As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 9/24/14  Grupo Aval Acciones Y Valores SA  424B4                  1:19M                                    Merrill Corp/New/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 424B4       Prospectus                                          HTML  11.56M 

Summary

This summary highlights selected information about us and the ADSs that we are offering. It may not contain all of the information that may be important to you. Before investing in our ADSs, you should read this entire prospectus carefully for a more complete understanding of our business and this offering, including our consolidated financial statements and the related notes included elsewhere in this prospectus and the sections entitled "Risk factors," and "Operating and financial review and prospects" in this prospectus.

Our company

We are Colombia's largest banking group based on total assets and have been its most profitable, based on an average of ROAE and an average of ROAA, for the 2010 to June 30, 2014 period (calculated as the average of the ROAEs and ROAAs for each of the four most recent fiscal years and the six-month period ended June 30, 2014), among our principal competitors in the Colombian market. We are also the largest banking group in Central America based on total assets as of June 30, 2014. We provide a comprehensive range of financial services and products ranging from traditional banking services, such as making loans and taking deposits, to pension and severance fund management.

Colombian operations

Our operations in Colombia currently consist of four commercial banks (Banco de Bogotá, Banco de Occidente, Banco Popular and Banco AV Villas), the largest pension and severance fund manager (Porvenir) and the largest merchant bank (Corficolombiana). We acquired 99.99% of the outstanding shares of Horizonte on April 18, 2013 and, on December 31, 2013, we completed the merger of Horizonte into Porvenir. The merger of Horizonte into Porvenir positions us as the market leader in the management of mandatory pension funds and severance funds in Colombia. See "Business—Competition—Pension and severance fund management—Porvenir." Our Red de Grupo Aval (Grupo Aval network) is the largest combined network of ATMs and branches in Colombia and has been a key element of our competitive positioning in the Colombian market, with 1,380 branches and 3,739 ATMs at June 30, 2014. 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 operating within central strategic guidelines established by our management. 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 brand management, strategic planning, general procurement, risk management, convergence of technologies and cost controls that we believe promote best practices, realization of synergies and efficiency across our subsidiaries.

 

The following tables show our ROAA, ROAE and efficiency ratio and that of our Colombian banking subsidiaries and principal competitors at and for the six-month period ended June 30, 2014 and the year ended December 31, 2013, on a consolidated basis, and Colombian market share information.

 

 

Central American operations

Through our BAC Credomatic operations and our recent Central American acquisitions, we are the largest banking group in Central America based on consolidated assets. We have a leading Central American presence with operations that are complementary to our Colombian businesses and a leading position in the consumer and credit card banking businesses in the region.

We have operations in six Central American countries (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama) and Mexico. We are one of the leading credit card issuers and merchant-acquiring franchises in Central America and have the only network that processes all major credit card brands in the region.

Through a network of 628 points of contact (including 351 full-service branches, 40 in-store branches, 209 on-site branches and 28 auto/drive-thru branches) and 1,580 ATMs at June 30, 2014, BAC Credomatic has more than 3.2 million customers and serves a region with a population of approximately 44 million, providing significant opportunity for growth in financial services. Our Central American operations represented 21.4% of our assets at June 30, 2014.

Since acquiring BAC Credomatic in December 2010, we have implemented some of our best practices from our Colombian operations, improving its efficiency ratio from 65.7% in 2010 to 55.6% in 2013. The efficiency ratio of BAC Credomatic for the six-month period ended June 30, 2014 was 57.0%. In addition (calculated under its U.S. GAAP financials), net income attributable to shareholders improved from Ps 287.4 billion in 2010 to Ps 567.6 billion in 2013. BAC Credomatic's ROAE was 17.4% and its ROAA was 1.9% in 2010 compared to an ROAE of 22.3% and an ROAA of 2.4% in 2013, and its ROAE and ROAA were 22.1% and 2.6%, respectively, for the six-month period ended June 30, 2014.

We believe we can further improve our performance in Central America and continue to improve BAC Credomatic's efficiency ratio. The efficiency ratio for our Colombian operations was 49.0% for the year ended December 31, 2013 and 48.7% for the six-month period ended June 30, 2014. We also believe we can leverage Grupo Aval's expertise to increase BAC Credomatic's share in corporate lending within Central America.

 

The following tables show market shares and other metrics of our Central American operations and that of our principal competitors in Central America, excluding Panama, for the periods indicated.

 

 

Other financial and operating data

The following table presents our key consolidated financial and operating data for the periods and at the dates indicated.

 

Our markets and opportunity

Colombia

The majority of our operations are located in Colombia, representing 81.7% and 80.1% of our net income and gross loan portfolio, respectively, and in the six countries in Central America, representing 18.3% and 19.9% of our net income and gross loan portfolio, respectively, in each case for and at the six-month period ended June 30, 2014.

We believe that Colombia's financial system presents significant growth potential given its favorable economic conditions and low penetration rate for banking and financial services compared to other countries in the Latin American region such as Brazil and Chile. According to data from the IMF, at December 31, 2013, Colombia's population and economy were the third and fourth largest in Latin America, respectively. According to DANE, in 2013 Colombia's population was approximately 47.1 million people and its nominal GDP was Ps 707.2 trillion (U.S.$378.4 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 15.0 million in 2013 (U.S.$8,030 using the average exchange rate for that year).

During the ten-year period ended December 31, 2013, Colombia outperformed the average GDP growth rate for Latin America by 0.9 percentage points, while reducing the country's dependency on foreign financing as reflected in the country's external debt to GDP ratio of 24.4% at December 31, 2013. 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, 2013 and throughout 2014. According to the Central Bank of Colombia, or the "Colombian Central Bank," Colombia's annual inflation rate for 2013 was 1.9%, the lowest rate since 1954 and down from 2.4% for 2012. Annual inflation for 2014 was 2.8% as of June 30, 2014. 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 March 31, 2014, according to the Superintendency of Finance, Colombia's financial system grew at a compounded annual growth rate, or "CAGR," of 14.1% in terms of loan balances outstanding and 11.8% in terms of deposits, on an inflation-adjusted basis, compared to 4.8% for the country's GDP during the same ten-year period ended March 31, 2014. Despite this recent growth, Colombia's bank-loans-to-GDP ratio remains relatively low, with an approximate 37.6% ratio at March 31, 2014, 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 48.8% compared to 100.5% for Chile, 68.5% for Brazil, 28.2% for Peru and 27.5% for Mexico at December 31, 2012, the most recent date for which such data is available.

 

Central America

We view Central America as a strategic region that meets our expansion criteria. At December 31, 2013, Central America had a total population of approximately 44.5 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.$198.9 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 4.1% between 2014 and 2016, 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 domestic credit to the private sector to GDP of 49.2% as of December 31, 2012, mainly driven by Panama's 85.6% ratio. This indicator for the other countries in the Central American region ranges from 26.6% to 51.8%, which we believe positions the financial sector to outperform GDP growth. We also see the additional penetration of credit cards in the population as an important growth opportunity in Central America.

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 history of Grupo Aval are 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 which was later merged with Corporación de Ahorro y Vivienda Las Villas in 2000 and became Banco AV Villas in 2002;

•

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 provide an integrated service network of branches and ATMs;

•

In 1999, we conducted our initial public equity offering in Colombia and listed our common shares on the Colombian Stock Exchange under the ticker symbol "GRUPOAVAL" raising Ps 62.5 billion (U.S.$35.3 million) in gross proceeds. 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 merged with Corficolombiana;

 

•

In 2007, we conducted our second public offering of common shares pursuant to a preemptive rights offering in Colombia, raising Ps 372.0 billion (U.S.$210.4 million) in gross proceeds;

•

On December 9, 2010, we acquired BAC Credomatic from GE Consumer Finance Central Holdings Corp. and General Electric Capital Corporation;

•

In 2011, we registered our preferred shares with the SEC;

•

In 2011, we concluded our first offering of our preferred shares pursuant to a preemptive rights offering in Colombia, raising Ps 2.1 trillion (U.S.$1.1 billion) in gross proceeds;

•

In February 2012, we completed our first international bond offering, issuing Ps 1,083.6 billion (U.S.$600 million) at the date of the issuance of our 5.25% Senior Notes due 2017;

•

In September 2012, we completed our second international bond offering, issuing Ps 1,795.7 billion (U.S.$1.0 billion) at the date of the issuance of our 4.75% Senior Notes due 2022;

•

On April 18, 2013, we acquired Horizonte and on December 31, 2013, we completed the merger of Horizonte into Porvenir;

•

On December 19, 2013 and December 23, 2013, we expanded our Central America operations with the acquisitions of BBVA Panama (now known as Banco BAC de Panama) and Grupo Reformador, respectively; and

•

On January 17, 2014, we completed our third public offering of common shares pursuant to a preemptive rights offering of 1,855,176,646 common shares, or the "Common Share Rights Offering," raising Ps 2.4 trillion (U.S.$1.3 billion).

 

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.

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Source: Company data at June 30, 2014.

(1)    Corficolombiana held an additional 0.3% beneficial interest in Banco de Occidente at June 30, 2014, 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, Corficolombiana and BAC Credomatic 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 the results of operations that are described in this prospectus.

(4)   Mr. Sarmiento Angulo beneficially owned 8.9% of Banco de Bogotá, 13.3% of Banco de Occidente, 0.8% of Banco Popular, 15.5% of Banco AV Villas and 0.3% of Corficolombiana, at September 5 , 2014.

Colombian banking operations

Banco de Bogotá, founded in 1870, is Colombia's oldest financial institution and at June 30, 2014, was the second largest bank in Colombia based on net income and the second largest bank in Colombia based on total consolidated assets. Banco de Bogotá had market shares of 15.3% of deposits and 14.0% of loans at June 30, 2014. It is also the largest financial institution within our group by assets and the largest contributor to our net income before income tax expense and non-controlling interest. Banco de Bogotá is a full-service bank with nationwide coverage in Colombia and a comprehensive portfolio of services and products, distributed through a network of 700 branches and 1,706 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 19.0% of commercial loans at June 30, 2014.

Banco de Occidente is the fifth largest bank in Colombia, based on assets and loans at June 30, 2014. It focuses on enterprise customers, state-owned entities and retail customers and has a leading presence in the southwest region of Colombia. Banco de Occidente has the second largest market share in Colombia,

 

with 17.3% at June 30, 2014, in the financial leasing business, the second largest market share, with 18.1% at December 31, 2013, in the vehicle financing business, and the third largest market share, with 10.6% at June 30, 2014, in checking accounts, given its strong presence in corporate and public sector clients.

Banco Popular is the pioneer of, and the market leader in, payroll loans and is a leading 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 2.8% compared to a banking system average of 4.8% at June 30, 2014).

Banco AV Villas is a consumer-focused bank, which targets mid-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 consumer bank. Banco AV Villas' risk management systems provide it with real-time and in-depth credit quality analyses that allow the bank to approve consumer loans on an accelerated basis.

Pension and severance fund management administration

Porvenir is the leading private pension and severance fund management business in Colombia, based on funds under management, with a 42.8% market share of assets under management at June 30, 2014. Pension funds provide individual savings for retirement, while severance funds provide temporary income to employees who become unemployed. Porvenir has experienced an 8.8% CAGR in net income in the 2010 to 2013 period. Porvenir is the most profitable and efficient pension and severance fund manager in Colombia, with an ROAE of 27.1% for 2011, 30.1% for 2012, 20.9% for 2013 and 23.2% for the six-month period ended June 30, 2014. Porvenir completed the merger by absorption of Horizonte, a recently acquired pension and severance fund management business in Colombia, on December 31, 2013.

Merchant banking

Corficolombiana is the leading merchant bank in Colombia by assets, shareholders' equity and net income. Corficolombiana's core business is the active management of an equity portfolio through controlling and non-controlling investments in key strategic sectors of the Colombian economy, including infrastructure, energy and gas, agribusiness and hotels. Corficolombiana complements its core equity portfolio with (i) treasury operations that manage a proprietary fixed-income portfolio while also providing treasury products to corporate clients; (ii) financial services, including leasing, off-shore banking and fiduciary activities; and, (iii) investment banking services. Corficolombiana's ROAE was 10.2% for 2012, 15.3% for 2013 and 8.8% for the six-month period ended June 30, 2014.

Central American operations

BAC Credomatic is the leading Central American banking group with operations in Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama and Mexico. 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.$6,563 million for the six-month period ended June 30, 2014, and U.S.$12,604 million and U.S.$10,996 million for the years ended December 31, 2013 and 2012, respectively, in the merchant acquiring business, which compares favorably to processing volumes of other leading Latin American issuers. BAC Credomatic's ROAE (calculated under its U.S. GAAP financial statements) was 21.8% in 2011, 23.4% in 2012, 22.3% in 2013 and 22.1% for the six-month period ended June 30, 2014. On December 19, 2013, Banco de Bogotá acquired BBVA Panama through its subsidiary, LB Panama, for

 

U.S.$505 million (Ps 982.5 billion at the date of the transaction). On December 23, 2013, BAC Credomatic acquired Grupo Reformador through its subsidiary, Credomatic International Corporation for U.S.$421 million (Ps 815.0 billion at the date of the transaction). We have since, completed the operational integration of technology, systems and policies of Grupo Financiero Reformador and Banco BAC de Panama with those of BAC Credomatic and expect to formally merge Grupo Financiero Reformador and Banco BAC de Panama into our BAC Credomatic subsidiaries following receipt of regulatory approvals that we expect to receive in 2014.

Key figures

The following tables present key information regarding the results of operations of Grupo Aval on a consolidated basis and our operating subsidiaries at the date and for the period indicated.

 

Our business strengths

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

Largest banking and financial services operator in most financial 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 28.1% of consumer loans, at June 30, 2014. We also have the largest market share of deposits, 30.0%, at June 30, 2014. 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 June 30, 2014, our ATMs and branches represented 27.0% and 26.2%, respectively, of total ATMs and branches in Colombia. Porvenir is a market leader in funds under management with a market share of 44.1% in mandatory fund management and 49.5% in severance fund management, respectively, both at June 30, 2014. In addition, Porvenir has the highest percentage of net income, 46.6%, among the main market participants in Colombia for the six-month period ended June 30, 2014. Corficolombiana, our merchant bank, is the largest financial corporation in Colombia.

Leading banking operations in Central America

BAC Credomatic is the leading financial group in Central America with a record of strong financial performance. Its ROAE (calculated under its U.S. GAAP financials) was 21.8% for the year ended December 31, 2011, 23.4% for the year ended December 31, 2012, 22.3% for the year ended December 31, 2013 and 22.1% for the six-month period ended June 30, 2014. 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 in the region that processes all major credit card brands. BAC Credomatic's customer base and distribution network are sizable in comparison to our Colombian banks. BAC Credomatic's market share in terms of gross loans varies in the different countries as follows, as of June 30, 2014: 12.3% in Costa Rica, 11.2% in El Salvador, 9.9% in Guatemala, 13.1% in Honduras, 26.2% in Nicaragua and 5.5% in Panama. We expanded our operations in Central America with the acquisitions of BBVA Panama (now known as Banco BAC de Panama) and Grupo Reformador during 2013.

Strong track record of profitability and growth

We believe that our leading position in the Colombian market, cross-bank synergies, economies of scale, low-cost funding and operating efficiencies have helped us achieve stable profits. Our average ROAE of

 

18.2% and average ROAA of 2.0% for the 2010 to June 30, 2014 period (calculated as the average of the ROAEs and ROAAs for each of the four most recent fiscal years and the six-month period ended June 30, 2014) have been the highest when compared to our principal competitors in the Colombian market. 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 5.8% at June 30, 2014. We believe that the average ROAA and ROAE for the 2010 to June 30, 2014 period have outperformed those of our competitors mainly due to strong yields on loans (from the diversified loan portfolio provided by our multi-brand banking subsidiaries), significant yields from our investment portfolio, a low-cost funding structure, appropriate net provisions and better efficiency ratios. Our total assets have grown at a CAGR of 16.0% from December 31, 2010 to June 30, 2014. During the same period, our total deposits have grown at a CAGR of 15.7%. We have accomplished our growth through organic expansion and strategic acquisitions.

Diversified and competitive sources of funding

We have access to diverse sources of funding, including deposits and debt securities placed in Colombian and international capital and credit markets, which results in a competitive cost of funding for our operations. At June 30, 2014, our market share of total deposits in Colombia was 30.0%, supported by a 36.0% market share in checking accounts and a 31.1% market share in savings accounts. Deposits represented 78.1% of our total funding at June 30, 2014 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.$43.9 billion) at December 31, 2010 to Ps 135.6 trillion (U.S.$72.1 billion) at June 30, 2014. On May 12, 2011, we completed an offering of preferred shares, raising Ps 2.1 trillion (U.S.$1.1 billion at the date of issuance) in gross proceeds. On February 1, 2012, we successfully completed our inaugural international bond offering of U.S.$600 million (Ps 1,083.6 billion at the date of the issuance) of 5.25% Senior Notes due 2017 and on September 26, 2012 we issued U.S.$1.0 billion (Ps 1.8 trillion at the date of the issuance) of 4.75% Senior Notes due 2022 in the international markets. Between December 16, 2013 and January 17, 2014, we issued an aggregate of 1,855,176,646 common shares, pursuant to a preemptive rights offering, raising Ps 2.4 trillion (U.S.$1.3 billion). We believe that our funding base supports our initiatives to expand our businesses.

Sound risk management

We believe we have asset quality that is superior to our principal competitors. Our aggregate ratio of loans past due more than 30 days over total loans was 2.6% at June 30, 2014, the lowest among our principal competitors on an unconsolidated basis. Bancolombia's ratio was 3.0%, Davivienda's was 4.1% and BBVA Colombia's was 2.8% at June 30, 2014. We have maintained our relative consolidated asset quality, as evidenced by our ratio of non-performing loans to total loans of 1.9% at June 30, 2014 and our ratio of charge-offs to average outstanding loans (annualized) of 1.2% at June 30, 2014. In addition, we believe that our reputation as a banking group that pursues conservative policies 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, that enables them to identify risks and resolve potential problems on a timely basis. In addition, we have established upward loan reporting processes, and our risk management staff meets on a weekly basis to discuss the loan portfolio, risks, opportunities and developments in the industry.

Each of our banks and Grupo Aval on an aggregate basis are well-capitalized above the minimum capital adequacy mandatory ratios as calculated under Colombian capital adequacy regulations.

 

Multi-brand business model

Our differentiated multi-brand business model builds on the individual strengths of our banking subsidiaries 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 in Colombia 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 group-wide best practices without inhibiting 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.

Focus on group-wide best practices

We apply group-wide best practices to all of our 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 achieve economies of scale and synergies to reduce operating and administrative costs. For the six-month period ended June 30, 2014, we had a consolidated efficiency ratio of 50.7%, and our banking subsidiaries had efficiency ratios ranging from 43.8% (Banco de Occidente) to 53.3% (Banco AV Villas).

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 20 years of experience in the banking and related financial services industry and over 30 years of business experience as an executive in Colombia and the United States. We believe that the strength of our management at all levels has enabled us to become Colombia's largest banking group, and we have been its most profitable based on our average of ROAE and average of ROAA, for the 2010 to June 30, 2014 period (calculated as the average of the ROAEs and ROAAs for each of the four most recent fiscal years and the six-month period ended June 30, 2014), among our principal competitors in the Colombian market. 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 key 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 2012 World Bank Development Indicators, domestic credit to the private sector accounted for 48.8% of GDP in Colombia as compared to 100.5% for Chile and 68.5% for Brazil, in each case, as of December 31, 2012. See "Industry—Colombia—Credit volumes." Furthermore, according to the Colombian Central Bank, Colombia's GDP expanded 4.3% in 2013 and is expected to grow 4.3% in 2014. We anticipate that demand for financial 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.

We believe 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. We believe we can capture additional revenue by improving our market share in segments and products where we have not historically focused in the past for example, credit cards in Colombia, mortgages and payrolls). In addition, we are also expanding our cross-selling efforts to our over 9.0 million banking clients and our over 10.1 million pension fund clients in Colombia.

Furthermore, we are currently implementing initiatives to increase our non-interest income, which consists primarily of net fee income. Net fee income accounted for 25.3% and 26.8% of our consolidated total operating income before net provisions for the year ended December 31, 2013 and for the six-month period ended June 30, 2014, respectively. We believe we can expand the contribution of non-interest income to our profitability in future periods by, for example, expanding our offering of 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.

We are also studying initiatives to develop cost-effective channels, such as mobile banking (Transfer Aval) and risk management tools to extend our banking services to under-penetrated segments of the Colombian population that have a low use or that do not currently use banking services. We are also implementing initiatives to encourage the migration of some banking transactions from branches to lower cost channels such as Corresponsales Bancarios and digital channels.

Further develop our leading Central American franchise

We plan to continue executing our multi-brand business model and maintain the BAC Credomatic brand. We intend to capitalize on the expansion of the Central American market as we believe that BAC Credomatic and our recent Central American acquisitions 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 continue to share our group-wide commercial and operational standards and best practices with BAC Credomatic, while capitalizing on its regional expertise, brand recognition, customer base, and financial services and products, such as credit card issuance and merchant-acquiring businesses. We believe we can continue improving BAC Credomatic's efficiency ratio,

 

which for the six-month period ended June 30, 2014 was 57.0%, compared to 48.7% for Grupo Aval's Colombian operations, by implementing our best practices at BAC Credomatic.

We expect that our recent Central American acquisitions will enable BAC Credomatic's franchise to grow in Panama and Guatemala, benefiting from expected GDP growth in each of those markets and increased banking penetration, supported by the creation of further synergies.

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. Through areas such as our vice presidencies of Shared Services and of Strategy we intend to continue identifying and working on group-wide projects, mainly in information technology, service channels (branches, ATMs, digital channels) and implementation of commercial and operational best practices. 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 another example, we are executing a plan to sequentially replace the core banking systems in our subsidiaries to converge in time to a common platform.

Pursue other selected acquisitions and increase our controlling interests in our subsidiaries

We have a proven track record of identifying, acquiring and integrating interests in companies we believe have strategic value to us. We are interested in expanding our businesses in Colombia and Central America and into other regions. We will continue to seek opportunities to further expand into new geographies and will evaluate potential acquisition targets that would enable us to grow and consolidate our franchise through the services and products we offer and the markets we can access. We actively consider additional strategic investments, alliances and acquisitions, principally in Colombia, Central America and other selected Latin American countries, which may materialize, if we believe they will be both strategic and accretive to our existing businesses. We may also continue acquiring additional shares to increase our controlling interests in certain of our banking subsidiaries. During 2013, we increased our beneficial ownership of the outstanding share capital of Banco de Bogotá by 2.2% to 66.6% and of Banco de Occidente by 4.0% to 72.2% through purchase of shares in the open market. In December 2013, we further increased our ownership in Banco de Bogotá by 1.0% to 67.6% through the Banco de Bogotá capitalization process in connection with the issuance of preemptive rights. We have recently expanded our operations in Central America with the acquisitions of BBVA Panama (now known as Banco BAC de Panama) and Grupo Reformador in 2013.

Recent developments

On May 30, 2014, the Board of Directors of Banco Popular appointed Mr. Carlos Eduardo Upegui Cuartas (age 52) as the new President of Banco Popular after Mr. José Hernán Rincón Gómez (age 85) presented his resignation as Banco Popular's President. Mr. Upegui who had previously served as Executive Vice President of Banco Popular has more than 18 years of experience in the financial sector acting as President of Banco Caja Social, between 2009 and 2012 and as Commercial Vice President of Banco de Bogotá, between 1999 and 2009, among other positions.

We completed the acquisition of Grupo Financiero Reformador in Guatemala and BBVA Panama (now known as Banco BAC de Panama) in December 2013. We have since completed the operational integration of technology, systems and policies of Grupo Financiero Reformador and Banco BAC de Panama with those of BAC Credomatic and expect to formally merge Grupo Financiero Reformador and Banco BAC de Panama

 

into our BAC Credomatic subsidiaries following receipt of regulatory approvals that we expect to receive in 2014.

On June 3, 2014, Corficolombiana, through its subsidiary Estudios y Proyectos del Sol S.A., or "Episol," was awarded the toll-road concession "Conexión Pacifico 1" by the Colombian Government's National Infrastructure Agency (Agencia Nacional de Infraestructura—ANI). This concession is part of the fourth generation highways program led by the Colombian Government. For the concession, Corficolombiana, through, Episol entered into an equity partnership with Iridium Colombia, a subsidiary of Grupo ACS of Spain, in which Episol will have a 60% participation and Iridium a 40% participation in the project entity. The toll-road concession involves the construction, operation and maintenance of 53.8 kilometers of highway between Medellín and Bolombolo in the Antioquia region. This is the first tranche of the highway that will connect this part of the country with the Colombian pacific coast. The concession will have a design and construction period of six years and a total duration of at least 25 years. The investment cost is estimated at Ps 2.3 trillion (U.S.$1.2 billion at the exchange rate on the day of allocation), and it involves the construction of four tunnels and 52 bridges.

From January 1, 2014, through July 31, 2014, we further increased our share ownership in Banco de Bogotá and Banco de Occidente through the acquisition of 633,881 shares or 0.21% of Banco de Bogotá and 119,142 shares or 0.08% of Banco de Occidente through the purchase of shares in the open market, resulting in an increase of our direct and indirect ownership to 67.8% in Banco de Bogotá and 72.2% in Banco de Occidente as of that date. Since August 1, 2014, there have been no more additional purchases.

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 where 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 of these matters could negatively affect our business or financial performance as well as our ability to successfully implement our strategy. See "Risk factors" beginning on page 26 for a discussion of certain risk factors you should consider before investing in the ADSs.

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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. Our website is www.grupoaval.com. Information contained on, or accessible through, our website is not incorporated by reference in, and shall not be considered part of, this prospectus.

 

The offering

 

 

Unless otherwise indicated, all information contained in this prospectus assumes no exercise of the underwriters' option to purchase up to 12,222,222 additional ADSs to cover over-allotments of ADSs, if any.

 

Summary financial and operating data

The following financial data of Grupo Aval at December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011 have been derived from our audited consolidated financial statements prepared in accordance with Colombian Banking GAAP that are included in this prospectus. The selected financial data at December 31, 2011, 2010 and 2009 and for the years ended December 31, 2010 and 2009 have been derived from our audited consolidated financial statements prepared in accordance with Colombian Banking GAAP that are not included in this prospectus. The selected financial data at June 30, 2014 and for the six-month periods ended June 30, 2014 and 2013 have been derived from our unaudited interim consolidated financial statements prepared in accordance with Colombian Banking GAAP that are included in this prospectus. Our historical results are not necessarily indicative of results to be expected for future periods, including the full year 2014.

This financial data should be read in conjunction with our audited consolidated financial statements and the related notes and "Presentation of financial and other information," "Selected financial and operating data" and "Operating and financial review and prospects" included in this prospectus.

 

Statement of income data