Company Report June 16, 2011

Grupo Aval: First Quarter 2011 results for Banco Occidente and Banco Popular are better than expected. Preparado por: Samuel David García T. 1 607 8090 - [email protected]

52-week Low

COP910

52-week High

COP1,770

Market Price as of 14-Jun-11

COP1,285

Year-to-date Change (%)

-24.4%

Shares Outstanding (mn)

13,944

Market Capitalization (COP mn)

17,918,017

Target Price 2011E

COP1,360

Upside Potential

5.8%

Historical Price

During the first quarter of 2011, Grupo Aval banks achieved financial results in line with or above our estimates in terms of profitability. In particular, both Banco Occidente and Banco Popular reported returns on equity that exceeded our projections. In this regard, our target price remains unchanged for the year-end at COP1,360. We reiterate our investment theory that Grupo Aval's stock is an attractive alternative for local financial sector exposure for medium and long term structural portfolios. However, its short term upside potential is moderate with respect to our base valuation.

Figure 1. Valuation Scenarios $ 2.000

Executive Summary:

Target Price

$ 1.800 $ 1.600

$1.580

$ 1.400

$1.360

$ 1.200 1244

$ 1.000 $ 800

$1.180 1557 1559 1560 1555 1556 1554 1549 1550 1551 1552 1546 1547 1544 1545 1540 1541 1542 1539 1534 1535 1536 1537 1531 1532 1530 1525 1526 1527 1528 1522 1523 1521 1516 1517 1518 1520 1515 1511 1512 1513 1507 1508 1510 1506 1501 1502 1503 1504 1498 1499 1497 1492 1493 1494 1496 1489 1491 1487 1488 1483 1484 1486 1482 1478 1479 1481 1474 1475 1477 1473 1468 1469 1470 1472 1465 1467 1464 1459 1460 1462 1463 1457 1458 1454 1455 1450 1452 1453 1449 1444 1445 1446 1448 1441 1443 1440 1435 1436 1438 1439 1433 1434 1431 1426 1428 1429 1430 1424 1425 1421 1423 1417 1419 1420 1416 1411 1412 1414 1415 1402 1404 1400 1401 1399 1393 1395 1397 1392 1388 1390 1391 1385 1386 1387 1383 1378 1380 1376 1377 1375 1370 1371 1372 1373 1367 1368 1364 1366 1361 1362 1363 1359 1354 1356 1357 1358 1352 1353 1351 1346 1347 1348 1349 1343 1344 1342 1337 1338 1339 1341 1334 1335 1332 1333 1329 1330 1327 1322 1323 1324 1325 1320 1318 1313 1314 1315 1317 1310 1311 1309 1305 1306 1308 1303 1299 1300 1301 1295 1296 1298 1289 1290 1291 1293 1286 1288 1285 1284 1283 1282 1281 1280 1279 1278 1277 1276 1275 1274 1273 1272 1271 1270 1269 1268 1267 1266 1265 1264 1263 1262 1261 1260 1259 1258 1257 1256 1255 1254 1253 1252 1251 1250 1249 1248 1247 1246 1244 1245 1243 1242 1241 1240 1239 1238 1237 1236 1235 1234 1233 1232 1231 1229 1230 1228 1227 1226 1225 1224 1223 1222 1221 1220 1219 1217 1218 1216 1214 1215 1213 1212 1211 1210 1209 1208 1207 1206 1205 1204 1202 1203 1201 1199 1200 1198 1197 1196 1195 1194 1193 1192 1191 1190 1189 1187 1188 1186 1184 1185 1183 1182 1181 1180 1407 1405 1409 1406 1396

$ 600 Dec -09

Jun-10

Dec -10

Jun-11

Dec -11

The Group's banks (the financial conglomerate’s main asset) showed strong operating performance in the first quarter by posting portfolio growth rates that were similar or higher than the Colombian banking sector as a whole1. Particularly, Banco de Bogotá (50% of the holding according to our valuation) had a 23.6% annual increase in its loan portfolio, while Banco Occidente and Banco Popular had increases of 49.8% and 26.43% respectively. These figures confirm the positive activity in loan placement by Aval entities.

Source: Valores Bancolombia.

Figure 2. Actual vs. Expected 12 Month ROE for Grupo Aval Banks 4.5% Expired Loan Portfolio & Leasing 4.0% Aval Average 3.5% 3.61% 3.0% 2.92% 2.5% 2.62% 2.0% 2.22%

2.94%

1.5%

1.0% 0.5%

0.0% Banco de Banco de

Banco Banco AV

BogotáOccidentePopular Villas

System’s

Total

The growth in loan placements did not cause deterioration in asset quality indicators or solvency levels. On average, in March 2011 the indicator for expired portfolio and leasing/gross portfolio and leasing for the Group's banks was 2.84%, slightly lower than the banking sector average of 2.94%. Likewise, the solvency ratio of Aval banks was 13.10%, well above the regulatory minimum of 9% and higher than the 12.7% recorded a year ago. Within our balance of risk analysis and as the main limiting factor, we draw attention to the country’s macroeconomic performance being lower than Grupo Bancolombia’s estimates. Similarly, the impact of the rainy and flooding season on variables such as output growth and inflation could impair the payment ability of some agents.

Source: Bancolombia Securities and Financial Superintendence of Colombia.

With the exception of AV Villas.

VALORES BANCOLOMBIA S.A. SOCIEDAD COMISIONISTA DE BOLSA maintains and seeks to maintain commercial relationships with the companies covered in its company reports. Thus, investors should take into account that the Company may have a potential conflict of interests which affects the objectivity of this report, therefore investors should consider this report as one of many factors which assist in making investment decisions.

Grupo Aval – Acciones y Valores

June 16, 2011

Figure 3. Asset Quality for Grupo Aval Banks as of March 2011 4,5% 4,0%

3,5%

Cartera & Leasing Vencido Vencido Promedio Aval 3,61%

3,0% 2,92%

2,5% 2,0%

2,62%

2,94%

2,22%

1,5%

1,0%

On the positive side, we highlight the potential issue of Aval shares on the New York Stock Exchange (in the form of ADRs) and the exploitation of synergies generated by the recent acquisition of the Central American bank, Credomatic. However, to date the issuer has not officially commented on any of these situations. Finally, with regard to comparable group multiples analysis, Grupo Aval continues to show increases relative to other Latin American and Colombian banks.

0,5%

0,0%

Table 2. Comparable Multiples Banco de Banco de Banco Banco AV Total Bogotá Occidente Popular Villas Sistema

Source: Valores Bancolombia with data from the Colombian Securities and Financial Superintendence.

Issuer Banco do Brasil Banco Itaú Banco Bradesco Banco de Chile Credicorp Banco de Crédito del Perú Banco de Crédito e Inversiones BBVA Banco Francés Banco Santander Río

Country Brazil Brazil Brazil Chile Peru Peru Chile Argentina Argentina

LATAM Average Bancolombia Davivienda Helm Bank

Colombia Colombia Colombia

Colombia Average Grupo Aval (Spot)

Colombia

P/E 6.1 9.9 10.8 14.2 11.7 14.2 13.5 5.8 5.4

P/BV 1.5 2.1 2.3 3.9 2.6 3.4 2.9 2.4 3.6

10.2

2.7

19.7 17.9

3.0 2.6 1.4

18.8

2.3

19.6

3.1

Premium / Discount against a Latam

92%

13%

Premium / Discount against a Latam

4%

33%

Source: Bloomberg and calculations by Valores Bancolombia.

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Grupo Aval – Acciones y Valores

June 16, 2011

Table 3. Individual Financial Statements Grupo Aval (COP million) Balance Sheet

Dec-08

Dec-09

Dec-10

Mar-10

Mar-11

% Chg

Available

56,199

65,603

11,330

137,190

117,249

-14.5%

Cash Equivalents

41,812

26,562

1,400,359

26,153

25,131

-3.9%

Debtors

101,837

102,719

110,815

237,159

275,199

16.0%

Other Current Assets

46

75

465

69

698

906.4%

Total Current Assets

199,893

194,959

1,522,968

400,572

418,277

4.4%

Long-term Investments

4,161,040 5,423,893 6,607,663 5,734,551 7,994,224

39.4%

Intangible

1,056,047

637,209

431,033

595,475

427,342

-28.2%

197

280

345

266

424

59.1%

Other Long-term Assets Total Long-term Assets

5,217,284 6,061,382 7,039,041 6,330,292 8,421,990

33.0%

Total Assets

5,417,177 6,256,341 8,562,010 6,730,864 8,840,267

31.3%

Short-term Obligations

53,195

8,500

6,667

6,333

6,667

5.3%

Accounts Payable

257,441

188,420

214,871

309,236

406,558

31.5%

0

105,300

100,000

105,300

100,000

-5.0%

Short-term Bonds and Commercial Papers Other Short-term Liabilities

1,544

2,891

2,730

2,737

159,657

5733.6%

Total Current Liabilities

312,180

305,111

324,268

423,606

672,882

58.8%

Long-term Financial Obligations

453,508

113,833

1,444,509

181,167

1,503,509

729.9%

Long-term Bonds and Commercial Papers

400,000

1,044,700

944,700

1,044,700

944,700

-9.6%

Total Long-term Liabilities

853,508

1,158,533 2,389,209 1,225,867 2,448,209

99.7%

Total Liabilities

1.165.689 1.463.644 2.713.477 1.649.473 3.121.091

89.2%

Shareholders’ Equity

4.251.488 4.792.697 5.848.533 5.081.391 5.719.176

12.6%

Liabilities + Shareholders’ Equity

5.417.177 6.256.341 8.562.010 6.730.864 8.840.267

31.3%

Income Statement

Dec-08

Dec-09

Dec-10

Mar-10

Mar-11

% Chg

Operating Revenues

909.830

553.517

1.340.603

324.697

356.263

9.7%

Cost of Sales

0

60.875

769.176

0

0

Gross Income

909,830

492,642

571,427

324,697

356,263

9.7%

Operating Expensees

26,910

32,218

37,812

8,295

18,316

120.8%

Operating Income

882,920

460,424

533,616

316,403

337,947

6.8%

Non-operating Revenues

14,825

6,650

7,222

3,650

7,887

116.1%

Non-operating Expenses

132,354

65,025

75,282

35,797

82,307

129.9%

Pre-tax Income

765,391

402,049

465,555

284,256

263,528

-7.3%

Income Tax

5,212

979

1,275

634

1,923

203.4%

Net Income

760,180

401,070

464,280

283,622

261,605

-7.8%

Source: Valores Bancolombia with data from the Colombian Securities and Financial Superintendence.

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Company Report June 16, 2011

Copyright Valores Bancolombia Equity and Portfolio Analysis Management (571) 607 80 90 | Bogotá – Colombia

Juan Nicolás Pardo Ayala General Manager of Equity and Portfolio Analysis [email protected]

Mauricio Amador Pilonieta International Equity Markets Strategist [email protected] Samuel David Garcia Torres Equity Investment Strategist Retail and Commodity Sectors [email protected] Sergio Díaz Moreno Local Equity Market Strategist [email protected]

This report was developed by Equity and Portfolio Analysis Management of VALORES BANCOLOMBIA S.A. SOCIEDAD COMISIONISTA DE BOLSA, a subsidiary of the Bancolombia Group. The information provided does not constitute advice, recommendations or suggestions for making decisions to buy or sell securities, therefore its use is the sole responsibility of the user. Prices, interest rates and other data included in this report are purely informational and are not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. The past performance of assets discussed herein is not a guarantee of future results. The information presented in this report does not necessarily represent the views of the Bancolombia Group, only those of the analysts. Any opinions expressed herein are subject to change. Please periodically visit our website (www.valoresbancolombia.com), for the latest reports from the Equity and Portfolio Analysis group at VALORES BANCOLOMBIA S.A. SOCIEDAD COMISIONISTA DE BOLSA. Some of the analysts' compensation is related to the overall performance of VALORES BANCOLOMBIA S.A. SOCIEDAD COMISIONISTA DE BOLSA. Business advisers, traders and other professionals at VALORES BANCOLOMBIA S.A. SOCIEDAD COMISIONISTA DE BOLSA may recommend different investment strategies to our own clients and trading desks than those outlined in this report. VALORES BANCOLOMBIA S.A. SOCIEDAD COMISIONISTA DE BOLSA may at any time, hold a trading position of financial assets listed in this report that does not reflect the recommendations or analysis contained in this document. The information and analysis presented here have not been reviewed by other branches of the Bancolombia Group, including Bancolombia Investment Bank (investment bank) and do not reflect information that these companies may have in their possession. This report or any portion thereof may not be sold or distributed without the consent of VALORES BANCOLOMBIA S.A. SOCIEDAD COMISIONISTA DE BOLSA. Client of the Firm: Grupo Aval is a client or has been a client during the past year of VALORES BANCOLOMBIA SOCIEDAD COMISIONISTA DE BOLSA. During the past year, VALORES BANCOLOMBIA S.A. SOCIEDAD COMISIONISTA DE BOLSA has received compensation for financial services performed for Grupo Aval. Warning The report which you are about to access was exclusively developed by Equity and Portfolio Analysis Management of VALORES BANCOLOMBIA S.A. SOCIEDAD COMISIONISTA DE BOLSA. The data, statistics and comments were taken from the various sources of information which the Colombian stock market offers for this purpose, such as any of the Issuers information, Colombia Stock Exchange reports and financial reports taken directly from the website of the issuers or by the Colombian Financial Superintendency. VALORES BANCOLOMBIA S.A. SOCIEDAD COMISIONISTA DE BOLSA does not guarantee the accuracy of this report.

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