our total outstanding shares. On May 12, 2011, Grupo Aval concluded the Preferred Shares Local Offering in which it sold 1,600 million preferred shares, raising an aggregate amount of Ps 2.1 trillion (U.S.$1.1 billion at the representative market rate on such date), before deducting brokerage commissions and discounts, and transaction expenses. In connection with our Preferred Shares Local Offering, certain members of our board of directors and key management acquired preferred shares under the same conditions granted to the general public. See “Item 6. Directors, Senior Management and Employees—E. Share ownership.” We do not, and have not, offered or granted any share options to any of our directors or employees.

Loans granted to Grupo Aval and its subsidiaries by shareholders of Grupo Aval and their affiliates

Certain shareholders of Grupo Aval and their affiliates have granted loans to Grupo Aval and its subsidiaries on an arm’s-length basis and at market rates that are substantially consistent with interest rates and collateral that would have been available to such parties from other lenders at the time those borrowings were entered into. Such loans have been granted for general corporate purposes (including funding the acquisition of 13,726,421 mandatorily convertible bonds issued by Banco de Bogotá (converted into 29,205,152 shares of Banco de Bogotá)). All loans are unsecured and have a five-year term, with a two-year grace period. The outstanding loans granted to Grupo Aval by shareholders of Grupo Aval and their respective affiliates at the date of this annual report are as follows:

loans granted by Bienes y Comercio S.A., a company beneficially owned by Mr. Sarmiento Angulo, to Grupo Aval, with a total outstanding amount of Ps 339.2 billion (U.S.$191.8 million) at an interest rate of DTF + 3.0% per annum;

loans granted by Adminegocios & Cía. S.C.A., an entity beneficially owned by Mr. Sarmiento Angulo, to Grupo Aval, with a total outstanding amount of Ps 8.3 billion (U.S.$4.7 million), at an interest rate of DTF + 3.0% per annum; and

loans granted by Rendifin S.A. to Grupo Aval with a total outstanding amount of Ps 789.7 billion (U.S.$446.6 million) at an interest rate of DTF + 3.0% per annum.

The total amount of loans outstanding (including guarantees) from companies beneficially owned by Mr. Sarmiento Angulo at the date of this annual report is Ps 1,137.3 billion (U.S.$643.2 million). The largest amount of loans (including guarantees) outstanding during the period from January 1, 2012 to the date of this annual report was Ps 1,509.1 billion.

Business and financial reasons for borrowing from entities affiliated with Mr. Sarmiento Angulo

At the date of this annual report the total amount of loans outstanding from companies beneficially owned by Mr. Sarmiento Angulo was Ps 1,137.3 billion (U.S.$643.2 million). These loans have been entered into on an arm’s-length basis with us, the holding company, at a rate of DTF + 3.0% per annum, substantially consistent with rates that would have been available to the holding company from other lenders at the time those borrowings were entered into. The outstanding amount of these loans was Ps 1,444,120 and Ps 1,150,917 million as of December 31, 2011 and 2012, respectively. Therefore, following repayments, the outstanding balance of loans granted by entities affiliated with Mr. Sarmiento Angulo fell by Ps 306,870 million, between December 31, 2011 and the date of this annual report.

Grupo Aval has chosen not to borrow from competing banks at the holding company level. Among our funding alternatives, in addition to the global and local bond markets are companies affiliated with our controlling shareholder. These companies provide us with a stable source of financing at rates that are substantially consistent with rates available to us from other lenders. In addition, these loans are executed in a shorter timeframe and at lower transaction costs than if borrowed from other potential sources of funding.

On a consolidated basis, Grupo Aval had available cash resources in the amount of Ps 11,698,587 million (U.S. $6,021.8 million) and Ps 13,398,878 million (U.S.$7,577.6 million) as of December 31, 2011 and 2012, respectively. The majority of these cash resources are held by our subsidiaries.

Unconsolidated cash balances at the holding level were Ps 1,589,890 million (U.S.$818.4 million) and Ps 816.326 million (U.S. $461.7 million) as of December 31, 2011 and 2012, respectively. Cash at the holding company level increased during 2011 principally as a result of a preferred shares offering in the local market.

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Unconsolidated cash balances at Grupo Aval have been recently kept at levels higher to those existent in the past due to strategic considerations including, among others, to be adequately prepared to support the growth of our banking subsidiaries.

Loans granted to related parties by our banking subsidiaries

Key management of Grupo Aval and our banks, and their respective affiliates, who meet our credit eligibility requirements may subscribe to loans in the ordinary course of business, on market terms and conditions available to the general public.

All outstanding loans with our related parties are made in the ordinary course of business and on terms and conditions, including interest rates and collateral, not materially different from those available to the general public and did not involve more than the normal risk of collectability or present other unfavorable features.

In connection with our Preferred Shares Local Offering, certain members of our board of directors and key management were granted loans by our banking subsidiaries for the purpose of acquiring Grupo Aval preferred shares. These loans were granted at market rates and on terms and conditions not materially different from those available to other purchasers of Grupo Aval shares.

Other transactions with Mr. Sarmiento Angulo and his affiliates

Beneficial ownership in our banking subsidiaries (outside of Grupo Aval)

In addition to his beneficial ownership in Grupo Aval, Mr. Sarmiento Angulo beneficially owns at April 15, 2013, 9.6% of Banco de Bogotá, 13.3% of Banco de Occidente, 15.4% of Banco AV Villas, 0.8% of Banco Popular, and 0.3% of Corficolombiana.

Except as stated above, Mr. Sarmiento Angulo does not have any other beneficial ownership in our banking subsidiaries. For information on the dividend history of our banking subsidiaries, see “Item 10. Additional Information—F. Dividends and paying agents—Dividend history of our banking subsidiaries.”

Banco Popular share ownership reorganization

Immediately prior to the completion of the First Banco Popular Share Ownership Transaction on June 23, 2011, Grupo Aval directly owned 2,368,686,432 shares (or 30.66%) of the share capital of Banco Popular, while Rendifin S.A., Popular Securities S.A. and Inversiones Escorial S.A. (companies beneficially owned by Mr. Sarmiento Angulo) owned 4,872,610,306 (or 63.07%) of the share capital of Banco Popular.

On January 31, 2011, Grupo Aval entered into the First Banco Popular Share Ownership Reorganization Transaction through an agreement with Rendifin S.A. to acquire through escisión 43.47% of Banco Popular’s outstanding shares held by Rendifin S.A. in exchange for 2,073,115,004 of our preferred shares at a ratio of 1.62 Banco Popular share per Grupo Aval preferred share. We completed this transaction on June 23, 2011 and increased our direct ownership in Banco Popular to 74.17% and issued 2,073,115,004 preferred shares to the shareholders of Rendifin S.A.

On April 29, 2011, we entered into the Second Banco Popular Share Ownership Reorganization Transaction through a second agreement with Popular Securities S.A. and Inversiones Escorial S.A. to acquire an additional 19.60% of Banco Popular in exchange for 934,669,126 preferred shares at the same ratio of 1.62 Banco Popular share per Grupo Aval preferred share, which increased our ownership interest in Banco Popular to 93.73%. The Second Banco Popular Share Ownership Reorganization Transaction closed on September 20, 2011.

The independent investment bank Rothschild de Mexico S.A. de C.V. issued a fairness opinion on January 6, 2011, stating that the exchange ratio of 1.62 Banco Popular shares to one Grupo Aval preferred share was reasonable to Grupo Aval shareholders.

Grupo Aval had previously controlled Banco Popular through a shareholders’ agreement with Rendifin S.A. Pursuant to this agreement, Rendifin had granted Grupo Aval irrevocable power to represent Rendifin’s shares in Banco Popular. The agreement provided that all economic rights to the Banco Popular shares would continue to be vested in Rendifin. The agreement terminated on June 23, 2011 because Grupo Aval came to own more than 50% of the issued and outstanding shares of Banco Popular. Prior to termination, Grupo Aval received, as compensation for its services, a monthly fee in the amount of Ps 116,072,351, which was linked to the CPI.

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Insurance services

Seguros de Vida Alfa S.A., or “Vida Alfa,” a life insurance affiliate of Mr. Sarmiento Angulo, provides insurance required by law, as well as annuities, relating to the mandatory pension funds managed by Porvenir. The insurance provider is selected by Porvenir through a competitive bidding process once every four years. Premiums under this insurance policy are deducted by Porvenir from the individual customers’ account and transferred to Vida Alfa on behalf of the individual customer.

The table below presents the insurance premiums paid for the periods indicated.

Period	Amount
	(in Ps billions)

For the three-month period ended March 31, 2013:		99.6
For the year ended December 31:
2012		336.9
2011		285.7

Vida Alfa also provides:

life insurance, as sole provider and as co-insurer with non-affiliated insurers (pursuant to a competitive bidding process), for individual borrowers of our banking subsidiaries to cover the risk of non-payment upon death. Premiums are paid by the borrowers; and

workers compensation for all employees of Grupo Aval and its subsidiaries (except BAC Credomatic).

Seguros Alfa S.A., or “Alfa,” a property and casualty insurance affiliate of Mr. Sarmiento Angulo, provides fire and earthquake insurance for mortgage loans granted by certain of our banks. In addition, Alfa provides surety bonds and property insurance for our subsidiaries. Our banking subsidiaries also provide insurance products affiliated with Vida Alfa and Alfa through their bancassurance lines. These transactions are conducted on an arm’s-length basis in the ordinary course of business. Alfa has in the past, but not currently, provided bankers’ blanket bond coverage to us and our subsidiaries, reinsured under prevailing market conditions, and surety bonds for Corficolombiana’s toll-road concessions.

Put/call agreement between Grupo Aval and Adminegocios & Cia. S.C.A., an entity controlled by Mr. Sarmiento Angulo and a direct shareholder of Grupo Aval

On November 24, 2010, Grupo Aval and Adminegocios & Cia. S.C.A., an entity controlled by Mr. Sarmiento Angulo, our controlling shareholder, entered into an agreement whereby Grupo Aval assigned to Adminegocios & Cia. S.C.A. its right to acquire up to 2,605,000 mandatorily convertible bonds issued by Banco de Bogotá (convertible into 5,542,553 shares of Banco de Bogotá). Under the put/call agreement, we had an option to purchase from Adminegocios & Cia. S.C.A., and they had the right to sell, 2,605,000 convertible bonds (or the underlying shares, if converted). In either case, the purchase price that would have been payable to Adminegocios & Cia. S.C.A. was the subscription price paid by Adminegocios & Cia. S.C.A. at the time of acquiring the mandatorily convertible bonds issued by Banco de Bogotá plus a premium of 6.5% per annum up to the date of acquisition. The option expired on February 2, 2013, and it was not exercised either by us or by Adminegocios & Cia. S.C.A. including the 2,605,000 convertible bonds assigned by us, Adminegocios & Cia. S.C.A. acquired a total of 4,249,965 convertible bonds issued by Banco de Bogotá. The mandatorily convertible bonds were acquired by Adminegocios & Cia. S.C.A. in order to finance the BAC Credomatic acquisition.

On March 1, 2011, Adminegocios & Cia. S.C.A. converted all of its 4,249,965 mandatorily convertible bonds holding into 9,042,478 common shares of Banco de Bogotá.

Other

The following companies are beneficially owned by Mr. Sarmiento Angulo, and may continue to provide services to us and our subsidiaries for amounts that are immaterial: Construcciones Planificadas S.A. (office renovations), Vigía S.A. (security services), and Corporación Publicitaria S.A. (advertising).

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x)	Segments Disclosure:

Grupo Aval’s businesses are organized into four operating segments: Banco de Bogotá, Banco de Occidente, Banco Popular and Banco Comercial AV Villas, each of which operates several lines of businesses and regularly reports its consolidated results of operations to our president and board of directors. Each of our four banks is represented on our board of directors by its respective president, and our banks’ presidents are compensated on the basis of the consolidated results of operations of each respective bank under their management.

Grupo Aval’s president allocates resources, sets budgets and targets, and assesses the performance of Grupo Aval’s business on the basis of its four consolidated bank operating segments. Grupo Aval’s president and board of directors analyze group performance and allocate resources on the basis of the banks’ financial reports and financial statements.

Grupo Aval does not have any individual external customer which represents 10% or more of the enterprise’s revenues. Over 90% of the operations carried out by Grupo Aval are performed inside Colombia.

Following is a brief description of our four operating segments:

Banco de Bogotá, founded in 1870, Banco de Bogotá is a full-service bank with nationwide coverage and a comprehensive portfolio of services and products. Banco de Bogotá serves high-income individual customers directly and low- and medium-income individual customers through a dedicated distribution network. This bank controls (1) AFP Porvenir, the pension and severance fund management business in Colombia; (2) Corficolombiana, a merchant bank that primarily invests in strategic sectors of the Colombian economy, including infrastructure, energy, and finance, and also provides treasury, investment banking, and private banking services and (3) BAC Credomatic, a Central American bank specialized in consumer banking products.

Banco de Occidente is a full-service bank with presence throughout the southwest region of Colombia. It serves enterprise customers with a focus on large- and medium-sized companies, and consumers with medium- to high-income levels. Banco de Occidente offers a comprehensive services and products portfolio and has a financial leasing business.

Banco Popular. Processes payroll loans and provides financial solutions to government entities throughout Colombia. Banco Popular achieves returns on its consumer loan portfolio due to its access to payroll deductions for repayment of loans, which results in consumer loans with a substantially lower-risk profile.

Banco Comercial AV Villas focuses on consumer and mortgage businesses, serving its clients through a nationwide service-point network and a mobile banking platform. Over the past decade, Banco AV Villas has evolved from being a lender exclusively focused on mortgages to a diversified full-service low- and middle-income consumer bank. Banco AV Villas’ risk management systems provide the bank with real-time and in-depth credit quality analyses that allow the bank to approve consumer loans on an accelerated basis.

The following presents information on reported operating segments profit or loss, and segment assets as of and for the years ended December 31, 2012, 2011 and 2010:

December 31, 2012

	Banco de Bogotá			Banco de Occidente			Banco AV Villas			Banco Popular			Grupo Aval(*)			Eliminations			Grupo Aval consolidated
Total interest income	Ps.	5,698,484		Ps.	2,028,635		Ps.	868,454		Ps.	1,613,226		Ps.	81,706		Ps.	(85,533	)	Ps.	10,204,972
Total interest expense		(2,188,833	)		(745,460	)		(254,159	)		(554,889	)		(242,684	)		91,353			(3,894,673	)
Net interest income		3,509,651			1,283,175			614,295			1,058,337			(160,978	)		5,820			6,310,299
Total provisions, net		(515,052	)		(223,626	)		(87,995	)		(90,667	)		(3	)		-			(917,343	)
Total fees and other services income		2,145,629			346,450			216,529			179,989			61,829			(106,264	)		2,844,162
Fees and other services expenses		(261,940	)		(117,461	)		(57,090	)		(34,978	)		(750	)		10,077			(462,142	)
Total other operating income		676,327			332,729			4,247			48,880			753,583			(930,104	)		885,662
Total operating expenses		(3,198,640	)		(937,248	)		(455,730	)		(669,169	)		(113,457	)		74,725			(5,299,520	)
Total non-operating income (expense), net		314,943			12,938			16,228			77,065			(12,292	)		39,186			448,068
Income tax expense		(919,317	)		(174,685	)		(77,969	)		(187,697	)		(12,074	)		-			(1,371,739	)
Income before non-controlling interest		1,751,601			522,272			172,515			381,762			515,858			(906,561	)		2,437,447
Non-controlling interest		(425,553	)		(1,967	)		(206	)		(3,846	)		-			(479,487	)		(911,059	)
Net income attributable to Grupo Aval shareholders	Ps.	1,326,048		Ps.	520,305		Ps.	172,309		Ps.	377,916		Ps.	515,858		Ps.	(1,386,048	)	Ps.	1,526,388
Loans and financial leases:
Commercial loans	Ps.	28,721,859		Ps.	9,487,518		Ps.	2,224,030		Ps.	5,101,383		Ps.	-		Ps.	(20,597	)	Ps.	45,514,193
Consumer loans		10,861,972			3,492,456			2,808,478			6,217,291			-			-			23,380,197
Microcredit loans		256,989			-			18,438			15,489			-			-			290,916
Mortgage loans		3,448,742			1,786			805,363			92,440			-			-			4,348,331
Financial leases		2,175,186			4,016,556			-			322,298			-			(18,323	)		6,495,717
Allowance for loan and financial lease losses		(1,252,948	)		(611,343	)		(251,205	)		(430,069	)		-			-			(2,545,564	)
Total loans and financial leases, net	Ps.	44,211,802		Ps.	16,386,973		Ps.	5,605,104		Ps.	11,318,832		Ps.	-		Ps.	(38,920	)	Ps.	77,483,790
Total assets	Ps.	80,506,449		Ps.	24,837,389		Ps.	8,920,405		Ps.	15,128,585		Ps.	16,842,601		Ps.	(18,572,471	)	Ps.	127,662,958

(*)	Includes Grupo Aval Acciones y Valores S.A, Grupo Aval Limited and Grupo Aval International Limited.

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December 31, 2011

	Banco de Bogotá			Banco de Occidente			Banco AV Villas			Banco Popular			Grupo Aval (*)			Eliminations			Grupo Aval consolidated
Total interest income	Ps.	4,395,932		Ps.	1,592,691		Ps.	717,558		Ps.	1,403,237		Ps.	60,857		Ps.	(19,446	)	Ps.	8,150,829
Total interest expense		(1,459,232	)		(525,466	)		(168,972	)		(417,818	)		(176,405	)		65,961			(2,681,932	)
Net interest income		2,936,700			1,067,225			548,586			985,419			(115,548	)		46,515			5,468,897
Total provisions, net		(139,037	)		(176,606	)		(33,413	)		(67,253	)		(6	)		-			(416,315	)
Total fees and other services income		2,010,593			316,860			198,688			182,906			23,891			(51,051	)		2,681,887
Fees and other services expenses		(253,836	)		(109,193	)		(47,506	)		(32,225	)		(5,593	)		9,965			(438,388	)
Total other operating income		758,146			305,196			3,384			51,825			629,051			(798,744	)		948,858
Total operating expenses		(2,967,952	)		(846,264	)		(435,971	)		(623,209	)		(106,361	)		46,810			(4,932,947	)
Total non-operating income (expense), net		68,490			15,490			7,063			57,189			(1,500	)		49,493			196,225
Income tax expense		(737,201	)		(139,013	)		(75,379	)		(177,464	)		(7,691	)		-			(1,136,748	)
Income before non-controlling interest		1,675,903			433,695			165,452			377,188			416,243			(697,012	)		2,371,469
Non-controlling interest		(530,190	)		(1,586	)		(227	)		(4,984	)		-			(543,256	)		(1,080,243	)
Net income attributable to Grupo Aval Shareholders	Ps.	1,145,713		Ps.	432,109		Ps.	165,225		Ps.	372,204		Ps.	416,243		Ps. (1,240,267)			Ps.	1,291,226
Loans and financial leases:
Commercial loans	Ps.	25,434,322		Ps.	8,619,557		Ps.	2,118,986		Ps.	4,407,652		Ps.	-		Ps.	(34,973	)	Ps.	40,545,544
Consumer loans		9,282,067			2,805,912			2,235,975			5,411,931			-			-			19,735,885
Microcredit loans		240,657			-			22,744			20,766			-			-			284,167
Mortgage loans		3,444,650			33			680,894			92,800			-			-			4,218,377
Financial leases		1,633,330			3,288,282			-			264,183			-			(22,028	)		5,163,767
Allowance for loan and financial lease losses		(1,099,353	)		(574,188	)		(243,684	)		(389,275	)		-			-			(2,306,500	)
Total loans and financial leases, net	Ps.	38,935,673		Ps.	14,139,596		Ps.	4,814,915		Ps.	9,808,057		Ps.	-		Ps.	(57,001	)	Ps.	67,641,240
Total assets	Ps.	68,809,602		Ps.	22,180,088		Ps.	7,618,247		Ps.	14,251,434		Ps.	13972,578		Ps.(15,330,082)			Ps.	111,501,867

(*)	Relates to Grupo Aval Acciones y Valores S.A. stand alone.

December 31, 2010

	Banco de Bogotá			Banco de Occidente			Banco AV Villas			Banco Popular			Grupo Aval (*)			Eliminations			Grupo Aval consolidated
Total interest income	Ps.	3,345,606		Ps.	1,403,869		Ps.	683,123		Ps.	1,276,173		Ps.	13,116		Ps.	(179,290	)	Ps.	6,542,597
Total interest expense		(902,129	)		(457,217	)		(142,795	)		(325,277	)		(91,167	)		4,786			(1,913,799	)
Net interest income		2,443,477			946,652			540,328			950,896			(78,051	)		(174,504	)		4,628,798
Total provisions, net		(610,612	)		(192,312	)		(122,425	)		(101,575	)		(20	)		-			(1,026,944	)
Total fees and other services Income		1,328,222			294,111			184,451			174,077			-			-			1,980,861
Fees and other services expenses		(173,159	)		(107,503	)		(43,940	)		(37,951	)		(588	)		-			(363,141	)
Total other operating income		582,380			316,679			9,729			42,021			497,490			(662,786	)		785,513
Total operating expenses		(1,757,924	)		(764,427	)		(389,791	)		(558,279	)		(49,529	)		-			(3,519,950	)
Total non-operating income (expense), net		95,957			21,383			16,175			53,029			16,540			(26,150	)		176,934
Income tax expense		(510,001	)		(126,192	)		(49,860	)		(156,771	)		(2,543	)		14,378			(830,989	)
Income before non-controlling interest		1,398,340			388,391			144,667			365,447			383,299			(849,062	)		1,831,082
Non-controlling interest		(483,392	)		(2,009	)		(373	)		(3,805	)		-			(384,653	)		(874,232	)
Net income attributable to Grupo Aval shareholders	Ps.	914,948		Ps.	386,382		Ps.	144,294		Ps.	361,642		Ps.	383,299		Ps.	(1,233,715	)	Ps.	956,850
Loans and financial leases:
Commercial loans	Ps.	21,520,942		Ps.	7,025,986		Ps.	1,867,487		Ps.	3,747,755		Ps.	-		Ps.	(4,069	)	Ps.	34,158,101
Consumer loans		7,712,275			2,297,714			1,964,699			4,650,528			-			-			16,625,216
Microcredit loans		198,479			-			23,787			27,840			-			-			250,106
Mortgage loans		3,144,529			11,217			587,098			101,478			-			-			3,844,322
Financial leases		972,315			2,549,060			-			224,506			-			-			3,745,881
Allowance for loan and financial lease losses		(1,030,727	)		(536,829	)		(255,547	)		(360,783	)		-			-			(2,183,886	)
Total loans and financial leases, net	Ps.	32,517,813		Ps.	11,347,148		Ps.	4,187,524		Ps.	8,391,324		Ps.	-		Ps.	(4,069	)	Ps.	56,439,740
Total assets	Ps.	59,346,616		Ps.	18,638,263		Ps.	6,956,784		Ps.	12,723,287		Ps.4,242,925			Ps.	(5,598,594	)	Ps.	96,309,279

(*)	Relates to Grupo Aval Acciones y Valores S.A. stand alone.

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The following summarizes the Grupo Aval’s revenues and long-lived assets attributable to Colombia and other foreign countries:

	2012		2011		2010
	Revenues	Long-term assets (1)	Revenues	Long-term assets (1)	Revenues	Long-term assets (1)
Geographic Information

Colombia	Ps. 12,105,326	Ps. 1,546,578	Ps. 9,396,063	Ps. 1,470,338	Ps. 9,271,644	Ps. 1,341,583
Central America and Caribbean	2,629,713	340,349	2,706,252	368,732	401,882	387,563
Total, net	Ps. 14,735,040	Ps. 1,886,927	Ps.12,102,315	Ps. 1,839,070	Ps. 9,673,526	Ps. 1,729,146

(1)	Includes foreclosed assets, net, and property, plant and equipment, net.

a)	Recent U.S. GAAP Pronouncements:

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2013, and have not been applied in preparing these consolidated financial statements. Grupo Aval does not expect any significant effect in the U.S. GAAP disclosure and financial information of the new standards on the consolidated financial statements.

Accounting standards and amendments issued but not yet applied

In February 2013, the FASB issued “ASU 2013-02: Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present significant amounts reclassified out of accumulated other comprehensive income by line item. This new requirement will present in one place, information about significant amounts reclassified. Currently, this information is presented in different places throughout the financial statements. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. For nonpublic entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2013. Early adoption is permitted. This Update is not intended to significantly change U.S. GAAP.

In January 2013, the FASB issued “ASU 2013-01: Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.” The amendments clarify that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. An entity is required to apply the amendments for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the required disclosures retrospectively for all comparative periods presented. The effective date is the same as the effective date of ASU 2011-11.

In October 2012, the FASB issued ASU 2012-04: Technical Corrections and Improvements. The amendments in this Update cover a wide range of Topics in the Codification. These amendments are presented in two sections—Technical Corrections and Improvements (Section A) and Conforming Amendments Related to Fair Value Measurements (Section B). The amendments in Section A have been categorized in the following manner: Source literature amendments, Guidance clarification and reference corrections and Relocated guidance. The amendments in Section B are intended to conform terminology and clarify certain guidance in various Topics of the Codification to fully reflect the fair value measurement and disclosure requirements of Topic 820. The amendments in this Update that will not have transition guidance will be effective upon issuance for both public entities and nonpublic entities. For public entities, the amendments that are subject to the transition guidance will be effective for fiscal periods beginning after December 15, 2012. For nonpublic entities, the amendments that are subject to the transition guidance will be effective for fiscal periods beginning after December 15, 2013. This Update is not intended to significantly change U.S. GAAP.

In August 2012, the FASB issued “ASU 2012-03: Technical Amendments and Corrections to SEC Sections. The ASU amends various SEC paragraphs of the FASB’s Accounting Standards Codification pursuant to the issuance of SEC Staff Accounting Bulletin No. 114 (SAB 114), which was issued in March 2011. SAB 114 was issued to update the relevant interpretive guidance in the SEC’s Staff Accounting Bulletin series to make it consistent with current authoritative accounting guidance issued by the FASB. The principal changes involve revision or removal of accounting guidance references and other conforming changes to ensure consistency of referencing throughout the SAB series.

In July 2012, the FASB issued ASU 2012-02: Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. In accordance with the amendments in this Update, an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with Subtopic 350-30. An entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance.

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b)	Subsequent events:

December 26, 2012: Colombian Government approved a tax reform. As of December 31, 2012 the income tax rate in Colombia was 33%. According to an amendment of the 1607 tax law issued in December 2012, starting in 2013 the income tax rate will decrease to 25%. In addition, a new income tax for equality (CREE, for its acronym in Spanish) was created through this amendment. The rate for this new tax will be 9% for 2013, 2014 and 2015, and will decrease to 8% from 2015.

Except for some special deductions, and also for offset of excess losses of presumptive income and benefits not applicable to CREE, the tax base will be the same tax base as the net income tax. Non-profit entities and businesses that are classified as free trade zone users are exempt of the CREE income tax.

The Colombian Government shall implement the system of withholding taxes for the collection of CREE and enforce the waiver of such contributions starting in July 1, 2013. From January 1, 2014, legal entities and similar tax payers reporting income tax and complementary, for workers who earn, individually, up to ten (10) times the minimum monthly salary, will be exempt from paying payroll taxes for SENA (National Apprenticeship Service) and ICBF (Colombian Family Welfare Institute). This exemption does not apply to those taxpayers subject to tax CREE.

IFRS adoption

Grupo Aval consolidated financial statements have been prepared in accordance with Colombian Banking GAAP. In 2015, according with Decree 2784 issued in December 2012, the Colombian entities will adopt International Financial Reporting Standards “IFRS” for local purposes as they will be adopt by Colombian Government.

F-133

Title of each class		Name of each exchange on which registered
Preferred Shares, par value Ps. 1.00 per preferred share		Not applicable

	Grupo Aval
	For the year ended December 31,
	2012			2012			2011			2010			2009			2008
	(in U.S.$ millions, except per share information) (1)			(In Ps billions, unless otherwise indicated)
Colombian Banking GAAP
Operating income:
Net interest income		3,568.7			6,310.3			5,468.9			4,628.8			4,826.0			3,715.3
Total provisions (reversals), net		(518.8	)		(917.3	)		(416.3	)		(1,026.9	)		(887.6	)		(713.5	)
Total fees and other services income, net		1,347.1			2,382.0			2,234.4			1,617.7			1,583.5			1,393.9
Total other operating income		500.9			885.7			958.0			785.5			684.1			612.5
Total operating income		4,897.9			8,660.6			8,244.9			6,005.1			6,205.9			5,008.2
Total operating expenses		(2,997.2	)		(5,299.5	)		(4,932.9	)		(3,520.0	)		(3,292.4	)		(3,027.9	)
Net operating income		1,900.7			3,361.1			3,312.0			2,485.1			2,913.5			1,980.3

	Grupo Aval
	For the year ended December 31,
	2012			2012			2011			2010			2009			2008
	(in U.S.$ millions, except per share information) (1)			(In Ps billions, unless otherwise indicated)
Non-operating income (expense):
Other income		349.8			618.5			320.7			364.6			367.4			290.3
Other expense		(96.4	)		(170.4	)		(124.5	)		(187.6	)		(299.7	)		(164.9	)
Total non-operating income (expense), net		253.4			448.1			196.2			176.9			67.7			125.4
Income before income tax expense and non-controlling interest		2,154.2			3,809.2			3,508.2			2,662.1			2,981.2			2,105.8
Income tax expense		(775.8	)		(1,371.7	)		(1,136.7	)		(831.0	)		(864.3	)		(677.3	)
Income before non-controlling interest		1,378.4			2,437.4			2,371.5			1,831.1			2,116.9			1,428.4
Non-controlling interest		(515.2	)		(911.1	)		(1,080.2	)		(874.2	)		(1,051.5	)		(671.3	)
Net income attributable to Grupo Aval shareholders		863.2			1,526.4			1,291.2			956.9			1,065.4			757.1

Earnings per 1,000 shares (basic and diluted earnings):
Common and preferred shares (pesos)		–			82,277.2			79,184.3			68,621.0			76,448.0			54,368.0
Common and preferred shares (U.S. dollars) (1)		–			46.5			40.8			35.9			37.4			24.2
Dividends and interest on capital per 1,000 shares (2):
Common and preferred shares (pesos)		–			49,200.0			48,465.3			37,800.0			33,240.0			30,000.0
Common and preferred shares (U.S. dollars) (1)		–			27.8			24.9			19.7			16.3			13.4
Weighted average number of common and preferred fully paid shares outstanding (basic and diluted):
Outstanding shares		–			18,551,766.5			16,306,613.4			13,943,980.7			13,935,966.1			13,925,515.2
U.S. GAAP (3)
Net income attributable to controlling interest under U.S. GAAP		–			1,564.5			885.3			965.3			934.5			807.1
Basic and diluted net income per 1,000 shares
Outstanding shares (pesos)		–			84,330.3			54,293.4			69,228.4			67,060.2			57,956.8
Outstanding shares (U.S. dollars) (1)		–			47.7			27.9			36.2			32.8			25.8

	Grupo Aval
	At December 31,
	2012		2012		2011		2010		2009		2008
Colombian Banking GAAP	(in U.S.$ millions, unless otherwise indicated) (1)		(In Ps billions, unless otherwise indicated)
Assets:
Total cash and cash equivalents		7,577.5		13,398.9		11,698.6		9,682.6		7,370.9		6,621.3
Total investment securities, net		13,174.6		23,295.8		18,975.2		19,174.9		16,587.3		11,427.7
Total loans and financial leases, net		43,820.0		77,483.8		67,641.2		56,439.7		40,015.6		38,518.3
Total interest accrued on loans and financial leases, net		404.9		716.0		583.5		448.2		406.1		556.0
Bankers’ acceptances, spot transactions and derivatives		256.9		454.3		418.8		306.9		78.8		87.8
Accounts receivable, net		1,018.5		1,800.9		1,612.9		1,337.3		783.1		751.2
Property, plant and equipment, net		1,015.1		1,794.9		1,761.3		1,643.7		1,096.5		956.7
Operating leases, net		212.5		375.7		323.2		263.9		282.5		255.7
Foreclosed assets, net		52.0		92.0		77.8		85.5		48.0		42.6

	Grupo Aval
	At December 31,
	2012		2012		2011			2010		2009		2008
Colombian Banking GAAP	(in U.S.$ millions, unless otherwise indicated) (1)		(In Ps billions, unless otherwise indicated)
Assets:
Prepaid expenses and deferred charges		1,109.4		1,961.7		1,956.2			920.7		611.6		521.1
Goodwill, net		1,607.6		2,842.5		3,110.7			3,031.4		1,020.1		1,064.0
Other assets, net		638.3		1,128.6		1,072.6			912.0		769.5		697.6
Reappraisal of assets		1,310.8		2,317.8		2,269.7			2,062.5		1,923.1		1,580.0
Total assets		72,198.1		127,663.0		111,501.9			96,309.3		70,993.1		63,079.9

Liabilities:
Total deposits		46,070.5		81,463.3		71,007.6			63,669.3		49,348.5		45,050.8
Bankers’ acceptances and derivatives financial instruments		231.9		410.0		469.0			309.3		41.6		64.9
Interbank borrowings and overnight funds		2,916.2		5,156.5		3,225.1			2,477.4		2,753.7		794.8
Borrowings from banks and others		5,870.8		10,380.9		11,437.8			10,491.2		3,854.9		5,048.4
Accounts payable		1,699.6		3,005.3		3,093.9			2,243.5		1,518.5		1,568.6
Accrued interest payable		268.5		474.8		313.0			247.4		269.1		381.5
Other liabilities		961.7		1,700.6		1,447.8			1,291.9		950.7		856.1
Long-term debt (bonds)		5,524.7		9,769.0		6,566.2			5,952.4		3,422.2		2,320.3
Estimated liabilities		459.1		811.7		855.3			596.9		711.6		593.6
Non-controlling interest		3,058.3		5,407.7		4,927.0			4,475.5		4,038.0		3,191.1
Total liabilities		67,061.3		118,579.9		103,342.7			91,754.7		66,908.8		59,870.1
Shareholders’ equity:
Subscribed and paid-in capital:
Common shares		10.5		18.6		18.6			13.9		13.9		13.9
Additional paid-in capital		2,076.5		3,671.7		3,671.1			647.4		647.4		637.9
Retained earnings:		–
Appropriated		1,646.5		2,911.3		2,332.0			1,930.3		1,266.0		878.5
Unappropriated		455.2		804.9		669.0			483.3		679.7		441.0
Equity surplus:		–
Equity inflation adjustments		370.2		654.6		741.9			742.1		743.2		746.7
Unrealized gains (losses) on investment securities available for sale		44.2		78.2		(293.0	)		29.7		18.3		(90.3	)
Reappraisal of assets		533.7		943.8		1,019.6			707.8		715.7		581.9
Total shareholders’ equity		5,136.8		9,083.1		8,159.1			4,554.6		4,084.3		3,209.7
Total liabilities and shareholders’ equity		72,198.1		127,663.0		111,501.9			96,309.3		70,993.1		63,079.9

U.S. GAAP (2)
Controlling interest shareholders’ equity under U.S. GAAP		4,101.7		7,252.7		6,466.7			3,949.5		3,285.7		2,563.2
Controlling interest shareholders’ equity under U.S. GAAP per 1,000 shares		221,093.7		390,944.4		396,567.6			283,242.4		235,770.8		184,061.6

		Page

PRESENTATION OF FINANCIAL AND OTHER INFORMATION		3
FORWARD-LOOKING STATEMENTS		7
PART I		9
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS		9
A.	Directors and senior management	9
B.	Advisers	9
C.	Auditors	9
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE		9
A.	Offer statistics	9
B.	Method and expected timetable	9
ITEM 3. KEY INFORMATION		9
A.	Selected financial data	9
B.	Capitalization and indebtedness	18
C.	Reasons for the offer and use of proceeds	18
D.	Risk factors	19
ITEM 4. INFORMATION ON THE COMPANY		38
A.	History and development of the company	38
B.	Business overview	49
C.	Organizational structure	179
D.	Property, plant and equipment	180
ITEM 4A. UNRESOLVED STAFF COMMENTS		180
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS		181
A.	Operating results	181
B.	Liquidity and capital resources	281
C.	Research and development, patents and licenses, etc.	288
D.	Trend information	288
E.	Off-balance sheet arrangements	288
F.	Tabular disclosure of contractual obligations	289
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		289
A.	Directors and senior management	289
B.	Compensation	295
C.	Board practices	296
D.	Employees	296
E.	Share ownership	297
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		298
A.	Major shareholders	298
B.	Related party transactions	299
C.	Interests of Experts and Counsel	303
ITEM 8. FINANCIAL INFORMATION		304
A.	Consolidated statements and other financial information	304
B.	Significant changes	305
ITEM 9. THE OFFER AND LISTING		305
A.	Offering and listing details	305
B.	Plan of distribution	305
C.	Markets	305
D.	Selling shareholders	311
E.	Dilution	311
F.	Expenses of the issue	311
ITEM 10. ADDITIONAL INFORMATION		311
A.	Share capital	311
B.	Memorandum and articles of association	311

	Grupo Aval
	At and for the year ended December 31,
Colombian Banking GAAP	2012		2011		2010		2009		2008
	(in percentages, unless otherwise indicated)
Profitability ratios:
Net interest margin (1)		6.5		6.5		7.2		8.8		7.8
ROAA (2)		2.0		2.3		2.2		3.2		2.4
ROAE (3)		17.7		20.3		22.2		29.2		25.4
Efficiency ratio:
Operating expenses before depreciation and amortization / total operating income before net provisions (4)		51.3		52.7		46.6		42.9		49.0

	At December 31, (1)				Change, December 31, 2012 vs. December 31, 2011
	2012		2011			#	%
	(in Ps billions)
Commercial		28,721.9		25,434.3		3,287.5		12.9
Consumer		10,862.0		9,282.1		1,579.9		17.0
Microcredit		257.0		240.7		16.3		6.8
Mortgages		3,448.7		3,444.7		4.1		0.1
Financial leases		2,175.2		1,633.3		541.9		33.2
Total		45,464.8		40,035.0		5,429.7		13.6

	Banco de Occidente ownership
	(in percentages)
Grupo Aval		68.2
Corficolombiana (1)		4.0
Mr. Sarmiento Angulo (additional beneficial ownership)		13.3
Subtotal		85.5
Other investors (2)		5.5
General public		9.1
Total		100.0

	Banco Popular ownership
	(in percentages)
Grupo Aval		93.7
Mr. Sarmiento Angulo (additional beneficial ownership)		0.8
Subtotal		94.5
Ownership by funds managed by Porvenir		1.1
Other investors and general public (1)		4.4
Total		100.0

	Banco AV Villas ownership (includes common and preferred shares)
	(in percentages)
Grupo Aval (1)		79.9
Mr. Sarmiento Angulo (additional beneficial ownership)		15.4
Subtotal		95.3
General public		4.7
Total		100.0

	At December 31,				Change, December 31, 2011 vs. December 31, 2010
	2012		2011			#		%
	(in Ps billions)
Commercial		2,224.0		2,119.0		105.0			5.0
Consumer		2,808.5		2,236.0		572.5			25.6
Microcredit		18.4		22.7		(4.3	)		(18.9	)
Mortgages		805.4		680.9		124.5			18.3
Leasing		–		–		–			–
Total		5,856.3		5,058.6		797.7			15.8

	Porvenir ownership
	%
Banco de Bogotá		35.3
Grupo Aval		20.0
Banco de Occidente		23.1
Fidubogotá (1)		11.6
Fiduciaria de Occidente (2)		10.0
Total		100.0

	Corficolombiana ownership (includes common and preferred shares)
	(in percentages)
Banco de Bogotá		37.9
Banco de Occidente (1)		13.5
Banco Popular (1)		5.6
Subtotal		57.0
Mr. Sarmiento Angulo (Additional beneficial ownership)		0.3
Ownership by funds managed by Porvenir (2)		0.9
Other investors (3)		11.3
General public		30.5
Total		100.0

Sector breakdown by book value of investments (1) at December 31, 2012		Sector breakdown by earnings (2) for the year ended December 31, 2012

	At and for year ended December 31, 2012
	Net income					Loans				Deposits
	(in U.S.$ millions except percentages)
Costa Rica		98.1		37.1	%		2,240.1	31.5	%		2,005.0	27.6	%
El Salvador		28.1		10.6	%		932.7	13.1	%		1,007.1	13.9	%
Guatemala		61.2		23.1	%		816.1	11.5	%		788.5	10.8	%
Honduras		49.2		18.6	%		1,092.0	15.3	%		1,125.4	15.5	%
Nicaragua		35.7		13.5	%		741.5	10.4	%		834.0	11.5	%
Panama (1)		7.4		2.8	%		1,212.9	17.0	%		1,250.1	17.2	%
Mexico		(8.0	)	(3.0	%)		66.5	0.9	%		0.0	0.0	%
Regional offshore operations (2)		14.4		5.4	%		15.4	0.2	%		259.7	3.6	%
Corporate and eliminations		(21.4	)	(8.1	%)		0.0	0.0	%		0.0	0.0	%
Consolidated		264.6		100.0	%		7,117.2	100.0	%		7,269.8	100.0	%

	Average balance sheet and income from interest-earning assets for years ended December 31,
	2012								2011								2010
	Average balance			Interest income earned		Average yield			Average balance			Interest income earned		Average yield			Average balance			Interest income earned		Average yield
	(in Ps billions, except percentages)
Assets
Interest-earning assets
Interbank and overnight funds
Domestic
Peso-denominated		1,451.4			167.9		11.6	%		1,081.9			115.7		10.7	%		1,798.1			89.2		5.0	%
Foreign-denominated		839.0			10.6		1.3	%		745.0			6.8		0.9	%		665.8			7.9		1.2	%
Total domestic		2,290.4			178.6		7.8	%		1,827.0			122.5		6.7	%		2,464.0			97.1		3.9	%
Foreign		801.8			28.3		3.5	%		1,033.8			23.0		2.2	%		92.0			1.9		2.1	%
Total		3,092.3			206.8		6.7	%		2,860.8			145.5		5.1	%		2,556.0			99.0		3.9	%
Investment securities (1)
Domestic
Peso-denominated		16,559.8			1,145.6		6.9	%		15,709.1			878.6		5.6	%		15,363.0			1,308.2		8.5	%
Foreign-denominated		3,101.4			87.4		2.8	%		1,926.9			98.4		5.1	%		1,978.5			140.4		7.1	%
Total domestic		19,661.2			1,233.0		6.3	%		17,636.0			977.0		5.5	%		17,341.5			1,448.6		8.4	%
Foreign		1,802.1			66.0		3.7	%		1,333.4			52.8		4.0	%		104.3			4.1		3.9	%
Total		21,463.3			1,299.0		6.1	%		18,969.4			1,029.8		5.4	%		17,445.8			1,452.7		8.3	%
Loans and financial leases (2)
Domestic
Peso-denominated		56,742.4			7,052.0		12.4	%		47,784.5			5,510.5		11.5	%		40,237.3			4,796.3		11.9	%
Foreign-denominated		4,850.8			170.2		3.5	%		4,198.1			125.9		3.0	%		2,970.2			81.7		2.7	%
Total domestic		61,593.2			7,222.2		11.7	%		51,982.6			5,636.4		10.8	%		43,207.5			4,877.9		11.3	%
Foreign		11,465.8			1,476.9		12.9	%		9,961.3			1,339.2		13.4	%		769.6			113.0		14.7	%
Total		73,059.0			8,699.2		11.9	%		61,943.8			6,975.5		11.3	%		43,977.1			4,990.9		11.3	%
Total interest-earnings assets
Domestic
Peso-denominated		74,753.6			8,365.6		11.2	%		64,575.5			6,504.7		10.1	%		57,398.4			6,193.6		10.8	%
Foreign-denominated		8,791.2			268.2		3.1	%		6,870.0			231.1		3.4	%		5,614.6			230.0		4.1	%
Total domestic		83,544.8			8,633.8		10.3	%		71,445.5			6,735.9		9.4	%		63,013.0			6,423.6		10.2	%
Foreign		14,069.7			1,571.2		11.2	%		12,328.4			1,415.0		11.5	%		965.9			119.0		12.3	%
Total interest-earnings assets		97,614.5			10,205.0		10.5	%		83,773.9			8,150.8		9.7	%		63,978.9			6,542.6		10.2	%
Non-interest-earnings assets
Cash and due from banks
Domestic
Peso-denominated		3,821.4			–		–			4,805.7			–		–			4,675.2			–		–
Foreign-denominated		1,265.9			–		–			488.2			–		–			530.2			–		–
Total domestic		5,087.3			–		–			5,293.9			–		–			5,205.3			–		–
Foreign		2,931.1			–		–			2,438.1			–		–			211.3			–		–
Total		8,018.4			–		–			7,732.1			–		–			5,416.7			–		–
Allowance for loan and financial lease losses
Domestic
Peso-denominated		(2,192.4	)		–		–			(2,005.6	)		–		–			(1,953.6	)		–		–
Foreign-denominated		(16.6	)		–		–			(11.5	)		–		–			(10.4	)		–		–
Total domestic		(2,209.0	)		–		–			(2,017.1	)		–		–			(1,964.0	)		–		–
Foreign		(199.9	)		–		–			(108.7	)		–		–			(15.9	)		–		–
Total		(2,408.9	)		–		–			(2,125.9	)		–		–			(1,979.8	)		–		–
Non-performing past due loans (3)
Domestic
Peso-denominated		991.3			–		–			1,258.5			–		–			1,124.7			–		–
Foreign-denominated		4.3			–		–			9.8			–		–			10.2			–		–
Total domestic		995.6			–		–			1,268.3			–		–			1,134.9			–		–
Foreign		236.6			–		–			260.1			–		–			15.0			–		–
Total		1,232.2			–		–			1,528.4			–		–			1,149.9			–		–

	2012 – 2011 Increase (decrease) due to changes in								2011 – 2010 Increase (decrease) due to changes in
	Volume		Rate			Net change			Volume			Rate			Net change
	(in Ps billions, except percentages)
Interest-earnings assets
Interbank and overnight funds
Domestic
Peso-denominated		42.8		9.5			52.2			(76.6	)		103.1			26.5
Foreign currency-denominated		1.2		2.6			3.8			0.7			(1.8	)		(1.1	)
Total domestic		43.9		12.1			56.0			(75.9	)		101.3			25.4
Investment securities
Domestic
Peso-denominated		58.8		208.2			267.0			19.4			(449.0	)		(429.6	)
Foreign currency-denominated		33.1		(44.1	)		(11.0	)		(2.6	)		(39.4	)		(42.0	)
Total domestic		92.0		164.1			256.0			16.7			(488.4	)		(471.6	)
Loans and financial leases (1)
Domestic
Peso-denominated		1,113.3		428.3			1,541.6			870.3			(156.1	)		714.2
Foreign currency-denominated		22.9		21.4			44.3			36.8			7.4			44.2
Total domestic		1,136.2		449.6			1,585.8			907.2			(148.7	)		758.5
Total interest-earnings assets
Domestic
Peso-denominated		1,214.9		645.9			1,860.8			813.1			(502.0	)		311.1
Foreign currency-denominated		57.2		(20.1	)		37.1			34.9			(33.8	)		1.1
Total domestic		1,272.1		625.8			1,897.9			848.0			(535.8	)		312.2
Foreign							156.2									1,296.0
Total interest-earnings assets		1,480.8		573.3			2,054.1			1,962.9			(354.7	)		1,608.2

Long-term classification		Maximum face value (%)
BB+, BB, BB-		90
B+, B, B-		70
CCC		50
DD, EE		–

Short-term classification		Maximum face value (%)
3		90
4		50
5 and 6		–

At December 31,	Issuer	Investment amount – book value		Investment amount – book value
		(in Ps billions)		(in U.S.$ thousands)
2012
	Brazil		20.4		11,525
	Costa Rica		572.2		323,600
	Mexico		9.4		5,307
	Panama		204.4		115,613
	United States of America		14.7		8,334
	El Salvador		47.8		27,046
	Chile		9.6		5,439
	Guatemala		61.7		34,897
	Nicaragua		1.8		1,024
	Honduras		127.9		72,305
	Total 2012		1,069.9		605,090

2011
	Brazil		17.5		9,022
	Costa Rica		338.0		174,001
	Mexico		23.6		12,164
	Panama		71.5		36,802
	United States of America		16.1		8,286
	El Salvador		23.2		11,921
	Chile		3.1		1,614
	Guatemala		150.3		77,373
	Nicaragua		31.9		16,406
	Honduras		276.2		142,148
	Total 2011		951.4		489,738

2010
	Brazil		23.9		12,500
	Costa Rica		255.4		133,460
	Mexico		14.1		7,369
	Panama		155.2		81,076
	United States of America		266.8		139,405
	El Salvador		28.2		14,742
	Chile		3.2		1,665
	Guatemala		121.7		63,563
	Nicaragua		2.0		1,041
	Honduras		21.8		11,364
	Total 2010		892.3		466,184

	At December 31, 2012
	Maturity less than 1 year					Maturity between 1 and 5 years				Maturity between 5 and 10 years				Maturity more than 10 years				Total
	Balance (1)		Yield % (2)			Balance (1)		Yield % (2)		Balance (1)		Yield % (2)		Balance (1)		Yield % (2)		Balance (1)		Yield % (2)
	(in Ps billions, except yields)
Debt securities
Peso-denominated
Securities issued or secured by the Colombian central government		671.2		4.4			3,438.0		4.6		5,644.2		5.3		1,177.5		5.7		10,930.9		5.0
Securities issued or secured by the Colombian Central Bank		–		–			–		–		–		–		–		–		–		–
Securities issued or secured by Colombian government entities		2,286.5		2.7			27.1		5.7		94.8		6.1		–		–		2,408.4		2.9
Securities issued or secured by other financial entities		159.6		5.6			150.2		6.3		55.9		9.4		21.4		6.6		387.1		6.5
Other securities		28.4		4.4			33.0		5.1		341.1		5.0		40.2		11.6		442.7		5.6
Total peso-denominated		3,145.7		3.2			3,648.3		4.7		6,135.9		5.3		1,239.2		5.9		14,169.0		4.7

Foreign currency-denominated
Securities issued or secured by the Colombian central government		84.2		(3.7	)		452.0		1.3		1.2		1.9		–		–		537.4		0.6
Securities issued or secured by Colombian government entities		–		–			6.0		4.3		215.7		4.2		–		–		221.7		4.2
Securities issued by foreign governments		564.3		3.6			354.9		7.7		67.3		6.2		83.5		4.2		1,069.9		5.2
Securities issued or secured by other financial entities		1,254.8		3.3			555.4		3.2		615.7		4.1		–		–		2,425.9		3.5
Other securities		31.2		1.9			126.7		3.3		1,059.7		4.3		72.6		4.6		1,290.1		4.1
Total foreign currency-denominated		1,934.4		3.0			1,494.9		3.7		1,959.5		4.3		156.1		4.4		5,545.0		3.7

Total debt securities, net		5,080.1					5,143.2				8,095.4				1,395.3				19,714.0

Equity securities, net																			3,581.8

Total investment securities, net																			23,295.8

	December 31, 2012
	Issuer	Book value		Market value
		(in Ps billions)
Securities issued or secured by the Colombian central government	Ministry of Finance		11,437.4		11,411.4
Securities issued or secured by Colombian government entities	Finagro		2,163.1		2,148.9
Securities issued by other financial entities	Titularizadora Colombiana S.A. (1)		386.5		390.4
Total			13,987.1		13,950.8

	At December 31, 2012
	Due in one year or less		Due from one to five years		Due after five years		Total
	(in Ps billions)
Domestic
Commercial
General purpose loans		14,069.7		13,814.0		2,087.5		29,971.2
Loans funded by development banks		472.6		888.8		300.5		1,661.9
Working capital loans		8,093.0		1,020.0		36.6		9,149.6
Credit cards		159.0		83.6		-		242.6
Overdrafts		194.8		-		-		194.9
Total commercial		22,989.1		15,806.4		2,424.6		41,220.2

Consumer
Credit cards		1,599.4		690.3		-		2,289.7
Personal loans		3,954.0		9,237.3		1,011.5		14,202.8
Automobile and vehicle loans		555.0		1,311.9		68.3		1,935.3
Overdrafts		53.5		0.1		-		53.6
Loans funded by development banks		0.1		0.1		-		0.2
General purpose loans		75.8		82.0		-		157.9
Working capital loans		1.3		0.1		-		1.4
Total consumer		6,239.1		11,321.9		1,079.8		18,640.8

Microcredit		165.3		125.4		0.2		290.9
Mortgages		126.1		365.1		582.1		1,073.3
Financial leases		1,733.4		3,461.9		1,028.6		6,223.9
Total domestic portfolio		31,253.0		31,080.7		5,115.5		67,449.2

Foreign
Commercial
General purpose loans		332.2		934.8		1,018.6		2,285.6
Loans funded by development banks		-		-		-		-
Working capital loans		1,742.9		201.8		14.6		1,959.3
Credit cards		-		-		-		-
Overdrafts		49.1		-		-		49.1
Total commercial		2,124.2		1,136.7		1,033.1		4,294.0

Consumer
Credit cards		2,979.0		85.1		2.7		3,066.8
Personal loans		30.1		177.8		549.4		757.3
Automobile and vehicle loans		23.3		427.6		441.9		892.8
Overdrafts		22.4		-		-		22.4
Loans funded by development banks-		-		-		-		-
General purpose loans		-		-		-		-
Working capital loans		-		-		-		-
Total consumer		3,054.8		690.6		994.0		4,739.4

Microcredit		-		-		-		-
Mortgages		2.9		77.2		3,194.9		3,275.0
Financial leases		17.2		239.0		15.6		271.8
Total foreign portfolio		5,199.1		2,143.5		5,237.7		12,580.2
Total loan portfolio		36,452.0		33,224.2		10,353.1		80,029.4

	At December 31, 2012
Loans with terms of one year or less	(in Ps billions)
Variable rate:
Domestic		23,357.3
Foreign		1,938.4
Total		25,295.8
Fixed rate:
Domestic		7,895.6
Foreign		3,260.6
Total		11,156.2
Total loans with terms of one year or less		36,452.0

Loans with terms of more than one year
Variable rate:
Domestic		22,850.5
Foreign		1,587.0
Total		24,437.5
Fixed rate:
Domestic		13,345.7
Foreign		5,794.2
Total		19,139.8
Total loans with terms of more than one year		43,577.3

Total loan portfolio		80,029.4

	Loan portfolio by type of loan
	At December 31,
Domestic	2012			2011			2010			2009			2008
	(in Ps billions)
Commercial loans		41,220.2			36,771.7			31,025.5			26,139.3			25,526.1
Consumer loans		18,640.8			15,477.7			12,851.5			11,395.8			10,370.2
Microcredit loans		290.9			284.2			250.1			286.0			274.6
Mortgages		1,073.3			834.6			755.3			865.4			869.0
Financial leases		6,223.9			4,917.8			3,541.3			3,210.1			3,104.0
Total domestic loan portfolio		67,449.2			58,285.9			48,423.8			41,896.7			40,144.0
Allowance for loans and financial lease losses		(2,332.8	)		(2,093.0	)		(1,977.6	)		(1,881.1	)		(1,625.8	)
Total domestic loan portfolio, net		65,116.3			56,192.9			46,446.2			40,015.6			38,518.3

	At and for the year ended December 31, 2012
	Amount of loans		Gross interest income		Interest income included in net income for the period
	(in Ps billions)
Domestic		1,083.9		209.6		92.5
Foreign		226.5		13.3		–
Total non-accrual loan portfolio		1,310.5		222.9		92.5

Current Definition of Technical Capital			New Definition of Technical Capital
Basic Capital			Ordinary Basic Capital
· Outstanding and paid-in capital stock. · Legal and other reserves. · Profits retained from previous fiscal years. · Net positive result of the cumulative translation adjustment account. · The total value of the revaluation of equity account (revalorización del patrimonio) (if positive) and of the foreign currency translation adjustment account (ajuste por conversion de estados financieros). · Current fiscal year profits in a proportion equal to the percentage of prior fiscal year profits that were capitalized, or allocated to increase the legal reserve, or all profits that must be used to cover accrued losses. · Shares held as a guarantee by FOGAFIN when the entity is in compliance with the recovery program aimed at bringing the bank back into compliance with capital adequacy requirements. · Subordinated bonds held by FOGAFIN when they comply with certain requirements stated in the regulations.			· Outstanding and paid-in capital stock classified as Ordinary Basic Capital by the Superintendency of Finance subject to the conditions set forth in the regulation. · Legal reserves. · Shares held as a guarantee by FOGAFIN when the entity is in compliance with a recovery program aimed at bringing the financial entity back into compliance with capital adequacy requirements. · Non-controlling interests, subject to the conditions set forth in the regulations. · The value of paid-in stock dividends when the relevant class of stock has been classified as part of the Ordinary Basic Capital by the Superintendency of Finance. · Capital surplus. · Irrevocable donations. · The total value of the cumulative translation adjustment account.

· Non-controlling interests registered in the consolidated financial statements. · The total value of paid-in stock dividends. · The part of the surplus capital account from donations that complies with the requirements set forth in the applicable regulation.			· Capital stock paid in prior to its issuance by the entity, provided however, that the stock remains unissued for a maximum term of four (4) months. After such time frame, it will no longer be considered as comprising the technical capital. · Subordinated bonds held by FOGAFIN when they comply with certain requirements stated in the regulations. · Any other financial instrument issued by the entity and held by FOGAFIN, when the subscription is intended to strengthen the financial condition of the financial entity.
Deductions from Basic Capital			Deductions from Ordinary Basic Capital
· Any prior or current period losses. · The total value of the capital revaluation account (revalorización del patrimonio) (if negative). · Accumulated inflation adjustments on non-monetary assets (provided that the respective assets have not been transferred). · Investments in shares, mandatory convertible bonds, subordinated bonds that may be convertible into shares or subordinated debt instruments issued by other entities (excluding subsidiaries) subject to the supervision of the Superintendency of Finance, excluding appraisals and investments in Finagro credit establishments and investments undertaken pursuant to Article 63 of Decree 663 of 1993, subject to the conditions set forth in the regulation. · Investments in shares, mandatory convertible bonds, subordinated bonds that may be convertible into shares or subordinated debt instruments issued by foreign financial institutions where the investor directly or indirectly holds at least 20% of the capital of said institution (excluding subsidiaries). This amount includes cumulative translation adjustments and excludes appraisals.			· Any prior or current period losses. · Direct and indirect investments in shares, mandatory convertible bonds, subordinated bonds that may be convertible into shares or subordinated debt instruments issued by other Colombian or foreign financial institutions (excluding subsidiaries), including cumulative translation adjustments and excluding appraisals, subject to the conditions set forth in the regulation. · Deferred income taxes, if positive. · Intangible assets registered after August 23, 2012. · Reacquired stock, subject to the conditions set forth in the regulations. · Unamortized amount of the actuarial calculation of the pension obligations of the entity.
			Additional Basic Capital
			· Outstanding and paid-in capital stock classified as Additional Basic Capital by the Superintendency of Finance subject to the conditions set forth in the regulation. · The value of paid-in stock dividends when the relevant class of stock has been classified as part of the Additional Basic Capital by the Superintendency of Finance. · Non-controlling interests, subject to the conditions set forth in the regulation.

Additional Capital			Additional Capital
· Fifty percent (50%) of the accumulated inflation adjustment of non-monetary assets (provided that such assets have not been disposed of). · Fifty percent (50%) of asset reappraisal (excluding revaluations of foreclosed assets or assets received as payment of credits). · Mandatory convertible bonds effectively subscribed and paid, with maturities of up to five years, issued subject to the interest rate conditions authorized, in general, by the Superintendency of Finance. · Subordinated payment obligations as long as said obligations do not exceed 50% of Tier One Capital and comply with additional requirements stated in the regulations. · The part of the surplus capital account from donations that complies with the requirements set forth in the applicable regulation. · General allowances made in accordance with the instructions issued by the Superintendency of Finance.			· Fifty percent (50%) of the reappraisal or unrealized profits derived from investments in equity and debt instruments with high or medium trading volumes, subject to conditions set forth in the regulation. · Mandatory convertible bonds effectively subscribed and paid, subject to the conditions set forth in the regulation. · Subordinated payment obligations that the Superintendency of Finance classifies as part of the Additional Capital. · Current period profits, in the amount that the shareholders irrevocably resolve to capitalize or assign to increase the legal reserves once the fiscal year is ended, subject to approval by the Superintendency of Finance. · Voluntary reserves (reservas ocasionales), up to an amount no greater than ten percent (10%) of the Technical Capital of the entity. · Non-controlling interests, subject to the conditions set forth in the regulation. · Fifty percent (50%) of the tax reserve, as defined by law. · Thirty percent (30%) of the reappraisal or unrealized profits derived from investments in equity instruments with low or non-existing trading volumes, or not listed in trading platforms, subject to an appraisal by an independent expert, according to the regulations expected to be issued by the Superintendency of Finance, and to conditions set forth in the regulation. · The value of the general provisions made by the financial entity, in an amount no greater than 1.25% of the risk-weighted assets.
Deductions from Additional Capital
· 50% of the direct or indirect capital investments (in entities subject to the supervision of the Superintendency of Finance, excluding subsidiaries) and mandatory convertible bonds reappraisal that complies with the requirements set forth in the applicable regulation. · 50% of the direct or indirect capital investments (excluding subsidiaries) and mandatory convertible bonds reappraisal of foreign financial entities with respect to which the bank’s share is or exceeds 20% of the entity’s subscribed capital. · The value of the devaluation of equity investments with low exchange volume or which are unquoted.

Credit category	Percentage of allowance over the guaranteed portion of the loan		Percentage of allowance over the non-guaranteed portion of the loan
A		1.0		1.0
B		3.2		100.0
C		10.0		100.0
D		20.0		100.0
E		30.0		100.0

Credit grade	Minimum Allowance Percentage (1)		Minimum Allowance Percentage (2)
A		0.0		1.0
B		1.0		2.2
C		20.0		0.0
D		50.0		0.0
E		100.0		0.0

	Number of properties		Value of properties
	Number of properties		Book value		Reappraisal		Total
			(Ps billions)
Banco de Bogotá		432		163.4		564.1		727.6
Banco de Occidente		167		98.5		252.2		350.7
Banco Popular		198		97.5		276.1		373.6
Banco AV Villas		131		71.3		199.1		270.4
Corficolombiana		111		4.8		24.6		29.4
Porvenir		135		32.9		27.1		60.0
BAC Credomatic		113		136.5		143.2		279.8
Total		1,287		604.9		1,486.4		2,091.5

	For the year ended December 31, 2011
	Banco de Bogotá			Banco de Occidente			Banco Popular			Banco AV Villas			Grupo Aval, its wholly owned finance subsidiaries and eliminations			Grupo Aval consolidated
	(in Ps billions)
Total interest income		4,395.9			1,592.7			1,403.2			717.6			41.4			8,150.8
Total interest expense		(1,459.2	)		(525.5	)		(417.8	)		(169.0	)		(110.4	)		(2,681.9	)
Net interest income		2,936.7			1,067.2			985.4			548.6			(69.0	)		5,468.9
Total (provisions)/reversals, net		(139.0	)		(176.6	)		(67.3	)		(33.4	)		(0.0	)		(416.3	)
Total fees and other services income, net		1,756.8			198.5			150.7			151.2			(22.8	)		2,234.4
Total other operating income		758.1			314.3			51.8			3.4			(169.7	)		958.0
Total operating income		5,312.6			1,403.5			1,120.7			669.7			(261.5	)		8,244.9
Total operating expenses		(2,968.0	)		(846.3	)		(623.2	)		(436.0	)		(59.6	)		(4,932.9	)
Net operating income		2,344.6			557.2			497.5			233.8			(321.1	)		3,312.0
Total non-operating income (expense), net		68.5			15.5			57.2			7.1			48.0			196.2

	For the year ended December 31, 2010
	Banco de Bogotá			Banco de Occidente			Banco Popular			Banco AV Villas			Grupo Aval and eliminations			Grupo Aval consolidated
	(in Ps billions)
Total interest income		3,345.6			1,403.9			1,276.2			683.1			(166.2	)		6,542.6
Total interest expense		(902.1	)		(457.2	)		(325.3	)		(142.8	)		(86.4	)		(1,913.8	)
Net interest income		2,443.5			946.7			950.9			540.3			(252.6	)		4,628.8
Total provisions (reversals), net		(610.6	)		(192.3	)		(101.6	)		(122.4	)		(0.0	)		(1,026.9	)
Total fees and other services income, net		1,155.1			186.6			136.1			140.5			(0.6	)		1,617.7
Total other operating income		582.4			316.7			42.0			9.7			(165.3	)		785.5