Annual Report 2013

Sustainable Performance Economic and Financial

THE BANK HAD RECORD RESULTS IN 2013 AND SUCCESSFULLY GREW ITS LOAN PORTFOLIO WITHOUT SACRIFICING QUALITY

Scenario

In 2013, the international scenario was notably better than in 2012, with signs that the United States economy was rebounding, as well as the initial effects of the expansionist policies adopted by Japan. On the other hand, the European zone, still in recession, and the slowdown in China were fundamental in reducing the dynamism of the world economy. This still somewhat adverse international scenario had a negative influence on Brazil’s exports, doubly affected by lower external demand and by lower prices for exported goods.

On the other hand, strong aggregate demand was boosted by real gains in earnings, social mobility (ascension of people between social classes), the creation of new formal job opportunities and maintenance of historically low levels of unemployment. Furthermore, 2013 was characterized as an important year of progress in the infrastructure investment program, in the form of auctions for granting public service concessions to the private sector.

Against this backdrop, the public banks ratified their role as engines of economic growth, as they foster consumption, production and, above all, investments. With strict regard for the principles of risk management, it was possible to increase the volume of loans while delinquency rates abated. The main challenge for the financial sector was in adapting to lower levels of banking spreads than the average in recent years, as well as more modest economic growth.

Total Credit (%)

Macroeconomic Indicators (%)

GDP Growth for the Year (%)



Consolidated Performance

Net Income and Return on Shareholders’ Equity (ROE) | The bank had a record performance among Brazilian financial institutions, with net income of R$15.8 billion in 2013. This performance is the result of the growth in business and strict control of expenses. An additional contribution to the result was the IPO of BB Seguridade during the second quarter of last year. Stripping out the one-off items for the period, the bank’s adjusted net income was R$10.4 billion. The institution’s result represented an ROE of 22.9% and an adjusted ROE of 15.0%.

Statement of Income for the Year (DRE) with Re-allocations – Main Lines (R$ million) 2011 2012 2013 13/12 Variance (%)
Revenue from Financial Intermediation 102,849 104,525 113,997 9.1
Credit Transactions + Leasing
65,101 69,835 74,593 6.8
Income from Securities Transactions (TVM)
30,849 27,982 30,315 8.3
Expenses with Financial Intermediation (62,019) (58,796) (67,584) 14.9
Net Interest Income 40,830 45,729 46,413 1.5
Provision for Doubtful Debts
(11,827) (14,651) (15,600) 6.5
Net Financial Margin 29,003 31,078 30,813 (0.9)
Fee Income
18,242 21,071 23,301 10.6
Income from Insurance, Pension Plan
and Savings Bond Business
2,265 2,349 3,230 37.5
Contribution Margin 45,429 50,315 52,875 5.1
Administrative Expenses
(24,752) (28,194) (30,222) 7.2
Personnel Expenses
(13,943) (15,777) (17,124) 8.5
Other Administrative Expenses
(10,809) (12,417) (13,098) 5.5
Trading Result 20,461 21,854 22,291 2.0
Civil Law Claims
(135) (813) (459) (43.6)
Labor Law Claims
(724) (726) (1,025) 41.2
Other Components of the Result
(687) (2,539) (4,264) 68.0
Pre-Tax Earnings 18,970 17,883 16,712 (6.5)
Income and Social Contribution Taxes
(5,388) (4,455) (3,954) (11.3)
Statutory Profit Sharing
(1,737) (1,745) (1,565) (10.3)
Adjusted Net Income 11,751 11,528 10,353 (10.2)



THE BANK’S NET INCOME IN 2013 AMOUNTED TO R$15.8 BILLION, EQUIVALENT TO A RETURN ON SHAREHOLDERS’ EQUITY OF 22.9%


One-Off Items (R$ million) 2011 2012 2013 13/12 Variance (%)
Adjusted Net Income 11,751 11,528 10,353 (10.2)
(+) One-off Items 375 678 5,405 697.2
Divestments of Equity Interests
169 - - -
Economic Plans
(103) (968) (683) (29.4)
Tax Efficiency
386 244 142 (41.8)
Additional Allowances for Loan Losses (ALL) – Reversal
- 699 (229) (132.8)
ALL Banco Votorantim – Exceptional
- - (166) -
Property Divestments
- 1,103 - -
Provision for Voluntary Reconciliation Commission (CCV)
- - (186) -
Reconciliation of Legal Claims
- - 303 -
Divestment of BB Seguridade Shares
- - 9,820 -
Expenses with Divestments of BB Seguridade Shares
- - (172) -
Divestment of Itapebi Shares
- - 188 -
Fiscal Reduction Program (Refis) 2013
- - 587 -
Exceptional Provision for Contingent Claims
- - (404) -
Fiscal Effects and Statutory Profit Sharing (PLR) on One-Off Items
(78) (401) (3,796) 846.6
Net Income 12,126 12,205 15,758 29.1


Shareholder remuneration

Shareholder remuneration | The bank’s earnings per share were R$5.58 in 2013. Having maintained the practice of paying out 40% do net income, R$6.3 billion were channeled to remunerating its shareholders during the year, R$3.3 billion as Interest on Own Capital (JCP) and R$3.0 billion as dividends.

Balance Sheet Items | The total assets of Banco do Brasil exceeded R$1.3 trillion for the year, growth of 13.5% in relation to 2012. Loans, securities (TVM) and short-term interbank investment transactions represented 76.3% of the total. With regard to liabilities, the highlight was commercial funding, which accounted for 46.6% of the total.

Main Balance Sheet Items (R$ million) 2011 2012 2013 13/12 Variance (%)
Total Assets 981,230 1,149,308 1,303,915 13.5
Loan Portfolio – Broad Concept (1)
465,092 580,799 692,915 19.3
Loan Portfolio – Broad Concept – Brazil (1)
430,116 530,556 636,124 19.9
Securities
168,230 184,357 201,939 9.5
Interbank Investments
166,288 219,323 231,132 5.4
Funding (2) 450,480 515,714 607,215 17.7
Total Deposits
442,386 472,085 491,013 4.0
Demand Deposits
62,016 74,760 75,818 1.4
Savings Deposits
100,110 117,744 140,728 19.5
Interbank Deposits
14,450 16,569 27,155 63.9
Time Deposits
265,809 263,013 247,311 (6.0)
Court Deposits
77,667 86,346 100,100 15.9
Agribusiness Letters of Credit (LCA) +
Mortgage Bonds (LCI)
7,431 34,075 82,640 142.5
Private Securities Repo Transactions
664 9,554 33,562 251.3
Open Market Funding 195,175 225,787 239,465 6.1
Shareholders' Equity 58,416 61,499 72,225 17.4

(1) Includes private securities and sureties provided.
(2) Includes total deposits, LCAs, LCIs and private securities repo transactions.

Loan Portfolio and Delinquency | The bank’s loan portfolio – broad concept amounted to R$692.9 billion at the end of 2013, up by 19.3% in relation to 2012. Worthy of note was the 34.1% increase in agribusiness transactions, especially because of more attractive interest rates on investment transactions and the higher demand from large companies in the agribusiness chain. In line with the strategy of quality growth of the loan portfolio, transactions with an AA-C risk rating accounted for 95.0% of the total, with delinquency under control, at a much lower rate than that of the Brazilian Banking Industry (SFN).

BREAKDOWN OF THE LOAN PORTFOLIO BROAD CONCEPT (R$ BILLIONS) (1)

MARKET SHARE (BB) (%) (1)

INAD + 90 OF THE RATED LOAN PORTFOLIO (%)

(1) Includes securities and sureties given.

(1) Market share of the rated loan portfolio in Brazil.

 



Net Interest Income (NII) | NII stood at R$46.4 billion in 2013, growth of 1.5% in the year-on-year comparison. The lower-than-expected performance of this indicator was the result of the growth of the loan portfolio in lower risk items, in addition to higher funding costs on account of the balance of 17.7% in commercial funding and the increase in the average Selic rate (TMS) during the period.

Breakdown of NII (R$ million) 2012 2013
Net Interest Income 45,729 46,413
Financial Revenues from Loan Transactions (1)
65,171 69,997
Funding Expenses (1) (3)
(30,496) (32,518)
Institutional Funding Expenses (2) (3)
(4,917) (6,058)
Recovery of Written-off
3,748 3,430
Treasury
11,777 11,094
Others (3)
447 468

(1) Does not take into account the effect of exchange rate variation.
(2) Includes expenses with funding raised with institutional investors: senior debt instruments, subordinated debt and Hybrid Capital and Debt Instruments (IHCD) in Brazil and abroad.
(3) In 2013, the funds provisioned by the bank for mandatory allocation to credit transactions linked to government financing programs, such as Fundo de Financiamento para Aquisição de Máquinas e Equipamentos Industriais (FINAME), the National Economic and Social Development Bank (BNDES) and the Fundo Constitucional de Financiamento do Centro-Oeste (FCO) (constitutionally mandated financing for the Mid-West region), were reallocated from Others line to the Funding Expenses and Institutional Funding Expenses line, depending on the source of the financing.

Fee Income | With growth of 10.6% for the year, fee income amounted to R$23.3 billion, with a special mention for the 20.1% increase in card transactions, driven by the higher volume and higher average ticket of the transactions. The increased offer of credit and a strong performance in insurance, cards and asset management and capital markets has contributed to diversify fee income.

Fee Income (R$ million) 2011 2012 2013 13/12 Variance (%)
Fee Income 18,242 21,071 23,301 10.6
Credit/Debit Cards
3,926 4,739 5,689 20.1
Checking Accounts
4,077 4,356 4,120 (5.4)
Funds Management
3,197 3,582 4,025 12.4
Credit Transactions
1,822 2,141 2,458 14.8
Collections
1,241 1,316 14,111 7.2
Insurance, Pension Plans and Savings Bonds (1)
499 988 1,199 21.4
Taxes, Levies, etc.
725 832 891 7.2
Interbank Fee Income
640 697 726 4.1
Capital Markets
350 454 560 23.5
Others
1,764 1,967 2,222 13.0

(1) Alteration to the make-up of income from insurance, pension plans and savings bonds, resulting from the creation of BB Seguridade.

PRODUCTIVITY INDICATORS



Efficiency and productivity | Banco do Brasil is constantly striving to improve its operating efficiency and productivity, while keeping a tight lid on its costs. In 2013, its administrative expenses amounted to R$30.2 billion, up by 7.2% over the previous year. This variance can be explained primarily by higher personnel expenses, up by 8.5%, referring to salary increases and growth in the structure of commissioned employees. However, the coverage ratio, which expresses the ratio of fee income to personnel expenses, rose from 133.6 in 2012 to 136.1 in 2013. The performance of the cost-to-income ratio (operating revenues/administrative expenses) was especially affected by the NII result.

Basel | In December 2013, the BIS Ratio III of Banco do Brasil stood at 14.5% and the Tier I Capital Ratio (Tier I CR), 10.5% – 8.2% Core Capital Ratio (CCR). All these indicators meet or exceed the minimum regulatory limits. The bank’s Regulatory Capital stood at R$118.2 billion in the same period.

Statement of Added Value (DVA) | The main variances in the DVA in the year-on-year comparison arose from the growth of 29.1% in net income for the period.

THE MAIN CHANGES IN THE BANK’S STATEMENT OF ADDED VALUE (DVA) IN 2013 AROSE FROM THE 29.1% GROWTH IN NET INCOME FOR THE YEAR

DVA (R$ million)

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Guidance

Guidance (%)
Indicators Estimates for 2013 2013 Actual Estimates for 2014
Adjusted ROASE (1)
14-17 15.0 12-15
NII
2-5 1.5 3-7
Funding (2)
12-16 17.7 14-18
Loan Portfolio – Broad Concept – Brazil (3)
17-21 19.9 14-18
Individuals
14-18 10.6 12-16
Companies
18-22 19.5 14-18
Agribusiness
24-28 34.1 18-22
ALL (4)
2.7-3.0 2.8 2.7-3.1
Fee Income
10-14 10.6 9-12
Administrative Expenses
5-8 7.2 5-8

(1) The calculation of the adjusted ROASE for 2013 and 2014 takes into account the estimated adjusted shareholders’ equity net of the effects of restated actuarial assets and liabilities arising from Deliberation 695 of the Brazilian Securities Commission.
(2) Includes total deposits, LCAs, LCIs and private securities repo transactions.
(3) Includes private securities and sureties.
(4) Expenses with ALL in the past 12 months/average rated loan portfolio for the same period.

The estimates for 2014 were prepared taking into account the following assumptions:

Assumptions influenced by the management:

Assumptions beyond the control of the management:

CHALLENGE 15

To enhance and systematize the identification of business opportunities for developing products that meet the demands created by environmental matters (trends/new regulations on the use of natural resources) and climate change (demands for infrastructure financing in order to adapt to climate change). See how BB is facing up to this challenge on clicking here.

Analysis by Business Segment

Credit
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The process for analyzing the granting of loans at Banco do Brasil involves massified and personalized analyses of customers, for whom maximum exposure risks and limits are established, which are calculated using in-house methodologies approved by the Board of Officers. In the case of massified analyses, BB’s credit system used robust risk analysis parameters by evaluating the information concerning customers and transactions. In the personalized analyses, the teams take a critical approach to economic and financial variables, data about the customer’s behavior, the size and segment of the activity and market characteristics. It should be stressed that there are specific methodologies for individuals, rural producers, public entities, not-for-profit entities and other (small, mid-size and large) businesses, whose parameters are defined in accordance with best market practices and the new Basel rules.

The bank does not engage with or take credit risk on customers that do not comply with current legislation or which submit their employees to degrading types of work or conditions analogous to slavery, as established in the Credit Policy and in the prohibitions when analyzing credit transactions. In 2013, BB included in its credit instruments a clause referring to human rights, which applied to 92.8% of all contracts signed, a significant increase in relation to 2012, when the figure was 2.9%. In accordance with the regulations in Interministerial Ordinance MTE/SDH No. 2/2011, the Ministry of Labor and Employment (MTE) updates and discloses, on a six-monthly basis, to BB, among other bodies, the Register of Employees listing those companies whose employees have been submitted to conditions analogous to slavery. The bank may also request additional information or copies of documents dealing with the inspection process that gave rise to the employer’s inclusion on the register.

Social Businesses
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Banco do Brasil operates in social businesses to foster and support economically profitable initiatives that seek solutions for social problems, using market mechanisms for the purpose of resolving socioeconomic inequalities in a sustainable manner, so as to guarantee income, productive inclusion and access to public services. Examples of these business include financing under the Minha Casa Minha Vida (Real Estate Lending – PMCMV), The Student Financing Fund (Fies), Family Agriculture Development Program (Pronaf), Oriented Productive Microcredit (MPO) and the BB Accessibility Loan programs. They all play an important role in promoting public policies and are aligned with the mission of advancing the sustainable development of Brazil (click here to see the results).

THE BUSINESS STRATEGY OF SUSTAINABLE REGIONAL DEVELOPMENT COMPLETED ITS TENTH YEAR IN 2013 AND IS NOW UNDER REVIEW

From a local point of view, in order to identify and develop vocations in communities throughout Brazil, the bank has adopted the Business Strategy for Sustainable Regional Development, a specific process for local engagement by stakeholders through the bank’s branch network, which uses social businesses as the vehicle for tying the structuring of manufacturing activity to the generation of jobs, income and social well-being, as well as environmental concerns.

This strategy seeks to drive sustainable development in areas where BB operates, by mobilizing economic, social and political players, while supporting economically viable, socially fair and environmentally correct activities, with due regard at all times for cultural diversity. The participative and constructive principle of the Sustainable Regional Development methodology is the reason for its success, as it brings together a variety of players, including private institutions, associations, cooperatives, governments, universities, religious entities and non-governmental organizations (NGOs), among others, around a single agenda. The local stakeholder engagement process results in partnerships for managing each Business Plan, and includes a structured and collective process that takes into account the planning, coordination and monitoring phases.

In 2013, the strategy completed its tenth year and the model is now under review in order to enhance the practices, maintain the quality and effectiveness of the actions, while incorporating new modus operandi that have appeared and which have been acknowledged as best practices over the last decade. For this reason, many actions are being restructured and the base of the plans is being revised. Currently, 3,324 municipalities are served by the Sustainable Regional Development Strategy, with 4,031 branches approved and 3,061 Business Plans being implemented. To support the effective implementation of the business plans, Banco do Brasil has developed and runs a specific course for training its employees. Currently some 16,777 of BB’s employees throughout Brazil are trained to apply the methodology and to draw up the respective business plans.

MUNICIPALITIES SERVED

SUSTAINABLE REGIONAL DEVELOPMENT INVESTMENTS WITH NON-REIMBURSABLE RESOURCES
(R$ MILLIONS)

THE MODEL FOR SUSTAINABLE REGIONAL DEVELOPMENT WAS DEPLOYED AT THE OVERSEAS BRANCHES DURING THE YEAR



ON-GOING BUSINESS PLANS



EMPLOYEES WHO HaVE TAKEN A SUSTAINABLE DEVELOPMENT COURSE

MANY ACTIONS WITHIN THIS STRATEGY ARE BEING RESTRUCTURED AND THE BASE OF THE PLANS IS BEING REVISED

From an international standpoint, and based on the review of the Sustainable Regional Development Strategy, in 2013 Banco do Brasil crossed borders to disclose sustainable development, by deploying its operating model at the overseas branches, which, given their peculiarities, lack capillarity and the ability to work with micro credit and agribusiness lines, or to offer non-reimbursable resources.

Thus the bank presented its strategy to businesses, entities and the public sector in Bolivia, Chile and Paraguay, so as to operate in partnerships. It trained employees of the overseas network via videoconferencing, and sought out projects that had strong local partners. The case with the highest profile was in Bolivia, in the Santa Cruz region, where BB created a partnership with the company Gas TransBoliviano (GTB) so as to set up a workshop on financial health, intended for HIV-positive women benefiting from the social investment by GTB. The initiative had a positive impact in the country, leading to additional requests to set up the project in other communities. Similarly, in Chile BB is working with groups of recyclable material collectors, and in Paraguay, the expectation is to create a school that offers digital inclusion courses.

Individual Loans

The individuals loan portfolio – broad concept amounted to R$168.1 billion at the end of 2013, with growth of 10.6%, the highlights being the payroll and mortgage segments. Excluding Banco Votorantim and the acquired portfolios, that is, taking into account the organic portfolio only, growth was 16.2% in relation to 2012.

Payroll loans continue to take the largest share of this portfolio, with 36.9% of the total. With the strategy of qualifying the customer base and the focus on lower risk lines, these transactions grew by 5.8% during the year, enabling the bank to maintain its leadership position in this segment, with a market share of 27.9%. In the case of mortgage loans to individuals, the balance at the end of the year was R$18.2 billion, up by 78.0% in 12 months. Within the scope of the Fies program, the 500,000-contract mark was exceeded.

Individuals Loan Portfolio Broad Concept (R$ million) 2011 2012 2013
Direct Consumer Credit (CDC) 72,298 81,629 85,491
Auto Loans 31,329 35,887 35,500
Credit Cards 13,193 15,888 19,814
Mortgages 6,035 10,202 18,158
Overdraft Accounts 2,554 2,459 2,451
Micro Credit 848 931 865
Others 4,304 4,871 5,465
Private Securities and Sureties 28 142 323
Total 130,589 152,011 168,069


Products with a Socioenvironmental Bias Total Portfolio
in 2013
(R$ thousand)
Number of
Transactions
Closed in 2013
BB Accessibility Loan | Personal loans for financing goods and services for persons with disabilities, based on Provisional Measure No. 550/2011. 73,201 11,687
The Student Financing Fund (Fies) | Student loans to finance undergraduate courses for students in no condition to meet the costs of their education, in line with the government's public policy of democratizing access to quality education. 10,311,496 270,653
Fundo de Amparo ao Trabalhador (FAT) Taxista | Auto loans for individuals where fuel used is from renewable sources. This facility uses funds from the Fundo de Amparo ao Trabalhador (Workers' Assistance Fund, or FAT) and leads to the creation of jobs and income. 194,749 4,289
Programa Minha Casa Minha Vida (Real Estate Lending Program – PMCMV) (1)| Covers financing for developments that meet requisites such as the inclusion of the elderly and those with special needs; environmental protection rules and attitudes, such as the use of equipment and solutions; compliance with recommendations when executing projects; and the fostering of discussions and dissemination among their members of knowledge about how to re-use materials, rational use of natural resources, alternative low-cost methods for heating water/degradable construction materials/other risks arising from the failure to protect the environment and other pertinent matters. 3,940,972 42,727
BB Microcrédito Desenvolvimento Regional Sustentável | A credit facility intended for urban entrepreneurs that benefit from Sustainable Regional Development Business Plans intended to meet the financial needs of micro entrepreneurs. 79,156 2,478
BB Microcrédito Empreendedor PF | Loans to individual for working capital or investment intended to meet the financial needs of small enterprises, in line with the National MPO Program. 628,657 886,919

(1) In the Individuals segment, 42,519 transactions were closed, resulting in a portfolio of R$3,185,252,000. In the business segment, there were 208 transactions, with R$755,720,000 at the end of 2013.

FINANCING FOR INFRASTRUCTURE PROJECTS IN 2013 (1) (%)

(1) Loans contracted or in the negotiation phase.

Business Loans

The 19.5% growth in the business loan portfolio in the year-on-year comparison, with a total balance of R$323.2 billion, was the result of more working capital and investment transactions. These lines were influenced in a positive manner by the high volume of transactions closed with businesses in the corporate and large corporate segments. Also worthy of note are the transactions with private securities and sureties, with a balance of R$61.7 billion in December 2013, growth of 26.4% in 12 months. These transactions are closed with large businesses and carry a historically low risk.

BB consolidated its position as one of Brazil’s most important financiers of investment loans. In 2013 it analyzed major projects in the fields of energy, shipbuilding, oil and transport, resulting in R$54.0 billion in transactions already closed or in the pipeline. The main on-lending facilities are BNDES/FINAME, Pronaf, Investimento Agropecuário (agricultural investment), FCO (constitutionally mandated funding for the Mid-West region), Fundo da Marinha Mercante (FMM – financing for the Merchant Navy) and Proger (Programs for Creating Jobs and Income).

At the end of December 2013, the bank had 2.3 million customers in the Micro and Small Enterprise (MPE) segment, remaining the principal partner for businesses of this nature, with a loan transactions balance of R$99.9 billion, an increase of 12.3% in 12 months. BB made extensive use of the Operations Guarantee Fund (FGO) in order to facilitate access to loans for companies in this segment, which mitigated the risk of the transactions, while reducing the cost to the end-borrower.

In 2013, the bank bolstered its support for entrepreneurship by launching the Empreendedor site (www.bb.com.br/empreendedor), which showcases solutions in products and services. It also supported Local Production Arrangements (APL) by channeling R$3.8 billion credit transactions to businesses comprising APLs. In the MPO program, the bank’s performance mirrors the Brazilian government’s Crescer Program, having accumulated disbursements of R$2.4 billion working capital and investment loan transactions at the end of the year.

The bank’s performance in the credit cooperative segment was also boosted in 2013, with a series of initiatives coordinated by the bank’s team of specialists, including the expansion of the credit facility portfolio. Using funds within the scope of the Pronaf program, BB was able to increase its funding to cooperatives of family farmers.

In December, the Wholesale customer loan portfolio showed a balance of R$143.1 billion, growth of 15.5% in comparison with the same period of 2012. Banco do Brasil operates in structured transactions and contributed R$24.1 billion of the R$43.6 billion of the principal transaction during the year.

Business Loan Portfolio Broad Concept (R$ million) 2011 2012 2013
Working Capital 84,804 118,511 138,337
Investment 37,863 44,650 56,380
Receivables 17,968 20,288 18,970
Credit Cards 7,290 11,439 13,719
ACC/ACE (pre- and post-shipment export finance) 9,688 11,224 11,922
BNDES Exim 4,876 4,152 3,543
Mortgages 1,596 2,653 5,907
Overdraft Accounts 2,878 2,906 3,714
Overdraft Accounts 163 172 239
Others 4,163 5,778 8,838
Private Securities and Sureties (1) 38,877 48,800 61,677
Total 210,166 270,574 323,247

(1) Historical series revised following reclassification of transactions involving securities of the Businesses portfolio in Brazil to
the external portfolio.

Products with a Socioenvironmental Bias Total Portfolio
in 2013
(R$ thousand)
Number of
Transactions
Closed in 2013
BB Microcrédito Empreendedor PJ | Loans to businesses for working capital or investment intended to meet the financial needs of small enterprises, in line with the National MPO Program, directly at the location where the economic activity is carried on, with the aim of providing guidance and monitoring
the business.
964,324 1,006,577
BB Giro Rápido | Pre-Approved credit facility to meet the working capital needs of micro and small businesses. The line includes two types of credit – overdraft accounts and fixed revolving credits that add social value by providing micro and small enterprises with marketing differentials. The product offers advantages, such as a simplified credit approval process, while the transactions are covered by the guarantee of the FGO, which facilitates access to credit. 5,083,820 106,515
BB Giro APL | A working capital facility intended for micro and small enterprises associated with APLs. BB Giro APL transactions can be taken out with the guarantee of the FGO, which facilitates access to credit for micro and small businesses, since the presentation of guarantees represents one of the principal barriers when taking out loans, in addition to the possibility of lower financial charges. 40,180 689
FAT Turismo | Working capital and investment credit facilities intended to support micro and small businesses in order to expand business opportunities and generate jobs and income on account of the 2014 FIFA World Cup and the 2013 Confederations Cup. 499,099 2,928
Proger | Financing intended for micro and small businesses for investment projects, with or without an underlying working capital loan, enabling the creation or maintenance of jobs and income in urban areas, so as to ensure the sustainable development of micro and small business aligned with the Proger Urbano program. 3,386,708 17,234


ASPECTS SUCH AS THE RISKS INHERENT TO THE BUSINESS, SOCIOENVIRONMENTAL RESPONSIBILITY AND THE CAPACITY TO GENERATE JOBS AND INCOME ARE TAKEN INTO ACCOUNT IN LENDING TO THE AGRIBUSINESS SECTOR

Agribusiness
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Banco do Brasil is one of the principal drivers of agribusiness development in Brazil, adhering to the criteria established for maintaining socioenvironmental sustainability. By operating in different segments, from small producers to large agroindustrial businesses, the bank finances working capital for the purchase of inputs for the production and sale of farm products, in addition to encouraging rural investments such as warehousing, processing and transformation of farm produce and the modernization of farm machinery and implements.

With regard to the agribusiness credit policy, besides the risks inherent to the business consideration is also given to aspects involving socioenvironmental responsibility and the ability to generate jobs and income. This policy is approved by the Board of Directors (CA) and circulated to the internal audience through Corporate Normative Instructions.

Measures have also been taken that exceed legal requirements, so as to draw producers’ attention to the need for environmental rectitude and the opportunities that this situation can represent for Brazilian agribusiness. Currently, when granting rural credit, BB requests to see the environmental permit for the activity, the grant of water use rights and, within the Amazon Biome, proof that the property meets the environmental requirements. The credit instrument carries a penalty clause that permits pending tranches to be suspended and early retirement of the financing in the event of illegal deforestation on the property.

In addition, attention is paid to the Ecological and Economic Zoning (ZEE) and Agro-Ecological Zoning (ZAE) arrangements that indicate aspects such as economic opportunities, environmental fragilities, occupation trends and the agro-economic suitability per crop. In the case of transactions using FCO funds, there is a contractual clause that obligates the borrower to comply with federal, state and local legislation regarding environmental conservation, so that they abide by the technical and legal criteria for preserving gallery forest, hill tops and slopes, soil and water use, pest stewardship, the protection of springs, flora and fauna, as well as other environmental conservation considerations.

Fulfilling its role as an agent of public policies, the bank has set up a Technical Cooperation Agreement with the Ministry of the Environment to strengthen and encourage the Rural Environmental Register (CAR). The bank has an agreement with the Department of Strategic Affairs of the Presidency of the Republic to undertake studies into rural credit and insurance. BB is also a member of the Sustainable Animal Husbandry Working Group (GTPS), an organization created by representatives of the various segments comprising the cattle raising value chain in Brazil.

Banco do Brasil encourages the use of sustainable farming techniques that contribute to improving income, reduce greenhouse gas (GHG) emissions and conserve natural resources. It was a pioneer in getting the Low Carbon Farming Program (Programa ABC) off the ground, so as to finance sustainable agricultural production systems that have an acknowledged capacity to reduce/sequester GHG emissions and foster the production of vegetation/biomass and foodstuffs, while preserving the environment. According to data from the Ministry of Agriculture, Cattle Farming and Supply, the bank is the leader in providing financing within the scope of the ABC Program. This unquestionable leadership is the result of several actions involving the training of technicians, process automation and the commitment of BB’s employees to disclosing this.
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Since the 2006/2007 crop, Banco do Brasil has encouraged taking out protection against climatic uncertainties when granting working capital loans for the purchase of farm inputs (see diagram). With every new crop, the strategy is being disclosed and perfected, including the massified offer of options beginning with the 2009/2010 crop. Mitigation mechanisms take into account a variety of information about the transactions sought by customers, such as customer risk, the crop to be financed and the location of the financing.

Distribution of the Mitigating Factors in Working
Capital for Agricultural Input Purchases for
the 2013/2014 Crop (1) (R$ million)

(1) Covers the period from July to December.

The agribusiness portfolio in the broad concept, which includes Rural Protocol Bills (CPR) and guarantees, showed growth of 34.1% in 12 months and amounted to R$144.8 billion, representing 20.9% of BB’s total loan portfolio. The main reasons behind this growth are the more attractive interest rates in investment transactions, which has raised the demand for credit, and transactions with large businesses in the agribusiness chain. Transactions closed with these companies have a historically low level of risk, reflecting BB’s strategy of growing the volumes within a quality loan portfolio. According to data from the National Rural Credit System (SNCR), BB had a market share of 66.1% in this segment in December 2013.

The highlights were the balance within the Pronaf program, which rose by 19.5% for the year, and the Pronamp Program, which supports mid-size farmers, with growth of 41.7% in the same period. When providing rural and agroindustrial credit lines, BB uses 79.4% of own funds (primarily demand deposits, rural savings and LCA), in addition to on-lending funds from the BNDES, such as the FAT and the FCO Programs and the Funcafé (a fund that supports coffee farming).

The prospects for 2014 for most farming activities remain favorable. To hold on to its leadership position in serving Brazil’s farmers, BB is increasingly seeking specialization in customer service by launching new products and financing mechanisms, expanding its business in the production chains and increasing the volumes of loans and the number of producers served. For the 2013/2014 crop, the expectation is to disburse R$70 billion in rural credit transactions, an increase of 14% over the amount disbursed for the 2012/2013 crop (R$61.5 billion) – R$13.2 billion for family agriculture and R$56.8 billion for large-scale farmers and rural cooperatives. An additional R$25 billion will be allocated to the industry through the PCA Program (a program for the construction and expansion of warehousing) over the next 5 years.

Agribusiness Loan Portfolio Broad Concept (R$ million) 2011 2012 2013
Pronaf 20,067 24,229 28,941
Agribusiness Working Capital for Input Purchases 18,538 22,296 26,684
Farm Produce Trade and Industry 21,459 21,771 34,653
Pronamp 7,133 11,850 16,791
FCO Rural 6,700 7,905 9,118
BNDES/Finame Rural 5,322 5,804 8,248
Others 9,438 13,129 19,666
Rural Produce Bills and Sureties 703 988 708
Total 89,361 107,971 144,809

GRIG4-FS7G4-FS8

Products with a Socioenvironmental Bias Total Portfolio
in 2013
(R$ thousand)
Number of
Transactions
Closed in 2013
Programa ABC | The primary objectives are to reduce GHG emissions from farming activity and deforestation, and to encourage the recuperation of degraded areas. 2,134,729 10,210
Pronaf | Aims to make farmers and their family members more professional, modernize the production system and recognizing the value of the family farmer. It provides support to farming and non-farming activities where the direct labor force is the rural producer's own family members. 31,794,706 2,100,846
Pronaf Florestal | Aims to support investments in projects that meet the requirements defined by the Department of Family Agriculture/Ministry of Agrarian Development (MDA) for: agroforestry systems; ecologically sustainable extractivist exploitation; stewardship and forestry stewardship, including project implementation and maintenance costs; and the enhancement of areas that already have a diversified forest cover by planting one or more species native to the biome. 53,885 1,848
Pronaf Agroecologia | A credit facility intended for farmers eligible for the Pronaf program, for investments involving specific agro-ecological or organic product system projects, including the project implementation and maintenance costs. 2,392 186
Pronaf Eco – Dendê/Seringueira | Credit facilities for farmers eligible for the Pronaf program, for investments in establishing palm oil or rubber plantations, providing working capital for purchasing inputs associated with maintaining the crops. 3,452 140
Pronaf Eco | A facility intended for farmers eligible for the Pronaf program who want to implement, utilize, recover or adopt: renewable energy and/or environmental technologies, water storage, small hydroelectric power systems, silviculture or conservationist practices involving soil acidity correction and fertility. 63,421 4,336
Moderagro | A fixed credit facility intended for farming investments using BNDES funds. It foster actions involving animal welfare and the implementation of systems for tracing animals intended for human consumption. The program supports soil recovery, in addition to fostering sectors that produce, process, transform and store products from beekeeping, aquaculture, aviculture, chinchilla breeding, rabbit breeding, floriculture, fruit growing, horticulture, fishing, sheep and goat breeding, dairy cattle, frog breeding, silk worm breeding and pig breeding. 226,501 893

 

Socioenvironmental aspects in credit
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As a signatory to the Equator Principles, Banco do Brasil adopts the standards of the International Finance Corporation (IFC) in credit risk analysis when granting finance for large-scale projects – where capital costs exceed US$10 million. This strategy aims to ensure that the financing facilities contribute to social development in a responsible manner, as well as the use of best environmental management practices when executing the projects.

Projects that request financing from BB are evaluated and inserted in a socioenvironmental risk matrix, that identifies the relevant impacts and risks and the measures taken by the management. Category A and B projects are aligned with the performance standards of the IFC and the specific EHS (environment, health and safety) directives for the sector as a condition for releasing the tranches of the financing, including an action plan showing the preventive, mitigation and offset measures. Both the evaluation documents and the action plan must be periodically reviewed and monitored by independent environmental consultants in all category A projects and in those category B projects with higher socioenvironmental risks and impacts, and submitted on a quarterly or semi-annual basis to the financing agents.

Based on the Equator Principles, in 2013 projects were analyzed in the fields of electrical energy generation and transmission, the shipbuilding industry, mining, the multi-purpose arenas built for the 2014 World Cup and civil construction. Worthy of note is the support for two small stream course hydroelectric power plants (smaller flooded area), with an installed potential of 21 MW and 25 MW, located in the State of Mato Grosso, in a region far removed from populations or inhabitants. The projects did not involve resettling families and there were no indigenous lands in the area of direct influence. There was also support for the multi-purpose arenas in the cities of São Paulo (SP) and Porto Alegre (RS), with capacity for over 40,000 spectators. Besides the impacts in the construction phase (dust, noise and the generation of solid waste, etc.), an evaluation was done of the risks and the mitigating actions regarding the increased movement of vehicles and noise pollution, as well as other local impacts.

The bank also adopts its own socioenvironmental criteria when analyzing risk, credit limits and investment projects, since it conditions the financing to compliance with environmental legislation. These procedures apply to businesses with current or projected net operating revenue exceeding R$50 million, and investment projects where the funding contracted equals or exceeds R$2.5 million.

Project Finance

Number of projects analyzed and contracted Total investment
(R$ million)
Bank’s actual
participation
(R$ million)
Categorization (1) of the Project Finance      
A 1 500 500
B 6 1,843 876
C 1 86 71
Business sector of the Project Finance deals analyzed    
Sports arenas 2 938 442
Real estate developments 1 86 71
Energy generation/transmission 3 752 384
Shipbuilding 1 500 500
Mining 1 154 51
Location (region) of the Project Finance deals analyzed    
Mid-west 3 752 384
North 1 154 51
Northeast 1 500 500
South 1 400 130
Southeast 2 624 383
Total 8 2,430 1,447

(1) Based on the Equator Principles (A – high socioenvironmental impact; B – medium; C – low/minimal).

For projects analyzed with significant socioenvironmental risks, especially those classified under the Equator Principles, BB requires from the customer a socioenvironmental evaluation and action plan for mitigating the risks and impacts identified, and may decide not to release the funds.

SOCIOENVIRONMENTAL DIRECTIVES FOR CREDIT

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In November 2013, Banco do Brasil undertook the Stakeholders Panel for evaluating the Sustainability Directives of the Banco do Brasil for Credit – Oil & Gas and Transport. The initiative is related to the Risk Mitigation axis of the Água Brasil Program and fulfills the commitments given in BB’s Agenda 21. The directives are available at www.bb.com.br/sustentabilidade (Gestão da Sustentabilidade > O que nos orienta).

Previous editions | Using this process BB has already defined the directives for the themes of Agribusiness, Electrical Energy, Civil Construction and Mining.

In-House involvement | The presentation to the panel takes place following consolidation of a draft document by means of in-house discussions involving the departments involved in granting credit, with the technical support of the WWF Brasil, BB’s partner in the Água Brasil Program.

Engagement of external stakeholders | The purpose of sharing this document on the panel – with customers, employees, sustainability specialists and representatives of civil society and government – is to receive contributions for subsequent publication of the directives.


Trade Finance

BB maintained its leadership in export and import exchange, with volumes of US$65.1 billion and US$48.7 billion and market shares of 26.6% and 21.9%, respectively. Export transactions – Advances on Foreign Exchange Contracts (ACC)/Foreign Exchange Deliveries (ACE) – were a striking of US$11.8 billion in the period, with a market share of 30.8%. In the case of on-lending of funds from government programs, disbursements under the Export Finance Program (PROEX) totaled US$448.1 million while BNDES Exim amounted to US$1.4 billion.

In the financial foreign exchange market, BB reached US$36.8 billion and US$44.9 billion in purchase and sale transactions, respectively. On-line foreign exchange and foreign trade services via the internet accounted for 67.4% of export exchange and 48.7% of import exchange contracts. BB also offers training services in international business. In 2013, 9,978 people took the training in Brazil, an increase of 15.3% over the same period of the previous year.

During the year, 1,041,600 documents were analyzed under a cooperation agreement between the Banco do Brasil and the Ministry of Development, Industry and Foreign Trade in order to facilitate import, export and drawback transactions for businesses throughout the length and breadth of Brazil.

Funding

Funding taken by Banco do Brasil amounted to R$607.2 billion in December 2013, growth of 17.7% during the year. The highlight was the growth in Agribusiness Letters of Credit (LCA) and Repurchase Agreements with Private Securities, to the detriment of time deposits, which reflects the strategy of altering BB’s funding mix in order to reduce its costs. The balance of foreign borrowing stood at US$51.2 billion, an increase of 13.7% in relation to December of the previous year.

Funding (R$ million) 2012 2013
Time Deposits 263,013 247,311
Savings Deposits 177,744 140,728
Agribusiness Letters of Credit 34,005 79,154
Demand Deposits 74,760 75,818
Interbank Deposits 16,569 27,155
Repurchase Agreements with Private Securities 9,554 33,562
Mortgage Bonds 70 3,487
Total 515,714 607,215


LEADER IN EXPORT AND IMPORT EXCHANGE, THE BANK ALSO PLAYS AN IMPORTANT ROLE IN ON-LENDING FOR BRAZIL’S FOREIGN TRADE VIA GOVERNMENT PROGRAMS

Administration and Funding of Government Programs

As financial agent for the Brazilian Treasury, Banco do Brasil provides services involving financial administration, receipt of funds in the Federal Government’s sole account and the transfer of funds to other entities of the Federation. The highlights of its operations with other entities include the social businesses (covered in the item as seen here), funding and programs for investment in specific areas, tax collection, on-lending of funds and payment of salaries, scholarships, benefits and restitutions, enabling the government’s funds to reach the ultimate beneficiary, its citizens.

Share of On-lending by disbursement in 2013 (%)

Worthy of a special mention in the partnership with the Federal Government in 2013 is the significant number of students that benefited from the Fies program, in addition to those who were awarded scholarships under the Ciência sem Fronteiras program in multicurrency cards exclusive to the program.

BB has been expanding its role as a partner in financing infrastructure investment programs. In 2013 the bank formalized credit transactions totaling R$15.3 billion to finance infrastructure, tourism, healthcare, education and security initiatives, as well as for the purchase of machinery and equipment and improvements in public management.\

Cards

In line with its business diversification strategy, Banco do Brasil has expanded its role in the electronic payment methods segment – notably in the cards market – which has enabled it to achieve a better operating performance, better operating efficiency and lower risks than in credit transactions. At R$205.9 billion, the bank’s card business revenues continue to show consistent growth (+22.4% in relation to 2012). This took the bank’s market share to 24.3% in 2013, against 23.2% the previous year, according to data from the Brazilian Association of Credit Cards and Services Companies (Abecs).

CARD REVENUES (R$ BILLION)

CHALLENGE 15

To enhance and systematize the identification of business opportunities for developing products that meet the demands created by environmental matters (trends/new regulations on the use of natural resources) and climate change (demands for infrastructure financing in order to adapt to climate change). See how BB is facing up to this challenge on clicking here.



24.9% GROWTH IN THE CARDS PORTFOLIO 31.5% OF BUSINESS
CLOSED BY COMPANIES
35.9% OF AGRIBUSINESS TRANSACTIONS CLOSED USING CARDS 54.7% growth in disbursements under BB CrediÁrio (installment plan programs), credit lines to individuals accessed BY using their cards

The Banco do Brasil cards with the Elo label had a turnover of R$13.2 billion in 2013, an increase of 2,572.5% in relation to 2012. This growth was strengthened by expanding the portfolio during the year, following the launch of the Empresarial Elo (corporate card) and the BNDES Elo cards. One of the highlights among the new products during the year was the Ourocard Conta de Pagamentos, a pre-paid card intended for beneficiaries of financial resources who are not account holders with the bank, thereby advancing the process of expanding the use of cards as an instrument of financial inclusion.

BB believes that the prospects for growth in the cards market remain good in the medium term, driven primarily by the possibility of reducing the volume of paper money in circulation, access by the emerging classes to card products and the possibility of more extensive use of cards in the business segment.

GRIG4-FS7G4-FS8
Products with a Socioenvironmental Bias Number of Cards Issued in 2013 Growth (%)
Ourocard Empreendedor | A specific credit card to meet the needs of Individual Micro Entrepreneurs (MEI), exempt from annual fees, for the purpose of leveraging credit in this segment and facilitating access to banking services and the movement of financial resources. 15,858 47.3
Ourocard Origens Reciclado | The first card produced from recycled plastic of Banco do Brasil. With each card requested, the customer donates R$5.00 to the Instituto Terra, which fosters the recovery and sustainable stewardship of the Atlantic forest; they also agree to the automatic rounding up of the invoice value and contribute to the planting of 1 to 400 trees needed to sustain the recovery of 1 water source. 8,847 51.3
Cartão de Pagamento da Defesa Civil (CPDC) | Card intended for payment of expenses involving rescues, helping victims and reestablishing essential services, used exclusively in emergency situations or states of public calamity and recognized by the National Department of Civil Defense. 2,467 252.9
Arredondamento de Fatura | Ourocard holders who sign up for this service will have the value of their invoices rounded up to the next whole amount, with the corresponding difference in cents donated to a not-for-profit BB partner institution. Donations are currently intended solely for Instituto Terra, which promotes reforestation of deforested areas of the Atlantic forest and is currently responsible for having recovered over 40 million square meters. 37,413 signed up for the service in 2013 38.2


BB SEGURIDADE SUBSIDIARIES MARKET SHARE

Brasilprev

Took 1st place in the ranking of gross contributions (Plano Gerador de Benefício Livre – PGBL (income tax-deductible private pension plans), Vida Gerador de Benefício Livre – VGBL (supplementary pension plans) and Traditional products), with an accumulated market share of 31.24% up to November, against 25.85% in the same period of 2012.

Grupo Segurador
BB Mapfre

Retained 1st place in the SUSEP ranking of premiums issued (except healthcare), with a 16.96% market share in November 2013.

Brasilcap

Consolidated its market leadership position with 31.64% of the total funds raised via savings bonds in November 2013, some 8 percentage points ahead of the second-placed competitor, with growth of 56.78% in this period against 23.84% for the market.

Insurance, Pension Plans and Savings Bonds
GRIG4-13

The incorporation of BB Seguridade, the holding company for insurance, open supplementary pensions, savings bonds and alike was concluded in April 2013. For the year, BB Seguridade showed net income of R$2.5 billion, equivalent to a ROE of 39.3%. According to the Statistics System of the National Superintendence for Private Insurance (SUSEP), BB Seguridade retained its leadership of the sector (taking into account insurance – except life insurance –, pensions and savings bonds) with a market share of 24.3% in November 2013. Furthermore, the company grew by 29.5% in the period, exceeding the 13.2% reported by the market as a whole.

Two important developments in the first half of 2013 expanded the presence of BB Seguridade. In May, it acquired a 20.5% equity stake in reinsurance company IRB Brasil RE, thus becoming a member of controlling block in terms of governance. In June, an Association Agreement was signed with Odontoprev S.A. and Odontoprev Serviços Ltda. to create Brasildental Operadora de Planos Odontológicos, responsible for developing, advertising and commercializing dental care plans under the brand BB Dental, exclusively within the bank’s channels throughout the country. The partnership with Odontoprev had already been approved by the supervisory and control bodies. Having constituted Brasildental, authorization is now expected from the National Supplementary Healthcare Agency (ANS) in order to begin operations.

BB Seguridade intends to exploit partnerships, alliances and new acquisitions in the quest to expand the offer of products, enhance its technological structure and retain its leadership position in the Brazilian market. The prospects for the years ahead include:

GRIG4-FS7G4-FS8
Products with a Socioenvironmental Bias Invoicing 
in 2013 (R$ thousand)
Share of Total Portfolio Invoicing in 2013 (%)
Life Insurance    
Ouro Vida: transfers to Fundação Banco do Brasil (FBB) 50% of its stipulation revenues for allocation to that entity's social programs. 528,558 19.7
Ouro Vida Empresa (group life insurance): transfers to FBB 100% of its stipulation revenues for allocation to that entity's social programs. 3,469 0.1
BB Seguro Vida Mulher (women's life insurance): transfers to FBB 50% of its stipulation revenues for allocation to that entity's social programs. 222,366 8.3
Ouro Vida Grupo Especial (special group life insurance): transfers to the Federation of AABB (FENABB) 2.19% of stipulation revenues. 617,320 23.0
Personalizado (personalized insurance): transfers the stipulation percentage to the FENABB. 126,255 4.7
BB Microsseguro Proteção Pessoal (personal protection micro insurance): popular product intended for lower income customers, guaranteeing reimbursement of the funeral expenses in the event of death of the policyholder, their spouse and their children. 54 0.0
Property Insurance    
BB Seguro Floresta ABC (forest insurance): indemnifies the risks inherent to forests financed by the Programa Agricultura de Baixo Carbono (Programa ABC – Low Carbon Agriculture Program). 1,560 0.3
BB Proteção: transfers to the FENABB 2% of stipulation revenues. 46,168 7.1
Ouro Residencial (home insurance): transfers to FBB 100% of its stipulation revenues for allocation to that entity's social programs. 128,197 21.2
Ouro Máquinas (plant and equipment insurance): transfers to FBB 100% of its stipulation revenues for allocation to that entity's social programs. 13,023 2.2
Ouro Empresarial (business insurance): transfers to FBB 100% of its stipulation revenues for allocation to that entity's social programs. 150,662 24.9
Savings Bonds    
Ourocard Torcida Pagamento Único (single installment savings bond): transfers to FBB 0.5% of the total funds raised from payments by savers, in favor of BB Educar program. 4,005,992 63.9
Ourocard Torcida Pagamento Mensal (monthly installment savings bond): transfers to FBB 0.5% of the total funds raised from payments by savers of the second and third installments, in favor of BB Educar program. 357,479 5.7
Ourocap Estilo Prêmio (PU 36S) (premium prize draw savings bond): transfers to FBB 0.5% of the total funds raised from payments by savers, in favor of water resource projects. 11,288 0.2
Ourocap Estilo Flex (PP 93E) (flexible prize draw savings bond): transfers to FBB 0.5% of the total funds raised from payments by savers, in favor of water resource projects. 64,351 1.0
Ourocap Estilo Prêmio Cartão de Crédito (PU 36G) (savings bond payable by credit card): transfers to FBB 0.5% of the total funds raised from payments by savers, in favor of water resource projects. 124 0.0
Ourocap Multichance (PM 48M) (prize draw savings bond): transfers to FBB 0.5% of the total funds raised from payments by savers of the second and third installments, in favor of youth and adult literacy programs (BB Educar). 23,326 0.4
Ourocap 200 Anos TAA e BB (PP 60D) (prize draw savings bond): transfers to FBB 0.5% of the total funds raised in favor of youth and adult literacy programs (BB Educar). 60 0.0
Ourocap 200 Anos Espelho Cartão Crédito (PP 60B) (prize draw savings bond): transfers to FBB 0.5% of the total funds raised in favor of youth and adult literacy programs (BB Educar). 14 0.0
Ourocap 200 Anos (PM -PP 60M) (prize draw savings bond): transfers to FBB 0.5% of the total funds raised from payments by savers of the second and third installments, in favor of youth and adult literacy programs (BB Educar). 34,516 0.6
Ourocap 200 anos (PM –PP 60C) (prize draw savings bond): transfers to FBB 0.5% of the total funds raised from payments by savers of the second and third installments, in favor of youth and adult literacy projects (BB Educar). 6,667 0.1
Ourocap 200 Anos Cartão (PP 60A) (prize draw savings bond): transfers to FBB 0.5% of the total funds raised from payments by savers of the second and third installments, in favor of youth and adult literacy projects (BB Educar). 256 0.0

Asset Management
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BB Gestão de Recursos DTVM S.A. (asset management and securities distribution), a full subsidiary of BB, institutes, organizes, administers and manages funds, portfolios and investment clubs. According to the ranking of asset managers of the Brazilian Association of Financial and Capital Markets Entities (Anbima), BB DTVM ended the year 2013 with R$493.7 billion assets under management (+11.2% for the year) and a market share of 20.9%.

Of this total, R$413.7 million are subject to some form of socioenvironmental screening. These analyses are not legally imposed and refer exclusively to third-party funds, since BB DTVM proprietary funds, in accordance with the Proprietary Trading Investment Policy, are allocated as a matter of priority to repo transactions with the Banco do Brasil’s Treasury.

BB DTVM has developed its own methodology for evaluating company shares, by which it incorporates into a long-term strategy a criterion for selecting sustainable assets, based on the pillars of economic and financial performance, corporate governance and environmental and social aspects. The evaluation and its results, in the form of a ranking, are made available to the managers so that they can decide whether or not to purchase assets. BB DTVM is currently developing a similar methodology for analyzing corporate debt, which is expected to be concluded in the first semester of 2014.

During the year, BB DTVM launched 93 exclusive, multiple unit holder funds for the Governmental, Closed Supplementary Pension Entity (EFPC), both private and public, Open Supplementary Pension Entity (EAPC), Proprietary Pension Fund Regime (RPPS), Retail Private and Labor Fund segments. In addition, it proceeded to incorporate a further 33 funds into its portfolio. BB DTVM also formalized partnerships with global fund management companies, with the aim of making overseas investments accessible to Brazilian institutional and qualified investors. Lastly, the migration of the controllership and processing services, settlement and custody of funds and managed portfolios to Banco do Brasil enabled it to focus more on management and administration, thus ensuring greater competitiveness in the light of the new demands and challenges of the investment funds industry.

GRIG4-FS7G4-FS8
Products with a Socioenvironmental Bias Net Equity
in 2013
(R$ million)
Profitability
 in 2013 (%)
BB Referenciado DI Social 50 (linked to the interbank CD rate): transfers 50% of the management fee to FBB to benefit social projects. 48 5.3
BB Ações ISE Jovem FIC (tracks corporate sustainability index-linked shares): transfers 20% of the management fee to FBB in support of initiatives under the Água Brasil Program. The portfolio of the Corporate Sustainability Index (ISE) consists of shares of companies with extensive corporate responsibility proposals that take into account aspects of good governance, economic efficiency, environmental equilibrium and social justice. 18 0.5
BB Multimercado Balanceado LP Jovem FIC (long-term fixed income/equity fund): transfers 20% of the management fee to FBB in support of initiatives under the Água Brasil Program. 1 2.7
BB Multimercado Global Acqua LP Private FI: invests part of its portfolio in Brazilian and global companies whose manufacturing processes provides for the treatment or improvement of water. 392 11.7
BB Ações Carbono Sustent. FIA (sustainable carbon equities fund): tracks the Carbon Efficient Index (ICO2) created by the BNDES and by the BM&FBovespa, consisting of shares of companies comprising the IBrX-50 index, which adopt transparent practices with regard to their GHG emissions. 8 (5.9)
BB Carbono Opção Venda FIA (sustainable carbon equities fund with put option): tracks the Carbon Efficient Index (ICO2) created by the BNDES and by the BM&FBovespa, consisting of shares of companies comprising the Brasil 50 (IBrX-50) Index, which adopt transparent practices with regard to their GHG emissions. 5 (5.6)
BB Previdenciário Ações Governança (governance-related public sector pension equities fund): fund intended for the in-house pension funds instituted by the Federal Government, the States and the Municipalities, it tracks the BM&FBovespa Corporate Governance Index (IGC), consisting of companies acknowledged for good corporate governance practices whose shares are traded at corporate governance levels I and II on the Novo Mercado segment. 251 (2.3)
FIP Brasil de Governança Corporativa (corporate governance-linked equity interest fund): structuring of funds intended for acquiring equity interests in companies that could move up to be global corporate governance (pre-IPO) companies, with sound management essentials and open to enhancing their corporate government practices in addition to applying the concepts of self-sustainability and sufficiently developed to manage conflicts and deal with socioenvironmental issues. 418 (28.8)
Brasil Sustentabilidade FIP (carbon credits-linked equity interest fund): structuring of funds intended to purchase equity interests in companies whose activities are associated with projects that have the potential to generate carbon credits, by incorporating sustainability principles in their investment decisions. 137 (0.8)
Brasil Agribusiness FIP (agribusiness-linked equity interest fund): structuring of funds intended for purchasing equity interests in Brazilian companies in which solid value fundamentals have been identified and which might benefit from capital injections with the aim of taking them public. The focus of the fund's investments will include the entire agribusiness production chain, from the supply of inputs, to processing and distribution. 312 (2.1)
Fundo Brasil de Internacionalização Empresas FIP (equity interest fund linked to the internationalization of Brazilian companies): structuring of funds intended for purchasing equity interests in mid-size Brazilian companies already engaged in foreign trade or which have the potential to internationalize themselves. 254 (13.5)
Brasil Portos e Ativos Logísticos FIP (logistics and ports-linked equity interest fund): structuring of funds intended for purchasing businesses in a range of logistics sectors, including: port assets, retro ports, storage facilities, distribution centers and cargo handling and transportation assets. 94 (2.1)
FIP Fundo Brasil Óleo e Gás: structuring of funds intended for purchasing businesses and/or projects involved in the oil and gas production chain, especially service providers and manufacturers of capital goods. 7 (41.2)

Capital Markets and Treasury

Banco do Brasil is present in the capital market through its full subsidiaries in Brazil and overseas. Together, the companies of the BB Conglomerate provide the link between Brazilian issuers and domestic and foreign market investors. Its portfolio includes services involving market research, structuring and distribution of transactions, settlement and custody of assets, as well as products and services for individuals and businesses.

In December 2013, BB Banco de Investimento (BB-BI) held 1st place in the Anbima Consolidated Domestic Market ranking, with 25.6% of the market, participating in 131 transactions during the year, representing growth of 59.8% in relation to 2012. BB-BI lead managed transactions amounting to R$5 billion. In addition to its traditional role in the Credit Rights Investment Fund (FDIC) and Certificate of Real Estate Receivables (CRI) markets, BB-BI debuted in 2013 in the agribusiness receivables securitization segment, participating in two securities issues.

BB INCREASED ITS RELATIVE SHARE IN THE VOLUME OF BOND ISSUES, AS WELL AS ITS ROLE AS CO-MANAGER IN ISSUANCES BY FOREIGN ISSUERS

In the equities market, BB-BI lead managed 5 public offerings totaling R$14.7 billion, taking it once again to the top of the ranking organized by Anbima for this segment (Equities Distribution), with a market share of 16.5%. Worthy of note is the participation of BB-BI in the principal forums of the securitization and real estate funds market, in addition to meeting the Conglomerate’s demand for relationships with customers in the large corporate, corporate, business and private segments of BB.

In the international capital markets the bank, through its overseas brokerage houses (located in London, New York and Singapore), participated in 22 of the 45 foreign borrowing transactions closed by businesses, banks and the Brazilian government, in every case as lead manager, having attained 1st position in the 2103 Anbima ranking of Foreign Bond Issues.

Of the total of approximately US$38.4 billion issued during the year (against US$49.6 billion in 2012), BB participated in around US$23.0 billion (against US$26.1 billion in the same period), which means it increased its relative share in the volume of securities issued in this market, from 52.6% to 59.9%. BB’s participation in the role of co-manager in foreign bond issue transactions, also grew significantly in relation to 2012, with 30 bond issues totaling US$33.1 billion.

PRINCIPAL CAPITAL MARKET TRANSACTIONS

BB-BI | The third issuance of debentures by Cemig Distribuição S.A., amounting to R$2.160 billion, was the debenture offering carried out under CVM Instruction 400, the highest volume of funds raised from the market in 2013. | The raising of R$450 million in infrastructure debentures by Autoban, the highways concessionaire controlled by CCR, attracted 2,500 individual investors, taking advantage of the tax benefits granted by Law No. 12,431/11.

BB Securities | The issue of US$11.0 billion by Petrobras broke a series of records, including the largest issue by an emerging market company and one of the 5 largest US dollar-denominated transactions on the international capital markets. | The CHF 275,0-million issue, with a tenor of 5 and a half years, by Banco do Brasil was the bank’s first public issue denominated in Swiss francs. It made the headlines for being the largest transaction ever by a Brazilian issuer on the Swiss market and the largest by a Latin American bank.


Other Products/Services with Socioenvironmental Features
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Products with a Socioenvironmental Bias Total Portfolio in 2013 (R$ thousand) Number of Transactions
Closed in 2013
BNDES Governo: a credit line intended for the states and the Federal District for investment in public works, equipment and facilities, aiming to deliver social benefits to the population affected by the initiatives. 1,180,682 2
Provias: a credit facility intended for municipalities, for the acquisition of machinery and equipment for use in road, highway and freeway works, in order to deliver social benefits to the population affected by the initiatives. 10,432 8
Programa Modernização da Administração Tributária e da Gestão dos Setores Sociais Básicos (PMAT): financing to support municipal government investment projects intended for modernizing taxation management and for improving the quality of public expenditures, so as to promote efficient public management that leads to higher revenues and/or lower unit costs of the services provided to society. 6,905 2
Operations with states: financing, using external on-lending or BB’s funds, for programs and actions contemplated in the states' strategic planning processes. Leads to social impacts by improving the population's quality of life. 14,131,658 14
Caminho da Escola: a credit line intended for both public and private law businesses for the acquisition of new vehicles for the daily transportation of elementary public school students, priority being allocated to those residing in rural areas. 475,560 1
Finame PSI: a credit facility intended for public and private law businesses for the acquisition and manufacture of new machinery and equipment, so as to deliver social benefits to the population affected by the actions. It causes a social impact through a better quality of life for the population affected by the actions created by the projects, as well as by the assets financed. 4,622,400 1


Intangible Assets

Human Capital

Banco do Brasil values and fosters the professional advancement of its employees through career plans, training, evaluations and remuneration approved by the Management and aligned with its principles and values. One of the main investments involves enhancing training platforms, such as the Banco do Brasil Corporate University (UniBB), which in 2013 created a new portal and innovative content models (for further reading see the Employees item here).

Career ladder within the bank abides by clear and transparent essentials, that take account of the individual performance, technical background and experience of each employee. The bank uses Competence Performance Management (GDC) for tangible evaluations of its employees’ performance, in accordance with the goals and strategic objectives set out for them.

BB also strives to improve its employees’ satisfaction with their work environment. Thanks to the initiatives and actions put in place in recent years, the bank achieved recognition by being listed among the Best Companies to Work For, in the Guia VOCÊ S/A.

The Brand
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Solidity, security and credibility are the attributes strongly associated with the brand and materially important for the bank, which manages its image and reputation across all platforms and in all communications in Brazil and overseas. BB brand is also one of the world’s most valuable, estimated at US$9.88 billion by the ranking of The 100 most valuable brands in the world, prepared by consulting company Brand Finance – the bank took 94th position in the survey (find out more here). BB is currently implementing a brand evaluation methodology. Pricing the brand and establishing indicators for the strategic management of this asset create greater transparency in terms of the market, while reducing any possible subjectivity in external evaluations.

The bank’s investment in supporting the development of education, culture and sport strengthen brand recognition by customers and society. BB maintains Centros Culturais Banco do Brasil (CCBB), cultural centers that provide spaces for artistic and cultural events in the fields of scenic arts, cinema and music, among others. The highlights of the exhibitions in 2013 included: Masters of the Renaissance: Italian Masterpieces, which was well received by the critics (the best international exhibition, according to the Associação Paulista dos Críticos de Arte – APCA, the association of art critics in São Paulo) and by the public (the best event in 2013 according to a survey by the Guia Folha de São Paulo); Yayoi Kusama: Obsessão Infinita (Infinite Obsession), with record attendance at the CCBB in Rio de Janeiro; and Toca Raul, which also received a record number of visitors at the CCBB in Brasília.

Also within the cultural scope, Banco do Brasil Covers staged three first-time shows in 2013, in which top names in Brazilian music interpreted the repertories of their favorite singer-songwriters. The itinerant tour took in the cities of Natal, Recife, Fortaleza, Porto Alegre and Rio de Janeiro, between the months of September and December.

BB’S BRAND IS AMONG THE INDUSTRY’S MOST RECOGNIZED AND VALUABLE IN BRAZIL

In sports, Banco do Brasil has been the partner of Brazilian volleyball since 1991, and its participation in sponsoring and supporting the national olympic sports teams has grown in a consistent manner. The modalities that have benefited include indoor volleyball and beach volleyball, sailing and tennis. This year, BB signed its first sponsorship agreement under the Sports Incentive Law to support the Brazilian handball team, which has been added to the Brazilian Government’s 2016 Brazil Medals Plan. The women’s team took the world title in the event for the first time, five months after the agreement was signed. Similarly, the banks supports the development of educational activities with a social and sporting approach, such as workshops and projects that have a positive impact on public school pupils throughout Brazil.

Combining sport, culture and different styles of music in 6 Brazilian cities, the Banco do Brasil Circuit held its 1st edition in 2013, with national and international presentations on 2 stages, totaling 54 shows, in addition to hosting the Brazilian Vertical Skateboarding Championship. In every city, the circuit fosters socioenvironmental responsibility actions: 600 tons of CO2e were neutralized, 3,000 trees planted, 7.5 tons of solid waste and 8.3 tons of electronic garbage collected.

Information Technology

The business and operations of Banco do Brasil are heavily dependent on computerized tools and processes. So BB is continually investing in enhancing its information technology (IT) departments so as to contribute to the sustainable growth of the creation of value. One of the bank’s assumptions is to reduce human involvement in a range of processes that can be automated, with emphasis on speed of response and assertiveness of the evaluations undertaken.

With this purpose in mind, Banco do Brasil has dedicated its efforts to automating credit analyses and all attendant activities, such as preparing customer files and calculating and setting limits. Thanks to this technological advance, BB has also managed to make limits generated by credit analyses available to customers, both within the service network of branches, and in the self-service channels, which now actively offer the products.

BB’s technological development is also increasingly focused on developing platforms and channels for relationships with customers in virtual environments, in order to enhance the experience on mobile devices. The bank has also increased its share and use of interactive tools on social networks, in line with the principles of transparency in its relationships with customers.

Another high point in BB’s performance in the technology field was the inauguration of the new Digital Capital Data Center, which reduces operating risks. With regard to sustainability management, BB is developing an integrated package of green IT actions, that seeks to involve and promote the efficient use of resources in order to generate minimum waste.