UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

Report Of Foreign Private Issuer

Pursuant To Rule 13a-16 Or 15d-16 Of

The Securities Exchange Act Of 1934

For the month of March 2022

Commission File Number: 000-54290

Grupo Aval Acciones y Valores S.A.

(Exact name of registrant as specified in its charter)

Carrera 13 No. 26A - 47

Bogotá D.C., Colombia

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

GRUPO AVAL ACCIONES Y VALORES S.A.

TABLE OF CONTENTS

Item 1

INFORMATION STATEMENT

BAC Holding International Corp.

Grupo Aval Acciones y Valores S.A. (“Grupo Aval”), a company domiciled in Bogotá, Colombia and organized under Colombian laws and regulations, and BAC Holding International Corp. (“BHI”), a holding company organized under Panamanian law (formerly, Leasing Bogotá S.A. Panamá), are furnishing this information statement in connection with the demerger (escisión) of Grupo Aval’s indirect majority ownership stake in BHI and the distribution, through a series of transactions described in this information statement under the caption “The Spinoff,” of 43,220,189,095 common shares of BHI (par value $0.0662975983446469 per share) (each a “BHI Share” and collectively, the “BHI Shares”) to (i) the shareholders of Grupo Aval’s consolidated subsidiary, Banco de Bogotá S.A. (“Banco de Bogotá”), a bank organized under Colombian laws and regulations, which, prior to the Spinoff, was BHI’s sole shareholder, and (ii) in turn, the distribution of the BHI Shares received by Grupo Aval from Banco de Bogotá to its own shareholders, in each case on a pro rata basis, proportionally to such shareholders’ ownership stakes in Banco de Bogotá and Grupo Aval, respectively. The aforementioned transactions, which along with certain related transactions described in greater detail under the caption “The Spinoff” are referred to herein as the “Spinoff.”

Grupo Aval’s shareholders will receive an aggregate of 22,281,017,159 BHI Shares in the Spinoff. You are receiving this information statement because Grupo Aval believes that you are a resident of the United States and own its common or preferred shares, including preferred shares represented by American Depositary Shares (“ADSs”), each of which represents 20 Grupo Aval preferred shares.

To the extent you hold Grupo Aval’s common or preferred shares, you will receive one BHI Share for each one Grupo Aval common or preferred share that you own of record immediately prior to the open of business (Bogotá, Colombia time) on March 28, 2022 (the “Colombian Record Date”).

If you own Grupo Aval ADSs, you will be entitled to elect to take delivery in your Colombian brokerage account of 20 BHI Shares for each Grupo Aval ADS that you own of record at the close of business (New York City time) on March 28, 2022 (the “ADS Record Date” and the Colombian Record Date, each a “Record Date”). If you hold Grupo Aval’s ADSs and do not timely or properly elect to receive BHI Shares in the manner described in this information statement, you will automatically receive the net cash proceeds from the sale of the BHI Shares to which you would otherwise have been entitled. See the section of this information statement titled “Questions and Answers About the Spinoff and Your BHI Securities—I am an ADS holder. How do I elect to receive BHI common shares?”

Except as set forth in the preceding paragraph, you are not required to take any action to receive the BHI Shares. The BHI Shares will be registered in each holder’s name with Depósito Centralizado de Valores, “DECEVAL”, in Colombia and Central Latinoamericana de Valores, or “Latinex,” in Panamá; both BHI’s registrars and custodian agents.

In reviewing this information statement, you should carefully consider the matters described under the caption “Risk Factors” beginning on page 20.

Neither the U.S. Securities and Exchange Commission (“SEC”) nor any state securities commission or regulator in any other jurisdiction has approved or disapproved the securities described in this information statement or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

Grupo Aval is not soliciting a proxy or consent authority in connection with the Spinoff. The Spinoff has been approved by Grupo Aval’s common shareholders and has received all requisite regulatory approvals.

The date of this information statement is March 18, 2022.

table of contents

i.     NOTE REGARDING THE USE OF CERTAIN TERMS

We frequently use the following terms in this information statement to refer to the items indicated (this is not an exhaustive list of definitions used in this information statement, and certain terms are defined elsewhere in this information statement):

The terms “BAC,” “BAC Holding,” the “Company,” “BHI”,” “we,” “us” and “our” refer, unless the context otherwise specifies, to BAC Holding International Corp., a holding company organized under Panamanian law (formerly Leasing Bogotá S.A. Panamá), and the entity in which you are receiving shares in connection with the Spinoff.

BAC Credomatic Group ("BAC Credomatic" or the "Group") refers generally to BAC Credomatic Inc., the main and direct subsidiary of BHI, and the remaining regulated and/or operating subsidiaries that operate under the BAC Credomatic trademark as a single institution throughout Central America, whose shares are held directly and indirectly by BAC Credomatic Inc.

The term “BHI Listing” is defined in this information statement under the caption “The Spinoff” starting on page 12.

The term “Banco de Bogotá” and “BdB”, refers to Banco de Bogotá S.A., a bank organized under Colombian laws and regulations, and a majority-owned subsidiary of Grupo Aval.

The term “BdB Demerger” is defined in this information statement under the caption “The Spinoff” starting on page 12.

The term “BVC” refers to Bolsa de Valores de Colombia, the Colombian stock exchange.

The term “Deceval” refers to Depósito Centralizado de Valores, the Colombian central deposit for securities.

The term “Depositary” refers to JPMorgan Chase Bank, N.A., as depositary for the ADSs, each ADS representing 20 preferred shares of Grupo Aval.

The term “Distribution” means the completion of the Grupo Aval Distribution, as such term is defined in this information statement under the caption “The Spinoff” starting on page 12.

The term “Grupo Aval” refers to Grupo Aval Acciones y Valores S.A. (“Grupo Aval”), a company domiciled in Bogotá, Colombia and organized under Colombian laws and regulations.

The term “Grupo Aval Demerger” is defined in this information statement under the caption “The Spinoff” starting on page 12.

The term “Spinoff” is defined in this information statement under the caption “The Spinoff” starting on page 12.

The term “Transactions” is defined in this information statement under the caption “The Spinoff” starting on page 12.

The term “Latinclear” refers to Central Latinoamericana de Valores, the Panamanian central deposit for securities.

The term “Latinex” refers to Bolsa Latinoamericana de Valores, the Panamanian stock exchange.

The term “Newco BdB” refers to Sociedad Beneficiaria Bogotá S.A.S., a company organized under Colombian laws and regulations

The term “Newco Aval” refers to Sociedad Beneficiaria Aval S.A.S., a company organized under Colombian laws and regulations.

The term “RNVE” refers to Registro Nacional de Valores y Emisores, an entity attached by the SFC and in which the shares and issuers are registered.

The term “SBP” refers to Superintendencia de Bancos de Panamá, the Panamanian Bank Superintendency.

The term “SEC” refers to the United States of America Securities and Exchange Commission.

The term “SFC” refers to Superintendencia Financiera de Colombia, the financial Superintendency of Colombia.

The term “SVM” refers to Superintendencia del Mercado de Valores, the stock market Superintendency in Panama.

The terms “U.S. dollar”, “USD”, “U.S.$” and “$”, refers to the lawful currency of the United States of America.

ii.     AVAILABLE INFORMATION

Grupo Aval

Grupo Aval is the holding company to Colombia’s largest banking group (based on total assets as of December 31, 2020). Through its subsidiaries, Grupo Aval provides a comprehensive range of financial services and products from traditional banking services, such as making loans and taking deposits, to pension and severance fund management.

Grupo Aval files or furnishes annual, quarterly and other reports and other relevant information with the Registro Nacional de Valores y Emisores (“RNVE”), a registration system of the Superintendencia Financiera de Colombia (“SFC”), Colombia’s principal financial markets regulator, pursuant to Colombian securities laws and regulations as amended, and with the SEC, pursuant to the U.S. Securities Exchange Act of 1934, as amended. The documents filed or furnished by Grupo Aval with the SEC are available to the public at the SEC’s website at http://www.sec.gov. Certain of these documents and certain other information is also available for download free of charge on Grupo Aval’s investor relations website at https://www.grupoaval.com/investor-relations. Statements made in this information statement concerning the provisions of any contract, agreement, indenture, or other document referred to herein are not necessarily complete. With respect to each such statement concerning a contract, agreement, indenture or other document filed with the SEC, reference is made to such filing for a more complete description of the matter involved.

Grupo Aval’s website, the information contained therein or linked thereto and the information on the SEC’s website is not incorporated by reference into and should not be deemed part of this information statement.

BAC Holding International Corp.

BHI is a financial entity in the Republic of Panama, with a leasing license and, therefore, supervised and regulated by the General Direction of Financial Entities of the Ministry of Commerce and Industries of the Republic of Panama. BHI is the holding company of BAC Credomatic Inc, the leading private bank in Central America (based on total assets as of September 30, 2021). As of September 30, 2021, BHI had more than 4.1 million clients and 18,947 direct employees in the region.

Those Banking Groups over which SBP exercises a supervision of origin are subject to the consolidated supervision of banking groups, pursuant to the applicable provisions of Accord 7-2014. 

Banking Group is defined, pursuant to Executive Decree No. 52 of April 30, 2008, whereby the Sole Text of Decree Law 9 dated 26 February 1998, modified by Decree Law 2 dated 22 February 2008 is adopted (“Banking Law”), as one constituted by a bank holding company and its subsidiaries at any level, whose activities consist, predominantly, of providing services in the banking or financial sectors, including nonbanking subsidiaries of the latter which, in the opinion of the SBP, operate under common management, either through the bank holding company or through different holdings or agreements.  

As of the date of this information statement, BHI is not supervised, nor regulated by the SBP. However, BAC Holding International Corp. is the controlling entity of BAC International Bank Inc, a general license bank in Panama, supervised and regulated by the SBP. 

As a listed issuer in the Colombian and Panamanian stock exchange, BHI will be required to keep up-to-date information with the RNVE and Latinex, and provide periodic information to the SFC and the SMV such as annual, quarterly, and other reports and relevant information pursuant to Colombian and Panamanian securities laws and regulations. Certain of these documents and other information will also be made available for download on BHI’s website at www.bac-holding.com.

The documents referred to in this information statement and the information accessible through the Company website are not incorporated by reference in and should not be deemed part of this information statement.

iii.     SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made statements under the captions “Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and in other sections of this information statement that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections, forecasts or assumptions of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including the numerous risks discussed under the caption entitled “Risk Factors.”

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Except as required by law, neither Grupo Aval nor BHI are under any duty to update any of these forward-looking statements after the date of this information statement to conform our prior statements to actual results or revised expectations.

1.     SUMMARY

This summary highlights information contained elsewhere in this information statement. This summary does not contain all of the information that you should consider. You should read this entire information statement carefully, especially the risks of owning our common stock discussed under “Risk Factors” and our audited and unaudited financial statements and our unaudited condensed pro forma financial information, and the respective notes thereto, appearing elsewhere in this information statement. Except as otherwise indicated or unless the context otherwise requires, the information included in this information statement assumes the completion of all the transactions referred to in this information statement in connection with the Spinoff.

Overview

Prior to the Spinoff (as defined hereunder), BAC Holding International Corp. was a wholly owned subsidiary of Banco de Bogotá, a consolidated subsidiary of Grupo Aval. BHI is holding company whose only material tangible assets are its 100% equity ownership stake in BAC Credomatic Inc. and its 9.46% direct participation in BAC International Bank Inc. and its subsidiaries. BHI has a single class of ordinary shares outstanding with equal voting and economic rights.

BHI, through its subsidiary BAC International Bank, Inc. (a bank organized under the laws of Panama), is a full-service Central American financial institution with leading credit card issuance and merchant-acquiring franchises and operations in Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama.

Until September 30, 2021, BHI also owned an approximate 99.6% equity stake in Multi Financial Group, Inc., a company organized under Panamanian law (“MFG”), which provides financial services, mainly commercial, investment, mortgage and consumer banking, insurance, factoring and leasing, in Panama. MFG was acquired by Banco de Bogotá through BHI on May 22, 2020, and was demerged from BHI on September 30, 2021, and retained by Banco de Bogotá (the “MFG Demerger”). BHI’s audited financial statements for the year ended December 31, 2020, include eight months of MFG’s results within continuing operations, while BHI’s unaudited interim financial statements for the nine-month periods ended September 30, 2021 and 2020 reflect MFG’s results as discontinued operations. To facilitate comparability of the financial information included in this information statement, we have prepared unaudited pro forma income statement information for the nine-month period ended September 30, 2021, and the year ended December 31, 2020, which assume that MFG Demerger and the Spinoff occurred on January 1, 2020. For additional information see Section 7. “Unaudited Condensed Pro Forma Financial Information”.

The Spinoff

Grupo Aval has entered and caused certain of its direct and indirect subsidiaries, including Banco de Bogotá and BHI, to enter into a series of transactions, as follows:

The Banco de Bogotá Demerger

Grupo Aval (A) created a new Colombian corporation, Newco BdB, a wholly-owned subsidiary of Grupo Aval, and (B) on January 18, 2022, caused Banco de Bogotá to obtain authorization by the Superintendence of Finance of Colombia to execute an escisión, or demerger, under Colombian law, pursuant to which Banco de Bogotá will transfer to Newco BdB a 75% ownership stake in the share capital of BHI, and 100% of the share capital of Newco BdB will be issued pro rata to Banco de Bogotá’s shareholders (the “BdB Distribution”), resulting in both Banco de Bogotá and Newco BdB being owned by the shareholders of Banco de Bogotá (including Grupo Aval) pro rata to their respective ownership interests in Banco de Bogotá immediately prior to the BdB Demerger (as defined below).

The Grupo Aval Demerger

Grupo Aval (A) has created a new Colombian corporation, Newco Aval, a wholly-owned subsidiary of Grupo Aval, and (B) will execute an escisión, or demerger, under Colombian law pursuant to which Grupo Aval will transfer to Newco Aval the approximately 68.7% ownership stake in the share capital of Newco BdB that Grupo Aval received in the BdB Demerger, and 100% of the share capital of Newco Aval will be issued pro rata to Grupo Aval’s shareholders (the “Grupo Aval Distribution”), resulting in both Grupo Aval and Newco Aval being owned by the shareholders of Grupo Aval pro rata to their respective ownership interests in Grupo Aval immediately prior to the Grupo Aval Demerger (as defined below).

The BHI Listing and Mergers

Grupo Aval (A) caused BHI to submit an application to list its shares on the Bolsa de Valores de Panamá, the Panamanian stock exchange and the Colombian stock exchange, and has taken and will take other necessary actions to list the BHI Shares on these stock exchanges (as described under “The Spinoff” below) and (B) will cause Newco Aval and Newco BdB to merge with and into BHI, with BHI as the surviving company.

Effect of the Spinoff

The Transactions, as summarized in subsections (i) through (iii) above (collectively, the “Spinoff”), are expected to occur within a short period of each other, except for the BHI Listing on the Latinex, which became effective in Panamá on February 24, 2022.

The transactions, as summarized in subsections (i) through (iii) above will result in the share capital of BHI being publicly traded on the Latinex (the Panamanian stock exchange) and the BVC (Colombian stock exchange) and 75% of that share capital being owned by the shareholders of Grupo Aval and Banco de Bogotá (other than Grupo Aval, which will have spun off its direct interest) on a pro rata basis to their respective beneficial ownership stakes in BHI’s share capital immediately prior to the Spinoff. Immediately following the Spinoff, Grupo Aval’s shareholders will own approximately 51.5%, Banco de Bogotá’s shareholders (other than Grupo Aval) will own approximately 23.5% and Banco de Bogotá will continue to directly own 25% of the share capital of BHI. BHI’s only material asset is its ownership of 100% of the share capital of BAC Credomatic Inc. and its subsidiaries.

For more information, see Section 4. “Risk Factors—Risks Relating to the Spinoff” and Section 2. “The Spinoff” included elsewhere in this information statement.

Corporate Information

BAC Holding International Corp. is a company incorporated under the laws of the Republic of Panama, in the form of a corporation and existing in accordance with the laws of the Republic of Panama, through Public Deed No. 5,700 of August 30, 1972 of the Second Notary of the Circuit of Panama, registered in File 11657 of the Microfilm Section (Mercantile) of the Public Registry of the Republic of Panama, Volume 902, Folio 0070, Seat 104403, Roll 492, Image 90, since September 14, 1972. Its operation and extinction are governed by Panamanian law, which is, therefore, that of its nationality.

The main offices of BAC Holding International Corp. are located in Calle 26 #92-32, Bogotá D.C., Colombia; our secondary offices are located in Aquilino de la Guardia with Calle 49, PH B. Bogotá, Local No.1, Panama City, Republic of Panama. Their contact information is detailed below:

Phone:

In Panama: (507) 306-1100 ext. 110

Email: notificaciones@bac-holding.com

Website: www.bac-holding.com

Our website and the information contained therein or connected thereto is not incorporated into this information statement.

2.     THE SPINOFF

Summary of the Spinoff

The following is a summary of the material terms of the Spinoff.

The Spinoff

Grupo Aval has entered and caused certain of its direct and indirect subsidiaries, including Banco de Bogotá and BHI, to enter into a series of transactions, as follows (the “Transactions”):

(i)    The Banco de Bogotá Demerger

Grupo Aval (A) created a new Colombian corporation Sociedad Beneficiaria Banco de Bogotá S.A.S. (“Newco BdB”), a wholly-owned subsidiary of Grupo Aval, and (B) on January 18, 2022, caused Banco de Bogotá to approve an escisión, or demerger, under Colombian law, pursuant to which Banco de Bogotá will transfer to Newco BdB a 75% ownership stake in the share capital of BHI, and 100% of the share capital of Newco BdB will be issued pro rata to Banco de Bogotá’s shareholders (the “BdB Distribution”), resulting in both Banco de Bogotá and Newco BdB being owned by the shareholders of Banco de Bogotá (including Grupo Aval) pro rata to their respective ownership interests in Banco de Bogotá immediately prior to such demerger (the “BdB Demerger”).

The Banco de Bogotá Demerger is expected to be completed on or around March 25, 2022.

(ii)  The Grupo Aval Demerger

Grupo Aval (A) has created a new Colombian corporation Sociedad Beneficiaria Aval S.A.S. (“Newco Aval”), a wholly-owned subsidiary of Grupo Aval, and (B) on February 4, 2022 obtained approval from its shareholders to execute an escisión, or demerger, under Colombian law pursuant to which Grupo Aval will transfer to Newco Aval the approximately 68.7% ownership stake in the share capital of Newco BdB that Grupo Aval received in the BdB Demerger, and 100% of the share capital of Newco Aval will be issued pro rata to Grupo Aval’s shareholders (the “Grupo Aval Distribution”), resulting in both Grupo Aval and Newco Aval being owned by the shareholders of Grupo Aval pro rata to their respective ownership interests in Grupo Aval immediately prior to such demerger (the “Grupo Aval Demerger”).

The Grupo Aval Demerger is expected to be completed on or around March 28, 2022.

(iii)     The BHI Listing and Mergers

Grupo Aval (A) caused BHI to submit an application to list its shares on the Bolsa de Valores de Panamá, the Panamanian stock exchange (the “Latinex”), which became effective on February 24, 2022, and the Bolsa de Valores de Colombia S.A. (the “BVC”), which is expected to become effective on or around March 30, 2022, and has taken and will take other necessary actions to list the BHI Shares on these stock exchanges (the “BHI Listing”) and (B) will cause Newco Aval and Newco BdB to merge with and into BHI, with BHI as the surviving company (the “Mergers”).

The Mergers are expected to be completed on or around March 29, 2022.

Effect of the Spinoff

The Transactions, as summarized in subsections (i) through (iii) above (collectively, the “Spinoff”), are expected to occur within a short period of each other, except for the BHI Listing on the Latinex, which became effective in Panamá on February 24, 2022.

The transactions, as summarized in subsections (i) through (iii) above will result in the share capital of BHI being publicly traded on the Latinex (the Panamanian stock exchange) and the BVC (Colombian stock exchange) and 75% of that share capital being owned by the shareholders of Grupo Aval and Banco de Bogotá (other than Grupo Aval, which will have spun off its direct interest) on a pro rata basis to their respective beneficial ownership stakes in BHI’s share capital immediately prior to the Spinoff. Immediately following the Spinoff, Grupo Aval’s shareholders will own approximately 51.5%, Banco de Bogotá’s shareholders (other than Grupo Aval) will own approximately 23.5% and Banco de Bogotá will continue to directly own 25% of the share capital of BHI. BHI’s only material asset is its ownership of 100% of the share capital of BAC Credomatic Inc. and its subsidiaries.

In anticipation of the Spinoff, in order to avoid the issuance of fractional shares to Grupo Aval’s shareholders, BHI split its 77,443,101 common shares outstanding as of September 30, 2021 into 43,220,189,095 common shares, reflecting a stock split ratio of approximately 558.09 to 1, which will be outstanding immediately prior to the Spinoff.

For more information, see Section 4. “Risk Factors—Risks Relating to the Spinoff” and Section 2. “The Spinoff” included elsewhere in this information statement. The Spinoff resulted in the share capital of BHI being publicly traded on the Latinex and the BVC and 75% of that share capital being owned by the shareholders of Grupo Aval and Banco de Bogotá (other than Grupo Aval, which has spun off its direct interest) on a pro rata basis to their respective beneficial ownership stakes in BHI’s share capital immediately prior to the Spinoff. Immediately following the Spinoff, Grupo Aval’s shareholders will beneficially own approximately 51.5%, Banco de Bogotá’s minority shareholders (other than Grupo Aval) will own approximately 23.5% and Banco de Bogotá will continue to directly own 25% of the share capital of BHI. BHI’s only material asset is its ownership of 100% of the share capital of BAC Credomatic Inc. and its subsidiaries.

Listing and Trading of Our Common Shares

The Superintendencia del Mercado de Valores de Panama authorized the registration of the BHI shares, under resolution number smv-531-21, dated December 13, 2021; BHI is also listed in the Latinex as of February 24, 2020.

In addition, BHI’s shares are expected to be registered in the RNVE and listed for trading on the BVC on or around March 30, 2022.

In relation to the operational processes to allow the simultaneous trading of the shares in both Exchanges, Latinex and the BVC, as well as the Central Latinoamericana de Valores, S.A. and the Depósito Centralizado de Valores de Colombia S.A. ("DECEVAL"), established procedures for the regulation of simultaneous trading of shares on both stock exchanges; the purpose is to have an orderly and transparent process for investors to decide where to acquire their shares: in Colombia or in Panama.

3.      QUESTIONS AND ANSWERS ABOUT THE SPINOFF AND YOUR BHI SECURITIES

4.       RISK FACTORS

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

Summary

The following summarizes some, but not all, of the risks provided below. Please carefully consider all of the information discussed in this Section 4. “Risk Factors” in this information statement for a more thorough description of these and other risks:

Risks relating to the Spinoff

Risks relating to the countries in which we operate

Risks relating to our businesses and industry

Risks Relating to Our Common Shares 

Risks Relating to the Spinoff

BHI has never operated as a standalone public company and the resulting obligations including the process of compliance with the issuer’s duties to the public according to the rules of two different national securities regulators, including the Superintendencia Financiera de Colombia, the Bolsa de Valores de Colombia, the Latinex and the Superintendencia de Valores de Panama, may be costly and cumbersome and can represent challenges for BHI.

As a listed company on both the Latinex, the Panamanian stock exchange, and the Bolsa de Valores de Colombia (BVC), the Colombian Stock Exchange, BHI will be subject to a series of new compliance duties pursuant to the Panamanian and Colombian securities laws and regulations established by the Superintendencia de Valores de Panama (SBP) and the Superintendencia Financiera de Colombia (SFC), the principal financial regulators in each of those countries, respectively. These duties and obligations include, but are not limited to, periodic reporting of annual, quarterly and other periodic financial information, relevant regulatory communications for investors and the general public, and any additional current or future reporting and disclosure requirements established by the relevant regulatory authorities for publicly listed companies in Colombia and Panama. Having never operated as a standalone public company, these obligations represent new processes and requirements that BHI will need to fully integrate into its internal processes and operations to ensure compliance. This integration may pose challenges as well as additional costs to the Company as any necessary changes are implemented over time and in areas across the organization such as finance, technology, legal, and human resources, among others, to effectively manage the additional obligations resulting from being a public company. Furthermore, and as an example of potential additional costs, senior management may have limited experience in operating a standalone public company and may need to hire additional resources to efficiently execute additional duties. To the extent that all requirements are not fulfilled completely or in a timely manner, the Company may be subject to and incur in sanctions and fines according to the disciplinary actions established by the relevant regulatory authorities which may impact the Company’s results of operations in the future. Additionally, as a consequence of the Spinoff, BHI amended and restated its by-laws, including several provisions, as described elsewhere in this information statement, that are advised and required for any issuer trading shares in the Bolsa de Valores de Colombia. These changes will result in new procedures, duties and corporate government instances that may take time to be fully implemented by the Company. For more information on provisions included in the Articles of Incorporation see Section 16. “Description of Capital Stock”.

As result of the Spinoff, Bolsa de Valores de Panamá, Bolsa de Valores de Colombia and their respective clearing houses have entered into an agreement related to the operative procedures that are required for this dual listing. For that reason, all the operations related to dividend payments in the Colombian jurisdiction, including Tax and Foreign Exchange Matters, may take some time for the issuer to process without delay or error.

As a result of the dual listing, the Panamanian and Colombian stock exchanges have adopted an agreement that will regulate BHI´s shareholders activities, including stock trading and dividend payment process. For the dividend payment process, once the Shareholders Meeting agrees to a dividend payment, BHI will communicate to both stock exchanges the amount and payment dates and will proceed to deposit the corresponding amount directly to Deceval in Colombia and to Latinclear in Panamá. BHI will declare its dividend in U.S. dollars, and it will be paid in U.S. dollars for all the shareholders listed in Panamá and in Colombian Pesos, at the market exchange rate at that date, for the shareholders listed in Colombia, such that these shareholders will bear the risk of foreign exchange fluctuations between the date of payment to Deceval and the date of dividend payment to the shareholders. Additionally, before the payment BHI will coordinate with each stock exchange the final amount to be paid to each shareholder net of any applicable tax deductions, considering the personal data base that will include the corresponding tax rate to be applied in each jurisdiction. Due to the complexity of payments in two separate jurisdictions, as well as foreign exchange considerations in Colombia and different tax treatments in each jurisdiction, it may take some time for BHI to process without delay or error operations related to dividend payments.

Grupo Aval and BHI may be unable to achieve some or all of the benefits that they expect to achieve from BHI’s separation from Grupo Aval.

Grupo Aval believes that, with BHI as an independent, publicly traded company, Grupo Aval and BHI will both be better positioned to, among other things, work independently in their own markets towards their strategic objectives; digital transformation, operational excellence, risk control and the best human talent. However, BHI and Grupo Aval may be unable to achieve some or all of these benefits. For example, in order to position BHI for the Spinoff, BHI is undertaking a series of strategic, structural, process and system realignment and restructuring actions within its operations. These actions may not provide the benefits BHI and Grupo Aval currently expect, and could lead to disruption of BHI’s operations, loss of, or inability to recruit, key personnel needed to operate and grow BHI’s businesses following the separation, weakening of BHI’s system of internal controls or procedures and impairment of BHI’s key customer and supplier relationships. In addition, completion of the separation will require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing BHI’s and Aval’s respective businesses. If BHI and Aval fail to achieve some or all of the benefits that they to achieve from the Spinoff, or does not achieve them in the time BHI and Aval expect, BHI and Aval’s respective business, financial condition and results of operations could be materially and adversely affected.

Following the Spinoff, BHI will need to provide for or arrange for certain services to be provided in order to function as a public Company.

Following the separation and distribution, BHI will need to provide internally or obtain from unaffiliated third parties certain services in order to function as a public company. These services include certain information technology, finance, legal, insurance and human resources activities, the effective and appropriate performance of which is critical to BHI’s operations. BHI may be unable to obtain these services in a timely manner or on favorable terms and conditions. In particular, the information technology networks and systems that BHI will require in order to function as a public company are challenging, and arranging for these networks and systems will be challenging. BHI may be unable to successfully establish the infrastructure or implement the changes necessary to effectively perform these activities within the context of BHI’s consolidated business, or BHI may incur additional costs in doing so that could adversely affect its business. If BHI fails to obtain the quality of administrative services necessary to operate effectively or incurs greater costs in obtaining these services, BHI’s profitability, financial condition and results of operations may be materially and adversely affected.

In connection with the Spinoff, trading in Grupo Aval’s common and preferred shares will be temporarily suspended starting on March 22, 2022 through the close of business (Bogotá, Colombia time) on March 29, 2022 and exchanges of preferred shares for ADSs, and vice versa, will not be permitted during a similar period. This could have a material adverse effect on the liquidity of Grupo Aval’s shares and could cause the market prices of its securities to decline once trading resumes.

To facilitate the Spinoff in compliance with Colombian law and practice, Grupo Aval’s common and preferred shares will be suspended from trading on the BVC starting on March 22, 2022 through close of business (Bogotá, Colombia time) on March 29, 2022, and will resume trading on March 30, 2022. During this time, there will not be a liquid market for your Grupo Aval common or preferred shares. Any private sale of Grupo Aval common or preferred shares during this period will not be based on a quoted market price and therefore may not reflect the underlying value of such securities. In addition, once trading of Grupo Aval common or preferred shares on the BVC reopens, it may take time for the market to absorb recent developments, including the Spinoff, and such trading could result in substantial price fluctuations or declines in the market price of some or all of Grupo Aval’s outstanding securities.

While Grupo Aval’s ADSs will continue to trade on the New York Stock Exchange, the deposit of preferred shares in exchange for the issuance of ADSs and the redemption of ADSs for preferred shares will be prohibited from the close of business (New York City time) on March 18, 2022 through close of business (New York City time) on March 29, 2022. This could cause a decline in market liquidity for Grupo Aval’s ADSs, which in turn could result in substantial price fluctuations or declines in their market price.

Neither BHI’s historical financial information nor BHI’s unaudited pro forma financial information included in this information statement are necessarily representative of the results BHI would have achieved as an independent, publicly traded company and may not be a reliable indicator of BHI’s future results.

The financial information of BHI included in this information statement, and accompanying notes thereto, and BHI’s unaudited pro forma financial information included herein may not reflect what BHI’s financial condition, results of operations and cash flows would have been had BHI been an independent, publicly traded company during the periods presented or what BHI’s financial condition, results of operations and cash flows will be in the future when BHI is an independent public company. This is primarily because:

Risks relating to the countries in which we operate

Adverse economic and political conditions in Central American countries in which BAC Credomatic Group operates (Guatemala, Honduras, El Salvador, Honduras, Nicaragua, Costa Rica y Panama), including variations in the exchange rates or downgrades in credit ratings of sovereign debt securities, may have an adverse effect on our results of operations and financial condition.

Our principal subsidiaries are financial institutions, and the majority of our operations, properties and customers are located in Central America (Guatemala, Honduras, El Salvador, Nicaragua, Costa Rica and Panamá). Consequently, our results of operations and financial condition may be materially affected by economic and political conditions in these countries.

Our results of operations and financial condition depend on economic, political and social conditions in the countries in which we operate located in Central America. The political, economic and social environments in the countries in which we operate are affected by many different factors, including significant governmental influence over local economies, substantial fluctuations in economic growth, high levels of inflation, exchange rate movements and volatility, exchange controls or restrictions on expatriation of earnings, high domestic interest rates, civil strife, political instability, drug trafficking and other forms of organized crime, wage and price controls, changes in tax policies, imposition of trade barriers, changes in the prices of commodities and unexpected changes in regulations. The results of operations and financial condition of our Central American subsidiaries could be affected by changes in economic and other policies of each country’s government, which have exercised and continue to exercise substantial influence over many aspects of the private sector, and by other social and political developments in each country. For instance, an enactment of exchange controls may negatively impact our clients, investments and/or our assets denominated in US Dollars or other currencies and, similarly, enactment of new (or amendment of existing) usury laws and/or other regulations aimed at imposing caps or other limitations to banking, acquiring, service, interchange or other fees would have a significant impact on our results and projections.

Adverse economic, political and social developments, including allegations of corruption against the governments of the countries in which we operate, may adversely affect demand for banking services and create uncertainty regarding our operating environment, which could have a material adverse effect on our subsidiaries and, consequently, on our company.

The Central American economies remain vulnerable to external shocks.

A significant decline in economic growth of Central America’s major trading partners could have a material adverse effect on the trade balance and economic growth of the countries where we operate. In addition, a “contagion” effect, where an entire region or asset class becomes less attractive to, or subject to outflows of funds by, international investors could negatively affect Central American countries in which we operate. Lower than expected economic growth may result in asset quality deterioration and could negatively affect our business.

A low rate of growth of the Central American economy, a reduction in tourism, a slowdown in the growth of customer demand, an increase in market competition, or changes in governmental regulations, could adversely affect the rate of growth of our loan portfolio and our cost of risk and, accordingly, increase our required loss allowances for loans. All these conditions could lead to a general decrease in demand for borrowings. In addition, the effect on consumer confidence of any actual or perceived deterioration of household incomes in the Central American economies may have a material adverse effect on our results of operations and financial condition.

Certain Central America countries have experienced and continue to experience internal security issues that have had or could have a negative effect on the Central America economy.

Central America has experienced internal security issues, primarily due to the activities of the armed gangs’ groups, such as the “Mara Salvatrucha”, urban militias, and of drug cartels. These groups have exerted influence over the local population and funded their activities by the commission of offences against the private property, drug trafficking and rendering services to drug traffickers. Any breakdown in peace, renewed or continuing drug-related crime and gangs’ activities may have a negative impact on the Central America economy in the future. Our business or financial condition could be adversely affected by rapidly changing economic or social conditions, which may result in legislation that increases our tax burden, or that of other Central America companies, which could, in turn, impact the overall economy.

Political and economic instability in the Central American region may adversely affect our results of operations and financial condition.

Economic and political instability in Central American countries or any future deterioration in relations between countries in the region may result in the closing of borders, the imposition of trade barriers and a breakdown of diplomatic ties, or a negative effect on Central America’s trade balance, economy and general security situation, all of which may adversely affect our results of operations and financial condition.

Finally, political conditions such as changes in United States’ policies related to immigration and remittances and/or in the status of the NAFTA agreement, could affect the countries in which we operate, and could therefore impact adversely the household income of Central American families, and the commission business of the bank as well. There is a high dependency of these remittances specially in Honduras, Guatemala, El Salvador and Nicaragua; as of 2020 they represented more than 14% of the respective GDP (according to the SECMCA).

Changes in Government policies and actions, as well as judicial decisions in the countries in which we operate, could affect the local economy and, as a result, our results of operations and financial condition.

Our results of operations and financial condition may be adversely affected by changes in the Central American governmental policies and actions, and by changes in judicial precedents, involving a broad range of matters, including interest rates, fees, exchange rates, exchange controls, inflation rates, taxation and banking regulations, free zone (“zona franca”) regulations and other political or economic developments affecting the countries in which we operate.

Central American governments have historically exercised substantial influence over their economies and their policies are likely to continue having significant effects on companies, including us.

Moreover, regulatory uncertainty, public dialogue regarding bills and/or approval of regulatory reforms, may be disruptive to our business or to the economy as a whole and may result in material and adverse effects on our financial condition and results of operations.

We and our subsidiaries are subject to anti-corruption laws and other laws in the jurisdictions in which we operate, and violation of these regulations could harm our business.

We and our subsidiaries are subject to numerous, and sometimes conflicting, legal regimes on matters as diverse as anti-corruption, taxation, internal and disclosure control obligations, securities and derivatives regulation, antitrust regulations, data privacy and labor relations. Compliance with diverse legal requirements is costly, time-consuming and requires significant resources. Alleged violations to one or more of these regulations in the conduct of our business or the business of our subsidiaries could result in significant fines, criminal sanctions against us or our officers, prohibitions on doing business and reputational damage. Violations of laws or regulations in connection with the performance of our obligations to our customers, as well as in connection with the performance of our subsidiaries’ obligations, could also result in liability for significant monetary damages, fines and/or criminal prosecution, unfavorable publicity and other reputational damage, restrictions on our ability to process information and/or breach of contract or tort claims. Because of the varying degrees of development of the legal systems in the countries in which we operate, local laws might be insufficient to protect our rights due, in part, to a lack of appeals, legal defenses and/or other deficiencies in the rule of law or the access to justice.

Despite our Company has policies, procedures, controls and made other efforts to procure strict compliance with anti-corruption laws, regulations and standards, certain employees, joint venture partners, and/or other third parties with whom we associate, could take actions that violate such policies or procedures designed to promote legal and regulatory compliance of all applicable anti-corruption laws and regulations. Violations of these laws or regulations by us or our subsidiaries, our employees or any of these third parties could subject us to criminal or civil enforcement actions (whether or not we participated or knew about such actions leading to the violations), including fines or penalties, disgorgement of profits and suspension or disqualification from work, including governmental contracting, any of which could materially adversely affect our business, including our results of operations and our reputation.

Central American operations are subject to significant compliance risks in connection with a multi-jurisdictional regulatory regime.

Our subsidiaries are subject to regulation under Costa Rican, Guatemalan, Honduran, Nicaraguan, Panamanian, Salvadoran, Grand Cayman’s, British Virgin Islands’, Bahamian and/or U.S. federal, state and other foreign laws, regulations and policies. BHI thus is subject to a multi-jurisdictional regulatory regime. In addition, any changes to the regulatory regime of any of the Central American countries in which we operate may lead to corresponding changes to the regulatory regime of other countries in the region. BHI´s businesses are regularly reviewed or investigated by regulators, which could lead to enforcement actions, fines and penalties or the assertion of private litigation claims and damages.

Regulation of financial institutions varies across the different Central American jurisdictions in which we operate. These differences are particularly pronounced in the assessment of credit risk and investments. These asymmetries may affect the expected results of our operations in each jurisdiction, and therefore could adversely affect our consolidated results of operations in Central America.

New or higher taxes resulting from changes in tax regulations or the interpretation thereof the countries in which we operate could adversely affect our results of operations and financial condition or generate burdens to our shareholders or lenders.

New tax laws and regulations and uncertainties with respect to future tax policies, pose risks in the countries in which we operate. An increase in fiscal deficit and pressure from rating agencies, could lead to higher taxation rates on our business and that of our borrowers. Changes in tax-related laws and regulations and interpretations thereof, can impact tax burdens by increasing tax rates and fees, creating new taxes or withholdings, limiting tax deductions, and eliminating tax-based incentives and non-taxed income. In addition, tax authorities or courts may interpret tax regulations differently than we do, which could result in tax litigation with the associated costs and potential penalties.

Natural disasters, acts of war or terrorism, rioting or other external events could disrupt our businesses and affect our results of operations and financial condition.

We are exposed to natural disasters, such as earthquakes, volcanic eruptions, tornadoes, tropical storms and hurricanes. Heavy rains or abnormally low rainfall in the countries in which we operate, attributable in part to the La Niña and El Niño weather patterns, have resulted in severe flooding, mudslides and/or prolonged droughts. These are recurring weather phenomena that may occur on an equal or greater scale in the future. In addition to severe weather and natural disasters, acts of war or terrorism, rioting and other adverse external events could have a significant impact on our ability to conduct business and may, among other things, affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral of secured loans, cause significant property damage, cause us to incur additional expenses and/or result in loss of revenue. In the event of such circumstances, our disaster recovery plans may prove to be ineffective, which could have a material adverse effect on our ability to conduct our businesses, particularly if such an occurrence affects computer-based data processing, transmission, storage and retrieval systems or destroys customer or other data. In addition, if a significant number of our employees and senior managers were to become unavailable because of a natural disaster, our ability to conduct our businesses could be compromised. Natural disasters, acts of war or similar events could also result in substantial volatility in our results of operations for any fiscal quarter or year.

Our operations and results may be negatively impacted by public health threats such as the coronavirus outbreak or other pandemic diseases

Global and local health concerns, including the outbreak of pandemic or contagious disease, such as the recent coronavirus (COVID-19) outbreak, may disrupt economic activity and adversely affect us.

Since December 2019, COVID-19 began to spread in China and promptly expanded to Europe, the United States and more than 200 countries, including the countries in which we operate. Such events have been causing disruption of regional and global economic activity, which has affected and may continue to affect our operations, financial results and the quality of our loan portfolio due to long periods of quarantines, unemployment, reduced household and corporate income, laws or regulations that have impaired our ability to operate, charge fees or interests or collect debt service, aggregated demand and limitations in the production and trade of goods and services. The extent to which COVID-19 might continue to affect our future results will depend on several uncertain and unpredictable developments, including information which may emerge concerning the severity of future COVID-19 waves or new strains, and the actions to contain it, among others.

To address the COVID-19 crisis and prevent its spread, governments in the countries in which we operate have issued sanitary restrictions designed to reduce the spread of the virus and COVID-19 infections, such as preventive quarantines, business closures, suspension of on-site lectures, border restrictions, lockdowns as well as the suspension of public events and the installment of mandatory social distancing regulations; with the exception of the Nicaraguan Government, which has not taken such measures and has opted to instead maintain basic epidemiological surveillance and hygiene controls. In the case of Costa Rica, Honduras, El Salvador, Panama and Guatemala, partial curfews have been established, to further restrict citizens’ exposure to the virus, along with public and private vehicle circulation restriction policies and massive vaccination campaigns.

See Section 9. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Section 10. “Quantitative and Qualitative Disclosures About Risk” for further information on credit risk management, relief measures available for customers, additional measures taken by Governments and central banks, and an overall analysis of the negative impacts of coronavirus on our business, financial condition and results of operations including the line items referenced above.

Risks related to global climate change and environmental requirements

Climate change initiatives, laws or regulations seeking to protect and adapt the companies to environment challenges, could be applicable to us in a non-material way. However, even if the impacts of such provisions are not related specifically to BHI’s core business, they could still impact some of our affiliates’ financing products and/or business models. Furthermore, the occurrence of environmental changes in dry seasons, floods, droughts, and others climate variations or changes in the local environmental legislation, could result in decreases of business operations for some of our banking customers due to lower revenues and slower business production or in asset impairment. Clients whose productivity and financial conditions could be affected by climate change policies could experience delays on repayment of obligations to our banking subsidiaries or lower credit profiles susceptible to downturns in the economy. We might not be able to continue providing services to customers that participate in businesses with an adverse environmental impact. We could also be subject to reputational risk as a result of shifting sentiment among customers and increasing attention and scrutiny from other stakeholders on our response to climate change. As part of our strategy and compromise with the environmental, BAC Group is a Signatory to the Principles for Responsible Banking and member of UNEP FI since February 2021, for the transition to a low-carbon, sustainable, inclusive economy as an important step towards aligning our business with the UN Paris Agreement on Climate Change and Sustainable Development Goals. In October 2021 BAC signed the Net-Zero Banking Alliance in supporting the transition of the real economy to net-zero emissions.

Risks relating to our businesses and industry

Risks relating to our banking business

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

Changes in the financial condition or credit profiles of customers of our banking subsidiaries and increases in inflation or interest rates and foreign exchange volatility could have a negative effect on the quality of our banks’ loan portfolios, potentially requiring them to increase impairment losses on loans and accounts receivable or resulting in reduced profitability. In particular, the percentage of past due or impaired loans may increase in the future as a result of factors beyond our control, such as economic conditions and political events affecting the countries in which we operate generally or specific sectors of the economy.

A substantial number of our banks’ customers are individuals and small and medium sized enterprises, or “SMEs”, and these customers are potentially more susceptible to downturns in the economy than large corporations and high-income individuals. In addition, some corporate clients could suffer the effects of economic downturns. Consequently, our banking subsidiaries may experience higher levels of past due or impaired loans, which could result in increased impairment losses on loans and other accounts receivable due to defaults by, or deterioration in the credit profiles of, individual borrowers. Past due or impaired loans and resulting impairment losses may increase materially in the future and adversely affect our results of operations and financial condition.

Existing loan loss allowances may not be adequate to cover any increases in past due or impaired loans or a deterioration in the credit quality of loan portfolios. As a result, our banking subsidiaries may be required to increase impairment losses on loans and accounts receivables, which may adversely affect our results of operations and financial condition. Our exposure is concentrated in certain economic sectors and large corporations that could also increase our impairment losses.

Default rates generally increase with the age of loans, the level of past due or impaired loans may lag behind the rate of growth in loans but may increase when growth slows, or the loan portfolios become more mature. As a result, historic loan loss experience may not necessarily be indicative of future loan loss experience.

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

Our banking subsidiaries originate loans that are secured by collateral, including real estate and other assets that are generally located in the countries where we operate. The value of collateral may significantly fluctuate or decline due to factors beyond the control of our subsidiaries, including, for example, prevailing economic and political conditions in the relevant jurisdiction. An economic slowdown may lead to a downturn in the Central American real estate markets, which may, in turn, result in declines in the value of real estate securing loans to levels below the principal balances of these loans. Any decline in the value of the collateral securing these loans or any other collateral securing these loans may result in reduced recoveries from collateral realization and have an adverse effect on our results of operations and financial condition. We may also not have sufficiently recent information on the value of collateral, which may result in an inaccurate assessment for loss allowance of our loans secured by such collateral. If this were to occur, we may need to incur additional impairments to cover actual losses of our loans, which may materially and adversely affect our results of operations and financial condition.

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

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

Central American insolvency laws may limit the ability of our banking subsidiaries to collect on monetary obligations and enforce rights against collateral or under guarantees.

Insolvency laws in certain countries in which we operate provide that creditor of an insolvent debtor are prohibited from initiating collection proceedings outside the bankruptcy or reorganization process of such debtor. In addition, all collection proceedings outstanding at the beginning of the bankruptcy or reorganization process must be suspended and such creditors are prevented from enforcing their rights against the collateral and other assets of the insolvent debtor.

In some countries in which we operate once a non-merchant individual has ceased paying his or her debts, such individual can initiate a voluntary insolvency proceeding before a notary public or mediator to reach an out-of-court agreement with creditors. The terms of any agreement reached in accordance with the respective law and with a group (two or more) of creditors that represent the majority of the total amount of the claims will be mandatorily applicable to all relevant creditors. Such insolvency laws also provide other protections to debtors. A perception that loans to individuals may be difficult or impossible to recover could cause our banking subsidiaries to enhance credit requirements and result in decreased lending to individuals by making access to credit more expensive. In addition, increased difficulties in enforcing debt and other monetary obligations due to insolvency laws in countries in which we operate, could have an adverse effect on our results of operations and financial condition.

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

Credit risk is the principal risk inherent in the business of our banks. Although we have corporate risk management guidelines, each banking subsidiary is responsible for managing its own risk. Each banking subsidiary’s policies and procedures, which are designed to identify, monitor and manage risk, may prove to be insufficient. Furthermore, our banks may not be able to upgrade risk management systems on a timely basis. Due to limitations in the availability of information, our assessment of credit risk associated with a particular customer may not be based on complete, accurate or reliable information. Personnel of our banking subsidiaries may fail to detect risks before they occur, or may not effectively implement their risk management systems, which may increase exposure to credit risk. As a result, any failure by our banking subsidiaries to effectively implement or consistently follow or refine risk management systems may result in higher risk exposures for our banking subsidiaries, which could materially and adversely affect our results of operations and financial condition.

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

Our banking subsidiaries’ securities portfolio primarily consists of debt securities issued or guaranteed by their respective government and/or central bank. We are exposed to significant credit, market and liquidity risks associated with debt securities. A significant decline in the value of these government securities could materially and adversely affect our debt securities portfolio and, consequently, our financial condition and results of operations.

See Section 9. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Section 10. “Quantitative and Qualitative Disclosures About Risk” for further information on market and liquidity risk management and impacts on our business, financial condition and results of operations.

We are subject to counterparty risk in our banking business.

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

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

The principal sources of funding for our banking subsidiaries are demand deposits, saving deposits, and time deposits, which together represented 84.8% and 81.9% of our consolidated total liabilities at September 30, 2021 and December 31, 2020, respectively. Because our banking subsidiaries rely primarily on deposits for funding, a sudden or unexpected shortage of funds in the banking systems in which we operate or overnight money markets may prevent our banking subsidiaries from meeting their obligations or obtaining necessary funding without incurring higher costs or selling certain assets at prices below prevailing market values, which could materially and adversely affect our results of operations and financial condition. The liquidity of our financial entities could also be impacted by reputational events affecting our entities as well as systemic events.

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

Our exposure is concentrated in certain economic sectors and large corporations that could increase our impairment losses. Default on loans by one or more of these borrowers may materially adversely affect our results of operations and financial condition.

For a summary of our largest impaired exposures, see Section 9. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Downgrades in our long-term credit ratings or in the credit ratings of our banking subsidiaries would increase the cost of, or impair access to, funding and may impact our ability to maintain regulatory capital ratios.

Our credit ratings and those of our banking subsidiaries are an important component of our and their ability to obtain funding. Rating agencies regularly evaluate us, and their ratings of our debt are based on numerous dynamic, complex and inter-related factors and assumptions, including our financial strength, conditions affecting the overall financial services industry and the sovereign credit rating of the jurisdictions we operate in.

Our banking subsidiaries may be required to raise additional capital in the future to maintain regulatory capital ratios and provide liquidity to meet commitments and business needs, particularly if asset quality or earnings were to deteriorate.

Adverse changes in credit ratings or outlooks could increase the cost of funding in the capital markets or borrowings or reduce the feasibility of refinancing existing debt or issue new debt required to finance our future projects. Our ability to raise deposits may also be impacted by a change in credit ratings or outlooks, which could make us less successful when competing for deposits or preclude us or our subsidiaries from receiving funds from institutional investors, governments, governmental entities, or other providers of deposits and other funding.

Any occurrence that may limit our and our banking subsidiaries’ access to funding, such as a downgrade in credit ratings or outlook, or a decline in the confidence of debt purchasers, depositors, or counterparties in the capital markets may adversely affect capital costs, ability to raise capital, and liquidity. Moreover, we and our banking subsidiaries may need to raise capital when many other financial institutions are also seeking to raise capital which, in turn, would require us to compete with numerous other institutions for investors. An inability to raise additional capital on acceptable terms, when needed, or a downgrade in our or our banking subsidiaries’ credit ratings or outlook could have a materially adverse effect on our and our banking subsidiaries’ financial conditions and results of operations.

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

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

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

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

The credit card industry is characterized by higher consumer default than other segments of the credit markets, and defaults are highly related to macroeconomic indicators that are beyond our control. If Central American economic growth rate slows or turns negative, or if we fail to effectively analyze the creditworthiness of our customers (including the targeting of certain sectors), we may be faced with unexpected losses that could have an adverse effect on our results of operations and financial condition.

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

Banking and financial services laws and regulations are subject to ongoing review and revision, including changes in response to global regulatory trends. As a result, governments have been actively considering new banking laws, regulations, reviewing and revising existing laws and regulations, particularly in relation to capital adequacy and accounting standards that may change the perceived strength on our banks, our credit ratings or our ability to grow or pay dividends. In addition, various international developments, will continue to impact us in the coming years. The implementation of Basel III principles in the various Central America jurisdictions, may result in increases of the solvency ratio requirements, capital adequacy dispositions, increase of the Tier 1 admissible assets rules, among others, could increase the cost of the banking activity in those countries.

Central America has been impacted by regulatory changes that have impacted both banking and corporate laws and regulations. In general terms, the COVID-19 pandemic has resulted in an array of special laws and regulations that have had a direct and/or indirect impact over our business in in Central America; these rules have spanned from declaring national emergencies (i.e. establishing lockdowns, requiring business closures, restricted mobility, mandatory quarantines, curfews and/or public transportation limitations, allowing delays in judicial proceedings, etc.) to diverse labor-related regulations (e.g. suspension of work agreements); furthermore certain countries declared mandatory deferrals and other regulatory measures aimed at providing relief to clients impacted by the economic challenges resulting from the multiple health-related measures that were enacted.

In Honduras, banks are required to maintain certain minimum capital adequacy ratios, as fixed by the Comisión Nacional de Bancos y Seguros (CNBS). Currently, the capital adequacy ratio must be held at a minimum of 10%, measured as a percentage of adjusted capital to risk-weighted assets; this requirement resulted from reforms enacted in 2017 and 2018 with respect to capital adequacy, capital conservation buffer and leverage ratio requirements applicable to Honduran financial institutions. The 2017 regulation required, among other things, that in a given period (originally three-year-period but subsequently extended to December 2023) financial institutions maintain a capital conservation buffer ratio of 2.5% above the minimum capital adequacy ratio of 10% or above the minimum capital adequacy ratio defined by the CNBS for a financial institution in an individual basis. Financial institutions are also required to maintain a minimum leverage ratio of 4%.

On December 2020, CNBS issued exceptional measures to develop prudential regulatory mechanisms for the treatment that financial institutions must give to the loan portfolio susceptible to be directly or indirectly impacted by Covid-19 and the two tropical storms that affected the country. Pursuant to such measures financial institutions were required to create a “Restricted Non-Distributable Capital Reserve”, which must be used exclusively to cover the deterioration of the loan portfolio affected by the pandemic and those natural phenomena; this reserve needs to be constituted by the total balance in the “Profits From Previous Years” account and the profits recorded as of the end of the financial year 2020 and transfer of said values is to be made no later than January 31, 2021. Upon the loan portfolio´s effective impairment, financial institutions are required to proportionally take amounts from the “Restricted Non-Distributable Capital Reserve” and charge them as Provision for Losses in the statement of income. The “Restricted Non-Distributable Capital Reserve” is meant to be temporary and last until December 31^st, 2025; furthermore, financial institutions may request the CNBS the reclassification of any remnants of the “Profits From Previous Years” account, as long as it can provide sufficient evidence that it has create provision for 100% of the impaired loan portfolio. The balance of the “Restricted Non-Distributable Capital Reserve” account will be considered: (i) as part of the sum of Own Resources as “Complementary Capital” for the purpose of calculating the capital adequacy ratio and (ii) up to a 50%, for the purposes of calculating the default coverage ratio, and this 50% percentage will gradually diminish according to the conditions of each financial institution.

In August 2021, the National Congress reformed “The Complimentary Optional Regimen for the Administration of Pension Funds Act”, by which: a) the minimum capital required for Pension Funds is now 150,000,000.00 Lempiras and the capital ratio calculation could never be below 1% of the total funds administrated o any other percentage defined by the CNBS; and b) the Pension Funds shall constitute a reserve for losses equivalent to 10% of its capital and capital reserves that must be invested following the required guidelines. This reserve will be used to absorb losses caused by inadequate administration and may not be considered for the capital ratio calculation.

Costa Rica experienced legislative changes that have negatively impacted fees and interest rate income. On June 20, 2020, law No 9859 (popularly known as the Usury Law or “Ley contra la Usura Crediticia”) modified the Antitrust and Consumer Protection Law (No 7472) and established, among other provisions, a maximum allowed interest rate for local credit operations. Furthermore, on December 16^th, 2021, the Ministry of Economy, Industry and Commerce issued and officially published the executive rule number 43270-MEIC (known in Spanish as “Reglamento de las Operaciones Financieras, Comerciales y Microcréditos que se ofrezcan al Consumidor”) which develops law number 9859. This executive rule will have a relevant impact in our business model and on to the organization’s income, due to the maximum interest rate it establishes for local credit facilities. Additionally, on March 24, 2020, Congress enacted Law No 9831 (in Spanish “Ley de Comisiones Máximas del Sistema de Tarjetas”) which, among other matters, regulates and establishes limits to card acquiring and interchange fees and to other fees related to card and electronic payments. Moreover, on January 12^th, 2022, the Costa Rican Central Bank, issued and published and amendment to Regulation of the Payment Card System (in Spanish “Reglamento del Sistema de Tarjetas de Pago”) that establishes the new fee limit for the payment card system, which will come into force until March 14^th, 2022. This regulation will also have a significant impact in the organization’s income.

Costa Rica has also experienced changes regarding capital requirements. On June 2, 2021, the Central Bank of Costa Rica increased the minimum capital requirement for commercial private banks to ¢17,121 million Colones (equivalent to U.S.$28.5 million). The Superintendency of Securities also increased such requirement on March 29, 2021 for securities brokers and investment fund management companies, to ¢208 million Colones (equivalent to U.S.$346,600) and ¢142 million Colones (equivalent to U.S.$236,600), respectively. Even though our subsidiaries were already in compliance with these increased requirements, these recent changes evidence a growing focus of the Costa Rican authorities to regulate capital requirements.

In Guatemala, as a response to the adverse impact that COVID-19 related measures (Decrees 5-2020 and 6-2020) were having on the economy, the Monetary Board issued the temporary administrative dispositions: i) JM 32-2020; ii) JM 34-2020; iii) JM 63-2020, to alleviate the situation with credit card consumers and other debtors. These provisions allowed financial institutions to review terms and conditions of loans that were not in arrears for more than a month without affecting the credit ratings and to grant deferrals. The process for consumers to apply for these benefits was also simplified. The use of generic reserves was allowed, and the Regulations on Liquidity Risk Management (regarding policies, procedures, systems and calculations of liquidity coverage) were updated and revised. These dispositions were later ratified by the Congress of the Republic of Guatemala through Decree 12-2020 that enacted a national emergency law to protect Guatemalans from de effects caused by the COVID-19 pandemic.

Also, the Guatemalan Congress approved the Monetary Board Resolution: JM-105-202 that issue temporary provisions to the Banking Reserve Requirement Regulation authorizing that the legal reserve computable in foreign currency, applicable to the deposits that are transferred from the offshore entities to the bank that is part of the same financial group, may be constituted by Treasury Bonds of the Republic of Guatemala and/or certificate of deposits constituted in the Bank of Guatemala.

In Nicaragua, the Law of Public Registries (“Ley General de los Registros Públicos”) and the Commercial Code (“Código de Comercio”) were amended in August 2020 in order to include important changes to corporate law. Some of the main amendments were the creation of a Registry of Final Beneficiaries of Corporations with an obligation that all legal entities must register information identifying their shareholders and ultimate beneficiaries. This Registry is meant to guarantee the integrity, confidentiality and traceability of the information contained therein, and it will be accessed only by authorized authorities. Furthermore, in February 2021, the National Assembly approved an amendment to its Consumer Protection Law (“Ley de Protección de los Derechos de las Personas Consumidoras y Usuarias”) in order to regulate the process that a financial institution must follow when closing bank accounts or denying the opening of such accounts or the provision of other financial services to existing (or prospective) clients, establishing that such actions should be taken with sound legal ground and should be notified to the client. Finally, in August 2021, the National Assembly approved an amendment to the General Law of Banks, Non-Banking Financial Institutions and Financial Groups (“Ley General de Bancos, Instituciones Financieras No Bancarias y Grupos Financieros”) that modifies the sanctioning regime related to breaches of the law in terms of money laundry, terrorism funds and proliferation of weapons of mass destruction.

In El Salvador, Congress passed reforms to the “Ley de Regulación de los Servicios de Información sobre el Historial Crediticio de las Personas” reducing the time to delete negative client information (e.g. negative credit history) from the records administered by credit bureaus and financial institutions. Congress also enacted an Electronic Securities Law (“Ley de Valores Electrónicos”) which came into effect in January 2021 and is expected to substantially assist our digital transformation efforts by allowing online loan origination using notes and other securities executed electronically using “simple” electronic signatures. Congress also approved reforms to the Credit Card Law (“Ley del Sistema de Tarjetas de Crédito”) in order to prohibit membership fees in credit cards under a US$2,000.00 limit and certain marketing activities. These reforms have not been sanctioned by the President yet and thus its effectiveness is still pending. Similarly, the Salvadorian Commercial Code was temporarily amended to facilitate the use of videoconferences applications for general shareholders’ and partners’ meetings. Finally, Congress approved the Bitcoin Law (“Ley del Bitcoin”) which made bitcoin legal tender in El Salvador, allowing persons to settle debts in bitcoins.

In light of the impact that the COVID-19 pandemic has had in Panamá, the Panamanian Government, at the beginning of the pandemic, established a state of emergency through the Cabinet Resolution 11 of March 13, 2020 which set the legal framework to further adopt measures and legal provisions to mitigate the increase of infection rate of the virus.

On that note, to alleviate the impact in the economy, the Panamanian Banking Regulator (Superintendencia de Bancos de Panama) issued the Regulation 2-2020 dated March 16, 2020, authorizing banks to defer and/or otherwise modify the terms of loans in connection the debtors that could demonstrate an impairment in their payment capacity caused by the pandemic. The Regulation No. 2-2020 was further amended and complemented by the Panamanian Banking Regulator and was eventually repealed and superseded by means of the Regulation No. 02-2021 dated June 11, 2021, that established the parameters and framework applicable to modified credits.

The Panamanian Government also enacted Executive Decree 81 dated March 20, 2020, which allowed companies that downsized their operations, due to the pandemic, to temporarily suspend their work contracts with employees and, therefore, the payment of salaries. This Executive Decree was further modified and complemented by additional decrees periodically issued by the Ministry of Work as the pandemic progressed.

The Ministry of Work, through the Law No. 201 dated February 15, 2021, established temporary provisions to preserve jobs, normalize work relationships and dictate other provisions. The Law No. 201 established specific dates for companies, based on the industry / business activity, to either reactive or terminate their work contracts, ultimately establishing November 1^st, 2021, the final date to do so. If the companies opted to terminate a worker, they were obliged to pay full compensation.

On a separate note, the Panamanian National Assembly endorsed in “first debate” the approval of the Bill No 420. This Bill seeks to set a maximum interest rate of 1.25% per month to banking operations and to amend the criminal code to penalize lending at a superior rate a criminal offense punishable with three to five years in prison. At its current stage, this bill needs to be approved in second and third debate, approval before the plenary of the National Assembly and, if approved, it would also need to receive the approval from the President (as head of the Executive Branch) for this Bill can formally become law. While discussion of this bill has been suspended for several months, these may be reactivated, and it may eventually receive the necessary approvals to become law.

The adoption of new laws or regulations, or changes in the interpretations or enforcement of existing laws or regulations may have an adverse effect on our results of operations and financial condition.

Our financial results may be negatively affected by changes to accounting standards.

We report our results and financial position in accordance with IFRS as issued by the IASB. Changes to IFRS or interpretations thereof may cause our future reported results and financial position to differ from current expectations, or historical results to differ from those previously reported due to the adoption of accounting standards on a retrospective basis. Such changes may also affect our regulatory capital and ratios. We monitor potential accounting changes and when possible, we determine their potential impact and disclose significant future changes in our audited consolidated financial statements that we expect as a result of those changes. Currently, there are a number of issued but not yet effective IFRS standards, as well as potential IFRS changes. For further information about developments in financial accounting and reporting standards, see Note 2 to our audited consolidated financial statements.

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

Our banking operations are subject to regulation and supervision by financial authorities. These regulatory authorities have broad powers to adopt regulations and other requirements affecting or restricting virtually all aspects of our subsidiaries’ organization and operations, including, for example, the imposition of anti-money laundering measures and the authority to regulate the terms and conditions of credit transactions. Failure to comply with applicable regulations could subject our banking subsidiaries to fines or sanctions or even revocation of licenses or permits to operate. In the event that any of these subsidiaries encounter significant financial problems, is in risk of insolvency or becomes insolvent, or is otherwise deemed as non-viable, the financial authorities would have broad powers to intervene in our management and operations, including suspending or removing management and, in extreme circumstances, putting our banks’ operations, into conservatorship or receivership or taking control of our banks.

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

As part of their credit card business, our banking subsidiaries face pressures related to the fees and commissions charged to merchants (merchant acquiring fees) and the pricing of bank interchange fees charged by issuer banks to acquiring banks. Among other things, banks and card processors in the countries in which we operate, have been subject to administrative investigations regarding the fees and commissions that are charged to the merchants by the acquiring banks and in respect to the banking interchange fees. Furthermore, as it was previously explained, Costa Rica enacted legislation capping such acquiring and interchange fees to a maximum amount to be determined by the central bank from time to time. Also, the allowance of the use of international credit card franchises may result in certain fees related to the use of such franchises in the issuances of Credit Cards.

Similar measures may be taken in other countries and also similar investigations may be carried out by the relevant authorities in the future which may result in penalties, lower fees charged to merchants and lower bank interchange fees that may lead to changes in commercial strategies and/or may adversely affect our results of operations and financial condition. In addition, fees charged for other banking services may continue to be reduced in the future as a result of regulatory measures and/or pressure from retailers and other interest groups.

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

Our subsidiaries manage and hold confidential personal information of customers in the normal course of their banking operations. Although our banks have procedures and controls to adequately safeguard such personal information in our possession, unauthorized disclosures or unauthorized access to privileged information, fraud or events that interfere with regular banking and other services could subject our banks and us to legal actions, administrative sanctions and/or damages.

Although we work to develop secure data and information processing, storage and transmission capabilities to enhance information security, we face risks related to security breaches in connection with debit and credit card transactions that typically involve the transmission of personal information of our customers through various third parties, including retailers and payment processors. We and some of these parties have in the past been the target of security breaches and because the transactions involve third parties and environments, where we do not control the processing, storage or transmission of such information or the security protocols enacted by such third parties or in such environments, security breaches affecting any of these third parties could affect us, and in some cases we may have exposure and suffer losses for breaches relating to them, including costs to replace compromised debit and credit cards and address fraudulent transactions.

Although we employ a variety of physical, procedural and technological safeguards to protect personal information from mishandling, misuse or loss, these safeguards do not provide absolute assurance that mishandling, misuse or loss of the information will not occur, and that if mishandling, misuse or loss of information does occur, those events will be promptly detected and addressed. It is not always possible to deter or prevent employee misconduct, and the precautions we take to detect and prevent this activity may not always be effective. Similarly, when personal information is collected, compiled, processed, transmitted or stored by third parties on our behalf, our policies and procedures require that the third party agrees to maintain the confidentiality of the information, establish and maintain policies and procedures designed to preserve the confidentiality of the information, and permit us to confirm the third party’s compliance with the terms of the agreement. Any failure to protect personal information could result in reputational damage and have a material adverse effect on our results of operations and financial condition.

Other risks relating to our businesses

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

Market risk refers to the probability of variations in income or in the market value of assets and liabilities due to changes in markets, including variations in market rates of interest and foreign currency exchange rates. Changes in interest rates affect the following areas, among others, of our banks’ businesses: net interest income, the volume of loans originated, market value of securities holdings, asset quality, and gains from sales of loans and securities. BHI, as a financial holding company, does not have material market risk but it monitors and oversees market risk at a consolidated level through reports received from its financial subsidiaries, who in turn, are in charge of managing their own market risk. The financial subsidiaries are subject to market risk, primarily as a result of banks’ lending businesses and investment portfolios. For further information on management of market risk See Section 10. “Quantitative and Qualitative Disclosures About Risk”.

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

We have regional exposure to fluctuations in interest rates. If there are significant increases in such rates in any of the countries in which we operate, our operating margins may be adversely affected, and our results of operations may experience significant adverse consequences.

We may not effectively manage risks associated with the replacement of benchmark indices.

Interest rate, equity, foreign exchange rate and other types of indices which are deemed to be “benchmarks,” including those in widespread and long-standing use, have been the subject of ongoing international, national and other regulatory scrutiny and initiatives and proposals for reform. Some of these reforms are already effective while others are still to be implemented or are under consideration. These reforms may cause benchmarks to perform differently than in the past, or to disappear entirely, or have other consequences, which cannot be fully anticipated.

Any of the benchmark reforms which have been proposed or implemented, or the general increased regulatory scrutiny of benchmarks, could also increase the costs and risks of administering or otherwise participating in the setting of benchmarks and complying with regulations or requirements relating to benchmarks. Such factors may have the effect of discouraging market participants from continuing to administer or contribute to certain benchmarks, trigger changes in the rules or methodologies used in certain benchmarks or lead to the disappearance of certain benchmarks.

Any of these developments, and any future initiatives to regulate, reform or change the administration of benchmarks, could result in adverse consequences to the return on, value of and market for loans, mortgages, securities, derivatives and other financial instruments whose returns are linked to any such benchmark, including those issued, funded or held by us or our banking subsidiaries.

Various regulators, industry bodies and other market participants in the U.S. and other countries are engaged in initiatives to develop, introduce and encourage the use of alternative rates to replace certain benchmarks. There is no assurance that these new rates will be accepted or widely used by market participants, or that the characteristics of any of these new rates will be similar to, or produce the economic equivalent of, the benchmarks that they seek to replace. If a particular benchmark were to be discontinued and an alternative rate has not been successfully introduced to replace that benchmark, this could result in widespread dislocation in the financial markets, engender volatility in the pricing of securities, derivatives and other instruments, and suppress capital markets activities, all of which could have adverse effects on our results of operations. In addition, the transition of a particular benchmark to a replacement rate could affect hedge accounting relationships between financial instruments linked to that benchmark and any related derivatives, which could adversely affect our results.

However, BHI, as a financial holding company, monitors and oversees at a consolidated level through reports received from its financial subsidiaries We established a multifunctional IBOR Committee to manage its transition to alternative reference rates. The objectives of the IBOR Committee include assessing whether financial assets and/or liabilities should be amended as a result of IBOR reform, and how to manage communication about IBOR reform with counterparties. The IBOR Committee reports to the Executive Committee on a regular basis and collaborates with other business functions as needed. Additionally, it provides periodic reports to the Asset and Liabilities Committees and the treasuries on the Company's operations to support interest rate risk management and works closely with the Risk Committee to identify the operational and regulatory risks arising from the IBOR reform

In the medium term, the Company expects to originate loan operations referenced to the TERM SOFR, published by the Chicago Mercantile Exchange (CME). The Company opted for this rate in light of the recommendation made to the market by the Alternative Reference Rates Committee, a technical entity made up of different market participants and regulators to lead this transition process. The Company constantly monitors the TERM SOFR and estimates to migrate and/or originate loan operations with reference to said rate before June 2023.

Changes related to monetary policies may cause benchmarks to perform differently than in the past, or to disappear entirely, or have other consequences which cannot be fully anticipated which introduces a number of risks for BHI. These risks include (i) legal risks arising from potential changes required to documentation for new and existing transactions; (ii) risk management, financial and accounting risks arising from market risk models and from valuation, hedging, discontinuation and recognition of financial instruments linked to benchmark rates; (iii) business risk that the revenues of products linked to LIBOR (in particular those indices that will be replaced) decrease; (iv) pricing risks arising from how changes to benchmark indices could impact pricing mechanisms on some instruments; (v) operational risks arising from the potential requirement to adapt IT systems, trade reporting infrastructure and operational processes; (vi) conduct risks arising from the potential impact of communication with customers and engagement during the transition period; and (vii) litigation risks regarding our existing products and services, which could adversely impact our profitability.

To mitigate impacts, BHI has been applying a policy to manage that consumer loans, such as mortgages, personal loans, and cars, are modified in a uniform manner, and tailored products, such as corporate loans, are modified in bilateral negotiations with counterparties. Our Executive Committee approved a policy requiring that, beginning in the first half of 2021, all newly originated variable rate loans to clients incorporate fallback clauses for when an IBOR ceases to exist. The provisions of these clauses provide for a transition to the applicable alternative benchmark rate, which varies by jurisdiction.

Also, we monitor the progress of the transition from IBOR to new reference rates by reviewing the total amounts of contracts that have yet to transition to an alternative reference rate and the amount of such contracts that include an adequate fallback clause. The Company ceased to originate loan operations referenced to LIBOR rates in the fourth quarter of 2021. Likewise, it has initiated the modification of financial asset contracts associated with the LIBOR rate and incorporated fallback clauses in some existing contracts. Likewise, it temporarily opted to originate loan operations based on the New York Prime Rate. The main risks to which the Company has been exposed as a result of the IBOR reform are operational. For example, the renegotiation of loan contracts through bilateral negotiation with corporate clients, updating of contractual terms in corporate and consumer clients, updating of systems that use IBOR curves and review of operational controls related to reform and regulatory risks. Financial risk is predominantly limited to interest rate risk

We may be adversely affected by fluctuations between the value of the local currencies where we operate, and the U.S. dollar as a result of U.S. dollar-denominated indebtedness and assets, and as a result of our Central American operations.

We face exposure to fluctuations in the rate of exchange between local currencies and the U.S. dollar, particularly given the fact that the currencies in countries where we operate have historically experienced significant devaluations and depreciations. Fluctuations in the exchange rate between the value of the local currencies where we operate, and the U.S. dollar, may also negatively affect our leverage and capitalization ratios as measured by regulators or by rating agencies.

We are subject to impacts on our statement of income and/or statement of financial position derived from fluctuations between the U.S. dollar and each of the currencies in our Central American operations; a substantial portion of BHIʼs earnings, assets and liabilities are in Costa Rican Colones, Guatemalan Quetzals, Honduran Lempiras, Nicaraguan Córdobas, Panamanian Balboas (1 Balboa is equivalent to 1 U.S. dollars) and U.S. dollars.

In accordance with its market risk policies, BHI maintains a U.S. dollar net asset position (long U.S. dollar position) which is intended to hedge its shareholders’ equity against possible devaluations of each of the local currencies in the countries where it operates against the U.S. dollar. Nevertheless, if exchange controls were to be enacted in some of the jurisdictions where we operate, this risk mitigation strategy would be significantly undermined.

Finally, on June 8, 2021, El Salvador enacted a law “Decreto No. 57”¹ that makes Bitcoin legal tender in El Salvador along with the US Dollars and requiring for every merchant in said country to implement means to receive payments in Bitcoins (Section 7): thus becoming the first country in the world in imposing such regulations. Matters related with the applicable exchange rate and the practical application of this regulations may result difficult to prevent.

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

A component of our strategy is to identify and pursue growth-enhancing strategic opportunities, such as acquisitions and alliances. As part of that strategy, we have acquired interests in various financial institutions in recent years. Strategic acquisitions and alliances could expose us to risks with which we have limited or no experience. In addition, potential acquisitions may be subject to regulatory approval. We may be unsuccessful in obtaining any such approval or we may not obtain approvals on terms that are acceptable for us particularly in view of our subsidiaries’ and our combined significant market share in the Central American banking industry.

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

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¹ E75F3.PDF (jurisprudencia.gob.sv)

We may not be able to manage our growth successfully.

BHI is a holding company that incorporates the banking operation in Central America. Therefore, our subsidiaries will be exposed to develop the operations independently in order to maintain the growth of our business in the region. Furthermore, our managers will be in charge to develop growth and sustainability plans to meet the expectations of our stakeholders. We must improve our operational, technical and managerial knowledge and compliance systems in order to effectively manage our operations across. Failure to successfully develop, monitor and manage the operations could have a material adverse effect on our reputation, stock price and financial results.

We are subject to operational risks.

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

As a result of the COVID-19 pandemic, our subsidiaries adopted remote work as part of the strategy to ensure, the health of their collaborators and the adequate operation and provision of services. In addition to adapting the technological requirements, their respective risk matrices were updated to identify the changes that the remote environment could imply.

The implementation of Operative Risk rules of Pilar 3 of Basel II may result in the imposition of capital requirement pillows regarding the materialization of Operative Risk Events in order to absorb such loses.

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

We and our subsidiaries are highly dependent on the ability to collect and process, on a timely basis, a large amount of financial and other information, and services and products, at a time when transaction processes have become more complex with increasing volumes. A partial or complete failure of any of these systems could materially and adversely affect our decision-making process, risk management and internal control systems as well as our ability to respond on a timely basis to changing market conditions. Additionally, increased dependency on communications as well as the migration of processes to cloud operations can increase our exposure to IT failures and cybersecurity threats. See Section 4. “Risk Factors—We are subject to cybersecurity threats”.

In addition, our subsidiaries’ ability to remain competitive will depend in part on our ability to upgrade our IT infrastructure and implement digitalization of products and services on a timely and cost-effective basis. We and our subsidiaries must continually make significant investments and improvements in our and their IT infrastructure in order to ensure the proper functioning of financial control, accounting and other data collection and processing systems and to remain competitive. Furthermore, as our banking subsidiaries open new branches and channels, they will need to improve their IT infrastructure, including maintaining and upgrading their software and hardware systems and their back-office operations. If there are technological impediments, unforeseen complications, errors or breakdowns in implementing new systems, our business, financial condition or results of operations may be adversely affected.

We are subject to cybersecurity threats

Our subsidiaries are highly dependent on information systems to process transactions, respond to customer queries in a timely manner, operate our technological infrastructure and maintain profitable operations across the jurisdictions in which we operate.

Our subsidiaries dedicate significant resources to maintaining the cybersecurity risks under the approved level of tolerance and regularly review the processes, technology and human element required to identify risks un current and new infrastructure before it is deployed, protect those systems with a world class cybersecurity technology stack , detect threats in our infrastructure leveraged in tools with machine learning capabilities and threat hunting processes and Response if those events in a timely manner if an event occurs. For example, we continuously receive notifications from several providers regarding threats and attacks around the world with this, we feed our tools to proactively detect any anomalous behavior monitoring the systems and network traffic and apply measures to respond if any indicator of compromise is detected. Although we have experienced events in the past such as malware or ransomware, our processes have contained them in a small subset of machines and the remediation have occur in an adequate timeframe. None of the events have had a material impact on our business. Depending on the events relevance, they have been reported to the corresponding high-level committee. We guide ourselves by the concept of the three lines of defense in order to have the appropriate oversight of our security posture, each line of defense is accountable for reporting their performance in a specific committee, Technology, Information Security/ Risks or Audit. On top of that on a yearly manner we have our infrastructure check by known third party providers in order to identify proactively weakness and present the appropriate countermeasures to mitigate them. No organization is risk free a no organization is exempt of having a future more elaborated attack, BAC invests reasonable time and effort in prevent adverse effect to its business. 

If a security incident occurs, it might have impact in our systems and jeopardize ours of our subsidiaries,  stored, processed of transmitted, data in our systems, furthermore such events might cause system malfunction or interruptions, even though we have business and it continuity processes in place, which could cause unintended reputational damage to us or any of our subsidiaries,  additional costs to us (such as repairing systems, adding new personnel or technologies), regulatory investigations, litigation or enforcement, or regulatory fines or penalties, all or any of which could adversely affect our business, financial condition or results of operation. 

Given the increasing sophistication of cyber-attacks, incidents could occur and persist for an extended period without us being able to detect them. Investigations of cyber-attacks can be unpredictable and take time to complete. The time to detect an advanced persistent threat could be longer than desired. During such time we may not know the extent of the harm caused by or how best to remediate such cyber-attack until the anomalous behavior is detected and properly contained.

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

Our subsidiaries are required to comply with applicable anti-money laundering laws, anti-terrorism financing laws, anti-bribery and other regulations. These laws and regulations require us, among other things, to adopt and enforce “know your customer” policies and procedures, and to report suspicious or large transactions to the applicable regulatory authorities. While we and our financial institutions have adopted policies and procedures aimed at detecting and preventing the use of banking networks for money laundering activities and by terrorists and terrorist-related organizations and individuals generally, such policies and procedures may not completely eliminate instances where they may be used by other parties to engage in money laundering and other illegal or improper activities. If we or any of our subsidiaries, joint ventures or other affiliates fail to fully comply with applicable laws and regulations, the relevant Government authorities to which they report have the power and authority to impose fines and other penalties. In addition, due to the COVID-19 pandemic, some warning signs have been adjusted to further identify unusual behavior in certain operations, such as the import of medical equipment and medicine acquisitions. Additionally, the frequency of monitoring was changed especially for medical import transactions, donations and foundation transactions, and awareness efforts were increased.

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

We operate in a competitive market; our banking subsidiaries may face challenges as new competitors enter the market or existing competitors may adjust their services with unique product or service offerings or approaches to providing banking services. New entrants could take advantage of regulatory arbitrage to compete with substantially lower cost structures. Non-traditional providers of banking services may offer and/or increase their offerings of financial products and services directly to customers. Several of these competitors may have long operating histories, large customer bases, strong brand recognition and significant financial, marketing and other resources. Technological advances and heightened e-commerce activities have increased consumers’ access to products and services, which has in turn intensified competition among banks and nonbanks in offering loans. Existing competitors and market entrants may adopt more aggressive pricing and rates and devote more resources to technology, infrastructure, and marketing. If we are unable to successfully compete with current and new competitors, or if we are unable to anticipate and adapt our offerings to changing banking industry trends, including innovation, digitalization and technological changes, our business may be adversely affected.

Our ability to maintain our competitive position depends mainly on our ability to anticipate and fulfill the needs of new and current customers through the development of innovative services and products, and our ability to offer adequate services and strengthen our customer base through cross-selling. Our failure to effectively anticipate or adapt to emerging technologies or changes in customer behavior, including among younger customers, could delay or prevent our access to new digital-based markets which would in turn have an adverse effect on our competitive position and business.

Our efforts to offer new services and products may not succeed if product or market opportunities develop more slowly than expected or if the profitability of these opportunities is undermined by competitive pressures. As we expand the range of our products and services, some of which may be at an early stage of development in the Central American market, we will be exposed to new and potentially increasingly complex risks and development expenses. Our employees and our risk management systems may not be adequate to handle such risks. In addition, the cost of developing products that are not launched is likely to affect our results of operations. Any or all these factors, individually or collectively, could have a material adverse effect on us.

We depend on our senior management and our Board of Directors, and the loss of their services could have an adverse effect on our business.

We are highly dependent on our senior management teams and Board of Directors both at the holding and subsidiary levels, all of whom possess considerable experience and expertise and have strong relationships with customers and participants in Central America.

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

We are subject to reputational risk, and our reputation is closely tied to that of our controlling shareholder, our senior management and members of the Board of Directors, and that of our subsidiaries.

Damage to our reputation may limit our ability to attract customers, employees, and investors. Harm to our reputation can arise from our controlling shareholder, our senior management, members of the Board of Directors, employees or former employees misconduct, legal and regulatory non-compliance, ethical issues, allegations of money laundering, and failing to deliver minimum standards of service and quality, among others. Reputation plays an integral role in our business operations, which are based on customer confidence and trust. If the public image or reputation of any of the foregoing is damaged as a result of negative publicity or otherwise, business relationships with customers of our subsidiaries may deteriorate, which would adversely affect our results of operations and financial condition. Any perceived or real difficulties experienced by any one of our subsidiaries would harm the reputation of BHI, which would also have an adverse effect on our results of operations and financial condition.

The controlling shareholder interests could differ from the interests of other common shareholders

Circumstances may occur in which the controlling shareholder may have an interest in pursuing transactions that, in their judgment, enhance the value of their investments in the financial sector. These transactions may not necessarily be in BHI´s interest or its other shareholders even if they disagree. Due to their control, the controlling shareholder will have, the power to:

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

·       agree to sell or otherwise transfer their controlling stake in our Company; and

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

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

Risk relating to the different processes of reorganization, insolvency, and liquidation to which the company may be subjected

If the Issuer petitions for or is subjected to any of the insolvency processes provided for in Panamanian law: (i) the bankruptcy process of reorganization, (ii) the bankruptcy process of liquidation, and (iii) process of cross-border insolvency, the shareholders will be paid only when all the assets and liabilities of the company are liquidated. To ensure that their investment is recognized in the Issuer's records, shareholders may make representations to the liquidator or to the Issuer and may even go to the bankruptcy process if these efforts are unsuccessful. The attendance to the process must be made through a lawyer with suitability for the practice of law in Panama and this can generate costs for the shareholder.

We may engage in additional transactions with our controlling shareholder in the future.

In the future we may engage, in business and financial transactions with our controlling shareholder and other shareholders that may present potential conflicts of interest between our company and these shareholders. While we believe that these transactions will be carried out on an arm’s-length basis, commercial and financial transactions between us and our controlling shareholder could create the potential for, or could result in, conflicts of interests between us and our other shareholders. To the extent that the price we pay for any assets acquired from our controlling shareholder exceeds the market value of such assets or is not as productive a use of our cash as other uses, our results of operations and financial condition could be adversely affected.

We are exposed to Public Purchase Operations (OPA´s) that may result in an attempt of a hostile takeover

As we are a publicly traded Company, we are exposed to an acquisition of a large of shares by another corporation (even a competitor), an investor or a group of investors; this may result in the entering of new unknown partners into our structure, who may want to take control of the Company, make major changes in the Board of Directors, management and our business strategy.

Risks Relating to Our Common Shares

There is currently no market and historically has not been a market for BHI’s securities, and upon commencement of trading, the price of BHI’s securities may be volatile until and to the extent a market develops for such securities.

There is currently no market for our securities. Shareholders therefore have no access to information about prior market history on which to base their investment decision. Upon commencement of trading, the price of our securities may vary significantly due to general market or economic conditions. Furthermore, an active trading market for our securities may never develop or, if developed, it may not be sustained. Shareholders may be unable to sell their securities unless a market can be established and sustained.

The relative illiquidity of the Colombian and Panamanian securities markets may impair the ability of shareholders to sell common stock.

Our common stock is listed on the Colombian Stock Exchange and the Panamanian stock exchange, which are small and illiquid compared to securities exchanges in major financial centers. In addition, a small number of issuers represent a disproportionately large percentage of the market capitalization and trading volume on the Colombian Stock Exchange and the Panamanian Stock Exchange respectively. A liquid trading market for BHI’s common stock may not develop on the Colombian Stock Exchange or the Panamanian Stock Exchange. A limited trading market could impair the ability of shareholders to sell common stock on the Colombian Stock Exchange or the Panamanian Stock Exchange in the amount and at the price and time desired by such holder, and could increase the volatility of the market price of the common stock.

An active market for our securities may never develop or be maintained and the market price of our common stock may fluctuate in response to numerous factors.

The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including actual or anticipated fluctuations in our operating results, economic downturns, political events in Colombia, Panama, Central America or other areas or jurisdictions where we operate, developments affecting the banking industry, exchange rates, changes in financial estimates by securities analysts or our failure to perform in line with such estimates, departures of key personnel, and sales of our common stock in the future.

We are subject to different corporate rules and regulations than those available in other jurisdictions which may make it more difficult to holders of our securities to protect their interests.

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

The Colombian securities markets are not as highly regulated or supervised as the U.S. securities markets or the markets in some other jurisdictions. In addition, rules and policies against self-dealing or for preserving shareholder interests may be less well-defined and enforced in Colombia than in the United States and certain other countries, which may put holders of our common shares at a potential disadvantage. Corporate disclosures also may be less complete or informative than for a public company in the United States or in certain other countries. See Section 14— “Description of Capital Stock—Memorandum and Articles of Association—Rights granted by the Shares” for more information.

We are traded on more than one market and this may result in price variations; in addition, investors may not be able to easily move shares for trading between such markets.

Trading in our common shares on the Panamanian Stock Exchange and the Colombian Stock Exchange takes place in different currencies (Balboas on the Panamanian Stock Exchange and pesos on the Colombian Stock Exchange), and at different times (resulting from different trading days and different public holidays in Panama and Colombia). The trading prices of our shares on these two markets may differ due to these and other factors. Any decrease in the price of our common shares on the Colombian Stock Exchange could cause a decrease in the trading price of our common shares on the Panamanian stock exchange. Investors could seek to sell or buy our shares to take advantage of any price differences between the markets through a practice referred to as arbitrage. Any arbitrage activity could create unexpected volatility in both our share prices on one exchange, and the shares available for trading on the other exchange.

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

Banking regulations in the Central American countries in which we operate may differ in material respects from regulations applicable to banks in other countries, including those in the U.S. The Central American countries in which we operate have different corporate disclosure and accounting standards for our industry than those applicable in the United States. Financial reporting disclosure requirements in the jurisdictions in which we operate differ in certain significant respects from those required in the United States. Accordingly, our separate financial statements may not be the same as the information available to holders of shares issued by a U.S. company. Furthermore, since January 1, 2015, we began preparing our financial statements in accordance with IFRS as issued by the IASB and, as a result, some of our financial data may not be easily comparable from period to period.

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

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

We have been advised by our Panamanian counsel that no treaty exists between the United States and Panama for the reciprocal enforcement of foreign judgments and that there is doubt as to the enforceability, in original actions in Panamanian courts, of liabilities predicated solely on the U.S. federal securities laws and as to the enforceability in Panamanian courts of judgments of U.S. courts obtained in actions predicated upon the civil liability provisions of the federal securities laws of the U.S. We have also been advised by our Panamanian counsel that a judgment of a court outside Panama, including but not limited to judgments of U. S. courts, may only be recognized and enforced by the courts of Panama if the Supreme Court of Panama validates the judgment by the issuance of a writ of exequatur. Subject to a writ of exequatur, any final money judgment rendered by any foreign court will be recognized, conclusive and enforceable in the courts of Panama without reconsideration of the merits, if (i) such foreign court grants reciprocity to the enforcement of judgments of courts of Panama, that is, the foreign court would in similar circumstances recognize a final judgment of the courts of the Republic of Panama, (ii) such judgment was issued by a competent court of the foreign jurisdiction (Panamanian courts have exclusive jurisdiction on matters of real estate located in Panama), (iii) the party against whom the judgment was rendered, or its agent, was personally served (service by mail not being sufficient) in such action within such foreign jurisdiction, (iv) the judgment arises out of a personal action against the defendant, (v) the obligation in respect of which the judgment was rendered is lawful in Panama and does not contradict the public policy of Panama, (vi) the judgment, in accordance with the laws of the country where it was rendered, is final and not subject to appeal, (vii) the judgment is properly authenticated by diplomatic or consular officers of Panama or pursuant to the 1961 Hague Convention Abolishing the Requirement of Legalization of Foreign Public Documents and (viii) a copy of the final judgment is translated into Spanish by a licensed translator in Panama.

We are exposed to a risk that the Company will not generate profits in one or more financial years and may affect the production, decree and/or distribution of profits.

Shares are equity securities. As in any commercial company, there is a risk that the Company will not generate profits in one or more financial years. This risk may affect the production, decree and/or distribution of profits. The return that can be generated from holding a share is a product of the level of dividends paid by that share, and of the gains or losses that the price of that share experiences while holding it. In equity investments, such as Equities, future earnings are uncertain to the extent that it may be affected by the performance of the economy and the behavior of the public stock market. Before making an investment in equity securities, you should be aware that you can win or lose the invested capital The investor in the shares can exceed the expectations of profit, via dividends or via the valuation of the share price, but it may also be that due to various circumstances the initially calculated profit is not accrued and, eventually, a loss is generated. It is important to note that investing in equities is considered high risk.

Investing in stocks is considered medium and long term. This situation extends to the Shares to the extent that the profit received depends on the Issuer generating profits, and on the General Shareholders' Meeting decreeing the distribution of dividends in favor of the Company's shareholders. Investing in stocks carries an investment risk that can lead to the loss of invested capital. The return on investment in the shares will be subject to the company's results and market factors.

The Colombian and Panamanian stock market are smaller, more concentrated and more volatile than other stock markets. Investments in the stock market of an emerging country such as Colombia and Panama involve a greater risk than investments in stock markets of more developed countries. Likewise, the concentration is higher in the Colombian and the Panamanian stock market compared to the main world markets, so the Company cannot guarantee that there will be a liquid market for the Shares, which could materially limit the ability of investors to sell the Shares at the price and time they decide.

Risk related to the collection of dividends by judicial means

In the event that the payment of dividends does not occur, and it is necessary to make a judicial claim in the applicable jurisdiction, the judicial proceedings, the appointment of a judicial representative in said jurisdiction, and in general any cost or expense generated by this process will be borne and decided by each of the shareholders who must individually assume said cost, which could be higher than the amount to be claimed. Likewise, there could be a risk for shareholders of ignorance of the applicable jurisdiction. Shareholders may go to the venue provided by the Creditors’ Committee or any other bankruptcy organization body to make a joint decision and facilitating the payment process. Any judicial procedure in order to collect dividends in Panama, may represent legal fees and judicial costs of advisory that will be assumed by each investor, BHI will not provide such legal advisors and will not provide any collective instrument in order to group investors in order to initiate such legal procedures. There is no certainty regarding the length and the final results of such legal procedures before the Panamanian jurisdiction.

5.      Dividend policy of BHI

The General Shareholders' Meeting of BHI has not determined a general policy for the payment of future dividends other than the provisions indicated by the Articles of Incorporation. See “Description of Capital Stock.” However, the amount of dividends, if any, that BHI will pay will depend on many factors, such as the results of operations and financial condition of our Company and our subsidiaries’ earnings, growth prospects, cash requirements, other uses of cash, funding requirements, applicable law and other factors deemed relevant by our board of directors and shareholders. While BHI has in the past paid dividends, as described below, there is no assurance that we will do so in the future.

In accordance with the provisions of the Articles of Incorporation, in a General Shareholders' Meeting, the shareholders will decide on the distribution of profits. Profits, if any, will be distributed in proportion to the number of shares that each shareholder has in the Company. The payment of the dividend will be made in cash at the times and under the conditions determined and decreed by the General Shareholders' Meeting.

Note that the dividends to be distributed may be paid from the latest period earnings as well as retained earnings from previous periods. In the General Shareholders’ Meeting, shareholders will determine the amount of dividends declared, the effective date, and the method and place for payment of dividends.

Notwithstanding the foregoing, as long as the Company's shares are listed in the Panamanian and Colombian stock market, the applicable provisions regarding the ex-dividend period will be considered. Dividends may be paid in the form of stock dividends of the same Company if determined by the General Shareholders' Meeting. The General Shareholders' Meeting may declare the payment of dividends with respect to shares that are issued and placed in a given year and charged to profits from previous years, as long as there are reserves that allow for such payment.

Since BHI is a Company registered on the Panamanian stock exchange; following its official listing, shareholders registered in this exchange shall receive dividend payments through Central Latinoamericana de Valores, S.A. (Latinclear). Similarly, since the Company’s common shares are register in the Colombian stock exchange, dividend payments for shareholders registered on this exchange shall be paid through Depósito Centralizado de Valores de Colombia (Deceval).

For more information on the provisions of BHI’s Articles of Incorporation refer to Section 16. “Description of Capital Stock – Memorandum and Articles of Incorporation”.

Net Income and Declared Dividends Corresponding to the Past Three (3) Years

The following table presents the net income and dividends declared by BHI and its subsidiaries for the past three years and as of September 30, 2021:

On September 29^th, 2021, the shareholders of BHI, through an Extraordinary Shareholder´s Meeting, declared an extraordinary dividend based on non-distributed retained earnings to be paid through a 10-year payment plan which resulted in a long-term financial obligation for the Company with related parties. For more information on this and other transactions with related parties refer to Section 13. “Certain Relationships and Related Party Transactions”.

6.      CAPITALIZATION

The following table sets forth our cash and equivalents and our capitalization, as of September 30, 2021. The Spinoff had no impact on our capitalization.

You should read the information in the following table together with Section 9. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Section 7. “Unaudited Condensed Pro Forma Financial Information” and our historical combined financial statements and the related notes included in the other sections of this information statement.

The capitalization table gives to a stock split completed in anticipation of the Spinoff, pursuant to which we split our 77,443,101 common shares outstanding as of September 30, 2021 into 43,220,189,095 of our common shares, reflected in the table below.

We are providing the capitalization table for information purposes only.

A U.S.$750 million dividend was approved by an Extraordinary Shareholders Meeting on September 29^th, 2021, further amended by Extraordinary Shareholders Meeting on December 17^th, 2021; the agreement taken in said meeting, set a 10-year payment plan to complete the agreed amount of the extraordinary dividend. In the interim consolidated financial statements as of September 30, 2021, the extraordinary dividend is registered at present value under other liabilities. However, as of December 31, 2021, U.S.$375 million have been paid and the remaining amount is registered as financial obligations, in accordance with IFRS rules. For more information on this and other transactions with related parties refer to Section 13. “Certain Relationships and Related Party Transactions”.

7.      UNAUDITED CONDENSED PRO FORMA FINANCIAL INFORMATION

Overview

The following unaudited pro forma income statement information is presented for the nine months ended September 30, 2021, and the year ended December 31, 2020, to reflect the impact of the MFG Demerger and the Spinoff, assuming in the case of the MFG Demerger, that it had never occurred (as MFG was initially acquired by BHI on May 22, 2020), and in the case of the Spinoff, that it occurred on January 1, 2020.

BHI and its subsidiaries, many of which are regulated financial entities in the jurisdictions in which they are domiciled, have historically been operated as a standalone business, with a dedicated management structure and support services. The Spinoff is not expected to have a material impact on BHI’s historical financial position or results of operations (except with respect to earnings per share). Accordingly, the unaudited pro forma income statement information does not reflect any autonomous entity adjustments as contemplated under Article 11 of Regulation S-X.

For the foregoing reasons and due to the fact that the MFG Demerger was completed on September 29, 2021 and is reflected in BHI’s historical balance sheet as of September 30, 2022, a pro forma balance sheet is not presented.

As the MFG Demerger was completed on September 29, 2021, MFG was accounted for as a discontinued operation in the nine months ended September 30, 2021, but not in the year ended December 31, 2020. Accordingly, our unaudited pro forma income statement information for the nine months ended September 30, 2021, contains minimal adjustments for the MFG Demerger, as shown in the table below.

Unaudited Pro Forma Income Statement Information

The following table presents our unaudited pro forma income statement information for the nine-month period ended September 30, 2021, reflecting the impact of the MFG Demerger and the Spinoff.

The following table presents our unaudited pro forma income statement information for the year ended December 31, 2020, giving effect to the MFG Demerger and the Spinoff.

8.      STATISTICAL BANK INFORMATION

Selected Statistical Data

The following information is included for analytical purposes and should be read in conjunction with our audited consolidated financial statements included in this information statement. This information has been presented based on our financial records, which are prepared in accordance with IFRS. The selected statistical data of BHI at September 30, 2021 have been derived from our interim consolidated financial statements and for the years ended December 31, 2020, 2019 and 2018, as applicable, have been derived from our audited consolidated financial statements, prepared in accordance with IFRS that are included in this information statement. We believe that the average data set forth herein accurately reflects in all material aspects our financial condition and results of operation at the date and for the periods specified.

Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential

•        average statement of financial position for the nine-month period ended September 30, 2021, has been calculated as follows: the 10-point monthly average of balances between December 31, 2020, and September 30, 2021, excluding MFG (assumes the Spinoff is effective from January 1, 2021).

•        average statement of financial position for 2020, 2019, and 2018 have been calculated as follows: the 13-point monthly average balances between December 31 of the previous year and December 31 of the corresponding year.

Average Statement of Financial Position

For the period ended September 30, 2021, and years ended December 31, 2020, 2019, and 2018, the following table presents:

•        average balances for 2021 calculated using the average balances for our assets and liabilities (based on a ten-period average) according with the paragraph above;

•        average balances for 2020, 2019 and 2018 calculated using the average balances for our assets and liabilities (based on a thirteen-period average) according with the paragraph above;

•        interest income earned on assets and interest expense on liabilities; and

•        average yield and interest rate for our interest-earning assets and interest-bearing liabilities, respectively.

Average balances of assets and liabilities, interest income and average yield, and interest expense and average rates are shown separated into domestic, referring to Panama-based assets and liabilities, and foreign, referring to non-Panama based assets and liabilities.