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Rating Action:

Moody's affirms Banco de Bogotá's and Grupo Aval's ratings; revises outlook to negative

27 Jun 2014

New York, June 27, 2014 -- Moody's Investors Service today affirmed Banco de Bogotá S.A.'s standalone bank financial strength rating (BFSR) of C-, its global local currency deposit ratings of Baa1/Prime-2 and foreign currency subordinated debt rating of Baa3. At the same time, Moody's has changed the ratings outlook to negative, from stable. Bogotá's standalone BFSR maps to a standalone baseline credit assessment (BCA) of baa2.

Moody's also affirmed, with a negative outlook, Grupo Aval Acciones y Valores S.A.'s (Grupo Aval) local and foreign currency issuer ratings of Baa3/Prime-3, as well as Grupo Aval Limited's senior unsecured debt rating of Baa3.

Banco de Bogotá's foreign currency deposit and debt ratings were affirmed with a stable outlook because they remain constrained by Colombia's foreign currency country ceilings of Baa3 for deposits and Baa2 for debt.

The following ratings were affirmed with a negative outlook:

Banco de Bogotá

- Bank financial strength rating of C-

- Long term global local currency deposit rating of Baa1

- Short term global local currency deposit rating of Prime-2

- Long term foreign currency subordinated debt rating of Baa3

Grupo Aval Acciones y Valores S.A.

- Long term global local currency issuer rating of Baa3

- Short term global local currency issuer rating of Prime-3

- Long term foreign currency issuer rating of Baa3

- Short term foreign currency issuer rating of Prime-3

Grupo Aval Limited

- Backed senior unsecured debt rating of Baa3

The following ratings were affirmed with a stable outlook:

Banco de Bogotá

- Long term foreign currency deposit rating of Baa3

- Short term foreign currency deposit rating of Prime-3

- Long term foreign currency debt rating of Baa2

RATINGS RATIONALE

The change in the outlook to negative incorporates Moody's concerns over Banco de Bogotá's low capitalization, as the bank consolidates recent acquisitions, and as it complies with regulatory capital adjustments in line with international standards. At its current level, Banco de Bogotá's capitalization is below that of its Colombian bank peers.

The decline in capitalization has occurred because of the successive acquisitions the bank has made recently in Central America, in addition to the introduction of new prudential regulation in Colombia that affects Banco de Bogotá in particular given its corporate structure. These include the deduction, from its core capital, of goodwill generated from recent acquisitions, and of minority interest held by related parties, which combined led to a 7.4% regulatory Tier 1 capital ratio as of March 2014. This ratio is well above the 4.5% regulatory minimum Tier 1 ratio in Colombia, however, Moody's further adjusts capital ratios for grandfathered goodwill and the bank's exposure to government risk, which results in a lower 4.3% Tier 1 ratio as of March 2014.

"Moody's notes that Banco de Bogotá has expanded considerably over recent years, and while this strategy has benefited the bank's franchise, earnings and funding access, it has led to faster capital consumption than profit build up, despite substantial capital injections from shareholders, said Felipe Carvallo, who is Moody's lead analyst for Banco de Bogotá. The high-growth strategy, combined with relevant adjustments to capital, both regulatory and Moody's-specific, however, leaves little headroom for Banco de Bogotá to absorb any unexpected volatility in its various operating environments.

On the other hand, Moody's affirmation of Banco de Bogotá's ratings reflects the expectation of continued strong earnings generation, which derives from its diversified business and regional footprint, as well as its conservative risk management, and access to low cost funding. Moreover, Colombia's improving operating environment, as reflected in accelerating economic growth and a favorable investment climate, bodes well for Banco de Bogotá's profit and asset quality performance. Banco de Bogotá benefits from a well-established banking franchise as the second-largest in Colombia and part of the country's largest financial conglomerate, Grupo Aval. Banco de Bogotá is one of the largest financial groups in Central America, through its 100% subsidiary BAC International Bank, Inc. (BAC Credomatic, D+/baa3 stable, Baa3 stable).

Further downward rating pressure may occur if the bank announces further acquisitions or other events that could affect its tangible capital ratios. While management has indicated it is comfortable with current capital ratios, excessive growth or higher dividend payouts that further strain capital ratios would also add to ratings pressure.

Banco de Bogotá's Baa1 local currency deposit rating is one notch above the bank's standalone BCA, in line with Moody's assessment of a high probability of systemic support for Banco de Bogotá's deposits and senior issuances given its important deposit and loan market shares.

GRUPO AVAL ACCIONES Y VALORES

Moody's also changed the outlook on the issuer and debt ratings of Grupo Aval and Grupo Aval Limited, in line with the change in outlook to negative, from stable, on Banco de Bogotá's standalone BFSR of C-.

Grupo Aval's ratings are anchored on Banco de Bogotá's standalone ratings and incorporate the structural subordination of the bank holding company's liabilities versus the liabilities of its regulated operating banks. The ratings differential takes into account the risk that not all resources flowing from the operating entities to the bank holding company may be available, in case of stress at the operating level.

Moody's also changed the outlook to negative from stable on the Baa3 ratings of Grupo Aval's foreign currency subordinated debt notes issued through its subsidiary in the Cayman Islands, Grupo Aval Limited. The subordinated debt rating is based on Grupo Aval's irrevocable and unconditional guarantee of Grupo Aval Limited's liabilities under the indenture.

The principal methodology used in these ratings was Global Banks Methodology published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

The date of the last Credit Rating Action on Banco de Bogotá was 26 July 2013 when Moody's affirmed all of Banco de Bogotá's ratings with a stable outlook.

The date of the last Credit Rating Action on Grupo Aval was 17 January 2014 when Moody's affirmed all of Grupo Avals ratings with a stable outlook.

Banco de Bogotá is headquartered in Bogotá, Colombia and had USD53.2 billion in assets, USD30.8 billion in gross loans, USD33.5 billion in deposits, and net income before minority interest of USD223 million as of end March 2014.

Grupo Aval is headquartered in Bogotá, Colombia and had USD79.9 billion in assets, USD6.0 billion in shareholder's equity, and net income before minority interest of USD1.4 billion at end-2013.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Felipe Carvallo
Vice President - Senior Analyst
Financial Institutions Group
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Mexico
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

Maria Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
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SUBSCRIBERS: 212-553-1653

Moody's affirms Banco de Bogotá's and Grupo Aval's ratings; revises outlook to negative
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