20-F 1 bbdform20f_2019.htm FORM 20-F bbdform20f_2019.htm - Generated by SEC Publisher for SEC Filing


 
 

 

TABLE OF CONTENTS

 

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

5

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

28

4.A. History and Development of the Company

28

4.B. Business Overview

30

4.C. Organizational Structure

114

4.D. Property, Plants and Equipment

114

ITEM 4.A. UNRESOLVED STAFF COMMENTS

115

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

115

5.A. Operating Results

115

5.B. Liquidity and Capital Resources

134

5.C. Research and Development, Patents and Licenses

147

5.D. Trend Information

147

5.E. Off-balance sheet arrangements

147

5.F. Tabular Disclosure of Contractual Obligations

148

5.G. Safe Harbor

148

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

148

6.A. Board of Directors and Board of Executive Officers

148

6.B. Compensation

160

6.C. Board Practices

161

6.D. Employees

165

6.E. Share Ownership

166

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

166

7.A. Major Shareholders

166

7.B. Related Party Transactions

170

7.C. Interests of Experts and Counsel

171

ITEM 8. FINANCIAL INFORMATION

171

8.A. Consolidated Statements and other Financial Information

171

8.B. Significant Changes

173

ITEM 9. THE OFFER AND LISTING

173

9.A. Offer and Listing Details

173

9.B. Plan of Distribution

175

9.C. Markets

175

9.D. Selling Shareholders

176

9.E. Dilution

177

 

 


 
 

 

9.F. Expenses of the Issue

177

ITEM 10. ADDITIONAL INFORMATION

177

10.A. Share Capital

177

10.B. Memorandum and Articles of Association

177

10.C. Material contracts

186

10.D. Exchange controls

186

10.E. Taxation

186

10.F. Dividends and Paying Agents

192

10.G. Statement by Experts

193

10.H. Documents on Display

193

10.I. Subsidiary Information

193

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

193

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

197

12.A. Debt Securities

197

12.B. Warrants and Rights

197

12.C. Other Securities

197

12.D. American Depositary Shares

198

PART II

198

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

198

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

198

ITEM 15. CONTROLS AND PROCEDURES

198

ITEM 16. [RESERVED]

199

16.A. Audit Committee Financial Expert

199

16.B. Code of Ethics

199

16.C. Principal Accountant Fees and Services

200

16.D. Exemptions from the listing standards for Audit Committees

200

16.E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

201

16.F. Change in Registrant’s Certifying Accountant

201

16.G. Corporate Governance

201

PART III

204

ITEM 17. FINANCIAL STATEMENTS

204

ITEM 18. FINANCIAL STATEMENTS

204

ITEM 19. EXHIBITS

204

SIGNATURES

204

 

3 Bradesco


 

Table of Contents

 

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Form 20-F

 

 

 PRESENTATION OF FINANCIAL AND OTHER INFORMATION

In this annual report, the terms “Bradesco”, the “Company”, the “Bank”, the “Bradesco Group”, “we”, the “Organization”, “our” and “us” refer to Banco Bradesco S.A., a sociedade anônima organized under the laws of Brazil and, unless otherwise indicated, its consolidated subsidiaries.

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, 2019 and 2018 and the corresponding notes, which are included under “Item 18. Financial Statements” of this annual report, were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

We use accounting practices adopted in Brazil for financial institutions authorized to operate by the Central Bank of Brazil (Banco Central do Brasil, or the “Central Bank”) for certain purposes, such as performance assessment, decision-making, preparation of reports for Brazilian shareholders, filings with the Brazilian Securities and Exchange Commission (“CVM”), attendance and observation of limits and requirements of local regulators and determining dividend and federal income tax payments.

Some data related to economic sectors presented in this annual report was obtained from the following sources: B3 (Brasil, Bolsa, Balcão) or (“B3”); 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; 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”).

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 “preferred share ADSs” in this annual report are to preferred share American Depositary Shares, each representing one preferred share. The preferred share ADSs are evidenced by preferred share American Depositary Receipts, or preferred share ADRs, issued pursuant to an Amended and Restated Deposit Agreement, dated as of December 11, 2015, by and among us, The Bank of New York Mellon, as depositary, and the holders and beneficial owners of preferred share ADSs evidenced by preferred share ADRs issued thereunder (the “Preferred Share ADS Deposit Agreement”).

References to “common share ADSs” in this annual report are related to common share American Depositary Shares, with each common share ADS representing one common share. The common share ADSs are evidenced by common share American Depositary Receipts, or common share ADRs, issued pursuant to an Amended and Restated Deposit Agreement dated as of December 11, 2015, 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 ADS Deposit Agreement” and, together with the “Preferred Share ADS Deposit Agreement”, the “Deposit Agreements”).

References throughout this annual report to “ADSs” are to our preferred share ADSs and common share ADSs, together.

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.

 

4 Form 20-F – December 2019


 
 
Table of Contents 
     

Form 20-F

 
 

FORWARD‑LOOKING STATEMENTS

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

·       the current instability in Brazilian macroeconomic conditions, together with political, economic and business uncertainties, as well as instabilities in global markets;

·       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, capital expenditure plans and to maintain and improve our operating performance;

·       our revenues from new products and businesses;

·       adverse claims, legal or regulatory disputes or proceedings;

·       inflation, fluctuations in the value of the real and/or interest rates, which could adversely affect our margins;

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

·       any failures in, or breaches of, our operational, security or technology systems;

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

·     the duration and severity of the novel coronavirus (“Covid-19”) outbreak and its impacts on the global and Brazilian economy and our business; 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 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.

5 Bradesco


 

Table of Contents

 

PART I

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 derived from our consolidated financial statements as of and for the years ended December 31, 2019, 2018, 2017, 2016 and 2015, which have been prepared in accordance with IFRS as issued by the IASB. The financial data as of December 31, 2019 and 2018 and for the years ended 2019, 2018 and 2017 is derived from our consolidated financial statements included in this annual report. The financial data as of December 31, 2017, 2016 and 2015 and for the years ended December 31, 2016 and 2015 are derived from our consolidated financial statements, which are not included herein.

In 2019, we adopted IFRS 16 – Leases, replacing IAS 17 Leases, IFRIC 4, SIC 15 and SIC 27, establishing that lessees account for all leases according to a single model, similar to the accounting entry for financial leases in IAS 17. The adoption was mandatory starting from January 1, 2019 and as a result, certain tables in this annual report containing financial data which were impacted by the adoption of IFRS 16 and the resultant consolidated amounts for 2019 are not comparable with prior periods. For further information, see Note 41 to our Financial Statements in “Item 18. Financial Statements”.

 In 2018, we adopted IFRS 9 – Financial instruments, which replaced IAS 39, which established a new approach for the classification and measurement of financial assets and liabilities, impairment, which replaces incurred losses with expected losses and hedge accounting. This adoption had its effects applied as of January 1, 2018, as a result, in certain tables containing financial data in this annual report, in the cases impacted by the adoption of IFRS 9, the consolidated amounts for 2019 and 2018 are not comparable with previous periods.

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”.

 

6 Form 20-F – December 2019


 
Table of Contents 
     

Form 20-F

 
 
 

Year ended December 31,

 R$ in thousands

2019

2018

2017

2016

2015

Data from the Consolidated Statement of Income

 

 

 

 

 

Interest and similar income

   124,417,705

   122,053,139

   126,232,328

   147,700,375

   127,048,252

Interest and similar expenses

   (58,617,986)

   (55,244,669)

   (75,589,415)

   (91,037,386)

   (71,412,210)

Net interest income

65,799,719

66,808,470

50,642,913

56,662,989

55,636,042

Net fee and commission income

25,337,676

23,831,590

22,748,828

20,341,051

17,820,670

Net gains/(losses) on financial instruments at fair value through profit or loss

  (1,090,917)

   (11,676,573)

  -  

  -  

  -  

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

  -  

  -  

   9,623,108

16,402,770

  (8,252,055)

Net gains/(losses) on financial instruments at fair value through other comprehensive income

   655,832

   1,073,563

  -  

  -  

  -  

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

  -  

  -  

   570,358

  (1,341,400)

  (671,810)

Losses on investments held-to-maturity

  -  

  -  

(54,520)

  -  

  -  

Net gains/(losses) on foreign currency transactions

   323,774

   1,096,826

   1,422,957

   150,757

  (3,523,095)

Net income from insurance and pension plans

   8,254,939

   7,656,872

   6,239,990

   4,155,763

   5,497,505

Other operating income

   8,143,628

  (1,849,312)

17,801,893

19,367,890

  (6,949,455)

Impairment of loans and advances

  -  

  -  

   (16,860,835)

   (15,350,278)

   (14,721,152)

Expected credit losses for loans and advances

   (12,532,133)

   (15,091,975)

  -  

  -  

  -  

Expected losses with other financial assets

  (1,472,394)

  (1,172,860)

  -  

  -  

  -  

Personnel expenses

   (24,526,318)

   (18,871,462)

   (20,723,265)

   (17,003,783)

   (14,058,047)

Other administrative expenses

   (16,489,578)

   (16,873,962)

   (16,882,461)

   (16,149,563)

   (13,721,970)

Depreciation and amortization

  (5,865,768)

  (4,808,255)

  (4,568,568)

  (3,658,413)

  (2,942,003)

Other operating income/(expenses)

   (26,214,836)

   (14,210,594)

   (10,133,357)

   (14,004,162)

   (12,988,553)

Other operating expense

   (87,101,027)

   (71,029,108)

   (69,168,486)

   (66,166,199)

   (58,431,725)

Income before income taxes and share of profit of associates and joint ventures

12,179,996

17,761,640

22,025,148

30,205,731

   8,075,532

Share of profit of associates and joint ventures

   1,201,082

   1,680,375

   1,718,411

   1,699,725

   1,528,051

Income before income taxes

13,381,078

19,442,015

23,743,559

31,905,456

   9,603,583

Income tax and social contribution

   7,792,129

  (2,693,576)

  (6,428,956)

   (13,912,730)

   8,634,322

Net income for the year

21,173,207

16,748,439

17,314,603

17,992,726

18,237,905

Attributable to shareholders

 

 

 

 

 

Controlling shareholders

21,023,023

16,583,915

17,089,364

17,894,249

18,132,906

Non-controlling interest

   150,184

  164,524

   225,239

  98,477

   104,999

 

Year ended December 31,

R$, except for number of shares

2019

2018

2017

2016

2015

Data on Earnings and Dividends per Share (1)

 

 

 

 

 

Earnings per share  (2)

 

 

 

 

 

Common

  2.49

  1.97

  2.03

  2.12

  2.36

Preferred

  2.74

  2.16

  2.23

  2.33

  2.60

Dividends/interest on equity per share (3)

 

 

 

 

 

Common

  1.88

  0.87

  0.85

  0.83

  0.79

Preferred

  2.07

  0.95

  0.94

  0.91

  0.87

Weighted average number of outstanding shares (1)

 

 

 

 

 

Common

   4,025,988

   4,025,988

   4,025,988

   4,025,988

   3,660,187

Preferred

   4,007,025

   4,007,025

   4,007,025

   4,007,025

   3,645,500

(1) Adjusted for corporate events occurred in the periods. For more information about the company events, see "Item 9.A. Offer and Listing Details;"

(2) 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

(3) Holders of preferred shares are entitled to receive dividends per share in an amount 10.0% higher than the dividends per share paid to common shareholders. In 2019, we made an extraordinary dividend payment of R$ 8.0 billion, paid on October 23, 2019.

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 Association."

 

Year ended December 31,

In US$

 

 

 

 

2019

2018

2017

2016

2015

Dividends/interest on equity per share (1)

 

 

 

 

 

Common

0.47

0.22

0.26

0.25

0.20

Preferred

0.51

0.25

0.28

0.28

0.22

(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.

 

7 Bradesco


 

Table of Contents

 

3.A. Selected Financial Data

Form 20-F

 

    

As of December 31,

R$ in thousands

2019

2018

2017

2016

2015

Data from the Consolidated Statement of Financial Position

 

 

 

 

 

Assets

 

 

 

 

 

Cash and balances with banks

  109,610,999

  107,209,743

81,742,951

72,554,651

72,091,764

Financial assets at fair value through profit or loss

  249,759,777

  246,161,150

  -  

  -  

  -  

Financial assets held for trading

  -  

-  

  241,710,041

  213,139,846

  159,623,449

Financial assets at fair value through other comprehensive income

  192,450,010

  178,050,536

  -  

  -  

  -  

Financial assets available for sale

  -  

-  

  159,412,722

  113,118,554

  117,695,450

Financial assets at amortized cost

  -  

-  

  -  

  -  

  -  

Loans and advances to banks, net of impairment

59,083,791

  105,248,950

32,247,724

94,838,136

35,620,410

Loans and advances to customers, net of impairment

  423,528,716

  380,387,076

  346,758,099

  367,303,034

  344,868,464

Securities, net of impairment

  166,918,360

  140,604,738

  -  

  -  

  -  

Other financial assets

56,101,781

   43,893,309

  -  

  -  

  -  

Investments held to maturity

  -  

-  

39,006,118

43,002,028

40,003,560

Financial assets pledged as collateral

  -  

-  

  183,975,173

  155,286,577

  144,489,921

Non-current assets held for sale

  1,357,026

  1,353,330

  1,520,973

  1,578,966

  1,247,106

Investments in associates and joint ventures

  7,635,612

  8,125,799

  8,257,384

  7,002,778

  5,815,325

Premises and equipment

14,659,222

  8,826,836

  8,432,475

  8,397,116

  5,504,435

Intangible assets and goodwill, net of accumulated amortization

14,724,647

   16,128,548

16,179,307

15,797,526

  7,409,635

Taxes to be offset

15,685,801

   13,498,264

10,524,575

  7,723,211

  6,817,427

Deferred income tax assets

59,570,055

   48,682,569

43,731,911

45,116,863

45,397,879

Other assets

  7,441,888

  7,372,866

50,853,987

47,170,370

40,118,697

Total assets

  1,378,527,685

  1,305,543,714

  1,224,353,440

  1,192,029,656

  1,026,703,522

Liabilities

 

 

 

 

 

Liabilities at amortized cost

 

 

 

 

 

Deposits from banks

  227,819,611

  247,313,979

  285,957,468

  301,662,682

  293,903,391

Deposits from customers

  366,227,540

  340,748,196

  262,008,445

  232,747,929

  194,510,100

Funds from issuance of securities

  170,727,564

  148,029,018

  135,174,090

  151,101,938

  109,850,047

Subordinated debt

49,313,508

   53,643,444

50,179,401

52,611,064

50,282,936

Other financial liabilities

79,121,127

   62,598,235

  -  

  -  

  -  

Financial liabilities at fair value through profit or loss

14,244,083

   16,152,087

  -  

  -  

  -  

Financial liabilities held for trading

  -  

-  

14,274,999

13,435,678

19,345,729

Provision for expected losses

 

 

 

 

 

- Loan Commitments

  2,318,404

  2,551,676

  -  

  -  

  -  

- Financial Guarantees

  1,970,321

  719,216

  -  

  -  

  -  

Technical provisions for insurance and pension plans

  268,302,691

  251,578,287

  239,089,590

  215,840,000

  170,940,940

Other reserves

25,239,929

   19,802,171

18,490,727

18,292,409

15,364,317

Current income tax liabilities

  2,595,277

  2,373,261

  2,416,345

  2,130,286

  2,781,104

Deferred income tax assets

  1,080,603

  1,200,589

  1,251,847

  1,762,948

  772,138

Other liabilities

34,023,453

   34,157,435

97,816,824

96,965,515

78,038,058

Total liabilities

  1,242,984,111

  1,180,867,594

  1,106,659,736

  1,086,550,449

  935,788,760

Shareholders’ equity

 

 

 

 

 

Capital

75,100,000

   67,100,000

59,100,000

51,100,000

43,100,000

Treasury shares

(440,514)

(440,514)

(440,514)

(440,514)

(431,048)

Capital reserves

35,973

35,973

35,973

35,973

35,973

Profit reserves

51,986,423

   53,267,584

49,481,227

50,027,816

49,920,020

Additional paid-in capital

70,496

70,496

70,496

70,496

70,496

Other comprehensive income

  7,871,482

  2,206,718

  1,817,659

(398,708)

(4,002,724)

Retained earnings

  475,606

  2,035,198

  7,338,990

  4,907,381

  2,096,710

Equity attributable to controlling shareholders

  135,099,466

  124,275,455

  117,403,831

  105,302,444

90,789,427

Non-controlling interest 

  444,108

  400,665

  289,873

  176,763

  125,335

Total equity

  135,543,574

  124,676,120

  117,693,704

  105,479,207

90,914,762

Total liabilities and equity

  1,378,527,685

  1,305,543,714

  1,224,353,440

  1,192,029,656

  1,026,703,522

 

8 Form 20-F – December 2019


 
Table of Contents 
     

Form 20-F

 
 
 

3.B. Capitalization and Indebtedness

 

Not applicable.

 

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

 

Not applicable.

 

3.D. Risk Factors

 

3.D.10 Macroeconomic risks

 

3.D.10.01 Domestic Environment

 

3.D.10.01-01 The impact of the COVID-19 pandemic on the global and domestic economy may negatively affect our operations and financial position.

 

The recent COVID-19 pandemic has generated great challenges and uncertainties around the world. It is the largest health crisis of our time, according to the WHO. In order to mitigate the impacts of this crisis, governments and central banks around the world have intervened in the economy of their countries and have adopted unconventional measures, like the closing of non-essential economic activity and actions of monetary stimulus, with the practice of zero interest rates in addition to fiscal expansion. However, it is not yet possible to affirm whether these measures will be sufficient to prevent a global recession in 2020.

The scenario being traced for Brazil at the beginning of 2020 was positive, with projections that the country would have a substantial acceleration in GDP growth acceleration with additional advances in the reform agenda and the maintenance of interest rates at historically low levels. However, the Brazilian economy is not immune to a global crisis of such large proportions. Following confirmation of the first case of COVID-19 in Brazil in January, the number of infections have increased rapidly.

The impact of the pandemic has generated certain negative impacts on the Brazilian economy, including: (i) higher risk aversion, with pressures on the exchange rate; (ii) greater difficulties in foreign trade; and (iii) an increase in the uncertainties of economic agents. These impacts have been intensifying over time. As a response to the crisis, regional governments in most parts of Brazil imposed restrictions that largely paralysed economic activity in Brazil. In order to combat some of the economic effects of the pandemic, Committee of the Central Bank (Comitê de Política Monetária – "COPOM") and the Central Bank have also implemented various measures, such as a decrease in the base interest rate from 4.25% to 3.75% (a new historic minimum – this reduction occurred in a context of well anchored inflationary expectations, core inflation at levels below the inflation target and high idle capacity in the economy, which had been gradually reducing in the previous quarters).

In addition, the CMN, the Central Bank and the Federal Government have implemented a variety of measures to help the Brazilian economy face the adverse effects caused by the virus by means of:

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·      Resolution No. 4,782/20, which aims to facilitate the renegotiation of loans to companies, allowing for adjustments in the cash flows of companies and not requiring the banks to increase the provisioning;

·      Resolution No. 4,783/20, which reduced the minimum capital requirements, in order to enhance the lending capacity of banks;

·      Resolution No. 4,784/20, which extends the effects of the 'tax assets arising from tax losses' in the calculation of the 'prudential adjustments' – as originally stipulated in Resolution No. 4,680/18;

·      Resolution No. 4,786/20, which aims to ensure the maintenance of adequate levels of liquidity in the National Financial System, allowing the Central Bank to grant loans through the Special Temporary Liquidity Line ("LTEL"), regulated by Circular No. 3,994/20;

·      Resolution No. 4,803/20, amendments to the criteria the measurement of provisions  for doubtful debtors of the renegotiated operations by financial institutions and others authorized by the Central Bank, due to the COVID-19 pandemic. With this Resolution, the reclassification of the renegotiated operations is permitted between March 1 and September 30, 2020 to the level they were classified into on February 29, 2020;

·      Circular No. 3,991/20, which dismissed the advance notification of the amendment of the opening hours and compliance with the mandatory and uninterrupted hours in the case of multiple banks, like ours;

·      Circular No. 3,993/20, which reduced the percentage of the compulsory on time deposits and perfects the rules of the Liquidity Coverage Ratio ("LCR"). The practical and joint effect of these measures is the improvement in the liquidity conditions of the National Financial System; and

·      Provisional Measure No. 930/20, which aims to eliminate the asymmetry of tax treatment between the results of the exchange rate variation on investments of banks abroad and the result of the hedge/overhedge for the foreign exchange hedging of these investment. In moments of higher volatility, like the current one, the exchange rate variations cause the overhedge to increase the consumption of capital of banks and extend the market volatility, with negative effects for its functionality. The proposed measure aims to correct this imbalance, eliminating this negative effect on the foreign exchange market and on banks.

Legislative Powers have also tried to approve bills that minimize the repercussion of COVID-19, including proposing the temporary suspension of taxes (such as the relaxation of the IOF on loan and the deferral of payment of PIS/COFINS) and granting tax benefits to the sectors of the economy/workers most affected.

However, projections estimate that Brazil will face an economic downturn in 2020. As the vast majority of our operations are conducted in Brazil, our results are significantly impacted by macroeconomic conditions in Brazil.

We cannot control, and nor can we predict what measures or policies the government may adopt in response to the current or future economic situation in Brazil, nor how the intervention or government policies will affect the Brazilian economy and how they will affect our operations and revenue. Initially, we expect our assets and liabilities to be impacted as a result of the COVID-19, however, considering the current stage of the crisis and the approved date of the financial statements in IFRS it was not possible to estimate the impacts of the COVID-19.

However, our activities are in full operational capability. Since the beginning of the pandemic, our actions have taken into account the guidelines of the Ministry of Health. We have established a crisis committee formed by the Chief Executive Officer, all Vice-Presidents and the Chief Risk Officer (CRO), which meets daily and reports periodically, to the Board of Directors, evaluations on the evolution of Covid-19 and its effects on operations. In addition, we have a Risk Committee, which plays an important role in verifying the various points and scope of these actions in the Organization. We launched the Business Continuity Plan (PCN), and since the second half of March 2020, we have intensified internal and external actions, in a consistent and timely manner, with the aim of minimizing the impacts involved, of which we highlight:

·      giving leave to employees of at-risk groups for an indefinite period of time;

·      increasing the number of employees working from home, with approximately 90% of our employees from the headquarters and offices and 50% of the branch employees working from home;

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·      defining the protocol, together with our Medical Area, for employees and family members who have symptoms of COVID-19; and

·      intensifying the communication with our branches, providing guidance to our customers and employees about the prevention measures and the remote means of customer service.

Below we highlight the main items of our balance sheet which may potentially be impacted:

 

·        Financial instruments: whose fair value may vary significantly given the price volatility of these assets, especially those issued by private companies that have a higher credit risk;

·        Loans and advances and other credit exposures: we expect an increase in our level of arrears in the payment of loans, to the extent that the economic situation will deteriorate further, as well as facing significant challenges to take possession and realize the collateral resulting from guarantees related to loans in default;

·        Deferred tax assets: whose recoverability depends on future taxable profits, which may be affected depending on the consequences of the pandemic event if it extends over a long period of time;

·        Intangible assets: may have their recoverable amount impacted on the basis of the changes caused by the crisis to their main assumptions of realization, such as the rates of returns initially expected;

·        Funding: volatility, as well as uncertainties in credit and capital markets, generally reduces liquidity, which could result in an increase in the cost of funds for financial institutions, which may impact our ability to replace, appropriately and at reasonable costs, obligations that are maturing and/or the access to new resources to execute our growth strategy;

·        Technical provisions of insurance and pension plans: depending on the evolution of the crisis these may be impacted negatively given the possible increase in the level of claims, mainly in the "life" segment and a higher frequency of claims from "health" policyholders with the increased use of hospitals, furthermore, we may experience higher demand for early redemptions by pension plan participants, which would impact our revenues through a reduction in the management fees we charge; and

·        Civil and labor provisions: the number of labor lawsuits may increase as a result of third party suppliers that go bankrupt as we may be considered co-responsible in these lawsuits. It is also possible that we could experience a greater volume of civil processes, mainly involving reviews and contract renewals.

One of the main objectives of our structure of risk management is monitor the allocation of capital and liquidity, aiming to maintain the levels of risk in accordance with the limits established and, in addition, monitor the economic scenarios actively (national and international), as well as the evolution of the COVID-19 pandemic and will make every effort to maintain the fullness of our operations, the services to the population, and the stability of the national financial system.

We offer emergency lines of credit to companies, such as funds for the financing of payrolls, as well as the extension of the installments of loan operations to individuals for which the amounts in question, up to the date of this annual report, were immaterial.

We will continue to measure the future financial and economic impacts related to the pandemic, although, they possess a certain level of uncertainty and depend on the development of pandemic, as its duration or deterioration cannot yet be predicted, which could continue adversely affecting the global and local economy for an indefinite period of time, which could negatively affects the results of financial institutions and consequently the performance of our operations.

 

3.D.10.01-02 The 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 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 government may take in response to the current or future Brazilian economic situation or how government intervention and government policies will affect the Brazilian economy and our operations and revenues.

Our operations, financial condition and the market price of our shares, preferred share ADSs and common share ADSs may be adversely affected by changes in certain policies related to 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;

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·       allegations of corruption against political parties, public officials, including allegations made in relation to the "Operation Car Wash" investigation, among others;

·       the impact of widespread health developments, such as Covid-19, and the governmental, commercial, consumer and other responses thereto; and

·       other political, diplomatic, social and economic developments, natural disasters, public health concerns, epidemics and pandemics within and outside of Brazil that affect the country.

Changes in, or uncertainties regarding, the implementation of the policies listed above could contribute to economic uncertainty in Brazil, increasing volatility in the Brazilian capital markets and reducing the value of Brazilian securities traded internally or abroad.

Historically, the country's political landscape has influenced the performance of the Brazilian economy and the political crises have affected the confidence of investors and the general public, which has resulted in a slowdown in the economy and greater volatility in the securities of Brazilian companies issued abroad.

Until the outbreak of Covid-19, the current government had been conducting an economic agenda with actions to reduce government spending, preparing the economy to compete in international markets, improving the commercial environment and promoting privatizations and infrastructure concessions. The macroeconomic priorities during the Covid-19 pandemic, however, are focused on mitigating human and economic risks, which will result in temporary changes or interruptions to this economic agenda.

The uncertainty surrounding the implementation of the government's economic agenda and when this may resume after the Covid-19 pandemic, as well as the direction economic policy may take in the future, influence the perception of risk in Brazil among foreign investors, which in turn may adversely affect the market value of our common shares, preferred share ADSs and common share ADSs. For example, the market value of Brazilian companies has become more volatile during the previous presidential elections.

 

 

3.D.10.01-03 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. Inflation and governmental measures to combat inflation had significant negative effects on the Brazilian economy and contributed to increased economic uncertainty and increased volatility in the Brazilian securities markets, which may have an adverse effect on us.

The memory of, and the potential for inflation, is still present, despite the monetary stability achieved in the mid-1990s, intensified as a result of the adoption of inflation targeting norms, with concerns that inflation levels might rise again. Current economic policy in Brazil is premised on a monetary regime which the Central Bank oversees in order to assure that the effective rate of inflation keeps in line with a predetermined and previously announced target. Brazil's rates of inflation reached 4.3% in 2019 and 3.8% in 2018, as measured by the Extended Consumer Price Index – "IPCA" (Índice Nacional de Preços ao Consumidor Amplo).

Faced with high expectations and high economic inactivity, which had been gradually reducing since 2017, inflation has remained below the middle of the target (4.0% for 2020). Despite recent exchange rate pressure, the more fragile economic activity resulting from the Covid-19 pandemic has brought inflation to levels closer to the target floor (2.5%), which could eventually lead to further decreases in interest rates.

Decreases in the base interest rate ("SELIC") set by the COPOM may have an adverse effect on us by reducing the interest income we receive from our interest-earning assets and lowering our revenues and margins. Increases in SELIC rate may also have an adverse effect on us by reducing the demand for our credit, and increasing our cost of funds, domestic debt expense and the risk of customer default.

Future 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 different from 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 and capital 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, preferred share ADSs and common share ADSs.

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3.D.10.01-04 Changes in the base interest rate by the Central Bank may materially adversely affect our margins and results of operations.

The stabilization of inflation allowed the Central Bank to reduce the basic interest rate to the lowest level in history. The SELIC, which in the first quarter of 2019 remained at 6.5% per annum ("p.a."), was reduced several times in the second quarter, having been progressively reduced and closing the year at 4.5% p.a. In February, the SELIC was reduced to 4.25%, and the Central Bank signaled the interruption of the loosening cycle. However, in March, in light of the intensification of risks due to the Covid-19 pandemic, the monetary authority made a further reduction to 3.75%, a new historical low. However, actions related to the reduction of compulsory fees and increasing liquidity in general were adopted as a stimulus in response to the shutdown of the economy.

This process of reducing the SELIC to its lowest historic level was influenced by the high level of inactivity in the goods and labor markets, but it was a credible move by the Central Bank, which has also advanced in its agenda of modernizing and reducing distortions in the Brazilian financial system. Such modernization includes a reduction in compulsory fees, a reduction in informational asymmetries and increased competition in the banking market. Changes in the base interest rate may affect our results of operations as we have assets and liabilities indexed to the SELIC. At the same time, high base interest rates may increase the likelihood of customer delinquency, due to the deceleration in the economic activity. Similarly, low base interest rates may increase the leverage of borrowers, generating additional risk to financial system.

The COPOM adjusts the SELIC rate in order to keep inflation within the range of targets set by the National Monetary Council ("CMN") to manage the Brazilian economy. We have no control over the SELIC rate or how often such a rate is adjusted.

 

 

3.D.10.01-05 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, preferred share ADSs and common share ADSs.

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 issuers based in Brazil. Crises in other emerging market countries may diminish investor interest in securities of issuers based in Brazil, including ours, which could adversely affect the market price of our shares, preferred share ADSs and common share ADSs.

 

 

3.D.10.01-06 Our investments in debts securities issued by the Brazilian government expose us to additional risks associated with Brazil.

We invest in debt securities issued by the Brazilian government. The trading price of these securities is affected by, among other things, market conditions in Brazil, the perception of Brazil and the related perception of the Brazilian government's ability to repay principal and/or make interest payments. Accordingly, adverse developments or trends in any of these areas could have a knock-on adverse effect on the value of our securities portfolio, thereby affecting our financial condition and results of operations, which may affect the market value of our shares, preferred share ADSs and common share ADSs.

 

 

3.D.10.01-07 Changes in taxes and other fiscal assessments may adversely affect us.

The 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. 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.

 

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3.D.10.02 External Environment

 

 

3.D.10.02-01 Currency exchange variations may have an adverse effect on the Brazilian economy and on our results and financial condition.

Fluctuations in the value of the real may impact our business. After an extended period of appreciation, interrupted only in late 2008 as a result of the global crisis, the Brazilian real started to weaken in mid-2011, a trend which continued until mid-2016. After a brief period of stable exchange rates, the real was once again devalued against the dollar. Weaker currency periods make certain local manufacturers (particularly exporters) more competitive, but also make managing economic policy, particularly inflation, increasingly difficult, even with a slowdown in growth. A weaker real also adversely impacts companies based in Brazil with U.S. dollar indexed to and/or denominated debt.

 

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As of December 31, 2019, the net exposure in relation to our assets and liabilities denominated in, or indexed to, foreign currencies (primarily U.S. dollars) was 39.7% of our net asset. If the Brazilian currency devaluates or depreciates, we risk 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. Accordingly, 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, preferred share ADSs and common share ADSs, even if the value of the liabilities has not changed in their originated currency. In addition, our lending transactions 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 may incur losses on our monetary assets denominated in, or indexed to, foreign currencies, mainly, the U.S. dollar, and we may experience decreases in our liabilities denominated in, or indexed to, foreign currencies, as the liabilities and assets are converted 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 originated currency.

 

3.D.10.02-02 The exit of the United Kingdom (the "U.K") from the European Union could adversely impact global economic or market conditions.

On June 23, 2016, the U.K.'s electorate voted in a general referendum in favor of the U.K.'s exit from the European Union (so-called "Brexit"). After a formal notification made by the United Kingdom pursuant to Article 50 of the Treaty on European Union ("EU"), the United Kingdom left the European Union on January 31, 2020, at 11 pm local time. At the meeting of the Special European Council (Article 50) of April 10, 2019, it was agreed that the Brexit would be postponed until October 31, 2019. At that moment, the EU treaties no longer applied to the United Kingdom. However, as part of the withdrawal agreement (the "Withdrawal Agreement"), the United Kingdom now finds itself in a period of implementation (the "Transition Period") during which the EU legislation still applies to the United Kingdom, which continues to be part of the single EU market, until the end of 2020 (with the possibility of extension).

The terms for the United Kingdom to leave the EU, including the future relationship and access to the European Market, are not clear. The Withdrawal Agreement does not address, in general, the future relationship between the EU and the United Kingdom that should be the object of a separate agreement that has not yet been negotiated.

To the extent that the United Kingdom determines what EU laws to replace or replicate, the Brexit can lead to diverging national laws and regulations. The uncertainty as to the terms of the Brexit and their possible effects, once implemented, can negatively affect the confidence of investors, and the economic conditions of the European or the global market. This, in turn, may adversely affect our business and/or the market value of our shares, preferred share ADSs and common share ADSs.

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3.D.20 Risks relating to us and the Brazilian banking industry

 

3.D.20.01 Market Risk

 

3.D.20.01-01 Losses in our investments in financial assets at fair value through profit or loss and at fair value through other comprehensive income may have a significant impact on our results of operations and are not predictable.

The fair value of certain investments in financial assets may decrease significantly and may fluctuate over short periods of time. As of December 31, 2019, the investments classified as "fair value through profit or loss" and as "fair value through other comprehensive income" represented 32.1% of our assets, and realized and unrealized gains and losses originating from these investments have had and may continue to have a significant impact on the results of our operations. The amounts of these gains and losses, which we record when investments in securities are sold, or in certain limited circumstances when they are recognized at fair value, may fluctuate considerably from period to period.

Despite impacting our investment policies, asset and liability management (“ALM”) and risks, the models adopted may not prevent certain more abrupt oscillations in the movements of the market, so that the profitability of the operations is feasible, in certain moments, from effects that negatively affect its contribution in our income and shareholders’ equity.

 

3.D.20.02 Credit Risk

 

3.D.20.02-01 We may experience increases in our level of past due loans as our loans and advances portfolio becomes more seasoned.

Historically, our loans and advances to customer portfolios registered an increase, interrupted in 2017 due to recession in the Brazilian economy experienced during the year, and resuming growth in 2018. Any corresponding rise in our level of non-performing loans and advances may lag behind the rate of loan growth, as loans typically do not have due payments for a short period of time after their origination. Levels of past due loans are normally higher among our individual clients than our corporate clients.

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Our delinquency ratios, calculated based on information prepared in accordance with accounting practices adopted in Brazil ("BR GAAP"), which is defined as the total loans overdue for over ninety days in relation to the total portfolio of loans and advances decreased to 3.3% as of December 31, 2019, compared to 3.5% as of December 31, 2018.

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 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.

 

 

3.D.20.02-02 We may incur losses associated with counterparty exposures.

Counterparties may default on their obligations due to bankruptcy, lack of liquidity, operational failure or other reasons. This risk may arise, for example, as a result of 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 default by counterparties is higher.

 

 

3.D.20.02-03 We may face significant challenges in possessing and realizing value from collateral with respect to loans in default.

If we are unable to recover sums owed to us under secured loans in default through extrajudicial measures such as restructurings, our last recourse with respect to such loans may be to enforce the collateral secured in our favor by the applicable borrower. Depending on the type of collateral granted, we either have to enforce such collateral through the courts or through extrajudicial measures. However, even where the enforcement mechanism is duly established by the law, Brazilian law allows borrowers to challenge the enforcement in the courts, even if such challenge is unfounded, which can delay the realization of value from the collateral. In addition, our secured claims under Brazilian law will in certain cases rank below those of preferred creditors such as employees and tax authorities. As a result, we may not be able to realize value from the collateral, or may only be able to do so to a limited extent or after a significant amount of time, thereby potentially adversely affecting our financial condition and results of operations.

 

 

3.D.20.02-04 We may incur losses due to impairments on goodwill from acquired businesses.

We record goodwill from acquisitions of investments whose value is based on estimates of future profitability pertaining to business plans and budgets prepared by us. Annually, we assess the basis and estimates of profitability of the Cash-Generating Units ("Unidades Geradoras de Caixa" or "UGC") in respect of which the premiums are allocated. These evaluations are made through cash flow projections based on growth rates and discount rates, with those projections then being compared to the value of the premiums in order to conclude whether there is a basis to record impairments in relation to these assets. However, given the inherent uncertainty in relation to predictions of future cash flow projections, we cannot provide assurances that our evaluations of premiums will not require impairments to be recorded in future, which may negatively affect, the result of our operations, our financial condition and the market value of our shares, preferred shares ADSs and common shares ADSs.

 

 

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3.D.20.03 Liquidity Risk

 

3.D.20.03-01 Adverse conditions in the credit and capital markets, just like the value and/or perception of value of Brazilian government securities, may adversely affect our ability to access funding in a cost effective and/or timely manner.

Volatility as well as 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.

Part of our funding originates from repurchase agreements, which are largely guaranteed by Brazilian government securities. These types of transaction are generally short-term and volatile in terms of volume, as they are directly impacted by market liquidity. As these transactions are typically guaranteed by Brazilian government securities, the value and/or perception of value of the Brazilian government securities may be significant for the availability of funds. For example, if the quality of the Brazilian government securities used as collateral is adversely affected, due to the worsening credit risk, the cost of these transactions could increase, making this source of funding inefficient for us. For further information about obligations for repurchase agreements, see "Item 5.B. Liquidity and Capital Resources – 5.B.20. Liquidity and funding".

If the market shrinks, which could cause a reduction in volume, or if there is increased collateral credit risk and we are forced to take and/or pay unattractive interest rates, our financial condition and the results of our operations may be adversely affected.

 

3.D.20.03-02 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. In addition, we enter into derivatives transactions, mainly, to manage our exposure to interest rate and exchange rate risk. Such derivatives transactions are designed to protect us against increases or decreases in exchange rates or interest rates.

 

3.D.20.03-03 Changes in regulations regarding reserve and compulsory deposit requirements may reduce operating margins.

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

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

·

a portion of our compulsory deposits with the Central Bank do not bear interest; 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".

Rules related to compulsory deposits have been changed from time to time by the Central Bank, as described in "Item 4.B. Business Overview – 4.B.70.02-05 – Compulsory Deposits".

As of December 31, 2019, our compulsory deposits in connection with demand, savings and time deposits and additional compulsory deposits were R$90.6 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.

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3.D.20.04 Underwriting Risk

 

3.D.20.04-01 Our losses in connection with insurance claims may vary from time to time. Differences between the losses from actual claims, underwriting and reserving assumptions and the related provisions may have an adverse effect on us.

The results of our operations depend significantly 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 rates, expenses, persistency, and certain macroeconomic factors, such as inflation and interest rates. These assumptions may deviate from our prior experience, due to factors beyond our control such as natural disasters (floods, explosions and fires), 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 or increases in mortality rates as a result of  the covid-19 pandemic, 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. Accordingly, the establishment of the related provisions is inherently uncertain and our actual losses usually deviate, sometimes substantially, from such estimated amounts. To the extent that actual claims are 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 financial condition and results of operations.

 

3.D.20.04-02 We are 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 liable to our policyholders.

 

3.D.20.05 Operational Risk

 

3.D.20.05-01 A failure in, or breach of, our operational, security or technology systems could temporarily interrupt our businesses, increasing our costs and causing losses.

We operate to provide security for the proper running of the business and to achieve the objectives established in accordance with applicable laws and regulations, ensuring processes have efficient controls. We constantly invest in the improvement and evolution of safety controls, resilience, continuity and management of our information technology systems and as a result have created an environment with a high capacity to process data for our operating systems and our financial and accounting systems.

Due to the nature of our operations, the wide range of products and services offered and the significant volume of activities and operations performed, as well as the global context, where there is an ever-increasing integration among platforms, dependency on technology and on the internet, our information technology systems are exposed to various types of risks, due to both internal or external factors.

We and other financial institutions, including governmental entities, have already experienced cyber security events in relation to our information technology systems. Due to the controls, we have in place, we

 

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have not experienced any material loss of data from these attacks to date, neither from hardware nor from a data information loss perspective. However, considering the use of new technologies, the increasing dependency on the internet and the changing and sophisticated nature of cyber security events, it is not possible to predict all the means that will be used by individuals or organizations with harmful intent.

We believe that risk management is essential to ensure the long-term stability of financial institutions, whose processes involves several areas with specific assignments, ensuring an efficient structure. Item 4.B deals with other existing controls to mitigate the risks in more detail.

 

3.D.20.06 Compliance, Conduct and Ethics Risk

 

3.D.20.06-01 We may be subject to negative consequences in the event of an adverse judgment in the judicial proceedings related to Operation Car Wash and Operation Zealots, including the related class-action lawsuits.

Due to the so-called Operation Zealots or "Operação Zelotes", which investigates the alleged improper performance of members of the Administrative Council of Tax Appeals ("CARF"), a criminal proceeding against two former members of our Diretoria Executiva was opened in 2016 and received by the 10th Federal Court of Judicial Section of the Federal District. The investigation phase of the process was already completed, and we are currently awaiting the decision of the first instance court.

Our Management conducted a careful internal evaluation of records and documents related to the matter and found no evidence of any illegal conduct by its representatives. We have provided all relevant information as requested to the competent authorities and regulatory bodies, both in Brazil and abroad.

As a result of the news about the Operation Zealots, a Class Action was filed against us and members of our Diretoria Executiva before the District Court of New York ("Court"), on June 3, 2016, based on Section 10 (b) and 20 (a) of the Securities Exchange Act of 1934. On July 1, 2019, we and the Lead Plaintiff entered into an agreement ("Agreement") to terminate the Class Action, with the payment of US$14.5 million by us. The Agreement was finally approved by the Court on November 18, 2019 and the case was closed in relation to us and the former members of our Diretoria Executiva. The Agreement does not represent the recognition of guilt or admission of liability by us, and we only entered into it to avoid uncertainties, costs and onus related to the progression of the Class Action.

Also as a result of Operation Zealots, the General Internal Affairs of the Ministry of Finance (Corregedoria Geral do Ministério da Fazenda) began an administrative investigation to verify the need to file an Administrative Accountability Process ("PAR"). The filing decision of the related procedure was published in Section 2 of the Diário Oficial da União (Federal Official Gazette) on February 3, 2020. The decision by the Official of the Ministry of Economy accepted in full the Final Report of the Processing Committee, the Opinion of the National Treasury Attorney General's Office and the Joint Order of the General Coordination of Management and Administration, and of the Leadership of the Advisory and Judgment Division, which confirmed, expressly recognizing, the lack of evidence that we had promised, offered or given, directly or indirectly, an unfair advantage to public agents involved in the related operation, in accordance with the provisions laid down in Article 5, section I, of Law No. 12,846/13.

In 2014 our subsidiary Banco Bradesco BBI S.A. (“Bradesco BBI”) was included as a party to legal proceedings filed in the United States against Petrobras and other defendants, due to its role as underwriter in a note offering of Petrobras. The agreement proposed by Petrobras was definitively approved by the American Court and the lawsuit was dropped.

The progress of the “Operation Car Wash” investigation and the unfolding events and the possibility of new accusations may significantly change the Brazilian political and economic climate.

 

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3.D.20.06-02 Financial institutions can be legally involved in lawsuits originating from actions related to anti-corruption and money laundering to terrorism financing ("PLD/FT").

In light of the on-going anti-corruption agenda in Brazil, including the prevention of money laundering and the financing of terrorism ("PLD/FT"), may result in new investigations or legal proceedings in respect of alleged PLD/FT. Financial institutions, including us, could be involved in legal actions resulting from the actions perpetrated by individuals or corporate entities related to the inappropriate use of the financial system for various purposes or unlawful acts, despite us being in compliance with our current obligations. Involvement in these actions may result in negative publicity for us, and adverse conclusions may negatively affect our financial condition, our results of operations and the market value of our shares, preferred shares ADSs and common shares ADSs.

For example, in 2019, in the context of the Operation Over and Out, an offshoot of “Operation Car Wash” (“Operação Lava Jato”), two of our former managers were investigated and reported by the Federal Attorney's Office for alleged involvement in the opening and maintenance of current accounts of companies with irregular features. We conducted a thorough internal investigation and adopted the governance measures we deemed necessary, putting ourselves at the disposal of the authorities to contribute to the verification of the facts. We cannot assure you that we will not be subject to further investigations or similar accusations in the future.

 

3.D.20.06-03 The government regulates the operations of Brazilian financial institutions and insurance companies. 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 are subject to extensive and continuous regulatory review by the 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 limitations in fixed assets;

·         lending limits and other credit restrictions;

·         earmarked loan operations, such as housing loans and rural loans;

·         accounting and statistical requirements;

·         minimum coverage;

·         mandatory provisioning policies;

·         limits and other restrictions on rates; and

·         limits on the amount of interest that banks can charge and the period for which they can capitalize on interest.

The regulatory structure governing banks and insurance companies based in Brazil 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 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. Regulations issued by the Central Bank are not subject to a legislative process. Therefore, those regulations can be enacted and implemented in a very short period of time, thereby affecting our activities in sudden and unexpected ways.

 

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3.D.20.06-04 The Brazilian Constitution used to establish a ceiling on loan interest rates and if the government enacts new legislation with a similar effect in the future, our results of operations may be adversely affected.

Article 192 of the Brazilian Constitution, enacted in 1988, established a 12.0% p.a. ceiling on bank loan interest rates. However, since the enactment of the Brazilian 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 STF, 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 Law No. 10,406/02 (or the "Civil Code"), unless the parties to a loan have agreed to use a different rate, in principle the interest rate ceiling has been pegged to the base rate charged by the National Treasury Office (Tesouro Nacional). There is currently an uncertainty as to whether such base rate which is referred to in the Civil Code is: (i) the SELIC rate, the base interest rate established by COPOM, which was 4.5% p.a. as of December 31, 2019 and 6.5% p.a. as of December 31, 2018; or (ii) the 12.0% p.a. rate established in Article 161, paragraph 1, of Law No. 5,172/66, as amended ("Brazilian Tax Code"), which is the default interest rate due when taxes are not paid on time.

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 financial institutions based in Brazil, 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.

On November 27, 2019, Resolution No. 4,765/2019 was amended by the CMN that regulates overdraft facilities granted by financial institutions for a demand deposit account, providing, among other matters, the limit for the interest rates on the amount of the overdraft used. For further information, see "Item 4.B. Business Overview – 4.B.70 Regulation and Supervision – 4.B.70.02 Banking Regulations – 4.B.70.02-14 - Use of the overdraft". Since this is a very recent change, it is still unclear if this will affect our operating results positively or negatively.

 

3.D.20.06-05 We may incur penalties in case of non-compliance with data protection laws.

In August 2018, Law No. 13,709/18 – General Data Protection Law ("LGPD", in Portuguese) was enacted, which creates a set of rules for the use, protection and transfer of personal data in Brazil, in the private and public spheres, and establishes responsibilities and penalties in the civil sphere. In addition to including existing rules on the subject, the LGPD followed the global trend of strengthening the protection of personal data, restricting its unjustified use, and guaranteeing a series of rights to holders of data, as well as imposing important obligations on so-called "treatment agents". In particular, the LGPD was inspired by recent European legislation on the subject, reproducing central points of the Directive No. 95/46/EC and of the General Data Protection Regulation ("GDPR").

The impact of the law will be significant as any processing of personal data will be subject to the new rules, whether physical or digital, by any entity established in Brazil, any entity who has collected personal data in Brazil, any individual located in Brazil – even if not residents – or any entity that offers goods and services to Brazilian consumers. In short, the adaptation to the LGPD will require structural changes in virtually all internal areas of Brazilian companies. The LGPD has been in force since December 28, 2018 as regards the creation of the National Data Protection Authority (Autoridade Nacional de Proteção de Dados or “ANPD"), the public administrative body responsible for ensuring, implementing and supervising compliance with the LGPD and the National Council for the Protection of Personal Data and Privacy, created by Provisional Measure converted in 2019 into Law No. 13,583/19. The remainder of the law was expected to come fully into force from August 2020, however, as a result of the COVID-19 pandemic, the National Congress approved Bill No. 1,179/20 postponing the entry into force of Law No. 13,583/19 until January 2021, with fines and sanctions applying from August 1, 2021. It is worth mentioning that this bill was approved with amendments by the Federal Senate, accordingly, it has yet to be passed by the Chamber of Deputies and, following approval, needs to be sanctioned by the President of Brazil.

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We operate in a preventive, detective and corrective manner in order to protect our own and our clients' information. As a result, we have evolved our security framework in light of the new digital environment, with a focus on cyber security being key and pillar of our processes to establish data protection for our clients, resiliency, and structure to identify threats, detection, and response and recovery procedures in cases of cyber-attacks.

However, possible failures or attacks on our systems and processes of prevention and/or detection and/or correction may lead to non-compliance with applicable legislation, which may in turn negatively affect our reputation, our financial condition, the result of our operations and the market value of our shares, preferred shares ADSs and common shares ADSs. See item 3.D.20.05-01 "A failure in, or breach of, our operational, security or technology systems could temporarily interrupt our businesses, increasing our costs and causing losses".

 

3.D.20.06-06 The Brazilian Supreme Court is currently deciding cases relating to the application of inflation adjustments which may increase our costs and cause losses.

The STF, which is the highest court in Brazil and is responsible for judging constitutional matters, is currently deciding whether savings account holders have the right to obtain adjustments for inflation related to their deposits due to the economic plans Bresser, part of Verão, Collor I and Collor II, implemented in the 1980s and 1990s, before the Plano Real, in 1994. The trial began in November 2013 but was interrupted without any pronouncement on the merits of the subject under discussion by its Members. According to the institutions representing the account holders, banks misapplied the monetary adjustments when those economic plans were implemented, and should be required to indemnify the account holders for the non-adjustment of those amounts.

The STF gave a ruling on an individual case, in the sense that the sentences on class actions proposed by associations questioning inflationary purges only benefit consumers who: (i) were associated with the associations at the time of filing of the class action; and (ii) had authorized the filing of the class action. This reduced the number of beneficiaries in class actions because, until then, it was understood that these decisions should benefit all consumers affected by the practices (i.e., all consumers that are current account holders and that had suffered losses related to inflationary purges, irrespective of whether those losses were associated with the association, plaintiff of the class action).

In addition, in connection with a related sentence, the Brazilian Supreme Court Justice ("STJ") decided, in May 2014, that the starting date for counting default interest for compensating savings account holders must be the date of summons of the related lawsuit (rather than the date of settlement of the judgment), therefore increasing the amount of possible losses for the affected banks in the event of an unfavorable decision by the STF.

In December 2017, with the mediation of the Executive branch's attorney (Advocacia Geral da União), or ("AGU") and the intervention of the Central Bank, the representatives of the banks and the savings account holders entered into an agreement related to the economic plans aiming to finalize the claims and established a timeline and conditions for the savings account holders to accede to such agreement. The STF affirmed the agreement on March 1, 2018. This approval determined the suspension of legal actions in progress for the duration of the collective bargaining agreement (24 months). On March 11, 2020, the signatories to the collective bargaining agreement agreed to an amendment extending the agreement for a further 60 months. The amendment was taken to the Supreme Court for approval, having already been made by Minister Gilmar Mendes in extraordinary appeals No. 631,363 and No. 632,212, leaving the approval to the other Rapporteurs (Ministers Carmem Lucia and Ricardo Lewandowski). As this is a voluntary settlement, we are unable to predict how many savings account holders will accede to it.

 

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3.D.20.07 Strategy Risk

 

3.D.20.07-01 The increasingly competitive environment in the Brazilian banking and insurance segments may have a negative impact on our business prospects.

The markets for financial, banking and insurance services in Brazil are highly competitive. We face significant competition in all of our main areas of operation from other large banks and insurance companies, both public and private based in Brazil and abroad, in addition to new players, such as fintechs and startups that begin to operate with a differentiated and reduced level of regulation. It should be noted that major technology companies are also strong competitors, seeking to invest in online payment systems and financial transactions tools by means of various types of applications.

This competitive environment combined with the accelerated process of digital innovation in the institutions could result in a lack of specialized labor with an impact on the growth capacity or extraordinary costs for new business models, which may negatively affect our financial condition, the result of our operations and the market value of our shares, preferred share ADSs and common share ADSs.

 

3.D.20.08 Third Party Risk

 

3.D.20.08-01 Eventual dependence on services rendered by outsourced companies and suppliers/partners may negatively impact our business performance.

Due to the complexity of some services, we may become dependent on outsourced companies and suppliers. We may encounter difficulty replacing some outsourced companies or suppliers/partners. We are also subject to operational risks that are beyond our control but that nonetheless may impact negatively on our operations, making the delivery of products and services to our customers more difficult. Possible interruptions in the provision of our services due to the difficulty of finding replacements for some suppliers or other issues beyond our control arising from outsourced companies, may adversely affect the result of our operations and the market value of our shares, preferred share ADSs and common share ADSs.

 

3.D.20.09 Cyber Risk

 

3.D.20.09-01 Cyber risk in an environment of third parties/service providers, may cause temporary unavailability, loss or leakage of information of the Organization or disruption in data confidentiality/integrity and/or services.

We treat cyber security at the highest strategic levels – the Board of Directors, Diretoria Executiva, Risk Committee, and the Executive Committee of PLD-FT/Sanctions and Security of Information/Cyber. We have a set of controls, represented by procedures, processes, structures, policies, standards and IT solutions that meet the principles of protection relating to confidentiality, availability and integrity of information. In addition, We believe we have adopted the best market practices and frameworks in processes, methodology in the management of cyber risk, as well as prevention and treatment of information and cybersecurity incidents. Accordingly, the following procedures are carried out: identification of threats, protection against attacks, detection, responses and recovery from attacks. We defined the cyber risk as the possibility of cyber incidents that may compromise the confidentiality, integrity and/or availability of critical business processes, assets and/or critical IT infrastructure of the Organization.

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The structure of cyber risk management aims to ensure governance compatible with our size, risk profile and business model, to ensure that our assets and critical IT infrastructure are capable of withstanding cyber-attacks. Such a structure is adopted corporately and the theme of Cyber Security is managed by the Department of Corporate Security and Department of IT infrastructure, with the involvement of various areas of the Organization, which have specific assignments, ensuring an efficient structure in the control and mitigation of risks, allowing them to be identified, measured, processed and communicated, contributing so that the strategic objectives are achieved.

To mitigate cyber risk with respect to relevant service providers, we include the appropriate contractual clauses, aligned with the requirements of cybersecurity and in accordance with the requirements of Resolution No. 4,658/18 of the Central Bank. In addition, we have policies formalizing the responsibility for disseminating the culture of cybersecurity with training programs and periodic assessment of personnel. The costs to us of addressing cyber risk and security vulnerabilities could be significant and remedying the issues may result in interruptions, delays and may affect clients and partners.

 

3.D.30 Social and Environmental Risks

 

The social and environmental risk is represented by the potential damage that an economic activity can cause to society and to the environment. The social and environmental risks associated with financial institutions are mostly indirect and stem from business relationships, including those with the supply chain and with customers, through financing and investment activities, observing the principles of relevance and proportionality of our activities.

 

3.D.30.01 Funding for large projects carried out by clients can generate socio-environmental impacts that could affect the results and the reputation of the Organization negatively.

We promote credit and financing operations, acting in several sectors, which may significantly affect an entire ecosystem, involving communities and the local flora and fauna. If a client, in the development of their activities, causes environmental impacts, such as the contamination of soil and water pollution above the legally acceptable limit and/or environmental disasters, it has a direct obligation to repair the damage caused financially. Consequently, depending on the magnitude of the socio-environmental impact, this client can have their economic-financial structure compromised, which could adversely affect our financial results, the result of our operations and the market value of our shares, preferred share ADSs and common share ADSs.

 

3.D.40 Risks relating to our shares, preferred share ADSs and common share ADSs

 

3.D.40.01 The Deposit Agreements governing the preferred share ADSs and common share ADSs provide that holders of such ADSs will only receive voting instructions if we authorize the depositary bank to contact those holders to obtain voting instructions; and there are also practical limitations on any ability to vote we may give such holders.

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The voting rights of preferred share ADS holders and common share ADS holders are governed by the Deposit Agreements. Those Deposit Agreements provide that the depositary bank shall mail voting instructions to holders only if we authorize and direct the depositary bank to do so. If we do not provide that authorization and direction to the depositary bank, holders of preferred share ADSs and common share ADSs will not be able to vote at our meetings, unless they surrender their preferred share ADSs or common share ADSs and receive the underlying preferred shares or common shares, as applicable, in accordance with the terms of the applicable Deposit Agreement.

In addition, there are practical limits on the ability of preferred share ADS and common share ADS holders to exercise any vote 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. In contrast, preferred share ADS holders and common share ADS holders will not receive notice directly from us and cannot vote in person at the meeting. Instead, in accordance with the Deposit Agreements, the depositary bank will, if authorized and directed by us, send any notice of meetings of holders received by it from us to holders of preferred share ADSs and common share ADSs, together with a statement as to the manner in which voting instructions may be given by holders. To exercise any such ability to vote, preferred share ADS and common share ADS holders must then instruct the depositary bank how to vote with the shares represented by their preferred share ADSs or common share ADSs. Because of this extra step involving the depositary bank, if and when we authorize and direct the depositary bank to mail voting information to preferred share ADS holders and common share ADS holders, the process for voting will take longer for preferred share ADS and common share ADS holders than for holders of our shares. Preferred share 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.

 

3.D.40.02 Under Brazilian Corporate Law, holders of preferred shares have limited voting rights, accordingly, holders of preferred share ADSs will have similar limitations on their ability to vote.

Under the Brazilian Corporate Law (Law No. 6,404/76, as amended by Law No. 9,457/97, as amended, which we refer as "Brazilian Corporate Law") and our Bylaws, holders of our preferred shares are not entitled to vote at our shareholders' meetings, except in limited circumstances (see "Item 10.B. Memorandum and Articles of Association – 10.B.10 Organization – 10.B.10.04 Voting Rights", for further information on voting rights of our shares). As such, in contrast to holders of common shares, holders of preferred shares are not entitled to vote on corporate transactions, including any proposed merger or consolidation with other companies, among other things.

As discussed above under "The Deposit Agreements governing the preferred share ADSs and common share ADSs provide that holders of such ADSs will only receive voting instructions if we authorize the depositary bank to contact those holders to obtain voting instructions; and there are also practical limitations on any ability to vote we may give such holders", preferred share ADS holders will only be able to vote if we authorize and direct the depositary bank accordingly. As a result of the fact that holders of preferred shares have limited voting rights, any ability to vote that we may extend to holders of preferred share ADSs corresponding to preferred shares pursuant to the applicable Deposit Agreement would be similarly limited.

 

3.D.40.03 The relative volatility and low liquidity of the Brazilian securities markets may substantially limit your ability to sell shares underlying the preferred share 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 preferred share ADSs and common share ADSs from the depositary bank at any time, your ability to sell our shares underlying the preferred share ADSs and 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, according to B3, accounted for 47.1% of the aggregate market capitalization in December 2019.

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3.D.40.04 Our shares, preferred share ADSs and common share ADSs are not entitled to a fixed or minimum dividend.

Holders of our shares and, consequently, our preferred share ADSs and common share ADSs are not entitled to a fixed or minimum dividend. Pursuant to the Deposit Agreements, if the depositary (as holder of the common shares and preferred shares underlying the common share ADSs and preferred share ADSs) receives any cash dividend or distribution from us, it shall distribute a corresponding U.S. dollar amount, net of depositary fees and certain withholding tax adjustments as described in the Deposit Agreements, to holders of our common share ADSs and preferred share ADSs as promptly as practicable. However, if we do not pay dividends to holders of our common shares or preferred shares then there will be no payment of dividends to holders of our common share ADSs or preferred share ADSs.

Pursuant to our Bylaws, our preferred shares are entitled to dividends 10.0% higher than those of our common shares. Although under our current Bylaws we are obligated to pay our shareholders at least 30.0% of our annual adjusted net income, the shareholders attending our Annual 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 specify 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, Brazilian law provides that a company need not pay dividends if such payment would endanger the existence of the company or harm its normal course of operations.

In March 2013, CMN Resolution No. 4,193/13 was issued in an effort to further implement the Basel III Accord in Brazil. Pursuant to such rule, a restriction of dividend and interest payments on equity may be imposed by the Central Bank in the event of non-compliance with the additional capital requirements established by the Central Bank, as further described in "Item 5.B. Liquidity and Capital Resources – 4.B.70.02-03 Capital adequacy and leverage".

In light of the consequences of the COVID-19 pandemic, the Central Bank issued Resolution No. 4,797/20, which, among other measures, established that financial institutions may not declare payment of interest on own capital or dividends above the minimum level required by their respective bylaws.

 

3.D.40.05 As a holder of preferred share ADSs and 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, self‑dealing and the preservation of shareholder interests may be less heavily regulated and what regulations are in place 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 preferred share ADSs and common share ADSs. For example, compared to Delaware general corporation law, Brazilian Corporate Law and practices 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 companies based in Brazil do not normally have valid standing to bring a class action.

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3.D.40.06 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.

 

3.D.40.07 If we issue new shares or our shareholders sell shares in the future, the market price of your preferred share ADSs and 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, preferred share ADSs and common share ADSs, by diluting their value. If we issue new shares or our existing shareholders sell the shares they hold, the market price of our shares and therefore the market price of our preferred share ADSs and common share ADSs, may decrease significantly.

 

3.D.40.08 The payments on the preferred share ADSs and common share ADSs may be subject to U.S. withholding under the Foreign Account Tax Compliance Act ("FATCA").

The United States has enacted rules, commonly referred to as FATCA, that generally impose a reporting and withholding regime with respect to certain U.S. source payments (including interest and dividends), gross proceeds from the disposition of property that can produce U.S. source interest and dividends and certain payments made by entities that are classified as financial institutions under FATCA. The United States has entered into an Intergovernmental Agreement regarding the implementation of FATCA with Brazil (the "IGA"). Under the current terms and conditions of the IGA, we do not expect payments made on or with respect to the preferred share ADSs or common share ADSs to be subject to withholding under FATCA. However, significant aspects of when and how FATCA will apply remain unclear, and no assurance can be given that withholding under FATCA will not become relevant with respect to payments made on or with respect to the preferred share ADSs or common share ADSs in the future. Similar to the FATCA, the Common Reporting Standard ("CRS") is the instrument developed by the Convention on Mutual Assistance in Tax Matters of the Organization for Economic Cooperation and Development ("OECD") and the Multilateral Competent Authority Agreement, applicable to the countries signatory to the norm. The financial institutions and entities subject to it should ensure the identification, investigation and reporting of information to the competent bodies. Prospective investors should consult their own tax advisors regarding the potential impact of FATCA and CRS. For more information about FATCA and CRS, see "Item 4.B. Business Overview – 4.B.70 Regulation and Supervision".

 

3.D.40.09 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 preferred share ADSs and 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 preferred share ADSs and 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 preferred share ADSs and 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.

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Form 20-F

 
 
 

3.D.40.10 If you exchange your preferred share 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 disposal of the shares. If you exchange your preferred share 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 disposal 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 disposal of the underlying shares or to the repatriation of the proceeds from disposal may be imposed in the future.

 

3.D.40.11 A majority of our common shares are held, directly and indirectly, by one shareholder and our Board of Directors is composed of 10 members, including two independent members; accordingly, non-independent members may have conflicting interest with our other investors.

In March 2020, Fundação Bradesco directly and indirectly held 58.8% 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, Fundação Bradesco may also elect the majority of the Board of Directors of the Company, as well as to approve related party transactions or corporate reorganizations. Under the terms of Fundação Bradesco's bylaws, members of our Diretoria Executiva, that have been working with us for more than ten years serve as members of the Board of Trustees of Fundação Bradesco. The Board of Trustees has no other members.

Our Board of Directors has ten members, two of which are independent, in other words they are not associated with Fundação Bradesco, in accordance with the criteria included of Law No. 6,404/76, in the regulation issued by the CVM (Brazilian Corporate Law). The Brazilian Corporate Law states that only individuals may be appointed to a company's Board of Directors. Accordingly, there is no legal or statutory provision requiring us to have independent directors, however, to exercise good corporate governance, our Board of Directors has two independent directors. Since the majority of members are not independent, the interests of our Board of Directors may not always be aligned with the interests of part of our other shareholders and these holders do not have the same protections they would have if most of the directors were independent. Furthermore, our non-independent directors are associated with Fundação Bradesco and circumstances may arise in which the interests of Fundação Bradesco, and its associates, conflict with our other investors' interests.

Fundação Bradesco and our Board of Directors could make decisions in relation to our policy towards acquisitions, divestitures, financings or other transactions, which may be contrary to the interests of our shareholders of common shares and have a negative impact on the interests of those shareholders. For more information on our shareholders, see "Item 7.A. Major Shareholders.

 

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ITEM 4. INFORMATION ON THE COMPANY

Form 20-F

 

 

3.D.50 Risk Management

 

3.D.50.01 Our risk management structure may not be fully effective.

We fully incorporate the risk management process into all of our activities, developing and implementing methodologies, models and other tools for the measurement and control of risks, looking to continuously improve them in order to mitigate the risks that we identify. However, there may be limitations to this risk management framework in foreseeing and mitigating all the risks to which we are subject, or may in the future become, subject. If our risk management structure is not completely effective in adequately preventing or mitigating risks, we could suffer material unexpected losses, adversely affecting our financial condition and results of operations. For more information on our risk management structure, see "Item 4.B. – Business Overview – 4.B.20.01 Corporate Process of Risk Management".

 

 

ITEM 4. INFORMATION ON THE COMPANY

 

 

4.A. History and Development of the Company

 

We are a sociedade anônima organized under the laws of Brazil. Our headquarters are in Cidade de Deus, Vila Yara, 06029‑900, Osasco, São Paulo, Brazil, and our telephone number is (55-11) 3684-4011. Our investor relations website is located at bradescori.com.br. Our New York Branch is located at 450 Park Avenue, 32nd and 33rd floors, New York 10022.

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 became well established in both urban and rural markets in Brazil. In 1988, we merged with our housing loan, investment bank and consumer credit subsidiaries to become a multiple service bank and changed our name to “Banco Bradesco S.A”.

Since 2009, we operate in all Brazilian municipalities, and our large banking network enables us to be closer to our customers, thereby enabling our managers to develop knowledge as to economically active regions and other important conditions for our business. This knowledge helps us assess and mitigate risks in loan operations, among other risks, as well as to meet the specific needs of our customers.

Currently, we are 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, small and micro enterprises and major local and international corporations and institutions. Our products and services comprise of banking operations such as loans and advances and deposit‑taking, credit card issuance, purchasing consortiums, insurance, capitalization, leasing, payment collection and processing, pension plans, asset management and brokerage services.

 

 

 

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4.A.10 Acquisitions, divestments and other strategic alliances

 

4.A.10-01 Recent Acquisitions

 

Ø BAC Florida Bank

 

In May 2019, we announced to the market, that we entered into a Share Purchase Agreement with the controlling shareholders of BAC Florida Bank ("BAC Florida"), a bank that has offered various financial services in the United States for 45 years, especially to non-resident high net worth Individuals. Once the acquisition is complete, we will assume the operations of BAC Florida, with the main objective of expanding our offering of investments in the United States to our high net worth clients (Prime and Private Bank), in addition to other banking services, such as checking accounts, credit card and mortgages, as well as the opportunity to expand business related to corporate and institutional clients.

In September 2019, the Central Bank authorized us to complete the transaction. The completion of the transaction is subject to approval by the competent U.S. regulatory agencies and compliance with legal formalities.

 

Ø BBC Processadora S.A. (formerly Fidelity Processadora e Serviços S.A.)

 

In December 2018, we and the Fidelity Group terminated our joint venture in BBC Processadora S.A. (formerly Fidelity Processadora e Serviços S.A.) ("Processing Company"). As a result, we will become the sole shareholder of the Processing Company, whose shareholders' equity is composed exclusively of the assets and liabilities relating to the provision of credit card processing services for us. The operation (a) aims to reduce the costs of processing and increase the efficiency of the credit card business; (b) will not have any impact on our activities and our clients; and (c) did not involve any financial values. Fidelity Serviços S.A. is a company that provides call center services, collection, fraud prevention, support and other related services. Our and Fidelity Group’s association with Fidelity Serviços S.A. was discontinued folowing the sale of Fidelity Serviços S.A. (currently Chain Services and Contact Center S.A.).

 

4.A.10-02  Recent divestments

 

Ø Chain Serviços e Contact Center S.A. (formerly Fidelity Serviços S.A)

 

In September 2019, we signed a contract for the sale of all of the shares held in Chain Serviços e Informática S.A. ("Chain") to Almaviva do Brasil Telemarketing e Informática S.A. Chain has as its object the provision of call center and collection activities. The operation was approved by the competent authorities, and the transaction was closed on January 14, 2020.

 

Ø NCR Brasil – Indústria de Equipamentos

 

In June 2019, we entered into an agreement to sell the entire minority interest we indirectly held in NCR Corporation. The operation was approved by the competent authorities, and the transaction was completed on October 28, 2019.

 

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4.A. History and Development of the Company

Form 20-F

 

 

4.A.10-03  Other strategic alliances

 

Ø  RCB Investimentos S.A.

 

In October 2018, we formalized a strategic partnership with RCB Investimentos S.A. (“RCB”), one of the principal credit management and recovery companies in Brazil, and with its controlling company PRA Group Brazil Investimentos e Participações, a company of the PRA Group Inc. (“PRA Group”), a global leader in the acquisition and management of non-performing credits. The transaction includes: (i) our acquisition of 65% of the shares issued by RCB, in which the founding members will remain as partners and directors of RCB, together with us; and (ii) the constitution of two FDICs (Investment Funds in Credit Rights) for the acquisition of non-performing credit portfolios, where the management of the recovery of these credits remains with RCB. The FIDCs will continue to be held by the PRA Group and the founders, with our minority participation. The transaction was approved by the Administrative Council for Economic Defense (“CADE”) and by the Central Bank. The operation was closed on December 20, 2018.

 

Ø  Swiss Re Corporate Solutions Ltd.

 

In July 2017, Bradesco Seguros S.A. ("Bradesco Seguros") and Swiss Re Corporate Solutions Ltd. ("Swiss Re Corso") completed the transaction announced in October 2016, by signing a shareholders' agreement pursuant to which: (i) Swiss Re Corporate Solutions Brasil Seguros S/A ("Swiss Re Corporate Solutions Brasil") assumed part of the insurance operations of Bradesco Seguros, in respect of property and casualty (P&C) and transport (together "Large Risk Insurance"), providing them with exclusive access to our clients to market Large Risk Insurance solutions; and (ii) Bradesco Seguros became the holder of 40.0% of Swiss Re Corporate Solutions Brasil's shares and the other 60% remained with its controller Swiss Re Corso. The transaction was approved by the SUSEP, CADE and the Central Bank.

 

Ø  Company to manage credit intelligence

 

In June 2017, we entered into agreements with Banco do Brasil S.A., Banco Santander (Brasil) S.A., Caixa Econômica Federal and Itaú Unibanco S.A. to create a company to manage credit intelligence (“GIC”). The company will develop a database to add, reconcile and handle the profile and credit information of individuals and corporate entities who authorize their inclusion in the database, as required by the applicable rules. The control of the company will be shared between the banks and each of them will hold 20% of its share capital.

 

Ø  IRB Brasil

 

In May 2017, we, together with the other shareholders of IRB Brasil RE ("IRB"), authorized IRB to request to the CVM: (i) registration as a publicly-traded company and authorization to conduct an Initial Public Offer (IPO) of IRB, in accordance with CVM Instructions No. 400/03 and No. 480/09; and (ii) registration to perform a secondary offering of common shares, in accordance with CVM Instruction No. 400/03. In July 2017, we announced that the documents were filed to meet the requirements made by the CVM in relation to the Public Offer of Secondary Distribution of common shares of IRB and the closure of the bookbuilding procedure of the offer. We, after the sale of part of our shares in the public offer in July 2017 now hold an indirect shareholding of 15.23% stake in the share capital of IRB (stake calculated excluding shares held in treasury).

 

Ø  BRAM

 

Our subsidiary, BRAM has developed important alliances as part of its internationalization strategy. Through personal management and investment advisory agreements, we offer Brazilian investors the opportunity to invest in global equity funds, with a focus on the U.S., Europe and Asia, besides the global funds. In Europe, BRAM offers to overseas investors funds domiciled in Luxembourg with different strategies under the Bradesco Global Funds family, launched in 2009. In Japan, Mitsubishi Kosukai UFJ Asset Management (“MUKAM”), our partner since 2008, offers funds managed by BRAM to retail investors wishing to invest in the Brazilian market.

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4.B. Business Overview

 

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

 

4.B.10 Business strategy

The strategy and vision for our future are founded on four pillars that guide our trajectory:

·         Customer Relationship;

·         Sustainable growth with profitability;

·         Efficiency and innovation; and

·         Human Capital.

Below, we present each one of our pillars and the main strategic objectives of 2019:

 

Ø    Customer Relationship.

We serve all audiences, with the goal of being the first bank and the first insurer of our customers, and strengthen our commitment to each one of them, ensuring the recommendation of products, services or operations in accordance with each profile, considering their needs, interests and goals. For example, we created our Ombudsman in 2005, two years before CMN Resolution No. 3,477/07, which made the establishment of an Ombudsman mandatory, because we understand its important and impartial role in the relationship with the customer.

There are several initiatives that reinforce the importance of customers (individual and legal entity) for the continuity of the business. After creating an area dedicated to customers who are non-account holders in 2018, we launched the Portal Não Correntista (Portal for Non-Account Holders) in 2019, which allows non-account holders to purchase our products and services online even if they do not have a current account. In the segment of corporate entities, Bradesco created the MEI Portal, helping self-employed professional to formalize their business without costs and bureaucracy.

Another highlight is our pending acquisition of BAC Florida Bank, headquartered in Miami (United States), which will allow us to expand financial services and products in the United States to our customers from various segments. The conclusion of the operation is still awaiting regulatory approval.

 

Ø    Sustainable growth with profitability.

We aim to grow in a diversified and sustainable manner, generating value to all stakeholders through what we believe to be the best balance between risk and return.

Our efforts are aimed at optimizing our processes and technologies in order to accelerate the changes necessary to improve the customer experience, anticipate their needs and offer products and services tailored to their profile.

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4.B. Business Overview

Form 20-F

 

 

Our goal is to always seek the best balance between risk and return, essential aspects for the sustainability of the business.

 

Ø    Efficiency and innovation.

We emphasize the importance of promoting efficiency and the best experience for clients, encouraging the use of technology and innovation in our business models. We seek to guarantee that different profiles of customers are catered for with appropriate business models.

We offer customer service channels in all the cities of Brazil, adapted to the development potential of the various regions and we periodically review the model that is more appropriate for each location and/or customer profile. Our digital channels evolve in a sustained manner – in 2019, 96% of all transactions made by our customers were via digital channels. A great ally in the digital universe is BIA (Bradesco Artificial Intelligence), which began interacting with our customers in the second half of 2017. We also launched the digital bank Next, at the end of 2017. Next offers a differentiated value proposition, addressed to a hyper-connected audience. In the first quarter of 2020, it will have its own administration and physical structure, gaining agility and flexibility, We also highlight inovabra, innovation ecosystem that fosters innovation through collaborative work with employees, business areas, customers, businesses, startups, technology partners, investors and mentors, with the aim of meeting the needs of our customers and ensuring the sustainability of business in the long term.

We also revitalized Ágora – Investment House, a company 100% owned by us, in order to become our official platform, with 100% digital onboarding, it offers more choices of products and specialized advice for customers to do their investments with convenience and reliability.

 

Ø    Human Capital.

The basis of our strategy is grounded on people. Accordingly, we seek to improve our ability to attract, train and retain appropriate talents for each line of business, with the goal of making our corporate strategy feasible.

We highlight the importance of people management for the implementation of our corporate strategy. As part of this strategy we aim to implement policies aligned to the needs of the current employment market, with the objective of ensuring diversified results, a solid balance sheet and consistent profitability.

Our succession plan maps the critical positions of each area and identifies professionals with the potential to take on strategic positions in the future (leadership positions or key positions of specific knowledge).

Our actions and public commitment in the face of diversity reaffirm our belief in the transformative potential of each person, respecting individuality and plurality. We encourage our professionals to use their full potential, since we believe that good results are a consequence of individual values and goals aligned to the organizational strategy.

We have implemented the following guidelines and practices: performance assessment and mapping of competences for 100% of the staff; structuring of individual development plans (“PDIs”) and training and professional developments supported by Unibrad – our corporate university. We also highlight the actions related to health and well-being, through the Programa Viva Bem (live well program), and our program that encourages participation in volunteer initiatives, Voluntários Bradesco (Volunteers).

Our strategy is focused on adapting our culture and aligning it with modern people management practices, ensuring we are aligned with the new demands of the labor market, as well as making the human resources department be increasingly perceived as a strategic partner of the different business lines.

 

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4.B.20  Business management

In order to ensure our operational activities align with our strategies, we have developed management processes that are aligned with best market practices and business models, including:

 

4.B.20.01 Corporate risk management processes

Risk management is of great strategic importance to us due to the increasing complexity of services and products and the globalization of our business. In August 2017, CMN Resolution No. 4,595/17 was amended to include provision for compliance policies. Under this resolution, financial institutions authorized to operate by the Central Bank should implement and maintain compliance policies compatible with the nature, size, complexity, structure, risk profile and business model of the institution, in order to ensure the effective management of its compliance risk. Compliance risk must be managed in an integrated manner with all other risks incurred by the institution, in accordance with the specific rules. The rule also permits the drafting of a single compliance policy per conglomerate.

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

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

 

4.B. 20.01-01  Risk and Capital Management Structure

The structure of our risk and capital management function consists of committees, responsible for assisting our Board of Directors and our Diretoria Executiva in making strategic decisions.

We have an Integrated Risk Management and Capital Allocation Committee (“COGIRAC”), which advises the Board of Directors in relation to the performance of its duties related to management policies and limits of exposure to risks, and to ensure we are compliant with the processes, policies, rules related to and compliance with regulations and legislation applicable to us.

The committee is assisted by the Capital Management Executive Committee and the Executive Committees for Risk Management of: (i) Credit; (ii) Market and Liquidity; (iii) Operational and Socio-environmental; and (iv) Grupo Bradesco Seguros and BSP Empreendimentos Imobiliários. There are also the Executive Products and Services Committee, and 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 COGIRAC and the Board of Directors.

Our governance structure also includes a Risk Committee, whose main objective is to evaluate our risk management framework and, eventually, to propose improvements.

COGIRAC and the Risk Committee assist the Board of Directors in the performance of its duties in the management and control of risks, capital, internal controls and compliance.

 

4.B. 20.01-02  Credit risk

Credit risk is represented by the possible losses associated with the non-fulfilment of the borrower or counterparty’s respective financial obligations under any agreement, as well as the devaluation of the credit contract due to the deterioration in the borrower’s risk classification, the reduction in gains or remuneration, benefits gained in renegotiation, the recovery costs and other amounts related to the non-fulfilment of the counterparty’s financial obligations. In addition, it includes the Country/Transfer Risk, represented by the possibility of losses related to non-compliance with obligations associated with the counterparty or mitigating instrument located outside the country, including sovereign risk and the possibility of losses due to obstacles in the currency conversion of amounts received outside the country associated with the operation subject to credit risk. Counterparty Credit Risk is represented by the possibility of loss due to non-compliance by a given counterparty with settlement obligations related to transactions involving the trading of financial assets, including the settlement of derivative financial instruments or by the deterioration in the credit quality of the counterparty, and Concentration Risk is represented by the possibility of losses due to significant exposures to a counterparty, risk factor, product, economic sector or geographic region.

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4.B. Business Overview

Form 20-F

 

 

Credit risk management is a continuous and evolving process of mapping, developing, assessing and diagnosing through the use of models, instruments and procedures that require a high degree of judgment, discipline and control during the analysis of operations in order to preserve the integrity and independence of the processes.

 We seek to control our exposure to credit risk, which mainly relates to loans, credit commitments, financial guarantees provided securities and derivative financial instruments. Credit risk also stems from financial obligations related to loan commitments and financial guarantees.

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

We continually outline all the activities that can potentially generate exposure to credit risk, with the respective classifications regarding probability and size, as well as identifying managers, measurement and mitigation plans for those activities.

 

4.B. 20.01-02.01  Credit Risk Management Process

The credit risk management process is conducted in a centralized manner for us as a whole. This process engages several areas, which ensure an efficient framework to provide for independent and centralized credit risk measurement and control.

Our Credit Risk monitoring area is actively engaged in improving customer risk rating models, following up large risks by periodically monitoring major delinquencies and the provisioning levels due to expected and unexpected losses and level of capital against unexpected losses.

This area continuously reviews internal processes, including the roles and responsibilities, information technology training and requirements and periodic review of risk assessment, in order to incorporate new practices and methodologies.

 

4.B. 20.01-02.02  Control and monitoring

Corporate control and monitoring of our credit risk take place in the credit risk unit of the Integrated Risk Control Department (DCIR). The department assists the Credit Risk Management Executive Committee on discussions and implementation of methodologies to measure credit risk. Relevant issues discussed by this committee are reported to COGIRAC, which reports to the Board of Directors.

In addition to committee meetings, the department holds monthly meetings with officers and heads of products and segments to ensure they are informed about the evolution of the portfolio of loans, delinquency, adequacy of the provision for non-performing loans, credit recovery, gross and net losses, portfolio limits and concentrations, allocation of economic and regulatory capital and other items. This information is also reported monthly to the Executive Committee for Risk Monitoring and the Audit Committee.

The department also tracks each internal or external events that may significantly impact credit risk such as mergers, bankruptcies or crop failures and monitors sectors of economic activity in which we have the most representative exposures.

Both the governance process and limits are validated by COGIRAC, submitted for approval by the Board of Directors, and reviewed at least once a year.

 

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4.B. 20.01-03  Market Risk

Market risk is the possibility of a loss of income due to fluctuations in prices and market interest rate of the financial instruments retained by the Organization resulting from mismatched amounts, currencies and indexes of our asset and liability operations.

This risk is identified, measured, mitigated, controlled and reported. Our exposure profile to market risk is in line with guidelines established by the governance process, with limits that are monitored on a timely and independent basis.

All operations exposing us to market risk are mapped, measured and classified according to probability and magnitude, with the whole process approved by the governance structure.

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

In line with the best practices of 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. 4,557/17, the Board of Directors approved the Market Risk Management Policy, which is reviewed at least once a year by the relevant committees and the Board of Directors itself, providing the main operational guidelines for accepting, controlling and managing market risk.

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

·     classification of operations;

·     reclassification of operations;

·     trading in government or private securities;

·     use of derivatives; and

·     hedging.

 

4.B. 20.01-03.01  Market Risk Management Process

Our market risk management process is managed on a corporate wide basis, ranging from business areas to the Board of Directors. This process involves several areas to ensure an efficient structure, with the measurement and control of market risk being performed centrally and independently. This process allowed us to be the first financial institution in the country authorized by the Central Bank to use, since January 2013, in-house models of market risk to check the regulatory capital requirement. The management process, approved by the Board of Directors, is also reassessed at least annually by the relevant committees and the Board of Directors itself.

 

4.B. 20.01-03.02  Definition of limits

Proposed market risk limits are validated by specific committees for approval by COGIRAC, to be submitted to the Board of Directors depending on the characteristics of the business, which are separated into the following portfolios:

Ø  Trading portfolio: comprises all operations involving financial instruments, including derivatives, held-for-trading or used to hedge other instruments in our own 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.

The trading portfolio is monitored by limits of:

·     Value at Risk (VaR);

·     stress (measure of the negative impact of extreme events, based on historical and prospective scenarios);

·     results; and

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4.B. Business Overview

Form 20-F

 

 

·     financial exposure/concentration.

Ø Banking portfolio: comprises transactions not qualifying for our trading portfolio, deriving from our other businesses and their respective hedges.

The banking portfolio is monitored by the variation in economic value due to interest rate variation - ∆EVE (Economic Value of Equity) and variation in net interest income due to interest rate variation - ∆NII (Net Interest Income).

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

In addition to daily reports, the positions of the trading portfolio are discussed every 15 days by the Treasury Executive Committee and the positions of the banking portfolio and liquidity reports are handled by the Treasury Executive Committee for the Management of Assets and Liabilities. In both forums, the results and the risks are evaluated and the strategies are discussed. Both the governance process and the existing limits are validated by COGIRAC and submitted for approval by the Board of Directors, which are reviewed at least once a year.

In case of any risk limit breach monitored by the Integrated Risk Control Department, the head of the business unit in charge is informed of the limit usage and, in a timely manner, COGIRAC is called in order to make a decision. If the committee chooses to increase the limit and/or change or maintain the positions, the Board of Directors is called to approve a new limit or to review our strategy with regard to this particular risk.

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

 

4.B. 20.01-04  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 failing 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.

 

4.B. 20.01-04.01  Liquidity Risk Management Process

We manage our liquidity risk on a group-wide basis. This process involves a number of areas with specific responsibilities, and the liquidity risk is measured and controlled on a centralized and independent basis, with daily monitoring of available funds and compliance with liquidity levels, according to the risk appetite established by the Board of Directors, as well as the contingency and recovery plan for potential high-stress situations.

Our Policy for Liquidity and Risk Management, approved by the Board of Directors, is mainly aimed at ensuring the existence of standards, criteria and procedures to guarantee the development of the Short-Term Liquidity Ratios (LCR – Liquidity Coverage Ratio), in compliance with Resolution No. 4,401/15, and Long-Term Net Stable Funding Ratio (NSFR), in compliance with Resolution No. 4,416/17, as well as the strategy and action plans for liquidity crisis situations. The policy and controls we established fully comply with CMN Resolution No. 4,557/17.

We also have rules for the daily monitoring of liquidity levels through a warning flag system that triggers the submission of reports and the actions to be taken given the risk presented.

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 the methodology of measurement, 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.

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Since October 2017 we have used the Short-Term Liquidity Ratio (LCR) as a standard for internal management, as provided in the CMN Resolution No. 4,401/15 and the Central Bank’s Circular No. 3,749/15.

In the third quarter of 2018 we started monitoring structural long-term liquidity risk, through the NSFR, pursuant to CMN Resolution No. 4,616/17 and Central Bank’s Circular No. 3,869/17.

Liquidity risk is monitored daily by business and control areas and at meetings of the Treasury Executive Committee for Asset Liability Management, which controls liquidity levels. Additionally, COGIRAC and by the Board of Directors monitor liquidity levels reports which are shared with the Risk Committee.

 

4.B. 20.01-05  Operational Risk

Operational risk is represented by the possibility of incurring losses from failures, deficiencies or the inadequacy of internal processes, people, systems and external events. This includes legal risk, associated with the activities we carry out.

 

4.B. 20.01-05.01  Operational Risk Management Process

The Organization adopts the ‘Three Lines of Defense’ model, which consists of identifying and assigning specific responsibilities to each department so that essential operational risk management tasks are performed in an integrated and coordinated manner. The following activities are carried out for that purpose:

·     identify, evaluate and monitor the operational risks inherent to our activities;

·     evaluate the operational risks inherent to new products and services in order to adapt them to legislation and procedures and controls;

·     mapping and treating operational loss records for the composition of the internal database;

·      provide analysis and quality information to departments, aiming the improvement of the operational risk management;

·     evaluate scenarios and indicators for the composition of the economic capital and improvement of the risk maps of the Organization;

·     evaluate and calculate the need for regulatory and economic capital for operational risk; and

·     report on operational risk and its main aspects in order to support the Organization's strategic decisions.

These procedures are supported by a number of internal controls, validated on an independent basis in relation to their effectiveness and operations, to ensure acceptable risk levels in our processes.

Operational risk is controlled and monitored primarily by an independent area, the Integrated Risk Control Department, and is supported by several areas that are part of the process of managing this risk.

In February 2020, Circular No. 3,979/20 was published by the Central Bank, effective as of December 1, 2020, which provides for the constitution of Base of Risks and Operating Losses ("BRPO"), its update and remittance to the Regulator. According to circular, the database must reflect the risk profile and management practices. Among the requirements, we highlight the periodic remittance, historical base formation (between 10 and 5 years), adoption of complete and robust layout, accounting traceability and the standardization of the structure for the collection and processing of information. All information must be kept at the available to the Brazilian Central Bank for at least 10 years, with the first remittance scheduled for 2021 relative to the base date of December 2020.

 

4.B.20.02 Independent Validation of Management and Measurement Models of Risk and Capital

We employ regulatory models as well as internal models based on statistical, economic, financial, and mathematical theories and the expertise of specialists in the management of risks and provisions and in the measurement of capital, aiming to synthesize processes or complex issues and large quantities of information and providing standardization, objectivity and efficiency to the decisions.

All models have inherent risks that can be derived from potential adverse consequences arising from decisions based on incorrect or obsolete estimates, improper calibration of parameters or inappropriate use of the risk models. In order to detect, mitigate and control these risks, there is the process of independent validation, which carefully evaluates various aspects, challenging the development process (which includes the assumptions adopted, the methodology and the results) and the use of models (including the quality of the input data, adherence to the regulatory requirements and the robustness of the environment in which they are implanted). The results are reported to the managers, Internal Audit, Model Evaluation Committee, Risk Control Committee, Executive Committee for Monitoring of Risks, Risk Committee and the Integrated Risk Management and Capital Allocation Committee (“COGIRAC”).

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4.B. Business Overview

Form 20-F

 

 

 

4.B.20.03 Internal controls

The efficacy of our internal controls is supported by trained professionals, well-defined and implemented processes and technology as determined by our business needs, in accordance with CMN Resolution No. 2,554/98.

Internal controls are based on the criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organization of the Treadway Commission ("COSO"), and is also in line with the guidelines established by the Information Systems Audit and Control Association ("ISACA") through the Control Objectives for Information and Related Technology ("COBIT 5"), and with the procedures described by the Public Company Accounting Oversight Board ("PCAOB") for analysis of the Entity Level Controls ("ELC").

The existence, enforcement and efficacy of controls that ensure the levels of risk in our processes are acceptable is certified by the area responsible for the execution of the adherence tests of the controls. The results of the adherence tests are conveyed to the Audit, Risk Monitoring and Risk Management Committees, as well as to the Board of Directors, to provide reasonable assurance that business transactions are carried out appropriately and achieve defined objectives, in accordance with external laws and regulations, internal policies, rules and procedures, as well as applicable codes of conduct and self-regulation.

 

4.B.20.04 Management and Processes in Cybersecurity

We consider cyber and information security at the highest strategic levels in order to protect our technological infrastructure against attacks, unauthorized access and malicious codes. We operate to prevent, detect and correct in order to protect the information of our Organization and of our clients.

Accordingly, we have developed our security framework, considering the new digital environment, where the focus on cybersecurity is a key aspect and one of the pillars of technology and processes, ensuring data protection for our clients, resilience, and structures to identify and detect threats, and have in place response and recovery procedures in the event of cyber-attacks.

With regards to the technical aspects, preparing for and anticipating IT security and cyber threats, requires continuous investments like the reformulation of the critical updates of servers and workstations, inspection of source codes in the development cycle, establishment of a lab for security tests and use of technology and tools.

We have systems to prevent attacks from external connections and the internet, systems for the analysis of fraudulent behavior, unauthorized access, malicious codes, analysis of network behavior, intrusion detection, firewall, antivirus and antispam systems, all of which provide protection for our IT systems. We continuously upgrade the security of our software and hardware, digital certification in WEB servers and the encryption equipment, in addition to performing frequent resilience tests.

We continuously monitor these measures and we have security operational centers ("SOCs"), focusing on the identification of potential vulnerabilities and establishing an active defense with the use of cognitive intelligence. Additionally, we have a cyber intelligence team working to identify threats and check the necessary corrective measures.

We adopt strict procedures to ensure our client information is secure. The interactions and synergies between management and technical areas aims to create solutions to provide secure access to service channels and to minimize exposure. We have a range of security devices and technologies, including biometrics, chip cards, 2D digital validation/QR code and OTP devices (physical and cell phone token, etc.), which are used to prevent fraud and unauthorized access. Educating clients on cyber risks is a key component of our strategy in this regard. We have developed awareness campaigns through the client channels and on social media. On our website there are several guidelines for the public, including videos of the web series "Protect Yourself" with prevention tips on current key scams/fraud, which aims to improve the security barriers for users. Those contents are not incorporated by reference in the 20F.

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In conjunction with technical measure, we ensure that employees and prepared and engaged with the issue of cybersecurity. The culture of security is a fundamental basis for the measures, processes and technologies to be effective. For this reason, we invest in training and awareness for employees, associates and customers so they are aware of the issue and prepared for the inherent risks and threats.

We also have continuous training programs and other awareness campaigns on the aspects of security and an executive committee dedicated to the issue, which develops the strategies and ensures the development and effectiveness of actions, focusing on the protection of technological infrastructure against attacks, unauthorized access, theft of information and insertion of malicious codes.

The CMN amended Resolution No. 4,658/18 and Circular No. 3,909/18, with the aim of enhancing cyber security and data storage, and established principles and guidelines that seek to ensure the confidentiality, integrity and availability of data and information systems, through the implementation of policies for cyber security, in addition to the requirement of hiring processing and data storage services. In essence, the resolution establishes (i) that the contracting of relevant processing anddata storage services must be communicated within 10 days of the contract, as well as communicating any contractual alterations; and (ii) in the event of non-existence of an agreement for the exchange of information between the Central Bank of Brazil and the supervisory authorities of the countries where the services may be provided, authorization must be requested from the Central Bank for the contract and relevant contractual alterations. We currently comply with the provisions of these rules.

In August 2018, Law No. 13,709/18 – General Data Protection Law ("LGPD") – was enacted, which creates a set of rules for the use, protection and transfer of personal data in Brazil, in the private and public spheres, and establishes responsibilities and penalties in the civil sphere. In addition to including existing rules on data protection, the LGPD followed the global trend of strengthening the protection of personal data, restricting its unjustified use, and guaranteeing a series of rights to holders of data, as well as imposing important obligations on so-called "treatment agents".

The impact of the law will be significant as any processing of personal data will be subject to the new rules, whether physical or digital, by any entity established in Brazil, or who has collected personal data in Brazil, or individuals located in Brazil – albeit not residents – or, even, that offer goods and services to Brazilian consumers. In short, the adoption of the LGPD will require structural changes in virtually all internal areas of Brazilian companies. The LGPD has been in force since December 28, 2018 creating the ANPD, the public administrative body responsible for ensuring, implementing and supervising compliance with the LGPD and the National Council for the Protection of Personal Data and Privacy, created by Provisional Measure converted into Law No.13,583/19 in 2019. The remainder of the law was expected to come fully into force from August 2020, however, as a result of the COVID-19 pandemic, the National Congress approved Bill No. 1,179/20 postponing the entry into force of Law No. 13,583/19 until January 2021, with fines and sanctions valid from August 1, 2021. It is worth mentioning that this bill was approved with amendments by the Federal Senate, accordingly, it has yet to be passed by the Chamber of Deputies and, following approval, needs to be sanctioned by the President of Brazil.

 

4.B.20.05 Corporate security

Our Corporate Security Department's mission is to promote security solutions by creating, implementing, and maintaining rules and processes which are aligned with our business.

To achieve our strategic objectives, we focus on Information Security and Cybernetics, Access Management, Prevention of Electronic, Debit Card and documentary frauds. We also systemically implement security procedures in Electronic Channels, Systems and Information to assess and propose improvements. In addition, the department is responsible for Technical Opinions, in connection with strategic security issues, implementation of products, services or processes and PLD/FT.

We highlight the main areas and activities:

·       the Information Security Department's purpose is to establish the Information Security Corporate Policy and Rules; identify and evaluate the risks of Information Security; ensure good governance and generate Cryptographic Keys; maintain the Registration Authority ("RA") for the issuance of Digital Certificates related to the Brazilian Public Key Infrastructure ("ICP Brasil"). Establish criteria for the assessment of compliance of Information Security and data protection, maintain the Corporate Program of Awareness and Education in Information Security, giving in-company lectures to employees as well as lectures at external events; maintain the Time Stamp Authority in the context of the ICP Brasil, which will support our digital and digitalization processes of documents;

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4.B. Business Overview

Form 20-F

 

 

·     the Governance of Cyber Security and Incidents to develops, monitors and controls the mapping and development of risks to information security in order to be aligned with our strategic guidelines and new business models, risks and cyber threats and regulatory bodies. In addition, it also manages the Operational Model of Information Security (“MOSI”), acts in Preventing Data Leakage via Data Loss Prevention (“DLP”) and Incidents, in order to have a global and integrated overview of our information security;

·       the Electronic Fraud-Prevention (Bradesco Celular, Internet Banking, Net Empresa, Fone Fácil and Debit Card Product), Document Fraud Prevention (Opening Accounts, Bradesco App, Next, Consigned Credit, Financing of Vehicles and Consortium) manage security processes and projects to detect and mitigate risks of any financial losses or image crisis. They operate by monitoring the transactions of Electronic Service Channels and carrying out preventive and reactive analysis of documents, in addition to performing strategic and corporate actions. They are supported by the Area of Data Analysis and Modeling with analytical solutions and statistics methodologies, in order to propose solutions to Managers of technical and business areas that aim to balance use and security for Electronic Channels Access and for Debit Card Product;

·       Identification Management and Access is responsible for the strategy and operational direction of the identification process and access to corporate applications. This area aims to protect the system resources and information against unwanted access, honoring the principles of segregation of duties and definition of automated controls;

·       the Security Devices division assesses the need for systems, service channels, business managers and users, in relation to authentication factors, managing and monitoring projects, assisting in the acquisition and performing the control and logistics of Biometrics, M-Token, Token and TAN Code;

·       the Security for Access to Information by Third Parties division develops security rules and principles applied to outsourced services, ensuring the evaluation, centralized and appropriate processes and governance for the protection of our information;

·       the PLD/FT division is responsible for policies, standards, procedures and specific systems, which establish guidelines to prevent and detect the misuse of our structure and/or products and services. This Program is supported by the PLD/FT Executive Committee, which evaluates the work according to its effectiveness as well as the need to align procedures and controls with the regulations and with the best national and international practices. Suspicious or atypical cases identified are forwarded to the Commission for the Evaluation of Suspicious Transactions for analysis, which is composed of Segments, Departments and Related Companies, to be able to assess the need to report to the Regulatory Bodies in compliance with the legal requirements.

·       Program for the implementation of the General Data Protection Law (LGPD), responsible for the appropriateness of processes and systems for the rights of the holder of the data and compliance with the requirements required by law; and

·       The Physical and Property Security division is responsible for maintaining the structure with specialized material and human resources and safety devices for the implementation of Security Standards in accordance with Law No. 7,102, of June 20, 1983, and with the "Security Plan" determined by the Federal Police. Keep on constant evaluation the devices and logistics of vulnerable points, offering a 24-hour call center service, aiming to prevent and guide actions to minimize the effects of any claims.

In addition to the activities developed by the corporate security area, we have a department for fraud prevention, as part of our credit card area, whose mission is to provide security solutions aligned to our business, through the creation, implementation, and maintenance of preventive rules, processes and technologies. This fraud prevention department takes strategic action in respect of the security of the use and service channels, systems and processes of products, assessing and suggesting improvements. The department also issues technical opinions in connection with strategic security issues and the implementation of products, services or processes.

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

·       the area responsible for preventing credit card fraud has the purpose of identifying and mitigating the risk of financial losses and negative reputational impacts for the Bank. It develops prevention strategies for documental and transactional fraud, monitoring and alerting in real time for all transactions made through the customer service and use channels. The measures are based on behavioral analyses of fraud, supported by statistical methodologies and predictive models of fraud, in order to ensure controls are aligned to the business. The area also works on the diagnosis of losses to identify systemic and operational weaknesses, recommending preventive actions and alignment with the current strategy where necessary;

·        the projects and processes area establishes controls to identify risks and is responsible for evaluating the risk of fraud and issuing recommendations for new projects, processes and products. The area proposes to the managers of the business and technical areas solutions that aim to balance the use and the security of the products and access to service channels, as well as corporate and strategic actions, which follow the best practices of the market focused on preventive actions; and

·       the portfolio analysis area is responsible for managing and providing information from the fraud prevention area to the other areas of our Organization.

 

4.B.20.06 Data processing

 

·

We have a state of the art information technology ("IT") environment supported by a Data Center (CTI – Centro de Tecnologia da Informação) located in Cidade de Deus, Osasco, SP, especially built to harbor our IT infrastructure and has protections in place designed to ensure the uninterrupted availability of our services.

·

Data is continually replicated in a processing center (secondary site) located in Alphaville, in the city of Barueri – SP, which has equipment with enough capacity to take over the main system's activities in the event of a problem at our Technology Center (CTI). All service channels have telecommunications services that work with one of the two processing centers.

·

We hold annual simulation exercises in which our IT center is rendered out of service in order to test that we have effective contingency structures, processes and procedures in place. All these exercises are monitored by our business managers. In addition to all backup copies of electronic files stored and maintained at our IT center, second copies are saved and maintained in the Alphaville processing center, where all the activities related to the development of systems are located. We regularly test the media and processes in force to ensure compliance with environmental regulations. Data protection aims to ensure the confidentiality, integrity and availability of information in accordance with its level of criticality.

·

If the public energy supply is interrupted, both centers have sufficient capacity to operate independently for 72 hours non-stop. After this period, the technology centers can operate continuously, depending on the amount of fuel available to operate the generators that supply electricity.

·

Our infrastructure includes systems to prevent attacks from external connections and the internet, systems for the analysis of fraudulent behavior, unauthorized access, malicious codes, analysis of network behavior, protection against invasion (intrusion detector), firewall, antivirus and antispam systems, all to provide protection to our IT environment. We continuously upgrade the security for our software and hardware, digital certification in WEB servers and the encryption equipment.

·

We have a Security Operations Center (SOC) in the area of IT Security that treats and responds to security incidents, monitors the environment (24/7) and develops prevention measures through sources of intelligence information.

·

Our safety tools monitor software, hardware and share information from stations and servers. In addition, we have a system for the prevention of loss of Information Data, the DLP, designed to ensure the protection of company data. Annually, a "Penetration Test" is performed by an independent audit firm and the IT security processes are certified by the ISO 27000 – Information Security.

 

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4.B. Business Overview

Form 20-F

 

 

 

·

Our internet systems have a separate infrastructure, enabling different customer segments (individuals, corporate, staff) to use resources independently in order to provide better services.

·

The IT structure is also backed by processes implemented in light of the ITIL (IT Infrastructure Library) and COBIT (Control Objectives for Information and related Technology). We apply recognized practices for IT service management and our system is certified by the ISO 20000 – Service Management.

·

Physical security of the data center is maintained by a baffle gate and a double contention door that isolates the entrance between the doors. Video cameras monitor the entrance and internal areas of the datacenter, and access is restricted and authorized through the authentication of passes and vascular biometrics.

 

4.B.20.07 Bradesco Integrity Program

We are committed to maintain integrity and:

·       to conduct our business and develop our various relationships based on ethics, integrity and transparency, concepts that permeate our organizational culture, values and principles which are ratified by the Corporate and Sector-based Codes of Ethical Conduct and supported by Senior Management; and

·       to prevent and combat all forms of corruption, especially bribery.

These commitments are permanently upheld through the Bradesco Integrity Program, which corresponds to a set of mechanisms and measures made up by the Code of Ethical Conduct, the Corporate Anticorruption Policies and Standards, and other standards, as well as procedures, processes, and control established therein, aimed at preventing, detecting, and remedying any harmful acts of corruption and bribery, including fraud against the Government.

The program, supported by the Integrity and Ethical Conduct Committee and by the Board of Directors, determines the guidelines, responsibilities, procedures, and controls regarding gifts, freebies, entertainment, sponsorship, third parties and due diligence, bids with the Brazilian Government, political contributions, relationships with public agents, denunciations and non-retaliation against whistleblowers acting in good faith, in accordance with laws and regulations applicable in Brazil and in countries where we have business units.

The Integrity Program covers our managers, employees, interns, apprentices, suppliers, service providers, banking correspondents in Brazil and business partners, controlled companies and companies that are members of the Bradesco Organization in its interactions and daily decisions, highlighting our principles of high standards of conduct and ethics. We continuously evaluate the Program to align its governance with the best national and international anti-corruption practices.

We always promote an ethical culture and integrity based on the code of ethical conduct, which has been implemented internally through programs and training events, raising awareness among employees and the service providers. In 2019 the Policies, Rules, Standards, Integrity Program, Manuals, Training and Systems were reinforced.

We also intensified communication with suppliers, service providers, and correspondents in Brazil and with business partners. We gave anti-corruption training to Senior Management, employees in areas with higher exposure to risk, and third parties.

In May 2019, we held a meeting at which focused on the Integrity of departments and associated companies, which included participation from Diretoria Executiva and an external lecturer. In December 2019, on the International Day against Corruption, we promoted Bradesco Integrity Week, with involvement from the Chairman of the Board of Directors and the Chief Executive Officer, an external lecturer and a panel of our Executive members.

 

4.B.20.08 Treasury activities

The main objective of the Treasury Department is to maximize results with available resources and managing risks, by complying with the limits set by our Senior Management and the guidelines issued by our integrated risk control unit.

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The main activities are as follows:

·       planning and managing our local and foreign currency cash flows;

·       developing and implementing our asset and liability management strategy;

·       managing maturity, rate and liquidity gaps arising from our activities;

·       calculating operational costs from both the assets and liabilities sides;

·       obtaining price estimates and managing our commercial operations that involve risks such as: market, interest rate, foreign exchange, commodities and price index risks;

·       performing proprietary trading operations aimed at taking opportunities found in the range of our prospective scenario and market prices; and

·       taking part in analysis and decisions regarding directed credit and capital management.

 

4.B.20.09 Inovabra

Inovabra is the innovation ecosystem designed to support our corporate strategy, fostering innovation through collaborative work with companies, startups, technology partners, investors and mentors. The platform facilitates sharing future visions for business, accelerating the search for new solutions and materializing innovation in our Organization, with the aim of meeting the needs of our customers and ensuring the sustainability of our business in the long term. Inovabra is composed of eight complementary programs:

 

·       inovabra centers: an internal innovation program which encourages our employees to practice creativity and entrepreneurship, spreading the culture of innovation inside our Organization;

·       inovabra startups: this program is an open innovation program, intended to enable strategic partnerships between us and startups that have applicable solutions or with the possibility of adaptation for financial and non-financial services that may be offered or used by us or partner companies;

·       inovabra ventures: is a proprietary capital fund, currently with R$400 million of capital. It is managed by the Private Equity area and intends to invest in startups with technology and/or innovative business models;

·      inovabra pesquisa (research): a multidisciplinary team, with analysts and researchers who conduct an in depth study of new technologies and business models to be on the frontier of knowledge. The team constantly interacts with partners, universities and research institutes in Brazil and abroad and supports inovabra in conducting the innovation process. Responsible for conducting research on emerging technologies such as Artificial Intelligence, blockchain, IoT (internet of things) and quantum computing and their impacts on financial services and products;

·       inovabra lab: is an environment which centralizes 16 laboratories in the areas of technology, designed to operate in a model of collaborative work with large technology partners, residents in this environment. This model allows for operating efficiencies and accelerates the processes of evaluation and certification of new technologies (hardware and software), prototyping, testing, proof of concept, launches and solutions to new challenges;

·       inovabra international: the program is structured in an environment of innovation based in New York and with connections in London, monitoring the global ecosystem of innovation and entrepreneurship; and

·       inovabra habitat and digital hub platform: a building with more than 22 thousand square meters, located in the large economic innovation and cultural center of São Paulo, between Avenida Angélica and Rua da Consolação, close to Avenida Paulista, where large companies, startups, investors and mentors work collaboratively to innovate and generate business. In addition to fostering entrepreneurship in Brazil and a culture of innovation in organizations. In addition, through the digital hub platform, it is possible to select startups without geographical barriers. The entrepreneurs who are registered on the platform have access to business opportunities with us and our major partner companies.

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Form 20-F

 

 

4.B.30 Business segment

The data for these segments was compiled from reports prepared for Management to assess performance and make decisions on allocating funds for investments and other purposes. Our Management uses various data, including financial data in conformity with BR GAAP and non-financial metrics compiled on different bases. For further information on differences between the results on a consolidated basis and by segment, see “Item 5.A. Operating Results – 5.A.20.01 Results of operations for the year ended December 31, 2019 compared with the year ended December 31, 2018”.

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

 

Years Ended December 31,

R$ in thousands

2019

2018

2017

Banking

 

 

 

Interest and similar income from loans and advances (1)

66,973,129

61,418,259

64,083,962

Fees and commissions

31,135,507

30,022,769

28,566,371

Insurance and pension plans

 

 

 

Premiums retained from insurance and pension plans

77,599,270

72,476,844

76,098,164

Fees and commissions

   2,028,371

   2,169,807

   2,063,187

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

 

For further details of our segments, see Note 5 to our consolidated financial statements in “Item 18. Financial Statements”.

We do not break down our revenues by geographic regions within Brazil, and less than 4.0% of our revenues come from international operations. For more information on our international operations, see “4.B.30.01-02.10 International banking services”.

As of December 31, 2019, according to the sources cited in parentheses below, we were:

·       one of the leading banks in terms of savings deposits, with R$114.2 billion, accounting for 13.2% of Brazil’s total savings deposits (according to the Central Bank);

·       the leader in BNDES onlendings, with R$5.0 billion in disbursements (according to BNDES);

·       one of the leaders in automobile financing loans, with a market share of 14.2% (according to the Central Bank);

·       the leading bank in payments for over 11.4 million benefits to INSS retirees and beneficiaries, accounting for 32.1% of the total number of payments made by the INSS;

·       one of the leaders in leasing transactions in Brazil, with an outstanding amount of R$2.7 billion; through our subsidiary Bradesco Leasing S.A. Arrendamento Mercantil, or “Bradesco Leasing” (according to ABEL);

·       one of Brazil’s largest private fund and investment managers, through our subsidiary BRAM, with R$627.9 billion in assets under management (according to ANBIMA), taking into account managed portfolios;

·       one of the leaders in the third-party asset management business, with R$1.0 trillion in assets, of which R$399.3 billion are managed through our subsidiary and BEM DTVM (according to ANBIMA);

·       the leader in number of outstanding purchasing consortium quotas, through our subsidiary Bradesco Administradora de Consórcios Ltda., or “Bradesco Consórcios”, with 1,616,675 quotas in three segments, including: (i) automobiles and motorcycles, with 1,279,755 quotas; (ii) real estate, with 266,265 quotas; and (iii) trucks, with 70,655 quotas (according to the Central Bank);

·       the leader in imports and exports and one of the leaders in the consolidated primary market ranking (according to the Central Bank), additionally, leader in "foreign trade – trade finance"; and

·       the largest company operating in the Brazilian insurance market, operating in all lines of this segment, with a 24.0% market share (according to SUSEP/ANS), through Grupo Bradesco Seguros, which mainly comprises: Bradesco Seguros S.A., or “Bradesco Seguros” and its subsidiaries: (i) Bradesco Vida e Previdência S.A., or “Bradesco Vida e Previdência”; (ii) Bradesco Capitalização S.A., or “Bradesco Capitalização”; (iii) Bradesco Auto/RE Companhia de Seguros S.A., or “Bradesco Auto/RE”; and (iv) Bradesco Saúde S.A., or “Bradesco Saúde”. Our total revenues were R$77.7 billion in insurance premiums, pension plan contributions and capitalization bond income.

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4.B.30.01 Banking

In our banking segment, we offer a range of products and services to our clients including deposit-taking, granting of loans and advance payments, debit and credit card services and capital market solutions, through our extensive distribution network.

We have a diverse customer base that includes individuals and small, mid-sized and large corporates in Brazil. Historically, we have cultivated a strong presence among the broadest segment of the Brazilian market, middle- and low-income individuals.

The following table shows the bank income statement and other selected financial data for our banking segment for the periods indicated.

Year ended December 31,

 Banking - R$ in thousands

2019

2018

2017

Revenue from financial intermediation

   113,402,430

   110,639,034

   130,015,483

Expenses from financial intermediation

(49,683,456)

(52,958,441)

(67,744,701)

Financial margin

  63,718,974

  57,680,593

  62,270,782

Allowance for loan losses

(18,891,493)

(18,319,973)

(25,210,020)

Gross income from financial intermediation

  44,827,481

  39,360,620

  37,060,762

Fee and commission income

  31,135,507

  30,022,769

  28,566,371

Personnel expenses

(23,072,600)

(18,102,452)

(19,919,896)

Other administrative expenses

(20,327,502)

(19,126,128)

(18,845,656)

Tax expenses

  (6,203,188)

  (5,660,519)

  (5,440,571)

Share of profit (loss) of unconsolidated and jointly controlled companies

  12,921

6,620

(22,657)

Other operating income / expenses

(21,082,041)

(11,943,485)

  (9,910,746)

Operating profit

   5,290,578

  14,557,425

  11,487,607

Non-operating income

  (537,428)

  (929,396)

  (729,584)

IT/SC (Income Tax/Soc. Contrib.) and non-controlling interests

  10,431,415

  (1,134,166)

  (1,836,636)

Net Income

  15,184,565

  12,493,863

   8,921,387

Total assets

   1,264,627,391

   1,251,749,713

   1,146,536,514

Loans

   457,392,375

   411,492,655

   373,813,665

Deposits from customers

   366,227,540

   340,748,196

   262,008,445

Investment Funds and Managed Portfolios

   1,000,818

   940,538

   870,702

Other funding sources (1)

   606,477,819

   586,990,407

   602,362,784

(1) Includes securities sold under agreements to repurchase, borrowing and on-lending obligations, funds from issuance of securities and subordinated debt. For more information about our funding sources, see “Item 5.B.20 Liquidity and funding”.

 

4.B.30.01-01 Segmentation of Clients

Our client base included 72.0 million clients at the end of 2019. We have a segmented structure, for both individuals and corporate entities, in order to offer flexibility and convenience in all areas in which we operate, ensuring we meet each client's needs. To meet the needs of the biggest number of people we have democratized access to products and services, encouraging the process of financial inclusion, access banking services, social mobility and entrepreneurship

We do not make distinctions, we supply every client with the same level of excellence and we continuously improve the way we provide services. We are aware of each client's profile and we have continuously improved the scale and diversification of our current model. These values extend to clients who are non-account holders, due to their significance and the potential of growth.

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Form 20-F

 

 

 

Ø    Bradesco Corporate

The Corporate segment is responsible for serving business groups and focused on both large and medium-sized companies. Its offices are located in the main financial centers and with a value proposal based on physical proximity and relationship with clients, offers customized services with a global reach and counts on a highly skilled team to fulfill customers' needs through a wide portfolio of products, structured solutions and financial services.

To anticipate the solutions, it is important to strengthen the relationship with clients and to deliver a robust value proposal, Corporate is highly segmented by sectors, markets, sizes, nature of the companies, among other criteria, and these segments are combined into three large areas:

·       Large Corporate: a highly qualified team offer customized consultancy to serve clients in Brazil and worldwide;

·       Corporate: a specialized service for large companies, organized by market sector and physical structure in various cities in Brazil and abroad; and

·       Corporate One: focused mainly on the middle market it also has a team focused on providing services to large companies. This area has a national presence in Brazil and a regionalized structure, composed of 70 Units located in the main cities and capitals distributed in 15 regional sectors and another 98 Corporate Spaces throughout Brazil.

 

Ø    Institutional

The Institutional Segment is responsible for serving the Resource Managers, Pension Funds and Stock Brokers, offering Prime Brokerage services, which is centered on a team of professionals specialized in providing secure and efficient access to financial products and solutions to meet the needs of institutional customers.

 

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Ø    Bradesco Private Bank

Bradesco Private Bank offers exclusivity and works side by side with clients to maintain and manage family wealth across generations.

Designing innovative solutions to meet the ambitions and individual needs of each of our clients, we have a complete structure of Wealth Management involving liquid and illiquid assets, the best tools and investment structures to ensure the longevity of the family’s estate.

Clients have access to a complete platform, open and varied investments, local and international, exclusive funds, always counting on an experienced team of managers, economists and advisors, in addition to all of our business solutions including, among others, Banco de Investimentos BBI, Credit, Insurance, Broker, and Pension Plans.

Bradesco Private Bank currently has 14 offices located in: São Paulo, Rio de Janeiro, Belo Horizonte, Blumenau, Campinas, Cuiabá, Curitiba, Fortaleza, Goiânia, Manaus, Porto Alegre, Recife, Ribeirão Preto and Salvador, thus ensuring a nation-wide presence, in addition to the support of the units abroad located in Cayman, New York, Luxembourg, London and Miami.

 

Ø    Bradesco Varejo

The Bradesco Varejo service network includes 4,185 branches, 3,997 service centers, 884 electronic service centers and 39,100 Bradesco Expresso banking correspondent units, in addition to thousands of ATMs.

Bradesco Varejo has a prominent role in the use of banking services by Brazilians.  By being present in all municipalities, including some municipalities which are difficult to access, we are frequently the first interaction a client has with a financial institution.  In this way we contribute to the development of individuals and the communities where they live.

 

Ø    Bradesco Prime

Bradesco Prime operates in the segment of high-income individuals and is present in all Brazilian capitals. It has a service network of 254 exclusive branches and 1,007 “Bradesco Prime Spaces”. The clients count on a full relationship model that fits the profile and needs of each client, providing effective financial planning, with customized solutions, evaluated by qualified professionals, to assist our clients with their asset management.

Using Bradesco Prime the clients have the following benefits:

·       Program of benefits: exemption of up to 100% on the value of the Tariff Basket and exemption on annuity of our credit cards, in accordance with the volume of investments and/or concentration of the client’s spending, plus up to 12 days without interest in the Special Overdraft in accordance with the volume of investments;

·       Viva|Prime program: provides Bradesco Prime clients with unique experiences in the form of benefits and discounts in stores, restaurants and partner brands;

·       Recommended investment portfolios: recommended based on the analysis of the investor’s profile (API) that seeks to diversify the best ratio between risk and return;

·       Capillarity: wide network of branches and Bradesco Prime Spaces throughout the country;

·       Relationship manager: qualified professionals who support the client in managing their resources, considering their needs and moment of life;

·       Exclusive Spaces in whole country: network of exclusive branches and “Bradesco Prime Spaces” offering convenience and total privacy so clients can tend to their business affairs; and

·       PIC - Prime International Center: remote service for foreign clients in Brazil.

Bradesco Prime has been, throughout its existence, investing in technology, in the improvement of the relationship with clients and in the training of its professionals and one of its main assets is to provide the best experience to its clients. It established a prominent position in the Brazilian market of banking services for high-income clients and has consolidated its position as one of the largest banks in the segment.

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4.B. Business Overview

Form 20-F

 

 

 

Ø    Non-Account Holders

In 2018, we created an area dedicated to strengthening the relationship with individual and legal entity clients who used at least one of our products. By recognizing the client's profile and portfolio combination, we seek to provide financial products with personalized offers through both physical and digital channels.

The purpose of the area is to coordinate offers and approaches, as well as facilitate the access to financial products, creating new channels and experiences supported by innovation in processes and technology.

In 2019, we focused on the adequacy of proprietary channels of the bank to sell digital products to non-account holders, and we launched the sales portal in November 2019.

 

4B.30.01-02 Products and banking services

In order to meet the needs of each client, we offer the following range of banking products and services:

 

 

4.B.30.01-02.01 Deposit accounts

We offer a variety of deposit accounts to our customers, including:

·        checking accounts, such as:

Conta Fácil (Easy Account) – a checking account and a savings account under the same bank account number using the same card, for individuals and corporate entities;

Click Conta (Click Account)– checking accounts for children and young people from 0 to 17 years of age, with an exclusive website, debit card, automatic pocket money service and free online courses and exclusive partnerships, among other benefits; and

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

·       traditional savings accounts, which currently earn interest at the Brazilian reference rate, or taxa referencial, known as the “TR”, plus 6.2% annual interest in case the SELIC rate is higher than 8.5% p.a. or TR plus 70.0% of the SELIC rate if the SELIC rate is lower than 8.5% p.a.; and

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

As of December 31, 2019, we had 30.1 million checking account holders, 28.4 million of which were of individuals and 1.7 million of which were of corporate entities. As of the same date, we had 63.9 million savings accounts.

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

 

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December 31,

 R$ in thousands, except %

2019

2018

2017

Deposits from customers

 

 

 

 

 

 

Demand deposits

   37,283,988

10.2%

   34,178,563

10.0%

   33,058,324

12.6%

Reais 

   35,982,521

9.8%

   32,605,941

9.6%

   30,392,388

11.6%

Foreign currency

1,301,467

0.4%

1,572,622

0.5%

2,665,936

1.0%

Savings deposits

114,177,799

31.2%

111,170,912

32.6%

103,332,697

39.4%

Reais 

114,177,799

31.2%

111,170,912

32.6%

103,332,697

39.4%

Time deposits

214,765,753

58.6%

195,398,721

57.3%

125,617,424

47.9%

Reais 

198,077,456

54.1%

181,698,519

53.3%

115,684,855

44.2%

Foreign currency

   16,688,297

4.6%

   13,700,202

4.0%

9,932,569

3.8%

Total

366,227,540

100.0%

340,748,196

100.0%

262,008,445

100.0%

 

 

4.B.30.01-02.02 Loans and advances to customers

The following table shows loans and advances to customers broken down by type of product on the dates indicated:

December 31,

% of total portfolio

 R$ in thousands

2019

2019

2018

2017

Companies

49.6%

226,976,385

218,944,963

199,940,296

Financing and On-lending

22.8%

104,138,378

105,672,794

101,449,452

Financing and export

10.4%

   47,484,556

   47,626,728

   38,272,982

Housing loans

3.7%

   16,822,185

   22,415,363

   26,539,317

Onlending BNDES/Finame

3.6%

   16,643,236

   18,947,583

   24,263,448

Vehicle loans

2.6%

   12,040,355

7,828,417

4,901,102

Import

1.8%

8,398,252

6,850,465

5,318,043

Leases

0.6%

2,749,794

2,004,238

2,154,560

Borrowings

24.3%

111,327,898

102,614,435

   87,873,248

Working capital

12.7%

   57,887,358

   55,739,546

   52,409,785

Rural loans

1.2%

5,525,886

5,459,694

5,683,215

Other

10.5%

   47,914,654

   41,415,195

   29,780,248

Operations with limits (1)

2.5%

   11,510,109

   10,657,734

   10,617,596

Credit card

0.9%

4,000,712

3,105,494

2,708,517

Overdraft for corporates/ Overdraft for individuals

1.6%

7,509,397

7,552,240

7,909,079

Individuals

50.4%

230,415,990

192,547,692

173,873,369

Financing and On-lending

17.2%

   78,615,264

   67,861,394

   60,302,622

Housing loans

9.7%

   44,175,642

   38,179,023

   33,338,566

Vehicle loans

6.2%

   28,350,727

   23,246,610

   20,354,966

Onlending BNDES/Finame

1.3%

5,872,331

6,222,532

6,392,218

Other

0.0%

216,564

213,229

216,872

Borrowings

23.0%

105,427,418

   83,968,350

   74,382,441

Payroll-deductible loans

13.8%

   63,144,951

   51,284,334

   43,968,511

Personal credit

5.3%

   24,338,888

   16,858,123

   14,184,488

Rural loans

1.9%

8,543,433

7,894,249

7,838,314

Other

2.1%

9,400,146

7,931,644

8,391,128

Operations with limits (1)

10.1%

   46,373,308

   40,717,948

   39,188,306

Credit card

9.0%

   41,353,388

   36,447,880

   34,860,468

Overdraft for corporates/ Overdraft for individuals

1.1%

5,019,920

4,270,068

4,327,838

Total portfolio

100.0%

457,392,375

411,492,655

373,813,665

(1) It refers to outstanding operations with pre-established limits linked to current account and credit card, whose limits are automatically recomposed as the amounts used are paid.

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

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4.B. Business Overview

Form 20-F

 

 

December 31,

2019

2018

2017

Borrower size

 

 

 

Largest borrower

1.9%

2.2%

2.5%

10 largest borrowers

7.7%

9.1%

8.2%

20 largest borrowers

11.3%

12.9%

12.2%

50 largest borrowers

16.7%

18.6%

17.8%

100 largest borrowers

20.1%

22.9%

22.2%

 

Ø    Financing and On-lending

 

·         Import and export financing

Our Brazilian foreign-trade related business consists of providing financial services to our clients in their export and import activities.

In import financing/refinancing, we directly transfer funds in foreign currency to foreign exporters, fixing the payment in local currency for Brazilian 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/performance of services 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/performance of services have been delivered, they are referred to as Advances on Export Contracts, or "ACEs".

There are other forms of export financing, such as Export Prepayments, onlendings from BNDES-EXIM funds, Export Credit Notes and Bills (referred to locally as "NCEs" and "CCEs"), and Export Financing Program with rate equalization – "PROEX".

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 1,176 correspondent banks abroad, 43 of which extended credit/guarantee lines as of December 31, 2019.

 

·         Housing loans

As of December 31, 2019, we had 219.3 thousand active financing units.

Housing loans are provided for: (i) the acquisition of residential and commercial real estate, and urban plots; and (ii) construction of residential and commercial developments.

Financings for the acquisition of residential real estate have a maximum term of up to 30 years and annual interest rates of 7.3% to 12.0% p.a., plus TR, while commercial real estate financings have a maximum term of up to ten years and annual interest rates of 13.0% to 15.0% p.a. plus TR.

Financings for construction, also known as the Businessman Plan, have a construction term of up to 36 months and interest rate of 12.0% to 16.0% per annum, plus TR, and a six-month grace period for the realization of transfers to borrowers.

Central Bank regulations require us to provide at least 65.0% of the balance of savings accounts in the form of housing loans. The remaining funds are to be used for financings and other operations permitted under the terms of the legislation in force.

 

·         Onlending BNDES /Finame

The BNDES is the main instrument of the Federal Government to support entrepreneurs of all sizes, including individuals, in carrying out their plans for modernization, expansion and implementation of new business, with the potential of generating jobs, income and social inclusion in Brazil. Its portfolio has certain products and programs to provide government-funded long-term loans with different interest rates, focusing on economic development.

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We are one of the structuring agents of BNDES funds, to borrowers in several sectors of the economy. We determine the margin of return on the loans based on the borrowers' credit. Although we bear the risk for these BNDES and Finame onlending transactions, these transactions are always secured. According to BNDES, in 2019, we disbursed R$5.0 billion, 90.0% of which were loaned to micro, small and medium-sized companies.

 

·         Vehicle loans

We acting through partnerships, in the consumer financing for the purchase of new and used vehicles for individuals and corporations in the chain, which comprises assembler, dealers and consumers. In addition to offering theses services through our extensive network of branches, Bradesco Financiamentos also offers loans and leasing for the acquisition of light vehicles, motorcycles, trucks, buses, machinery and equipment.

 

·         Leases

As of December 31, 2019, we had 6,494 outstanding leasing agreements. According to ABEL, our leasing companies were among the sector leaders, with a 23.0% market share in Brazil, of an available market of R$12.4 billion on the same date.

Most of our leasing are financial, primarily involving the leasing of trucks, cranes, aircraft, ships and heavy machinery. As of December 31, 2019, 36.6% of our outstanding leasing transactions were for vehicles (car, bus, micro-buses, trucks). We conduct our leasing transactions through our primary leasing subsidiary, Bradesco Leasing and also through Bradesco Financiamentos.

 

Ø    Borrowings

 

  • Working Capital

 

Line of credit destined to companies with the aim of covering expenses or investments inherent in the company's working capital, such as: payment of 13th salary, stock renewal, training and other.

 

·         Personal Loans / Payroll-Deductible Loans

 

They are loan operations with a pre-approved limit to meet needs without a specific purpose. It also includes payroll-deductible loans to Social Security National Service (INSS) pension plan beneficiaries and retirees, to public servants and to private the private sector.

The average term of these operations is 52 months and interest rates range from 1.6% to 3.2% p.a., as of December 31, 2019.

 

·         Rural loans

The provision of loans and financing to the agribusiness sector is carried out with resources:

o    From the demand deposit, where there is a requirement by the Central Bank for the investment of 30% of the Value Subject to Collection (“VSR”), which is called RO – Obligatory Resources, with a portfolio of R$8.9 billion on December 31, 2019, with maximum rates from 3.0% p.a. to 8.0% p.a. as the rule of investment of the MCR (Manual of Rural Credit), whereby the average rate of the portfolio is 6.9% p.a.;

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4.B. Business Overview

Form 20-F

 

 

o    From the Bank’s Treasury for the operations, with a portfolio of R$5.2 billion on December 31, 2019 and the average rate of the portfolio of 8.6% p.a.;

o    BNDES onlending, through lines directed to the sector of Agribusiness, destined for investments in equipment, machinery, infrastructure, recovery of pasture, etc., with a term of up to 10 years and an average rate of 7.6% p.a.

The majority of loans have half-yearly or annual payments with payment terms matched to periods of the harvest cycle. The guarantees are usually aligned with the property/mortgage and machines, the latter being valid for the financing of goods.

 

Ø    Operations with limits

 

·         Credit card

We offer a range of credit cards to our clients including Elo, American Express, Visa, MasterCard brands and private label cards, which stand out due to the extent of benefits and convenience offered to associates.

We earn revenues from our credit card operations through:

o

fees on purchases carried out in commercial establishments;

o

issuance fees and annual fees;

o

interest on credit card balances;

o

interest and fees on cash withdrawals through ATMs; and

o

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

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

o

cards issued for use restricted to Brazil;

o

credit cards accepted nationwide and internationally;

o

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

o

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

o

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

o

“affinity” credit cards, which we offer through associations, such as sporting clubs and non-governmental organizations; and

o

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, among others.

We hold 50.01% of the shares of Elopar, an investment holding company which investments include Alelo (benefit cards, prepaid and money card), Livelo (coalition loyalty program), as well as participations in Elo Serviços (brand) and Banco CBSS (credit card issuance and other financial products). We hold 30.06% of the shares of Cielo S.A.

We also have a card business unit abroad, Bradescard Mexico, one of the highlights of which is a partnership with C&A.

As of December 31, 2019, we had several partners with whom we offered co-branded, affinity and private label/hybrid credit cards. That has allowed us to integrate our relationships with our customers and offer our credit card customers banking products, such as financing and insurance.

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The following table shows our volume of transactions and total number of transactions of credit cards for the years indicated:

 

 

In millions

2019

2018

2017

Volume traded - R$

205,845.0

189,155.0

176,893.5

Number of transactions

  2,262.9

  2,104.8

  1,991.0

 

·         Overdraft for individuals

The overdraft limit is a line of credit available on current accounts with automatic renewal for emergency situations when there is no available balance in the account. For corporate customers, we offer a business check to meet the emergency needs of companies.

The interest rates vary from 2.8% to 14.2% per month, as of December 31, 2019.

 

·         Overdraft for companies

The overdraft for companies is a revolving credit limit for corporate entities to meet the emergency needs of a customer. The limit of the guaranteed account allows the negotiation of more attractive rates. However, in most cases, it requires a guarantee which can be; a surety, disposal of assets, guarantees of contracts or anticipation of receivables, and investments, among others.

 

·         Emergency Employment Maintenance Program

In April 2020 the president of the Republic amended Provisional Measure No. 944/20, instituting the Emergency Employment Maintenance Program, for the implementation of loans for entrepreneurs, corporations and cooperatives, with the exclusion of loan companies, to finance the payment of their payroll to their employees. Provisional Measure No. 944/20 establishes the requirements for the lines of credit to be granted as part of the framework of the Emergency Program, which will cover the entire payroll of the contractor, for a period of two months, limited to the equivalent of up to two times the minimum salary per employee. The provisional measure also establishes the requirements that financial institutions must observe when lending under the program, which has (i) an interest rate of 3.75% per annum on the amount granted; (ii) a period of 36 months for the payment; and (iii) a grace period of six months to start paying, with capitalization of interest during this period.

As a result of the provisional measure, the CMN issued Resolution No. 4,800, which provides for guidelines, limits and conditions for participation in loans to finance as part of the framework of the Emergency Program. The financial institutions that participate in the Emergency Program will fund the payroll, but their payroll must be processed by the financial institution itself, and should observe the annual gross revenues of the entity financed, in addition to conditions relating to amounts, maturity and interest.

 

Ø    Credit policy

Our credit policy is focused on:

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

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4.B. Business Overview

Form 20-F

 

 

o    pursuing flexibility and profitability in business; and

o    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 of Directors depending on the rules in our internal policy. In reviewing loan applications, our Diretoria Executiva also approves the models of 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 line 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 18 levels, of which 14 represent accrual loans. This ensures greater adherence to the requirements set forth in the Basel Accords. For more information, see "Item 4.B. Business Overview – 4.B.70 Regulation and Supervision – 4.B.70.02 Banking Regulations – 4.B.70.02-11 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:

o    is rated less than “acceptable” under our internal credit risk classification system (score and rating);

o    has an outdated record; and

o    has any relevant credit restrictions.

 

We have credit limits for each type of loan and we pre-approve credit limits for our individual and corporate entities 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 mid-sized corporations, are reviewed every 90 days.

Our maximum exposure per client (e.g. individuals, companies or other economic groups) is determined by client rating and the aggregate maximum exposure is limited to 15.0% of our Reference Equity.

Any cases in which the maximum level of exposure per client exceeds the thresholds as set out in the table below or in which the total exposure equals or exceeds R$3.0 billion are required to be submitted to the Board of Directors for approval.

 

Client Rating

As a % of Shareholders´ Equity

AA1

15

AA2

12.5

AA3

11

A1

9.5

A2

8.5

A3

7

B1

5.5

B2

4.5

B3

3

C1

1.5

C2

0.9

C3

0.7

C4

0.5

D

0.4

 

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 Accords, including:

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o    restructuring our methodology to calculate possible losses;

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

o    restructuring our information control structure; and

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

 

·         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. If the value and type of collateral are not within the limits established for approval at 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 collateral

Loan with collateral

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 20,000

Credit director

up to 25,000

Decision Credit Meeting

up to 40,000

Executive credit committee (Daily Meeting)

up to 150,000

Executive credit committee (Plenary Meeting)

up to 3,000,000

Board of Directors

over 3,000,000

 

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4.B. Business Overview

Form 20-F

 

 

·         Loans and advances to corporations

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$400,000.00 may be approved at the branch level. 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 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 collateral

Loan with collateral

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 20,000

Credit director

up to 25,000

Decision Credit Meeting

up to 40,000

Executive credit committee (Daily Meeting)

up to 150,000

Executive credit committee (Plenary Meeting)

up to 3,000,000

Board of Directors

over 3,000,000

 

In order to serve our 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:

o

in the "Varejo", "Prime" and "Private – Individuals" segments, we consider the individual's reputation, 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 the guarantees involved;

o

in the "VarejoEmpresas e Negócios" segment, in addition to the points mentioned above, we focus on the owners of the relevant company, as well as considering the length of time in business and monthly revenues;

o

in the "Corporate One", "Corporate" and "Large Corporate" segments, management capability, the company/group's positioning in the market, its size, the economic development, cash flow capability, and business perspectives, our analysis always includes the applicant, its parent company/subsidiaries, and the type of business; and

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o

our analysis also extends to social and environmental risks for projects that require customers to show compliance with social and environmental regulations and the Equator Principles, consisting of socio-environmental criteria required as conditions for loans, which was introduced in 2002 by the International Finance Corporation ("IFC"), the World Bank's financial arm.

 

 

·         Collection and Loan Recovery

We have a department that focuses on the collection and recovery of loans, seeking to reduce the rates of delinquency and losses, as well as to maintain our relationship with clients. By using our own statistical models, updated periodically, which separate debtors according to levels of risk and likelihood of payment, our collection strategies are more assertive and efficient.

Collection occurs sequentially through our network of branches, call centers, digital channels, and friendly and judicial collection offices. In addition, specialized regional teams tailor their operations and submit significant cases to the collective authority limits in the Commission or Executive Committee for Collection and Credit Recovery, respecting the governance of the established authority level.

 

 

4.B.30.01-02.03 Cash Management Solutions

 

Ø

Management of accounts payable and receivable In order to meet the cash management needs of our customers in both public and private sectors, we offer a broad portfolio of high quality products and services of accounts payable and receivable, supported by our network of branches, bank correspondents and electronic channels and mobile, all of which aim to improve speed, stability and security for customer data and transactions. Our solutions include: (i) receipt and payment services; and (ii) 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, custody of checks, credit order, collection and payment processing services, and by funds in transit received up to its availability to the related recipients.

Ø

Solutions for receipts and payments – In 2019, we settled 1.2 billion invoices through the services of Cobrança Bradesco and 590.2 million of receipts by the tax collection systems and utility bills (such as water, electricity, telephone and gas), checks custody service, identified deposits and credit orders. The corporate systems processed 1.2 billion documents related to payments to suppliers, salaries and taxes.

Ø

Global Cash Management – Global Cash Management aims at structuring solutions to foreign companies that want to operate in the Brazilian market and to Brazilian companies making business in the international market. By way of customized solutions, partnerships with international banks and access to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network, our exclusive customer service team offer customized products and services to identity solutions for companies.

Ø

Niche Markets – We operate in various niche markets, such as franchise business, Individual Micro Entrepreneur (MEI), education, health, condominiums, country clubs, transportation, religion, and among others, where our clients have the support of a specialized team with the mission of structuring custom solutions that add value to their business.

 

As an example, the franchising niche has a team of franchising specialists that, through their relationship with franchising companies, identify opportunities for financing and providing services to all franchisees and their employees. The partnership with the franchise networks occurs through structured commercial activities in synergy with the managing departments, commercial segments, and affiliated companies. The focus on the peculiarities of this sector creates a competitive and sustainable position by structuring appropriate solutions and, in particular, through the strategy of providing differentiated and specialized service. We have approximately 485 agreements in place with franchising companies, generating numerous opportunities to open new current accounts and leveraging business with the respective franchisees.

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Another important feature in this area is the support we provide towards the development of Local Production Arrangements (“APLs”), by providing service to businesses and assistance to these clients. Participating in an APL strengthens the companies, because together they can form an articulated and important group for local development, allowing for greater competitive and sustainable advantages for micro and small businesses. Currently, we service 423 APLs throughout the country.

Micro-entrepreneurs use the MEI Portal in addition to products and services that fit their business, including free services provided by partners to meet their day to day needs. In 2019, the Portal received a global award from the Gartner Eye on Innovation as an Open Banking Project

 

 

4.B.30.01-02.04 Public authority solutions

We have a specific area dedicated to serving public administration, which offers specialized services aimed at identifying business opportunities and structuring customized solutions 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).

Our exclusive website developed for our customers offers corporate solutions for federal, state and municipal governments for payments, receipts, human resources and treasury services. In addition, the website also features exclusive facilities for public employees and the military, showing all of our products and services for our customers.

Our commercial relationships with such public authorities are developed by specialized business managers located in distribution platforms throughout the country, which can be identified on our website. We have nine specialized platforms to assist governments, capitals, courts, class councils, chambers, prosecutors, public defenders and 100 largest municipalities according to the Brazilian GDP, in addition to 34 Platforms that operate in the Retail sector providing services to the City Halls and other Authorities.

In 2019, we took part and were successful in payroll bidding processes sponsored by the Brazilian government. Furthermore, according to INSS, we continue to be leaders in payments of INSS benefits, with more than 11.4 million retirees and pensioners.

 

 

4.B.30.01-02.05 Management and administration of third-party funds

BRAM manages third-party funds through:

·         mutual funds;

·         managed portfolios;

·         exclusive funds; and

·         receivable funds (FIDCs – Fundos de Investimento em Direitos Creditórios), FIIs (Real Estate Investment Funds) and ETFs (Exchange Traded Funds).

 

Ø

Management of funds and portfolios – On December 31, 2019, BRAM managed 1,282 funds and 490 portfolios, providing services to 3.1 million investors. Among its biggest customers are all the main segments of Bradesco, like Prime, Corporate One, Corporate, Large Corporate, Private and Varejo (Retail) (for more information on our segmentation, see “4.B.30.01-01 Segmentation of Clients”) and Grupo Bradesco Seguros, in addition to institutional investors in Brazil and abroad. These funds comprise a wide group of fixed-income, non-fixed income, investments abroad and multimarket funds, among others.

 

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

Equity under Management by Type of Investment
 
as of December 31

R$ in thousands

2019

2018

Investment Funds

 

 

Fixed income

492,730,111

548,781,839

Variable income

   18,592,866

  9,498,103

Multimarket

   49,102,026

   48,565,323

Total

560,425,003

606,845,265

Managed Portfolios

 

 

Fixed income

   57,832,718

   53,121,126

Variable income

  9,631,860

  7,591,523

Total

   67,464,578

   60,712,649

Overall Total

627,889,581

667,557,914

 

As of December 31,

2019

2018

Number

Quotaholders

Number

Quotaholders

Investment Funds

  1,282

  3,137,303

  1,230

  3,468,304

Managed Portfolios

  490

  1,079

  300

  1,138

Overall Total

  1,772

  3,138,382

  1,530

  3,469,442

 

Ø

Administration of third-party funds On December 31, 2019, BEM and Bradesco administered 3,308 funds, 490 portfolios and 66 investment clubs, providing services to 3.2 million investors.

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

Equity under Administration by Type of Investment
 
as of December 31

R$ in thousands

2019

2018

Investment Funds

 

 

Fixed income

724,190,789

745,188,895

Variable income

   86,296,909

   51,958,073

Third party share funds

   98,960,275

   59,262,618

Total

909,447,973

856,409,587

Investment Clubs and Managed Portfolios

 

 

Fixed income

   57,832,718

   53,121,193

Variable income

  9,631,860

  7,591,523

Third party share funds

   23,905,685

   23,415,776

Total

   91,370,263

   84,128,491

Overall Total

1,000,818,236

940,538,078

 

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As of December 31,

2019

2018

Number

Quotaholders

Number

Quotaholders

Investment Funds

  3,308

  3,182,488

  3,043

  3,510,515

Managed Portfolios

  490

-  

  300

-  

Investment Clubs

   66

  589

   90

  841

Overall Total

  3,864

  3,183,077

  3,433

  3,511,356

 

4.B.30.01-02.06 Services related to capital markets and investment banking activities

As our investment bank, "Bradesco BBI" is responsible for (i) originating and executing project financing operations; (ii) originating and executing mergers and acquisitions; (iii) originating, structuring, syndicating and distributing fixed income transactions of securities in Brazil and abroad; and (iv) originating, structuring, syndicating and distributing issuances of securities of equity in Brazil and abroad.

In 2019, Bradesco BBI received awards in the following categories: "Best Investment Bank in Brazil" by Global Finance, "Most Innovative Investment Bank from Latin America" by The Banker and "LatAm M&A Firm of the Year and Brazil M&A Firm of the Year" by Global M&A Network.

In 2019, Bradesco BBI advised customers in a total of 223 operations across a range of investment banking products, totaling approximately R$236.6 billion.

 

Ø

Mergers and acquisitions Bradesco BBI provides advisory services in merger and acquisition and corporate sale transactions, including the sale of companies and assets, private placements, creation of joint ventures, financial and corporate restructuring, and privatizations. In 2019, Bradesco BBI advised on 25 disclosed transactions that amounted to R$23 billion.

 

Equity – Bradesco BBI coordinates public offerings of shares in national and international markets. In 2019, Bradesco BBI coordinated 23 stock market operations with bids totalling over R$44.9 billion.

Ø

Fixed income – Bradesco BBI coordinates public offerings of securities of fixed income in local and international capital markets and international debt. In 2019, Bradesco BBI coordinated a total of 175 transaction – totaling US$16.5 billion in the international capital markets and R$50.3 billion in the local capital market. We can also highlight in fixed income:

 

·

Project finance Bradesco BBI acts as advisor and structuring agent in the areas of “Project” and “Corporate Finance”, seeking to optimize financing solutions for projects across various industries through both credit and capital markets operations. In 2019, Bradesco BBI successfully participated in the launch of 50 projects, totalling R$13.4 billion in investments.

·

Structured operations Bradesco BBI structures customized financial solutions for its customers in terms of their needs such as: investments, acquisitions, corporate reorganization, share repurchase, improved financial ratios, capital structure streamlining, and assets and risk segregation, by offering a number of funding tools to companies. Additionally, Bradesco BBI has a strong presence in the acquisition finance segment.

 

4.B.30.01-02.07 Complete Investment Platform

We operate a complete investment platform with a value proposition supported by three pillars: broad portfolio of products, investment portfolios and specialized consultancy, whose role is to generate value to the

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client through a complete offer of products and investment solutions, as well as meet the needs of our investor clients, account holders and non-account holders, according to their age, equity and profile, through different service channels.

The investment management platform, in addition to using the services of the branch network managers, has a specialist team providing advice on the demands of banking products, investment funds, capital market products, broker and private pension. The clients also benefit from suggested portfolios, that combine a diversity of financial products and are established monthly, based on national and international market perspectives. For more information on pension products, see “Item 4.B. Business Overview – 4.B.30.02 Insurance, pension plans and capitalization bonds”.

 

4.B.30.01-02.08 Intermediation and trading services

 

Ø    Ágora Investimentos

 

Bradesco’s Investment House Ágora CTVM S/A or “Ágora Investimentos” offers a broad portfolio of products, with investments selected for each investor’s profile and stage of life. With a specialized board of trustees who assist with the selection of the best products and investments from a list of more than 200 products, including variable income, futures markets, Direct Treasury (Tesouro Direto), COE, funds, public and private securities of fixed income, private pension and recommended portfolios.  They also offer specialized advice and recommend customized portfolios, exclusive content on the market and modern digital, secure platforms.

Ágora Investimentos has a full range of services in investment analysis with coverage of the main sectors and companies of the Brazilian market offering exclusive daily content and recommendations to customers.

In 2019, Ágora Investimentos took over the retail operations for individual and non-institutional legal entity clients, with R$43.5 billion in assets under custody and was classified as the third in the ranking of custody of individuals of B3.

Through modern trading platforms, either directly through the Website or the Ágora App, via Bradesco Internet Banking or Bradesco Mobile, the investor has a complete list of products available, in which the client can negotiate, obtain information and check their position anywhere. If they still need advice, they can count on a team of specialists who will find the most appropriate investment according to the profile and purpose of each client.

Ágora Investimentos was awarded by B3, within the Operational Qualifying Program (“PQO”), three excellence seals (Carrying Broker, Execution Broker and Retail Broker), indicating the high quality of the operational services rendered the market and customers investors.  Ágora Investimentos also has the seal Certifies propitiating safety and transparency in the investments registered in B3.

 

Ø    Bradesco Corretora

 

With the centralization of retail operations in Ágora Investimentos, Bradesco S.A. CTVM, or “Bradesco Corretora” now provides services exclusively to the institutional segment, offering a full service of investment analysis which covers the main industries and companies in the Brazilian market, with a team composed of 36 sector specialists 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 capital market.  Over 400 reports, in English and Portuguese, are forwarded on a monthly basis to the most important investors domiciled in Brazil, the United States, Europe and Asia.

Bradesco S.A. CTVM, or “Bradesco Corretora”, operates in the financial market, and has as its objective the mediation of the purchase and sale of shares, commodities futures contracts, financial assets, indexes, options, share rental, Swaps and forward contracts, in the primary and secondary market, negotiations in B3 and in the organized over-the-counter market, which are tailored to the needs of large corporates and institutional investors.

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