A Tombini EconomicandFinancialSectorOverview08!15!2011

8/2/2019 A Tombini EconomicandFinancialSectorOverview08!15!2011

1/94

Brazil

Economic andFinancial Sector Overview

August 2011


2/94

2

General Overview Demographics,Macroeconomic Policy and Social Development

Recent Economic Indicators

The National Financial System

Prudential Regulation and Supervision

Access to Banking Services

Competition in the Banking Sector

Index


3/94

3

General OverviewDemographics

Macroeconomic PolicySocial Development


4/94

4

Brazil is among the largest countries in

terms of territory, population and GDP.

Brazil has vast natural resources,including recently discovered largeoffshore oil fields, a diverse industrialbase, a dynamic and sophisticatedprivate sector, and a well-structured

public sector.

Brazil is a vigorous democracy, with freemultiparty elections and a stable politicalsystem.

Brazil has good relations with all itsneighbors and has increased its ties withall regions of the world.

Sources: IBGE / IMF/WEO estimates

Brazil DemographicsGeneral Overview

7th largest GDP: US$ 2,090 billion (2010).

Continental country: 5th largest area8,514,877 km2.

5th largest population: 191 millionpeople.


5/94

5

Sources: IBGE / UN

Sources: IBGE / UN

DemographicsGeneral Overview

Dependency Ratio

Population Pyramid (2010)

Note: The dependency ratio is the ratio of the sum of the populationaged 0-14 and that aged 65+ to the population aged 15-64.

Brazils dependency ratio is stilldeclining, while other countries alreadyface an upward trend.

Brazils population is highly concentratedwithin the Economically ActivePopulation range.

-10 -5 0 5 10

0-410-1420-2430-3440-4450-5460-6470-7480-8490-94100+

million of people

men women

25

50

75

100

1950

1960

1970

1980

1990

2000

2010

2020

2030

2040

2050

Brazil China India Russia


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6

Main features of the macroeconomic policy framework:

- Inflation targeting- Fiscal responsibility

- Exchange rate flexibility

The macroeconomic fundamentals, combined withadequate prudential policy and strong bank supervisionresulted in:

- Capacity to absorb internal and external shocks

- Macroeconomic and financial stability- Sustainable growth

- Credit and capital market development

- Investment growth

Macroeconomic PolicyGeneral Overview


7/947Source: IBGE

GDP Real GrowthGeneral Overview

-4.4

1.0

-0.5

4.9

5.9

4.2

2.2

3.4

0.0 0.3

4.3

1.3

2.7

1.1

5.7

3.2

4.0

6.1

5.2

-0.6

7.5

4.0

-6

-4

-2

0

2

4

6

8

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011*

%

*Forecast from Central Bank of Brazil (Inflation Report June 2011)


8/948Source: IBGE

GDPGeneral Overview

0

500

1,000

1,500

2,000

2,500

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011*

US$billion

US$ 2,335



9/949Source: IBGE

GDP per CapitaGeneral Overview


0

2,000

4,000

6,000

8,000

10,000

12,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011*

US$

US$ 11,978


10/9410Source: IBGE

Unemployment RateGeneral Overview

%(seasonally

adjusted)

5

6

7

8

9

10

11

12

13

14

Jan03

Jan04

Jan05

Jan06

Jan07

Jan08

Jan09

Jan10

Jan11

Jun 116.1%


11/9411Source: IBGE

Consumer Price Index (IPCA)General Overview

%in12months

0

5

10

15

20

25

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Jul 116.87%


12/9412Source: IBGE

Consumer Price Index (IPCA) - BreakdownGeneral Overview

%in12m

onths

0

1

2

3

4

5

6

7

8

9

Jan07

Jul07

Jan08

Jul08

Jan09

Jul09

Jan10

Jul10

Jan11

Jul11

Tradables Non-tradables Services


13/94

13Source: IBGE


%in12

months

0

2

4

6

8

10

12

14

16

Jun07

Dec07

Jun08

Dec08

Jun09

Dec09

Jun10

Dec10

Jun11

IPCA ex-Food and Beverage IPCA Food and Beveragedata until July 2011


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14Source: IBGE


change yoy (%)

2004 2005 2006 2007 2008 2009 2010 2011*

Consumer Price Index (IPCA) 7.6 5.7 3.1 4.5 5.9 4.3 5.9 6.9

Food and beverage 3.9 2.0 1.2 10.8 11.1 3.2 10.4 9.4

Housing 7.1 6.4 3.1 1.8 5.1 5.7 5.0 6.3

Household equipment 5.4 2.7 -2.7 -2.5 2.0 3.1 3.5 1.3

Apparel 10.0 7.1 5.1 3.8 7.3 6.1 7.5 8.8

Transportation 11.0 8.1 3.0 2.1 2.3 2.4 2.4 5.7

Health and personal care 6.9 6.2 6.0 4.5 5.7 5.4 5.1 5.9

Personal expenses 6.9 7.0 7.3 6.5 7.4 8.0 7.4 8.3

Education 10.4 7.2 6.2 4.2 4.6 6.1 6.2 8.3

Communication 13.9 6.4 -0.2 0.7 1.8 1.1 0.9 1.8

Tradables 6.3 2.7 1.3 4.7 7.0 2.6 6.9 6.4

Nontradables 6.9 6.4 4.0 6.6 7.1 5.5 7.3 8.2

Regulated 10.2 9.0 4.3 1.7 3.3 4.7 3.1 5.7

Services 6.7 6.8 5.5 5.2 6.4 6.4 7.6 8.8

*July 2011 (12months)


15/94

15Sources: BCB / IBGE

Inflation Convergence to TargetsGeneral Overview

%,yoy

target (4.5%)

market expectation: August 12th

marketexpectation

0

2

4

6

8

10

Jan04

Jan05

Jan06

Jan07

Jan08

Jan09

Jan10

Jan11

Jan12

Jan13


16/94

16Sources: BCB / IBGE

Inflation Targeting RegimeGeneral Overview

CPI(%YoY),inter

estrate(%p.a.)

0

5

10

15

20

25

30

Mar00

Mar01

Mar02

Mar03

Mar04

Mar05

Mar06

Mar07

Mar08

Mar09

Mar10

Mar11

Monetary policy interest rate CPI

G O


17/94

17Source: BCB

Commodity Price IndexGeneral Overview

Dec05

=100

60

80

100

120

140

160

180

200

220

Dec05

Jun06

Dec06

Jun07

Dec07

Jun08

Dec08

Jun09

Dec09

Jun10

Dec10

Jun11

IC-Br IC-Br agriculture

Jul 11/ Jun 11-5.9%

Jul 11/ Jun11

-3.3%

IC-Br: Brazilian Commodity Price Index in Brazilian Currency

G l O i


18/94

18Sources: BM&FBovespa / BCB

Real Interest RateGeneral Overview

%

Aug 126.2%

Market Rate 360 days and IPCA expected 12 months (Focus)

0

5

10

15

20

25

Jan02

Jan03

Jan04

Jan05

Jan06

Jan07

Jan08

Jan09

Jan10

Jan11

G l O i


19/94

19Source: BCB

Net Public DebtGeneral Overview

%o

fG

DP

52.0

60.4

54.8

50.648.4 47.3

45.5

38.5

42.840.2 39.7

20

30

40

50

60

70

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011*

*June 2011

General Overview


20/94

20Source: BCB

Federal Securities - BreakdownGeneral Overview

Composition of total federal security debt (%)*

2004 2005 2006 2007 2008 2009 2010 2011**

Fixed rate 20.1 27.9 36.1 37.3 32.2 33.7 37.9 39.1

Price linked 14.9 15.5 22.5 26.3 29.3 28.6 28.1 28.1

Selic linked 57.1 51.8 37.8 33.4 35.8 35.8 32.5 32.4

Exchange rate 5.2 2.7 1.3 0.9 1.1 0.7 0.6 -0.4

Other 2.7 2.1 2.2 2.1 1.6 1.2 0.8 0.8

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

**Jun 2011

* Do not include securities held by the Central Bank.

General Overview


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21

Trade Balance Exports and ImportsGeneral Overview

US$billion

*July 2011 (12 months)

Source: MDIC

5558 60

73

96

118

138

161

198

153

202

236

56 5647 48

6374

91

121

173

128

182

209

0

50

100

150

200

250

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011*

Exports Imports

General Overview


22/94

22Source: MDIC

Trade BalanceGeneral Overview

US$billion

-0.7

2.7

13.1

24.8

33.6

44.7 46.5

40.0

24.8 25.3

20.3

27.1

-10

0

10

20

30

40

50

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011*

*July 2011 (12 months)

General Overview


23/94

23Source: MDIC

Exports in 2010General Overview

Composition Destination

Basic goods44.6%

Manufacturedgoods41.5%

Semi-manufactured

goods14.0%

US9.6%

EU (ex-Germany)

17.3%

Germany4.0%

Asia (ex-MEand China)

12.6%China15.2%

Latin Americaand the

Caribbean(ex-

Argentina)

14.6%

Argentina

9.2%

Others17.4%

* excluded Argentina

** excluded China and Middle East

*** excluded Germany

General Overview


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24

Current AccountGeneral Overview

-11.7

-16.3

-6.8

0.1

-0.2

-5.3

-1.4

4.21.0

-3.8-1.4

6.1

-0.7-1.8

-18.4

-23.5

-30.5-33.4

-25.3-24.2-23.2

-7.6

4.2

11.714.013.6

1.6

-28.2

-24.3

-47.4

-60.0

-70

-60

-50

-40

-30

-20

-10

0

1020

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011*

US$billion

*June 2011 (12 months)

Source: BCB

General Overview


25/94

25Source: BCB

Current AccountGeneral Overview

%o

fGD

P

-4.5

-6.0

-3.6

0.1

-0.1

-2.1

-0.5

1.4

0.3

-0.8

-0.4

1.6

-0.2-0.3

-2.4-2.8

-3.5

-4.0-4.3

-3.8

-4.2

-1.5

0.8

1.81.6

1.3

0.1

-1.7-1.6

-2.3-2.5

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011*


General Overview


26/94

26Source: BCB

FX InflowsGeneral Overview

US$billion

(12months)

-80

-60

-40

-20

0

20

40

60

80

100

Jan06

Jul06

Jan07

Jul07

Jan08

Jul08

Jan09

Jul09

Jan10

Jul10

Jan11

Jul11

trade in goods and services financial totalUp to July 29th

General Overview


27/94

27Source: BCB

Foreign Direct InvestmentGeneral Overview

2.5 3.1 1.3 1.5 1.4 0.3 1.22.8 1.1 1.0 1.1 2.1 1.3 2.1 4.4

10.8

19.0

28.928.6

32.8

22.5

16.6

10.1

18.115.1

18.8

34.6

45.1

25.9

48.4

68.8

0

10

20

30

40

50

60

70

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011*

US$billion


General Overview


28/94

28Source: BCB

Foreign Direct Investment / GDPGe e a O e e

1.01.1

0.7 0.8 0.7

0.1

0.4

0.9

0.30.2

0.30.5

0.3 0.40.6

1.3

2.2

3.4

4.95.1

4.1

3.3

1.8

2.7

1.7 1.7

2.52.7

1.6

2.3

3.2

0

1

2

3

4

5

6

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011*

%G

DP


General Overview


29/94

29Source: BCB

FDI (-) Current Account Deficit

-0.6

-0.1

2.1

0.1 0.1

-1.8-1.5

-1.3

-0.5

0.6

1.3

-0.1

1.8

2.6

4.5

3.33.0

2.6

1.0

0.1 0.1

0.9

-3

-2

-1

0

1

2

3

4

5

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011*

%G

DP


General Overview


30/94

30Source: BCB

External Liability Debt vs Equity

0

10

20

3040

50

60

7080

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011*

Debt Equity

%o

ftotalex

ternalliability

*June 2011

General Overview


31/94

31Source: BCB

External Liability Interest vs Profits

0

5

10

1520

25

30

3540

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011*

Profit remittances Interest payments

US$billion


General Overview


32/94

32Source: BCB

Interventions and Exchange Rate

US$b

illion

R$/U

S$

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

-15

-10

-5

0

5

10

15

20

Jul02

Jan03

Jul03

Jan04

Jul04

Jan05

Jul05

Jan06

Jul06

Jan07

Jul07

Jan08

Jul08

Jan09

Jul09

Jan10

Jul10

Jan11

Jul11

interventions (LHS) exchange rate (RHS)up to August 5th

General Overview


33/94

33Source: BCB

International Reserves

US$billion

8 4 5 12 12 7 7 9 10 10 9 24

32 3952

6052

45 36 33 36 3849 53 54

86

180194

239

289

351

0

50

100

150

200

250

300

350

400

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011*

*August 11th

General Overview


34/94

34Source: BCB

International Reserves

13.2

11.7

14.9

13.8

14.9

0

2

4

6

8

10

12

14

16

2007

2008

2009

2010

2011*

%G

D

P

*June 2011

General Overview


35/94

35Sources: IMF / Thomson Datastream

International Reserves (% GDP)*

10.9

13.7

13.8

17.5

20.1

24.4

29.0

32.7

33.3

35.0

48.4

54.0

101.3

119.4

Mexico

Chile

Brazil

India

Japan

Denmark

Korea

Russia

Israel

Hungary

China

Thailand

Singapore

Hong Kong

*December 2010

General Overview


36/94

36Source: BCB

Net External Debt

64

7987 88 92

10310696 97

105108100 9988 92

101

131

182190190

163165151

136

101

75

-12

-28

-62

-51

-71

-100

-50

0

50

100

150

200

250

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011*

US$billion

*Estimate June 2011

General Overview


37/94

37Source: BCB

External Debt Ratios

120.6%

63.4%

42.4%

21.9% 19.3%12.7%

0

20

40

60

80

100

120

140

Short term dbt/Intl.reserves

Debt services/Exports External debt/GDP

Dec 03 Estimate Jun 11

%

General Overview


38/94

38Source: Bloomberg

Sovereign Risk (CDS)

July 2011113 b.p.

(average)

basispoints

0

500

1000

1500

2000

2500

3000

3500

4000

Jan02

Jan03

Jan04

Jan05

Jan06

Jan07

Jan08

Jan09

Jan10

Jan11

S&P: BBB- ( )Fitch: BBBMoodys: Baa2 ( )

General Overview


39/94

39

Main Economic Indicators

2004 2005 2006 2007 2008 2009 2010 2011

Gross Domestic Product

GDP (USD bn) 663,8 882,4 1.088,8 1.366,5 1.650,7 1.598,4 2.089,8 2.334,8/1

GDP (USD per capita) 3.665,2 4.812,0 5.867,3 7.282,7 8.705,7 8.347,6 10.814,0 11.977,7/1

Real GDP (growth rate) 5,7 3,2 4,0 6,1 5,2 (0,6) 7,5 4,0/1

Price consumption 3,8 4,5 5,2 6,1 5,7 4,2 7,0 4,1/1

Gross fixed capital formation 9,1 3,6 9,8 13,9 13,6 (10,3) 21,9 6,4/1

Economic Activity

Unemployment rate (year average) 11,5 9,9 10,0 9,3 7,9 8,1 6,7 6,3/2

Real payroll (growth rate) 1,6 4,2 5,9 5,8 6,9 3,9 7,4 7,8/3

Industrial production (growth rate) 8,3 3,1 2,8 6,0 3,1 (7,4) 10,5 3,6/3

Consumer price index (% yoy) 7,6 5,7 3,1 4,5 5,9 4,3 5,9 6,9/4

Fiscal (consolidated public sector, %GDP)

Primary balance 3,7 3,8 3,2 3,3 3,4 2,0 2,8 3,3/3

Public sector net debt 50,6 48,4 47,3 45,5 38,5 42,8 40,2 39,7/5

Balance of payments

Exports (USD bn) 96,7 118,5 137,8 160,6 197,9 153,0 201,9 250,0/1

Imports (USD bn) (62,8) (73,6) (91,4) (120,6) (173,0) (127,7) (181,6) (230,0)/1

Current account (USD bn) 11,7 14,0 13,6 1,6 (28,2) (24,3) (47,4) (60,0)/1

Current account (%GDP) 1,8 1,6 1,3 0,1 (1,7) (1,5) (2,3) (2,6)/1

Foreign direct investment (USD bn) 18,1 15,1 18,8 34,6 45,1 25,9 48,4 55,0/1

Foreign direct investment (%GDP) 2,7 1,7 1,8 2,5 2,8 1,6 2,3 2,4/1

International reserves (USD bn) 52,9 53,8 85,8 180,3 193,8 238,5 288,6 351,0/6

/1 Central Bank forecast /4 12 months until July

/2 Average Jan-Jun /5 In Jun

/3 12 months until Jun /6 On Aug 11th

General Overview


40/94

40Source: BCB

Credit / GDP

25.8 26

24.6

25.7

28.3

30.9

35.2

40.5

44.4

46.4 47.2

0

5

10

15

20

25

30

35

40

45

50

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011*

%G

DP

*June 2011

General Overview


41/94

41Source: BCB

Total Credit

0

10

20

30

40

50

Jan01

Jan02

Jan03

Jan04

Jan05

Jan06

Jan07

Jan08

Jan09

Jan10

Jan11

Individuals Corporations

%G

DP

data until June 2011

General Overview


42/94

42Source: BCB

Household Indebtedness

%monthlyincome

15

20

25

30

35

40

45

Jul06

Jan07

Jul07

Jan08

Jul08

Jan09

Jul09

Jan10

Jul10

Jan11

Debt Debt service

General Overview


43/94

43Source: BCB

Credit Earmarked and Nonearmarked

June 2011

29.3%

70.7%

Individuals

Earmarked Nonearmarked

39.3%

60.7%

Corporations

Earmarked Nonearmarked

General Overview


44/94

44Source: BCB

Earmarked / Total Credit

42.4

34.3

37.538.9

36.3

33.532.0

29.4 29.0

32.534.6 34.7

0

5

10

15

2025

30

35

40

45

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011*

%o

ftotal

credit

*June 2011


45/94

GDP d IGeneral Overview


46/94

46

2.71.2

5.7

3.2 4.06.1

5.2

-0.6

7.5

4.0

-5.2 -4.6

9.1

3.6

9.8

13.9 13.6

-10.3

21.8

6.4

-15

-10

-5

0

5

10

15

20

25

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011*

GDP Investment

Sources: IBGE / BCB

GDP and Investment

%rea

lgrowth

forecast*


Fixed Capital Investment

Fi d C i l IGeneral Overview


47/94

47Source: IBGE

Fixed Capital Investment

4Q 0315.3

4Q 04116.1

4Q 0515.9

4Q 0616.4

4Q 0717.4

4Q 0819.1

4Q 0916.9

4Q 1018.4 1Q 11

18.5

14

15

16

17

18

19

20

1Q02

3Q02

1Q03

3Q03

1Q04

3Q04

1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

%GD

P

I P I dGeneral Overview


48/94

48Source: BNDES

Investment Prospects - Industry

R$ billion Av. Annual

2006-2009 2011-2014 Growth %

Oil and gas 205 378 13.0

Mining 60 62 0.9

Steel 28 33 3.2Petrochemical 22 40 12.3

Automobile 25 33 5.6

Electric/Electronics 20 29 8.2

Pulp and paper 18 28 8.7

Textile 9 12 6.8

Total 387 614 9.7

Feb 2011

I t t P t I f t tGeneral Overview


49/94

49Source: BNDES

Investment Prospects - Infrastructure

R$ billion Av. Annual

2006-2009 2011-2014 Growth %

Electricity 104 139 6.0

Telecommunication 62 72 2.8

Sanitation 26 41 9.4Logistics 55 129 18.6

Railways 20 60 24.7

Highways 30 51 11.4

Ports 5 18 26.6

Total 247 380 9.0

Feb 2011

B ili Oil RGeneral Overview


50/94

50Source: Petrobras

Brazilian Oil Reserves

05

10

15

2025

30

35

4045

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

future*

deepwater offshore fields(pre-salt layer)

*estimated volume

Tupi and Iracema*(8 billion boe)

Franco* (4.5 billion boe)

Libra* (8 billion boe)

Iara* (4 billion boe)

Guara* (2 billion boe)

billion

barreloile

quivalent(BOE)

crude oil, NGL and natural gas

S i l D l tGeneral Overview


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51

Both macroeconomic and inclusionpolicies have led to marked improvementin living conditions.

A significant share of low income groupsjoined the middle class.

Social Development

Gi i C ffi i tGeneral Overview


52/94

52Source: IBGE

Gini Coefficient

0.63

0.60

0.520.50

0.52

0.54

0.56

0.58

0.60

0.62

0.64

0.66

1981

1983

1984

1985

1986

1987

1988

1989

1990

1992

1993

1995

1996

1997

1998

1999

2001

2002

2003

2004

2005

2006

2007

2008

2009

S i l M bilitGeneral Overview


53/94

53Source: FGV

Social Mobility

4926

16

47

3940

66102 113

1323

31

0

50

100

150

200

250

2003 2011 2014*

E D C A/B

millionofpeople

Social Classes

*FGV forecast

Soci l MobilitGeneral Overview


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54Source: FGV

Social Mobility

Social Classes (% Composition)

2003 2009 2014*

A/B 7.6 10.6 15.5C 37.6 50.4 56.5

D 26.7 23.6 20.0

E 28.1 15.3 8.0

Total 100.0 100.0 100.0

* FGV forecast

Years of Schooling*General Overview


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55Source: IBGE

Years of Schooling*

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1992

1993

1995

1996

1997

1998

1999

2001

2002

2003

2004

2005

2006

2007

2008

2009

years

*people older than 24 years-old


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56

Recent Economic

Indicators

Industrial ProductionRecent Economic Indicators


57/94

57Source: IBGE

Industrial Production

2007=100

80

85

90

95

100

105

110

115

120

125

130

Jan

07

Jul07

Jan

08

Jul08

Jan

09

Jul09

Jan

10

Jul10

Jan

11

Industrial production Capital goods

Jun 11 / May 11-1.6%

Jun 11 / May 11-1.9%

Seasonallyadjusted

Retail SalesRecent Economic Indicators


58/94

58Source: IBGE

Retail Sales

90

100

110

120

130

140

150

Jan

07

Jul07

Jan

08

Jul08

Jan

09

Jul09

Jan

10

Jul10

Jan

11

Retail sales Retail Sales (including automobiles and construction materials)

Jun 11 / May 11+0.2%

Jun 11 / May 11

+0.5%

2007=100

Seasonally

adjusted

Industrial Production vs Retail SalesRecent Economic Indicators


59/94

59Source: IBGE

Industrial Production vs. Retail Sales

2007

=100

80

90

100

110

120

130

140

150

Jan

07

Jul07

Jan

08

Jul08

Jan

09

Jul09

Jan

10

Jul10

Jan

11

Industrial ProductionExpanded Retail Sales (including automobiles and construction

Jun 11 / May 11-1.6%

Jun 11 / May 11+0.5%

Seasonally

adjusted

Consumer ConfidenceRecent Economic Indicators


60/94

60Source: FGV

Consumer Confidence

Sep05

=100

90

95

100

105

110

115

120

125

Jan

07

Jul07

Jan

08

Jul08

Jan

09

Jul09

Jan

10

Jul10

Jan

11

Jul11

historicalaverage

Jul 11121.0

Seasonally adjusted

Industrial Capacity UtilizationRecent Economic Indicators


61/94

61Source: FGV

Industrial Capacity Utilization

%

76

78

80

82

84

86

88

Jan

07

Jul07

Jan

08

Jul08

Jan

09

Jul09

Jan

10

Jul10

Jan

11

Jul11

historicalaverage

Jul 1184.1

Unemployment RateRecent Economic Indicators


62/94

62Source: IBGE

Unemployment Rate

6.2

4

5

6

7

8

9

10

11

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

2007 2008 2009 2010 2011

%

Unemployment RateRecent Economic Indicators


63/94

63Source: IBGE

Unemployment Rate

11.6

13.0

11.7

9.4

10.4

9.7

7.98.1

7.0

6.2

4

6

8

10

12

14

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

%

Unemployment ratein June

Leading IndicatorRecent Economic Indicators


64/94

64Source: BCB

Leading Indicator

IBC-Br: Brazilian Economic Activity Index

2002=100(season

nallyadjusted)

115

120

125

130

135

140

145

150

Jan

07

Jul07

Jan

08

Jul08

Jan

09

Jul09

Jan

10

Jul10

Jan

11

May 11/Apr 11

0.2%

Contribution to GDPRecent Economic Indicators


65/94

65Sources: IBGE / BCB

Contribution to GDP

Accumulated in four quarters

-2.5-4

-2

0

2

4

6

8

10

12

1Q06

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

External Sector Domestic Demand

8.8

%

FX Inflows (monthly data)Recent Economic Indicators


66/94

66Source: BCB

FX Inflows (monthly data)

-5

0

5

10

15

20

Jan

10

Feb

10

Mar10

Apr10

May10

Jun

10

Jul10

Aug

10

Sep

10

Oct10

Nov10

Dec10

Jan

11

Feb

11

Mar11

Apr11

May11

Jun

11

Jul11

Trade in Goods and Services Financial Total

US$b

illion


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67

The National Financial

System

The National Financial SystemThe National Financial System


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68

National Monetary Council (CMN)

- Composed by the Minister of Finance, the Minister of Planning, Budgetand Management and the Governor of the Central Bank of Brazil

- Establishes the inflation target for monetary policy, prudential rules andcredit policy

- The Central Bank of Brazil is the financial supervisory authority

Source: BCB

The National Financial System

NATIONALFINANCIAL SYSTEM

National Council ofPrivate Insurance-

CNSP

National MonetaryCouncil - CMN

Securities andExchange

Comission-CVM

Other financialintermediaries

Stock Exchange

Bovespa

Commoditiesand FuturesExchange

Central Bank ofBrazil - BCB

Other financialintermediaries

ExchangeBrokers

FinancialInstitutions

Management Councilof ComplementaryPension -CGPC

Central Bank of Brazil Main ActivitiesThe National Financial System


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69

Central Bank of Brazil Main Activities

Monetary

Policy

Financial

Regulation

FinancialSupervision

Wide scope of Central Banks authority helps

policy coordination

Number of Institutions by TypeThe National Financial System


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70

Number of Institutions by Type

Type 2007 2008 2009 2010

Multiple bank 135 140 139 137

Commercial bank 20 18 18 19

Development bank 4 4 4 4

Savings bank 1 1 1 1

Investment bank 17 17 16 15

Exchange bank 2

Consumer finance company 52 55 59 61

Security brokerage company 107 107 105 103

Exchange brokerage company 46 45 45 44

Security distribution company 135 135 125 125

Leasing company 38 36 33 32

Real estate credit company and savings and loan association 18 16 16 14

Mortgage company 6 6 6 7

Development agency 12 12 14 15

591 592 581 579

Credit cooperatives 1,465 1,453 1,405 1,370Micro-entrepreneur credit company 52 47 45 45

2,108 2,092 2,031 1,994

Consorcio company 329 317 308 300

Total 2,437 2,409 2,339 2,294

Top 10 Financial InstitutionsThe National Financial System


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71Source: BCB

Top 10 Financial Institutions

Name Ownership Totalassets

(R$ billion)

Creditoperations

(R$ billion)

Totaldeposits

(R$ billion)

Networth

(R$ billion)

Employees

(Thousand)

Branches

(#)

Baselcapitalratio(%)

Banco do Brasil Federal government owned 779 334 377 50 126 5,088 14.0

Ita Domestic private 720 234 215 62 121 3,767 15.5

Bradesco Domestic private 563 197 194 48 86 3,636 14.7

BNDES Federal government owned 521 177 22 66 3 1 19.7

Caixa Federal government owned 401 176 215 15 108 2,209 13.6

Santander Foreign controlled private 376 142 118 65 54 2,395 28.1

HSBC Foreign controlled private 125 40 77 8 30 866 13.4

Votorantim Domestic private 111 52 24 8 2 27 13.1

Safra Domestic private 76 31 15 6 6 100 14.0

Citibank Foreign controlled private 54 11 15 5 6 128 13.2

Others 624 240 216 86 64 1,619

Banking segment total 4,350 1,633 1,488 420 606 19,836

December 2010

Brazilian Banks - Capital Adequacy RatioThe National Financial System


72/94

72Source: BCB

Brazilian Banks Capital Adequacy Ratio

13.8

14.8

16.6

19.0 18.5

17.4 17.8 17.3 17.7

18.8

16.9

0

5

10

15

20

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Brazilian banks capital ratio Basel minimum capital ratioRegulatory minimum capital ratio

%


73/94

73

Prudential Regulation

and Supervision

General FeaturesPrudential Regulation and Supervision


74/94

74

All FIs regulated and supervised

Financial regulation mostly infra-legal

Convergence to international standards (IFRS,

Basel II, IOSCO)

Participation in international forums (BCBS, G20,FSB)

Generally conservative financial regulation

General Features

Financial Supervision - Main FeaturesPrudential Regulation and Supervision


75/94

75

Risk-based approach to supervision

On-site supervision

- frequent on-site examination

- rating of supervised institutions qualitative assessment of risk management and control

analysis of financial and economic indicators

identification of areas to be monitored

Includes contingency planning and assessmentof organizational structures dedicated to risks

Financial Supervision Main Features

Off-Site SupervisionPrudential Regulation and Supervision


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76

Directs on-site supervision towards the riskier

areas

Specific monitoring of market and liquidity risks

- uses information on assets and derivatives registered

in clearing houses

- conciliation with FIs accounting information

Monitoring of aggregate evolution of systemic

risk over time Periodic application of stress tests to FIs

statements

Off Site Supervision

Conservative Features - RegulationPrudential Regulation and Supervision


77/94

77

Minimum capital ratio: 11% of RWA (above Basel

minimum of 8%) Capital requirement for credit risk on trading book

exposures (except stock)

Lower risk weights for residential property exposuresconditioned to loan-to-value

- LTV < 50% 35% risk weight

- 50% < LTV < 80% 50% risk weight

- 80% < LTV < 100% 75% (retail) or 100% (otherwise)

Higher multipliers for standardized market riskrequirement

Forward-looking provisioning rule

Conservative Features Regulation

Conservative Features - RegulationPrudential Regulation and Supervision


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78

Mandatory organizational structure for

management of each risk factor

- Credit, market and operational risks

- Board accountability on risk management

Limits on large exposures

Limits on foreign currency exposures

Mandatory registration of OTC derivatives

Mandatory internal controls

Conservative Features Regulation

Credit: Provisions vs. Non Performing LoansPrudential Regulation and Supervision


79/94

79Source: BCB

g

%ratio

1.55

1.65

1.75

1.85

1.95

2.05

2.15

2.25

2.5

3.0

3.5

4.0

4.5

5.0

Jan

04

Jul04

Jan

05

Jul05

Jan

06

Jul06

Jan

07

Jul07

Jan

08

Jul08

Jan

09

Jul09

Jan

10

Jul10

Jan

11

NPLs (LHS) Provisions/ NPLs (RHS)data until June 2011

Recent Macroprudential MeasuresPrudential Regulation and Supervision


80/94

80

Increased capital requirements for consumer loanexposures involving longer maturities and higher LTVs.

The risk weight for such exposures was increased from100 to 150%.

ece t ac op ude t a easu es

Operation Maturity and LTV Risk Weight

Vehicles (financingand leasing)

between 24 and 36 months and LTV > 80%

150%



more than 60 months and any LTV

Payroll-deducted loan more than 36 months

Personal loan more than 24 months

Other consumer loans 100%*

*Unchanged



81/94

81

Increased bank reserve requirements on demand

and time deposits- Volume estimated: R$ 65 billion

Established unremunerated reserve requirement on

short spot FX positions above a limit- Limit: the lower of US$1 billion or the banks capital base

Minimum payment for credit card bill- 15% (June 2011)- 20% (December 2011)

p



82/94

82

Established the Financial Stability Committee (Comef)

within the Central Bank, in order to coordinate the Bank'sefforts to monitor, evaluate, and mitigate systemic risk

- Membership: Governor and Deputy Governors

- Bimonthly meetings- Take over responsibility for the Banks biannual Financial

Stability Report

p

New Loans: VehiclesPrudential Regulation and Supervision


83/94

83Source: BCB

R$billion

2

4

6

8

10

12

Jan09

Mar09

May09

Jul09

Sep09

Nov09

Jan10

Mar10

May10

Jul10

Sep10

Nov10

Jan11

Mar11

May11


Dec 10

New Loans: Personal CreditPrudential Regulation and Supervision


84/94

84Source: BCB

R$billion

8

10

12

14

16

Jan

09

Apr09

Jul09

Oct09

Jan

10

Apr10

Jul10

Oct10

Jan

11

Apr11


Dec 10


85/94

85

Access to Banking

Services

Access to Banking ServicesAccess to Banking Services


86/94

86Source: BCB

g

2002 2009 PresentAccounts (for the bank sector) 55,708,468 83,308,800 90,682,450

Customers 87,630,527 151,102,765 161,767,320

Branches

For the banking sector 17,049 20,046 19,876

For all financial institutions 17,756 21,287 22,429

Posts of service (for the banking sector) 32,769 53,628 58,890

ATMs 129,913 165,567 165,479

Domestic correspondents 78,539 151,351 159,504

Municipalities

Without banking services 222 - -

With banking services 5,358 5,566 5,566

Municipalities banking services coverage 96% 100% 100%

Bank CorrespondentsAccess to Banking Services


87/94

87

Definition: non-financial firms hired by FIs to

render basic banking services on their behalf Main correspondent chains are post offices,

lottery outlets, supermarket

Over 150,000 points of sale, compared to 20,000branches of FIs (Feb. 2010)

Allows banking system to cover all 5,566

municipalities Due diligence and anti-money laundering rules

apply to correspondents

p

Bank CorrespondentsAccess to Banking Services


88/94

88

Main services are handling basic account

transactions and receiving loan applications,processing payments, and transferring funds

Bank-based model: financial institution (licensed,

supervised) takes full responsibility for theservices

Correspondent may not charge additional fees to

the public for its services Main activity of the correspondent has to be

commercial, non-related to financial services

p

Synergies in Correspondent BankingAccess to Banking Services


89/94

89

Benefits for the bank

- Broadens client base

- Smaller overhead and direct costs

- Informal environment: more inviting for lower-incomecustomers

- Flexible hours of operation

Benefits for the correspondent

- Transaction fees from the bank

- Use of spare capacity- Increased flow of customers

- Links the firm to a renowned brand

y g p g

Simplified AccountsAccess to Banking Services


90/94

90

For individuals only

No check books (only cards)

Depositor is precluded from having any otheraccounts

Account balance limit of R$2,000 (around US$1,210 as of Mar 2010)

No maintenance fees Simplified identification requirements

p


91/94

91

Fostering Competition

in the Banking Sector

Fostering Competition on Two FrontsFostering Competition in the Banking Sector


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92

Portability

- Mandatory availability of personal data

- Simplified transfer of loans

- Salary transfer to other banks, free of charge

Transparency

- Implementation of credit bureau

- Standardized disclosure of service fees and cost of loans

- Information on fees, rates and complaints on Central Bankswebsite

Credit Bureau System (SCR)Fostering Competition in the Banking Sector


93/94

93

Created in 1997

Exposures over R$ 5,000 have to be informedon an individual basis

Dual objective

- Provision of information on clients bank debt to FIs- Large database for supervisory use

All financial institutions required to send

information Access of banks to a particular clients

information must be authorized by client

Glossary


94/94

BCB Brazilian Central Bank

BNDES National Bank of Economic and Social DevelopmentCMN Brazilian National Monetary Council

CVM Brazilian Securities Commission

FAO Food and Agriculture Organization

FGV Getulio Vargas Foundation

IBGE Brazilian Institute of Geography and Statistics

IMF International Monetary Fund

IPEA Institute for Applied Economic Research

MDIC Ministry of Development, Industry and Foreign Trade

UM United Nations

A Tombini EconomicandFinancialSectorOverview08!15!2011

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