20-F 1 bbdform20f_2012.htm FORM 20-F 2012 bbdform20f_2012.htm - Generated by SEC Publisher for SEC Filing  

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20‑F

 

                   ¨          REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

                                             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

OR

                   ¨          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1‑15250

OR

                   ¨          SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

BANCO BRADESCO S.A.

(Exact name of Registrant as specified in its charter)

BANK BRADESCO

(Translation of Registrant's name into English)

 

Federative Republic of Brazil

(Jurisdiction of incorporation or organization)

 

Cidade de Deus S/N ‑ Vila Yara ‑ 06029‑900 ‑ Osasco ‑ SP, Brazil

(Address of principal executive offices)

 

Luiz Carlos Angelotti (Managing Officer and Investor Relations Officer)

E‑mail: 4000.luiz@bradesco.com.br

Telephone: +55 11 3684‑4011

Cidade de Deus S/N ‑ Vila Yara, 06029‑900 ‑ Osasco ‑ SP, Brazil

 (Name, telephone, e‑mail and/or facsimile number and address of company contact person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

 

American Depositary Shares, or ADSs (evidenced by American Depositary Receipts, or ADRs), each representing 1 preferred share

New York Stock Exchange

Preferred Shares

New York Stock Exchange*

American Depositary Shares, or ADSs (evidenced by American Depositary Receipts, or ADRs), each representing 1 common share

New York Stock Exchange

Common Shares

New York Stock Exchange*

* Not for trading, but only in connection with the registration of ADSs pursuant to the requirements of the SEC.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None.

Number of outstanding shares of each of the issuer's classes of capital or common stock as of December 31, 2012:

 

 

1,909,762,290

Common Shares, without par value

 

 

1,907,650,491

Preferred Shares, without par value

 

 

Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨  No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ¨  Yes No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non‑accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b‑2 of the Exchange Act:

Large accelerated filer

Accelerated filer ¨ 

Non‑accelerated filer ¨ 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ¨ 

International Financial Reporting Standards as issued by the International Accounting Standards Board

Other ¨ 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ¨  Item 17 ¨  Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).

¨ Yes No

 


 

Form 20-F

Table of Contents

PRESENTATION OF FINANCIAL AND OTHER INFORMATION  4
FORWARD LOOKING STATEMENTS  6 
PART I  7 
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS  7 
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE  7 
ITEM 3. KEY INFORMATION  7 

3.A. SELECTED FINANCIAL DATA

7 

3.B. CAPITALIZATION AND INDEBTEDNESS 

10 

3.C. REASONS FOR THE OFFER AND USE OF PROCEEDS 

10 

3.D. RISK FACTORS 

10 
ITEM 4. INFORMATION ON THE COMPANY   21 

4.A. HISTORY, DEVELOPMENT OF THE COMPANY AND BUSINESS STRATEGY 

21 

4.B. BUSINESS OVERVIEW

25 

4.C. ORGANIZATIONAL STRUCTURE

119 

4.D. PROPERTY, PLANTS AND EQUIPMENT 

119 

ITEM 4A. UNRESOLVED STAFF COMMENTS 

 119 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 

 119 

5.A. OPERATING RESULTS 

119 

5.B. LIQUIDITY AND CAPITAL RESOURCES 

149 

5.C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES 

162 

5.D. TREND INFORMATION

162 

5.E. OFF BALANCE SHEET ARRANGEMENTS 

162 

5.F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS 

162 

5.G. SAFE HARBOR

162 

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 163 

6.A. BOARD OF DIRECTORS AND BOARD OF EXECUTIVE OFFICERS 

163 

6.B. COMPENSATION 

171 

6.C. BOARD OF DIRECTORS PRACTICES 

171 

6.D. EMPLOYEES 

175 

6.E. SHARE OWNERSHIP 

176 

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 

 176 

7.A. MAJOR SHAREHOLDERS 

176 

7.B. RELATED PARTY TRANSACTIONS

181 

7.C. INTERESTS OF EXPERTS AND COUNSEL 

181 

ITEM 8. FINANCIAL INFORMATION

 182 

8.A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

182 

8.B. SIGNIFICANT CHANGES

183 

ITEM 9. THE OFFER AND LISTING

 183 

9.A. OFFER AND LISTING DETAILS 

183 

 

2 Form 20-F – December 2012
 

 

9.B. PLAN OF DISTRIBUTION

187 

9.C. MARKETS 

187 

9.D. SELLING SHAREHOLDERS 

188 

9.E. DILUTION 

188 

9.F. EXPENSES OF THE ISSUE 

188 

ITEM 10. ADDITIONAL INFORMATION 

 189 

10.A. SHARE CAPITAL 

189 

10.B. MEMORANDUM AND ARTICLES OF INCORPORATION 

189 

10.C. MATERIAL CONTRACTS

196 

10.D. EXCHANGE CONTROLS 

197 

10.E. TAXATION

198 

10.F. DIVIDENDS AND PAYING AGENTS 

205 

10.G. STATEMENT BY EXPERTS 

205 

10.H. DOCUMENTS ON DISPLAY

205 

10.I. SUBSIDIARY INFORMATION 

205 

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 

 205 

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 209 

12.A. DEBT SECURITIES 

209 

12.B. WARRANTS AND RIGHTS 

209 

12.C. OTHER SECURITIES 

209 

12.D. AMERICAN DEPOSITARY SHARES

209 
PART II   210 
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES   210 
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS   210 
ITEM 15. CONTROLS AND PROCEDURES   210 
ITEM 16. [RESERVED]   211 

16.A. AUDIT COMMITTEE FINANCIAL EXPERT 

211 

16.B. CODE OF ETHICS 

211 

16.C. PRINCIPAL ACCOUNTANT FEES AND SERVICES 

211 

16.D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 

212 

16.E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

212 

16.F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT

213 

16.G. CORPORATE GOVERNANCE 

213 
PART III   214 
ITEM 17. FINANCIAL STATEMENTS   214 
ITEM 18. FINANCIAL STATEMENTS   214 
ITEM 19. EXHIBITS   214 

 


 
 

table of contents

Form 20-F

 

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

In this annual report, the terms "Bradesco," the "Company," the "Organization," the "Bank," "we" or "us" refer to Banco Bradesco S.A., a sociedade anônima organized under the laws of Brazil and, unless the context otherwise requires, its consolidated subsidiaries. We are a full-service financial institution providing, directly or through our subsidiaries, a full range of banking, financial, purchasing consortium management, asset management, insurance, investment banking, pension plan (or pension) and capitalization bond services for all segments of the Brazilian market. Our operations are based primarily in Brazil.

All references herein to "real," "reais" or "R$" refer to the Brazilian real, the official currency of Brazil. References herein to "U.S. dollars," "dollar" and "US$" refer to United States dollars, the official currency of the United States of America (“USA”).

Our audited consolidated financial statements as of and for the years ended December 31, 2012, 2011 and 2010, with the corresponding notes, are included under "Item 18. Financial Statements" of this annual report and were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

Until December 31, 2010, our consolidated financial statements were prepared in accordance with the United States generally accepted accounting principles ("U.S. GAAP"). U.S. GAAP differs in certain respects from IFRS.

This is the second time Bradesco files financial statements in accordance with IFRS, as issued by the IASB as part of its Form 20-F. However, for domestic reporting purposes, the adoption date of financial statements under IFRS as issued by the IASB was December 31, 2010. Therefore, the transition date of our financial statements was January 1, 2009. Thus, selected financial data presented in Item 3.A. (including the 2009 financial data) derives from our consolidated financial statements prepared in accordance with IFRS.

For certain purposes, such as reports for Brazilian shareholders, filings with the Brazilian Securities and Exchange Commission ("CVM") and determining dividend and federal income tax payments, we use accounting practices adopted in Brazil for financial institutions authorized to operate by the Brazilian Central Bank (Banco Central do Brasil), or the "Central Bank."

On March 31, 2013, the real/U.S. dollar exchange rate was R$2.0138 per US$1.00 based on the closing selling exchange rate reported by the Central Bank. The selling exchange rate as of December 31, 2012 was R$2.0435 per US$1.00. See "Item 3.A. Selected Financial Data-Exchange Rate Information" for more information regarding the exchange rates applicable to the Brazilian currency since 2007.

As a result of recent fluctuations in the real/U.S. dollar exchange rate, the closing selling commercial exchange rate at March 31, 2013 or at any other date may not be indicative of current or future exchange rates.

Some data related to economic sectors presented in this annual report was obtained from the following sources: Brazilian Association of Credit Card Companies and Services (Associação Brasileira das Empresas de Cartão de Crédito e Serviços), or ABECS; Brazilian Association of Leasing Companies (Associação Brasileira de Empresas de Leasing), or ABEL; Brazilian Association of Financial and Capital Markets Entities (Associação Brasileira das Entidades dos Mercados Financeiros e de Capitais), or ANBIMA; Brazilian Health Insurance Authority (Agência Nacional de Saúde Suplementar), or ANS; Central Bank (Banco Central do Brasil), or BACEN; Brazilian Bank of Economic and Social Development (Banco Nacional de Desenvolvimento Econômico e Social), or BNDES; National Association of Private Pension Plans and Life (Federação Nacional de Previdência Privada e Vida), or FENAPREVI; Getulio Vargas Foundation (Fundação Getulio Vargas), or FGV; and Private Insurance Superintendence (Superintendência de Seguros Privados), or SUSEP. We believe these sources are reliable, but we cannot take responsibility for the accuracy of this data.

Certain figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.

References in this annual report to the “common shares” and “preferred shares” are to our common shares and preferred shares, respectively, and together our "shares." References to “American Depositary Shares” or “ADSs” are to American Depositary Shares, each representing one preferred share. The ADSs are evidenced by American Depositary Receipts, or ADRs, issued pursuant to an Amended and Restated Deposit Agreement, dated as of July 22, 2009, by and among us, The Bank of New York Mellon, as depositary, and the holders and beneficial owners of ADSs evidenced by ADRs issued thereunder (the "Deposit Agreement").

 

4 Form 20-F – December 2012


 
 

table of contents

Form 20-F

On March 13, 2012, we established an American Depositary Shares program for our common shares, with each common share ADS representing one common share, referred to as the "common share ADSs." The common share ADSs are evidenced by "common share ADRs," issued pursuant to a Deposit Agreement, dated as of March 13, 2012 by and among us, The Bank of New York Mellon, as depositary, and the holders and beneficial owners of common share ADSs evidenced by common share ADRs issued thereunder (the "Common Share Deposit Agreement" and together with the Deposit Agreement, the "Deposit Agreements").

Unless indicated otherwise, references herein to American Depositary Shares, ADSs, American Depositary Receipts and ADRs refer only to those represented by our preferred shares.

Throughout this annual report, we may indicate that certain information is available at different websites operated by us. None of the information on the websites referred to or mentioned in this annual report is part of or is incorporated by reference herein.

 

     

Bradesco 5

 


 
 

table of contents

Form 20-F

 

FORWARD‑LOOKING STATEMENTS

This annual report contains forward‑looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or "Securities Act," and Section 21E of the Securities Exchange Act of 1934, as amended, or "Exchange Act." These statements are based mainly on our current expectations and projections of future events and financial trends that currently affect or might affect our business. In addition to the items discussed in other sections of this annual report, there are many significant factors that could cause our financial condition and results of operation to differ materially from those set out in our forward-looking statements, including, but not limited to, the following:

·      global economic conditions;

·      economic, political and business conditions in Brazil and the markets in which we operate;

·      risks of lending, credit, investments and other activities;

·      our level of capitalization;

·      cost and availability of funds;

·      higher levels of delinquency by borrowers, credit delinquency and other delinquency events leading to higher impairment of loans and advances;

·      loss of customers or other sources of income;

·      our ability to execute our investment strategies and capital expenditure plans as well as to maintain and improve our operating performance;

·      our revenues from new products and businesses;

·      adverse claims, legal or regulatory disputes or proceedings;

·      inflation, depreciation of the real  and/or interest rate fluctuations, which could adversely affect our margins;

·      competitive conditions in the banking, financial services, credit card, asset management, insurance sectors and related industries;

·      the market value of securities, particularly Brazilian government securities; and

·      changes by the Central Bank and others in laws and regulations, applicable to us and our activities, including, but not limited to, those affecting tax matters.

 

Words such as "believe," "expect," "continue," "understand," "estimate," "will," "may," "anticipate," "should," "intend," and other similar expressions are intended to identify forward‑looking statements. These statements refer only to the date on which they were made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or any other event.

In light of these risks and uncertainties, the forward‑looking statements, events and circumstances discussed in this annual report may not be accurate, and our actual results and performance could differ materially from those anticipated in our forward-looking statements. Investors should not make investment decisions based solely on the forward-looking statements in this annual report.

 

6 Form 20-F – December 2012

 
 

table of contents

Form 20-F

 

PART I

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

 

ITEM 3. KEY INFORMATION

3.A. Selected Financial Data

We present below our selected financial data prepared in accordance with IFRS as of and for the years ended December 31, 2012, 2011, 2010 and 2009. The data as of and for the years ended in 2012 and 2011 is derived from our consolidated financial statements, which were audited by KPMG Auditores Independentes, an independent registered public accounting firm, as stated in their report included in this annual report. The data for the year ended December 31, 2010, is derived from our consolidated financial statements which were audited by PricewaterhouseCoopers Auditores Independentes, an independent registered public accounting firm, as stated in their report included in this annual report. The data as of December 31, 2010 and 2009, and for the year ended December 31, 2009 is derived from our audited consolidated financial statements that are not included herein. For more information regarding the change in our independent auditors, see "Item 16.F. Change in Registrant Certifying Accountant.

The following selected financial data should be read together with the "Presentation of Financial and Other Information" and "Item 5. Operating and Financial Review and Prospects."

 

Selected Financial Data

 

Year ended December 31,

US$ in thousands (1)

R$ in thousands

2012

2012

2011

2010

2009

Data from the Consolidated Statement of Income

 

 

 

 

 

Interest and similar income

41,282,012 

83,133,716 

82,367,272 

63,772,183 

55,165,229 

Interest and similar expenses

(19,684,552)

(39,640,751)

(46,755,986)

(31,000,892)

(27,974,717)

Net interest income

21,597,461 

43,492,965 

35,611,286 

32,771,291 

27,190,512 

Fee and commission income

6,376,594 

12,841,186 

10,868,311 

9,421,485 

7,866,601 

Fee and commission expenses

(18,071)

(36,391)

(33,978)

(26,947)

(19,219)

Net fee and commission income

6,358,524 

12,804,795 

10,834,333 

9,394,538 

7,847,382 

Net gains/(losses) on financial instruments classified as held for trading

1,047,826 

2,110,113 

(608,270)

2,212,733 

5,983,781 

Net gains/(losses) on financial assets classified as available for sale

941,491 

1,895,974 

365,302 

754,416 

757,255 

Net gains/(losses) of foreign currency transactions

(472,433)

(951,385)

2,625,813 

(682,961)

(897,638)

Income from insurance and pension plans

701,667 

1,413,016 

3,076,175 

2,577,730 

1,778,016 

Impairment of loans and advances

(5,715,652)

(11,510,179)

(8,296,151)

(5,756,125)

(10,809,611)

Personnel expenses

(5,788,272)

(11,656,422)

(11,150,970)

(8,794,017)

(7,334,164)

Other administrative expenses

(5,909,417)

(11,900,383)

(11,477,134)

(9,761,445)

(8,138,058)

Depreciation and amortization

(1,260,433)

(2,538,260)

(2,120,335)

(1,966,433)

(1,516,529)

Other operating income/(expenses)

(4,235,110)

(8,528,664)

(4,858,702)

(6,002,663)

(3,024,640)

Income before income taxes and equity in the earnings of associates

7,265,653 

14,631,570 

14,001,347 

14,747,064 

11,836,306 

Equity in the earnings of associates

432,348 

870,662 

682,122 

577,053 

728,867 

Income before income taxes

7,698,001 

15,502,232 

14,683,469 

15,324,117 

12,565,173 

Income and social contribution taxes

(2,061,048)

(4,150,538)

(3,594,027)

(5,271,924)

(4,264,330)

Net income for the year

5,636,952 

11,351,694 

11,089,442 

10,052,193 

8,300,843 

Attributable to shareholders

 

 

 

 

 

Controlling

5,607,096 

11,291,570 

10,958,054 

9,939,575 

8,283,007 

Non-controlling interest

29,857 

60,124 

131,388 

112,618 

17,836 

(1) Amounts stated in U.S. dollars have been translated from Brazilian reais  at an exchange rate of R$2.0138 per US$1.00, the Central Bank exchange rate on March 31, 2013. Such translations should not be construed as a representation that the Brazilian real  amounts presented were or could be converted into U.S. dollars at that rate.

 

 

Bradesco 7

 
 

table of contents

Form 20-F
 

Year ended December 31,

R$, except for number of shares

2012

2011

2010

2009

Data on Earnings and Dividends per Share (1)

 

 

 

 

Earnings per share (2) (3) (4)

 

 

 

 

Common

2.83

2.74

2.52

2.12

Preferred

3.12

3.01

2.77

2.34

Dividends/interest on equity per share (2)

 

 

 

 

Common

0.97

0.93

0.85

0.73

Preferred

1.07

1.03

0.94

0.80

Weighted average number of outstanding shares

 

 

 

 

Common

1,909,848,315

1,908,948,826

1,880,830,018

1,856,653,104

Preferred

1,907,702,283

1,906,821,919

1,881,367,208

1,856,685,513

(1) Data on earnings and dividends per share reflects: (a) the split of our Capital Stock on January 22, 2010, in which we issued to our shareholders one new share for each ten shares held of the same type, which was approved by our shareholders on December 18, 2009; and (b) the split of our Capital Stock on July 13, 2010, in which we issued to our shareholders one new share for each ten shares held of the same type, which was approved by our shareholders on June 10, 2010. For comparison purposes, all share amounts have been retroactively adjusted for all periods to reflect the stock split;

(2) Holders of preferred shares are entitled to receive dividends per share in an amount 10.0% greater than the dividends per share paid to common shareholders. For purposes of calculating earnings per share according to IFRS, we used the same criteria adopted for dividends per share. For a description of our two classes of shares. see "Item 10.B. Memorandum and Articles of Incorporation".

(3) None of our outstanding liabilities are exchangeable for or convertible into equity securities. Therefore, our diluted earnings per share do not differ from our earnings per share. Accordingly, our basic and diluted earnings per share are equal in all periods presented; and

(4) On December 17, 2010, the Special Shareholders´ Meeting voted in favor of a share capital increase of R$1,500 million, increasing share capital from R$28,500 million to R$30,000 million by issuing 62,344,140 new book-entry registered shares without par value, of which 31,172,072 were common and 31,172,068 preferred shares, at the price per share of R$24.06 through private subscription by shareholders from December 29, 2010 through January 31, 2011, in the proportion of 1.657008936% of the shareholder´s holdings as of the date of the meeting, which was paid in cash on February 18, 2011.

 

Year ended December 31,

In US$

2012

2011

2010

2009

Dividends/interest on equity per share (1)

 

 

 

 

Common

0.47

0.50

0.51

0.42

Preferred

0.52

0.55

0.56

0.46

(1) Amounts stated in U.S. dollars have been translated from Brazilian reais  at the exchange rate disclosed by the Central Bank at the end of each fiscal year.

 

 

8 Form 20-F – December 2012

 
 

table of contents

Form 20-F

 

As of December 31,

US$ in thousands (1)

R$ in thousands

2012

2012

2011

2010

2009

Data from the Consolidated Statement of Financial Position

 

 

 

 

 

Assets

 

 

 

 

 

Cash and balances with banks

29,790,832

59,992,777

93,777,577

80,960,127

24,850,091

Financial assets held for trading

55,536,581

111,839,567

96,597,077

75,234,191

54,480,534

Financial assets available for sale

40,500,967

81,560,848

45,248,398

40,179,144

44,046,416

Investments held to maturity

1,845,105

3,715,673

4,110,987

3,394,307

3,882,979

Assets pledged as collateral

52,702,999

106,133,299

97,122,080

79,700,612

60,072,653

Loans and advances to banks

46,092,578

92,821,233

72,663,890

64,715,412

82,721,843

Loans and advances to customers, net of impairment

133,902,288

269,652,428

245,874,949

210,280,182

174,240,350

Non-current assets held for sale

264,705

533,062

445,351

412,142

455,874

Investments in associated companies

1,368,059

2,754,998

2,390,466

2,298,200

1,431,157

Property and equipment

2,250,648

4,532,355

4,267,218

3,669,281

3,404,541

Intangible assets and goodwill

3,851,259

7,755,665

7,216,697

5,412,088

4,721,558

Taxes to be offset

2,655,027

5,346,693

4,572,927

1,590,297

2,122,244

Deferred income tax assets

8,930,161

17,983,558

17,093,388

12,733,792

12,526,420

Other assets

18,156,988

36,564,543

30,705,887

22,374,249

20,727,291

Total assets

397,848,197

801,186,699

722,086,892

602,954,024

489,683,951

Liabilities

 

 

 

 

 

Deposits from banks

109,656,514

220,826,288

204,290,176

171,920,917

120,067,970

Deposits from customers

104,663,477

210,771,310

216,320,938

192,475,948

169,946,116

Financial liabilities held for trading

2,011,114

4,049,982

747,210

732,967

532,422

Funds from securities issued

25,599,411

51,552,093

41,630,969

17,809,765

7,682,798

Subordinated debt

17,306,443

34,851,714

26,910,091

26,314,946

23,103,977

Insurance technical provisions and pension plans

58,977,416

118,768,720

99,112,321

83,493,046

72,596,897

Other provisions

10,451,481

21,047,193

17,926,450

13,327,866

10,852,483

Current income tax liabilities

1,665,572

3,354,128

2,758,978

1,923,372

1,245,832

Deferred income tax liabilities

1,535,240

3,091,667

2,246,508

1,980,544

1,151,927

Other liabilities

30,552,793

61,527,214

50,761,157

41,816,088

37,856,822

Total liabilities

362,419,460

729,840,309

662,704,798

551,795,459

445,037,244

Equity

 

 

 

 

 

Share capital

14,946,867

30,100,000

30,100,000

28,500,000

26,500,000

Treasury shares

(97,974)

(197,301)

(183,109)

(10,049)

(188,874)

Capital reserves

17,863

35,973

35,973

87,146

87,146

Revenue reserves

16,977,546

34,189,383

26,732,531

19,481,986

15,022,670

Additional paid-in capital

35,006

70,496

70,496

70,496

150,032

Other comprehensive income

3,176,450

6,396,736

1,751,059

2,219,272

1,835,659

Retained earnings

269,352

542,422

632,096

702,383

784,821

Equity attributable to controlling shareholders

35,325,111

71,137,709

59,139,046

51,051,234

44,191,454

Non-controlling interest

103,625

208,681

243,048

107,331

455,253

Total equity

35,428,737

71,346,390

59,382,094

51,158,565

44,646,707

Total liabilities and equity

397,848,197

801,186,699

722,086,892

602,954,024

489,683,951

(1) Amounts stated in U.S. dollars have been translated from Brazilian reais  at an exchange rate of R$2.0138 per US$ 1.00, the Central Bank exchange rate on March 31, 2013. Such translations should not be construed as a representation that the Brazilian real amounts presented have been or could be converted into U.S. dollars at that rate.

 

 

Bradesco 9
 

 


 
 

table of contents

Form 20-F
 
 
Exchange Rate Information

In the past years, the exchange rate between the real and the U.S. dollar has experienced significant variation. From 2007 to mid-2008, the real appreciated against the U.S. dollar. In the second half of 2008, the real  depreciated against the U.S. dollar, from R$1.5919 per US$1.00 on June 30, 2008 to R$2.3370 per US$1.00 on December 31, 2008, mainly due to the global economic crisis that began in mid-2008. In 2009, the real  began to appreciate against the U.S. dollar, from R$2.3370 per US$1.00 on December 31, 2008 to R$1.7412 as of December 31, 2009. In 2010, the real  continued to appreciate against the U.S. dollar and reached R$1.6662 on December 31, 2010. In 2011, the Brazilian real depreciated 12.6% against the U.S. dollar, reaching R$1.8758 on December 31, 2011. In 2012, the Brazilian real depreciated 8.9% against the U.S. dollar, reaching R$2.0435 on December 31, 2012. On March 31, 2013 the exchange rate was R$2.0138 per US$1.00. Under the current floating exchange-rate system, the real  may be subject to fluctuations and depreciation or appreciation against the U.S. dollar and other currencies.

The following table sets forth the period‑end, average and high and low selling rates reported by the Central Bank at closing, expressed in reais  per US$1.00 for the periods and dates indicated:

 

Closing Selling Rate for U.S. dollars – R$ per US$1.00

Period

Period-End

Average (1)

Maximum (1)

Minimum (1)

2007

1.7713

1.9460

2.1380

1.7440

2008

2.3370

1.8287

2.3370

1.5666

2009

1.7412

2.0171

2.3784

1.7412

2010

1.6662

1.7575

1.8748

1.6662

2011

1.8758

1.6705

1.8758

1.5563

2012

2.0435

1.9524

2.1074

1.7092

November

2.1074

1.9448

2.1074

1.7092

December

2.0435

1.9524

2.1074

1.7092

2013

 

 

 

 

January

1.9883

2.0159

2.0435

1.9883

February

1.9754

2.0024

2.0435

1.9754

March

2.0138

2.0053

2.0435

1.9754

April (until April 16, 2013)

1.9903

2.0023

2.0435

1.9754

(1) Average, maximum and minimum of the month end rates from December of the previous period.

Source: Central Bank.

 

3.B. Capitalization and Indebtedness

Not applicable.

 

3.C. Reasons for the Offer and Use of Proceeds

Not applicable.

 

3.D. Risk Factors

Macroeconomic risks

Our business and results of operations are materially affected by conditions in the global financial markets.

There has been extreme volatility in the global capital and credit markets since 2008. This volatility has resulted in reduced liquidity and increased credit risk premiums for many market participants, in addition to a reduction in the availability and/or increased costs of financing, both for financial institutions and their customers. Increasing or high interest rates and/or widening credit spreads have created a less favorable environment for most of our businesses and may impair the ability of some of our clients to repay debt that they owe to us, and reduce our flexibility in planning for, or reacting to, changes in their operations and the financial industry overall. Accordingly, even though the Brazilian and global economies started to recover since the first half of 2009, our results of operations are likely to continue to be affected by conditions in the global financial markets as long as they remain volatile and subject to disruption and uncertainty.

 

10 Form 20-F – December 2012

 
 

table of contents

Form 20-F

 

Since 2008, the continuation of the economic crisis in Europe, particularly in Greece, Spain, Italy, Ireland and Portugal, has continued to reduce investor confidence globally, as has the downgrade of the U.S. long-term sovereign credit rating by Standard & Poor's on August 6, 2011. These ongoing events could negatively affect our ability and the ability of other Brazilian financial institutions to obtain financing in the global capital markets, as well as weakening the recovery and growth of the Brazilian and/or foreign economies and cause volatility in the Brazilian capital markets. The bank does not have exposure to sovereign debt issued by the countries known as "PIIGS": Portugal, Ireland, Italy, Greece, and Spain.

 

The Brazilian government exercises influence over the Brazilian economy, and Brazilian political and economic conditions have a direct impact on our business.

Our financial condition and results of operations are substantially dependent on Brazil’s economy, which in the past has been characterized by frequent and occasionally drastic intervention by the Brazilian government and volatile economic cycles.

In the past, the Brazilian government has often changed monetary, fiscal, taxation and other policies to influence the course of Brazil’s economy. We have no control over, and cannot predict, what measures or policies the Brazilian government may take in response to the current or future Brazilian economic situation or how Brazilian government intervention and government policies will affect the Brazilian economy and, both directly and indirectly, our operations and revenues.

Our operations, financial condition and the market price of our shares, ADSs and common share ADSs may be adversely affected by changes in policy involving exchange controls, tax and other matters, as well as factors such as:

·      exchange rate fluctuations;

·      base interest rate fluctuations;

·      domestic economic growth;

·      political, social or economic instability;

·      monetary policies;

·      tax policy and changes in tax regimes;

·      exchange controls policies;

·      liquidity of domestic financial, capital and credit markets;

·      our customers' capacity to meet their other obligations with us;

·      decreases in wage and income levels;

·      increases in unemployment rates;

·      macroprudential measures;

·      inflation; and

·      other political, diplomatic, social and economic developments within and outside of Brazil that affect the country.

 

2012 was marked by a slower than expected economic recovery in Brazil, despite the number of government stimuli in place since 2011. This was largely influenced by the global financial markets crisis, which had a substantial impact on industrial production and business confidence. Furthermore, exceptional factors, such as the drought in the South and Northeast of Brazil in early 2012, affected the agricultural output in those regions and negatively impacted GDP growth in 2012. However, the adoption of new fiscal incentives, the continuing reduction in interest rates and currency depreciation provided for a gradual improvement in the domestic economy in the second half of 2012.

 

 

 

Bradesco 11

 
 

table of contents

Form 20-F
 

Currency exchange variations may have an adverse effect on the Brazilian economy and on our results and financial condition.

Our business is impacted by fluctuations in the value of the real. Since October 2002, and more intensively since June 2004, the real  has gained value against the dollar, with rare moments of depreciation (reaching R$1.5593 per US$1.00 on August 1, 2008). In 2009, the real  remained to the trajectory of appreciation against the U.S. dollar (reaching R$1.7412/US$1.00 at the end of the year). In 2010, the real  continued to appreciate against the U.S. dollar to reach R$1.6662/US$1.00 at the end of the year. In 2011, the exchange rate continued to fall until the middle of the year, reaching a nominal level of R$1.5345 per U.S. dollar on July 26, 2011. Since then, due to the deterioration of global economic conditions and the decision of the Central Bank Committee on Monetary Policy, or “COPOM”, in August (in which the previous cycle of monetary tightening was reversed) the real began to depreciate and ended 2011 at R$1.8758 per U.S. dollar. In 2012, reflecting persisting risk aversion in the international markets and the continuing reduction in interest rates in Brazil throughout the first half of 2012, the real maintained a weakening trend, reaching R$2.0904 per U.S. dollar on June 28, 2012. The exchange rate remained fairly stable during the remainder of the year, ending 2012 at R$2.0435 per U.S. dollar.

As of December 31, 2012, the net balance of our assets and liabilities denominated in, or indexed to, foreign currencies (primarily U.S. dollars) was 2.6% of our total assets. When the Brazilian currency is devalued or if it depreciates, we incur losses on our liabilities denominated in, or indexed to, foreign currencies, such as our U.S. dollar denominated long term debt and foreign currency loans, and experience gains on our monetary assets denominated in or indexed to foreign currencies, as the liabilities and assets are translated into reais. Therefore, if our liabilities denominated in, or indexed to, foreign currencies significantly exceed our monetary assets denominated in, or indexed to, foreign currencies, including any financial instruments entered into for hedging purposes, a large devaluation or depreciation of the Brazilian currency could materially and adversely affect our financial results and the market price of our shares, ADSs and common shares ADSs, even if the value of the liabilities has not changed in their original currency. In addition, our lending operations depend significantly on our capacity to match the cost of funds indexed to the U.S. dollar with the rates charged to our customers. A significant devaluation or depreciation of the U.S. dollar may affect our ability to attract customers on such terms or to charge rates indexed to the U.S. dollar.

Conversely, when the Brazilian currency appreciates, we incur losses on our monetary assets denominated in, or indexed to, foreign currencies, such as the U.S. dollar, and experience decreases in our liabilities denominated in, or indexed to, foreign currencies, as the liabilities and assets are translated into reais. Therefore, if our monetary assets denominated in, or indexed to, foreign currencies  significantly exceed our liabilities denominated in, or indexed to, foreign currencies, including any financial instruments entered into for hedging purposes, a large appreciation of the Brazilian currency could materially and adversely affect our financial results even if the value of the monetary assets has not changed in their original currency.

 

If Brazil experiences substantial inflation in the future, our revenues and our ability to access foreign financial markets may be reduced.

Brazil has, in the past, experienced extremely high rates of inflation. Brazil’s rates of inflation, as measured by the General Price Index – Domestic Availability or “IGP-DI” (Índice Geral de Preços Disponibilidade Interna), reached 11.3%, 5.0% and 8.1% in 2010, 2011 and 2012, respectively. Inflation and governmental measures to combat inflation, which have in the past had significant negative effects on the Brazilian economy and contributed to increased economic uncertainty in Brazil and heightened volatility in the Brazilian securities markets, may have an adverse effect on us.

The memory of and potential for inflation is still present, despite the monetary stability achieved in the mid-1990s which intensified after 1999 with the adoption of an inflation targeting norms. There are still concerns that inflation levels might rise again in the future. This current system is a monetary regime which the Central Bank operates in order to assure that the effective rate of inflation keeps in line with a predetermined target, previously announced to the public.

Government measures to combat inflation have often included maintaining a tight monetary policy with high interest rates, thereby restricting the availability of credit and reducing economic growth. As a result, interest rates have fluctuated significantly. Increases in the base interest rate set by the COPOM (SELIC) may have an adverse effect on us by reducing demand for our credit, and increasing our cost of funds, domestic debt expense and the risk of customer default. Decreases in the SELIC rate may also have an adverse effect on us by decreasing the interest income we earn on our interest-earning assets and lowering our revenues and margins.

Future Brazilian government actions, including the imposition of taxes, intervention in the foreign exchange market and actions to adjust or fix the value of the real, as well as any GDP growth beyond expected levels may trigger increases in inflation. If Brazil experiences fluctuations in rates of inflation in the future, our costs and net margins may be affected and, if investor confidence lags, the price of our securities may fall. Inflationary pressures may also affect our ability to access foreign financial markets and may lead to counter-inflationary policies that may have an adverse effect on our business, financial condition, results of operations and the market value of our shares, ADSs and common share ADSs.

 
12 Form 20-F – December 2012

 
 

table of contents

Form 20-F

 

 

Changes in base interest rates by the COPOM may materially adversely affect our margins and results of operations.

The COPOM establishes the base interest rates for the Brazilian banking system (SELIC). The base interest rate was 10.75%, 11.0% and 7.25% per annum as of December 31, 2010, 2011 and 2012, respectively. Changes in the base interest rate may adversely affect our results of operations because:

·      high base interest rates increase our domestic debt expense and may increase the likelihood of customer defaults; and

·      low base interest rates may diminish our interest income.

 

The COPOM adjusts the SELIC rate in order to manage aspects of the Brazilian economy, including the protection of reserves and capital flows. We have no control over the SELIC rate set by the COPOM or how often such rate is adjusted.

 

Developments and the perception of risk in Brazil and other countries, especially emerging market countries, may adversely affect the market price of Brazilian securities, including our shares, ADRs and common share ADRs (“American Depositary Receipts”).

The market value of securities of Brazilian companies is affected to varying degrees by economic and market conditions in other countries, including other Latin American and emerging market countries. Although economic conditions in these countries may differ significantly from economic conditions in Brazil, investors' reactions to developments in these other countries may have an adverse effect on the market value of securities of Brazilian issuers. Crises in other emerging market countries may diminish investor interest in securities of Brazilian issuers, including ours, which could adversely affect the market price of our shares, ADRs and common share ADRs.

The recent global financial crisis has had significant consequences worldwide, including Brazil, such as capital markets volatility, unavailability of credit, higher interest rates, a general slowdown of the world economy, volatile exchange rates and inflationary pressure, among others, which had, and may continue to have in the future, directly or indirectly, an adverse effect on our business, financial condition, results of operations, the market price of securities of Brazilian issuers, including ours, and our ability to finance our operations.

 

Risks relating to Bradesco and the Brazilian banking industry

We may experience increases in our level of past due loans as our loans and advances portfolio becomes more seasoned.

Our loans and advances portfolio has grown substantially since 2004, primarily as a result of the expansion of the Brazilian economy. Any corresponding increase in our level of non-performing loans and advances may lag behind the rate of loan growth, as loans typically do not become due within a short period of time after their origination. Levels of past due loans are higher among our individual clients than our corporate clients. From 2010 to 2012, our portfolio of loans and advances to customers increased by 28.4% and our level of impairment of loans and advances increased by 30.5%, basically driven by increases in the number of individual clients.

Beginning in mid-2008, weakening economic conditions in Brazil particularly impacted our individual clients as unemployment rates in Brazil began to rise. This led, consequently, to increases in our delinquency ratios. This trend worsened in 2009. In 2010, as a result of the improvement in Brazilian economic conditions, we experienced a decrease in our delinquency ratios, which led to a slight decrease in our impairment. In 2011, delinquency ratios showed a slight increase compared to 2010. This increase continued during 2012 mostly for operations with individuals and SMEs (small and medium enterprises). In 2012, our impairment of loans and advances increased 13.5% compared to 2011,  while our portfolio of loans and advances to customers grew by 9.9% over that same period.

 

 

Bradesco 13

 
 

table of contents

Form 20-F

Rapid loan growth may also reduce our ratio of non-performing loans to total loans until growth slows or the portfolio becomes more seasoned. Adverse economic conditions and a slower growth rate for our loans and advances to customers may result in increases in our impairment of loans and advances, charge-offs and our ratio of non-performing loans and advances to total loans and advances, which may have an adverse effect on our business, financial condition and results of operations.

 

Adverse conditions in the credit and capital markets may adversely affect our ability to access funding in a cost effective and/or timely manner.

Recent volatility and uncertainties in the credit and capital markets have generally decreased liquidity, with increased costs of funding for financial institutions and corporations. These conditions may impact our ability to replace, in a cost effective and/or timely manner, maturing liabilities and/or access funding to execute our growth strategy. If we are forced to delay raising capital or pay unattractive interest rates in order to obtain capital, our financial condition and results of operations may be adversely affected.

 

The increasingly competitive environment in the Brazilian bank and insurance industries may negatively affect our business prospects.

The markets for financial, banking and insurance services in Brazil are highly competitive. We face significant competition in all of our principal areas of operation from other large Brazilian and international banks and insurance companies, public and private.

Competition has increased as a result of recent consolidations among financial institutions in Brazil and as a result of regulations by the National Monetary Committee (Conselho Monetário Nacional), or “CMN”, that facilitate customers' ability to switch business between banks. The increased competition may materially and adversely affect us by, among other things, limiting  our ability to retain our existing consumer base, increase our customer base and expand our operations, reducing our profit margins on banking and other services and products we offer, and limiting investment opportunities.

Additionally, Brazilian regulations raise limited barriers to market entry and do not differentiate between local or foreign commercial and investment banks and insurance companies. As a result, the presence of foreign banks and insurance companies in Brazil, some of which have greater resources than us, has grown and competition both in the banking and insurance sectors generally and in markets for specific products has increased. The privatization of publicly owned banks has also made the Brazilian markets for banking and other financial services more competitive.

The increased competition may negatively affect our business results and prospects by, among other things:

·      limiting our ability to increase our customer base and expand our operations;

·      reducing our profit margins on the banking, insurance, leasing and other services and products offered by us; and

·      increasing competition for foreign investment opportunities.

 

Losses on our investments in financial assets may have a significant impact on our results of operations and are not predictable.

The value of certain of our investments in financial assets may decline significantly due to volatile financial markets and may fluctuate over short periods of time. As of December 31, 2012, investments in financial assets represented 24.1% of our assets, and realized investment gains and losses have had and will continue to have a significant impact on the results of our operations. The amounts of such gains and losses, which we record when investments in financial assets are sold, or in certain limited circumstances where they are marked to market or recognized at fair value, may fluctuate considerably from period to period. The level of fluctuation depends, in part, upon the fair value of the financial assets, which in turn may vary considerably, and our investment policies. We cannot predict the amount of realized gain or loss for any future period, and our management believes that variations from period to period have no practical analytical value. Furthermore, any gains on our investment portfolio may not continue to contribute to net income at levels consistent with recent periods or at all, and we may not successfully realize the appreciation now existing in our consolidated investment portfolio or any portion thereof.

 

14 Form 20-F – December 2012

 
 

table of contents

Form 20-F

We may incur losses associated with counterparty exposures.

We face the possibility that a counterparty will be unable to honor its contractual obligations. These counterparties may default on their obligations due to bankruptcy, lack of liquidity, operational failure or other reasons. This risk may arise, for example, from entering into swap or other derivative contracts under which counterparties have obligations to make payments to us; executing currency or other trades 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. Such counterparty risk is more acute in complex markets where the risk of failure of counterparties is higher.

 

Our trading activities and derivatives transactions may produce material losses.

We engage in the trading of securities, buying debt and equity securities principally to sell them in the near term with the objective of generating profits on short-term differences in price. These investments could expose us to the possibility of material financial losses in the future, as securities are subject to fluctuations in value, which may generate losses. In addition, we enter into derivatives transactions to manage our exposure to interest rate and exchange rate risk. Such derivatives transactions are designed to protect us against increases in exchange rates or interest rates or against decreases in such rates, but not both. If we have entered into derivatives transactions to protect against, for example, decreases in the value of the real  or in interest rates and the real  instead increases in value or interest rates increase, we may incur financial losses. Such losses could materially and adversely affect our future results of operations and cash flow.

 

The Brazilian government regulates the operations of Brazilian financial institutions and insurance companies, and changes in existing laws and regulations or the imposition of new laws and regulations may negatively affect our operations and revenues.

Brazilian banks and insurance companies, including our banking and insurance operations, are subject to extensive and continuous regulatory review by the Brazilian government. We have no control over government regulations, which govern all facets of our operations, including the imposition of:

·      minimum capital requirements;

·      compulsory deposit/reserve requirements;

·      investment requirements in fixed assets;

·      lending limits and other credit restrictions;

·      accounting and statistical requirements;

·      solvency margins;

·      minimum coverage; and

·      mandatory provisioning policies.

 

The regulatory structure governing Brazilian banks and insurance companies is continuously evolving. Existing laws and regulations could be amended, the manner in which laws and regulations are enforced or interpreted could change, and new laws or regulations could be adopted. Such changes could materially adversely affect our operations and our revenues.

In particular, the Brazilian government has historically enacted regulations affecting financial institutions in an effort to implement its economic policies. These regulations are intended to control the availability of credit and reduce or increase consumption in Brazil. These changes may adversely affect us because our returns on compulsory deposits are lower than those we obtain on our other investments.

 

Bradesco 15

 
 

table of contents

Form 20-F
 
A majority of our common shares are held by one shareholder, whose interests may conflict with our other investors’ interests.

As of December 31, 2012, Fundação Bradesco directly and indirectly held 56.5% of our common shares. As a result, Fundação Bradesco has the power, among other things, to prevent a change in control of our company, even if a transaction of that nature would be beneficial to our other shareholders, as well as to approve related party transactions or corporate reorganizations. Under the terms of Fundação Bradesco’s by-laws, members of our Diretoria Executiva, or of our Board of Executive Officers, and departmental officers that have been working at the Organization for more than ten years serve as members of the Board of Trustees of Fundação Bradesco. The Board of Trustees has no other members. Decisions in relation to our policy towards acquisitions, divestitures, financings or other transactions could be made by Fundação Bradesco which may be contrary to the interests of holders of common shares, and which may have a negative impact on the interests of holders of common shares. For more information on our shareholders, see “Item 7.A. Major Shareholders.”

 

Changes in regulations regarding reserve and compulsory deposit requirements and taxes may reduce operating margins.

The Central Bank has periodically changed the level of compulsory deposits that financial institutions in Brazil are required to maintain with the Central Bank.

In May 2012 the Central Bank changed the rules related to the reserve requirement amounts, enabling the deduction of the balance of loan operations for financing and leasing of automobiles and light commercial vehicles from the amount of compulsory deposits to be reserved, as a way to encourage the granting of financing for acquisition of these assets. In June, September and November 2012, the rules related to the payment of reserve requirement were further amended, aiming at adjusting the criterion for defining the amount subject to reserve requirement and additional liabilities, as well as for remunerating the reserve account and the criteria which determine the eligibility of institutions that may deduct amounts subject to the reserve requirement.

In December 2012 the Central Bank established the possibility of deducting demand amounts subject to the reserve requirement in certain specified circumstances, as a way to encourage banks to grant credit for the acquisition of certain assets.

Compulsory deposits generally yield lower returns than our other investments and deposits because:

·      a portion of our compulsory deposits do not bear interest;

·      a portion of our compulsory deposits must be held in Brazilian government securities; and

·      a portion of our compulsory deposits must finance a federal housing program, the Brazilian rural sector, low income customers and small enterprises under a program referred to as a "microcredit program."

 

As of December 31, 2012, our compulsory deposits in connection with demand, savings and time deposits and additional compulsory deposits were R$47.9 billion. Reserve requirements have been used by the Central Bank to control liquidity as part of monetary policy in the past, and we have no control over their imposition. Any increase in the compulsory deposit requirements may reduce our ability to lend funds and to make other investments and, as a result, may adversely affect us. For more information on compulsory deposits, see "Item 4.B. Business Overview-Deposit-taking activities."

 

Changes in taxes and other fiscal assessments may adversely affect us.

The Brazilian government regularly enacts reforms to the tax and other assessment regimes to which we and our customers are subject. Such reforms include changes in the rate of assessments and, occasionally, enactment of temporary taxes, the proceeds of which are earmarked for designated governmental purposes. The effects of these changes and any other changes that result from enactment of additional tax reforms have not been, and cannot be, quantified and there can be no assurance that these reforms will not, once implemented, have an adverse effect upon our business. Furthermore, such changes may produce uncertainty in the financial system, increasing the cost of borrowing and contributing to the increase in our non-performing portfolio of loans and advances.

 

16 Form 20-F – December 2012
 

 
 

table of contents

Form 20-F
 

The Brazilian Constitution used to establish a ceiling on loan interest rates, including bank loan interest rates, and the impact of the subsequent legislation regulating the subject is uncertain.

Article 192 of the Brazilian Constitution, enacted in 1988, established a 12% per annum ceiling on bank loan interest rates. However, since the enactment of the Constitution, this rate had not been enforced, as the regulation regarding the ceiling was pending. The understanding that this ceiling is not yet in force has been confirmed by Súmula Vinculante No. 7, a final binding decision enacted in 2008 by the Brazilian Supreme Court in accordance with such Court’s prior understanding on this matter. Since 1988, several attempts were made to regulate the limitation on loan interest, and especially bank loan interest rates, but none of them were implemented nor have been confirmed by Brazilian superior courts.

On May 29, 2003, Constitutional Amendment No. 40 (“EC 40/03”) was enacted and revoked all subsections and paragraphs of Article 192 of the Brazilian constitution. This amendment allows the Brazilian Financial System, to be regulated by specific laws for each sector of the system rather than by a single law relating to the system as a whole.

With the enactment of the new Civil Code (or Law No. 10,406/02), as amended, unless the parties to a loan have agreed to use a different rate, in principle the interest rate ceiling has been related to the base rate charged by the National Treasury. Currently, this base interest rate is the SELIC rate, the base interest rate established by the COPOM, which was in March 2013, 7.25% per annum. However, there is presently some uncertainty as to whether the base interest rate would be the SELIC rate or the 12% per annum interest rate established in the Brazilian Tax Code should apply.

The impact of EC 40/03 and the provisions of the New Civil Code are uncertain at this time but any substantial increase or decrease in the interest rate ceiling could have a material effect on the financial condition, results of operations or prospects of Brazilian financial institutions, including us.

Additionally, certain Brazilian courts have issued decisions in the past limiting interest rates on consumer financing transactions that are considered abusive or excessively onerous in comparison with market practice. Brazilian courts’ future decisions as well as changes in legislation and regulations restricting interest rates charged by financial institutions could have an adverse effect on our business.

 

Our losses in connection with insurance claims may vary from time to time and differences between the losses from actual claims and underwriting and reserving assumptions may have an adverse effect on us.

The results of our operations significantly depend upon the extent to which our actual claims are consistent with the assumptions we used to assess our potential future policy and claim liabilities and to price our insurance products. We seek to limit our responsibility and price our insurance products based on the expected payout of benefits, calculated using several factors, such as: assumptions for investment returns, mortality and morbidity, expenses, persistency, and certain macroeconomic factors, such as inflation and interest rates. These assumptions may deviate from our prior experience, including due to factors beyond our control such as natural disasters (floods, explosions and fires) and man-made disasters (riots, gang or terrorist attacks) or changes in mortality and morbidity rates as a result of advances in medical technology and longevity, among others. Therefore, we cannot determine precisely the amounts that we will ultimately pay to settle these liabilities, when these payments will need to be made, or whether the assets supporting our policy liabilities, together with future premiums and contributions, will be sufficient for payment of these liabilities. These amounts may vary from the estimated amounts, particularly when those payments do not occur until well in the future, which is the case with certain of our life insurance products. To the extent that actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, we may be required to increase our provisions, which may have an adverse effect on our cash flow.

 

If our actual losses exceed our provisions on risks that we underwrite, we could be adversely affected.

Our results of operations and financial condition depend upon our ability to accurately assess the actual losses associated with the risks that we underwrite. Our current provisions are based on estimates that rely on then-available information and that involve a number of features including recent loss experience, current economic conditions, internal risk rating, actuarial and statistical projections of our expectations of the cost of the ultimate settlement of claims, such as estimates of future trends in claims severity and frequency, judicial theories of liability, the levels of and/or timing of receipt or payment of premiums and rates of retirement, mortality, morbidity and persistency, among others. Accordingly, the establishment of provisions is inherently uncertain and our actual losses usually deviate, sometimes substantially, from such estimates. Deviations occur for a variety of reasons. For example, if we record our impairment of loans and advances based on estimates of incurred losses, it might not be sufficient to cover losses; an increased number of claims; or our costs could be higher than the costs we estimated. If actual losses materially exceed our provisions, we could be adversely affected.

 

 

Bradesco 17

 
 

table of contents

Form 20-F

 

We are jointly liable for claims of our customers if our reinsurers fail to meet their obligations under the reinsurance contracts.

The purchase of reinsurance does not hold us harmless against our liability towards our clients if the reinsurer fails to meet its obligations under the reinsurance contracts. As a result, reinsurers' insolvency or failure to make timely payments under these contracts could have an adverse effect on us, given that we remain responsible before our policyholders.

 

A failure in, or breach of, our operational or security systems could temporarily interrupt our businesses, increasing our costs and causing losses.

Although we have high profile information security controls, and continue to invest in the infrastructure, operations and crisis management in place, our business, financial, accounting, data processing systems or other operating systems and facilities may stop operating properly for a limited period of time or become temporarily disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control, such as: electrical or telecommunications outages; breakdowns, systems failures or other events affecting third parties with which we do business or that facilitate our business activities, including exchanges, clearing houses, financial intermediaries or vendors that provide services; events arising from local and larger-scale political or social matters and cyber attacks.

Cyber attacks and temporary interruptions or failures in the physical infrastructure or operating systems that support our businesses and customers, could result in customer attrition, regulatory fines, penalties or intervention, reimbursement or other compensation costs.

 

Risks relating to our shares, ADSs and common shares ADSs

The preferred shares and ADSs generally do not give their holders voting rights.

Under Brazilian corporate law (Brazilian Law No. 6,404/76, as amended by Law No. 9,457/97 and Brazilian Law No. 10,303/01, which we refer to collectively as "Brazilian Corporate Law") and our Bylaws, holders of our preferred shares, and therefore of our ADSs, representing our preferred shares, are not entitled to vote at our shareholders' meetings, except in limited circumstances (see “Item 10.B. Articles of Association and Articles of Incorporation – Organization – Voting Rights,” for further information on voting rights). This means, among other things, that holders of ADSs are not entitled to vote on corporate transactions, including any proposed merger or consolidation with other companies.

In addition, with respect to common share voting rights and the limited circumstances where preferred shareholders are able to vote, ADS and common share ADS holders may exercise voting rights with respect to our shares represented by ADSs and common share ADSs only in accordance with the provisions of the Deposit Agreements relating to the ADSs and common share ADSs. Although there are no provisions in Brazilian law or in our Bylaws that limit preferred or common share ADS holders' ability to exercise their voting rights through the depositary bank with respect to the underlying shares, there are practical limits to the ability of preferred or common share ADS holders to exercise their voting rights due to the additional procedural steps involved in communicating with such holders. For example, our shareholders will either be notified directly or through notification published in Brazilian newspapers and will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. ADS and common share ADS holders, on the other hand, will not receive notice directly from us. Instead, in accordance with the Deposit Agreements, we will send notice to the depositary bank, which will, in turn, as soon as possible, mail the notice of such a meeting to holders of ADSs and common share ADSs with a statement as to the manner in which instructions may be given by holders. To exercise their voting rights, ADS and common share ADS holders must then instruct the depositary bank how to vote the shares represented by their ADSs or common share ADSs. Because of this extra procedural step involving the depositary bank, the process for exercising voting rights will take longer for ADS and common share ADS holders than for holders of our shares. ADSs and common share ADSs for which the depositary bank does not receive voting instructions in good time will not be able to vote at a meeting.

 

18 Form 20-F – December 2012

 
 

table of contents

Form 20-F

 

The relative volatility and illiquidity of the Brazilian securities markets may substantially limit its ability to sell shares underlying the ADSs and common share ADSs at the price and time you desire.

Investing in securities that trade in emerging markets such as Brazil often involves greater risk than investing in securities of issuers in more developed countries, and these investments are generally considered more speculative in nature. The Brazilian securities market is substantially smaller and less liquid than major securities markets, such as the United States, and may be more volatile. Although you are entitled to withdraw our shares underlying the ADSs or common share ADSs from the depositary bank at any time, your ability to sell our shares underlying the ADSs or common share ADSs at a price and time acceptable to you may be substantially limited. There is also significantly greater concentration in the Brazilian securities market than in major securities markets such as the United States or other countries. The ten largest companies in terms of market capitalization accounted for 52.2% of the aggregate market capitalization of the BM&FBOVESPA in March 2013.

 

Our shares, ADSs and common share ADSs are not entitled to a fixed or minimum dividend.

Holders of our shares, ADSs and common share ADSs are not entitled to a fixed or minimum dividend. Pursuant to our Bylaws, our preferred shares are entitled to dividends 10% higher than those of our common shares. Although under our current Bylaws we are obligated to pay our shareholders at least 30% of our annual adjusted net income, the shareholders attending our annual general shareholders’ meeting may decide to suspend this mandatory distribution of dividends if the Board of Directors advises that payment of the dividend is not compatible with our financial condition. Neither our Bylaws nor Brazilian law specifies the circumstances in which a distribution would not be compatible with our financial condition, and our controlling shareholders have never suspended the mandatory distribution of dividends. However, general Brazilian practice is that a company need not pay dividends if such payment would endanger the existence of the company or harm its normal course of operations.

On March 1, 2013 CMN Resolution No. 4,193 was issued in an effort to further implement the Basel III Accord in Brazil. Pursuant to such rules, a restriction of dividend and interest payments on equity may be imposed by the Central Bank in the event the additional capital requirements determined by the Central Bank are not complied with, in accordance with "Item 5.B. Liquidity and Capital Resources - Capital adequacy and leverage.”

 

As a holder of ADSs or common share ADSs you will have fewer and less well‑defined shareholders' rights than in the United States and certain other jurisdictions.

Our corporate affairs are governed by our Bylaws and Brazilian Corporate Law, which may differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States or in certain other jurisdictions outside Brazil. Under Brazilian Corporate Law, you and the holders of our shares may have fewer and less well‑defined rights to protect your interests relative to actions taken by our Board of Directors or the holders of our common shares than under the laws of other jurisdictions outside Brazil.

Although Brazilian Corporate Law imposes restrictions on insider trading and price manipulation, the Brazilian securities markets are not as highly regulated and supervised as the U.S. securities markets or markets in certain other jurisdictions. In addition, in Brazil, self‑dealing and the preservation of shareholder interests may be less heavily regulated and regulations may not be as strictly enforced in Brazil as in the United States, which could potentially disadvantage you as a holder of our shares underlying ADSs or common share ADSs. For example, compared to Delaware general corporation law, Brazilian Corporate Law and practice have less detailed and well‑established rules and judicial precedents relating to review of management decisions under duty of care and duty of loyalty standards in the context of corporate restructurings, transactions with related parties, and sale-of-business transactions. In addition, shareholders in Delaware companies must hold 5.0% of the outstanding share capital of a corporation to have valid standing to bring shareholder derivative suits, while shareholders in Brazilian companies do not normally have valid standing to bring a class action.

 

It may be difficult to bring civil liability causes against us or our directors and executive officers.

We are organized under the laws of Brazil, and all of our directors and executive officers reside outside the United States. In addition, a substantial portion of our assets and most or all of the assets of our directors and executive officers are located in Brazil. As a result, it may be difficult for investors to effect service of process within the United States or other jurisdictions outside of Brazil on such persons or to enforce judgments against them, including any based on civil liabilities under the U.S. federal securities laws.

 

Bradesco 19

 
 

table of contents

Form 20-F
 

If we issue new shares or our shareholders sell shares in the future, the market price of your ADSs or common share ADSs may be reduced.

Sales of a substantial number of shares, or the belief that this may occur, could decrease the market price of our shares, ADSs and common share ADSs by diluting our shares' value. If we issue new shares or our existing shareholders sell the shares they hold, the market price of our shares and therefore of our ADSs and common share ADSs, may decrease significantly.

 

Payments on the ADSs or common share ADSs may be subject to U.S. withholding under FATCA

In order to receive payments free of U.S. withholding tax under Sections 1,471 through 1,474 of the US Internal Revenue Code (commonly referred to as “FATCA”), we and financial institutions through which payments on the ADSs or common share ADSs are made may be required to withhold at a rate of up to 30% on all, or a portion of, payments in respect of the ADSs or common share ADSs made after December 31, 2016.

We may enter into an agreement with the U.S. Internal Revenue Service to provide certain information about investors. Under such an agreement, withholding may be triggered if: (a) an investor does not provide information sufficient for the relevant party to determine whether the investor is a U.S. person or should otherwise be treated as holding a ‘‘United States Account’’ of our company, (b) an investor does not consent, where necessary, to have its information disclosed to the U.S. Internal Revenue Service or (c) any investor or person through which payment on the ADSs or common share ADSs is made is not able to receive payments free of withholding under FATCA.

If an amount in respect of FATCA were to be deducted or withheld from interest, principal or other payments on or with respect to the ADSs or common share ADSs, we would have no obligation to pay such amount or otherwise indemnify a shareholder for any such withholding or deduction by us, a paying agent or any other party as a result of the deduction or withholding of such amount. As a result, if FATCA withholding is imposed on these payments, investors may receive less interest or principal than expected.

An investor that is a "foreign financial institution" (as defined under the FATCA rules) but that is withheld upon generally will be able to obtain a refund only to the extent an applicable income tax treaty with the United States entitles the investor to a reduced rate of tax on the payment that was subject to withholding under FATCA, provided the required information is furnished in a timely manner to the U.S. Internal Revenue Service.

The United States is in the process of negotiating intergovernmental agreements to implement FATCA with a number of jurisdictions. Different rules than those described above may apply if our company or an investor is a resident in a jurisdiction that has entered into an intergovernmental agreement to implement FATCA.

Investors should consult their own advisers about the application of FATCA, in particular if they may be classified as financial institutions under the FATCA rules.

 

You may be unable to exercise preemptive rights relating to our shares.

You will not be able to exercise preemptive rights relating to our shares underlying your ADSs or common share ADSs unless a registration statement under the Securities Act is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. Similarly, we may from time to time distribute rights to our shareholders. The depositary bank will not offer rights to you as a holder of the ADSs or common share ADSs unless the rights are either registered under the Securities Act or are subject to an exemption from the registration requirements. We are not obligated to file a registration statement with respect to the shares or other securities relating to these rights, and we cannot assure you that we will file any such registration statement. Accordingly, you may receive only the net proceeds from the sale by the depositary bank of the rights received in respect of the shares represented by your ADSs or common share ADSs or, if the preemptive rights cannot be sold, they will be allowed to lapse. You may also be unable to participate in rights offerings by us, and your holdings may be diluted as a result.

 

20 Form 20-F – December 2012

 
 

table of contents

Form 20-F

 

If you exchange your ADSs or common share ADSs for their underlying shares, you risk losing Brazilian tax advantages and the ability to remit foreign currency abroad.

Brazilian law requires that parties obtain registration with the Central Bank in order to remit foreign currencies, including U.S. dollars, abroad. The Brazilian custodian for the shares must obtain the necessary registration with the Central Bank for payment of dividends or other cash distributions relating to the shares or after disposition of the shares. If you exchange your ADSs or common share ADSs for the underlying shares, however, you may only rely on the custodian's certificate for five business days from the date of exchange. Thereafter, you must obtain your own registration in accordance with the rules of the Central Bank and the CVM, in order to obtain and remit U.S. dollars abroad after the disposition of the shares or the receipt of distributions relating to the shares. If you do not obtain a certificate of registration, you may not be able to remit U.S. dollars or other currencies abroad and may be subject to less favorable tax treatment on gains with respect to the shares. For more information, see "Item 10.D. Exchange Controls."

If you attempt to obtain your own registration, you may incur expenses or suffer delays in the application process, which could delay your receipt of dividends or distributions relating to the shares or the return of your capital in a timely manner. The custodian's registration and any certificate of foreign capital registration you may obtain may be affected by future legislative changes. Additional restrictions applicable to you, to the disposition of the underlying shares or to the repatriation of the proceeds from disposition may be imposed in the future.

 

ITEM 4. INFORMATION ON THE COMPANY

 

4.A. History, Development of the Company and Business Strategy

 
The company

We were founded in 1943 as a commercial bank under the name "Banco Brasileiro de Descontos S.A." In 1948, we began a period of aggressive expansion, which led to our becoming the largest private‑sector (non‑government‑controlled) commercial bank in Brazil by the end of the 1960s. We expanded our activities nationwide during the 1970s and conquered urban and rural markets in Brazil. In 1988 we merged with our real estate finance, investment bank and consumer credit subsidiaries to become a multiple service bank and changed our name to Banco Bradesco S.A.

We are currently one of the largest banks in Brazil in terms of total assets. We offer a wide range of banking and financial products and services in Brazil and abroad to individuals, large, mid‑sized and small companies and major local and international corporations and institutions. We have the most extensive private‑sector branch and service network in Brazil, allowing us to reach a diverse customer base. Our products and services encompass banking operations such as loans and advances and deposit‑taking, credit card issuance, purchasing consortiums, insurance, leasing, payment collection and processing, pension plans, asset management and brokerage services.

According to information published in December 2012 by SUSEP and by ANS, we are the largest insurance, pension plan and capitalization bond group in Brazil on a consolidated basis in terms of insurance premiums, pension plan contributions and income from capitalization bonds. Título de capitalização, or "capitalization bond," refers to a type of savings account combined with periodic cash-prize draws.

In 2012, some of our subsidiaries ranked among the largest companies in Brazil in their respective markets, according to the sources cited in parentheses below, including:

·      Bradesco Seguros S.A. ("Bradesco Seguros"), our insurance subsidiary, together with its subsidiaries, leader in terms of insurance premiums, equity and technical reserves (SUSEP and ANS):

­-     Bradesco Vida e Previdência S.A. ("Bradesco Vida e Previdência"), Bradesco Seguros' subsidiary is the largest company in the market in terms of private pension plan contributions, investment portfolios and technical provisions (SUSEP);

-­        Bradesco Capitalização S.A. ("Bradesco Capitalização"), Bradesco Seguros' subsidiary offers capitalization bonds. Bradesco Capitalização is the leading private company in the market in terms of revenue from the sale of capitalization bonds (SUSEP);

 

 

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-­        Bradesco Auto/RE Companhia de Seguros S.A. ("Bradesco Auto/RE"), Bradesco Seguros' subsidiary is one of the largest companies in its segment, offering automobile insurance, property/casualty and liability products (SUSEP); and

­-        Bradesco Saúde S.A. ("Bradesco Saúde"), Bradesco Seguros' subsidiary offers health insurance, including coverage of medical and hospital expenses. Bradesco Saúde has one of the largest networks of healthcare service providers and is the health insurance market leader (ANS).

·      Bradesco Leasing S.A. Arrendamento Mercantil ("Bradesco Leasing"), is one of the leaders in terms of the present value of leasing portfolio (ABEL);

·      Bradesco Administradora de Consórcios Ltda. ("Bradesco Consórcios"), market leader in the segments of real estate, automobiles, trucks and tractors, with 736,202 outstanding purchasing consortium quotas (Central Bank); and

·      BRAM – Bradesco Asset Management, one of the leaders in the asset management sector, with R$287.4 billion in managed assets (ANBIMA).

 

We are also one of the leaders among financial institutions in underwriting debt securities, according to information published by ANBIMA.

As of December 31, 2012, we had, on a consolidated basis:

·   R$801.2 billion in total assets;

·   R$289.7 billion in total loans and advances;

·   R$211.9 billion in total deposits;

·   R$71.3 billion in equity, including non-controlling interest;

·   R$118.8 billion in technical reserves for our insurance and pension plan business;

·   R$37.3 billion in foreign trading financing;

·   37.3 million insurance policyholders;

·   25.7 million checking account holders;

·   48.6 million savings accounts;

·   3.5 million capitalization bonds holders;

·   2.3 million pension plan holders;

·   1,332 Brazilian and multinational corporations with affiliated companies in Brazil as ”Corporate” customers;

·   an average of 20.3 million daily transactions, including 2.1 million in our 4,686 branches and 18.2 million through self-service outlets, mainly Automatic Teller Machines, or ATMs, the Internet, telephone and mobile services (Fone Fácil and Bradesco Celular); 

·      a nationwide network consisting of 4,686 branches and 5,237 special points of banking services located on the premises of selected corporate customers, 34,859 ATMs, and 12,975 shared ATMs under the Banco24Horas brand for cash withdrawals, obtaining statements and account balance information, loans, payments and transfers between accounts; and

·   a total of 3 branches and 10 subsidiaries located in New York, London, the Cayman Islands, Tokyo, Buenos Aires, Luxembourg, Hong Kong and Mexico.

 

Since 2009, we have been doing business in every single one of the municipalities in Brazil. Our extensive banking network takes us closer to our customers, providing our managers with information on economically active regions and other key conditions for our business. This knowledge helps us to assess and limit risks in loans, among other risks, as well as to service the particular needs of our customers.

We are a business corporation organized under the laws of Brazil. Our headquarters are in Cidade de Deus, Vila Yara, 06029 900, Osasco, SP, Brazil, and its telephone number is (55-11) 3684-4011. Our New York Branch is located at 450 Park Avenue, 32nd floor, New York 10022-2605.

 

 

22 Form 20-F – December 2012

 
 

table of contents

Form 20-F

 

2011 and 2010 acquisitions

In May 2011, Bradesco  acquired 96.99% of the common shares and 95.21% of the preferred shares, corresponding to 96.23% of the capital stock of Banco do Estado do Rio de Janeiro S.A. (“BERJ”) from the Government of the State of Rio de Janeiro. As part of the acquisition, Bradesco  also acquired the right to provide services to the Government of the State of Rio de Janeiro including: (i) its payroll, (ii) its supplier payroll, (iii) the collection of state taxes among others, in the period from January 2012 to December 2014. This transaction expanded Bradesco’s presence in the State of Rio de Janeiro. A Special shareholders' meeting  held in November 2011 voted to alter the name of Banco do Estado do Rio de Janeiro S.A – BERJ to Banco BERJ S.A. Bradesco's process of assuming control of BERJ was ratified by the Central Bank in November 2011. In May 2012 Bradesco acquired common and preferred shares issued by BERJ, held by its non-controlling shareholders, by way of a Unified Tender Offer (Unified OPA).

In July 2010, Bradesco announced the acquisition of 10.67% of the capital stock of Companhia Brasileira de Soluções e Serviços (“CBSS”) for R$141.4 million. In January 2011, Bradesco announced the acquisition of an additional 5.01% of CBSS's capital stock for R$85.8 million. As a result, Bradesco increased its total ownership interest in CBSS to 50.01%.

In July 2010, Bradesco concluded the acquisition of 2.09% of the capital stock of Cielo S.A. (“Cielo”), for a total consideration of R$431.7 million, increasing its ownership interest in Cielo to 28.65%.

In June 2010, Bradesco concluded the acquisition of the entire capital stock of the controlling group of Ibi Services S. de R.L. México ("Ibi México") and of RFS Human Management de R.L., a subsidiary of Ibi México. This transaction includes a partnership contract with C&A México S. de R.L. (C&A México) for a period of 20 years for the exclusive joint sale of financial products and services through C&A México chain stores.

 

Other strategic alliances

In 2012, Bradesco Asset Management S.A. Distribuidora de Títulos e Valores Mobiliários (BRAM) continued to develop its internationalization strategy with the launch of new funds intended for foreign investors. The company introduced a short-term fixed income fund in April 2012 and a Latin-American equities fund in December 2012. These new funds are now part of the family of investment funds called "Bradesco Global Funds," which was launched by Bradesco in September 2009. These funds are domiciled in Luxemburg and are marketed exclusively to foreign investors. Bradesco Global Funds is an umbrella structure that provides investors with a series of investment funds, each with different investment objectives.

In April 2011, we launched “Elo" in partnership with Banco do Brasil and Caixa Econômica Federal, a new Brazilian card flag that gives customers more choice and strengthens the Bank's portfolio. Accordingly, Elo Participações, a company incorporated by Bradesco and Banco do Brasil, now comprises certain businesses related to electronic means of payment, which include, as follows: (i) Elo Serviços S.A. (“Elo Serviços”), the owner and manager of the new Elo brand “Elo” of debit, credit and pre-paid cards; (ii) the activities of CBSS, which will be directly or indirectly integrated into Elo Participações (“Elo Participações”); and (iii) our ownership interest in IBI Promotora de Vendas Ltda. (“IBI Promotora”), which was sold to CBSS in September, 2011. Other businesses originally intended, but not yet finalized, are dependent upon the completion of ultimate documents and the compliance with applicable legal and regulatory formalities.

In August 2010, Bradesco Seguros, ZNT Empreendimentos S.A. ("ZNT") and Odontoprev signed a non-binding memorandum of understanding with BB Seguros S.A. ("BB Seguros"), for developing and marketing products in the dental market.

In February 2010, we entered into a non-binding memorandum of understanding with Banco do Brasil and Banco Santander S.A. ("Santander Brasil") to facilitate consolidation of operations of our respective networks of external self-service terminals (ATMs located outside branches).

 

Divestments

In November, 2012, we sold 308,676 shares of Serasa S.A (“Serasa”) to Experian Brasil Ltda. ("Experian Brasil"), a Brazilian subsidiary of Experian plc. The transaction generated income before taxes of R$793.3 million.

 

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Form 20-F
 

In September 2010, the Organization announced the sale of its controlling interest in CPM Braxis SA (CPM) to Capgemini SA, reducing its interest in the total capital stock of CPM to 20%. In February 2012, after entry of new shareholders, the Organization's interest fell to 13.59%.

 
Bradesco Expresso – Correspondent Bank

Bradesco Expresso enables us to expand our share in the correspondent bank segment through partnerships with supermarkets, drugstores, department stores and other retail chains, ensuring presence in all Brazilian cities which are not served by the banking branch network.

The main services we offer through Bradesco Expresso are:

·      receipt and submission of account applications;

·      receipt and submission of loans, financing and credit card applications;

·      withdrawals from checking accounts and savings accounts;

·      Social Security National Service ("INSS") benefit payments;

·      checking and savings account deposits;

·      checking accounts, savings accounts and INSS balance statements;

·      receipt of utility bills, bank charges and taxes; and

·      prepaid mobile top-up.

 

In 2012, Bradesco Expresso network totaled 43,053 outlets, of which 8,214 were new outlets, with an average of 39.1 million monthly transactions or 1.8 million transactions per business day.

 

Business strategy

The key elements of our strategy are: (i) to consolidate and expand our position as one of the leading financial institutions and insurance providers in Brazil; (ii) maximize shareholder value; and (iii) maintain high standards of corporate responsibility and sustainability.

We intend to pursue the following strategies to reach these goals:

 
Consolidate and build upon our service network and brand as one of the leading financial institutions and insurance providers in Brazil, which offers a complete portfolio of products and services to all levels of society.

We believe that our position as one of the leading financial institutions in Brazil, with a presence in all Brazilian regions through a broad network of distribution channels and with exposure to individuals of all income levels as well as large, mid‑sized and small businesses, will allow us to maintain the organic growth strategy. We will also continue to expand the insurance, pension and capitalization bonds business segment, in order to consolidate our leadership in this sector. As part of this strategy, we intend to increase the sales of our traditional banking, insurance, pension and capitalization bonds products through our wide branch network, our internet distribution services and other distribution channels. We are committed to investing significantly in our IT platform to support such growth. In addition, we intend to continue to leverage our relationships with corporate clients and high-income individuals to further develop our investment banking, private banking and asset management operations through Bradesco BBI, Banco Bradesco Europa, Bradesco Securities and other subsidiaries in Brazil and other key financial centers such as London, New York, Hong Kong and Tokyo.

 

Maintain asset quality and operational risk levels.

We are focused on sustainable growth to ensure our standards in relation to our asset quality and risk levels. We intend to maintain the quality of our loan portfolio by continuously improving our delinquency risk models, ensuring better results in credit granting and appropriate provisions for possible incurred losses. Our strategy involves maintaining our existing policy for our insurance business of careful evaluation of risk spreads through robust actuarial analysis, while entering into reinsurance agreements with well-known reinsurers to reduce exposure to large risks.

 

24 Form 20-F – December 2012

 
 

table of contents

Form 20-F

With respect to risk management, we intend to continue our integrated approach that utilizes a centralized method for identifying, measuring, controlling, monitoring and mitigating credit, market, liquidity and operational risks. We intend to continue to use specialized risk management committees in relation to the adoption of institutional policies, operational guidelines and the establishment of limits for risk exposure in accordance with best international practices, with the aim of maintaining operational risk levels within adequate boundaries.

 

Complement organic growth with strategic alliances and pursue selective acquisitions.

To complement our organic growth strategy, we constantly seek opportunities for strategic alliances and selective acquisitions to consolidate our position as one of the leading financial institutions in Brazil and to expand our presence in growth markets such as consumer financing, investment banking, broker dealing and insurance. We believe our partnership with Banco do Brasil and Caixa Econômica Federal in relation to credit, debit and pre-paid cards for checking account holders and non-account holders is an example of such a growth opportunity. Similarly, our merger with Odontoprev has increased our presence in the segment of dental care plans enabling us to cement our leadership position in the insurance market. We will continue to focus on asset quality, potential operating synergies, sale and acquisition of know-how to maximize return for our shareholders.

 

Focus on corporate responsibility and sustainability as core principles of our business.

We believe that corporate responsibility and sustainability are fundamental to our operations and have incorporated the following three principles into our overall strategy: sustainable finance, responsible management and investments in social and environmental projects. We are always seeking to develop and incorporate sustainable finance concepts into the process of designing and managing our products and services and in our relationships with clients and suppliers. We believe our admission to the sustainability indexes of both the New York Stock Exchange and BM&FBOVESPA represents strong recognition of our success in implementing sustainability principles. As part of this strategy, we will continue to apply social-environmental risk analysis in financing and investment activities in accordance with international practices, including the Equator Principles which we signed up to in 2004. Corporate responsibility has always been one of our core principles as evidenced by the significant investments we have made in education since 1956 through Fundação Bradesco, which is present in every state in Brazil and the Federal District, with 40 schools primarily located in regions of high socioeconomic deprivation. Fundação Bradesco offers quality formal education, free of charge, to children and young people from early childhood to high school as well as professional high school education for young people and adults, as well as initial and continuing education for employment and income.

 

4.B. Business Overview

We operate and manage our business through two operational segments: (i) the banking segment and (ii) the insurance, pension and capitalization bonds segment.

The data about these segments was compiled from reports prepared for Management to assess performance and make decisions on allocating funds for investments and other purposes. Management uses various data, including financial data in conformity with the accounting practices adopted in Brazil and non-financial metrics compiled on different bases. Hence the segment data were prepared under accounting practices adopted in Brazil and the consolidated financial statements were compiled under International Financial Reporting Standards ("IFRS") as issued by the IASB. For further information on differences between the results on a consolidated basis and by segments, see "Item 5.A. Operating Results-Results of operations for the year ended December 31, 2012 compared with the year ended December 31, 2011” and "Item 5.A. Operating Results-Results of operations for the year ended December 31, 2011 compared with the year ended December 31, 2010.”

As of December 31, 2012, according to the sources cited in parentheses below, we were:

·      one of the leading banks in terms of savings deposits, with R$69.0 billion, accounting for 13.9% of Brazil's total savings deposits (Central Bank);

·      one of the leaders in BNDES onlending, with R$12.4 billion in disbursements (BNDES);

 

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·      one of the leaders in leasing operations in Brazil, with a leasing portfolio of R$8.0 billion at present value (ABEL);

·      one of Brazil's largest fund and portfolio managers, with R$441.8 billion in total managed assets, of which R$147.7 billion are held by our subsidiary, BEM Distribuidora de Títulos e Valores Mobiliários Ltda., or “BEM DTVM,” specialized in trust, custody and controllership of asset management services (ANBIMA);

·      one of the largest credit card issuers in Brazil, with 93.1 million credit cards issued (Visa, American Express, Elo, MasterCard and private label cards) with sales on credit cards and private label of R$103.5 billion (ABECS);

·      the leader in bank payment processing and collection services in Brazil (Central Bank);

·      the leader in number of active quotas in managed purchaser consortiums for the three segments: real estate, with 196,991 quotas; automobiles, with 500,702 quotas, and trucks and tractors with 38,509 quotas (Central Bank);

·      one of the leaders in automobile financing loans, with a market share of 15.4% (Central Bank);

·      the leading bank in benefit payments from the Social Security Institute (Instituto Nacional do Seguro Social, or INSS), with over 7.4 million "INSS" retirees, beneficiaries and other pensioners, accounting for 24.6% of the total number of INSS beneficiaries (INSS); and

·      Brazil's largest insurance and open pension fund operator with R$44.3 billion in total premiums, pension plan contributions and capitalization bond income (SUSEP and ANS).

 

Additionally, Bradesco was recognized as one of the world’s strongest banks, according to a survey conducted by Bloomberg News. The Bank ranks 13th among 20 financial institutions in the world, and it is the only bona fide Brazilian institution listed in the ranking. Bradesco was also recognized as the “best company for you to start a career,” in the Retention of Young Talents category of Você S/A magazine, in partnership with Fundação Instituto de Administração – FIA. Bradesco was granted the Award for Excellence 2012 by Euromoney magazine in the Best Bank in LatAm and Best Bank in Brazil categories. The Bank was also granted the Deals of the Year Awards from Latin Finance magazine and the “Best Investor Relations of the Financial Sector” award, promoted by IR magazine, RI magazine and the Brazilian Institute of Investor Relations (IBRI).

 

Main subsidiaries

The following is a simplified chart of our principal subsidiaries in the financial and insurance services businesses and our voting and ownership interest in each of them as of December 31, 2012 (all of which are consolidated in our financial statements in "Item 18. Financial Statements"). With the exception of Banco Bradesco Argentina, which was incorporated in Argentina, all of these principal subsidiaries were incorporated in Brazil. For more information regarding the consolidation of our principal subsidiaries, see Note 2a to our consolidated financial statements in "Item 18. Financial Statements."

 

26 Form 20-F – December 2012

 
 

table of contents

Form 20-F

 

 

 

Bradesco 27

 


 
 

table of contents

Form 20-F
 

Revenues per business segment

The following table summarizes our main gross revenues by segment for the periods indicated.

 

Years Ended December 31,

R$ in thousands

2012

2011

2010

Banking

 

 

 

Loans and advances (1)

54,433,883

52,890,045

43,574,580

Fees and commissions

13,885,450

11,989,868

10,450,714

Insurance and pension plans

 

 

 

Premiums retained from insurance and pension plans

40,176,745

34,315,543

27,994,116

(1) Includes industrial loans, financing under credit cards, overdraft loans, trade financing and foreign loans.

 

For further details of our segments, see "Item 5.A. Operating  Results" and Note of our consolidated financial statements in "Item 18. Financial Statements."

We do not break down our revenues by geographic regions within Brazil, and less than 10.0% of our revenues come from international operations. For more information on our international operations, see "International banking services."

 

28 Form 20-F – December 2012

 


 
 

table of contents

Form 20-F

Banking

We have a diverse customer base that includes individuals and small, midsized and large companies in Brazil. Historically, we have cultivated a stronger presence among the broadest segment of the Brazilian market, middle- and low-income individuals. In 1999, we set up our corporate department to serve corporate customers with annual revenues of R$250 million or more, and our private banking department to serve our individual customers with minimum net assets of R$3 million. In 2002, we created Bradesco Empresas (Middle Market) to cater for corporate customers with annual revenues of R$30 to R$250 million, in other to expand our business in the middle corporate market. In 2003, we launched Bradesco Prime, which offers services to individual customers who either have a monthly income of at least R$9,000 or R$100,000 available for immediate investment. Bradesco Varejo is our division for corporate customers with annual revenues of less than R$30 million and individual customers with monthly income of less than R$9,000. For more information, see "Distribution channels" and "Specialized distribution of products and services."

The following diagram shows the breakdown of our banking activities as of December 31, 2012:

 

 

 

Bradesco 29

 
 

table of contents

Form 20-F
 

The following table shows selected financial data for our banking segment for the periods indicated:

 

Year ended December 31,

R$ in thousands

2012

2011

2010

Statement of Income data

 

 

 

Net interest income

39,181,426 

31,379,722 

28,223,501 

Impairment of loans and advances

(10,925,404)

(9,275,421)

(6,354,670)

Other income/(expenses) (1)

(20,301,375)

(13,063,262)

(12,497,956)

Income before income taxes

7,954,647 

9,041,039 

9,370,875 

Income and social contribution taxes

(273,930)

(1,305,702)

(2,416,284)

Net income for the year

7,680,717 

7,735,337 

6,954,591 

Net income attributable to controlling shareholders

7,672,233 

7,724,917 

6,943,764 

Net income attributable to non-controlling interest

8,484 

10,420 

10,827 

Statement of Financial Position data

 

 

 

Total assets

750,410,472 

657,903,426 

548,664,554 

Selected results of operations data

 

 

 

Interest and similar income

 

 

 

Loans and advances to banks

6,758,555 

8,469,093 

6,759,299 

Loans and advances to customers

47,675,328 

44,420,954 

36,815,282 

Financial assets

17,013,594 

15,913,414 

9,828,935 

Compulsory deposits with the Central Bank

3,808,229 

6,112,337 

2,869,307 

Other financial interest income

37,540 

40,774 

35,707 

Interest and similar expenses

 

 

 

Deposits from banks

(18,563,193)

(23,215,922)

(14,065,917)

Deposits from customers

(11,224,649)

(14,974,545)

(11,296,932)

Funds from securities issued

(3,439,647)

(2,598,702)

(699,640)

Subordinated debt

(2,884,331)

(2,787,681)

(2,022,540)

Net interest income

39,181,426 

31,379,722 

28,223,501 

Net fee and commission income

13,885,450 

11,989,868 

10,450,714 

Note: Data presented above includes income from related parties of other segments before elimination.

(1) For additional information, see "Item 5.A. Operational Results".

 

We have a segmented customer base and we offer the following range of banking products and services in order to meet the needs of each segment:

·      deposit-taking with clients, including checking accounts, savings accounts and time deposits;

·      loans and advances (individuals and companies, real estate financing, microcredit, onlending BNDES funds, rural credit, leasing, among others);

·      credit cards, debit cards and pre-paid cards;

·      management of receipts and payments;

·      asset management;

·      services related to capital markets and investment banking activities;

·      intermediation and trading services;

·      custody, depositary and controllership services;

·      international banking services; and

·      purchasing consortiums.

 

30 Form 20-F – December 2012

 
 

table of contents

Form 20-F

Deposit-taking with clients

We offer a variety of deposit products and services to our customers through our branches, including:

·      Non-interest-bearing checking accounts, such as:

- Easy Account (Conta Fácil) – customers have a checking account and a savings account under the same bank account number, using the same card for both accounts;

- Click Account (Click Conta – no-fee checking account for minors (from 11 to 17 years old), with exclusive website and debit card, automatic pocket money service and free online courses, among other benefits;

- Academic Account (Conta Universitária) – low fee checking account for college students, with subsidized credit conditions, exclusive website and free online courses, among other benefits; and

- Cell Phone Bonus Account (Conta Bônus Celular) – monthly checking account fees are awarded as bonus for the customers’ prepaid cell phone.

·      traditional savings accounts, which currently earn the Brazilian reference rate, or taxa referencial, known as the "TR," plus 6.2% annual interest in the case the SELIC rate is higher than 8.5% per annum or TR plus 70% of the SELIC rate if the SELIC rate is lower than 8.5% per annum

·      time deposits, which are represented by Bank Deposit Certificates (certificados de depósito bancário – or "CDBs"), and earn interest at a fixed or floating rate; and

·      deposits exclusively from financial institutions, which are represented by Interbank Deposit Certificates (certificados de depósito interbancário – or "CDIs"), and earn the interbank deposit rate.

 

As of December 31, 2012, we had 25.7 million checking account holders, 24.2 million of which were individual account holders and 1.5 million corporate account holders. As of the same date, we had 48.6 million savings accounts.

The following table shows a breakdown of our deposits by type of product on the dates indicated:

 

December 31,

R$ in thousands, except %

2012

2011

2010

Deposits from customers

 

 

 

 

 

 

Demand deposits

37,684,126

17.9%

32,535,978

15.0%

35,775,239

18.6%

Reais

37,216,483

17.7%

32,090,220

14.8%

35,389,537

18.4%

Foreign currency

467,643

0.2%

445,758

0.2%

385,702

0.2%

Savings deposits

69,041,721

32.8%

59,656,319

27.6%

53,435,652

27.8%

Reais

69,041,721

32.8%

59,656,319

27.6%

53,435,652

27.8%

Time deposits

104,045,463

49.4%

124,128,641

57.4%

102,157,837

53.1%

Reais

80,846,398

38.4%

104,114,818

48.1%

94,723,153

49.2%

Foreign currency

23,199,065

11.0%

20,013,823

9.3%

7,434,684

3.9%

Total deposits from customers

210,771,310

100.0%

216,320,938

100.0%

191,368,728

99.4%

Others

-

-

-

-

1,107,220

0.6%

Total  

210,771,310

100.0%

216,320,938

100.0%

192,475,948

100.0%

 

 

Bradesco 31

 
 

table of contents

Form 20-F
 

We offer our customers certain additional services, such as:

·      "identified deposits," which allow our customers to identify deposits made in favor of a third party by using a personal identification number; and

·      real-time "banking transfers" from a checking or savings account to another checking or savings account, including accounts at other banks.

 

Loans and advances to customers

The following table shows loans and advances to customers in Brazil broken down by type of product and period:

 

December 31,

R$ in thousands

2012

2011

2010

Loans and advances to individuals outstanding by type of operation

 

 

 

Other loans and advances to individuals

69,096,406

58,014,635

48,769,011

Housing loans

22,302,967

15,930,568

10,186,535

Onlending BNDES/Finame

35,703,861

35,398,656

29,554,340

Other corporate loans and advances

91,079,090

85,760,876

71,611,871

Rural loans

11,580,061

11,036,251

10,179,753

Leasing

8,035,454

11,550,838

16,365,943

Credit cards

22,646,420

20,252,191

18,474,095

Import and export financings

29,245,863

25,577,600

20,494,370

Total

289,690,122

263,521,615

225,635,918

 

The following table summarizes concentration for our outstanding loans and advances to customers by borrower on the dates shown

 

December 31,

2012

2011

2010

Borrower size

 

 

 

Largest borrower

0.9%

0.9%

1.2%

10 largest borrowers

5.2%

5.2%

5.8%

20 largest borrowers

8.1%

8.6%

9.1%

50 largest borrowers

12.9%

14.0%

14.6%

100 largest borrowers

16.9%

18.1%

18.5%

 

Our loans and advances to customers, mostly consumer credit, corporate and agricultural-sector loans, totaled R$289.7 billion as of December 31, 2012

 

Loans and advances to consumers

Our significant volume of individual loans enables us to avoid concentration on any individual loans on the performance of our portfolio and helps build customer loyalty. They consist primarily of:

·      short-term loans, extended through our branches to checking account holders and, within certain limits, through our ATM network. These short-term loans are on average repaid in four months with an average interest rate of 6.6% per month as of December 31, 2012;

·      vehicle financings are on average repaid in fifteen months with an average interest rate of 1.3% per month as of December 31, 2012; and

·      overdraft loans on checking accounts (or "Cheque Especial"), which are on average repaid in one month, at interest rates varying from 8.1% to 8.8% per month as of December 31, 2012.

 

32 Form 20-F – December 2012

 
 

table of contents

Form 20-F

We also provide revolving credit facilities and traditional term loans. As of December 31, 2012, we had outstanding advances, vehicle financings, consumer loans and revolving credit totaling R$69.1 billion, or 23.9% of our portfolio of loans and advances as of that date. On the basis of loans outstanding on that date, we had a 12.9% share of the Brazilian consumer loan market, according to information published by the Central Bank.

Banco Bradesco Financiamentos ("Bradesco Financiamentos") offers direct-to-consumer credit and leasing for the acquisition of vehicles and payroll-deductible loans to the public and private sectors in Brazil.

Together with BF Promotora de Vendas Ltda. ("BF Promotora"), under the "Bradesco Financiamentos" brand, we offer financing and/or leasing for vehicles through our extensive network of correspondents in Brazil, which includes retailers and dealers of light vehicles, trucks and motorcycles.

Under the “Bradesco Promotora” brand, we offer payroll-deductible loans to social security retirees and pensioners, public-sector employees, military personnel and private-sector companies sponsoring plans, and other aggregated products (insurance, capitalization bonds, cards, purchasing consortiums, and others).

 

Real estate financing

As of December 31, 2012, we had 69,857 outstanding real estate loans. We reached a 35.1% market share of units financed through loans granted to real estate developers and builders by financial entities, according to data provided by the Central Bank. As of December 31, 2012, the aggregate outstanding amount of our real estate loans amounted to R$22.3 billion, representing 7.7% of our portfolio of loans and advances.

Real estate financing is made through the Housing Finance System – SFH (Sistema Financeiro Habitacional), by the Housing Mortgage Portfolio – CHH (Carteira Hipotecária Habitacional) or by the Commercial Mortgage Portfolio – CHC  (Carteira Hipotecária Comercial). Loans from SFH or CHH feature variable-installment repayments and annual interest rates ranging from 8.9% to 11.0% plus TR, or 13.0% from CHC.

Residential SFH and CHH loans are to be repaid within 30 years and commercial loans within 10 years.

Our individual loans made for construction purposes are repaid within 360 months, with 24 months to completion of construction, a 2-month grace period and the remainder for repaying the loan. Payments are made at the interest rate of 10.5% per annum plus TR variation for real estate falling into the SFH rules, or interest rates of 11.0% per annum plus TR variation for real estate falling into the CHH

We also extend corporate financing for builders under the SFH. These loans are for construction purposes and typically specify 36 months for completion of construction work and repayments starting within 36 months after official registration of the building. These loans are charged the TR plus an annual interest rate of 12 to 13% during the construction stage for SFH loans, and TR plus an annual interest rate of 14% for CHH loans.

Central Bank regulations require us to provide real estate financing in the amount of at least 65% of the balance of our savings accounts. In addition to real estate financing, mortgage notes, charged-off real estate financing, and other financings can be used to satisfy this requirement. We generally do not finance more than 80% of the purchase price or the market value of a property, whichever is lower.

In November and December 2012, the Central Bank authorized and defined the conditions for the issuance  of real estate credit notes through Investment banks.

 

Microcredit

We extend microcredit to low-income individuals and small companies, in accordance with Central Bank regulations requiring banks to use 2% of their cash deposits to provide microcredit loans. We started providing microcredit loans in August 2003. As of December 31, 2012, we had 83,778  microcredit loans outstanding, totaling R$80.3 million. 

In accordance with Central Bank regulations, most microcredit loans are charged at a maximum effective interest rate of 2% per month. However, microcredit loans for certain types of business or specific production have a maximum effective interest rate of 4% per month. The CMN requires that the maximum amount loaned to a borrower be limited to (i) R$2,000 for individuals in general, (ii) R$5,000 for individuals developing certain professional, commercial or industrial activities or for micro companies, and (iii) R$40,000 for microcredit loans in certain segments. In addition, microcredit loans must be not for less than 120 days, and the origination fee must be 2.0% to 3.0% of the loan value.

     

 

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Form 20-F

 

 

BNDES onlending

The Brazilian government has a program to provide government-funded long-term loans with below-market interest rates to sectors of the economy that it has targeted for development. We borrow funds under this program from either (i) BNDES, the federal government’s development bank, or (ii) Agência Especial de Financiamento Industrial (Finame), or "Finame," the equipment financing subsidiary of BNDES. We then on-lend these funds to borrowers in targeted sectors of the economy. We determine the spread on the loans based on the borrowers' credit. Although we bear the risk for these BNDES and Finame onlending transactions, they are always secured.

According to BNDES, we disbursed R$12.4 billion, 67.6% of which was loaned to micro, small and medium-sized companies in 2012. Our BNDES onlending portfolio totaled R$35.7 billion as of December 31, 2012, and accounted for 12.3% of our portfolio of loans and advances at that date.

 

Other local commercial loans

We provide traditional loans for the ongoing needs of our corporate customers. We had R$91.1 billion of outstanding other local commercial loans, accounting for 31.4% of our portfolio of loans and advances as of December 31, 2012. We offer a range of loans to our Brazilian corporate customers, including:

·      short-term loans of 29 days or less;

·      working capital loans to cover our customers' cash needs;

·      guaranteed checking accounts and corporate overdraft loans;

·      discounting trade receivables, promissory notes, checks, credit card and supplier receivables, and a number of other receivables;

·      financing for purchase and sale of goods and services;

·      corporate real estate financing;

·      investment lines for acquisition of assets and machinery; and

·      guarantees. 

 

These lending products generally bear an interest rate of 0.8% to 8.3% per month.

 

Rural loans

We extend loans to the agricultural sector by financing demand deposits, BNDES onlendings and our own funds, in accordance with Central Bank regulations. As of December 31, 2012, we had R$11.6 billion in outstanding rural loans, representing 4.0% of our portfolio of loans and advances. In accordance with Central Bank regulations, loans arising from compulsory deposits are paid a fixed rate. The annual fixed rate was 5.5% as of December 31, 2012. Repayment of these loans generally coincides with agricultural harvest and principal is due when a crop is sold, except for BNDES onlending for rural investment which is repaid within five years with repayments on a semi-annual or annual basis. As security for such loans, we generally obtain a mortgage on the land where the agricultural activities being financed are conducted.

Since July 2012, Central Bank regulations require us to use at least 34% of the annual average (from June through May) of our checking account deposits to provide loans to the agricultural sector. By the end of June, if we do not reach 34%, we must deposit the unused amount in a non-interest-bearing account with the Central Bank or pay a penalty of 40% of this amount.

 

Leasing

According to ABEL, as of December 31, 2012, our leasing companies were among the sector leaders, with a 19.5% market share. According to this source, the aggregate discounted present value of the leasing portfolios in Brazil as of December 31, 2012 was R$41.3 billion.

 

 

34 Form 20-F – December 2012

 
 

table of contents

Form 20-F

As of December 31, 2012, we had 319,721 outstanding leasing agreements totaling R$8.0 billion, representing 2.8% of our portfolio of loans and advances.

The Brazilian leasing market is dominated by large banks and both domestic- and foreign-owned companies affiliated with vehicle manufacturers. Brazilian lease contracts generally relate to motor vehicles, computers, industrial machinery and other equipment.

Most of our leases are financial (as opposed to operational). Our leasing operations primarily involve the leasing of trucks, cranes, aircraft and heavy machinery. As of December 31, 2012, 66.8% of our outstanding leases were vehicle leases, compared with 56.7% in the Brazilian leasing market as a whole.

We conduct our leasing operations through our primary leasing subsidiary, Bradesco Leasing and also through Bradesco Financiamentos.

We obtain funding for our leasing operations primarily by issuing debentures and other securities in the domestic market.

As of December 31, 2012, Bradesco Leasing had R$67.7 billion of debentures outstanding in the domestic market. These debentures will mature in 2028 and bear monthly interests at the interbank interest rate (“CDI rate”).

 

Terms of leasing agreements

Financial leases represent a source of medium and long-term financing for Brazilian customers. Under Brazilian law, the minimum term of financial leasing contracts is 24 months for transactions relating to products whose average life of five years or less, and 36 months for transactions for those with an average useful life of five years or more. There is no legal maximum term for leasing contracts. As of December 31, 2012, the remaining average maturity of contracts in our lease portfolio was approximately 51 months.

 

Credit cards

In 1968, Bradesco was the first bank to issue credit cards in Brazil, and as of December 31, 2012, we were one of Brazil's largest card issuers with a base of 93.1 million credit and private-label cards. We offer Visa, American Express, Elo, MasterCard credit and private label cards, which are accepted in over 200 countries.

We signed an agreement with Claro  (mobile network operator) to operate in the mobile payment segment (M-Payment). Among other  initiatives, we and Claro launched the virtual wallet (prepaid card operated via mobile phone) and the use of NFC (Near Field Communication) technology in transactions via mobile phone. In December 2012, we started to issue debit cards with NFC technology for the Prime Segment customers, in addition to announcing the development of the same NFC technology for mobile phones.

We earn revenues from our credit card operations through:

·      fees on purchases carried out in commercial establishments;

·      issuance fees and annual fees;

·      interest on credit card balances;

·      interest and fees on cash withdrawals through ATMs; and

·      interest on cash advances to cover future payments owed to establishments that accept credit cards.

 

We offer our customers the most complete line of credit cards and related services, including:

·      cards issued for use restricted to Brazil;

·      credit cards accepted nationwide and internationally;

·      credit cards directed toward high net worth customers, such as Gold, Platinum and Infinite/Black from Visa, American Express and MasterCard brands

 

 

Bradesco 35

 
 

table of contents

Form 20-F
 

·      cards that combine credit and debit features in a single card, which may be used for traditional banking transactions and shopping;

·      corporate credit cards accepted nationwide and internationally;

·      co-branded credit cards, which we offer through partnerships with companies;

·      "affinity" credit cards, which we offer through associations, such as sport clubs and non-governmental organizations;

·      "CredMais" credit cards for employees of our payroll processing customers, which have more attractive revolving credit fees, and "CredMais INSS" credit cards for INSS pensioners and other beneficiaries with lower financing interest rates;

·      private label credit cards, which we only offer to customers of retailers, designed to increase business and build customer loyalty for the corresponding retailer, which may or may not have a restriction on making purchases elsewhere;

·        “CPB” and “EBTA,” virtual cards for corporate customers with the management and control of airline ticket expenses;

·      Bradesco’s card for transportation companies, shippers, risk management companies and truck drivers, with both prepaid and debit card functionalities;

·      "Contactless," which enable customers to simply place the card next a scanner to make a payment;

·      "MoneyCard – Visa Travel Money and Global Travel Card" are prepaid international cards designed for foreign currency transactions, which target international travel;

·      “Agrocard Bradesco” – created for farmers and combines the features of a credit card and a debit card. Holders of these cards can use them to buy farm products in stores authorized by Cielo

·      “Corporate Mastercard Black card” –created for executives offering exclusive services including  Priority Pass, which provides  access to more than 600 VIP lounges  in airports, and Showpass, which facilitates the purchase of theatre tickets and promotions through Plataforma  Black

·      “Prepax Presente prepaid cards” – issued by Alelo, which is a pre‑loaded card which can be given as a gift to individuals

·        “Elo Food, Meal and Christmas Meal benefit cards” – in addition to reducing operating costs, the value proposal of this business is to enhance the efficiency of payment means, with 100% of virtual transactions, by offering more security and convenience to companies and workers; and

·      Utility Bills and Taxes Payment Services (via bar code) by way of the credit card option, in the internet banking channel. With this service, customers have up to 40 days to concentrate the payment of bills on a single date and also generate points/credits to the Rewards Programs they have with their Bradesco Cards.

 

As of December 31, 2012, we had more than 62 partners with whom we offered co-branded, affinity and private label/hybrid credit cards. These relationships have allowed us to integrate our relationships with our customers and offer our credit card customers banking products, such as financing and insurance.

The following table shows all types of credit cards we issued in Brazil for the years indicated:

 

 

In millions

2012

2011

2010

Card base

 

 

 

Credit

93.1

91.3

86.5

Revenue – R$

 

 

 

Credit

103,542.5

89,624.1

75,561.0

Number of transactions

 

 

 

Credit

1,225.6

1,105.8

959.1

 

 

36 Form 20-F – December 2012

 
 

table of contents

Form 20-F

 

Debit cards

We first issued debit cards in 1981 under the name "Bradesco Instantâneo." In 1999, we started converting all of our Bradesco Instantâneo debit cards into new cards called "Bradesco Visa Electron." Bradesco debit cardholders can use them to purchase goods and services at establishments or make withdrawals through our self-service network in Brazil or the "Plus" network worldwide. Purchase amounts are debited to the cardholder's Bradesco account, thus eliminating the inconvenience and bureaucracy of writing checks.

 

Cash Management Solutions

Management of receipts and payments

In order to meet the cash management needs of our customers in both public and private sectors, we offer many electronic solutions for receipt and payment management, supported by a vast network of branches, bank correspondents and electronic channels, all of which aim to improve speed and security for customer data and transactions.

These solutions include: (i) collection and payment services and (ii) online resource management enabling our customers to pay suppliers, salaries, and taxes and other levies to governmental or public entities.

These solutions, which can also be customized, facilitate our customers' day-to-day tasks and help to generate more business.

We also earn revenues from fees and investments related to collection and payment processing services and, also by funds in transit received up to its availability to the related recipients.

 

Global Cash Management

Global Cash Management aims at structuring solutions to foreign companies operating in the Brazilian market and Brazilian companies making business in the international market. By way of customized solutions, partnerships with international banks and access to the SWIFT network, we offer products and services for carrying out the cash management of these companies.

 

Solutions for receipts and payments

In 2012, we processed 857 million receipts through our collection system, checks custody service, identified deposits and credit orders via our teleprocessing system (credit order by teleprocessing or OCT), which was 8.6% more than in the same period of 2011.

In 2012 the volume processed through virtual means (Pag-For Bradesco, Net Empresa and Online Tax Payment) was 545 million documents, which represented a 20.9% increase as compared to the same period of 2011.

 

Production chain solutions

The Production Chain area seeks  to search for customized solutions for our clients, tailored to the characteristics of each sector and economic activity. The purpose of this operation is to facilitate  the relationship and interconnection among all production chain elements – anchor companies, their customers, suppliers, distributors, service providers, and employees, among others. Accordingly, it is possible to expand the client base, increase business volume and strengthen the client's loyalty to the Bank, by way of structured and driven actions.

 

Franchising solutions

The Franchising area seeks to search for customized solutions driven to the characteristics and needs of the Brazilian franchising sector (franchisers and franchisees). The purpose of this operation is the centralized servicing to all franchisees of the networks accredited to the Bank, thus improving the number of customers and the business volume in this significant sector of the Brazilian economy.

 

 

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Form 20-F
 
Public authority solutions

Public administration also requires agility and technology in its everyday activities. We have a business area specifically to serve this market, which offers specialized services to entities and bodies of the Executive, Legislative and Judiciary branches at federal, state and municipal levels, in addition to independent governmental agencies, public foundations, state-owned and mixed companies, the armed forces (army, navy and air force) and the auxiliary forces (federal and state police forces) and notary officers and registrars, identifying business opportunities and structuring customized solutions.

Our exclusive website developed for these customers (www.bradescopoderpublico.com.br) poses corporate solutions for federal, state and municipal governments for payments, receipts, human resources and treasury services, meeting the needs and expectations of the Executive, Legislative and Judiciary branches. The portal also features exclusive facilities for public employees and the military showing all of our products and services for these customers.

The relationship works through exclusive service platforms located nationwide, with specialized relationship managers to provide services to these customers.

In 2012 the Bank took part in bidding processes sponsored by the Brazilian Government and was successful in over 90% of these processes. Furthermore, we became leaders in payments of INSS (Social Security National Service) benefits, with approximately 7.3 million retirees and pensioners.

 

Asset management and administration

We administer and manage assets by way of:

·      mutual funds;

·      individual and corporate investment portfolios;

·      pension funds, including assets guaranteeing the technical provisions of Bradesco Vida e Previdência

·      insurance companies, including assets guaranteeing the technical provisions of Bradesco Seguros; and

·      Receivable funds (FIDCs – Fundos de Investimento em Direitos Creditórios), FIIs (Real Estate Investment Funds) and private equity funds (FIPs – Fundos de Investimento em Participações). 

 

On December 31, 2012, we managed 1,373 funds and 231 portfolios, providing services to 3.2 million investors. These funds comprise a wide group of fixed-income, non-fixed income and multimarket funds, among others.

 

 

38 Form 20-F – December 2012

 
 

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Form 20-F

The following tables show our equity of funds and equity of portfolios which are under our management, the number of investors and the number of investment funds and managed portfolios for each period.

 

Distribution of Assets as of December 31,

R$ in thousands

2012

2011

Investment Funds

 

 

Fixed income

369,287,183

283,632,556

Variable income

28,645,545

26,471,324

Third party share funds

8,781,502

6,103,154

Total

406,714,230

316,207,034

Managed Portfolios

 

 

Fixed income

24,573,236

10,549,837

Variable income

9,301,431

7,446,961

Third party share funds

1,242,315

1,166,162

Total

35,116,982

19,162,960

Overall Total

441,831,212

335,369,994

 

 

As of December 31,

2012

2011

Number

Quotaholders

Number

Quotaholders

Investment Funds

1,373

3,159,302

1,319

3,159,749

Managed Portfolios

231

469

240

441

Overall Total

1,604

3,159,771

1,559

3,160,190

 

Total managed assets increased by 31.7% in 2012. This increase was mainly in the “fixed-income” segment, which management fees are lower than those of the “non-fixed-income” segment.

Our products are mostly distributed through our branch network, banking service by phone and the investor website on Internet, the “ShopInvest” (www.shopinvest.com.br). 

 

Services related to the capital market and investment banking activities

As the organization's investment bank, Bradesco BBI originates and executes mergers and acquisitions, and originates, structures, syndicates  and distributes fixed-income and equity capital market transactions in Brazil and abroad.

In 2012, Bradesco BBI advised customers on over 170 transactions across a range of investment banking products, totaling R$155.4 billion.

 

Equities

Bradesco BBI coordinates and places public offerings of shares in the local and international capital markets and intermediates public tender offers. In 2012, Bradesco BBI increased its presence in IPOs and follow-ons onto the market, reaching second place by value of operations, in the ANBIMA ranking of equities. Taking into account the public offerings registered with CVM in 2012, it took part as an underwriter and Joint Bookrunner in: follow-on for Qualicorp in the amount of R$759 million; IPO for Banco BTG Pactual, the largest IPO in Brazil and one of the largest in the world in 2012, in the amount of R$3.2 billion; underwriter and Joint Bookrunner of the IPO for BR Pharma, in the amount of R$553 million; underwriter and Joint Bookrunner of the follow-on for Suzano Celulose e Papel, in the amount of R$1.5 billion; Equatorial Energia, in the amount of R$1.4 billion and Marfrig Alimentos, in the amount of R$1.1 billion

 

Fixed income

With significant transactions carried out, Bradesco BBI closes 2012 with an outstanding presence in the fixed-income segment. In the rankings for the year, it was the leader in terms of value, according to ANBIMA ranking. In 2012, it coordinated 107 domestic-market offerings totaling more than R$46 billion.

     

 

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In the international broker-dealer market, Bradesco BBI is constantly expanding its presence. In 2012, it acted as “Joint Bookrunner” for 14 bond issues, which exceeded the amount of US$12 billion.

 

Structured operations

Bradesco BBI develops structures and solutions to its customers, in terms of financing, by using a number of funding tools by companies, including those involving securitization. Additionally, Bradesco BBI stands out in the acquisition finance segment. Notable examples include the financing by Cosan to acquire Comgás in the amount of R$3.3 billion, and the financing by Intercement to acquire Cimpor in the amount of R$1.5 billion

In 2012, Bradesco BBI held outstanding positions in the ranking published by ANBIMA, in securitization and the issuance of real estate receivables certificates (CRI), when it structured 13 CRIs, in the amount of R$1.3 billion.

Bradesco BBI also coordinated two significant offerings of real estate funds in the capital market, the “BB Progressivo II Fundo de Investimento Imobiliário” and the “FII BTG Pactual Corporate Office Fund” in the amount of R$3.6 billion.  

 

Mergers and acquisitions

Bradesco BBI provides financial advisory services in Brazil and abroad, to Brazilian and foreign customers in mergers, acquisitions, sales of companies and assets, private placements, incorporation of joint ventures, financial and corporate restructurings and privatizations. In 2012 Bradesco BBI consolidated its position as one of main banks in the M&A segment in Brazil, ranking 2nd among the banks which most provide advisory services to mergers and acquisitions in Brazil, according to ANBIMA

 

Project finance

Bradesco BBI offers financial advisory and structuring services to Project and Corporate Finance projects. Bradesco BBI has excellent relationships with various development agencies such as Banco Nacional de Desenvolvimento ("BNDES"), Banco Interamericano de Desenvolvimento ("BID") and International Finance Corporation ("IFC"), also searching for solutions through credit and capital markets in the local and foreign segments.  

In addition to the oil and gas segments, Bradesco BBI operates in the following sectors: electricity generation and transmission, port facilities, mining, and logistics. In 2012 Bradesco BBI took part in the financial advisory and structuring of over 30 projects, which totaled approximately R$60 billion in investments

 

Intermediation and trading services

Bradesco S.A. CTVM (or "Bradesco Corretora") trades stocks, options, stock lending, public offerings and forwards. It also offers a wide range of products such as Brazilian government securities (under the Tesouro Direto program), BM&F trading and real estate funds, which are tailored to the needs of high net-worth individuals, major corporations and institutional investors.

In 2012, Bradesco Corretora traded more than R$86.0 billion in the BM&FBOVESPA equities market and the exchange ranked it 15th in Brazil in terms of total trading volume.

In addition, in the same period, Bradesco Corretora traded 27,412,044 futures, swaps and options totaling R$2,595.0 billion on the BM&FBOVESPA. According to the BM&FBOVESPA, in 2012, Bradesco Corretora ranked 9th in the Brazilian market, in terms of the number of options, futures and swaps contracts executed.

With more than 40 years of tradition and efficiency in capital markets, Bradesco Corretora was also the first in the market to provide its customers with DMA-Direct Market Access. DMA is an innovative computer order routing service that enables investors to buy or sell assets directly in BM&FBovespa's market, with all convenience and security, without leaving home or the office.

In 2012, BM&FBOVESPA, through its Operational Qualification Program, awarded the five Qualification Seals (Agro Broker, Carrying Broker, Execution Broker, Retail Broker and Web Broker) to Bradesco Corretora, indicating excellence in futures transactions.

 

40 Form 20-F – December 2012

 
 

table of contents

Form 20-F
 

Bradesco Corretora offers its clients the possibility to trade securities on the Internet through its "Home Broker" service. In 2012, "Home Broker" trading totaled R$10.5 billion, or 1.9% of all Internet transactions on BM&FBovespa, and Bradesco Corretora was the 15th largest Internet trader in the Brazilian market.

Bradesco Corretora offers its clients a full range of services in investment analysis with coverage of the main sectors and companies of the Brazilian market. With a team of 29 analysts, it is composed of sector specialists (senior and assistant analysts), who fairly disclose their opinions to the customers by way of follow-up reports and instruction guides, with a wide range of projections and comparison multiples. Bradesco Corretora also has a team of its own economists dedicated to the customers' specific demands, focused on the stock market. Over 700 reports, in English and Portuguese, are monthly forwarded to the most important investors domiciled in Brazil, the United States, Europe and Asia.

Through Bradesco Corretora's "Brokerage Rooms Project," our customers have access to professionals that are able to advise on investing in the BM&FBOVESPA. Our constantly-expanding network of brokerage rooms currently consists of 15 of them located throughout Brazil. This means that Bradesco Corretora provides direct customer service and closer relations with customers, training and certifying employees for a range of operations. This channel is very profitable and enjoys a high-level of take-up from investors, making for closer relations with our network of branches as loyal customers concentrate their funds with us.

Bradesco Corretora also offers its services as a representative of non-resident investors for transactions in the financial and capital markets, in accordance with CMN Resolution No. 2,689/00, which we refer to as "Resolution No. 2,689/00." For more details of Resolution No. 2,689/00, see "Item 10.D. Exchange Controls."

 

Custody, depositary and controllership services

In 2012, we were one of the main providers of capital market services and retained leadership in the domestic asset custody market, according to the ANBIMA ranking. Our modern infrastructure and specialized team offer a broad range of services such as: asset registration (shares, BDR - Brazilian Depositary Receipts, investment fund shares, Certificates of Real Estate Receivables or CRIs, and debentures); qualified custody for securities; custody of shares underlying Depositary Receipts (DRs); controllership services for investment funds ("CVM Instruction No. 409" Funds and Structured Funds) and managed portfolios; trustee and management services for investment funds; offshore funds; custody and representation for foreign investors; agent bank; depositary (escrow account - trustee) and clearing agent.

We submit our processes to the Quality Management System ISO 9001:2008 and GoodPriv@cy certifications. Bradesco Custódia alone has 10 quality related and three protection and data privacy certifications.

As of December 31, 2012, Bradesco Custódia offered:

·      Controller and custody services for investment funds and managed portfolios and fiduciary asset management involving:

        R$973.2 billion in assets under custody for customers using custody services, as measured by methodology used for the ANBIMA ranking;

­-        R$1.2 trillion in equity investment funds and portfolios using our controller services, as measured by methodology used for the ANBIMA ranking;

­-        26 registered DR programs with a market value of R$111.1 billion; and

­-        R$251.2 billion total assets under management in investment funds through BEM DTVM.

·      Asset registration:

-­        Bradesco’s share registration system comprised 246 companies, with a total of 4.5 million shareholders;

        our debenture registration system contained 232 companies with a total market value of R$216.0 billion;

 

 

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Form 20-F
 

-­        our fund share registration system contained 268 investment funds with a market value of R$52.8 billion; and

­-        we managed 25 registered BDR programs, with a market value of R$791.8 million.

 

International banking services

As a private commercial bank, we offer a wide range of international services, such as foreign exchange transactions, foreign trade finance, lines of credit and banking. As of December 31, 2012, our international banking services included:

·      New York City, a branch and Bradesco Securities Inc., our subsidiary brokerage firm, or "Bradesco Securities U.S.,” and our subsidiary Bradesco North America LLC, or "Bradesco North America;"

·      London, Bradesco Securities U.K., our subsidiary, or "Bradesco Securities U.K.;"

·      Cayman Islands, two Bradesco branches and our subsidiary, Cidade Capital Markets Ltd., or "Cidade Capital Markets;"

·      Argentina, Banco Bradesco Argentina S.A., our subsidiary, or "Bradesco Argentina;"

·      Luxembourg, Banco Bradesco Europa S.A. (current name of Banco Bradesco Luxemburgo S.A.) our subsidiary, or "Bradesco Europe;"

·      Japan, Bradesco Services Co. Ltd., our subsidiary, or "Bradesco Services Japan;"

·      in Hong Kong, our subsidiary Bradesco Trade Services Ltd, or "Bradesco Trade;" and also Bradesco Securities Hong Kong or “Bradesco Hong Kong;” and

·      in Mexico, our subsidiary Bradescard México, Sociedad de Responsabilidad Limitada, or "Bradescard México."

 

Our international transactions are coordinated by our foreign exchange department in Brazil with support from 29 operational units specializing in foreign exchange businesses located at major exporting and importing areas nationwide.

 

Revenues from Brazilian and foreign operations

The table below breaks down revenues (interest and similar income, and fee and commission income) from our Brazilian and foreign operations for the periods shown:

 

For the years ended December 31,

2012

2011

2010

R$ in thousands

%

R$ in thousands

%

R$ in thousands

%

Brazilian operations

94,384,198

98.3%

91,944,418

98.6%

72,316,384

98.8%

Overseas operations

1,590,704

1.7%

1,291,165

1.4%

877,284

1.2%

Total

95,974,902

100.0%

93,235,583

100.0%

73,193,668

100.0%

 

Foreign branches and subsidiaries

Our foreign branches and subsidiaries are principally engaged in trade finance for Brazilian companies. Bradesco Europe also provides additional services to the private banking segment. With the exception of Bradesco Services Japan and Bradesco Trade Services, our branches abroad are allowed to receive deposits in foreign currency from corporate and individual customers and extend financing to Brazilian and non-Brazilian customers. Total assets of the foreign branches, excluding transactions between related parties, were R$122.1 billion, as of December 31, 2012, denominated in currencies other than the real

Funding required for import and export finance is mainly obtained from the international financial community, through credit lines granted by correspondent banks abroad. As an additional source of funding, we issued debt securities in international capital markets which amounted to US$15.4 billion as of December 31, 2012.

 

42 Form 20-F – December 2012

 
 

table of contents

Form 20-F

Bradesco Argentina – To expand our operations in Latin America, in December 1999, we established our subsidiary in Argentina, Bradesco Argentina, the general purpose of which is to extend financing, largely to Brazilian companies established locally and, to a lesser extent, to Argentinean companies doing business with Brazil. In order to start its operations, we capitalized that subsidiary with R$54.0 million from March 1998 to February 1999, and a further R$27.2 million in May 2007. In October 2011, we made another capital injection in the amount of R$70.1 million. As of December 31, 2012, Bradesco Argentina recorded R$154.5 million of total assets.

Bradesco Europe (Bradesco Luxembourg's current business name) – In April 2002, we acquired full control of Banque Banespa International S.A. in Luxembourg and changed its name to Banco Bradesco Luxembourg S.A. In September 2003, Mercantil Luxembourg was merged into Banco Bradesco Luxembourg and the surviving entity was named Banco Bradesco Luxembourg. In January 2011, we made a capital injection of US$200 million. As of December 31, 2012, its total assets were  R$4.4 billion.

Bradesco Services Japan – In October 2001, we incorporated Bradesco Services Japan to provide support and specialized services to the Brazilian community in Japan, including remittances to Brazil and advice regarding investments within Brazil. As of December 31, 2012, its assets totaled over R$1.5 million.

Bradesco Trade Services – A non-financial institution and a subsidiary of our branch in the Cayman Islands, which we incorporated in Hong Kong in January 2007, in partnership with the local Standard Chartered Bank.

Bradesco Securities (U.S., U.K. and H.K.) – Bradesco Securities, our wholly owned subsidiary, is a broker dealer in the United States, England and Hong Kong:

·      The focus of Bradesco Securities U.S. is on facilitating the purchase and sale of shares, primarily in the form of ADRs and common shares ADRs. It is also an authorized dealer in bonds, commercial paper and deposit certificates, among other securities, and may provide investment advisory services. Currently, we act as custodian for 21 ADR programs of Brazilian companies traded on the New York Stock Exchange. As of December 31, 2012, Bradesco Securities U.S. had assets of R$58.7 million;

·      Bradesco Securities U.K. focuses on the intermediation of equities and fixed income operations in the primary and secondary markets for companies needing to access international capital markets; it also operates in the distribution of BRAM (Bradesco Asset Management) funds in the European market. On December 31, 2012, Bradesco Securities U.K. had assets of R$16.2 million; and

·      Bradesco Securities H.K. focuses on the trading of ADRs and public and private securities issued by Brazilian companies to global institutional investors. On December 31, 2012, Bradesco Securities H.K. had assets of R$9.1 million.

Cidade Capital Markets – In February 2002, Bradesco acquired Cidade Capital Markets in Grand Cayman, due to the acquisition of its parent company in Brazil, Banco Cidade. As of December 31, 2012, Cidade Capital Markets had R$79.9 million in assets.

Bradesco North America LLC was incorporated in August 2011 and will be used as a holding company focused on Bradesco's investments in non-bank businesses in the United States. As of December 31, 2012, its total assets was R$7.3 million.

 

Banking operations in the United States

In January 2004, the United States Federal Reserve Bank authorized us to operate as a financial holding company in the United States. As a result, we may do business in the United States directly or through a subsidiary, and, among other lines, may sell insurance products and certificates of deposit, provide underwriting services, act as advisors on private placements, provide portfolio management and merchant banking services and manage mutual fund portfolios.

 

Import and export finance

Our Brazilian foreign-trade related business consists of export and import finance.

We provide foreign currency payments directly to foreign exporters on behalf of Brazilian importers, which are linked to the receipt of local currency payments  by the importers. In export finance, exporters obtain advances in reais  on closing an export forex contract for future receipt of foreign currency on the contract due date. Export finance arrangements prior to shipment of goods are known locally as Advances on Exchange Contracts or "ACCs," and the sums advanced are used to manufacture goods or provide services for export. If advances are paid after goods or services have been delivered, they are referred to as Advances on Export Contracts, or "ACEs."

     

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Form 20-F

 

Other types of export finance include export prepayments, onlendings from BNDES-EXIM funds, export credit notes and bills (referred to locally as "NCEs" and "CCEs"), and the PROEX rate equalization program.

Our foreign trade portfolio is funded primarily by credit lines from correspondent banks. We maintain relations with various American, European, Asian and Latin American financial institutions for this purpose, using our network of approximately 1,000 correspondent banks abroad, 74 of which extended lines of credit as of December 31, 2012.

As of December 31, 2012, our international unit had a balance of R$28.0 billion in export financing and R$8.2 billion in import financing and international finance.The volume of our foreign exchange contracts for exports reached US$45.2 billion in 2012. In the same period, the volume of our foreign exchange contracts for imports reached US$35.2 billion. In 2012, based on Central Bank data, we reached a 19.2% market share of trade finance for Brazilian exports and 16.4% for imports.

The following table shows the composition of our foreign trade asset portfolio as of December 31, 2012:

 

2012

R$ in thousands

Export financing

 

Advance on foreign exchange contracts – undelivered bills

5,999,882

Advance on foreign exchange contracts – delivered bills

1,020,377

Export prepayment

10,431,892

Onlending of funds borrowed from BNDES/EXIM

3,865,601

Proex - Rate Equalization Program

1,083,352

NCE/CCE (Exports Credit Note/Exports Credit Certificates)

5,586,677

Total export financing  

27,987,781

Import financing

 

Import financing – foreign currency

4,431,947

Exchange discounted in advance for import credit

2,126,981

Import credit opened

1,609,757

Total import financing  

8,168,685

International financing

1,096,451

Total foreign trade portfolio  

37,252,917

 

Foreign exchange products

In addition to import and export finance, our customers have access to a range of services and foreign exchange products such as:

·      purchasing and selling travelers checks and foreign currency paper money;

·      cross border money transfers;

·      advance payment for exports;

·      accounts abroad in foreign currency;

·      domestic currency accounts for foreign domiciled customers;

·      cash holding in other countries;

·      collecting import and export receivables;

·      cashing checks denominated in foreign currency;

·      foreign loans to customers (Decree-Law No. 4,131/62);

 

 

44 Form 20-F – December 2012

 
 

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Form 20-F

·      service agreements – receiving funds from individuals abroad via money orders;

·      prepaid cards with foreign currency (individuals);

·      structured foreign currency transactions through our foreign units; and

·      international financial clearance certificate

 

Purchasing consortiums

In Brazil, persons or entities that wish to acquire certain goods may set up a group known as a "consortium," in which members pool their resources to facilitate the purchase of certain consumer goods. The purpose of a consortium is solely the acquisition of goods, as  Brazilian law prohibits  the formation of consortia  for investment purposes.

Our purchasing consortium company (Bradesco Consórcios) manages plans for groups of purchasers buying real estate, automobiles and trucks or tractors. In 2003, our subsidiary Bradesco Consórcios initiated the sale of consortium quotas, to our customers. According to the Central Bank, in 2004, Bradesco Consórcios became the leader in the real estate segment and, in December 2004, it also became the leader in the automobile segment. In 2008, Bradesco Consórcios became the leader in the truck and tractor segment. As of December 31, 2012, Bradesco Consórcios registered total sales of over 736,202 active quotas in the three segments, with total revenues of over R$29.7 billion and net income of R$387.7 million.

 

Insurance, pension plans and capitalization bonds

The following diagram shows the principal elements of our insurance, pension plans and capitalization bonds segment as of December 31, 2012:

 

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Form 20-F
 

The following table shows selected financial data for our insurance, pension plans and capitalization bonds segment for the periods indicated.

 

As of and for the year ended December 31,

R$ in thousands

2012

2011

2010

Statement of Income data

 

 

 

Net interest income

3,124,512 

3,274,715 

2,823,860 

Other income and expenses (1)

2,725,672 

1,905,577 

1,930,852 

Income before income taxes

5,850,184 

5,180,292 

4,754,712 

Income and social contribution taxes

(2,196,399)

(1,850,139)

(1,771,955)

Net income for the year

3,653,785 

3,330,153 

2,982,757 

Net income attributable to controlling interest

3,591,743 

3,201,449 

2,912,981 

Net income attributable to non-controlling interest

62,042 

128,704 

69,776 

Statement of Financial Position data

 

 

 

Total assets

153,695,571 

123,867,399 

105,026,136 

Selected results of operations data

 

 

 

Income from insurance and pension plans

 

 

 

Written premiums

37,899,360 

32,136,300 

26,136,471 

Pension plan contributions

3,273,485 

3,061,682 

2,541,130 

Coinsurance premiums ceded

(198,281)

(190,724)

(127,307)

Premiums returned

(500,468)

(418,791)

(362,060)

Reinsurance premiums

(297,351)

(272,924)

(194,118)

Premiums retained from insurance and pension plans

40,176,745 

34,315,543 

27,994,116 

Changes in the insurance technical provisions and pension plans

(23,326,101)

(18,212,405)

(14,294,977)

Retained claims

(13,123,833)

(11,168,612)

(9,577,429)

Selling expenses for insurance and pension plans

(2,314,815)

(1,859,208)

(1,567,344)

Income from insurance and pension plans

1,411,996 

3,075,318 

2,554,366 

Note: Data presented above include income from related parties outside the segment.

(1) For additional information, see "Item 5.A. Operational Results".

 

Insurance products and services

We offer insurance products through a number of different entities, which we refer to collectively as "Grupo Bradesco Seguros." Grupo Bradesco Seguros is the largest insurance group in Brazil by total revenues and technical provisions, according to data published by SUSEP and ANS, providing a wide range of insurance products for both individuals and corporate customers. Products include health, life, personal accident, automobile insurance and  insurance for other assets.

 

Life and personal accident insurance

We offer life and personal accident insurance, as well as insurance against miscellaneous events, such as job loss, through our subsidiary Bradesco Vida e Previdência. As of December 31, 2012, there were 23.5 million life insurance policyholders.

 

Health insurance

The health insurance policies cover medical/hospital expenses. We offer health insurance policies through Bradesco Saúde and its subsidiaries for small, medium or large companies wishing to provide benefits for their staff.

On December 31, 2012, Bradesco Saúde and its subsidiary Mediservice Administradora de Planos de Saúde S.A (“Mediservice”) had more than 3.9 million beneficiaries covered by company plans and individual/family plans. Approximately 57 thousand companies in Brazil pay into plans provided by Bradesco Saúde and its subsidiaries, including 50 of the top 100.

Bradesco Saúde currently has one of the largest networks of providers of health services in Brazil. As of December 31, 2012, it included 9,475 laboratories, 12,163 specialized clinics, 14,445 physicians, 2,552 hospitals located throughout the country.

 

46 Form 20-F – December 2012

 
 

table of contents

Form 20-F

 

Automobiles, property/casualty and liability insurance

We provide automobile, property/casualty and liability insurance  through our subsidiary Bradesco Auto/RE. Our automobile insurance covers losses arising for  vehicle theft damage to the passenger and third-party injury. Retail property/casualty insurance is for individuals, particularly those with residential and/or equipment related risks and small- and medium-sized companies whose assets are covered by multi-risk business insurance.

Of the mass property/casualty lines for individuals, our residential note ("Bilhete Residencial") is a relatively affordable and highly profitable product. For corporate customers, Bradesco Auto/RE offers Bradesco Seguro Empresarial (business insurance), which is adapted to meet our customers' and business needs. For corporate property/casualty and liability insurance, Bradesco Auto/RE has an exclusive highly specialized team that provides large business groups with services and products tailor-made to the specific needs of each policyholder. Top sellers in this segment are insurance policies for transportation, engineering, operational and oil risks.

As of December 31, 2012, Bradesco Auto/RE had 1.6 million insured automobiles and 2.3 million property/casualty policies and notes, making it one of Brazil’s main insurers.

 

Other Information

Sales of insurance products

We sell our insurance products through brokers in our branch network and through non-exclusive brokers throughout Brazil. Bradesco Seguros pays brokers' fees on a commission basis. As of December 31, 2012, 32,077 brokers publically offered our insurance policies. We also offer certain automobile, health, and property/casualty insurance products directly through our website.

 

Pricing

The pricing for collective health insurance policies in Brazil is based on historical data relating to (i) medical, hospital and dental care costs, as well as (ii) frequency of utilization per procedure. Actuarial studies for pricing health insurance also take into consideration the distribution and frequency of claims by age brackets of the insured population and by geographical area, along with the insurance coefficients adopted in accordance with best actuarial practices.

The pricing of life insurance is usually based on life expectancy statistics, and in some cases, the frequency of the average amounts of claims actually made bay Brazilian population. Any amount exceeding the reinsurance agreement limit is transferred for reinsurance companies such as by IRB Brasil Resseguros S.A., known as “IRB”.

The pricing of automobile insurance depends on the frequency and severity of the claims made, and includes several factors such as place of use of the  vehicle and its specific characteristics. We also factor customer profiles into the pricing of automobile insurance, in line with market practice

The profitability of automobile insurance largely depends on detecting and correcting the discrepancy between premium levels and expected claim costs. Among other factors premiums charged for damage insurance for  vehicles include the value of the insured automobile. Consequently, premium levels partially reflect the  sales volume of new automobiles.

Pricing for the mass property/casualty insurance sector is also based on frequency and average amounts of claims, and on specific characteristics of the insured party's location. Pricing for corporate property/casualty insurance varies with the specific characteristics of each risk insured. Depending on the type of coverage and/or amount insured we may have to consult the reinsurance companies to obtain the basis for an insurance contract.”

 

Reinsurance

Brazilian regulations set retention limits on the amount of risk insurance companies may underwrite without having to purchase reinsurance. Under these regulations, risk underwritten by Bradesco Auto/RE are reinsured substantially with IRB-Brasil Re if insured amounts exceed retention limits or if reinsurance is recommended for technical/actuarial decisions taken to minimize the risks of certain portfolios.

 

 

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In January 2007, Brazil's Congress enacted Supplementary Law No. 126/07, which abolished IRB-Brasil Re's monopoly and allowed three types of reinsurers referred to as "local," "admitted" and "occasional," thus opening up Brazil's reinsurance market for competition. Under the same supplementary law, IRB-Brasil Re was recognized as a local reinsurer and authorized to continue its operations and make any required adjustments in due course.

As of the end of 2007, CNSP and SUSEP issued a number of normative instructions containing rules for reinsurance, retrocession and intermediation business, based mainly on CNSP Resolution No. 168/07.

To be registered as admitted or occasional reinsurers in Brazil, foreign-based reinsurance companies must meet certain requirements, such as having at least five years of experience in their country of origin, equity of at least US$100 million (admitted) or US$150 million (occasional), and certain minimum ratings from agencies Standard & Poor's, Fitch, Moody's or AMBest. For admitted reinsurers, these minimum ratings are as follows: BBB- (S&P/Fitch), Baa3 (Moody’s), or B- (AMBest); and for occasional reinsurers: BBB (S&P/Fitch), Baa2 (Moody’s), or B++ (AMBest).

Through Decree No. 6,499/08, the President of Brazil set maximum limits for the ceding of premiums to reinsurance company in each calendar year. For local insurers, such maximum limit was 10% of premiums, and for local reinsurers 50% of premiums. In the case of local insurers, CNSP Resolution No. 203/09 raised the limit from 10% to 25% in the case of guarantees  for public obligations and oil risks.

Local reinsurers must be incorporated as sociedade anônima business corporation in Brazil with capital of at least R$60 million. As of March 2011, under SUSEP Resolution No. 225/10, at least 40% of any insurers' ceded risk must be placed with local reinsurers for both treaty and facultative contracts.

CNSP Resolution No. 241/11 enabled the transfer of risks as part of reinsurance or retrocession operations to reinsurers not authorized by SUSEP as long as the shortfall in the Brazilian reinsurance market's capacity has been shown and certain rules and limits are followed.

On December 31, 2012 there were 102 reinsurers authorized to operate in the Brazilian market, including IRB-Brasil Re and Lloyd's of London. Thirty-three reinsurance brokerage firms have authorization to intermediate reinsurance and retrocession operations.

Bradesco Auto/RE purchases reinsurance from a small number of reinsurers authorized by SUSEP and previously approved by its Executive Board, and holds IRB-Brasil Re as its main reinsurer, by granting the leadership in all automatic agreements and 100% of optional agreements. These reinsurers are classified by SUSEP as local (IRB-Brasil Re) or admitted (other), posting capital and rating above the minimum determined by the Brazilian legislation.

We emphasize that practically all portfolios of our property and casualty insurance, except for automobiles, have reinsurance protection. Most of these lines of insurance, with proportional and non-proportional plans, have re-insurance protection by risk and/or event. The premium assigned in reinsurance, in relation to the premium issued by the insurance company, is relatively small.

All re-insurance contracts are entered into directly with the re-insurer, without the intermediation of any reinsurance brokers, and they adopt the re-insurance contractual provisions prepared by the company’s technical and legal departments.

 

Pension plans

We have managed individual and corporate pension plans since 1981 through our wholly-owned subsidiary Bradesco Vida e Previdência, which is now the leading pension plan manager in Brazil, as measured by pension plan contributions, investment portfolio and technical provisions, based on information published by Fenaprevi and SUSEP.

Bradesco Vida e Previdência offers and manages a range of individual and group pension plans. Our largest individual plans in terms of contributions known as VGBL and PGBL are exempted from withholding taxes on income generated by the fund portfolio.

As of December 31, 2012, Bradesco Vida e Previdência accounted for 29.6% of the pension plan and VGBL market in terms of contributions, according to Fenaprevi. Also according to the same source, managed pension funds accounted for 29.5% of VGBL, 26.9% of PGBL and 39.0% of traditional pension plans in Brazil. As of December 31, 2012, Bradesco Vida e Previdência accounted for 33.4% of all supplementary pension plan assets under management, 31.0% of VGBL, 23.9% of PGBL and 55.7% of traditional pension plans, according to Fenaprevi.

Brazilian law currently permits the existence of both "open" and "closed" private pension entities. "Open" private pension entities are those available to all individuals and legal entities wishing to join a benefit plan by making regular contributions. "Closed" private pension entities are those available to discrete groups of people such as employees of a specific company or a group of companies in the same sector, professionals in the same field, or members of a union. Private pension entities grant benefits on the basis of periodic contributions from their members, or their employers, or both.

 

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Form 20-F

 

We manage pension and VGBL plans covering more than 2.3 million participants, 63.7% of whom have individual plans, and the remainder individuals covered by company plans. The company’s plans account for approximately 36.3% of our technical reserves.

Under VGBL, PGBL and FAPI plans, participants are allowed to make contributions either in installments or in lump-sum payments. Participants in pension plans may deduct the amounts contributed to PGBL up to 12% of the participant's taxable income when making their annual tax declaration. Under current legislation, redemptions and benefits are subject to withholding tax. VGBL plan participants may not deduct their contributions when declaring income tax. At the time of redemption, or when benefits are paid out, tax will be levied on these benefits, pursuant to current legislation.

VGBL and PGBL plans, and individual retirement fund plans (referred to as "FAPI") may be acquired by companies in Brazil for the benefit of their employees. In 2012, Bradesco Vida e Previdência managed R$65.0 billion in VGBL and R$17.9 billion in PGBL plans. Bradesco Vida e Previdência also managed R$30.1 billion in pension plans.

Bradesco Vida e Previdência also offers pension plans for corporate customers that are in most cases negotiated and adapted to specific needs of the corporate customer.

Bradesco Vida e Previdência earns revenues primarily from:

·      Pension and PGBL plan contributions, life insurance and personal accidents premiums and VGBL premiums;

·      Revenues from management fees charged participants in accordance with mathematical provisions; and

·      Financial income.

 

Capitalization bonds

Bradesco Capitalização offers its customers capitalization bonds with the option of a lump-sum or monthly contributions. Plans vary in value (from R$8.00 to R$50,000), form of payment, contribution period, and periodicity of draws for cash prizes of up to R$2.0 million (gross premiums). Customers’ contributions earn interest at a rate of TR plus 0.5% per month over the value of the mathematical provision. Capitalization bonds may be redeemed after a 12-month grace period. As of December 31, 2012, we had around 8.2 million "traditional" capitalization bonds and around 13.7 million incentive capitalization bonds. Given that the purpose of the incentive capitalization bonds is to add value to the products of a partner company or even to provide an incentive for its customer to avoid delinquency, the plans are for short terms and grace periods with low unit sales value. As of December 31, 2012, Bradesco Capitalização had approximately 21.9 million capitalization bonds and 3.5 million customers.

Bradesco Capitalização is the first and only Brazilian capitalization bonds company to be awarded “ISO” certification. In 2009, it was certified “ISO 9001:2008” for the scope of management of capitalization bonds. This certification, awarded by Fundação Vanzolini, attests to the quality of its internal processes and confirms the principle seen in the origin of Bradesco's plans: good products and services and continuous improvement.

Bradesco Capitalização is the only company in its industry to have received a Standard & Poor’s (“S&P”) rating of brAAA, the highest rating in Brazil. This rating was reaffirmed, with a stable outlook, in the report issued by S&P in November 2011. The robust level of financial and property protection Bradesco assures its customers contributed to this result.

 

Treasury activities

Our treasury department trading includes derivative transactions, mainly for economic hedging purposes (known as "macro-hedge"). Transactions such as these comply with limits set by our senior management and guidelines from our integrated risk control unit using value-at-risk ("VaR") methodology. For more information about our VaR methodology, see "Item 11. Quantitative and Qualitative Disclosures About Market Risk-Value at Risk" and "Item 11. Quantitative and Qualitative Disclosures About Market Risk-Market Risk."

 

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Distribution channels

Our branch network is complemented by other distribution channels such as points of service, banking correspondents, ATMs, telephone banking services, and Internet and mobile banking. In introducing new distribution systems, we have focused on enhancing our security as well as increasing efficiency.

By the end of 2012, we had 4,686 branches, 5,237 points of banking services and 43,053 banking correspondents (Bradesco Expresso) and 3,809 points of service outside of our own ATM network.

For information on our international branches as of December 31, 2012, see "International banking services."

 

Specialized distribution of products and services

As part of our distribution system, we have five areas that offer a range of different products and services on an individualized in all specific segments of our customer base. By segmenting the market, we aim to cater for different profiles and scales of customers, thus enhancing service and improving efficiency.

 

Bradesco Varejo

Bradesco is present in 100% of municipalities in Brazil. Bradesco Varejo service network comprises 4,270 branches, 3,771 banking and electronic points of service, 1,456 mini-branches and 43,053 Bradesco Expresso banking correspondent units, in addition to thousands of ATMs. Bradesco Varejo targets individuals with monthly incomes of up to R$8,999.99 and companies with annual revenues of up to R$30.0 million. As of December 31, 2012, we provided services for over 24.9 million account holders. For a segment of clients called “Exclusive Individuals,” those with monthly incomes between R$4,000.00 and R$8,999.99 as well as corporate clients, Bradesco Varejo offers customized services provided by professionals who present financial solutions according to the needs and expectations of each customer profile.

The service network makes products and services available even at remote or hard-to-reach areas and also at densely populated and low income communities, such as: Rocinha, Cidade de Deus, Rio das Pedras, Complexo do Alemão, Gardênia Azul, Santo Cristo, Cantagalo, Turano, Santa Marta, Mangueira and Chapéu Mangueira in Rio de Janeiro, and Heliópolis and Paraisópolis in São Paulo.

 

Bradesco Prime

Bradesco Prime was created in May 2003 to target the high-income segment and provide services for individual customers with either monthly incomes of at least R$9 thousand or investments worth at least R$100 thousand. Its mission is to be the bank of choice for these customers by focusing on quality relationships, and providing solutions for their needs through well-trained teams, adding shareholder and collaborator value while upholding our ethical and professional standards. The value of the Bradesco Prime segment is based on the following assumptions:

·      Personalized services provided by relationship managers: Qualified and experienced professionals with certification from ANBIMA, providing full financial advisory services and managing a small number of portfolios;

·      Exclusive facilities: Bradesco Prime customers have access to their own network of exclusive branches offering convenience and privacy to tend to their business affairs and can count on “Bradesco Prime Spaces” - special reserved areas at Bradesco Varejo branches - to fully maintain the segment's value proposition. Also at their disposal is our nationwide branch network, including "Bradesco Dia & Noite" and "Banco24Horas” ATMs;

·      Exclusive products and services: Bradesco Prime has a comprehensive set of differentiated products and services, such as internet banking (bradescoprime.com.br), call center (Fone Fácil Bradesco Prime), online advisors and investment funds, credit solutions at special rates, a diversified portfolio of insurance, pension plans and credit cards, among others; and

·      Bradesco Prime loyalty program: introduced to further acknowledge and enhance customer relationships. By purchasing products and services, customers gain points that can be converted into benefits such as 12 days of interest-free overdraft, or up to 40% reduced overdraft charges and up to 100% off the package of services.

 

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Bradesco Prime is present in all Brazilian capital cities. Throughout its history, by investing in technology, enhancing customers relationships and training its professionals, Bradesco Prime has earned an outstanding position in the Brazilian market for banking services for high-income customers and has consolidated as the largest banking services provider for these customers in terms of its service network, with 305 branches and 360 Bradesco Prime Spaces strategically positioned to serve over 674,000 customers.

Since 2005, the Bradesco Prime Department has been certified by Fundação Vanzolini as “ISO 9001:2008” in the scope "Bradesco Prime Segment Management," thus showing our commitment to continuous improvement of processes and customer satisfaction.

 

Bradesco Private Bank

Bradesco Private Bank was created in 2000 for the sole purpose of advising high net-worth individuals, family-owned holding companies and investment companies with high liquidity availability for investments. Bradesco Private Banking finds the most appropriate financial solution for each customer profile based on tailor-made basis focusing on asset allocation, tax guidance and estate planning.

Bradesco Private Bank has offices located in São Paulo, Rio de Janeiro, Belo Horizonte, Blumenau, Brasília, Campinas, Curitiba, Fortaleza, Goiânia, Manaus, Porto Alegre, Recife, Ribeirão Preto and Salvador. Bradesco Private Banking is supported by our international units in Cayman, New York and Luxembourg.

Bradesco Private Bank earned “ISO 9001:2008” certification for "Customer Relationship Management with High Net Worth Individuals and Management of Integrated Solutions – São Paulo and Rio de Janeiro Offices." It also has the "GoodPriv@cy" (Data Protection Label – 2007 edition, awarded by IQNet International Quality Network) for "Management of Privacy for Data Used in Relationships with High Net Worth Customers – São Paulo Unit.” 

 

Bradesco Empresas

Bradesco Empresas serves companies whose annual revenues range from R$30 million to R$250 million through its 71 business units strategically located in state capitals, as follows: Southeast (42), South (17), Mid-West (4), Northeast (6) and North (2). It also has 50 Espaços Empresas (spaces reserved for Bradesco Empresas) in strategic locations not heavily serviced by Bradesco Empresas. These are specially structured places for rendering services to economic groups within the segment. 

Bradesco Empresas offers top quality business management through products such as loans and advances, financing, investments, foreign trade, hedging transactions, cash management and structured transactions in capital markets to ensure customer satisfaction and good results for the Organization.

Bradesco Empresas manages funds totaling R$100.0 billion through loans and advances, deposits, funds and collection.

 

Bradesco Corporate

Our Corporate segment was created in 1999 to serve companies posting annual revenues of more than R$250 million in most cases, served by a team of 145 with centralized relationship management offering both traditional and tailor-made products.

 

Branch Network

The principal distribution channel for our banking services is the branch network. In addition to offering retail banking services, branches serve as a distribution network for all of the other products and services, including payment and collection management services, private banking services, credit cards and asset management products. We market leasing services through channels operated by the branch network, as well as through our wholly owned subsidiaries Bradesco Leasing and Bradesco Financiamentos. Bradesco Corretora and Bradesco Consórcios also offer our services of brokerage, trading and purchasing consortium services through our branches. Bradesco Vida e Previdência sells its products through 10,233 independent agents nationwide, most of whom are based on our own premises. Compensation for these agents is commission-based.

 

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We sell our insurance products, pension plans and capitalization bonds through our website, through exclusive brokers based in our network of bank branches, and non-exclusive brokers throughout Brazil, all of whom are compensated on a commission basis. As of December 31, 2012, there were 32,077 brokers were offering our insurance policies to the public. Our capitalization bonds are offered through our branches, the Internet, our call center, ATMs and external distribution channels.

The following table shows the distribution of sales of these products through our branches and outside our branches:

 

 

% of total sales, per product

2012

2011

2010

Insurance products

 

 

 

Sales through the branches

38.1%

45.3%

40.0%

Sales outside the branches

61.9%

54.7%

60.0%

Pension plans products

 

 

 

Sales through the branches

83.7%

76.8%

81.7%

Sales outside the branches

16.3%

23.2%

18.3%

Capitalization bonds

 

 

 

Sales through the branches

79.6%

84.1%

90.5%

Sales outside the branches

20.4%

15.9%

9.5%

 

Other distribution channels

Bradesco Dia & Noite Digital channels

The Bradesco Dia & Noite digital channels offer mobility and independence to customers so that they may expand their businesses with us.

We aim to make the banking experience even more convenient, fast and safe. In addition to the traditional service channels, such as Self-Service, “Fone Fácil” (easy phone) and internet banking, customers and users have access to us via Bradesco Celular (mobile banking).

People with disabilities and reduced mobility have access to internet banking services for the visually impaired; personalized service for the hearing impaired using digital language at Fone Fácil, Bradesco Celular for the visually impaired; visual mouse for motor disabled people; and ATM access for customers with visual and physical disabilities.

We are present on social networks, through  which we monitor our brand, products and services, provide  services and interact  with users. We were the first bank to develop a Facebook access application, which enables making inquiries, payments, transfers and request of personal loans while navigating on the social network

 

Bradesco Celular (Mobile banking

We were the first Brazilian institution to use  mobile banking. Through this channel the customer can  check bank balances and statements, make payments, recharge prepaid mobile phones, make transfers, get loans, obtain quotes  and follow stock purchase and sale orders, among other things. Our website www.bradescocelular.com.br provides  detailed information on products and services. In 2012, 381.4 million transactions were carried out via Bradesco Celular.

Additionally, Bradesco Celular also provides  the following services:

·      Bradesco Direct Recharge: a service that enables recharging prepaid mobile phones with just a single call from the device itself, even if there are no credits available for making calls. This feature is currently available for mobile phone users who are registered customers of Brazilian mobile phone network operators, Vivo and Claro;

·      Making payments via SMS: previously-registered customers receive messages to schedule payments in advance or make payments with their banking collection forms registered with the DDA or utility bills, by simply answering a SMS;

 
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·      InfoCelular (information on mobile phones): with this feature, our registered customers quickly and safely receive SMS messages reporting on banking transactions for their account in accordance with the period and amount they designate;

·      Bradesco Net Empresa Celular (Bradesco Net Company Mobile Banking): made available for corporate customers using mobile phones to check bank balances and authorize transactions;

·      Bradesco Mobile Bonus Account: in addition to providing access to a number of financial services, this package contains a feature that allows certain amounts to be converted into credits with specified mobile phone providers; and

·      Token embedded in the mobile device: an innovative and pioneering service in the market, it is an additional convenience option for the customer to authenticate any transaction carried out on the device and other digital channels.

 

Internet

In 2011 we introduced more than 50 innovations. Notable examples include an “A” key for Quick Access, an Intelligent Payment feature which automatically recognizes the intended type of payment through a bar code, and a search box located on all pages.

Bradesco Portal has 65 institutional sites (information on us, detailing our  products and services, guidelines on security, disclosure of social and environmental actions, and periodic publications for investors, among others) and 33 transaction sites (for  making banking transactions).

In 2012 our customers, both individual and corporate, carried out 3.6 billion online transactions.

Our corporate customers can use Bradesco Net Empresa. With this feature, a corporate customer may carry out online banking transactions and transfers, quickly and safely

 

Self-service network

Our self-service network has 34,859 ATMs strategically distributed across Brazil, providing quick and convenient access to products and services. In addition to our  ATMs, customers can access the pooled network of 12,975 Banco24Horas machines to effect transactions such as cash withdrawals, statements, balance status queries, loans, payments of payment vouchers and transfers.

Our self-service network and Banco24horas ATMs executed 2.1 billion transactions in 2012.

We use biometric reading system, which identifies customers and authenticates ATM transactions through a sensor/invisible light beam capturing the image of the vascular pattern of the palm of the hand. This technology enables our customers to use only biometry and their card to check accounts and carry out transactions, without the need to type in a six-figure password, thus making services faster and easier, in addition to being one of the world’s most advanced security technologies. This technology is available on 32,731 machines of the Bradesco Self-Service Network and 5,742 machines of the Banco24Horas Network.

We are the only bank accredited with INSS (Social Security National Service) to carry out the “proof of life” of customers benefitting from INSS benefits, with the automatic use of biometrics, without the need to go to the cashiers  and submit a document, therefore expediting customer service.

 

 

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Telephone services – Fone Fácil

Fone Fácil Bradesco (Bradesco easy phone) is Bradesco’s telephone banking system. The customized service system, with financial experts and virtual servicing, make Fone Fácil one of the most efficient service channels and we have one of the most awarded banking relationship centers in Brazil, which  is available to customers on a 24/7 basis.

Through this channel, the customer may acquire products, obtain information on their account, credit card, social security benefits, capitalization bonds and carry out a number of transactions, such as: checking account balances, bank statements, payments, transfers, credit transactions, investments, registering with the Bradesco Token into the mobile device, registering and disabling a four-digit password, cancellation and reissuing of cards, among other services.  

In addition to the customized digital service, customers have access, through a number of specific numbers, to several telephone service centers, the main of which are as follows: internet banking, Net Empresa, Consortium, Social Security, Bradesco Financing and Alô Bradesco (hello Bradesco)

During 2012, 370.5 million calls were registered, and 490.8 million transactions completed.

 

Banking units in retail chains

We have also entered into partnership agreements with retail chains, supermarkets, drug stores, grocery stores, and other retailers, to provide correspondent banking services (mostly to pay bills, withdraw cash from checking and savings accounts, and receive pension payments). These offices are staffed by employees of our business partners, but all credit decisions are made by our employees.

 

Integrated risk control

The Integrated Risk Control Department is responsible for the following activities:

 

Risk management

Risk management is of great strategic importance to us due to the increasing complexity of services and products and the globalization of our business. The improvement in this activity has enabled us to be the first and single bank in Brazil authorized by the Central Bank to use, since January 2013, market risk internal models, which were already used in its management, in order to calculate the regulatory capital set forth in the new Basel Accord.

We seek to exercise control over risks in an integrated and independent manner, preserving and valuing collective decision-making, devising and implementing methodologies, models, measurement and control tools. We also promote improvement among employees at all levels, from the business areas to the Board of Directors.

Our risk management process ensures that risks are proactively identified, measured, mitigated, monitored and reported, as required for the complexity of our financial products and the profile of our  activities.

 

Risk Management Structure

The structure of our risk management activity consists of statutory and executive committees, responsible for assisting our  Board of Directors and the Diretoria Executiva in making strategic decisions.

We have a statutory committee called the “Integrated Risk Management and Capital Allocation Committee,” which is tasked with advising the Board of Directors on the performance of its roles in the management and control over risks and capital.

The statutory committee is assisted by our executive committees for risk management of: a) Credit; b) Market and Liquidity; c) Operational; d) Grupo Bradesco de Seguros e Previdência; and e) Basel II Implementation. There are also executive committees for our business units, whose tasks include suggesting limits for exposure to their related risks and devising mitigation plans to be submitted to the Integrated Risk Management and Capital Allocation Committee and the Board of Directors.

 

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Credit risk

Credit risk is the possibility of losses associated with a borrower’s or counterparty’s failure to comply with their respective contractual obligations under the originally agreed terms. For purposes of risk management disclosure, we consider and consolidate all credit risk elements exposed, such as the depreciation of loan agreements resulting from deterioration in the borrower's risk rating, the reduction in gains or remunerations, including benefits granted in renegotiations, recovery costs and other amounts related to the counterparty’s non-compliance with the financial obligations.

Credit risk management is a continuous and evolving process of mapping, development, assessment and diagnosis through the use of models, instruments and procedures that require a high degree of discipline and control during the analysis of operations in order to preserve the integrity and autonomy of the processes.

We control our exposure to credit risk, which mainly results from loans and advances, financial assets and derivative financial instruments. Credit risk also stems from financial obligations related to loan commitments and financial guarantees.

In order to ensure the quality expected from the portfolio, committees monitor relevant aspects of the process of lending, concentration, collateral requirements, maturities, and other aspects.

We aim to map the activities that could potentially generate exposure to credit risk, classifying them by their probability and magnitude, identifying their managers, as well as their measurement and mitigation plans.

 

Credit Risk Management Process

Credit risk management is conducted in an institution-wide, centralized manner. All exposure to risk is analyzed, measured, classified and monitored independently by our Credit Risk area.

The Credit Risk area participates in improving the customer risk rating models, following up large risks by periodically monitoring major delinquencies and the provisioning levels for expected and unexpected losses.

The Credit Risk area continuously reviews the internal processes, including the roles and responsibilities, information technology training and requirements, and evaluations of risks during the creation or revision of products and services.

Corporate control and monitoring of our credit risk take place in the credit risk unit of the Integrated Risk Control Department. In the governance structure for risks, this department coordinates with the Credit Risk Management Executive Committee on discussions and implementation of the methodologies to measure the credit risk. Relevant issues discussed by this committee are reported to the Integrated Risk and Capital Allocation Committee, which reports to the Board of Directors.

In addition to the committee meetings, the business area holds monthly meetings  with officers and heads of products and segments to ensure they are informed about the evolution of the portfolio of loans and advances, delinquency, impairment of loans and advances, credit recovery, portfolio limits and concentrations, and other items. This information is also reported to the Audit Committee.

The business area also tracks each internal or external event that may significantly impact credit risk for the organization such as mergers, bankruptcies or crop failures and monitors sectors of economic activity in which the company has most exposure risks

Both the governance process and limits are validated by the Integrated Risk and Capital Allocation Committee, submitted for approval by the Board of Directors, and reviewed at least once a year.

 

Market Risk

Market risk is the possibility of a loss of income due to fluctuating prices and rates resulting from mismatched maturities, currencies and indicators of our  asset and liability portfolios.

This risk is identified, measured, mitigated and controlled, and the market risk guidelines and limits of exposure profile to market risk, are monitored independently on a daily basis.

All activities exposed to market risk are mapped, measured and classified according to probability and magnitude, with their respective mitigation plans approved by the governance structure.

 

 

 

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Our risk  management process involves the participation of all levels of the organization, from business units to the Board of Directors.

Market risk measurement and control are carried out by methodologies adjusted to each situation, such as Value at Risk (VaR), Economic Value of Equity (EVE), stress testing and sensitivity analysis, and limits for earnings management and financial exposure.

In spite of being controlled separately, the trading portfolio risk and the risk associated to banking portfolio positions are measured through the VaR Delta-Normal one-day methodology adjusted with gamma and vega risks of the option transactions with a 99% confidence level and for calculating volatilities and correlations we use statistical methods that allocate more weighting to recent returns.

The VaR methodology provides an estimate of maximum potential loss that may be expected for a given adverse event, and volatilities and correlations are derived from statistical methods. Measurement and management of the banking portfolio's interest rate risk are based on the EVE methodology, which measures the economic impact on our positions of economic scenarios devised by us in order to determine positive and negative trends in interest rate yield curves that may affect our investment and funding.

In line with corporate governance and in order to preserve and strengthen our management of market and liquidity risks, as well as to meet the requirements of CMN Resolution No. 3,464/07, the Board of Directors approved the Market and Liquidity Risk Management Policy, which is reviewed every year by the relevant committees and the Board of Directors itself, providing the main operational guidelines for accepting, controlling and managing market and liquidity risk.

In addition to this policy, we have several specific rules that regulate the market and liquidity risk management process, including:

·      classification of operations;

·      reclassification of operations;

·      trading in government or private securities;

·      use of derivatives; and

·      hedging. 

 

Market Risk Management Process

Our market risk management process is run on a corporate wide, centralized and independent basis. This process involves diverse areas with specific duties, in the measurement and control of market risk, which enabled us to be the first financial institution in Brazil authorized by the Central Bank to use, as of January 2013, its market risk internal models, which were already used in its management, in order to calculate its regulatory capital requirement. The management process, approved by the Board of Directors, is also reassessed  annually by the relevant committees and the Board of Directors itself.

Proposed market risk limits are validated by specific business committees for approval by the Integrated Risk and Capital Allocation Committee, to be submitted to the Board of Directors depending on the characteristics of operations, which are separated into the following portfolios:

Trading portfolio: comprises all operations involving financial instruments, including derivatives, held-for-trading or used to hedge other instruments in the trading portfolio, which have no trading restrictions. Held-for-trading operations are those destined for resale, to obtain benefits from actual or expected price variations, or for arbitrage.

For the trading portfolio, we monitor the following limits:

·      risk; 

·      stress; 

·      results; and

·      financial exposure.

 

 

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Banking portfolio: comprises operations not classified in the trading portfolio and consists of structural operations arising from our diverse business lines and their respective hedges.

For the banking portfolio, we monitor the following limits:

·      interest rate risk; and

·      equities portfolio.

 

Market risk is controlled and monitored primarily by an independent business unit, the Integrated Risk Control Department, which calculates risk of outstanding positions on a daily basis, consolidates results and reports as required by the existing governance process.

In addition to daily reports, exposures are discussed weekly by the Treasury's Executive Committee, which assesses results and risks and discusses and validates  strategies for the coming  weeks. Both governance process and limits are validated by the Integrated Risk and Capital Allocation Committee and submitted for approval by the Board of Directors, and reviewed at least once a year.

For more information on how we evaluate and monitor market risk, see "Item 11. Quantitative and Qualitative Disclosures about Market Risk."

 

Liquidity risk

Liquidity risk is represented by the possibility of the institution failing to effectively comply with its obligations, without affecting its daily operations and incurring significant losses, as well as the possibility of the institution to fail to trade a position at market price, due to its larger size as compared to the volume usually traded or in view of any market interruption.

Understanding and monitoring this risk is crucial, especially for us to be able to settle transactions in a timely and secure manner.

 

Liquidity Risk Management Process

We manage our liquidity risk process on a group  wide basis with centralized monitoring which includes daily monitoring of available funds, compliance with minimum liquidity levels, and contingency planning for high-stress situations.

Our policy for risk management and market liquidity is approved by the Board of Directors, whose objectives include ensuring standards, criteria and procedures to guarantee the establishment of the Minimum Liquidity Reserve (RML), as well as the strategy and action plans for liquidity crisis situations. The policy and controls we established fully comply with CMN Resolution No. 4,090/12.

Our criteria and procedures determine the minimum liquidity reserve to be maintained on a daily basis and the types of assets considered as available funds. Additionally, we determine instruments for management of liquidity in normal and crisis scenarios, with strategies to be followed in each case.

Our liquidity risk is managed by the Treasury Department, based on the positions provided by the back-office controls positions, which provides liquidity information to our management and monitors compliance with established limits. The Integrated Risk Control Department is responsible for measuring liquidity reserve requirements methodology, control over limits established by type of currency and company (including for non-financial companies), reviewing policies, standards, criteria and procedures, and drafting reports for new recommendations.

Liquidity risk is monitored at meetings of the Treasury's Executive Committee, which controls liquidity reserves and maturity and currency mismatches. Additionally, monitoring activity is also conducted by the Risk Management and Market Liquidity Executive Committee, the Integrated Risk and Capital Allocation Committee and the Board of Directors.

 

Operational Risk

Operational risk is the loss resulting from inadequate or faulty internal processes, people, systems and external events. This includes legal risk, but does not consider strategic and reputational risks.

 

 

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Operational Risk Management Process

We use a group wide, centralized and independent approach, with an emphasis on continuous improvement, to monitor the dynamic evolution of our business and minimize the existence of gaps that may compromise the quality of this  management process, which is conducted within the following framework:

·        jointly identifying events arising from operational risk events and reporting losses;

·      standardizing the reporting format for various departments through the Internal Corporate Control Risk (ROCI) system developed by our Integrated Risk Control Department for daily and/or monthly delivery of operational risk event data;

·      receiving, processing and reconciling data for entering in the corporate operational risk database; and

·      using the database for statistical modeling of events to calculate operational VaR.

 

The Integrated Risk Control department controls and monitors our operational risk.

It holds meetings with other departments to discuss subjects related to the management of operating losses and the effectiveness of controls implemented to mitigate existing and potential risks and new ones that may arise. This involves using a set of data, both internal and external, scenarios and indicators for continuous monitoring of unexpected events over a 1-year period

The Integrated Risk Control Department coordinates the Operational Risk Management Executive Committee, and relevant subjects are reported to the Audit Committee and subsequently the Integrated Risk Management and Capital Allocation Committee, which reports to the Board of Directors.

The governance process is approved by the Board of Directors being  reviewed at least once a year.

 

Management of internal controls and compliance

The Internal Controls and Compliance Department independently certifies effectiveness and execution of controls that ensure acceptable risk levels in the Organization processes.

 

Internal control area

We maintain all components of the internal controls system up-to-date, to mitigate possible potential losses arising from risk exposure and to strengthen processes and procedures focused on management of internal controls and also on corporate governance.

The Internal Controls Area is in charge of:

·      management of internal controls, determining criteria and methodologies to identify, classify, evaluate and monitor risks and their controls;

·      conducting a corporate self-evaluation aimed  at determining the level of knowledge, understanding and compliance with matters deemed as relevant, such as ethics, information security and the prevention of money laundering;

·      applying operational self-evaluation in the branch network, Prime and Varejo segments, in order to assess perception of branch-level management and compliance for internal controls of administrative and business activities undertaken in these units;

·      coordinating and/or taking part in actions aimed at strengthening the ethical culture of employees, in accordance with the guidelines issued by our  Ethical Conduct Committee; and

·      preparing conformity reports to include the consolidated results of departments and which are submitted, on a semiannual basis, to the Audit and Internal Controls and Compliance Committees, Diretoria Executiva and Board of Directors, for approval purposes.

 

Internal Controls Management

The effectiveness of our  internal controls is based on our staff, processes and technology. In this context, our skilled professional staff is working exclusively on previously defined and determined processes with the appropriate technology for business needs.

 

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Policy for internal controls and compliance and risk and controls management corporate methods are duly formalized and aligned with the main control frameworks such as the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and Control Objectives for Information and Related Technology (“COBIT”), which cover both business and technology aspects, complying with the requirements of Resolution No. 2,554/98, of the CMN, PCAOB – Public Company Accounting Oversight Board, and of Section No. 404 of the US Sarbanes-Oxley Act.

The work on internal controls is developed together with a number of areas managing our  services, products and processes, which adherence tests are applied with the required frequency, with the results reported to our Audit and Internal Controls and Compliance Committees and the Board of Directors. In case of non-conformity, the respective correction action must be forwarded for addressing with due follow-up.

The set of these actions is translated into the improved quality of operating processes and the dissemination of the importance of the control culture, ratifying the improvement of best practices.

 

Prevention of Money Laundering and Terrorism Financing

We maintain specific policies, principles, procedures and systems to prevent and/or detect the utilization of our structure, products and services for money laundering and terrorist financing purposes.

We make investments in staff training and programs and these include various formats, such as booklets, videos, courses, folders, e-learning courses and classroom sessions specifically tailored to different business areas that require them.

Any suspect or unusual cases identified are forwarded to the Committee on Assessment of Suspicious Transactions, composed of a number of areas, which assess the need for reporting to Regulatory Bodies. The PLD/FT program is supported by the Prevention and Combat of Money Laundering and Terrorism Financing Executive Committee, which meets regularly every three months to assess work and the need for procedures aligned with the standards set by regulatory agencies and best practices locally and internationally.

 

Area of independent validation of models

Our “Independent Validation of Models” area is in charge of stating an independent and educated opinion on whether the internal models work in conformity with the intended purposes and the achieved results are proper for their intended use, reporting its activities to the “Committee on the Integrated Management of Risks and Capital Allocation (COGIRAC).”

Following guidelines and directives posed by the New Capital Accord – Basel II and complying with Central Bank requirements, our internal risk-management models are subject to a continuous review process known as "independent validation process" to ensure quality and appropriate responses for their goals.

 

Corporate security

The Corporate Security Department was created in September 2009 in order to strengthen fraud prevention, data security, and business support systems. It reports to the Diretoria Executiva and its main purpose is to act on the strategic corporative level to ensure the functioning of the self-service network channels and information systems, as well as to access, process and propose improvements to prevent any critical exposure to vulnerability, based on a global overview of incidents and trends obtained internally and externally. The department also acts as the focal point for compiling technical reports on strategic security aspects, and our implementation of products, services or processes.

Among the main "Corporate Security Global Vision" responsibilities, we highlight the following:

·      defining our system for data security management, based on our corporate policy for information security and a set of directives and guidelines dealing with the principles of confidentiality, integrity and availability. The objective is to protect our information assets and those of our customers. These activities are complemented by awareness and training initiatives for all our collaborators, and by assessments of data-security risks for our products, services and processes;

·      our fraud-prevention and electronic-channel security areas are tasked with managing processes to detect and mitigate risks in order to prevent any financial losses or adverse effects to our  image. They monitor transactions on electronic service channels and track strategic and corporate actions in order to propose solutions to managers of technical and business areas, thus enhancing security to products and electronic service channel accesses; and

 

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·      the strategic and operating management of identity process and logical access to applications, aiming at protecting the system resources, in addition to working with the business units and technology, with the purpose of defining and restructuring automated controls and coordinating, on a corporate basis, of all actions inherent in the access management.

 

Credit policy

Our credit policy is focused on:

·      ensuring the safety, quality, liquidity and diversification of asset allocation;

·      pursuing flexibility and profitability in business; and

·      minimizing risks inherent to loans and advances.

 

Our credit policy defines criteria for lending and setting operational limits. Credit decisions are made at the branch level and, if necessary, higher levels of authority including our board directors depending on the rules in our internal policy. In reviewing loan applications, our Diretoria Executiva also approves the models for assessment and credit processes used by our branches and departments for each type of loan.  

Our transactions are diversified and target individuals and companies that show ability to pay and stay in good standing. In all cases, we aim to have them secured by appropriate collateral for risks involved, from the point of view of uses of funds and repayment periods, as well as risk ratings. The Central Bank’s risk rating system has nine categories ranging from "excellent" to "very poor." In conformity with our commitment to the ongoing development of our methodologies, the credit risk rating for our clients/economic groups is based on a range of seventeen levels, of which thirteen represent accrual loans. This provides more adherence to the requirements set forth in the New Basel Accord (Basel II). For more details, see "Item 4.B. Business Overview-Regulation and Supervision-Banking regulations-Treatment of loans and advances."

The lending limits set for our branches reflect size and collateral provided for loans. However, branches have no authorization to approve an application for credit from any borrower who

·      is rated less than "acceptable" under our internal credit risk classification system (score and rating)

·      does not have an updated record; and

·      has any significant reservation in records.

 

We have credit limits for each type of loan. We pre-approve credit limits for our individual and corporate customers and presently extend credits to the public sector only under very limited circumstances. In all cases, funds are only granted once the appropriate body has approved the credit line.

We review the credit limits of our large corporate customers every 180 days. Credits extended to other customers, including individuals, small and midsized corporations, are reviewed every 90 days.

Our maximum limit of exposure per client (i.e. individuals, companies or other economic groups) is determined by client rating and the maximum exposure is up to 10% of the Bank shareholder´s equity.

 

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Any cases in which the maximum level of exposure per client exceeds the thresholds as set out in the table below and in which the total exposure equals or exceeds R$1.2 billion should be submitted for appreciation of the Board of Directors.

 

Client Rating As a % of Shareholders´ Equity
AA1 10
AA2 9
AA3 8
A1 7
A2 6
A3 5
B1 4
B2 3
B3 2
C1 1
C2 0.7
C3 0.5
D 0.3

 

 

Our credit policy is continuously developing and as part of our risk management process, we continue to improve our credit granting procedures, including procedures to gather data on borrowers, calculate potential losses and assess applicable classifications. Additionally, we assess our institutional credit risk management in view of the recommendations by the Basel II Accord, including:

·      restructuring our methodology to calculate possible losses;

·      identifying and implementing changes in our reporting processes to improve our loan portfolio management;

·      restructuring our information control structure; and

·      assessing the organizational structure of our loan assessment practices, including analyzing the demand for technology and addressing new issues.

 

 

 

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Loans and advances to individual customers

For individual customers, depending on the proposed collateral, the size of the branch and suitable credit parameters, branches may authorize loans of up to R$50,000.00. If value and type of collateral are not within the limits established for approval at the branch level, an application is submitted to the Credit Department and, if necessary, higher levels of authority. The following table shows individual loan limits for approval by branch managers, depending on the value and type of collateral offered.

 

Total Risk Amount

R$ in thousands

Loan with no bona fide guarantee

Loan with bona fide guarantee

Decision‑making authority

 

 

Manager of very small branch (1)

up to 5

up to 10

Manager of small branch (2)

up to 10

up to 20

Manager of average branch (3)

up to 15

up to 30

Manager of large branch (4)

up to 20

up to 50

(1) Branch with total deposits equal to or below R$1,999,999;

(2) Branch with total deposits equal to or between R$2,000,000 and R$5,999,999;

(3) Branch with total deposits equal to or between R$6,000,000 and R$14,999,999; and

(4) Branch with total deposits equal to or above R$15,000,000.

 

We use a specialized credit scoring evaluation system to analyze these loans, allowing us to build a level of flexibility and accountability, besides standardizing the procedures in the process of analyzing and deferring loans. All models are constantly monitored and revised whenever necessary. Our Credit Department has a dedicated team developing models and working on the continuous improvement of these tools.

We provide our branches with tools that allow them to analyze loans and advances for individual clients in a rapid, efficient and standardized manner and to produce the corresponding loan contracts automatically. With these tools, our branches can respond quickly to clients, keep costs low, and control the risks inherent to consumer credit in the Brazilian market.

The following table shows limits established for approval of loans to individuals outside the discretion of our branches

 

Total Risk Amount

R$ in thousands

Decision‑making authority

 

Credit department

up to 14,000

Credit director

up to 18,000

Executive credit committee (Daily Meeting)

up to 60,000

Executive credit committee (Plenary Meeting)

up to 2,000,000

Board of Directors

over 2,000,000

 

 

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Loans and advances to corporate customers

For corporate customers, depending on the collateral proposed, the size of the branch and suitability in terms of credit parameters, loans of up to R$400,000 may be approved at the branch level. If the collateral offered is not within the limits for approval at the branch level, the loan is submitted to the Credit Department and, if necessary, higher levels. The following table shows limits within which branch managers may approve business loans, depending on the amount and type of credit support offered:

 

Total Risk Amount

R$ in thousands

Loan with no bona fide guarantee

Loan with bona fide guarantee

Decision‑making authority

 

 

Manager of very small branch (1)

up to 10

up to 60

Manager of small branch (2)

up to 20

up to 120

Manager of average branch (3)

up to 30

up to 240

Manager of large branch (4)

up to 50

up to 400

Manager of Bradesco Empresas branch (5)

up to 100

up to 400

(1) Branch with total deposits equal to or below R$1,999,999;

(2) Branch with total deposits equal to or between R$2,000,000 and R$5,999,999;

(3) Branch with total deposits equal to or between R$6,000,000 and R$14,999,999;

(4) Branch with total deposits equal to or above R$15,000,000; and

(5) Branch with exclusive middle market companies.

 

The following table shows limits established for approval of loans to corporate customers outside the discretion of our branches:

 

Total Risk Amount

R$ in thousands

Decision‑making authority

 

Credit department

up to 14,000

Credit director

up to 18,000

Executive credit committee (Daily Meeting)

up to 60,000

Executive credit committee (Plenary Meeting)

up to 2,000,000

Board of Directors

over 2,000,000

 

In order to serve customers' needs as soon as possible and securely, the credit department uses segmented analyses with different methodologies and instruments for credit analysis in each segment, in particular:

·      in the "Varejo," "Prime" and "Private – Individuals" segments, we consider the individual's reputation and credit worthiness, profession, monthly income, assets (goods and real property, any liabilities or interests in companies), the bank indebtedness and history of their relationship with us, checking loans and advances for repayment dates and rates as well as and the guarantees involved;

·      in the "Varejo – Corporate Customers" segment, in addition to the points above, we focus on the owners of the relevant company, as well as considering the period in business and the monthly revenues;

·      in the "Empresas" (middle market) and "Corporate" segments, management capability, the company/group's positioning in the market, its size, the economic-financial evolution, cashflow capability, and business perspectives, our analysis always includes the proponent, its parent company/subsidiaries, and the type of business; and

     

Bradesco