notes to the financial statements banco de bogotá s.a ......banco de bogotÁ s.a. and subsidiaries...

Notes to the Financial Statements

Sector Financiero

Banco de Bogotá S.A. and Subsidiaries

At December 31 and June 30 de 2016

Gerencia de Consolidación, e IFRS

BANCO DE BOGOTÁ S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

At December 31, 2016 (With comparative figures at June 30, 2016)

(In millions of Colombian pesos, except the exchange rate and net earnings per share)

(Continued)

NOTE 1 - Reporting Entity

Banco de Bogotá S.A. (parent company) is a private institution headquartered in the city of Bogotá D.C. at Calle 36 No. 7-47. It was incorporated through Public Document No. 1923, drawn up and notarized on November 15, 1870 at the Office of the Second Notary Public in Bogotá D.C. The Financial Superintendence of Colombia renewed the Bank’s operating license indefinitely, as per Resolution 3140 dated September 24, 1993. The duration established in the bylaws extends to June 30, 2070. However, said term may be reduced by dissolution or increased through extension prior to that date. The business of the Bank is to perform all operations and to enter into all contracts legally permitted for commercial banking establishments, subject to the requirements and limitations existing under Colombian law. The Bank and its subsidiaries were operating at December 31, 2016 with thirty seven thousand nine hundred fifty-five (37,955) employees on contract, six hundred twenty-six (626) working under apprenticeship or training agreements, and two thousand eight hundred twenty-five (2,825) temporary employees. In addition, the Group has six thousand fifty-two (6,052) staff members contracted through outsourcing with specialized companies. It also has one thousand five hundred seventeen (1,517) offices, twelve thousand five hundred ninety-two (12,592) correspondent banks, three thousand six hundred eighty-eight (3,688) ATMs, two (2) agencies abroad (one in New York and another in Miami), and a branch office in Panama City that is licensed to operate as a local bank. These consolidated financial statements include the financial statements of the Bank and the following subsidiaries (hereinafter the Group):

Name of Subsidiary Main Activity Place of

Business

Total % voting rights of group (1)

Total % indirect rights of group (1)

National Subsidiaries

Fiduciaria Bogotá S.A.

Enters into mercantile trust agreements and fiduciary mandates without transferring ownership, as provided for by law. Its primary corporate purpose is to acquire, transfer, encumber and manage movable assets and real estate, and to invest in all kinds of credit operations as a debtor or creditor.

Bogotá, Colombia

94,99%

Almaviva S.A. (2) and subsidiary

Almaviva is a customs agent and a comprehensive logistics operator. Its primary corporate purpose is the deposit, storage and custody, management and distribution, purchase and sale of domestic and foreign merchandise and products, at the customer’s expense. It also issues certificates of deposit and warehouse liens.

Bogotá, Colombia

94,92% 0,88%

Megalínea S.A.

Technical and administrative services company whose corporate purpose is management and pre-legal, legal or out-of-court collection on loans, the fiduciary administration of contracts and assets originated in operations authorized to the credit institutions, as well as of all kinds of technical or administrative services necessary for the ordinary course of the financial activity, mainly those consisting of the capture and processing of data, through the establishment of a center of origin and destination of multiple calls (Contact Center).

Bogotá, Colombia

94,90%

2

BANCO DE BOGOTÁ S.A. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Continued)

Name of Subsidiary Main Activity Place of

Business

Total % voting rights of group (1)

Total % indirect rights of group (1)

National Subsidiaries

Porvenir S.A. (3) and subsidiary

Porvenir is a pension and severance fund manager. Its corporate purpose is the administration of pension and severance funds authorized by law; and management of independent third-party equity that constitute the territorial entities, their decentralized entities and private companies, in accordance with article 16 of Decree 941 of 2002, in order to provide resources for the payment of their pension obligations.

Bogotá, Colombia

36,51% 10,40%

Foreign Subsidiaries

Leasing Bogotá Panamá S.A. and subsidiaries

Its corporate purpose consists of holdings in other entities in the financial sector and involvement in investment activities. Through its subsidiaries, the company provides a wide variety of financial services to individuals and institutions, mainly in Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua and Panama.

Panama City, Republic of Panama

100,00%

Banco de Bogotá Panamá S.A.

With an international license to conduct banking business abroad, it operates in the Republic of Panama and consolidates with another subsidiary, Banco de Bogotá (Nassau) Limited.

Panama, City, Republic of Panama

100,00%

Bogotá Finance Corporation.

This is a financial corporation and its corporate purpose is the issue of securities at floating rates guaranteed by the parent company. Over the past few years, the company has maintained an investment as its only income-earning activity.

Cayman Islands

100,00%

Corporación Financiera Centroamericana S.A. (Ficentro) (4)

This financial Institution is authorized to grant loans, but not to receive funds from the public. It is supervised by Panama's Ministry of Finance and is in the business of collecting on loans and managing assets received for sale.

Panama City, Republic of Panama

49,78%

(1). In percentage terms, the Bank’s direct and indirect interest in each of its subsidiaries has not varied over the past year. (2). Indirect interest through Banco de Bogotá Nassau Ltd. (3). Indirect interest through Fiduciaria Bogotá (4). The Bank exercises control in accordance with the provisions outlined in IFRS 10, which is why this entity is consolidated.

A shareholders’ agreement signed and in force as of June 2016 gave Grupo Aval S.A. direct control of Corporación Financiera Colombiana S.A. and, additionally, a shareholders’ agreement dated December 22, 2016 gave Corporación Financiera Colombiana S.A. direct control of Casa de Bolsa S.A. therefore the investments in these entities were not longer investements in subsidiaries. Respectively, at June and December, 2016, respectively, and became investments in associates (see Note 14).

The Group is controlled by Grupo Aval Acciones y Valores S.A.

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(Continued)

NOTE 2 - Basis for Presenting the Consolidated Financial Statements and Summary of Significant Accounting Policies

2.1 Statement of Compliance

The Group's consolidated financial statements attached hereto were prepared in accordance with accounting and financial reporting standards accepted in Colombia. These include the International Financial Reporting Standards (IFRS) in effect at December 31, 2013, as compiled in the attachment to Decree 2420/2015 and its amendments issued by the Colombian government. There are, however, two exceptions: i) recognition of the difference between measurement of the loan portfolio allowance, according to Chapter II in the Basic Accounting and Financial Circular issued by the Financial Superintendence of Colombia, and the measurement of loan portfolio impairment, according to IFRS, in the individual or separate financial statements under other comprehensive income in equity, without affecting income for the accounting period; ii) the option of recognition of wealth tax annually and charged to equity reserves or results for the period, as provided for in Law 1739 / December 2014; iii) the exception included in Decree 2496/2015 for measurement of the actuarial calculation of retirement pensions. Partial implementation of the International Financial Reporting Standards by public interest entities, as required under Decree 2784 issued by the Colombian government in December 2012 (compiled in Decree 2420/2015), is mandatory for accounting records and the preparation of financial statements of public interest as of January 1, 2015.

2.2 Measurement Basis

The consolidated financial statements were prepared according to the historical cost basis of accounting, except for the following items, which were measured using an alternative base on each balance sheet date:

Item Measurement Basis

Financial derivatives Fair value through profit or loss

Financial instruments classified at fair value Fair value through profit or loss and for equity instruments designated,

in initial recognition, at fair value with changes in other comprehensive income

Certain components of the loan portfolio classified at fair value

Fair value through profit or loss

Non-current assets held for sale Fair value less sales cost Investment properties Fair value through profit or loss Deferred tax Liability method Employee benefits except those defined as short-term Projected credit unit

2.3 Functional and Reporting Currency

Management considers the Colombian peso to be the currency that best represents the economic effects of the Group’s underlying transactions, events and conditions. For that reason, the accompanying financial statements and disclosures are presented in millions of Colombian pesos, as the Group’s reporting currency.

The figures reported in the separate financial statements of the Group's controlled companies are expressed in the currency of the primary economic environment (reporting currency) where each entity operates and are converted to Colombian pesos for the purpose of consolidation. All effects of conversion are recorded as other comprehensive income in equity, according to IAS 21 - Effects of Variations in Foreign Currency Exchange Rates.

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(Continued)

All information is presented in millions of pesos, unless otherwise noted, and has been rounded to the nearest unit. 2.4 Basis for Presenting the Financial Statements

Under Colombian law and pursuant to the requirements set by the Financial Superintendence of Colombia, the Group must prepare consolidated and separate financial statements. Separate financial statements are those that constitute the basis for distribution of dividends and other appropriations on the part of the shareholders. For Group management purposes, the consolidated financial statements are presented at the Meeting of Shareholders. The accompanying financial statements are presented in light of the following aspects: a) Statement of Financial Position The statement of financial position shows the various asset and liability accounts, noting their liquidity in the event of sale or their enforceability, as the case may be, since this type of presentation provides more relevant and reliable information. Therefore, the amount expected to be recovered or paid within twelve months, and after twelve months, is included in each of the notes on financial assets and liabilities, pursuant to IAS 1 - Presentation of Financial Statements. b) Statement of Income for the Period and Other Comprehensive Income

These two statements are presented separately (Statement of income for the period and other comprehensive income), as permitted under IAS 1 - Presentation of Financial Statements. Likewise, the statement of income for the period is presented based on the nature of expenses, which is the model most commonly used by financial institutions, as it provides more appropriate and relevant information. c) Cash Flow Statement The cash flow statement is presented using the indirect method. In this case, the net cash flow from operating activities is determined by reconciling net income for the effects of items that generate no cash flow, net of changes in assets and liabilities arising from operating activities, and any other items with monetary effects that are regarded as cash flows from investment or financing. Interest income and expenses received and paid are part of operating activities. The following items are taken into consideration when preparing the cash flow statement: • Operating activities: These are the activities that constitute the group’s main source of income. • Investment activities: These concern the acquisition, sale or disposal by any other means, of long-term

assets and other investments that are not included in cash and cash equivalents. • Financing activities: These are activities that produce changes in the size and composition of net equity

and liabilities that are not part of operating activities or investment activities.

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(Continued)

2.5 Consolidation of financial statements a) Entities in which the Group Exercises Control

According to IFRS 10, the Group is required to prepare consolidated financial statements with the entities it controls. The Group has control over another entity if, and only if, it meets all the following conditions:

- Power over the investee that gives the Group current capacity to guide the relevant activities of the

investee in a way that affects its performance significantly.

- Exposure or entitlement to variable returns from its involvement in the investee.

- Capacity to use its power over the investee to influence the amount of returns for the investor.

In the process of consolidation, the Group combines the assets, liabilities and income of the entities in which it exercises control, before equating their accounting policies and converting the financial statements of its foreign subsidiaries into Colombian pesos. As part of this process, any reciprocal transactions and unrealized earnings that exist between them are eliminated. The share of non-controlling interest in controlled entities is presented in equity, separate from the shareholder equity of the Group's controlling company.

In the process of consolidation, the assets and liabilities of controlled companies abroad are converted into Colombian pesos at the closing exchange rate, income and expenses are converted at the average exchange rate each month, and other equity accounts are converted at the historic exchange rate. The resulting net adjustment is included in equity, as an "adjustment for conversion of the financial statements," and is entered in the account for "other comprehensive income". Non-controling interest in the net assets of subsidiaries consolidated by the Group is reported separately in the statement of financial position, as part of equity, as well as in comprehensive earnings for the period.

The accompanying financial statements include the assets, liabilities, equity and income of the parent company and the companies it controls. The following is the breakdown of the ownership interest in each of them at December 31 and June 30, 2016, homologated to the accounting policies of the consolidation.

December 31, 2016

Company

% Ownership

interest Assets

Liabilities

Equity

Net income for the period

Banco de Bogotá (parent company)

$ 80,454,443 64,100,307 16,354,136 1,041,842 Almacenes Generales de Depósito Almaviva S.A. & Subsidiaries

94.92%

120,237 45,161 75,076 10,943


94.99%

404,523 120,884 283,639 37,396 Sociedad Administradora de Pensiones y Cesantías Porvenir S.A. & Subsidiaries

36.51%

2,375,330 851,888 1,523,442 172,339

Banco de Bogotá S.A. - Panamá & Subordinate

100.00%

8,019,451 7,760,312 259,139 19,328 Bogotá Finance Corporation

100.00%

258 0 258 1

Leasing Bogotá S.A. - Panamá & Subsidiaries

100.00%

64,978,456 54,550,215 10,428,240 413,521 Corporación Financiera Centroamericana S.A Ficentro

49.78%

0 1 (1) 0

Megalinea S.A.

94.90%

19,149 15,097 4,051 431

156,371,847 127,443,865 28,927,980 1,695,801

Eliminations

(14,880,416) (3,263,100) (11,617,314) (657,083)

Consolidated

$ 141,491,431 124,180,765 17,310,666 1,038,718

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(Continued)

June 30, 2016

Company

% Ownership

interest Assets

Liabilities

Equity

Net income for the period

Banco de Bogotá (parent company)

$ 78,387,744 62,552,119 15,835,625 3,233,490 Almacenes Generales de Depósito Almaviva S.A. & Subsidiaries

94.92%

113,951 44,930 69,021 5,305


94.99%

367,494 55,376 312,118 35,803 Sociedad Administradora de Pensiones y Cesantías Porvenir S.A. & Subsidiaries

36.51%

2,245,383 832,297 1,413,086 209,347

Banco de Bogotá S.A. - Panamá & Subordinate

100.00%

4,654,346 4,422,304 232,042 36,378 Bogotá Finance Corporation

100.00%

250 0 250 1

Leasing Bogotá S.A. - Panamá & Subsidiaries

100.00%

59,685,246 49,951,646 9,733,600 535,732 Corporación Financiera Centroamericana S.A Ficentro

49.78%

0 1 (1) 0

Megalinea S.A.

94.90%

12,982 9,362 3,620 380 Casa de Bolsa S.A.

22.80%

71,590 41,383 30,207 2,804

145,538,986 117,909,418 27,629,568 4,059,240

Eliminations

(11,981,481) (974,707) (11,006,774) (788,568)

Consolidated

$ 133,557,505 116,934,711 16,622,794 3,270,672

b) Standardizing Accounting Policies

The Group standardizes in order to apply uniform accounting policies to transactions and other events that, being similar, have taken place under similar circumstances. The financial statements of the Bank and its national subsidiaries have been amended with respect to the separate and/or individual financial statements of those entities. This was done to include the accounting policies that apply to them under the regulatory technical framework that pertains to preparation of the consolidated financial statements.

The following standardizations were done to prepare the consolidated financial statements of foreign subsidiaries:

Leasing Bogotá S.A. Panamá

December 31, 2016

Assets Liabilities Equity Income for the period

Balances based on IFRS, reported by the subsidiary $ 64,936,798

54,567,556

10,369,242

492,608 Purchase accounting reversal based on standards applied by the subsidiaries (Purchase Price Allocation)

418,135

(15,646)

433,781

(5,172)

Other standardization adjustments (1)

(376,477)

(1,695)

(374,783)

(73,914)

Balances based on the technical regulatory framework applicable to the Bank for the preparation of consolidated financial statements

$ 64,978,456

54,550,215

10,428,240

413,521

June 30, 2016



49,976,317

9,678,696

514,731 Purchase accounting reversal based on standards applied by the subsidiaries (Purchase Price Allocation)

393,896

(22,916)

416,812

12,821

Other standardization adjustments (1)

(363,665)

(1,755)

(361,910)

8,180

Balances based on the technical regulatory framework applicable to the Bank for the preparation of consolidated financial statements $

59,685,246

49,951,646

9,733,598

535,732

(1) Pertains to adjustments for goodwill, investments and loan portfolio allowances.

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(Continued)

Banco de Bogotá S.A. Panamá

December 31, 2016



7,760,312

256,743

20,294 Standardization adjustments (1)

2,396

0

2,396

(966)

Balances based on the regulatory technical framework applicable to the Bank for the preparation of consolidated financial statements

$ 8,019,451

7,760,312

259,139

19,328

June 30, 2016



4,422,304

232,068

20,433 Standardization adjustments (1)

(26)

0

(26)

15,945

Balances based on the regulatory technical framework applicable to the Bank for the preparation of consolidated financial statements

$ 4,654,346

4,422,304

232,042

36,378

(1) Pertains to adjustments for investments and loan portfolio allowances.

2.6 Loss of Control

Loss of control is a significant economic event in which the parent-subsidiary relationship ceases to exist and gives way to an investor-investee relationship that is very different from the previous one. Accordingly, and pursuant to IFRS 10, any investment the Group has in a former subsidiary, after loss of control, is classified in the appropriate category and the gain or loss derived from the transaction is recognized under income for the period. In addition, the items of other comprehensive income related to the investment in the former subsidiary are reclassified to income for the period or to retained earnings, as per the applicable IFRS and on the same basis as would be required if the related assets or liabilities had been disposed of.

2.7 Transactions in Foreign Currency

Transactions in foreign currency are converted into Colombian pesos at the exchange rate in effect on the day of the transaction. Monetary assets and liabilities in foreign currency are converted into the reporting currency using the exchange rate in effect on the closing date of the statement of financial position. Non-monetary assets and liabilities that are denominated in foreign currency and assessed at fair value are converted into the functional currency at the exchange rate prevailing on the date when the fair value was determined. The exchange differences are charged to gain or loss in fair value. Non-monetary assets and liabilities that are denominated in foreign currency and assessed at historical cost are measured at the exchange rate prevailing on the date of the transaction. A financial liability designated to hedge the net investment in a foreign operation is recognized directly under other comprehensive income. At December 31 and June 30, 2016, the exchange rates between the Colombian peso and the US dollar were $3,000.71 and $2,919.01, respectively (expressed in Colombian pesos).

2.8 Cash and Cash Equivalents

Cash and cash equivalents include cash, bank deposits and other short-term investments in active markets, with original maturities at three months or less, made as part of normal surplus cash management. If a financial investment is to be classified as a cash equivalent, it must be held to meet short-term commitments, more than for investment or similar purposes. It also must be readily convertible into a determined amount of cash and subject to insignificant risk of changes in its value.

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(Continued)

2.9 Investments in Associates

An associate is an entity over which the Group has significant influence; that is, one where it has the power to intervene in decisions on financial and operating policy, without having control or joint control. Significant influence is presumed to be exercised in another entity if the Group directly or indirectly has 20% or more of the voting power of the investee, unless it can be clearly demonstrated that such influence does not exist.

These investments are recorded using the equity method of accounting, which means investments are entered initially at cost and subsequently adjusted based on changes in the equity of the investee, according to the percentage of ownership. In this way, ownership interest in the associate’s earnings for the period is recognized under the earnings for the period, and ownership interest in the associate’s other comprehensive income is recognized under other comprehensive income (OCI).

2.10 Joint Agreements

A joint agreement is one whereby two or more parties maintain joint control of the agreement; in other words, only when decisions on relevant activities require the unanimous consent of the parties that share control. A joint agreement can involve a joint operation, in which the parties with joint control of the agreement are entitled to the assets and liabilities related to the agreement, or a joint venture, in which the parties with control of the agreement are entitled to the net assets of the agreement.

Joint operations are included in the Group’s consolidated financial statements based on its proportional and contractual share of each of the assets, liabilities, earnings and expenses, pursuant to the terms of the agreement.

The Group measures joint ventures by applying the equity method, as it does with investments in associates. 2.11 Financial Assets from Investment in Debt Securities, Loans and Equity Investments in

Entities Where the Group Does Not have Control or Significant Influence

a) Classification

Debt securities

According to IFRS 9 - "Financial Instruments, the Group classifies its financial assets into two groups based on the business model used to manage such these assets and on the characteristics of the contractual cash flows of financial assets:

- At fair value, through profit or loss, or - At amortized cost

Loan Portfolio

Considering the Group’s main objective in this respect is to grant and collect loans pursuant to their contractual terms, it believes its loan portfolio complies with the contractual conditions that generate, on specific dates, cash flows that are solely payments of principal and interest on the outstanding balance. Loans are listed at the value of their outstanding principal, less unearned interest and commissions (if applicable) and impairment losses, except in the case of loans for which the fair value option has been selected. Unearned interest and commissions are recorded as income during the life of the loan, using the effective interest method.

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(Continued)

The Group measures the following types of loans using the straight line method of amortization.

Type of Loan Repayment Period

Credit Card

• Deadline in the Bank • Average period of the installments during which use is

deferred.

Considering the term of the card is never exceeded. The cost begins to be amortized once the credit card is activated, regardless of whether or not it is used.

Revolving Credit While the line of credit is in effect

Overdraft While the line of credit is in effect

Loans in UVR, with granting costs in Colombian pesos During the life of the loan

Loans in foreign currency, with granting costs in Colombian pesos

During the life of the loan

The cost of granting loans is not calculated for lines of credit that mature in six months or less. The loan portfolio is classified into four (4) categories:

Commercial Loans

Loans granted to individuals or legal entities for the development of organized business activities, other than the loans granted in the microcredit category.

Consumer Loans

Loans of any amount granted to individuals to finance the acquisition of consumer goods or the payment of services for non-commercial or business purposes, as opposed to those granted in the microcredit category.

Home Mortgages

Loans of any amount granted to individuals for the purchase of a new or existing home, or for the construction of an individual home.

Microcredit

These are the loans referred to in Article 39 of Law 590 / 2000, or in the regulations that amend, replace or add to that law, in addition to those granted to small businesses in which the main source of repayment comes from the income derived from their commercial activities.

The borrower's debt balance may not exceed one hundred and twenty (120) times the legal minimum monthly wage in effect when the loan is approved.

The debt balance is understood as the amount of current borrowing for which the respective small business is responsible to the financial sector and to other sectors. It is found in the records of the database operators consulted by the respective creditor, excluding mortgages for home financing, and adding the value of the new loan.

A micro-business is understood as an economic production unit operated by a person or legal entity and dedicated to activities involving business, farming and livestock, industry, trade or services, be they rural or urban. The staff may not exceed ten (10) workers and total assets must be less than five hundred (500) times the legal minimum monthly wage in effect at the time.

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(Continued)

Interest Accrual, Royalties and Dividends

Income from ordinary activities resulting from the third-party use of the entity's assets that produce interest, royalties or dividends is recorded on the condition that:

a) The entity is likely to receive the economic benefits associated with the transaction. b) The amount of income from ordinary activities can be measured reliably. Interest is recorded by the effective interest method, which is used to calculate the amortized cost of an asset and to allocate the interest cost or income during the relevant period. The effective interest rate is exactly equal to the estimated future payments or cash receipts during the expected life of the financial instrument or, if appropriate, during a shorter period, at the initial net book value of the asset. To calculate the effective interest rate, the cash flows are estimated by taking into account all the contractual terms of the financial instrument, without considering future credit losses, and taking into account the initial balance of the transaction or loan, the transaction costs and the incentives granted, less commissions and discounts received, which are an integral part of the effective rate. From a legal standpoint, interest on arrears is agreed contractually and it can be recognized as variable interest occasioned by default on the part of the debtor. Interests on arrears is incurred from the moment the contractual obligation to do so arises, regardless of future credit losses, as established in the definition of an effective interest rate. Therefore, this balance is part of the client's total debt, which is evaluated to determine impairment using the procedures established for that purpose, either through individual or collective assessment.

Equity securities of entities where the Group has no control or significant influence

Financial assets in the form of equity instruments are recorded by the Group "at fair value through profit or loss", except in the case of those for which it was decided irrevocably, in their initial recognition, that subsequent changes in the fair value of an investment “not-held-for-trading” would be presented under “other comprehensive income” (OCI) in equity. The Group has decided to use this option and, therefore, some of its equity investments in instances where it does not have control or significant influence are recorded at fair value with adjustment to OCI.

b) Initial Recognition

Financial assets are recognized initially at their fair value, and the transaction costs are entered as an expense when incurred. Financial assets that are classified at amortized cost are recorded at their transaction value when acquired or granted, in the case of investments, or at their face value in the case of loans. Unless there is evidence to the contrary, these amounts coincide with their fair value, plus the transaction costs directly attributable to their acquisition or granting, less commissions received.

c) Subsequent Recognition

After initial recognition, in the case of all financial assets classified and measured at fair value, net gains and losses resulting from changes in fair value are presented in the income statement or in the OCI account for changes in the fair value of equity instruments in cases where the option to record them has been used.

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(Continued)

In turn, financial assets classified at amortized cost after their initial registration, less any payments or credits received from debtors, are adjusted and credited to income, according to the effective interest method. Dividend income from financial assets in the form of equity instruments of companies in which the Group directly or indirectly holds 20% or less of the voting power of the investee is recognized under income when the right to receive payment of dividends is determined, regardless of the decision to record changes in fair value under income or OCI.

d) Estimating Fair Value

According to IFRS 13 - Fair Value Measurement, fair value is the price that would be received on the sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Based on the foregoing, the fair value of financial assets is measured as follows:

For highly liquid assets, the last traded price on the closing date of the financial statements is used when the last traded price falls within the price differential of supply and demand. In cases where the last traded price is not within the price differential of supply and demand, management determines the point within that difference that is most representative of fair value.

The fair value of financial assets that are not listed on an active market is determined through the use of valuation techniques. The Group employs a variety of valuation methods and assumptions based on the market conditions that exist on each reporting date. These techniques include the use of recent comparable transactions on equal terms, reference to other substantially equal instruments, discounted cash flow analysis, options price models and other valuation techniques commonly employed by market players, with maximum use being made of market data.

e) Impairment

Pursuant to IAS 39 - Financial Instruments - Recognition and Measurement, the Group analyzes whether there is objective evidence of impairment in a financial asset or a group of financial assets measured at amortized cost. Indicators of impairment include significant financial difficulties on the part of the debtor, the likelihood the debtor will enter bankruptcy or financial restructuring, and default on payments. The amount of the allowance is determined as described below.

The Group individually evaluates the financial assets it regards as significant, including investments and the loan portfolio, analyzing the profile of each borrower, the collateral provided and the information received from credit bureaus. Financial assets are considered impaired when it is unlikely the Group will recover interest and commissions due in the original contract. This assessment is based on current information and past events. When a financial asset has been identified as impaired, the amount of the loss is measured as the difference between the book value and the present value of future expected cash flows, in accordance with the conditions of the debtor, discounted at the original contractual rate agreed on or the present value of the collateral supporting the loan, less estimated selling costs when the collateral is determined to be the fundamental source of recovery on the loan.

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(Continued)

Individually significant loans are defined, for the purpose of determining loss through loan impairment, as customers with balances equal to or above $2,000 at the consolidated level of all the entities in the Group and for all the aspects of credit risk to which the customer is exposed. Loans are regarded as impaired when, based on current information and past events, an analysis of the debt profile of each borrower, the collateral provided, the financial information and the data from credit bureaus, it appears likely the Bank and / or its subsidiaries might not recover all the amounts due in the original contract, including the amount of interest and commissions agreed on.

For loans that are not considered significant individually, or for the portfolio of individually significant loans that were not considered impaired in the individual analysis described above, the Group will assess impairment collectively, by grouping the portfolios of financial assets with similar characteristics into segments. This is done through the use of statistical techniques that are based on an analysis of historical losses to determine an estimated percentage of losses that have been incurred on these assets by the balance sheet date, but have not been identified individually.

As instructed by the Financial Superintendence of Colombia, the difference between the allowances constituted in the separate financial statements of each entity, calculated according to the standards issued by that authority, and the impairment allowances established as indicated above are recorded with an offsetting entry in the “other comprehensive income” account in equity and not in the statement of income, as required according to IAS 39.

f) Write-offs and Accounts Receivable

A loan or receivable may be written-off and charged to impairment in the loan portfolio or accounts receivable, as appropriate, when all possible means of collection have been exhausted and the loan is considered unrecoverable. The Board of Directors sets periodic dates for authorizing write-offs. Once a financial asset or a group of similar financial assets has been provisioned as a result of an impairment loss, interest income continues to be recognized after the allowance is entered on the books, using the same original contractual interest rate applied to the book value of the loan. Financial assets are removed from the balance sheet when they are considered unrecoverable. Recoveries of previously written-off financial assets are recorded as income from recovery.

g) Restructured Financial Assets with Collection Issues

Restructured financial assets with collection issues are ones for which the Group grants a concession to the borrower that would not have been considered in any other situation. These concessions generally involve interest-rate reductions, an extension of payment deadlines or reductions in the balance due. Restructured financial assets are recorded as new loans at the present value of expected future cash flows, discounted at the original rate of the asset prior to restructuring

h) Derecognition of Financial Assets in the Statement of Financial Position Due to Transfers

Financial assets are derecognized in the statement of financial position when contractual rights to the cash flows from them have expired or because the risks and benefits implicit in the asset are transferred to third parties and the transfer meets the requirements for derecognition. In this last case, the transferred financial asset is derecognized in the consolidated statement of financial position and any right or obligation retained or created as a result of the transfer is recognized simultaneously.

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It is understood that the Group substantially transfers risks and benefits when the transferred risks and benefits represent the bulk of all the risks and benefits inherent in the transferred assets. If the risks and/or benefits associated with the transferred financial asset are substantially retained:

The transferred financial asset is not derecognized in the consolidated statement of financial position

and will continue to be valued using the same criteria applied prior to the transfer.

An associated financial liability is recorded in an amount equal to the compensation received, and subsequently valued at its amortized cost.

Both the revenue associated with the transferred financial asset (that has not been derecognized) and the expenses associated with the new financial liability will continue to be recorded.

i) Offsetting Financial Instruments in the Statement of Financial Position

Financial assets and liabilities are offset and their net amount is recorded in the statement of financial position when there is a legal right to offset the recognized amounts and management intends to settle them on a net basis or to realize the asset and settle the liability simultaneously.

2.12 Operations with Financial Derivatives and Hedge Accounting

A derivative, according to IFRS 9 - Financial Instruments, is a financial instrument the value of which changes over time in response to changes in a denominated underlying variable (a specific interest rate, the price of a financial instrument or a listed raw material, a foreign currency exchange rate, etc.). It does not require an initial net investment or it requires a smaller investment than would be required for another type of contract in relation to the underlying asset, and it will be settled at a future date.

In the development of its operations, the Group trades on financial markets with forward contracts, futures contracts, swaps and options that meet the definition of a derivative.

Derivative operations are registered at fair value at the time of the initial transaction. Subsequent changes in fair value are adjusted with credit or debit to income, as appropriate, unless the derivative is designated as a hedge. If so, this will depend on the nature of the hedged item.

a. Fair value hedges involving recognized assets and liabilities or firm commitments, changes in the fair

value of the derivative are recorded in the income statement, as is any change in the fair value of the asset, liability or firm commitment attributable to the hedged risk.

b. A hedge on a net investment in foreign currency is recorded the same way as hedges on cash flows. In other words the part of the gain or loss on the hedge that determines effective hedging is recorded in “other comprehensive income,” while the ineffective part is recorded in the statement of income. The gains or losses on a hedge that are accumulated in equity are recorded in the statement of income when the net investment in a foreign associate is disposed of entirely or proportionally when it is sold in part.

At the start of the transaction, the Group documents the existing relationship between the hedge instrument and the hedged item, as well as the risk-management objective and the strategy behind the hedging. It also documents its assessment on the starting date of the transaction, and on a recurring basis, with respect to whether the hedging relationship is highly effective in offsetting the changes in the fair value or in the cash flow of the hedged items.

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Financial assets and liabilities from transactions with derivatives are not offset in the statement of financial position. However, when there is a legal and exercisable right to offset the recorded values and there is an intention to settle on a net basis or to realize the assets and settle the liability at the same time, they are presented as net values in the statement of financial position. 2.13 Assets on Lease

a) Assets Delivered on Lease

Assets delivered by the Group on lease are classified as assets on capital lease or operating lease. This done at the moment the agreement is signed. A lease is classified as a capital lease when all of the property's advantages and risks are substantially transferred. A lease is classified as an operating lease if all of the property's advantages and risks are not substantially transferred. Lease agreements that are classified as capital leases are included in the balance sheet under "loans and capital leases" and are recorded the same way as other loans granted by the Group. Lease agreements classified as operating leases are included in the account for property, plant and equipment, and are recorded and depreciated the same way as other assets of this type.

b) Assets Received on Lease

Financial leases that substantially transfer the risks and benefits inherent to ownership of the leased asset are recognized at the commencement of the lease and are included in the balance sheet as property, plant and equipment for own use or as investment properties, as appropriate. Initially, they are entered on the books simultaneously under assets and liabilities for a value equal to the fair value of the asset received on lease or the present value of the minimum lease payments, whichever is lower. The present value of minimum lease payments is determined using the interest rate implicit in the lease agreement or, if it does not contain a rate, the average interest rate on bonds marketed by the Group is used. Any initial direct cost incurred by the lessee is added to the amount recognized as an asset. The amount entered as a liability is included in the financial liabilities account and recorded the same way as other liabilities.

Payments made under agreements classified as operating leases are recorded linearly under income over the term of the lease. Any lease incentives received are recorded as an integral part of the total lease expense during the term of the lease. 2.14 Non-current Assets Held for Sale

Assets the Group intends to sell, since it expects them to be recovered mainly through sale rather than through continuous use and their sale is considered highly probable within a period not exceeding one year, are recorded as "non-current assets held for sale". These assets are entered at their book value at the time of transfer to this account or at their fair value, less the estimated cost of their disposal, whichever is lower. The difference between the two is recognized in income.

If these assets are not sold prior to the deadline, they are reclassified in their original categories (investment properties, property, plant and equipment, other assets, etc.), unless the deadline to complete the sale is extended due to circumstances that are beyond the control of the entity and in the event there is sufficient evidence to maintain the commitment to the sale plan.

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The Group does not depreciate (or amortize) non-current assets while they are classified as “held for sale” or as long as they are part of a group of assets for disposal classified as “held for sale”, interest and other expenses attributable to the liabilities of a group of assets for disposal that is classified as “held for sale” continue to be recognized. Impairment losses due to initial or subsequent reductions in the value of an asset (or a group of assets for disposal) are recognized by the Group in the statement of income, up to the fair value and minus sale costs. The Group recognizes gains from any subsequent increase arising from the measurement of fair value, less costs to sell an asset, but without exceeding the accumulated impairment loss that might have been recognized.

2.15 Financial Guarantees

A financial guarantee is regarded an agreement that requires the issuer to make specific payments to reimburse the creditor for losses incurred when a specific debtor fails to meet its payment obligation in accordance with the original or amended terms of a debt instrument, regardless of its legal structure. A financial guarantee can take various forms, including bonds and sureties.

In its initial recognition, a financial guarantee is recorded as a liability at fair value, which is generally the current value of commissions and returns to be earned over the life of the agreement. The balancing entry in assets is the amount of the commissions and assimilated returns charged at the start-up of operations and the accounts receivable for the current value of the future cash flows pending receipt. Financial guarantees, regardless of the guarantor, instrumentation or other circumstances, are analyzed regularly to determine the credit risk to which they are exposed and, if applicable, to estimate the need to constitute an allowance for them, which is determined by applying criteria similar to those established to quantify impairment losses on financial assets. The allowances constituted for financial guarantees that are considered impaired are reported under liabilities as "Allowances - Allowances for contingent risks and commitments" and charged to income for the period. The income obtained from guarantees is reported in income for the period, specifically in the “income from commissions” account.

2.16 Property, Plant and Equipment

Property, plant and equipment includes own assets or those leased by the Group for current or future use that are expected to be used for more than one period. Property, plant and equipment are measured initially at cost, which includes the following.

a) The purchase price, including import costs and non-deductible taxes, after deducting commercial

discounts.

b) Any cost directly attributable to bringing the asset to the location and the necessary conditions for its proper and adequate operation.

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c) Dismantling costs, which include an initial estimate of the cost of dismantling and removing the asset, plus the cost of refurbishing the site where the asset was situated.

d) Borrowing costs. The costs related to a qualifying an asset, which is one that necessarily takes a substantial amount of time before being ready for the purpose for which it is intended or for sale, are capitalized and, in other cases, they are recognized in income for the period, in accordance with the cost of financing.

The Group chose the cost model as its accounting policy to subsequently measure assets classified as property, plant and equipment. This includes their cost, less accumulated depreciation and the accumulated value of impairment losses.

The Group depreciates, by components, assets that have a significant cost and different useful lives in relation to the total cost of the element. This is done as follows:

Type of building

COMPONENTS / PROPORTION

# 1

# 2

# 3

Foundation – Structure and Roof

Walls and divisions

Finishing

Commercial buildings and Business premises 30% 18% 52%

Office buildings

Hotels

44%

23%

33% Warehouses

Factory premises

Depreciation in property, plant and equipment is calculated by applying the straight-line method to the acquisition cost of these assets, less the residual value thereof. It is understood that the land on which buildings and other constructions are erected has an indefinite useful life; therefore, it is not subject to depreciation. Depreciation is charged to income and calculated according to useful life.

Category Useful life

Buildings:

Foundations - structure and cover 50 to 70 years

Walls and divisions 20 to 30 years

Finishing 10 to 20 years

Machinery and equipment 10 to 25 Years

PC / Laptops / Mobile Devices 3 to 7 years

Servers 3 to 5 years

Communications equipment 5 to 8 years

Specific amplifying equipment 5 to 7 years

ATMs 5 to 10 years

Medium and high-capacity equipment: Power Plant > 40 KW / UPS > 30 kVA / Air Conditioning > 15 T.R.

10 to 12 years

Electrical generator/UPS/Air conditioning in headquarters 5 to 10 years

Office equipment, furniture and fixtures 3 to 10 years

Vehicles 5 to 10 years

The useful life and the residual value of these assets are based on independent evaluations, mainly for buildings, or on concepts from other specialized personnel, and are reviewed at the close of each period, at the very least.

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Upkeep and maintenance of property and equipment are recognized as an expense in the year when they are incurred. They are recorded under "other expenses". Derecognition

The book value of an element of property, plant and equipment is derecognized when it is expected to yield no associated future economic benefits. Derecognition gains or losses are recorded in income for the period.

Impairment of Elements of Property, Plant and Equipment At the end of each period, the Group analyzes whether there is any internal or external evidence that an asset is impaired. If there is evidence of impairment, it determines if the impairment exists by comparing the recorded net value of the asset to its recoverable amount (the recoverable amount is defined as the higher of the fair value, less costs to sell, and the value in use). When the carrying value exceeds the recoverable amount, the carrying value is adjusted to the recoverable amount by modifying future depreciation charges to bring them in line with the remaining useful life of the asset. Likewise, if there are indications that the value of an asset has been recovered, the Group estimates the recoverable value of the asset and recognizes it in the statement of income for the period, reversing the impairment loss recorded in previous periods and adjusting future charges for depreciation as a result. In no case may the reversal of an impairment loss on an asset result in an increase in its book value above the value it would have had if impairment losses had not been recorded in previous periods.

2.17 Investment Properties

According to International Accounting Standard (IAS) 40 - Investment Properties, these are defined as land or buildings - considered all or in part - that are held for rent, asset valuation or both, rather than for the Group’s own use.

Investment properties are recorded initially at cost, which consists of the purchase price, including import costs and non-deductible taxes, after deducting trade discounts, and any cost directly attributable to bringing the asset to the location and establishing the conditions necessary for its correct and proper operation as provided by management.

Some assets may have been acquired in exchange for one or more non-monetary assets. In such cases, the cost of the asset is measured at its fair value, unless: the exchange transaction lacks commercial substance and/or the fair value of the asset when received or delivered cannot be measured reliably.

The Group selected the fair value model for subsequent measurement, according to the parameters outlined in IFRS 13. Fair value measurement is done through technical appraisals, and the gains or losses derived from changes in fair value are included in income for period, when they arise.

2.18 Business Combinations

Pursuant to IFRS 3 - Business Combinations, acquisitions whereby the Group obtains full or partial control

of a business, after January 1, 2014 (date of the opening statement of financial position), are entered on

the books according to the so-called "purchase method". With this method, the purchase price is distributed

among the identifiable assets acquired, including any intangible asset and assumed liability, based on their

respective fair values. If non-controlling minority interests remain when gaining control of the business, they

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(Continued)

are recorded at fair value or at the proportional share of current ownership instruments, in the amounts

recognized in the identifiable net assets of the acquired entity. The difference between the price paid, plus

the value of the non-controlling interest, and the net value of the acquired assets and liabilities, determined

as described above in this paragraph, is recorded as goodwill.

2.19 Goodwill

Goodwill arises from the acquisition of subsidiaries and associates. For acquisitions after January 1, 2014, it is equivalent to the amount by which the consideration transferred in the acquisition, the value of any non-controlling interest in the acquiree and the fair value, on the acquisition date, of any prior equity interest in the acquiree exceeds the fair value of the acquired identifiable net assets (including intangible assets), liabilities and contingent liabilities of the acquiree. The goodwill acquired in a business combination is allocated to each of the groups of cash-generating units that are expected to obtain a benefit as a result of the business combination. Registered goodwill is not amortized after that. Rather, it is subject to subsequent annual assessments for impairment of the cash-generating unit to which the goodwill is assigned and from which benefits derived from the synergies of the business combination are expected. With respect to annual verification of impairment, the cash flow valuation method is used for each of the investments generated for the purpose of goodwill. If the current net value of discounted future cash flows is less than their book value, impairment is recorded.

An impairment loss recognized for goodwill cannot be reversed in subsequent periods. Moreover, the income accounts of the acquiree in the consolidated financial statements are included only as of the date the acquisition is legally accomplished or brought to completion.

2.20 Other Intangible Assets

The Group's intangible assets consist of non-monetary assets without physical appearance that arise as a result of a legal transaction or are developed internally. They are assets whose cost can be estimated reliably, and it is considered likely that their future economic benefits will flow into the Group. These consist primarily of computer software, which are measured initially by the cost incurred in its acquisition or the cost of the internal development phase. Costs incurred in the research phase are taken directly to income. Following their initial recognition, these assets are amortized during their estimated useful life, which is up to 10 years in the case of computer software based on technical concepts and the Group's experience. Licenses have been defined as assets with a finite useful life, which is amortized over their useful life. Amortization is recognized on a straight-line basis, according to an estimated useful life of up to five (5) years. At the close of each accounting period, the Group analyzes whether external and internal indications exist and, in such cases, the accounting policy on property, plant and equipment is followed to determine if any impairment loss should be recognized. Any impairment loss or subsequent reversal is recognized in earnings for the year.

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(Continued)

2.21 Financial Liabilities

A financial liability is any contractual obligation the Group has to deliver cash or another financial asset to an entity or person, or to exchange financial assets or financial liabilities under conditions that are potentially unfavorable for the Group, or an agreement that can or will be settled using equity instruments belonging to the Group. Financial liabilities are recognized initially at their transaction value. Unless determined otherwise, the transaction value is similar to the fair value, less the transaction costs directly attributable their issue. Subsequently, these financial liabilities are measured at their amortized cost, according to the effective interest method, using the rate determined initially, and charged to income as a financial expense. Financial liabilities are derecognized in the consolidated statement of financial position only when the obligations they generate have been discharged or when they are acquired with the intention of settling them or reselling them. The Group's financial liabilities include deposits, bonds and financial obligations, financial derivatives, other liabilities and financial guarantee agreements.

2.22 Employee Benefits

The Group grants its employees the following benefits in exchange for their services.

a) Short-term Benefits

These are benefits the Group expects to pay within 12 months after the end of the reporting period. Under Colombian law and pursuant to existing labor agreements, these benefits include severance pay, interest on severance pay, annual leave, vacation bonuses, legally required and discretionary bonuses, assistance, social security and payroll taxes. They are measured at their face value, recognized through an accrual accounting system and charged to income.

b) Post-employment Benefits

These are benefits the Group pays to its employees upon retirement or completion of their period of employment. They are different from dismissal compensation and pertain to retirement pensions and severance pay assumed directly by the Group for employees who are still covered by the labor laws that were in effect prior to Law 100/1993. They also include bonuses granted to employees who leave because of retirement.

The post-employment benefit liability for defined benefit plans (payment of contributions made by the Group to pension fund managers) is measured on an undiscounted basis, and an accrual charged to income is recorded. Defined contribution plans do not require the use of actuarial assumptions to measure liabilities or expenses; so, they do not generate gains or losses. The post-employment liability in defined benefit plans for severance and retirement bonuses is determined based on the present value of estimated future payments to employees. These are calculated on the basis of actuarial studies done according to the projected unit credit method, using actuarial assumptions of mortality rates, salary increases and staff turnover, as well as interest rates determined by prevailing bond market returns at the close of period on Colombian government issues or on high-quality corporate bonds. With the projected unit credit method, future benefits to be paid to employees are assigned to each accounting period during which the employee provides service. Therefore, the respective cost of these

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(Continued)

benefits is entered in the Group’s statement of income and includes the present cost of the service assigned in the actuarial calculation, plus the calculated financial cost of the liability.

According to the exception provided for in Decree 2496/2015, the liability for this post-employment benefit is determined by applying the parameters established in Decree 2783/ 2001 as the best approximation to the market. These parameters are outlined below.

1. Future increases in wages and pensions are to be included explicitly. This is done by using a rate

equal to the average rate of inflation registered by the National Bureau of Statistics (DANE) for the last ten (10) years, determined on January 1 of the tax year in which the calculation must be done.

2. A real technical interest rate equivalent to the average rate on fixed term deposits (DTF) registered by

Banco de la República (the Central Bank of Colombia) for the last ten (10) years, determined on January 1 of the tax year in which the calculation must be done.

3. The anticipated increase in income at the start of the second half of the first year must be taken into

account for active and retired personnel.

Variations in the liability due to changes in actuarial assumptions are recorded in equity in the “other comprehensive income” account (OCI).

c) Other Long-term Employee Benefits

These include all employee benefits other than short-term employee benefits, post-employment benefits and severance pay. According to collective bargain agreements and the rules and regulations of the Group, said benefits fundamentally involve seniority bonuses. Liabilities pertaining to long-term employee benefits are determined the same way as the post-employment benefits described in (b) above. The only difference is that changes in actuarial liabilities due to changes in the actuarial assumptions are also registered in the statement of income.

d) Work Contract Termination Benefits

These are payments the Group is required to make due to a unilateral decision on its part to terminate the contract of an employee or due to an employee’s decision to accept an offer from the Group in exchange for terminating his or her work contract.

These benefits pertain to the number of days of compensation for dismissal required under labor rules and other additional days the Group unilaterally decides to grant its employees in such cases.

Termination benefits are recorded as a liability charged to income on the following dates, whichever comes first:

Upon formal notification to the employee of the Group's decision to terminate the contract.

When allowances are recognized for the cost of restructuring by a subsidiary or business in the Group that involves the payment of termination benefits.

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(Continued)

Therefore, if termination benefits are expected to be fully settled within twelve months after the reporting period, the Group applies the requirements of the policy on short-term employee benefits. However, if termination benefits are not expected to be fully settled within twelve months after the reporting period, the Group applies the requirements of the policy on other long-term employee benefits.

2.23 Taxes

a. Income Tax

The income tax expense includes current income tax, the so-called “income tax for equity “(CREE) and deferred tax. It is recorded in the income statement, except the portion that pertains to items recognized as pertaining to “other comprehensive income” (OCI) or in another appropriate account in the equity.

Current Tax

The current tax includes expected payable or receivable tax on income or losses for the year and any adjustments for previous years. It is measured using the tax rates that have been approved or are likely to be approved by the balance-sheet date. The current tax also includes any taxes arising from dividends. In Colombia, the Income Tax for Equity (CREE) is part of income tax. Provided for in Law 1607/ 2012, CREE applies to earned income that is likely to increase equity, excluding capital gains and unearned income. It is charged at the approved tax rates. The Group recognizes current taxes as a liability if they are unpaid or as an asset if payment has been made and has resulted in a tax credit.

Deferred Tax

Deferred taxes are recognized on temporary differences that arise between the tax bases for assets and liabilities and the amounts recognized in the consolidated financial statements. These differences result in amounts that are deductible or taxable when determining tax gains or losses in future periods when the asset’s carrying value is recovered or the liability is settled. However, deferred tax liabilities are not recognized if they come from the initial recognition of goodwill or the initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, does not affect accounting or tax gain or loss. Deferred tax is calculated using the tax rates that are in force on the balance sheet date and are expected to apply when the deferred tax asset is realized or when the deferred tax liability is settled. Deferred tax assets are recognized only when future tax income is likely be available from which temporary differences can be deducted. Deferred tax liabilities are allowances to cover temporary taxable differences, except for deferred tax liabilities related to investments in subsidiaries, associates and joint ventures when the opportunity to reverse the temporary difference is controlled by the Group and it is not likely to be reversed in the near future.

Deferred tax assets and liabilities are offset when there is a legal right to offset current deferred taxes against current tax liabilities and when the deferred tax assets and liabilities relate to taxes levied by the same tax authority on the same entity or on different entities when the legal right exists and is intented to offset the balances on a net basis.

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b. Wealth Tax

Law 1739, adopted by the Colombian government in December 2014, created a wealth tax on all entities in Colombia with a net worth of more than $1 billion. For accounting purposes in Colombia, the law stipulates the tax is incurred annually from January 1, 2015 to 2018 and may be charged to reserves, as part of equity. The Group decided to take advantage of this exception and charged the wealth tax incurred on January 1 of each year to its equity reserves. c. Taxes and Contributions Other than Income Tax

Taxes and contributions to the government, other than income tax, are entered on the books as liabilities when they occur or when the activity subject to taxation, according to prevailing legislation, occurs.

2.24 Allowances and Contingencies

a. Allowances

Allowances are potential liabilities about which there is uncertainty as to their amount or maturity. They are recognized as follows in the statement of financial position. • The Group has a current obligation (legal or implicit) that is the result of a past event.

• It likely will be necessary to dispose of resources that embody economic benefits in order to settle that

obligation.

• The Group can make a reliable estimate of the amount of the obligation.

The amount recognized as an allowance is determined at the end of the reporting period, based on the best estimate. In cases where the obligation is likely to be settled in the long term, the expenditures expected to be required to settle it are discounted at present value, using a discount rate before taxes that reflects current market assessments of the value of money over time and the specific risks of the obligation, provided the discount is significant and the costs of providing this estimate do not exceed the benefits. The increase in the allowance due to the passage of time is recognized as a financial expense. Each allowance is used only to cover the payments for which it was recognized originally. Likewise, if the Group has a contract of an onerous nature, the current obligations derived from it are recognized and measured in the financial statements as allowance. Allowances are updated periodically at least at the closing date of each period and are adjusted to reflect at any time the best estimate available. In the event an outflow of resources to settle the respective liability is no longer probable, the allowance is reversed and the contingent liability is disclosed, as appropriate. If there are any changes in the estimates, they are recorded prospectively on the books as changes in the accounting estimate. This is done pursuant to IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors.

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(Continued)

b. Contingent Liability A contingent liability is any potential obligation arising from past events. Confirmation of the existence of that obligation will depend on the outcome of one or more uncertain future events that are beyond the control of the Group. Contingent liabilities are to be disclosed and are to be recognized as allowances to the extent that they become potential obligations. c. Contingent Assets Assets of a possible nature, arising out of past events, the existence of which is to be confirmed only by the occurrence or by the non-occurrence of one or more uncertain events in the future that are not entirely under the control of the Group, are not recognized in the statement of financial position. Instead, they are disclosed as contingent assets when their occurrence is probable. When the contingent event is certain, the asset and the associated income are recognized in earnings for the period. 2.25 Income

Income is measured by the fair value of the compensation received or receivable, and represents the amounts to be collected for goods delivered or services rendered, net of discounts, returns and the value added tax (VAT). The Group recognizes income when the amount can be measured reliably, when it is likely that future economic benefits will flow to the Group, and when the specific criteria for each of the Group's activities have been met.

a. Provision of Services

Income from services is recognized at the moment it can be estimated reliably, considering the extent to which the service being rendered is finished or complete. Income from ordinary activities is recognized in the accounting period when the service is rendered. When services are provided through an unspecified number of acts during a specific period of time, income from ordinary activities is recorded on a straight-line basis throughout the agreed period.

b. The Customer Loyalty Program

The financial institutions in the Group operate a number of customer loyalty programs such as Best Points Classic and Gold, Platinum, Movistar and Andres Carne de Res, among others. In these cases, customers accumulate points for their purchases and may redeem reward points in line with the policies and reward plan in effect at the time of redemption. Reward points are recorded as an identifiable component separate from the initial sales transaction, with the fair value of the compensation received being assigned between the reward points and the other components of the sale in such a way that the loyalty points are initially recognized as deferred income at fair value. Income from reward points is recognized when the points are redeemed.

c. Income from Commissions

Recognition of income derived from commissions or fees on financial services depends on the purpose for which those commissions are received and the accounting base used for the financial instruments involved.

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Three types of commissions are derived from the foregoing. They are:

Commissions that are an integral part of the actual interest rate on a financial instrument;

Commissions that are gains, insofar as a service is rendered; and

Commissions that are gains when a significant act is carried out.

d. Income from Interest and Dividends Income from interest and dividends is recognized on the following basis: Interest is recognized according to the effective interest rate method. Dividends are recognized when the Group’s right to receive them is established, and only for those shares of stock over which it has no control or significant influence. e. Other Income Income not included in the aforementioned categories is recognized by the Group in the statement of earnings for the period, provided the definition of income is met, as described in the Framework for Financial Reporting. 2.26 Earnings per Share

Earnings per basic share are determined by dividing net income for the period that is attributable to the Group’s shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share are determined on net income in the same way, but the weighted average number of shares outstanding is adjusted to account for the potential dilutive effect, if applicable.

NOTE 3 - Use of Accounting Judgments and Estimates with Significant Effect on the Financial Statements

The Group’s management makes estimates and assumptions that affect the amounts recognized in the consolidated financial statements and the carrying value of assets and liabilities in the following fiscal year. These judgments and estimates are evaluated continuously and are based on management's experience and other factors, such as expectations of future events that are believed to be reasonable under the circumstances. In the process of applying accounting policies, management also makes certain judgments apart from those involving estimates. The following are the judgements that have the most significant impact on the amounts recognized in the consolidated financial statements and the estimates that can occasion a significant adjustment in the carrying value of assets and liabilities in the following year. 3.1 The Business Model

The Group applies significant judgment to determine its business model for managing financial assets and to assess whether financial assets meet the conditions defined in the business model, so as to be classified at fair value or at amortized cost. Financial assets at amortized cost may be sold only in limited circumstances, specifically in transactions that are infrequent and immaterial with respect to the total portfolio and in situations where, for example, the asset no longer complies with the Group’s investment accounting policies, adjustments are made in the maturity structure of its assets and liabilities, major capital outlays need to be financed, or there are stationary liquidity needs.

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(Continued)

3.2 Deconsolidation (Loss of Control) of Subsidiaries

To apply the accounting policy on loss of control, consideration was given to the fact that IFRS 10 provides for specific accounting treatment in that respect, without excluding transactions between entities that are under common control. The accounting policy on loss of control was set up in accordance with the requirements of IAS 8, so as to provide reliable and relevant financial information.

3.3 Loan Portfolio Impairment (Allowance)

Pursuant to IAS 39, the Group regularly reviews its loan portfolio for impairment. In determining if any impairment must be recorded against the year's income, management judges whether or not there is observable data indicating a decline in the estimated cash flow from the loan portfolio before the decline in that flow can be identified for a particular loan in the portfolio. The process used to calculate the allowance includes an analysis of specific, historical and subjective components. The methods used by the Group are the following:

A regular, detailed analysis of the loan portfolio

A system of classifying loans by risk level

A regular review of the summary of loan-loss impairment

Identification of loans to be assessed individually for impairment

Consideration of internal factors such as our size, organizational structure, the structure of the loan portfolio, the loan management process, a trend analysis of non-performing loans and historical loss experiences

Consideration of the risks inherent in different types of loans

Consideration of external factors (local, regional and national), as well as economic factors In the process of calculating impairment allowances for loans deemed individually significant, based on the discounted cash flow method, the management of each financial entity makes assumptions about the amount to be recovered from each customer and the time it will take to do so. Any change in this estimate can generate significant changes in the value of the determined impairment. When calculating impairment allowances for loans regarded as individually significant, based on their collateral, management estimates the fair value of that collateral, with the help of independent experts. In turn, any variation in the price ultimately obtained in recovering the collateral can prompt significant changes in the value of the impairment allowances.

In the process of calculating collective impairment allowances for loans that are not considered individually significant or those individually significant loans that are not impaired and are assessed collectively for impairment, the historic loss rates used in the process are updated regularly to include the latest data that reflect current economic conditions, trends in performance of the industry, geographic concentrations or concentrations of borrowers in each portfolio segment, and any other relevant information that could have an impact on estimating the loan impairment allowance. Many factors can affect estimates of the allowance

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(Continued)

for losses on loans granted by the Group, including volatility in the probability of impairment, migration and estimates of the severity of the losses.

The entities in the Group have calculation methods to quantify losses incurred on collectively assessed portfolios. These methods take into account four main factors; namely, exposure, probability of default, the loss identification period and the severity of the loss.

Exposure at default (EAD) is the amount of risk incurred at the moment the counterpart defaults.

Probability of default (PD) is the possibility the counterpart will default on its obligations to pay principal and/or interest. The probability of default is associated with the rating/scoring or the level of default of each counterpart/transaction.

In the specific case of loan default, the assigned PD is 100%. A loan is rated as "doubtful" when it is 90 days or more past due, and in cases where, even without default, there are doubts about the counterpart's solvency (loans subjectively considered bad debts).

Loss given default (LGD) is the estimated loss in the event of default. It depends mainly on the characteristics of the counterpart and the valuation of the collateral associated with the transaction.

The loss identification period (LIP) refers to the time elapsed between the occurrence of the event that generates a specific loss and the moment that loss becomes clearly evident at the individual level. LIPs are analyzed based on loans with similar risk.

The following table shows a sensitivity analysis of the most important variables that affect calculation of the loan impairment allowance, on a variation of 10%.

December 31, 2016

Sensitivity

Increase

Decline

Loans evaluated individually:

Probability of default on estimated future cash flows

10% $ 162,953

163,388 Loans evaluated collectively

Probability of default

10%

101,835

(109,703)

Severity of the estimated loss

10%

72,623

(99,104) Loss identification period

1 month $ 125,222

(125,241)

June 30, 2016

Sensitivity

Increase

Decline

Loans evaluated individually:

Probability of default on estimated future cash flows

10% $ 126,193

(126,267) Loans evaluated collectively

Probability of default

10%

98,647

(103,075)

Severity of the estimated loss

10%

73,276

(89,161) Loss identification period

1 month $ 118,688

(118,664)

3.4 Fair Value of Financial Instruments

The fair value of financial instruments is estimated according to the fair value hierarchy, which is classified according to three levels that reflect the importance of the input used in measuring fair value. Information on the fair value of financial instruments classified by level, using observable data for levels 1 and 2 and unobservable data for level 3, is disclosed in Note 5.

27



(Continued)

Determining what constitutes "observable" requires significant judgment on the part of the Group. The Group considers observable market data as that which is already available, regularly distributed or updated, reliable and verifiable, and reflects the assumptions that market participants would use when pricing an asset or liability.

3.5 Deferred Income Tax

The Group evaluates the possibility of realizing deferred income tax assets over time. These represent income taxes that can be recovered through future deductions from taxable income, and are recorded in the statement of financial position. Deferred income tax assets are considered to be recoverable when the relative tax benefits are regarded as probable. Future tax income and the amount of tax benefits considered to be probable in the future are based on the mid-term plans prepared by management. The business plan is based on management’s expectations that are believed to be reasonable under the circumstances.

The Group gauges that its deferred tax assets at December 31 and June 30, 2016 would be recoverable based on its estimates of future taxable income. Deferred tax liabilities with respect to investments in subsidiaries are recognized on temporary taxable differences, except when the Group controls the timing of their reversal and the difference is not likely to be reversed in the foreseeable future. See Note 21.

3.6 Evaluating Impairment of Cash-generating Units with Distributed Goodwill

The Group’s management evaluates impairment of the goodwill listed on its consolidated financial statements, doing so annually at 30 November. This is done based on studies conducted to that effect in accordance with IAS 36 - Impairment of Assets and by independent experts who are hired for that purpose. These studies are based on valuations of the cash-generating units to which goodwill was assigned at the time of its acquisition. The discounted cash flow method is used to that end, taking into account a number of factors such as the economic situation of the countries and the sectors where the Group operates, historical financial information, and projections on growth in revenue and expenditure during the next five years and, subsequently, growth in perpetuity considering its profit capitalization rates, discounted at risk-free interest rates that are adjusted according to the risk premiums that are required given the circumstances of each company. The assumptions used for the valuations are outlined in Note 19.

The methods and assumptions used to valuate the various cash-generating units that are assigned goodwill were reviewed by management and, based on that review, it was concluded there was no need to record any impairment at December 31 and June 30, 2016 inasmuch as the recoverable amounts are significantly higher than the carrying values.

3.7 Estimating Allowances for Lawsuits

The Group calculates and records an allowance for lawsuits to cover possible losses on labor, civil, commercial, tax and other claims. These allowances depend on the circumstances, specifically when, based on the opinion of external legal counsel and / or in-house counsel, management believes allowances are warranted in view of a probable loss that can be reasonably estimated. Given the nature of many of these complaints, cases and / or processes, it sometimes is not possible to arrive at an accurate prognosis. Therefore, the differences between the actual amounts disbursed and the amounts estimated and provisioned initially are recognized in the period when they are identified. See Note 26.

28



(Continued)

3.8 Employee Benefits

The measurement of post-employment benefit obligations (severance and retirement bonuses) and other long-term obligations (seniority bonuses) is in accordance with the requirements of IAS 19 - Employee Benefits. They depend on a wide variety of long-term term actuarial assumptions, including estimates of the present value of future pension payments projected for pension plan participants, considering the likelihood of potential future events, such as increases in the minimum urban wage and demographic experience. These premises and assumptions can have an effect on the amount and on future contributions, if there is any variation.

The discount rate makes it possible to ascertain future cash flows at present value on the measurement date. The Group determines a long-term rate that represents the market rate for high-quality fixed income investments or for government bonds denominated in the currency in which the benefit will be paid, and considers the timing and amounts of future benefit payments. The Group has selected government bonds for this purpose.

Pursuant to Decree 2496/ 2015, the market parameters established in Decree 2783/ 2001 were used as the best approximation to the market, so as to determine the liability for this post-employment benefit (See Note 2.22).

NOTE 4 - New Pronouncements on Accounting

The Group actively analyzes developments with respect to the standards adopted by regulatory agencies in Colombia and by the International Accounting Standards Board (IASB), as well as any amendments to those standards. The new pronouncements that have been issued in that respect, but have yet to be applied because they are still not in force, are summarized as follows. Their impact is in the process of being assessed. 4.1 Rulings Issued by Control Organism and Accounting Regulations in Colombia

a. Decree 2496 of December 2015

Decree 2420/2015, which is the single regulatory decree on accounting standards, financial information and information assurance, was amended through Decree 2496, thereby incorporating into Colombian law the amendments to the International Financial Reporting Standards that were issued during 2014. In Colombia, these amendments will apply as of January 1, 2017, with the exception of IFRS15- Income from Ordinary Activities in Contracts with Customers, which will be applicable as of January 1, 2018, and the Conceptual Framework for Financial Information, effective as of January 1, 2016. Advance application of the amendments is allowed. This new regulatory technical framework includes, among other standards, the new version of IFRS 9, which substantially modifies the impairment requirements (allowances) for financial assets in the consolidated financial statements. . b. Decree 2131 of December 2016

Decree 2131 amended decrees 2496 and 2420 of 2015, thereby incorporating into Colombian law the amendments to the International Financial Reporting Standards issued during 2015. It was clarified that the application date in the IFRS will not be taken into account for their application in Colombia; consequently, they are being disclosed for informative purposes with respect to their application at the international level.

29



(Continued)

The dates on which the standards take effect are those indicated in the decree, with application of the amendments being established as of January 1, 2018, including the new version of IFRS 9. Early application of the new standards is allowed. 4.2 Issued by the IASB:

The following is a summary of the new pronouncements on International Accounting Standards issued by the International Accounting Standards Board (IASB) after January 1, 2014, which have not yet been applied by the Group.

Amendments Announced by the IASB during 2014

In accordance with Decree 2420/2015 and its subsequent amending decrees, the following amendments announced by the IASB during 2014 shall be applicable in Colombia as of January 1, 2017, with the exception of IFRS 15 - Revenue from Contracts with Customers and IFRS 9 - Financial Instruments, which shall apply as of January 1, 2018, with early application being allowed.

a) Modifications to IAS 1 – Presentation of Financial Statements - Initiative on Information to be

Disclosed

The modifications to IAS 1 were issued in December 2014. The IASB added an initiative on disclosure in its 2013 work program to complement the work done on the Draft Conceptual Framework. The amendments clarify that materiality applies to financial statements as a whole; the inclusion of immaterial information may affect the usefulness of the disclosures and require the use of professional judgment to determine what information to disclose, where, and in what order to present it.

The amendment is effective at the international level as of January 1, 2016 and its early application is allowed. b) IFRS 9 – Financial Instruments

The IASB published the full version of IFRS 9 in July 2014. It includes the amendments from previous years, a new expected-loss model, and changes in the classification and measurement requirements for financial assets, among other modificaitons.

This new standard replaces IAS 39 and deals with the recognition and derecognition of financial assets and liabilities, the classification, measurement and impairment of financial assets in expected credit losses, and hedge accounting.

Hedge accounting, as defined in IFRS 9, adds requirements that align hedge accounting with risk management, establish an approach based on the principles of hedge accounting, and address the inconsistencies and weaknesses in the hedge accounting model of IAS 39.

IFRS 9 is effective at the international level as of January 1, 2018 and its early application is allowed.

30



(Continued)

c) IFRS15 - Income from Ordinary Activities in Contracts with Customers

IFRS 15, issued in May 2014, establishes a general framework on the nature, amount, timing and uncertainty of income and cash flows generated by an entity's contracts with its customers, so as to determine when an entity should recognize income at a transaction price it believes it will be entitled to receive in exchange for the same. IFRS 15 incorporates the requirements outlined in IAS 11-Construction Contracts, IAS 18-Revenue from Ordinary Activities, IFRIC 13-Customer Loyalty Programs, IFRIC 15-Building Construction Agreements, IFRIC 18-Transfer of Assets from Customers, and IAS 31 - Revenue - Swaps of Advertising Services.

In September 2015, the IASB modified the application date for this new standard, which will be effective at the international level for the annual periods beginning on or after January 1, 2018. However, its early application is allowed.

d) Annual Improvements in the IFRS: 2012-2014 Cycle

In September 2014, the IASB issued improvements to IFRS 5-Non-current Assets Held for Sale and Discontinued Operations, IFRS 7-Financial Instruments: Disclosures, IAS 19-Employee Benefits, and IAS 34-Interim Financial Information. Application at the international level starts on January 1, 2016 and early application is allowed. The improvements involve clarification or correction of inconsistencies, without making changes in the requirements.

e) Other Modifications

The IASB issued the following amendments during 2014.

- IFRS 11- Joint Arrangements - Accounting for acquisitions of ownership interest in joint operations.

- IAS 16 - Property, Plant and Equipment and IAS 3- Intangibles - Clarification regarding the depreciation

and amortization methods that are acceptable. - IFRS 11 and IAS 28- Investments in Associates and Joint Ventures - Sale or contribution of assets

between an investor and its associate or joint venture. - IFRS 10 - Consolidated Financial Statements and IAS 28- Changes in Investment Entities concerning

application of the consolidation exception.


In September 2015, the IASB amended the application date for IFRS 15. As indicated earlier, it is from January 1, 2018.


In accordance with Decree 2131/2016, which amends Single Decree 2420/2015, the following amendments will be applicable in Colombia as of January 1, 2018. The exception is IFRS 16 - Leases, because it had not been subject to public discussion:

31



(Continued)

a. IFRS 16 - Leases

IFRS 16, issued in January 2016 by the IASB, eliminates the dual accounting model for leaseholders, which distinguishes between capital leases, which are entered on the balance sheet, and operating leases, which are recognize not in the statement of earnings but on the balance sheet, insofar as leasing payments are incurred. Instead, there is a single model within the balance sheet, which is similar to the current model for capital leases.

The current practice is maintained in the case of the lessor. In other words, lessors or landlords continue to classify leases as either capital or operating leases. For the leaseholder or tenant, the lease becomes a liability and the right to use the leased property becomes an equivalent asset. Therefore, the size of the balance sheet will be increased with new assets, but so will the debt.

b. Others Modifications

During 2016, the IASB also issued the following amendments that are not expected to have a significant impact on the Bank's separate financial statements.

- IAS 12 - Income Tax - Clarification on the recognition of deferred tax assets for unrealized losses.

- IFRS 15 - Amendments, especially to clarify how to identify a performance obligation, whether an entity

acts as the principal or agent, and whether the income from the granting of a license should be recognized at a particular point in time or over time.

- Annual Improvements 2014 - 2016. Amendments to IFRS 12, IFRS 1 and IAS 28. - IFRS 2 - Share-based Payment. - IFRIC 22 - Interpretation on how to determine the exchange rate related to prepayments in foreign

currency. - IAS 40- Investment Property. Clarification of transfer requirements. NOTE 5 - Estimating Fair Value

The fair value of financial assets and liabilities traded in active markets (such as financial assets in debt and equity securities and derivatives quoted actively on securities exchanges and interbank markets) is based on dirty prices that are supplied by an official pricing service authorized by the Financial Superintendence of Colombia. The pricing service determines dirty prices based on the weighted averages of the transactions that took place during the trading day. An active market is one where transactions for assets or liabilities are carried out with sufficient frequency and in enough volume to provide a steady stream of information on prices. A dirty price is a bond pricing quote that includes the interest accrued and pending from the date of issue or the last interest payment up to the date of completion of the sales transaction. The fair value of financial assets and liabilities that are not traded in an active market is determined using valuation techniques that are defined by the pricing service or by the Group. The valuation techniques used for non-standardized financial instruments such as options, currency swaps and over-the-counter

32



(Continued)

derivatives include interest-rate or currency valuation curves. Price suppliers construct these curves using market data extrapolated to the specific conditions of the instrument being valued. They also employ discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market players who take maximum advantage of market data and rely as little as possible on entity-specific information. The Group calculates the fair value of derivative instruments on a daily basis, using information on prices and/or input supplied by the officially designated official pricing service (Infovalmer Proveedor de Precios para la Valoración S.A.) and Bloomberg. This supplier was authorized following its compliance with the standards applicable to valuation pricing services in Colombia, including their purpose, operating regulations, the valuation-method approval process, and required technological infrastructure, to name but a few. After assessing the pricing service's methodologies, it was concluded that the fair value calculated for derivative instruments based on the prices and input supplied by Infovalmer S.A. is adequate. The Group is able to use models developed internally for instruments that do not have active markets. Generally, these models are based on valuation methods and techniques that are standard in the financial sector. Valuation models are employed primarily to assess unlisted equity instruments, debt securities and other debt instruments. Some of the data used for these models are not observable in the market and, consequently, are estimated on the basis of assumptions that are founded on the market conditions existing at each reporting date.

The output of a model is always an estimate or approximation of a value that cannot be determined with certainty, and the valuation techniques used may not fully reflect all the factors relevant to the Group's position. Therefore, valuations are adjusted, as needed, to accommodate additional factors such as model risk, liquidity risk and counterparty risk. For the purpose of determining customer loan impairment, the fair value of non-monetary assets such as loan collateral is based on appraisals by independent experts who are sufficiently experienced and knowledgeable about the property market or the asset being valued. Usually, these assessments are made with reference to market data or on the basis of the replacement cost, when market figures are insufficient.

The fair value hierarchy includes the following levels:

Level 1 entries are prices quoted (with no adjustment) on active markets for assets or liabilities identical to those the organization can access on the date of measurement.

Level 2 entries are different from the quoted prices at Level 1 and are observable directly or indirectly for the respective assets or liabilities.

Level 3 entries are not observable for the assets or liabilities in question. The level at which a measurement of fair value is classified in its entirety is determined by the lowest level entry that is significant to measure the fair value as whole. In this process, the importance of an entry is assessed in relation to the measurement of fair value in its entirety. Market-listed financial instruments that are not considered assets, but are valued according to quoted market prices or those supplied by pricing services, or by alternative pricing sources supported by observable entries, are classified at Level 2.

If a measurement of fair value uses observable input that requires a significant adjustment based on unobservable input, that measurement is a Level 3 assessment. Evaluating the significance of a particular entry to a measurement of fair value in its entirety implies giving consideration to the specific factors of the asset or liability in question.

33



(Continued)

Determining what qualifies as "observable" requires significant judgment on the part of management. The Group is of the opinion that observable data can be defined as readily available market data that are regularly distributed or updated, are reliable and verifiable, are free of copyrights, and come from independent sources that are actively involved in the reference market.

5.1 Measurements of Fair Value on a Recurring Basis

Fair value measurements calculated on a recurring basis are measurements the IFRS accounting standards require or allow in the statement of financial position at the end of each accounting period.

The following table shows the Group's assets and liabilities (by type and fair-value hierarchy) measured at fair value at December 31 and June 30, 2016 on a recurring basis.

December 31, 2016

Level 1

Level 2

Level 3

Total

Assets

Recurrent measurements at fair value

Investments in debt securities at fair value, issued and secured

In Colombian pesos

Colombian government $ 93,911

11,079

0

104,990 Other Colombian government entities

0

60,354

0

60,354

Other financial institutions

0

377,132

0

377,132 Entities in the non-financial sector

0

34,793

0

34,793

Others

0

46,066

0

46,066

In foreign currency

Colombian government

0

53,017

0

53,017 Other Colombian government entities

0

333,881

0

333,881

Foreign governments

0

1,475,329

0

1,475,329 Central banks

0

409,191

0

409,191


120,440

1,737,843

0

1,858,283 Entities in the non-financial sector

0

64,480

0

64,480

Others

0

61,240

0

61,240

214,351

4,664,405

0

4,878,756

Investments in equity instruments

4,356

1,163,121

183,860

1,351,337

Trading derivatives

Currency forwards

0 175,349 0 175,349

Interest rate swaps

0 31,592 0 31,592 Currency swaps

0 30,553 0 30,553

Currency Options

0

15,696

0

15,696

0

253,190

0

253,190

Hedging derivatives

Currency forwards

0

119,678

0

119,678

Securities forwards 0 3,340 3,340

0

123,018

0

123,018

Non-financial assets

Investment properties (1)

0

0

169,004

169,004

0

0

169,004

169,004

Total assets at fair value, recurrent

218,707

6,203,734

352,864

6,775,305

Liabilities

Trading derivatives

Currency forwards

0

143,227

0

143,227 Interest rate swaps

0

18,503

0

18,503

Currency swaps

0

147,990

0

147,990 Currency Options

0

19,607

0

19,607

0

329,327

0

329,327

Hedging derivatives

Currency forwards

0

41,596

0

41,596

Securities forwards 2,840 2,840

0

44,436

0

44,436

Total liabilities at fair value, recurrent $ 0

373,763

0

373,763

34



(Continued)

June 30, 2016

Level 1

Level 2

Level 3

Total

Assets

Recurrent measurements at fair value

Investments in debt securities at fair value, issued and secured

In Colombian pesos

Colombian government $ 165,865 59,478 0 225,343

Other Colombian government entities

155 47,509 0 47,664


738 462,818 0 463,556

Entities in the non-financial sector

407 31,566 0 31,973

Others

0 49,339 0 49,339

In foreign currency

Colombian government

0 136,577 0 136,577

Other Colombian government entities

0 334,531 0 334,531

Foreign governments

0 1,198,816 0 1,198,816

Central banks

0 400,950 0 400,950


174,591 1,862,889 0 2,037,480

Entities in the non-financial sector

0 61,835 0 61,835

Others

0 149,982 0 149,982

341,756 4,796,290 0 5,138,046

Investments in equity instruments

5,751 1,102,191 54,368 1,162,310

Trading derivatives

Currency forwards

0

325,129

0

325,129

Interest rate swaps

0

64,249

0

64,249

Currency swaps

0

32,990

0

32,990

Currency Options

0

15,380

0

15,380

0

437,748

0

437,748

Hedging derivatives

Currency forwards

0

400,389

0

400,389

Securities forwards 0 5,849 0 5,849

0

406,238

0

406,238

Non-financial assets

Investment properties (1)

0

0

161,529

161,529

0

0

161,529

161,529

Total assets at fair value, recurrent

347,507 6,742,467 215,897 7,305,871

Liabilities

Trading derivatives

Currency forwards

0

216,035

0

216,035

Interest rate swaps

0

58,891

0

58,891

Currency swaps

0

147,141

0

147,141

Currency Options

0

12,606

0

12,606

0

434,673

0

434,673

Hedging derivatives

Currency forwards

0

90,848

0

90,848

Securities forwards 0 14,138 0 14,138

0

104,986

0

104,986

Total liabilities at fair value, recurrent $ 0

539,659

0

539,659

(1) Conciliation between the opening and closing balances, disclosing separately the level 3 hierarchy changes during the period, as detailed in Note 18 on investment property.

35



(Continued)

5.2 Non-recurrent Measurements of Fair Value

The following is a breakdown at December 31 and June 30, 2016 of the assets that remained assessed at fair value, as a result of evaluation for impairment using the IFRS standards that are applicable to each account, but do not require measurement at fair value on a recurring basis: December 31, 2016

Level 1 Level 2 Level 3 Total

Financial instruments from the collaterized loan portfolio $ 0 0 243,820 243,820

Non-current assets held for sale 0 0 210,707 210,707

$ 0 0 454,527 454,527

June 30, 2016

Level 1 Level 2 Level 3 Total

Financial instruments from the collaterized loan portfolio $ 0 0 289,392 289,392

Non-current assets held for sale 0 0 117,317 117,317

$ 0 0 406,709 406,709

5.3 Determining Fair Value

The fair value of the financial instruments classified at Level 1 was determined according to the market prices supplied by the pricing service authorized by the Financial Superintendence of Colombia. These prices are determined based on liquid markets.

An assessment is done, instrument by instrument, to determine levels 1 and 2 of the fair value hierarchy. This process is based on the type of data calculations reported by INFOVALMER S.A. and the expert judgement of the front and middle offices, which issue opinions based on aspects such as continuity in the publication of historical prices, outstanding amounts, records of transactions conducted, the number of price contributors as a measure of depth, knowledge of the market, constant quotes by one or more counterparts of the security in question, bid-offer spreads, etc.

The following are the most common methods applicable to derivatives: Valuation of foreign currency forwards: The price supplier publishes assigned curves according to the currency of origin of the underlying asset. These curves are comprised of the nominal rates in arrears associated with exchange rate forwards. Valuation of forwards on bonds: The future theoretical value of the bond, based on its price on the valuation date and the risk-free rate of the reference country of the underlying asset, is calculated to determine the value of the forward up to a specific date. The present value of the difference between the future theoretical value and the bond price agreed in the forward contract is then obtained. The risk-free rate of the reference country of the underlying asset at the number of days to contract expiration is used for the discount. Valuation of swap operations: The price supplier publishes assigned curves according to the underlying assets, in addition to swap base curves (exchange of associated payments at variable interest rates), domestic and foreign curves, and implicit curves associated with exchange rate forwards.

36



(Continued)

Valuation of OTC options: The price supplier publishes assigned curves according to the functional currency of the underlying asset, in addition to forward exchange curves for the domestic currency of the transaction, implicit curves associated with exchange forwards, assigned swap curves according to the underlying asset, and matrix and implicit volatility curves. The fair values of financial instruments classified at Level 2 use alternative techniques for discounted cash flow valuation based on observable market data provided by price suppliers. Generally speaking, transfers between Level 1 and Level 2 with respect to the investment portfolios pertain mainly to changes in the liquidity levels of securities in the markets. a. Equity Securities The Group’s equity investments in a number of entities represent less than 20% ownership interest. Some of this interest was received as payment for customer obligations in the past and some was acquired because it is necessary for the development of the Bank's operations and those of its subsidiaries. DECEVAL S.A. and Camara Central de Contraparte are two examples. In general, these companies are not listed on the stock market and, consequently, their fair value at December 31, 2016 was determined with the help of outside consultants. The discounted cash flow method for this purpose, constructed on the basis of the appraiser’s own projections on income, costs and expenses for each entity evaluated during a five-year period, using historical information obtained from the companies and their residual value determined with rates of growth in perpetuity established by the appraisers based on their own experience. These projections and their respective residual values were discounted based on interest rates determined with information published by different price providers, adjusted for risk premiums associated with each rated entity. The following table summarizes the range of the main variables used in the valuations.

Variable Range

Inflation growth ( 1) Between 3% and 4% Growth in gross domestic product (1) Between 3% and 5% During the five years of the forecast Between 3% and 5% annually, in constant terms Income Between 3% and 5% Costs and expenses Inflation Growth in perpetuity after five years Between 1% and 2%

1) Information obtained from the National Department of Planning

The table below contains a sensitivity analysis of the changes in these variables in the Group's equity, considering that the variations in the fair value of these investments are recorded in equity, since they pertain to investments classified as available for sale.

December 31, 2016

Methods and Variables

Change

Favorable impact

Unfavorable impact

Discounted cash flow Growth during the five years of the forecast: Net income

1%

538

(643) Growth in residual values after five years

10%

414

(385)

Discount interest rate

50PB

1,039

(1,120) Net asset method

Assets

10%

250

(254)

37



(Continued)

June 30, 2016

Methods and Variables

Change

Favorable impact

Unfavorable impact

Discounted cash flow Growth during the five years of the forecast:

Net income

1%

488

(493)

Growth in residual values after five years

10%

332

(399) Discount interest rate

50PB

620

(493)

Multiple method

EBITDA value

1%

49

0

EBITDA number of times

10% of the number of times

246

(197) Net asset method

Assets

10%

265

(274)

b. Investment Properties Investment properties are reported in the statement of financial position at their fair value, as determined in reports prepared by independent experts at the end of each reporting period.The frequency of property transactions is low due to current conditions in the country. However, management estimates there is sufficient market activity to provide comparable prices for orderly transactions with similar properties when determining the fair value of the Bank's investment property (see Note 18). The preparation of investment property assessment reports excludes foreclosure transactions. The Group has reviewed the assumptions used in assessments by independent experts and believes that factors such as inflation, interest rates have been determined appropriately, considering market conditions at the end of the reporting period. Even so, management believes investment property assessment currently is subject to a high degree of judgment and an increased probability that current income from the sale of such assets may differ from their book value. Assessments of investment property are considered at Level 3 in the hierarchy in fair-value measurement (see Note 5). With investment properties, an increase (decline) of 1% on their market value would result in an increase (decline) of $ 1,690 in their fair value, as the case may be. The following table shows a reconciliation between the balances at the beginning of the period and the closing balances for the fair-value measurements classified at Level 3:

December 31, 2016

June 30, 2016

Equity Securities

Investment Properties

Equity Securities

Investment Properties

Opening Balance $ 54,368

161,529

72,411

292,916

Valuation adjustments with effect on earnings

0

4,415

0

340 Valuation adjustments with effect on OCI

3,273

0

1,925

0

Additions

125,635

0

151

3,003 Redemptions

0

(14,901)

(15,457)

(867)

Reclassifications to investment property

(333)

17,961

(2,720)

(1,528) Decline from loss of control of Corporación Financiera Colombiana S.A

0

0

0

(132,335)

Effect of monetary conversion

917

0

(1,942)

0

Closing Balance $ 183,860

169,004

54,368

161,529

38



(Continued)

c. Fair Value of Financial Assets and Liabilities Recorded at Amortized Cost for Disclosure

Purposes Only

The following describes how the organization valued financial assets and liabilities that recorded at amortized costs and measured at fair value solely for the purpose of this disclosure.

Fixed-income Investments at Amortized Cost

The fair value of fixed-income investments at amortized cost was determined using the dirty price supplied by the pricing service. Securities that have an active market and a market price on the day of the valuation are classified as Level 1 assets. Those without an active market and / or a price provided by the pricing service; that is, an estimated price (the present value of the cash flows generated by a security, discounted at the benchmark rate and the respective margin) are classified as Level 2 assets.

Loans at Amortized Cost

The fair value of the loan portfolio at amortized cost was determined using cash flow models discounted at the interest rates offered by banks on new loans, taking into account the credit risk and maturity period. This is considered to be a Level 3 valuation.

Customer Deposits

The fair value of demand deposits is equal to their book value. In the case of term deposits maturing in less than 180 days, their fair value was considered to be equal to their book value. For time deposits over 180 days, the fair value was estimated using a cash flow model discounted at the interest rates offered by banks, according to the maturity period. This is regarded as a Level 2 valuation.

Financial Obligations and Other Liabilities

The book value of financial obligations and other short-term liabilities is regarded as their fair value. The fair value of long-term financial obligations was determined using discounted cash flow models at risk-free interest rates adjusted to account for the particular risk premiums of each entity. The fair value of bonds issued is determined by their prices quoted on the stock market, in which case the valuation is Level 1 and Level 2 for the other obligations.

The following table contains a summary of the Group’s financial assets and liabilities at December 31 and June 30, 2016 that are not measured at fair value on recurring basis, compared to the fair value of those for which fair value can be calculated reasonably.

December 31, 2016

Book value Estimate of fair value

Level 1

Level 2

Level 3

Total

Assets

Investments at amortized cost $ 6,378,126

2,743,122

3,533,073

0

6,276,195

Loan portfolio

97,169,520

0

100,798,008

100,798,008

Liabilities

Current account deposits, savings and other

55,232,150

0

55,232,150

0

55,232,150

Deposit certificates

38,444,523

0

38,447,132

0

38,447,132

Bank acceptances

703,397

0

703,397

0

703,397

39



(Continued)


Level 1

Level 2

Level 3

Total

Interbank funds and overnight

1,221,344

0

1,221,344

0

1,221,344

Financial obligations

15,735,500

0

16,112,856

0

16,112,856

Bond issued $ 8,203,070

7,233,807

0

0

7,233,807

June 30, 2016


Level 1

Level 2

Level 3

Total

Assets Investments at amortized cost $ 6,333,445

3,055,845

3,145,968 0

6,201,813

Loan portfolio

91,634,252

0

0 93,807,658

93,807,658

Liabilities

Current account deposits, savings and other

51,468,896

0

51,468,896 0

51,468,896

Deposit certificates

35,938,555

0

36,142,893 0

36,142,893 Bank acceptances

1,096,873

0

1,096,873 0

1,096,873

Interbank funds and overnight

1,860,463

0

1,860,463 0

1,860,463 Financial obligations

16,320,254

0

16,567,456 0

16,567,456

Bonds issued $ 6,358,082

6,639,063

0 0

6,639,063

It is not considered necessary to calculate the fair value of investments in associate companies and joint ventures that are recorded using the equity method, because the cost of their valuation exceeds the benefits of disclosure.

NOTE 6 - Financial Risk Management

Banco de Bogotá S.A. and its subsidiaries in the financial sector, such Leasing Bogotá Panamá, which consolidates with Grupo BAC Credomatic, including its subsidiaries in Central America, Administradora de Fondos de Pensiones y Cesantías Porvenir S.A. and Fiduciaria Bogotá S.A., among others, manage risk according the Group’s internal policies and the regulations applicable in each country.

The Bank's non-financial sector subsidiaries are less exposed to certain financial risks, although they are exposed to adverse changes in the prices of their products and to operational and legal risks.

6.1 Description of Risk Management Objectives, Policies and Processes

The Group's objective is to maximize returns for its investors, through proper risk management. The following are the guiding principles in that respect.

Provide customers security and continuity in the services offered.

Make risk management a part of every institutional process.

Arrive at collective decisions within each of the Group's boards of directors on granting commercial loans.

Possess extensive, in-depth knowledge of the market, as a result of management’s leadership and experience.

Establish clear policies on risk, based on a top-down approach with respect to: Compliance with “know-your-customer” policies, and Structures for granting commercial loans based on a clear identification of sources of repayment and

the debtor’s capacity to generate a cash flow.

Diversify the commercial loan portfolio in terms of industries and economic groups.

Specialize in consumer product niches

40



(Continued)

Make extensive use of credit rating and scoring models that are updated on a permanent basis so as to ensure an increase in consumer loans with high credit ratings.

Employ conservative policies with respect to: Composition of the trading portfolio biased toward lower-volatility instruments, Proprietary trading, and Variable remuneration for the trading staff.

6.2 Risk Culture

The Group's risk culture is based on the principles indicated in the section above. It is conveyed to every entity and unit within the Group and is backed by the following guidelines.

Risk management within the Group is independent and monitored at the level of individual entities and for the Group as a consolidated whole.

The structure for delegating power at the Group level requires a large quantity of transactions to be sent to decision-making centers, such as the risk or credit committees. The large number and high frequency of the meetings held by these committees ensures proposals are resolved quickly and guarantees that senior management is constantly involved in managing the various risks.

The Group has detailed manuals on actions and policies for risk management.

The Group has implemented a risk limit system that is updated on a regular basis to address new conditions in the markets and the risks to which the Group is exposed.

Adequate information systems have been implemented to monitor risk exposure on a recurring basis. The idea is to make sure the approval limits are systematically met and, if necessary, to take appropriate corrective action.

The main risks are analyzed not only when they arise or when problems occur during the normal course of business, but also on a permanent basis.

The Group offers adequate and continuous training on the risk culture, at every level within the organization.

6.3 The Corporate Structure for Risk Management

According to the guidelines set by the Group, the corporate structure for risk management at the level of the Bank and its subsidiaries is comprised of the following:

Board of Directors

Risk Committees

Vice President for Risk and Credit Management

Administrative Processes for Risk Management

Internal Auditing Department

a) Board of Directors

The boards of directors of the Bank and of each subsidiary are responsible for adopting the following decisions, among others, with respect to the proper organization of each entity’s risk management system:

Define and approve general policies and strategies concerning the internal control system for risk management.

Approve policy on the management of different risks.

41



(Continued)

Approve trading and counterparty limits, according to defined attributions.

Approve exposure and limits for different types of risks.

Approve the procedures to be followed when established limits are exceeded.

Approve the procedures and methods for risk management.

Approve the allocation of human, physical and technical resources for risk management.

Create the committees that are needed to make sure operations that generate exposure are organized, controlled and monitored properly, and define the duties of such committees.

Indicate the responsibilities and attributes of the different positions and areas in charge of risk management

Approve internal control systems for risk management.

Require management to submit a variety of periodic reports on the levels of exposure to different risks.

Evaluate the recommendations and corrective actions proposed for risk management processes.

Conduct follow-up at regular board meetings, through periodic risk-management reports submitted by the Audit Committee on risk management within the Group and the measures taken to control or mitigate the more relevant risks.

Approve the nature and scope of the strategic businesses and markets in which the Group will operate.

b) The Risk Committees

The Comprehensive Risk Management Committee

The objective of this committee is to establish policies, procedures and strategies for the comprehensive management of credit risk, market risk, liquidity risk, operational risk and the risk of money laundering and terrorism financing. Its main duties involve:

Measuring the comprehensive risk profile of the Bank and its subsidiaries.

Designing systems to monitor and follow up on levels of exposure to the different risks facing the Bank and its subsidiaries.

Reviewing and proposing to the Board of Directors the level of tolerance and degree of exposure to risk the Group is willing to assume in the course of its business. This implies evaluating alternatives to align the appetite for risk in the various risk management systems, both at the Bank and in its subsidiaries.

Assessing the risks posed by involvement with new markets, products, segments and countries, among others.

The Credit and Treasury Risk Committee

The Group has a credit and treasury risk committee, among others. It is made up of the members of the Board of Directors, who meet regularly to discuss, measure, control and analyze credit risk management (SARC) and treasury risk management (SARM). The primary duties of this committee involve:

Monitoring the credit and treasury risk profile of the Group to ensure the level of risk remains within established parameters, pursuant to the Group’s limits and policies on risk.

Evaluating incursions into new markets and new products.

Assessing policies, strategies and rules of procedure on commercial activities with respect to both treasury and loan operations.

Ensuring that risk management and risk measurement methods are appropriate, given the Group’s characteristics and activities.

42



(Continued)

The Assets and Liabilities Committee The Assets and Liabilities Committee (ALCO or ALICO Committee) is intended to help senior management define policies and limits, monitor, control and measure systems to support the management of assets and liabilities, and manage liquidity risk through the different liquidity risk management systems (SARL). Its main duties include:

Establishing adequate procedures and mechanisms for liquidity risk management.

Monitoring reports on liquidity risk exposure.

Pinpointing the origin of exposure and using sensitivity analysis to identify the probability of lower returns or the need for resources, due to movements in cash flow.

The Auditing Committee

The purpose of this committee is to evaluate and monitor the internal control system. Its main duties include:

Proposing to the Board of Directors, for its approval, the structure, procedures and methods that are required for the internal control system to operate properly.

Assessing the entity's internal control structure to determine if the designed procedures reasonably protect its assets and those it manages for third parties or has custody of, and to verify whether controls are in place to make sure transactions are authorized and recorded appropriately. To that end, the Statutory Auditor, the Auditing Department and the areas that are responsible for managing the different risk systems submit mandatory periodic reports to the Auditing Committee, along with any others they might be asked to prepare.

Monitoring risk exposure levels, the implications for the Group, and the measures taken to control and mitigate risk.

Vice President for Risk and Credit Management

The duties of the Vice President for Risk and Credit Management are the following, among others.

Ensuring proper compliance with the risk-management policies and procedures established by the Board of Directors and by the different risk committees.

Designing risk-management methods and procedures to be followed by management.

Establishing permanent monitoring procedures for timely identification of any deviations from risk-management policy.

Preparing regular risk-compliance reports for the risk committees, the board of directors of each subsidiary and for the Colombian government agencies that are responsible for oversight and control.

Administrative Processes for Risk Management

Pursuant to its business models, the Group has structures and procedures that are well defined and documented in manuals on the administrative processes to be followed for risk management. It also has a number of technological tools to monitor and control risk. These will be discussed later, in detail.

43



(Continued)

In-house Auditing

The internal audits done by the Group are independent from management and depend directly on the auditing committees. In line with their duties, these committees conduct periodic assessments of compliance with the risk-management policies and procedures to be followed by the Group. Their reports are submitted directly to the risk committees and to the committees that are in charge of monitoring management of the Group in terms of the corrective measures taken. The Group also receives regular visits from in-house auditing to track compliance with risk management policies at the Group level. The reports on these visits are submitted directly to management and to the Group’s auditing committees. Grupo BAC Credomatic As for the subsidiaries, Leasing Bogotá Panamá consolidates with Grupo BAC Credomatic, which is located in Central America. Grupo BAC Credomatic has its own policies, functions and procedures for risk management; however, they are in sync with the guidelines set by Banco de Bogotá. Risk is managed and monitored regularly through the following corporate-governance bodies, which are established at the regional level and in the countries where Grupo BAC Credomatic operates: the Comprehensive Risk Management Committee, the Assets and Liabilities Committee (ALICO), the Compliance Committee, the Credit Committee, the Audit Committee and the Investment Committee. In terms of credit risk management, BAC has a centralized structure with a national risk director who reports to the CEO of BAC. In turn, the CEO of BAC heads the Regional Credit Committee, which is responsible for establishing applicable growth strategies, policies and procedures, pursuant to each country's level of risk. Although the local risk management units report to the CEO of the company in each country, compliance with policies and procedures is reported to the Regional Risk Director. With regard to market risk, BAC has a regional unit to manage policy on investment and on the management of assets and liabilities. It sets guidelines on establishing country and counterparty risk limits, limits on monetary positions in foreign currency, and guidelines on how to manage liquidity, interest-rate and exchange risks. The establishment of regional risk management policies is the responsibility of the Regional Assets and Liabilities Committee, which is made up of the BAC Board members.

6.4 Individual Risk Analysis

The Group is exposed to a range of financial, operational, reputational and legal risks that arise in the course of its business.

The financial risks include: i) market risk (trading and price risks, as described later) and ii) structural risks posed by the composition of the assets and liabilities on the Group’s consolidated balance sheet. The major ones are credit risk, the risk of variations in the exchange rate, liquidity risk and interest-rate risk.

The following is an analysis of each of these risks:

a) Credit Risk

The Group assumes credit risk daily on two fronts. One involves lending activity, which includes commercial, consumer, mortgage and microcredit operations. The other is treasury activity, which involves interbank operations, investment portfolio management, transactions in derivatives and foreign exchange

44



(Continued)

trading, among other operations. Although these are independent businesses, the nature of counterparty insolvency risk is comparable and, therefore, the criteria being applied are the same.

The principles and rules for managing loans and credit risk within the Group are outlined in the Loan Manual, which is conceived for traditional banking activity, as well as treasury operations. The assessment criteria applied to measure credit risk are aligned with the main guidelines set by the Credit and Treasury Risk Committee.

In terms of treasury operations, it is the Board of Directors of the Bank and the boards of each subsidiary that approve operational and counterparty limits. Risk control is carried out essentially through three mechanisms: annual allocation of operational limits and daily control; regular assessment of solvency, per issuer; and reports on the concentration of investments, by economic group. Loan approval also hinges on concerns such as probability of default, counterparty limits, the recovery rate on collateral received, the terms of loans and loan concentration by economic sectors, among other considerations.

Consolidated Exposure to Credit Risk

The Group is exposed to credit risk, which consists of the debtor causing a financial loss by not fulfilling its obligations in a timely manner and in the full amount of the debt. The Group is exposed to credit risk due to its lending activities and transactions with counterparties that result in the acquisition of financial assets.

The Group’s maximum exposure to credit risk at the consolidated level is reflected in the book value of the financial assets listed in the consolidated statement of financial position at December 31 and June 30, 2016 as indicated below.

December 31,

2016 June 30,

2016

Deposits in Banks other than Banco de la República (the Central Bank of Colombia) $ 12,858,709

10,329,225 Financial instruments at fair value

Government

2,027,571

1,942,931

Financial entities

2,644,606

2,901,985 Other sectors

206,579

293,130

Derivative instruments 376,208 843,986 Financial instruments at amortized cost Government 4,767,201 4,849,911 Financial entities 1,127,103 1,067,159 Other sectors 483,822 416,375 Loan portfolio

Commercial

61,375,603

58,954,215

Consumer

26,364,834

23,925,116 Mortgage portfolio

11,411,148

10,516,118

Microcredit

389,709

382,568 Other accounts receivable

1,534,053

1,195,000

Total financial assets with credit risk

125,567,146

117,617,719

Off-balance sheet financial instruments with credit risk, at fair value

Financial guarantees and letters of credit not used

3,546,810

3,450,677 Credit commitments

18,411,609

16,055,923

Total off-balance sheet credit risk exposure

21,958,419

19,506,600

Total maximum exposure to credit risk $ 147,525,565

137,124,319

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(Continued)

For collateral and commitments to extend the amount of a loan, the maximum exposure to credit risk is the amount of the commitment. See Note 11 to that effect. Credit risk is mitigated through guarantees and collateral, as described below:

Mitigation of Credit Risk, Collateral and Other Improvements in Credit Risk

In most cases, the Group’s maximum exposure to credit risk is reduced by collateral and other credit enhancements, which lower the credit risk. The existence of collateral can be a necessary measure; however, in and of itself, collateral is not enough to accept credit risk. The Group’s credit risk policies require, first and foremost, an assessment of the debtor's ability to pay and its capacity to generate sufficient sources of funding to allow for the debt to be repaid. The methods used to assess collateral are consistent with the best practices in the market. They involve the use of independent real estate appraisers, the market value of securities or valuation of the companies issuing the securities. All collateral must be legally evaluated and processed according to the parameters for its provision, pursuant to applicable legislation. See Note 11 for details on collateral received to back loans extended by the Group at the consolidated level.

Policies to Prevent Excessive Concentrations of Credit Risk The Group has maximum risk-level concentration rates that are updated at the individual level, by country and economic sector. The limit to the Group’s exposure in a loan commitment to a specific customer depends on the customer's risk rating. Under Colombian law, the Group is not permitted to grant individual loans that exceed 10% of its regulatory capital, if the loans lack collateral that is acceptable according to the legal standards established for that purpose. In the case of loans secured with acceptable collateral, the limit is no more than 25% of the regulatory capital of each bank. A breakdown of Group-wide credit risk in the different geographic areas is provided in Note 11. These areas are determined according to the debtor’s country of residence, without taking into account the debtor credit-risk impairment allowances that were established or the loan portfolio, by economic sector.

Sovereign Debt

Financial assets in debt instruments at December 31 and June 30, 2016 consisted largely of securities issued or backed by the Colombian government or foreign governments. These accounted for 45.9% and 46.8% of the total portfolio, in that order. The following is a breakdown of sovereign debt exposure, by country:

December 31, 2016

June 30, 2016

Amount

Share

Amount

Share

Investment grade (1) $ 3,546,232

68.60%

3,753,264

69.85%

Colombia

2,991,114

57.86%

3,316,992

61.73%

Panamá

530,310

10.26%

412,054

7.67%

USA

24,808

0.48%

24,218

0.45%

Speculative (2)

1,596,696

30.89%

1,619,719

30.15%

Costa Rica

951,762

18.41%

834,280

15.53%

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(Continued)

December 31, 2016

June 30, 2016

Amount

Share

Amount

Share

El Salvador

85,601

1.66%

134,088

2.50%

Guatemala

195,876

3.79%

220982

4.11%

Honduras

362,446

7.01%

429,429

7.99%

Nicaragua

1,011

0.02%

940

0.02%

No rating or unavailable 26,584 0.51%

Honduras 26,584 0.51%

Total sovereign risk $ 5,169,512

100.00%

5,372,983

100.00%

Others (3) 6,087,370 6,098,508

Total debt instruments 11,256,882 11,471,491

(1) Investment grade includes F1 + F3 credit ratings from Fitch Ratings Colombia S.A., BRC 1+ to BRC 3 from BRC de Colombia, and A1 to A3 from Standard & Poor's.

(2) Speculative grade includes B to E credit ratings from Fitch Ratings Colombia S.A., BRC4 to BRC 6 from BRC de Colombia, and B1 to D from and Standard & Poor's.

(3) These pertain to other instruments representative of the debt with corporations, central banks, financial institutions and other public and multilateral entities.

The Process for Granting Counterparty Loans and Limits

The Group has a credit risk management system (SARC), which is run by the Credit and Treasury Risk Management Office at Banco de Bogota and by the Office of the Vice President in Charge of Credit at Back Credomatic. Among other aspects, SARC focuses on designing, implementing and assessing the risk policies and tools defined by the risk committees and the boards of directors. Credit management is done according to policies that are clearly defined by the Board of Directors. These policies are reviewed and amended regularly in light of changes and expectations in the markets where the Group operates, in regulations and in other factors to be considered when formulating guidelines of this type.

When it comes to lending, the Group has different credit-risk assessment models, such as the financial-rating models for commercial loans. These models are based on the customer’s financial information and its financial history with the Group or with the financial system in general. There are also scoring models for massive portfolios (consumption, home mortgages and microcredit). These models are based on information regarding behavior with the Bank and with the system, as well as sociodemographic and customer profile variables. Additionally, an analysis of the financial risk of the operation is done, based on the debtor's ability to pay or to generate funds in the future.

The Credit Risk Monitoring Process

The process the Group uses to monitor and follow-up on credit risk is carried out in several stages. These include monitoring and management of daily collections, based on an analysis of non-performing loans according to the amount of time they are overdue; classification by risk level; continuous monitoring of high-risk customers; the restructuring process; and the receipt of foreclosed assets.

The Group evaluates the risk posed by each of its debtors, doing so monthly and on the basis of their financial information and/or behavior. This information is used to classify customers at different risk levels. The following categories are used for that purpose: Category A-Normal, B- Acceptable, C-Appreciable, D- Significant and E-Uncollectable.

47



(Continued)

For the consumer portfolio, all the elements in the credit cycle, from design and origination to the collection process and cross-selling, are examined continuously, and there is a set of standard reports and a series of committees for regular monitoring to facilitate this process. In the case of commercial loans, Banco de Bogota evaluates 25 macro-economic sectors individually, on a quarterly basis, to track portfolio concentration and the level of risk in each sector. It also has designed a system of financial alerts that lead to individual customer analysis in situations of possible increased credit risk. These studies are analyzed by evaluation committees that meet regularly. Default, risk, hedging allowances and portfolio concentration levels are monitored constantly through a system of reports that are transmitted to senior management. BAC Credomatic structures acceptable credit-risk levels by setting limits on the amount of risk accepted with respect to one borrower or a group of borrowers and a geographic segment. These loans are controlled constantly and subject to periodic review. Exposure to credit risk is managed by regularly analyzing the ability of borrowers and potential borrowers to pay principal and interest. Exposure to credit risk is also mitigated, in part, by obtaining different types of collateral, both corporate and personal.

The Group uses a number of credit reports to evaluate the performance of its portfolio, to assess provisioning requirements and, above all, to anticipate events that might affect the condition of it borrowers. A breakdown of the non-performing loans at December 31 and June 30, 2016, by age and risk rating, is provided in Note 11.

Restructuring Loan Operations When the Debtor Has Financial Problems

The Group periodically restructures the debts of customers who have problems fulfilling their loan obligations. This restructuring is done at the debtor’s request and usually consists of extending terms, lowering interest rates or forgiving part of the debt. The base policy on this sort of refinancing is to provide customers with the financial feasibility that enables them to adapt debt payment conditions to a new situation for generating funds. The Group does not allow restructuring to be used solely for the purpose of delaying the constitution of allowances. When a loan is restructured due to financial problems on the part of the borrower, the debt is flagged in the Group’s files as a restructured loan, according to the regulations established to that effect by the Financial Superintendence of Colombia. The restructuring process has a negative impact on the debtor's risk rating. After restructuring, the risk rating will improve only if the customer honors the terms of the agreement, within a reasonable period of time, and its new financial situation is adequate, or additional collateral is provided.

Restructured loans are included for impairment assessment and to determine impairment allowances. However, flagging a restructured loan does not necessarily mean it is classified as impaired, since new collateral to secure the obligation is obtained in most cases.

Restructured loans

December 31, 2016

June 30, 2016

Local $ 2,086,736 1,356,275 Foreign

526,703 478,124

Total restructured loans $ 2,613,439 1,834,399

48



(Continued)

Receipt of Foreclosed Assets When persuasive collection or loan restructuring processes do not produce satisfactory results within a reasonable period of time, legal collection is carried out or agreements are reached with the customer to receive foreclosed assets. The Group has clearly established policies for receiving foreclosed assets and has separate departments that specialize in handling these cases, in receiving foreclosed assets, and the subsequent sale thereof.

The following is a breakdown of the foreclosed assets received and sold during the six months ended at December 31 and June 30, 2016.

December 31, 2016 June 30, 2016

Foreclosed assets received $ 155,222 42,281

Assets sold $ 40,781 74,217

b. Market Risks

The Group participates in monetary, exchange and capital markets to meet its needs and those of its customers. This is done pursuant to established policies and risk levels. In that regard, the Group manages numerous portfolios of financial assets, within the limits and the risk levels allowed.

The risks assumed in both bank and treasury book operations are consistent with the overall business strategy of the Group and its tolerance for risk. These aspects are based on the depth of the markets for each instrument, their impact on weighting assets by risk and capital adequacy, the profit budget established for each business unit, and the structure of the balance sheet. Business strategies are established according to approved limits, seeking a balanced risk / return ratio. There also is a set of limits consistent with the general philosophy of the Group, based on its level of capital, earnings performance and risk tolerance Market risk originates with the Group’s open positions in investment portfolios comprised of debt securities, equity instruments and operations with derivatives registered at fair value. It is due to adverse changes in risk factors such as prices, interest rates, foreign currency exchange rates, share prices, credit margins on instruments and their volatility, as well as liquidity in the markets where the Group operates.

The Group trades financial instruments for a variety of purposes, but primarily to:

Offer products tailored to the customer’s needs. One such function, among others, is to hedge the customer’s financial risks.

Structure portfolios to take advantage of arbitrage between different curves, assets and markets, and to obtain high returns with limited use of equity.

Conduct operations with derivatives to hedge asset and liability risk positions on its balance sheet, to act as a broker with customers, or to capitalize on opportunities for exchange and interest rate arbitrage on local and foreign markets.

49



(Continued)

The Group reported the following financial assets and liabilities registered at fair value and subject to trading risk at December 31 and June 30, 2016.

December 31, 2016

June 30, 2016

Investments in debt securities $ 4,878,756

5,138,046 Derivative assets

376,208

843,986

Total assets

5,254,964

5,982,032

Derivative liabilities

373,763

539,659

Total liabilities

373,763

539,659

Net position $ 4,881,201

5,442,373

The market risk management system (SARM) enables the Group to identify measure, control and monitor the market risk to which it is exposed through the positions it assumes when carrying out its operations.

There are several scenarios where the Group is exposed to market risks. The following are some examples.

Interest Rates

The Group's portfolios are exposed to interest-rate risk when a change in the market value of its asset positions compared to a change in interest rates does not match the change in the market value of its liability positions, and this difference is not offset by a change in the market value of other instruments, or when the future margin depends on interest rates, due to pending operations.

Exchange Rates

The Group's portfolios are exposed to exchange risk when the current value of its asset positions in each currency does not match the current value of its liability positions in the same currency, and the difference is not offset. Positions are taken in derivative products where the underlying asset is exposed to exchange risk and the sensitivity of the value to variations in exchange rates has not been immunized completely. Positions are taken at interest-rate risk in currencies other than the reference currency; these can alter the parity between the value of asset positions and the value of the liability positions in said currency, which generates losses or profits, or when the margin depends directly on exchange rates. For the purpose of analysis, market risk is segmented into categories; namely, trading risk and price risk in investments in equity securities.

Senior management and the Board of Directors of the Group play an active role in managing and controlling risk by analyzing a protocol of established reports and presiding over a number of committees that technically and fundamentally monitor, in a comprehensive way, all the different variables that influence domestic and foreign markets. This is done to support strategic decisions. Analyzing and monitoring the various risks the Group incurs in its operations is essential to making decisions and evaluating earnings. Furthermore, an ongoing analysis of macroeconomic conditions is vital to achieving an ideal combination of risk, return and liquidity. The risks assumed in doing business are reflected in a structure of limits to positions in different instruments, depending on the specific strategy, the depth of the markets where the Group operates, the impact on risk-weighted assets and capital adequacy, and the structure of the balance sheet. These limits are monitored daily and reported regularly to the Board of Directors of the Bank and to each subsidiary.

50



(Continued)

In addition, the Group uses hedging strategies to minimize interest-rate and exchange-rate risks to some of the items on the balance sheet. This is done by taking positions in derivative instruments such as non-deliverable (NDF) TES forwards, simultaneous operations, interest rate derivatives, FX derivatives and derivatives at fair value. According to the Group’s risk management strategy, the exposure to FX risk generated by investments in foreign subsidiaries and agencies abroad is hedged through a combination of "non-derivative" instruments (debt issued in USD) and derivatives. These receive hedge accounting treatment, once they comply with the respective requirements. Market risks are quantified through the use of value-at-risk models (internal and standard), and measurements are made by means of the historical simulation method. The boards of directors approve a framework of limits based on the value-at-risk associated with the budget for annual earnings and establish additional limits, depending on the type of risk. The Group uses the standard model to measure, control and manage market interest and exchange risk in both the treasury and bank books, as stipulated by the Financial Superintendence of Colombia. It also maps the asset and liability positions in the treasury book into zones and bands according to the duration of the portfolios, the investments in equity securities and the net position (asset minus liability) in foreign currency, both in the bank book and the treasury book. This process is consistent with the standard model recommended by the Basel Committee. The entities in the Group have parametric and non-parametric models for internal management based on the value-at-risk (VaR) method. These models make it possible to supplement market risk management by identifying and analyzing variations in the risk factors (interest rates, exchange rates and price indexes) that affect the value of the different instruments that make up the Group’s portfolios. JP Morgan Risk Metrics and the historical simulation method are two prime examples of such models. These methods make it possible to estimate the profits and capital that are at risk, by comparing activities in different markets and identifying the positions that imply the most risk to the treasury business. This, in turn, facilitates the allocation of resources to the different business units. These tools also are used to determine limits on traders’ positions and to review positions and strategies quickly, as market conditions evolve.

The methods employed to measure different types of risk are assessed regularly and back-tested to verify their efficiency. In addition, the Group has tools to carry out portfolio stress and/or sensitivity tests, using simulations of extreme scenarios. There are also limits that depend on the "risk type" associated with each of the instruments that make up the portfolios (sensitivity or impact on portfolio value due to interest rate fluctuations or respective factors - effect of variations in specific risk factors: interest rate (Rho), exchange rate (Delta) and volatility (Vega), among others. The Group has counterparty and trading limits, per operator, for each trading platform in the markets where it does business. These limits are controlled daily by the back office and the middle office of the Group. The trading limits, per operator, are assigned to the different levels of hierarchy within the treasury business, based on the officer's experience in the market, in trading the type of product in question, and in portfolio management.

51



(Continued)

There is also a process to monitor the prices and valuation input published by INFOVALMER S.A. (the pricing supplier). The idea is to identify, on a daily basis, instances where there are significant differences between the prices and valuation input provided by the pricing service and those observed through other tools for financial information (e.g., the Bloomberg platform). This monitoring is done to contest the prices published by these services, if necessary. In the case of BAC, there is a process to monitor the clean prices in the international vector published by Bloomberg. The Group also has a model to analyze the liquidity of fixed-income securities (bonds) issued abroad. The idea, in this respect, is to determine the depth of the market for instruments of this type and their level in the fair value hierarchy.

Lastly, as part of the effort to monitor operations, the different aspects of trading are controlled, such as the terms agreed on, unconventional or off-market operations, operations with related parties, etc.

According to the standard model, the following is the market value-at-risk (VaR) for the Group at December 31 and June 30, 2016.

Maximum, Minimum and Average VaR Values

December 31, 2016

Minimum

Average

Maximum

Latest

Interest rate $ 324,908

349,076

361,788

346,302 Exchange rate

29,432

42,712

57,160

57,160

Shares of stock

5,271

5,533

6,002

6,002 Mutual funds

162,380

165,296

170,020

170,020

Total VaR $ 550,562

562,617

580,751

579,484

Maximum, Minimum and Average VaR Values

June 30, 2016

Minimum

Average

Maximum

Latest

Interest rate $ 353,349

624,008

711,827

353,349 Exchange rate

26,940

31,870

39,316

36,707

Shares of stock

5,090

13,063

15,089

5,090 Mutual funds

149,082

155,306

161,021

160,643

Total VaR $ 555,789

824,246

909,405

555,789

The following summarizes the VaR indicators for the Bank and its main financial subsidiaries during the six months ended at December 31 and June 30, 2016.

Entity

December 31, 2016 June 30, 2016

Amount

Basis points of regulatory capital

Amount

Basis points of regulatory capital

Banco Bogotá (parent company) $ 291,636 41 283,007 40

Leasing Bogotá Panamá & subsidiary 60,834 9 59,328 8

Banco de Bogotá Panamá & subsidiary 8,812 1 10,571 1

Casa de Bolsa 0 0 4,032 1

Fidubogotá 13,879 2 13,210 2

Porvenir 204,325 28 185,641 26

Consolidated VaR $ 579,486 81 555,789 78

52



(Continued)

Investment Price Risk in Equity Instruments

Equity Investments The group also is exposed to financial asset price risk in equity instruments (equity investments) listed on the stock exchange (mainly the Bolsa de Valores de Colombia). If the prices of these investments had been 1% higher or lower, the greater or lesser impact on the Group’s OCI, before taxes, would have been $1 at December 31 and $17 at June 30, 2016. The Group also has equity investments that are not listed on the stock market, in which case their fair value is determined by the price supplier. A sensitivity analysis of the variables used by the price supplier is provided in Note 5.

Risk of Variation in the Foreign Exchange Rate The Group operates internationally and, therefore, is exposed to changes in the exchange rate for a number of currencies, primarily the US dollar and the euro. Foreign currency exchange risk stems large from recognized assets and liabilities in investments in foreign subsidiaries and branches, from loan portfolios, from obligations in foreign currency, and from future commercial transactions in foreign currency. Banks in Colombia are authorized by the country’s central bank (Banco de la República) to trade foreign currency and to maintain balances in foreign currency in accounts abroad. Colombian law requires banks to hold a daily proprietary position in foreign currency, which is determined by the difference between foreign currency-denominated rights and obligations recorded on and off the balance sheet, the three-day average of which may not exceed the equivalent in foreign currency of twenty percent (20%) of their regulatory capital as indicated below in Note 37. The three-business-day average in proprietary foreign currency may be negative, provided it does not exceed five percent (5%) of regulatory capital, expressed in US dollars. There is also a limit to the proprietary cash position, which is determined by the difference between assets and liabilities denominated in foreign currency (excluding derivatives) and other assets and liabilities that are not considered for “immediate” settlement. The three-business-day average of this proprietary cash position may not exceed fifty percent (50%) of the entity’s adequate equity. The three-business-day arithmetic average of the proprietary cash position in foreign currency may be negative, without exceeding the equivalent of twenty percent (20%) of its regulatory capital. There also are limits to the spot market proprietary position, which is defined as the sum of foreign currency-denominated rights and obligations in futures contracts, foreign-currency denominated spot transactions settled in one banking day or more, and exchange exposure associated with contingencies acquired in options trading and other exchange derivatives. The three-business-day average of the gross leveraged position may not exceed the equivalent, in foreign currency, of five hundred fifty percent (550%) of the amount of the entity’s regulatory capital. The maximum and minimum amounts of the daily proprietary position and the spot market proprietary position in foreign currency are determined based on each bank’s regulatory capital on the last day of the second preceding calendar month, converted at the exchange rate set by the Financial Superintendence of Colombia at the end of the previous month.

53



(Continued)

The bulk of the Group's assets and liabilities in foreign currency are held in US dollars. The following is a breakdown of its foreign currency assets and liabilities at the consolidated level at December 31 and June 30, 2016 and their equivalent in Colombian pesos.

December 31, 2016

Account

Millions of US Dollars

Millions of Euros

Other Currencies

Expressed in Millions of US

Dollars

Total (in millions of Colombian

pesos)

Assets

Cash and cash equivalents 3,778.37

21.99

939.18 $ 14,224,966

Investments in debt securities at fair value 1,003.83

0.00

373.82

4,133,938

Investments in debt securities at amortized cost 600.34

0.00

193.42

2,381,845

Investment in equity securities 5.57

0.06

4.05

29,069

Trading derivatives 0.17

0.00

0.00

519

Loan portfolio at amortized cost 13,274.52

5.83

4,041.04

51,977,273

Hedging derivatives 1.99

0.00

0.00

5,981

Other accounts receivable 198.58

0.02

121.94

961,856

Other assets 1,739.57

0.00

389.27

6,388,032

Total assets

20,602.94

27.90

6,062.72

80,103,479

Liabilities

Customer deposits

12,775.04

20.91

4,405.09

51,618,164

Trading derivatives

0.00

0.00

0.00

9

Other accounts payable and other liabilities

174.73

0.00

287.67

1,387,533

Short-term financial obligations

87.93

0.19

91.11

537,855

Long-term financial obligations

4,735.47

1.22

307.56

15,136,510

Bonds issued

2,218.38

0.00

432.60

7,954,836

Hedging derivatives

2.93

0.00

0.00

8,792

Allowances

0.70

0.00

0.00

2,110

Income tax liability

21.90

0.00

83.77

317,113

Total liabilities

20,017.08

22.32

5,607.80

76,962,922

Net asset (liability) position

585.86

5.58

454.92

3,140,557

June 30, 2016

Account


Millions of Euros

Other Currencies


Dollars


pesos)

Assets

Cash and cash equivalents 3,152.70 30.69 775.86 $ 11,566,956

Investments in debt securities at fair value 1,020.92 0.00 363.57 4,041,339

Investments in debt securities at amortized cost 398.95 0.00 373.82 2,255,742

Investment in equity securities 5.64 0.01 3.97 28,085

Trading derivatives 0.09 0.01 0.01 316

Loan portfolio at amortized cost 12,393.09 0.98 3,671.84 46,896,855

Hedging derivatives 2.00 0.00 0.00 5,850

Other accounts receivable 197.10 0.00 87.55 830,912

Other assets 1,748.44 0.00 370.61 6,185,514

Total assets

18,918.93

31.69

5,647.23

71,811,568

Liabilities

Customer deposits

11,300.44 26.87 4,157.90 45,210,154

Trading derivatives

0.81 0.00 0.00 2,366

Other accounts payable and other liabilities

163.49 0.00 274.29 1,277,894

54



(Continued)

June 30, 2016

Account


Millions of Euros

Other Currencies


Dollars


pesos)

Short-term financial obligations

53.92 3.24 44.36 297,350

Long-term financial obligations

5,193.29 0.74 310.17 16,067,036

Bonds issued

1,901.80 0.00 195.19 6,121,115

Hedging derivatives

9.93 0.00 0.00 28,996

Allowances

0.59 0.00 0.00 1,711

Income tax liability

17.81 0.00 90.05 314,838

Total liabilities

18,642.08 30.85 5,071.96 69,321,461

Net asset (liability) position

276.85 0.84 575.27 $ 2,490,107

Had the value of the US dollar to the peso increased by $10 Colombian pesos per US$1 at December 31, 2016, the Groups assets would have increased by $266,948 and its liabilities by $256,482 ($246,013 and $237,482), respectively, at June 30, 2016.

The Group’s objective with regard to transactions in foreign currency is to meet its customers’ needs in terms of foreign trade and financing in foreign currency´, and to hold positions within the authorized limits.

The Group has established policies that require foreign exchange risk management for each of the functional currencies in the countries where its subsidiaries are located. Foreign exchange exposure is hedged economically through the use of derivatives and non-derivative instruments.

The Group has a number of investments in foreign subsidiaries and branches whose net assets are exposed to risk stemming from the conversion of their financial statements for consolidation purposes. The exposure arising from net assets in foreign operations is hedged primarily with financial obligations and derivatives in foreign currency. (See Note 24)

Interest-rate risk in the structure of the balance sheet:

The Group is exposed to the effects of fluctuations in the interest-rate market that impact its financial position and future cash flows. Interest differentials can increase as a result of changes in interest rates. However, they also can decline and create losses in the event of unexpected fluctuations in those rates. In this respect, interest-rate risk is monitored regularly and limits are set on the extent of mismatch in the repricing of assets and liabilities due to changes in interest rates. The following table shows the financial assets and liabilities subject to re-pricing bands at December 31 and June 30, 2016.

December 31, 2016

Under one

month

Between one and six

months

From six to twelve months

More

than one year

Total

Assets

Debt securities at fair value through profit or loss $ 4,878,756

0

0

0

4,878,756

Held to maturity investment

1,140,924

608,472

473,326

4,155,404

6,378,126

Commercial loans

17,765,406

30,252,941

2,830,727

10,526,529

61,375,603

Consumer loans

3,164,668

5,872,120

1,146,776

16,181,270

26,364,834

Mortgages

3,822,455

303,093

74,043

7,211,557

11,411,148

Microcredit loans

3,013

11,527

34,334

340,835

389,709

Trading derivatives

253,190

0

0

0

253,190

55



(Continued)

December 31, 2016

Under one

month

Between one and six

months


More

than one year

Total

Hedging derivatives

123,018

0

0

0

123,018

Total financial assets

31,151,430 37,048,153 4,559,206 38,415,595 111,174,384

Liabilities

Current accounts deposits

27,025,759

0

0

0

27,025,759

Saving deposits

27,983,667

0

0

0

27,983,667

Certificate of time deposits

6,994,190

16,036,912

7,356,860

8,056,561

38,444,523

Interbank and overnight funds

1,221,344

0

0

0

1,221,344

Borrowing from banks and other

2,367,489

6,135,527

1,005,801

5,394,000

14,902,817

Bonds issued

1,945,718

537,917

268,126

5,451,309

8,203,070

Borrowing from development entities

446,227

1,080,521

9,332

0

1,536,080

Other deposits

194,170

2,292

0

26,262

222,724

Trading derivatives

329,327

0

0

0

329,327

Hedging derivatives

44,436

0

0

0

44,436

Total financial liabilities $ 68,552,327 23,793,169 8,640,119 18,928,132 119,913,747

June 30, 2016

Under one

month

Between one and

six months

From six to

twelve months

More

than one year

Total

Assets


0

0

0

5,138,046

Held to maturity investment

1,156,873

534,682

292,714

4,349,176

6,333,445

Commercial loans

17,421,936

20,437,329

1,424,199

19,670,751

58,954,215

Consumer loans

2,531,816

5,219,079

199,078

15,975,143

23,925,116

Mortgages

336,252

3,396,784

48,930

6,734,152

10,516,118

Microcredit loans

12,820

11

0

369,737

382,568

Trading derivatives

437,748

0

0

0

437,748

Hedging derivatives

406,238

0

0

0

406,238


27,441,729

29,587,885

1,964,921

47,098,959

106,093,494

Liabilities


22,437,523

0

0

0

22,437,523

Saving deposits

28,751,233

0

0

0

28,751,233


10,513,668

16,778,011

5,730,193

2,916,683

35,938,555


38,001

0

0

1,822,462

1,860,463

Borrowing from banks and other

1,068,410

7,032,673

493,591

7,228,543

15,823,217

Bonds issued

88,043

322,728

2,364,041

3,583,270

6,358,082


615,523

699,136

85,699

193,553

1,593,911

Other deposits

280,140

0

0

0

280,140

Trading derivatives

434,673

0

0

0

434,673

Hedging derivatives

104,986

0

0

0

104,986

Total financial liabilities $ 64,332,200

24,832,548

8,673,524

15,744,511

113,582,783

If interest rates had been 50 basis points less, with all other variables remaining constant, the Bank’s profits for the six months ended at December 31 and June 30, 2016 would have increased by $63,553 and $14,874 respectively, mainly because of less interest expense on variable interest liabilities.

If interest rates had been 50 basis points higher, with all other variables remaining constant, the Bank’s profits for the six months ended at December 31 and June 30, 2016 would have declined by $63,553 and $14,874 respectively, mainly because of a decline in the fair value of financial investment assets classified at fair value with an adjustment in income.

56



(Continued)

The following is a breakdown of the interest rate on financial assets and liabilities by type, at December 31 and June 30, 2016:

December 31, 2016

Under one year

More than one year

Total

Variable Fixed Variable Fixed

Assets Debt securities at fair value through profit or loss $ 90,689

1,479,715

285,558

3,022,794

4,878,756

Debt securities held to maturity

1,222,222

987,035

134,892

4,033,977

6,378,126 Commercial loans

16,320,511

9,948,324

24,918,963

10,187,805

61,375,603

Consumer loans

239,367

10,315,338

1,783,972

14,026,157

26,364,834 Mortgages

17,164

146,188

4,156,099

7,091,697

11,411,148

Microcredit loans

9,797

155,944

1

223,967

389,709


17,899,750

23,032,544

31,279,485

38,586,397

110,798,176

Liabilities


0

27,025,759

0

0

27,025,759 Certificate of time deposits

9,496,699

20,915,698

2,793,799

5,238,327

38,444,523

Saving deposits

0

27,714,603

0

269,064

27,983,667 Other deposits

0

222,724

0

0

222,724


0

1,221,344

0

0

1,221,344 Borrowing from banks and other

1,974,165

5,121,434

3,020,479

4,786,739

14,902,817

Bonds issued

62,088

2,877,635

75,328

5,188,019

8,203,070 Borrowing from development entities

315,100

11,022

1,209,958

0

1,536,080


85,110,219

7,099,564

15,482,149

119,539,984

June 30, 2016

Under one year

More than one year

Total

Variable Fixed Variable Fixed

Assets Debt securities at fair value through profit or loss $ 145,317

1,241,623

572,168

3,178,938

5,138,046

Debt securities held to maturity

1,055,407

1,109,749

773,426

3,394,863

6,333,445 Commercial loans

12,897,103

13,439,797

21,193,699

11,423,616

58,954,215

Consumer loans

142,880

9,205,644

1,530,074

13,046,518

23,925,116 Mortgages

1,352

125,597

3,759,403

6,629,766

10,516,118

Microcredit loans

5

163,489

6

219,068

382,568


14,242,064

25,285,899

27,828,776

37,892,769

105,249,508

Liabilities


0

22,437,523

0

0

22,437,523 Certificate of time deposits

10,413,048

20,303,318

1,683,592

3,538,597

35,938,555

Saving deposits

0

28,751,233

0

0


0

280,140

0

0

280,140


0

1,860,463

0

0

1,860,463 Borrowing from banks and other

1,366,345

4,961,018

2,985,810

6,510,044

15,823,217

Bonds issued

45,470

2,744,281

92,072

3,476,259

6,358,082 Borrowing from development entities

363,231

11,161

1,219,519

0

1,593,911


81,349,137

5,980,993

13,524,900

113,043,124

c. Liquidity Risk

Liquidity risk is related to the inability of the Group to fulfill obligations acquired with customers and financial market counterparties at any time, in any currency and any place, for which each entity reviews its available resources on a daily basis.

The Group manages liquidity risk according to the rules on liquidity risk management. This process adheres to the fundamental principles of the different liquidity risk management systems (SARL), which define minimum reasonable parameters the entities must monitor to effectively manage the liquidity risk to which they are exposed. To measure liquidity risk, a liquidity risk indicator (LRI) is calculated weekly for periods of 7, 15 and 30 days, as established in the standard model approved by the Financial Superintendence of Colombia.

57



(Continued)

In the case of BAC Credomatic, liquidity risk is managed according to the policies and guidelines issued by regional and local management and/ or the Board of Directors, complying in each case with the particular regulations of each country where the company operates and the contractual obligations it has acquired. As part of liquidity risk analysis, the Group measures the volatility of deposits, debt levels, the structure of assets and liabilities, the extent of asset liquidity, the availability of lines of credit and the general effectiveness of the way assets and liabilities are managed. The idea is to have enough liquidity on hand (including liquid assets, guarantees and collateral) to deal with possible scenarios involving own or systemic stress.

Quantification of the funds obtained on the money market is an integral part of liquidity measurement within the Group. Based on technical studies, primary and secondary sources of liquidity are identified in order to ensure funding stability and sufficiency by having a range of funding suppliers. This also helps to minimize any concentration of funding sources. Once identified, sources of funding are assigned to the different lines of business, according to the budget, nature and depth of the markets.

The availability of resources is monitored daily, not only to meet reserve requirements but also to forecast and/or anticipate possible changes in the Group’s liquidity risk profile and to be able to make strategic decisions, as required. In this sense, there are liquidity warning indicators to ascertain the current situation, as well as strategies to be implemented in each case. These indicators include the LRI, deposit concentration levels and use of the Central Bank's liquidity quotas, among other elements.

It is through the committees on assets and liabilities that the senior management of each entity knows the institution’s liquidity situation and makes the necessary decisions. These decisions take into account the high-quality liquid assets that must be maintained; the reserve requirements; the strategies for granting loans and deposit taking; the policies on placing surplus liquidity; any changes in the characteristics of new and existing products; diversification of funding sources to prevent a concentration of deposit-taking in a few investors or savers; hedging strategies; the Group’s income; and changes in the structure of the balance sheet. Statistical analysis to quantify, with a predetermined level of confidence, the stability of deposits, both with and without contractual maturity, is done to control liquidity risk between assets and liabilities. Banks in Colombia are required to keep cash on hand and in banks, including deposits in central banks, according to the percentages on customer deposits and other liabilities established in the regulations for each of jurisdiction where the Group operates. The following is a summary of the available liquid assets of the Group’s main national entities, projected over a period of 90 days at December 31 and June 30, 2016 according to the provisions established to that effect by the Financial Superintendence of Colombia.

December 31, 2016

Entity

Available liquid assets at the end of the period (1)

From 1 to 7 days (2)

From 8 to 15 days

thereafter (2)

From 16 to 30 days

thereafter (2)

From 31 to 90 days

thereafter (2)

Banco de Bogota S.A. $ 10,058,552

8,732,532

5,604,879

3,786,496

786,898

58



(Continued)

June 30, 2016

Entity

Available liquid assets at the end of the period (1)

From 1 to 7 days (2)

From 8 to 15 days

thereafter (2)

From 16 to 30 days

thereafter (2)

From 31 to 90 days

thereafter (2)

Banco de Bogota S.A. $ 8,688,716

7,848,738

6,843,171

5,308,708

(1,056,728)

(1) Liquid assets are those existing at the end of each period that can be converted quickly into cash given their nature. These assets include

cash on hand and in banks, securities or coupons that have been transferred to the institution in development of the active money market operations it conducts and have not been used subsequently in borrowing operations on the money market, investments in debt securities at fair value, investments in open mutual funds with no permanence agreement, and investments at amortized cost, provided the latter involve forced or mandatory investments that are subscribed in the primary market and can be used for money market operations. When calculating liquid assets, all the aforementioned investments, without exception, are calculated at their fair market price on the date of the assessment

(2) This balance is the residual value of the entity’s liquid assets in the days following the end of the period, after deducting the net difference

between its cash inflows and outflows during that period. This calculation is done by analyzing the mismatch of contractual and non-contractual cash flows from assets, liabilities and off-balance sheet positions in 1-to-90 day time bands.

These liquidity calculations assume the existence of normal liquidity conditions, according to the contractual flows and historical experience of each bank. For cases involving extreme liquidity events occasioned by the withdrawal of deposits, each bank has contingency plans that include the existence of a line of credit with other institutions and access to special lines of credit with the Central Bank of Colombia, pursuant to current regulations. These lines of credit are granted when required and are backed by securities issued by the Colombian government and by a portfolio of high- quality loans, as stipulated in the regulations of the Central Bank.

At December 31 and June 30, 2016 the Group analized the maturities on assets and financial liabilities at the consolidated level. The following table shows the remaining contractual maturities:

December 31, 2016

Under one

month

Between one and

six months


More than one year

Total

Assets


0

0

0 4,878,756 Debt securities held to maturity

383,589

880,932

1,063,189

4,537,289

6,864,999

Commercial loans

8,206,309

14,706,586

9,281,903

38,294,222

70,489,020 Consumer loans

4,503,270

7,849,043

3,328,320

17,857,893

33,538,526

Mortgages

128,978

541,255

633,977

19,794,446

21,098,656 Microcredit loans

38,791

113,006

126,468

260,152

538,417

Trading derivatives

253,190

0

0

0

253,190 Hedging derivatives

123,018

0

0

0

123,018


18,515,901 24,090,822 14,433,857 80,744,002 137,784,582

Liabilities


27,025,759

0

0

0

27,025,759 Saving deposits

27,983,667

0

0

0

27,983,667


6,885,609

16,492,147

7,761,943

8,811,363

39,951,062 Interbank funds and overnight funds

1,221,513

0

0

0

1,221,513

Borrowing from banks and other entities

895,896

3,821,166

3,491,522

8,065,214

16,273,798 Bonds issued

1,923,702

622,720

439,992

7,782,034

10,768,448


25,977

203,295

194,464

1,583,931


220,432

2,292

0

0

222,724

Trading derivatives

329,327

0

0

0


44,436

0

0

0

44,436


21,141,620

11,887,921

26,242,542

125,828,401

59



(Continued)

June 30, 2016

Under one

month

Between one and

six months


More than one year

Total

Assets


0

0

0

5,138,046 Debt securities held to maturity

484,661

727,503

928,560

4,385,533

6,526,257

Commercial loans

6,611,556

14,474,217

7,972,542

39,729,208

68,787,523 Consumer loans

4,108,868

7,257,049

2,897,055

17,491,461

31,754,433

Mortgages

95,839

476,351

564,268

18,245,887

19,382,345 Microcredit loans

23,261

112,938

116,566

270,722

523,487

Trading derivatives

437,748

0

0

0


406,238

0

0

0

406,238


17,306,217

23,048,058

12,478,991

80,122,811

132,956,077

Liabilities


22,437,523

0

0

0

22,437,523 Saving deposits

28,751,233

0

0

0

28,751,233


4,687,312

17,277,796

9,546,135

6,086,619

37,597,862 Interbank funds and overnight funds

1,860,746

0

0

24,562

1,885,308

Borrowing from banks and other entities

487,345

5,540,174

1,626,359

10,380,003

18,033,881 Bonds issued

132,879

395,327

2,375,148

5,285,073

8,188,427


29,342

187,028

251,571

1,547,005


280,140

0

0

0

280,140

Trading derivatives

434,673

0

0

0


104,986

0

0

0

104,986


23,400,325

13,799,213

23,323,262

119,728,979

d. Operational Risk

The Group has an operational risk management system (SARO) that is implemented as directed in the guidelines established by the Financial Superintendence of Colombia. This system is managed by the operational risk units of the entities in the Group.

Thanks to SARO, the Bank and its subsidiaries has reinforced its understanding and control of the risks inherent in its processes, activities, products and operating lines, and has managed to reduce errors and to identify opportunities for improvement that support the development and operation of new products and/or services.

The operational risk manual of each entity outlines the policies, standards and procedures that have been adopted to guarantee business management within defined levels of appetite for risk. There is also a manual on the business continuity management system, which contains guidelines for operations in the event basic resources are not available.

Each financial entity keeps a detailed log of incidents that involve operational risk. These incidents are recorded in the assigned expense accounts to ensure proper accounting follow-up.

The operational risk units (GRO) take part in the organization's activities through their involvement in the committees envisioned to monitor management and compliance with the entity’s rules and regulations. These committees can be strategic, tactical and preventive in nature, or designed to monitor risk indicators, complaints and claims. This has been accomplished by using the SARO methodology (risk identification, measurement, control and monitoring) when implementing standards and regulations, such as the Sarbanes-Oxley Law (SOX), ISO 27001 (Information Security), Law 1328 on financial consumer protection, the Anti-corruption and Anti-fraud Act, and Law 1581 on data protection. As a result, it has been possible to obtain important synergies for the entities in the Group.

60



(Continued)

The operational risk profile at December 31, 2016 includes risks and controls for all the processes used by the entities in the Group. The updating model is dynamic and takes into account tests run on controls, risk debugging and ineffective controls (according to auditing reports), changes in structure, job titles, applications and procedures (updating), as well as any new processes documented by the Systems and Operations Division. With regard to BAC Credomatic, which is part of Leasing Bogotá Panama, the company has established a minimum framework for operational risk management within its entities. The goal, in this case, is to provide general guidelines to make sure operational risks and actual events that can affect the company are identified, assessed, controlled, monitored and reported, so as to guarantee the proper management, mitigation or reduction of managed risks and to provide reasonable assurance regarding achievement of the organization’s objectives. The operational-risk management model takes into account the best practices outlined by the Basel Committee on Banking Supervision and by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Regionally speaking, it also meets the regulatory requirements that were designed for that purpose by the supervisory bodies in the countries where the company operates. Taking the foregoing as a reference, operational risk is defined as the possibility that events resulting from people, information technology or inadequate or failed internal processes, as well as those produced by external causes, generate negative effects that go against fulfillment of the entity’s objectives. Given its nature, operational risk is presumed to be present in all activities of the organization. The priority is to identify and manage the primary risk factors, regardless of whether or not they might result in monetary loss. This measurement also helps to establish priorities in managing operational risk. The operational risk management system is duly documented in The Guidelines and Manual on Operational Risk. It is an ongoing, multi-phase process that has various stages; namely,

• Measurement from the standpoint of the control environment • Identification and assessment of operational risks • Treatment and mitigation of operational risks • Risk monitoring and risk review • Recording and posting losses caused by incidents that involve operational risk

The company also has formally established policies to manage information security, business continuity and fraud prevention. Likewise, there is an ethics code to support the proper management of operational risks within the organization. There is an operational risk management system within the region and in all the countries where the company operates. The objective is to monitor, assist and assess management’s efforts to deal with operational risks. There also is a committee specialized in operational risk (OR Committee). Comprised of members of the management team, it monitors efforts to oversee business continuity, reports to the Comprehensive Risk Management Committee, supervises management, and ensures that all identified operational risks are kept within levels that are acceptable to the company. Compliance with the company’s standards is supported by a program of periodic reviews conducted by the Internet Auditing Department, which reports its findings to the audit committee of each entity where the company operates.

61



(Continued)

The following table shows the figures from each update of the operational risk profile of each entity in the Group during the periods ended at December 31 and June 30, 2016.

December 31, 2016 June 30, 2016

Entity Processes Risks Causes Controls Processes Risks Causes Controls

Banco de Bogotá S.A. 215 1,594 2,251 4,320 213 1,736 4,583 2,679 Porvenir S.A. 15 441 701 936 15 393 826 625 Casa de Bolsa S.A. 0 0 0 0 49 447 130 173 Fiduciaria Bogota S.A. 20 207 1,509 1,960 20 210 2,213 1,671 Almaviva S.A. 7 41 168 166 23 106 628 469 BAC Credomatic 267 2,725 0 1,883 228 1457 0 831 Banco de Bogota Panamá 61 355 354 397 65 399 407 381 Total 585 5,363 4,983 9,662 613 4,748 8,787 6,829

The following are losses incurred and registered by the Group due to incidents involving operational risk.

Entity December

31, 2016

June 30, 2016

Banco de Bogotá S.A. $ 6,765 7,076 BAC Credomatic 13,503 14,580 Almaviva S.A. 1,591 613 Porvenir S.A. 702 4,426 Fiduciaria Bogotá S.A. 268 287 Casa de Bolsa S.A. 0 40 Banco de Bogotá Panamá 4 0

Total $ 22,833 27,022

In Banco de Bogota S.A. losses recorded as a result of operating risk events for the six-month period ended December 31, amounted to $6.765 million, break down as follows, from an accounting standpoint: fines and labor penalties (19,7%),losses in domestic currency due to credit card fraud (16.6%), operating process failures with deposit products in D/C (14.6%), operating process failures with deposit products in D/C (9.7%), cash and exchange loss claims in D/C (7.3%), losses on savings account claims (5.3%) and and other operational risk accounts (26,8%). As per the Basel risk classification, these events are distributed among: implementation and management processes (40%), external fraud (31%), human resources (21%) and others (8%). Those the with highest incidence are the following. • Execution and management processes: An erroneous lien for $651 million and the cancellation of accounts receivable in 2013, and subsequent bankruptcy proceedings with the cliente, were not included in the settlement process. • External fraud: fraudulent use of credit cards (counterfeit cards and information that is lifted from magnetic-stripe cards or altered, both nationally and internationally). • Human resources: creation or increase in allowances, payment of costs and verdicts in labor cases. In BAC Credomatic the losses break down as follows from an accounting standpoint: external fraud - card issuer (60%), execution, delivery and processing (21%) external fraud - card acquirer (8%) and other accounts (11%). As per the Basel risk classification, these events are distributed among: external fraud (73%), implementation and management processes (24%), and others (3%).

62



(Continued)

e. Risk of Money Laundering and Terrorist Financing

The efforts of the Group to support the Money Laundering and Terrorist Financing Risk Management System (SARLAFT) have produced good results and fall within the regulatory framework established to that effect by Financial Superintendence of Colombia, particularly the instructions outlined in Part, I, Heading IV, Chapter IV of its Basic Legal Circular. These results are in keeping with prevailing regulations, the policies and methods adopted by the Group’s maximum decision-making body, and with international recommendations on the matter.

Managing the Risk of Money Laundering and Terrorist Financing SARLAFT activities were developed in light of the methods adopted by the Group. Consequently, it was possible to reduce exposure to these kinds of risks by applying the controls designed for each of the risk factors described in Part I, Heading IV, Chapter IV of the Basic Legal Circular issued by the Financial Superintendence of Colombia (customer, product, channel and jurisdiction), and the Group was able to maintain an acceptable profile that reflects the absence of incidents or situations that might tarnish the good reputation it has maintained with respect to SARLAFT. In addition, as part of the management model focused on combatting the risk of money laundering and terrorist financing, Banco de Bogotá, in its capacity as the parent company, continues to receive indications from the members of the Group on how the various stages and elements of SARLAFT are progressing. These indicators make it possible to monitor a variety of factors such as risks, controls, inherent and residual measurements, risk-factor segmentation, technological infrastructure, the management of high-risk transactions, changes in standards and regulations, and reports to the authorities who are responsible for control and oversight. The guidance and orientation visits to Central America continued during the second half of 2016. Banco de Bogota’s Compliance Officer visited El Salvador, Panamá, Honduras and the Regional Compliance Management as part of our policy on good corporate governance. These trips were used to follow up on and verify the various SARLAFT activities and to address topics that have a bearing on the SARLAFT culture. This management model also calls for setting up risk committees in the national affiliates (Almaviva, Porvenir and Fiduciaria Bogotá) and participating in the compliance committees at BAC Credomatic, Banco de Bogota Panama, Banco de Bogotá Nassau, Banco de Bogota Miami and Banco de Bogotá New York. The following committees were developed during the second half of the year.

5 committees at the national affiliates 3 BAC Credomatic compliance committees 3 Banco de Bogota Panama compliance committees 3 Banco de Bogotá Nassau compliance committees 6 Banco de Bogota Miami compliance committees 6 Banco de Bogota New York compliance committees

Additionally, the Fifth Meeting of the Association of Banco de Bogotá Supervisors, led by the Financial Superintendence of Colombia, was held during the month of November 2016 and attended by regulators from Costa Rica, El Salvador, Honduras, Guatemala, Panama and the Caiman Islands. These sessions enabled the participants to acquire a common view of the sort of risks facing a financial conglomerate, as the starting point for efficient, consolidated supervision. The Money Laundering and Terrorism Financing

63



(Continued)

Unit was the risk central featured on this occasion, and Banco de Bogota’s compliance officer gave a presentation on how such risks are managed and how these practices are extended to the subsidiaries in Central America.

The Stages in the Money Laundering and Terrorist Financing Risk Management System In response to international recommendations and Colombian law on SARLAFT, the money laundering and terrorist financing (ML/TF) risks identified by the Group are managed with an eye toward continuous improvement and minimizing their existence in the entities within the Group, insofar as is reasonably possible. The methods that have been adopted are being applied to develop the different stages of the system. The result is solid risk management that makes it possible to identify and analyze the ML/TF risks facing the entities in the Group and to design and effectively implement appropriate policies and procedures to deal with those risks. In that respect, the Group has taken into account all relevant, inherent and residual risk factors in the banking business and in commerce, among other areas, at both the national level and beyond, when appropriate, so as to identify its risk profile and the level of mitigation that is appropriate. In the identification stage, the Group ratified the 14 generic risks Grupo Aval defined for SARLAFT. These are among the 18 generic risks Banco de Bogota has identified. As a result of this activity, a catalogue of 16 generic risks was defined for Banco de Bogota. This same parameter has been adopted for each of the entities in the Group, and the risks among those 16 that pertain to their particular line of business are selected in response to the characteristics of the activities each of them pursues. Risk management was monitored throughout the second half of 2016, based on the reported indicators, and no relevant incidents were detected. This activity is part of the measurement stage, particularly when it comes to measuring inherent risks for which the possibility or probability of occurrence is determined, along with the impact the risk would have if it materializes, notwithstanding the mitigation measures and controls that have been set in place. As for the control stage, the Group has adopted the methodology defined by the parent company to eventually create a residual ML / FT risk profile. At this point, each entity in the Group has the inventory of controls assigned to each risk and can use them to gauge the residual level of ML/TF risk. The results of each stage of SARLAFT are documented in Enterprise Risk Assessor (ERA), as part of the monitoring stage. This auditing software is used to track the ML/TR risk level and was instrumental in determining that the residual risk is calculated at Level 1, which translates into a frequency and impact at around zero. In other words, stable performance compared to previous periods was maintained.

Elements of the Money Laundering and Terrorist Financing Risk Management System The Group focuses its activities within the framework of the guiding principle on risk management, which indicates the entity’s operations must comply with the highest ethical and control standards. Accordingly, sound banking practices and compliance with the law are the top priority, above and beyond accomplishing business goals. In practical terms, this has led to application of the criteria, policies and procedures that are used to manage SARLAFT and has made it possible to mitigate these risks down to the lowest level of the organization, as is customary within the Group.

64



(Continued)

The national-level entities in the Group submitted their institutional reports to the Financial Information and Analysis Unit (UIAF). This was done in due course, as required by law, and pursuant to the amounts and characteristics stipulated in Part I, Title IV, Chapter IV of the Basic Legal Circular issued by the Financial Superintendence of Colombia. The competent authorities responsible for surveillance and control also were provided with the information required by law. An important part of our policy is to afford these authorities our support and cooperation within the bounds of the law. The foreign entities also submitted reports to their local authorities, pursuant to the deadlines established by law in each country. The Group’s commercial activities are supplemented by the Money Laundering and Terrorist Financing Risk Management System (SARLAFT), since control is part of business management. These processes are used to advantage in an effort to serve the customer’s needs and requirements promptly and as best possible. During the second half of 2016, the organization followed up on the SARLAFT reports prepared by the control agencies, so as to address their recommendations for optimizing the system. The Group remains dedicated to risk management and it has the technological tools to implement “know-your-customer” and “know-your-market” policies, among others. These have been extremely valuable in singling out unusual transactions and reporting suspicious ones to each of the financial information units (UIF), based on the objective criteria established by law. It is important to point out that the Group is constantly improving the elements and mechanisms it has at its disposal to help SARLAFT develop successfully, particularly in terms of analytical software and methods to monitor and avert ML/TF risk. The ML/TF risk management system is bolstered by a process of segmentation that has been developed through the use of data mining tools. This segmentation allows the organization to identify each risk factor (customer, product, channel and jurisdiction) in the Group’s operations and to monitor them for transactions that appear to be unusual in light of the profile for each segment. The Group also has training programs at each of its institutions to instruct employees on the guiding principles, regulations and control mechanisms that have been put in place to prevent and mitigate ML/TF risk within the organization. This educational process helps to strengthen the SARFAFT culture.

The Group accomplished a number of SARLAFT activities during the second half of 2016, continuing the efforts made in previous periods and adopting the recommendations put forth by Grupo Aval, the Board of Directors and the supervisory authorities. The risk of money laundering and terrorist financing is managed by following each step in the SARLAFT system. The focus is on adequate risk management, as described herein, particularly management that reflects an undeviating commitment from our employees to be part of the SARLAFT culture that has developed within the Group. Moreover, the Group remains committed to ML/TF risk management issues as part of its corporate responsibility to society and to the regulators.

65



(Continued)

f. Legal Risk

The Legal Division supports operational risk management in the Group’s operations. Specifically, this division defines and institutes the necessary procedures to adequately control the legal risks inherent in banking operations, making sure these controls meet all legal standards and are properly documented. It also analyzes and drafts contracts for operations conducted by the different business units.

The Group valued the claims brought against it, based on the opinions and assessments of the lawyers in charge, and established the necessary allowances to cover probable losses. This was done according to instructions issued by the oversight authority. The lawsuits pending against the Group, apart from those considered unlikely to succeed, are described in Note 35 to the financial statements.

NOTE 7 - Operating Segments

An operating segments is defined as a component of an entity that: (a) develops business activities from which the entity can obtain income from ordinary activities and incur expenses; (b) generates operating income that is reviewed regularly by the highest operational decision-making authority within the firm; and (c) has differentiated financial information about its operations. Based on this definition and given that the Board of Directors, which is the maximum operational decision-making authority, regularly reviews and assesses a wide range of information and key financial data for evaluating performance and adoptng decisions related to investments and the allocation of funds, obtaining additional information from the subsidiaries, with an emphasis on financial data from the major institutions that are part of the consolidated entity, the operating segments were defined considering the business activities and geographic areas where each subsidiary conducts its activities. The Group operates through three (3) segments. These involve Banco de Bogotá and its significant subsidiaries; namely, Leasing Bogotá Panama and Subsidiary, and Porvenir and Subsidiary. Details on their primary activities and places of business are provided in Note 1. Banco de Bogotá

Banco de Bogotá is a lending institution that provides different types of financial services at different terms, namely: financial leasing, commercial loans, consumer loans, mortgages loans and micro-credit loans. By the same token, as part of its deposit-taking strategy, the Bank offers products such as savings accounts, checking accounts and certificates of time deposit, all tailored to meet the needs of the customer. It maintains a portfolio of equity and fixed-income investments, including ownership interest in subsidiaries and other entities. It also operates in currency and derivative markets, where its Treasury Unit pursues two basic dictates: one is to manage the currency risk in the Bank´s balance sheet and the other is to penetrate different markets in order to meet the specific needs inherent in its position and to deliver innovative products to the customer. Given the different needs that exist in the financial market, the Bank has specialized areas to develop and offer products and services that respond efficiently to those requirements.

Banco de Bogota has the following strategic units: Corporate Banking, Official Banking, Institutional, Social and Special Units, PMP Banking (SMEs, Microfinance, Individuals and the Network Officer), Credit Cards and the Treasury Unit.

66



(Continued)

Leasing Bogotá Panamá and Subsidiary

Leasing Bogotá Panamá is a financial holding company engaged in investment activities. It owns 100% of BAC Credomatic Inc., a financial institution with a presence in Mexico, Guatemala, Honduras, El Salvador, Nicaragua, Costa Rica and Panama. The company has a broad portfolio of financial services for personal and corporate banking, such as sight and term deposits, loans, credit cards, payment services, mutual funds and electronic payments to suppliers, among other products. It also has a service-channel network that includes agencies, kiosks, offices, corporate funds, ATMs, an electronic branch, call centers and mobile banking, all of which make it possible to offer a comprehensive range of services to its customers.

Porvenir and Subsidiary

Porvenir manages mandatory pension funds, severance and voluntary pension funds, and independent third-party equity to cover pension liabilities. The definition of the operating segments listed above is based on the way internal management is handled, taking into account the economic activity involved in the specialized financial services offered through the Bank and its subsidiaries. As of June 2016, the Bank discontinued the operating segment entitled "Corficolombiana and subsidiaries" owing to the deconsolidation (loss of control) of Corporación Financiera Colombiana S.A. (See Note 14). Therefore, comparative information on that segment is presented in Note 15 under “discontinued operations”. On the other hand, the Bank lost control of Casa de Bolsa by virtue of a shareholders agreement signed in December 2016 with Corficolombiana, Banco de Occidente and Banco Popular. As a result of that agreement, Corficolombiana acquired direct controlling interest in Casa de Bolsa. Consequently, the company is not included in the information on that segment for the December 2016 period. The following is information, by segment, on the assets, liabilities, equity, revenue and expenses that must be reported.

Assets and Liabilities, by Segment

December 31, 2016

Banco de Bogotá

Leasing Bogotá Panamá

and subsidiary

Porvenir and

subsidiary

Other subsidiaries

Eliminations

Consolidated

Cash and cash equivalents $ 7,092,425

8,556,266

196,746

4,782,585

(3,227,278)

17,400,744 Financial investment assets

5,044,190

4,979,425

1,680,243

1,350,822

(193,271)

12,861,409

Loan portfolio and financial leasing at amortized cost

50,712,043 44,246,032 0 2,211,544 (99) 97,169,520

Other accounts receivable

483,963

887,100

24,500

103,977

(35,537)

1,464,003 Hedging derivatives

117,036

3,340

2,642

0

0

123,018

Non-current assets held for sale

136,260

74,423

0

24

0

210,707 Investments in associate companies and joint ventures

14,766,041

0

0

0

(11,424,182)

3,341,859

Property, plant and equipment

752,844

1,062,253

97,374

88,546

1,082

2,002,099 Investment properties

141,585

0

27,729

821

(1,131)

169,004

Goodwill

556,067

4,714,617

345,934

0

0

5,616,618

Other intangible assets 272,302 153,271 0 8,133 1 433,707

Income tax

357,428

115,275

162

16,619

0

489,484 Other assets

22,259

186,454

0

547

(1)

209,259

Total assets

80,454,443

64,978,456

2,375,330

8,563,618

(14,880,416)

141,491,431

67



(Continued)

December 31, 2016

Banco de Bogotá


and subsidiary

Porvenir and

subsidiary

Other subsidiaries

Eliminations

Consolidated

Financial liabilities at fair value

329,318

9

0

0

0

329,327 Financial liabilities at amortized cost

61,592,295

52,857,781

558,373

7,759,000

(3,227,465)

119,539,984

Hedging derivatives

35,644

2,840

5,952

0

0

44,436 Employee benefits

294,825

165,724

18,182

27,692

(2)

506,421

Allowances

40,699

577

193,924

4,835

0

240,035 Income tax

5,952

317,585

26,414

16,521

0

366,472

Accounts payable and other liabilities

1,801,574

1,205,699

49,043

133,407

(35,633)

3,154,090

Total liabilities $ 64,100,307

54,550,215

851,888

7,941,455

(3,263,100)

124,180,765

June 30, 2016

Banco de Bogotá

Leasing

Bogotá Panamá

and subsidiary

Porvenir and

subsidiary

Other subsidiaries

Eliminations

Consolidated

Cash and cash equivalents $ 6,275,679

7,891,624

61,787

1,999,346

(962,340)

15,266,096 Financial investment assets

5,270,235

5,210,620

1,663,940

1,110,215

(183,461)

13,071,549

Loan portfolio and financial leasing at amortized cost

49,873,445 39,852,293 0 1,908,689 (175) 91,634,252

Other accounts receivable

260,234

751,326

34,259

82,168

(12,015)

1,115,972 Hedging derivatives

400,389

5,849

0

0

0

406,238


32,371

73,835

0

11,111

0

117,317 Investments in associate companies and joint ventures

14,155,345

0

0

0

(10,807,530)

3,347,815

Property, plant and equipment

758,368

1,047,832

101,048

77,352

(14,860)

1,969,740 Investment properties

135,782

0

26,125

717

(1,095)

161,529

Goodwill

556,067

4,586,253

345,934

0

0

5,488,254

Other intangible assets 242,513 160,493 4,298 9,123 0 416,427

Income tax

404,477

(77,700)

7,992

21,252

0

356,021 Other assets

22,839

182,821

0

635

0

206,295

Total assets

78,387,744

59,685,246

2,245,383

5,220,608

(11,981,476)

133,557,505

Financial liabilities at fair value

432,301

2,138

234

0

0

434,673 Financial liabilities at amortized cost

60,463,161

48,533,429

543,170

4,465,886

(962,522)

113,043,124

Hedging derivatives

75,990

14,138

14,857

1

0


249,894

205,152

16,304

20,874

0

492,224

Allowances

28,101

0

194,173

8,837

0

231,111 Income tax

0

133,576

0

2,524

0

136,100

Accounts payable and other liabilities

1,302,672

1,063,213

63,559

75,239

(12,190)

2,492,493

Total liabilities $ 62,552,119

49,951,646

832,297

4,573,361

(974,712)

116,934,711

Statement of Income for the Period, by Segment

December 31, 2016

Banco de Bogotá

Leasing Bogotá

Panamá & Subsidiaries

Porvenir &

Subsidiaries Other

subsidiaries Eliminations

Consolidated

Interest income $ 3,125,998

2,327,112

6,585

44,851

(7,955)

5,496,591 Interest expenses

1,585,896

784,313

15,143

27,948

(7,955)

2,405,345

Interest income from loan portfolio and investments, net

1,540,102

1,542,799

(8,558)

16,903

0

3,091,246

Impairment of financial assets

510,580

500,904

(3,489)

(230)

(1)

1,007,764 Interest income after impairment, net

1,029,522

1,041,895

(5,069)

17,133

1

2,083,482

Income from commissions and other services

468,090

1,011,397

388,952

146,495

(3,944)

2,010,990

Expenses for commissions and other services

81,008

49,650

46,138

2,680

(4,077)

175,399

Income from commissions and other services, net

387,082

961,747

342,814

143,815

133

1,835,591

Income from financial assets and liabilities held for trading, net

150,303

48,612

83,547

16,019

0

298,481

68



(Continued)

December 31, 2016

Banco de Bogotá

Leasing Bogotá


Porvenir &

Subsidiaries Other


Consolidated

Gain on deconsolidation (Loss of control) Casa de Bolsa S.A.

748

0

0

0

0

748

Other Income

854,769

173,002

2,235

24,131

(563,658)

490,479 Other Expenses

1,066,381

1,629,651

162,811

109,271

(148)

2,967,966

Income before income tax

1,356,043

595,605

260,716

91,827

(563,376)

1,740,815 Income tax

314,202

181,999

88,004

23,586

0

607,791

Net income $ 1,041,841

413,606

172,712

68,241

(563,376) 1,133,024

June 30, 2016

Banco de Bogotá

Leasing Bogotá


Porvenir &

Subsidiaries Other


Consolidated

Interest income $ 2,735,905

2,315,886

1,783

37,845

(5,050)

5,086,369 Interest expenses

1,343,057

783,585

15,647

25,886

(5,051)

2,163,124

Interest income from loan portfolio and investments, net

1,392,848

1,532,301

(13,864)

11,959

1

2,923,245

Impairment of financial assets

539,744

387,608

(3,545)

1,357

0

925,164 Interest income after impairment, net

853,104

1,144,693

(10,319)

10,602

1

1,998,081

Income from commissions and other services

429,359

964,581

407,400

149,299

(2,957)

1,947,682

Expenses for commissions and other services

75,584

44,838

51,016

3,881

(3,326)

171,993

Income from commissions and other services, net

353,775

919,743

356,384

145,418

369

1,775,689

Income from financial assets and liabilities held for trading, net

109,792

71,839

32,535

38,291

(1)

252,456

Gain on deconsolidation (Loss of control) Corporación Financiera Colombiana S.A.

2,179,602

0

0

0

0

2,179,602

Other Income

189,500

207,938

73,633

25,911

(17,724)

479,258 Other Expenses

968,351

1,600,677

137,206

117,976

1,616

2,825,826

Income before income tax

2,717,422

743,536

315,027

102,246

(18,971)

3,859,260 Income tax

237,449

207,707

105,352

21,491

0

571,999

Net income $ 2,479,973

535,829

209,675

80,755

(18,971) 3,287,261

The geographic zones defined by the Group are Colombia, Panama, Guatemala, Costa Rica and others (Nicaragua, Honduras, El Salvador, Mexico, the United States, the British Virgin Islands and the Cayman Islands). These are distributed by income ad activities at the consolidated level (property, plant and equipment, intangible assets, and deferred income tax). The following is a geographic breakdown of the Group's consolidated income and assets, which must be reported:

December 31, 2016

Colombia

Panama

Guatemala

Costa Rica

Others (1)

Eliminations

Consolidated

Income for the period $ 5,254,736

599,125

547,845

1,309,033

1,162,107

(575,557)

8,297,289 Non-current assets other than financial instruments Property, plant and equipment

898,330

207,300

97,798

376,984

420,605

1,082

2,002,099

Intangible assets

1,181,841

2,609,636

22,162

142,160

2,094,525

1

6,050,325 Deferred income tax assets $ 27,120

31,356

48

81

1,649

0

60,254

69



(Continued)

June 30, 2016

Colombia

Panama

Guatemala

Costa Rica

Others (1)

Eliminations

Consolidated

Income for the period $ 6,340,529

639,455

546,623

1,284,862

1,159,630

(25,732)

9,945,367 Non-current assets other than financial instruments Property, plant and equipment

907,936

193,497

95,085

360,395

427,687

(14,860)

1,969,740

Intangible assets

1,157,202

2,539,241

21,785

146,551

2,039,902

0

5,904,681 Deferred income tax assets $ 156,094

27,827

65

105

4,137

0

188,228

(1) Nicaragua, Honduras, El Salvador, México, the United States and the British Virgin Islands, plus the Cayman Islands.

At December 31 and June 30, 2016 the Group and its subsidiaries reported no concentration of revenue from customers who account for more than 10% of the income from ordinary activities. Individual customers, other than related parties, are understood as those under common control, based on information available to the Bank. See Note 36 for details on income from related parties.

NOTE 8 - Cash and Cash Equivalents

The following is a breakdown of cash and cash equivalents.

December 31, 2016

June 30, 2016

Domestic currency

Cash $ 1,622,259

1,674,506

Banco de la República (Central Bank of Colombia)

1,504,098

1,978,320

Banks and other financial entities

49,173

45,486

Exchange

247

828

3,175,777

3,699,140

Foreign currency

Cash

1,415,431

1,283,218

Banks and other financial entities

12,809,536

10,283,738

14,224,967

11,566,956

$ 17,400,744

15,266,096

The following is a breakdown of the credit ratings determined by independent credit-rating agencies for the principal financial institutions where the Group has cash accounts.

December 31, 2016

June 30, 2016

Credit rating Sovereign debt $ 1,504,098 1,978,320 Investment grade 1,911,443

3,034,096

Speculative 5,830,773

5,299,226 Not rated or no rating available 8,154,430

4,954,454

$ 17,400,744

15,266,096

The required legal reserve in Colombia at December 31 and June 30, 2016 was 11% for current and savings deposits, 4.5% for certificates of deposit under 18 months. The legal reserve required to satisfy the liquidity requirements for current and savings deposits came to $3,227,747 and $3,238,176 at December 31 and June 30, 2016, respectively.

70



(Continued)

The legal reserve required to satisfy the liquidity requirements for certificates of deposit under 18 months came to $320,429 and $314,908 at December 31 and June 30, 2016, respectively. There is no amount of cash and cash equivalents that is not available to be used by the entity.

NOTE 9 - Financial Assets for Investment

9.1 At Fair Value

The following shows the balance of financial assets in debt securities and equity investments at fair value through profit or loss at December 31 and June 30, 2016.

December 31,

2016 June 30, 2016

Debt securities

In Colombian pesos

Issued or secured by the Colombian government $ 104,990

225,344 Issued or secured by other Colombian government agencies

60,354

47,664

Issued or secured by other financial institutions

377,132

463,556 Issued or secured by non-financial entities

34,793

31,973

Others

46,066

49,339

623,335

817,876

In foreign currency

Issued or secured by the Colombian government

53,017

136,576 Issued or secured by other Colombian government agencies

333,881

334,531

Issued or secured by foreign governments

1,475,329

1,198,816 Issued or secured by central banks

409,191

400,950


1,858,283

2,037,480 Issued or secured by non-financial entities

64,480

61,835

Others

61,240

149,982

4,255,421

4,320,170

Total debt securities

4,878,756

5,138,046

Equity instruments

With adjustments in income

In Colombian pesos

Corporate shares

125,622

3,910 Mutual funds 39,903 36,591 Mandatory investment funds

1,100,318

1,059,982

Private investment funds (1)

21,213

0 1,287,056

1,100,483

In foreign currency

Mutual funds

50

51

Total equity instruments $ 1,287,106

1,100,534

The following shows the balance of financial assets represented by investments in equity instruments at fair value through other comprehensive income at December 31 and June 30, 2016.

December

31, 2016 June 30, 2016

With adjustment to equity In Colombian pesos

Corporate shares (1) $ 31,499 33,742 In foreign currency

Corporate shares 32,732 28,034

Total equity instruments $ 64,231 61,776

(1) The change pertains primarily to the reduction from loss of control of Corporación Financiera Colombiana S.A.

71



(Continued)

The following is a breakdown of the main equity instruments through other comprehensive income.

Entity

December 31, 2016

June 30, 2016

Bolsa de Valores $ 87

1,733

Depósito Central de Valores - DECEVAL S.A

3,713

3,168

A.C.H. COLOMBIA S.A

21,194

18,217

Telered

12,543

12,201

Sociedad Portuaria Regional de Buenaventura S.A.

4,123

3,595

Transacciones Universales, S.A.

4,148

3,975

Others

18,423

18,887

Total $ 64,231

61,776

Collateral in Repo Operations

The following is a list of financial assets at fair value that are pledged as collateral in repo operations, as collateral in transactions with financial instruments, or pledged to third parties as collateral to secure financial obligations with other banks (See Note 24).

December 31, 2016

June 30, 2016

Pledged in money market operations

Issued or secured by foreign governments $ 212,956

51,091

Issued or secured by central banks

5,612

5,607

Subtotal

218,568

56,698

Pledged as collateral for financial obligations


0

38,039

Issued or secured by non-financial entities

0

61,835

Issued or secured by other Colombian government entities

0

135,555


0

128,664

Others

0

38,538

Subtotal

0

402,631

Total $ 0

459,329

The following is a breakdown of the credit ratings determined by independent credit-rating agencies for the principal counterparties in debt securities and investments in equity instruments. Debt securities

December 31, 2016

June 30, 2016

Speculative $ 1,915,494

1,813,589

Investment grade

2,806,591

3,232,452

No rated or rating not available

156,671

92,005

Total $ 4,878,756

5,138,046

Equity securities

December 31, 2016

June 30, 2016

Speculative $ 0

5,548

Investment grade

1,314,143

1,102,230

No rated or rating not available

37,194

54,532

Total $ 1,351,337

1,162,310

72



(Continued)

Time Bands for Investments at Fair Value

December 31,

2016 June 30, 2016

Up to 1 month $ 297,265

103,286 Over 1 month and not more than 3 months

188,186

197,992

Over 3 months and not more than 1 year

1,084,953

1,053,346 Over 1 year and not more than 5 years

2,842,573

3,198,090

Over 5 years and not more than 10 years

447,469

582,652 Over 10 years

18,310

2,680

General total $ 4,878,756

5,138,046

Fundamentally, the changes in fair value reflect changes in market conditions, largely because of variations in interest rates and other economic conditions within the country where the investment is held. In the opinion of the Group, the fair value of financial assets reflected no significant losses at December 31 and June 30, 2016 due to credit risk impairment.

An analysis of sensitivity to changes in interest rates on financial assets at fair value is disclosed in Note 5. Information on investments at fair value with related parties is disclosed in Note 36. Financial assets in equity instruments at fair value with adjustment to other comprehensive income have been designated in view of the fact that they are strategic investments for the Group. As such, they are not expected to be sold in the near future and imply a greater degree of uncertainty when it comes to determining their fair value. This uncertainty generates significant fluctuations from one period to another. As for dividends on these investments, $52 were recognized in the statement of income for the period ended at December 31, 2016 ($1,727 for the period ended at June 30, 2016). Moreover, no accumulated profits from the sale of those investments were transferred from the OCI account during that period.

9.2 At Amortized Cost

The balance of financial assets at amortized cost at December 31 and June 30, 2016 includes the following.

December 31,

2016 June 30, 2016

Debt securities

In Colombian pesos

Issued or secured by the Colombian government $ 2,632,171

2,955,072

Issued or secured by other Colombian government agencies 1,231,025

1,037,664

Issued or secured by other financial institutions 133,085

84,968

3,996,281

4,077,704

Debt securities

In foreign currency

Issued or secured by central banks 200,935

0

Issued or secured by foreign governments 203,597

658,248

Issued or secured by non-financial entities 703,069

857,175

Issued or secured by other Colombian government agencies 426,705

366,253

Issued or secured by other financial institutions 790,422

323,943

Others 57,117

50,122

2,381,845

2,255,741

Total debt securities $ 6,378,126

6,333,445

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(Continued)

Collateral Pledged in Repo Operations

The following summary includes financial assets at amortized cost that are pledged as collateral in repo operations, those delivered to secure transactions with financial instruments, or those pledged to third parties as collateral to secure financial obligations with other banks (See Note 24).

December 31, 2016

June 30, 2016

Pledged in money market operations

Issued or secured by foreign governments $ 137,507

43,162


752,474

1,565,211


0

8,768

889,981

1,617,141

Pledged as collateral in derivative operations


0

72,769

0

72,769

Pledged as collateral for financial obligations

Issued or secured by non-financial entities

0

366,253

Issued or secured by foreign governments

0

52,951

Issued or secured by the Colombian government 0 102,695


0

267,990

0

789,889

$ 889,981

2,479,799

Credit Rating

The credit ratings determined by independent rating agencies for the principal counterparties in debt securities in which the Group hold financial assets at amortized cost breakdown as follows:

December 31, 2016

June 30, 2016

Speculative $ 1,410,890

1,793,337

Investment grade

4,817,732

4,491,197

No rating or rating not available

149,504

34,850

Default – Bankruptcy law 0 14,061

Total general $ 6,378,126

6,333,445

Time Bands of Investments at Amortized Cost

December 31, 2016

June 30, 2016

Up to 1 month $ 562,654

377,014

More than 1 month but not more than 3 months

149,126

213,552

More than 3 months but not more than 1 year

1,497,477

1,491,467

More than 1 year but not more than 5 years

2,592,752

2,500,352

More than 5 years but not more than 10 years

1,345,293

1,524,457

More than 10 years

230,824

226,603

Total general $ 6,378,126

6,333,445

74



(Continued)

NOTE 10 - Financial Derivatives

10.1 Financial Derivatives for Trading

The fair value of forwards, futures and interest-rate and foreign currency swaps to which the Group is committed during periods in question are shown in the table below.

December 31, 2016

June 30, 2016

Notional amount

Fair value

Notional amount

Fair value

Derivative assets

Forward contracts

Foreign currency purchase $ 2,427,873

70,673

1,041,164

74,039

Foreign currency sale (4,642,900)

104,676

(5,490,136)

251,090

(2,215,027)

175,349

(4,448,972)

325,129

Swaps

Foreign currency 235,742

30,553

199,792

32,990

Interest rate

4,710,567

31,592

2,719,453

64,249

4,946,309

62,145

2,919,245

97,239

Futures (2)

Currency purchase 1,068,253

0

416,105

0

Currency sale (1,197,283)

0

(755,440)

0

(129,030)

0

(339,335)

0

Options

Currency purchase options 739,512 15,544 465,506 15,380

Interest rate purchase options 31,550 152 0 0

771,062 15,696 465,506 15,380

Total derivative assets 3,373,314

253,190

(1,403,556)

437,748


Forward contracts (1)

Foreign currency purchase (4,687,892)

124,117

(5,301,152)

201,814

Foreign currency sale 1,980,336

19,110

689,068

14,221

(2,707,556)

143,227

(4,612,084)

216,035

Swaps

Foreign currency 612,663

147,990

361,141

147,141

Interest rate

3,103,406

18,503

2,449,973

58,891

3,716,069

166,493

2,811,114

206,032

Futures (2)

Currency purchase (1,994,104)

0

(2,071,738)

0

Currency sale

408,997

0

168,281

0

(1,585,107)

0

(1,903,457)

0

Options

Currency sale options 556,310 19,607 249,443 12,606

556,310 19,607 249,443 12,606

Total derivatives liabilities (20,284)

329,327

(3,454,984)

434,673

Net position $ 3,393,598

(76,137)

2,051,428

3,075

(1) The main change in the speculative portfolios pertains solely to the strategic management of each portfolio due conditions created in the market by trading with respect to variations and high fluctuations in the representative market rate of exchange (TRM) and/or interest rates.

(2) With derivatives of this type, gains and losses are settled daily. The Central Counterparty Clearing House (CRCC) reports the results of settlement by the parties, then debits or credits the losses or gains that are made. This is done on a daily basis. In the case of futures, the dollar / peso exchange rate at contract maturity is settled against the underlying price (TRM) published on the last trading day.

Since futures are cleared and settled daily, the value of the obligation is equal to the value of the right. These values are updated daily, according to the market price of the respective future, and the effect on profit and loss is equivalent to the change in the fair price of the future.

75



(Continued)

Financial derivatives contracted by the Group are traded in off-shore markets and in the domestic financial market. The fair value of derivatives varies positively or negatively as a result of fluctuations in foreign exchange rates, interest rates or other risk factors, depending on the type of instrument and the underlying asset. The Group had obligations at December 31, 2016 to deliver financial assets in debt securities or foreign currency at a fair value of $253,190 and to receive financial assets or foreign currency at a fair value of $329,327.

10.2 Financial Derivatives for Hedging

The financial derivatives used for hedging at December 31 and June 30, 2016 include the following:

December 31, 2016

June 30, 2016

Notional amount

Fair value

Notional amount

Fair value

Derivative assets

Forward contracts

Foreign currency purchase $ 474,412

3,914

366,336

884 Foreign currency sale

(3,426,811)

115,764

(3,888,121)

399,505

Sale of securities

(307,003)

3,340

(226,107)

5,849

(3,259,402)

123,018

(3,747,892)

406,238

Forward contracts

Purchase of securities

150,036

0

8,757

0 Sale of securities

(973,730)

0

(1,577,725)

0

(823,694)

0

(1,568,968)

0

Total derivative assets

(4,083,096)

123,018

(5,316,860)

406,238


Forward contracts

Foreign currency purchase

(954,226)

27,788

(1,517,009)

79,916 Foreign currency sale

1,359,322

13,808

411,580

10,932

Sale of securities

757,628

2,840

971,090

14,138

1,162,724

44,436

(134,339)

104,986

Futures contracts (1)

Foreign purchase of currency

(363,086)

0

(457,117)

0 Foreign sale of currency 190,545 0 0 0

(172,541)

0

(457,117)

0

Total derivative liabilities

990,183

44,436

(591,456)

104,986

Net position $ (5,073,279)

78,582

(4,725,404)

301,252

(1) Profits and losses are settled daily for derivatives of this type. The Central Counterparty Clearing House (CRCC) reports the results of the trade to the parties and then debits or credits the gains made or the losses incurred.

In the case of dollar / peso currency futures, when the contract matures, settlement is made against the underlying price (TRM) published on the last day of trading.

Inasmuch as futures are cleared and settled daily, the value of the obligation is equal to the value of the right. These values are updated every day, according to the market price for the respective future, and the effect on profit and loss is equivalent to the change in fair value of the currency future.

76



(Continued)

The following is a breakdown of the credit ratings determined by independent rating agencies for the principal counterparties in derivative assets.

Credit Rating

December 31, 2016

June 30, 2016

Investment grade $ 364,293

813,830 Speculative

248

128

No rating or rating not available

11,667

30,028

Total $ 376,208

843,986

10.3 Derivatives Guarantees The following shows the nominal amounts of the derivatives delivered or received as collateral.

Type of collateral

December 31, 2016

June 30, 2016

Cash

Delivered $ 69,556

39,874 Received

20,375

76,486

Financial Instrument Delivered

0

5 Received

0

127

Total $ 89,931

116,492

10.4 Hegde Accounting Banco de Bogota has decided to use hedge accounting for its investments in foreign subsidiaries and agencies, doing so with non-derivative instruments (obligations in foreign currency) and with derivative operations such as those defined in paragraphs 72 and 78 of IAS 39.

These operations are intended to protect the Bank against the exchange risk (dollar/peso) in the structural positions of its subsidiaries and agencies abroad, which are denominated in US dollars.

At maturity, the hedging instruments are renewed successively, so as to comply with the strategy of reducing the rate risk the Bank might have to a specific period.

Foreign exchange gains or losses on the investment in subsidiaries or the exchange gains or losses that are not completely eliminated in the consolidation with foreign branches are recorded in other comprehensive income (ORI).

Hedging Instruments

Non-derivatives: According to paragraph 72 of IAS 39, a financial asset or liability that is not a derivative may be designated as a hedging instrument only to hedge a risk in foreign currency. By the same token, a portion of a complete instrument for hedging, such as 50% of the notional amount, may be designated as a hedging instrument in a hedging relationship.

For this reason, external debt operations are susceptible to being designated as hedges against the investment in subsidiaries and agencies abroad. The effects of variations in the peso/ US dollar exchange rate generated by debt in US dollars designated for hedging are recorded under “other comprehensive income”.

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(Continued)

Derivatives: The Bank uses financial derivatives (dollar – peso forwards) to cover the remaining amount of the balance of net foreign investment not covered by non-derivative instruments (debt). The idea is afford as much protection as possible against the spot effect of the net investments in subsidiaries and agencies abroad, which are expressed in dollars.

Derivative operations are valued daily, indicating the result attributable to the exchange risk. Also, the effect of the change in the exchange rate is determined daily on the portion of the net investment abroad that is hedged with derivative operations. In this way, the effectiveness of the hedging relationship that is established daily is calculated retrospectively from one day to the next.

Measuring Effectiveness and Ineffectivenes

A hedge is considered effective if, at the beginning of the period and in subsequent periods, the changes in the fair value or in the cash flows attributable to the hedged risk during the period for which the hedge has been designated are offset and effectiveness of the hedge is in a range of 80% to 125%.

The Group has documented the tests of the effectiveness of hedging its net foreign currency investments and the fair value at December 31 and June 30, 2016. These are considered effective, since the critical terms and risks of the obligations that serve as hedging instruments are identical to those of the primary hedged position. 10.4.1 Hedging Net Investments in Foreign Currency The assets and liabilities of the hedging strategy are converted from dollars to the functional currency of the Bank at the representative market rate certified daily by the “Superintendencia Financiera de Colombia”, which generates a gain or loss on exchange difference. The variation in the fluctuation of the Colombian peso against the US dollar is shown below.

Date Value of US 1.00 Variation

December 31, 2015 3,149.47

June 30, 2016 2,919.01 (230.46)

December 31, 2016 3,000.71 81.7

According to the foregoing, the hedge on these investments, before taxes, breaks down as follows.

December 31, 2016

Millions of US dollars Millions of Colombian pesos

Detail of Investment

Value of the

investment

Nominal

value

Value of the

hedge in foreign

currency obligations

Value of hedging with forward and futures contracts

Adjustment for

conversion of the

financial statements

Exchange

difference in foreign


Exchange

difference in forward and

futures contracts

Net

Assets Liabilities


$ 3,437

2,868

(2,074)

(1,240)

(107)

3,115,527

(931,288)

(2,171,234)

13,005

Other subsidiaries and agencies Banco de Bogotá (1)

101

81

0

(72)

(28)

94,139

0

(91,517)

2,622

Total $ 3,538

2,949

(2,074)

(1,312) (135)

3,209,666

(931,288)

(2,262,751)

15,627

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(Continued)

June 30, 2016

Millions of US dollars Millions of Colombian pesos

Detail of Investment

Value of the

investment

Nominal

value

Value of the

hedge in foreign


Value of hedging with forward and futures contracts

Adjustment for

conversion of the

financial statements

Exchange

difference in foreign


Exchange

difference in forward and

futures contracts

Net

Assets

Liabilities


$ 3,312

2,868

(2,074)

(1,545)

314

2,844,562

(761,834)

(2,071,813)

10,915

Other subsidiaries and agencies Banco de Bogotá (1)

95

81

0

0

(93)

86,242

0

(83,347)

2,895

Total $ 3,407

2,949

(2,074)

(1,545)

221

2,930,804

(761,834)

(2,155,160)

13,810

(1) Includes Banco de Bogotá Panamá, Banco Bogotá Finance, Ficentro and investment in the foreign branches in Miami, New York and Nassau.

Hedging with Forwards Contracts

As of January 1, 2014, forward sale contracts in US dollars were formally designated as hedging instruments for part of the net foreign investment of Leasing Bogotá Panama and the foreign subsidiaries of Banco de Bogotá. The forward contracts were signed with other financial sector counterparts and subsequently documented as a "hedging strategy" through which new forward contracts are entered into simultaneously when the previous ones expire.

Hedging with Financial Liabilities in Foreign Currency in US Dollars

According to IAS 39, non-derivative financial debt instruments may be designated to hedge the risk of changes in the foreign exchange rate. This being the case, the Bank proceeded to designate debt securities as instruments to hedge its net investments abroad, doing so as follows:

Bonds issued by the Bank on international markets under regulation 144A in December 2011, maturing on January 15, 2017, were designated to hedge the net investment in Leasing Bogotá Panama for US $ 595.

Bonds issued by the Bank on international markets under regulation 144A in February 2013, maturing in February 2023, were designated to hedge the net investment in Leasing Bogotá Panama for US $ 398.

In May 2016, the Bank issued $600 million in bonds on international markets under regulation 144A. They were designated immediately to hedge Leasing Bogotá Panama’s investment of US $ 581 to replace forward positions.

In November 2016, the Bank issued $500 in bonds on international markets under regulation 144A. They were designated immediately to hedge Leasing Bogotá Panama's investment.

79



(Continued)

10.4.2 Fair Value Hegding Leasing Bogotá Panamá uses forwards on securities to mitigate exposure to changes in the market value of fixed-income bonds. These forward operations are non-standardized derivatives carried out with related parties to sell a specific quantity of a particular security on a future date, establishing the conclusion date, the price and the mode of delivery. The instrument is settled on the date of compliance by settling the differences. In this way, Leasing Bogotá Panama generates a profit on the portfolio at the purchase rate, by mitigating the exposure generated by changes in the price of the bonds that comprise it.

The following tables shows the gains or losses for current hedges and the ítems currently hedged.

December 31, 2016

Fair value hedge

Notional value of hedged

investment

Book value of hedged

investment Change in fair value

Accumulated earnings

Item in the statement of

financial position

Assets

Liabilities

Hedging instrument - Forward contract – sale of securities

$ 1,064,631

3,340

(2,840)

500

(68,983)

Other assets at fair value with changes in earnings/other liabilities

Hedging instrument - Government and corporate bonds

$ 0

948,538

0

(838)

71,951

Investments available for sale

June 30, 2016

Fair value hedge

Notional value of hedged

investment

Book value of hedged

investment Change in fair value

Accumulated earnings

Item in the statement of

financial position

Assets

Liabilities

Hedging instrument - Forward contract – sale of securities

$ 1,197,722

5,849

(14,138)

(8,289)

(75,484)

Other assets at fair value with changes in earnings/other liabilities

Hedging instrument - Government and corporate bonds

$ 0

1,036,121

0

8,029

74,762

Investments available for sale

NOTE 11 - Loan Portfolio and Financial Leasing at Amortized Cost The balance sheet account listing financial assets in the loan portfolio, at amortized cost, is classified according to commercial loans, consumer loans, home mortgages and microcredit. This is the same classification the Financial Superintendence of Colombia uses in the new Single Catalogue of Financial Information (CUIF). However, given the importance of capital leases at the Group level and for disclosure purposes, these loans are listed separately in all the tables in the notes on credit risk and in this note, as per the following reclassification:

December 31, 2016

Type of loan

Balance on the balance sheet

Leasing reclassification

Balance according to the disclosure

Commercial $ 61,375,603 (3,530,151) 57,845,452

Consumer

26,364,834 (200,135) 26,164,699

Mortgage

11,411,148 (309,349) 11,101,799

80



(Continued)

December 31, 2016

Type of loan




Microcredit

389,709 0 389,709

Financial leasing

0 4,039,635 4,039,635

Total loan portfolio $ 99,541,294 0 99,541,294

June 30, 2016

Type of loan




Commercial $ 58,954,215 (3,449,020) 55,505,195

Consumer

23,925,116 (182,639) 23,742,477

Mortgage

10,516,118 (263,579) 10,252,539

Microcredit

382,568 0 382,568

Financial leasing

0 3,895,238 3,895,238

Total loan portfolio $ 93,778,017 0 93,778,017

The following is a breakdown of the portfolio, according to the different credit lines:

December 31,

2016 June 30, 2016

Ordinary loans $ 66,312,170

61,117,160 Home mortgages

11,040,261

10,196,544

Credit cards

10,413,841

9,292,420 Leased out real estate

2,225,408

2,097,239

Loans to micro-businesses and SMEs

1,983,898

1,845,113 Leased out movables

1,814,227

1,797,999

Others

1,790,205

3,556,363 Loans with resources from other entities

1,528,692

1,588,281

Loans to builders

908,769

821,286 Bank overdrafts in checking accounts

491,486

457,654

Micro-credit

389,709

382,718 Reimbursements, in advance

244,152

233,465

Discounts

207,844

172,029 Letters of credit, covered

99,403

112,481

Employee loans

65,882

78,201 Non-resource factoring

25,347

29,064

Total gross loan portfolio

99,541,294

93,778,017

Impairment of financial assets in the loan portfolio

(2,371,774)

(2,143,765)

Total $ 97,169,520

91,634,252

Loan Portfolio, by Type of Risk

The loan portfolio is classified by risk, as follows:

Risk Rating December 31,

2016 June 30, 2016

Commercial

“A” Normal risk $ 54,313,626

52,278,538

“B” Acceptable risk 1,356,819

1,576,170

“C” Appreciable risk 1,411,470

997,167

“D” Significant risk 473,567

402,850

“E” Risk of Being Uncollectible 289,970

250,470

57,845,452 55,505,195

Consumer

“A” Normal risk 23,740,528

21,607,061

“B” Acceptable risk 881,806

758,180

81



(Continued)

Risk Rating December 31,

2016 June 30, 2016

“C” Appreciable risk 896,142

805,118


462,562


109,556

26,164,699 23,742,477

Mortgages “A” Normal risk 10,539,979 9,791,043

“B” Acceptable risk 202,936 181,602

“C” Appreciable risk 227,138 174,553

“D” Significant risk 54,204 40,114

“E” Risk of Being Uncollectible 77,542 65,227

11,101,799 10,252,539

Microcredit

“A” Normal risk 328,838

329,744


11,468


7,023


5,461


28,872

389,709 382,568

Financial leasing

“A” Normal risk 3,721,429

3,645,172


135,634


66,923


40,409


7,100

4,039,635 3,895,238

Total portfolio, by classification $ 99,541,294

93,778,017

11.1 Loans Assessed Individually and Collectively

The following is a breakdown of credit risk impairment losses at December 31 and June 30, 2016. It takes into account how they were determined: individually for loans above 2 billion and collectively for all others.

The impaired portfolio represents loans with associated credit risk, while the non-performing portfolio only considers the number of days overdue or customer default (without identifying if there is associated credit risk or not).

December 31, 2016

Commercial

Consumer

Home mortgage

Microcredit

Financial leasing

Total

Impairment

Individually assessed loans $ 459,267

47

827

0

33,398

493,539 Collectively assessed loans

670,523

1,041,708

55,849

61,824

48,331

1,878,235

Total impairment

1,129,790

1,041,755

56,676

61,824

81,729

2,371,774

Gross balance of financial assets in the loan portfolio Individually assessed loans (1)

31,625,230

68,361

5,922

0

2,005,761

33,705,274

Collectively assessed loans

26,220,222

26,096,338

11,095,877

389,709

2,033,874

65,836,020

Total financial assets in the loan portfolio

$ 57,845,452

26,164,699

11,101,799

389,709

4,039,635

99,541,294

82



(Continued)

June 30, 2016

Commercial

Consumer

Home mortgage

Microcredit

Financial leasing

Total

Impairment

Individually assessed loans $ 377,273 73 1118 0 20,762 399,226 Collectively assessed loans

648,716 951,559 43,298 53,305 47,661 1,744,539

Total impairment

1,025,989

951,632

44,416

53,305

68,423

2,143,765

Gross balance of financial assets in the loan portfolio Individually assessed loans (1)

30,886,307

67,222

5,992

0

1,949,239

32,908,760

Collectively assessed loans

24,618,888

23,675,255

10,246,547

382,568

1,945,999

60,869,257

Total financial assets in the loan portfolio

$ 55,505,195

23,742,477

10,252,539

382,568

3,895,238

93,778,017

(1) Includes all loans assessed individually at more than $2,000, regardless of whether the evaluation shows them as being impaired or unimpaired.

11.2 Activity in Loan Portfolio Impairment The following shows the activity in loan portfolio impairment during the six months ended at December 31 and June 30, 2016. December 31, 2016

Commercial

Consumer

Home mortgage

Microcredit

Financial leasing

Total

Opening balance $ 1,025,989

951,632

44,416

53,305

68,423

2,143,765 Write-offs during the period (70,334)

(608,223)

(13,076)

(10,978)

(2,160)

(704,771)

Impairment during the period 349,137

950,401

38,807

30,264

55,306

1,423,915 Recovery of impairment credited to income (172,986)

(190,313)

(12,114)

(10,767)

(39,890)

(426,070)

(Recovery) charged to allowances with offsetting entry in OCI for the period

(10,225)

(68,106)

(1,381)

240

365

(79,107)

Foreign exchange difference 8,209

6,364

24

(240)

(315)

14,042

Closing balance $ 1,129,790

1,041,755

56,676

61,824

81,729

2,371,774

June 30, 2016

Commercial

Consumer

Home mortgage

Microcredit

Financial leasing

Total

Opening balance $ 1,070,414

898,986

47,213

37,404

80,581

2,134,598 Write-offs during the period (298,044)

(552,158)

(16,750)

(2,654)

(2,681)

(872,287)

Impairment during the period 498,954

774,620

32,209

15,624

29,110

1,350,517 Recovery of impairment credited to income (232,238)

(158,343)

(11,932)

(3,434)

(18,498)

(424,445)

(Recovery) charged to allowances with offsetting entry in OCI for the period

27,626

12,346

1,166

1,137

1,771

44,046

Foreign exchange difference (21,296)

(23,818)

1,399

(3,660)

(3,000)

(50,375) Decline due to loss of control of Corporación Financiera Colombiana S.A.

(2,679)

(22,433)

0

0

(29,704)

(54,816)

Net movement of discontinued operations (16,748)

22,432

0

(1)

10,844

16,527

Closing balance $ 1,025,989

951,632

53,305

44,416

68,423

2,143,765

11.3 Loan Portfolio, by Maturity The following shows the distribution of the loan portfolio, by maturity.

December 31, 2016

Up to 1 year

Between 1 & 3 years

Between 3 & 5 years

More than 5 years

Total

Commercial $ 25,213,497 13,380,397 7,934,964 11,316,594 57,845,452 Consumer 10,545,839 5,344,551 4,327,782 5,946,527 26,164,699 Mortgages 118,588 297,438 358,839 10,326,934 11,101,799

83



(Continued)

December 31, 2016

Up to 1 year

Between 1 & 3 years

Between 3 & 5 years

More than 5 years

Total

Microcredit 165,741 201,119 18,993 3,856 389,709 Financial leasing 1,108,869 955,046 840,189 1,135,531 4,039,635

Total $ 37,152,534 20,178,551 13,480,767 28,729,442 99,541,294

June 30, 2016

Up to 1 year

Between 1 & 3 years

Between 3 & 5 years

More than 5 years

Total

Commercial $ 25,972,650 11,688,261 7,685,371 10,158,913 55,505,195 Consumer 9,420,804 4,872,012 4,053,784 5,395,877 23,742,477 Mortgages 104,178 246,790 320,895 9,580,676 10,252,539 Microcredit 168,458 199,020 14,824 266 382,568 Financial leasing 1,113,347 589,606 856,468 1,335,817 3,895,238

Total $ 36,779,437 17,595,689 12,931,342 26,471,549 93,778,017

11.4 Loan Portfolio, by Type of Currency

The following is a breakdown of the loan portfolio by type of currency.

December 31, 2016 June 30, 2016

Domestic

Foreign

Total Domestic

Foreign

Total

Commercial $ 31,278,768 26,566,684 57,845,452

31,724,546

23,780,649

55,505,195 Consumer 9,959,031 16,205,668 26,164,699

9,330,303

14,412,174

23,742,477

Mortgages 2,143,172 8,958,627 11,101,799

1,929,968

8,322,571

10,252,539 Microcredit 389,709 0 389,709

382,568

0

382,568

Financial leasing 3,144,706 894,929 4,039,635

2,939,799

955,439

3,895,238

Total loan portfolio $ 46,915,386 52,625,908 99,541,294

46,307,184

47,470,833

93,778,017

11.5 Unimpaired Loans in Arrears

The following is a breakdown of loans that are in arrears but not impaired.

December 31, 2016

Unimpaired loans that are current

From 1 to 30 days

From 31 to 60 days

From 61 to 90 days

Total customers in arrears but

not impaired

Impaired

Total loan portfolio

Commercial $ 56,225,129 624,926 83,456 60,991 769,373 850,950 57,845,452 Consumer 24,049,472 962,186 358,181 230,320 1,550,687 564,540 26,164,699 Mortgages 10,409,718 413,623 97,002 43,236 553,861 138,220 11,101,799 Microcredit 286,504 47,761 10,581 8,244 66,586 36,619 389,709 Financial leasing 3,796,734 148,713 11,383 8,915 169,011 73,890 4,039,635

Total $ 94,767,557 2,197,209 560,603 351,706 3,109,518 1,664,219 99,541,294

June 30, 2016

Unimpaired loans that are current

From 1 to 30 days

From 31 to 60 days

From 61 to 90 days

Total customers in arrears but

not impaired

Impaired

Total loan portfolio

Commercial $ 53,609,483 935,887 167,764 60,671 1,164,322 731,390 55,505,195 Consumer 21,568,391 1,086,322 363,853 227,917 1,678,092 495,994 23,742,477 Mortgages 9,612,882 407,829 78,643 36,280 522,752 116,905 10,252,539 Microcredit 281,607 52,794 10,795 6,872 70,461 30,500 382,568 Financial leasing 3,617,966 179,555 31,231 7,838 218,624 58,648 3,895,238

Total $ 88,690,329 2,662,387 652,286 339,578 3,654,251 1,433,437 93,778,017

84



(Continued)

11.6 Loans Assessed Individually The following is a breakdown of the loans assessed individually for impairment at December 31 and June 30, 2016.

December 31, 2016

Registered gross value

Collateral guarantees

Constituted impairment

No registered impairment

Commercial $ 62,361 62,361 0

Subtotal

62,361 62,361 0

With registered impairment

Commercial

2,056,058 164,225 459,267

Consumer

141 0 47 Mortgages

1,907 0 827

Financial leasing

114,731 17,234 33,398

Subtotal

2,172,837 181,459 493,539

Totals

Commercial

2,118,419 226,586 459,267

Consumer

141 0 47 Mortgages

1,907 0 827

Financial leasing

114,731 17,234 33,398

Total $ 2,235,198 243,820 493,539

June 30, 2016

Registered gross value

Collateral guarantees

Constituted impairment

No registered impairment

Commercial $ 58,424 58,424 0

Subtotal

58,424 58,424 0

With registered impairment

Commercial

1,583,525 230,968 377,273

Consumer

156 0 73 Mortgages

2,334 0 1,118

Financial leasing

117,731 0 20,762

Subtotal

1,703,746 230,968 399,226

Totals

Commercial

1,641,949 289,392 377,273

Consumer

156 0 73 Mortgages

2,334 0 1,118

Financial leasing

117,731 0 20,762

Total $ 1,762,170 289,392 399,226

11.7 Loan Portfolio, by Economic Sector The loan portfolio, by economic sector, breaks down as follows. December 31, 2016 June 30, 2016

Total %Share Total

% Share

Sector Consumer services $ 41,059,921

41%

39,122,028

42%

Commercial services 24,751,458

25%

22,416,087

24%

Food, beverages and tobacco 5,704,971

6%

4,891,718

5%

Transportation and communications 5,400,917

5%

5,404,645

6%

Construction 4,814,715

5%

4,709,271

5%

Public utilities 3,881,274

4%

3,933,244

4%

Chemical products 3,801,557

4%

3,455,662

4%

Other industrial and manufactured products 2,930,953

3%

2,888,388

3%

85



(Continued)

December 31, 2016 June 30, 2016

Total %Share Total

% Share

Agriculture 2,729,642

3%

2,612,467

3%

Government 1,288,826

1%

1,265,341

1%

Mining and petroleum products 1,186,809

1%

1,283,416

1%

Commerce and tourism 1,092,308

1%

914,921

1%

Others 897,943

1%

880,829

1%

Total $ 99,541,294

100%

93,778,017

100%

11.8 Loan Portfolio, According to the Debtor’s Geographic Location

The following is a breakdown of the loan portfolio, according to the borrower’s geographic location

December 31, 2016

Commercial

Consumer

Mortgages

Microcredit

Financial leasing

Total

Colombia $ 33,579,269 9,976,548 2,143,172 389,709 3,208,101 49,296,799 Panama

5,293,927 4,650,419 2,067,375 0 127,976 12,139,697

United States

4,208,268 306 16 0 0 4,208,590 Other countries

14,763,988 11,537,426 6,891,236 0 703,558 33,896,208

Total $ 57,845,452 26,164,699 11,101,799 389,709 4,039,635 99,541,294

June 30, 2016

Commercial

Consumer

Mortgages

Microcredit

Financial leasing

Total

Colombia $ 33,835,809 9,346,077 1,929,969 382,568 3,118,912 48,613,335 Panama

4,490,705 4,157,705 1,862,544 0 123,592 10,634,546

United States

3,662,643 370 18 0 0 3,663,031 Other countries

13,516,038 10,238,325 6,460,008 0 652,734 30,867,105

Total $ 55,505,195 23,742,477 10,252,539 382,568 3,895,238 93,778,017

11.9 Loan Portfolio, by Type of Collateral The following is a breakdown of the loan portfolio at December 31 and June 30, 2016 according to the type of collateral.

December 31, 2016

Commercial

Consumer

Mortgages

Microcredit

Financial leasing

Total

Unsecured loans $ 34,009,359 21,623,086 202,634 268,464 0 56,103,543 Loans with collateral: Mortgages 3,332,207 57,723 10,448,930 6,337 105,490 13,950,687 Other real estate 7,877,471 940,596 0 0 776,891 9,594,958 Deposits in cash or cash equivalents 2,489,520 182,101 22,159 113,269 7,170 2,814,219 Other assets 10,136,895 3,361,193 428,076 1,639 3,150,084 17,077,887

Total $ 57,845,452 26,164,699 11,101,799 389,709 4,039,635 99,541,294

June 30, 2016

Commercial

Consumer

Mortgages

Microcredit

Financial leasing

Total

Unsecured loans $ 33,144,228 19,616,212 952 262,121 0 53,023,513 Loans with collateral: Mortgages 2,981,624 54,689 9,778,183 6,980 87,990 12,909,466 Other real estate 7,487,550 806,085 0 0 694,891 8,988,526 Deposits in cash or cash equivalents 2,180,069 152,943 7,058 111,975 7,920 2,459,965 Other assets 9,711,724 3,112,548 466,346 1,492 3,104,437 16,396,547

Total $ 55,505,195 23,742,477 10,252,539 382,568 3,895,238 93,778,017

86



(Continued)

11.10 Financial Leasing Portfolio

The following is the reconciliation at December 31 and June 30, 2016 between gross investment in financial leasing and the present value of the minimum payments receivable on those dates.

Financial leasing agreements

December 31, 2016

June 30, 2016

Gross investment in financial leasing agreements

7,441,527 4,915,610 Less unrealized financial income

(3,401,892) (1,020,372)

Net investment in financial leasing agreements $ 4,039,635 3,895,238

Allowance for net impairment of investment in financial leasing agreements

(81,729) (68,423)

11.11 Financial Leasing Portfolio, by Maturity

The following is a breakdown of gross investment and net investment in financial leasing agreements receivable at December 31 and June 30, 2016:

December 31, 2016

June 30, 2016

Gross

investment Net

investment

Gross investment

Net investment

Under 1 year $ 813,637 811,963

784,146

753,027 Between 1 and 5 years

1,921,238 1,736,372

1,845,872

1,662,511

More than 5 years

4,706,652 1,491,300

2,285,592

1,479,700

Total $ 7,441,527 4,039,635

4,915,610

3,895,238

The Group grants loans in the form of financial leases to finance machinery and equipment, computer equipment, real estate, furniture and fixtures, vehicles and ships, trains and aircraft. In these cases, the amount of financing generally ranges between a maximum of 100% of the value of the property in the case of new assets to 70% for used assets. The life of these loans varies from a maximum of 120 months to a minimum of 24 months for those who have tax benefits. The option to buy, in most cases, involves a maximum of 20% of the value of asset and a minimum of 1% in the specific case of furniture and fixtures.

NOTE 12 - Other Accounts Receivable

Other accounts receivable include the following:

December 31, 2016

June 30, 2016

Fees, services and advances $ 272,488

16,383 Compensation - Credibanco 244,505

115,215

Forward compliance 168,880

237,451 Electronic transfers in process 166,153

76,589

Commissions 123,773

51,968 Transfer to ICETEX of balances declared abandoned 104,540

0

Collateral deposits (1) 102,038

111,779 Expenses paid in advance 62,474

110,970

Sale of goods and services

36,962

42,592 Transfers to the Colombian Dept. of the Treasury 33,589

32,568

Storage services 30,087

27,990 Advances on contracts and to suppliers 21,589

99,448

Managed pension funds 17,283

23,746 Accounts receivable from insurance companies 16,459

39,476

Dividends and ownership interest 12,260

18,239 Seller/buyer commitments 9,255

19,008

Monthly pension benefits 7,622

12,882 Deductible taxes, advances and withholding 7,393

66,220

Savings account shortfalls 5,388

4,906

87



(Continued)

December 31, 2016

June 30, 2016

Others 91,315

87,570

Subtotal 1,534,053

1,195,000

Impairment from other accounts receivable (70,050)

(79,028)

Total (2) $ 1,464,003

1,115,972

(1) Guarantee deposits for margin calls on derivatives with off-shore foreign counterparts came to $69,556 and $74.406 at December 31 and June 30, 2016.

The following is a breakdown of impairment activity at December 31 and June 30, 2016:

December 31, 2016

June 30, 2016

Balances at June 30, 2016 $ 79,028

170,646

Impairment

24,816

12,179 Write-offs and forgiveness

(21,013)

(974)

Recoveries

(14,008)

(12,550) Exchange difference

520

(394)

Deconsolidation (Loss of Control) of subsidiaries

(2,145)

(90,797) Net movement from discontinued operations

0

918

Reclassifications (1)

2,852

0

Balance at December 31, 2016 $ 70,050

79,028

(1) Reclassification, according to conciliatory items registered by Porvenir as less cash value.

NOTE 13 - Non-current Assets Held for Sale

Non-current assets held for sale consist mainly of property received through foreclosure. The Group intends to sell these assets immediately, and it has special departments, processes and sales programs for that purpose. Foreclosed assets are sold for cash, or financing for their sale is provided to potential buyers on normal market terms. These assets are expected to be sold within a period of 12 months subsequent to their classification as held-for-sale assets. In fact, options already exist for some foreclosed properties. Information on assets received through foreclosure and sold during the period is provided in Note 6 on credit risk. There were no changes in plans for the disposal of non-current assets held for sale during the six months ended at December 31 and June 30, 2016.

The following is a breakdown of non-current assets held for sale:

December 31, 2016

Cost Impairment

Total

Foreclosed assets

Movable assets $ 105,616

(3,888)

101,728

Residential real estate

55,206

(18,838)

36,368 Non-residential real estate

45,014

(6,934)

38,080

205,836

(29,660)

176,176

Returned leased assets

Machinery and equipment

159

0

159 Vehicles

513

(108)

405

Property

27,208

0

27,208

27,880

(108)

27,772

Other non-current assets held for sale

Property

6,759

0

6,759

6,759

0

6,759

Total $ 240,475

(29,768)

210,707

88



(Continued)

June 30, 2016

Cost Impairment

Total

Foreclosed assets

Movable assets $ 29,356

(1,497)

27,859

Residential real estate

61,371

(17,907)

43,464 Non-residential real estate

43,932

(11,493)

32,439

134,659

(30,897)

103,762


Machinery and equipment

383

0

383 Vehicles

962

(261)

701

Property

1,384

0

1,384

2,729

(261)

2,468

Other non-current assets held for sale

Property

11,087

0

11,087

11,087

0

11,087

Total $ 148,475

(31,158)

117,317

The following is a breakdown of activity in non-current assets held for sale during the six months ended at December 31 and June 30, 2016:


Balances at December 31, 2015 $ 256,500

Increases through additions during the period 42,281 Cost of assets sold, net (74,217) Reclassifications (1) (3,174) Exchange difference (14,496) Decline due to loss of control of Corporación Financiera Colombiana S.A (37,502) Net movement from discontinued operations (20,917)

Balances at June 30, 2016 148,475

Increases through additions during the period 155,222 Cost of assets sold, net (40,781) Changes in measurement of fair value (16,678) Writte-offs (4,226) Reclassifications (1) (6,396) Exchange difference 4,859


(1) Pertains to the following transfers: $1,006 to investments, $970 to other assets and $1,198 to investment properties. (2) Pertains to the following transfers: $23,457 from property, plant and equipment, $14,029 to property, plant and equipment, $262 to other assets and

$15,562 to property, plant and equipment.

The following shows the activity in impairment of foreclosed assets:

Foreclosed assets


Total

Balances at December 31, 2015 57,389 230 57,619

Impairment charged to expenses 5,880 203 6,083 Impairment used in sales (28,654) (153) (28,807) Exchange difference (3,718) (19) (3,737)

Balances at June 30, 2016 $ 30,897

261

31,158

Impairment charged to expenses

11,635

43

11,678 Impairment used in sales (8,202) (327) (8,529) Written-off

(4,226)

0

(4,226)

Exchange difference

(444)

131

(313)

Balances at December 31, 2016

29,660

108

29,768

89



(Continued)

The following is a breakdown of the liabilities associated with assets held for sale.

December

31, 2016

June 30, 2016

Commercial accounts payable $ 13,884 10,452

Total $ 13,884 10,452

Marketing Plan The Bank takes the following steps to market non-current assets held for sale: • There is a sales force specialized in real estate. It promotes sales, provides the commercial areas with support in handling proposals, visits the regions on a regular basis to strengthen efforts to market property, supports the effort made to obtain an urban standard applicable to real estate, and takes part in committees to assess and monitor ongoing negotiations. • Real estate properties are visited regularly in an effort to keep the sales force and management familiar with the properties the Group has for sale. This approach makes it possible to identify the strengths of each property, its marketing potential and state of conservation, all of which allows for effective sales management. • Sales are promoted through advertisements in the major daily newspapers with nationwide circulation and in the Group’s real estate magazine. Pertinent information is sent directly to potential customers and a list of properties is published on the Bank’s website (www.bancodebogota.com.co).

NOTE 14 - Deconsolidation (Loss of Control) of Subsidiaries a. Casa de Bolsa S.A.

On December 22, 2016, the shareholder agreement subscribed in previous years was modified through which the Bank was exercising as controlling entity of Casa de Bolsa S.A., an entity that became an associate and Corficolombiana S.A. its new controlling entity. Pursuant to the specific deconsolidation (loss of control) requirements outlined in IFRS 10, the Bank recognized the following on the books due to the effect of loss of control of Casa de Bolsa S.A.: 1. The investment maintained by the Bank in Casa de Bolsa S.A. was recognized and measured at a fair

value of $7,770, represented in 3,551,919 shares valued at $2,187.78 (in Colombian pesos) per share, in accordance with IFRS 13.

2. The book value of $62,267 in assets, $31,460 in liabilities and $23,784 in non-controlling ownership interest was deregistered.

3. The resulting gain of $748 was recognized and entered on the statement of earnings for the period as a “Gain on deconsolidation (loss of control) of Casa de Bolsa S.A.

4. Other comprehensive income” ítems in the amount of $406 were reclassified under accumulated gains.

90



(Continued)

Pursuant to the above, the Group’s consolidated statement of financial position at December 31, 2016 does not include assets, liabilities or non-controlling interest in Casa de Bolsa S.A. The equity method to measure investment in an associate will be applied as of January 2017. b. Corporación Financiera Colombiana S.A. The agreement between shareholders signed by Banco de Bogota S.A., Banco de Occidente S.A., Banco Popular S.A. and Grupo Aval Acciones y Valores S.A., whereby the Bank exercised control over Corporación Financiera Colombiana S.A., was amended on June 21, 2016. Essentially, the strategic objective of that amendment was to focus the consolidated management of Banco de Bogotá (the Bank) on the financial business and to strengthen its capital structure. The amendment involved transferring direct control to Grupo Aval Acciones y Valores S.A. (the parent company) and keeping at least one member of the Bank on the Board of Directors of Corporacion Financiera Colombiana S.A. As a result of the amendment to the shareholders agreement, the Bank lost control of Corporación Financiera Colombiana S.A. and its investment became an investment in an associate. It still exercises significant influence, with decision-making power being limited to its 38.35% share of voting rights.

Pursuant to the specific requirements on deconsolidation (loss of control) outlined in IFRS 10, the Bank recognized the following on its books, due to the effect of the loss of control of Corporacion Financiera Colombiana S.A.

1. The investment maintained by the Bank in Corporación Financiera Colombia was recognized and measured at a fair value of $3,319,236. This amount is represented by 86,982,066 shares valued at $38,160 (Colombian pesos) per share, which is the price quoted on the Colombia Stock Exchange on June 30, 2016.

2. The following assets, liabilities and non-controlling interest related to Corporacion Financiera Colombiana S.A. were derecognized at a net value of $1,166,884:

Values according to the consolidated financial statements of Corporación Financiera Colombiana S.A. at June 30, 2016, net reciprocal operations

Total assets $ 18,839,116 Total liabilities (13,931,192) Total equity 4,907,924 Less: Non-controlling interest attributable to the owners of Corporación Financiera Colombiana S.A. (1,864,890)

Book value of the equity attributable to the owners of Corporación Financiera Colombiana S.A. 3,043,034

Less: Book value of the equity attributable to non-controlling ownership interest in Corporación Financiera Colombiana S.A., prior to loss of control

(1,876,150)

Book value of the equity of Corporación Financiera Colombiana S.A. attributable to the Bank, prior to loss of control

$ 1,166,884

3. The resulting gain of $2,179,602 was presented in the income statement for the period as a "Gain on deconsolidation (loss of control) of Corporacion Financiera Colombiana S,A." and was recognized and calculated as follows.

Fair value of the Bank’s ownership interest in Corporación Financiera Colombiana S.A. at June 30, 2016 $ 3,319,236 Less: book value of the Bank’s ownership interest in Corporación Financiera Colombiana S.A. (1,166,884)

Gain on loss of control of Corporación Financiera Colombiana S.A. measured at fair value. 2,152,352

Reclassification of items in other comprehensive income to income for the period (primarily, adjustment for conversion of the financial statements)

27,250

Total $ 2,179,602

In addition, $6,925 in “other comprehensive income” items were reclassified to retained earnings (mainly due to the measurement of financial instruments at fair value), pursuant to the applicable IFRS.

91



(Continued)

Accordingly, the Group’s consolidated financial position at June 30, 2016 does not include the assets, liabilities and non-controlling interest in Corporación Financiera Colombiana and Subsidiaries. The investment as associates was handled as indicated by the accounting policy on the equity method described in Note 2, paragraph 2.9, effective as of July 1, 2016. Consequently, the Group's share of the earnings registered for the period by Corporacion Financiera Colombiana was included, as of July 1, 2016 in the Group’s consolidated earnings on a single line, either as income or an expense, as the case may be, in accordance with the accounting policy on the equity method. The deconsolidation of Corporación Financiera Colombiana and Subsidiaries implied the discontinuation of an operating segment (see Note 7) and the presentation of discontinued operations as stipulated in IFRS 5 (see Note 15). NOTE 15 - Discontinued Operations

During the second half of 2016, the Group discontinued operations carried out through Casa de Bolsa S.A. and Credomatic de México S.A. Due to their materiality, the Group’s statements of earnings for the period, comprehensive income and cash flow have not been modified to present discontinued operations separately from continuing operations; However, relevant information on such transactions is provided below. a. Casa de Bolsa S.A.

As a result of the change in the shareholders agreement subscribed in past years (see Note 14), the Group has discontinued Casa de Bolsa S.A., which was presented in the "Other subsidiaries" segment (see Note 7). During the second half of 2016, earnings for the period were $284 and total comprehensive income was $ 600 ($2,804 and $ 4,751 during the first half of 2016). During the second half of 2016, it generated a net flow of $11,052 in operating activities, used a net flow of $1,182 in investment activities, and used a net flow of $4 in financing activities. During the first half of 2016, it used net flows of $5,991 in operating activities, $378 in investment activities and $11 in financing activities.

b. Credomatic de México S.A.

Credomatic de México S.A. de C.V., an indirect subsidiary of BAC Credomatic, entered into a agreement on December 16, 2016 for the sale of assets and liabilities with Banco Invex, S.A., a company domiciled in Mexico. Through that agreement, it will transfer its credit card portfolio in Mexico to the latter. The sale of Credomatic de México's portfolio is part of a strategy proposed by BAC International Bank Inc. to concentrate its presence in the banking and credit card business in Panama, Costa Rica, El Salvador, Nicaragua, Honduras and Guatemala. Credomatic de México, a credit card issuer (without a banking license), initiated its operations in that country in 2004 and has a net loan portfolio of provisions amounting to approximately US $49.2 million, which represents 0.4% of the total portfolio of the BAC Credomatic Group. Subject to obtaining the necessary regulatory authorizations, the transaction is expected to be finalized during the first half of 2017. The following are the balances at December 31, 2016 of the loan portfolio, subject to the transfer and total assets ans liabilities of Credomatic de México S.A.:

Assets

Cash $ 358

Deposits with banks

28,983

Investments and other assetsw

9,556

92



(Continued)

Loans

132,471

Other assets

3,685

Total assets

175,053

Liabilities

Financial obligations

69,476

Other liabilities

23,114

Total liabilities $ 92,590

The following table shows the comprehensive net loss incurred by Credomatic de México S.A. and its cash flows during the second half of 2016. Its operation has been discontinued.

Statement of Income

December 31,

2016 June 30, 2016

Income from interest and commissions: $ 23,559

23,676

Total income from interest and commissions

23,559

23,676

Interest expenses

2,699

2,368 Total interest expenses

2,699

2,368

Net income from interest and commissions

20,860

21,308

Loan loss provision

22,929

11,931

Net income from interest and commissions and other income, after provisions

(2,069)

9,377

Other income:

13,629

4,033

Total other income

13,629

4,033

General and administrative expenses:

47,566

29,244

Total general and administrative expenses

47,566

29,244

Profit before income tax

(36,006)

(15,834)

Less: Income tax

2,486

(220)

Net los son discontinued activities $ (38,492)

(15,614)

Statement of Comprehensive Income

December 31, 2016

June 30, 2016

Profits for previous years on discontinued operations $ (15,234)

(62,439) Other comprehensive income, net of taxes on discontinued operations

(466)

(599)

Comprehensive earnings on discontinued operations $ (15,700)

(63,038)

Cash Flows

December 31, 2016

June 30, 2016

Net flow from operating activities $ (21,245)

(27,295) Net flow from investment activities

(538)

(458)

Net flow from financing activities

37,509

22,184

Effect of exchange difference on cash and cash equivalents

2,206

5,066

Net decline in cash and cash equivalents

17,932

(503) Cash and cash equivalents at the start of the half year

11,408

11,910

Cash and cash equivalents at the end of the half year $ 29,341

11,408

93



(Continued)

c. Corporación Financiera Colombiana S.A.

At June 30, 2016 the Group has discontinued the "Corficol and Subsidiaries" segment (see Note 7). Therefore, the statements of income, comprehensive income and cash flows for the period have been modified to present discontinued operations separately from ongoing operations, pursuant to the requirements outlined in IFRS 5 and as presented below. The following are the details of discontinued operations at June 30, 2016. Statement of Income for the Period from Discontinued Operations Income

Interest $ 313,972

Sale of goods and services from companies in the non-financial sector

1,003,692

Other income

347,910

Total income

1,665,575

Expenses

Interest

421,864

Financial expenses, taxes, rates and operating expenses

276,807

Employee benefits

138,922

Others 2

178,515

Total expenses

1,016,107

Profit from discontinued operations, before income tax

649,467

Income tax from discontinued operations

196,170

Profit for the period from discontinued operations

453,297

Profit for the period from discontinued operations attributable to:

Shareholders of the controlling entity

258,577

Non-controlling interest

194,720

Profit for the period from discontinued operations $ 453,297

Earnings per basic and diluted share from discontinued operations (in pesos)

1,110.04

Statement of Comprehensive Income from Discontinued Operations Profit for the period from discontinued operations $ 453,297 Total comprehensive income from discontinued operations, net taxes

32,208

Total comprehensive income from discontinued operations $ 485,505

Statement of Cash Flows from Discontinued Operations Net flow from operating activities $ 579,604

Net flows from investment activities

(664,917)

Net flow from financing activities

37,026

Effect of the exchange difference on cash and cash equivalents

19,055

Net increase (decline) in cash and cash equivalents

(29,232)

Cash and cash equivalents at the start of the half-year period

837,275

Cash and cash equivalents at the end of the half year $ 808,043

94



(Continued)

NOTE 16 - Investments in Associates and Joint Ventures The following is a breakdown of investments in associate companies and joint ventures:

December 31, 2016

June 30, 2016

Name

% ownership interest

Book value

% ownership

interest

Book value

Associates

A Toda Hora S.A.

20%

1,520

20% $ 1,465 Pizano S.A. 17% 23,810 17% 25,730 Corporación Financiera Colombiana S.A 38% 3,309,077 38% 3,319,236 Casa de Bolsa S.A. 23% 7,452 0% 0

3,341,859

3,346,431

Joint Ventures

A Toda Hora S.A. (1)

25%

0

25%

1,384

0

$ 1,384

(1) An equity loss was reported as a result of $8,195 in payments charged to the ATH joint venture at the end of December 2016 for software maintenance, technology fees and the transport of securities. This implied cancelling out the balance of the investment and recognizing the respective liability.

All the associates and joint ventures listed above have their principal place of business in Colombia.

The following table shows the main corporate purpose of the Group’s associate companies and joint

ventures at December 31, 2016:

Associate and Joint

ventures Corporate Purpose

Principal place of

business

1 A Toda Hora S.A.

Manages low-value payment systems.

Bogotá - Colombia

2 Corporación Financiera Colombiana S.A.

Offers a broad portfolio of specialized products for private banking, investment banking, treasury operations and equity-income investments.

Bogotá - Colombia

3 Pizano S.A

Manufactures laminated wood products.

Barranquilla - Colombia

4 Casa de Bolsa S.A. Sociedad Comisionista de Bolsa (Intermediation by Valores y Administración de Fondos de Valores).

Bogotá - Colombia

The following are the changes in investments in associate companies and joint ventures during the six months ended at December 31 and June 30, 2016:

The activity in investments in associates breaks down as follows:

December 31, 2016

June 30, 2016

Opening balance for the period $ 3,346,431

628,124 Increase from deconsolidation of subsidiaries

6,704

1,381,039

Stake in income for the six months 14,443 97,849 Stake in other comprehensive income (1,946) (15,445) Profit from measurement at fair valur for loss of control 748 2,179,603 Dividends received

(24,521)

(29,226)

Decline due to loss of control of Corporación Financiera Colombiana S.A. 0 (887,006) Net movement from discontinued operations 0 (8,507)

Closing balance for the period $ 3,341,859

3,346,431

95



(Continued)

The following is the activity in investments in joint ventures:

December 31, 2016

June 30, 2016

Opening balance for the period $ 1,384

277,624 Stake in income for the six months

(1,972)

0

Decline due to loss of control of Corporación Financiera Colombiana S.A. 0 (345,554) Net movement from discontinued operations 0 72,194 Transfers 588 (2,880)

Closing balance for the period $ 0

1,384

There is no contingent liability for the Group’s interest in investments in associates and joint ventures.

The following is summarized financial information on investments in associate companies and joint ventures registered according to the equity method:

Investments in Associates

December 31, 2016

Assets

Liabilities

Equity

Income

Expenses Earnings

A Toda Hora $ 8,104 506 7,598 10,265 9,959 306 Corporación Financiera Colombiana S.A. 9,428,471 6,521,755 2,906,716 3,053,742 2,994,708 59,034 Pizano S.A. 267,431 139,094 128,337 78,410 89,557 (11,147) Casa de Bolsa S.A. 61,269 31,861 29,408 23,296 23,742 (446)

Total $ 9,765,275 6,693,216 3,072,059 3,165,713 3,117,966 47,747

June 30, 2016

Assets

Liabilities

Equity

Income

Expenses Earnings

A Toda Hora $ 8,122 796 7,326 5,072 5,038 34 Corporación Financiera Colombiana S.A. 10,118,618 7,198,526 2,920,092 4,319,765 4,070,344 249,421 Pizano S.A. 289,989 150,133 139,856 76,522 83,123 (6,601)

Total $ 10,416,729 7,349,455 3,067,274 4,401,359 4,158,505 242,854

Joint Ventures

December 31, 2016

Assets

Liabilities

Equity

Income

Expenses Earnings

A Toda Hora $ 39,515 41,828 (2,313) 172,990 174,432 (1,442)

Total $ 39,515 41,828 (2,313) 172,990 174,432 (1,442)

June 30, 2016

Assets

Liabilities

Equity

Income

Expenses Earnings

A Toda Hora $ 45,147 39,674 5,473 81,429 75,600 5,829

Total $ 45,147 39,674 5,473 81,429 75,600 5,829

NOTE 17 - Property, Plant and Equipment

The following is a breakdown of property, plant and equipment:

December 31, 2016

Cost

Accumulated depreciation

Impairment

Net

Land $ 402,718

0

0

402,718 Buildings and constructions

1,125,361

(280,917)

0

844,444

Moving machinery and equipment

14,986

(4,885)

(131)

9,970 Vehicles

31,065

(18,419)

0

12,646

Furniture, fixtures and office equipment

689,214

(443,453)

(12)

245,749

96



(Continued)

December 31, 2016

Cost


Impairment

Net

Computer equipment

1,102,106

(774,739)

0

327,367 Improvement to rental property

275,000

(143,671)

0

131,329

Ongoing construction

27,876

0

0

27,876

Total assets $ 3,668,326

(1,666,084)

(143)

2,002,099

June 30, 2016

Cost


Impairment

Net

Land $ 365,288

0

0


1,021,928

(250,344)

0

771,584


13,449

(4,464)

(131)

8,854 Vehicles

62,697

(27,796)

0

34,901


667,182

(419,055)

0

248,127 Computer equipment

1,044,266

(737,459)

0

306,807

Improvement to rental property

256,162

(131,509)

0

124,653 Ongoing construction

109,526

0

0

109,526


(1,570,627)

(131)

1,969,740

The following are details on activity in the cost of property, plant and equipment:

Balance at June

30, 2016

Exchange difference

Additions

Disposals

Reclassifications

(1)

Deconsolidation (loss of control) Casa de Bolsa

S.A

Balance at

December 31, 2016

Land $ 365,288

15,706

3,695

(433)

18,462

0


1,021,928

10,315

16,748

(1,632)

78,002

0

1,125,361


13,449

0

1,530

0

7

0

14,986 Vehicles

62,697

1,799

4,775

(3,773)

(34,352)

(81)

31,065


667,182

6,543

18,653

(9,097)

6,204

(271)

689,214

Computer equipment

1,044,266

10,865

87,646

(39,598)

1,512

(2,585)

1,102,106 Improvements to rental property

256,162

3,725

9,706

(5,998)

11,405

0

275,000


109,526

(23)

21,941

(2,877)

(100,691)

0

27,876


48,930

164,694

(63,408)

(19,451)

(2,937)

3,668,326

(1) Pertains to the following movement: $34,352 to assets held for sale, $14,029 from assets held for sale, $867 in reactivation of fully depreciated ítems, and 5$ in adjustments between cost and depreciation.

Balance at

December 31, 2015

Exchange difference

Additions

Disposals

Reclassificat

ions (2)

Deconsolidation (loss of

control) Corporación Financiera

Colombiana S.A

Net movement

from discontinued operations

Balance at June 30,

2016

Land $ 726,146

(19,150)

2,440

(313)

28

(351,756)

7,893


1,660,170

(20,573)

10,949

(2,251)

3,234

(571,802)

(57,799)

1,021,928


462,702

0

160

(15)

131

(487,381)

37,852

13,449

Vehicles

71,237

(5,171)

1,014

(2,067)

(504)

(1,899)

87

62,697 Furniture, fixtures and office equipment

710,937

(35,845)

25,786

(6,704)

(11,770)

(18,847)

3,625

667,182

Computer equipment

1,075,100

(55,439)

62,542

(8,811)

3,559

(35,892)

3,207

1,044,266 Networks, lines and cables

354,773

0

0

0

0

(358,479)

3,706

0

Gas pipelines

439,866

0

0

0

0

(440,229)

363

0 Improvements to rental property

266,858

(11,275)

6,130

(4,808)

230

(1,654)

681

256,162


303,434

(35,300)

27,174

(1,954)

(1,925)

(490,243)

308,340

109,526

Imports in progress

1,266

0

0

0

0

(1,325)

59

0


(182,753)

136,195

(26,923)

(7,017)

(2,759,507)

308,014 3,540,498

(2) These reclassifications pertain to the following movement: $ 2.726 from investment property, $ 318 from various items, $ 232 from the reactivation of fully depreciated assets and $10,293 from cost compensation and depreciation.

97



(Continued)

The following shows the activity in depreciation of property, plant and equipment:

Balance at June 30,

2016

Exchange difference

Depreciation

Withdrawals / Sale

Reclassications (1)


control) Casa de Bolsa S.A

Balance at

December 31, 2016

Buildings and constructions $

250,344

2,248

28,933

(608)

0

0

280,917


4,464

0

421

0

0

0

4,885

Vehicles

27,796

668

3,400

(2,469)

(10,895)

(81)


419,055

2,633

30,186

(8,154)

21

(288)

443,453

Computer equipment

737,459

5,657

64,823

(32,725)

846

(1,321)

774,739

Improvements to rental property

131,509

2,028

13,826

(3,697)

5

0

143,671

Total $ 1,570,627

13,234

141,589

(47,653)

(10,023)

(1,690)

1,666,084

(1) Pertains to the following movement: $867 in reactivation of fully depreciated ítems, $10,895 in transfers to assets held for sale, and $5 in adjustments between cost and depreciation.

Balance at

December 31, 2015

Exchange difference

Depreciation

Withdrawals / Sale

Reclassications (1)

Decline due to loss of control of

Corporación Financiera

Colombiana S.A.

Net discontinued operations

Balance at June

30, 2016

Buildings and constructions

$ 241,111

(12,255)

25,019

(506)

0

(25,380)

22,355

250,344


18,206

0

490

(16)

(287)

(79,512)

65,583

4,464

Vehicles

30,834

(1,901)

2,481

(1,344)

(504)

(35,825)

34,055


433,218

(24,492)

29,227

(6,120)

(9,395)

(6,035)

2,652

419,055

Computer equipment

729,589

(35,008)

56,896

(8,201)

248

(18,036)

11,971

737,459

Networks, lines and cables

32,740

0

0

0

0

(4,820)

(27,920)

0

Gas pipelines

104,028

0

0

0

0

(29,963)

(74,065)

0 Improvements to property of others

131,356

(10,545)

14,550

(3,658)

(123)

0

(71)

131,509

Total $ 1,721,082

(84,201)

128,663

(19,845)

(10,061)

(199,571)

34,560

1,570,627

(1) These reclassifications pertain to the following movement: $232 from reactivation of fully depreciated assets and $10,293 from cost compensation and depreciation.

The following is the activity in property, plant and equipment impairment.

Moving machinery and

equipment


Total

Balance at December 31, 2015 $ 752

0

752


73

0

73 Decline due to loss of control of Corporación Financiera Colombiana S.A

(694)

0

(694)

Balance at June 30, 2016

131

0

131


0

12

12


12

143

98



(Continued)

There were no restrictions on ownership of property, plant and equipment at December 31 and June 30, 2016.

A qualitative impairment analysis that took into account internal and external sources of information was done on December 31 and June 30, 2016. Based on those sources, it was determined that certain assets might be somewhat impaired. The Group then proceeded to calculate their recoverable value based on the fair value determined through a technical assessment done by an independent appraiser.

NOTE 18 - Investment Properties

The following is a breakdown of the Group’s investment properties:

December 31, 2016

June 30, 2016

Land

Buildings

Total

Land

Buildings

Total

Cost $ 125,499 43,505 169,004 120,190 41,339 161,529

Total $ 125,499 43,505 169,004 120,190 41,339 161,529

The following shows the changes in the cost of investment property:

Land

Buildings

Total

Balance at December 31, 2015 $ 252,220 40,696 292,916

Additions 0 3,003 3,003

Changes in accounting policy – Fair value

340 0 340


919 (2,447) (1,528)

Disposals (481) (386) (867)

Decline due to loss of control over Corporación Financiera Colombiana S.A (98,495) (43,934) (142,429)

Net movement from discontinued operations

(34,313) 44,407 10,094

Balance at June 30, 2016 120,190 41,339 161,529

Changes in accounting policy – Fair value 2,303 2,112 4,415


13,151 4,810 17,961

Disposals (10,145) (4,756) (14,901)


1) Pertains to the following transfers: $1,198 from non-current assets held for sale and $2,726 to property, plant and equipment.

(2) Pertains to the following transfers: $15,562 from non-current assets held for sale and $2,399 from other assets.

The following is a breakdown of the figures included in income for the period:

December 31, 2016

June 30, 2016

Rental income from investment properties $ 1,506

1,447 Direct operating expenses for investment properties that generate rental income

(127)

(176)

Total $ 1,379

1,271

• There were no contractual obligations registered during the aforementioned periods to purchase

investment properties or for repairs, maintenance and improvements

• There are no restrictions on the sale of investment properties.

• There were no changes in the fair value of investment properties during the aforementioned periods.

99



(Continued)

NOTE 19 - Goodwill

19.1 Impairment Assessment of Cash-generating Units with Allocated Goodwill

The Group’s management assesses impairment of the goodwill listed on its consolidated financial statements, doing so annually and bearing in mind that goodwill has an indefinite useful life. This assessment is based on studies done by independent experts who were engaged for that purpose and developed their work in light of IAS 36 - Impairment of Assets.

These studies are based on valuations of the cash-generating units to which goodwill is allocated upon its acquisition. In this case, valuation is done by the discounted cash flow method and considers a number of factors, such as the economic situation in the country and in the sector where the acquired entity operates, historical financial information, and projections on growth of the company’s revenues and expenses in the next five years and, subsequently, growth in perpetuity, taking into account its profit capitalization rates, discounted at risk-free interest rates that are adjusted by the required risk premiums, given the circumstances of each company.

The methodologies and assumptions used to value the various cash-generating units to which goodwill is allocated were reviewed by management. Based on that review, it was concluded there was no need to record impairment at December 31, 2016, inasmuch as the recoverable amounts are significantly higher than the respective book values. The value of goodwill registered in the Group’s financial statements was calculated subsequent to the following acquisitions:

Acquirer

Acquired Company

Group CGU's

December 31, 2016

June 30, 2016

Banco de Bogotá

Megabanco

Banco de Bogotá

$ 465,905

465,905

Banco de Bogotá

AFP Horizonte

Porvenir

436,096

436,096

Acquired directly by the Bank

90,162

90,162

Acquired through Porvenir

345,934

345,934

Leasing Bogotá S.A Panamá (1)

Leasing Bogotá S.A Panamá

4,714,617

4,586,253

BAC Credomatic

2,943,136

2,863,003

BBVA Panamá

953,549

927,587

Banco Reformador

688,788

670,035

Transcom Bank

129,144

125,628

Total goodwill

$ 5,616,618

5,488,254

(1) The change in goodwill between December and June, 2016 is explained mainly by the exchange difference.

Following shows the goodwill assigned to each group of cash-generating units. These amounts represent the lowest level that management monitors within the Bank and are not larger than the operating segments:

December 31, 2016

Group of cash-generating units

Book value of goodwill

Book value of CGU

Fair value of CGU

Excess

CGU in Banco de Bogotá (Megabanco) $ 465,905

5,579,593

9,976,659

4,397,066

Pensiones y Cesantías Porvenir (AFP Horizonte)

436,096

1,523,442

3,743,515

2,220,073

Leasing Bogota Panamá

4,714,617

10,428,240

14,362,910

3,934,670

Total $ 5,616,618

100



(Continued)

June 30, 2016

Group of cash-generating units

Book value of goodwill

Book value of CGU

Fair value of CGU

Excess

CGU in Banco de Bogotá (Megabanco) $ 465,905

5,502,572

9,479,653

3,977,081

Pensiones y Cesantías Porvenir (AFP Horizonte)

436,096

1,413,085

3,139,880

1,726,795

Leasing Bogota Panamá

4,586,253

9,733,598

15,190,545

5,456,947

Total $ 5,488,254

19.2 Breakdown of Goodwill, by Acquired Company

Goodwill Banco de Crédito y Desarrollo Social – Megabanco S.A.

Goodwill was generated by the acquisition of ninety-four point ninety-nine percent (94.99%) of the shares of stock in Banco de Crédito y Desarrollo Social - MEGABANCO S.A. This operation was authorized by the Financial Superintendence of Colombia in Resolution No. 917 issued on June 2, 2006.

The goodwill in question was allocated to the groups of cash-generating units that are involved in the following lines of business:

Share (%) Valor

Commercial 32.7% $ 152,539 Consumer 30.8% 143,287 Payroll loans 27.0% 125,934 Vehicles 6.7% 31,304 Microcredit 2.8% 12,841

Total 100.0% $ 465,905

The most recent valuation update for the business lines of the groups of cash-generating units with allocated goodwill was done by Incorbank S.A. The respective assessment is outlined in its January 2017 report and is based on the Bank's financial statements at November 30, 2016, considering the merger with the acquired company. It was concluded there are no situations whatsoever that would indicate possible impairment, since $9,976,659 in fair value resulting from that assessment exceeds at December 31, 2015 $5,579,593 in book value for the cash-generating units.

The following are the main assumptions used as the basis for the impairment analysis done in December 2016.

December 31, 2016

2017

2018

2019

2020

2021

Lending rates on the loan portfolio and investments 10.5%

10.0%

9.6%

9.2%

9.0%

Borrowing rates 4.7%

4.1%

3.7%

3.2%

3.2%

Growth in income from commissions 17.2%

21.3%

12.2%

12.2%

15.6%

Growth in expenses 7.0%

10.8%

10.8%

11.0%

12.7%

Inflation 4.1%

3.0%

3.1%

3.0%

3.0%

Discount rate after taxes 15.7%

Growth rate after five years 3.0%

June 30, 2016

2016

2017

2018

2019

2020

Lending rates on the loan portfolio and investments 10.7%

10.7%

11.0%

11.2%

11.2%

Borrowing rates 4.1%

3.8%

3.7%

3.6%

3.6%

101



(Continued)

June 30, 2016

2016

2017

2018

2019

2020

Growth in income from commissions 26.7%

25.0%

12.3%

12.4%

15.1%

Growth in expenses 32.6%

12.7%

15.0%

16.9%

15.4%

Inflation 5.0%

3.6%

3.0%

3.0%

3.0%



A 10-year projection was done to estimate goodwill, based on macroeconomic assumptions and those related to the businesses listed above. The following is a description of that process.

- The lending rates on loans and investments were projected based on the Bank’s past earnings and the

projected fixed-term deposit rate (DTF).

- The borrowing rates were projected according to the Bank’s historical earnings and the influence the fixed-term deposit rate (DTF) could have on those rates.

- The estimate for growth in commissions and expenses is based on the increase in loans and other operations estimated by the Bank and considers the current structure of each line of business, so as to maintain its respective level of efficiency.

- The rate of inflation used in the projections is based on reports from outside sources, such as the International Monetary Fund, and on documents from experts, such as the projections in Latinfocus.

- The growth rate used for the terminal value was 3%, which is the rate employed in the latest studies.

The discount rate after taxes that was used to discount dividend flows reflects the specific risks facing each cash-generating unit. If the 15.7% estimated discount rate had been 0.5% higher than the rate estimated in the independent studies, it would not be necessary to reduce the book value of goodwill, since the fair value of the groups of cash-generating units with this sensitivity would be $9,467,010. This is well above their book value of $5,579,593 at December 31, 2016.

AFP Horizonte Pensiones y Cesantías

Sixteen point seventy-five percent (16.75%) of the shares of stock in AFP Horizonte Pensiones y Cesantías S.A. were acquired by the Bank, directly, and sixty-four point twenty-eight percent (64.28%) were acquired indirectly through its subsidiary Porvenir, as authorized by the Financial Superintendence of Colombia. This acquisition generated $91,746 and $352,081 in initial goodwill. The value of that goodwill, net of amortization up to December 31, 2013, came to $90,162 and $345,934, respectively. This is the estimated cost at January 1, 2014.

After the acquisition, Porvenir absorbed AFP Horizonte Pensiones y Cesantías S.A and the goodwill in question was allocated to the groups of cash-generating units that make up Porvenir.

The latest valuation update for the groups of cash-generating units in Porvenir was done by PricewaterhouseCoopers, based on Porvenir’s financial statements at December 31, 2016. PricewaterhouseCoopers issued its report on January, 2017 wherein it concluded there are no situations indicative of any possible impairment, since the fair value of the cash-generation units to which goodwill was allocated $3,743,515 exceeds their book value $1,523,442.

102



(Continued)

The following are the main assumptions used as the basis for the impairment analysis done in December 2016:

December 31, 2016

2017

2018

2019

2020

2021

Lending rates on the loan portfolio and investments 6.47% 5.86% 6.15% 6.21% 6.18%

Borrowing rates 6.3% 6.3% 6.3% 6.3% 6.3%

Growth in income from commissions 6.9% 12.7% 7.2% 7.1% 6.9%

Growth in expenses 3.5% 13.2% 5.3% 6.5% 5.9%

Inflation 3.7% 3.0% 3.1% 3.0% 3.0%



June 30, 2016

2016

2017

2018

2019

2020

Lending rates on the loan portfolio and investments 5.44% 5.38% 5.38% 5.55% 5.69%

Borrowing rates 6.1% 5.9% 5.9% 5.9% 5.9%

Growth in income from commissions 6.6% 7.9% 7.1% 7.0% 6.9%

Growth in expenses (3.0%) 7.4% 5.1% 6.2% 5.6%

Inflation 5.0% 3.4% 3.0% 3.0% 3.0%



A 20-year projection was done to estimate goodwill based on macroeconomic assumptions and those related to the business of Porvenir, as indicated in the foregoing tables. The following is a description of that process.

• The lending rates on loans and investments and the borrowing rates were projected using historical

data on the business.

• The estimated increases in commissions and expenses are based on business growth and other

transactions estimated by Porvenir.

• The inflation rate used in the projections was taken from several domestic and international sources,

and from the analysis done by the firm doing the appraisal.

.

• The growth rate used for the terminal value was 4%, which is the rate employed in the latest studies.

The discount rate after taxes that was used to discount dividend flows reflects the specific risks facing each cash-generating unit. If the estimated discount rate of 12.9% had been 0.5% higher than the estimated rate in the valuation done by outside experts, there would be no need to reduce the book value of goodwill, since the fair value of the groups of cash-generating units with assigned goodwill would be $3,505,995 with this sensitivity, compared to $1,523,442 in book value.

Leasing Bogotá S.A Panamá:

Banco de Bogota S.A. acquired control of BAC COM on December 9, 2010 through its subsidiary Leasing Bogota S.A. Panama (LBP), which is the Panamanian company that executed the purchase agreement. BAC Credomatic Inc. (BAC COM), which is incorporated to do business under the laws of the British Virgin Islands, owns Banco BAC International Bank, Inc. and the operations of BAC Credomatic Inc. (BAC) in Central America.

103



(Continued)

As a result of the acquisition of BAC COM through Leasing Bogota Panama, BAC's corporate structure now is controlled by Banco de Bogota S.A., which is controlled, in turn, by Grupo Aval. Goodwill was generated and recognized as a result of that operation. Banco de Bogotá was authorized by the Financial Superintendence of Colombia to make the purchase, through its subsidiary Leasing Bogotá Panama, as indicated in Official Notice 2010073017- 048 dated December 3, 2010. Subsequently, Banco de Bogotá acquired ninety-eight point ninety-two percent (98.92%) of the shares of stock in Banco Bilbao Vizcaya Argentaria Panama S.A. (BBVA Panama, now BAC de Panama), through its subsidiary Leasing Bogotá Panama, as authorized by the Financial Superintendence of Colombia in Official Notice 2013072962-052 dated December 12, 2013. One hundred percent (100.00%) of the shares of stock in Banco Reformador de Guatemala and in Transcom Bank Limited in Barbados were acquired as well, and both banks were declared as Grupo Financiero Reformador de Guatemala. The Financial Superintendence of Colombia authorized Banco de Bogotá to acquire these banks, through its subsidiaries Credomatic International Corporation and BAC Credomatic Inc., as per Official Notice 2013068082-062 dated December 3, 2013 In December 2015, Credomatic International Corporation, a subsidiary of the company, acquired 100% of all issued and outstanding shares of COINCA Corporation Inc. (COINCA), while Corporación Tenedora BAC Credomatic S.A., an indirect subsidiary of the Company, acquired 100% of all issued and outstanding of Medios de Pago MP S.A., domiciled in Costa Rica. This last acquisition generated an additional $ 853,401 in goodwill, which was entered on Bank's financial statements in the first quarter of 2016. Initially, separate impairment tests were done for each item of goodwill generated by these acquisitions (BAC COM, BBVA Panama, Reformer and Transcom). This was the policy up to June 30, 2015. However, as of the second half of 2015, and after several mergers, the subsidiary Leasing Bogotá S.A. Panama now includes this goodwill in its consolidated financial statements, inasmuch as it consolidates with these companies both operationally and financially. Accordingly, Banco de Bogota concluded the goodwill generated with the acquisition of BAC COM, BBVA Panama, Reformer and Transcom, through Leasing Bogota S.A. Panama, should be assigned to the consolidated level in Leasing Bogotá S.A. Panama for the purpose of assessing its impairment. Therefore, a single impairment test was done at that level at the end of December 2015. Ernst and Young conducted the latest valuation update for the groups of cash-generating units with allocated goodwill. The report it submitted in January 2017, based on the financial statements of BAC Credomatic at November 30, 2016, indicates there are no situations involving possible impairment, since the use value of the groups of cash-generating units to which goodwill was allocated $14,362,910 exceeds the book value at December 2016 $10,428,240. The following are the main assumptions used as the basis for the impairment analysis done in December 2016.

December 31, 2016

2017 2018 2019 2020 2021

Lending rates on the loan portfolio and investments 10.8% 10.8% 10.8% 10.8% 10.9% Borrowing rates 3.0% 3.0% 3.0% 3.0% 3.0% Growth in income from commissions 3.9% 5.6% 6.6% 5.7% 6.5% Growth in expenses 5.8% 7.4% 7.1% 6.8% 6.2% Discount rate after taxes 13.2% Growth rate after five years 3.0%

104



(Continued)

June 30, 2016

2016 2017 2018 2019 2020

Lending rates on the loan portfolio and investments 14.4% 14.6% 14.8% 15.0% 15.1% Borrowing rates 3.4% 3.5% 3.6% 3.6% 3.7% Growth in income from commissions 15.1% 14.0% 12.0% 10.5% 8.1% Growth in expenses 9.8% 11.9% 10.0% 8.2% 6.4% Discount rate after taxes 12.5% Growth rate after five years 3.5%

A five-year projection was done to evaluate goodwill impairment in light of the fact that the business will have matured and the flow of funds will have stabilized once that time has elapsed. Macroeconomic assumptions and those for BAC Credomatic’s business in each of the countries where it operates were used for the projection, so as to reflect the reality each market provides to the CGUs as a whole. The averages of the main premises used are listed in the foregoing tables, combining the variables for all the countries where BAC Credomatic operates. The following is a description of that process.

Lending rates on the loan portfolio and investments were projected based on historical data and on the expectations of management in the countries where BAC Credomatic operates, taking into account the competitiveness of the different services in their respective markets and the growth strategies for each segment. The projection on the US Federal Reserve rates was taken into account as well, since these rates serve as a basis for international banking rates.

Growth in commissions was projected considering the increase in the commercial loan portfolios, as well as more competitive markets over the projected timeline. For this reason, BAC Credomatic is expected to gradually reduce this type of revenue, so as to improve its competitiveness in the market and the cost of its services in all the countries where it operates, with the exception of Mexico. In the case of Mexico, the operation is solely a credit card business and the account only includes revenue derived from that particular portfolio. Therefore, its projection contemplates growth based on higher credit card billing.

Although the functional currency of the business is that of each country in the region where BAC subsidiaries operate, future flows of funds have been converted into nominal US dollars in each projected period and discounted at a nominal rate in US dollars, net of income tax, which is estimated as "Ke". A discount rate in US dollars is used, since a consistent discount rate in the different local currencies cannot be estimated for lack of the necessary data.

The discount rate was estimated in light of the risk profile of each of the markets where BAC operates.

To estimate the terminal value, the normalized flow of funds was projected in perpetuity and adjusted according to expectations for its growth. This projection does not exceed the average long-term rate of growth for the economies in each of the countries where BAC operates. Consequently, 3.0% annual growth was estimated for the long term.

The discount rate after taxes that was used to discount the dividend flows reflects the specific risks facing each CGU and the markets where BAC Credomatic operates, as mentioned earlier. If the estimated discount rate of 13.2% had been 0.5% higher than the estimated rate; that is, 13.7%, it would not be necessary to reduce the book value of goodwill, since the use value of the cash-generating units to which the goodwill was allocated would be $13,514,221. This exceeds their book value at December 31, 2016, which is $10,428,240.

105



(Continued)

NOTE 20 - Other Intangible Assets

The following shows the total movement in intangible assets other than goodwill. Cost Amortization Total


Acquisitions/ Additions 101,054 0 101,054 Disposals (12,994) (10,706) (2,288) Exchange difference (30,428) (17,478) (12,950) Amortization charged to expenditure 0 30,557 (30,557) Transfers (19,427) (19,288) (139) Decline owing to loss of control over Corporación Financiera Colombiana S.A. (115,262) (30,348) (84,914) Net movement from discontinued operations 7,689 12,559 (4,870)

Balance at June 30, 2016 608,705 192,278 416,427

Acquisitions/ Additions 72,069

0

72,069 Disposals (18,827)

(15,855)

(2,972)

Exchange difference 3,094

2,074

1,020 Amortization charged to expenditure (1) 0

52,310

(52,310)

Transfers (1,582)

(1,582)

0 Decline owing to loss of control over Casa de Bolsa S.A. (1,139)

(611)

(527)


228,614

433,707

(1) Amortization charged to the expense for intangibles at December 31, 2016 includes $43,652 reported under amortization of intangible assets (computer licenses and software and applications) $4,029 for licenses and franchises, $1,790 for intellectual property rights, patents and others, and $2, and property rights, and $2,516 for intangible assets related to customers.

20.1 Intangible Assets Developed Internally

The following table shows the changes in the cost of intangible assets developed internally:

Licenses Computer

software and applications

Total cost of intangibles

developed internally


426,097

432,953

Acquisitions/ Additions 852

85,560

86,412 Disposals 0

(12,931)

(12,931)

Exchange difference 0

(23,585)

(23,585) Transfers (5,802)

5,802

0

Balance at June 30, 2016 1,906

480,943

482,849

Acquisitions/ Additions 0

54,133

54,133 Disposals 0

(18,246)

(18,246)


1,988

1,988 Transfers 0

676

676


519,494

521,400

The following shows the amortization of intangible assets developed internally by the Group:

Licenses Computer


Total amortization

of intangibles developed internally


174,324

174,407

Disposals

0

(10,643)


0

(14,898)

(14,898)

Amortization charged to expenditure

191

19,962

20,153 Transfers 0 (54) (54)


274

168,691

168,965

Disposals

0

(15,274)


0

1,982

1,982

Amortization charged to expenditure

191

32,158

32,349 Transfers

0

676

676


188,233

188,698

106



(Continued)

20.2 Intangible Assets Other than those Developed Internally

The following table shows the changes in the cost of intangible assets other than those developed internally:

Trademarks

Intellectual property rights,

patents, and other property

rights

Licenses Computer


Intangible assets

related to customers

Other

intangible assets

Total cost of

intangible assets not generated internally

Balance at December 31, 2015 $ 0 60,834 91,391 35,354 34,769 22,772 245,120

Additions 0 0 13,486 1,156 0 0 14,642 Disposals 0 0 (63) 0 0 0 (63) Exchange difference (145) (2,948) 0 (149) (3,601) 0 (6,843) Transfers 3,468 (3,468) 9,924 2,057 (18,319) (13,089) (19,427) Decline due to loss of control over Corporación Financiera Colombiana S.A.

0 (16,857) (84,497) (4,801) 0 (9,107) (115,262)


0 (2,532) 8,641 2,156 0 (576) 7,689

Balance at June 30, 2016 3,323 35,029 38,882 35,773 12,849 0 125,856

Additions 0

0

17,837

99

0

0

17,936 Disposals 0

0

(209)

(372)

0

0

(581)


980

0

14

60

0

1,106 Transfers 0

0

4,148

(4,148)

(2,258)

0

(2,258)

Decline due to loss of control over Casa de Bolsa S.A.

0

0

(808)

(331)

0

0

(1,139)


36,009

59,850

31,035

10,651

0

140,920

The following shows the activity in amortization of intangible assets other than assets developed internally:

Intellectual property rights,

patents,

and other property

rights

Licenses

Computer software

and applications

Intangible assets

related to customers

Other intangible

assets

Total amortization of intangible assets not generated internally

Balance at December 31, 2015 $ 2,171 19,145 11,722 18,143 1,394 52,575

Disposals 0 (63) 0 0 0 (63)

Exchange difference (194) 0 (57) (2,329) 0 (2,580)

Amortization charged to expenditure 1,877 3,855 1,903 2,704 65 10,404 Transfers 0 5,453 (5,522) (18,319) (846) (19,234) Decline due to loss of control over Corporación Financiera Colombiana S.A

(4,591) (22,350) (2,032) 0 (1,375) (30,348)

Net movement from discontinued operations 3,364 6,568 1,865 0 762 12,559

Balance at June 30, 2016 2,627 12,608 7,879 199 0 23,313

Disposals 0 (209) (372) 0 0 (581)

Exchange difference 84 0 3 5 0 92

Amortization charged to expenditure 1,790 13,943 1,703 2,515 0 19,961 Transfers 0 0 0 2,259) 0 (2,259) Decline due to loss of control over Casa de Bolsa S.A.

0 (386) (225) 0 0 (611)

Balance at December 31, 2016 $ 4,501 25,956 8,997 460 0 39,915

107



(Continued)

NOTE 21 - Income Tax

21.1 Components of the Income Tax Expense

The income tax expense during the six months ended at December 31 and June 30, 2016 includes the following.

Six months ended at

December 31, 2016 June 30, 2016

Current tax $ 376,706 383,075 Recovery allowance tax positions (24,027) (4,733) Net deferred taxes for the current period 255,112 193,657

Subtotal: income tax 607,791 571,999

Income tax on discontinued operations (See Note 15) 144 196,170

Total income tax $ 607,935 768,169

For tax purposes pursuant to Article 165 in Law 1607 / 2012 and Regulatory Decree 2548 / 2014, the remissions contained in the tax laws on accounting standards refer to the rules in effect up to December 31, 2014. The remissions contained in the tax rules as of January 1, 2017 shall refer to the new technical regulatory frameworks on accounting in Colombia (Financial Information Reporting Standards Accepted in Colombia), according to the provisions established in Law 1819/2016. 21.2 Reconciliation between the Nominal Tax Rate and the Effective Tax Rate

The following are the basic parameters in effect for income tax.

In Colombia

The following are the income tax rates in effect at December 31, 2016:

2016

2017

2018

2019 and thereafter

Income and complementary tax 25%

25%

25%

25% Income tax for equity (CREE) 9%

9%

9%

9%

CREE surcharge 6%

8%

9%

0%

Total rate 40%

42%

43%

34%

With entry into force of Law 1819/2016, the following are the income tax rates applicable as of January 1, 2017:

2017

2018

2019

General income tax rate 34%

33%

33% Income and complementary tax surcharge 6%

4%

0%

Total rate 40%

37%

33%

The basis for determining income and complementary tax and the so-called Income Tax for Equity (CREE) up to December 31, 2016 could not be less than 3% of net equity on the last day of the immediately preceding tax year. As of January 1, 2017, the applicable rate is 3.5%.

Until December 31, 2016, tax losses could be offset with future taxable income without a time limit. Beginning in 2017, tax losses may be offset with ordinary net income obtained during the following 12 tax years.

108



(Continued)

Surplus presumptive income can be offset in the five (5) tax years thereafter.

Windfall profits are taxed at a rate of 10%.

In other countries

Other income tax rates established by tax authorities include 30% in Costa Rica, El Salvador, Honduras and Mexico, and 25% in Panama and Guatemala. Also applicable in Guatemala is the Simplified Optional Tax Regime on Profitable Activities, at a rate of 7%.

In accordance with IAS 12, section 81 (c), the following is a breakdown of the reconciliation between the Group’s total income tax expense calculated at the tax rates currently in effect and the tax income expense actually recorded in the statement of income for the six months ended at December 31 and June 30, 2016.

December 31, 2016

June 30, 2016

Profit before income tax $ 1,740,815

3,859,260 Theoretical tax expense calculated according to the 40% tax rate in force

696,326

1,543,704

More or (fewer) taxes that increase (reduce) the theoretical tax:

Non-deductible expenses

73,034

56,004

Surplus presumptive income and tax losses that did not generate deferred tax

9,496

6,218 Dividends received that do not constitute income

(5,618)

8,964

(Income) expenses calculated by the equity method

(5,105)

516 Recoveries and other income not subject to tax

(9,710)

(40,632)

Exempt income

(42,605)

(31,469) Non-deductible loan allowance – Circular 36 SFC

(35,796)

(1,327)

Profits of foreign subsidiaries before taxes

(7,731)

(14,551) Profits of foreign subsidiaries with different tax rates

(27,098)

(94,594)

Effect on deferred taxes attributed to tax rates other than the 40% for 2016

(7,465)

24,643 Allowances for tax positions

(24,027)

(4,734)

Gain on stake in Corporación Financiera Colombiana S.A. and subsidiaries measured at fair value.

0

(871,841)

Other items

(5,910)

(8,902)

Total tax expense in the period due to ongoing activities $ 607,791

571,999

21.3 Unrecognized Deferred Taxes

Deferred Taxes on Subsidiaries, Associates and Joint Ventures

In compliance with paragraph 39 of IAS 12, the Group registered no deferred income tax liabilities related to temporary differences from investments in subsidiaries, in associates and the investment in Corporación Financiera Colombia S.A. and Casa de Bolsa S.A., which became an investment in an associate due to the loss of control (see Note 15). This is because:

a. The Group controls the subsidiaries and controls the decision to sell its investments in associates; therefore, it can decide to reverse any such temporary differences; and

b. The Group does not expect to do so in the foreseeable future.

Accordingly, those temporary differences are not likely to be reversed during the period in question.

The temporary differences for which no deferred tax liabilities were recognized at December 31 and June 30, 2016 came to $11,625,137 and $7,856,528, respectively. The deferred tax on retained earnings of subsidiaries ($19,819 and $28,233 respectively for the six-months ended at December 31 and June 30, 2016) pertain to tax dividends from those subsidiaries that are expected to be decreed in the near future and will be taxable.

109



(Continued)

Deferred Tax Losses, Presumptive Income Tax Surpluses and Other Items By June 30, 2016, the Group had $ 18,270 in tax losses and $ 2,061 in surplus presumptive income with which to reduce future tax earnings pertaining to the subsidiary Casa de Bolsa SA, which was deconsolidated as of December 31, 2016 (See Note 15). These have not been used, nor has the Group registered any deferred tax assets in that respect, due to the uncertainty of their being recovered. 21.4 Deferred Taxes, by Type of Temporary Difference

Differences between the book value of assets and liabilities and their tax base resulted in the following differences. These generated deferred taxes, calculated and recorded for the six months ended at December 31 and June 30, 2016 based on the tax rates in force for the years when such temporary differences will be reversed. The following shows the movement in deferred tax assets and liabilities at December 31 and June 30, 2016. It does not include the balances for Corporacion Financiera Colombiana S.A. and subsidiaries, nor Casa de Bolsa S.A. since they were deconsolidated at June 30 and December 31, 2016, respectively (see Note 15).

At December 31, 2016


(1)

Income (expense) in income

for the period

Unrealized

income (expense)

in OCI

Reclassifications

Balance at December 31, 2016

Deferred tax assets

Valuation of fixed-income investments $ 12,610

(12,609)

0

(1)

0

Loss on derivatives

74,223

(22,562)

0

(50,525)

1,136

Differences between the accounting and tax bases for the loan portfolio

4,830

44

0

0

4,874

Higher accounting allowance versus the tax allowance for the loan portfolio

37,605

30,040

(28,920)

(159)

38,566

Higher accounting allowance for foreclosed assets

4,981

(1,476)

0

0

3,505

Lower accounting cost versus the tax value of property, plant and equipment

203

(203)

0

0

0

Lower value of the accounting valuation versus the tax valuation for depreciation of property, plant and equipment

7,036

(6,464)

0

2

574

Lower value of the accounting base versus the tax base for deferred charges and intangible assets

22,740

9,674

0

(2)

32,412

Tax losses to amortize

479,488

(120,319)

0

0

359,169

Presumptive income tax surplus to amortize

56,303

(56,305)

0

2

0

Non-deductible allowances

70,395

6,926

0

(205)

77,116

Employee benefits

53,977

(2,033)

5,351

440

57,735

Other items

9,580

(6,053)

0

(72)

3,455

Subtotal

833,971

(181,340)

(23,569)

(50,520)

578,542

Deferred tax liabilities

Valuation of fixed-income investments

4,422

(854)

0

0

3,568

Valuation of equity investments 7,859 44,601 (35) 0 52,425

Unrealized gain on derivatives

215,754

(31,897)

(130,045)

(50,527)

3,285

Higher value of the accounting valuation versus tax valuation of the loan portfolio

31,280

3,094

52

0

34,426

Lowerr value of the accounting allowance versus the tax allowance for loan portfolio

169,396

37,982

(4,795)

(78)

202,505

Higher value of the accounting base for foreclosed assets versus the tax base

47,702

4,457

0

(1)

52,158

110



(Continued)


(1)


for the period

Unrealized

income (expense)

in OCI

Reclassifications


Lower value of the allowance for foreclosed assets

8,443

(6,554)

0

0

1,889

Higher value of the accounting cost of property, plant and equipment versus the tax cost

77,459

(5,492)

0

3,354

75,321

Higher value of the accounting valuation of depreciation in property, plant and equipment versus the tax valuation

53,051

12,372

0

(3,355)

62,068

Higher value of the accounting base for deferred charges and intangible assets versus the tax base

37,704

(879)

0

(1)

36,824

Retained earnings on investments in subsidiaries

28,233

(8,415)

0

1

19,819

Goodwill

55,969

16,848

0

0

72,817

Other items

44,571

8,509

(68)

88

53,100

Subtotal

781,843

73,772

(134,891)

(50,519)

670,205

Total for continuing operations $ 52,128

(255,112)

111,322

(1)

(91,663)

At June 30, 2016

Balance at

December 31, 2015

(1)


for the period

Unrealized

income (expense)

in OCI

Reclassifications

Balance at June 30,

2016

Deferred tax assets

Valuation of fixed-income investments $ 30,985

(8,086)

0

(10,289)

12,610

Valuation of equity investments

751

(751)

0

0

0 Loss on derivatives

208,575

32,253

(166,605)

0

74,223

Differences between the accounting and tax bases for the loan portfolio

0

4,830

0

0

4,830

Higher accounting allowance versus the tax allowance for the loan portfolio

37,838

3,498

(3,731)

0

37,605

Higher accounting allowance for foreclosed assets

4,044

937

0

0

4,981 Lower accounting cost versus the tax value of property, plant and equipment

1,821

(1,618)

0

0

203

Lower value of the accounting valuation versus the tax valuation for depreciation of property, plant and equipment

1,731

5,305

0

0

7,036

Lower value of the accounting base versus the tax base for deferred charges and intangible assets

11,300

11,440

0

0

22,740

Tax losses to amortize

478,538

950

0

0

479,488 Presumptive income tax surplus to amortize

163,218

(107,626)

711

0

56,303

Non-deductible allowances

67,226

3,169

0

0


58,695

(5,462)

744

0

53,977

Other items

7,012

2,565

0

3

9,580

Subtotal

1,071,734

(58,596)

(168,881)

(10,286)

833,971

Deferred tax liabilities

Valuation of fixed-income investments

3,437

985

0

0

4,422 Valuation of equity investments

0

5,161

7,785

(5,087)

7,859

Unrealized gain on derivatives

71,728

68,052

75,973

1

215,754 Differences between the accounting and tax bases for the loan portfolio

30,599

748

(67)

0

31,280

Lower value of the accounting allowance versus the tax allowance for loan portfolio

164,458

28,017

(23,080)

1

169,396

Higher value of the accounting base for foreclosed assets versus the tax base

44,814

2,889

0

(1)

47,702

Lower value of the allowance for foreclosed assets

6,463

1,980

0

0

8,443 Higher value of the accounting cost of property, plant and equipment versus the tax cost

80,957

(3,498)

0

0

77,459

Higher value of the accounting valuation for depreciation in property, plant and equipment versus the tax valuation

69,401

(16,349)

0

(1)

53,051

111



(Continued)

Balance at

December 31, 2015

(1)


for the period

Unrealized

income (expense)

in OCI

Reclassifications

Balance at June 30,

2016

Higher value of the accounting base for deferred charges and intangible assets versus the tax base

30,589

7,115

0

0

37,704

Retained earnings on investments in subsidiaries

35,877

(7,644)

0

0

28,233 Goodwill

25,524

30,446

0

(1)

55,969

Other items

27,147

17,159

0

265

44,571

Subtotal

590,994

135,061

60,611

(4,823)

781,843

Total for continuing operations $ 480,740

(193,657)

(229,492)

(5,463)

52,128

The following shows the movement in the deferred tax assets and liabilities of Corporacion Financiera Colombiana S.A. and subsidiaries at June 30, 2016 (date of deconsolidation). At June 30, 2016

Balance at

December 31, 2015

Adjustment for

restatement

Adjustment for

minority interest

conversion

Credited (charged) to income

Credited (charged)

to OCI

Deconsolidation of Corficolombiana


Balance of deferred tax assets of Corporación Financiera Colombiana S.A. and subsidiaries

$ 431,136

(84,130)

(898)

22,579

(145)

(368,542)

0

Balance of deferred tax liabilities of Corporación Financiera Colombiana S.A. and subsidiaries

982,370

(95,877)

7,122

36,136

5,460

(935,210)

0

Total effect from discontinued operations

$ (551,234)

11,747

(8,019)

(13,556)

(5,605)

566,668

0

The Group offset deferred tax assets and liabilities per entity or tax payer. In doing so, the tax provisions in force in Colombia and in other countries where its subsidiaries operate were applied with respect to the legal right to offset current assets and liabilities. The other requirements outlined in IAS 12 also were taken into account. The following is a breakdown.

December 31, 2016

Gross amounts of deferred tax

Reclassification of

off-set

Balances on the statements of financial

position

Deferred income tax assets $ 578,542

518,288

60,254 Deferred income tax liabilities

670,205

518,288

151,917

Net $ (91,663)

0

(91,663)

June 30, 2016

Gross amounts of deferred tax

Reclassification of

off-set

Balances on the statements of financial

position

Deferred income tax assets $ 833,971

645,743

188,228 Deferred income tax liabilities

781,843

645,743

136,100

Net $ 52,128

0

52,128

112



(Continued)

21.5 Effects of Current and Deferred Taxes on Each Component of Other Comprehensive Income

in Equity

The following is a breakdown of the effects of current and deferred taxes on each component of other comprehensive income: Six months ended at

December 31, 2016

June 30, 2016

Amount before taxes

Current

tax

Deferred

tax

Net

Amount before taxes

Current

tax Deferred

tax Net

Ongoing Operations Items that can be reclassified later to income for the period Exchange difference on foreign currency operations

$ (50,473) 0 0 (50,473) (92,571) 0 0 (92,571)

Exchange difference on foreign currency derivatives

(107,591)

(86,124)

130,045

(63,670)

399,154

133,543

(241,867)

290,830

Exchange difference on bonds in foreign currency

(169,454)

67,782

0

(101,672)

378,259

(151,304)

0

226,955

Conversion adjustment for foreign subsidiaries

278,862

0

0

278,862

(777,682)

0

0

(777,682)

Unrealized profit on measurement of financial assets at fair value through OCI

4,198

5,087

(14)

9,271

45,752

0

(7,718)

38,034

Stake in OCI of associates and adjustment for exchange difference in foreign branches

582

(5,172)

0

(4,590)

(34,993)

(24,491)

0

(59,484)

Loan allowance adjustment for consolidated financial statements

78,988

0

(24,125)

54,863

(44,047)

0

19,349

(24,698)

Subtotals

35,112

(18,427)

105,906

122,591

(126,128)

(42,252)

(230,236)

(398,616)

Items that will not be reclassified later to income for the period

New actuarial measurements in defined benefit plans

(15,416)

0

5,416

(10,000)

(2,923)

0

744

(2,179)

Items reclassified under income for previous periods

Sale of investments measured at fair value with changes in OCI

0 0 0 0 (52,247) 0 0 (52,247)

Total OCI from ongoing activities

19,696 (18,427) 111,322 112,591 (181,298) (42,252) (229,492) (453,042)

Discontinued activity Corporación Financiera Colombiana S.A.

0

0

0

0

37,813

0

(5,605)

32,208

Deconsolidation (loss of control) Corporación Financiera Colombiana S.A.

Other comprehensive income reclassified under income for the period

0 0 0 0 (27,250) 0 0 (27,250)

Other comprehensive income reclassified under retained earnings

141 0 0 141 (6,925) 0 0 (6,925)

Total other comprehensive income during the period

$ 19,837 (18,427) 111,322 112,732 (177,660) (42,252) (235,097) (455,009)

113



(Continued)

21.6 Allowance for Tax Positions

The allowances for tax positions at December 31 and June 30, 2016 came to $66,429 and $89,030, respectively. They are expected to be used in full or released when the tax authority’s right to review tax returns expires. 21.7 Realization of Deferred Tax Assets

The expectation is that there will be net income in the future to recover the amounts recognized as deferred tax assets, generated mostly by the parent company, in which the exchange difference at December 31, 2016 stemming from assets and liabilities in foreign currency had an effect on tax earnings and on estimates of their future projections, depending on how the behavior of the exchange rate, except in the case of the exchange difference on investments in foreign companies whose tax consequences are generated at the time of their disposal. These estimates of tax projections are based on the recovery of deferred tax assets on tax credits originating with tax losses and surplus presumptive income to be applied to future tax earnings and on other items. As of January 1, 2017, the exchange difference in assets and liabilities in foreign currency will have no tax effects until the moment they are disposed of or credited, in the case of assets, or until partial settlement or payment in the case of liabilities. Considering the foregoing change, the estimate of future tax earnings is based fundamentally on the Bank’s forecast for banking operations. The positive trend in those operations is expected to continue, which would make it possible to recover deferred tax assets. NOTE 22 - Other Assets The following is a breakdown of other assets.

December 31, 2016

June 30, 2016

POS assets (Datafonos) $ 61,414 50,659 Reclassifications of foreclosed assets 59,189 25,866 Office supplies and stationary in storage and plastic cards for credit and debit cards 34,139 43,916 Artistic and cultural assets 19,015 18,694 Others 17,168 27,138 Others assets in discontinued activity - BAC México 9,556 0 Remodeling 5,587 5,336 Operations in foreign currency pending legalization 2,010 378 Permanent contributions 1,181 3,378 Fondo Panama management - not managed by the Bank 0 30,930

$ 209,259 206,295

114



(Continued)

NOTE 23 - Deposits

23.1 Customer Deposits – Interest Rates

The following is a summary of the annual effective interest rates on customer deposits.

December 31, 2016

June 30, 2016

Domestic currency

Foreign currency Domestic currency

Foreign currency

Rate Rate Rate Rate Min

% Max %

Min %

Max %

Min %

Max % Min %

Max %

Checking accounts 0.00% 8.54% 0.00% 4.08% 0.00% 8.55% 0.00% 4.08% Savings accounts 0.00% 8.60% 0.00% 4.08% 0.00% 8.77% 0.00% 4.08% Certificates of time deposit 0.00% 12.27% 0.00% 13.04% 0.00% 13.42% 0.00% 13.04%

23.2 Deposits, by Sector

The following shows the concentration of customer deposits, by economic sector.

December 31, 2016

June 30, 2016

Value %

Value %

Colombian government or entities thereof $ 6,958,629 8.0% 7,244,271 8.0% Colombian cities and departments 2,092,032 2.0% 2,056,917 2.0% Foreign governments 1,048,947 1.0% 1,266,911 1.0% Manufacturing 8,189,416 9.0% 8,276,116 9.0% Real estate 6,467,957 7.0% 6,151,078 7.0% Commerce 16,554,533 18.0% 14,997,169 17.0% Agriculture and cattle ranching 3,092,392 3.0% 2,402,338 3.0% People 20,634,207 22.0% 19,515,210 22.0% Services 6,996,465 7.0% 5,295,099 6.0% Others 21,642,095 23.0% 20,202,342 23.0%

Total $ 93,676,673 100.0% 87,407,451 100.0%

NOTE 24 - Financial Obligations

24.1 Interbank and Overnight Funds

The following is a summary of the Group’s short-term financial obligations.

December 31, 2016

June 30, 2016

Colombian pesos

Interbank funds purchased $ 80,048

0 Transfer commitments in simultaneous operations

0

24,581

Commitments to transfer investments in simultaneous operations

601,590

1,537,111 Correspondent banks

1,851

1,421

Subtotal in Colombian pesos

683,489

1,563,113

Foreign currency

Interbank funds purchased

264,135

148,873

Commitment to sell investments in open repo operations

0

134,816

Commitment to sell investments in open closed operations 273,387 0

Correspondent banks

333

13,661

Subtotal in foreign currency

537,855

297,350

Total $ 1,221,344

1,860,463

115



(Continued)

24.2 Short-term Financial Obligations - Effective Interest Rates The following is a summary of the effective interest rates on short-term financial obligations. December 31, 2016

In Colombian pesos In foreign currency

Rate Rate Rate Rate

Minimum

%

Maximum %

Minimum% Maximum

%

Interbank funds and repo and simultaneous operations 7.14% 7.50% 0.80% 6.50%

June 30, 2016

In Colombian pesos In foreign currency

Rate Rate Rate Rate

Minimum

%

Maximum %

Minimum% Maximum

%

Interbank funds and repo and simultaneous operations 6.25% 7.75% 0.01% 4.19%

24.3 Long-term Financial Obligations

Entity

December 31, 2016

June 30, 2016

Effective interest rates

Banco de Comercio Exterior (1) $ 173,265

199,705

Between 1,70% and 21,38% Fondo para el Financiamiento del Sector Agropecuario FINAGRO

124,705

139,655

Between 3,38% and 14,63%

Financiera de Desarrollo Territorial S.A FINDETER

911,988

880,159

Between 2,84% and 12,81% Foreign banks

5,670,106

6,124,119

Between 0,00% and 15,00%

Others

1,234,708

2,669,360

Between 0,00% and 10,83% Current portion (2)

8,324,125

7,404,130

$ 16,438,897

17,417,128

(1) These are rediscount operations. The Colombian government has established credit programs to promote the development of specific sectors in the economy, such as foreign trade, agriculture, tourism, home building and other industries.

(2) The maturity bands for short-term and long-term obligations are in listed in the note on liquidity risk.

The following is a breakdown, by year, of the maturity on financial obligations at December 31 and June 30, 2016.

Year

December 31, 2016

June 30, 2016

2016 $ 0

6,076,279 2017

8,324,125

2,443,319

2018

2,164,192

2,011,301 2019

1,569,734

1,244,315

2020 908,803 936,094

After 2020

3,472,043

4,705,820

Total $ 16,438,897

17,417,128

116



(Continued)

24.4 Outstanding Investment Securities – Bonds Issued

Colombian Pesos

Issuer

Issue date

December 31, 2016

June 30, 2016

Maturity date

Interest rate

Banco de Bogotá S.A.

2010 subordinated bonds

23/02/2010 $ 248,234

236,967

Between 23/02/2017

and 23/02/2020

CPI + 5,33%AA UVR

+ 5,29% AA CPI + 5,45% AA UVR + 5,45% SA

Total Banco de Bogotá S.A

248,234

236,967 Total domestic currency

$ 248,234

236,967

Foreign currency

Issuer

Issue date

December 31, 2016

June 30, 2016

Maturity date

Interest rate

Banco de Bogotá S.A. Ordinary bonds abroad (due 2017)

19/12/2011 $ 1,841,387

1,787,320

15/01/2017

5,00%SV

Ordinary bonds abroad (due 2023)

19/02/2013

1,524,597

1,482,456

19/02/2023

5,38%SV

Ordinary bonds abroad (due 2026) 12/05/2016 1,774,926 1,727,265 12/05/2026 6,25%SV

Ordinary bonds abroad (due 2026)

04/11/2016

1,515,810

0

12/05/2026

6,25%SV

Total Banco de Bogotá S.A

6,656,720

4,997,041

BAC Credomatic

El Salvador

Between

06/02/2012 and

30/06/2016

673,706

487,006

Between

01/01/2017 and

28/10/2021

Between

4.25% and 5.80%

Guatemala

Between

05/01/2015 and

28/12/2016

543,441

527,934

Between

03/01/2017 and

30/10/2018

Between

4.50% and 8.50%

Honduras

Between

23/07/2013 and

09/05/2016

68,929

94,589

Between 15/05/2017

and 23/07/2018

Between

5.50% and 10.50%

Nicaragua

Between

24/01/2014 and

02/02/2015

12,040

14,546

06/11/2017

5.25%

Total BAC Credomatic

1,298,116

1,124,074 Total foreign currency

7,954,836

6,121,115

$ 8,203,070

6,358,082

The following is a breakdown of the bonds issued at June 30, 2016 and December 31, 2015:

Year

December 31, 2016

June 30, 2016

2016 $ 0

368,950 2017

2,941,258

2,269,517

2018

303,436

34,455 2019

455,960

204,437

2020 598,145 271,002 After 2020

3,904,271

3,209,721

Total $ 8,203,070

6,358,082

117



(Continued)

NOTE 25 - Employee Benefits The following shows the balances for employee benefit allowances at December 31 and June 30, 2016.

December 31, 2016

June 30, 2016

Short-term benefits $ 244,509 265,109

Post-employment benefits 160,610 138,985

Other long-term benefits 101,302 88,130

$ 506,421 492,224

25.1 Short-term Benefits

The short-term benefits the Group provides to its employees include salaries, paid vacation time, vacation bonuses, mandatory and discretionary bonuses, various types of assistance, payroll taxes, severance pay and interest on severance pay covered by Law 50/1990.

25.2 Post-employment Benefits

• In Colombia, pensions for employees who retire after reaching a certain age and completing a specific period of service are assumed by public or private pension funds, based on defined contribution plans in which the company and the employee pay monthly amounts determined by law. The objective is for the employee to have access to a pension upon retirement. However, in the case of employees who were hired before 1968 and have met the requirements with respect to time of service and age, their pensions are assumed directly by the Group.

• The Group recognizes an additional bonus, either discretionary or stipulated in collective bargaining agreements, for employees who retire after complying with the prerequisites of pension funds in terms of age and years of service required to be granted a retirement pension.

• The Group has a number of employees with severance pay benefits that were legally recognized prior

to the enactment of Law 50/ 1990. In this case, the benefit is cumulative and is paid based on the last salary earned by the employee, multiplied by the number of years of service, less any advances the employee might have received against the new benefit.

The following table shows the activity in retirement benefits and other long-term employee benefits during the six months ended at December 31 and June 30, 2016.

Post-employment benefits

Other long-term benefits

December

31, 2016 (1) June 30,

2016 December

31, 2016 (1) June 30,

2016

Opening balance $ 138,985

163,000

88,130

94,225

Costs incurred during the period

4,036

2

3,949

752 Interest costs

4,228

4,132

3,489

3,484

Cost of past services

0

258

0

3,159

8,264

4,392

7,438

7,395

Changes in actuarial assumptions

(55)

0

(257)

0 (Gain)/loss on changes in interest rates, inflation rates and wage adjustments

4,320

2,037

3,683

0

(Gain)/loss from actuarial assumptions on employee turnover

11,734

0

7,779

0

15,999

2,037

11,205

0

Exchange difference

6,083

(2,445)

0

29

118



(Continued)



December

31, 2016 (1) June 30,

2016 December

31, 2016 (1) June 30,

2016

Payments to employees

(6,121)

(6,832)

(5,471)

(7,724) Decline due to loss of control over Corporación Financiera Colombiana S.A.

0

(21,267)

0

(5,812)


0

100

0

17

Balance at end of period $ 163,210

138,985

101,302

88,130

(1) The liability for the severance benefit shows a difference of $ 2,601 pertaining to the matrix for advance payments made to employees during 2016.

25.3 Actuarial Assumptions

The variables used to calculate the projected liability for post-employment and other long-term benefits are listed below:

December 31, 2016 June 30, 2016

Other

Benefits Pensions (1)

Other Benefits

Pensions (1)

Discount rate 6.83% 6.94% 7.73% 7.82% Inflation rate 3.50% 4.93% 3.50% 2.88% Wage increase rate 3.50% 4.93% 3.50% 2.88% Pension increase rate 3.50% 4.93% 3.50% 2.88% Employee turnover rate 3.98% 3.98% 3.98% 3.98%

(1) Includes the change in rates for retirement pensions, as per Decree 2496/2015.

The employee turnover rate is calculated based on an average for years of service between one and 40 for men and women. Employee life expectancy is estimated according to the mortality tables published by the Financial Superintendence of Colombia. These tables are constructed on the basis of mortality experiences provided by the various insurance companies that operate in Colombia. The discount rate is assigned according to the duration of the plan. Those with a longer horizon have a higher rate than short-term plans. 25.4 Other Long-term Benefits

The Group grants its employees discretionary, long-term seniority bonuses, depending on their years of service. These bonuses are given every five, ten, fifteen and twenty years. Each payment is calculated according to a certain number of salary days (between 15 and 180 days).

The compensation for key management personnel in each benefit category is disclosed in Note 36 - Related Parties.

The Group is exposed to a number of risks (interest rate and operational risks) through its employee benefit plans. It tries to minimize these risks via the implementation of risk policies and management procedures.

119



(Continued)

25.5 Sensitivity Analysis

The following is a sensitivity analysis of post-employment liabilities. It is based on the financial and actuarial variables applied by the Group, with all other variables remaining constant.

Post-employment Benefits Change in the

variable Increase in the variable

Decline in the variable

+50 points

-50 points

Discount rate 0.50% 3,54% decline 3,57% increase

Wage growth rate 0.50% 4,25% increase 3,89% decline

Pension growth rate 0.50% 4,25% increase 3,89% decline

Other Long-term Benefits Change in the

variable Increase in the variable

Decline in the variable

+50 Points

-50 Points

Discount rate 0.50% 2.81% decline 2.97% increase

Wage growth rate 0.50% 2.32% increase 3.61% decline

Pension growth rate 0.50% 2.32% increase 3.61% decline

25.6 Expected Payments for Future Benefits Future benefits are expected to be paid as follows. They reflect service according to each case.

Year



2017 $ 17,844

8,243

2018

15,733

13,503

2019

14,569

15,282

2020

14,839

15,406

2021

16,137

13,002

Years 2022–2026 $ 74,231

66,017

NOTE 26 - Provisions

The following is the activity in allowances:

Allowances for legal proceedings, fines,

penalties and compensation

Other various allowances

Total


102,736

382,497

485,233

New allowances

752

2,792

3,544

Increase (decline) in existing allowances

6,048

2,515

8,563

Allowances used

(5,499)

(1,420)

(6,919)

Reverted unused allowances

(303)

(552)

(855)

Increase (decline) owing to transfers and other changes

(959)

959

0

Increase (decline) owing to net exchange differences

0

(47)

(47)

Reclassifications

517

(927)

(410)

Decline owing to loss of control over Corporación Financiera Colombiana S.A.

(81,360)

(233,662)

(315,022)

Net movement from discontinued operations 8,595 48,429 57,024

Balance at June 30, 2016 $ 30,527

200,584

231,111

New allowances

1,753

248,946

250,699

Increase (decline) in existing allowances

493

(1,916)

(1,423)

Allowances used

(1,603)

(237,066)

(238,669)

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(Continued)

Allowances for legal proceedings, fines,

penalties and compensation

Other various allowances

Total

Reverted unused allowances (529) (251) (780)

Increase (decline) owing to net exchange differences 0 47 47

Reclassifications

11

(11)

0

Contingent provisions with an effect on OCI 0 119 119

Decline owing to loss of control over Corporación Financiera Colombiana S.A.

0

(1,069)

(1,069)

Balance at June 30, 2016 $ 30,652

209,383

240,035

The following is the nature of the contract obligations for which the most representative allowances for the Group were estimated. 26.1 Legal Provisions, Fines, Penalties and Compensation The amount of provisions recognized at December 31 and June 30, 2016 for labor, civil and administrative suits filed by third parties against Banco de Bogota and Porvenir S.A.came to $10,268 and $10,344, respectively. A calendar or schedule for the disbursement of these provisions cannot be determined due to the diversity of the suits and the different stages they are at. However, the Bank expects no major changes in the amounts provisioned as a result of the payments that will be made in each of the processes. As for other suits, Porvenir S.A. reported $15,550 and $15,270 for employee social security claims (survivor pensions, disability, old-age pensions, return of balances, etc.) at December 31, 2016 and December 15, 2015, respectively. 26.2 Other Provisions

Banco de Bogota reported $16,622 and $14,953 in respective provisions estimated at December 31 and June 30, 2016 for expenses involved in dismantling teller machines and improving property it rents. Provisions also were established for payments to franchises; namely, Visa, Mastercard, Redeban and Credibanco, with respect to operations conducted at establishments by the Bank’s cardholders and other expenditures particular to the credit card business. Respectively these came to $13,996 and $3,344 at December 31 and June 30, 2016. Provisions of this type are canceled out during the month after the one in which they are established.

Porvenir S.A. registered $173,541 and $174,014 at December 31 and June 30, 2016 for allowances to cover undercapitalized accounts or errors in calculating monthly pension payments.

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(Continued)

NOTE 27 - Accounts Payable and Other Liabilities

The following are the accounts payable and other liabilities for the six months ended at December 31 and June 30, 2016:

December 31, 2016

June 30, 2016

Liabilities payable for services - collections $ 784,425

569,861 Payments to suppliers and payments for services

383,022

323,102

Payable dividends and surpluses

273,285

253,306 Compensation to Grupo Aval entities

211,222

87,434

Income received in advance

210,222

186,362 Cash over in withdrawals and advances from electronic tellers

196,178

1,634

Affiliate establishments

194,221

87,311 Withholding and other employee contributions

185,505

185,507

Other accounts payable

135,855

90,098 Other taxes

61,233

120,119

Cash surpluses - clearing

54,661

57,579 Commissions and fees

51,767

58,095

Accounts payable for loan or prepayment of fines

43,010

10,134 Sales tax payable

39,705

44,325

Account payable for principal and interest on Peace Bonds

28,872

29,010 Visa Smart Card payments - Visa Electrón

28,123

33,515

Contributions and memberships

26,976

16,591 Certificates of time deposit - matured

26,659

26,366

Leasing Bogota Panamá - collections

23,731

31,755 Checks drawn but not cashed

21,706

24,122

Contributions to financial transactions

21,595

14,183 Electronic purse for coffee growers

21,107

8,949

ATM withdrawals

20,891

9,668 Cancelled accounts

17,958

18,852

Distribution of funds pending credit to customers

17,905

21,753 Insurance companies

12,977

17,319

Lien orders

11,884

11,836 Commitments to buyers

11,289

14,104

Payments to settle loan operations

10,784

7,501 Security bonds

7,356

7,369

Card holders - to be applied

5,586

2,661 Positive balances on paid loans

4,801

5,003

Banking services

4,466

4,345 Rental fees

3,362

3,913

Payroll payments and deductions

1,264

10 Services

475

907

Transactions in the ATH automatic teller network

10

107,892 Advances received

2

2

$ 3,154,090

2,492,493

NOTE 28 - Equity 28.1 Subscribed and Paid-in Capital

All authorized, issued and outstanding shares of stock in the Group had a face value of $10.00 pesos each at December 31 and June 30, 2016. These shares were represented as follows.

December 31, 2016

June 30, 2016

Number of authorized shares of stock

500,000,000

500,000,000 Number of shares of stock subscribed and paid

331,280,555

331,280,555

Subscribed and paid-in capital $ 3,313

3,313

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(Continued)

28.2 Reserves

The following shows the composition of reserves at December 31 and June 30, 2016.

December 31, 2016

June 30, 2016

Legal

Appropriation of net profits $ 8,193,952

5,449,033

Statutory and discretional

Occasional reserves

45,864

15,293

Tax provisions

9,943

2,870 Others

635,053

656,790

690,860

674,953

$ 8,884,812

6,123,986

Legal Reserve

By law, all lending institutions are required to establish a legal reserve by appropriating ten percent (10%) their net earnings, each year, until the reserve equals fifty percent (50.0%) of subscribed capital. This legal reserve may be reduced to less than fifty percent (50.0%) of subscribed capital, if needed to cover losses in excess of undistributed profits. However, it may not be used to pay dividends or to cover expenses or losses as long as the Group has undistributed profits.

Statutory and Discretionary Reserves

These are decided at the shareholder meetings.

28.3 Earnings per Basic and Diluted Share

The calculation of earnings per share in the six months ended at December 31 and June 30, 2016 is as follows.

December 31, 2016

June 30, 2016

Earnings for the period $ 1,038,718

3,270,672

Outstanding shares of common stock

331,280,555

331,280,555

Earnings per basic and diluted share $ 3,135

9,873

See the capital management policies described in Note 37. The Bank had no transactions with diluted effects at December 31 and June 30, 2016. Consequently, basic earnings are equal to diluted earnings. Adjustments in First-time Application of IFRS

As instructed by the Financial Superintendence of Colombia in Circular 36/2014, net positive differences that are generated when supervised institutions adopt IFRS for the first time may not be distributed to cover losses, nor may they be capitalized, distributed as profits/ dividends, or recognized as reserves. They may be used only when effectively realized with third parties, other than related parties, and in accordance with IFRS principles.

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(Continued)

Net positive differences generated when adopting IFRS for the first time may not be used to comply with prudent requirements on regulatory capital, which is understood as the minimum amount of capital required to operate, depending on the nature of each institution supervised by the Financial Superintendence of Colombia. If the first-time adoption of IFRS generates net negative differences, they are to be deducted from regulatory capital.

NOTE 29 - Non-controlling Interest

December 31, 2016

% Ownership

interest

Value share of equity

Share of profits

Dividends paid during the

period

Almacenes Generales de Depósito Almaviva S.A.

5.08

3,125

459

282 Fiduciaria Bogotá S.A.

5.01

14,202

1,872

3,410

Sociedad Administradora de Pensiones y Cesantías Porvenir S.A

63.49

805,916

91,501

71,731

Megalínea S.A.

5.10

207

22

0 Others (1)

3,583

452

0

Subtotal

827,033

94,306

75,423

June 30, 2016

% Ownership

interest

Value share of equity

Share of profits

Dividends paid during the

period

Almacenes Generales de Depósito Almaviva S.A.

5.08 $ 2,875

223

0 Fiduciaria Bogotá S.A.

5.01

15,628

1,793

0

Sociedad Administradora de Pensiones y Cesantías Porvenir S.A

63.49

747,632

111,151

62,837

Megalínea S.A.

5.1

185

19

0 Casa de Bolsa S.A.

77.2

23,320

2,165

0

Others (1)

3,208

377

0

Subtotal

$ 792,848

115,728

62,837

Corporación Financiera Colombiana S.A.(2)

0

354,158

0

792,848

469,886

62,837

(1) This item pertains to non-controlling interest in the subsidiaries that sub-consolidate; namely, Leasing Bogotá Panamá, Almaviva and Porvenir

(2) Not consolidated at June 30, 2016. Profit sharing corresponds to the 61.65% not owned by the Bank

124



(Continued)

NOTE 30 - Other Comprehensive Income

The following shows the balances and activity for “other comprehensive income” accounts in equity during the periods ended at December 31 and June 30, 2016.


Reclassifications

Deconsolidation (loss of control)

Corficolombiana S.A.

Discontinued operation -

Corficolombiana S.A.

Sale of investments

measured at fair value with

changes in OCI

Movement during the

period

Balance at June 30,

2016


control) Casa de

Bolsa S.A

Movement during the

period

Balance at December 31,

2016

Adjustment for conversion of foreign subsidiaries or affiliates $

3,695,020 13,466 0 0 0 (777,682) 2,930,804 0 278,862 3,209,666

Hedging derivatives

(2,554,314) 0 0 0 0 399,154 (2,155,160) 0 (107,591) (2,262,751) Hedging financial liabilities in foreign currency

(1,140,093) 0 0 0 0 378,259 (761,834) 0 (169,454) (931,288)

Adjustment for conversion of financial statements of the branches

0 (82,139) (9,114) (2,256) 0 (92,571) (186,080) 0 (50,473) (236,553)

Debt instruments at fair value with changes in OCI

(421) 421 0 0 0 0 0 0 0 0

Equity instruments

0 28,100 (6,895) 10,736 (52,247) 47,553 27,247 (265) 3,729 30,711 Adjustment for conversion of financial statements of the branches

137,331 0 0 0 0 (33,429) 103,902 0 12,924 116,826

Surplus- Equity method

(130) 27,562 (16,861) (8,440) 0 (1,564) 567 406 (12,342) (11,369) Cash flow hedging

(2,714) 591 (3,947) 6,070 0 0 0 0 0 0

Adjustments in the loan allowance

(22,871) 12,604 722 (80) 0 (44,047) (53,672) 0 78,988 25,316 Employee benefits

11,526 0 (752) 568 0 (2,923) 8,419 0 (15,407) (6,988)

Income tax

1,342,548 (626) 2,672 (1,640) 0 (271,744) 1,071,210 0 92,894 1,164,104 Others

(21) 21 0 0 0 0 0 0 0 0

Controlling interest

1,465,861 0 (34,175) 4,958 (52,247) (398,994) 985,403 141 112,130 1,097,674 Non-controlling interest

137,942 0 0 27,250 0 (1,801) 163,391 0 461 163,852

TOTAL OCI $ 1,603,803 0 (34,175) 32,208 (52,247) (400,795) 1,148,794 141 112,591 1,261,526

NOTE 31 - Expenses for Fees and Other Services The following shows the expenses for commissions and services in the six months ended at December 31 and June 30, 2016:

December 31, 2016

June 30, 2016

Expenses for commissions and fees

Commissions on banking services $ 98,252 92,541 Pension and severance fund management

34,268 34,186

Others

19,578 20,966 Office network services 18,316 19,806 Data processing services 5,071 4,583 Sales and services 2,588 2,670 Total $ 178,073 174,752

NOTE 32 - Other Income

Other income during the six months ended at December 31 and June 30, 2016 is as follows:

December 31, 2016

June 30, 2016

Profit in recognition of Credibanco investment $ 126,599

0 Recovered loan portfolio and financial leasing write-offs 87,266

44,615

Income from the sale of goods and services of companies in the non-financial sector 34,729

43,846 Retrievals and recoveries 32,848

83,547

Others 32,389

10,376 Recovered fees of loan write-offs 19,827

13,744

Ownership interest in investments using the equity method 12,763

0 Reimbursements of provisions 9,626

1,935

Profit on disposal of non-current assets held for sale 8,139

6,692 Net gains on the sale of investments 7,858

5,558

Prescription of liabilities declared abandoned 7,726

1,419 Casualty revenue 5,841

6,155

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(Continued)

December 31, 2016

June 30, 2016

Recoveries on operational risk insurance 3,860

3,451 Fair value changes in investment properties 3,614

340

Cash transport service 3,447

3,166 Operational income from consortia and temporary joint ventures 3,292

3,332

Rental fees

2,950

2,878 Cash over electronic tellers

2,563

769

Profit on the sale of property, plant and equipment

2,166

298 Income from exchange activities

1,968

1,850

Dividends

52

1,727 Recovery of CREE tax paid in 2013

0

22,906

Total $ 409,523 258,604

NOTE 33 - Other Administrative Expenses

The following are the other expenses registered during the six months ended at December 31 and June 30, 2016.

December 31, 2016

June 30, 2016

Others $ 206,641 160,659 Taxes and rates 175,826 176,515 Contributions, memberships and transfers 157,373 157,812 Maintenance and repairs 124,803 120,508 Fees 124,423 101,093 Rental fees 124,199 140,540 Advertising 112,554 97,414 Public utilities 100,058 105,839 Insurance 83,508 86,826 Transport 54,340 54,902 Janitorial and security services 45,657 44,495 Stationary and office supplies 39,465 31,654 Temporary services 34,819 26,753 Data processing services 28,529 25,784 Adaptations and installations 23,297 19,597 Travel expenses 20,433 21,469 Public relations 2,873 1,705 Readjustment in the unit of real value (UVR in Spanish) 1,184 6,737 Impairment (Allowances) 18 131 Legal expenses 12 55

Total $ 1,460,012 1,380,488

NOTE 34 - Income from the Sale of Goods and Services of Non-financial Companies

The following shows the reclassification of income and expenses of entities in the real sector to income from the sale of goods and services of entities in the non-financial sector. Income is presented net for the six months ended at December 31 and June 30, 2016:

December 31, 2016

June 30, 2016

Non-financial sector income

Income from commissions and fees

Commissions from banking services $ 44

0 Other net income

Other operating income

48,388

43,846

Total non-financial sector income

48,432

43,846

Non-financial sector expenses

Impairment loss on financial assets

Loan portfolio and accounts receivable

(364)

563 Expenses for commissions and fees

2,675

2,759

126



(Continued)

December 31, 2016

June 30, 2016

Other expenses

Staff expenses

62,274

51,875 General administrative expenses

26,591

24,471

Depreciation and amortization of tangible and intangible assets

440

420 Other operating expenses

196

115

Cost of sales to the non-financial sector

12,765

11,592

Total non-financial sector expenses $ 104,577

91,795

Expenses for sale of goods and services of companies in the non-financial sector

(56,145)

(47,949)

NOTE 35 - Commitments and Contingencies

35.1 Loan Commitments

The entities in the Group grant guarantees and letters of credit to their customers in the normal course of their operations. In doing so, they irrevocably commit to make payments to third parties in the event the customer does not comply with its obligations with said third parties. These guarantees and letters of credit imply the same credit risk as the financial assets in the loan portfolio, and they are subject to the same authorization policies on loan disbursement in terms of the customer’s credit rating. The collateral considered appropriate under the circumstances is obtained.

Commitments to extend loans represent unused portions of authorizations to extend credit in the form of loans, credit card use, overdraft limits and letters of credit. As for the credit risk involved in commitments to extend lines of credit, the Group is potentially exposed to losses in an amount equal to the total amount of the unused commitment, if the total unused amount were to be withdrawn in full. However, the amount of the loss is less than the total amount of the unused commitment, since most commitments to extend credit are contingent on the customer maintaining specific credit-risk standards. The Group monitors the maturities on its lines of credit, since long-term commitments imply more credit risk than short-term commitments. Commitments in Unused Lines of Credit The following is a breakdown of guarantees, letters of credit and loan commitments in unused lines of credit at December 31 and June 30, 2016.

December 31, 2016

June 30, 2016

Notional amount

Fair value

Notional amount

Fair value

Collateral $ 2,647,985 14,215

2,861,490

14,936 Unused letters of credit

898,825 4,189

589,187

3,578

Overdraft limits

117,772 117,772

159,415

159,415 Unused credit card limits

13,982,359 13,982,359

13,324,052

13,324,052

Opened lines of credit

2,382,756 2,382,756

2,338,424

2,338,424

Loans approved but not disbursed

1,834,622 1,834,622

35,000

35,000

Others

94,100 94,100

199,032

199,032

Total $ 21,958,419 18,430,013

19,506,600

16,074,437

The outstanding balances of unused credit lines and guarantees do not necessarily represent future cash requirements, because the amount of credit available can expire and might not be used all or in part.

127



(Continued)

The following are the details on loan commitments, by type of currency.

December 31, 2016

June 30, 2016

Colombian pesos $ 8,624,408

6,790,394 US dollars 13,003,395

12,443,236

Euros 14,938

17,085 Others 315,678

255,885

Total $ 21,958,419

19,506,600

35.2 Commitments to Disburse Funds for Capital Expenditures The Group was committed under contract at December 31 and June 30, 2016 to disburse $867 and $360 respectively to cover capital expenses for the purchase of property, plant and equipment (immovables). There are commitments for $4,677 and $4,038 in respective payments stemming from these contracts, which will be made during 2017. 35.3 Operating Lease Commitments

In developing their operations, the Group’s subsidiaries sign agreements to receive property, plant and equipment and certain kinds of intangible assets under operating leases. The following are the details of the payment obligations in operating leases during the years ahead.

December 31, 2016

June 30, 2016

Not more than one year $ 165,657

113,775

More than one year and less than five 363,770

374,383

More than five years 262,137

140,149

Total $ 791,564

628,307

The Group has several operating leases, mainly due to the use of bank branches and offices. These contracts expire in seven (7) to 10 years, on average. They contain options for renewal, generally at the time agreed upon initially, and require the Group to assume all execution costs, such as maintenance and insurance. The rental fees are adjusted as agreed in the lease and / or as required by law. The minimum rental payments on operating leases are recognized according to the straight-line method, during the term of the lease. The rental expense recognized in profits and losses at December 31 and June 30, 2016 comes to $124,199 and $140,540, respectively.

35.4 Legal Contingencies

At December 31, 2016 the Group has administrative and legal claims pending against it, for $120.554, whic0068 were assessed based on the analysis and opinions of the lawyers who are involved in these cases and following contingencies were determined. They have not been recognized as liabilities, because they are potential liabilities that do not involve an outlay of resources.

The following is a breakdown of the contingencies against the Bank for over $5,000.

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(Continued)

Civil Suit Brought by Pedro Ramón Kerguelen and Luz Amparo Gaviria This is a compensatory suit in which it is requested the Group be held responsible for compensating the product of a development loan against a previous debt on the part of the plaintiffs, which prevented the Finagro investment project from being carried out. The claims are valued at $61,300 and judgement in the first instance is pending. Civil Liability Suit Brought by Titan Intercontinental S.A. Alleging Undue Financial Transaction Tax Withholding This is a non-contractual civil liability suit brought by Titan Intercontinental S.A. against Banco de Bogotá alleging undue withholding of financial transaction tax during the years 2001, 2002 and 2003 on operations Casa de Cambios charged to its current accounts for payments to end beneficiaries, transactions the claimant maintains were exempt from said tax. In the opinion of the Bank, the financial transaction tax was applied and withheld by Banco MEGABANCO S.A. according to law, since the plaintiff did not request, in due course, that the accounts be marked for the exemption. The claims amount to $7,000. The ruling in the first instance, issued on December 6, 2016, was in favor of Banco de Bogota. The filing of an appeal by the plaintiff or a final judgement is pending. Civil Liability Suit Brought by “Casa de Cambios Unidas S.A.” Alleging Undue Financial Transaction Tax Withholding This is a non-contractual civil liability suit brought by “Casa de Cambios Unidas S.A.”, against Banco de Bogotá alleging undue withholding of financial transaction tax during the years 2001, 2002 and 2003 on operations the plaintiff charged to its current accounts for payments to end beneficiaries, transactions the plaintiff claims were exempt from said tax. In the opinion of the Bank, the financial translation tax was applied and withheld by Banco MEGABANCO S.A. according to law, since the plaintiff did not request, in due course, that the accounts be marked for the exemption. The claims amount to $5,900. Once the evidence was gathered, the court set a date and time to hear the arguments and rule on the case (May 2017). People’s Suit - Valle del Cauca Department This is a people’s suit requesting the Bank reimburse the uncollected portion of the foreclosed in shares of EPSA and Sociedad Portuaria de Buenaventura and to pay damages to the Valle del Cauca Department. The claims amount to $18,000. The case is pending the trustee taking office. The Group does not expect to obtain any type of reimbursement. Therefore, it has not recognized assets for this purpose.

Administrative Process Brought Through Government Channels by the National Tax Office

This is a sanctioning and determinative administrative process involving Leasing Bogotá S.A. Panama with respect to the transfer of charges No.1-10-053-15-088-041-03, calculated on 50% of the adjustment on income tax for the 2012 and 2013 tax years and reduction of deductible and non-deductible expenses. The claims amount to $10,409 and $20,818 respectively. The defense’s arguments against the adjustments and the evidence provide documentary support for what the company did it its tax declaration.

129



(Continued)

Administrative Process Involving the Tax Authority and Credomatic de Guatemala S.A.

This is an administrative suit involving Leasing Bogotá Panama. It pertains to a tax adjustment on the stamp taxes and sealed paper for unacknowledged protocols. These levies are derived from dividends attached to share certificates, which were presented between April 2008 and May 2009. The claims amount to $5,567. A favorable ruling was issued in the first instance by the Court of Administrative Litigation. The ruling in the second instance was against the company, which is why it filed an appeal for constitutionality, which is pending resolution. Ordinary Civil Suit Brought by Jorge Ruben Nayen

This is a civil suit involving Leasing Bogotá S.A. Panama and a claim for damages. The plaintiff is arguing the defendant was negligent for having breached the second clause of a loan agreement, among others, which stipulated the loan had to be disbursed when the collateral was filed with the property registry. The loan was disbursed with a promissory note. The claims amount to $5,249. The ruling in the first instance was in favor of Banco BAC. The plaintiff has appealed that decisión. Arbitration Process Requested by Mercado Intercuentas S.A.

This is an arbitration process instituted by Mercado Intercuentas S.A. against BBVA (PANAMÁ) S.A. Mercado Intercuentas S.A. is seeking damages based on the claim that it was jeopardized because BBVA (PANAMÁ) S.A. breached three (3) service contracts related to the proceeds from factoring. The contracts in question were entered into between the parties on July 16, 2009, September 29, 2010 and October 18, 2010. The claims amount to $6,833. The plaintiff argues the defendant was negligent for having breached the second clause of a loan agreement, among others. A conciliatory settlement was reached and was to be executed and ratified on January 10, 2017. The contract will have to be declared null and void, as it goes against the law.

NOTE 36 - Related Parties According to IAS 24, a related party is a person or entity that is related to the entity that prepares its financial statements. The latter could have control or joint control over the reporting entity, exercise significant influence over it, or be considered a key member of management within the reporting entity or a controller of the reporting entity. The definition of related parties includes persons and/or family members who are related to the entity, entities that belong to the same group (controller and subsidiary), associates or business combinations of the entity or of the entities in the Group, and post-employment plans that benefit the employees of the reporting entity or a related entity.

Therefore, the following are regarded as related parties. a) An economically related party is a person or entity that is related to an entity in the Group through

transactions such as the transfer of resources, services or obligations, regardless of whether or not a price is charged.

The Group regards any economic undertaking or event with shareholders and entities of Grupo Aval as a transaction between related parties.

b) Shareholders with 10% or more individual ownership interest in the equity of the Bank (Grupo Aval

Acciones y Valores) are regarded as related parties.

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(Continued)

c) Key management personnel: These are persons with authority and responsibility for planning, managing and controlling the activities of the entity, either directly or indirectly, including any director or administrator of the Bank (executive or otherwise), the president, the vice presidents and the members of the Board of Directors.

d) Subordinate entities: These are entities in which the Bank exercises control, according to the definition of control outlined in the Commercial Code and in IFRS10 on consolidation.

e) Associate entities: These are entities in which the Group has significant influence, which generally is regarded as owning between 20% and 50% of the firm’s equity.

f) Other related parties: These include Banco de Occidente and subordinates, Banco AV Villas and subordinates, Banco Popular and subordinates, Seguros de Vida Alfa S.A., Seguros Alfa S.A. and other related parties.

Transactions with Related Parties

The Group may enter into transactions, agreements or contracts with related parties, based on the understanding that such operations shall be conducted at fair value, taking into account market conditions and rates. None of the following existed between the Bank and its related parties during the periods ended at December 31 and June 30, 2016.

Loans that imply an obligation for the borrower that does not coincide with the essence or nature of a

loan agreement.

Loans at interest rates other than those normally paid or charged to third parties under similar terms

with respect to risk, maturity, etc.

Operations of a nature that is different from those conducted with third parties.

As per Banco de Bogotá’s manual on agreements, specifically Chapter VI- “Special Agreements with Subsidiaries on Using the Bank’s Network,” the Bank has agreements with Fiduciaria Bogotá S.A. and Porvenir S.A. to allow them to use its network of offices. The Colombian government has authorized trust companies to use bank offices. Accordingly, Fiduciaria Bogotá S.A. entered into a contract with Banco de Bogotá S.A. to use the Bank’s network of offices for its operations. The agreement defines how the transactions of customers with mutual funds managed by Fiduciaria Bogotá S.A. will be handled from an operational standpoint. In keeping with the provisions outlined in Law 50/ 1990 (Labor Reform Act) and Law100/1993 (General and Comprehensive Social Security System), the Bank entered into an agreement with Sociedad Administradora de Fondos de Pensiones y Cesantías - Porvenir S.A., whereby the latter uses its offices as a support network to provide services related to the severance and mandatory pension funds Porvenir manages. The fees paid to members of the Board of Directors for their attendance at Board and committee meetings during the six months ended at December 31 and June 30, 2016 came to $741 and $706, respectively.

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The Bank registered the following loans and deposits with related entities and Bank directors and managers at December 31 and June 30, 2016:

December 31, 2016

June 30, 2016

Loan portfolio $ 1,053,634

672,128

Deposits and demand accounts

868,813

616,855

Total $ 1,922,447 1,288,983

All transactions and disbursements were done at market prices. Credit card operations and overdrafts were conducted at the full rates for those products.

The following table shows the balances and operations with related parties organized into groups, including details on transactions with key management personnel.

December 31, 2016

Related entities

Economically- related parties

Grupo Aval

Key management

personnel

Non-subordinates

Associates and Joint ventures

Subordinates

Assets

Cash and cash equivalents $ 0 0 0 78 89 4,323 Investments recorded using the equity method

0 0 0 0 3,341,859 11,514,343

Investment allowance

0 0 0 0 0 1,163 Loan portfolio and financial leasing transactions

742,761 718,348 23,134 20,013 143,677 89

Other accounts receivable 1,908 165,127 0 14 13,237 33,508 Hedging derivatives

0 3,340 0 0 0 0

Financial investment assets

0 0 0 0 0 187 Liabilities

Financial liabilities at amortized cost

197,237 2,418,157 26,506 948 685,846 3,223,970

Hedging derivatives 0 2,840 0 0 0 0 Accounts payable and other liabilities

2,309 174,940 10 3,964 1,029 4,362

Income

Interest

29,711 35,495 714 16 8,253 1

Commissions and other services 0 142 12 14 1,684 3,623 Other income

2,676 66,209 0 1,589 849 827

Expenses

Financial costs

3,893 96,892 437 1 28,051 7,956

Expenses for commissions and other services 635 0 0 21 363 1,186 Other expenses

2,900 151,581 6,987 4,371 5,084 61,511

June 30, 2016

Related entities


Grupo Aval

Key management

personnel

Non-subordinates


Subordinates

Assets

Cash and cash equivalents $ 0 0 0 20 43 7,344 Investments in subsidiaries, associates and joint ventures

0 0 0 0 3,347,814 10,897,691

Investment allowance

0 0 0 0 0 1,131 Loan portfolio and financial leasing transactions

760,225 685,113 16,713 22,003 163,160 162

Other accounts receivable 630 236,317 0 168 17,868 9,984 Hedging derivatives

0 5,849 0 0 0 0

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(Continued)

June 30, 2016

Related entities


Grupo Aval

Key management

personnel

Non-subordinates


Subordinates

Financial investment assets

0 0 0 0 0 181 Liabilities

Financial liabilities at amortized cost

182,382 4,002,774 11,573 1,396 877,030 958,017

Hedging derivatives 0 14,138 0 0 0 0 Accounts payable and other liabilities

2,745 161,142 10 3,574 357 4,448

Income

Interest

24,127 23,162 742 42 7,647 1

Commissions and other services

97 143 7 25 1,136 2,758

Other income

115 139,472 0 1,065 908 754 Expenses

Financial costs

7,350 116,741 167 1 29,434 5,050 Expenses for commissions and other services

2,007 0 25 21 17 1,422

Other expenses

4,076 228,603 11,088 3,607 4,180 50,898

The outstanding amounts are guaranteed and there is no recognized expense in the current period or prior periods for uncollectible or doubtful accounts concerning amounts owed by related parties. The benefits for key management personnel during the six months ended at December 31 and June 30, 2016 include the following:

December 31, 2016

June 30, 2016

Short-term employee benefits $ 37,759 51,958

Post-employment benefits 0 3

Compensation for key management personnel and other long-term employee benefits 236 189

Termination benefits

33 16

$ 38,028 52,166

NOTE 37 - Adequate Capital Management When it comes to managing its capital, the Group focuses on: a) complying with the capital requirements defined by the Colombian government for financial institutions, and b) maintaining an adequate equity structure that enables the Group to generate value for its shareholders. The total capital adequacy ratio, defined as the ratio of regulatory capital to risk-weighted assets, may be no less than nine percent (9.0%). The core capital adequacy ratio, defined as the ratio of ordinary core capital to risk-weighted assets, may be no less than four point five percent (4.5%). These requirements are outlined respectively in Articles 2.1.1.1.2 and 2.1.1.1.3 of Decree 2555/2010, which was amended by Decree 1771 / 2012, Decree 1648 / 2014 and Decree 2392/2015. Individual compliance is verified monthly. Compliance on a consolidated basis with the subordinates in Colombia, supervised by the Financial Superintendence of Colombia, and with financial subsidiaries abroad is verified quarterly. For the purpose of capital management in Colombia, ordinary core equity mainly includes subscribed and paid-up shares of common stock, additional paid-in capital and the legal reserve created through appropriation of profits. Regulatory capital includes ordinary core capital, but also takes into account

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unrealized gains on debt and equity securities, subordinated bonds, discretionary reserves and a portion of net income for the period, according to the commitment to appropriate net income for the legal reserve, as approved at the meeting of shareholders. To manage capital from an economic standpoint and to create value for shareholders, management closely monitors the profitability levels of each line of business and the capital that is required given the expectations for growth in each of these lines. Capital management, in economic terms, also implies analyzing how capital could be affected by the various credit, market, liquidity and operational risks to which the Group is exposed in the course of its operations.

The Group’s regulatory capital breaks down as follows:

Banco de Bogotá – Consolidated December 31,

2016 June 30, 2016

Regulatory capital $ 16,236,203 14,268,041 Total risk-weighted assets 116,745,434 109,338,948 Total solvency risk ratio > 9% 13.91% 13.05% Basic solvency risk ratio > 4.5% 8.96% 6.78%

The Group's subsidiaries also have complied adequately with the requirements on regulatory capital. The following is a breakdown of the capital requirements for the Group’s financial subsidiaries in the six months ended at December 31 and June 30, 2016:

Entity

Total requirement December 31,

2016 June 30, 2016

Banco de Bogotá – Separate 9% 20.85% 19.87% BAC International Bank – Consolidated 8% (1) 13.31% 14.06% Porvenir 9% 36.15% 23.07% Fidubogotá 9% (2) 195.83% 51.36% Almaviva 36 times (3) 17.05 times 14.03 times

(1) According to Agreement 001/2015 and Agreement 003/2016 established by the Panama Banking Authority. (2) A contract to manage the independent assets of Ecopetrol Pensiones was concluded in October 2016, thereby significantly reducing the

trust’s volume of exposure to operational risk at December 31, 2016 compared to June 30, 2016. Its solvency ratio increased considerably as a result.

(3) In the case of Almaviva, the capital requirement is measured as the maximum storage capacity, which may be not more than 36 times the company’s regulatory capital.

NOTE 38 - Statutory Controls

Statutory controls are the regulations the Financial Superintendence of Colombia has established for credit institutions (banks, financial corporations and finance companies) with respect to the required reserve ratio (see Note 6, paragraph 6.4, Section c, Liquidity Risk), the propietary position (see Note 6, paragraph 6.4, Section c. Individual Risk Analysis), the capital adequacy ratio (see Note 37), and the mandatory investments to be made in securities issued by the Agricultural Sector Financing Fund (FINAGRO). The Group complied with all these requirements during the six months ended at December 31 and June 30, 2016.

NOTE 39 - Subsequent Events Concessionaire Ruta del Sol SAS (the "Concessionaire") is the company that was awarded Concession Contract No. 001 on January 14, 2010 to build, operate and maintain Sector 2 of the Ruta del Sol Road Project, which extends from Puerto Salgar to San Roque (the "Contract").

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Banco de Bogotá granted loans to the Concessionaire in connection with the Contract. The outstanding balances on those loans came to $721,145 and $690,367 at December 31 and June 30, 2016, in that order, and represent 0.50% and 0.53% of the total assets at the end of each period. Moreover, Estudios y Proyectos del Sol S.A.S ("Episol"), a company 100% owned by Corporación Financiera Colombiana S.A (Corficolombiana), an associate of Banco de Bogotá, possesses 33% of the capital stock of the Concessionaire. Given the investigations and suits brought by criminal, judicial and administrative authorities as a result of acts of corruption in twelve countries, including Colombia, that have been confessed in US courts by the Brazilian firm Odebrecht S.A., which has controlling interest in the Concessionaire (62.01%) through its subsidiaries Constructora Norberto Odebrecht S.A. and Odebrecht Latinvest S.A.S., the Contracyt has been subject to recent measures and pronouncements issued by Colombian supervisory bodies and judges. In view of the foregoing and to allow the Ruta del Sol Sector 2 Project to continue promptly and in compliance with orders issued on this matter, the Concessionaire and the National Infrastructure Agency (ANI) signed an agreement on February 22, 2017 ordering early termination of the contract and a formula for its settlement (the "Agreement"). Based on the formula to settle the Contract, and preliminary values thereof, Banco de Bogotá estimates: a. All capital owed by the Concessionaire will be recovered, as well as the interest accrued up to the date

when the Concession reverted to ANI. The Agreement provides for these resources, adjusted at the rate of inflation, to be delivered to the banks between 2017 and 2021, chargeable to future periods, and

b. The basis for settling the Contract will allow Episol to recover part of its investment in the

Concessionaire, which is why Episol’s financial statements for the second half of 2016 (ended at December 31) and, consequently, those of Corficolombiana include $102,274 in provisions with respect to that investment. This affects Banco de Bogotá's profits in the amount of $39,219.

NOTE 40 - Authorization to Present the Financial Statements

At a meeting on February 27, 2017, the Board of Directors gave its authorization for the consolidated financial statements at December 31, 2016 and the accompanying notes to be presented to the General Assembly of Shareholders for approval.

notes to the financial statements banco de bogotá s.a ......banco de bogotÁ s.a. and subsidiaries...

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