Rule 12g3 – 2(b) Exemption #82-35186

Free English Translation

4Q16 Earnings Conference Call

February 17th, 2017

OPERATOR: Good morning, everyone and thank you for waiting. Welcome to

Banco do Brasil 4Q2016 earnings conference call. This event is being

recorded and all participants will be in listen-only mode during the Company

presentation. After this there will be a Q&A session. At that time further

instructions will be given. Should any participant need assistance during this

call, please press *0 to reach the operator. This conference call is also being

broadcast live via webcast into Banco do Brasil website at www.bb.com.br/ir,

where the presentation is also available. Participants may view the slides in

any order they wish. Before proceeding let me mention that this presentation

may include references and statements, planned synergies, estimated

projections and forward-looking strategies concerning Banco do Brasil, its

associated and affiliated companies and subsidiaries. These expectations are

highly dependent on market conditions and on the performance of domestic

and international markets, the Brazilian economy and banking system. Banco

do Brasil is not responsible for updating any estimate in this presentation. With

us today we have Mr. Paulo Rogério Caffarelli, CEO, Mr. Alberto Monteiro,

CFO, and Mr. Bernardo Rothe, Head of Investor Relations. Mr. Caffarelli, you

may now begin.

CAFFARELLI – Thank you. Good morning. First of all I’d like to thank you for

taking part of this conference. I asked to Alberto and Bernardo to say a few

words for you, before starting the presentation. Just tell you that I’m really

confident that Banco do Brasil is in the right path to reach the profitability

compatible to its potential. We already took the first steps. 2016 was a tough

year but we have signs showing that economic improvement is underway

allowing that our current measures became better results. I’ve been telling you

about reaching our peers profitability levels. I believe we are already on the

course and we’ll continue on it 2017. Our NII will increase above the market

average this year. Fee income growth will be between 6.0 and 9.0% in 2017.

We are raising our customer’s portfolio profitability with the digital channels

growth. Our goal is to end this year with 4.5 million individual [ 02:56] in the

digital model, which generates 44.0% higher margins than the traditional

model. Technology is the present and the future for us. And I can assure you

that Banco do Brasil has the best digital solutions in the country. For that

reason we call ourselves Mais Que Digital which means “we go beyond the

digital solutions currently provided in the market.” I also would like to highlight

that we have elected 2017 as the year of customer service, the customer best

experience in the basis of relationship we desire.

Moving on to expenses, I’ve done some important restructuring closing

branches, opening digital offices, process improvement and over 9,000

employees retirement. These will keep our administrative expenses under this

year inflation. This is our main target because we intend to maintain the same

value that will expand that year. We are estimating some fee between 1.5%-

4.5%, but we intend to stay near 1.5%. Provisions will also reduce between

30.0% and 44.0% compared to 2016. Another issue is capital. About capital, in

just one year we grew 140 bps, we see a consistent core capital growth,

quarter after quarter. In agribusiness we estimate an increase in the rural

portfolio between 6.0% and 9.0% with the expectation of having the best

harvest ever. I believe so hard in this. I also see great opportunities for the

capital market in 2017 as the macroeconomic scenario gets better naturally,

companies be more confident to look for funding in the capital market in Brazil.

That and equity as well. With that said I want to reassure my commitment with

the ROE improvement. I said yesterday to the press that we are focusing on

profitability not in marketshare, this is very important because in a financial

market you need to choose and we chose profitability, OK? 2016 isolated

factors that impacted our result tend to decrease and we’ll resume its

economic growth and we consolidated all the measures to improve BB

efficiency. For finishing, I would like to emphasize our commitment, my

commitment, the board commitment with our employees with these five pillars:

profitability, efficiency, capital, credit recovery, customer experience and digital

solutions. I can assure to you that Banco do Brasil will have a better result in

2017. Thank you very much, have a good day and have a good weekend.

Thank you. Bye bye.

OPERATOR – Mr. Alberto, you may proceed.

ALBERTO MONTEIRO – Good morning everyone. I’d briefly like to introduce

myself before we go to [07:06] details of our figures. I am Alberto Monteiro, I

have been a carreer in Banco do Brasil banker until 2009 when I left to accept

the challenge [07:17]. I was invited to rejoin Banco do Brasil as CFO and took

the position this January year. With 26 years of service in Banco do Brasil and

I have experience in this private sector, I believe I’m uniquely positioned in this

role. My team and I are committed to assist Mr. Caffarelli, our CEO, in

achieving the Bank’s goals of increasing ROE, improving efficiency. I would

like to hand over to Bernardo Rothe to start our conference call. Thank you

very much.

BERNARDO ROTHE – Good morning everyone. Thank you for participating in

our conference call. I would like to start on page 3 of our presentation, where

we have the highlights for 2016. Starting with pre-tax and pre-provision

earnings that increased by 7.3%. Our NII grew by 13.0%. Fee income 6.8%

growth. Administrative expenses totally under control and growing below

inflation at 3.5%, getting to a cost-income ratio reduction to 39.7%.

Slide 4, we have the net income of the Bank, R$ 80.0 billion the accounted net

income and 7.2% the adjusted net income. At the bottom of the slide we have

the profitability ratio of the bank. The adjusted ROE finished the year with

7.5%. Shareholders ROE where we took out the denominator R$ 8.1 billion

that’s considered capital that is not included, the cost of that debt is not

included in the net income so if we do that calculation we get to 9.8% ROE.

Slide 5, pre-tax and pre-provision earnings growing from 14-15 by 16.8%, 15-

16 by 7.3%, making 24.4% growth in 2 years that all the work we have been

doing to improve profitability is reflected here in pre-tax and pre-provision

earnings.

Slide number 6, market ratios. Earnings per share ended the year at 2.57.

Bloomberg projections based on sell side analysts estimates is 3.93 [09:58]

earnings per share. Dividend yield 4Q, 3.01, the estimate for 2017 by

Bloomberg is 3.16. Price earnings 12 months 9.74 in 4Q and the projections

they gave 8.08. And price book value 0.9 in 4Q, and 0.95 is the estimation for

2017 by Bloomberg.

Slide number 7, funding. We reached R$ 613.0 billion in funding, a decrease

of 8.3% compared to December 15, in line with the decrease in the portfolio.

The cost of this funding reached 63.7% of Selic rates in December.

Slide number 8, loan portfolio. We have a decrease of 11.3% to reach R$

780.0 billion, I would like to highlight here the performance of agribusiness with

a growth of 2.8% basically coming from a decrease in agroindustrial, the rural

credit grew by 8.6% and individuals growing 1.5%. These 2 portfolios are

growing participation in the total portfolio of the bank.

Slide number 9, talking about individuals portfolio. We are concentrated in

lower risk lines of credit, that’s where we see growth coming, mortgages that

grew 9.5% considering also the mortgage with companies. The marketshare is

7.9 for individuals and payroll we have 0 growth, stable portfolio at 60.5%

marketshare 23.0%. Salary loans grew by 3.5% to 19.3 and auto loans are still

decreasing, almost 26.0% decrease reaching R$ 6.2 billion. In terms of

delinquency ratios we can see that in mortgage is 1.47, a small increase from

2016, payroll loans 1.31, was only one that didn’t change. Auto loans still at

0.98 and salary loans 2.88%.

In slide number 10, portfolio of companies in the broad concept. We have a

decrease of 19.2% to R$ 294.0 billion, most of this decrease came from very

small-small companies portfolio that decreased to 23.8%, reaching R$ 68.7

billion. And the rest of the portfolio had a decrease of 17.6%.

Slide number 11. Agribusiness. We have here the breakdown by agroindustrial

and rural credits. As you can see most of the decrease came in the

agroindustrial pretty much in line with the behavior of the loans to companies.

Rural credit grew by 6.6% in 1 year. Brazil number one market participation of

almost 60.0% and working capital finance we use mitigators reaching 64.2% of

the total working capital. For the harvest 16-17 we grew the finance of the

harvest we grew 8.0% compared to the harvest 15-16, with disbursements up

to R$ 47.1 billion. For the next harvest, 17-18, we start with free working

capital for this particular harvest increasing the amount of the disbursement to

R$ 12.0 billion, R$ 1,7 billion more than last year.

Slide 12, we start to talk about credit quality. Starting with delinquency ratios,

we reached 3.29 at the end of December for the total ratio of the Bank.

Compared to 5.83 in companies, 2.67 individuals and 0.99 in agribusiness.

Slide 13. Cover ratios and the balance in provisions. The cover ratios in

December was 167.0%, total provisions R$ 36.0 billion and in this quarter we

created supplementary provisions, R$ 1.5 billion.

Page 14. Cover ratios by segment. Our portfolio abroad has a high cover ratio

of 400.0%, agribusiness, 228.0%; individuals, almost 200.0%; and we see

some improvements in companies as well, 145.0%.

Slide 15. Average risk reached 5.52 in December, a slight improvement from

September/2016. The banking industry is at 6.5, meaning that we are way

below the average risk in the market and our portfolio is concentrated in risk

AA-C, 90.8%.

Slide 16. Provision flow to loan portfolio. Pretty much stable in portfolio we

keep outside of Brazil. We are seeing increasing provisions to the portfolio in

companies, 2.21, the total also increased 1.28; individuals 1.18; only in

agribusiness we have a decrease in the flow in this quarter. The total

provisions, nominal value of provisions, in the quarter increased by 12.7%,

pretty much coming from individuals and companies.

Slide 17. NPL formation. We ended the quarter as 1.04, almost stable to

3Q2016. And a coverage on the NPL formation of 107.0%. In the bottom of the

slide we included in the card use transactions the portion of the renegotiated

loan portfolio that was renegotiated after 90 days being past due. If we didn’t

renegotiated that particular loans, how much would be the NPL formation? In

this case we have a small increase of 1.17 but smaller than the 2Q and cover

ratio almost at 100.0%.

Slide 18, we have NPL formation by segment and the cover ratio of the NPL

formation by segments. Here you can see that individuals is pretty stable in

relation to September by 0.84 and a cover ratio of 140.0%. For companies we

have 1.73, a small increase in relation to 3Q but below the highest level we

have in the 2Q and a cover ratio of 121. Agribusiness is pretty much stable at

the time, 1.4 and the cover ratio here is what we have done in the portfolio,

was negative.

On page 19 we bring to you the renegotiation of new loan portfolio. We have

R$ 3.8 billion in new contracts in the quarter, a decrease of 35.6% in relation

to the 4Q2015 and in the right side we have from this R$ 3.8 we renegotiated

how long it was past due when we renegotiated. So we have the breakdown

by the time of being past due. As you can see 14.4% was not even past due is

recovery of written-off operations and only 17 was past due over 90 days. The

concentration here is almost 40.0% comes from transactions past due from 0-

14 days. By the way the presentation shows 4 days as 14 days. Sorry about

that. And the growth in the amount of money we are receiving in this portfolio

means amortization of principal, interest payments, and net interest accrued in

the period grew in 2 years 92.1%. Just to compare the write-offs grew by

59.4% meaning that we are really increasing the level of what we are receiving

in this portfolio.

On page 20 we have the NPL formation for this portfolio at 9.24, a little bit

higher than 3Q the lowest level in this series here. And the cover ratio was a

161.69.

Page 21, guarantees provided in provisions, almost R$ 18.0 billion at the end

of December of guarantees outstanding and this portfolio has R$ 431.0 million

in provisions.

Page 22. We have the NII. We grew 13.0% in 2015, loan operations grew by

7.3% and funding expenses way below the growth of the loan operations. That

explains the increase in spread that we are going to show in the next pages.

In slide 23, the net interest margin grew to 5.06 in the quarter, the readjusted

NIM 2.57, and the 4Q the average balance of our portfolio was R$ 644.0

billion, a decrease overtime during the year.

Page 24, we have spread by portfolio. Starting with individuals, increased to

16.6, companies increased to 6.34 and agribusiness also increased to 5.0%,

getting us to 7.98 in the total credit spread.

Page 25, fee income. A growth of 6.8% in the year coming mostly from

checking account fees of 19.2; asset management also with a good

performance at 9.9. And insurance pension premium bonds at 7.1.

Page 26, we have our network distribution. At the end of December 66.0

thousand points of sale all over the country. Our own service networks more

than 16.0 thousand; also 5,440 before the flow, what announced, that we were

closing branches and so on, that’s going to happen in 2017, I have more

information afterwards. Total customers almost 65.0 million and total

employees 100,0 thousand, and that number is already impacted by the

retirement program that we announced last year. And outside of Brazil we

have presence in 24 countries, 38 points of service.

On page 27, the ideal of improving customer experience through digital

strategy, how is [22:36]. The combination of human solution with digital

solutions where we have the digital relationship manager serving clients

through extending working hours, from 8am to 10pm for individuals; and from

8am to 6pm for companies, using all the tools available in the market.

Page 28 we bring the the level of transactions by channels. We can see that

65.0% of all transactions processed by the bank are concentrated in mobile

and Internet, and the mobile we reached 10.0 million clients at the end of

December using the mobile; 10.0 billion transactions in 2016, 53.1% growth

compared to 2015.

Slide 29 the digital strategy evolution. The main information to provide you

here is the increase in the number of customers considered in the portfolio

[23:43] network, has reached 5.5 million in customers, additional 1.2 million

customers through an additional 27 digital bank units, not branches, units. In

the Stylo segment, more 400.0 thousand clients; in Exclusivo 212 offices; and

3.0 million clients at the end of 2017, that’s our goal. With that we have the

possibility of increasing the revenues with these clients, when we do that

through the digital, these changes that we are showing here we can improve

revenues in 2018 by R$ 1.7 billion, just to give you an idea.

On page 30 the digital strategy gains considered the profitability [24:40] from

20.0% to 44.0% when we shift the clients from the traditional banking to digital

banking. Efficiency growth increased by 35.0% and [24:53] is 16.0% higher.

All of that we’ve shown so far gets us to slide 31 where we see the

improvement in cost/income ratio, going from 41.6 in 2015 to 39.7 in 2016, a

growth of 3.5% in the year for administrative expenses.

Slide 32, some information about the organization that we are doing in the

bank so we have the retirement approval of 9.4 thousand people joining, with

flows already 274 branches in 2017 up to two days ago. And we transformed

250 branches in points of service.

Slide 33. The increase in our core Tier I since September 2015 reaching 9.6%

in December 2016 and the total capital ratio is 18.5.

Slide 34, applying all the Basel III rules we grow from 18.5% total ratio to 18.11

after using our credit spread as well. Before the Tier I it goes from 12.79 to

12.38. Same behavior would happen for the core equity Tier I.

Slide 35, the guidance for 2016. We are pretty much in line with the guidance.

For companies that we projected -19.0% at the bottom of the guidance we

ended up with -19.2. And agribusiness that had a [26:49] of 4.0% is 2.8.

Administrative expenses we came in guidance at 3.5.

Slide 36. We have the guidance for 2017 with some changes in some

indicators. Instead of ROE we now are giving you the guidance for adjusted

net income, 9.5 to 12.5. NII we are considering now net of write-offs recovery,

0-4.0%. The portfolio is the organic one so we are not considering anymore

any portfolio that we acquired in this guidance, is 1-4. For individuals, 4-7.

Companies and agroindustrial now together, so companies including the

agroindustrial [27:44], 4 to -1.0. Rural loans is only [27:50] rural loans, that’s

another change we made, the growth is 6-9.0%. The provision expenses now

is net of recovered write-offs and in billions, goes from -23.5 to -20.5. Fee

income growth of 6-9.0% and administrative expenses growing from 1.5-4.5%.

With that we can open now for Q&A. Thank you.

OPERATOR – Ladies and gentlemen, we will now begin the Q&A session. If

you have a question, please dial *1 on your touch tone phone now.

Our first question comes from Mr. Tito Labarta, from Deutsch Bank.

TITO LABARTA – Hi. Good morning everyone. Thank you for the call. A

couple of questions. First, I was looking at your guidance for net interest

income and loan growth [28:15], one is at 0-4%, one is at 4.0%, your margin

should be stable[28:49] a little bit if you look at average balances. I just want to

understand with interest rate coming down, just get a little better

understanding of the sensitivity [29:00] funding costs can improve, [29:03] put

pressure on your loan spread. I just want to understand a little bit about the

sensitivity here. And my second question is in terms of capital. Will we

continue to see improvements in your capital ratio? I understand that you have

some deductions that you have to do this year, which can maybe offset some

of that but with profitability improving. If you could just maybe, what do you

think you are [ 29:24] at in terms of capital ratio [29:28], I would appreciate it.

Thank you.

BERNARDO ROTHE – Thank you, Tito, for your questions. Starting with the

behaviour of NII compared to the loan growth, we don’t expect that the loan

portfolio is going to have a linear performance in 2017. So it’s not linear growth

all over the year. If you look at what we expect in terms of average balance for

our loans, compared to 2016, it is going to be a negative number. So even if

we say that NII is going to grow zero, that means that we are capturing

spreads. The balance is going to be lower than last year. So that considers the

reduction Selic and changes in regulation in Brazil and so on. Everything that

we have and all the information that we have until now is considered in this

guidance. We are still seeing room to get through spreads throughout the year.

And if you have 58.0% of our portfolio that was contracted before 2016. So

even though we started the process repricing in 2014, but prices in 2014 are

lower than what we have right now. So we still have room to do reprice in our

portfolio to the level of interest rates that we expect throughout 2017. And that

is what [30:55] was this guidance of 0-4.0% growing more than the average

balance of the portfolio. In terms of capital, the only goal that I can tell you is

the one that we have been announcing. It is 19.5% by beginning of 2018. But

yes, this last month we had another 20.0% deduction in the NIM. So from the

level of that the core Tier I that we had at the end of December should be

[31:29] it was lower because of the deductions, that’s considered the capital

plan. And we are going to keep improving it throughout the year. Ok?

TITO LABARTA – Ok. That’s all Bernardo. Thank you. I just have a couple of

quick follow ups. So it is expected to assume that with the repricing of your

loan portfolio, that’s what we are all expecting the lower interest rates you

don’t expect pressure on spread and also, maybe, just a lack of competition

that you are able to keep prices pretty high on loans. And then on the capital

[32:02]. Should we assume that capital remains flat? that you are staying at

9.25 by 2019, [32:09] 9.6 for the core capital ratio. So would the increase of

profitability be offset by the deductions? Is that [32:17] to think about it?

BERNARDO ROTHE – Ok. In terms of capital, yes, we have to 40.0% of

deduction in 2015, 20.0% this year already there, and another 20.0% next

year. So when we do that we have to consider how we are going to do assets,

RWA’s and so on, [ 32:36] and all. The level of the profitability of the bank and

so on. So, to get 9.5 we are pretty comfortable that we are going to get there

as we are still managing growth for our RWA and repaying profits we are going

to compensate the deductions that are going to kick in. On the spread side, as

I mentioned, you know, we still have room. Very low stress, you know, so

repricing them, even with the interest rate in the market going down means

that we can capture spreads. Selic rate by itself in the medium term is neutral

for us because we have the impact of our funding base and a percentage of

SELIC, you know, going down pretty fast. And a lot of things that we have in

the balance sheet that have a longer duration in the asset side that increase

spread right away, decreasing the funding cost. We have things that reprice

automatically like what we invest in the market. So the overall, the net of the

asset, Selic by itself is usual. And Selic spreads, they depend on competition.

We are not seeing much competition in 2017. So not that much pressure in

spreads. So we can get through a increase in spreads for the repricing of the

portfolio that we contracted before 2016. OK?

TITO LABARTA – Thanks, Bernardo. One other quick follow up on the capital.

I guess that 9.25% by 2019 is that also like a base? I mean, could it be above

that level? Given, you know profitability including [34:18] growth. The target, I

mean, is it possible that it could be above that?

BERNARDO ROTHE – 9.5 is the minimum by our own standards, considering

our own buffer. We can be higher than that and if we can be higher than that

we will be. 9.5 is not the end of the game, you know? We are not stopping at

9.5. We may even seek increasing over time. But the only goal that I can tell

you is to be above 9.5 by the beginning of 2018.

TITO LABARTA - Ok. Great. Thank you very much.

OPERATOR – Our next question comes from Mr. Carlos Macedo from

Goldman Sachs.

CARLOS MACEDO: Thanks. Good afternoon, gentlemen. I have a couple of

questions. First question, asset quality, provision and expenses, a big decline

there. I was looking for a little bit more colour where the decline comes from. If

you look at the vintage course for SME and individuals for 2016 it looks pretty

grim compared to other years. So my guess, you are probably still going to

have some provision review for those portfolios early in the year. But obviously

the corporate book should be where you have a lot of relief. Could you give us

some colour just to understand where all that relief are going to come from?

Second, we recently saw the Keppler Webber, there are other companies in

your portfolio that you can sell in order to improve your capital in Argentina.

Everybody is talking about the sale of Banco Patagonia. I am not asking you to

comment about any specific events, but should we expect to see more activity

in that front in 2017 that would help also your capital ratio? Thanks.

BERNARDO ROTHE - Good morning, Macedo. Thank you for your questions.

In terms of the asset quality [36:07] for the provisions. Repeating something

that I have been saying for a while. Let’s say that the quality doesn’t improve

at all in, you know, the very small small companies portfolio. Right? Same

quality, but even with some deterioration in terms of quality in a portfolio that is

decreasing, now almost 50.0% in 2 years. The capacity of that portfolio to

generate provisions is decreasing. So we are going to have lower provisions

coming from that portfolio, even though this portfolio, in terms of quality should

improve, that will improve only in the 2H2017. Right? We don’t expect that

small companies portfolio behaves pretty much in line with the economy as

everyone expected the economy to pick up in the 2H. Then we should see

improvements coming from this portfolio in the 2H as well. So even after that,

before this improvement starts, we may see the flow of provision in the

portfolio reduced. So we expect provisions to reduce gradually from the level

that we had in the 3Q2016, over the year, being better at the end of the year.

CARLOS MACEDO - But, would it be fair to say though that the bulk of

improvement comes from the corporate book? Giving that [37:32] not going to

have, you know, a large company, or hopefully, are not going to have as many

large companies defaulting with the improvement of the economy?

BERNARDO ROTHE - The total provision that we have been making over the

time comes from the companies portfolio. So improvement comes from the

companies portfolio as well. So, about selling assets and so on, you know, any

non-core assets that we have are available for sale, let’s say. We can sell.

People know that the banks are all the time not in our drawers [38:08] proposal

because we have been saying that for a while. So if there is a good proposal,

something that makes sense for us as we had in the case of Keppler Webber,

we will sell,right? So it depends on the market, it doesn’t depend on us. We

are not close to sell non-core assets at all. What we are not going to sell

whatsoever is our, you know, asset management, or BB Seguridade, doing

IPO of anything that is very related to our strategy, our core business. Ok?

CARLOS MACEDO - Thanks, Bernardo. One more thing, I don’t mean to put

you in the spot but, can you confirm that there is a process undergoing for the

sale of Banco Patagonia in Argentina?

BERNARDO ROTHE - What I can tell you is that what we announce in a

material fact last year, is that we’re analysing the possibility of doing a follow

on in that particular bank in the, you know, in the exchange and in the stock

market in Argentina.

CARLOS MACEDO - Ok. Thanks.

OPERATOR – Our next question comes from Mr. Mario Pierre from Bank of

America.

MARIO PIERRE - Good morning everybody. Let me ask you two questions,

both of them are related to your guidance. This first one is related to your

guidance for expense growth, ok? The way you are doing the numbers here,

we see that you have total expenses in 2016 looking at personnel and

administrative of about R$ 32.8 billion. At the same time, you are announcing

cost cutting measures totalling R$ 3.1 billion. This related to your early

retirement plan of R$ 2.3 billion, and branch closures of about R$ 750.0

million. So when I look at your guidance of expenses growing 1.5-4.5% and if I

take in consideration your cost cutting, what I see is that you are guiding for

expenses to grow 12-15.0%. So I want to understand here what am I missing?

You know, my feeling is that your guidance here is being too conservative or

maybe the cost cutting is not as high as you originally guided for. The second

question is also related now to your provisions guidance of R$ 23.5 to R$ 20.5

billion. If I look you had provision of R$ 27.0 billion in 2016. If I consider some

extraordinary provisions that you made in 2016 related to [40:55], related to Oi,

related to the supplementary provisions that you made in the 4Q, I estimate

that you have R$ 4.7 billion in non-recurrent provisions. So, this alone, would

bring your provisions in 2017 to R$ 22.3 billion, which is roughly the mid-point

of your guidance. Also this estimate is too conservative, it is almost like you

are not expecting much of an improvement in provisions in 2017. So these are

my questions.

BERNADO ROTHE – Ok, thank you, Mario. Good morning as well. In terms of

expenses, you know, if you look only at personnel expenses and tax that we

would have in terms of the increasing salaries, given the agreements with the

unions in Brazil would be 3.4% growth in the personnel expenses for 8 months

of this year in relation to last year and another 5.7 INCC+1. So let’s say 5.7,

whatever it is going to be at that point. So we would have an increase in cost

with personnel at a high level. We are compensating that with the 9,000

people that are leaving. So if you look at what would be our guidance for

personnel expenses I would say to you that zero would be inside that

guidance. One compensates the other. The other administrative expenses,

part of these figures that you mentioned are not going to happen right away.

They are going to happen over time. So you cannot consider that we capture

everything at this year. We are going to capture that in 2018. We have been

growing this particular part of the expenses way below inflation for a very long

time. And some of these expenses we have agreements that we are

negotiating not in a year but 2 years, 3 years and so on. So we have to look at

the inflation not of 2017, but inflation of 2016 and 2015. Put that together the

pressure is a big one. We cannot consider in our forecast that we are going to

manage to reduce whatever we have to increase in terms of agreements being

renegotiated in 2017, but what level we want because it depends on

negotiations. So, something that we have to work through the year, but the

guidance gives you our best forecast at this point in time.

MARIO PIERRE - Just to go back. What you said on the admin expenses. You

provided a slide here showing that you already closed a significant amount of

the branches that you are expecting. So why wouldn’t the bulk of these cost

savings be realized in 2017?

BERNARDO ROTHE - First of all, the portion of the 750 that is related to the

branches is 300. And we are closing branches now but we still have costs with

these branches going through, you know, the 1H. So that is why the full impact

of these savings in 2018 not in 2017. It is going to happen over time, over a

year, right? So part of these costs are going to be [44:31] afterwards, although

we have already closed the branch, there is no one working there and so on.

But you have this cost, to bear it until it is fully out of our books, let’s say. That

is the thing. So it is not fully in 2017. That is the point, ok?

MARIO PIERRE - OK. And, just, sorry, just to stay on this topic. But at the

same time, you are showing this digital evolution of the bank and processing

more transactions. I would think that that alone would generate some cost

savings for you as well. You know, my point here is, when I look at your private

sector peers, they are guiding for similar growth in 2017 as you are. However,

you came out and you provided us with a cost savings measures, branch

closures, laying off 9,000 people. So it just seems to me that your guidance is

too conservative.

BERNARDO ROTHE - You know, I can tell you, by the way it was mentioned

in the Portuguese conference call, that our goal is to keep working on

expenses, to bring the expenses down, to be closer to the bottom of the

guidance and, if we can, even below than the guidance. That is part of the job

that we have to do now. It is not in our projections right now but that doesn’t

mean that we are not going to work to bring that below even the guidance, if

we can, right? So, the guidance is based on best projections that we have.

That doesn’t mean that we are not going to work to improve that, to have even

better results, as we have been doing over the years. If you look at what we

did last 2 years, in terms of guidance for administrative expenses, we

delivered below the guidance in 2 years in a row. So we are going to work to

get there, we are going to do our best job to get there. But the best guidance I

can give you right now is 1.5-4.5. In relation to if you compare to our peers,

unfortunately, we cannot just go there and start, we don’t do that. It is not

unfortunate. We don’t fire people, we see them differently. We have different

ways of addressing the number of employees that we need. So they don’t

need to announce things they do every day. We have to do things differently

here. So look at the behaviour of the number of branches, the number of

employees, it is not that different, right? They are doing their job as well. Right

job. I don’t want to comment on competitors but they are doing their jobs. As

everyone has to do their own jobs. We are doing ours. And our job is that.

Moving to provisions, the projections that we have, of course, we want also to

have lower level of provision than what we are guiding the markets right now.

Part of our job is to put everything on track. We believe that the guidance that

we are giving you reflects the behaviour expected of our portfolio. There is a

big improvement in relation to last year. This year [48:03] that may happen. I

am not saying it is going to happen. I believe we have pretty much everything

worked out already. But, you know, things are going to be dealt with, we have

to have room to allow us to cover anything, some things that are not in our

projections right now. So we believe that the right guidance to give to you,

given that 2017 is a transitional year. We are going to see things much better

in 2018. That is what we expect. But 2017 is still a year of recovery, a small

recovery if you look at Focus report at we expect in terms of growth in GDP in

Brazil is 0.48 now. So it is a transitional year. We are going to go through this

transition improving gradually the level of provisions that we have in our books.

Gradualy from the 3Q, ok?

MARIO PIERRE - Ok. Just to stay on provisions really quickly. When we think

about recovery, I would imagine that your recoveries would be much higher in

2017 than they were in 2016. Is that part also or is that already incorporated

on your guidance?

BERNARDO ROTHE - Well, recoveries. We had a record of recovery last

year. So it is not that easy to repeat every year a record, right? So we consider

that without a feasible level of recovery for 2017 in our guidance.

MARIO PIERRE - Ok. I guess the record level of recovery is because you

have a record increase in NPL’s as well. So I would imagine with the economy

coming back that you might be able to have a better year in 2017. But ok. My

overall feeling here, what I just wanted to clarify is this. Certainly your

guidance is on the conservative side. I wouldn’t be surprised if you deliver

better than you expected [ 50:13]. Thank you very much.

BERNARDO ROTHE - I can guarantee you that we are trying to make it right.

MARIO PIERRE - Thank you.

OPERATOR – Our next question comes from Mr. George Friedman from

Citibank.

GEORGE FRIEDMAN - Thank you for taking my question. Actually just, you

know, one question here, related to your position of capital. The bank

considered in this quarter optimize its capital management and once again

risk-rated assets for the [50:46] the total asset decreased quarter over quarter

reaching now 44.0%, which is the lowest level vs Brazilian large banks. My

question is related to the decline of the portfolio originated abroad in this

context. As you shared in slide number 8, this portfolio declined approximately

11.0% quarter over quarter. So how much of this decline would do to the

strengthening of the Real? And at what level do you think this portfolio should

stabilize going forward? In addition it would be great if you could provide also

some colour on the average yield of this portfolio. Thank you very much.

BERNARDO ROTHE - Ok, George. Thanks for your question. First, what we

have outside of Brazil, I believe the market has already heard that from our

CEO that we’re focused on Brazil. So we used to do a lot of transactions

outside of Brazil, with companies with no links to Brazil and so on. So that is

not our focus anymore. There is a decrease coming from, you know,

concentration of our business should be, you know, have the Brazilian flavour.

[52:09] these companies that operate in Brazil, foreign companies that operate

in Brazil, Brazilian companies operating abroad, financing trades and so on so

forth. That generated a decrease in terms of portfolio for sure. Part of it is, of

course, is in the FX rates. So the portfolio decreased in dollar terms but also

decreased in Real terms because of the shift from 3.9 in the rate to 3.2 [52:38]

at the end of the year. So part of this is the Real, the change in the value of

Reais against Dollars. Part of it is a shifting in terms of strategy for the

branches that we have abroad. I can give you the number exactly, how much

the foreign exchange impact later on. Ok?

OPERATOR: Our next question comes from Mr. Carlos Gomez from HSBC.

CARLOS GOMEZ -Hello. Good morning. Two questions. The first one is if you

could give us an update on the situation of Banco Postal. [ 53:23] something

that you [53:24] to pursue. And also whether not doing Banco Postal is

incorporated in your cost guidance [53:31] income. And second, as you

covered it, the speculation about the possibility of large [53:42] perhaps

undergoing [53:47]. We understand that is not the end for you, but your focus

is on Brazil. How would management look at the possibility of a combination

[53:58] something that you would look favourably? Or do you prefer to

concentrate in your current cost control? Thank you.

BERNARDO ROTHE - Hi, Carlos. Good morning. Thank you for your

question. In terms of the Postal Bank. The agreement with the Postal Bank

was extended for 3 years, at the end of the year. So we are still using the

Postal Bank. They are still operating as, you know, point of service of Banco

do Brasil. We had a change in terms of paying agreement. So the cost of using

the Postal Bank decreased. Bigger portion of it now it depends on

performance. So the fixed costs is only R$ 5.0 million per month. Everything

else depends on the performance so we pay for what they do. So there is a

decrease in terms of costs for the bank overall. But they are still serving clients

of Banco do Brasil, they are still doing business, selling products, you know,

processing transactions and so on for us. So it is ongoing. We renovated that

agreement for 3 years in December, right? In terms of what may happen with

Banrisul, you know, it is not my place to comment. We are looking at the

market overall all the time, but we are concentrating in doing things organically

in Banco do Brasil. Ok?

OPERATOR – This concludes today’s Q&A session. I would like to invite Mr.

Bernardo Rothe to proceed with his closing statements. Please, go ahead sir.

BERNARDO ROTHE – I just want to thank you all for participating in our

conference call and to put my team at your disposal to answer any further

questions that you may have. Please feel free to contact us anything that you

need. Thank you very much and see you in the next conference call. Bye.

OPERATOR – That does conclude Banco do Brasil conference call for today.

As a reminder, the material used in this conference call is available on Banco

do Brasil investor relations website. Thank you very much for your participation

and have a nice day. You may disconnect.