Banco ABC Brasil S.A. (incorporated as a corporation ( sociedade por ações ) under the laws of the Federative Republic of Brazil)

Transcription

1 Banco ABC Brasil S.A. (incorporated as a corporation ( sociedade por ações ) under the laws of the Federative Republic of Brazil) U.S.$3,000,000,000 Global Medium-Term Note Programme Arranger & Dealer The date of this Offering Memorandum is May 2, 2014.

2 Under the Global Medium-Term Note Programme (the Programme ), Banco ABC Brasil S.A. ( Banco ABC, the Bank, the Issuer, we, us or our ), whether acting through our principal office in Brazil or through our Cayman Islands branch (the Cayman Islands Branch ), may from time to time issue Global Medium-Term Notes (the Notes ) up to a maximum aggregate nominal amount of U.S.$3,000,000,000 (or the U.S. dollar equivalent of Notes denominated in other currencies). Notes may be denominated in the Specified Currencies referred to herein, as specified in a supplement to this Offering Memorandum (a Pricing Supplement ), which will contain the terms of, and pricing details for, each issue of Notes. Notes will have maturities from 30 days to 30 years from their issue date (except as set out herein) or variable maturities and may be subject to redemption in whole or in part, as specified in the applicable Pricing Supplement. Notes may be either interest bearing, at fixed or variable rates, or non-interest bearing and may be repayable at par, at a specified amount above or below par or at an amount determined by reference to a formula, in each case with terms as specified in the applicable Pricing Supplement. Notes will be issued in one or more series (each a Series ). Each Series shall be all in bearer form or all in registered form and may be issued in one or more tranches (each a Tranche ) on different issue dates and on terms otherwise identical (except in relation to interest commencement dates and matters related thereto). The Notes may have limited payment obligations. If specified in the relevant Pricing Supplement that a Foreign Currency Constraint (as defined herein) provision applies, in the event of the imposition of exchange controls prohibiting the conversion into, or remission from Brazil of, the currency in which payment is made in respect of the Notes, holders of such Notes may elect to exchange such Notes for Notes in respect of which payments are payable in the lawful currency of Brazil for the time being. If a holder does not elect to make such exchange, such holder shall have no right, while such exchange controls remain imposed, either to accelerate payment of such Notes by calling a default or to sue for the unpaid sum. See Terms and Conditions of the Notes Payments Foreign Currency Constraint. The Notes will be issued on a continuing basis to or through one or more of HSBC Securities (USA) Inc. and other dealers appointed in respect of the Programme or a particular Tranche (each a Dealer and, together, the Dealers ). You should carefully consider the factors described under Risk Factors in connection with an investment in the Notes. In making a decision whether to invest in the Notes, you must rely on your own examination of us and the terms of this offering, including the merits and risks involved. You should not construe the contents of this Offering Memorandum as legal, business or tax advice. You should consult your own attorney, business adviser or tax adviser. Application has been made for this Offering Memorandum to be approved by the Irish Stock Exchange Ltd. (the Irish Stock Exchange ) and for the Notes issued under the Programme to be admitted to the Official List of the Irish Stock Exchange and to be admitted to trading on the Global Exchange Market of the Irish Stock Exchange (the Global Exchange Market ). The applicable Pricing Supplement will specify whether or not Notes have been admitted to listing on the Official List of the Irish Stock Exchange and to trading on the Global Exchange Market. For the purpose of listing Notes on the Irish Stock Exchange to be traded on the Global Exchange Market, references to Offering Memorandum will be deemed as references to listing particulars. However, Notes may be issued pursuant to the Programme which will not be listed on the Irish Stock Exchange, but which may be listed on one or more other stock exchanges or may be unlisted, as specified in the applicable Pricing Supplement. Notes of each Tranche of each Series to be issued in bearer form ( Bearer Notes comprising a Bearer Series ) will initially be represented by interests in a temporary global note or by a permanent global note, in either case in bearer form (a Temporary Global Note and a Permanent Global Note, respectively), without interest coupons, which will be deposited with a common depositary on behalf of Euroclear Bank S.A./N.V. ( Euroclear ) and Clearstream Banking, société anonyme ( Clearstream, Luxembourg ) on the relevant issue date. Interests in a Temporary Global Note will be exchangeable, in whole or in part, for interests in a Permanent Global Note (each a Global Note ) on or after the date 40 days after the later of the commencement of the offering and the relevant issue 2

3 date (the Exchange Date ), upon certification as to non-u.s. beneficial ownership. Individual definitive Bearer Notes ( Definitive Bearer Notes ) will only be available in certain limited circumstances as described herein. In respect of a Series of Notes where the applicable Pricing Supplement specifies that a Foreign Currency Constraint provision is applicable, such Series of Notes shall include a second Permanent Global Note which will represent the Exchanged Notes (as defined herein) for which interests in the original Permanent Global Note of such Series of Notes may be exchanged in accordance with the Terms and Conditions of the Notes. Notes of each Tranche of each Series to be issued in registered form ( Registered Notes comprising a Registered Series ) and which are sold in an offshore transaction within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the Securities Act ), will initially be represented by interests in a global unrestricted Registered Note (each an Unrestricted Global Note ), without interest coupons, which will be deposited with either (a) a common depositary for, and registered in the name of a common nominee of, Euroclear and Clearstream, Luxembourg on its issue date (each a European Unrestricted Global Note ), or (b) a custodian for, and registered in the name of a nominee of, The Depository Trust Company ( DTC ) (each a DTC Unrestricted Global Note ). Beneficial interests in a European Unrestricted Global Note will be shown on, and transfers thereof will be effected only through, records maintained by Euroclear or Clearstream, Luxembourg. Until the expiration of 40 days after the later of the commencement of the offering of a Tranche of a Registered Series and the issue date thereof, beneficial interests in a DTC Unrestricted Global Note may be held only through Euroclear or Clearstream, Luxembourg. See Form, Clearing and Settlement. Notes of each Tranche of each Registered Series sold to a qualified institutional buyer ( QIB ) within the meaning of Rule 144A under the Securities Act, as referred to in and subject to the transfer restrictions described in Subscription and Sale and Transfer Restrictions, will initially be represented by a global restricted Registered Note (each a Restricted Global Note ), without interest coupons, which will be deposited with either (a) a common depository for, and registered in the name of a common nominee of, Euroclear and Clearstream, Luxembourg on its issue date (each a European Restricted Global Note and together with any European Unrestricted Global Note the European Global Notes ), or (b) a custodian for, and registered in the name of a nominee of DTC on its issue date (each a DTC Restricted Global Note and together with any DTC Unrestricted Global Note, the DTC Global Notes ). Beneficial interests in a European Restricted Global Note will be shown on, and transfers thereof will be effected only through, records maintained by Euroclear or Clearstream, Luxembourg. Beneficial interests in a DTC Restricted Global Note will be shown on, and transfers thereof will be effected only through, records maintained by DTC and its participants. See Form, Clearing and Settlement. Individual definitive Registered Notes ( Definitive Registered Notes ) will only be available in certain limited circumstances as described herein. See Terms and Conditions of the Notes. We, having taken all reasonable care to ensure that such is the case, confirm that the information contained in this Offering Memorandum is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. We, having made all reasonable enquiries, confirm that this Offering Memorandum contains all information with respect to us and our subsidiaries taken as a whole (the Group ), and the Brazilian financial system, the Programme and Notes to be issued under the Programme which is material in the context of the issue and offering of Notes, there are no untrue statements of material fact contained in it in relation to us, the Group and the Brazilian financial system, there is no omission to state a material fact which is necessary in order to make the statements made in it in relation to us, the Group and the Brazilian financial system or the Programme or the Notes in the light of the circumstances under which they were made not misleading, the opinions and intentions expressed in this Offering Memorandum with regard to us, the Group and the Brazilian financial system are honestly held, have been reached after considering all relevant circumstances and are based on reasonable assumptions, and we have made all reasonable enquiries to ascertain such facts and to verify the accuracy of all such information and statements. We accept responsibility accordingly. This Offering Memorandum does not constitute an offer of, or an invitation by or on behalf of, the Issuer or the Dealers to subscribe or purchase any of the Notes. The distribution of this Offering Memorandum and the offering of Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Offering Memorandum comes are required by us and the Dealers to inform themselves about and to observe any such restrictions. For a description of certain further restrictions on offers and sales of Notes and distribution of this Offering Memorandum, see Subscription and Sale. 3

4 No person is authorised to give any information or to make any representation not contained in this Offering Memorandum and any information or representation not so contained must not be relied upon as having been authorised by or on behalf of us or the Dealers. The delivery of this Offering Memorandum at any time does not imply that the information contained in it is correct as at any time subsequent to its date. This Offering Memorandum has been prepared by us solely for use in connection with this Programme. This Offering Memorandum is personal to the prospective investor to whom it has been delivered and does not constitute an offer to any other person or to the public in general to subscribe for or otherwise acquire the Notes. Distribution of this Offering Memorandum to any person other than the prospective investor and those persons, if any, retained to advise that prospective investor with respect thereto is unauthorised, and any disclosure of its contents without our prior written consent is prohibited. You, by accepting delivery of this Offering Memorandum, agree to the foregoing and agree not to make any photocopies of this Offering Memorandum. THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION IN THE UNITED STATES OR ANY OTHER U.S. REGULATORY AUTHORITY, NOR HAS ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE OFFERING OF NOTES OR THE ACCURACY OR THE ADEQUACY OF THIS OFFERING MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE IN THE UNITED STATES. THE NOTES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES, AND THE NOTES MAY INCLUDE BEARER NOTES THAT ARE SUBJECT TO U.S. TAX LAW REQUIREMENTS. SUBJECT TO CERTAIN EXCEPTIONS, THE NOTES MAY NOT BE OFFERED OR SOLD OR, IN THE CASE OF BEARER NOTES, DELIVERED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT ( REGULATION S )). THE NOTES ARE BEING OFFERED AND SOLD OUTSIDE THE UNITED STATES TO NON-U.S. PERSONS IN RELIANCE ON REGULATION S AND WITHIN THE UNITED STATES TO QUALIFIED INSTITUTIONAL BUYERS IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT ( RULE 144A ). PROSPECTIVE PURCHASERS ARE HEREBY NOTIFIED THAT SELLERS OF THE NOTES MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A. FOR A DESCRIPTION OF THESE AND CERTAIN FURTHER RESTRICTIONS ON OFFERS, SALES AND TRANSFERS OF NOTES AND DISTRIBUTION OF THIS OFFERING MEMORANDUM, SEE SUBSCRIPTION AND SALE AND TRANSFER RESTRICTIONS. THIS OFFERING MEMORANDUM HAS BEEN PREPARED BY THE ISSUER FOR USE IN CONNECTION WITH THE OFFER AND SALE OF THE NOTES AND FOR THE LISTING OF THE NOTES ON THE OFFICIAL LIST OF THE IRISH STOCK EXCHANGE AND FOR THE TRADING OF THE NOTES ON THE GLOBAL EXCHANGE MARKET. TO ENSURE COMPLIANCE WITH UNITED STATES TREASURY DEPARTMENT CIRCULAR 230, HOLDERS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF UNITED STATES FEDERAL TAX ISSUES IN THIS OFFERING MEMORANDUM IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON, BY HOLDERS FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON HOLDERS UNDER THE UNITED STATES INTERNAL REVENUE CODE; (B) SUCH DISCUSSION IS INCLUDED HEREIN BY THE ISSUER IN CONNECTION WITH THE PROMOTION OR MARKETING (WITHIN THE MEANING OF CIRCULAR 230) BY THE ISSUER OF THE NOTES; AND (C) HOLDERS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISER. The Notes are not being offered to the public within the meaning of Directive 2003/71/EC of the European Union, and this offering is not subject to the obligation to publish a prospectus under that Directive. 4

5 The Notes have not been, and will not be, issued nor placed, distributed, offered or negotiated in the Brazilian capital markets. The issuance of the Notes and the Notes have not been nor will be registered with the Brazilian Securities Commission (Comissão de Valores Mobiliários, or CVM ). Any public offering or distribution, as defined under Brazilian laws and regulations, of the Notes in Brazil is not legal without prior registration under Law No. 6,385, dated as of December 7, 1976, as amended, and Instruction No. 400, issued by the CVM on December 29, 2003, as amended. Documents relating to the offering of the notes, as well as information contained therein, may not be supplied to the public in Brazil (as the offering of the notes is not a public offering of securities in Brazil), nor be used in connection with any offer for subscription or sale of the notes to the public in Brazil. The Notes may not be offered or sold in Brazil, except in circumstances that do not constitute a public offering or distribution under Brazilian laws and regulations. Persons wishing to offer or acquire the notes within Brazil should consult with their own counsel as to the applicability of registration requirements or any exemption therefrom. The Notes may not be offered or sold in or into the United Kingdom, except in the circumstances identified in Subscription and Sale. NOTICE TO NEW HAMPSHIRE RESIDENTS: NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENCE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE OF NEW HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSONS, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. In connection with the issue of any Tranche of Notes, the Dealer or Dealers (if any) named as the stabilising manager(s) (the Stabilising Manager(s) ) (or persons acting on behalf of any Stabilising Manager(s)) in the applicable Pricing Supplement may over-allot Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilising Manager(s) (or persons acting on behalf of a Stabilising Manager) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the relevant Tranche of Notes is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of the relevant Tranche of Notes and 60 days after the date of the allotment of the relevant Tranche of Notes. Any stabilisation action or over-allotment must be conducted by the relevant Stabilising Manager(s) (or persons acting on behalf of any Stabilising Manager(s)), in accordance with all applicable laws, regulations and rules. 5

6 TABLE OF CONTENTS FORWARD-LOOKING STATEMENTS... 7 PRESENTATION OF FINANCIAL AND OTHER INFORMATION... 8 ENFORCEMENT OF CIVIL LIABILITIES SUMMARY SUMMARY OF THE PROGRAMME AND THE NOTES SUMMARY FINANCIAL INFORMATION RISK FACTORS USE OF PROCEEDS CAPITALIZATION FOREIGN EXCHANGE RATES AND EXCHANGE CONTROLS SELECTED STATISTICAL INFORMATION MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS MANAGEMENT PRINCIPAL SHAREHOLDERS RELATED PARTY TRANSACTIONS BRAZILIAN BANKING SYSTEM AND INDUSTRY REGULATION TERMS AND CONDITIONS OF THE NOTES FORM OF PRICING SUPPLEMENT FORM, CLEARING AND SETTLEMENT TAXATION CERTAIN ERISA AND OTHER U.S. CONSIDERATIONS SUBSCRIPTION AND SALE TRANSFER RESTRICTIONS LEGAL MATTERS INDEPENDENT ACCOUNTANTS GENERAL INFORMATION INDEX TO FINANCIAL STATEMENTS... 1 Page 6

7 FORWARD-LOOKING STATEMENTS This Offering Memorandum includes estimates and forward-looking statements, in particular under the sections entitled Risk Factors, Management s Discussion and Analysis of Financial Condition and Results of Operations, Brazilian Banking System and Industry Regulation and Business. These estimates and forward-looking statements are based principally on our current expectations and projections about future events and financial trends that affect or may affect our business and results of operations. Estimates and forward-looking statements involve risks, uncertainties and assumptions, and therefore are not a guarantee of future results. Our financial condition and results of operations, as well as our market share and competitive position, may differ substantially from those anticipated in our forward-looking statements due to numerous factors. Among the factors that may influence our estimates and forward-looking statements are: variations in loan default rates by our clients, as well as in our recording of provisions for doubtful loans; credit risk, market risk and any other risks related to financing activities; our level of capitalization and debt; our ability to implement our business strategies successfully; availability and cost of funding; the market value of public securities; developments in laws, regulations, taxation and governmental policies that relate to our activities; administrative and legal proceedings involving us; competition in the Brazilian banking market; general economic, political and business conditions in Brazil; inflation, currency exchange rates and fluctuations in interest rates; risks relating to the current market environment; and the other risk factors discussed under the section Risk Factors. Statements that depend on or are related to events or future or uncertain conditions or that include the words believe, will, could, should, plan, anticipate, continue, expect, estimate, intend, may, assume and other variations, as well as similar words, are intended to identify forward-looking statements. Forward-looking statements include information concerning our potential or assumed future results of operations, business strategies, funding plans, competitive position, industry environment, potential growth opportunities and the effects of future regulation and of competition. Forward-looking statements and estimates speak only as of the date they are made, and we do not undertake the obligation to update or revise any forward-looking statements after we distribute this Offering Memorandum to reflect new information, future events or other factors. In light of the risks and uncertainties described above, the forward-looking events and circumstances discussed in this Offering Memorandum may not occur or be accurate, and our future results of operations and performance may differ materially from those set forth herein for a number of reasons. Any such forward-looking statements and estimates are not guarantees of future performance and involve risks and uncertainties. Given such limitations, you should not rely on these forward-looking statements in making a decision whether to invest in an issue of Notes. 7

8 PRESENTATION OF FINANCIAL AND OTHER INFORMATION In this Offering Memorandum, unless otherwise specified or the context requires, references herein to U.S.$, $, dollar and U.S. dollar are to United States dollars, references to EUR and euro are to the currency introduced on January 1, 1999 pursuant to the Treaty establishing the European Community, as amended, references to, pounds and sterling are to pounds sterling and references to R$, real and reais are to Brazilian reais, the official currency of Brazil since July 1, The selling rate of reais for U.S. dollars at close of business on December 31, 2013 was R$2.34 to U.S.$1.00. See Foreign Exchange Rates and Exchange Controls for information regarding exchange rates for the Brazilian currency since January 1, Financial Statements Our consolidated financial information set forth herein as of and for the years ended December 31, 2013, 2012 and 2011 was obtained from our consolidated financial statements as of and for the years ended December 31, 2013, 2012 and 2011 included elsewhere in this Offering Memorandum, which have been audited by Ernst & Young Auditores Independentes S.S. (formerly Ernst & Young Terco Auditores Independentes S.S.) ( Ernst & Young ), our independent accountants. We maintain our financial books and records in reais and prepare our financial statements in accordance with accounting practices adopted in Brazil, applicable to institutions authorized to operate by the Central Bank of Brazil (Banco Central do Brasil or the Central Bank ) ( Brazilian GAAP ), which are the accounting principles provided for in Law No. 6,404/76, as amended (the Brazilian Corporate Law ), the changes to the Brazilian Corporate Law introduced by Law No. 11,638/07 and Provisional Measure No. 449/08 (later converted into Law No. 11,941/09), the rules and regulations issued by the CVM, the rules and regulations issued by the Brazilian Federal Accounting Board (Conselho Federal de Contabilidade or CFC ) and the accounting rules applicable to financial institutions issued by the Central Bank. Brazilian GAAP varies significantly from accounting principles generally accepted in the United States ( U.S. GAAP ) and from International Financial Reporting Standards ( IFRS ). Accordingly, the financial statements contained herein differ from those that would be prepared based on U.S. GAAP or IFRS. We have made no attempt to identify or quantify the impact of the differences between U.S. GAAP and Brazilian GAAP or IFRS and Brazilian GAAP. No reconciliation to U.S. GAAP or IFRS of any of the financial statements presented in this Offering Memorandum has been prepared for purposes of this Offering Memorandum. There can be no assurance that such a reconciliation would not identify material quantitative differences between our financial statements as prepared in accordance with Brazilian GAAP and such financial statements as prepared on the basis of U.S. GAAP or IFRS. CMN Resolution No. 3,786, of September 24, 2009, established that financial institutions and other institutions authorised to operate by the Central Bank, organised as publicly-held companies or required to set up an audit committee pursuant to the regulations currently in force, shall prepare and disclose once a year, as from December 31, 2010, consolidated financial statements in accordance with IFRS as issued by the International Accounting Standards Board (the IASB ). We are subject to this additional reporting requirement. Beginning with our financial statements as of and for the year ended December 31, 2010, we are required to prepare and make available two sets of consolidated financial statements as of and for each year ending December 31: one prepared in accordance with Brazilian GAAP applicable to the institutions authorised to operate by the Central Bank, and one prepared in accordance with IFRS. On March 27, 2013, we made available our consolidated financial statements as of and for the year ending December 31, 2012 and 2011 prepared in accordance with IFRS on our website and the website of the CVM. As of the date of this Offering Memorandum, it is not clear when or whether IFRS will be required for the unconsolidated financial statements, which for the time being continue to be prepared in accordance with Brazilian GAAP applicable to the institutions authorised to operate by the Central Bank. It should be noted that, for now, only the unconsolidated financial statements prepared under Brazilian GAAP applicable to the institutions authorised to operate by the Central Bank are valid for legal purposes such as payment of dividends. 8

9 Further changes in the accounting standards may have a significant impact on our financial statements, with possible effects on our accounting results, including our ability to maintain financial covenants assumed when entering into financial agreements. Consolidation Central Bank accounting rules require the consolidation of financial information by financial groups (conglomerados financeiros), which are defined as groups of financial entities directly or indirectly related by equity interest or actual operating control, characterised by common management or by performance of activities in the market under the same trademark or name. Accordingly, the results of our subsidiaries ABC Brasil Administração e Participações Ltda. ( ABC Administração ) and ABC Brasil Distribuidora de Títulos e Valores Mobiliários S.A. ( ABC DTVM ) are consolidated in our financial statements included in this Offering Memorandum. Direct and indirect equity interests in companies comprising our financial group, as well as account balances and revenues and expenses relating to transactions with such companies, have been eliminated in the process of consolidation. Calculation of Averages Data regarding volume and annual average balances included in this Offering Memorandum for the years ended December 31, 2013, 2012 and 2011, and as set forth under Selected Statistical Information, was calculated as of 13 dates, as of December 31 of the previous year and at the end of each of the following 12 months. Similarly, data regarding the average interest rate included in this Offering Memorandum was calculated based on revenues and expenses for the relevant period, divided by the average balances calculated as indicated above. Interest Revenues and Expenses Our interest revenues and expenses as disclosed herein and in our financial statements reflect (i) adjustment for inflation in the values of our assets and liabilities in reais (where an inflation index is a component of the relevant interest calculation); (ii) earnings and losses relating to assets and liabilities in foreign currencies; and (iii) earnings and losses both realised and to be realised in connection with securities and derivatives. Rounding Certain figures included in this Offering Memorandum have been subject to rounding adjustments for ease of presentation. Accordingly, figures shown as totals in certain tables may not be arithmetic aggregations of the figures that precede them. Market Information We obtained the statistical data and information relating to the markets in which we operate from reports prepared by independent consulting firms, government bodies and general publications. Such information has been accurately reproduced and, as far as we are aware and are able to ascertain from information published by such third party, no facts have been omitted which would render the reproduced information inaccurate or misleading. Although we believe that such sources of information are reliable, we have not independently verified such information. 9

10 ENFORCEMENT OF CIVIL LIABILITIES We are a corporation organised under the laws of Brazil. Substantially all of our directors and executive officers and certain advisers named herein reside in Brazil or elsewhere outside the United States, and all or a significant portion of the assets of such persons may be, and substantially all of our assets are, located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States or other jurisdictions outside Brazil upon such persons or to enforce against them or us judgments predicated upon the civil liability provisions of the U.S. federal securities laws or the laws of such other jurisdictions. In the Terms and Conditions of the Notes, we will agree that the courts of England shall have jurisdiction to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with the Notes and, for such purposes, irrevocably submit to the jurisdiction of such courts. See Terms and Conditions of the Notes. We have been advised by Machado, Meyer, Sendacz e Opice Advogados, our Brazilian counsel, that judgments of non-brazilian courts for civil liabilities predicated upon the laws of such countries, including the laws of the United States, subject to certain requirements described below, may be enforced in Brazil. A judgment against either us or any other person described above obtained outside Brazil would be enforceable in Brazil against us or any such person without reconsideration of the merits upon confirmation of that judgment by the Brazilian Superior Court of Justice. That confirmation, generally, will occur if the foreign judgment meets the following conditions: it complies with all formalities necessary for its recognition as an enforcement instrument under the laws of the jurisdiction where it was issued; it has been rendered by a competent court after proper service of process on the parties in accordance with applicable law; it is not subject to appeal; it does not violate Brazilian national sovereignty, public policy or good morals; and it has been duly authenticated by a competent Brazilian consulate and is accompanied by a certified translation in Portuguese (tradução pública juramentada). Notwithstanding the foregoing, no assurance can be given that confirmation will be obtained, that the process described above can be conducted in a timely manner or that a Brazilian court would enforce a monetary judgment for violation of the laws of countries other than Brazil with respect to the Notes. We understand that original actions predicated on the laws of countries other than Brazil may be brought in Brazilian courts and that Brazilian courts may enforce civil liabilities in such actions against us, our directors, certain of our officers and the advisers named herein. A plaintiff (whether Brazilian or non-brazilian) who resides outside Brazil during the course of litigation in Brazil must provide a bond to guarantee court costs and legal fees if the plaintiff owns no real property in Brazil that may ensure such payment. This bond must have a value sufficient to satisfy the payment of court fees and defendant s attorneys fees, as determined by the Brazilian judge based on the amount under dispute, except in the case of the enforcement of foreign judgments which have been duly confirmed by the Brazilian Superior Court of Justice or in the case of collection of claims based on instruments (which does not include Notes) that may be enforced in Brazil without a review of their merits (títulos executivos extrajudiciais) and counterclaims (reconvenções). 10

11 SUMMARY This summary of our activities does not contain all of the information that an investor should consider before deciding to invest in the Notes. An investor should read this entire Offering Memorandum carefully before making any investment decision, especially the information contained in the sections Risk Factors, Selected Statistical Information and Management s Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and respective notes included elsewhere in this Offering Memorandum. Overview We are a multiple service bank that specialises in granting loans to medium-sized and large Brazilian companies. We believe our client base is one of the most diversified in terms of lending products among midsized banks in Brazil. Due to our diversified portfolio of products, our agile decision-making processes and our experience in credit risk analysis, we have been able to generate significant income over the past several years. We believe we are among only a few midsized Brazilian banks controlled by foreign shareholders that maintain substantial autonomy with respect to their lending activities and credit approval procedures in Brazil. See Business Credit Risk Approval and Monitoring. Over the past 20 years, we have built a solid client base by offering value-added financial products customised to the needs of our clients. Our principal activity is granting loans to: (i) medium-sized companies, with annual revenues between R$50.0 million and R$500.0 million, which we refer to as the midsized business segment; and (ii) large companies, with annual revenues above R$500.0 million, which we refer to as the corporate segment. We believe that our credit analysis skills are evidenced by the historically low default rates of our loan portfolio which, over the 10 year period ended December 31, 2013, averaged 0.6% of our total loans. Loans to large companies currently represent our principal source of revenues and our corporate portfolio accounted for 77.6%, 75.5% and 75.7% of our total loan portfolio as of December 31, 2013, 2012 and 2011, respectively. We recorded net income of R$268.3 million for the year ended December 31, 2013, corresponding to a return on average equity of 14.9% and a return on average assets of 1.9%, compared to net income of R$226.6 million for the year ended December 31, 2012, corresponding to a return on average equity of 14.3% and a return on average assets of 1.9%, and net income of R$236.0 million for the year ended December 31, 2011, corresponding to a return on average equity of 16.6% and a return on average assets of 2.4%. Our credit portfolio, including guarantees granted, as of December 31, 2013 totalled R$16.9 billion, compared to R$14.7 billion as of December 31, 2012 and R$12.9 billion as of December 31, We offer our clients a wide range of financial products, including (i) loans denominated in reais and foreign currencies; (ii) trade finance; (iii) underwriting and structuring advisory services for capital markets transactions, including fixed-income products, such as debentures and commercial paper, as well as structuring receivables investment funds (Fundos de Investimento em Direitos Creditórios or FIDCs ); (iv) arrangement of syndicated loans in Brazil and abroad; (v) onlending under lines of credit granted by the Brazilian Social and Economic Development Bank (Banco Nacional de Desenvolvimento Econômico e Social or BNDES ); (vi) mergers and acquisitions; and (vii) derivatives, including hedges, options and swaps. Many of these products, due to their sophistication, are offered by our competitors only to companies in the corporate segment. We believe that we are one of only a few midsized banks in Brazil to offer sophisticated financial products and services to companies in the midsized business and corporate segments, which represent a large market of existing and, in our view, potential clients. In addition to our client-focused products and services, we enter into proprietary trading transactions with our own funds in both the Brazilian and international markets through market, interest rate and exchange rate arbitrage. Our policy with respect to these treasury operations is to act conservatively while seeking to profit from market opportunities. We benefit from the operational and credit support of our controlling shareholder, which is one of the largest banks in the Middle East and Northern Africa. Our controlling shareholder has operations in 18 countries. Although we operate with substantial autonomy with respect to our activities, we believe that the support of our controlling 11

12 shareholder enhances both our solid financial position and our ability to obtain funding from diversified sources on competitive terms with respect to cost and maturity. As of December 31, 2013, 2012 and 2011, 65%, 70% and 74%, respectively, of our funding was obtained from Brazilian sources and 35%, 30% and 26%, respectively, of our funding came from foreign sources, consisting mainly of credit lines granted to us by foreign banks. In the Brazilian market, our main sources of funding consist of (i) bank certificates of deposit (Certificados de Depósito Bancário or CDBs ) sold to companies and institutional investors, (ii) onlending under lines of credit granted by the BNDES and (iii) Agribusiness Credit Notes (Letras de Crédito do Agronegócio or LCAs ). Until recently, the Central Bank required that banks in Brazil comply with regulations similar to those recommended by the Basel II Accord for sufficiency or adequacy of share capital in relation to risk-weighted assets, which include loan transactions and other credits granted to our clients. In March 2013, the Central Bank began to implement the Basel III Accord in Brazil, which gradually increases the regulatory capital requirements until 2019, commencing on October 1, See Risk Factors Risks Relating to the Brazilian Banking Industry Minimum capital requirements imposed on the banking system may negatively affect our results of operations and financial condition. As of December 31, 2010, our capital adequacy ratio was 16.0%, primarily as a result of the issue, on April 8, 2010, of U.S.$300 million aggregate principal amount of subordinated notes due 2020 which were approved by the Central Bank to qualify as Tier II capital. We issued a second tranche of the same series of subordinated notes in the aggregate principal amount of U.S.$100 million on October 9, 2012, which were approved by the Central Bank to qualify as Tier II capital (together with the subordinated notes issued in April 2010, the Tier II Notes ). As of December 31, 2013, our capital adequacy ratio was 14.8%. See Brazilian Banking System and Industry Regulation Banking Industry Regulation Guidelines for Capital Adequacy. Strengths We believe that our main competitive strengths include the following: Experience in assessing the credit risk of Brazilian corporations Our experience in assessing credit risk is one of the key factors that has enabled us to grant loans efficiently, minimise risks and increase profitability. Throughout over 20 years of experience in granting loans, we have developed a credit risk assessment method that has allowed us to grant loans profitably and with lower risks of default. We require that all personnel involved in granting loans be appropriately trained in assessing credit risk and participate in the entire loan approval process and subsequent credit risk monitoring. We believe our method of assessing credit risk has contributed significantly to our historically low loan default rates in each of the midsized business and corporate segments in which we operate. In addition, our expertise in assessing credit risk allows us to explore new market segments and industry sectors. Our average loan loss ratio for the 10 years ended and for the year ended December 31, 2013 was 0.6% and 0.8%, respectively. Diversified activities and customised products and services We offer a wide range of financial products to medium-sized and large companies, reducing our risks and fostering client loyalty. We believe the diversification of the products we offer, complemented by the range of clients to whom we sell such products, represents one of our competitive advantages over most other midsized Brazilian banks, which generally do not offer a range of products as wide as ours, as well as over most large banks, which generally offer a wider range of products but typically only to companies in the corporate segment. At the same time, by virtue of our size, we are able to work more closely with clients relative to larger banks to understand their specific needs and develop customised products to suit their individual demands. We are among the few midsized banks in Brazil with successful underwriting and structuring operations in the domestic fixed-income capital markets, enabling us to compete in these areas with large Brazilian and multinational 12

13 financial institutions, including Banco do Brasil S.A., Banco Bradesco S.A., Banco Santander (Brasil) S.A. and entities of the Itaú Unibanco group. We have operated in the Brazilian capital markets since Experienced management team and agile decision-making processes Our highly qualified management team has extensive financial experience with sufficient autonomy to make executive decisions without undue delay and has been able to identify and take advantage of opportunities in various market segments and under diverse market conditions. We believe that the experience and qualifications of our professionals, together with our proven ability to motivate them to produce results and to maintain the quality of our products and services (including through incentive-based variable remuneration), are key factors to the successful implementation of our strategies. In addition, our management works through specialised committees that meet frequently to evaluate new transactions, business opportunities and strategies in an agile, rapid and efficient manner. Strong controlling shareholder and stringent corporate governance practices We are a Brazilian bank controlled by the Arab Banking Corporation (B.S.C) ( Arab Banking Corporation or our controlling shareholder ), one of the largest banks in the Middle East and in Northern Africa. Our board of directors has eight members, seven of which are appointed by our controlling shareholder. The chairman of our board of directors, Dr. Anwar Ali Al Mudhaf, is also a member of the board of directors of our controlling shareholder, and three other directors (Mr. Paul Henry Jennings, Mr. Vernon Handley and Mr. Roy Hannay Gardner) are also members of the management of our controlling shareholder. The Arab Banking Corporation is headquartered in Bahrain, operates in 18 countries through its subsidiaries and branches, is a publicly-held company controlled by the Kuwait Investment Authority and the Central Bank of Libya, and is listed on the Bahrain Stock Exchange. As a bank controlled by the Arab Banking Corporation, we benefit from its operational and credit support, which in turn allows us access to a wider range of funding sources on competitive terms, with respect to both cost and maturity. We are committed to high standards of corporate governance and adhere to the practices required by the Level 2 listing segment of the BM&FBOVESPA. Although we provide reports on our business activities to our controlling shareholder on a monthly basis and follow the general guidelines that it establishes, our management operates independently from our controlling shareholder. Currently, two of the members of our board of directors are independent, in compliance with the Level 2 rules (which require at least 20% to be independent members). At the request of our controlling shareholder, we have established a risk assessment committee that reports to our board of directors. Strategies We intend to continue to expand and strengthen our business by implementing the following strategies: Continue to focus on the corporate segment We intend to maintain our focus on large companies, which currently represent the largest share of our client base, representing 77.6%, 75.5% and 75.7% of our total loan portfolio as of December 31, 2013, 2012 and 2011, respectively. We expect to continue to be able to offer customised financial solutions to meet our existing clients needs. Furthermore, we plan to improve our sales efforts in the corporate segment with the goal of further expanding our loan portfolio client base as well as offering new products to our existing clients through cross-selling. Expand our operations in the midsized business segment The loan market for medium-sized companies in Brazil represents a key opportunity for our business. The smaller number of banks due to consolidation within the Brazilian financial system, together with the difficulties faced by some competing midsized banks to obtain adequate funding, has resulted in reduced lending activity by many competing Brazilian midsized banks. This has reduced the availability of credit lines for companies in the midsized business segment. Moreover, the typical spreads obtainable in this market segment are usually higher than those in the corporate segment, which, together with our competitive funding costs, create profitable opportunities. As of December 31, 2013, we had 12 sales teams specialised in medium-sized companies, in addition to 6 sales teams specialised in large companies. We have business platforms in 9 Brazilian states and the Federal District, with a 13

14 presence in 21 cities: São Paulo, Bauru, Campinas, Ribeirão Preto, São José do Rio Preto, Sorocaba, Curitiba, Londrina, Blumenau, Criciúma, Caxias do Sul, Novo Hamburgo, Passo Fundo, Porto Alegre, Rio de Janeiro, Belo Horizonte, Uberlândia, Brasília, Goiânia, Campo Grande and Cuiabá. Increase our market share in capital markets transactions The consolidation of traditional practices in Brazilian macroeconomic policy over recent years has stimulated the development of the Brazilian capital markets. In addition, we expect capital markets issuances by Brazilian companies in several industry sectors to increase as they seek funding to make investments needed to improve productivity and reduce Brazil s output gap. We expect to benefit from this environment and to accelerate our growth in this segment. Using our experience and expertise in underwriting and structuring capital market transactions, our strategy is to increase our market share in this segment, increasing both the size and number of transactions in which we participate. Use our experience and operating structure to benefit from any new market opportunities We believe that our experience and operating structure will allow us to identify potential opportunities in new market segments and enter into any new markets in the future. We intend to invest in the development of our team and our operating structure to increase our ability to identify new markets and create new products and services. Maintain stringent credit approval criteria and conservative risk management policies We believe that our credit analysis skills and stringent credit approval criteria, with an emphasis on the ability of our customer to repay the loan, have enabled us to expand our credit portfolio while experiencing low default rates of our loans. We also impose conservative limits on our treasury operations in order to maintain our low VaR. We intend to maintain our policy of continuous monitoring and risk evaluation in respect of both the credit quality of our customers and the market risks to which we are exposed. Our History We were initially incorporated and registered with the Commercial Registry of Rio de Janeiro under number NIRE on December 27, 1983 as Banco Roma de Investimentos S.A. ( Banco Roma ), a financial institution then controlled by the Roberto Marinho group. In 1989, Arab Banking Corporation acquired 50% of the shares in Banco Roma and in 1991, our current management, a team of Brazilian professionals with significant experience in the financial industry, was appointed. In 1993 we moved our headquarters to São Paulo, and registered with the Commercial Registry of São Paulo under number NIRE In 1997, the Arab Banking Corporation acquired the other 50% of the shares in Banco Roma and sold 18% of the total shares in Banco Roma to the senior management. In that same year, our corporate name was changed to Banco ABC Brasil S.A. On July 23, 2007, we registered with the CVM under number and our shares became publicly traded on the Level 2 listing segment of the BM&FBOVESPA. Our principal offices are located at Av. Pres. Juscelino Kubitschek º andar, São Paulo, SP, , Brazil, and the contact numbers and address of our investor relations department are: telephone ; fax ; ri@abcbrasil.com.br. Our Corporate Structure The chart below presents our corporate structure as of December 31, 2013, with ownership of shares of common stock and preferred stock indicated as CS and PS, respectively, and total capital stock indicated as TCS : 14

15 Arab Banking Corporation (B.S.C.) (Bahrain) 100% CS Market (Free Float) Shares held in Treasury Marsau Uruguay Holdings Sociedad Anónima (Uruguay) Management (Directors and executive officers) 66.16% PS 33.04% TCS 4.51% PS 2.26% TCS 57.65% TCS 89.70% CS 25.53% PS 7.05% TCS 10.30% CS 3.79% PS Banco ABC Brasil S.A. (Brazil) 99.99% TCS ABC Brasil Administração e Participações Ltda. (Brazil) 99.99% TCS ABC Brasil DTVM S.A. (Brazil) 15

16 SUMMARY OF THE PROGRAMME AND THE NOTES This summary of certain terms and conditions of the Notes is subject to, and qualified in its entirety by, reference to the Terms and Conditions of the Notes contained elsewhere in this Offering Memorandum and the Trust Deed relating thereto. Capitalised terms used elsewhere in this Offering Memorandum have the same meanings when used in this summary. Issuer:... Description:... Arranger:... Dealers:... Trustee:... London Paying Agent:... New York Paying Agent... Principal Paying Agent:... Paying Agents:... Registrar:... Transfer Agents:... Calculation Agent:... Pricing Supplement:... Currency:... Amount:... Banco ABC Brasil S.A., acting through its principal office in Brazil or its Cayman Islands Branch, as specified in the relevant Pricing Supplement. Global Medium-Term Note Programme. HSBC Securities (USA) Inc. HSBC Securities (USA) Inc. We may from time to time terminate the appointment of any dealer under the Programme or appoint additional dealers either in respect of one or more Tranches or Series of Notes or in respect of the whole Programme. References in this Offering Memorandum to Permanent Dealers are to the persons listed above as continuing Dealers and to such additional persons that are appointed as continuing dealers in respect of the Programme (and whose appointment has not been terminated) and to Dealers are to all Permanent Dealers and all persons appointed as a dealer in respect of one or more Tranches or Series of Notes. The Bank of New York Mellon. The Bank of New York Mellon, acting through its London Branch. The Bank of New York Mellon. The Bank of New York Mellon Trust (Japan), Ltd., as specified in the relevant Pricing Supplement. The London Paying Agent, New York Paying Agent and The Bank of New York Mellon (Ireland) Ltd. The Bank of New York Mellon. The Bank of New York Mellon, The Bank of New York Mellon, acting through its London Branch, and The Bank of New York Mellon (Ireland) Ltd. The Bank of New York Mellon, acting through its London Branch. The issue price, issue date, maturity date, nominal amount, interest rate (if any) applicable to any Notes and any other relevant provisions of such Notes will be agreed between us and the relevant Dealer(s) at the time of agreement to issue such Notes and will be specified in the relevant Pricing Supplement. Subject to compliance with all relevant laws, regulations and directives, any currency as may be agreed between us and the relevant Dealer(s). Up to U.S.$3,000,000,000 (or its equivalent in other currencies calculated as set out herein) aggregate nominal amount of Notes. 16

17 Maturities:... Issue Price:... Method of Issue:... Form of Notes:... Under the Dealer Agreement, the nominal amount of Notes which may be issued under the Programme may be increased, subject to the satisfaction of certain conditions set out therein. For the purpose of calculating the aggregate nominal amount of Notes outstanding, Notes issued at a discount shall be treated as having been issued at their accrued original issue discount calculated by reference to the amortisation yield formula as specified in the relevant Pricing Supplement or, if none is specified in the relevant Pricing Supplement, their face amount and Notes issued at a premium shall be treated as having been issued at the amount of their net proceeds received by us. Subject to compliance with all relevant laws, regulations and directives, any maturity from 30 days or such other minimum maturity as may be allowed or required from time to time by the relevant central bank (or equivalent body (however called)) or any laws or regulations applicable to the relevant currency or currencies to 30 years from their issue date. Notes may be issued at their nominal amount or at a discount to or premium over their nominal amount. The Notes will be issued in Series having one or more issue dates and on terms otherwise identical (or identical other than in respect of the first payment of interest), the Notes of each Series being intended to be interchangeable with all other Notes of that Series. Each Series may be issued in Tranches on the same or different issue dates. The specific terms of each Tranche (which will be supplemented, where necessary, with supplemental terms and conditions and, save in respect of the issue date, issue price, first payment of interest and nominal amount of the Tranche, will be identical to the terms of other Tranches of the same Series) will be set out in the relevant Pricing Supplement. The Notes may be Bearer Notes or Registered Notes. Subject as provided below, each Series of Bearer Notes will be represented on issue by a Temporary Global Note if (i) definitive Notes are to be made available to Noteholders following the expiry of 40 days after their issue date or (ii) such Notes have an initial maturity of more than one year and are being issued in compliance with the D Rules (as defined in Selling Restrictions below), otherwise such Series will be represented by a Permanent Global Note. Bearer Notes subject to Foreign Currency Constraint provisions will on issue or, if represented by a Temporary Global Note on issue, on exchange of such Temporary Global Note, be represented by two Permanent Global Notes - one in respect of the original Notes and one in respect of the Exchanged Notes. The aggregate nominal amount of the Notes represented by the Permanent Global Note representing the Exchanged Notes will be zero unless and until a Foreign Currency Constraint occurs and original Notes are exchanged for Exchanged Notes. Each Series of Registered Notes will be represented on issue by an Unrestricted Global Note and/or a Restricted Global Note, save that Registered Notes subject to Foreign Currency Constraint provisions 17

18 Clearing Systems:... Initial Delivery of Notes:... Denomination:... Fixed Rate Notes:... Floating Rate Notes:... will also be represented by a second Unrestricted Global Note and/or a Restricted Global Note in respect of the Exchanged Notes. The aggregate nominal amount of the Notes represented by the Unrestricted Global Note and/or Restricted Global Note representing the Exchanged Notes will be zero unless and until a Foreign Currency Constraint occurs and original Notes are exchanged for Exchanged Notes. Euroclear and Clearstream, Luxembourg for Bearer Notes, Euroclear, Clearstream, Luxembourg and DTC for Registered Notes. On or before the issue date for each Tranche, the Temporary Global Note or Global Note representing Bearer Notes may be deposited with a common depositary for Euroclear and Clearstream, Luxembourg or the Unrestricted Global Note and/or Restricted Global Note representing Registered Notes may be registered in the name of, and deposited with a common nominee for, Euroclear and Clearstream, Luxembourg or a nominee of DTC. Notes may also be deposited with any other clearing system or may be delivered outside any clearing system provided that the method of such delivery has been agreed in advance by the Issuer, the Trustee, and the relevant Dealer. Registered Notes that are to be credited to one or more clearing systems on issue will be registered in the name of nominees or a common nominee for such clearing systems. Definitive Bearer Notes and Definitive Registered Notes will be in such denominations as may be agreed between the Issuer and the relevant Dealer(s) and specified in the relevant Pricing Supplement save that, unless otherwise permitted by then current laws and regulations, Notes (including Notes denominated in sterling) which have a maturity of less than one year and in respect of which the issue proceeds are to be accepted by the Issuer in the United Kingdom or whose issue otherwise constitutes a contravention of section 19 of the Financial Services and Markets Act 2000 will have a minimum denomination of 100,000 (or its equivalent in other currencies). Unless otherwise specified in the relevant Pricing Supplement, registered Notes resold pursuant to Rule 144A shall be in denominations of U.S.$200,000 (or its equivalent rounded upwards as agreed between us and the relevant Dealer(s)) or higher integral multiples of U.S.$1,000. Fixed interest will be payable in arrears on the date or dates in each year specified in the relevant Pricing Supplement. Floating Rate Notes will bear interest determined separately for each Series as follows: (i) on the same basis as the floating rate under a notional interest rate swap transaction in the relevant Specified Currency governed by an agreement incorporating the 2006 ISDA Definitions, as published by the International Swaps and Derivatives Association, Inc.; or (ii) by reference to LIBOR, LIBID, LIMEAN or EURIBOR (or such other benchmark as may be specified 18

19 Zero Coupon Notes:... Dual Currency Notes:... Index Linked Notes:... Interest Periods and Interest Rates:... Redemption:... Other Notes:... Optional Redemption:... Status of Notes:... Negative Pledge:... in the relevant Pricing Supplement) as adjusted for any applicable margin. Floating Rate Notes may have a maximum interest rate, a minimum interest rate or both. Zero Coupon Notes do not bear interest but will ordinarily be issued at a discount to their nominal amount. The amount payable on early redemption of a Zero Coupon Note will be specified in the relevant Pricing Supplement. Payments (whether in respect of principal or interest and whether at maturity or otherwise) in respect of Dual Currency Notes will be made in such currencies, and based on such rates of exchange, as may be specified in the relevant Pricing Supplement. Payments of principal in respect of Index Linked Redemption Notes or of interest in respect of Index Linked Interest Notes will be calculated by reference to such index and/or formula as may be specified in the relevant Pricing Supplement. The length of the interest periods for the Notes and the applicable interest rate or its method of calculation may differ from time to time or be constant for any Series. Notes may have a maximum interest rate, a minimum interest rate or both. The use of interest accrual periods permits the Notes to bear interest at different rates in the same interest period. All such information will be set out in the relevant Pricing Supplement. The relevant Pricing Supplement will specify the basis for calculating the redemption amounts payable. Unless permitted by then current laws and regulations, Notes (including Notes denominated in sterling) which have a maturity of less than one year and in respect of which the issue proceeds are to be accepted by us in the United Kingdom or whose issue otherwise constitutes a contravention of Section 19 of the Financial Services and Markets Act 2000 must have a minimum redemption amount of 100,000 (or its equivalent in other currencies). Terms applicable to high-interest Notes, low-interest Notes, step-up Notes, step-down Notes, reverse dual currency Notes, optional dual currency Notes, partly paid Notes and any other type of Note that we, and any Dealer or Dealers may agree to issue under the Programme will be set out in the relevant Pricing Supplement. The Pricing Supplement issued in respect of each issue of Notes will state whether such Notes may be redeemed prior to their stated maturity at our option (either in whole or in part) and/or the holders and, if so, the terms applicable to such redemption. All Notes issued under the Programme will be our direct, unconditional, unsecured and unsubordinated obligations ranking at all times pari passu and without any preference among themselves. So long as any Note or Coupon remains outstanding (as defined in the Trust Deed) we will not create or permit to subsist and will not permit any of our Subsidiaries to create or permit to subsist any Security (other than a Permitted Security) upon the whole or any part 19

20 Cross Default:... Change of Control:... Early Redemption:... Currency Constraint:... of our undertaking or assets, present or future (including any uncalled capital) to secure (i) any of our or their Indebtedness; (ii) any of our or their Guarantees in respect of Indebtedness; or (iii) the Indebtedness or Guarantees in respect of Indebtedness of any other person, except in the normal course of the Issuer s banking business, without at the same time or prior thereto securing the Notes equally and rateably therewith or providing such other security for the Notes as shall be approved by an Extraordinary Resolution (as defined in the Trust Deed) of Noteholders. Each of the terms Indebtedness, Guarantee, Security and Permitted Security is defined in Terms and Conditions of the Notes Negative Pledge. The term Subsidiary is defined in Terms and Conditions of the Notes Events of Default. Subject as provided in Condition 10(c) (if applicable) of the Terms and Conditions of the Notes, there will be a cross default in respect of any of our other present or future indebtedness or any of our present or future guarantees or those of any of our Subsidiaries in excess of U.S.$30,000,000 all as more fully set out in Terms and Conditions of the Notes Events of Default Cross Default. On a Change of Control, each Noteholder will have the right to require the Issuer to repurchase all or part of that Noteholder s Notes for an amount in cash equal to 101% (in the event of a Rating Downgrade) or 100% (in the event there is no Rating Downgrade) of the principal amount of the Notes repurchased. Each of the terms Change of Control and Rating Downgrade is defined in Terms and Conditions of the Notes Repurchase at the Option of the Holders Change of Control. Except as provided in Optional Redemption above, Notes will be redeemable at our option prior to maturity only for tax reasons. See Terms and Conditions of the Notes Redemption and Purchase. The Notes may contain Foreign Currency Constraint provisions, as more fully described in the Terms and Conditions of the Notes. Following the occurrence of a Foreign Currency Constraint, holders of Notes affected thereby may elect to exchange the original Notes for an equivalent nominal amount of Exchanged Notes with terms and conditions identical to the terms and conditions of the original Notes except that payments in respect of the Exchanged Notes will be made in the lawful currency of Brazil. After the termination of the Foreign Currency Constraint, Exchanged Notes will be exchanged for an equivalent nominal amount of the original Notes and such holder will receive future payments in respect of the original Notes in the Specified Currency of the original Notes. If a holder does not elect to receive payments in the lawful currency of Brazil by making such exchange, after the termination of the Foreign Currency Constraint, provided that all payments due on the original Notes and the Exchanged Notes shall have been made by us, such holder will receive any payments in respect of the original Notes in the Specified Currency of the original Notes. A Foreign Currency Constraint will not cause an Event of Default provided that we have fully complied 20

21 Withholding Tax:... Governing Law:... Listing:... Selling Restrictions:... Transfer Restrictions:... ERISA:... with our obligations under Condition 8(f) of the Notes. See Terms and Conditions of the Notes Payments Foreign Currency Constraint. All payments of principal and interest in respect of the Notes will be made free and clear of withholding taxes of Brazil and the Cayman Islands, subject to customary exceptions (including the IPMA Standard EU Exception), all as described in Terms and Conditions of the Notes Taxation. English law. Applications may be made for the Notes issued under the Programme to be admitted to the Official List of the Irish Stock Exchange (or any other stock exchange) and to be admitted to trading on the Global Exchange Market of the Irish Stock Exchange (or any other stock exchange). The applicable Pricing Supplement will specify whether or not Notes of the relevant Series will be listed on the Irish Stock Exchange (or any other stock exchange) and admitted to trading on the Global Exchange Market of the Irish Stock Exchange (or any other stock exchange). However, Notes may be issued pursuant to the Programme which will not be listed on the Irish Stock Exchange, but which may be listed on one or more other stock exchanges or may be unlisted, as specified in the applicable Pricing Supplement. United States, European Economic Area, United Kingdom, Brazil, Japan and the Cayman Islands. See Subscription and Sale. Each Series of Bearer Notes will be issued in compliance with U.S. Treas. Reg (c)(2)(i)(D) or such successor regulations intended to be issued under Section 4701 of the U.S. Internal Revenue Code of 1986, as amended (the Code ), in accordance with U.S. Internal Revenue Service (the IRS ) Notice (the D Rules ) unless (i) the relevant Pricing Supplement states that Notes are issued in compliance with U.S. Treas. Reg (c)(2)(i)(C) or any applicable successor regulations under Section 4701 of the Code (the C Rules ), (ii) the Notes are treated as issued in registered form for U.S. federal income tax purposes or (iii) the Notes are issued other than in compliance with the D Rules or the C Rules but in circumstances in which the Notes will not constitute registration required obligations under the United States Tax Equity and Fiscal Responsibility Act of 1982 ( TEFRA ) or under Section 4701 of the Code, which circumstances will be referred to in the relevant Pricing Supplement as a transaction to which neither TEFRA nor Section 4701 of the Code is applicable. There are restrictions on the transfer of Registered Notes sold pursuant to Rule 144A or in reliance on Regulation S under the Securities Act. See Transfer Restrictions and Certain ERISA and Other U.S. Considerations. See Certain ERISA and Other U.S. Considerations. 21

22 SUMMARY FINANCIAL INFORMATION The tables below contain a summary of certain of our financial information as of and for the years ended December 31, 2013, 2012 and 2011, which is based on, and should be read in conjunction with, our consolidated financial statements and related notes included in this Offering Memorandum, as well as with the sections Presentation of Financial and Other Information and Management s Discussion and Analysis of Financial Condition and Results of Operations. Our consolidated financial information was prepared in accordance with Brazilian GAAP and the consolidation rules issued by the Central Bank, which require the consolidation of entities deemed to be part of our financial group (as described under Presentation of Financial and Other Information Consolidation ). Accordingly, the results of our subsidiaries ABC Administração and ABC DTVM are consolidated into our financial statements included in this Offering Memorandum. Direct and indirect equity interests in companies constituting our financial group, as well as account balances and revenues and expenses relating to transactions with such companies, have been eliminated in the process of consolidation. CMN Resolution No. 3,786, of September 24, 2009, established that financial institutions and other institutions authorised to operate by the Central Bank, organised as publicly-held companies or required to set up an audit committee pursuant to the regulations currently in force, shall prepare and disclose once a year, as from December 31, 2010, consolidated financial statements in accordance with IFRS as issued by the IASB. We are subject to this additional reporting requirement. Beginning with our financial statements as of and for the year ended December 31, 2010, we are required to prepare and make available two sets of consolidated financial statements as of and for each year ending December 31: one prepared in accordance with Brazilian GAAP applicable to the institutions authorised to operate by the Central Bank, and one prepared in accordance with IFRS. On March 27, 2013, we made available our consolidated financial statements as of and for the year ending December 31, 2012 and 2011 prepared in accordance with IFRS on our website and the website of the CVM. As of the date of this Offering Memorandum, it is not clear when or whether IFRS will be required for the unconsolidated financial statements, which for the time being continue to be prepared in accordance with Brazilian GAAP applicable to the institutions authorised to operate by the Central Bank. It should be noted that, for now, only the unconsolidated financial statements prepared under Brazilian GAAP applicable to the institutions authorised to operate by the Central Bank are valid for legal purposes such as payment of dividends. Further changes in the accounting standards may have a significant impact on our financial statements, with possible effects on our accounting results, including our ability to maintain financial covenants assumed when entering into financial agreements. 22

23 Income statement data: (Audited) Year ended December 31, (R$ millions) Lending operations Marketable securities Gains (losses) on derivative financial instruments Foreign exchange transactions (15.4) (76.9) Income from receivables acquired Income from financial intermediation... 1, , ,230.5 Funding expenses... (657.6) (651.6) (539.0) Borrowings and onlendings... (381.7) (171.2) (158.2) Allowance for loan losses... (92.8) (111.1) (51.7) Allowance for loan losses - exchange rate variation on credit assignment operations and foreign exchange portfolio... (0.1) 0.3 (0.7) Expenses from financial intermediation... (1,132.1) (933.7) (749.7) Gross profit from financial intermediation Income from services rendered Personnel expenses... (140.9) (130.6) (114.0) Other administrative expenses... (78.4) (71.5) (64.9) Taxes... (41.4) (38.5) (40.3) Other operating income Other operating expenses... (26.7) (7.0) (9.0) Other operating income (expenses), net... (29.6) (58.9) (75.5) Operating income Non-operating expenses... (1.8) (6.6) (5.9) Income before taxes and profit sharing Provision for income tax... (22.0) (72.5) (70.7) Provision for social contribution tax... (19.0) (45.2) (42.9) Deferred tax credits (liabilities) net... (3.6) Income and social contribution taxes... (44.5) (61.2) (94.0) Profit sharing... (82.1) (52.5) (69.4) Net income

24 Balance sheet data: (Audited) As of December 31, (R$ millions) Assets Cash and banks Interbank investments... 2, , ,042.3 Marketable securities and derivative financial instruments... 1, , ,065.2 Interbank accounts Lending operations... 5, , ,360.0 Other credits... 2, , Other assets Current assets... 12, , ,291.2 Marketable securities and derivative financial instruments... 1, Lending operations... 3, , ,765.9 Other credits Other assets Non-current assets... 5, , ,199.0 Investments Fixed assets Deferred charges, net Intangibles Permanent assets Total assets... 17, , ,510.8 Liabilities and shareholders equity Deposits... 3, , ,859.4 Money Market Funding Acceptance and issuance of securities... 2, , Interbranch accounts Borrowings... 2, , ,415.1 Onlending in Brazil government agencies Derivative financial instruments Other liabilities... 1, , Current liabilities... 10, , ,557.1 Deposits Acceptance and issuance of securities... 1, , Borrowings Onlending in Brazil government agencies... 1, , ,269.1 Derivative financial instruments Other liabilities... 1, , Non-current liabilities... 4, , ,

25 (Audited) As of December 31, (R$ millions) Deferred income Capital... 1, , ,004.4 Capital reserve Income reserve Equity valuation adjustment... (2.6) Treasury stock... (33.1) (12.6) (11.0) Shareholders equity... 1, , ,499.6 Total liabilities and shareholders equity... 17, , ,510.8 The tables below show certain of our key financial information as of the dates and for the periods indicated: As of December 31, Variation (R$ millions) (%) Total assets... 17,260 13,483 10, Loan portfolio... 9,910 8,481 7, Corporate segment (1)... 7,692 6,405 5, Midsized business segment (1)... 2,218 2,076 1, Guarantees and responsibilities (2)... 6,992 6,232 5, Total credit exposure (3)... 16,902 14,713 12, Shareholders equity... 1,918 1,680 1, (1) The breakdown of our loan portfolio by market segment is based on criteria adopted by our management and not reflected in our financial statements. (2) We account for granted guarantees in memorandum accounts. (3) Our total credit exposure represents the sum of our loan portfolio and guarantees granted by us. As of and for the year ended December 31, Variation (R$ millions, except percentages) (%) Gross profit from financial intermediation (15.6) Net income (3.8) Total deposits (1)... 3,562 3,731 3,316 (4.5) 12.5 Return on average equity (2) % 14.3% 16.6% Return on average assets (3) % 1.9% 2.4% Net margin (4) % 4.6% 6.4% Tier I... 1,918 1,680 1,

26 Tier II (10.5) 44.9 Capital adequacy ratio (5) % 15.9% 15.6% (1) The sum of demand deposits, interbank deposits and time deposits. (2) Net income divided by the average balance of shareholders equity. (3) Net income divided by the average balance of total assets. (4) Income from financial transactions before allowance for loan losses divided by the average of revenue generating assets, consisting of interbank deposits, marketable securities and loan transactions net of allowance for loan losses. (5) Percentage of equity in relation to risk-weighted assets, in accordance with the Basel Accord currently in force as implemented in Brazil, with certain changes required by CMN Resolution No. 2,099 of August 17, 1994, as amended. The minimum capital adequacy ratio required of all Brazilian financial banks is currently 11% rather than the 8% recommended by the Basel II Accord

27 RISK FACTORS As a general matter, investing in the securities of Brazilian issuers, such as us, involves a higher degree of risk than investing in securities issued by United States companies or companies incorporated in certain other countries with highly-developed capital markets. In addition, prospective purchasers of the Notes should consider carefully certain factors regarding us and such securities. Accordingly, prospective purchasers of the Notes offered hereby should consider carefully, in light of their financial circumstances and investment objectives, all of the information in this Offering Memorandum and, in particular, the risk factors set forth below. Prospective investors should further note the risk factors described below are not the only risks to consider. Rather, these are the risks we currently consider material. There may be additional risks that we currently consider immaterial or of which we are unaware, and any of these risks could have similar effects to those set forth below. Risks Relating to Our Activities If default rates relating to the loans we have granted increase, we could be materially adversely affected. A significant increase in default rates may result in significant losses to us, which could materially adversely affect our business and financial condition. Our clients capacity to timely fulfil their loan repayment obligations to us is directly related to the performance of the Brazilian economy, which affects the financial strength of companies in the midsized business and corporate segments in Brazil. Economic crises or weak economic performance in Brazil may increase our clients default rates under our loan transactions. For example, as a result of the effects of the global financial crisis, we experienced an increase in default rates in our loan portfolio and conducted a review and reclassification of our entire loan portfolio and increased our loan loss provisions in the last quarter of 2008 and first quarter of Again in 2012, as a result of the slowdown in the Brazilian economy, we experienced an increase in default rates and increased our loan loss provisions. There can be no assurance that further adverse developments in economic and market conditions in Brazil and globally will not directly and indirectly affect the ability of our clients capacity to timely fulfil their loan repayment obligations to us or otherwise adversely affect our financial condition or results of operations. See Management s Discussion and Analysis of Financial Condition and Results of Operations Results of Operations. Our risk management system may not be sufficient to avoid losses. In addition to granting loans, part of our financial portfolio consists of trading transactions by our treasury division. Accordingly, changes in interest rates, securities prices, currency exchange rates and other indices may adversely affect our results of operations. Our financial success depends on, among other factors, our ability to accurately balance the risks we take and the returns we gain from our transactions. While we focus on the identification, analysis, management and control of our risks, both in favourable and adverse market conditions, there can be no assurance that our risk management efforts will prevent us from experiencing material losses. In particular, we may experience material losses if: we are not capable of identifying all of the risks that may affect our portfolio; our risk analysis or our measures taken in response to such risks are inadequate or inaccurate; the markets move in an unexpected and adverse way with respect to speed, direction, strength or other aspects and our ability to manage risks in such a scenario is restricted; our clients are materially adversely affected by unforeseen events resulting in their default or losses in an amount higher than those considered in our risk analyses; and collateral pledged in our favour is insufficient to cover our clients obligations to us if they default. We have significant exposure to the credit risk of the Brazilian government. If the Brazilian government fails to pay its obligations in a timely manner, our financial condition may be adversely affected. As part of our treasury operations, we invest in debt securities issued by the Brazilian government, most of which are characterised by relatively short tenors and high levels of liquidity. As of December 31, 2013, 6.2% of our total 27

28 assets comprised securities issued by the Brazilian government. As of December 31, 2013, the net debt of the Brazilian public sector, according to the Central Bank, was R$1,626 billion, or 33.8% of Brazil s gross domestic product ( GDP ). Any failure by the Brazilian government to make timely payments under the terms of these securities would cause the value of such securities held in our portfolio to decrease and therefore have a material adverse effect on our financial position. Our trading activities and derivatives transactions may result in material losses. We engage in securities trading, including buying debt and equity securities to sell 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 that can generate losses. We also enter into derivatives transactions to manage our exposure to interest rate and exchange rate risks. These derivatives transactions could result in variations in our results of operations and shareholders equity greater than the variations that would occur if we did not enter into such derivatives transactions. There can be no assurance that our operations will not suffer losses in connection with these derivatives transactions. For more information on our trading activities and derivatives transactions, see Selected Statistical Information Composition of Securities and Derivative Financial Instruments Portfolio. Mismatches between our loan portfolio and our funding sources could adversely affect us and our ability to expand our loan portfolio. We are exposed to certain interest rate, maturity and currency mismatches between our assets and liabilities. The maturity mismatch between our loan transactions and our sources of funding magnifies the effect of any interest rate mismatch and poses a liquidity risk if we are not able to obtain continued funding. An increase in our overall cost of funding may require us to raise the interest rates we charge on the new loans we originate, which, as a result, may affect our ability to attract new borrowers. A decline in the growth of our loan transactions may adversely affect our financial condition and results of operations. Any difficulties in obtaining funding may adversely affect our results of operations. We depend in part on our ability to obtain funding in the Brazilian and in the international financial markets. Our funding costs are influenced by various factors, some of which are beyond our control, including macroeconomic conditions and the banking regulatory environment in Brazil. An unfavourable change in any of these factors may have an adverse impact on our ability to obtain funding on terms acceptable to us or result in a decrease in the availability of funding sources to us when needed. Although our controlling shareholder has supported us with additional funding in past crises, a decrease in the availability of acceptable funding, such as an increase in our funding costs denominated in foreign currency for funding sourced outside Brazil, could have a material adverse effect on us. Additionally, we cannot assure you that time deposits will continue to be available to us as a source of funding on terms favourable to us or at all. If we are unable to obtain sufficient new funding, we might not be able to continue growing our loan portfolio or to respond effectively to changes in business conditions and competitive pressures, which could have a material adverse effect on us. The unrest in the Middle East and North Africa may affect the investment and funding strategy of our indirect shareholders. The unrest in the Middle East and North Africa region (the MENA Region ), which began in Tunisia in late 2010 and spread to Egypt, Bahrain, Libya, Syria and elsewhere in 2011, may indirectly affect our financial condition and results of operations. Our controlling shareholder is headquartered in Bahrain and its operations are primarily focused in the MENA Region. In addition, our controlling shareholder is majority owned by the Central Bank of Libya. While the political situation in Libya became more stable in 2012, as a result of the events described above, including the civil war and regime change in Libya, and any further developments in the MENA Region, the strategy of our indirect shareholders relating to us and our operations may change. Although events in the MENA Region in 2010 and 2011 did not have any significant effect on our funding and liquidity, there can be no assurance that the Central Bank of Libya will continue its support of our controlling shareholder or that our controlling shareholder will maintain its support of us. Any withdrawal or lack of funding support from or change in investment strategy of our controlling shareholder, particularly during a time of economic crisis and low liquidity, could jeopardise our funding sources and increase our funding costs, which could have a material adverse effect on our financial condition and results of operations. 28

29 We are subject to failures or operational problems that could adversely affect us. We are exposed to various operational risks, including risks of fraud by our employees or third parties, failures to accurately document our transactions, failures in our information technology equipment and errors made by our employees. We cannot assure you that such failures or mistakes will not occur in the future, and, in case they occur, that they will not have a material adverse effect on us. The loss of senior management, or our inability to attract and maintain additional personnel, could have a material adverse effect on us. Our ability to maintain our competitive position and implement our growth strategy depends on our senior management. We cannot assure you that we will be successful in attracting and maintaining qualified personnel to be part of our management team. The loss of some of the members of our senior management, or our inability to maintain and attract additional personnel, could have a material adverse effect on us. A downgrading in our credit rating could increase our costs of funding. Our costs of funding are influenced by a number of factors, some of which are out of our control, such as macroeconomic conditions and the regulatory environment for Brazilian banks. Any unfavourable change in these factors, whether in or out of our control, may cause a negative impact in our credit rating, which could restrict our ability to borrow funds, transfer credit portfolios or issue securities on acceptable terms, increasing our cost of funding. Because the types of events and contingencies that could increase our cost of funding are the same types of events and contingencies that may cause us to urgently seek additional liquidity, a decrease in our credit rating may have a negative impact on our ability to obtain funding on acceptable terms or at all in situations where we may critically need additional funding. A deterioration in the credit quality of the receivables given as collateral to us by our corporate clients in connection with loans granted to them could cause a significant adverse effect on us. Part of our loan transactions to corporate clients, particularly in the midsized business segment, is secured by receivables payable to these clients as collateral in our favour. Any change in the ability of these third-party obligors to pay receivables to our clients that have been secured as collateral in our favour may cause a significant adverse effect on us, to the extent the repayment of our loans by our clients is affected. We may be exposed to the credit risk of counterparties in the normal course of our business, and any weakness or insolvency of these counterparties may impair the effectiveness of our hedging and other risk management strategies. We may be exposed to counterparties in the financial services industry in the normal course of our business. This exposure can arise through trading, lending, deposit-taking, clearance and settlement and many other activities and relationships. These counterparties include brokers and dealers, commercial banks, investment banks, mutual funds, and other institutional clients. Many of these relationships expose us to credit risk in the event of default of a counterparty or client. In addition, our credit risk may be exacerbated when the collateral we hold cannot be realised upon or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure we are due. Many of the hedging and other risk management strategies utilised by us also involve transactions with financial services counterparties. Any weakness or insolvency of these counterparties may impair the effectiveness of our hedging and other risk management strategies. The current and any further increase in our loan portfolio may result in increased loan defaults. Our loan portfolio has grown significantly in recent periods. As of December 31, 2013, our total loan portfolio was R$9,909.9 million, an increase of 154.9% compared to December 31, Although we have historically low default rates on our loan portfolio, continued growth of our loan portfolio may result in a higher number of defaults, which may result in higher loan losses, adversely affecting our business, financial condition and results of operations. 29

30 Some of our loans are to borrowers with credit ratings of D or lower, according to Central Bank guidelines, which may present an elevated risk of loss. As of December 31, 2013, 2012 and 2011, 3.2%, 3.3% and 2.4%, respectively, of our loans were to borrowers classified as level D or lower according to Central Bank guidelines. These borrowers present risks of loss that are higher than those for borrowers with higher credit rating. We agree to lend money to these borrowers only after a thorough evaluation of their credit risk, including an assessment as to whether we obtain collateral. Our ability to properly evaluate the collateral granted to us in connection with these loans and our ability to enforce these collateral interests or otherwise collect amounts due to us is fundamental. Given the high risks that these borrowers present, we may suffer increased loan losses if we do not accurately analyse these borrowers and/or the collateral, if applicable, or if circumstances occur that limit our ability to enforce our collateral interests. Risks Relating to the Brazilian Banking Industry Our business is highly dependent on the prevailing regulatory environment. The Brazilian government has historically implemented or changed regulations affecting banks as a part of its implementation of economic policy. These regulations are used regularly by the Brazilian government to control the availability of credit and to reduce or increase consumption. Some of these controls are temporary in nature and may be modified from time to time in accordance with the Brazilian government s credit policies. Other controls have been introduced and have remained in place or been gradually relaxed. Because changes in these regulations can occur frequently, our historical results of operations are not necessarily indicative of our expected future results. Brazilian banks are subject to extensive and continuous regulatory review by the Brazilian government. We have no control over government regulations concerning our operations, including regulations that impose: minimum capital requirements; compulsory deposit requirements; lending limits and other credit restrictions; limits or other restrictions on fees; and accounting and statistical requirements. The regulatory structure governing Brazilian financial institutions, including banks, broker-dealers, leasing companies and insurance companies, is continuously evolving. Existing laws and regulations may be amended, the manner in which laws and regulations are enforced or interpreted may be changed, and new laws or regulations may be adopted. These changes could materially adversely affect our financial condition and results of operations. Changes in banking regulations may negatively affect our business. Resolution No. 3,533, enacted by the National Monetary Council (Conselho Monetário Nacional or the CMN ) on January 31, 2008, as supplemented by CMN Resolution No. 3,895 of July 29, 2010, provides that, commencing on January 1, 2012, financial institutions in Brazil must write off financial assets upon the termination of the contractual rights relating to the cash flow of the financial asset, as well as in certain other specified cases. This Resolution sets forth three categories to account for assignments of financial assets, which depend upon whether or not a substantial transfer or retention of risk and benefits has occurred. Furthermore, the CMN, through Resolutions Nos. 3,516 and 3,517, dated December 6, 2007, as amended, and Resolution No. 3,919, dated November 25, 2010, as amended, adopted certain regulations in an attempt to standardise the collection of bank fees and the cost of credit transactions for individuals. Pursuant to these regulations, after April 30, 2008, bank services are divided into four groups: (a) essential services; (b) specific (or differentiated ) services; (c) priority services; and (d) special services. The main changes that these resolutions introduced were related to checking accounts (which we do not offer), and the prohibition of financial institutions from charging fees to individuals and small companies in connection with their prepayment of loans with fixed interest rates, which adversely affected us and was one of the reasons for our decision to no longer offer payroll deduction loans. Further changes in banking regulations, and their implementation by us, may adversely affect our business and results of operations. See The Brazilian Financial System and Banking Regulation. 30

31 Changes in base interest rates set by the Central Bank could adversely affect our results of operations and profitability. The Central Bank, through its Monetary Policy Committee (Comitê de Política Monetária or COPOM ) establishes the target base interest rate for the Brazilian banking system, and uses changes in this rate to implement its monetary policy. The base interest rate is the benchmark interest rate payable to holders of certain securities issued by the Brazilian government and traded in the Special System for Settlement and Custody (Sistema Especial de Liquidação e Custódia or SELIC ). The base interest rate (the SELIC rate ) has fluctuated historically, reaching approximately 45% per annum in March 1999 and falling to 15.25% per annum in January As of December 31, 2008, 2007 and 2006, the SELIC rate was 13.66%, 11.18%, and 13.19%, respectively. During 2009, the COPOM significantly reduced the SELIC rate, which ended the year at 8.675%. Between April and July 2010, the COPOM increased the SELIC in response to increased inflation, from 8.75% in April to 10.75% in July. In the first half of 2011, the Central Bank maintained its tightening monetary policy, further increasing the target SELIC rate to 12.25% and 12.50% in June and July, respectively. However, evaluating other factors, particularly volatility in foreign economies, which could have had a deflationary pressure on Brazil s economy, as well as in order to reinforce Brazil s domestic fiscal policy to fight inflation, the COPOM countered market expectations and reduced the target rate to 12.00% at a meeting held on August 31, The COPOM decreased the target SELIC rate several times during the last quarter of 2011 and first half of On October 10, 2012, it was set at 7.25%, where it remained as of December 31, In 2013, in response to concerns about inflation, the Central Bank increased the SELIC rate to 7.50% on April 17, 2013, to 8.00% on May 29, 2013, to 8.50% July 10, 2013, to 9.00% on August 28, 2013, to 9.50% on October 9, 2013, and to 10.00% on November 27, 2013, where it remained as of December 31, In 2014, the COPOM increased the SELIC rate to 10.50%, 10.75% and 11.00% on January 15, 2014, February 26, 2014 and April 2, 2014, respectively. See Management s Discussion and Analysis of Financial Condition and Results of Operations Overview Principal Factors Affecting Our Financial Condition and Results of Operations Interest Rates. Decreases in the SELIC rate could adversely affect our results of operations, among other means, by reducing the revenue we earn on our interest-earning assets and lowering spreads. Increases in the SELIC rate could also adversely affect our results of operations, including by reducing demand for credit and investment products, increasing our funding costs and the risk of client defaults. Changes in tax regulations may negatively affect our business. To support its fiscal policies, the Brazilian government regularly implements changes to tax, social security and other fiscal regimes that affect us and our clients. Such reforms include changes in tax rates and tax assessment criteria and, occasionally, the enactment of temporary taxes, the proceeds of which are earmarked for designated governmental purposes. Some of these measures may result in increases in our tax payments, which could adversely impact our profitability and our ability to conduct certain business operations. In addition, changes in tax regulations have previously produced, and could in the future produce uncertainty in the National Financial System (Sistema Financeiro Nacional), added funding costs, and increased rates of default on loans. See The Brazilian Financial System and Banking Regulation. In that regard, on January 3, 2008, the Brazilian government enacted Provisional Measure No. 413/08 (converted into Law No. 11,727/08), increasing the Social Contribution on Net Profit (Contribuição Social sobre o Lucro Líquido or CSLL ) rate applicable to certain legal entities, including financial institutions, from 9% to 15%, effective as of May Further, on January 3, 2008, the Brazilian President issued Decree No. 6,339, which amended the Tax on Financial Transactions (Impostos sobre Operações Financeiras or IOF ) regulation (Decree No. 6,306 of December 14, 2007) to include an additional IOF tax of 0.38% on most credit transactions and on currency exchange transactions. Such Decree provides for rates of the Tax on Foreign Exchange Transactions ( IOF/Exchange Tax ) as follows: 0% rate on (i) the inflow of funds into Brazil through investments made by non-residents in the Brazilian financial and capital markets and for the initial or additional margin deposits made by non-residents as required by stock, commodities and futures exchanges, (ii) variable income investments on the BM&FBOVESPA and the acquisition of shares in an initial 31

32 public offering in Brazil, (iii) acquisition of quotas of private equity funds (fundos de investimento em participações), investment funds on emerging companies (fundos mútuos de investimento em empresas emergentes) and quota investment funds on the funds mentioned (fundos de investimento em cotas dos referidos fundos), (iv) ADR cancellation, and (v) conversion of investments governed by Law No. 4,131 into investments governed by CMN Resolution No. 2,689, among others. This tax, however, currently is not levied on transactions related to offerings under the Programme, as the Notes do not constitute investments in the Brazilian securities market. IOF/Exchange Tax shall only be levied on transactions related to this offering if and when we decide to transfer to Brazil the resources obtained from the purchase of the Notes. In this scenario, we would have to collect IOF/Exchange Tax, although the applicable rate is currently zero. Moreover, on November 19, 2009, the Brazilian government increased the Tax on Bonds and Securities Transactions ( IOF/Bond and Securities Tax ) from zero to 1.5% on shares issued by a Brazilian company and listed on a Brazilian stock exchange with the specific purpose of enabling the issuance of depositary receipts traded outside Brazil. However, the applicable tax rate was reduced to zero on December 24, In any event, this tax is not levied on transactions related to this offering as (i) the Notes will be listed on the Global Exchange Market of the Irish Stock Exchange and thus shall not be traded in any Brazilian stock exchange; and (ii) the notes are not shares issued by a Brazilian company, but a debt instrument issued by a Brazilian company. The effects of these changes and any other changes that could result from enactment of additional tax reforms cannot be quantified. It is uncertain whether more of these changes will occur in the future, or whether they will adversely affect our results of operations or financial condition if they do occur. 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 maintain with the Central Bank. For example, as from September 2008, the Central Bank revoked and changed a number of compulsory deposit requirements in an attempt to reduce the impact of the global financial markets crisis. The Central Bank may increase its reserve and compulsory deposit requirements in the future or impose new reserve and compulsory deposit requirements. Compulsory deposits generally yield lower returns than our other investments and deposits because: a portion of our compulsory deposits do not bear interest; a portion of our compulsory deposits must be held in Brazilian government securities; and a portion of our compulsory deposits must finance a federal housing program, the Brazilian rural sector, low income customers and small enterprises. Our compulsory deposits in connection with demand, savings and time deposits were R$3.1 million, R$6.3 million and R$50.9 million as of December 31, 2013, 2012 and 2011, respectively. 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. See Brazilian Financial Services Industry and Regulations Regulations That Affect the Liquidity of the Financial Market for further information. 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. The Brazilian constitution used to establish a ceiling on loan interest rates, including bank loan interest rates, and the impact of the subsequent legislation regulating the subject is uncertain. Article 192 of the Brazilian constitution, enacted in 1988, established a 12.0% per year ceiling on bank loan interest rates. However, since the enactment of the constitution, this rate had not been enforced, as the regulation regarding the ceiling was pending. The understanding that this ceiling is not yet in force has recently been confirmed by Súmula Vinculante No. 7, a final binding decision enacted in 2008 by the Brazilian Supreme Court in accordance with such Court s prior understanding on this matter. Since 1988, several attempts were made to regulate the limitation on loan interest, and especially bank loan interest rates, but none of them were implemented nor have been confirmed by Brazilian superior courts. 32

33 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 (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 (Fazenda Nacional). Currently, this base rate is the SELIC, which is currently 11.00% per annum, as set by the COPOM on April 2, However, there is presently some uncertainty as to whether the SELIC or the 12% per annum interest rate established in the Brazilian tax code should apply. The impact of EC 40/03 and the provisions of the Civil Code are uncertain at this time but any substantial increase or decrease in the interest rate ceiling could have a material effect on the financial condition, results of operations or prospects of Brazilian financial institutions, including us. Additionally, certain Brazilian courts have issued decisions in the past limiting interest rates on consumer financing transactions that are considered abusive or excessively onerous in comparison with market practice. Brazilian courts future decisions as well as changes in legislation and regulations restricting interest rates charged by financial institutions could have an adverse effect on our business. Minimum capital requirements imposed on the banking system may negatively affect our results of operations and financial condition. Capital requirements for Brazilian banks are based on risk assessment methods set forth in the Basel II Accord, which determines capital adequacy requirements for banks based on net shareholders equity, with adjustments for riskweighted assets. The minimum capital adequacy ratio required by the Central Bank for Brazilian banks is currently 11% of risk-weighted assets. As of December 31, 2012, our Basel Index rate was 15.9%. Communication No. 12,746, Communication No. 16,137 and Communication No. 19,028 of the Central Bank established guidelines for the implementation of the Basel II Accord. Based on these Communications, the Basel II Accord requirements were implemented by the first semester of 2013, in particular changes in capital allocation for credit risk (Pillar I). On September 12, 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced changes to the existing capital requirements and endorsed previous agreements on the design of the capital and liquidity reform package, the Basel III Accord, which was presented at the Seoul G20 Leaders summit in November In March 2013, the CMN and the Central Bank issued a new regulatory framework for the implementation of the Basel III Accord in Brazil. Accordingly, CMN Resolutions No. 4,192 and 4,193, of March 1, 2013, as amended, determined, among other things, that Brazilian financial institutions must comply with new minimum capital requirements and established new rules for the calculation of the reference capital (patrimônio de referência, or reference shareholder s equity ), which is the basis for the determination of minimum regulatory capital. Such rules are effective since October 1, 2013 and will be gradually increased until January Further rules were issued by the Central Bank on March 4, 2013 providing for new mechanisms for calculating the different portions of risk-weighted assets ( RWA ) of financial institutions. See Brazilian Banking System and Industry Regulation Banking Industry Regulation Guidelines for Capital Adequacy. Among the changes introduced by this new set of rules, it is important to highlight: (i) the introduction of the concept of quasi-financial institutions (instituições assemelhadas); (ii) the necessity of consolidation of financial statements of such quasi-financial institutions; (iii) the issuance of new rules for the calculation of the components of the reference shareholder s equity, including Principal Capital and Complementary Capital, both of which comprising the so-called Tier I Capital. Due to changes in the capital adequacy regulations or to changes in the performance of the Brazilian economy as a whole, we may be unable to meet the minimum capital adequacy requirements required by the Central Bank from time 33

34 to time. We may also be compelled to limit our credit operations, dispose of assets and/or take other measures that may adversely affect our results of operations and financial condition. An increasingly competitive environment in the Brazilian banking industry may negatively affect our business prospects. The market for financial services in Brazil is highly competitive. We face significant competition in all segments in which we operate. As of December 31, 2013 there were 132 multiple-service banks providing a full range of commercial banking, consumer finance, investment banking and other services, 22 commercial banks, 14 investment banks and numerous brokerage, leasing, savings and loan and other financial institutions in Brazil. In recent years, the banking industry in Brazil has experienced significant consolidation. A number of banks were liquidated, many large state-owned banks were privatised and many private banks were acquired. Moreover, the Brazilian banking industry has also seen increasing competition from the entry of foreign banking institutions into the Brazilian market for financial and banking services. Further concentration in the Brazilian banking sector may increase competition and result in, among other factors, difficulties in trying to increase our client base and expand our operations and decreases in our profit margins on our activities. There can be no assurance that we will be able to compete successfully against other banks across all of our businesses. The changes in Brazilian GAAP for conversion into IFRS may adversely impact our financial statements. Due to the enactment of Law No. 11,638/07 and Law No. 11,941/09, the Accounting Pronouncement Committee (Comitê de Pronunciamentos Contábeis or CPC ) has issued and will continue to issue new accounting standards. Accounting Standards issued by CPC and applicable to financial institutions must be approved by the Central Bank. CMN Resolution No. 3,786, of September 24, 2009, established that financial institutions and other institutions authorised to operate by the Central Bank, organised as publicly-held companies or required to set up an audit committee pursuant to the regulations currently in force, shall prepare and disclose once a year, as from December 31, 2010, consolidated financial statements in accordance with IFRS as issued by the IASB. We are subject to this additional reporting requirement. Beginning with our financial statements as of and for the year ended December 31, 2010, we are required to prepare and make available two sets of consolidated financial statements as of and for each year ending December 31: one prepared in accordance with Brazilian GAAP applicable to the institutions authorised to operate by the Central Bank, and one prepared in accordance with IFRS. On March 27, 2013, we made available our consolidated financial statements as of and for the year ending December 31, 2012 and 2011 prepared in accordance with IFRS on our website and the website of the CVM. As of the date of this Offering Memorandum, it is not clear when or whether IFRS will be required for the unconsolidated financial statements, which for the time being continue to be prepared in accordance with Brazilian GAAP applicable to the institutions authorised to operate by the Central Bank. It should be noted that, for now, only the unconsolidated financial statements prepared under Brazilian GAAP applicable to the institutions authorised to operate by the Central Bank are valid for legal purposes such as payment of dividends. Further changes in the accounting standards may have a significant impact on our financial statements, with possible effects on our accounting results, including our ability to maintain financial covenants assumed when entering into financial agreements. Risks Relating to Brazil The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy. Brazilian economic and political conditions have a direct impact on our business, financial condition, results of operations, and the trading price of the Notes. The Brazilian economy has been characterised by frequent and occasionally extensive intervention by the Brazilian government and unstable economic cycles. The Brazilian government has often changed monetary, taxation, credit, tariff and other policies to influence the course of Brazil s economy. 34

35 The Brazilian government s actions to control inflation and implement other policies have at times involved increased interest rates, changes in tax policies and tax legislation, price controls, currency depreciation, capital controls and import limitations into Brazil. We have no control over, and cannot predict, any measures or policies adopted by the Brazilian government in the future. Our business, results of operations, financial condition and the market for the notes may be adversely affected by changes in policies or rules involving the factors such as: banking regulations; the regulatory environment; interest rates; exchange rate variations; exchange control policies; inflation; liquidity of domestic capital and lending markets; tax policies; and other political, diplomatic, social and economic developments affecting Brazil. Even though the federal government has adopted solid economic policies over the last few years, uncertainties in relation to the implementation by the government of changes relating to the monetary, tax and pension funds policies as well as to the relevant legislation may contribute to economic instability. These uncertainties and new measures may increase market volatility of Brazilian securities issued abroad. It is not possible to predict whether policies of the current government or any succeeding governments will have an adverse effect on the Brazilian economy, the Brazilian securities market, and, consequently, on our businesses. Inflation and the Brazilian government s measures to curb inflation, including increasing interest rates, may contribute significantly to economic uncertainty in Brazil and adversely affect our results of operations and the trading price of the Notes. Brazil has historically experienced high rates of inflation and, therefore, has adopted monetary policies that resulted in one of the world s highest real interest rates. Between 2004 and 2013, the SELIC rate varied between 19.75% and 7.25% per annum. Inflation, and certain government actions taken to combat inflation, especially through the Central Bank s monetary policy, have had and may again have considerable effects on the Brazilian economy and our business. Stringent monetary policies combined with high interest rates may restrict the economic growth of Brazil and the availability of credit. Inversely, less stringent governmental and monetary policies and decreases in interest rates may trigger rising inflation rates and, consequently, growth volatility and the need for sudden and significant rises in interest rates. In the future, the Brazilian government may take measures such as reducing interest rates, intervening in the currency exchange market or adjusting or fixing the value of the real, which could result in higher inflation. If Brazil were to experience high inflation in the future, we may not be able to readjust the interest rates we charge our clients to offset the effects of inflation on our cost structure, which would adversely affect our business. In case of increased inflation, the Brazilian government may choose to increase interest rates. High interest rates directly affect our cost of financing and may adversely affect our results of operations and the trading price of the Notes. Fluctuations in the real/u.s. dollar exchange rate may adversely affect our results of operations and financial condition. The Brazilian currency has devalued often during the last four decades. Throughout this period, the Brazilian government has implemented various economic plans and various exchange rate policies, including sudden 35

36 devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system. The Brazilian government has not prevented the remittance of gains to foreign investors since 1990 and has never prevented the remittance of gains to foreign investors in connection with securities. The Brazilian government currently does not impose limits on the conversion of the real into foreign currencies, as long as the transactions are legal and based on market terms. The parties to these transactions must take responsibility for the terms of each foreign exchange transaction. It is uncertain whether in the future the Brazilian government will institute a more restrictive exchange control policy. These policies could prevent our access to international capital markets and make foreign investors and banks reluctant to lend to Brazilian borrowers. These policies could also negatively affect the ability of Brazilian borrowers (including us) to make payments abroad in connection with transactions in foreign currency. Many factors beyond our control may affect the likelihood of impositions of such restrictions at any time by the Brazilian government. These factors relate primarily to: the extent of Brazil s foreign currency reserves; the availability of sufficient foreign exchange on the date a payment is due; the size of Brazil s debt service burden relative to the economy as a whole; Brazil s policy towards the International Monetary Fund; and political constraints to which Brazil may be subject. From time to time, there have been significant fluctuations in the exchange rate between the Brazilian currency and the U.S. dollar and other currencies. The real depreciated against the U.S. dollar by 9.3% in 2000, 18.7% in 2001, 52.3% in 2002, 18.8% in 2004, 32.2% in 2008, 12.6% in 2011, 8.5% in 2012 and 14.6% in The real appreciated against the U.S. dollar by 19.4% in 2003, 15.9% in 2005, 5.9% in 2006, 17.0% in 2007, 25.6% in 2009 and 4.0% in We cannot be certain whether that the real will not fluctuate substantially against the U.S. dollar in the future. On December 31, 2013, the exchange rate between the real and the U.S. dollar was R$2.34 to U.S.$1.00. As of December 31, 2013, 2012 and 2011, approximately 35%, 30% and 26%, respectively, of our funding costs were denominated in, or indexed to, the U.S. dollar. A depreciation of the real against the U.S. dollar could have a material adverse effect on our business, since it would be more expensive to service our U.S. dollar-indexed or U.S. dollar-denominated indebtedness. Moreover, depreciation of the real against the U.S. dollar would also adversely affect the ability of our clients to pay their U.S. dollar-indexed or U.S. dollar-denominated debts. Further, depreciations of the real would decrease the value of our assets, when expressed in U.S. dollars. Devaluations of the real against the U.S. dollar could also result in additional inflationary pressures in Brazil, leading to increased interest rates and causing the Brazilian government to adopt restrictive policies, which may negatively affect the Brazilian economy and our business and financial situation. On the other hand, further appreciation of the real against the U.S. dollar may lead to the deterioration of U.S. dollar-denominated reserves and the balance of payments in Brazil and dampen export-driven growth. Any of the aforementioned situations may adversely affect our financial condition and results of operations. The potential impact of exchange rate fluctuations and measures adopted by the Brazilian government to stabilise the real are uncertain. Volatility of the real against the U.S. dollar may adversely affect our ability to obtain financing for our business through the capital markets and international markets. Conditions in the Brazilian economy may limit the ability of our clients to repay their loan obligations. The Brazilian economy has been subject to a number of disruptions and conditions that have materially adversely affected the availability of credit to Brazilian companies. Disruptions in the Brazilian economy may adversely affect our ability to grow our loan portfolio and the ability of certain of our clients to timely repay their obligations to us or may otherwise adversely affect our financial condition or results of operations. For example, in 2012, as a result of the 36

37 slowdown in the Brazilian economy, we experienced an increase in default rates and increased our loan loss provisions during the year accordingly. Deterioration in economic and market conditions in other countries, especially emerging market countries, may adversely affect the Brazilian economy and our business. The market for securities issued by Brazilian companies is influenced by economic and market conditions in Brazil and, to varying degrees, market conditions in other Latin American and emerging countries and in the United States and Europe. Although economic conditions are different in each country, investors reactions to developments in one country may affect the capital markets in other countries. These conditions have included the crisis experienced in the global financial markets, which had its roots in the subprime mortgage crisis in the United States in 2008, and the ongoing debt crisis affecting certain countries in the European Union. Crises in other countries, especially in emerging markets, may decrease investments in securities issued by Brazilian companies, including securities issued by us. This could affect the market price of our shares and make our access to capital markets and financings on acceptable terms in the future difficult or impossible. Brazil s economy remains vulnerable to external factors, which could have an adverse effect on Brazil s economic growth and on our business and results of operations. The globalization of the capital markets has increased the vulnerabilities of participating countries to each other s adverse events. Brazil could be negatively affected by negative financial and economic developments in other countries. The global financial crisis that occurred in mid-2008 led to reduced liquidity, crashes in credit markets and economic recessions in developed countries, which in turn negatively affected emerging markets. Financial losses and cash deficiencies, bankruptcies of financial and non-financial institutions and a decrease in confidence in economic agents increased risk aversion and led to more cautious lending. Financial institutions, such as us, that are located in emerging markets were susceptible to these events, which negatively affected supply for loans and terms and conditions for borrowers, such as available interest rates and maturities. The continuation of the economic crisis in Europe, particularly in Greece, Spain, Italy and Portugal, intensified concerns regarding the sustainability of those countries and caused significant volatility in the global financial markets and reduced foreign investor confidence globally, as did the earthquake in Japan and the downgrade of the U.S. longterm sovereign credit rating by Standard & Poor s Rating Services ( Standard & Poor s ) in Repercussions from these events or the occurrence of similar events in the future could negatively affect our ability and the ability of and other Brazilian financial institutions to obtain financing in the global capital markets, as well as weaken the recovery and growth of the Brazilian and/or foreign economies and cause volatility in the Brazilian capital markets. Adverse external factors, such as those triggered by and enhancing the global financial crisis, can deteriorate Brazil s economic condition and the ability of customers in the banking system to make payments, which could adversely affect our results of operations and hinder the implementation of our strategies. See Deterioration in economic and market conditions in other countries, especially emerging market countries, may adversely affect the Brazilian economy and our business for more information on risks arising from foreign markets. Risks Relating to the Notes Our obligations under the Notes will be subordinated to certain statutory liabilities. According to Brazilian bankruptcy regulations, in the event of our liquidation, certain claims, such as claims for salaries, wages and social security from our employees (up to an amount equivalent to 150 times the minimum wage), claims deriving from transactions secured by collateral, as well as taxes and court fees and expenses, will have preference over any other claim, including in respect of the Notes. See The Brazilian Financial System and Banking Regulation Banking Industry Regulation Rules Applicable to Insolvency Issues Payment of Lenders in Case of Liquidation for a discussion of recent measures affecting the priority of repayment of creditors. 37

38 Controls and restrictions on foreign currency remittance, or remittance to foreign investors generally, could impede our ability to make payments under the Notes. The purchase and sale of foreign currency in Brazil is subject to governmental control. The Brazilian economy has experienced balance of payment deficits and shortages in foreign currency reserves to which the Brazilian government has responded by restricting the ability to convert Brazilian currency into foreign currency. Brazilian law provides that whenever a serious imbalance in Brazil s balance of payments exists or is anticipated, the Brazilian government may impose temporary restrictions on the remittance to foreign investors of the proceeds of their investments in Brazil. For example, in 1989 and early 1990, the Brazilian government restricted fund transfers that were owed to foreign equity investors and held by the Central Bank, in order to conserve Brazil s foreign currency reserves. These amounts were subsequently released. However, similar measures could be taken by the Brazilian government in the future. Even though the Brazilian foreign exchange market passed through a de-regulation process, the Brazilian government may in the future: restrict companies, including financial institutions such as us, from paying amounts denominated in foreign currencies (such as payments under the Notes), or require that any of those payments be made in reais. The likelihood of such restrictions may be determined by the extent of Brazil s foreign currency reserves, the availability of foreign currency in the foreign exchange markets on the date a payment is due, the size of Brazil s debt service burden relative to the economy as a whole, Brazil s policy toward the International Monetary Fund, political constraints to which Brazil may be subject and other factors. To date, the Brazilian government has not imposed any restrictions on payments by Brazilian issuers in respect of debt securities issued in the international capital markets, but we cannot assure you that such restrictions will not be imposed by the Brazilian government. Absence of a public market for the Notes. There is no existing public market for the Notes and there is no assurance that one will develop. There can be no assurance that an active trading market for the Notes will develop, or if one does develop, that it will be maintained. In addition, there is no obligation to establish a market for any Notes. If an active trading market does not develop or is not maintained, the market price and liquidity of the Notes may be adversely affected. The market for debt securities issued by Brazilian companies is influenced by economic and market conditions in Brazil and, to varying degrees, market conditions and interest rates in other Latin American countries. For example, following the various economic crises in the region, the market for debt instruments issued by Latin American companies (including Brazilian companies) has been volatile, and this volatility has adversely affected the price of such securities. We cannot assure you that events in Latin America or elsewhere will not cause a continuation of recurrence of such market volatility, that such volatility will not adversely affect the price of the Notes or that economic and market conditions will not have any other adverse effect. The book-entry registration system of the Notes may limit the exercise of rights by the beneficial owners of the Notes. Because transfers of interests in global Notes representing the Notes may be effected only through book entries at DTC, Clearstream, Luxembourg and/or Euroclear, the liquidity of any secondary market in the Notes may be reduced to the extent that some investors are unwilling to hold Notes in book-entry form in the name of a DTC direct or indirect participant or of an account holder in Clearstream, Luxembourg or Euroclear. The ability to pledge interests in global Notes may be limited due to the lack of a physical certificate. In addition, beneficial owners of interests in global Notes may, in certain cases, experience delay in the receipt of payments of principal and interest since the payments will generally be forwarded by the relevant agent to DTC, Clearstream, Luxembourg or Euroclear, who will then forward payment to its participants or account holders, which (if they are not themselves the beneficial owners) will then forward payments to the beneficial owners of the global Notes. In the event of the insolvency of DTC, Clearstream, Luxembourg or Euroclear or any of their participants or account holders in whose name interests in global Notes are recorded, the ability of beneficial owners to obtain timely or ultimate payment of principal and interest on global Notes may be negatively affected. 38

39 A holder of beneficial interests in global Notes will not have a direct right under the Notes to act upon any solicitations that the issuer may request. Instead, holders will be permitted to act only to the extent they receive appropriate proxies or voting certificates to do so from DTC, Clearstream, Luxembourg or Euroclear or, if applicable, their participants or account holders. Similarly, if the issuer defaults on its obligations under the Notes, holders of beneficial interests in the global Notes will be restricted to acting through DTC, Clearstream, Luxembourg or Euroclear or, if applicable, their participants or accountholders. We cannot assure you that the procedures of DTC, Clearstream, Luxembourg or Euroclear or, if applicable, their participants or accountholders will be adequate to allow them to exercise their rights under the Notes in a timely manner. Judgments of Brazilian courts enforcing the issuer s obligations under the Notes are payable only in Brazilian reais. If proceedings were brought in the courts of Brazil seeking to enforce our obligations under the Notes, we would not be required to discharge our obligations in a currency other than reais. Under the Brazilian exchange control limitations, an obligation in Brazil to pay amounts denominated in a currency other than reais may only be satisfied in Brazilian currency at the rate of exchange, as determined by the Central Bank, in effect on the date on which: (i) the respective proceeding is filed, (ii) the respective judgment is rendered, or (iii) the relevant payment is made. We cannot provide any assurance that such rate of exchange will afford the full compensation of the amount invested in the Notes plus accrued interest (if any). We may issue Notes that are subject to a Foreign Currency Constraint. The Notes may contain a Foreign Currency Constraint provision, as more fully described herein and in the applicable Pricing Supplement. Upon the occurrence of a Foreign Currency Constraint Event, holders of Notes affected thereby may elect to exchange the Notes for an equivalent nominal amount of Exchanged Notes (as defined herein) with terms and conditions identical to the terms and conditions of the original Notes, except that payments in respect of the Exchanged Notes will be made in reais. Upon termination of the Foreign Currency Constraint Event, Exchanged Notes will be exchanged for an equivalent nominal amount of the original Notes and such holder will receive future payments in respect of the Notes in the Specified Currency (as defined herein) of the Notes. If a holder does not elect to receive payments in reais by making such exchange, after the termination of the Foreign Currency Constraint Event such holder will receive any payments in respect of the Notes in the Specified Currency of the Notes. A Foreign Currency Constraint Event will not be deemed an Event of Default provided that we have fully complied with our obligations under Condition 8(f) of the Terms and Conditions of the Notes. Holders of Notes containing a Foreign Currency Constraint provision shall have no recourse against our assets and operations outside Brazil, including, without limitation, our assets and operations in the Cayman Islands. In the event of the occurrence of a Foreign Currency Constraint Event in Brazil and the decision by a Noteholder to receive amounts due under the Notes in the Specified Currency in which payments are due, interest will accrue on any unpaid principal amounts of the Notes of such Noteholder at the interest rate on such Notes from the date payment was due until the date of payment, subject to limitations in the event that payments are held by financial institutions to comply with certain requirements of the Brazilian government or the Central Bank. Interest will not accrue on overdue payments of interest or additional amounts, if any. See Terms and Conditions of the Notes Condition 8(f). Additional Notes issued under the Programme on identical terms to any already outstanding Notes under the Programme may be considered to be issued with original issue discount ( OID ) for U.S. federal income tax purposes, which may affect the market value of the already outstanding Notes. The Issuer may, without the consent of the Holders of outstanding Notes, issue additional Notes with identical terms. These additional Notes, even if they are treated for non-tax purposes as part of the same series as the original Notes, in some cases may be treated as a separate series for U.S. federal income tax purposes. In such a case, the additional Notes may be considered to have been issued with OID for U.S. federal income tax purposes even if the original Notes had no OID, or the additional Notes may have a greater amount of OID than the original Notes. See Taxation United States Federal Income Taxation Considerations for a discussion of OID. These differences may affect the market value of the original Notes if the additional Notes are not otherwise distinguishable from the original Notes. 39

40 Notes issued on or after July 1, 2014, and notes classified as equity for U.S. tax purposes at any time, may be subject to U.S. withholding. Under the foreign account tax compliance provisions of the Hiring Incentives to Restore Employment Act of 2010 ( FATCA ), a 30% withholding tax is imposed on certain payments made to certain foreign financial institutions (and their more-than-50% affiliates). In January 2013, final regulations under FATCA were promulgated which provide a detailed set of due diligence, information reporting and disclosure requirements in order for entities to avoid or minimise the withholding tax. Under FATCA and the final regulations promulgated thereunder, the 30% withholding tax is imposed on withholdable payments and certain foreign passthru payments made to foreign financial institutions (and their more-than-50% affiliates) unless the payee foreign financial institution enters into an agreement with the IRS to, among other things, annually report certain information about accounts in such payee foreign financial institution held by U.S. persons or entities with substantial U.S. owners. Withholdable payments include payments of interest (including original issue discount), dividends, and other items of fixed or determinable annual or periodical gains, profits, and income, in each case, from sources within the United States, as well as gross proceeds from the sale of any property of a type which can produce interest or dividends from sources within the United States. Foreign Passthru payments generally are certain payments attributable to withholdable payments. While payments on debt instruments issued by foreign financial institutions such as us should generally not be treated as being from sources within the United States, and thus generally should not be subject to the 30% withholding tax under FATCA for withholdable payments, the final regulations have not provided a complete description of every payment that would be a foreign passthru payment, and it is therefore uncertain whether and under what circumstances payments on the Notes will be foreign passthru payments subject to withholding under FATCA. Under the final regulations, only Notes issued on or after July 1, 2014 (or Notes subject to a material modification on or after July 1, 2014), or Notes issued at any time if such Notes are treated as equity for U.S. federal income tax purposes, will potentially be subject to the withholding tax. Additionally, under the final regulations, withholding on foreign passthru payments would not be required before January 1, 2017, and would not be required with respect to any payment on a Note that was outstanding on or before the date six months after the date on which final regulations are issued providing a definition of foreign passthru payments (except for a Note that is subject to a material modification after such date). The application of FATCA to interest, principal or other amounts paid with respect to the Notes is not clear. If we or any other person are required to withhold amounts in connection with FATCA from any payments made in respect of the Notes, holders and owners of Notes will not be entitled to receive additional amounts to compensate them for such withholding. As a result, investors may, if FATCA is implemented as currently proposed by the IRS, receive less interest or principal than expected. Holders of Notes should consult their own tax advisers on how these rules may apply to payments they receive under the Notes. If we are unable to make payments through our Cayman Islands Branch on Notes issued by our Cayman Islands Branch and must therefore make payments from Brazil, we could experience delays in obtaining or be unable to obtain the necessary Central Bank approvals, which would delay or prevent us from making payments on the Notes. Any payment in respect of Notes issued by us through our Cayman Islands Branch is expected to be made directly by our Cayman Islands Branch from its then available funds and is not subject to approval by or registration with the Central Bank. In the event our Cayman Islands Branch is not in a position to make such payment (whether by reason of a lack of liquidity of our Cayman Islands Branch, acceleration, enforcement or judgment or imposition of any restriction under the laws of the Cayman Islands), we would have to rely on then available remittance mechanisms to make or fund such payment from other bank sources, in respect of which a specific Central Bank approval may be required. We cannot assure you that any remittance mechanism will be available in the future or that, if specific approval is required of the Central Bank, that such approval will be granted. If we are unable to make payments on the Notes through our Cayman Islands Branch and we are prevented from making the payments from other bank sources, we would not be able to make payments on the Notes. 40

41 Payments under Notes issued by our principal office in Brazil may be subject to our obtaining certain governmental authorisations. It is expected that payments on Notes issued by us through our principal office in Brazil will be made pursuant to Central Bank authorisation or from our then available foreign exchange resources. Central Bank authorisation involves (1) registration of the main financial terms of a series of Notes under the relevant Declaratory Registry of Financial Operations (Registro Declaratório de Operações Financeiras or ROF ) on the Information System of the Central Bank, which is completed prior to any such issuance, and (2) registration of the Schedule of Payments in connection with any such issuance, which is completed after the entry of the related proceeds into Brazil. In respect of an issue of Notes initially registered under a ROF, further authorisation from the Central Bank would be required to enable us to remit payments abroad in foreign currency other than scheduled payments of principal, interest, commissions, costs and expenses contemplated by the relevant ROF or to make any payment provided for in such ROF earlier than the due date thereof. It is uncertain that any such approval will be obtainable at any future date. If such approval is not obtained, we may be unable to make payments to Noteholders. In respect of any series of Notes not initially registered under a ROF, if we do not have available, and are unable to acquire, foreign exchange resources at the time a payment is due to be made, we may be unable to make payments to Noteholders. The rating of the Notes may be lowered or withdrawn depending on some factors, including the rating agency s assessment of our financial strength and Brazilian sovereign risk. A series of Notes may be assigned a credit rating by a rating agency, which will address the likelihood of payment of principal on the relevant maturity date. The rating will also address the timely payment of interest on each relevant interest payment date. A rating of Notes is not a recommendation to purchase, hold or sell such Notes, and it does not comment on market price or suitability for a particular investor. We cannot assure you that a rating of Notes will remain for any given period of time or that such rating will not be lowered or withdrawn. A downgrade in a rating of Notes will not be an event of default pursuant to the terms and conditions of such Notes. An assigned rating may be raised or lowered depending, among other factors, on the rating agency s assessment of our financial strength, as well as its assessment of Brazilian sovereign risk generally. It may be difficult to enforce civil liabilities against the Issuer or our directors and officers. We are organised under the laws of Brazil, and most of our directors and officers reside in Brazil. In addition, substantially all of our assets and most or all of the assets of our directors and officers are located in Brazil. As a result, it may be difficult for investors to effect service of process outside Brazil on such persons, or to enforce judgments against them, including in any action based on civil liabilities under the securities laws of any jurisdiction other than Brazil. See Enforcement of Civil Liabilities. 41

42 USE OF PROCEEDS We will use the net proceeds of any issue of Notes for general corporate purposes or as otherwise specified in the applicable Pricing Supplement. 42

43 CAPITALIZATION The table below presents our capitalization as of December 31, The information described below is derived from our audited consolidated financial statements as of and for the year ended December 31, You should read the table below in conjunction with the information included in Selected Financial Information, Selected Statistical Information and Management s Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements, and related notes, included elsewhere in this Offering Memorandum. As of December 31, 2013 (R$ millions) Deposits... 3,391.6 Money Market Funding Acceptance and issuance of securities... 2,057.4 Interbranch accounts Borrowings... 2,473.4 Onlending in Brazil - government agencies Derivative financial instruments Other liabilities... 1,780.4 Current liabilities... 10,764.3 Deposits Acceptance and issuance of securities... 1,697.3 Onlending in Brazil - government agencies... 1,564.8 Derivative financial instruments Other liabilities... 1,094.9 Non-current liabilities... 4,548.0 Deferred income Shareholders equity... 1,917.5 Total capitalization (1)... 17,259.7 (1) Total capitalization corresponds to the sum of total current liabilities, non-current liabilities, deferred income and shareholders equity. See Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Funding Sources for more information on our capitalization. 43

44 FOREIGN EXCHANGE RATES AND EXCHANGE CONTROLS Until March 14, 2005, there were two legal foreign exchange markets in Brazil: the commercial rate exchange market and the floating rate exchange market. The commercial rate exchange market was reserved primarily for foreign trade transactions and transactions that generally required prior approval from Brazilian monetary authorities, such as the purchase and sale of registered investments by foreign persons and related remittances of funds abroad (including the payment of principal of and interest on loans, notes, bonds and other debt instruments denominated in foreign currencies and duly registered with the Central Bank). Purchases of foreign exchange in the commercial market could be carried out only through a financial institution in Brazil authorised to buy and sell currency in that market. The commercial market rate was the commercial selling rate for converting Brazilian currency into U.S. dollars, as reported by the Central Bank. The floating market rate generally applied to specific transactions for which Central Bank approval was not required. On March 23, 2010, the CMN enacted Resolution No. 3,844, consolidating the general provisions related to foreign capital in Brazil. Resolution No. 3,844 governs the registry of flows of direct investments, credits, royalties, transfers of technology and foreign leasing, among others. On December 16, 2013, the Central Bank issued Circulars No. 3,688, 3,689, 3,690 and 3,691, which generally regulate cross-border transactions and replaced the International Capital and Foreign Exchange Market Regulation (Regulamento do Mercado de Câmbio e Capitais Internacionais, or the RMCCI ) of the Central Bank as from February 3, The new rules were issued in order to simplify the set of rules relating to the exchange market, Brazilian capital abroad and foreign capital in Brazil previously contemplated by the RMCCI. Circular No. 3,690 consolidates the amendments to the codes for foreign exchange transactions adopted by the Central Bank through a series of rulings published during The new codes for foreign exchange transactions aim to cover situations that could not be classified in the existing codes. Accordingly, the Brazilian foreign exchange rules have been made more flexible recently. The Central Bank may, however, in limited circumstances, intervene in the foreign exchange market to curb excessive volatility. The foreign exchange rate is reported by the Central Bank on a daily basis. Exchange rates for the Brazilian real can be highly volatile. The following table sets forth the low, high, average and period-end buying rates for U.S. dollars during the periods indicated: Year Low High Average (1) Period-End Month October November December January February March April 2014 (through April 30, 2014) Source: Central Bank (1) Represents the average of the daily R$/U.S.$ exchange rates for the relevant period. 44

45 As of April 30, 2014, the selling rate was R$2.24 to U.S.$1.00, as reported by the Central Bank. Brazilian law provides that, in the event of a serious imbalance in Brazil s balance of payments, or a foreseeable likelihood of such an imbalance, temporary restrictions may be imposed on remittances of foreign capital abroad. There can be no assurance that such measures will not be taken by the Brazilian government in the future. See Risk Factors Risks Relating to Brazil. 45

46 SELECTED STATISTICAL INFORMATION The information below is included for analytical purposes only and is based on and should be read in conjunction with our consolidated financial statements and related notes included in this Offering Memorandum, as well as with the sections Presentation of Financial and Other Information, Selected Financial Information and Management s Discussion and Analysis of Financial Condition and Results of Operations. Average Balance Sheets and Information on Interest Rates The table below sets forth the average balances of our revenue-generating assets and expense-generating liabilities, other assets and liabilities accounts, the related interest revenues and expenses amounts and the average rate of return for the periods indicated. Data regarding volume and annual average balances included in this Offering Memorandum for the years ended December 31, 2013, 2012 and 2011 was calculated as of 13 dates: December 31 of the previous year and at the end of each of the subsequent 12 months. Similarly, data regarding the average interest rate included in this Offering Memorandum was calculated based on the revenues and expenses for the relevant period, divided by the average balances calculated as indicated above. Our interest revenues and expenses as set forth herein and in our financial statements reflect (i) adjustments for inflation of our assets and liabilities in reais; (ii) earnings and losses relating to assets and liabilities in foreign currencies; and (iii) earnings and losses both realised and to be realised in connection with securities and derivatives. Average Balance Year ended December 31, Average Average Interest Average Interest Average Interest Rate Balance Interest Rate Balance Interest (R$ millions, except percentages) Average Interest Rate Assets Revenue-generating assets Interbank investments... 1, % 1, % 1, % Securities... 2, % 1, % 1, % Loans... 8, , % 8, % 7, % Impact from derivative financial instruments n/m n/m n/m Total... 13, , % 11, , % 9, , % Non-revenuegenerating assets Cash and cash equivalents... Interbank accounts Other credits Other assets Long-term assets Total Total assets... 14, , % 12, , % 10, , % 46

47 Average Balance Year ended December 31, Average Average Interest Average Interest Average Interest Rate Balance Interest Rate Balance Interest (R$ millions, except percentages) Average Interest Rate Liabilities Expense-generating liabilities Interbank deposits % 1, % % Time deposits... 2, % 2, % 2, % Other deposits n/m 5.5 n/m 3.7 n/m International debt offerings % % % Repurchase transactions % % % Acceptance and issuance of securities 3, % 1, % % Foreign loans... 2, % 1, % 1, % Onlending transactions official entities... 1, % 2, % 2, % Other loans % % Total... 11, , % 9, % 7, % Non expense-generating liabilities Demand deposits Interbank accounts Interdependence accounts Other liabilities Deferred income Total Shareholders equity... 1, , ,423.2 Total liabilities... 14, , % 12, % 10, % Changes in Interest Revenues and Expenses Volume and Rate Analysis The table below sets forth the effect of changes in our interest revenues and expenses resulting from fluctuations in the average volumes and average interest rate for each period presented. Variations in our volumes and interest rates were calculated based on changes in our average balances during the period and changes in the average interest rates on our revenue-generating assets and expense-generating liabilities. We allocated the net change from the combined effects of volume and rate proportionately to the average volume and rate, in absolute terms, without considering positive or negative effects. Revenues derived from loan assignments and net impact from derivative financial instruments have been fully allocated to changes in the average return rate. 47

48 Average Volume Year ended December 31, Increase (decrease) due to variations in: Average Rate Net Variation Average Volume Average Rate (R$ millions) Net Variation Average Volume Average Rate Net Variation Revenuegenerating assets Interbank investments (9.6) (20.1) Securities (38.8) (20.8) Loans (18.1) (51.5) Derivative financial instruments... (24.0) (30.2) Total (123.9) (163.9) Expensegenerating liabilities Interbank deposits... (52.6) (13.9) (66.5) 51.3 (13.7) Time deposits (55.8) (17.4) 21.2 (44.8) (23.6) Other deposits International debt offerings (69.1) (5.5) 44.3 (3.4) 40.9 (0.8) Repurchase transactions (0.2) 0.1 (0.1) (6.2) (6.3) (12.4) Acceptance and issuance of securities (9.8) (22.8) Foreign loans Onlending transactions official entities... (14.8) 5.5 (9.3) (7.9) 6.6 (1.3) 31.2 (19.5) 11.7 Other loans... (0.3) (0.3) (0.5) (0.5) Total

49 Net Interest Margin and Net Income Margin The table below sets forth the average balances of our revenue-generating assets, expense-generating liabilities and net interest revenues, as well as a comparison between our net interest margin and net income margin for each period presented: Year ended December 31, (R$ millions, except percentages) Total average balance of revenue-generating assets... 13, , ,582.5 Total average balance of expense-generating liabilities... 11, , ,939.3 Net interest revenues (1) Interest revenues... 1, , ,307.4 Interest expenses... 1, Interest rate on average balance of revenue-generating assets (2) % 12.0% 13.6% Interest rate on average balance of expense-generating liabilities (3) % 8.4% 8.8% Net income margin (4) % 3.6% 4.8% Net interest margin (5) % 4.7% 6.4% (1) Interest revenues less interest expenses. (2) Total interest revenues divided by the average balance of revenue-generating assets. (3) Total interest expenses divided by the average balance of expense-generating liabilities. (4) Difference between interest rate on the average balance of revenue-generating assets and interest rate on average balance of expensegenerating liabilities. (5) Net interest revenue divided by average balance of revenue-generating assets. 49

50 Return on Shareholders Equity and Assets The table below sets forth selected financial data and ratios for each period presented: Year ended December 31, (R$ millions, except percentages) Net income Average balance of total assets... 14, , ,017.0 Average balance of shareholders equity... 1, , ,423.2 Return on average assets % 1.9% 2.4% Return on average shareholders equity % 14.3% 16.6% Percentage of average shareholders equity on average balance of total assets % 13.1% 14.2% Dividend payout Total dividends distributed (1) Dividend distribution ratio (2) % 38.3% 34.2% (1) Total distribution of dividends and interest on shareholders equity. (2) Dividends and interest on shareholders equity divided by net income. 50

51 Composition of Securities and Derivative Financial Instruments Portfolio The tables below set forth the composition of our securities and derivatives portfolio by account, maturity and type for each period presented. Our securities available for sale are stated at market value and our securities held to maturity are stated at amortised cost. Our derivative financial instruments are stated at market value. If the respective market value is negative, the relevant value will be stated under Other liabilities. See the related notes to our financial statements included elsewhere in this Offering Memorandum for a description of the accounting practices that are applicable to our securities portfolio. Breakdown of portfolio by type and maturity Up to 30 days 31 to 90 days Short-term 91 to 180 days 181 to 360 days Total Long-term More than 360 days Total (R$ millions) As of December 31, 2013 Brazilian government securities , ,071.0 Foreign government securities Time deposits-cdbs Debentures Promissory notes Eurobonds CPR Swaps receivable Option premium Other financial instruments Private securities ,401.8 Total , , ,979.9 As of December 31, 2012 Brazilian government securities Foreign government securities Time deposits-cdbs Debentures Promissory Notes Eurobonds CPR Swaps receivable Option premium Other financial instruments Private Securities ,057.1 Total , ,

52 Up to 30 days 31 to 90 days Short-term 91 to 180 days 181 to 360 days Total Long-term More than 360 days Total (R$ millions) As of December 31, 2011 Brazilian government securities Time deposits-cdbs Debentures Promissory notes Eurobonds Swaps receivable Option premium Other financial instruments Private Securities Total , ,

53 Breakdown of securities portfolio by value Amortized cost Year ended December 31, Amortized Amortized Market value cost Market value cost Market value (R$ million) Securities for trading Brazilian government securities Eurobonds Debentures CDBs Derivative financial instruments Total Securities available for sale Brazilian government securities Time deposits-cdbs Debentures Promissory notes Eurobonds CPR Foreign government securities Total... 1, , , , , ,153.3 Securities held to maturity Brazilian government securities Total (1) Quotas of investment funds in credit rights (fundos de investimento em direitos creditórios). Central Bank Compulsory Deposits Our compulsory deposits totalled R$3.1 million, R$6.3 million and R$50.9 million as of December 31, 2013, 2012 and 2011, respectively, mainly consisting of additional deposits. See Management s Discussion and Analysis of Financial Condition and Results of Operations Principal Factors Affecting our Financial Condition and Results of Operations Compulsory Deposit Requirements. 53

54 Loan Transactions Portfolio The tables below show our total loan transactions by type of transaction as of the dates presented. Our loan transactions involve only borrowers residing in Brazil. As of December 31, Total % Total % Total % (R$ millions, except percentages) Loans... 4, , , Financing - BNDES/FINAME... 1, , , Financing Export... 1, , Foreign onlendings Foreign currency loans Credit linked to credit assignment operations Direct consumer credit Secured accounts Acquisition of receivables Advances on export contracts and interest Financing Rural Other financing Notes receivables Other receivables Total... 9, , , Loan Transactions by Maturity The table below sets forth the maturities of our loan transactions as of the dates presented: As of December 31, Balance % Balance % Balance % (R$ millions, except percentages) Short-term... 6, , , to 30 days to 90 days... 1, , , to 180 days... 1, , , to 360 days... 2, , ,670.9 Long-term... 3, , , to 1,080 days... 2, , ,242.1 Over 1,080 days Total performing... 9, , , Overdue after 15 days

55 As of December 31, Balance % Balance % Balance % (R$ millions, except percentages) Total... 9, , , Principal debtors The tables below set forth certain information relating to our principal debtors in accordance with classification rules determined by the Central Bank as of the dates presented: Amount As of December 31, 2013 (1) 2012 (1) 2011 (1) % of % of shareholders share- % of % of holders % of portfolio equity Amount portfolio equity Amount portfolio (R$ millions, except percentage) % of shareholders equity Principal debtor Top , , , Top , , , (1) Includes guarantees and responsibilities. Credit Approval Process For a description of our credit approval process, see Business Credit Risk Approval and Monitoring. Risk Classification of Our Loan Portfolio The tables below set forth the risk classification of our loans recorded in our balance sheet as of the dates presented, by risk category, where category AA represents minimum credit risk and category H represents an extremely high credit risk. It also sets forth the balance of our provision for doubtful loans for the periods presented. See Management s Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies Allowance for loan losses. Risk Levels Balance As of and for the year ended December 31, (R$ millions) Provision recorded Balance Provision recorded Balance Provision recorded AA A... 3, , , B... 4, , , C , D E F

56 Risk Levels Balance As of and for the year ended December 31, (R$ millions) Provision recorded Balance Provision recorded Balance Provision recorded G H Total... 9, , , Overdue loans and provision for doubtful loans The table below sets forth a summary of our overdue loans, as well as information related to the provisions for doubtful loans as of and for the periods presented: As of and for the year ended December 31, (R$ millions, except percentages) Overdue loans (after 15 days) Provision for losses from loan transactions Total loan transactions... 9, , ,673.9 Overdue credits as a percentage of total loan transactions % 0.4% 0.3% Provision for losses from loan transactions as a percentage of total loan transactions % 2.1% 1.7% Provision for losses from loan transaction as a percentage of total overdue loans % 514.1% 583.8% The table below sets forth the risk classification of our loan portfolio by product as of the date presented: As of December 31, 2013 AA A B C D E F G H Total (R$ millions) Loans , , ,216.9 Financing BNDES/FINAME ,820.3 Financing - Export ,164.8 Foreign onlendings Foreign currency loans Direct consumer credit Secured accounts Acquisition of receivables Advances on export contracts and interest (1) Financing-Rural Credit linked to credit assignment operations Other financing

57 As of December 31, 2013 AA A B C D E F G H Total (R$ millions) Notes receivables Total , , ,909.9 (1) Advance for export contracts (adiantamento sobre contrato de exportação). As of December 31, 2012 AA A B C D E F G H Total (R$ millions) Loans , , ,401.0 Financing BNDES/FINAME ,792.6 Financing - Export ,042.4 Foreign onlendings Foreign currency loans Direct consumer credit Secured accounts Acquisition of receivables Advances on export contracts and interest (1) Financing-Rural Credit linked to credit assignment operations Other financing Notes receivables Other receivables Total , , , ,480.9 (1) Advance for export contracts (adiantamento sobre contrato de exportação). As of December 31, 2011 AA A B C D E F G H Total (R$ millions) Loans , ,514.4 Discounted receivables Direct consumer credit Secured accounts Financing BNDES/FINAME , ,080.5 Financing Export Foreign onlendings Foreign currency loans

58 As of December 31, 2011 AA A B C D E F G H Total (R$ millions) Acquisition of receivables Advances on export contracts and interest (1) Financing Rural Other financings Notes receivables Other receivables Total , , ,673.9 Provision for Doubtful Loans The table below sets forth the track record of our provision for doubtful loans as of the dates presented: As of or for the year ended December 31, (R$ millions) Balance at the beginning of the period Establishment of provision (1) Classified as deferred income (0.3) (0.2) Write-offs... (75.9) (61.9) (42.3) Balance at the end of the period (1) The difference between the provision established and the provision recognised in our financial statements results from losses from foreclosed assets being recognised as losses under Provision for doubtful loans. Allocation of Provision for Doubtful Loans and Other Credits The table below sets forth the allocation of our provision for doubtful loans and other credits, in accordance with the criteria of the national classification of economic activities (Classificação Nacional de Atividades Econômicas or CNAE ) as of the dates presented. The amount of the provision allocated and the type of transaction are indicated as percentages of total loan transactions Portfolio % Share Provision % Share Portfolio % Share Provision % Share Portfolio % Share Provision % Share (R$ millions, except percentages) Agri-business... 2, , , Financial , Real Estate Foods Telecommunications Transport Auto Parts Chemicals and

59 Portfolio % Share Provision % Share Portfolio % Share Provision % Share Portfolio % Share Provision % Share (R$ millions, except percentages) petrochemicals... Machinery and Equipment Individuals Construction Textile and Manufacturing Wood and Furniture Education, Health and Other Social Services Technology Industry Steel Metallurgy Others... 1, Total... 9, , , Deposits Average Deposits Balance and Interest Rates The table below sets forth the average balance of deposits and the average interest rate on the deposits for the periods presented: Average balance Year ended December 31, Average interest rate (%) 59 Average balance Average interest rate (%) Average balance Average interest rate (%) (R$ millions, except percentages) Interbank deposits , Time and demand deposits... 2, , , Maturity of Deposits The table below sets forth the maturity of our outstanding demand, time and interbank deposits as of the dates presented: As of December 31, 2013 Demand deposits Time deposits Interbank deposits (R$ millions) No maturity Up to 90 days... 1, to 360 days... 1, Short-term , to 1,081 days Over 1,081 days Long-term Total ,

60 As of December 31, 2012 Demand deposits Time deposits Interbank deposits (R$ millions) No maturity Up to 90 days... 1, to 360 days... 1, Short-term , , to 1,081 days Over 1,081 days Long-term Total , ,065.9 As of December 31, 2011 Demand deposits Time deposits Interbank deposits (R$ millions) No maturity Up to 90 days to 360 days... 1, Short-term , to 1,081 days Over 1,081 days Long-term Total ,

61 MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations is based on, and should be read in conjunction with, our consolidated financial statements as of and for the years ended December 31, 2013, 2012 and 2011 and related notes included elsewhere in this Offering Memorandum, as well as the information contained in the sections Presentation of Financial and Other Information, Summary Financial Information and Selected Statistical Information. Our consolidated financial statements were prepared in accordance with Brazilian GAAP. Accordingly, the financial information for ABC Administração and ABC DTVM is consolidated in the consolidated financial statements included in this Offering Memorandum, as discussed under Presentation of Financial and Other Information Consolidation. This section contains estimates and forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in these estimates and forward-looking statements for various reasons, including, but not limited to, those indicated in the sections Forward-looking Statements and Risk Factors. Brazilian Macroeconomic Conditions Our financial condition and results of operations are directly affected by general economic conditions prevailing in Brazil and are especially affected by variables such as GDP, inflation, interest rates, exchange rate variations and government tax policies. Additionally, the development of the Brazilian economy affects the demand for banking products and services. In 2011, Brazil s GDP grew by 2.7%. The real depreciated against the U.S. dollar by 12.6% in 2011, reaching R$1.88 per U.S.$1.00 as of December 31, Inflation, as measured by the IPCA and the IGP-M, was 6.5% and 5.1%, respectively, for the year ended December 31, The Central Bank maintained its tightening monetary policy, further increasing the SELIC rate to 12.50% in July However, evaluating other factors, particularly volatility in foreign economies, which could have had a deflationary pressure on Brazil s economy, as well as in order to reinforce Brazil s domestic fiscal policy to fight inflation, the COPOM reduced the SELIC rate several times in the second half of 2011 and the SELIC rate was 11.00% as of December 31, In 2012, Brazil s GDP grew by 0.9% and the real depreciated 8.5% against the U.S. dollar, reaching R$2.04 per U.S.$1.00 as of December 31, During the course of 2012, the COPOM continued to reduce the SELIC rate, which as of December 31, 2012 was 7.25%. Average unemployment in the principal metropolitan areas of Brazil was 4.6% as of December 31, 2012, according to the IBGE. In 2012, the inflation rate, as measured by the IPCA and the IGP-M, was 5.8% and 7.8%, respectively. In 2013, Brazil s GDP grew by 2.3% and the real depreciated 14.6% against the U.S. dollar, reaching R$2.34 per U.S.$1.00 as of December 31, During the course of 2013, in response to inflation concerns the COPOM raised the SELIC rate several times, which as of December 31, 2013 was 10.00%. Average unemployment in the principal metropolitan areas of Brazil was 4.3% as of December 31, 2013, according to the IBGE. In 2013, the inflation rate, as measured by the IPCA and the IGP-M, was 5.9% and 5.5%, respectively. The table below shows annual GDP growth, inflation, interest rates and the U.S. dollar exchange rate for the periods indicated: As of and for the year ended December 31, GDP growth (1) % 0.9% 2.7% Inflation (IGP-M) (2) % 7.8% 5.1% Inflation (IPCA) (3) % 5.8% 6.5% 61

62 As of and for the year ended December 31, CDI (4) % 6.9% 10.9% SELIC at closing (5) % 7.25% 11.00% Depreciation of the real against the U.S. dollar... (14.6)% (8.5)% (12.6)% Exchange rate at closing (R$ to U.S.$1.00) Average exchange rate (R$ to U.S.$1.00) (6) Sources: Fundação Getúlio Vargas, Central Bank and Bloomberg (1) Cumulative GDP during the period, as measured by the IBGE. (2) IGP-M, as measured by the Fundação Getúlio Vargas. (3) IPCA, as measured by the IBGE. (4) The CDI rate is the average of the rate for interbank deposits made during the day in Brazil (accumulated for the month of the end of the period, annualised). (5) COPOM periodically sets the SELIC rate. (6) Represents the average of the exchange rates on the last day of each month during the relevant periods. Principal Factors Affecting our Financial Condition and Results of Operations Interest Rates In past years, interest rates in Brazil have been extremely volatile as a result of Central Bank policies to control inflation and/or to protect the value of the real as compared to foreign currencies. Frequent variation in interest rates contributes to slowdowns in economic growth and increase uncertainty about the future, thus decreasing investment and consumption. Lower investment and consumption levels result in lower demand for credit, adversely affecting our activities. Higher interest rates, by making credit more expensive to borrowers, may cause certain companies and projects to experience financial difficulty or to become untenable, thus increasing loan default levels. During 2010, the COPOM increased the SELIC from 8.75% in April to 10.75% in July in response to increased inflation. In the first half of 2011, the Central Bank maintained its tightening monetary policy, further increasing the target SELIC rate to 12.25% and 12.50% in June and July, respectively. However, evaluating other factors, particularly volatility in foreign economies, which could have had a deflationary pressure on Brazil s economy, as well as in order to reinforce Brazil s domestic fiscal policy to fight inflation, the COPOM countered market expectations and reduced the target rate to 12.00% at a meeting held on August 31, The COPOM decreased the target SELIC rate several times during the last quarter of 2011 and first half of On October 10, 2012, it was set at 7.25%, where it remained as of December 31, In 2013, in response to concerns about inflation, the Central Bank increased the SELIC rate to 7.50% on April 17, 2013, to 8.00% on May 29, 2013, to 8.50% July 10, 2013, to 9.00% on August 28, 2013, to 9.50% on October 9, 2013, and to 10.00% on November 27, 2013, where it remained as of December 31, In 2012 and 2013, our increase in income from lending operations as a result of the increase in the volume of our loan portfolio as compared to 2011 and 2012, respectively, was partially offset by lower average interest rates in 2012 and 2013 compared to 2011 and 2012, respectively. Ability to monitor spreads and maintain an appropriate risk-return balance The interest spreads that we maintain reflect our perceived level of credit risk. As a result, when there is low liquidity in the markets and we are experiencing low levels of competition, we are able to maintain higher interest spreads. On the other hand, when there is high liquidity in the markets and we are experiencing high levels of competition, we tend to maintain smaller interest spreads. The spreads we maintain may at times be insufficient to allow us to cover our obligations and, in effect, pay for the risks that we have taken. 62

63 GDP Growth Brazil s GDP growth rate has a direct impact on the results of our operations, mainly because it affects the volume of our credit transactions. GDP in Brazil increased by 2.3% in 2013, compared to 0.9% in 2012 and 2.7% in If Brazil continues to experience economic stability in the coming years, the companies that constitute a significant portion of our client and potential client base are expected to have an increased ability to enter into credit transactions and make investments. An increase in investment activity would contribute to stability and growth in Brazil and we would also, in turn, benefit from the related increase in the number of financially viable clients and potential clients in the market for our services. Inflation The inflation rate in Brazil has fluctuated significantly in the past, although it has become more stable since 2003, with a declining trend. To a large extent, the decrease in interest rates was a result of the Brazilian government s foreign exchange policy, including periodic adjustments to interest rates and a strengthening of the real against the dollar during the period. The inflation rate directly affects our operating results because the COPOM frequently raises interest rates to control inflation. An increase in inflation may result in an increase in our operating costs, adversely affecting our results. Exchange Rates and the Volatility of the Real Against the U.S. Dollar The depreciation or appreciation of the real against the U.S. dollar may adversely affect our results of operations because a portion of our assets and liabilities is denominated in, or indexed to, foreign currencies, primarily the U.S. dollar. When the real depreciates, we incur losses on our liabilities denominated in or indexed to foreign currencies as the cost in reais of the related interest expense increases. At the same time, we experience gains on our monetary assets denominated in or indexed to foreign currencies as the interest income from such assets as measured in reais also increases because of the devaluation of the real. In addition, the depreciation of the real may cause a deterioration in the financial condition of our clients, resulting in higher rates of non-performing loans. As of December 31, 2013, 2012 and 2011, our consolidated foreign exchange exposure (the difference between our assets and liabilities denominated in currencies other than the real, including derivatives) totalled R$86.4 million, representing 3.2% of our reference shareholders equity (patrimônio de referência), R$35.9 million, representing 1.4% of our reference shareholders equity and R$9.6 million, representing 0.5% of our reference shareholders equity, respectively. The Central Bank requires that financial institutions in Brazil maintain consolidated foreign exchange exposure (including assets and liabilities denominated in currencies other than the real and gold) not exceeding 30.0% of their reference shareholders equity. Although we consider that our foreign currency exposure has been low in the past three years, we may experience higher levels of such exposure in the future. See Quantitative and Qualitative Disclosure of Market Risks Exchange Rate Sensitivity. The effects of the floating exchange rate system have contributed to significant fluctuations in the exchange rate between the Brazilian currency and the U.S. dollar and other currencies. Between 2003 and mid-2008, the real appreciated significantly against the U.S. dollar due to the stabilization of the macro-economic environment and a strong increase in foreign investment in Brazil, with the exchange rate reaching R$1.56 per U.S.$1.00 in August The real depreciated 12.6%, 8.5% and 14.6% against the U.S. dollar in 2011, 2012 and 2013 respectively, and, as of December 31, 2011, 2012 and 2013, the exchange rate was R$1.88 to U.S. $1.00, R$2.04 to U.S.$1.00 and R$2.34 to U.S.$1.00, respectively. See Risk Factors Risks Relating to Brazil Fluctuations in the real/u.s. dollar exchange rate may adversely affect our results of operations and financial condition and Foreign Exchange Rates and Exchange Controls for a more detailed discussion of the changes in the real to U.S. dollar exchange rate for the periods covered herein. Capital Adequacy Until recently, the Central Bank required that banks in Brazil comply with regulations similar to those recommended by the Basel II Accord for sufficiency or adequacy of capital (with certain exceptions, for example, the Central Bank requirement of a minimum capital adequacy ratio of 11% of risk-weighted assets as compared to the 8% required by the Basel II Accord). In addition, the Central Bank imposes restrictions on banks exposure to foreign currency. 63

64 In June 2004, the bank supervision committee of the Bank of International Settlements ( BIS ), endorsed the publication of the International Convergence of Capital Measurement and Capital Standards: A Revised Framework, otherwise known as the Basel II Accord. Communication No. 12,746, as amended by Communication No. 16,137 and Communication No. 19,028, indicated that the Central Bank intended to adopt the Basel II Accord gradually, seeking to incorporate provisions applicable to the Brazilian banking sector by the first half of On September 12, 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced changes to the existing capital requirements and endorsed previous agreements on the design of the capital and liquidity reform package, the Basel III Accord, which was presented at the Seoul G20 Leaders summit in November In March 2013, the CMN and the Central Bank issued a new regulatory framework for the implementation of the Basel III Accord in Brazil. Accordingly, CMN Resolutions No. 4,192 and 4,193, of March 1, 2013, as amended, determined, among other things, that Brazilian financial institutions must comply with new minimum capital requirements and established new rules for the calculation of the reference shareholder s equity, which is the basis for the determination of minimum regulatory capital. Such rules are effective since October 1, 2013 and will be gradually increased until January Further rules were issued by the Central Bank on March 4, 2013 providing for new mechanisms for calculating the different portions of the RWA of financial institutions. See Brazilian Banking System and Industry Regulation Banking Industry Regulation Guidelines for Capital Adequacy. Among the changes introduced by this new set of rules, it is important to highlight: (i) the introduction of the concept of quasi-financial institutions (instituições assemelhadas); (ii) the necessity of consolidation of financial statements of such quasi-financial institutions; (iii) the issuance of new rules for the calculation of the components of the reference shareholder s equity, including Principal Capital and Complementary Capital, both of which comprising the so-called Tier I Capital. These Basel III Accord capital adequacy rules and regulations have not had a significant impact on our limit positions. However, the Basel III Accord recommendations, which the Central Bank has recently started to implement and are expected to be further implemented gradually until 2019, may impact limit positions of Brazilian financial institutions, including us. See Risk Factors Risks Relating to the Brazilian Banking Industry Minimum capital requirements imposed on the banking system may negatively affect our results of operations and financial condition. Changes in Tax Regulations Our results of operations are influenced by changes in tax laws and regulations affecting our business and clients. These changes include changes in taxation rates and, occasionally, the imposition of temporary taxes, the proceeds of which are generally earmarked for specific government purposes. Compulsory Deposit Requirements The level of the Central Bank s compulsory deposit requirements is an important factor affecting the results of operations of banks in Brazil. The raising or lowering of compulsory deposit requirements impacts our results of operations by limiting or increasing the amount of funds available for lending operations and thus limiting the size of our loan portfolio. Our compulsory deposits amounted to R$3.1 million, R$6.3 million and R$50.9 million as of December 31, 2013, 2012 and 2011, respectively. Ability to originate new loans Our ability to maintain a close relationship with a broad base of clients, to perform thorough analyses of potential clients and to offer products that meet the clients needs are crucial to our ability to originate new business. If market conditions change and affect our ability to originate new loan transactions, the results of our operations will be adversely affected. 64

65 Participation in government amnesty programs relating to tax liabilities In June 2009, we decided to participate in the Brazilian government tax amnesty program established by Law No. 11,941/09, as amended (the 2009 Amnesty Program ). As a result of our participation in the Amnesty Program, several of the tax proceedings in which we were involved were settled, subject to ratification by the Brazilian Internal Revenue Service (Receita Federal do Brasil or the Brazilian IRS ). The main proceedings which were settled related to (i) the offset of taxes acquired from third parties, (ii) COFINS, (iii) CSLL, (iv) PIS and (v) IRPJ. Following the enactment of Law 12,865/13 in October 2013 and the establishment of a new tax amnesty program (the 2013 Amnesty Program ), we opted to withdraw our outstanding tax liabilities from the 2009 Amnesty Program. Following such withdrawal, we included our tax liabilities in respect of PIS and COFINS in the 2013 Amnesty Program and paid in full all remaining tax liabilities that had been withdrawn from the 2009 Amnesty Program. In addition, in accordance with Law 12,865/13, in November 2013 we included outstanding tax liabilities incurred in 1994 in respect of IOF in the 2009 Amnesty Program. Effects of the unrest in the Middle East and North Africa Our financial condition and results of operations were not materially affected by the unrest in the MENA region, which began in Tunisia in late 2010 and spread to Egypt, Bahrain, Libya, Syria and elsewhere in Although, some foreign credit lines were suspended following the events in the MENA Region in early 2011, which may have contributed to a marginal increase in our funding costs in 2011 compared to 2010, the effect of such suspensions was largely offset by access to other foreign credit lines, including a credit facility generally available from our controlling shareholder. As our loan portfolio does not include any significant loans to entities in the MENA Region, our financial condition and results of operations were not otherwise materially affected by the events in the region. Critical Accounting Policies The notes to our consolidated financial statements included elsewhere in this Offering Memorandum describe our critical accounting policies. Because our industry is highly regulated, critical accounting policies and the presentation of the financial information, as well as certain information included in the notes to our financial statements, follow Brazilian GAAP. The application of these critical accounting policies requires that certain estimates and assumptions be made by our management, so as to reflect our results of operations and financial condition in an appropriate manner. The adoption of these estimates and assumptions requires that our management make judgements related to effects of questions that are inherently uncertain on our financial situation and operating results, including estimates and assumptions related to the calculation of our provision for doubtful loans and the market value of securities and derivative financial instruments. If our management decides to change those estimates and assumptions, our financial situation and operating results could be materially affected. We present below a description of the critical accounting policies that currently affect our financial condition and results of operations. Securities We record securities in our portfolio based on how long we intend to hold them and whether they are available for trading, as described below: Securities for trading Acquired with the objective of being frequently and actively traded, these securities are recorded at market value against net income for the period. 65

66 Securities held until maturity Marketable securities for which management has the intention and financial capacity to hold to maturity are stated at acquisition cost, plus accrued income. Securities available for sale These securities are recorded at market value; their underlying earnings are recognised against net income for the period; and the unrealised gains and losses arising from changes in market value are recorded in a specific shareholders equity account, net of the related tax effects, when applicable, as Adjustment to market value securities and derivatives, until they are sold. Gains and losses, when realised, are recognised through specific identification at the date of negotiation in the statement of income, against a specific shareholder s equity account, net of the related tax effects. Probable losses on securities available for sale or securities held until maturity that may be classified as permanent losses are immediately recorded in the results for the relevant period. Market value is defined as the value for which the security may be traded or sold under normal market conditions. Market value for securities is determined according to stock exchange listings and other sources acknowledged by the market. In some cases, when there is no liquidity or stock exchange listing available, market value is determined based on current price estimates and other mathematical techniques that are widely used by the financial market. Derivative financial instruments We conduct transactions with derivative financial instruments to manage our interest rate and foreign exchange rate risk exposure. The notional amounts of these derivative transactions are recorded in off-balance sheet accounts at their contracted value and are adjusted to market value. Changes in the market value of derivative financial instruments are recognised in the income statement for the period. Market value of our derivative financial instruments is determined according to stock exchange listings and other sources acknowledged by the market. In some cases, when there is no liquidity or stock exchange listings available, market value is determined based on current price estimates and other mathematical techniques that are widely used by the financial market. Pursuant to Resolution No. 3,824, enacted by the CMN on December 16, 2009, as from February 1, 2010, all derivative transactions carried out by Brazilian financial institutions abroad, either directly or indirectly, must be registered with a Brazilian clearing chamber authorised to operate by the Central Bank or the CVM. Such requirement was extended to foreign hedging transactions, pursuant to Resolution No. 3,833, enacted by the CMN on January 28, 2010, which has been in force from March 15, The following table presents the notional volume of our derivative financial instruments for the periods indicated: Year ended December 31, (R$ millions) Futures contracts... 8, , ,963.0 Purchase commitments... 3, ,1 Sales commitments... 5, , ,354.9 Asset position... 2, , ,099.3 Swap contracts... 1, , ,169.1 Options contracts , Other financial instruments... 1,

67 Year ended December 31, (R$ millions) Liability position... 1, , Swap contracts Options contracts , Other financial instruments... 1, Guarantees By granting guarantees and aval guarantees (which are guarantees granted under debt securities, including promissory notes, drafts and other types of securities) to our clients, we take responsibility for the payment of certain obligations upon a default by the client. These guarantees reflect a credit risk for which we charge fees. In addition, we obtain counter-guarantees from the beneficiaries. According to the rules of the Central Bank, guarantees granted by banks are recorded as off-balance sheet transactions for the value of the obligation we become responsible for. Fees charged, when paid in advance, are recorded under liabilities as deferred revenues and amortised under the straight line method over the term of the guarantee period. When not paid in advance, these fees are recorded as earnings receivable under other credits. In both cases, fees are recorded as income from services rendered as the transactions mature. The following table sets forth certain information relating to guarantees granted for the periods indicated: Year ended December 31, (R$ millions) Guarantees (total amount of obligation)... 6, , ,161.8 Fees from guarantees rendered to clients Advances on export contracts Pursuant to the rules of the Central Bank, advances granted in reais on export contracts are recorded in the balance sheet as a reduction of other current and non-current liabilities in the foreign exchange portfolio group. Income receivable from advances granted are recorded as other current and non-current assets in the foreign exchange portfolio group. These earnings are recorded as advances on export contracts, under operating income as the transactions mature. Allowance for loan losses Loans are classified according to credit risk, based on qualitative and quantitative factors attributed to each transaction by indices, financial statements and other information, and the characteristics of the guarantees, if any, granted in each transaction. Once a loan is granted, our risk management activities consist primarily of verifying payment on due dates, monitoring information about the borrower s financial condition and assessing the financial strength and viability of the industry in which such borrower operates. Based on these analyses, we may make adjustments to the loan risk category initially assigned to the transaction. Income from loans due for more than 60 days, regardless of the credit risk, will only be recorded when income is actually received. Pursuant to the rules of the Central Bank, renegotiated loans remain at the same classification as before the renegotiation. If the renegotiated loans were offset against the provision, after the renegotiation such loans are 67

68 recognised with 100% of provision. Any earnings from the renegotiation of loans will only be recorded when actually received. Provisions are established based on percentages established by CMN Resolution No. 2,682, as amended, for each specific classification level. The amounts provisioned by us are considered enough to cover any possible losses. For more information on amounts provisioned by us for doubtful loans, see Selected Statistical Information Loan Transactions Portfolio Provision for Doubtful Loans and Business Loan Portfolio Loan classification. Off-balance sheet transactions Our off-balance sheet transactions consist of guarantees and other related liabilities, including derivative financial instruments, which amounted to R$12,942.1 million, R$8,038.4 million and R$4,965.7 million as of December 31, 2013, 2012 and 2011, respectively. Legal and administrative proceedings In the normal course of our activities, we are party to legal and administrative proceedings. The recognition, assessment and disclosure of provisions for these proceedings in our financial statements rely on the opinion of our management and the opinion of our counsels, as follows: Provisions for legal and administrative proceedings (assets) are not recorded in the financial statements, except when there is evidence that we will prevail and there are no possible recourses left. Provisions for legal and administrative proceedings (liabilities) are recorded in the financial statements when there is a probable chance of loss, based on the opinion of our management and counsel. Contingent liabilities that are classified as possible losses by our legal counsels are only disclosed in the notes to our financial statements and provisions are not recorded. Contingent liabilities that present no or a remote chance of loss do not require the establishment of a provision, nor are they disclosed. Changes to Accounting Rules CMN Resolution No. 3,786, of September 24, 2009, established that financial institutions and other institutions authorised to operate by the Central Bank, organised as publicly-held companies or required to set up an audit committee pursuant to the regulations currently in force, shall prepare and disclose once a year, as from December 31, 2010, consolidated financial statements in accordance with IFRS as issued by the IASB. We are subject to this additional reporting requirement. Beginning with our financial statements as of and for the year ended December 31, 2010, we are required to prepare and make available two sets of consolidated financial statements as of and for each year ending December 31: one prepared in accordance with Brazilian GAAP applicable to the institutions authorised to operate by the Central Bank, and one prepared in accordance with IFRS. On March 27, 2013, we made available our consolidated financial statements as of and for the year ending December 31, 2012 prepared in accordance with IFRS on our website and the website of the CVM. As of the date of this Offering Memorandum, it is not clear when or whether IFRS will be required for the unconsolidated financial statements, which for the time being continue to be prepared in accordance with Brazilian GAAP applicable to the institutions authorised to operate by the Central Bank. It should be noted that, for now, only the unconsolidated financial statements prepared under Brazilian GAAP applicable to the institutions authorised to operate by the Central Bank are valid for legal purposes such as payment of dividends. Further changes in the accounting standards may have a significant impact on our financial statements, with possible effects on our accounting results, including our ability to maintain financial covenants assumed when entering into financial agreements. Description of Principal Income Statement Line Items Our principal sources of income and expenses are: 68

69 Income from financial intermediation Income from financial intermediation includes the following items: Lending operations Lending operations include interest and fees resulting from the loans and financings that we grant. Marketable securities Income from marketable securities includes: (i) income from transactions with public and private securities; (ii) adjustments of securities to market value; and (iii) income from the sale of securities. Gains (losses) on derivative financial instruments Gains (losses) on derivative financial instruments include gains and losses from the settlement of derivative instruments, and the adjustments of these instruments to market value as of the balance sheet date. Foreign exchange transactions Foreign exchange transactions include gains and losses from the difference in rates of the positions of assets and liabilities in foreign currency, and commissions obtained from financial transactions of purchase and sale of currencies. Compulsory investments Compulsory investments include interest earned on deposits we make to comply with the Central Bank s compulsory deposit requirements. Expenses from financial intermediation Expenses from financial intermediation include the following items: Funding expenses Funding expenses include interest paid on time deposits and interest paid on repurchase agreements. Borrowings and onlendings Expenses from borrowings and onlendings include interest and charges on our borrowings in Brazil and abroad, and onlendings from government agencies such as the BNDES, when we act as agents. Allowance for loan losses Allowance for loan losses reflects the amounts recorded in the period to cover loan losses. See Critical Accounting Policies Allowance for loan losses. Other operating income (expenses) Other operating income (expenses) include: Income from services rendered Income from services rendered includes commissions from the placement of securities, commissions from collection of accounts, commissions from collection of accounts for third parties, commissions for granting aval guarantees (which are guarantees granted under debt securities, including promissory notes, drafts and other types of securities), brokerage and other services rendered by us. Personnel expenses Personnel expenses include payroll, management compensation, social charges, training and other benefits paid to our employees. 69

70 Other administrative expenses Other administrative expenses include expenses from services rendered by third parties, expenses from data processing, lease expenses, and other expenses related to the maintenance of our activities. Taxes and contributions Taxes and contributions include federal taxes (including PIS), COFINS, state taxes and municipal taxes (including urban land and buildings tax (Imposto Predial e Territorial Urbano or IPTU ) and services tax (Imposto Sobre Serviços or ISS )). Other operating income Other operating income includes other income not classified in the above categories. If material, other operating income is included in the notes to our financial statements. Other operating expenses Other operating expenses include other expenses not classified in the above categories. If material, other operating expenses are included in the notes to our financial statements for each fiscal year. Income and social contribution taxes Provisions for income and social contribution taxes are calculated on our taxable income for the relevant period and adjusted according to criteria set forth by the tax legislation. The income tax rate is 25% on our taxable income and the social contribution tax rate is 15%. Deferred income and social contribution taxes are calculated on the temporary differences resulting from income and expenses not yet taxable or deductible, and whose future additions or exclusions are authorised by the tax legislation. Profit sharing Profit sharing refers to our profit-sharing program, established through a collective bargaining agreement and paid to our employees. 70

71 Results of Operations Year ended December 31, 2013 compared with year ended December 31, 2012 The table below shows the main elements of our net income for the years ended December 31, 2013 and 2012: 2013 Year ended December 31, % of Variation Total (1) 2012 % of Total (1) (%) (R$ millions, except percentages) Income from financial intermediation... 1, , Expenses from financial intermediation... (1,132.1) (72.6) (933.7) (69.7) 21.2 Gross profit from financial intermediation Other operating expenses, net... (29.6) (1.9) (58.9) (4.4) (49.9) Operating income Non-operating expenses... (1.8) (0.1) (6.6) (0.5) (72.7) Income before taxes and profit sharing Income and social contribution taxes... (44.5) (2.9) (61.2) (4.6) (27.3) Profit sharing... (82.1) (5.3) (52.5) (3.9) 56.4 Net income (1) Percentage of total income from financial intermediation. Income from financial intermediation The table below sets forth the composition of our income from financial intermediation for the periods indicated: Year ended December 31, 2013 % of Total 2012 % of Total (R$ millions, except percentages) Variation (%) Lending operations Marketable securities Gains (losses) on derivative financial instruments (19.1) Foreign exchange transactions (15.4) (1.1) n/m Income from receivables acquired Income from financial intermediation... 1, , Income from financial intermediation increased by 16.3% to R$1,558.4 million for the year ended December 31, 2013, compared to R$1,339.5 million for the year ended December 31, 2012, due to the increase in income from lending operations and from transactions in marketable securities, which was partially offset by a decrease in income on derivative financial instruments. A substantial part of our derivative transactions are linked to other assets and liabilities from clients, and, consequently, the gain or loss on derivative financial instruments is partially offset by other line items. 71

72 Lending operations Income from lending operations increased by 4.9% to R$977.8 million for the year ended December 31, 2013, compared to R$932.2 million for the year ended December 31, 2012, as a result of the growth in our average loan volumes by 8.2% to R$8,711.7 million for the year ended December 31, 2013 from R$8,048.9 million for the prior year, which was partially offset by a decrease in the average interest rate to 11.5% in 2013 from 11.7% in This growth in loan volumes was primarily the result of the increase in the volume of our loans to companies in the corporate segment during Marketable securities Income from marketable securities increased by 16.2% to R$329.9 million for the year ended December 31, 2013, compared to R$283.9 million for the year ended December 31, This increase was due to (i) an increase in the average volume of securities to R$2,362.1 million for the year ended December 31, 2013 from R$1,498.1 million for the year ended December 31, 2012, which was partially offset by a decrease in average yield on such securities to 8.1% from 10.3%, and (ii) an increase in the average volume of interbank investments to R$1,971.3 million for the year ended December 31, 2013 from R$1,702.8 million for the year ended December 31, 2012, which was partially offset by a decrease in average yield on such investments to 7.1% from 7.6%. Gains (losses) on derivative financial instruments Income from derivative financial instruments decreased by 19.1% to R$101.7 million for the year ended December 31, 2013, compared to R$125.7 million for the year ended December 31, Our derivative transactions consist of hedging transactions, including own account hedging transactions with respect to the U.S. dollardenominated investments in our Cayman Islands Branch, and transactions carried out for our clients. Consequently, the gain or loss on derivative financial instruments is offset by other line items, including, with respect to the U.S. dollardenominated investment in our Cayman Islands Branch, the other operating income and other operating expenses line items. Foreign exchange transactions Income from foreign exchange transactions was R$122.9 million for the year ended December 31, 2013, compared to an expense of R$15.4 million for the year ended December 31, 2012, primarily due to the depreciation of the real against the U.S. dollar in Expenses from financial intermediation The table below sets forth the composition of our expenses from financial intermediation for the periods indicated: Year ended December 31, 2013 % of Total 2012 % of Total (R$ millions, except percentages) Variation (%) Funding expenses Borrowings and onlendings Allowance for loan losses (16.5) Allowance for loan losses exchange rate variation on credit assignment operations and foreign exchange portfolio (0.3) 0.0 n/m Expenses from financial intermediation... 1, Expenses from financial intermediation increased by 21.2% to R$1,132.1 million for the year ended December 31, 2013, compared to R$933.7 million for the year ended December 31, 2012, primarily due to an increase in expenses from borrowings and onlendings. Expenses from financial intermediation represented 72.6% and 69.7% of income from financial intermediation for the years ended December 31, 2013 and 2012, respectively. 72

73 Funding expenses Funding expenses increased by 0.9% to R$657.6 million for the year ended December 31, 2013, compared to R$651.6 million for the year ended December 31, 2012, due to an increase in interest expense on the acceptance and issuance of securities to R$225.8 million for the year ended December 31, 2013 from R$135.1 million for the year ended December 31, 2012, due to increased average volume in acceptance and issuance of securities to R$ 3,072.0 million in 2013 from R$1,712.9 million in 2012, which was partially offset by a decrease in the average interest rate on such securities from 7.9% to 7.3%. Our funding expenses also include the interest expense on time deposits, which decreased to R$192.7 million in 2013 from R$210.1 million in 2012 due to a decrease in the average interest rate from 8.9% to 6.7%, which offset an increase in the average balance of such deposits to R$2,860.8 million in 2013 from R$2,373.0 million in Borrowings and onlendings Expenses from borrowings and onlendings increased 123.0% to R$381.7 million for the year ended December 31, 2013, compared to R$171.2 million for the year ended December 31, This increase was primarily the result of higher expenses related to foreign funding due to the increase in the average interest rate on foreign funding to 11.9% in 2012 from 2.1% in 2012 and the increase in the average balance of foreign funding to R$2,127.4 million for the year ended December 31, 2013 from R$1,658.3 million for the year ended December 31, Allowance for loan losses Our allowance for loan losses decreased 16.5% to R$92.8 million for the year ended December 31, 2013, compared to R$111.1 million for the year ended December 31, 2012, despite the overall growth of our loan portfolio. This decrease was primarily due to our strategy of growing our loan portfolio, in particular in the midsized business segment, with a focus on clients with better credit quality. Loans classified from AA to C totalled R$9,590.7 million (representing 96.8% of our total loan portfolio) and R$8,203.4 million (representing 96.7% of our total loan portfolio) as of December 31, 2013 and 2012, respectively. Gross profit from financial intermediation As a consequence of the factors described above, gross profit from financial intermediation increased by 5.0% to R$426.2 million for the year ended December 31, 2013, compared to R$405.8 million for the year ended December 31, Gross profit from financial intermediation corresponded to 27.3% and 30.3% of our total income from financial intermediation for 2013 and 2012, respectively. Other operating expenses, net The table below sets forth the composition of our other operating expenses, net for the periods indicated: Year ended December 31, 2013 % of Total 2012 % of Total (R$ millions, except percentages) Variation (%) Income from services rendered (530.1) (233.3) 14.2 Personnel expenses... (140.9) (130.6) Other administrative expenses... (78.4) (71.5) Taxes... (41.4) (38.5) Other operating income (340.9) 51.3 (87.1) 96.7 Other operating expenses... (26.7) 90.2 (7.0) Other operating expenses, net... (29.6) (58.9) (49.9) Other operating expenses, net decreased by 49.9% to R$29.6 million for the year ended December 31, 2013, compared to R$58.9 million for the year ended December 31, 2012, primarily due to the increases in income from 73

74 services rendered and other operating income, which were partially offset by the increase in personnel expenses, other administrative expenses and taxes. Income from services rendered Income from services rendered increased by 14.2% to R$156.9 million for the year ended December 31, 2013, compared to R$137.4 million for the year ended December 31, 2012, primarily due to the increase in income from bank charges and fees in connection with guarantees we granted (which amounted to R$118.5 million and R$104.2 million for the years ended December 31, 2013 and 2012, respectively). Personnel expenses Personnel expenses increased by 7.9% to R$140.9 million for the year ended December 31, 2013, compared to R$130.6 million for the year ended December 31, 2012, as a result of the increase in our average number of employees to 568 for 2013 from 561 for 2012 and an increase of approximately 8.0% in salaries due to union agreements and meritocracy. Other administrative expenses Other administrative expenses increased by 9.7% to R$78.4 million for the year ended December 31, 2013, compared to R$71.5 million for the year ended December 31, This increase was primarily the result of an increase in expenses associated with advertising and publicity in connection with our rebranding. Taxes Taxes increased by 7.5% to R$41.4 million for the year ended December 31, 2013, compared to R$38.5 million for the year ended December 31, This increase was primarily due to the increase in our operations income upon which PIS and COFINS calculations are based. Other operating income Other operating income increased 96.7% to R$100.9 million for the year ended December 31, 2013, compared to R$51.3 million for the year ended December 31, 2012, primarily due to (i) tax contingency recoveries (Finsocial and fixed rate notes withholding tax), (ii) amounts received in respect of tax proceedings settled under the 2009 Amnesty Program and (iii) the increase of R$28.5 million in exchange rate income from U.S. dollar-denominated investments in our Cayman Islands Branch (which investments we hedge in the domestic market, with the results allocated to the line item Gains on derivative financial instruments ). Other operating expenses Other operating expenses increased by 281.4% to R$26.7 million for the year ended December 31, 2013, compared to R$7.0 million for the year ended December 31, 2012, primarily due to the establishment of provisions in the amount of R$17.4 million in 2013 mainly relating to labour contingencies. Operating income As a result of the factors described above, our operating income increased by 14.4% to R$396.7 million for the year ended December 31, 2013, compared to R$346.9 million for the year ended December 31, Our operating income corresponded to 25.5% and 25.9% of the total income from financial intermediation in 2013 and 2012, respectively. Non-operating expenses Non-operating expenses decreased by 72.7% to R$1.8 million for the year ended December 31, 2013, compared to R$6.6 million for the year ended December 31, This decrease in expenses was a result of decrease in the provision for impairment of assets received relating to enforcement of security held for loans. Income and social contribution taxes Income and social contribution taxes decreased by 27.3% to R$44.5 million for the year ended December 31, 2013, from R$61.2 million for the year ended December 31, 2012, primarily as a result of an increase in our deferred tax 74

75 assets reflecting temporary differences for 2013 compared to Income and social contribution taxes corresponded to 2.9% and 4.6% of our total income from financial intermediation for the years ended December 31, 2013 and 2012, respectively. Profit sharing Profit sharing increased by 56.4% to R$82.1 million for the year ended December 31, 2013, compared to R$52.5 million for the year ended December 31, 2012, primarily as a result of the implementation during 2012 of a new compensation plan, through which certain executives start to receive part of their variable compensation in the form of deferred shares over time, in accordance with CMN Resolution No. 3,921 of November 25, Net income As a result of the factors discussed above, our net income increased by 18.4% to R$268.3 million for the year ended December 31, 2013, compared to R$226.6 million for the year ended December 31, Net income represented 17.2% and 16.9% of our total income from financial intermediation for the years ended December 31, 2013 and 2012, respectively. Year ended December 31, 2012 compared with year ended December 31, 2011 The table below shows the main elements of our net income for the years ended December 31, 2012 and 2011: Year ended December 31, 2012 % of Total (1) 2011 % of Total (1) Variation (%) (R$ millions, except percentages) Income from financial intermediation... 1, , Expenses from financial intermediation... (933.7) (69.7) (749.7) (60.9) 24.5 Gross profit from financial intermediation (15.6) Other operating expenses, net... (58.9) (4.4) (75.5) (6.1) (22.0) Operating income (14.4) Non-operating expenses... (6.6) (0.5) (5.9) (0.5) 11.9 Income before taxes and profit sharing (14.8) Income and social contribution taxes... (61.2) (4.6) (94.0) (7.6) (34.9) Profit sharing... (52.5) (3.9) (69.4) (5.6) (24.4) Net income (4.0) (1) Percentage of total income from financial intermediation. Income from financial intermediation The table below sets forth the composition of our income from financial intermediation for the periods indicated: 75 Year ended December 31, 2012 % of Total 2011 % of Total (R$ millions, except percentages) Variation (%) Lending operations Marketable securities Gains (losses) on derivative financial (19.4)

76 Year ended December 31, 2012 % of Total 2011 % of Total Variation (%) (R$ millions, except percentages) instruments... Foreign exchange transactions... (15.4) (1.1) (76.9) (6.3) (80.0) Income from receivables acquired Income from financial intermediation... 1, , Income from financial intermediation increased by 8.9% to R$1,339.5 million for the year ended December 31, 2012, compared to R$1,230.5 million for the year ended December 31, 2011, due primarily to an increase in income from marketable securities and a reduction in expenses on our foreign exchange contracts, which were partially offset by a decrease in income on derivative financial instruments. A substantial part of our derivative transactions are linked to other assets and liabilities, and, consequently, the gain or loss on derivative financial instruments is largely offset by other income and expense line items. Lending operations Income from lending operations increased by 1.6% to R$932.2 million for the year ended December 31, 2012, compared to R$917.4 million for the year ended December 31, 2011, as a result of a 9.0% increase in the average volume of loans to R$8,048.9 million for the year ended December 31, 2012 from R$7,387.2 million for the year ended December 31, 2011, partially offset by a decrease in the average interest rate to 11.7% in 2012 from 12.4% in The growth in the average loan volumes was the result of the increase in loans to both medium-sized and large companies in 2012 compared to Marketable securities Income from marketable securities increased by 21.3% to R$283.9 million for the year ended December 31, 2012, compared to R$234.0 million for the year ended December 31, This increase was due to an increase in the average volume of securities to R$ 1,498.1 million for the year ended December, 2012 from R$1,128.5 million for the year ended December, 2011 which was partially offset by a decrease in average yield on such securities to 10.3% from 12.0%, resulting from the lower average SELIC rate in 2012 compared to 2011, and to an increase in the average volume of interbank investments to R$1,702.8 million for the year ended December 31, 2012 from R$1,066.8 million for year ended December 31, 2011 which was partially offset by decrease in average yield on such investments to 7.6% from 9.3% resulting from the lower average SELIC rate in 2012 compared to Gains (losses) on derivative financial instruments Gains (losses) from derivative financial instruments decreased 19.4% to an income of R$125.7 million for the year ended December 31, 2012, compared to R$155.9 million for the year ended December 31, Our derivative transactions consist of hedging transactions, including own account hedging transactions with respect to the U.S. dollar-denominated investments in our Cayman Islands Branch, and transactions carried out for our clients. Consequently, the gain or loss on derivative financial instruments is largely offset by other line items, including, with respect to the U.S. dollar-denominated investment in our Cayman Islands Branch, the other operating income and other operating expenses line items. Foreign exchange transactions Expenses from foreign exchange transactions decreased by 80.0% to R$15.4 million for the year ended December 31, 2012, compared to R$76.9 million for the year ended December 31, 2011, primarily due to the depreciation of the real against the U.S. dollar in Expenses from financial intermediation The table below sets forth the composition of our expenses from financial intermediation for the periods indicated: 76

77 Year ended December 31, 2012 % of Total 2011 % of Total (R$ millions, except percentages) Variation (%) Funding expenses Borrowings and onlendings Allowance for loan losses Allowance for loan losses exchange rate variation on credit assignment operations and foreign exchange portfolio... (0.3) (142.9) Expenses from financial intermediation Expenses from financial intermediation increased by 24.5% to R$933.7 million for the year ended December 31, 2012, compared to R$749.7 million for the year ended December 31, 2011, primarily due to an increase in funding expenses and an increase in provisions for loan losses. Expenses from financial intermediation represented 69.7% and 60.9% of income from financial intermediation for the years ended December 31, 2012 and 2011, respectively. Funding expenses Funding expenses increased by 20.9% to R$651.6 million for the year ended December 31, 2012, compared to R$539.0 million for the year ended December 31, 2011, primarily due to increased expenses from international debt offering which amounted to R$191.3 million in 2012 compared to R$150.4 million in 2011 as a result of the increase in average balance of international debt securities outstanding from R$498.9 million in 2011 to R$648.8 million in The increase in funding expenses also reflected an increase in interest expense on interbank deposits from R$71.1 million for the year ended December 31, 2011, compared to R$108.7 million for the year ended December 31, 2012, due to the increased average volume in interbank deposits from R$637.5 million in 2011 to R$1,172.7 million in 2012, and an increase in interest expense on the acceptance and issuance of securities from R$79.2 million for the year ended December 31, 2011, compared to R$135.1 million for the year ended December 31, 2012, due to increased average volume in acceptance and issuance of securities from R$763.0 million in 2011 to R$1,712.9 million in Although the average balance of time deposits increased from R$2,163.4 million in 2011 to R$2,373.0 million in 2012, the interest expense on these deposits decreased due to decrease in the average interest rate from 10.8% to 8.9%. Borrowings and onlendings Expenses from borrowings and onlendings increased 8.2% to R$171.2 million for the year ended December 31, 2012, compared to R$158.2 million for the year ended December 31, This increase was primarily the result of higher expenses related to foreign funding due to the increase in the average interest rate on foreign funding to 2.1% in 2012 from 1.4% in 2011 and the increase in the increase in average balance of foreign funding to R$1,658.3 million for the year ended December 31, 2012 from R$1,532.4 million for the year ended December 31, Allowance for loan losses The provision we established for loan losses increased 114.9% to R$111.1 million for the year ended December 31, 2012, compared to R$51.7 million for the year ended December 31, 2011, due to the 9.0% increase in the average volume of our loan portfolio from R$7,387.2 million for the year ended December 31, 2011 to R$8,048.9 million for the year ended December 31, 2012, and to lower credit ratings of our clients in accordance with Central Bank criteria as a result of a slowdown in economic conditions in Brazil during The closing balance of our allowance for loan losses was R$182.0 million at December 31, 2012 compared to R$133.1 million at December 31, Loans classified from AA to C totalled R$8,203.4 million (representing 96.7% of our total loan portfolio) and R$7,491.7 million (representing 97.6% of our total loan portfolio) as of December 31, 2012 and 2011, respectively. Gross profit from financial intermediation As a consequence of the factors described above, gross profit from financial intermediation decreased by 15.6% to R$405.8 million for the year ended December 31, 2012, compared to R$480.8 million for the year ended December 31, 77

78 2011. Gross profit from financial intermediation corresponded to 30.3% and 39.1% of our total income from financial intermediation for 2012 and 2011, respectively. Other operating expenses, net The table below sets forth the composition of our other operating expenses, net for the periods indicated: Year ended December 31, 2012 % of Total 2011 % of Total (R$ millions, except percentages) Variation (%) Income from services rendered (233.3) (166.1) 9.6 Personnel expenses... (130.6) (114.0) Other administrative expenses... (71.5) (64.9) Taxes... (38.5) 65.4 (40.3) 53.4 (4.5) Other operating income (87.1) 27.3 (36.2) 87.9 Other operating expenses... (7.0) 11.9 (9.0) 11.9 (22.2) Other operating expenses, net... (58.9) (75.5) (22.0) Other operating expenses, net decreased by 22.0% to R$58.9 million for the year ended December 31, 2012, compared to R$75.5 million for the year ended December 31, 2011, primarily due to the increase in other operating income and the increase in income from services rendered, which were partially offset by the increase in personnel expenses. Income from services rendered Income from services rendered increased by 9.6% to R$137.4 million for the year ended December 31, 2012, compared to R$125.4 million for the year ended December 31, 2011, primarily due to the increase in fees in connection with guarantees we granted (which amounted to R$104.2 million and R$90.7 million for the years ended December 31, 2012 and 2011, respectively). The volume of guarantees we granted increased in line with the growth of our overall credit portfolio. Personnel expenses Personnel expenses increased by 14.6% to R$130.6 million for the year ended December 31, 2012, compared to R$114.0 million for the year ended December 31, 2011, mainly due to the increase in our number of employees to 573 at December 31, 2012 from 531 at December 31, 2011 and an increase in salaries (due to our collective agreement with employees and merit increase) and employee benefits expenses. Other administrative expenses Other administrative expenses increased by 10.2% to R$71.5 million for the year ended December 31, 2012, compared to R$64.9 million for the year ended December 31, This increase was primarily the result of increases in expenses related to data processing, financial system services and rentals and was partially offset by a reduction in the cost of third party services. Taxes Taxes decreased by 4.5% to R$38.5 million for the year ended December 31, 2012, compared to R$40.3 million for the year ended December 31, This decrease was primarily due to the decrease in our operations income upon which PIS and COFINS calculations are based. Other operating income Other operating income increased 87.9% to R$51.3 million for the year ended December 31, 2012, compared to R$27.3 million for the year ended December 31, 2011, primarily due to the increase in exchange rate income from U.S. 78

79 dollar-denominated investments in our Cayman Islands Branch (which investments we hedge in the domestic market, with the results allocated to the line item Gains (losses) on derivative financial instruments ), which totalled income of R$38.2 million in 2012 compared to R$18.7 million in Other operating expenses Other operating expenses decreased by 22.2% to R$7.0 million for the year ended 2012, compared to R$9.0 million for the year ended December 31, 2011, primarily due to expenses of R$3.9 million in 2011 in connection with establishing tax and labour provisions. Operating income As a result of the factors described above, our operating income decreased by 14.4% to R$346.9 million for the year ended December 31, 2012, compared to R$405.3 million for the year ended December 31, Our operating income corresponded to 25.9% and 32.9% of the total income from financial intermediation in 2012 and 2011, respectively. Non-operating expenses Non-operating expenses increased 11.9% to R$6.6 million for the year ended December 31, 2012, compared to R$5.9 million for the year ended December 31, This increase was as a result of the provision for impairment of assets received relating to enforcement of security obtained for loans. Income and social contribution taxes Income and social contribution taxes decreased by 34.9% to R$61.2 million for the year ended December 31, 2012 from R$94.0 million for the year ended December 31, 2011, primarily as a result of the decrease in our profit before taxes for 2012 compared to 2011 and an increase in our deferred tax assets reflecting temporary differences for 2012 compared to Income and social contribution taxes corresponded to 4.6% and 7.6% of our total income from financial intermediation for the years ended December 31, 2012 and 2011, respectively. Profit sharing Profit sharing expense decreased 24.4% to R$52.5 million for the year ended December 31, 2012, compared to R$69.4 million for the year ended December 31, 2011, primarily as a result of the decrease in our net income in 2012 compared to 2011 and the implementation of a new compensation plan, through which certain executives start to receive part of their variable compensation in the form of deferred shares over time. Net income As a result of the factors discussed above, our net income decreased by 4.0% to R$226.6 million for the year ended December 31, 2012, compared to R$236.0 million for the year ended December 31, Net income represented 16.9% and 19.2% of our total income from financial intermediation for the years ended December 31, 2012 and 2011, respectively. 79

80 Liquidity and Capital Resources Overview Our asset and liability management policy is designed to ensure that our capital position is adequate for our risk profile. In particular, our policy is designed to avoid material mismatches between our assets and liabilities, optimise our risk-return ratio and ensure that we have sufficient liquidity to meet obligations for deposit withdrawals, repay other liabilities at maturity, make loans and enter into other transactions with our customers and meet working capital needs. Our treasury department is responsible for the diversification of our funding sources, management of cash availability and control of maturity dates, interest rates and currencies. Our treasury department follows the policies defined by our finance committee (formed by our senior management team, the head of our credit analysis area and key employees responsible for information management, risk management, trading and the pricing and liquidity areas), which meets on a weekly basis to discuss these policies and to assess their implementation. Our treasury department maintains what we believe is a proper balance between scheduled maturities and diversification of funding sources. With our current level of capital resources and capacity to access additional funding, we believe that our overall liquidity is sufficient to meet our existing obligations to our customers and creditors, satisfy anticipated changes in our asset and liability levels and fulfil our ordinary course working capital needs. Liquidity Our general policy is to maintain adequate liquidity to ensure that we can meet our current and future financial obligations and to capitalise on business opportunities as they arise. Our liquid assets mainly consist of interbank investments and marketable securities. We seek to maintain access to diversified funding sources at reasonable cost, within the framework of our asset and liability management policy, which establishes limits with respect to risks, interest rate sensitivity, funding gaps and limitations of asset concentration in certain instruments, such as federal government securities. As a bank controlled by the Arab Banking Corporation, we benefit from its operational and credit support, which in turn allows us access to a wider range of funding sources on competitive terms, with respect to both cost and maturity. We believe that our average cost of funding is currently lower than that of a majority of midsized banks operating in the Brazilian market. See Business Sources of Funding. Our liquidity policy is approved by our board of directors and by our controlling shareholder. Our liquidity policy includes monitoring internal and external factors related to our liquidity, and improving our short- and long-term management through identification processes, assessment, monitoring and reporting to our management and to our treasury department of the liquidity risk. We have a contingency plan to be implemented in the event of an impending liquidity crisis. This contingency plan includes actions such as the use of supplementary limits, a reduction in loan renewals, a partial or complete halt to the granting of new loans and the sale of our loan portfolios. We may also issue bank deposit receipts allocated with a special guarantee by the FGC (Depósitos a Prazo com Garantia Especial do FGC or DPGE ). DPGEs consist of financial instruments under which we (acting as borrower) promise to pay the holder of a DPGE (acting as lender) the principal on maturity plus accrued interest for the term of the DPGE. As per CMN Resolution No. 4,222 of May 23, 2013, as amended, unsecured DPGEs will decrease gradually, by 20% per year, beginning in January at 40%, until they cease to be issued in January 2016 and are completely phased out by The total amount of DPGEs issued by a financial institution may not be higher than R$5.0 billion, until December 31, 2014, and R$3.0 billion after January 1, As of the date of this Offering Memorandum, we have not issued any DPGEs. In addition, in the event of an impending liquidity crisis, financial institutions can obtain funding with the Central Bank by means of re-discount transactions. Re-discount transactions consist of a credit line granted by the Central 80

81 Bank at interest rates higher than the market rates to financial institutions facing a liquidity crisis, which are guaranteed by federal government securities owned by the financial institution in its portfolio. As of the date of this Offering Memorandum, we have not entered into any re-discount transactions with the Central Bank. We monitor the maturity flow of our assets and liabilities, our funding portfolio with and without liquidity and the level of client diversification within our lending portfolio in order to reduce our exposure to any particular client. Our policy of liquidity risk management is in compliance with the rules of the Central Bank and the principles established by our controlling shareholder applicable to all of its branches and subsidiaries. Among the external factors that we consider in the context of liquidity risk management are the prevailing economic and regulatory environments, as well as market liquidity. By establishing parameters and monitoring the political and economic environments, both locally and internationally, we determine our strategic level of liquidity, monitor our net assets and the portfolio mismatches, assess liquidity risks in terms of concentration and reliance on deposits, and measure the potential risk in market crisis situations. The global financial markets crisis did not materially affected our liquidity position, we believe as a result of our proactive management of our loan portfolio, the support of our controlling shareholder and the relatively stable economic environment in Brazil. While liquidity in the Brazilian banking industry was to some extent affected by the global financial markets crisis starting in the second half of 2008, the Central Bank provided sufficient liquidity to the Brazilian market during this period. In addition, our securities portfolio predominantly consists of Brazilian government securities, and, consequently, we did not have a high level of exposure to the international downturn in the capital markets in Funding Sources We have access to several domestic and foreign funding sources, with different types of investors (companies, pension funds, investment funds, banks, etc.). Our choice of source of funding is based on demand from clients and the characteristics of the available lines of credit (interest rates, terms, index rates, etc.). The tables below provide certain details relating to our funding sources as of the dates indicated: As of December 31, Total % Total % Total % (R$ millions, except percentages) Demand deposits Time deposits... 3, , , Interbank deposits , Money market funding , Obligations from loans... 2, , , Obligations from onlending transactions... 2, , , Securities issued abroad , Agribusiness Credit Notes... 1, Real Estate Credit Notes Finance bills 2, , Subordinated debt... 1, Total... 13, , ,

82 Demand deposits Our balance of demand deposits was R$42.4 million as of December 31, 2013, R$46.3 million as of December 31, 2012 and R$189.2 million as of December 31, Time deposits A significant part of our funding comes from time deposits. As of December 31, 2013, our time deposits totalled R$3,087.8 million, compared to R$2,618.5 million as of December 31, 2012 and R$2,207.5 million as of December 31, Normally, these deposits are documented through the issuance of CDBs, with fixed and floating rates. Interbank deposits We take interbank loans from Brazilian financial institutions in open market transactions. Our balance of interbank deposits was R$432.2 million as of December 31, 2013, R$1,065.9 million as of December 31, 2012 and R$919.0 million as of December 31, Obligations from loans These include funding from loans obtained outside Brazil. Obligations from loans were R$2,473.4 million as of December 31, 2013, R$1,670.5 million as of December 31, 2012 and R$1,420.8 million as of December 31, Obligations from onlending transactions (BNDES and FINAME) These include funding from onlending within Brazil (BNDES and FINAME). Obligations from onlending transactions were R$2,343.8 million as of December 31, 2013, compared to R$1,854.3 million as of December 31, 2012 and R$2,181.5 million as of December 31, Securities issued abroad We had securities issued abroad of R$230.1 million as of December 31, 2013, representing the issue of R$250 million senior notes issued under our Global Medium-Term Note Program in March Agribusiness Credit Notes (LCAs) LCAs are credit notes that are freely negotiable and represent an unconditional promise of payment in cash, issued exclusively by financial institutions related to credit rights originated from transactions conducted between rural producers and their co-operatives and agents of the agribusiness production chain. LCAs increased to R$1,117.8 million as of December 31, 2013 from R$956.4 million and R$809.3 million as of December 31, 2012 and 2011, respectively. Real Estate Credit Notes (LCIs) LCIs are credit notes that are freely negotiable and represent an unconditional promise of payment in cash, issued exclusively by financial institutions related to credit rights originated from real estate loans. LCIs increased to R$256.3 million as of December 31, 2013 from R$153.1 million and R$78.3 million as of December 31, 2012 and 2011, respectively. Finance Bills (LFs) LFs increased to R$2,150.5 million as of December 31, 2013 from R$1,189.0 million and R$44.0 million as of December 31, 2012 and 2011, respectively. Additional Sources of Funding As a bank controlled by the Arab Banking Corporation, we benefit from its operational and credit support, which in turn allows us access to a wider range of funding sources on competitive terms, with respect to both cost and maturity. See Business Sources of Funding. In addition, we maintain a contingency plan for funding approved by our board of directors. The contingency plan for funding is highly detailed and shows the measures to be taken in an emergency situation. The objectives of the contingency plan for funding are: 82

83 maintenance of an appropriate level of total liquid assets; assessment and projection of the need for funding in several scenarios; and management of the access to funding. Under our contingency plan for funding, in the event of an emergency funding situation, we may take steps which include the following: sell liquid assets; request and access lines of credit available from third parties; issue DPGEs; request and access liquidity available from our controlling shareholder; assign credits and other receivables to other institutions; and access rediscount transactions with the Central Bank. These steps do not necessarily follow in the order shown and are subject to prevailing market conditions. Use of Funds Our primary use of funds involves granting loans to our clients, especially loans to clients in the corporate segment and, on a smaller scale, the midsized business segment. The following tables present a summary of our loan transactions, as of the dates indicated: As of December 31, Total % Total % Total % (R$ millions, except percentages) Loans... 4, , , Financing BNDES/FINAME... 1, , , Financing Export... 1, , Foreign onlending Foreign currency loans Credit linked to credit assignment operations Direct consumer credit Secured accounts Acquisition of receivables Advances on export contracts and interest Financing Rural Other Financing Notes receivables Other receivables Total... 9, , , Allowance for loan losses... (199.7) (182.0) (133.1) Loan portfolio recorded on balance sheet after provisions... 9, , ,

84 As of December 31, 2013, 96.8% of our total loan portfolio was classified between levels AA and C, compared to 96.7% and 97.6% as of December 31, 2012 and 2011, respectively. Overdue loans, as a percentage of our total loan portfolio, were 0.4% as of December 31, 2013, compared to 0.4% and 0.3% as of December 31, 2012 and 2011, respectively. Compulsory Central Bank deposits In compliance with the Central Bank s requirements applicable at each date, our compulsory deposits amounted to R$3.1 million, R$6.3 million and R$50.9 million as of December 31, 2013, 2012 and 2011, respectively. For more information on compulsory deposits requirements, see Principal Factors Affecting our Financial Condition and Results of Operations Compulsory Deposit Requirements. Cash Flow The following tables set forth the main changes in our cash flows for the periods indicated: (Audited) Year ended December 31, (R$ millions) Operating Activities Net income for the year Depreciation and amortization Provision (Reversion) for BNDU depreciation Loss on disposal of fixed assets and assets not for use (0.3) Allowance for loan losses Contingency provision (1.5) 5.9 Adjustment to market value securities and derivatives... (5.4) Adjustment to net income Adjusted net income for the year (Increase) Decrease in interbank investments... (725.3) (Increase) Decrease in marketable securities and derivative financial instruments (assets/liabilities)... (981.3) (490.0) (349.7) (Increase) Decrease in lending operations... (1,541.4) (510.0) (137.7) (Increase) Decrease in other credits and other assets... (753.6) (1,137.0) (71.4) (Increase) Decrease in interbank accounts (assets/liabilities) (40.3) (25.7) (Decrease) Increase in interbranch accounts... (4.0) 6.5 (12.6) Increase (Decrease) in other liabilities , Increase in deferred income Changes in assets and liabilities... (3,160.3) (754.1) (451.5) Cash Flow used in Operating Activities... (2,792.9) (403.2) (145.8) Investing activities Sale of assets not for own use Sale of fixed and intangible assets Purchase of assets not for use... (10.3) (24.2) (17.5) 84

85 (Audited) Year ended December 31, (R$ millions) Purchase of fixed assets... (5.9) (7.8) (9.1) Establishment of reserves Cash Flow used in Investing Activities (21.7) (21.4) Financing Activities Increase (Decrease) in deposits... (168.4) Increase (Decrease) in money market funding Increase (Decrease) in borrowings and onlending... 1,292.4 (77.5) (129.8) Increase in acceptance and issuance of securities... 1, , Treasury stocks... (20.5) (1.6) (4.1) Capital raising Increase on equity capital... (85.6) (86.9) (80.6) Cash Flow provided from Financing Activities... 2, , Increase (Decrease) in Cash and Cash Equivalents... (120.4) 1, Cash and Cash Equivalents Cash and cash equivalents at beginning of year... 1, Cash and cash equivalents of end of year... 1, , (120.4) 1, Capital Adequacy We must observe certain rules regarding minimum capital and capital adequacy requirements, according to the regulations established by the Central Bank, which has adopted the main guidelines of the Basel I and II Accords and has started to implement the recommendations of the Basel III Accord. See Principal Factors Affecting our Financial Condition and Results of Operations Capital Adequacy. The following table presents some of our capital positions compared to total risk-based assets, as well as the minimum capital requirements by the Central Bank, on the indicated dates: Year ended December 31, (R$ millions, except percentages) Tier I... 1, , ,498.6 Tier II Reference shareholders equity... 2, , ,072.5 Minimum capital requirement (1)... 1, , ,459.7 Margin on minimum capital requirement (2) Capital adequacy ratio (3) 14.8% 15.9% 15.6% 85

86 (1) Shareholders equity with the level of risk in the asset structure of a financial institution, as defined in accordance with the regulations of the Central Bank. (2) Difference between our reference shareholders equity and the minimum capital requirement. (3) Percentage of equity in relation to risk-weighted assets, in accordance with CMN Resolution No. 4,193 for the year ended December 31, 2013 and CMN Resolution No. 3,490 for the years ended December 31, 2012 and The Basel III Framework The G20 s December 2010 conference approved the Basel III Accord that had been proposed by the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, to address the market failures revealed by the global financial crisis. The purpose of this reform is to enhance capital and liquidity management rules for financial institutions, strengthening the banking sector s ability to absorb shocks arising from financial and economic stress situations. The first measure requires financial institutions to strengthen their capital levels. Principal capital mainly comprises share capital (common shares and preferred shares that cannot be redeemed or accrue dividends), plus retained earnings, less amounts related to regulatory adjustments (goodwill, intangibles, deferred tax assets, and others). After making all deductions, the Basel III Accord will require banks to maintain: (i) a principal capital ratio of at least 4.5%, (ii) a Tier I capital ratio of at least 6% and (iii) a minimum reference shareholders equity ratio of 8%. The Basel III Accord recommendations stipulate altered capital requirements for counterparty credit risk, both for the standard approach and for internal risk rating based approaches ( IRBs ) in order to ensure inclusion of material risks in capital structure. In addition to new definitions of capital and minimum requirements, two more requirements are to be introduced: conservation buffer and countercyclical capital. Conservation buffer will be supplementary to the regulatory minimum requirements and consists of components accepted for calculating principal capital. Its purpose is to have financial institutions upgrade their ability to absorb losses above the minimum required in favourable periods of the economic cycle, so that the added capital may be used as a buffer in times of stress. According to the schedule stipulated, conservation buffer should be introduced as of January 1, 2016, when it would amount to 0.625% of RWA and gradually rise to 2.5% of RWA by January 1, Countercyclical capital is to ensure that the capital held by financial institutions will cover risks arising from alterations in the macroeconomic environment. Countercyclical capital must also consist of elements accepted as part of regulatory capital and will be required in the event of excessive leverage associated with a potential build-up of systemic risk. Under the Basel III Accord, the initial requirement will be limited to 0.625% of RWA, to be gradually increased following the schedule, which may reach a maximum of 2.5% of RWA by January 1, The Basel III Accord recommends implementation of a leverage ratio as a supplementary capital measure, to be calculated by dividing Tier I capital by total exposure. For calculating total exposure, the Basel III Accord uses accounting data net of provisions, without deducting any credit risk mitigator or deposits. Financial institutions are expected to start calculating their leverage ratios as of January 1, 2013, and to disclose their contents and components used to calculate them as of January 1, As of January 1, 2018 there is to be a minimum requirement for the leverage ratio, which was originally set at 3%. In order to determine minimum requirements for quantitative liquidity of financial institutions, the Basel III Accord proposes two liquidity ratios: one short-term and the other long-term. The purpose of the short-term liquidity ratio, or liquidity coverage ratio ( LCR ), is to show that institutions have sufficient high-liquidity funds to withstand a one-month financial stress scenario. The purpose of the long-term liquidity ratio, or net stable funding ratio ( NSFR ), is to encourage institutions to finance their activities from more 86

87 stable sources of funding. The expected requirement will be a ratio of more than one (1) for the LCR as of January 1, 2015 and the NSFR as of January 1, The Implementation of the Basel III Framework in Brazil Brazil has been a member of the Basel Committee on Banking Supervision since late 2009 and must therefore apply the Basel III Accord proposals. On February 17, 2011, the Central Bank enacted Communication No. 20,615 containing preliminary guidelines and a non-binding schedule for implementing recommendations on capital structure and liquidity requirements. In Brazil, the implementation of the Basel III Accord began in March 2013 with the issuance of a new framework by the Central Bank. Accordingly, CMN Resolutions No. 4,192 and 4,193, of March 1, 2013, as amended, determined, among other things, that Brazilian financial institutions must comply with new minimum capital requirements and established new rules for the calculation of the reference capital (patrimônio de referência, or reference shareholder s equity ), which is the basis for the determination of minimum regulatory capital. Such rules are effective since October 1, 2013 and will be gradually increased until January Further rules were issued by the Central Bank on March 4, 2013 providing for new mechanisms for calculating the different portions of the RWA of financial institutions. See Brazilian Banking System and Industry Regulation Banking Industry Regulation Guidelines for Capital Adequacy. Among the changes introduced by this new set of rules, it is important to highlight: (i) the introduction of the concept of quasi-financial institutions (instituições assemelhadas); (ii) the necessity of consolidation of financial statements of such quasi-financial institutions; (iii) the issuance of new rules for the calculation of the components of the reference shareholder s equity, including Principal Capital and Complementary Capital, both of which comprising the so-called Tier I Capital. Quantitative and Qualitative Disclosure of Market Risks Risk and risk management In the normal course of our activities, we are exposed to a number of risks that are inherent in banking activities. The way in which we identify and manage these risks bears a direct influence on our activities and operations and, consequently, on our results. The most significant risks to which we are exposed are: market risk; liquidity risk; credit risk; and operational risk. Market risk We identify market risk through the impact on the value of our assets, liabilities and derivatives of variations in the interest rate curves and exchange rate. Market risk is controlled by the risk department, which reports to the Chief Risk Officer. For purposes of assessing market risk, we analyse our loan and treasury portfolios on the basis of types of risks presented, as follows: Local interest rates Transactions in Brazil that involve interest rates, including: loans in reais at fixed and floating rates; government bonds; and 87

88 interbank deposits futures, interbank deposits options, interest rate swaps, etc. International interest rates Foreign transactions that involve interest rates, including: loans granted to borrowers outside of Brazil; government bonds (Globals, Treasuries); corporate bonds (Eurobonds); and futures contracts, global bonds options. U.S. dollars/real exchange rates Transactions in Brazil indexed to foreign currencies, including: loans granted to borrowers in Brazil; government bonds; and dollar futures contracts, exchange rate swaps, futures contracts, options. Stock exchange Stock exchange transactions include our investments in: stock; and stock options, stock index futures, index options. Based on these classifications, we assess our market risk every day by calculating the Value at Risk ( VaR ) and some sensitive measures such as DV01. All positions are marked to market prices and curves and then the VaR is calculated based on the information obtained in the last 252 business days, with a confidence level of 99.0%. We calculate the VaR for each item of our portfolio and the total risk value, taking into consideration all possible correlations. This allows us to identify whether the potential risks are tolerable within our operational context. The executive officers and the heads of treasury are informed every day about the positions and the risk exposures taken. In addition, we create a stress scenario containing a hypothetical curve that we consider plausible in a breach scenario. Using this curve, we are able to measure its potential impact on our results and consider these risks as being the maximum for this category. The limits used in this analysis are established by the risk committee of our controlling shareholder, our board of directors and our finance committee Interest rate sensitivity Management of interest rate sensitivity is a key component of our assets and liabilities management policy. Interest rate sensitivity results from exposure to the risk of changes in the interest rates we encounter in relation to market interest rates. In any given period, the pricing structure is considered to be balanced when an equal volume of assets and liabilities reaches maturity or is renewed at the same time. Any mismatching between asset revenues and the cost of liabilities represents a gap in the position. A negative gap indicates liabilities sensitivity and generally indicates a decrease in interest rates that would have a positive effect on net interest income. On the other hand, a positive gap indicates assets sensitivity and generally indicates that a decrease in interest rates would have a negative effect on net interest income. These ratios are subject to material daily fluctuations due to market forces and management decisions. Our interest rate sensitivity strategy takes into consideration: rates of return; 88

89 underlying degree of risk; and liquidity requirements, including minimum mandatory cash reserves, mandatory liquidity ratios, capital costs and additional funding requirements. We monitor our maturity differences and positions and manage them within the limits previously established by our finance committee. Our positions are reviewed by our treasury department on a daily basis and are modified when market conditions change. The following table sets forth the maturity dates for our assets and liabilities as of December 31, In addition, changes in interest rate sensitivity may occur within periods set for repricing assets, due to differing repricing dates. Changes may also arise between the different currencies in which our interest positions are held. As of December 31, days days days 1 3 years 3 5 years More than 5 years Unspecified maturity Total (R$ millions) Assets Cash and banks Interbank investments... 2, ,403.4 Marketable securities and derivative financial instruments ,979.9 Interbank accounts Loan transactions , , , ,973.6 Other credits , ,615.0 Other Permanent Investments Fixed assets, net Intangibles Total assets... 3, , , , , ,259.7 Liabilities and shareholders equity Demand deposits Interbank deposits Time deposits , , ,087.8 Money market funding Acceptance and issuance of securities , , ,754.7 Interbranch accounts Borrowings , ,473.4 Onlendings , ,343.8 Derivative financial instruments Other liabilities , ,875.2 Deferred Income

90 As of December 31, days days days 1 3 years 3 5 years More than 5 years Unspecified maturity Total (R$ millions) Shareholders equity , ,917.5 Total liabilities and shareholders equity... 1, , , , , , ,259.7 The table below shows the composition of our time deposits portfolio by maturity as of December 31, 2013: As of December 31, 2013 Balance % of total (R$ millions) Up to 3 months... 1, From 3 months to 12 months... 1, From 1 year to 3 years Over 3 years Total... 3, Exchange rate sensitivity Most of our transactions are denominated in reais. However, we also have obligations denominated in or indexed to foreign currencies, primarily the U.S. dollar. Our consolidated foreign exchange exposure amounted to R$86.4 million, equivalent to 3.2% of our reference shareholders equity as of December 31, Our consolidated exchange rate exposure is equal to the difference between the assets and the liabilities that are indexed to floating exchange rates, including derivative financial instruments at market value. Pursuant to Resolution No. 3,488 of August 29, 2007, the CMN requires that financial institutions maintain a net exposure of assets and liabilities that are indexed to floating exchange rates and gold of not more than 30.0% of the respective reference shareholders equity. The table below presents the elements of our assets and liabilities and our consolidated exchange rate exposure, as of December 31, 2013: As of December 31, 2013 (R$ millions) Assets Cash and marketable securities... 1,798 Loan transactions... 2,740.5 Foreign exchange portfolio Other Derivative financial instruments... 6,057.1 Total assets... 11,725.6 Liabilities and shareholders equity Funding... 4,873.6 Foreign exchange portfolio... 1,283.4 Other Derivative financial instruments... 4,690.2 Total liabilities... 11,

91 As of December 31, 2013 (R$ millions) Net open position We carry out transactions with short-term derivative financial instruments to manage our exchange rate exposure and to assist our clients in managing their own respective exposures. These transactions involve various types of derivative financial instruments, including interest rate swaps, currency swaps, futures contracts and options. Liquidity Risk See Liquidity and Capital Resources. Credit Risk The credit risk we are exposed to represents the possibility of not receiving the payment of principal and interest under the loans that we grant or having to honour the claimed guarantees. We maintain two separate credit analysis departments, one for midsized business segment and one for corporate segment. All cases are presented to a committee and must be unanimously approved. In addition, we monitor exposure in the overall industry to avoid concentration in specific segments. See Business Credit Risk Approval and Monitoring. Operational Risk Operational risk consists of losses resulting from inadequate or failed internal processes, people and systems, or from external events. We are also exposed to legal risk, due to inadequate or unenforceable contracts, non-compliance with orders and regulations and compensation required to be paid to third parties. 91

92 BUSINESS Overview We are a multiple service bank that specialises in granting loans to medium-sized and large Brazilian companies. We believe our client base is one of the most diversified in terms of lending products among midsized banks in Brazil. Due to our diversified portfolio of products, our agile decision-making processes and our experience in credit risk analysis, we have been able to generate significant income over the past several years. We believe we are among only a few midsized Brazilian banks controlled by foreign shareholders that maintain substantial autonomy with respect to their lending activities and credit approval procedures in Brazil. See Business Credit Risk Approval and Monitoring. Over the past 20 years, we have built a solid client base by offering value-added financial products customised to the needs of our clients. Our principal activity is granting loans to: (i) medium-sized companies, with annual revenues between R$50.0 million and R$500.0 million, which we refer to as the midsized business segment; and (ii) large companies, with annual revenues above R$500.0 million, which we refer to as the corporate segment. We believe that our credit analysis skills are evidenced by the historically low default rates of our loan portfolio which, over the 10 year period ended December 31, 2013, averaged 0.6% of our total loans. Loans to large companies currently represent our principal source of revenues and our corporate portfolio accounted for 77.6%, 75.5% and 75.7% of our total loan portfolio as of December 31, 2013, 2012 and 2011, respectively. We recorded net income of R$268.3 million for the year ended December 31, 2013, corresponding to a return on average equity of 14.9% and a return on average assets of 1.9%, compared to net income of R$226.6 million for the year ended December 31, 2012, corresponding to a return on average equity of 14.3% and a return on average assets of 1.9%, and net income of R$236.0 million for the year ended December 31, 2011, corresponding to a return on average equity of 16.6% and a return on average assets of 2.4%. Our credit portfolio, including guarantees granted, as of December 31, 2013 totalled R$16.9 billion, compared to R$14.7 billion as of December 31, 2012 and R$12.9 billion as of December 31, We offer our clients a wide range of financial products, including (i) loans denominated in reais and foreign currencies; (ii) trade finance; (iii) underwriting and structuring advisory services for capital markets transactions, including fixed-income products, such as debentures and commercial paper, as well as structuring FIDCs; (iv) arrangement of syndicated loans in Brazil and abroad; (v) onlending under lines of credit granted by the BNDES; (vi) mergers and acquisitions; and (vii) derivatives, including hedges, options and swaps. Many of these products, due to their sophistication, are offered by our competitors only to companies in the corporate segment. We believe that we are one of only a few midsized banks in Brazil to offer sophisticated financial products and services to companies in the midsized business and corporate segments, which represent a large market of existing and, in our view, potential clients. In addition to our client-focused products and services, we enter into proprietary trading transactions with our own funds in both the Brazilian and international markets through market, interest rate and exchange rate arbitrage. Our policy with respect to these treasury operations is to act conservatively while seeking to profit from market opportunities. We benefit from the operational and credit support of our controlling shareholder, which is one of the largest banks in the Middle East and Northern Africa. Our controlling shareholder has operations in 18 countries. Although we operate with substantial autonomy with respect to our activities, we believe that the support of our controlling shareholder enhances both our solid financial position and our ability to obtain funding from diversified sources on competitive terms with respect to cost and maturity. As of December 31, 2013, 2012 and 2011, approximately 65%, 70% and 74%, respectively, of our funding was obtained from Brazilian sources and 35%, 30% and 26%, respectively, of our funding came from foreign sources, consisting mainly of credit lines granted to us by foreign banks. In the Brazilian market, our main sources of funding consist of (i) CDBs sold to companies and institutional investors, (ii) onlending under lines of credit granted by the BNDES and (iii) LCAs. 92

93 Until recently, the Central Bank required that banks in Brazil comply with regulations similar to those recommended by the Basel II Accord for sufficiency or adequacy of share capital in relation to risk-weighted assets, which include loan transactions and other credits granted to our clients. In March 2013, the Central Bank began to implement the Basel III Accord in Brazil, which gradually increases the regulatory capital requirements until 2019, commencing on October 1, See Risk Factors Risks Relating to the Brazilian Banking Industry Minimum capital requirements imposed on the banking system may negatively affect our results of operations and financial condition. As of December 31, 2010, our capital adequacy ratio was 16.0%, primarily as a result of the issue, on April 8, 2010, of U.S.$300 million aggregate principal amount of subordinated notes due 2020 which were approved by the Central Bank to qualify as Tier II capital. We issued a second tranche of the same series of subordinated notes in the aggregate principal amount of U.S.$100 million on October 9, 2012, which were approved by the Central Bank to qualify as Tier II capital. As of December 31, 2013, our capital adequacy ratio was 14.8%. See Brazilian Banking System and Industry Regulation Banking Industry Regulation Guidelines for Capital Adequacy. Strengths We believe that our main competitive strengths include the following: Experience in assessing the credit risk of Brazilian corporations Our experience in assessing credit risk is one of the key factors that has enabled us to grant loans efficiently, minimise risks and increase profitability. Throughout over 20 years of experience in granting loans, we have developed a credit risk assessment method that has allowed us to grant loans profitably and with lower risks of default. We require that all personnel involved in granting loans be appropriately trained in assessing credit risk and participate in the entire loan approval process and subsequent credit risk monitoring. We believe our method of assessing credit risk has contributed significantly to our historically low loan default rates in each of the midsized business and corporate segments in which we operate. In addition, our expertise in assessing credit risk allows us to explore new market segments and industry sectors. Our average loan loss ratio for the 10 years ended and for the year ended December 31, 2013 was 0.6% and 0.8%, respectively. Diversified activities and customised products and services We offer a wide range of financial products to medium-sized and large companies, reducing our risks and fostering client loyalty. We believe the diversification of the products we offer, complemented by the range of clients to whom we sell such products, represents one of our competitive advantages over most other midsized Brazilian banks, which generally do not offer a range of products as wide as ours, as well as over most large banks, which generally offer a wider range of products but typically only to companies in the corporate segment. At the same time, by virtue of our size, we are able to work more closely with clients relative to larger banks to understand their specific needs and develop customised products to suit their individual demands. We are among the few midsized banks in Brazil with successful underwriting and structuring operations in the domestic fixed-income capital markets, enabling us to compete in these areas with large Brazilian and multinational financial institutions, including Banco do Brasil S.A., Banco Bradesco S.A., Banco Santander (Brasil) S.A. and entities of the Itaú Unibanco group. We have operated in the Brazilian capital markets since Experienced management team and agile decision-making processes Our highly qualified management team has extensive financial experience with sufficient autonomy to make executive decisions without undue delay and has been able to identify and take advantage of opportunities in various market segments and under diverse market conditions. We believe that the experience and qualifications of our professionals, together with our proven ability to motivate them to produce results and to maintain the quality of our products and services (including through incentive-based variable remuneration), are key factors to the successful implementation of our strategies. In addition, our management works through specialised committees that meet frequently to evaluate new transactions, business opportunities and strategies in an agile, rapid and efficient manner. 93

94 Strong controlling shareholder and stringent corporate governance practices We are a Brazilian bank controlled by the Arab Banking Corporation, one of the largest banks in the Middle East and in Northern Africa. Our board of directors has eight members, seven of which are appointed by our controlling shareholder. The chairman of our board of directors, Dr. Anwar Ali Al Mudhaf, is also a member of the board of directors of our controlling shareholder, and three other directors (Mr. Paul Henry Jennings, Mr. Vernon Handley and Mr. Roy Hannay Gardner) are also members of the management of our controlling shareholder. The Arab Banking Corporation is headquartered in Bahrain, operates in 18 countries through its subsidiaries and branches, is a publiclyheld company controlled by the Kuwait Investment Authority and the Central Bank of Libya, and is listed on the Bahrain Stock Exchange. As a bank controlled by the Arab Banking Corporation, we benefit from its operational and credit support, which in turn allows us access to a wider range of funding sources on competitive terms, with respect to both cost and maturity. We are committed to high standards of corporate governance and adhere to the practices required by the Level 2 listing segment of the BM&FBOVESPA. Although we provide reports on our business activities to our controlling shareholder on a monthly basis and follow the general guidelines that it establishes, our management operates independently from our controlling shareholder. Currently, two of the members of our board of directors are independent, in compliance with the Level 2 rules (which require at least 20% to be independent members). At the request of our controlling shareholder, we have established a risk assessment committee that reports to our board of directors. Strategies We intend to continue to expand and strengthen our business by implementing the following strategies: Continue to focus on the corporate segment We intend to maintain our focus on large companies, which currently represent the largest share of our client base, representing 77.6%, 75.5% and 75.7% of our total loan portfolio as of December 31, 2013, 2012 and 2011, respectively. We expect to continue to be able to offer customised financial solutions to meet our existing clients needs. Furthermore, we plan to improve our sales efforts in the corporate segment with the goal of further expanding our loan portfolio client base as well as offering new products to our existing clients through cross-selling. Expand our operations in the midsized business segment The loan market for medium-sized companies in Brazil represents a key opportunity for our business. The smaller number of banks due to consolidation within the Brazilian financial system, together with the difficulties faced by some competing midsized banks to obtain adequate funding, has resulted in reduced lending activity by many competing Brazilian midsized banks. This has reduced the availability of credit lines for companies in the midsized business segment. Moreover, the typical spreads obtainable in this market segment are usually higher than those in the corporate segment, which, together with our competitive funding costs, create profitable opportunities. As of December 31, 2013, we had 12 sales teams specialised in medium-sized companies, in addition to 6 sales teams specialised in large companies. We have business platforms in 9 Brazilian states and the Federal District, with a presence in 21 cities: São Paulo, Bauru, Campinas, Ribeirão Preto, São José do Rio Preto, Sorocaba, Curitiba, Londrina, Blumenau, Criciúma, Caxias do Sul, Novo Hamburgo, Passo Fundo, Porto Alegre, Rio de Janeiro, Belo Horizonte, Uberlândia, Brasília, Goiânia, Campo Grande and Cuiabá. Increase our market share in capital markets transactions The consolidation of traditional practices in Brazilian macroeconomic policy over recent years has stimulated the development of the Brazilian capital markets. In addition, we expect capital markets issuances by Brazilian companies in several industry sectors to increase as they seek funding to make investments needed to improve productivity and reduce Brazil s output gap. We expect to benefit from this environment and to accelerate our growth in this segment. Using our experience and expertise in underwriting and structuring capital market transactions, our strategy is to increase our market share in this segment, increasing both the size and number of transactions in which we participate. 94

95 Use our experience and operating structure to benefit from any new market opportunities We believe that our experience and operating structure will allow us to identify potential opportunities in new market segments and enter into any new markets in the future. We intend to invest in the development of our team and our operating structure to increase our ability to identify new markets and create new products and services. Maintain stringent credit approval criteria and conservative risk management policies We believe that our credit analysis skills and stringent credit approval criteria, with an emphasis on the ability of our customer to repay the loan, have enabled us to expand our credit portfolio while experiencing low default rates of our loans. We also impose conservative limits on our treasury operations in order to maintain our low VaR. We intend to maintain our policy of continuous monitoring and risk evaluation in respect of both the credit quality of our customers and the market risks to which we are exposed. Our History We were initially incorporated and registered with the Commercial Registry of Rio de Janeiro under number NIRE on December 27, 1983 as Banco Roma de Investimentos S.A., a financial institution then controlled by the Roberto Marinho group. In 1989, Arab Banking Corporation acquired 50% of the shares in Banco Roma and in 1991, our current management, a team of Brazilian professionals with significant experience in the financial industry, was appointed. In 1993 we moved our headquarters to São Paulo, and registered with the Commercial Registry of São Paulo under number NIRE In 1997, the Arab Banking Corporation acquired the other 50% of the shares in Banco Roma and sold 18% of the total shares in Banco Roma to the senior management. In that same year, our corporate name was changed to Banco ABC Brasil S.A. On July 23, 2007, we registered with the CVM under number and our shares became publicly traded on the Level 2 listing segment of the BM&FBOVESPA. Our principal offices are located at Av. Pres. Juscelino Kubitschek º andar, São Paulo, SP, , Brazil, and the contact numbers and address of our investor relations department are: telephone ; fax ; ri@abcbrasil.com.br. Our Corporate Structure The chart below presents our corporate structure as of December 31, 2013, with ownership of shares of common stock and preferred stock indicated as CS and PS, respectively, and total capital stock indicated as TCS : 95

96 Arab Banking Corporation (B.S.C.) (Bahrain) 100% CS Market (Free Float) Shares held in Treasury Marsau Uruguay Holdings Sociedad Anónima (Uruguay) Management (Directors and executive officers) 66.16% PS 33.04% TCS 4.51% PS 2.26% TCS 57.65% TCS 89.70% CS 25.53% PS 7.05% TCS 10.30% CS 3.79% PS Banco ABC Brasil S.A. (Brazil) 99.99% TCS ABC Brasil Administração e Participações Ltda. (Brazil) 99.99% TCS ABC Brasil DTVM S.A. (Brazil) Controlling Shareholder We are controlled by the Arab Banking Corporation, an international bank headquartered in Bahrain with its stock traded on the Bahrain Stock Exchange. As of December 31, 2013, the total equity of the Arab Banking Corporation was U.S.$3.9 billion, total assets amounted to U.S.$26.5 billion. In addition to its operations in Brazil through our bank, the Arab Banking Corporation has operations in 17 other countries. Subsidiaries and Controlled Companies ABC DTVM is a corporation, authorised by the Central Bank as a securities broker/dealer, headquartered at Av. Pres. Juscelino Kubitschek º andar, São Paulo, SP, , Brazil. We hold 99.99% of its capital stock and Mr. Tito Enrique da Silva Neto holds the remaining 0.01% ABC Administração is a limited liability company headquartered at Av. Pres. Juscelino Kubitschek º andar, São Paulo, SP, , Brazil. We hold 99.99% of its capital stock and Marsau Comercial Exportadora e Importadora Ltda. holds the remaining 0.01% of its capital stock. Our Business Activities Corporate Segment Our operations in the corporate segment represent our principal source of revenue. As of December 31, 2013, our credit portfolio (including guarantees issued) in this segment amounted to R$14,590.6 million among 549 clients, compared to R$12,579.3 million and 532 clients as of December 31, 2012 and R$10,949.8 million and 518 clients as of December 31, Our transactions in this segment had an average balance of R$26.6 million and an average term of 372 days (including BNDES onlending) as of December 31, 2013, compared to R$23.6 million and 355 days as of December 31, 2012 and R$21.1 million and 364 days as of December 31, As of December 31, 2013, these transactions represented 86.3% of our credit portfolio (including guarantees issued), compared to 85.5% as of December 31, 2012 and 85.2% as of December 31,

97 The principal products that we offer to our corporate clients are: (i) (ii) (iii) (iv) (v) (vi) general loans, including: working capital (Brazil and abroad); onlending of BNDES credits; foreign currency onlending; revolving credits; export credit notes (notas de crédito à exportação or NCEs ); receivables financing/payables financing; acquisition of credit rights; and syndicated credit facilities; underwriting and structuring advice, including: debenture issuances: commercial paper issuances; and structuring of FIDCs; trade finance transactions, including: advances on exchange and export contracts; export prepayment and related structured transactions; import financings; and letters of credit; guarantees, including: bank guarantees; bid bonds; performance bonds: and stand-by letters of credit; treasury operations, including: swaps; derivative operations; government securities; foreign issued public and private securities; bank certificates of deposit; exchange rate operations; and futures operations at the BM&FBOVESPA; funding activities, including: bank certificates of deposits; Agribusiness Credit Notes; 97

98 (vii) real estate letters of credit; and local bonds; offshore products, including: bank certificates of deposit; time deposits; and operations with foreign securities. We serve our corporate segment through our existing business infrastructure in the cities of São Paulo, Riberão Preto, Rio de Janeiro, Curitiba, Porto Alegre, Campinas, Campo Grande, Cuiabá, Goiânia and Blumenau. We have two teams in São Paulo responsible for servicing São Paulo and its neighbouring cities. Our Campinas facility services the interior and the midwest region of the state of São Paulo. The offices in the cities of Curitiba and Porto Alegre support our operations in the South region. Our Rio de Janeiro facility is responsible for servicing the state of Rio de Janeiro, the state of Espírito Santo and the Northeast region. In the corporate segment, our physical infrastructure is not fundamental to our success because business with this type of client is typically explored and developed through meetings between clients and our commercial and products teams. Midsized business segment Our credit operations (loans and guarantees issued) to midsized business have grown significantly and, as of December 31, 2013, 2012 and 2011, totalled R$2,311.6 million outstanding among 991 clients, R$2,134.0 million outstanding among 997 clients and R$1,905.0 million outstanding among 892 clients, respectively, and represented 13.7%, 14.5% and 14.8% of our credit portfolio (including guarantees issued) as of those dates, respectively. Our transactions in this segment had an average balance of R$2.3 million, R$2.1 million and R$2.7 million, and had an average term (excluding BNDES onlending) of 270 days, 227 days and 211 days, as of December 31, 2013, 2012 and 2011, respectively. The spread for this segment is generally higher than the spreads for the corporate segment and is generally backed by receivables; however, we believe that the clients in this sector have a higher default risk, particularly in unfavourable economic conditions, than clients in the corporate segment. We constantly monitor the collateral given in connection with these transactions in order to ensure the repayment of our operations. We believe that there is a great potential for growth in the midsized business segment in Brazil. Our principal products for the midsized business segment are: (i) (ii) (iii) loan transactions, including: working capital; resolving credit; receivables financing payables financing; and acquisition of credit rights; trade finance transactions, including: advances on export contracts; import financing; and letters of credit; guarantees, including: bank guarantees; and stand-by letters of credit; and 98

99 (iv) exchange rate operations. We serve our midsized business clients through our 12 teams in the cities of São Paulo, Bauru, Campinas, Ribeirão Preto, São José do Rio Preto, Sorocaba, Curitiba, Londrina, Blumenau, Criciúma, Caxias do Sul, Novo Hamburgo, Passo Fundo, Porto Alegre, Rio de Janeiro, Belo Horizonte, Uberlândia, Brasília, Goiânia, Campo Grande e Cuiabá. Unlike the segments, the midsized business segment requires physical presence in locations throughout Brazil in order to provide access to this client base. Companies in this segment are smaller, less established and their relationships with us are more personal. Our Main Products Our main products include (i) corporate lending, (ii) underwriting, (iii) trade finance and (iv) guarantees (including bonds and standby letters of credit). Each of these product lines is discussed more fully below. Corporate lending The following discussion contains a description of the main types of loans that we offer to our corporate clients. BNDES onlending We act as an accredited BNDES financial agent, which enables us to onlend funds provided by BNDES to our midsized business and corporate clients. These funds are specially earmarked in order to support projects that contribute to the economic development of Brazil. Accordingly, borrowers of these funds must demonstrate that the relevant projects meet certain criteria established by BNDES. These lines of financing are normally granted through the BNDES financing programs FINAME (for equipment financing), BNDES Automático (loans for acquisition of equipment and investments granted through private financial institutions, including us) and FINAME Agrícola (for rural equipment financing). As of December 31, 2013, 2012 and 2011, our BNDES onlending portfolio totalled R$2,353.0 million, R$1,859.8 million and R$2,189.9 million, respectively, representing 23.7%, 21.9% and 28.5%, respectively, of our total loan portfolio. See Material Contracts. Revolving credit We provide revolving credit facilities to our clients. These facilities are usually secured by receivables that assure payment of amounts drawn down. Drawdowns under these facilities may be made upon the client s request. As of December 31, 2013, 2012 and 2011, revolving credit facilities amounted to R$236.9 million, R$330.3 million and R$351.1 million, respectively, representing 2.4%, 3.9% and 4.6%, respectively, of our total loan portfolio. Foreign currency loans We seek funding from other countries denominated in currencies other than reais and then onlend these foreign currency amounts to our clients. The principal amounts under these types of loans are indexed for adjustment according to fluctuations in the relevant exchange rate. Onlending in foreign currency is subject to regulations by the CMN. As of December 31, 2013, 2012 and 2011, foreign currency loans amounted to R$971.7 million, R$708.0 million and R$782.2 million, respectively, representing 9.8%, 8.3 % and 10.2%, respectively, of our total loan portfolio. Working capital We provide loans for working capital denominated in reais. This type of loan meets the short- or medium-term working capital needs of our corporate clients and is typically secured by a fiduciary assignment (cessão fiduciária em garantia) of streams of receivables originating from specific contracts or diversified credit rights of our client. Because each of the working capital loans that we offer is structured to meet the specific needs of the client, terms and conditions vary. Export credit notes (NCEs) The NCE is a type of loan represented by a credit note issued to finance exports, the production of export goods, or other activities relating to the export business. This type of financing is denominated in reais, and is secured by 99

100 payments receivable by the borrower in respect of future exports. NCEs constitute payment obligations in cash, through the issuance of a credit note secured with export products. Payables financing (or compror ) Payables financing consists of a loan offering a limited amount of credit to be used by a corporate client for the acquisition of inventory, raw material and services. We make payment directly to the suppliers, and our clients negotiate payment terms with us that are appropriate in light of their cash flows. Receivables financing (or vendor ) Receivables financing consists of a loan that allows a company to sell its goods on credit and be paid on demand. The seller transfers its receivable in respect of the goods sold to us and we, in exchange for a financial intermediation fee, make payment to the seller on demand, thus financing the buyer s payment obligations. The seller may jointly assume the buyer s default risk with us. Export notes Export notes are denominated in foreign currencies and issued in the Brazilian domestic market by an exporter. They represent export credit rights, and are secured with outstanding purchase and sale agreements between exporters and foreign importers. Our clients use these types of loans to finance their sales outside of Brazil. Underwriting We perform significant underwriting activities. In 2013, 2012 and 2011, we participated in transactions totalling R$2.4 billion, R$4.2 billion and R$1.3 billion, of which R$655 million, R$1,224 million and R$382 million represented our participation. Our structure allows us to perform substantial securities underwriting activities in Brazil and abroad, with a focus on fixed-income transactions. Among the principal operations in which we acted as underwriters in recent years are: December 2013: public offering of promissory notes of Transmissora Sul Litorânea de Energia S.A.; December 2013: public offering of debentures of Companhia Ligna de Investimentos; September 2013: public offering of promissory notes of Santa Vitória do Palmar Holding S.A.; September 2013: public offering of promissory notes of Maia e Borba S.A.; July 2013: public offering of promissory notes of Transmissora Sul Litorânea de Energia S.A.; June 2013: public offering of debentures of Concessionária Rodovias do Tietê S.A.; May 2013: public offering of promissory notes of RB Capital Commercial Properties S.A.; May 2013: public offering of debentures of OAS Empreendimentos S.A.; February 2013: public offering of debentures of Log&Print Gráfica e Logística S.A.; February 2013: public offering of debentures of Vértico Limeira Empreendimento Imobiliário S.A.; December 2012: public offering of debentures of Vértico Limeira Empreendimento Imobiliário S.A.; October 2012: public offering of debentures of Oceanic Incorporações e Administração S.A.; October 2012: public offering of mortgage-backed securities of TRX Realty S.A.; August 2012: public offering of debentures of MGI Minas Gerais Participações S.A.; August 2012: public offering of promissory notes of Livramento Holding S.A.; June 2012: public offering of debentures of Mineração Caraíba S.A.; 100

101 April 2012: public offering of debentures of Companhia Paulista de Securitização CPSEC; December 2011: public offering of debentures of Virgolino de Oliveira S.A.; December 2011: public offering of promissory notes of Brazilian Finance & Real Estate S.A.; December 2011: public offering of promissory notes of Concessionária Rodovias do Tietê S.A.; October 2011: public offering of debentures of Brazilian Securities Companhia de Securitização S.A.; July 2011: public offering of debentures of Veremonte Participações S.A.; June 2011: public offering of promissory notes of Concessionária Rodovias do Tietê S.A.; April 2011: public offering of promissory notes of Companhia Agrícola Caiuá S.A.; and February 2011: public offering of promissory notes of Brazilian Securities Companhia de Securitização S.A. The trend of growth of Brazil s GDP and the high volume of initial public offerings of Brazilian companies in recent years has led to a large number of mergers and acquisitions, both within Brazil and internationally. We established our merger and acquisitions operations in February 2008 with the intention to focus on the midsized business segment, where we feel that the lower level of involvement by large investment banks creates opportunities that we hope to continue to be able to exploit, taking advantage of our market profile, reputation and existing relationships with companies in that market segment. Trade finance The discussion below summarises the types of trade finance products that we offer to our clients in the import/export business: Advances on export contracts ACCs and ACEs An advance on export contracts (adiantamento sobre contrato de câmbio or ACC ) is an advance paid in reais to an exporter at the time, prior to shipment, that the exporter enters into an agreement setting the currency exchange rate to be applied to the purchase price of the goods to be exported. ACCs are used by companies to obtain payment in reais for the goods prior to shipment, making funds available immediately which can be applied to the manufacture of additional goods. We also offer advances on accepted commercial drafts (adiantamentos sobre cambiais entregues or ACE ), in which we advance payment for the exported goods to the exporter, but only after the goods have been shipped. Export prepayment Export prepayment is another type of export financing that advances funds to the exporter prior to shipment. In this type of loan, the borrowing export company obtains funding outside of Brazil for a term of usually more than 361 days, for the financing of up to 100% of the amount to be exported. Import financing Import financing allows a borrower to postpone its payment obligations to suppliers of imports, enabling the importer to match accounts payable with receivables. This is accomplished through an advance of proceeds in foreign currency, which the importer applies to make payment to the exporter abroad, financing the importer, in reais, with an exchange variation clause. Letters of credit A letter of credit is a basic instrument of international trade. It provides both purchasers and sellers, usually located in different countries, a mechanism that protects both parties. The letter of credit consists of a letter addressed to the bank of the seller from the bank of the purchaser authorizing it to make available to the seller a certain sum of money 101

102 subject to compliance with certain conditions, and providing, conditionally or unconditionally, the payment of such sum. Guarantees We grant several types of guarantees to our clients. These include bank guarantees, bid bonds, performance bonds and stand-by letters of credit, as described in more detail below. We record guarantees as off-balance sheet transactions. See Management s Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies Guarantees. As of December 31, 2013, 2012 and 2011, the guarantees granted by us to third parties amounted to R$6,992.2 million, R$6,232.4 million and R$5,180.9 million, respectively, as shown in the following table: As of December 31, (R$ millions) Guarantees Bank guarantees (including bid bonds and performance bonds)... 6, , ,161.8 Standby letter of credit Confirmed import/export credit Total... 6, , ,180.9 Bank guarantees As shown in the table above, bank guarantees comprise the overwhelming majority of our total guarantee portfolio. A bank guarantee is an obligation taken by us pursuant to which we become responsible for the settlement, in part or in full, of an obligation of our client, in case of default by our client. The bank guarantees that we offer are denominated in reais. In certain circumstances, monetary adjustment indexes, intended to adjust outstanding amounts for inflation, may be applied to the value of our obligations under guarantees, depending on the nature of the subject transaction. Bid bonds Bid bonds are guarantees issued to provide additional financial backing when needed by a Brazilian company in order to qualify to participate in international bidding contests. We offer this type of product to service Brazilian companies which render services abroad or export goods that have an approved line of credit with us. Performance bonds Performance bonds are guarantees issued to persons outside of Brazil to ensure the supply of goods and/or services by a Brazilian exporter. They are targeted at export companies that participate in international bidding contests or that have an obligation to deliver equipment or services outside of Brazil and that have an approved line of credit with us. Performance bonds provide assurance to the foreign counterparty of the performance by the Brazilian exporter of all terms and conditions established in the relevant commercial agreement, and they are supported by our ability to timely issue such guarantees and our wide network of foreign correspondent banks. Stand-by letters of credit Stand-by letters of credit are issued to companies that require a guarantee of payment for obligations contracted abroad. When we issue a stand-by letter of credit, we guarantee the payment of the obligation taken by our client. Treasury operations The primary function of our treasury operations is to ensure (i) appropriate liquidity levels for our loan transactions and (ii) an appropriately diverse mix of credit risk, maturity, currency and interest rate. Our treasury prioritises making 102

103 investments in highly liquid assets in order to secure the immediate availability of funds and protection against exchange and interest rate exposure. The main types of activities involved in our treasury operations are described below: Government bonds Our proprietary portfolio is comprised of highly liquid Brazilian government bonds such as treasury bills (Letras Financeiras do Tesouro or LFT ), treasury bonds (Notas do Tesouro Nacional or NTN ), NTN series F ( NTN-F ) and NTN series B ( NTN-B ), as well as Eurobonds issued by companies controlled by the Brazilian government. Swaps Swaps consist of the exchange of obligations; in particular, they constitute exchanges of income derived from reference rates or indexes applied to certain assets or liabilities. Swaps are usually currency exchange swaps or interest rate swaps (between fixed and variable interest rates). We perform swap transactions for our own account and on behalf of our clients. Non-deliverable forwards Non-deliverable forwards ( NDFs ) are derivative instruments for which the settlement amount is calculated by comparing the difference between the contracted forward exchange rate and the exchange rate at the contract s maturity date. NDFs are frequently used by export, import and other companies with assets or liabilities in foreign currency because they permit exchange rate hedging. Amounts, maturity and rates can be freely negotiated because NDFs are over-the-counter instruments. Securities issued abroad We purchase fixed-income securities issued abroad by Brazilian companies, such as Eurobonds, forfeiting assets, and syndicated loan positions. Transactions on the BM&FBOVESPA Our activities on the BM&FBOVESPA consist of transactions involving future exchange and interest rates that provide hedging for both our own and our clients positions. Branches We have branches in the cities of São Paulo, Rio de Janeiro, Campinas, Belo Horizonte, Curitiba, among others, which complement the administrative structure of our headquarters in the city of São Paulo and have low maintenance costs. We also have a branch in the Cayman Islands, which opened in May Our Cayman Islands Branch is used for international business development, international funding and foreign placement of securities of our corporate clients. The registered address of our Cayman Islands Branch is 190 Elgin Avenue, Grand Cayman, KY Cayman Islands. Sources of Funding Our sources of funding include institutional investors and foreign banks and investors that, together with corporate investors, provide us with a stable and diversified portfolio of funding sources. Our broad access to diverse sources of funding represents an important competitive advantage, reducing the execution risk of our expansion strategy. The operational and credit support of our controlling shareholder, combined with our performance and knowledge of the Brazilian market, provide stable and low-cost funding with access to both local and foreign investors and the flexibility to change the funding mix according to market conditions. We believe that our average cost of funding is currently lower than that of a majority of midsized banks operating in the Brazilian market. 103

104 Our international department is responsible for foreign funding through trade-related and non-trade-related operations. Non-trade-related operations consist primarily of promissory notes, time deposits and certificates of deposit issued by our Cayman Islands Branch. Trade-related funding operations consist of import- or export-related transactions associated with our business. The table below shows our domestic and international funding as of the dates indicated: As of December 31, (R$ millions) International funding... 4,686 3,124 2,233 Domestic funding... 8,612 7,396 6,227 Total... 13,298 10,520 8,460 The chart below shows the breakdown of the sources of our domestic and international funding, as a percentage of our total funding, as of December 31, Our international funding is comprised entirely of funding from financial institutions: Time deposits - CDB A significant part of our funding comes from CDBs. As part of our funding strategy, we issue CDBs at fixed or floating interest rates, plus spread, or linked to a certain index such as the Brazilian consumer price indexes as measured by the IGP-M or IPCA. In order to maintain liquidity, we continue to focus on our diversified portfolio of investors in the domestic and international markets. 104

105 The table below shows the composition of our time deposit portfolio by client profile as of the dates indicated: As of December 31, (R$ millions) Individuals Corporate entities... 2, , ,902.9 Non-affiliated financial institutions Total... 3, , ,207.5 Our domestic time deposit portfolio totalled R$ 2,238.1 million, R$2,249.1 million and R$2,049.5 million as of December 31, 2013, 2012 and 2011, respectively. Loan Portfolio Concentration As of December 31, 2013, 2012 and 2011, our 20 largest borrowers (including guarantees and responsibilities) accounted for R$4,701.2 million, R$4,182.8 million and R$3,436.2 million, respectively (or 27.8% 28.4% and 26.7% of our total credit portfolio as of such dates). Sector breakdown We have not established specific industry limits for our loan transactions. However, we assess the overall risk of our loan portfolio on a monthly basis in a manner that relies heavily on detailed breakdowns of information relating to the composition of our loan portfolio. These breakdowns, including an analysis of our outstanding loan portfolio by economic sector, are also used in strategic decision-making by our management. The following table presents a breakdown of our outstanding total loan portfolio by sector on the dates indicated: % of total loan portfolio As of December 31, (R$ millions) % of total loan portfolio (R$ millions) % of total loan portfolio (R$ millions) Agri-business , , ,114.9 Financial ,070.9 Real Estate Foods Telecommunications Transport Auto Parts Chemicals and Petrochemicals Machinery and Equipment Individuals Construction Textile and Manufacturing Wood and Furniture Education, Health and Other Social Services

106 % of total loan portfolio As of December 31, (R$ millions) % of total loan portfolio (R$ millions) % of total loan portfolio (R$ millions) Technology Industry Steel Metallurgy Others , Total , , ,673.9 Loan maturity As of December 31, 2013, 2012 and 2011, the average term of our outstanding loan portfolio was 297 days, 296 days and 293 days (excluding BNDES operations), respectively. The following table presents a more detailed breakdown of our loan portfolio by term on the dates indicated: % of total loan portfolio As of December 31, (R$ millions) % of total loan portfolio (R$ millions) % of total loan portfolio (R$ millions) Up to 3 months , , , to 12 months , , , to 3 years , , ,242.1 More than 3 years Past due amounts (after 15 days) Total , , ,673.9 Loan classification We categorise each of our loans in terms of risk based on economic performance, past experience and risks in connection with loan transactions, debtors and guarantors. We are required to classify our loan transactions in accordance with criteria set forth by the Central Bank. Pursuant to CMN regulations, as of (a) March 31, 2000, for loans which exceed R$500,000 and (b) July 31, 2000, for loans which exceed R$50,000 but are less than R$500,000, banks in Brazil are required to classify each loan in accordance with its level of credit risk as either: AA, A, B, C, D, E, F, G, or H. These classifications are determined in accordance with criteria set forth from time to time by the Central Bank relating to: (1) the financial condition of the debtor and any guarantor, including their economic and financial situation, level of indebtedness, capacity for generating revenues, cash flow, administration and quality of internal controls, punctuality/delay in payments, sector of activity, contingencies and credit limits; and (2) the characteristics of the transaction, collateral provided and the total amount of the credit. Loans involving a client in a particular industry sector must be analysed in light of the client s individual credit history, as well as similar transactions within that sector that represent the greatest credit risk to us. Loans of up to R$50,000 may be classified either by our own evaluation 106

107 method or according to the number of days by which such transaction is past due, whichever is more stringent. Income from operations in default for over 60 days, regardless of their level of risk, are only recorded as income after effective payment. Transactions classified as level H (100% provision) remain in this classification for six months, are then offset against the existing provision and maintained for five years in a clearing account, and are not included in the balance sheet. Restructured loans are maintained at least at the same level as that at which they were classified. Restructured loan transactions that had been paid against the provision and that were included in clearing accounts are classified as level H and any funds resulting from the renegotiation are only recorded as income after effective payment. The following table shows a percentage breakdown of our total loan portfolio classified by risk level in accordance with the Central Bank s rating system as of the dates indicated: Central Bank risk classification % of total loan portfolio As of December 31, (R$ millions) % of total loan portfolio (R$ millions) % of total loan portfolio (R$ millions) AA A , , ,886.9 B , , ,001.1 C , D E F G H Total , , ,673.9 Non-performing loans In accordance with the rules of the Central Bank, we have established specific provisions for doubtful loans in accordance with a delinquency schedule established by the Central Bank. The table below sets forth details of our total provision for doubtful loans for the periods indicated: As of December 31, Central bank risk classification (R$ millions) AA... A B C D E F G H

108 As of December 31, Central bank risk classification Total The table below sets forth a summary of our doubtful loans and certain of our assets. Our policy regarding the classification of doubtful loans is consistent with the policies of the Central Bank and includes credits classified as levels D to H. As of December 31, Central bank risk classification (R$ millions, except percentage) Total assets... 17, , ,510.8 Total loan portfolio... 9, , ,673.9 Credits from doubtful loans Doubtful loans as a percentage of the total loan portfolio % 3.3% 2.4% Doubtful loans as a percentage of the total assets % 2.1% 1.7% Provision for doubtful loans Provision for doubtful loans as a percentage of total loan portfolio % 2.1% 1.7% Provision for doubtful loans as a percentage of doubtful loans % 65.6% 73.1% The table below shows our provisions for loan losses and the volume of our loan portfolio by market segment for the periods indicated: As of December 31, Provisions Portfolio Provisions Portfolio Provisions Portfolio (R$ millions) Corporate market , , ,807.6 Midsized Business , , ,866.3 Total , , ,673.9 Capital ratios and minimum capital requirements CMN Resolution No. 2,099 of August 17, 1994 and subsequent amendments implemented minimum capital requirements and adequacy following the concepts determined by the Basel II Accord with certain changes. Under this regulation, Brazilian banks were required to maintain minimum regulatory capital based on net equity, adjusting assets according to risk. Until recently, the Central Bank required that banks in Brazil comply with regulations similar to those of the Basel II Accord for sufficiency or adequacy of capital (with certain exceptions - for example, the Central Bank requirement of a minimum capital adequacy ratio of 11% of risk-weighted assets as compared to the 8% recommended by the Basel II Accord). On September 12, 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced a substantial strengthening of existing capital requirements and fully endorsed previous agreements on the overall design of the capital and liquidity reform package, the Basel III Accord, presented during the Seoul G20 Leaders summit in November 11, In March 2013, the CMN and the Central Bank issued a new regulatory framework for the implementation of the Basel III Accord in Brazil. Accordingly, CMN Resolutions No. 4,192 and 4,193, of March 1, 2013, as amended, 108

109 determined, among other things, that Brazilian financial institutions must comply with new minimum capital requirements and established new rules for the calculation of the reference capital (patrimônio de referência, or reference shareholder s equity ), which is the basis for the determination of minimum regulatory capital. Such rules are effective since October 1, 2013 and will be gradually increased until January Further rules were issued by the Central Bank on March 4, 2013 providing for new mechanisms for calculating the different portions of the RWA of financial institutions. See Brazilian Banking System and Industry Regulation Banking Industry Regulation Guidelines for Capital Adequacy. Among the changes introduced by this new set of rules, it is important to highlight: (i) the introduction of the concept of quasi-financial institutions (instituições assemelhadas); (ii) the necessity of consolidation of financial statements of such quasi-financial institutions; (iii) the issuance of new rules for the calculation of the components of the reference shareholder s equity, including Principal Capital and Complementary Capital, both of which comprising the so-called Tier I Capital. Our reported capital adequacy ratio was 14.8%, 15.9% and 15.6% as of December 31, 2013, 2012 and 2011, respectively. Credit Risk Approval and Monitoring Financial stability is the principal guideline of our lending policy. For this reason, lending is always based on the client s ability to make repayments. Our credit approval process generally begins with a commercial visit to our prospective clients and the presentation of the business proposal from our commercial area to our credit risk assessment area. Our credit risk assessment area then visits the prospective client and conducts due diligence on its relevant information and documents. After conclusion of this due diligence process, our credit risk assessment area discusses its conclusions with our commercial area and submits the proposed transaction to our risk assessment committee for approval, if applicable, and subsequent disbursement of funds relating to the specific credit transaction. Our risk assessment committee has authority to approve loans of up to, depending on the rating of the client, R$150 million, or R$200 million if cash collateral is pledged in our favour, without the need for further approval from our controlling shareholder. We maintain two specialised committees for risk assessment and an agile and efficient decision-making process. One committee assesses the corporate segment and the other committee assesses the midsized business segment. In addition, we have an efficient credit department and a well-prepared front-office team that can detect changes in the financial condition of our clients. We closely control the quality of the collateral and guarantees granted to us through proprietary systems and the expertise of our experienced professionals. Our expertise in risk assessment and the constant monitoring of the financial health of our clients has been critical in situations of market fluctuations and has helped us to maintain our stability in different scenarios of crisis. For example, in 2001, we had a crisis in Brazil related to the shortage of electric power, together with a crisis followed by the terrorist attacks of September 11, 2001 and the default by the government of Argentina. In that year, our loan portfolio increased by 56.8% compared to the preceding year. Internal Audit and Compliance Audit committee We have established an audit committee. Our audit committee is composed of experienced professionals and is directly subordinated to the board of directors. In addition, we are audited by the auditors of our controlling shareholder. 109

110 Compliance We maintain a compliance department that is responsible for regulatory compliance, information security and money laundering prevention. Our compliance department is designed to manage legal, regulatory and reputational risks in order to support our activities. We have established a compliance and operational risk committee, which is managed by our compliance and operational risk department and is composed of vice-presidents and executive directors representing several of our departments. The compliance and operational risk committee s duties are to: (i) promote an operational risk management culture in the Bank, by means of communication, training and leadership initiatives; (ii) promote, discuss and implement risk management and compliance policies; (iii) establish processes and key controls; (iv) follow-up any risk raised by the compliance and operational risk committee, audit committee or any other department of the Bank; (v) propose corrective actions or plans; and (vi) settle any issues regarding conflict of interests. Brazilian Anti-Bribery Law On January 29, 2014, Law No. 12,846 of August 1, 2013 (the Brazilian Anti-Bribery Law ) came into force. We address the main issues relating to the Brazilian Anti-Bribery Law in our Code of Ethics, and provided training materials to our employees in connection with the new laws. In addition, circumstances which our employees suspect may violate the Brazilian Anti-Bribery Law are reported to our credit committees. Money Laundering Prevention Policy In order to comply with Central Bank money laundering prohibitions and other applicable money laundering laws and regulations, we regularly hold mandatory courses, seminars and conferences for our employees, aimed at preventing money laundering. Our money laundering prevention policy and procedures are co-ordinated and supervised by our compliance and operational risk committee and assessed regularly by both our audit committee and the auditors of our controlling shareholder. Our employees are trained to constantly monitor every transaction and situation that may encompass money laundering activities and to report any suspicious or atypical operations. We also identify and keep updated information about our clients through know-your-customer forms. Our employees make visits and then complete reports regarding a new client and a registration form containing detailed information about the client. All documents supporting this information are requested, analysed and filed. In addition, we periodically monitor the accuracy of the information and documentation provided by the client. Repayment of loans is usually made through cheques or wire transfers. Repayments made in cash are only accepted after the approval of the executive officer responsible for money laundering prevention together with the Central Bank. Competition The financial services market in Brazil is highly competitive. Since 1990, the banking industry in Brazil has been going through a period of consolidation. Some banks were liquidated, many major state-owned banks were privatised, large international banks started or increased their operations in Brazil and many midsized private sector banks were sold. In 2008, the Brazilian banking industry experienced significant consolidation, which included the mergers of certain of the largest banks in the industry, such as Banco Santander with Banco Real, Banco Itaú with Unibanco and Banco do Brasil with Nossa Caixa. In the corporate segment, our principal competitors are large multi-service banks including Banco do Brasil, Banco Bradesco, Banco Itaú Unibanco and Banco Santander, among others. 110

111 In the midsized business segment, we face competition not only from large banks such as Banco do Brasil, Banco Bradesco, Banco Itaú Unibanco, Banco Santander and Banco Safra, among others, but also from midsized banks specialised in the midsized business segment, including Banco Daycoval, Banco Industrial e Comercial BicBanco and Banco Fibra. Information Technology We constantly invest in technology in order to improve our operating structure, choosing systems developed by reputable and specialised companies in order to decrease implementation and maintenance costs. We have developed a corporate database to reflect data from different systems, and we are investing in solutions that provide higher levels of homogeneity and consistency of information contained in databases across various systems. As a result, we have built a modern technological environment with broad processing capacity, capable of meeting our expanding needs. This operating structure, among other factors, allows us to benefit from opportunities in the market by quickly developing new products in order to better meet the needs of our clients. In order to meet the requirements of our geographically diverse operations, we need electronic interactive solutions for both us and our clients and have invested in internet and other solutions that give higher levels of operating independence. We also maintain an off-site backup to ensure continuity of our basic operations in the event of a main site failure. Our IT investment in 2011 was directly related to improving our operations control, increasing our portfolio of products and services, reducing operational risk and complying with legal and regulatory requirements. In 2012, the focus of our IT investment was on banking applications that will improve efficiency, decrease operational risks and improve security. In 2013, we continued to focus our IT investments on banking applications mostly related to credit and collateral management, and started the replacement of our core loans processing system to improve overall system performance and reduce operational risk. As a result of these investments, our IT systems are adequate to support our current operations and planned growth. Human Resources Employees As of December 31, 2013, 2012 and 2011, we employed 581, 591 and 554 people, 561, 573 and 531 of which were employees and 20, 18 and 23 interns, respectively. The table below shows the breakdown of our staff by front office and back office staff, as of the dates stated: As of December 31, Department Front Office Back Office Total Payroll and benefits As of December 31, 2013, 2012 and 2011, our total payroll was R$12.2 million, R$12.5 million and R$10.7 million. R$8.0 million, R$8.2 million and R$7.0 million corresponded to wages as of December 31, 2013, 2012 and 111

112 2011, respectively, and R$4.2 million, R$4.2 million and R$3.7 million corresponded to labour, social security and tax charges as of December 31, 2013, 2012 and 2011, respectively. These expenses include our employee benefit package, which is composed of: health insurance, transportation vouchers, meal vouchers, food vouchers, day-care discounts and group life insurance. All the benefits that we offer comply with the applicable collective bargaining agreement and our compensation policy. Unions Our employees are represented by the National Confederation of Employees in the Financial Sector (Confederação Nacional dos Trabalhadores do Ramo Financeiro) and the National Confederation of Employees in the Credit Sector (Confederação Nacional dos Trabalhadores em Empresas de Crédito). We are represented by the National Banks Federation (Federação Nacional dos Bancos). The collective bargaining agreements applicable to our employees are renewed annually and are subject to changes in Brazilian legislation. We believe we have good relations with our employees and unions, and have had no strikes or stoppages that have affected our activities during the past seven years. Incentive-based variable remuneration In 2009, we initiated a variable remuneration program in order to implement a more objective model of profit sharing. Each of our employees is set a series of projects, objectives or goals, both individually and in collaboration with other areas within the organization, to contribute to our growth and improve our levels of efficiency. Performance is evaluated on the basis of the employee s success in achieving the targets set and remuneration is calculated accordingly. Training and development In 2009, we initiated an annual institutional training program pursuant to which we offer a number of undergraduates the opportunity to gain exposure to the work carried out by our various departments. In the years ended December 31, 2013, 2012 and 2011, we invested R$1.3 million, R$1.7 million and R$1.3 million, respectively, in training and development to improve the quality of our employees and services, with a total of 581, 552 and 362 employees participating in sponsored training programs in 2013, 2012 and 2011, respectively. Social and Environmental Responsibility We invest in social, environmental and cultural programs. In the years ended December 31, 2013, 2012 and 2011, we invested R$1.3 million, R$1.6 million and R$1.8 million in social, environmental and cultural programs, respectively, including Reciclar - Instituto de Reciclagem, Programa Social Gotas de Flor com Amor, Sociedade Beneficiente A Mão Branca, Instituto Adecon, Instituto de Cidadania Empresarial, FUMCAD and Instituto Manabu Mabe. Real Property We lease our headquarters and all of our branches and facilities. As of December 31, 2013, we owned 141 properties, most of which are located in the states of Bahia, Goiás, Minas Gerais and São Paulo, as a result of enforcements and foreclosure procedures in connection with defaulted loan transactions. In compliance with Central Bank regulations, these properties must be sold within a year from the date of acquisition or any other period as determined by the Central Bank. Most of the properties we own were acquired over a year ago, but the Central Bank has extended the period for which we can keep them. Insurance We currently maintain insurance policies covering real estate properties located in the cities of São Paulo, Campinas, Londrina, São José do Rio Preto and Sorocaba for damage caused by fire, lightning and explosion. In addition, we maintain insurance policies covering equipment located in our offices and branches located in the cities of 112

113 São Paulo, Campinas, Riberão Preto, Rio de Janeiro, Belo Horizonte, Goiânia, Cuiabá, Campo Grande, Curitiba, Londrina, Blumenau, Criciúma and Porto Alegre. The amount covered varies depending on the value of the property. We have a directors and officers liability insurance policy, which provides personal liability and financial loss protection to senior management in the event they are sued in connection with the performance of their duties as corporate officers. We have a separate policy for professional liability and we also purchase coverage for fraud under a bankers blanket bond. In addition, we have a general liability insurance policy, which covers third party personal injury or property damage claims resulting from the operation of our business. We offer a group life insurance policy to our employees, which covers death by any cause, total or partial disability by accident and total disability by disease. The amount covered is limited to R$600,000. We maintain this insurance policy with Bradesco Vida e Previdência S.A. We believe these insurance policies adequately cover our current requirements. Material Contracts Euro Certificate of Deposit Program In June 2002, we established a Euro Certificate of Deposit Program (the CD Program ) through our Cayman Islands Branch with ABC Brasil Banking Limited as the arranger and HSBC Bank plc as the paying agent. Pursuant to the CD Program, we may issue certificates of deposit with maturities of not less than seven and not more than 365 days, up to an aggregate outstanding amount of U.S.$300.0 million. Certificates of deposit issued under the CD Program may bear fixed or floating interest rates, or may be issued at a discount, and must have denominations of U.S.$1,000, U.S.$10,000 or U.S.$100,000. We had no certificates of deposit outstanding pursuant to the CD Program as of December 31, BNDES onlending We perform BNDES and FINAME financings as accredited onlending agents. As of December 31, 2013, our onlending portfolio comprised approximately agreements, in the total amount of R$2,353.0 million, which represented 23.7% of our loan portfolio. We face no maturity or interest rate mismatch risks in connection with these loans because the Brazilian government funds them by matching the onlending. However, we are exposed to the credit risks relating to the borrowers. See Our Main Products BNDES onlending. Global Medium-Term Note Program We established our U.S.$3.0 billion Global Medium-Term Note Program in January Pursuant to this program, we have the ability to issue fixed rate, floating rate and zero coupon notes in a number of currencies with maturities ranging from seven days to 30 years from the date of issuance. As of December 31, 2013, we had notes outstanding under this program in the principal amount of U.S.$577.6 million. Tier II Notes On April 8, 2010, we issued the Tier II Notes in the aggregate principal amount of U.S.$300.0 million. The qualification of the Tier II Notes as Tier II capital was approved by the Central Bank on May 3, We issued a further U.S.$100 million in aggregate principal amount of Tier II Notes on October 9, 2012 and the qualification of such Tier II Notes as Tier II capital was approved by the Central Bank on November 8, The scheduled maturity date of the Tier II Notes is April 8, Intellectual Property We have filed three applications to register the brand Banco ABC-Brasil with the Brazilian Institute of Industrial Property (Instituto Nacional de Propriedade Industrial) in the categories relating to our activities. We own the registered brand names ABC-Brasil Corretora de Valores Mobiliários and ABC-Brasil Distribuidora de Títulos e Valores Mobiliários. 113

114 We also own the domain names arabbanking.com.br, abcbrasil.com.br, abcbrazil.com.br, bancoabc.com.br, bancoabcbrasil.com.br and marsauasset.com.br, all of which are duly registered with the Information and Coordination Center Dot BR (Núcleo de Informação e Coordenação do Ponto BR), the body responsible for registering domain names in Brazil. We own no patents or other intellectual property rights. We believe that there is no patent or intellectual property right, lack of ownership of which would have an adverse effect on our business. Legal and Administrative Proceedings We are party to a number of legal and administrative proceedings as plaintiffs and defendants relating to tax, labour and civil matters. We believe that the provisions we have recorded in respect of these proceedings are sufficient to cover any probable losses. We believe that no single ongoing legal or administrative claim, if resolved unfavourably to us, would materially affect our financial condition, results of operations, business activities or corporate image. As of December 31, 2013, our total claims (including tax, labour and civil matters) involving probable and possible risk of loss corresponded to approximately R$108.0 million and we recorded R$17.6 million of provisions in respect of these claims, based on the opinion of our external counsel. Tax matters In June 2009, we decided to participate in the 2009 Amnesty Program. As a result of our participation in the 2009 Amnesty Program, several of the tax proceedings in which we were involved were settled, subject to ratification by the Brazilian IRS. The main proceedings which were settled related to (i) the offset of taxes acquired from third parties, (ii) COFINS, (iii) CSLL, (iv) PIS and (v) IRPJ. In November 2013, following our decision to withdraw our outstanding tax liabilities from the 2009 Amnesty Program, we included our tax liabilities in respect of PIS and COFINS in the 2013 Amnesty Program and paid in full all remaining tax liabilities that had been withdrawn from the 2009 Amnesty Program. We also included outstanding IOF tax liabilities in the 2009 Amnesty Program. See Management s Discussion and Analysis of Financial Condition and Results of Operations Principal Factors Affecting our Financial Condition and Results of Operations Participation in government amnesty programs relating to tax liabilities. As of December 31, 2013, we were party to several legal and administrative tax proceedings involving possible losses in the total amount of approximately R$75.0 million. Our main tax proceedings are described below. Income tax and social contribution on net income in connection with accumulated profits of a foreign-controlled entity In January 2001, we filed a writ of mandamus to obtain a preliminary injunction against the inclusion of our accumulated profits resulting from the sale of the shares of ABC Brasil Banking Ltd. in our results for purposes of calculating income and social contribution taxes. We obtained a favourable decision in the lower federal court and the regional federal court. An appeal (embargos de declaração or petition for clarification) was filed by the Brazilian government. We estimate the value of this contingency to be R$9.0 million. Our external counsel classifies the risk of loss arising from this claim as possible. Service Tax (ISS) We are involved in proceedings relating to the payment of ISS, mainly in connection with guarantees given during the period from 1994 to We estimate this contingency to be approximately R$31.4 million. Our external counsel classifies the risk of loss arising from this claim as possible. Social Security Charges (INSS) We are involved in proceedings relating to the payment of pension charges, mainly in connection with our profit sharing programme, during the period from 2006 to We estimate this contingency to be approximately R$31.6 million. Our external counsel classifies the risk of loss arising from these claims as possible. 114

115 Social Insurance Contributions (COFINS) We are involved in administrative proceedings related to COFINS contributions not ratified by the Brazilian IRS in certain periods of 2008 and We estimate this contingency to be approximately R$2.8 million. Our external counsel classifies the risk of loss arising from this claim as possible. Labour proceedings As of December 31, 2013, we were defendant in labour proceedings with probable risk of loss amounting to approximately R$4.7 million. We have made a provision for the full amount in connection with these matters. Civil proceedings As of December 31, 2013, we were defendant to civil proceedings with possible risk of loss amounting to approximately R$28.5 million. The most material proceedings to which we are defendant are: a proceeding for the annulment of a debit from the bank account of a company which is the guarantor on a credit transaction. We estimate the total value of this contingency to be R$16.7 million and our external counsel classifies the risk of loss arising from this claim as possible; and a proceeding for the indemnification of the sale price difference related to securities sold by us. Such securities were previously granted as collateral to us by the plaintiffs. We received a favourable decision on this matter from the lower court, which was upheld by the court of appeal. Various experts are currently determining the value of the securities. We estimate the amount in dispute to be R$11.2 million. Based on our external counsel s opinion and the developments of this action, the likelihood of an unfavourable decision in this matter is possible. 115

116 MANAGEMENT Pursuant to our by-laws, we are managed by a board of directors (Conselho de Administração) and a board of executive officers (Diretoria). We are also managed by an executive committee (Comitê Executivo) responsible for taking certain specific decisions as described below. Our general management, whenever falling out of the scope of our executive committee, will be carried out by our executive officers, in accordance with the guidelines set forth by our board of directors. Our by-laws provide for the establishment of a non-permanent fiscal council (Conselho Fiscal) that may be installed at the request of our shareholders. In accordance with Central Bank regulations, we also have an ombudsman service (Ouvidoria) in our organizational structure. We have constituted an audit committee (Comitê de Auditoria) and, more recently, a compensation committee (Comitê de Remuneração). Board of Directors Pursuant to our by-laws, our board of directors is composed of a minimum of five and a maximum of nine directors, of whom at least 20% must be independent directors. Should this percentage result in a fractional number, our board of directors may proceed to round it up, if the fraction is equal to or higher than 0.5, or down, if lower than 0.5. Therefore, if our board of directors comprises eight members, at least two members must be independent directors. The minutes of the shareholders meeting that elects the independent director must identify this member of our board of directors as such. Our board of directors is responsible for defining our general business policies and overall guidelines, including our long-term strategies, and for controlling and monitoring our performance. The duties of our board of directors include, among other things, electing or removing our executive officers and supervising the management team. The members of our board of directors are elected by our shareholders. The current members of our board of directors were elected for a two-year term, re-election being permitted. The board members may be removed at any time pursuant to a decision of a shareholders meeting. All our directors must be individuals who may or may not reside in Brazil. As a result of the execution of an agreement to join the Level 2 segment of the BM&FBOVESPA and of our adherence to the Level 2 rules, our elected directors are required to execute an instrument of adherence to this regulation and our agreement with the BM&FBOVESPA prior to taking office. In addition, under our by-laws, the members of our board of directors are required to adhere to the regulation of the market arbitration chamber established by the BM&FBOVESPA. Currently, our board of directors is composed of eight members, three of whom are independent directors. The term of office of our directors should extend until replaced by their deputies. The chief executive officer will participate in the board meetings with no voting rights. Insofar as we are aware, there are no conflicts, or potential conflicts, between any duties to us of any of the members of our board of directors and their private affairs. The members of our board of directors were elected by a resolution of our shareholders dated April 23, 2014, which resolution is pending the approval of the Central Bank. The table below shows the names, age, position, date of election and business address of the members of our board of directors as of the date of this Offering Memorandum: Name Age Position Date of election Business address Anwar Ali Al Mudhaf Chairman of the board of directors April 23, 2014 Tito Enrique da Silva Neto Vice-chairman April 23, 2014 Roy Hannay Gardner Director April 23, 2014 Ricardo Uchoa Alves de Lima (1) Director April 23, 2014 ABC Tower-Diplomatic Area, Manama, Bahrain, 5698 Av. Pres. Juscelino Kubitschek, 1400, 4 andar, São Paulo, SP ABC Tower-Diplomatic Area, Manama, Bahrain, 5698 Av. Pres. Juscelino Kubitschek, 1400, 4 andar, São Paulo, SP 116

117 Name Age Position Date of election Business address Edgar Azevedo Uchôa (1) Director April 23, 2014 Av. Pres. Juscelino Kubitschek, 1400, 4 andar, São Paulo, SP Vernon Handley Director April 23, 2014 ABC Tower-Diplomatic Area, Manama, Bahrain, 5698 Paul Henry Jennings Director April 23, 2014 Arab Banking Corporation House, 1-5 Moorgate, London, EC2R 6AB Guilherme de Morais Vicente (1)(2) 33 Director April 23, 2014 Rua Joaquim Floriano, 413, 16º andar, São Paulo, SP (1) Independent director. (2) Subject to ratification by the Central Bank. Appointment by majority of preferred shareholders in accordance with Law No. 10,303. Below is a brief biographical description of each of the members of our board of directors: Anwar Ali Al Mudhaf. Dr. Al Mudhaf has been a member of our board of directors since 2004 and a member of the board of directors of the Arab Banking Corporation since Dr. Al Mudhaf has over 15 years of experience in banking and investment. He is currently a board member of the Oxford Institute for Energy Studies, Oxford University. Dr. Al Mudhaf is the chairman and chief executive officer of Al-Razzi Holding Company and was a professor of finance in Kuwait University. Dr. Al Mudhaf was a director of the board and investment committee of the Kuwait Public Institute for Social Security (PIFSS), vice-chairman of the Al-Mal Investment Company Kuwait (K.S.C.), director of Al-Ahli Bank of Kuwait, chairman of the International Bank of Asia (IBA) in Hong Kong, director of the Arab Banking Corporation in Egypt and adviser to the Financial and Economic Committee in the Parliament of Kuwait. Dr. Al Mudhaf holds a degree in business administration from Kuwait University, and an MBA and PhD in finance from the Peter F. Drucker School of Management at Claremont Graduate University in California. Roy Hannay Gardner. After qualifying as a chartered accountant in 1976, Mr. Gardner worked for seven years in Scotland holding senior accountant and finance, followed by twenty years in the Middle East working as a financial and bank executive in the area of corporate finance. From 1988 to 1995, he was responsible for developing the project and structured finance capabilities of Saudi American Bank, an affiliate of Citibank in Saudi Arabia. In 1995, he was appointed to re-launch and manage the operations of Schroder in Beirut, Lebanon. In 2002, he was transferred to Citibank in London, where he was responsible for the area of strategic planning of corporate and investment banking. From 2004 to 2005, he served as CFO, responsible for overall products in local finance for emerging markets. From 2006 to 2008, he was CFO of Citigroup in Russia. Before joining the Arab Banking Corporation, he was CFO of the global treasury and trade solutions division at Citibank in New York. Tito Enrique da Silva Neto. Mr. Silva Neto has been a member of our board of directors since 1991 and was our chief executive officer between 1991 and Since 1969, Mr. Silva Neto has worked in various areas of the Brazilian banking sector. He started his career at Banco Finasa de Investimentos S.A., as a junior analyst, and was appointed the vice-president of the board of executive officers of such institution in Mr. Silva Neto was an executive officer and general vice-president of Banco do Estado de São Paulo S.A. and was the chief executive officer of Banco Itamarati S.A. Mr. Silva Neto studied industrial engineering at the Pontifícia Universidade Católica de São Paulo (PUC-SP). Ricardo Uchoa Alves de Lima. Mr. Lima graduated in business administration at the Fundação Getúlio Vargas in São Paulo, Brazil. He has an MBA from the University of Illinois and has also taken an Advance Management Program at Harvard Business School. He has worked at various companies including USS Soluções Gerenciadas Ltda., Ultracargo S.A. and Translor Logística e Transportes Ltda. He was general secretary of the Ministry for Industry and Commerce of the federal government during 1985 and 1986 and chief of personnel of the São Paulo state government from 1983 to

118 Edgar Azevedo Uchôa. Mr. Uchôa started his career in 1965 at Multibrás S.A. Eletrodomésticos. He has acted as a manager and executive officer responsible for the financial and commercial areas of Usina Santa Clara Ltda. Mr. Uchôa was an officer responsible for the commercial area of the Mercantil group in the south of Brazil, in which he was later appointed executive vice-president. Between 1993 and 2003, Mr. Uchôa was our executive vice-president and he is currently an adviser for the finance and strategic planning management of Grupo São Martinho, which has sugar and alcohol operations in Brazil. Mr. Uchôa holds a degree in business administration from the Fundação Getúlio Vargas. Vernon Handley. Mr. Handley graduated in law at the University of Durham (England). He has been working in the Middle East since 1995, initially as external counsel mainly for banks and other financial institutions. Prior to joining ABC, Mr. Handley was Legal Counsel and Senior Vice President at Gulf International Bank. Mr. Handley is currently the Group Legal Counsel and Senior Vice President of Arab Banking Corporation. Paul Henry Jennings. Mr. Jennings graduated in mathematics, economics and commerce at the University of Oxford (England). He has over 30 years experience in banking, having worked at institutions including Lloyds Bank, Arbuthnot Latham Bank, Mitsubishi Bank, Singer & Friedlander Ltd. and London Forfaiting Company Ltd. He joined ABC International Bank plc in 1999 where he currently serves as Vice-President. Guilherme de Morais Vicente. Mr. Vicente holds a bachelor s degree in business administration from EAESP-FGV. Mr. Vicente is head of equities at Mauá Sekular Investimentos. In 2006 he co-founded Mainstay Capital and in 2008 he founded Apoena Investmentos. He currently serves as a director of Industrias Romi S.A. and as a member of the fiscal council of PDG Realty S.A. Empreendimentos e Participacoes and of Fras-le S.A. He is also a member of the deliberative council of AMEC - Associação de Investidores de Mercados de Capitais (Association of Capital Markets Investors). Board of Executive Officers Under our by-laws, our board of executive officers is composed of a minimum of three and a maximum of 41 members, nominated with the following titles: chief executive officer, one to eight vice-presidents, up to two other executive officers, up to 29 other officers, without specific title, and one investor relations officer. Our executive officers are responsible for the day-to-day management of our operations and for implementing the policies and general guidelines set by our board of directors. Our investor relations management division is located at Av. Pres. Juscelino Kubitschek, 1400, 4 andar, São Paulo, SP, , and Mr. Sergio Lulia Jacob is our investor relations officer. The telephone and fax numbers of our investor relations management division are and and the is ri@abcbrasil.com.br. Under Brazilian Corporate Law, our executive officers must reside in Brazil, irrespective of whether or not they are our shareholders. The business address of our executive officers is Av. Pres. Juscelino Kubitschek, 1400, 4 andar, São Paulo, SP, Our executive officers are elected by our board of directors. Our current executive officers were elected for a twoyear term, re-election being permitted. Under the Brazilian Corporate Law, a maximum of one-third of our directors may also serve as our executive officers. In addition, our executive officers may be removed at any time pursuant to a decision taken by our board of directors. Like our directors, our elected officers are required to sign an instrument of adherence to the Level 2 regulation and our listing agreement for adhesion to the Level 2 segment, prior to taking office. In addition, under our by-laws, our officers are also required to adhere to the regulation of the market arbitration chamber established by the BM&FBOVESPA. 118

119 In order to improve our corporate governance practices, 26 new executive officers were elected at board of directors meeting on February 28, 2011 and the maximum number of members of the board of executive officers was increased from 35 to 41 at our shareholders meeting on April 30, Currently, our board of executive officers is composed of 31 members. The members of our board of executive officers were elected by a resolution of our board of directors dated April 23, 2014, which resolution is pending the approval of the Central Bank. Insofar as we are aware, there are no conflicts, or potential conflicts, between any duties to us of any of the members of our board of executive officers and their private affairs. The table below shows the names, age, positions and date of election of our current officers: Name Age Position Date of election Anis Chacur Neto Chief executive officer April 23, 2014 Gustavo Arantes Lanhoso Commercial vice-president April 23, 2014 José Eduardo Cintra Laloni Investment Bank vice-president April 23, 2014 Sergio Lulia Jacob International and Finance vice-president and April 23, 2014 Investor Relations officer Sérgio Ricardo Borejo Administrative vice-president April 23, 2014 Renato Pasqualim Sobrinho Neto. 55 Risk vice-president April 23, 2014 Alexandre Yoshiaki Sinzato Executive officer April 23, 2014 Antonio José Nicolini Executive officer April 23, 2014 Antonio Sanchez Junior Executive officer April 23, 2014 Bibiana Veronez Executive officer April 23, 2014 Caetano Fabrini Neto Executive officer April 23, 2014 Carlos Alfredo de Melo Executive officer April 23, 2014 Christian Max Finardi Squassoni Executive officer April 23, 2014 Claudio Rodrigues Tibau Executive officer April 23, 2014 Dieter Klemz Executive officer April 23, 2014 Eduardo de Moraes Melchert 49 Executive officer April 23, 2014 Grell... Hugo Botelho Bittencourt Executive officer April 23, 2014 João Carlos Benites Freneda Executive officer April 23, 2014 João Carlos Gonçalves da Silva Executive officer April 23, 2014 José Álvaro Corbet Guimarães Executive officer April 23, 2014 Leila Maria de Carvalho Rocha Executive officer April 23, 2014 Lilian Gordon Executive officer April 23, 2014 Luiz Antonio de Assumpção Neto 37 Executive officer April 23, 2014 Luiz Augusto Galvão Monteiro Executive officer April 23, 2014 Luiz Carlos Daniel Cadó Executive officer April 23, 2014 Paulo Corrêa de Moraes Junior Executive officer April 23, 2014 Paulo Romagnoli Executive officer April 23, 2014 Ricardo Gentile Rocha Executive officer April 23, 2014 Ricardo Penteado Camargo 51 Executive officer April 23, 2014 Ticoulat... Waldecir dos Santos Junior Executive officer April 23,

120 Name Age Position Date of election Wandir Pereira Reis Executive officer April 23, 2014 Below is a brief biographical description of each of the members of our board of executive officers: Anis Chacur Neto was appointed chief executive officer in December 2010, prior to which he had been our vicepresident since Mr. Chacur Neto joined our bank in 1991 as our vice-president responsible for our commercial area and remained in such position until 1993, when he became responsible for our investment area. Before joining us, Mr. Chacur Neto worked for three years as a vice-president at Banco Itamarati S.A. Mr. Chacur Neto holds a degree in business administration from the Fundação Armando Álvares Penteado (FAAP). Gustavo Arantes Lanhoso has been our vice-president since 2007, responsible for our areas of business management of our clients in the middle-market and retail segments. Mr. Lanhoso has worked for 22 years in the commercial area of several financial institutions, including Banco Geral do Comércio, Banco London Multiplic S.A. and Banco Itamarati S.A. He joined us in 1991 as executive officer of our business platform and also occupied the position of our commercial executive officer. Mr. Lanhoso holds a degree in economics from the Faculdade de Economia e Administração da Universidade de São Paulo (FEA-USP). José Eduardo Cintra Laloni has been our vice-president responsible for our commercial area since His activities include business management of our clients in the corporate segment. Mr. Laloni has worked in the financial markets for 30 years and has been working with us since Before joining us, he was the executive officer responsible for corporate clients at Banco Itamarati S.A. Mr. Laloni holds a degree in business administration from the Fundação Getúlio Vargas. Sergio Lulia Jacob has been our vice-president and investor relations officer since 2007, responsible for our areas of treasury management, product development, pricing and liquidity management. Mr. Jacob has been working with us since Before becoming our vice-president and investor relations officer, he was the senior manager of our commercial area and co-executive officer. Before joining us, Mr. Jacob worked at Banco Itamarati S.A. Mr. Jacob holds a degree and a master degree in finance from the Fundação Getúlio Vargas and he also holds a master s degree in finance from the University of Michigan Business School. Sérgio Ricardo Borejo is our administrative vice-president, responsible for IT, accounts, back-office and several operations departments. He joined the bank in August 2007 and has more than 20 years of experience in the financial markets. Before joining us, he worked at Price Waterhouse from 1988 to 1993, as CFO of BankBoston Brasil from 1993 to 2007 and as chief officer of the managerial information support department in Banco Itaú in Mr. Borejo has a degree in economics from the Faculdade de Economia e Administração da Universidade de São Paulo (FEA- USP). Renato Pasqualin Sobrinho graduated in business administration from the Fundação Getúlio Vargas. He has more than 30 years of experience in the banking sector, holding management positions in various financial institutions, such as Banco Safra, Banco ABN Amro, Banco General Motors do Brasil, BankBoston e Banco Crefisul. He has also served as an advisor at Federação Brasileira de Bancos FEBRABAN and as an Officer at Central de Exposição a Derivativos CED. Alexandre Yoshiaki Sinzato graduated in electrical engineering from Escola Politécnica da Universidade de São Paulo (USP) and post-graduated in business administration from the Fundação Getúlio Vargas. He joined us in 2001 on the international arbitrage desk. Currently he holds the position of executive officer and is responsible for the investor relations area. Antonio José Nicolini graduated in business administration from Universidade São Marcos and holds an MBA in finance from IBMEC-SP. He has worked in the financial markets since 1991, with previous experience in the areas including operational costs and control, trading of BM&F products (foreign exchange and interest rates) and trading 120

121 and management of proprietary positions. Currently he holds the position of executive officer and is responsible for our trading area. Antonio Sanchez Junior graduated in economic sciences from the Universidade Federal do Rio de Janeiro (UFRJ). He has worked for over 20 years in the banking industry, including at Lloyds Bank Plc. and at Banco Itaú BBA, where he was a regional manager from 2010 until he joined us in He is the officer responsible for our corporate segment operations in Rio de Janeiro. Bibiana Veronez graduated in electrical engineering from the Universidade Estadual Paulista (UNESP) and has a post-graduate degree in management with emphasis in finance from IBMEC. She has seven years of experience in the banking industry and currently holds the position of executive officer responsible for credit analysis of the corporate segment. Caetano Fabrini Neto graduated in business administration from the Fundação Armando Álvares Penteado and has an Executive MBA from the Business School São Paulo (BSP). He was previously a senior banker at Banco BTG Pactual, co-head of corporate finance at Banco Fator and co-head of mergers and acquisitions at Unibanco. He has also held various management roles at Indústrias C. Fabrini S.A. He is the officer responsible for our investment banking area. Carlos Alfredo de Melo graduated in business administration and has worked in the financial market since He has worked in senior management roles at a number of financial institutions including Chase Manhattan Brasil, Banco Bozano Simonsen, Banco Cidade, Digibanco, Banco Pontual, Banco Santos, Banco BMC and Banco Sofisa. He joined us in 2008, and is the executive officer responsible for middle market business platforms in the states of Rio Grande do Sul, Paraná, Santa Catarina, Rio de Janeiro and São Paulo. Christian Max Finardi Squassoni graduated in law from the Universidade de São Paulo and has a specialization in business and banking law. He has worked for over 20 years in the legal departments of various financial institutions, including Banco Chase Manhattan, Unibanco, Banco J.P. Morgan and Banco Barclays. He is the president of the ISDA working group in Brazil and the legal committee of the Brazilian Association of International Banks (Associação Brasileira de Bancos Internacionais ABBI). He is the officer responsible for our legal department. Claudio Rodrigues Tibau graduated in Business Administration from Faculdade Cândido Mendes (RJ). He took several courses in financing, credit, capital markets and business. He has more than 20 years of experience in banking, having started his career at Banco ABC Brasil. Dieter Klemz graduated in economics from Fundação Universitária de Blumenau. He has worked in a number of trading and management positions at financial institutions and companies including Banco Bradesco S.A., Intex S.A. Coml. International, Citibank N.A., Lloyds Bank PLC, Banco Nacional S.A., Banco Sogeral S.A. and HSBC Brasil. He joined us in 2000, and currently holds the position of executive officer, responsible for our corporate segment business platforms in the south of Brazil. Eduardo de Moraes Melchert Grell graduated in engineering from Escola Politécnica da Universidade de São Paulo (USP) and economics from Universidade de São Paulo ADIFEA/USP. He holds a Financial Executive MBA from IBMEC-SP and a master s degree in management from London Business School. He has over 20 years experience in the banking sector and has previously held positions in the risk department at a number of financial institutions including Banco BBA Creditanstalt, Dresdner Bank, Banco IBI and Banco do Brasil. Hugo Botelho Bittencourt graduated in economics from Fundação Armando Alvares Penteado FAAP. He has previously worked in the credit analysis departments at Banco Lloyds TSB and at Unibanco União de Bancos Brasileiros S.A. He joined us in He currently he holds the position of executive officer and is responsible for the credit analysis of the middle market segment. 121

122 João Carlos Benites Freneda graduated in economics from Universidade São Judas Tadeu. He has previously held positions at a number of financial institutions and companies including Banco Mercantil de São Paulo S.A., Duratex S.A., Engerauto Engenharia Ltda., Grupo Fenícia, Citibank S.A., BankBoston S.A. and Banco Safra S.A. He joined us in 2010, and currently he holds the position of executive officer responsible for the business intelligence area. João Carlos Gonçalves da Silva graduated in economics from Pontifícia Universidade Católica de São Paulo (PUC-SP) and post-graduated in financial management from Universidade de São Paulo ADIFEA/USP. He has previously held positions at a number of financial institutions including Banco Noroeste/Norchem, Itaú Corretora S.A., Banco BMC S.A., Banco Multiplic S.A. and Banco Varig S.A. He joined us in 1993, and currently holds the position of executive officer responsible for the capital markets area. José Álvaro Corbet Guimarães graduated in civil engineering from Fundação Armando Álvares Penteado (FAAP). Prior to joining us in 1994, he worked at Banco Itamarati S.A. in the capital markets and credit area. He currently holds the position of executive officer responsible for relationship management with corporate segment clients in the São Paulo region. Leila Maria de Carvalho Rocha graduated in accountancy from the Universidade de Mogi das Cruzes and has an Executive MBA from IBMEC Business School (Insper). She has worked for over 20 years in the accounting sector, beginning her career at Ernst & Young, before holding roles at various financial institutions including Banco de Investimentos CSFB Garantia, Banco Santander and Banco Standard de Investimentos. She is the officer responsible for our accounting department. Lilian Gordon graduated in business administration with a specialization in marketing from Escola Superior de Propaganda e Marketing (ESPM) and holds an MSc in management from Boston University/Israel. She worked at Grupo Lund and at Unibanco União de Bancos Brasileiros S.A. in human resources and marketing. She joined us in 2007 and currently holds the position of executive officer responsible for the human resources area. Luiz Antonio de Assumpção Neto graduated in business administration from Universidade Mackenzie-SP. He previously worked at RAX Comercial e Artes Gráficas Ltda. and at Marítima Seguros S.A. He joined us in 1997 and currently holds the position of executive officer responsible for the financial institution relationships area. Luiz Augusto Galvão Monteiro graduated in business administration and economics from Universidade Mackenzie-SP and post-graduated in foreign trade from Fundação Getúlio Vargas-SP. He has previously held positions at a number of financial institutions and companies including Banco Real S.A., Riviera Obras e Empreendimentos S.A., Transporte 1001, Transmetal and Banco Itamarati S.A. He joined us in 1992 and currently holds the position of executive officer responsible for the corporate segment in the interior region of the state of São Paulo. Luiz Carlos Daniel Cadó graduated in business administration from FAPCCA-RS, post-graduated in finance from Pontifícia Universidade Católica do Rio Grande do Sul (PUC-RS) and holds an MSc in economics from UFRGS-RS. He has previously held positions at a number of financial institutions including Unibanco S.A., Banco Excel Econômico S.A., Banco Rural S.A., Banco Boavista Interatlântico S.A. and Banco Safra S.A. He joined us in 2010 and currently holds the position of executive officer responsible for the middle market segment in the states of Minas Gerais, Goiás and São Paulo (capital and interior). Paulo Corrêa de Moraes Junior graduated in economics from Pontifícia Universidade Católica de São Paulo (PUC-SP). He has previously worked at Banco Noroeste, Banco Norchem/Chemical Bank/Chase Manhattan Bank and Regerbanc Consultoria, Participações, Negócios e Serviços Ltda. He joined us in 2005 and currently holds the position of executive officer responsible for the back office. Paulo Romagnoli graduated in civil engineering from Escola Politécnica da Universidade de São Paulo (USP). He has previously worked at Banco Crefisul, Banco Arbi, BankBoston and Banco Itaú BBA. He joined us in 2010 and currently holds the position of executive officer responsible for the products area. 122

123 Ricardo Gentile Rocha graduated in business administration and accounting from Universidade Paulista. He has over 20 years of experience in the financial sector, having previously held positions at a number of financial institutions including Banco Bradesco, Banco Boavista Interatlântico, Banco Santander and ABN-AMRO. Mr Rocha joined us in March 2014 and is responsible for fixed income distribution. He currently holds the position of executive officer. Ricardo Penteado Camargo Ticoulat graduated in business administration from Faculdade de Economia e Administração da Universidade de São Paulo (FEA-USP). He has previously held positions at a number of financial institutions including Banco Multiplic S.A., Banco da Bahia S.A., Banco Itamarati S.A., GMAC-RFC Brasil Ltda. and Guarita & Associados. Between 1997 and 2000, he worked in our commercial area and between 2001 and 2004, he worked at ABC Brasil CVM S.A. in the M&A and investment funds management areas. Since 2005 he has been responsible for relationship management with our corporate segment clients and currently holds the position of executive officer. Waldecir dos Santos Junior graduated in information technology with specialization in software engineering and systems development from Instituto Tecnológico de Aeronáutica ITA and post-graduated in business administration with specialization in banking and finance from Fundação Getúlio Vargas-SP. He worked at Banco Santos S.A. before joining us in He currently holds the position of executive officer responsible for information technology. Wandir Pereira Reis previously worked in a number of trading roles at LECC DTVM S.A., Vereda Futuros Ltda., Banco BHM S.A., Banco Norchem S.A. and Banco BMC S.A. He joined us in 1997 and currently holds the position of executive officer responsible for the asset and liability management area. Executive Committee On April 30, 2012 our shareholders amended our by-laws so as to create an executive committee, composed of our chief executive officer and our vice presidents, as named above. The duties of our executive committee include: (i) proposing to our board of directors any capital increase, payment of dividends or of interest on shareholders equity; (ii) appointing and dismissing our ombudsman; (iii) setting operational limits (alçada) for our officers; (iv) reviewing our quarterly, semi-annual and annual financial statements; (v) appointing the officers responsible for certain strategic areas, as determined by the CMN; (vi) ruling on the creation or closing of branches in Brazil or abroad, in accordance with the guidelines provided by our board of directors; (vii) ruling on stock option plans and the repurchase of our shares, in accordance with the guidelines provided by our board of directors and our compensation committee; (viii) ruling on the issuance of instruments for raising funds; (ix) granting or revoking powers of attorney; (x) ruling on human resource matters, such as hiring, dismissal and remuneration, in accordance with the guidelines provided by our board of directors and our compensation committee; (xi) taking decisions regarding assets not for our own use (ativos não de uso próprio); and (xii) approving policies developed to meet legal and regulatory requirements and those related to internal matters. Fiscal Council Under the Brazilian Corporate Law, the fiscal council is a corporate body independent of the management and our independent auditors. In accordance with our by-laws, our fiscal council is non-permanent and the fiscal council members are subject to the rules of the market arbitration chamber established by the BM&FBOVESPA. The primary responsibilities of the fiscal council are monitoring management activities, reviewing the company s financial statements and reporting its findings to the shareholders. Under the Brazilian Corporate Law, we are required to pay to fiscal council members, as compensation, a minimum of 10% of the average annual amount paid to our executive officers, excluding performance bonus, profit participation and other benefits paid to them. Under Brazilian Corporate Law, our fiscal council may not include members that are (i) on our board of directors, (ii) on our board of executive officers, (iii) employed by us, (iv) employed by a subsidiary or company under common control with us, or (v) spouses or close family members of any member of our board of directors or board of executive officers. 123

124 Our fiscal council was established pursuant to a shareholders request at the shareholders meeting held on April 30, 2010, in which the members of the fiscal council and their respective substitutes were appointed for a one-year term. The establishment of our fiscal council was not requested by our shareholders in 2011, 2012 or Ancillary Committees Audit Committee On May 27, 2004, the CMN issued Resolution No. 3,198, which, as amended, regulates the rendering of independent auditors services to financial institutions and other institutions authorised to operate in Brazil by the Central Bank, as well as to clearing houses and clearing and custody service providers. Resolution No. 3,198 requires financial institutions with reference shareholders equity or managing third parties wealth in amounts equal to or greater than R$1.0 billion, among other entities, to create a corporate body designated as an audit committee. Our audit committee consists of three to five members, all elected by our board of directors, provided that one of the members must be an expert in the accounting and auditing areas. Members of our audit committee were originally elected for five-year terms, however, on April 23, 2014, our shareholders voted to change the term of election to one year. This change is subject to the approval of the Central Bank. In general terms, the audit committee s duties are to take certain measures and to perform specific functions in order to ensure compliance of the relevant financial institution with the applicable accounting regulations. Compensation Committee On November 25, 2010, the CMN issued Resolution No. 3,921, which established new rules relating to the compensation of directors and officers of financial institutions and other institutions authorised to operate by the Central Bank. Such rule also provides that publicly-held financial institutions or financial institutions required by the Central Bank to establish an audit committee must also establish a compensation committee in accordance with the requirements set out in Resolution No. 3,921. On April 30, 2012 pursuant to the requirements of Resolution No. 3,921, our shareholders approved the creation of our compensation committee. The committee consists of three to five members elected by our board of directors for a two-year term, provided that at least one of the members must not be a member of our board of directors or our board of executive officers. Our compensation committee s principal functions are to create a compensation policy for members of our management. Furthermore, the committee will also supervise the implementation of such policy and will review it annually and propose improvements to our board of directors. In accordance with CMN Resolution No. 3,921 (applicable to all financial institutions established in Brazil), we have instituted a remuneration plan for our directors and executive officers pursuant to which 50% of their annual variable compensation will be paid in stocks issued us. The stocks are retained by us and vest over a three-year period. Ombudsman (Ouvidoria) We have implemented an ombudsman service (Ouvidoria) in order to comply with the regulatory requirements of Resolution No. 3,849 of the CMN and of Circular No. 3,503 of the Central Bank. The ombudsman is responsible for dealing with any claims made against us by our clients. The ombudsman updates its records daily and a report containing detailed information on all claims is made available semi-annually. The board of directors, the internal audit department and the audit committee are informed on the status of all claims by the ombudsman. 124

125 Shares held by our Directors and Officers The table below indicates the number of our shares that were held by our directors and executive officers as of December 31, 2013: Directors and executive officers Common shares % Preferred shares % Total shares % Tito Enrique da Silva Neto... 1,310, ,310, Edgar Azevedo Uchôa Anwar Ali Al Mudhaf Ricardo Uchoa Alves de Lima Roy Hannay Gardner Anis Chacur Neto... 2,385, , ,333, Gustavo Arantes Lanhoso , , ,351, José Eduardo Cintra Laloni... 1,707, , ,318, Renato Pasqualin Sobrinho... 10, , Sergio Lulia Jacob , , ,390, Sergio Ricardo Borejo , , , Alexandre Yoshiaki Sinzato... 2, , Antonio José Nicolini... 9, , Dieter Klemz Eduardo de Moraes Melchert Grell... 1, , Hugo Botelho Bittencourt João Carlos Benites Freneda... 2, , João Carlos Gonçalves da Silva... 21, , José Álvaro Corbet Guimarães Lilian Gordon... 2, , Luiz Antonio de Assumpção Neto... 1, , Luiz Augusto Galvão Monteiro , , Ricardo Penteado Camargo Ticoulat... 9, , Waldecir dos Santos Junior... 1, , Total... 7,590, ,789, ,380,

126 PRINCIPAL SHAREHOLDERS As of December 31, 2013, we had a capital stock of R$1,113,919, Pursuant to our by-laws, our board of directors may increase our capital stock up to R$1,400,000,000 without the approval of our shareholders. The table below contains information relating to the ownership of common and preferred shares by our shareholders as of December 31, 2013: Shareholders Common % Preferred % Total % Marsau Uruguay Holdings S.A... 66,106, ,775, ,881, Executive Officers... 6,279, ,789, ,069, Directors... 1,311, ,311, Former directors Market ,651, ,651, Treasury Shares... 3,318, ,318, Total... 73,697, ,535, ,232, Principal Shareholders As of December 31, 2013, Marsau Uruguay Holdings S.A. ( Marsau Uruguay ) held 89.70% of our common shares, 25.53% of our preferred shares and 57.65% of our total capital stock. Marsau Uruguay is a wholly-owned subsidiary of the Arab Banking Corporation. The Arab Banking Corporation is one of the largest banks in the Middle East and Northern Africa and has operations in 18 countries. As of December 31, 2013, the main shareholders of the Arab Banking Corporation are the Central Bank of Libya, which holds approximately 59.37% of its capital stock, and the Kuwait Investment Authority, which holds approximately 29.69% of its capital stock. The remaining stocks are traded on the Bahrain stock exchange. We believe that we have adequate policies in place to ensure control by our principal shareholders is not abused. Capital Increase On December 26, 2013, our board of directors approved an increase of our capital stock in the amount of up to R$37,065, Following the expiration of the subscription period, our board of directors confirmed, on March 6, 2014, an effective increase of our capital stock in the amount of R$37,064,957.59, from R$1,113,919, to R$1,150,984,901.38, with the issuance of 3,810,370 new shares (1,951,267 common shares and 1,859,103 preferred shares). Following such increase, our capital stock will be represented by 151,043,019 shares (75,648,913 common shares and 75,394,106 preferred shares). This capital increase was approved by the Central Bank on April 8, Repurchase Programs On November 12, 2012, our board of directors approved a program for the repurchase of preferred shares, which permitted us to repurchase from our shareholders, at market price, up to 10% of the preferred shares in our capital stock until November 12, On November 13, 2013 our board of directors approved a new program for repurchase of preferred shares. Under this program we may, until November 13, 2014, repurchase from our shareholders, at market price, up to 10% of the preferred shares in our capital stock. As of December 31, 2013, 3,318,318 preferred shares had been acquired pursuant to the programs. 126

127 RELATED PARTY TRANSACTIONS According to Brazilian law, financial institutions are not permitted to grant loans or make cash advances or guarantee transactions carried out by their controlling shareholders, affiliates, directors or officers, or close family members of their directors and officers. For more detailed information on the restrictions to which financial institutions are subject, see Brazilian Banking System and Industry Regulation. Accordingly, we have not granted loans or made cash advances to, or guaranteed the transactions of, any of our non-financial affiliates or to our directors, officers or close family members of our directors and officers. This prohibition does not limit our ability to transact in the interbank market with our affiliates that operate in the financial market. As of and for the year ended December 31, 2013, related party transactions were as follows: As of December 31, 2013 Assets/ Related party transactions Relation to us Maturity (liabilities) (R$ thousands) Income/ (expenses) Demand deposits ABC Administração... Subsidiary No maturity (70) ABC DVTM... Subsidiary No maturity (79) Marsau Comercial Exp. e Imp. Ltda... Affiliate No maturity (81) (230) Time deposits and funds from acceptance and issue of securities Marsau Uruguay... Shareholder January 20, 2014 (1,035) (5) Arab Banking Corporation... Controlling Shareholder December 16, 2014 (258,396) (698) Directors and Executive Officers... Management Sundry (25,572) (825) (285,003) (1,528) Borrowings Arab Banking Corporation... Controlling Shareholder July 7, 2014 (167,707) (7,167) Dividends and interest on equity capital Marsau Uruguay... Shareholder February 9, 2014 (51,272) Other liabilities ABC Administração (rendered services). Subsidiary January 8, 2014 (26) (324) We have entered into the above-described transactions with our subsidiaries, affiliates and controlling shareholders on an arm s length basis. These transactions have terms and conditions normally applicable in the market. As of December 31, 2013, no marketable securities and derivative financial transactions with related parties were outstanding. 127

128 BRAZILIAN BANKING SYSTEM AND INDUSTRY REGULATION The Brazilian banking industry underwent important structural changes in the last two decades, from a high inflation environment during the 1980s and beginning of the 1990s, to an environment marked by low rates of inflation and greater macroeconomic and monetary stability beginning in 1994, when the Real Plan was introduced. Prior to 1994, the banking industry generally benefited from the high inflation environment gains and was primarily composed of government-owned banks. The participation of foreign banks was restricted by law, resulting in an uncompetitive and inefficient financial sector. The macroeconomic stability resulting from the implementation of the Real Plan led to a steady growth in demand for credit in Brazil. This growth in credit demand, combined with the loss of gains from high rates of inflation and increased participation of foreign banks in the local market, led the local banking industry to seek increased revenues from services and to seek efficiency gains through consolidation. The Brazilian government actively monitored this process by creating programs to protect consumers, including measures to guarantee the solvency of banking institutions, reduce the participation of government-owned institutions in the market and increase competition among private banks. The Brazilian Government also reduced entry restrictions to foreign banks in the Brazilian market. In recent years, in particular since the second half of 2008, the global banking industry was seriously affected by the financial crisis, which contributed significantly to the reduction of this industry s assets. The effects of the crisis in Brazil were relatively moderate in comparison with the effects in the United States and Europe. While liquidity in the Brazilian banking sector was, in a certain manner, affected by the global financial crisis, the Central Bank assured availability of enough liquidity in the Brazilian market during this period of instability through several measures, such as reducing the SELIC rate, decreasing bank reserve requirements, establishing a liquidity swap facility between the U.S. Federal Reserve and the Central Bank, allowing the Brazilian public banks to acquire stock in financial institutions without taking part in a bidding process and making capital contributions to BNDES. Brazil has a limited assortment of financial products provided by banks to their clients, although this rate has been significantly increasing during recent years. Additionally, a significant percentage of the Brazilian population does not engage in any banking activity (approximately 30% of Brazilian families, according to a survey published in May 2012 by Bankable Frontier Associates and the Bill & Melinda Gates Foundation). Access to banking services facilitates participation in the economy, fosters the formalization of transactions, spreads access to credit for consumption, investments, payment services, collection services and insurance, and reduces loan-sharking. In order to broaden access to banking services, the Brazilian government has implemented measures to promote credit and reduce bank spreads, including the creation of a new and improved guarantee mechanism, clearer rules for payroll loans, new credit instruments such as bank credit bills (cédulas de crédito bancário) and financial bills (letras financeiras) and incentives to offer credit to small companies, among others. The table below shows aggregate balances of loans by Brazilian banks granted with funds which are freely allocable by law, or free funds: On December 31, R$ billions (%) of Total Loans R$ billions (%) of Total Loans R$ billions (%) of Total Loans Account loan (overdraft protection) % % % Personal line of credit % % % Vehicle financing % % % Credit card % % % Installment credit % % % 128

129 Other types % % % Source: Central Bank The range of banking products offered in Brazil has grown in recent years, especially through the use of electronic transactions. The use of internet banking in Brazil has increased significantly in recent years, growing by 12.3% between 2011 and 2012 in terms of number of transactions according to data published by FEBRABAN, and is expected to be an important service for clients in the future. According to FEBRABAN, in Brazil, as of 2012, 38.2% of bank accounts had internet banking activated. The number of active savings and checking accounts in Brazil has increased significantly in recent years, as set forth in the table below: On December 31, (in millions) Checking accounts Savings accounts Source: FEBRABAN Midsized Banks In recent years, the midsized banking sector, in which we are included, has been in a state of constant development. Most of the banking transactions carried out by midsized banks have shown high profitability rates and success when faced with adverse market situations, such as domestic and international currency and liquidity crises. The relatively low number of major institutions in the Brazilian financial market has made it possible for midsized banks to expand their activities successfully. Market niches that were not sufficiently explored by large banks have been successfully filled by mid-level players. New markets can be created and innovative products successfully introduced by midsize banks, as was the case with payroll loans. The midsize banking sector has recently made efforts to diversify its sources of funding and to increase its leveraging capacity in accordance with parameters established by the Basel II Accord. See Business Sources of Funding. National Financial System (Sistema Financeiro Nacional) Regulatory Agencies The financial sector in Brazil is governed by the following principal regulatory bodies: (1) the CMN; (2) the Central Bank; (3) the CVM; (4) the National Council of Private Insurance (Conselho Nacional de Seguros Privados, or CNSP ); (5) the Superintendence of Private Insurance (Superintendência de Seguros Privados, or SUSEP ); (6) the National Council of Complementary Pensions (Conselho Nacional de Previdência Complementar, or CNPC ); and (7) the National Superintendency of Complementary Pensions (Superintendência Nacional de Previdência Complementar, or PREVIC ). These institutions supervise, regulate and inspect financial institutions, stock exchanges, insurance companies and pension funds, among others. 130

130 Financial Institutions Financial institutions in the National Financial System include multiple service banks, commercial banks, development and investment banks, credit, financial and investment institutions (consumer credit), housing loan institutions, brokerage houses, securities dealers and real estate financing institutions. Pursuant to the data available on the Central Bank website, as of December 31, 2013, there were 2,345 financial institutions under the jurisdiction of the Central Bank, including: 22 Commercial Banks financial institutions that accept demand deposits and make short-term loans, and are responsible for retail and wholesale banking activities; 14 Investment Banks financial institutions that primarily specialise in medium- and long-term financing transactions and management of third-party funds. Such institutions do not offer demand deposit accounts, and obtain funds mainly through time deposits or funds borrowed abroad for local onlendings. These banks main active transactions are loans for working capital and capital improvements, underwriting or purchase of securities, interbank deposits and foreign onlendings; and 131 Multiple Service Banks financial institutions authorised to perform various financial activities, such as commercial, investment and lending operations. Multiple service banks must maintain at least two portfolios, one of which must be either a commercial or an investment portfolio. Such banks are authorised to supply a broad variety of commercial and investment banking services (including placement and trading of securities), leasing and other services including housing loans and management of investment funds, in compliance with their portfolios. Notwithstanding the privatization of certain publicly-owned institutions in the banking system, Brazil s federal and state governments still control important commercial banks and financial institutions with the purpose of fostering economic development, especially in the manufacturing and agricultural industries. These public institutions account for a significant share of the total deposits and total assets of the National Financial System and also of savings accounts, mortgage notes and rural and housing loans. In addition, development banks operate as regional development agencies. Public financial institutions are comprised of: (1) development banks that operate at the federal level (such as BNDES), as well as state and regional levels; (2) savings banks that operate at the federal level (such as the Federal Savings Bank (Caixa Econômica Federal, or CEF ), as well as the state level; and (3) commercial banks, multiple service banks and other financial institutions whose majority of voting stock is held, directly or indirectly, by the Brazilian government or by other governmental entities. Our Principal Markets Loans to the Middle-Market According to data published by the Central Bank, loans to middle-market businesses grew significantly in between 2011 and Lending operations in this segment totalled R$439.1 billion in 2011 (representing an increase of 20.0% compared to 2010), R$473 billion in 2012 (representing an increase of 7.7% compared to 2011) and R$601.2 billion by October 2013 (representing an increase of 27.1% compared to December 2012). Midsized Business Segment Characteristics Medium-sized companies generally require financing for their industrial and commercial transactions. Although each bank classifies companies differently, we consider medium-sized companies to be those companies with annual revenues between R$50.0 million and R$500.0 million. Medium-sized companies have more limited access to financing sources, when compared to large companies, which has led to their frequent use of short-term bank loan products, such as working capital loans and discounting of 130

131 trade notes and receivables. In general, these companies deal with geographically diverse sales and purchases, increasing their need for cash management services. Another important characteristic of the companies in this segment is that, despite their focus on the domestic market, their international presence has grown. As a result, there has been a growth in the demand for foreign exchange products and foreign trade loans, especially in recent years. Banking Relationships Concentration of their banking transactions in a small number of banks allows medium-sized companies to focus on key factors, including cost, reciprocity and price, as described further below. Other important attributes are the availability of credit lines, proactive attitudes of bank managers and swiftness in releasing funds. Companies in this segment seek to maintain long-term relationships with their banks and develop a good relationship with the bank manager. This relationship often develops due to the physical proximity between the company s headquarters and the bank. In response to this trend, we have developed close cooperation with our clients and we offer customised service provided by managers who know our clients activities and particular needs. Medium-sized companies are cost-sensitive, require rapid response times and often operate based on reciprocity that is, they leverage the granting of certain products (such as collection services) in exchange for access to credit lines. As a result, we have developed certain credit products for many clients which have allowed us to become the main bank for many of our clients. Bank Funding In order to meet the needs of the midsized business segment, banks must provide certain types of products and services, such as credit lines with terms appropriate for this segment, competitive prices, qualified teams and efficient processes. Prospects Medium-sized companies benefit from Brazil s recent economic stability and credit liquidity, which will broaden and diversify their demand for financial products and services. This stability and the increased expertise of company managers will increase the negotiating power of these companies vis-à-vis banks. These companies are also likely to seek new sources of financing, such as the capital markets and trade finance. We believe that as medium-sized companies become more sophisticated, banks will have to adjust to their new needs. The price/cost ratio will affect loans, and the greater demand for financings and the need to promptly meet clients needs will require more qualified and specialised bank employees. Corporate Segment Large Brazilian companies (which, in general, we consider to be those with annual sales above of R$2 billion) compete successfully with international companies in many sectors, and are market leaders in several industries, such as oil, financial services, cement and steel, among others. The globalization of large domestic companies and the focus on exports by multinational companies located in Brazil have created significant demand for banks with cross-border expertise. Generally, large companies have more complex demands than their smaller counterparts due to the scope of their activities and the sophistication and expertise of their management. Therefore, their financial needs are directed towards more diversified products, especially credit, treasury, trade finance and structured products. Large companies have multiple banking relationships and wide access to various sources of financing, including foreign sources, and therefore such companies value attributes such as pricing, qualifications of bank officers and the quality of their relationship with the bank. Despite their high level of access to foreign sources of financing, large companies in recent years have increasingly availed themselves of domestic loans that have been available at increasingly longer tenors and lower interest rates, due to Brazil s increased economic stability. There is a strong trend to increasingly undertake 131

132 transactions in local currency (reais) and an increased demand for products and solutions based on everyday needs of each company. Large companies have increased access to the capital markets and the volume of long-term transactions they have undertaken has increased. The growth potential of the large-company lending market will attract new specialised banks and increase competition. This will make it more important for banks to maintain capital to operate in local currency, and we expect that banks will adapt their strategies to this need. Increased competition in the financial services industry will require banks to differentiate themselves through their ability to obtain funding, their efficiency and their capacity to enter into specialised transactions. Banks will also need to develop and enhance their offerings of structured products and capital markets products, which may result in additional opportunities for midsized banks. Banking Industry Regulation Law No. 4,595, of December 31, 1964, as amended (the Banking Reform Law ), regulates the National Financial System. The Banking Reform Law created the CMN, a regulatory agency responsible for executing monetary and exchange policies and other policies concerning the operation of the National Financial System. The CMN is chaired by the Minister of Finance and includes the Minister of Planning, Budget and Management and the President of the Central Bank. Major Regulatory Agencies The CMN The CMN is the highest authority in the National Financial System, responsible for establishing currency and loan policies that promote economic and social development in Brazil. Its policies aim to: adjust the volume of payments to the needs of the Brazilian economy; regulate domestic currency value; regulate foreign currency value and the balance of payments in Brazil; assist investment in funds from banks; improve resources from banks and instruments; protect liquidity and solvency of banks; coordinate policies of currency, loan, budget, fiscal and public debt; and define the policy to be followed to organize and operate Brazilian securities markets. Central Bank The Banking Reform Law granted powers to the Central Bank to implement currency and loan policies established by the CMN and supervise private and public banks, imposing penalties provided for in law whenever necessary. Under the Banking Reform Law, the Central Bank is also responsible for controlling loans and foreign capital, collecting compulsory payments and voluntary call deposits from banks, conducting rediscount and lending transactions to banks, as well as acting as a depositary for gold and foreign currency reserves. In addition, the Central Bank controls and approves the establishment, operations, transfer of control and corporate reorganization of banks. The President of Brazil appoints and the Senate confirms the President of the Central Bank for an undetermined term. The CVM The CVM is the agency responsible for implementing CMN policy in the securities markets. The CVM regulates, develops controls and inspects the securities markets in accordance with Law No. 6,385, of December 7, 1976, as 132

133 amended (the Capital Markets Law ) and the Brazilian Corporate Law. The CVM s headquarters is in the city of Rio de Janeiro, state of Rio de Janeiro. The CVM is an agency bound to the Ministry of the Treasury and has jurisdiction in all Brazilian territory. The CVM is an independent management authority and public corporate entity. The CVM regulates the monitoring and inspection of publicly-held companies, negotiations and intermediation in the market of securities and derivatives, organization and operations in stock exchange and future and commodities markets and management and custody of securities. Under Law No. 10,303, of October 31, 2001 (which amended the Brazilian Corporate Law and the Capital Markets Law), powers to regulate and supervise financial and investment funds (previously regulated and supervised by the Central Bank) have been transferred to the CVM. The CVM and the Central Bank entered into the Joint Decision No. 10, of May 2, 2002, which establishes terms and conditions for the transfer of these powers. Under the Capital Markets Law, the CVM is managed by one president and four officers, appointed by the President of Brazil from people of good reputation with recognized expertise in capital markets and approved by the Senate. The CVM s officers and president have a 5-year term of office. They are not eligible for reelection, and one fifth of the CVM s members must be renewed every year. Major Financial Institutions Public Institutions The Brazilian government controls commercial banks and other financial institutions that play a significant role in the Brazilian banking industry. These financial institutions hold a significant portion of total deposits and assets of the banking system and are stronger than private banks in certain market segments, such as real estate and agricultural financing. Moreover, development banks act as regional development branches. The three major banks controlled by the Brazilian government are as follows: Banco do Brasil, which has a full range of products for public and private companies. Banco do Brasil is Brazil s largest commercial bank and the main financial agent of the Brazilian government; BNDES, a development bank that offers mid-term and long-term financings to public companies in Brazil, especially to the manufacturing industry. The BNDES provides funds, directly and indirectly, through onlendings in other public and private financial institutions; and CEF raises funds from deposits and offers financing for real estate and urban infrastructure. Private Banking Industry The most significant private banks are as follows: Multiple service banks, which are authorised to offer a broad range of services, including trade, investment (including underwriting and negotiation of securities), loans to individuals, according to their portfolios; Commercial banks, which particularly offer retail and wholesale services. These banks coordinate demand and call deposits and provide working capital loans; and Investment banks, which underwrite securities and offer structured transactions. Reform in the National Financial System Amendment to the Brazilian Constitution of 1988 In May 2003, amendment to the Brazilian Constitution (Emenda Constitucional) No. 40/2003 ( EC 40/03 ) was enacted to replace existing restrictive provisions with a general authorization to regulate the National Financial System through supplementary laws, amending article 192 of the Brazilian Constitution. Enactment of EC 40/03 made possible to legislators to specifically address different issues affecting regulations of the financial system and provide more efficiency to the financial system. Following the enactment of this Amendment, the Brazilian house of 133

134 representatives was able to regulate the National Financial System through different supplementary laws (not one). The previous language of article 192 established that the National Financial System was regulated by solely one supplementary law. Major Restrictions and Limitations to Certain Activities Activities of banks are subject to several restrictions and limitations. In general, these restrictions and limitations refer to assignment of loans, risk concentration, investments, conditional agreements, loans and negotiations of foreign currency, management of third parties funds, micro loans and payroll loans. The major restrictions and limitations imposed on banks are as follows: foreign banks may only operate in Brazil through (1) a previous authorization by a Decree from the President of Brazil and (2) ordinary authorization from the Central Bank after publication of such Decree, pursuant to Central Bank Circular No. 3,317 of March 29, 2006, except for the investment in publiclytraded non-voting shares of Brazilian financial institutions on a stock exchange or depositary receipts negotiated abroad representing non-voting shares, which is not subject to prior authorization; banks may only purchase properties for their use, except when these properties are given as payment of difficult and doubtful loans. In this case, these banks shall sell such properties within one year as of receipt, except if the Central Bank authorises an extension; limitation of investments in the capital stock of other companies or banks, without authorization from the Central Bank. When investments are authorised by the Central Bank, they may be made through a multiple service bank with investment portfolio or a controlled investment bank; banks are forbidden to make transactions that do not meet principles of selection, guarantee, liquidity and risk diversification; banks are forbidden to grant loans or advances without the prior constitution of an instrument of indebtedness; banks are forbidden to grant loans or advances to individuals or legal entities holding more than 10.0% of their capital stock, except under certain circumstances, through an authorization from the Central Bank; banks are forbidden to grant loans or advances to legal entities in which they hold more than 10.0% of the capital stock; banks are forbidden to grant loans or advances to legal entities in which their officers and managers (as well as spouses and first and second-degree relatives) hold more than 10.0% of the capital stock; banks are forbidden to grant loans or advances to legal entities controlled by the banks themselves or by their controlling company; banks are forbidden to grant loans or advances to any individual, legal entity or group of people representing a common economic interest, amounting to more than 25.0% of their reference shareholders equity; banks are forbidden to make conditional agreements (which involve assets purchased or sold based on certain special conditions) on an amount higher than 30 times their reference shareholders equity. Currently, within this limitation, repurchase transactions involving private bonds may not exceed five times the amount of the financial institution s reference shareholders equity; management of funds from third parties must be separated from other activities, as provided for in the rules of CVM Instruction No. 306, of May 5, 1999, as amended, and CVM Instruction No. 409, of August 18, 2004, as amended; capital stock and net equity of banks must always follow rules of capital stock and minimum capitalization imposed for each type of bank; 134

135 total funds invested in permanent assets of banks must not be more than 50.0% of their reference shareholders equity; banks must hold, according to risks incurred in their transactions, at least 11.0% of their capital stock (capital adequacy ratio) in contrast to 8.0% currently required by the Basel II Accord; exposure of Brazilian banks to gold, foreign currency and transactions subject to exchange variation may not be higher than 30.0% of their reference shareholders equity; after being registered with the Central Bank, banks may obtain loans in foreign currencies in the international market, for any purpose, without the previous consent of the Central Bank and onlend such funds to Brazilian companies or other banks; banks may make onlendings through loans in Brazilian currency, adjusted based on the foreign currency exchange variation used in the initial loan, as authorised by applicable law; the Central Bank may impose limitations of term, interest rate and overall conditions for loans in foreign currency. The Central Bank usually changes such limitations, according to the economic scenario and monetary policy adopted by the Brazilian government; the Brazilian government has been taking several measures to encourage low-income individuals to have more access to the National Financial System; such measures include requests to allocate loans, simplification of banking procedures and the release of loan cooperatives from regulations; since 2003, commercial banks, multiple service banks licensed to provide commercial bank services and CEF must allocate at least 2.0% of their demand deposits to low interest loans for low-income individuals and micro entrepreneurs, according to a particular method; interest in such loans may not be higher than certain percentages determined in such regulation (2.0% monthly or 4.0% monthly, for oriented productive microcredit), the due date may not be less than 120 days and the principal may not be more than R$2, for individuals, R$5, for micro entrepreneurs and R$15, for oriented productive microcredit; and since December 2003, employees hired according to the Consolidated Labour Law (Consolidação das Leis do Trabalho or CLT ) may authorise their employers to discount directly from their payroll amounts due from loans, financings and leasing transactions, provided that the relevant agreement allows such procedure. Employers must transfer the amounts deducted from their employees payroll to the institution that granted loans to their employees, according to terms and conditions determined for the relevant loan, financing and/or leasing agreement. Regulations Governing the Security and Transparency of Financial Institutions and the Financial System Procedures for Internal Control All financial institutions may adopt policies and procedures to control: their activities; their systems of financial, operational and administrative information; and compliance with regulations to each they are subject. Executive officers of financial institutions are responsible for implementing an efficient structure of internal control to define responsibilities and control procedures and establish goals in all levels of the institution. Executive officers shall also check the compliance with internal procedures. Internal auditors are responsible for monitoring internal control systems. Internal auditors report directly to the board of directors or board of executive officers, as the case may be. Independent Auditors and the Audit Committee All banks must be audited by independent auditors. Banks may only hire independent auditors duly registered with the CVM, with certification as bank analysts granted by the Brazilian body regulating accounting practices and by the Brazilian Institute of Independent Auditors (Instituto dos Auditores Independentes do Brasil or IBRACON ), provided that minimum requests confirming their independence are fulfilled. 135

136 Independent accountants must audit the financial statements of all financial institutions. Independent accountants can only be hired if they are registered with the CVM, are certified in specialised banking analysis by IBRACON and if they meet several requirements that assure their independence. Moreover, pursuant to CMN Resolution No. 3,198, of May 27, 2004, as amended by CMN Resolution No. 3,606, of on September 11, 2008, financial institutions must replace the person, officer, manager, supervisor or any of its members responsible for the independent accounting work at least every five years and persons formerly holding such positions may only be rehired after three complete years have passed since their prior service. The financial institutions must designate a technically qualified senior manager to be responsible for compliance with all regulations regarding financial statements and auditing. In addition to preparing an audit report covering the financial statements, the independent accountants must prepare: a report on the financial institution s internal controls showing all deficiencies found; and a description of the financial institution s non compliance with applicable regulation material to the financial institution s financial statements or activities. In addition to the independent auditors report, the independent auditor is required to report significant deficiencies in internal controls exercised by the bank, including their electronic database system, which are identified in connection with the audit of the bank s financial statements Under CMN Resolution No. 3,198, of May 27, 2004, as amended, all banks that: (1) have a reference shareholders equity equal to or greater than R$1.0 billion; (2) manage third-party funds equal to or greater than R$1.0 billion; or (3) have funds from deposits plus management of third-party funds equal to or greater than R$5.0 billion must have an audit committee. The audit committee must be provided for in the bank s bylaws and shall consist of at least three members, of which, one member shall specialize in accounting and audit. Members of the audit committee of banks with shares traded in stock exchanges may not be, or have been over the last twelve months: (1) an officer of the bank or its associate companies; (2) an employee of the bank or its associate companies; (3) technical manager, officer, manager, supervisor or any other team manager involved in auditing within the bank; or (4) a member of the fiscal council of the bank or its associate companies; or (5) spouses and first and second degree relatives, direct or indirect, of the individuals mentioned on items (1) to (3) above. In addition the members of the audit committee of publicly-held banks are forbidden to receive any compensation by the bank or its associate companies in addition to their payment as members of the audit committee. If the member of the audit committee of the bank or its associate companies is also a member of the board of directors of the bank or its associate companies, he/she will be paid a compensation relative to one position only, at his/her choice. The audit committee must report to the board of directors or board of executive officers, as the case may be, and its major responsibilities are to: appoint the independent auditor to be elected by the board of directors; request a substitution of the independent auditor whenever it is necessary; review financial statements every two quarters as well as audit and management reports; supervise accounting and audit, including qualification for internal procedures and applicable rules; analyse the qualification of the bank s board of directors according to advice from the independent auditor; receive and disclose information in connection with noncompliance with internal procedures or applicable rules; advise the managers in terms of internal control and procedures to be followed; and meet with managers, independent auditors and internal accountants to check if their directions are being followed. Moreover, Brazilian law allows a group of companies to only have one committee. In this case, the audit committee must be responsible for any and all banks from the same group included in the requirements of the above paragraph. 136

137 Independent auditors and the audit committee must inform the Central Bank, within three business days of the relevant identification, of the existence or evidence of error or fraud represented by: noncompliance with rules and regulations that may affect the continuation of the audited company; any type of fraud by the bank s management; significant fraud by the bank s employees or third parties; or errors resulting in significant mistakes in the company s financial statements. Auditing Brazilian law determines that banks shall prepare their financial statements according to certain standards set forth by the Brazilian Corporate Law and other applicable regulations. Regulations for the collection of bank fees On November 25, 2010, CMN enacted Resolution No. 3,919, as amended, which categorizes bank services into four groups: (1) essential services; (2) specific (or differentiated ) services; (3) priority services; and (4) special services. Resolution No. 3,919 came into force on March 1, 2011, providing for a new regulatory framework in connection with services provided by banks and the collection of bank fees Banks are not permitted to collect fees for the provision of essential services to individuals in connection with checking accounts, including: (1) the supply of a debit card; (2) the supply of up to 10 checks per month to accountholders who are permitted under applicable regulations to use checks; (3) supply of a second debit card (except in cases of loss, theft, damage and other reasons outside of the bank s control); (4) up to four withdrawals per month, at a branch of the bank, using checks, or at ATM terminals; (5) supply of up to two statements describing monthly transactions, which can be obtained at ATM terminals; (6) Internet enquiries; (7) up to two transfers of funds per month between accounts held at the same bank, performed at a branch of the respective bank, at ATM terminals and/or over the Internet; (8) clearance of checks; and (9) supply of a consolidated statement describing, on a month-by-month basis, the fees charged over the preceding year as to checking accounts and/or savings accounts. Pursuant to CMN Resolution No. 3,919, as amended, services rendered by electronic means will also be considered as essential services, in the event they are available exclusively by electronic means. Certain services rendered to individuals with savings accounts are also considered essential services and therefore, are exempt from the payment of fees. The regulation authorises financial institutions to set and collect fees for the performance of specific services to the extent that the accountholder or user has been informed of the conditions for use and payment. Specific services include: (1) signature approval; (2) management of investment funds; (3) rental of safe deposit boxes; (4) grant of guarantee (including guarantee per aval); (5) courier services; (6) custody and brokerage services; and (7) certain foreign exchange transactions. Priority services are those services that are rendered to individuals with regard to records, checking accounts, transfers of funds, leasing transactions, standard credit cards, credit transactions and sale and purchase of foreign currency in connection with travels abroad. These services are subject to the collection of fees by financial institutions. The collection of fees in exchange for the provision of special services (including, for example, services relating to rural credit, microcredit and onlending of funds from the real estate financial system) continues to be governed by the specific provisions found in the laws and regulations relating to such services. Furthermore, any increase in existing fees or the introduction of any new fees must be disclosed at least 30 days (45 days for services in connection to credit cards) before their effective date and may apply only to services used after such date. Increase in existing fees can be implemented only at least 180 days (365 days for services in connection to credit cards) after the preceding fee change (although fee reductions can take place at any time). 137

138 Ombudsman According to CMN Resolution No. 3,849 of March 25, 2010, financial institutions must appoint an ombudsman, whose mission is to ensure strict compliance by the financial institution with the legal and regulatory regimes relating to consumer rights and to mediate any conflicts among financial institutions and their clients and users of their products and services. The structure of a financial institution s organization must be compatible with the nature and complexity of its products, services, activities, processes and systems. In addition, its organizational structure must be distinct from the internal audit area. The following are the ombudsman s responsibilities: receiving, recording, instructing, analyzing and giving formal and adequate attention to complaints from clients and users of products and services of financial institutions that are not otherwise addressed in branches or other points of service; providing any necessary clarifications and information regarding the status of a complaint and any actions that have been taken to resolve it; providing information as to when a final response is expected to be given, which must be within 15 days; sending a final answer by the date on which a response is required; proposing to the board of directors or, if one does not exist, to the financial institution s executive committee, corrective actions or improved procedures, as a result of analyzing complaints received; and preparing and sending to the internal audit department, to the audit committee (if one exists), and to the board of directors (or if one does not exist, to the executive committee of the financial institution), at the end of each fiscal semester, a quantitative and qualitative report about the ombudsman s activities, with proposals for corrective actions or improved procedures. The constitutive documents of financial institutions must expressly state, among other provisions: (1) the duties of the ombudsman; (2) the criteria for selection and dismissal of the ombudsman and his or her term of office; and (3) the express commitment of the institution to (a) create adequate conditions to enable the ombudsman to perform his or her duties and also to ensure that the ombudsman can operate in a transparent, independent and impartial, and (b) ensure that the ombudsman has access to information necessary to enable him to respond adequately to any complaints received from clients, with full administrative support and the ability to request information and documents as may be necessary to perform his or her duties. Financial institutions must report and maintain updated information regarding the officer who is responsible for the ombudsman and the structure of his or her office. This responsible officer must prepare a report every six months, as required by the Central Bank, and also more frequently when any material event is identified. In addition, Brazilian law allows for the creation of a single ombudsman structure for a group of related companies, such that a single ombudsman can have responsibility for all financial institutions that are part of the same group. Any financial institution carrying out leasing transactions, however, shall create its own segregated ombudsman structure. Guidelines for Capital Adequacy Brazilian banks must comply with guidelines, for weighted capital adequacy over risk. The former requirements of the Central Bank related to capital adequacy were similar to those recommended by the Basel II Accord. The Central Bank: set a minimum capital adequacy ratio of 11.0%, instead of the 8.0% required by the Basel II Accord; required an additional amount for interest rates and foreign currency swap transactions that are not reflected on the balance sheet; 138

139 checked risk levels of certain assets/properties and amounts of loan conversion, with a weighted risk of 300% over tax credits related to income and social contribution taxes; required banks, pursuant to CMN Resolution No. 2,723 of May 31, 2000, as amended, to prepare consolidated financial statements. These consolidated financial statements had to include share interest held, directly or indirectly, separately or jointly with other shareholders, including voting agreements, shareholders rights, in companies, in Brazil and abroad to assure: (1) decision power over corporate decisions; (2) power to elect or dismiss most officers; (3) shared management or administration of the company; or (4) share control represented by total shares held by the institution; and required banks, pursuant to CMN Resolution No. 3,490 of August 29, 2007, as amended, replaced by CMN Resolution No. 4,193 of March 1, 2013, and Central Bank Circular No. 3,383 of April 30, 2008, as amended, replaced by Central Bank Circular No. 3,640 of March 4, 2013, to set aside a portion of their shareholders equity as a reserve to cover operational risks (i.e., losses arising from failures, deficiencies or inadequacies of internal controls, or otherwise from personnel or systems, including as a result of external events). In June 2004, the bank supervision committee of the Bank of International Settlements, or the BIS, endorsed the publication of the International Convergence of Capital Measurement and Capital Standards: A Revised Framework, otherwise known as the Basel II Accord. On December 9, 2004, the Central Bank expressed its intention to adopt the Basel II Accord in Brazil gradually, seeking to incorporate provisions applicable to the Brazilian banking sector. Pursuant to Communications Nos. 12,746, 16,137 and 19,028, recommendations of the Basel II Accord should be implemented in Brazil by the first half of Furthermore, the CMN issued on June 29, 2006, Resolution No. 3,380, as amended, which sets out procedures for the implementation of an operational risk internal structure, aimed at fostering compliance with Basel II Accord principles by Brazilian banks. Brazilian banks were required to present their proposed procedures by the end of 2006 and implement their procedures by the end of On February 28, 2007, pursuant to Resolution No. 3,444 the CMN established the criteria for calculation of regulatory capital. In addition, on August 29, 2007, the CMN established new criteria for calculating the required regulatory capital (PRE) of financial institutions effective from July 1, According to CMN Resolution No. 3,444, replaced by CMN Resolution No. 4,192 of March 1, 2013, as amended, the reference shareholders equity of Brazilian banks was represented by the sum of Tier I and Tier II of shareholder s equity and was considered when defining capital adequacy for banks. Tier I: meant net equity plus credit profits and losses, net, and the value of the account to substitute capital deficiencies, and excluding the following amounts: (1) debit profits and losses, net; (2) revaluation reserves, contingency reserves and special profit reserves for retained mandatory dividends; (3) redeemable preferred shares and preferred shares with accumulated dividends; (4) tax credits (as defined by CMN Resolution No. 3,059 of December 20, 2002); (5) deferred assets, less goodwill paid for the acquisition; and (6) unrealized gains and losses, net, due to changes in the market value of securities classified as securities for sale and derivatives to hedge our cash flow. Tier II: meant revaluation reserves, contingency reserves and special profit reserves for retained mandatory dividends, plus: (1) hybrid capital and debt instruments, subordinated debt instruments, redeemable preferred shares and preferred shares with accumulated dividends issued by financial institutions; and (2) unrealized gains and losses, net, due to changes in the market value of securities classified as securities for sale and derivatives to hedge our cash flow. The total amount of Tier II could not be greater than the total amount of Tier I, and (a) the amount of revaluation reserves was limited to 25% of the Tier I amount; (b) the amount of redeemable preferred shares with original maturities of less than 10 years, plus the value of subordinated debt instruments, was limited to 50% of the Tier I amount; and (c) a 20% reducer should be applied to subordinate debt and redeemable preferred shares included in Tier II in each of the 5 years immediately prior to the respective maturity. 139

140 The total amount of Tier II was limited to the total amount of Tier I, provided that (i) the total amount of revaluation reserves was limited to 25% of Tier I equity; (ii) the total amount of subordinated debt plus the total amount of redeemable preferred shares with an original term to maturity below 10 years was limited to 50% of the total amount of Tier I; and (iii) a 20% reduction had to be applied each year to the amount of subordinated debts authorised as Tier II equity and of redeemable preferred shares during the five years immediately preceding their respective maturities. The reference shareholders equity should be considered when defining capital adequacy of banks, except for limits of permanent assets, defined according to certain legal provisions. Financial institutions are required to calculate their reference shareholders equity on a consolidated basis. Since July 2, 2007, the balance of assets represented by shares, hybrid instruments, subordinated debt and other Tier I and Tier II financial instruments have been deducted from reference equity. In addition, the following will be deducted from reference equity: (i) amount paid into investments fund s capital, proportionate to the interest in the fund portfolio; (ii) amount related to: (a) acquisition or indirect interest in financial conglomerates, through any nonfinancial affiliated entity; (b) assets for subordinated transactions from investments in permanent assets related to the regulations in effect at that time; and (c) assets for subordinated transactions delivered or placed by third-parties in order to implement active subordinated operations. In addition to minimum capital and reference shareholders equity requirements, financial institutions must also maintain a level of reference shareholders equity that is compatible with the risks exposed to their assets, liabilities and compensation accounts. Financial institutions may only distribute their profits that exceed the legal capital adequacy requirement. On September 12, 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced a substantial strengthening of existing capital requirements and fully endorsed previous agreements on the overall design of the capital and liquidity reform package, the Basel III Accord, presented during the Seoul G20 Leaders summit in November 11, These reforms would increase the minimum common equity requirement from 2% to 4.5%. In addition, banks will be required to hold a capital conservation buffer of 2.5% to withstand periods of stress, bringing the total common equity requirements to 7%. In March 2013, the CMN and the Central Bank issued a new regulatory framework aimed at implementing the recommendations contained in the Basel III Accord. Changes in the previous regulations include: the reference shareholder s equity continues to be defined as the sum of Tier I and Tier II Capital. However, Tier I Capital now encompasses the Principal Capital (Capital Principal) plus the so-called Complementary Capital, which includes some types of hybrid instruments duly authorised by the Central Bank that meet certain specific requisites, such as subordination and perpetuity; the calculation of the reference shareholder s equity as of January 2014 is to be done on a consolidated basis, and shall include, in addition to the financial entities belonging to the financial conglomerate, certain entities considered quasi-financial institutions, including, among others, non-financial credit card companies, insurance companies and investment funds; certain deductions in the calculation of the Tier I Capital, including, among others, those relating to premium based on future profits, tax credits and intangible assets, will be required to be made starting in 2014 at a 20% rate up to a 100% rate in 2018; the Principal Capital shall be complemented by the Additional of Principal Capital, which is essentially based on exposures relating to (i) credit risk, (ii) market risk, (iii) operational risk, (iv) interest rate risk, (v) foreign exchange risk, (vi) price index risk, (vii) equity prices, (viii) commodity prices and (ix) gold. The Central Bank will establish the Additional of Principal Capital as follows (all rates relate to the total amount of risk 140

141 weighted assets): (i) between 0.625% and 1.25% in year 2016; (ii) between 1.25% and 2.5% in year 2017; (iii) between 1.875% and 3.75% in year 2018; and (iv) between 2.5% and 5% starting year 2019; the minimum reference shareholder s equity in relation to risk-weighted assets is set at 11% and will be reduced on a yearly basis up to 8% in Tier I Capital, also in relation to risk-weighted assets, is set at 5.5% starting on October 1, 2013 and will be increased up to 6% in January 2015, whereas the minimum Principal Capital shall correspond at least to 4.5% of the risk-weighted assets, since October 1, 2013; and the different portions of the RWA of financial institutions (e.g. RWA subject to exchange rate variation, interest rate variation, price indices, commodity prices, among others) will be calculated in accordance with new formulas and mechanisms set forth by the Central Bank under Circulars No. 3,634 to No. 3,647, as amended, all as of March 4, 2013, according to the risk that each such portion represents to the relevant financial institution. In accordance with the Basel III Accord implementation schedule, the CMN issued Resolution No. 4,192, on March 1, 2013, as amended. According to this resolution, the reference shareholders equity of Brazilian financial institutions is currently represented by the sum of Tier I and Tier II, as follows: Tier I: is the sum of Principal Capital and Complementary Capital. Principal Capital basically corresponds to the sum of: (i) capital stock; (ii) reserves; (iii) unrealized gains; (iv) retained earnings; (v) creditor profit and loss account balances; (vi) deposits in escrow accounts to cover capital shortages (pursuant to the terms of CMN Resolution No. 4,019, of September 29, 2011); and (vii) balance of unearned gains resulting from the positive adjustment in the market value of securities classified as securities available for sale and derivative financial instruments used for cash flow hedge, deducting: (a) unrealized losses; (b) treasury stocks eligible for Principal Capital; (c) retained losses; (d) debtors profit and loss account balances; (e) balance of unearned losses resulting from the negative adjustment in the market value of securities classified as securities available for sale and derivative financial instruments used for cash flow hedge; and (f) prudential adjustments listed in article 5 of CMN Resolution No. 4,192, as amended. Complementary Capital is the now sum of any instruments that meet the requirements of Complementary Capital under CMN Resolution No. 1,492, less (i) financing instruments issued by non-consolidated financial institutions and (ii) treasury stocks eligible for Complementary Capital treatment. Tier II: is the sum of (i) any instruments that meet the requirements of Tier II under the CMN Resolution No. 4,192 and (ii) the positive difference between the accrued amount and the RWA (IRB) less (a) acquired instruments eligible for Tier II treatment issued by non-consolidated financial institutions and (b) treasury stocks eligible for Tier II treatment. CMN Resolution No. 4,193 of March 1, 2013, as amended, determines minimum requirements for Tier I and Principal Capital reference shareholders equity and Additional of Principal Capital. These minimum requirements have been effective since October 1, 2013 and will be gradually increased until January 1, The effect of these changes is an increase of minimum capital requirement as follows: Principal Capital 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% Tier I Capital 5.5% 6.0% 6.0% 6.0% 6.0% 6.0% 141

142 Reference Shareholders Equity 11.0% 11.0% 9.875% 9.250% 8.625% 8.0% Additional Principal Capital 0.625% to 1.25% 1.25% to 2.5% 1.875% to 3.75% 2.5% to 5.0% Central Bank Circular No. 3,678 of October 31, 2013, which governs the disclosure of information regarding the RWA and the reference capital will be effective as of June 30, 2014, revoking Central Bank Circular No. 3,477 of December 24, Accounting Procedures Relating to the Sale or Transfer of Liquid Assets Pursuant to CMN Resolution No. 3,533 of January 31, 2008, and by CMN Resolution No. 3,895 of July 29, 2010, financial institutions must write off financial assets upon the termination of the contractual rights relating to the cash flow of the financial asset and in other cases specified in this Resolution. CMN Resolution No. 3,533 provides that, financial institutions must account for their assignment of financial assets among the following categories: (1) transactions involving substantial transfer of risks and benefits; (2) transactions involving substantial retention of risks and benefits; and (3) transactions involving neither substantial transfer nor retention of risks and benefits. CMN Resolution No. 3,533 also states that each financial institution is responsible for evaluating the transfer or retention of risks and benefits relating to assignments of financial assets. Capital Structure Financial institutions are established as corporations (sociedades por ações), with some exceptions, such as securities and brokerage firms that can be established as limited liability companies. As corporations, financial institutions are subject to the Brazilian Corporate Law and if they are publicly-held companies, they will also be subject to CVM supervision. The share capital of financial institutions may be divided in voting and non-voting shares. Non-voting shares cannot be greater than 50% of the total shares. Treatment of Overdue Debts According to CMN Resolution No. 2,682, as amended, banks must classify their loan operations according to the level of risk. Classification is made in increasing order in the following levels: AA, A, B, C, D, E, F, G, or H. This loan classification is determined according to criteria established by the Central Bank, as follows: features of the borrower and its guarantors, such as financial and economic situation, level of indebtedness, capacity to yield profit, cash flow, management and methods for quality control, tightening of loan credit, and overdue payments; and aspects of the transaction terms, such as its nature and objective and provision of enough collaterals. Attention should be paid to liquidity and total amount of collaterals. Lending transactions to the same client or industry are determined through analysis of lending transactions for the specific client or industry that represent the greatest risk for the banks. Debt classification should be reviewed: monthly, in case of overdue payment of the principal or interest, as follows: 1 to 14 days after maturity: risk level A; 15 to 30 days after maturity: risk level B; 31 to 60 days after maturity: risk level C; 142

143 61 to 90 days after maturity: risk level D; 91 to 120 days after maturity: risk level E; 121 to 150 days after maturity: risk level F; 151 to 180 days after maturity: risk level G; and over 180 days after maturity: risk level H. every six months, in transactions greater than 5% of the adjusted net worth of the bank involving the same client or industry; and every year, in all other cases, except when client s liabilities in the lending transactions are less than R$50,000. This R$50,000 limit can be changed by the Central Bank and applies only to operations launched on or before February 29, The noncompliance with these requirements of the Central Bank will result in reclassification of any transaction to risk level H. Provision for overdue debts must be accounted for monthly by the banks. Such provisions should be under the following amounts: 0.5% of the total amount of the lending operations classified as level A; 1.0% of the total amount of the lending operations classified as level B; 3.0% of the total amount of the lending operations classified as level C; 10.0% of the total amount of the lending operations classified as level D; 30.0% of the total amount of the lending operations classified as level E; 50.0% of the total amount of the lending operations classified as level F; 70.0% of the total amount of the lending operations classified as level G; and 100.0% of the total amount of the credit operations classified as level H. Lending operations of up to R$50,000 can be classified through the evaluation method of the bank or according to delays in the above described criteria of payment, whichever is the strictest. CMN Resolution No. 2,682, as amended, is also applicable to leasing and other operations characterized as loan advances. Credit Risk Analysis Banks must disclose information about loans and guarantees granted by clients to the Central Bank. The information will be used to: reinforce the Central Banks supervising ability; and disclose information about the debtors to other banks, provided that they obtain an authorization from the client. If the total aggregate amount of operations of one certain client exceeds R$1,000.00, the bank must provide to the Central Bank: the identification of the client; 143

144 details about the operations of the client, including any guarantee given by the bank; and information about the client s credit risk based on the classification provided by the CMN Resolution No. 2,682, as amended. If the total aggregate amount is equal or lower than R$1,000.00, the bank only is required to disclose the total value of the operation by client to the Central Bank. Money Laundering Law (Lei de Prevenção e Combate à Lavagem de Dinheiro) Pursuant to Law No. 9,613, of March 3, 1998, as amended (as regulated by Decree No. 2,799 of October 8, 1998), and other applicable legislation, banks must: (1) identify (through know-your-client forms) and keep updated information about its clients; (2) keep internal controls and systems, and adequate filing records; (3) keep records for 5 years of all operations or group of operations carried out by individuals or entities belonging to the same economic group, in reais or foreign currency, relating to securities, precious metals, or any other asset convertible into money, exceeding R$10,000; (4) review operations or proposed operations that may indicate existence of crime; (5) inform and keep records of all check operations for 5 years; (6) inform the competent authority (without the client s knowledge) any transaction or group of transactions carried out by individuals or entities belonging to the same group of companies that exceeds R$10,000; and (7) inform the competent authority, within 24 hours, of any operation that the bank considers suspect. Non-compliance with any of the above subjects the bank and its managers to penalties ranging from fines (from 1% to 100% of the amount of the operation, or 200% of the profit obtained from it) to the ineligibility of the managers for any office in banks and/or the cancellation of the bank s operating license. Pursuant to Law No. 9,613/98, the Brazilian government created the Council for Financial Activities Control (Conselho de Controle de Atividades Financeiras or COAF ), a local financial intelligence unit, under the supervision of the Ministry of Finance. COAF s task is to investigate, analyse, identify and impose administrative penalties on any suspicious or illegal activities related to money laundering in Brazil. COAF is comprised of one president, appointed by the Brazilian President upon recommendation of the Ministry of Finance, and nine members, each appointed by one of the following entities: (1) the Central Bank; (2) the CVM; (3) the SUSEP; (4) the Federal Revenue; (5) the attorneygeneral of the National Treasury; (6) the Brazilian Intelligence Agency (Agência Brasileira de Inteligência); (7) the Brazilian Controller Office; (8) the Ministry of Foreign Relations; (9) the Ministry of Social Security; (10) the Ministry of Justice; and (11) the Federal Police Department. The term of office of the president of COAF and the other board members is three years. On July 24, 2009, the Central Bank issued Circular No. 3,461, as amended by Circular No. 3,517 of December 7, 2010, Circular No. 3,583 of March 12, 2012, and Circular No. 3,654 of March 27, 2013, which consolidated the procedures to be complied with by financial institutions (including their branches and subsidiaries abroad) in order to prevent the crimes set forth in Law No. 9,613/98. Circular No. 3,461 sets forth requirements to be complied with by financial institutions related to (i) internal policies and controls systems, (ii) records of customer information, (iii) records of financial services and transactions, (iv) records of checks and transfer of funds, (v) records of prepaid cards, (vi) records of handling of resources in excess of R$100,000, and (vii) reports of material information to COAF. Furthermore, the CMN enacted, on February 11, 2010, Circular Letter No. 3,430, clarifying concepts related to customer and politically exposed persons, as well as procedures to be taken in connection with the identification of such customers or persons. On March 12, 2012, the Central Bank amended the rules applicable to procedures that must be adopted by financial institutions in the prevention and combat of money laundering and terrorism financing, as a response to the recommendations of the Financial Action Task Force. The main measures include: (1) enactment of Circular No. 3,583, which sets forth that (a) financial institutions must not initiate any relationship with clients or proceed with existing relationships, if it is not possible to fully identify such clients and (b) anti-money laundering procedures are also applicable to agencies and subsidiaries of Brazilian financial institutions located abroad;; and (2) enactment of Letter Circular No. 3,542, which increases the list of examples of transactions and situations which may characterize 144

145 evidence of occurrence of money laundering, tending to improve the communication between financial institutions and the COAF. Politically-Exposed Individuals Brazil has enacted regulations relating to the relationships of financial institutions with politically-exposed individuals. Under these regulations, politically-exposed individuals are defined as persons who occupy or have occupied a significant public office, in Brazil or abroad, over the past five years, as well as such person s immediate family members, life partners and stepchildren. The five-year term is deemed to begin upon the initial date of the business relationship with the person or, if later, from the date as of which the client became a politically-exposed individual. The purpose of these regulations, which are set forth in Circular No. 3,461, of July 24, 2009, as amended, Brazilian financial institutions must take certain actions in connection with the establishment of business relationships with politically-exposed individuals, and must exercise diligence in respect of the financial transactions of such individuals. The senior management of financial institutions must issue a prior authorization to enable the establishment of a business relationship with this type of client, or in order to authorise a continued business relationship with an existing client in the event that he or she becomes a politically-exposed individual. In addition, the regulations state that the financial institution s internal procedures must be developed and implemented in such a way as to enable the identification of politically-exposed individuals, as well as the origin of the funds involved in the transactions of such clients. For example, the financial institution may analyse the compatibility between the value of a particular client s transactions with the client s net worth as stated in his or her client file. Financial institutions must also pay special attention to proposed relationships with, and transactions relating to, such individuals originating from countries with which Brazil has a large volume of financial and commercial transactions, common borders or ethnic, language or political proximity. Brazilian Anti-Bribery Law On January 29, 2014, the Brazilian Anti-Bribery Law came into force. Following in the wake of foreign laws such as the U.S. Foreign Corrupt Practices Act (FCPA) and the U.K. Bribery Act, and partly in response to pressure from the Organization for Economic Co-operation and Development, the Brazilian Anti-Bribery Law subjects Brazilian and foreign companies with headquarters, branches or offices in Brazil that bribe public officials or related parties, promise or offer any undue advantage to foreign or domestic public officials, to strict penalties. The Brazilian Anti-Bribery Law also creates a leniency program and encourages the adoption of internal compliance programs. Bank Secrecy Banks must keep secrecy about their banking operations and services rendered to their clients. Pursuant to Complementary Law No. 105, of January 10, 2001 ( Bank Secrecy Law ), the following are not considered violation of bank secrecy: exchange of information between banks, for their own records; disclosure of information about check issuers without provision of funds and nonperforming debtors, to credit protection entities; disclosure of information to the competent authorities about criminal or illegal administrative activities, including information about resources resulting from any criminal activity; disclosure of privileged information with the express consent of the interested parties; and under certain circumstances, disclosure of information to the Federal Revenue in order to identify taxpayers and the aggregate amounts paid in each transaction. In accordance to the Bank Secrecy Law, disclosure of information to the Central Bank is not a violation of the bank secrecy when the Central Bank is inspecting operations, including illegal activities carried out by controllers, managers, members of board of directors, attorneys-in-facts, and representatives of banks, or when the Central Bank is 145

146 investigating a bank subject to a special regime. The CVM can also have access to privileged information when it is investigating operations and services in the securities market, including banks that are publicly-held companies. The Parliamentary Inquiry Commissions (Comissões Parlamentares de Inquérito or CPIs ) may obtain privileged information and confidential documents deemed necessary directly from the banks or through the Central Bank of the CVM, provided that the requirements are approved by the House of Representatives, the Federal Senate or the respective CPIs. In accordance to the Bank Secrecy Law, the Central Bank or the CVM may exchange information with foreign governmental authorities pursuant to the terms of the treaties in effect. Tax Evasion Law In accordance with Decree No. 3,724, of January 10, 2001, as amended, that regulates the Bank Secrecy Law, the Federal Revenue may request information from the banks that are generally protected by bank secrecy without any court authorization, provided that there is an investigation in course and any of the following events, among others: underassessment of the amounts of the operations, including those of foreign trade, purchase or sale of assets or rights, based on the corresponding market values; loans from non-financial entities or individuals, when the borrower fails to prove receipt of proceeds; any operation involving tax havens; failure to report income or net earnings, resulting from fixed or variable income investments; operations subject to tax and that do not have appropriate tax payers records; and evidence of criminal tax activity. Regulations that Affect the Liquidity of the Financial Market The Central Bank currently imposes a number of mandatory reserve requirements to Brazilian banks. The banks must deposit such reserves with the Central Bank. The Central Bank uses the reserve requirements as a mechanism to control the liquidity of the National Financial System. The reserves imposed on deposits in current accounts, savings accounts and time savings accounts represent almost all of the amounts that must be deposited with the Central Bank. Set forth below are some of the types of reserves in effect: Demand Deposits In accordance with Central Bank Circular No. 3,632 of February 21, 2013, banks and other financial institutions must deposit 44.0% (to be increased to 45.0% as of June 2014) of the average daily balance of their demand deposits, investments deposits, notice deposits, resources from third parties in transit, administrative checks, collection of receivables, collection of income tax receipts, debt assumption operations and resources from guarantees granted to banks with the Central Bank, without interest assessment. Calculation is based after the first R$44.0 million of average daily balance. If the applicable reserve requirement of a financial institution is equal to or below R$0.5 million, such financial institution will be exempt from setting aside reserve requirements set forth by Circular No. 3,632, although it must provide information to the Central Bank on demand deposits held by it. At the end of each day, the balance in such account must be equal to at least 80.0% of the required reserve for the respective period of calculation starting on Monday of each week and ending on Friday of the following week. Savings Deposits In accordance with Circular No. 3,093 of March 1, 2002, as amended, banks in Brazil are currently required to make weekly deposits with the Central Bank of an amount of money equal to 20.0% of the average daily balance of the savings accounts during the prior week. At the end of each day, the balance of the account of the bank must equal 100% of the required deposit for each week. In addition, pursuant to CMN Resolution No. 3,932, of December 16, 146

147 2010, as amended, a minimum of 65.0% of the deposits in savings accounts raised by the entities of the Brazilian Savings and Loans System (Sistema Brasileiro de Poupança e Empréstimo, or SBPE ) must be converted into loans to the housing industry or the property development. Pursuant to CMN Resolution No. 3,023 of October 11, 2002, as amended by CMN Resolution No, 3,843 of March 10, 2010, the CMN established an additional reserve requirement of 10.0% on the resources of savings accounts raised by entities of the SBPE, such as multiple service banks with real estate loan portfolios, real estate loan associations and savings and loans associations. Such additional reserve requirement shall be deposited in cash and will bear interest at a rate based on the SELIC. Time Deposits In accordance with Central Bank Circular No. 3,569, of December 22, 2011, as amended ( Circular No. 3,569 ), banks are subject to a mandatory reserve of 20.0% of the average daily balance of their time deposits and certain other amounts, after a deduction of R$30.0 million, in the amount exceeding: (1) R$3.0 billion, for financial institutions with Tier I component of shareholders equity below R$2.0 billion; (2) R$2.0 billion, for financial institutions with Tier I component of shareholders equity equal to or higher than R$2.0 billion and below R$5.0 billion; (3) R$1.0 billion, for financial institutions with Tier I component of shareholders equity equal to or higher than R$5.0 billion and below R$15.0 billion; (4) and zero, for financial institutions with Tier I component of shareholders equity equal to or higher than R$15.0 billion. If the applicable reserve requirement of a financial institution is equal to or below R$0.5 million, such financial institution will be exempt from setting aside reserve requirements set forth by Circular No. 3,569, although it must provide information to the Central Bank on time deposits held by it. Interest on part of such deposits is paid at a SELIC based rate. At the end of each day, deposited amounts shall be equivalent to 100% of the applicable reserve requirement. Additional Reserve Requirement (Demand Deposits, Savings Deposits and Time Deposits) On March 27, 2013, the Central Bank issued Circular No. 3,655, which provides for the additional reserve requirement on deposits raised by multiple service banks, investment banks, commercial banks, development banks, credit financing, loan and investment companies, real estate loan associations, and savings and loans associations. Subject to Central Bank Circular No. 3,655. these entities are required to deposit in cash the following amounts, deducted by (a) R$3.0 billion for financial institutions with adjusted Tier I component of reference shareholders equity below R$2.0 billion, (b) R$2.0 billion for financial institutions with Tier I component of reference shareholders equity below R$5.0 billion and equal to or higher than R$2.0 billion, (c) R$1.0 billion for financial institutions with Tier I component of reference shareholders equity below R$15.0 billion and equal to or higher than R$5.0 billion, or (d) zero for financial institutions with Tier I component of reference shareholders equity equal to or higher than R$15.0 billion: (1) 11.0% of the arithmetic average of time deposits and certain other amounts subject to the reserve requirement; (2) 10.0% of the arithmetic average of savings deposits subject to the reserve requirement; and (3) 0.0% of the arithmetic average of demand deposits subject to the reserve requirement. If the applicable reserve requirements of a financial institution is equal to or below R$0.5 billion, such financial institution will be exempt from setting aside reserve requirements set forth by Circular No. 3,144. The reserve requirement must be met in cash on a specific account and, at the end of each day, the balance in this account must be equal to 100% of the additional reserve requirement. Foreign Currency In the past, the Central Bank has imposed certain compulsory deposit requirements on foreign exchange and other types of transactions. Pursuant to Circular No. 3,548, of July 8, 2011, as amended by Circular No. 3,659 of June 25, 2013, the Central Bank established that Brazilian financial institutions authorised to carry out foreign exchange transactions are currently not required to make compulsory deposits with the Central Bank based on their daily exposure to foreign currencies. However, the Central Bank can reinstate these requirements or impose similar restrictions in the future. Mandatory Loan Transaction In accordance with Law No. 10,735, of September 11, 2003, as amended, commercial banks, multiple service banks and the CEF must allocate a portion of their resources from demand deposits to lending operations for small 147

148 companies, individuals making small demand deposits in investment accounts and individuals with low income. In accordance with CMN Resolution No. 4,000, of August 25, 2011, as amended, at least 2% of the balance of the demand deposits must be allocated for the above-mentioned transactions at a maximum interest rate of 2% per month or 4% per month for oriented productive microcredit, as described in this Resolution. Letras Financeiras - Financial Bills ( LFs ) Provisional Measure No. 472/09, enacted by the Brazilian government on December 15, 2009 (later converted into Law No. 12,249 of June 11, 2010, as amended), among other items, created a long term debt security, enabling a new category of fund raising by Brazilian financial institutions. Pursuant to CMN Resolution No. 4,123, of August 23, 2012, the LFs must have a minimum nominal amount of R$150,000 (or, in the case of subordinated LFs, R$300,000), and a minimum tenor of 24 months. Pursuant to Instruction No. 488 of December 16, 2010, the CVM has regulated the public offering of LFs in the Brazilian capital markets. Structured Operations Certificates (Certificados de Operações Estruturadas) On September 5, 2013, the CMN enacted CMN Resolution No. 4,263 ( CMN Resolution No. 4,263 ), which regulates issuances of Structured Operations Certificates (Certificados de Operações Estruturadas, or COEs ), created by Law No. 12,249. Pursuant to CMN Resolution No. 4,263, a COE is a certificate issued against an initial investment, representative of a single and indivisible set of rights and obligations, with a profitability structure that has characteristics of derivative financial instruments. Only multiple-service banks, commercial banks, investment banks and savings banks are authorised to issue COEs, which must be issued exclusively in book-entry form, through the registration in a registry and clearing system authorised by the Central Bank or CVM. A COE can reference price indexes, bond indexes, securities indexes, interest rates, exchange rates, securities and other underlying assets, including those disclosed or traded abroad, with due observance of the same requirements for assets in Brazil, including regarding exchanges and OTC markets, which must be regulated by the competent foreign authorities. Payment Arrangements and Payment Agents Law No. 12,865 of September 2, 2013 sets out the general rules and principles for payment arrangements and payment agents, which now form part of the Brazilian Payments System (BPS), and confers on the CMN and the Central Bank the requisite powers to regulate them. Law No. 12,865 makes it clear that payment agents should not be confused with financial institutions, and, accordingly, payment agents are prohibited from engaging in activities reserved for the latter. Following the enactment of Law 12,865, the CMN and Central Bank set out the first regulatory framework for payment arrangements and payment agents by means of the enactment of CMN Resolutions No. 4,282 and 4,283, and Central Bank Circulars No. 3,680, 3,681, 3,682 and 3,683, all of them published on November 6, Exchange Rules On March 23, 2010, the CMN enacted Resolution No. 3,844, consolidating the general provisions related to foreign capital in Brazil. Such rule governs the registry of flows of direct investments, credits, royalties, transfers of technology and foreign leasing, among others. On December 16, 2013, the Central Bank issued Circulars No. 3,688, 3,689, 3,690 and 3,691, which generally regulate cross-border transactions and replaced the Regulation of Exchange Market and International Capitals (Regulamento do Mercado de Capitais e Capitais Internacionais, or the RMCCI ) of the Central Bank as from February 3, The new rules were issued in order to simplify the set of rules relating to the exchange market, Brazilian capital abroad and foreign capital in Brazil previously contemplated by the RMCCI. Circular No. 3,690 consolidates the amendments to the codes for foreign exchange transactions adopted by the Central Bank through a series of rulings published during The new codes for foreign exchange transactions aim to cover situations that could not be classified in the exisiting codes. 148

149 Financial Operations Taxation Tax on Credit, Currency Exchange and Insurance Transactions or Transactions Relating to Securities (IOF) The IOF is a tax on credit, currency exchange and insurance transactions and transactions relating to securities. Because the IOF is a tax that does not need to observe the principle of anteriority, the IOF rate can be changed at any time by an Executive Decree, effective immediately. On January 3, 2008, the Brazilian executive branch issued Decree No. 6,339, which amended the IOF regulation (Decree No. 6,306, of December 14, 2007). The purpose of this new decree is to include the application of an additional IOF rate of 0.38% on most credit transactions and on currency exchange transactions. With regard to currency exchange transactions, even though the maximum allowed IOF rate is 25%, most remittances or receipts of funds are currently subject to a 0.38% rate, with the following main exceptions: the IOF tax rate imposed on the inflow or outflow of capital to Brazil deriving from, or for, loans whose average minimum payment terms are no longer than 360 days, is 6.0%; if the average minimum payment term is longer than 360 days, the IOF is levied at 0% rate; the IOF tax rate imposed on foreign exchange transactions made in compliance with the obligations of credit card management companies or commercial or multiple banks, as credit card issuers, and deriving from the purchase of goods and services made abroad by their credit card users, is 6.38%. Since December 28, 2013, the same rate of 6.38% is applicable for the IOF/FX tax on foreign exchange transactions for the use of debit card abroad for withdrawals and on foreign exchange transactions carried out for the purchase of foreign currency in traveller checks and for loading prepaid international cards, designed to cover personal expenses on international travels; the IOF tax is imposed at a 0% rate on foreign exchange transactions made in compliance with the obligations of credit card management companies or commercial or multiple banks, as credit card issuers, and deriving from the purchase of goods and services made abroad by credit card users of the federal, state, municipal and the federal district governments, their foundations and agencies; the IOF tax is imposed at a 0% rate on foreign exchange transactions related to inflow of revenues from the export of goods and services from Brazil; and pursuant to Decree No. 8,023 dated June 4, 2013, foreign exchange transactions resulting in the inflow of funds into Brazil for (i) investments made by non-residents in the Brazilian financial and capital markets and for initial or additional margin deposits made by non-residents as required by stock, commodities and futures exchanges are subject to the general IOF rate of 0%, (ii) variable income investments on the BM&FBOVESPA and the acquisition of shares in an initial public offering in Brazil, (iii) acquisition of quotas of private equity funds (fundos de investimento em participações), investment funds on emerging companies (fundos mútuos de investimento em empresas emergentes) and quota investment funds on the funds mentioned (fundos de investimento em cotas dos referidos fundos), (iv) ADR cancellation, (v) conversion of investments governed by Law No. 4,131 into investments governed by CMN Resolution No. 2,689, and (vi) investments in long-term private debt instruments outlined in Articles 1 and 3 of Law No. 12,431/11, which are subject to a 0% rate. The outflow of the amounts in all cases mentioned in this item remains subject to the rate of 0%. IOF is assessed on all credit transactions carried out in Brazil, and it is calculated according to the term of such credit transaction, at a rate of % per day, limited to a ceiling of 1.5% per year with respect to certain credit transactions. An additional IOF rate of 0.38% will be assessed on all credit transactions, regardless of the term thereof. Nevertheless, the Brazilian executive branch is able to increase such rate to up to 1.5% per day. 149

150 IOF can also be assessed on the issuance of securities, including transactions carried out in the stock exchange and commodities and futures exchange. The IOF rate with regard to many transactions involving securities is set at 0% at this time, even though certain transactions may be subject to specific rates. Nevertheless, the Brazilian executive branch is able to increase such rate to up to 1.5% per day on the value of the taxed transaction. IOF is also assessed on gains resulting from transactions with terms of less than 30 days that consist of sale, assignment, repurchase or renewal of fixed-income investments or redemption of investment fund or investment consortium shares. The maximum IOF rate that can be assessed in those cases is 1.0% per day, limited to the gains of the transaction. Such rate can be reduced according to the duration of the transaction and is reduced to 0% in case of transactions with terms of maturity of at least 30 days. As exceptions to this rule, the following transactions are currently subject to a zero-rate IOF taxation even if their terms are lower than 30 days: transactions carried out by financial institutions and other institutions authorised to operate by the Central Bank; transactions carried out by investment fund and investment club portfolios; transactions in the variable income market, including the ones carried out in stock exchange, commodities and futures exchange and similar entities; redemption of quotas of funds investing in stock, as described in the income tax laws; and transactions carried out by bodies of the Federal, State, Federal District or Municipal Public Administration, independent agencies or foundations, political parties, including their foundations and workers unions. The IOF rate applicable to insurance transactions is: (1) 0%, in case of reinsurance transactions or the ones relating to export credits, international shipment of goods or when the premiums are allocated to finance life insurance plans with a survival coverage clause, among others; (2) 0.38%% of the premiums paid in case of life insurance relating to personal and labour accidents; (3) 2.38% of the premiums paid in private health care insurance transactions; and (4) 7.38% of the premiums paid in case of other types of insurance. Rural insurance is exempted from IOF taxation. Income Tax In general, income tax is assessed on income or gains resulting from financial transactions carried out by individuals or legal entities domiciled and residing in Brazil. Income resulting from variable-income financial investments, in general, are subject to IRRF taxation at a rate of 15.0%. Income resulting from fixed-income financial investments, in general, is subject to IRRF taxation at regressive rates that could amount to 22.5%, 20.0%, 17.5% or 15.0%, according to the investment term and type. In the case of legal entities domiciled in Brazil, the assessments mentioned above are considered advance payment of the income tax for legal entities or IRPJ. Except for foreign investments carried out under the rules specified by CMN Resolution No. 2,689/2000, which currently benefit from a special taxation regime, investments in the Brazilian financial and capital markets carried out by individuals that are resident or domiciled abroad are, in general, subject to the same taxation rules that apply to Brazilian residents. Foreigners that invest in the Brazilian financial and capital markets according to the CMN rules are subject to IRRF taxation at the following rates: (1) 10.0% in case of financial investments in stock funds, swap transactions, whether or not registered with the stock exchange, and off-stock exchange transactions in the future settlement market; (2) 15.0% in case of fixed-income financial investments and in other cases, regardless of the investment term; and (3) 0% in case of capital gains, as defined by law as the ones resulting from transactions carried out in stock exchange, commodities and futures exchange and similar venues, and in case of off-stock exchange transactions involving gold, as well as certain income earned from public bonds and certain types of private bonds or investment funds. 150

151 In the case of financial institutions, income and gains resulting from financial transactions are part of the calculation basis of IRPJ. In general terms, IRPJ is assessed on the actual taxable profits at the rate of 15.0%, plus a 10.0% surcharge on the part of the actual taxable profits that exceed R$20, per month or R$240, per year. Financial institutions are exempted from the payment of IRRF and from the income tax on variable-income investments payable as advance payments of IRPJ, assessable on income or gains resulting from fixed or variableincome financial transactions. CSLL In the case of financial institutions, income and gains resulting from financial transactions are part of the calculation basis of CSLL. In general terms, CSLL is assessed on the net profits, before the provision for IRPJ taxes, with the deductions and inclusions provided by law at the rate of 9.0%. On January 3, 2008, the Brazilian government enacted Provisional Measure No. 413 (which became Law No. 11,727), increasing the CSLL rate applicable to certain legal entities, including financial institutions, from 9.0% to 15.0%, beginning in May See Risk Factors Risks Relating to the Brazilian Banking Industry Changes in tax regulations may negatively affect our business. PIS and COFINS In accordance with Law No. 9,718/98, as amended by Law No. 10,684/03, banks are subject to the cumulative regime of calculation of PIS and COFINS, with deduction of certain authorised costs. The COFINS and PIS rates payable by financial institutions are 4% and 0.65%, respectively. There is great controversy about the PIS and COFINS calculation basis. Article 3 of Law No. 9,718/98 determines that these contributions must be levied on all revenue earned by the company. The Brazilian Supreme Court has recently decided that the definition of billing as provided in Article 3 of Law No. 9,718/98 is unconstitutional (Extraordinary Appeals No. 346,084/PR, 357,950/RS, 390,840/MG and 358,273/RS). Pursuant to the Brazilian Supreme Court, PIS and COFINS may only be levied on revenue resulting from the rendering of services and sales of goods. None of the cases examined by the Brazilian Supreme Court detailed the specific condition of the banks. Accordingly, various banks, including us, have filed suits to have their right to collect such contributions only on revenue from the rendering of services and the sales of goods recognized. Transfer Pricing and Thin Capitalization rules Interest payments made by Brazilian parties under foreign loans, including through the issuance of securities, whose beneficiary is either (i) resident or domiciled in a tax haven jurisdiction or in a favourable tax jurisdiction, as defined by Normative Ruling No.1,037 of June 4, 2010, as amended; or (ii) classified as a related party of the Brazilian borrower, as provided by Law No. 9,430 of December 27, 1996, as amended, are tax deductible in Brazil under the observance of the Brazilian transfer pricing and thin capitalization rules. Under thin capitalization rules, the interest paid or credited to a foreign related party is deductible for IRPJ and CSLL purposes if, concurrently: in the case of indebtedness to a related party that holds a direct equity stake in the Brazilian entity, the relevant indebtedness of the Brazilian legal entity, on the interest accrual date, does not exceed twice the value of the stake held by the related party in the net worth of the Brazilian legal entity (individual limit) or, in the case of indebtedness to a related party that does not hold a direct-equity stake in the Brazilian entity, the relevant indebtedness of the Brazilian legal entity, on the interest accrual date, does not exceed twice the value of the net worth of the Brazilian legal entity (individual limit); and 151

152 the sum of the indebtedness of the Brazilian legal entity to all related parties, on the interest accrual date, does not exceed twice the aggregate value of the stakes of all related parties in the net worth of the Brazilian legal entity (collective limit). However, pursuant to Law No. 12,249 of June 11, 2010, as amended, the present item does not apply in the event of indebtedness exclusively to foreign related parties which do not hold direct equity stakes in the Brazilian entity, in which case the total indebtedness cannot exceed twice the value of the net worth of the Brazilian legal entity. In cases where the lender is located in a tax haven jurisdiction or benefits from a privileged tax regime, the interest paid or credited to a lender (entity or individual) resident or domiciled in a tax haven jurisdiction or that benefits from a privileged tax regime is deductible for IRPJ and CSLL purposes, if the total indebtedness of the Brazilian legal entity to residents located in tax haven jurisdictions or that benefit from privileged tax regimes does not exceed 30.0% of the net worth of the Brazilian legal entity. Moreover, pursuant to Law No. 12,249, as amended, interest payments or credits to an entity or individual resident or domiciled in a tax haven jurisdiction or that benefits from a privileged tax regime will not be deductible unless the following requirements are fulfilled, concurrently: (i) identification of the actual beneficiary abroad; (ii) evidence of the operational capacity of the foreign lender; and (iii) documentary evidence of payment of the respective price or receipt of the assets and rights or use of the service. For such purposes, the actual beneficiary is deemed to be: (x) an entity that is not incorporated with the sole or main purpose of achieving tax savings; and (y) which receives such payments on its own account (rather than on behalf of a third party, as an agent or fiduciary manager, etc.). Law No. 12,715 of September 17, 2012, as amended, and 12,766 of December 27, 2012 amended Law No. 9,430 of December 27, 1996, as amended, that sets forth transfer pricing rules for loans with related parties abroad or parties domiciled in tax havens as defined under Brazilian law. Therefore, the tax deductibility limitation, which is the 6- month Libor plus a spread, only applies to contracts executed on or after January 1, 2013, which means that, for all future years, the tax deductibility of interest related to loans executed before January 1, 2013 and registered with the Central Bank will not be subject to the Libor plus spread limitation. Law No. 12,766 also established that the applicable rates to determine the deductibility limit of interest on loan agreements executed on or after January 1, 2013 are: in the case of transactions in US dollars with prefixed rates: market rate for Brazilian sovereign bonds issued in the external market in US dollars; in the case of transactions in Brazilian reais with prefixed rates: market rate for Brazilian sovereign bonds issued in the external market in US dollars; in all other cases: Libor for a 6-month period. The abovementioned spread is currently set at 3.5%, as defined by the Ministry of Finance Ordinance No. 427 of August 2, Foreign Investment and the Brazilian Federal Constitution Foreign Banks The Brazilian Constitution forbids foreign banks from establishing new branches or increasing their equity interest in banks in Brazil, except if duly authorised by the Brazilian government by means of a Presidential Decree. A foreign bank that is duly authorised to operate in Brazil through a branch or subordinate branch is subject to the same rules, regulations and requirements applicable to any other Brazilian bank. Foreign Investment in Brazilian Banks The Brazilian Federal Constitution allows foreign individuals or companies to invest in the shares with voting rights of Brazilian banks only if the foreign investor obtains the specific authorization from the Brazilian government. 152

153 Foreign investors may purchase from banks shares, without voting rights, which are traded on stock exchanges, or depository receipts of shares offered abroad, representing shares without voting rights, without any specific authorization, pursuant to the terms of the Presidential Decree of December 9, Regulations That Affect Our Activities The relationship between banks and their clients is generally regulated by the same legislation applicable to business operations, and by the Civil Code in particular. However, the regulation established by the CMN and the Central Bank disposes about specific issues related to the banking activity and contracts, complementing the above mentioned general regulation. The Consumer Defense Code and the Banking Client Defense Code On March 26, 2009, CMN enacted Resolution No. 3,694, as amended by CMN Resolution No. 3,919, of November 25, 2010, and CMN Resolution No. 4,283, of November 4, 2013, which established procedures with respect to the settlement of financial transactions and services provided by financial institutions to customers and the public in general. CMN Resolution No. 3,694, as amended, sets out new rules in connection with the execution of transactions and provision of services by financial institutions and other institutions authorised to operate by the Central Bank. According to such rules, financial institutions must reflect, in their internal control and risk management systems, the adoption and verification of procedures in connection with the execution of transactions and provision of services that will ensure: the adequacy of products and services offered or recommended to the needs, interests and objectives of customers and users; the integrity, reliability, security and confidentiality of the transactions entered into, as well as the legitimacy of such transactions and services rendered; the supply of information necessary for the free choice and decision making by the clients and users, including drawing to their attention rights and duties, responsibilities, costs or burdens, and penalties and eventual risks relating to the execution and rendering of services; the timely supply of contracts, receipts, statements and other documentation related to the applicable transactions and services rendered; the use of clear, objective and adequate (to the nature and complexity of the applicable transaction or service) language in contracts and documents aimed to the public, in order to allow the proper understanding of their tenor and identification of deadlines, amounts, costs, fines, dates, location and other conditions; the possibility of timely termination of agreements by the customers; the use of adequate instruments (establishing rights and duties) for the opening, use and maintenance of postpaid payment accounts; the delivery of payment instruments to the domicile of customers or users, or the licensing thereof upon such customer s or user s express request or authorization; and identification of the payment final beneficiary users or transfer in the payer s receipts and invoices, including situations in which the payment service involves institutions participating in different payment arrangements. Financial institutions must also disclose in their premises and in the premises where their products are offered visible written information related to the events that may cause the refusal of payment or the reception of checks, bank slips, documents (including collecting documents), bills and others. Financial institutions are prohibited from refusing or hindering access by clients or users of their products and services to conventional customer support channels, including bank tellers and ATMs, even if alternative or electronic customer support channels are available. The provision of services through alternative service channels is permitted, provided that the required measures to preserve 153

154 the integrity, reliability, security and privacy of transactions are adopted and the legitimacy of the services rendered is assumed, the institution being required to inform its clients and users about any applicable risks. In addition to such procedures, the Brazilian Supreme Court decided on June 7, 2006 that relationships between consumers and financial institutions are also subject to Law No. 8,078, of September 11, 1990 (the Brazilian Consumer Defense Code ), which, as amended, ensures consumers certain prerogatives that facilitate their defense in courts, such as the imposition of the reverse burden of proof, and defines limits to bank interest rates deemed to be abusive. Therefore, financial institutions must fully comply with the provisions set forth in the Brazilian Consumer Defense Code, as applicable. The Civil Code The Civil Code, in force and effect as of January 11, 2003, has broad application, ruling over individuals and corporations, containing dispositions that affect the legal treatment of agreements, guarantees, real estate, family and succession, among others. Obligations established by contract and guarantees granted until January 11, 2003 will still be regulated by the old Civil Code with regards to the its existence and validity, but the effects produced by these contracts as of January 11, 2003 will be regulated by the Civil Code. Rules Applicable to Insolvency Issues The Incentive Program for National Restructuring and Strengthening (Programa de Estímulo à Reestruturação e ao Fortalecimento Nacional or PROER ) was established by Law No. 9,710/98, on November 19, 1998, the CMN Circular No. 2,633, issued by the Central Bank, on November 16, 1995, and the CMN Resolution No. 2,208, also issued by the Central Bank, on November 3, 2005, as amended. This program seeks to ensure liquidity and solvency of the National Financial System and to protect the interests of our depositors and investors. This program implements management, operational and corporate reorganization resulting in the transfer of share control of the bank or in the change of its corporate purpose to non-exclusive bank matters. Access to PROER is reserved to multiple service, commercial, investment, development and savings banks, lending, financing and investment companies, and housing loan companies that: (1) acquire share control of one of these institutions; (2) have their share control transferred; or (3) become obligated for the rights and obligations of one of these institutions. Intervention, Out-of-court Liquidation and Bankruptcy The Central Bank may intervene in the operations of a bank if there is material risk for its lenders. The Central Bank may intervene in banks to avoid their liquidation, to carry out out-of-court liquidation or, in some cases, to file for bankruptcy of any bank, with the exception of those controlled by the Brazilian government. Out-of-court Liquidation Out-of-court liquidation of any bank (with the exception of those controlled by the government) can be determined by the Central Bank if: the bank s debts are not being paid on the due date; the bank is deemed insolvent; the bank incurs a loss that can significantly increase exposition of the non-guaranteed lenders; the bank s management is in significant violation of bank laws and regulations; or 154

155 in the case of the cancellation of the bank s operating license, procedures for the ordinary liquidation are not begun within 90 days following cancellation, or are delayed with risk to the lenders, subject to the discretion of the Central Bank. Liquidation procedures are subject to the discretion of the Central Bank and can be requested, within reason, by the shareholders of the bank, or by the trustee appointed by the Central Bank during the intervention process. Out-of-court liquidation procedures can end: by discretionary decision of the Central Bank, if the parties take over management of the bank, after providing all necessary guarantees; when the final accounts of the liquidator are delivered and approved, and are filed in the appropriate public registry office; when the out-of-court liquidation is converted to ordinary liquidation; or when the bank is declared bankrupt. Special System for Temporary Management In addition to the procedures described above, the Central Bank can also establish the Special System of Temporary Management (Regime de Administração Especial Temporária or RAET ). This system is a less strict intervention that can be used by the Central Bank on private and non-federal public banks. The system allows the institution to operate normally. RAET can be applied by the Central Bank under the following circumstances: the bank continuously takes part in transactions that dissent from the economic and financial policies established by applicable laws and regulations; spurious or fraudulent management; situations that call for intervention, pursuant to the terms of the applicable legislation; illegal conduct; and existence of unsecured liabilities. RAET s main target is to help the bank to recover its financial condition. RAET does not affect daily businesses, obligations and rights of the bank that keeps on operating normally. On October 19, 2009, the Central Bank submitted to market comments a proposal of new law to revamp the existing legal framework applicable to the actions that may be taken by the Central Bank to protect the stability of the financial system and to prevent and regulate bank failure. However, we cannot anticipate if and when such new legal framework may become effective. Payment of Lenders in Case of Liquidation Upon liquidation of a bank, salaries and severance payments due, and tax debts have priority over any other grievance or collection in relation to the bankrupt estate. The FGC is an insurance fund that guarantees each client with a remuneration of up to R$250,000, pursuant to CMN Resolution No. 4,222, of May 23, 2013, as amended. FGC is granted to the following loans: (1) demand deposits or drawees on prior notice; (2) savings deposits; (3) time deposits, with or without issuing of receipt; (4) deposits in accounts allocated for registration and control of inflow of service agreements for payment of wages, maturities, retirements and related activities; (5) bills of exchange; (6) real estate bills; (7) mortgage bills; (8) housing loan bills; (9) agribusiness loan bills; and (10) repurchase transactions (operações compromissadas) which have as their object securities issued after March 8, 2012 by a related company. FGC is 155

156 composed, mainly, of compulsory contributions made by all the Brazilian banks that operate with client deposits. Payment of non-guaranteed loans and of the amounts of client deposits that exceed the FGC limit is subject to preliminary payment of all insured loans and other loans to which specific laws and regulations apply special privileges. The Brazilian Settlement System In Brazil, rules for remuneration of payment are based on the guidelines established by the BIS. The Brazilian Settlement System (Sistema Brasileiro de Pagamentos) began operations in April 2002 and is regulated and controlled by the Central Bank and the CVM. According to the related rules and regulations, all clearance chambers should adopt procedures to reduce the possibility of system crisis and the risks previously borne by the Central Bank. The most important rules of the new Brazilian Settlement System are: the existence of two main settlement and clearance systems: clearance on time, through the use of reserves deposited at the Central Bank; and differed clearance, through the use of clearance chambers; and the clearance chambers, except in some rare cases, are responsible for the payment of the money orders they accept. Bankruptcy rules and regulations are neither affected by money orders issued by means of the loans of the clearance chambers, nor by the guarantees that insure these money orders. However, the clearance chambers will hold unsecured loans against the bankrupt party. Private Pension Plans Private pension plans are complementary and organized independently from social security plans. Private pension plans are optional and based on the establishment of funds that guarantee the benefit. The private plans can be operated by private pension plan companies with the main objective of setting and executing private pension benefit plans. Private pension plan companies may only set and operate benefit plans with specific authorization, according to the regulations approved by the regulating agency. Benefit plans must conform to minimum standards established by the regulating agency, ensuring transparency, solvency, liquidity and economic and actuarial balance. Publicly-held companies are established solely as corporations with the objective of setting and operating private pension benefit plans. These plans are awarded as a continual or single provision and are accessible to all individuals. The private pension benefit plans established by publicly-held companies are divided into: individual plans that are open to all individuals, and group plans, that guarantee pension benefits to persons linked, directly or indirectly, to a corporate entity. The Ministry of Treasury, through the CNSP and the SUSEP, regulates and supervises the open-ended private pension plan companies, while closed private pension plan companies are regulated and supervised by CNPC and PREVIC. Asset Management Regulation Asset management is regulated by the CMN, Central Bank and CVM. The asset management industry is also selfregulated by ANBIMA, which enacts additional rules and policies, especially with respect to marketing and advertising. Investment funds are subject to the regulation and supervision of the CMN and the CVM and in certain specific matters, the Central Bank. Investment funds may be managed by multiple service banks, commercial banks, savings banks, investment banks, credit, finance and investment companies, brokerage and dealer companies within certain operational limits. CMN regulations provide that institutions must segregate their asset management activities from their other activities. 156

157 In general, investment funds may invest in any type of financial instrument available in the financial and capital markets, including fixed income instruments, stocks, debentures and derivative products, provided that in addition to the denomination of the fund, a reference to the relevant type of fund is included, in accordance with the classification table of CVM Instruction No. 409 of August 18, 2004, as amended. Furthermore, depending on the investment policy adopted by the investment fund, its shares may only be subscribed by qualified investors pursuant to CVM Instruction No Recent amendments to CVM Instruction No. 409 have also authorised certain investment funds to invest in funds outside of Brazil. Except where specific rules otherwise allow, investment funds may not: invest more than 5.0% of their net worth in securities of an issuer that is a natural person or a legal entity, which is not a publicly-held company or a financial institution not authorised by the Central Bank; invest more than 10.0% of their net worth in securities of an issuer that is a publicly-held company; invest more than 10.0% of their net worth in securities of an issuer that is an investment fund; and invest more than 20.0% of their net worth in securities of an issuer that is a financial institution authorised by the Central Bank. The Central Bank issued Circular No. 3,086 of February 15, 2002, as amended, establishing criteria for the registration and accounting evaluation of titles, securities and financial instruments, derivatives that form financial investment funds, application funds in quotas of investment funds, individual program retirement funds and offshore investment funds. By this Circular, the Central Bank ordered fund managers to mark their fixed-income securities to market; hence, the fund s portfolio assets must be accounted for at their fair market value, instead of their expected yield to maturity. As a result of this mark-to-market mechanism, the fund quotas reflect the fund s net asset value. Broker-Dealer Regulation Broker and dealer firms are part of the national financial system and are subject to CMN, Central Bank and CVM regulation and supervision. Brokerage firms must be chartered by the Central Bank, and are the only institutions in Brazil authorised to trade on Brazil s stock, mercantile and futures exchanges. Both brokers and dealers may act as underwriters in the public placement of securities and engage in the brokerage of foreign currency in any exchange market. Broker and dealer firms may not: with limited exceptions, execute operations that may be qualified as the granting of loans to their customers, including the assignment of rights; collect commissions from their constituents related to transactions of securities during the primary distribution; acquire real estate properties which are not for their own utilization; or obtain loans from financial institutions, except for (1) loans for the acquisition of goods for use in connection with the firm s corporate purpose or (2) loans the amount of which does not exceed two times the firm s net worth. Regulation of the Internet and Electronic Commerce Although Brazil does not have comprehensive legislation regulating electronic commerce, since 2001 the legal validity of electronic documents in Brazil is governed by Provisional Measure No. 2,200, which establishes a government controlled digital certification system, aimed at guaranteeing the authenticity, integrity and legal validity of electronic documents and ensuring the security of electronic transactions. However, several bills relating to internet and electronic commerce regulation are currently in the Brazilian Congress. The proposed legislation, if enacted, will reinforce the legal effect, validity and enforceability of information in the form of electronic messages, allowing parties to enter into an agreement, make an offer and accept one through electronic messages. 157

158 Considering the increasing use of electronic channels in the Brazilian banking sector, the CMN enacted Resolution No. 2,817 on February 22, 2001, as amended by CMN Resolution No. 2,953, of April, 25, 2002, allowing Brazilian residents to open deposit bank accounts by electronic means, which includes the internet, ATM machines, telephone and other communication channels. This regulation sets forth specific rules on the opening and use of bank accounts by electronic means, including: (i) requirements contained in CMN Resolution No. 2,025, of November 24, 1993, as amended, for verification of the identity of the customer; and (ii) rules restricting transfers to those between accounts of the same accountholders or, in the event of liquidation of investment products and funds, to an account of the accountholders of the investment products or funds. On March 26, 2009, the CMN enacted Resolution No. 3,694, as amended, requiring that all financial institutions offering products and services to their clients through electronic means must guarantee security, secrecy and reliability in all electronic transactions and disclose, in clear and precise terms, the risks and responsibilities involving the product or service acquired through such channel. In addition, the Central Bank also permits, under CMN Resolution No. 3,919 of November 25, 2010, as amended, the opening of deposit bank and savings accounts, accessed and used exclusively through electronic means. On November 30, 2012, in order to address cyber security crimes, the Brazilian government enacted Law No. 12,737, which added the crime of computer hacking to the Brazilian Penal Code, describing the conduct of invading another person s computing device, whether or not connected to a network, in violation of security mechanisms and to obtain, tamper or destroy data or information without express or implied consent of the device s owner, or install anything to gain an unfair advantage. Amendments to the Brazilian Corporate Law On October 31, 2001, Law No. 10,303 was enacted revising the Brazilian Corporate Law in several important ways, including broadening the rights of minority shareholders such as the holders of our preferred shares. We were required to conform our by-laws to comply with the provisions of the Accounting Practices Adopted in Brazil by March 1, Law No. 10,303 includes provisions that: oblige our controlling shareholder to make a tender offer for our shares upon a de-listing or if that shareholder increases its interest in our capital stock to a level that materially and negatively affects the liquidity of our voting shares; authorise, under certain circumstances, if after a tender offer, our controlling shareholder increases its participation in our total stock to more than 95.0%, to redeem minority shareholders shares at the price offered for shares in the tender offer; require that preferred shares traded on a stock exchange have one of the following advantages: (i) priority in receipt of dividends corresponding to at least 3.0% of the book value per share (after this priority condition is met and the same dividend amount is paid to the holders of common shares, equal conditions apply to preferred and common shares); or (ii) dividends 10.0% higher than those paid for common shares; or (iii) a tag-along right at 80.0% of the price paid to the controlling shareholder in case of a transfer of control; give dissenting holders of our common shares the right of withdrawal in the event of certain spin-off; grant to shareholders that are not our controlling shareholders but that hold preferred shares representing at least 10.0% of our share capital or common shares representing at least 15.0% of our voting capital the right to appoint one member and an alternate to our Board of Directors; provided that if none of the common or preferred shareholders meet the respective thresholds described above, shareholders representing at least 10.0% of our share capital would be able to combine their holdings to appoint one member and an alternate to our Board of Directors. 158

159 require controlling shareholders or a group of shareholders that appoint members of our Board of Directors or Audit Committee to immediately disclose to the CVM and the Brazilian stock exchanges changes in their shareholdings; require us to send copies of the documentation we submit to our shareholders in connection with shareholders meetings to the Brazilian stock exchanges where our shares are most actively traded; and require disputes among our shareholders to be subject to arbitration if provided for in our by-laws. Law No. 11,638/07 altered and revoked existing provisions and added new provisions to the Brazilian Corporate Law, particularly with respect to Chapter XV concerning Fiscal Year and Financial Statements. The primarily purpose of Law No. 11,638/07 is to update Brazilian Corporate Law to enable the convergence of Accounting Practices Adopted in Brazil with IFRS. The principal changes introduced by Law No. 11,638/07 will not become fully effective until the applicable Brazilian regulatory agencies enact specific regulations implementing such changes. As a result, the Central Bank, through Communication No. 16,669 of March 20, 2008, has permitted financial institutions not to apply the provisions of Law No. 11,638/07 in the preparation of their interim financial statements during Pursuant to Law No. 11,638/07, the issuance of accounting standards by the CVM for publicly-held companies must be made in compliance with international standards. In a preliminary notice to the market, the CVM has stated that the standards adopted by the IASB International Accounting Standards Board are currently considered an international reference for accounting standards. On December 3, 2008, the President of Brazil sanctioned MP 449/08, converted into Law No /09, which, as amended, regulates the tax effects of Law No. 11,638/07 and introduces RTT that attempts to clarify and neutralize the tax implications of adopting international accounting standards in Brazil. Some of the principal changes resulting from Law No. 11,638/07, as amended by MP 449/08, which was converted into Law No. 11,941, dated May 27, 2009, include: the replacement of the statement of origin and appropriation of funds with a cash flow statement; the inclusion of the subgroup intangible assets in permanent assets for recording the rights related to the intangible assets used for maintaining the business or which are exercised for such purpose, including acquired goodwill related to merged companies. Fixed assets will include assets resulting from any operation where there is a transfer of benefits, control and risk, regardless of whether ownership is transferred; the creation of a new subgroup in shareholders equity called Equity Evaluation Adjustment, which will register increases and decreases of assets and liabilities, as a result of their evaluation at fair value; the introduction of the concept of Adjustments to Present Value for long-term lending and fundraising operations and for short-term relevant operations; obligatory periodic analysis to verify the recovery level of amounts recorded in fixed assets and intangible assets; and changing the treatment of tax incentives, which will be recorded directly in the income statement and may subsequently be allocated to profit reserves tax incentive reserves and may be excluded from the calculation base of minimum mandatory dividends. Law No. 12,431, enacted on June 24, 2011, as amended, has amended certain provisions of the Brazilian Corporate Law, providing for, among other things, new rules for the issuance of debentures by Brazilian corporations. Additionally, Law No. 12,431, as amended, sets forth certain rules (to be complemented by regulations to be enacted by the CVM) aiming at the exercise of voting rights at a distance by shareholders. Finally, with the enactment of Law No. 12,431, the position of director of a Brazilian corporation is no longer exclusively available for its shareholders. 159

160 Law No. 12,810 of May 15, 2013 broadens the types of companies in which financial institutions may be a shareholder. Moreover, Law No. 12,838 of July 9, 2013 sets forth that some of the provisions of Law No. 6,404 of December 15, 1976, as amended, are applicable to convertible securities issued by financial institutions. Nonetheless, on November 11, 2013, the Federal Government published Provisional Measure No. 627 ( MP 627/13 ), which extinguished the RTT and approved new rules aimed at permanently aligning the Brazilian tax system with the IFRS. Among the main modifications brought by the Provisional Measure are the provisions regarding dividends and interest on net equity distributions. Dividends paid by a Brazilian corporation, in cash or in kind, including stock dividends and other dividends paid to a non-resident holder of common shares, are not subject to withholding income tax in Brazil to the extent that these amounts relate to profits generated on or after January 1, Notwithstanding the foregoing, under the RTT, there was controversy on how the authorities would view certain situations, for instance how a company subject to the RTT should calculate its payable dividends, or interest on net equity. Specifically, the issue was (i) whether the company should use the accounting results under the IFRS rules to calculate dividends and use the IFRS net equity accounts to calculate its interest on net equity deductions, or (ii) whether it would be required to apply the accounting rules that were effective until December 31, 2007 to calculate dividends or ascertain its interest on net equity deductions over the 2007 net equity accounts. On September 16, 2013, Brazilian tax authorities issued Normative Ruling No. 1,397 of September 16, 2013, as amended ( Normative Ruling No. 1,397/13 ), which, among other things, established rules regarding the withholding tax exemption on dividend distributions. According to Normative Ruling No. 1,397/13, the withholding tax exemption on dividends income would only be applicable to dividends distributed out of profits ascertained based on Brazilian accounting rules that were effective until December 31, 2007 (old BR GAAP). In this sense, if (i) taxpayers make dividend distributions based on new Brazilian accounting rules already impacted by IFRS principles; and (ii) such distributions are made in excess of the dividends that could have been distributed had the profits been ascertained based on Brazilian accounting rules that were effective until December 31, 2007, the excess distribution would be deemed as taxable income in the hands of the beneficiary. Despite our belief that the tax exemption on dividends is applicable to dividends distributed by Brazilian companies out of profits ascertained in accordance with IFRS principles, if the provisions of Normative Ruling No. 1,397/13 are applicable, dividends paid to the holders may be subject to withholding income tax at the rate of 15% or 25%, in case the non-resident holder is a resident of a Low or Nil Tax Jurisdiction or where applicable local laws impose restrictions on the disclosure of the shareholding composition or the ownership of investments or the ultimate beneficiary of the income derived from transactions carried out and attributable to a non-resident holder. Article 67 of MP 627/13 determines that the dividends calculated based on the IFRS rules, calculated on income ascertained between January 1, 2008 and December 31, 2013, which have been effectively paid up to the date on which MP 627/13 was published (November 11, 2013), should not be subject to taxation. Article 68 of MP 627/13 established that, for purposes of the calculation of interest on net equity in calendar years 2008 to 2013, taxpayers take taxdeductions using IFRS rules on interest on net equity. Finally, Article 70 of MP 627/13 determined that the rules set forth under articles 67 and 68 above only apply to taxpayers which make an election for the anticipation of the effects of MP 627/13 to January 1, 2014, as opposed to January 1, 2015 when it is theoretically supposed to be effective. Brazilian Rules Regarding Disclosure of Information On January 3, 2002, the CVM issued Instruction No. 358, as amended by Instruction No. 369 of June 11, 2002, Instruction No. 449 of March 15, 2007, and Instruction No. 547 of February 5, 2014, regarding the disclosure and use of information related to material facts and acts that we will have to disclose to the market. These new regulations include provisions that, among others: 160

161 broaden the concept of material fact, including with respect to any decision of our controlling shareholders that may influence the price of our securities or any decision of investors to trade such securities or to exercise any of such securities underlying rights; better specify the examples of facts that shall be considered material facts, including, among others, the execution of shareholders agreements providing for the transfer of control, the entry or withdrawal of shareholders that maintain any managing, financial technological or administrative contract with, or contribution to the corporation and any corporate restructuring undertaken among related companies; extend, in case of failure of our investor relations officer to do so, the responsibility to disclose material facts to our controlling shareholders, other officers, directors, members of the fiscal council and advisory boards; extend the duty of secrecy of yet undisclosed material facts to the members of our advisory and technical boards and our employees, all of whom shall ensure that any trustworthy third parties or subordinated persons preserve such secrecy, being jointly liable for noncompliance of such requirement; oblige us to disclose material facts to all markets in which our securities are admitted for trading; in case we acquire a controlling stake in a corporation, oblige us to publish in the material fact disclosure document our intent as to whether or not we plan to de-list the company s shares within one year; broaden the rules regarding disclosure requirements in the acquisition and disposal of material shareholding stakes; restrict the use of inside information; as of March 10, 2014, allow for website publication of material facts. Furthermore, according to Instruction No. 480, enacted by the CVM on December 7, 2009, as amended, securities issuers registered with the CVM must annually update a form containing relevant information related to the respective issuer. Such form must also be updated upon the occurrence of certain events, including corporate transactions, bankruptcy and securities issuances. 161

162 TERMS AND CONDITIONS OF THE NOTES The following is the text of the terms and conditions which, subject to completion and amendment and as supplemented or varied in accordance with the provisions of the relevant Pricing Supplement, will apply to the Notes referred to in such Pricing Supplement: The Notes (as defined in Condition 1(a)) are constituted by a trust deed (as amended from time to time, the Trust Deed ) dated January 28, 2011 and made between Banco ABC Brasil S.A. (the Issuer ) and The Bank of New York Mellon (the Trustee which expression shall include all persons for the time being the trustee or trustees under the Trust Deed) as trustee for the Noteholders (as defined in Condition 1(c)). In these terms and conditions the Issuer means the Issuer acting through its principal office in Brazil or through its Cayman Islands Branch as specified in the relevant Pricing Supplement. These terms and conditions include summaries of, and are subject to, the detailed provisions of the Trust Deed, which includes the form of the Notes and the Coupons (if any) relating to them (the Coupons ). Copies of the Trust Deed and of the agency agreement (as amended from time to time, the Agency Agreement ) dated January 28, 2011 and made between the Issuer, the Trustee and the Agents (as defined below) are available for inspection during usual business hours at the specified offices of each of the Trustee and the principal paying agent, the paying agent in London, the other paying agents, the calculation agent, the registrar, the exchange agent and the transfer agents for the time being. Such persons are referred to below respectively as the Principal Paying Agent, the London Paying Agent, the Paying Agents (which expression shall include the London Paying Agent but shall not include the Principal Paying Agent), the Calculation Agent, the Registrar, the Exchange Agent and the Transfer Agents and together as the Agents. The Noteholders and the holders of the Coupons (if any) (the Couponholders ) and, where applicable in the case of interest-bearing Notes in bearer form, talons for further Coupons (the Talons ) are entitled to the benefit of, are bound by and are deemed to have notice of all of the provisions of the Trust Deed and of the relevant Pricing Supplement (as defined in Condition 1(e)) and are deemed to have notice of those applicable to them of the Agency Agreement. 1. Form, Denomination, Title, Specified Currency and Pricing Supplement (a) Form Each Series (as defined in Condition 1(c)) of Notes of which the Note to which these Conditions are attached forms part (in these Conditions, the Notes ) is issued either in bearer form ( Bearer Notes ) or in registered form ( Registered Notes ), and Notes comprising each such Series will be issued in each case in the nominal amount of a Specified Denomination (as defined in Condition 1(b)). These Conditions must be read accordingly. The Specified Denomination of each Note is specified on it. A definitive Note will be issued to each holder of Registered Note(s) in respect of its registered holding or holdings (each a Definitive Registered Note ). Each Definitive Registered Note will be numbered serially with an identifying number which will be recorded in the register (the Register ) which the Issuer shall procure to be kept by the Registrar. Bearer Notes which bear interest are issued with Coupons and, where appropriate, Talons attached. Registered Notes may not be exchanged for Bearer Notes and Bearer Notes may not be exchanged for Registered Notes. 162

163 (b) Denomination Specified Denomination means the denomination or denominations specified on such Note. Bearer Notes of one Specified Denomination may not be exchanged for Bearer Notes of another Specified Denomination (if any). (c) Title Title to the Bearer Notes, the Coupons relating thereto and, where applicable, the Talons relating thereto shall pass by delivery. Title to the Registered Notes shall pass by registration in the Register. Except as ordered by a court of competent jurisdiction or as required by law, the holder of any Note, Coupon or Talon shall be deemed to be and may be treated as the absolute owner of such Note, Coupon or Talon, as the case may be, for the purpose of receiving payment thereof or on account thereof and for all other purposes, whether or not such Note, Coupon or Talon shall be overdue and notwithstanding any notice of ownership, theft or loss thereof or any writing thereon made by anyone. In these Conditions, Noteholder and, in relation to a Note, Coupon or Talon, holder, means the bearer of any Bearer Note, Coupon or Talon or the person in whose name a Registered Note is registered (as the case may be), Series means Notes which have identical terms and conditions, other than in respect of the Issue Date (as defined in Condition 5(III)), the date on which interest commences to accrue and related matters, and Tranche means, in relation to a Series, those Notes of such Series which have the same Issue Date. (d) Specified Currency The Specified Currency of any Note and, if different, any Specified Principal Payment Currency and/or Specified Interest Payment Currency, are as specified on such Note. All payments of principal in respect of a Note shall be made in the Specified Currency or, if applicable, the Specified Principal Payment Currency and all payments of interest in respect of a Note shall be made in the Specified Currency or, if applicable, the Specified Interest Payment Currency. (e) Pricing Supplement and Additional Terms References in these Conditions to terms specified on a Note shall be deemed to include references to terms specified in the applicable Pricing Supplement issued in respect of a Tranche which includes such Note (each the Pricing Supplement ). Capitalised terms used in these Conditions in respect of a Note, and not specifically defined in these Conditions, have the meaning given to them in the applicable Pricing Supplement issued in respect of a Tranche which includes such Note. Additional provisions relating to the Notes may be contained in the Pricing Supplement or specified on the Note and will take effect as if originally specified in these Conditions. The Pricing Supplement in respect of Index Linked Interest Notes, Installment Notes, Dual Currency Notes and other types of Notes the terms of which are not specifically provided for herein, shall set out in full all terms applicable to such Notes. 2. Transfers of Registered Notes and Issue of Definitive Registered Notes (a) Transfer of Registered Notes A Registered Note may be transferred in whole or in part in a Specified Denomination upon the surrender of the Definitive Registered Note issued in respect of the Registered Note to be transferred, together with the form of transfer endorsed on it duly completed and executed, at the specified office of the Registrar or any Transfer Agent. In the case of a transfer of part only of a 163

164 Registered Note, a new Definitive Registered Note in respect of the balance not transferred will be issued to the transferor. Each new Definitive Registered Note to be issued upon transfer of such Registered Note will, within three business days of receipt of such form of transfer, be mailed at the risk of the holder entitled to the new Definitive Registered Note to such address as may be specified in such form of transfer. (b) Transfer Free of Charge Registration of transfer will be effected without charge by or on behalf of the Issuer, the Registrar or the Transfer Agents, but upon payment (or the giving of such indemnity as the Registrar or the relevant Transfer Agent may require) in respect of any tax or other governmental charges which may be imposed in relation to it. (c) Closed Periods No Noteholder may require the transfer of a Registered Note to be registered (i) during the period of 15 days ending on the due date for any payment of principal (being, for the purposes of these Conditions, unless the context otherwise requires, the amount payable on redemption of a Note) of that Note, (ii) during the period of 60 days prior to any date on which Notes of the relevant Series may be redeemed by the Issuer at its option pursuant to Condition 7(e) or (iii) after any such Note has been called for redemption in whole or in part in accordance with Condition 7. (d) Regulations All transfers of Registered Notes and entries on the Register will be made subject to the detailed regulations concerning transfers of Registered Notes scheduled to the Agency Agreement. The regulations may be changed by the Issuer, with the prior written approval of the Trustee and the Registrar. A copy of the current regulations will be made available by the Registrar to any holder of a Registered Note upon request. 3. Status The Notes and Coupons of all Series constitute (subject to Condition 4) direct, unconditional, unsecured and unsubordinated obligations of the Issuer and shall at all times rank pari passu and without any preference among themselves. The payment obligations of the Issuer under the Notes and the Coupons shall, save for such exceptions as may be provided by applicable legislation and subject to Condition 4, at all times rank at least equally with all its other present and future unsecured and unsubordinated obligations. 4. Negative Pledge So long as any Note or Coupon remains outstanding (as defined in the Trust Deed) the Issuer will not create or permit to subsist and will not permit any of its Subsidiaries to create or permit to subsist any Security (other than a Permitted Security) upon the whole or any part of its undertaking or assets, present or future (including any uncalled capital) to secure (i) any of its or their Indebtedness; (ii) any of its or their Guarantees in respect of Indebtedness or (iii) the Indebtedness or Guarantees in respect of Indebtedness of any other person other than in the normal course of the Issuer s banking business, without at the same time or prior thereto securing the Notes equally and rateably therewith or providing such other security for the Notes as shall be approved by an Extraordinary Resolution (as defined in the Trust Deed) of Noteholders. For the purpose of these Conditions: (a) Guarantee means any obligation of a person to pay the Indebtedness of another person including without limitation: (i) an obligation to pay or purchase such Indebtedness; 164

165 (ii) (iii) (iv) an obligation to lend money or to purchase or subscribe shares or other securities or to purchase assets or services in order to provide funds for the payment of such Indebtedness; an indemnity against the consequences of a default in the payment of such Indebtedness; or any other agreement to be responsible for such Indebtedness. (b) (c) Indebtedness means any obligation (whether present or future, actual or contingent) for the payment or repayment of money which has been borrowed or raised (including money raised by acceptances and leasing). Permitted Security means any Security: (i) (ii) (iii) (iv) (v) (vi) (vii) any Security granted upon or with regard to any property hereafter acquired by the Issuer or any Subsidiary to secure the purchase price of such property or to secure Indebtedness incurred solely for the purpose of financing the acquisition of such property, provided, however, that the maximum sum secured by such Security shall not exceed the purchase price of such property or the Indebtedness incurred solely for the purpose of financing the acquisition of such property; any Security in existence on the date hereof and any extension, renewal or replacement thereof, provided, however, that the total amount of Indebtedness so secured shall not exceed the amount so secured on the date hereof; any Security created solely in favour of or granted to the Central Bank of Brazil in respect of liabilities assumed by the Issuer in the ordinary course of its operations with the Central Bank of Brazil; any Security granted in connection with the securitisation of or other financing related to (a) any payment rights or other receivables of the Issuer or any of its Subsidiaries, or (b) amounts paid or payable pursuant to payment instructions (including interbank payment instructions or advice of payment) received or to be received by the Issuer or any of its Subsidiaries; any Security granted in connection with an issuance of securities having the benefit of an insurance policy (or other arrangement having similar effect) which provides for some payment support in circumstances where the Issuer (or any of its Subsidiaries) is subject to restrictions on its or their ability to convert reais into the currency specified for scheduled payments on such securities or to use, control or access funds designated for such scheduled payments due to actions or measures taken or approved (or the failure to take or approve actions or measures) by the Government of Brazil; or any Security granted pursuant to or arising in connection with (a) any netting or set-off arrangement entered into by the Issuer or any Subsidiary in the normal course of its banking business with any clearing bank for the purpose of netting debt and credit balances on the bank accounts of such obligor operated on a net balance basis, or (b) any netting or set-off arrangement under a hedging arrangement where the obligations of the other parties thereunder are calculated by reference to net exposure thereunder; any Security arising pursuant to any order of attachment, distraint or similar legal process arising from court proceedings and any Security which secures the repayment obligation on any bond obtained in connection with the release of property from any such order of attachment, distraint or similar legal process; 165

166 (viii) (ix) any Security granted pursuant to or arising in connection with bilateral funding transactions entered into by the Issuer; or any Security that does not fall within paragraphs (i) to (viii) provided, however, that the aggregate principal amount of Indebtedness secured by such Security and all other Securities not falling within paragraphs (i) to (viii) does not, as of the date such Security is created or suffered to exist, exceed 10% of the Total Assets of the Issuer. (d) (e) (f) person means any individual, company, corporation, firm, partnership, joint venture, association, organisation, state or agency of a state or other entity, whether or not having a separate legal personality. Security means any mortgage, pledge, lien, hypothecation or security interest including, without limitation, any equivalent created or arising under the laws of Brazil. Total Assets means the amount which, as of the date any determination is being made, is the amount of the total assets appearing in the Issuer s most recently published audited consolidated financial statements, prepared in accordance with accounting principles generally accepted in Brazil. 5. Interest One or more of the following provisions apply to each Note, as specified on such Note. (I) Fixed Rate Notes This Condition 5(I) applies to a Note in respect of which the Fixed Rate Note Provisions are specified on such Note as being applicable (a Fixed Rate Note ). (a) Interest Rate and Accrual Each Note bears interest on its outstanding nominal amount from (and including) the Interest Commencement Date (as defined in Condition 5(III)) in respect thereof at the rate per annum (expressed as a percentage) equal to the Rate of Interest specified on such Note. Such interest is payable in arrear on each Interest Payment Date in each year and on the Maturity Date specified on such Note if that date does not fall on an Interest Payment Date. The amount(s) of interest payable in respect of such Note may be specified on such Note as the Fixed Coupon Amount(s) or, if so specified, the Broken Amount. The first payment of interest on a Note will be made on the Interest Payment Date next following the relevant Interest Commencement Date. If the period between the Interest Commencement Date and the first Interest Payment Date is different from the period between Interest Payment Dates, the first payment of interest on a Note will be the amount specified on the relevant Note as being the initial Broken Amount. If the Maturity Date is not an Interest Payment Date, interest from (and including) the preceding Interest Payment Date (or from (and including) the Interest Commencement Date, as the case may be) to (but excluding) the Maturity Date will be the amount specified on the relevant Note as being the final Broken Amount. Interest will cease to accrue on each Note on the due date for redemption unless, upon due presentation or surrender, payment of principal is improperly withheld or refused. In such event interest will continue to accrue at the rate and in the manner provided in this Condition 5(I) (both before and after judgment) until the Relevant Date (as defined in Condition 9) (except to the extent that there is failure in the subsequent payment to the relevant holders under these Conditions). 166

167 (b) Calculations Interest in respect of a period of less than the period between Interest Payment Dates (or, in the case of the first interest period, the period between the Interest Commencement Date and the first Interest Payment Date) will be calculated using the applicable Day Count Fraction (as defined in Condition 5(III)). (II) Floating Rate Notes This Condition 5(II) applies to a Note in respect of which the Floating Rate Note Provisions are specified on such Note as being applicable (a Floating Rate Note ). (a) Specified Interest Payment Dates Each Note bears interest on its outstanding nominal amount from (and including) the Interest Commencement Date (as defined in Condition 5(III)) in respect thereof and such interest will be payable in arrear on each Specified Interest Payment Date (as defined in Condition 5(III)). (b) Rate of Interest Each Note bears interest at a floating rate which may be based on one or more interest rate or exchange rate indices or as otherwise specified on such Note (each a Benchmark ). The dates on which interest shall be payable on a Note, the Benchmark and the basis for calculation of each amount of interest payable in respect of such Note on each such date and on any other date on which interest becomes payable in respect of such Note, and the rate (or the basis of calculation of such rate) at which interest will accrue in respect of any amount due but unpaid in respect of such Note shall be as set out below, unless otherwise specified on such Note. Subject to Condition 5(II)(c), the Rate of Interest payable from time to time will, unless otherwise specified on such Note, be determined by the Calculation Agent on the basis of the following provisions: (I) At or about the Relevant Time (as defined in Condition 5(III)) on the relevant Interest Determination Date (as defined in Condition 5(III)) in respect of each Interest Period (as defined in Condition 5(III)), the Calculation Agent will: (A) (B) in the case of a Note which specifies that the Primary Source for Floating Rate shall be derived from a specified page, section or other part of a particular information service (each as specified on such Note), determine the Rate of Interest for such Interest Period which shall, subject as provided below, be (x) the Reference Rate (as defined in Condition 5(III)) so appearing in or on that page, section or other part of such information service (where such Reference Rate is a composite quotation or interest rate per annum or is customarily supplied by one person) or (y) the arithmetic mean (rounded up, if necessary, to the next onehundred thousandth of a percentage point) of the Reference Rates of the persons at that time whose Reference Rates so appear in or on that page, section or other part of such information service, in any such case in respect of deposits in the relevant Specified Currency made with or by such person or persons for a period equal to the duration of such Interest Period; and in the case of a Note which specifies that the Primary Source for Floating Rate shall be the Reference Banks specified on such Note and in the case of a Note falling within Condition 5(II)(b)(I)(A) but in respect of which (x) no Reference Rate appears at or about such Relevant Time or (y) the Rate of Interest for which is to be determined by reference to quotations of persons appearing in or on the 167

168 relevant page, section or other part of such information service as provided in Condition 5(II)(b)(I)(A) but in respect of which less than two Reference Rates appear at or about such Relevant Time, request the principal offices in the Relevant Banking Centre (as defined in Condition 5(III)) of each of the Reference Banks specified on such Note (or, as the case may be, any substitute Reference Issuer appointed from time to time pursuant to Condition 5(II)(h)) to provide the Calculation Agent with its Reference Rate quoted to leading banks for deposits in the relevant Specified Currency for a period equivalent to the duration of such Interest Period. Where this Condition 5(II)(b)(I)(B) applies, the Rate of Interest for the relevant Interest Period shall, subject as provided below, be the arithmetic mean (rounded up, if necessary, to the next one-hundred thousandth of a percentage point) of such Reference Rates as calculated by the Calculation Agent. (II) (III) If at or about the Relevant Time on any Interest Determination Date where the Rate of Interest is to be determined pursuant to Condition 5(II)(b)(I)(B) in respect of a Note, more than one but not all of such Reference Banks provide such relevant quotations, the Rate of Interest for the relevant Interest Period shall, subject as provided below, be determined as aforesaid on the basis of the Reference Rates quoted by those Reference Banks. If at or about the Relevant Time on any Interest Determination Date where the Rate of Interest is to be determined pursuant to Condition 5(II)(b)(I)(B), only one or none of such Reference Issuers provide such Relevant Rates, the Rate of Interest for the relevant Interest Period shall, subject as provided below, be whichever is the higher of: (A) (B) the Rate of Interest in effect for the last preceding Interest Period to which Condition 5(II)(b)(I)(A) or (B) or Condition 5(II)(b)(II) applied; and the rate per annum (expressed as a percentage) which the Calculation Agent determines to be the arithmetic mean (rounded up, if necessary, to the next onehundred thousandth of a percentage point) of the Reference Rates in respect of the relevant currency which banks in the Relevant Financial Centre for such Specified Currency or, if the Specified Currency is euro, in Europe as selected by the Calculation Agent (after consultation with the Issuer) are quoting at or about the Relevant Time on the relevant Interest Determination Date for a period equivalent to such Interest Period to leading banks carrying on business in that Relevant Financial Centre or, if the Specified Currency is euro, in Europe, provided that, if the banks so selected by the Calculation Agent are not quoting as aforesaid, the Rate of Interest shall, subject as provided below, be the rate of interest specified in Condition 5(II)(b)(III)(A). (IV) In the case of a Note which specifies that the manner in which the Rate of Interest is to be determined shall be ISDA Determination, the Rate of Interest for each Interest Period shall, subject as provided below, be determined by the Calculation Agent as a rate equal to the relevant ISDA Rate. For the purposes of this sub-paragraph (iv), ISDA Rate for an Interest Period means a rate equal to the Floating Rate that would be determined by the Calculation Agent under a Swap Transaction under the terms of an agreement incorporating the ISDA Definitions and under which: (a) (b) the Floating Rate Option is as specified on such Note; the Designated Maturity is a period specified on such Note; and 168

169 (c) the relevant Reset Date is the first day of that Interest Period unless otherwise specified on such Note. For the purposes of this sub-paragraph (iv), Floating Rate, Calculation Agent, Floating Rate Option, Designated Maturity, Reset Date and Swap Transaction have the meanings given to those terms in the ISDA Definitions. (c) Minimum/Maximum Rates If a Minimum Rate of Interest is specified on a Note, then the Rate of Interest applicable to that Note shall in no event be less than it and if a Maximum Rate of Interest is specified on a Note, then the Rate of Interest applicable to that Note shall in no event exceed it. (d) Determination of Rate of Interest and Calculation of Interest Amounts The Calculation Agent will, as soon as practicable after the Relevant Time on each Interest Determination Date, determine the Rate of Interest in the manner provided for in this Condition 5 and calculate the amount of interest payable (the Interest Amounts ) in respect of each Specified Denomination of the relevant Notes (in the case of Bearer Notes) and the minimum Specified Denomination (in the case of Registered Notes) for the relevant Interest Period. The Interest Amounts shall be calculated by applying the Rate of Interest adjusted, if necessary, by any Margin (as defined in Condition 5(III)) and/or Rate Multiplier (as defined in Condition 5(III)) to each Specified Denomination (in the case of Bearer Notes) and the minimum Specified Denomination (in the case of Registered Notes), and multiplying such product by the applicable Day Count Fraction (as defined in Condition 5(III)) rounding, if necessary, the resultant figure to the nearest unit of the relevant currency (half of such unit being rounded upwards or, in the case of Yen downwards). The determination of the Rate of Interest and the Interest Amounts by the Calculation Agent shall (in the absence of manifest error) be final and binding upon all parties and no liability shall attach to the Calculation Agent in connection with the exercise of its powers, duties and discretions hereunder. (e) Notification of Rate of Interest and Interest Amounts The Calculation Agent will cause the Rate of Interest and the Interest Amounts for each Interest Period and the relevant Specified Interest Payment Date to be notified to the Trustee, the Issuer, each of the Agents, the Noteholders (in accordance with Condition 18) and if the relevant Notes are for the time being listed on any stock exchange (each an Exchange ) and the rules of that Exchange so require, the Exchange as soon as possible after their determination but in no event later than two Relevant Business Days (as defined in Condition 5(III)) after their determination. The Interest Amounts and the Specified Interest Payment Date so notified may subsequently be amended by the Calculation Agent (or appropriate alternative arrangements made by way of adjustment) without notice in the event of an extension or shortening of the Interest Period. (f) Interest Accrual Interest will cease to accrue on each Note on the due date for redemption unless, upon due presentation or surrender, payment of principal is improperly withheld or refused. In such event interest will continue to accrue at the rate and in the manner provided in this Condition 5(II) (both before and after judgment) until the Relevant Date (as defined in Condition 9) (except to the extent that there is failure in the subsequent payment to the relevant holders under these Conditions). 169

170 (g) Determination or Calculation by the Trustee If the Calculation Agent does not at any time for any reason determine the Rate of Interest or calculate the Interest Amounts for an Interest Period, the Trustee shall do so and such determination or calculation shall be deemed to have been made by the Calculation Agent. In doing so, the Trustee shall apply the foregoing provisions of this Condition 5(II), with any necessary consequential amendments, to the extent that, in its opinion, it can do so, and in all other respects it shall do so in such manner as it shall deem fair and reasonable in all the circumstances. The determination of the Rate of Interest and the Interest Amounts by the Trustee shall (in the absence of manifest error) be final and binding upon all parties and no liability shall attach to the Calculation Agent or the Trustee in connection with the exercise of its powers, duties and discretions hereunder. (h) Calculation Agent and Reference Banks The Issuer will procure that, so long as any Note to which this Condition 5(II) applies remains outstanding, there shall at all times be a Calculation Agent for such Note and, so long as the Primary Source for Floating Rate for such Note is Reference Issuers, there shall at all times be four Reference Banks with offices in the Relevant Banking Centre. The Issuer will also ensure that, in the case of any Note the determination of interest for which falls within Condition 5(II)(b)(i)(A) and in respect of which no Reference Rate appears at or about the Relevant Time, or in respect of which less than two Reference Rates appear at or about the Relevant Time, there shall be four Reference Banks appointed for such Note with offices in the Relevant Banking Centre. If any Reference Banks (acting through its relevant office) is unable or unwilling to continue to act as a Reference Banks then the Issuer will appoint another Reference Banks with an office in the Relevant Banking Centre to act as such in its place. If the Calculation Agent is unable or unwilling to act as such or if the Calculation Agent fails duly to establish the Rate of Interest for any Interest Period or to calculate the Interest Amounts, the Issuer will appoint the London office of a leading bank engaged in the London and international interbank markets to act as such in its place. The Calculation Agent may not resign its duties without a successor having been appointed as aforesaid. (III) Definitions As used in these Conditions: Business Day Convention means either: (A) the Floating Rate Business Day Convention, in which case interest on a Note shall be payable on each Specified Interest Payment Date which numerically corresponds to its Interest Commencement Date or, as the case may be, the preceding Specified Interest Payment Date in the calendar month which is the Interest Period specified on such Note after the calendar month in which such Interest Commencement Date or, as the case may be, the preceding Specified Interest Payment Date occurred, provided that: (x) if there is no such numerically corresponding day in the calendar month in which a Specified Interest Payment Date should occur, then the relevant Specified Interest Payment Date will be the last day which is a Relevant Business Day (as defined below) in that calendar month; (y) if a Specified Interest Payment Date would otherwise fall on a day which is not a Relevant Business Day, then the relevant Specified Interest Payment Date will be the first following day which is a Relevant Business Day unless that day falls in the next calendar month, in which case it will be the first preceding day which is a Relevant Business Day; and 170

171 (z) if such Interest Commencement Date or the preceding Specified Interest Payment Date occurred on the last day in a calendar month which was a Relevant Business Day, then all subsequent Specified Interest Payment Dates in respect of such Note will be the last day which is a Relevant Business Day in the calendar month which is the Interest Period specified on such Note after the calendar month in which such Interest Commencement Date or, as the case may be, the preceding Specified Interest Payment Date occurred; or (B) the Modified Following Business Day Convention, in which case interest on a Note shall be payable on such Interest Payment Dates or Specified Interest Payment Dates as may be specified on such Note, provided that, if any Interest Payment Date or Specified Interest Payment Date would otherwise fall on a date which is not a Relevant Business Day, the relevant Interest Payment Date or Specified Interest Payment Date will be the first following day which is a Relevant Business Day unless that day falls in the next calendar month, in which case the relevant Interest Payment Date or Specified Interest Payment Date will be the first preceding day which is a Relevant Business Day; or (C) the Following Business Day Convention, in which case interest on a Note shall be payable on such Interest Payment Dates or Specified Interest Payment Dates as may be specified on such Note, provided that, if any Interest Payment Date or Specified Interest Payment Date would otherwise fall on a date which is not a Relevant Business Day, the relevant Interest Payment Date or Specified Interest Payment Date will be the first following day which is a Relevant Business Day; or (D) the Preceding Business Day Convention, in which case interest on a Note shall be payable on such Interest Payment Dates or Specified Interest Payment Dates as may be specified on such Note, provided that, if any Interest Payment Date or Specified Interest Payment Date would otherwise fall on a date which is not a Relevant Business Day, the relevant Interest Payment Date or Specified Interest Payment Date will be the first preceding day which is a Relevant Business Day; or (E) such other Business Day Convention as may be specified on the relevant Note. Day Count Fraction means, in respect of the calculation of an amount of interest on any Note for any period of time (from and including the first day of such period to but excluding the last) (whether or not constituting an Interest Period, the Calculation Period ): (I) (II) (III) (IV) if Actual/365 or Actual/Actual - ISDA is specified on such Note, the actual number of days in the Calculation Period divided by 365 (or, if any portion of that Calculation Period falls in a leap year, the sum of (A) the actual number of days in that portion of the Calculation Period falling in a leap year divided by 366 and (B) the actual number of days in that portion of the Calculation Period falling in a non-leap year divided by 365); if Actual/365 (Fixed) is specified on such Note, the actual number of days in the Calculation Period divided by 365; if Actual/360 is specified on such Note, the actual number of days in the Calculation Period divided by 360; if 30/360, 360/360 or Bond Basis is specified on such Note, the number of days in the Calculation Period divided by 360 (the number of days to be calculated on the basis of a year of 360 days with day months (unless (a) the last day of the Calculation Period is the 31st day of a month but the first day of the Calculation Period is a day other than the 30th or 31st day of a month, in which case the month that includes that last day shall not be considered to be shortened to a 30-day month, or (b) the last day of the Calculation Period is 171

172 the last day of the month of February, in which case the month of February shall not be considered to be lengthened to a 30-day month)); (V) (VI) if 30E/360 or Eurobond Basis is specified on such Note, the number of days in the Calculation Period divided by 360 (the number of days to be calculated on the basis of a year of 360 days with day months, without regard to the date of the first day or last day of the Calculation Period unless, in the case of a Calculation Period ending on the Maturity Date, the Maturity Date is the last day of the month of February, in which case the month of February shall not be considered to be lengthened to a 30-day month); and if Actual/Actual - ICMA is specified on such Note, (a) if the Calculation Period is equal to or shorter than the Determination Period during which it falls, the number of days in the Calculation Period divided by the product of (x) the number of days in such Determination Period and (y) the number of Determination Periods normally ending in any year; and (b) if the Calculation Period is longer than one Determination Period, the sum of: (x) the number of days in such Calculation Period falling in the Determination Period in which it begins divided by the product of (1) the number of days in such Determination Period and (2) the number of Determination Periods normally ending in any year; and (y) the number of days in such Calculation Period falling in the next Determination Period divided by the product of (1) the number of days in such Determination Period and (2) the number of Determination Periods normally ending in any year. for the purposes of this definition of Day Count Fraction: Determination Period means the period from and including a Determination Date in any year to but excluding the next Determination Date; and Determination Date means the date specified as such on the relevant Note or, if none is so specified, the Interest Payment Date. Interest Commencement Date means, in the case of the first issue of a Note or Notes of a Series, the Issue Date or such other date as may be specified as the Interest Commencement Date on such Note. Interest Determination Date means, in respect of any Interest Period, the date which falls that number of days specified on the relevant Note on which banks and foreign exchange markets are open for business in the Relevant Banking Centre prior to the first day of such Interest Period or, if none is so specified, the day falling two Relevant Business Days prior to the first day of such Interest Period. Interest Period means the period beginning on (and including) the Interest Commencement Date to (but excluding) the first Specified Interest Payment Date and each successive period beginning on (and including) a Specified Interest Payment Date to (but excluding) the next succeeding Specified Interest Payment Date. ISDA Definitions means the 2006 ISDA Definitions as published by the International Swaps and Derivatives Association, Inc., unless otherwise specified on the relevant Note. Issue Date means, in respect of any Note or Notes, the date of issue of such Note or Notes. Margin means the percentage rate per annum specified on the relevant Note. Rate Multiplier means the percentage rate or number applied to the relevant Rate of Interest, as specified on the relevant Note. 172

173 Reference Rate means, for any Note, the bid, offered or mean of bid and offered rate, as specified on such Note, for the floating rate specified on such Note. Relevant Banking Centre means, for any Note, the Relevant Banking Centre specified on such Note or, if none is so specified, the banking centre with which the relevant Benchmark is most closely connected (which, in the case of EURIBOR shall be Europe) or, if none is so connected, London. Relevant Business Day means: (A) (B) (C) in the case of a currency other than euro, a day (other than a Saturday or a Sunday) on which banks and foreign exchange markets are open for business in the Relevant Financial Centre; or in the case of euro, a TARGET Business Day; and in the case of any currency, a day (other than a Saturday or a Sunday) on which banks and foreign exchange markets are open for business in the Business Centre(s) specified on the relevant Note. Relevant Financial Centre means the principal financial centre for the relevant currency (which in the case of euro shall be Europe). Relevant Time means the local time in the Relevant Banking Centre at which it is customary to determine bid, mean and offered rates in respect of deposits in that currency in the interbank market in that Relevant Banking Centre or, if no such customary local time exists, hours in the Relevant Banking Centre and for this purpose local time means, with respect to Europe as a Relevant Banking Centre, Brussels time. Specified Interest Payment Date means each date which falls the Interest Period specified on the relevant Note after the preceding Specified Interest Payment Date or, in the case of the first Specified Interest Payment Date, after the Interest Commencement Date or as is otherwise specified as such on the relevant Note, in each case as adjusted by the Business Day Convention specified on such Note. TARGET Business Day means a day on which the TARGET System is operating. TARGET System means the Trans-European Automated Real-Time Gross Settlement Express Transfer (known as TARGET 2) System which was launched on November 19, 2007 or any successor thereto. (IV) Zero Coupon This Condition 5(IV) applies to a Note in respect of which the Zero Coupon Note Provisions are specified on such Note as being applicable (a Zero Coupon Note ). References to the amount of interest payable (other than as provided below), Coupons and Talons in these Conditions are not applicable. Where a Note becomes repayable prior to its Maturity Date and is not paid when due, the amount due and payable in respect of such Note shall be the Amortised Face Amount of such Note as determined in accordance with Condition 7(d)(i)(C). Where a Note is to be redeemed on its Maturity Date, any overdue principal of such Note shall bear interest at a rate per annum (expressed as a percentage) equal to the Amortisation Yield specified on such Note. Such interest shall continue to accrue (on the same basis as referred to in Condition 5(I)) (both before and after judgment) to the Relevant Date. 173

174 6. Repurchase at the Option of the Holders Change of Control (a) (b) If a Change of Control occurs, each Noteholder will have the right to require the Issuer to re-purchase all or any part, equal to U.S.$1,000 in principal amount or an integral multiple thereof, of that Noteholder s Notes pursuant to the Change of Control Offer in the manner described below. In the Change of Control Offer, the Issuer will offer to repurchase the Notes for the Change of Control Payment. Within 30 days following any Change of Control, the Issuer will make a Change of Control Offer by: (i) (ii) (iii) mailing a notice to the Trustee describing the transaction or transactions that constitute the Change of Control and offering to repurchase the Notes on the Change of Control Payment Date, pursuant to the procedures required by the Trust Deed and described in the notice; publishing the notice in a leading newspaper having a general circulation in New York City, which is expected to be the Wall Street Journal, a leading newspaper having a general circulation in London, which is expected to be the Financial Times, and, for so long as the Notes are admitted to listing on the Irish Stock Exchange and to trading on the Global Exchange Market and the rules and regulations of the Irish Stock Exchange shall so require, publishing a notice on the website of the Irish Stock Exchange ( and if any definitive Notes are outstanding, sending, by first class mail, notice to each Noteholder of definitive Notes. The Issuer will comply with the requirements of Rule 14(e)-l of the U.S. Securities Exchange Act of 1934, and the rules and regulations thereunder, and any other securities laws and regulations, and the requirements of any securities exchange on which the notes are listed, to the extent these laws, regulations and requirements are applicable in connection with the repurchase of the Notes as a result of a Change of Control. To the extent that, since the date hereof, changes in the provisions of any of these securities laws or regulations have occurred which conflict with this Condition 6, the Issuer shall comply with these securities laws or regulations and shall not be deemed to have breached its obligations under this Condition 6 by virtue thereof. (c) The Issuer will, to the extent lawful: (i) (ii) (iii) on the Change of Control Payment Date accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer; on or before the Change of Control Payment Date deposit with the Principal Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered; and on the Change of Control Payment Date deliver or cause to be delivered to the Principal Paying Agent for cancellation the notes so accepted together with an officers certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Issuer. 174

175 On the Change of Control Payment Date, the Issuer will procure that the Principal Paying Agent will promptly either: (1) pay to the Noteholder the Change of Control Payment for the Notes against presentation and surrender or, in the case of partial payment, endorsement, of the Global Notes, DTC Global Notes or European Global Notes, as the case may be; or (2) in the case of definitive Notes, mail to each relevant Noteholder the Change of Control Payment for the Notes against presentation and surrender or, in the case of partial payment, endorsement, of the definitive Notes. The Principal Paying Agent will promptly write down the principal amount of the Global Notes, DTC Global Notes or European Global Notes, as the case may be, to reflect the remaining outstanding principal amount of the Notes or, in the case of definitive Notes, mail to each relevant holder a new definitive Note, as applicable, equal in principal amount to any remaining outstanding portion of the Notes surrendered, if any, provided that each new definitive Note will be in a principal amount of U.S.$1,000 or an integral multiple thereof. If required by applicable law, the Issuer will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date and, so long as the Notes are admitted to listing on the Irish Stock Exchange and to trading on the Global Exchange Market and the rules and regulations of the Irish Stock Exchange shall so require, notify the Irish Stock Exchange of the results. The Issuer will not be required to make a Change of Control Offer pursuant to this Condition 6 if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements applicable to a Change of Control Offer made by the Issuer as set out in this Condition 6 and purchases all Notes validly tendered and not withdrawn under the Change of Control Offer. Change of Control means the Arab Banking Corporation ceases to control the Issuer or ceases to own directly or indirectly at least 50% of its issued share capital carrying voting rights. Change of Control Offer means an offer by the Issuer, upon a Change of Control, to repurchase the outstanding Notes at a price equal to the Change of Control Payment. Change of Control Payment means an amount in cash equal to (i) 101% of the principal amount of the Notes repurchased (in the event of a Rating Downgrade) or (ii) 100% of the principal amount of the Notes repurchased (in the event there is no Rating Downgrade), in each case plus accrued and unpaid interest, if any, and additional amounts, if any, to the date of repurchase. Change of Control Payment Date means a specific date no earlier than 30 days and no later than 60 days from the date the notice of Change of Control is mailed. Rating Agency means each of Fitch, Inc. and Moody s Investors Service, Inc. Rating Downgrade means either (i) the long-term international debt rating assigned by each Rating Agency to the Issuer is downgraded prior to the Change of Control Offer and the announcement of such downgrade together with any accompanying report or other relevant material provided by the relevant Rating Agency indicates that the downgrade is a result of the Change of Control or (ii) the long-term international debt rating assigned by each Rating Agency which, immediately following the Change of Control, applies to the entity which controls the Issuer or owns directly or indirectly 50% or more of its issued equity share capital, is lower than the long-term international debt rating assigned by the relevant Rating Agency to the Arab Banking Corporation applicable immediately prior to the Change of Control. 175

176 7. Redemption and Purchase (a) Final Redemption Unless previously redeemed or purchased and cancelled, each Note will be redeemed at its redemption amount ( Final Redemption Amount ) being its nominal amount or such other amount as is specified on such Note on the applicable Maturity Date specified on such Note. (b) Purchases The Issuer and any of its Subsidiaries may at any time purchase Notes at any price (provided that in the case of Bearer Notes they are purchased together with all unmatured Coupons and unexchanged Talons relating to them) in the open market or otherwise, provided that in any such case such purchase or purchases are in compliance with all relevant laws, regulations and directives. The Notes so purchased, while held by or on behalf of the Issuer or any of its Subsidiaries, shall not entitle the holder to vote at any meetings of Noteholders and shall not be deemed to be outstanding for the purposes of calculating quorums at meetings of the Noteholders or for the purposes of Conditions 10, 12 and 13. (c) Redemption for Taxation Reasons Notes may be redeemed at the option of the Issuer in whole, but not in part, at any time (in the case of a Note the interest basis for which is specified on such Note as Fixed Rate or Zero Coupon) or on any Specified Interest Payment Date (in the case of a Note the interest basis for which is specified on such Note as Floating Rate), on giving not less than 30 nor more than 60 days notice to the Noteholders in accordance with Condition 18 (which notice shall be irrevocable), at their Early Redemption Amount, (together with interest accrued to the date fixed for redemption) or (in the case of Notes the interest basis for which is specified on such Note as Zero Coupon) at their Amortised Face Amount (as determined in accordance with Condition 7(d)(i)(C)), if (i) the Issuer satisfies the Trustee immediately prior to the giving of such notice that it has or will become obliged to pay additional amounts as provided or referred to in Condition 9 in excess of the additional amounts which would be payable in respect of deductions or withholdings made at the rate of the Original Withholding Level, if any, specified on such Notes as a result of (I) any change in, or amendment to, the laws or regulations of Brazil or any political subdivision or any authority thereof or therein having power to tax, or any change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after the Issue Date in respect of the relevant Series and (II) in the case of Notes issued by the Issuer acting through its Cayman Islands Branch, any change in, or amendment to, the laws or regulations of the Cayman Islands or any political subdivision or any authority thereof or therein having power to tax, or any change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after the Issue Date in respect of the relevant Series, and (ii) such obligation cannot be avoided by the Issuer taking reasonable measures available to it, provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer would be obliged to pay such additional amounts were a payment in respect of such Notes then due. Prior to the publication of any notice of redemption pursuant to this Condition 7(c), the Issuer shall deliver to the Trustee a certificate signed by two Directors of the Issuer stating that the obligation referred to in (i) above cannot be avoided by the Issuer taking reasonable measures available to it and the Trustee shall be entitled to accept such certificate as sufficient evidence of the satisfaction of the condition precedent set out in (ii) above, in which event it shall be conclusive and binding on the Noteholders and the Couponholders. 176

177 (d) Early Redemption (I) Zero Coupon Notes This Condition 7(d)(I) applies to a Zero Coupon Note. (A) (B) (C) The amount payable in respect of any Note upon redemption of such Note pursuant to Condition 7(c), (e) or (f), if applicable, or upon it becoming due and payable as provided in Condition 10, shall be the Amortised Face Amount (calculated as provided below) of such Note unless otherwise specified on such Note. Subject to Condition 7(d)(I)(C), the Amortised Face Amount of any Note shall be the sum of (A) the Reference Price specified on such Note and (B) the aggregate amortisation of the difference between the Reference Price and the nominal amount of such Note from the Issue Date to the date on which the Note becomes due and payable calculated at a rate per annum (expressed as a percentage) equal to the Amortisation Yield specified on such Note applied to the Reference Price in the manner specified on such Note. Where the specified calculation is to be made for a period of less than one year, it shall be made using the applicable Day Count Fraction. If the amount payable in respect of any Note upon redemption of such Note pursuant to Condition 7(c), (e) or (f), if applicable, or upon it becoming due and payable as provided in Condition 10, is not paid when due, the amount due and payable in respect of such Note shall be the Amortised Face Amount of such Note as defined in Condition 7(d)(I)(B), except that Condition 7(d)(I)(B) shall have effect as though the reference therein to the date on which the Note becomes due and payable were replaced by a reference to the Relevant Date. The calculation of the Amortised Face Amount in accordance with this Condition 7(d)(I)(C) will continue to be made (both before and after judgment) until the Relevant Date unless the Relevant Date falls on or after the Maturity Date, in which case the amount due and payable shall be the nominal amount of such Note together with any interest which may accrue on such Note in accordance with Condition 5(IV). (II) Other Notes The Early Redemption Amount payable in respect of any Note (other than Notes described in Condition 7(d)(I) above), upon redemption of such Note pursuant to Condition 7(c) or upon it becoming due and payable as provided in Condition 9, shall be the Final Redemption Amount unless otherwise specified on such Note. (e) Redemption at the Option of the Issuer (Call Option) If so provided on a Note, the Issuer may, subject to compliance with all relevant laws, regulations and directives, on giving to the holder of such Note irrevocable notice in accordance with Condition 18 of not less than 30 nor more than 45 days (or such other notice period as specified on such Note) redeem or procure the purchase of all or, if so specified on such Note, some of the Series of Notes of which such Note forms part, on the Optional Redemption Date(s) specified on such Notes (which shall, in the case of a Note which has applicable to it at the time of redemption or purchase an interest basis which is specified on such Note as Floating Rate, be a Specified Interest Payment Date) at the amount specified on such Note as the Optional Redemption Amount together with interest accrued to (but excluding) the date fixed for redemption or purchase. All Notes in respect of which any such notice is given shall be redeemed or purchased on the Optional Redemption Date(s) specified in such notice in accordance with this Condition 7(e). If some only of the Notes of a Series are to be redeemed or purchased at any time, the Notes to be redeemed or purchased shall be 177

178 determined by the drawing of lots. In the case of a partial redemption by way of lot, the notice to Noteholders shall also contain the serial numbers and nominal amount of the Notes to be redeemed or purchased, which shall have been drawn in such place as the Trustee may approve and in such manner as it deems appropriate, subject to compliance with any applicable laws, clearing system and Exchange requirements. (f) Redemption at the Option of Noteholders (Put Option) If so provided on a Note, the Issuer shall, subject to compliance with all relevant laws, regulations and directives, at the option of the holder of such Note, redeem or (at the option of the Issuer) procure the purchase of such Note on the Optional Redemption Date(s) specified on such Note (which shall, in the case of a Note which has applicable to it at the time of redemption or purchase an interest basis which is specified on such Note as Floating Rate, be a Specified Interest Payment Date) at the amount specified on such Note as the Optional Redemption Amount together with interest accrued to (but excluding) the date fixed for redemption or purchase. To exercise such option the holder must deposit such Note with any Paying Agent (in the case of Bearer Notes) or the Registrar or any Transfer Agent (in the case of Registered Notes) at their respective specified offices, together with a duly completed notice of redemption ( Redemption Notice ) in the form obtainable from any Agent not more than 60 nor less than 46 days (or such other deposit period as may be specified on such Note) prior to the relevant date for redemption. No Note (or Redemption Notice) so deposited may be withdrawn (except as provided in the Agency Agreement) without the prior consent of the Issuer. (g) Cancellation 8. Payments All Notes redeemed in accordance with this Condition 7, and any unmatured Coupons or Talons attached to them, will be cancelled forthwith. Any Notes purchased in accordance with this Condition 7, and any unmatured Coupons or Talons purchased with them, may at the option of the relevant purchaser be cancelled or may be resold. Notes which are cancelled following any redemption or purchase made in accordance with this Condition 7 may at the option of the Issuer be re-issued together with any unmatured Coupons or Talons. Any resale or re-issue pursuant to this Condition 7(g) shall only be made in compliance with all relevant laws, regulations and directives. (a) Bearer Notes (III) Payments of Principal and Interest Payments of principal and interest in respect of Bearer Notes will, subject as mentioned below, be made against presentation and surrender of the relevant Bearer Notes or Coupons, as the case may be, at the specified office of any Paying Agent outside the United States and its possessions: (i) in respect of payments denominated in a Specified Currency (or, if different, Specified Principal Payment Currency or Specified Interest Payment Currency, as the case may be) other than U.S. dollars, at the option of the holder either by a cheque in such Specified Currency, Specified Principal Payment Currency or Specified Interest Payment Currency, as the case may be drawn on, or by transfer to an account in such Specified Currency, Specified Principal Payment Currency or Specified Interest Payment Currency, as the case may be, maintained by the payee with a bank in the Relevant Financial Centre of such Specified Currency, Specified Principal Payment Currency or Specified Interest Payment Currency, as the case 178

179 may be, or in the case of euro, in a city in which banks have access to the TARGET System; (ii) (iii) in respect of payments denominated in U.S. dollars, subject to Condition 8(a)(II), at the option of the holder either by a U.S. dollar cheque drawn on a bank in New York City or by transfer to a U.S. dollar account maintained by the payee with a bank outside the United States; or as may otherwise be specified on such Notes as an Alternative Payment Mechanism. (IV) Payments in the United States Notwithstanding the foregoing, payments in respect of Bearer Notes denominated in U.S. dollars may be made at the specified office of any Paying Agent in New York City in the same manner as aforesaid if (1) the Maturity Date of such Bearer Notes is not more than one year from the Issue Date for such Bearer Notes or (2) (a) the Issuer shall have appointed Paying Agents with specified offices outside the United States with the reasonable expectation that such Paying Agents would be able to make payment of the amounts on the Bearer Notes in the manner provided above when due, (b) payment in full of such amounts at all such offices is illegal or effectively precluded by exchange controls or other similar restrictions on payment or receipt of such amounts and (c) such payment is then permitted by United States law. If, under such circumstances, a Bearer Note is presented for payment of principal at the specified office of any Paying Agent in the United States or its possessions in circumstances where interest (if any is payable against presentation of the Bearer Note) is not to be paid there, the relevant Paying Agent will annotate the Bearer Note with the record of the principal paid and return it to the holder for the obtaining of interest elsewhere. (V) Payments on Business Days Subject as provided on a Note, if any date for payment in respect of any Bearer Note or Coupon comprising all or part of a Tranche is not a business day, the holder shall not be entitled to payment until the next following business day nor to any interest or other sum in respect of such postponed payment. In this Condition 8(a), business day means a day on which banks are open for business in the relevant place of presentation, in such jurisdictions as shall be specified on such Note as Financial Centres and: (1) in the case of a payment in a currency other than euro, where payment is to be made by transfer to an account maintained with a bank in the relevant Specified Currency, Specified Principal Payment Currency or Specified Interest Payment Currency, as the case may be, a day on which dealings may be carried on in the Relevant Financial Centre of such Specified Currency, Specified Principal Payment Currency or Specified Interest Payment Currency, as the case may be; or (2) in the case of payment in euro, a day which is a TARGET Business Day. If the due date for redemption or repayment of any Bearer Note is not a due date for payment of interest, interest accrued from the preceding due date for payment of interest or the Interest Commencement Date, as the case may be, shall only be payable against presentation (and surrender if appropriate) of the relevant Bearer Note. Interest accrued on a Bearer Note the interest basis for which is specified on such Note as Zero Coupon from its Maturity Date shall be payable on repayment of such Bearer Note against presentation thereof. 179

180 (b) Registered Notes (VI) Payments of Principal and Interest Payments of principal and interest in respect of Registered Notes will be made or procured to be made by the London Paying Agent on the due date for payment to the person shown on the Register at the close of business on the Clearing System Business Day before the due date for payment thereof (the Record Date ): (1) by cheque drawn on, or by transfer to an account in such Specified Currency, Specified Principal Payment Currency or Specified Interest Payment Currency, as the case may be, maintained by the payee with, a bank in the Relevant Financial Centre of such Specified Currency, Specified Principal Payment Currency or Specified Interest Payment Currency, as the case may be, or, in the case of euro, in a city in which banks have access to the TARGET System; or (2) as may otherwise be specified on such Notes as an Alternative Payment Mechanism, subject in each case to Condition 8(b)(III). For the purposes of this Condition 8(b), Clearing System Business Day means any day on which each clearing system for which the DTC Global Note or European Global Note is being held is open for business. Payments of principal in respect of Registered Notes will only be made against surrender of the relevant Definitive Registered Note at the specified office of any Transfer Agent. Upon application by the holder to the specified office of any Transfer Agent not less than 15 days before the due date for any payment in respect of a Note, such payment will be made by transfer to an account maintained by the payee with a bank in the Relevant Financial Centre or, in the case of euro, in a city in which banks have access to the TARGET System. Details of the account to which a registered holder s payments will be made should be notified by the holder to the specified office of the London Paying Agent before the Record Date preceding the relevant date for payment. If the amount of principal being paid is less than the nominal amount of the relevant Definitive Registered Note, the Registrar will annotate the Register with the amount of principal so paid and will (if so requested by the Issuer or a Noteholder) issue a new Definitive Registered Note with a nominal amount equal to the remaining unpaid nominal amount. (VII) Payment Initiation Where payment is to be made by transfer to an account in the relevant Specified Currency, Specified Principal Payment Currency or Specified Interest Payment Currency, as the case may be, payment instructions (for value the due date, or if that is not a Relevant Business Day, for value the first following day which is a Relevant Business Day) will be initiated, and, where payment is to be made by cheque, the cheque will be mailed on the last day on which the London Paying Agent is open for business preceding the due date for payment or, in the case of payments of principal where the relevant Definitive Registered Note has not been surrendered at the specified office of any Transfer Agent, on a day on which the London Paying Agent is open for business and on which the relevant Definitive Registered Note is surrendered. (VIII) Payments Through The Depository Trust Company Registered Notes, if so specified on them, will be issued in the form of one or more Definitive Registered Notes registered in the name of, or the name of a nominee for, The Depository Trust Company ( DTC ). Payments of principal and interest in respect of Registered Notes 180

181 denominated in U.S. dollars will be made in accordance with Conditions 8(b)(I) and (II). Payments of principal and interest in respect of Registered Notes registered in the name of, or in the name of a nominee for, DTC and denominated in a Specified Currency or in respect of which payments are to be made in a Specified Principal Payment Currency or Specified Interest Payment Currency, as the case may be, other than U.S. dollars will be made or procured to be made by the London Paying Agent in the relevant Specified Currency, Specified Principal Payment Currency or Specified Interest Payment Currency, as the case may be, in accordance with the following provisions. The amounts in such Specified Currency, Specified Principal Payment Currency or Specified Interest Payment Currency, as the case may be, payable by the London Paying Agent or its agent to DTC with respect to Registered Notes held by DTC or its nominee will be received from the Issuer by the Principal Paying Agent. The London Paying Agent will make payments in such Specified Currency, Specified Principal Payment Currency or Specified Interest Payment Currency, as the case may be, by wire transfer of same day funds to the designated bank account in such Specified Currency, Specified Principal Payment Currency or Specified Interest Payment Currency, as the case may be, of those DTC participants entitled to receive the relevant payment who have made an irrevocable election to DTC, in the case of interest payment, on or prior to the third DTC business day after the Record Date for the relevant payment of interest and, in the case of payments of principal, at least 12 DTC business days prior to the relevant payment date, to receive that payment in such Specified Currency, Specified Principal Payment Currency or Specified Interest Payment Currency, as the case may be. After the Exchange Agent has converted amounts in such Specified Currency, Specified Principal Payment Currency or Specified Interest Payment Currency, as the case may be, into U.S. dollars, it will procure the delivery of such U.S. dollar amount in same day funds to DTC for payment through its settlement system to those DTC participants entitled to receive the relevant payment who did not elect to receive such payment in such Specified Currency, Specified Principal Payment Currency or Specified Interest Payment Currency, as the case may be. The Agency Agreement sets out the manner in which such conversions are to be made. DTC business day means any day on which DTC (as defined in this Condition 8(b)(III)) is open for business (IX) Delay in Payment Noteholders will not be entitled to any interest or other payment for any delay after the due date in receiving the amount due on a Note if the due date is not a Relevant Business Day, if the Noteholder is late in surrendering or cannot surrender its Definitive Registered Note (if required to do so) or if a cheque mailed in accordance with Condition 8(b)(II) arrives after the due date for payment. (X) Payment Not Made in Full If the amount of principal or interest which is due on any Registered Note is not paid in full, the Registrar will annotate the Register with a record of the amount of principal or interest, if any, in fact paid on such Registered Note. (c) Payments Subject to Law, etc. All payments are subject in all cases to any applicable laws, regulations and directives in the place of payment, but without prejudice to the provisions of Condition 8. No commission or expenses shall be charged to the Noteholders or Couponholders in respect of such payments. (d) Appointment of Agents The Principal Paying Agent, the Paying Agents, the Registrar, the Calculation Agent, the Exchange Agent and the Transfer Agents initially appointed by the Issuer and their respective specified offices are listed below. The Issuer reserves the right at any time, with the prior approval of the Trustee, to vary or terminate the appointment of any Agent, to appoint another Registrar, 181

182 Exchange Agent or Calculation Agent and to appoint additional or other Paying Agents or Transfer Agents, provided that the Issuer will at all times maintain (i) a Principal Paying Agent in respect of each Series of Notes, (ii) a Paying Agent and a Transfer Agent in London, (iii) a Registrar and a Transfer Agent in New York City, (iv) a Paying Agent and a Transfer Agent having a specified office in a European city which, so long as the Exchange on which the Notes are listed is the Global Exchange Market of the Irish Stock Exchange and the rules of that exchange so require, shall be Ireland, (v) a Paying Agent having a specified office in a Member State of the European Union, which Member State will not be obliged to withhold or deduct tax pursuant to European Council Directive 2003/48/EC or any other European Union Directive implementing the conclusions of the ECOFIN Council meeting of November 26-27, 2000 on the taxation of savings income or any law implementing or complying with, or introduced in order to conform to, such Directive, (vi) a Calculation Agent and (vii) an Exchange Agent. In addition, the Issuer shall forthwith appoint a Paying Agent in New York City in respect of any Bearer Notes denominated in U.S. dollars in the circumstances described in Condition 8(a)(ii). Notice of any such change or any change in the specified office of any Agent will promptly be given to the Noteholders in accordance with Condition 18. (e) Unmatured Coupons and Unexchanged Talons (XI) (XII) (XIII) (XIV) Bearer Notes the interest basis for which is specified on such Notes as being Fixed Rate, other than Notes which are specified to be Long Maturity Notes (being Notes whose nominal amount is less than the aggregate interest payable thereon on the relevant dates for payment of interest under Condition 5(I)(a)), should be surrendered for payment of principal together with all unmatured Coupons (if any) appertaining thereto, failing which an amount equal to the face value of each missing unmatured Coupon (or, in the case of payment not being made in full, that proportion of the amount of such missing unmatured Coupon which the sum of principal so paid bears to the total principal due) will be deducted from the Final Redemption Amount, Early Redemption Amount or Optional Redemption Amount, as the case may be, due for payment on such Note. Any amount so deducted will be paid in the manner mentioned above against surrender of such missing Coupon within a period of 10 years from the Relevant Date for the payment of such principal (whether or not such Coupon has become void pursuant to Condition 11). If the date for payment of principal is any date other than a date for payment of interest, the accrued interest on such principal shall be paid only upon presentation of the relevant Note. If so specified on a Bearer Note, upon the due date for redemption of any Bearer Note either the interest basis for which is specified on such Note as being Floating Rate at any time or which is a Long Maturity Note, unmatured Coupons relating to such Note (whether or not attached) shall become void and no payment shall be made in respect of such Coupons. Upon the due date for redemption of any Bearer Note, any unexchanged Talon relating to such Note (whether or not attached) shall become void and no Coupon shall be delivered in respect of such Talon. Where any Bearer Note either the interest basis for which is specified on such Note as being Floating Rate at any time or which is a Long Maturity Note, is presented for redemption without all unmatured Coupons relating to it, and where any Bearer Note is presented for redemption without any unexchanged Talon relating to it, redemption of such Bearer Note shall be made only against the provisions of such indemnity by the Noteholder as the Issuer may require. 182

183 (f) Foreign Currency Constraint Payments by the Issuer on or in respect of the Notes may be subject to Brazilian foreign exchange controls or restrictions. If so specified on a Note, in the event that a Foreign Currency Constraint (as defined below) shall have occurred, the following provisions shall apply to the Notes: (XV) If a Foreign Currency Constraint shall have occurred, the Issuer shall give to the London Paying Agent, the Principal Paying Agent and the Registrar within five São Paulo business days after such event, a certificate signed by two Directors of the Issuer certifying the existence of the Foreign Currency Constraint. As soon as practicable thereafter, the Issuer shall give notice of such certification and its contents, in accordance with Condition 18. Upon a Foreign Currency Constraint occurring, the Issuer shall promptly appoint a Brazilian Paying Agent with a specified office in São Paulo, such appointment to be notified to the Noteholders in the notice of the occurrence of the Foreign Currency Constraint. In this event any Noteholder may for a period of 30 days after the date of publication of such notice (the Election Period ), elect to exchange ( Currency Constraint Exchange ) the Note (the Original Note ) and the related unmatured Coupons (if any) and unexchanged Talons (if any) for an equivalent nominal amount in the Specified Currency of Exchanged Notes (as defined below) and related unmatured Coupons (if any) and unexchanged Talons (if any). To make such election, the holder must deposit the Original Note (together with all related unmatured Coupons (if any) and unexchanged Talons (if any)) with any Paying Agent or, in the case of Registered Notes, any Transfer Agent, together with a duly completed notice of election ( Election Notice ) in the form obtainable from any Paying Agent or Transfer Agent, as the case may be, within the Election Period. No Original Note so deposited and election made may be withdrawn without the prior consent of the Issuer. All duly completed and valid Election Notices received by the Paying Agents or Transfer Agents, as the case may be, within the Election Period shall, on receipt, be deemed to have been received on the first day of the Election Period. On the second day after the conclusion of the Election Period that is a business day in both (x) São Paulo and (y) in the case of Bearer Notes, London or, in the case of Registered Notes, New York, the Exchanged Notes and related unmatured Coupons (if any) and unexchanged Talons (if any) will be issued by the Issuer and delivered to or to the order of the Brazilian Paying Agent on behalf of those Noteholders who validly elected during the Election Period to exchange Original Notes for Exchanged Notes (the Exchange Date ). In these Conditions, unless the context otherwise requires, the following defined terms shall have the meanings set out below: Exchanged Note means a Note with terms and conditions identical to the terms and conditions of the Original Note for which it was exchanged, save that: (a) all payments due in respect of such Exchanged Note shall be made by the Issuer, to the extent permitted by Brazilian law, in the lawful currency of Brazil when due (a Due Date ) or, where a Due Date occurs before the Exchange Date, as soon as practicable after the Exchange Date and without any additional amount in compensation for late payment against presentation (and, if applicable, surrender) of such Exchanged Note or related Coupon in accordance with Condition 8 in the case of Bearer Notes (subject to paragraph (C) below) and in the case of Registered Notes payment of principal and interest will be made to the person shown on the Register in respect of the Exchanged Notes at the close of business on the date of issue of such Exchanged Notes and in the case of payments of principal, against surrender of the relevant Definitive Registered Note representing the Exchanged Notes at the specified office of any Transfer Agent and otherwise in accordance with Condition 8 (subject to paragraph (C) below); 183

184 (b) (c) the amount of any payment due in respect of such Exchanged Note shall be that amount in the lawful currency of Brazil, as determined by the Brazilian Paying Agent, having regard to the provisions of this Condition 8, which would be required to purchase the amount of such payment in the Specified Currency at the rate of exchange shown on the São Paulo business day immediately prior to the Due Date (or, where the Due Date precedes the Exchange Date, on the São Paulo business day immediately prior to the date of payment), (1) if the Specified Currency is U.S. dollars, as shown on the Central Bank of Brazil computer information system under the title SISBACEN PTAX-800, Option 5-L or (2) if the Specified Currency is a currency other than U.S. dollars, at the corresponding rate for the applicable Specified Currency (the Corresponding Rate ), the source of which Corresponding Rate will be specified in the applicable Pricing Supplement. If no such rate of exchange is available, the applicable rate of exchange shall be an average of the Brazilian currency exchange rates on such São Paulo business day for the purchase of the Specified Currency notified to the Brazilian Paying Agent by three leading Brazilian banks selected by the Brazilian Paying Agent in its discretion; and all payments in respect of the Exchanged Notes shall be made by transfer to a Brazilian currency account maintained by the payee with a branch in São Paulo, Brazil. Foreign Currency Constraint means any law, regulation, directive or communication imposed or issued by the Government of Brazil or the Central Bank of Brazil or any other competent authority in Brazil imposing foreign exchange controls or other restrictions or any refusal to act or delay in acting by any such party, which has the effect of prohibiting, preventing or delaying the remittance of the Specified Currency (whether in respect of principal, interest, additional amounts payable pursuant to these Conditions or otherwise) to or by the Principal Paying Agent in respect of the Original Notes when due. São Paulo business day means a day other than a Saturday or Sunday on which commercial banks and foreign exchange markets are open for business in São Paulo, Brazil. (XVI) On termination of the Foreign Currency Constraint, the Issuer shall promptly notify the London Paying Agent, the Principal Paying Agent, the Registrar and the Noteholders in accordance with Condition 18. From and other than the date specified in such notice, Exchanged Notes and related unmatured Coupons and unexchanged Talons shall be exchanged for an equivalent nominal amount of Original Notes and related unmatured Coupons and unexchanged Talons provided that, prior to such exchange, all payments due in respect of the Original Notes and related Coupons and all payments due in respect of the Exchanged Notes and related Coupons shall have been made by the Issuer. Such exchange shall be effected by the holders of Exchanged Notes presenting and surrendering such Exchanged Notes (together with all related unmatured Coupons and unexchanged Talons) at any time after such termination at the specified office of any Paying Agent. (XVII) During the period in which a Foreign Currency Constraint is in effect, the Issuer shall take such steps as are legal under the laws and regulations of Brazil to make payments in respect of Original Notes and related Coupons not exchanged for Exchanged Notes and related Coupons (if any) in the Specified Currency from Brazil, whether to put into effect the terms of any restructuring, refinancing or rescheduling arrangements relating to such payments or otherwise, as promptly as such laws and regulations permit. (XVIII) Notwithstanding anything else herein to the contrary, during the period in which a Foreign Currency Constraint is in effect, any principal sums in respect of the Original Notes which are not paid by reason of imposition of such Foreign Currency Constraint shall bear interest in the Specified Currency at the Rate of Interest specified on such Note (unless the Brazilian 184

185 authorities have stipulated another rate of interest in which case the Notes shall bear interest at such rate per annum from the date such stipulation becomes effective) until the Foreign Currency Constraint is terminated or, if earlier, such sums are duly paid in full and provided that the Issuer complies at all times with the obligations set forth in this Condition 8(f). (XIX) (XX) Notwithstanding anything to the contrary herein, no Noteholder or Couponholder shall be precluded by this Condition 8(f) from presenting any Note for payment at a time when a Foreign Currency Constraint is in effect. Any default in payment of External Indebtedness which is due solely to an External Indebtedness Currency Constraint shall not constitute an Event of Default under (i) Condition 10(g) so long as the Issuer is taking all steps open to it in accordance with Brazilian law to effect such payment or (ii) Condition 10(c). External Indebtedness means Indebtedness which is payable (or may be paid) (i) in a currency or by reference to a currency other than the currency of Brazil and (ii) to a person resident or having its principal place of business outside Brazil. External Indebtedness Currency Constraint is, with respect to any External Indebtedness, any law, regulation, directive, or communication imposed, or issued by the Government of Brazil or the Central Bank of Brazil or any other competent authority in Brazil, imposing foreign exchange controls or other restrictions, or any refusal to act or delay in acting by any such party which has the effect of prohibiting, preventing, or delaying the remittance of payments on such External Indebtedness when due in the currency in which such External Indebtedness is denominated. (XXI) It shall not be an Event of Default under these Conditions to the extent that any Event of Default described in Condition 10(a) shall have occurred with respect to the Issuer solely as a result of a Foreign Currency Constraint provided that the Issuer shall have fully complied with its obligations under this Condition 8(f). The Issuer shall not be in breach of any payment obligation in the Specified Currency relating to the Notes to the extent payment in the Specified Currency is not made by reason solely of such Foreign Currency Constraint and no Noteholder or Couponholder shall be entitled to take action against the Issuer to enforce any rights against the Issuer which such Noteholder would, but for the provisions of this Condition 8(f), have had in respect of such payment. (g) Talons Except where such Talon has become void pursuant to Condition 8(e)(iii), on or after the Interest Payment Date or, as the case may be, the Specified Interest Payment Date for the final Coupon forming part of a Coupon sheet issued in respect of any Note, the Talon forming part of such Coupon sheet may be surrendered at the specified office of the London Paying Agent in exchange for a further Coupon sheet (but excluding any Coupons which may have become void pursuant to Condition 11). (h) Indemnification If so provided on a Note (by having Item 42 being specified as applicable in the relevant Pricing Supplement), every payment of any sum due in respect of Notes or Coupons made by or on behalf of the Issuer to or to the order of the Principal Paying Agent in the manner specified herein on the date due shall, to such extent, be valid and effective to satisfy and discharge the obligation of the Issuer to make payment of such sum on such date. The Issuer will indemnify any Noteholder or Couponholder against any failure on the part of the Agents to pay any sum due in respect of such 185

186 9. Taxation Notes or Coupons (as the case may be) within 15 days of receipt from the relevant Noteholder(s) or Couponholder(s) of notice of such failure on the part of the Agents to pay such sum due. These indemnities constitute a separate and independent obligation from the Issuer s other obligations, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by any Noteholder or Couponholder and shall continue in full force and effect despite any judgment, order, claim or proof for a liquidated amount in respect of any sum due under any Note or Coupon or any judgment or order. No proof or evidence of any actual loss may be required. All payments by or on behalf of the Issuer in respect of the Notes and the Coupons will be made free and clear of, and without withholding or deduction for, or on account of, any taxes, duties, assessments or governmental charges (together, the Taxes ) of whatever nature imposed, levied, collected, withheld or assessed by or within Brazil or any authority therein or thereof having power to tax in the case of Notes issued by the Issuer acting through its head office, or by or within the Cayman Islands or any authority therein or thereof having power to tax in the case of Notes issued by the Issuer acting through its Cayman Islands Branch, unless such withholding or deduction is required by law. In such event, the Issuer shall pay such additional amounts as will result in receipt by the Noteholders or, as the case may be, the Couponholders of such amounts as would have been received by them had no such withholding or deduction been required, except that no such additional amounts shall be payable with respect to any Note or Coupon: (i) in the case of Bearer Notes or Coupons: (a) (b) (c) (d) to a holder (or to a third party on behalf of a holder) where such holder is liable to such Taxes in respect of such Bearer Note or Coupon by reason of it having some connection with Brazil or such other jurisdiction to which the Issuer is subject other than the mere holding of such Bearer Note or Coupon, the enforcement of rights in respect thereof or the receipt of the relevant payment in respect thereof; or presented for payment more than 30 days after the Relevant Date except to the extent that the holder thereof would have been entitled to additional amounts on presenting the same for payment on the last day of such period of 30 days; or where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC or any other European Union Directive implementing the conclusions of the ECOFIN Council meeting of November 26-27, 2000 on the taxation of savings income or any law implementing or complying with, or introduced in order to conform to, such Directive; or presented for payment by or on behalf of a Noteholder or a Couponholder who would have been able to avoid such withholding or deduction by presenting the relevant Note or Coupon to another Paying Agent in a Member State of the European Union. (ii) in the case of Registered Notes: (a) (b) to a holder (or to a third party on behalf of a holder) where such holder is liable to such Taxes in respect of such Registered Note by reason of it having some connection with Brazil or such other jurisdiction to which the Issuer is subject, other than the mere holding of such Registered Note, the enforcement of rights in respect thereof or the receipt of the relevant payment in respect thereof; or if the Definitive Registered Note in respect of such Registered Note is required to be surrendered and is surrendered more than 30 days after the Relevant Date except to the extent 186

187 that the holder thereof would have been entitled to additional amounts on presenting the same for payment on the last day of such period of 30 days; or (c) where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC or any other European Union Directive implementing the conclusions of the ECOFIN Council meeting of November 26-27, 2000 on the taxation of savings income or any law implementing or complying with, or introduced in order to conform to, such Directive. As used in these Conditions, Relevant Date in respect of any Note or Coupon means the date on which payment in respect thereof first becomes due or (if the full amount of the money payable has not been received by the Trustee or the Principal Paying Agent on or prior to such due date) the date on which notice is duly given to the Noteholders in accordance with Condition 18 that such moneys have been so received and are available for payment. References in these Conditions to principal shall be deemed to include Amortised Face Amount, Final Redemption Amount, Optional Redemption Amount and Early Redemption Amount and any premium payable in respect of the Notes and any reference to principal and/or interest shall be deemed to include any additional amounts which may be payable under this Condition 9 or any undertaking given in addition to or in substitution for it under the Trust Deed. 10. Events of Default If any of the following events occurs the Trustee at its discretion may in respect of the Notes of any Series, and if so requested by holders of at least 33⅓ per cent. in nominal amount of the Notes of such Series then outstanding or if so directed by an Extraordinary Resolution of Noteholders of such Series shall subject in each case to being indemnified to its satisfaction, give notice to the Issuer that the Notes of such Series are, and they shall immediately become, due and payable at the Early Redemption Amount specified on such Notes or, if none is so specified, at the nominal amount specified on such Notes together with interest accrued to the date of redemption or, in relation to Notes the interest basis for which is specified on such Notes as Zero Coupon, the Amortised Face Amount of such Notes: (a) (b) (c) (d) Non-Payment: (i) the Issuer fails to pay any principal of any of the Notes when due or (ii) the Issuer fails to pay any interest on any of the Notes when due and such failure to pay any interest on any of the Notes when due shall continue unremedied for a period of 10 days; or Breach of Other Obligations: the Issuer does not perform or comply with any one or more of its other obligations in the Notes or the Trust Deed which default is incapable of remedy or, if in the opinion of the Trustee capable of remedy, is not in the opinion of the Trustee remedied within 60 days after notice of such default shall have been given to the Issuer by the Trustee; or Cross Default: (i) any other present or future indebtedness of the Issuer or any of its Subsidiaries for or in respect of moneys borrowed or raised becomes (or becomes capable of being declared) due and payable prior to its stated maturity otherwise than at the option of the Issuer or such Subsidiary, or (ii) any such indebtedness is not paid when due or, as the case may be, within any applicable grace period, or (iii) the Issuer or any of its Subsidiaries fails to pay when due any amount payable by it under any present or future guarantee for, or indemnity in respect of, any moneys borrowed or raised provided that the aggregate amount of the relevant indebtedness, guarantees and indemnities in respect of which one or more of the events mentioned above in this Condition 10(c) have occurred equals or exceeds U.S.$30,000,000 or its equivalent in another currency or other currencies (as reasonably determined by the Trustee); or Enforcement proceedings: a distress, attachment, execution or other legal process in respect of an amount that exceeds U.S.$30,000,000 or its equivalent in another currency or other currencies (as reasonably determined by the Trustee) is levied, enforced or sued out on or against any part of the 187

188 property, assets or revenues of the Issuer or any of its Subsidiaries and is not discharged or stayed within 30 days; or (e) (f) (g) (h) (i) (j) (k) Security enforced: any mortgage, charge, pledge, lien or other encumbrance, present or future, created or assumed by the Issuer or any of its Subsidiaries becomes enforceable and any step is taken to enforce it (including the taking of possession or the appointment of a receiver, administrative receiver, manager or other similar person); or Insolvency: the Issuer or any of its Subsidiaries is (or is, or could be, deemed by law or a court to be) insolvent or bankrupt or unable to pay its debts as they become due, stops, suspends or threatens to stop or suspend payment of all or (in the opinion of the Trustee) a material part of (or of a particular type of) its debts, is subject to an intervention or extra-judicial liquidation by the Central Bank of Brazil, proposes or makes any agreement for the deferral, rescheduling or other readjustment of all of (or all of a particular type of) its debts (or of any part which it will or might otherwise be unable to pay when due), proposes or makes a general assignment or an arrangement or composition with or for the benefit of the relevant creditors in respect of any such debts or a moratorium is agreed or declared in respect of or affecting all or any part of (or of a particular type of) the debts of the Issuer or any of its Subsidiaries; or Winding up: an order is made and continues unstayed for a period of 30 days, or an effective resolution passed, for the winding up or dissolution or administration of the Issuer or any of its Subsidiaries, or the Issuer or any of its Subsidiaries ceases or threatens to cease to carry on all or (in the opinion of the Trustee) a material part of its business or operations, except for the purpose of and followed by a reconstruction, amalgamation, reorganisation, merger or consolidation (i) on terms approved by the Trustee or by an Extraordinary Resolution of the Noteholders, or (ii) in the case of a Subsidiary, whereby the undertaking and the assets of the Subsidiary are transferred to or otherwise vested in the Issuer or another of its Subsidiaries; or Nationalisation: any step is taken by any person with a view to the seizure, compulsory acquisition, expropriation or nationalisation of all or (in the opinion of the Trustee) a material part of the assets of the Issuer or any of its Subsidiaries; or Authorisations and Consents: any action, condition or thing (including the obtaining or effecting of any necessary consent, approval, authorisation, exemption, filing, licence, order, recording or registration) at any time required to be taken, fulfilled or done by the Issuer in order (i) to enable the Issuer lawfully to enter into, exercise its rights and perform and comply with its obligations under the Notes, the Coupons and the Trust Deed, (ii) to ensure that those obligations are legally binding and enforceable or (iii) to make the Notes, the Coupons and the Trust Deed admissible in evidence in the courts of Brazil or the Cayman Islands is not taken, fulfilled or done; or Illegality: it is or will become unlawful for the Issuer to perform or comply with any one or more of its obligations under any of the Notes or the Trust Deed; or Analogous Events: any event occurs which under the laws of any relevant jurisdiction has an analogous effect to any of the events referred to in any of the foregoing paragraphs; or provided that in the case of paragraphs (b), (d), (e), (i) and (j) and, in the case of Subsidiaries only, paragraphs (f) and (g), the Trustee shall have certified that in its opinion such event is materially prejudicial to the interests of the Noteholders. For the purpose of these Conditions: 188

189 11. Prescription Subsidiary means, at any particular time, in respect of a company or corporation, any company or corporation: (i) more than 50% of the issued equity share capital, or more than 50% of the issued share capital carrying voting rights, of which is beneficially owned, directly or indirectly, by the firstmentioned company or corporation; or (ii) which is a Subsidiary of another Subsidiary of the firstmentioned company or corporation; Claims against the Issuer for payment in respect of the Notes and Coupons (which, for this purpose shall not include Talons) shall be prescribed and become void unless made within 10 years (in the case of principal) and 5 years (in the case of interest) from the appropriate Relevant Date in respect thereof. 12. Meetings of Noteholders, Modification, Waiver and Substitution (a) Meetings of Noteholders The Trust Deed contains provisions for convening meetings of Noteholders of a Series to consider any matter affecting their interests, including modification by Extraordinary Resolution of the Notes of such Series (including these Conditions insofar as the same may apply to such Notes). Such a meeting may be convened by the Issuer or the Trustee, and the Trustee (subject to being indemnified and/or secured to its satisfaction against all costs and expenses thereby occasioned) shall convene such a meeting upon written request of Noteholders holding not less than 10% in nominal amount of the Notes of the relevant Series for the time being outstanding. The quorum for any meeting to consider an Extraordinary Resolution will be two or more persons holding or representing in aggregate more than 50% in nominal amount of the Notes of the relevant Series for the time being outstanding, or at any adjourned meeting two or more persons holding or representing holders of Notes of the relevant Series whatever the nominal amount of the Notes of the relevant Series held or represented, unless the business of such meeting includes consideration of proposals, inter alia, (i) to amend the dates of maturity or redemption of the Notes of any Series or any date for payment of interest thereon, (ii) to reduce or cancel the nominal amount, Final Redemption Amount, Optional Redemption Amount or Early Redemption Amount (if any) of the Notes of any Series, (iii) to reduce the rate or rates of interest in respect of the Notes of any Series or to vary the method or basis of calculating the rate or rates or amount of interest, (iv) if there is specified on the Notes of any Series a Minimum Rate of Interest and/or a Maximum Rate of Interest, to reduce such Minimum Rate of Interest and/or such Maximum Rate of Interest, (v) to change the method of calculating the Amortised Face Amount (if any) of any Series, (vi) to change the currency or currencies of payment of the Notes of any Series or (vii) to modify the provisions concerning the quorum required at any meeting of Noteholders of any Series or the majority required to pass an Extraordinary Resolution, in which case the necessary quorum will be two or more persons holding or representing not less than 75%, or at any adjourned meeting not less than 25%, in nominal amount of the Notes of the relevant Series for the time being outstanding. An Extraordinary Resolution is defined in the Trust Deed to mean a resolution passed at a meeting of Noteholders duly convened and held in accordance with the provisions of the Trust Deed by a majority of at least 75% of the votes cast. A written resolution of holders of not less than 90% in nominal amount of the Notes of the relevant Series for the time being outstanding shall take effect as an Extraordinary Resolution for all purposes. Any Extraordinary Resolution duly passed shall be binding on all holders of Notes of the relevant Series (whether or not they were present or represented at the meeting at which such resolution was passed) and on all Couponholders (if any). (b) Modification, Waiver and Determination The Trustee and the Issuer may, without the consent of the Noteholders or Couponholders, (i) agree to any modification of any of the provisions of the Trust Deed which is of a formal, minor or 189

190 technical nature or is made to correct a manifest error and (ii) agree to any other modification (except as mentioned in the Trust Deed), and any waiver or authorisation of any breach or proposed breach, of any of the provisions of the Trust Deed and the Trustee may, without the consent of the Noteholders or Couponholders, subject as provided in the Trust Deed, determine that any Event of Default or Potential Event of Default (as defined in the Trust Deed) will not be treated as such, provided that any such modification referred to in (ii) above or any waiver or determination is in the opinion of the Trustee not materially prejudicial to the interests of the Noteholders. Any such modification, authorisation or waiver shall be binding on the Noteholders and the Couponholders and, if the Trustee so requires, such modification shall be notified to the Noteholders in accordance with Condition 18 as soon as practicable. (c) Substitution The Trust Deed contains provisions permitting the Trustee to agree, subject to such amendment of the Trust Deed and such other conditions as the Trustee may require, but without the consent of the Noteholders or Couponholders, to the substitution of the Issuer s successor in business or any Subsidiary of the Issuer or its successor in business in place of the Issuer or any previous substituted company, as principal debtor under the Trust Deed and the Notes. In the case of such a substitution the Trustee may agree, without the consent of the Noteholders or Couponholders, subject to the provisions of the Trust Deed, to a change of the law governing the Notes, the Coupons and/or the Trust Deed provided that such change would not in the opinion of the Trustee be materially prejudicial to the interests of the Noteholders. (d) Entitlement of the Trustee 13. Enforcement In connection with the exercise of its functions (including but not limited to those referred to in this Condition 12) the Trustee shall have regard to the interests of the Noteholders as a class and shall not have regard to the consequences of such exercise for individual Noteholders or Couponholders, or the Noteholders or Couponholders in respect of Notes of any particular Tranche or Series, and the Trustee shall not be entitled to require, nor shall any Noteholder or Couponholder be entitled to claim, from the Issuer any indemnification or payment in respect of any tax consequences of any such exercise upon individual Noteholders or Couponholders. At any time after the Notes of any Series become due and payable, the Trustee may, at its discretion and without further notice, institute such proceedings against the Issuer as it may think fit to enforce the terms of the Trust Deed, the Notes and the Coupons, but it need not take any such proceedings unless (a) it shall have been so directed by an Extraordinary Resolution or so requested in writing by Noteholders holding at least 33⅓ per cent. in nominal amount of the Notes of such Series outstanding, and (b) it shall have been indemnified and/or provided with security to its satisfaction. No Noteholder or Couponholder may proceed directly against the Issuer unless the Trustee, having become bound so to proceed, fails to do so within a reasonable time and such failure is continuing. 14. Indemnification of the Trustee The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility. The Trustee and its parent, subsidiaries and affiliates are entitled to enter into business transactions with the Issuer and any entity related to the Issuer without accounting for any profit. 15. Replacement of Bearer Notes, Coupons, Talons and Definitive Registered Notes 190

191 If any Bearer Note, Coupon, Talon or Definitive Registered Note is lost, stolen, mutilated, defaced or destroyed it may be replaced at the specified office of the London Paying Agent (in the case of Bearer Notes, Coupons and Talons) or a Transfer Agent (in the case of Registered Notes) subject to all applicable laws and stock exchange requirements, upon payment by the claimant of the taxes and expenses incurred in connection with such replacement and on such terms as to evidence, security, indemnity and otherwise as the Issuer may require (provided that the requirement is reasonable in the light of prevailing market practice). Mutilated or defaced Notes, Coupons, Talons or Definitive Registered Notes must be surrendered before replacements will be issued. 16. Further Issues 17. Agents 18. Notices The Issuer may from time to time without the consent of the Noteholders or Couponholders create and issue further securities having the same terms and conditions as the Notes of any Series in all respects (or in all respects except for the first payment of interest on them) so that such further issue shall be consolidated and form a single series with the outstanding securities of any series (including the Notes of any Series). References in these Conditions to the Notes of any Series include (unless the context requires otherwise) any other securities issued pursuant to this Condition 16 and forming a single series with the Notes of such Series. Any further securities forming a single series with the outstanding securities of any series (including the Notes of any Series) constituted under the Trust Deed or any deed supplemental to it shall be constituted under a deed supplemental to the Trust Deed. The Trust Deed contains provisions for convening a single meeting of the Noteholders of a Series and the holders of securities of other series (including the Notes of any other Series) where the Trustee so decides. In acting under the Agency Agreement, the Agents act solely as agents of the Issuer and do not assume any obligation or relationship of agency or trust for or with any holder. Notices to holders of Registered Notes will be mailed to them at their respective addresses in the Register. Any such notice shall be deemed to have been given on the fourth weekday (being a day other than a Saturday or a Sunday) after the date of mailing. Notices to the holders of Bearer Notes will be valid if published in a daily newspaper having general circulation in London or, if any such publication is not practicable, in another leading daily English language newspaper having general circulation in Europe. It is expected that such publication will be made in the Financial Times in London. Notices will, if published more than once in the same manner, be deemed to have been given on the date of the first publication and will, if published more than once in a different manner, be deemed to have been given on the date of the last publication. Couponholders shall be deemed for all purposes to have notice of the contents of any notice to the holders of Bearer Notes in accordance with this Condition Contracts (Rights of Third Parties) Act 1999 No person shall have any right to enforce any term or condition of the Notes under the Contracts (Rights of Third Parties) Act Governing Law and Jurisdiction (e) Governing Law 191

192 The Trust Deed, the Notes, the Coupons and the Talons and any non-contractual obligations arising out of or in connection with them are governed by, and shall be construed in accordance with, English law. (f) Jurisdiction The courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with the Notes, the Coupons, the Talons or the Trust Deed and accordingly any legal action or proceedings arising out of or in connection with the Notes, the Coupons, the Talons or the Trust Deed ( Proceedings ) may be brought in such courts. The Issuer has in the Trust Deed irrevocably submitted to the jurisdiction of such courts. (g) Agent for Service of Process The Issuer has in the Trust Deed appointed an agent in England to receive service of process in any Proceedings in England. If for any reason the Issuer does not have such an agent in England, it will promptly appoint a substitute process agent and notify the Noteholders of such appointment. Nothing herein shall affect the right to serve process in any other manner permitted by law. 192

193 FORM OF PRICING SUPPLEMENT The Pricing Supplement in respect of each Tranche of Notes will be substantially in the following form, duly supplemented (if necessary), amended (if necessary) and completed to reflect the particular terms of the relevant Notes and their issue. Text in this section appearing in italics does not form part of the form of the Pricing Supplement but denotes directions for completing the Pricing Supplement. Pricing Supplement dated [date] Banco ABC Brasil S.A. (company incorporated under the laws of the Federative Republic of Brazil) U.S.$3,000,000,000 Global Medium-Term Note Programme Series No: [ ] [TITLE OF NOTES] [FOREIGN CURRENCY CONSTRAINT] NOTES DUE [ ] Issue price: [ ] [THE NOTES CONTAIN A FOREIGN CURRENCY CONSTRAINT PROVISION, AS MORE FULLY DESCRIBED IN THE CONDITIONS (AS DEFINED BELOW). DURING A FOREIGN CURRENCY CONSTRAINT EVENT (AS DEFINED IN THE CONDITIONS) HOLDERS OF NOTES MAY ELECT TO EXCHANGE THE NOTES FOR AN EQUIVALENT NOMINAL AMOUNT OF EXCHANGED NOTES (AS DEFINED IN THE CONDITIONS) WITH TERMS AND CONDITIONS IDENTICAL TO THE CONDITIONS EXCEPT THAT PAYMENTS IN RESPECT OF THE EXCHANGED NOTES WILL BE MADE IN THE LAWFUL CURRENCY OF BRAZIL. AFTER THE TERMINATION OF THE FOREIGN CURRENCY CONSTRAINT EVENT EXCHANGED NOTES WILL BE EXCHANGED FOR AN EQUIVALENT NOMINAL AMOUNT OF THE NOTES AND SUCH HOLDER WILL RECEIVE FUTURE PAYMENTS IN RESPECT OF THE NOTES IN THE SPECIFIED CURRENCY (AS DEFINED BELOW). IF A HOLDER DOES NOT ELECT TO RECEIVE PAYMENTS IN THE LAWFUL CURRENCY OF BRAZIL BY MAKING SUCH EXCHANGE, AFTER THE TERMINATION OF THE FOREIGN CURRENCY CONSTRAINT, SUCH HOLDER WILL RECEIVE PAYMENTS IN RESPECT OF THE NOTES IN THE SPECIFIED CURRENCY. A FOREIGN CURRENCY CONSTRAINT EVENT WILL NOT BE DEEMED TO BE AN EVENT OF DEFAULT.] [DEALER NAME(S)] This document constitutes the Pricing Supplement relating to the issue of Notes described herein. Terms used herein shall be deemed to be defined as such for the purposes of the Conditions set forth in the Offering Memorandum dated [date] [and the supplemental Offering Memorandum dated [date]]. This Pricing Supplement must be read in conjunction with such Offering Memorandum [as so supplemented]. This Pricing Supplement together with the Offering Memorandum forms one document constituting the prospectus in relation to the Notes. [The following alternative language applies if the first tranche of an issue which is being increased was issued under Offering Memorandum with an earlier date. Terms used herein shall be deemed to be defined as such for the purposes of the Conditions (the Conditions ) set forth in the Offering Memorandum dated [original date]. This Pricing Supplement contains the Pricing Supplement of the Notes and must be read in conjunction with the Offering Memorandum dated [current date] [and the supplemental Offering Memorandum dated [date]], save in respect of the Conditions which are extracted from the Offering Memorandum dated [original date] and are attached hereto.] 193

194 THE NOTES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE SECURITIES ACT ). SUBJECT TO CERTAIN EXCEPTIONS, THE NOTES MAY NOT BE [OFFERED OR SOLD/OFFERED, SOLD OR DELIVERED] WITHIN THE UNITED STATES [OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT ( REGULATION S ))]. THIS PRICING SUPPLEMENT HAS BEEN PREPARED BY THE ISSUER FOR USE IN CONNECTION WITH THE OFFER AND SALE OF THE NOTES OUTSIDE THE UNITED STATES TO NON-U.S. PERSONS IN RELIANCE ON REGULATION S [AND WITHIN THE UNITED STATES TO QUALIFIED INSTITUTIONAL BUYERS IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT ( RULE 144A)] [AND FOR LISTING OF THE NOTES ON THE GLOBAL EXCHANGE MARKET OF THE IRISH STOCK EXCHANGE]. [PROSPECTIVE PURCHASERS ARE HEREBY NOTIFIED THAT SELLERS OF THE NOTES MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A]. FOR A DESCRIPTION OF THESE AND CERTAIN FURTHER RESTRICTIONS ON OFFERS AND SALES OF THE NOTES AND DISTRIBUTION OF THIS PRICING SUPPLEMENT AND THE REMAINDER OF THE OFFERING MEMORANDUM, SEE SALE AND SUBSCRIPTION AND NOTICE TO INVESTORS CONTAINED IN THE OFFERING MEMORANDUM. [THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION IN THE UNITED STATES OR ANY OTHER U.S. REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE OFFERING OF NOTES OR THE ACCURACY OR THE ADEQUACY OF THIS PRICING SUPPLEMENT OR THE OFFERING MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE IN THE UNITED STATES.] [TO NEW HAMPSHIRE RESIDENTS: NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSONS, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.] [Include whichever of the following apply or specify as Not Applicable (N/A). Note that the numbering should remain as set out below, even if Not Applicable is indicated for individual paragraphs or sub- paragraphs. Italics denote directions for completing the Pricing Supplement.] 1. Issuer: Banco ABC Brasil S.A. acting through its [principal office in Brazil]/[Cayman Islands Branch]) 2. [(i)] Series Number: [ ] [(ii) Tranche Number: [ ] (If fungible with an existing Series, details of that Series, including the date on which the Notes become fungible).] 194

195 3. (i) Specified Currency or Currencies (Condition 1(d)): (ii) Specified Principal Payment Currency if different from Specified Currency (Condition 1(d)): (iii) Specified Interest Payment Currency if different from Specified Currency (Condition 1(d)): [ ] [ ] [ ] 4. Currency Constraint (Condition 8(f)): [Applicable/Not Applicable] 5. Aggregate Nominal Amount: (i) Series: [ ] (ii) Tranche: [ ] 6. [(i)] Issue Price: [ ] per cent. of the Aggregate Nominal Amount [plus accrued interest from [insert date] (in the case of fungible issues only, if applicable)] [(ii)] Net proceeds: 7. Specified Denominations (Condition 1(b)): [ ] (Required only for listed issues)] [ ] 1 8. (i) Issue Date (Condition 5(III)): [ ] (ii) Interest Commencement Date: [ ] 9. Maturity Date (Condition 7(a)): [specify date or (for Floating Rate Notes) Specified Interest Payment Date falling in or nearest to the redemption month] 10. Interest Basis (Condition 5): [Fixed Rate (Condition 5(I))] [Floating Rate (Condition 5(II))] [Zero Coupon (Condition 5(IV))] [Index Linked Interest] [Other (specify)] (further particulars specified below) 11. Redemption/Payment Basis (Condition 7(a)): [Redemption at par] [Index Linked Redemption (specify)] [Dual Currency (specify)] [Partly Paid (specify)] [Installment (specify)] 1 Notes (including Notes denominated in Sterling) in respect of which the issue proceeds are to be accepted by the Issuer in the United Kingdom or whose issue otherwise constitutes a contravention of section 19 of the FSMA and which have a maturity of less than one year must have a minimum redemption value of 100,000 (or its equivalent in other currencies). 195

196 [Other (specify)] 12. Change of Interest or Redemption/ Payment Basis: [Specify details of any provision for convertibility of Notes into another interest or redemption/payment basis] 13. Put/Call Options (Condition 7(e) and (f)): [Noteholder Put] [Issuer Call] [(further particulars specified below)] 14. Status of the Notes (Condition 3): [Senior] [Specify status if different from Condition 3] 15. Listing [Application has been made to list the Notes on the Global Exchange Market of the Irish Stock Exchange. The first trading day on the Global Exchange Market of the Irish Stock Exchange is expected to be [date]/other (specify)/none] 16. Method of distribution: [Syndicated/Non-syndicated] PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE 17. Fixed Rate Note Provisions (Condition 5(I)): [Applicable/Not Applicable] (If not applicable, delete the remaining sub-paragraphs of this paragraph) (i) Rate(s) of Interest: [ ] per cent. per annum [payable [annually/semiannually/quarterly/monthly] in arrear] (ii) Interest Payment Date(s): (iii) Fixed Coupon Amount(s): (iv) Broken Amount(s): [ ] in each year [adjusted in accordance with [specify Business Day Convention and any applicable Business Centre(s) for the definition of Relevant Business Day ]/not adjusted] [ ] per lowest Specified Denomination [Insert particulars of any initial or final broken interest amounts] (v) Day Count Fraction (Condition 5(III)): [ ] (Day count fraction should be Actual/Actual-ICMA for all fixed rate issues other than those denominated in U.S. dollars, unless otherwise requested) (vi) Determination Date(s) (Condition 5(III)): [ ] in each year - [insert regular interest payment dates, ignoring issue date or maturity date in the case of a long or short first or last coupon only to be completed for an issue where day count fraction is Actual/Actual-ISMA] (vii) Other terms relating to the method [Not Applicable/give details] of calculating interest for Fixed Rate Notes: 18. Floating Rate Note Provisions [Applicable/Not Applicable] (If not applicable, delete the remaining sub-paragraphs 196

197 (Condition 5(II)): of this paragraph) (i) Interest Period(s)/Specified Interest Payment Dates: [ ] (ii) Business Day Convention (Condition 5(III)): (iii) Business Centre(s) (Condition 5(III)): (iv) Manner in which the Rate(s) of Interest is/are to be determined: [Floating Rate Business Day Convention/ Following Business Day Convention/ Modified Following Business Day Convention/ Preceding Business Day Convention/Other (give details)] [ ] [Screen Rate Determination/ISDA Determination/other (give details)] (v) Party responsible for calculating the Rate(s) of Interest and Interest Amount(s) (if not the Calculation Agent): [ ] (vi) Screen Rate Determination (Condition 5(II)(b)(i)): [Applicable/Not Applicable] Interest Determination Date(s) (Condition 5(III)): [ ] Primary Source for Floating Rate: [Specify relevant screen page or Reference Banks ] Reference Banks (if Primary Source is Reference Banks ): [Specify four] Relevant Banking Centre: [Specify] Benchmark and Reference Rate(s): [LIBOR, LIBID, LIMEAN, EURIBOR or other benchmark and whether bid, offer or mean] (vii) ISDA Determination (Condition 5(II)(b)(iv)): [Applicable/Not Applicable] Floating Rate Option: [ ] Designated Maturity: [ ] Reset Date: [ ] ISDA Definitions (if different from those set out in the Conditions): [ ] (viii) Margin(s): [+/ ] [ ] per cent. per annum 197

198 (ix) Minimum Rate of Interest: [ ] per cent. per annum (x) Maximum Rate of Interest: [ ] per cent. per annum (xi) Day Count Fraction (Condition 5(III)): [ ] (xii) Rate Multiplier: [ ] (xiii) Fall back provisions, rounding provisions, denominator and any other terms relating to the method of calculating interest on Floating Rate Notes, if different from those set out in the Conditions (Condition 5(II)(b)): [ ] (xiv) Relevant Financial Centre: [ ] 19. Zero Coupon Note Provisions (Conditions 5(IV) and 7(d)(I)): [Applicable/Not Applicable] (If not applicable, delete the remaining sub-paragraphs of this paragraph) (i) Amortisation Yield: [ ] per cent. per annum (ii) Reference Price: [ ] (iii) Basis: (iv) Day Count Fraction (Condition 5(III)): [Straightline/Compounded at [specify] interval] [ ] (v) Any other formula/basis of determining amount payable: [ ] 20. Index Linked Interest Note Provisions: [Applicable/Not Applicable] (If not applicable, delete the remaining sub-paragraphs of this paragraph - if applicable, complete terms MUST be set out in this Pricing Supplement) (i) Index/Formula: [Give or annex details] (ii) Calculation Agent responsible for calculating the interest due: (iii) Provisions for determining Coupon where calculation by reference to Index and/or Formula is impossible or impracticable: (iv) Interest Period(s)/Specified Interest Payment Dates: [ ] [ ] [ ] 198

199 (v) Business Day Convention: [Floating Rate Business Day Convention/ Following Business Day Convention/ Modified Following Business Day Convention/ Preceding Business Day Convention/other (give details)] (vi) Business Centre(s) (Condition 5(III)): (vii) Minimum Rate of Interest: (viii) Maximum Rate of Interest: (ix) Day Count Fraction (Condition 5(III)): [ ] [ ] per cent. per annum [ ] per cent. per annum [ ] 21. Dual Currency Note Provisions: [Applicable/Not Applicable] (If not applicable, delete the remaining sub-paragraphs of this paragraph - if applicable, complete terms MUST be set out in this Pricing Supplement) (i) Rate of Exchange/Method of calculating Rate of Exchange: [Give details] (ii) Calculation Agent, if any, responsible for calculating the principal and/or interest due: (iii) Provisions applicable where calculation by reference to Rate of Exchange impossible or impracticable: (iv) Person at whose option Specified Currency(ies) is/are payable: [ ] [ ] [ ] (v) Day Count Fraction (Condition 5(III)): [ ] PROVISIONS RELATING TO REDEMPTION 22. Call Option (Condition 7(e)): [Applicable/Not Applicable] (If not applicable, delete the remaining sub-paragraphs of this paragraph) (i) Optional Redemption Date(s): [ ] (ii) Optional Redemption Amounts(s) of each Note and method, if any, of calculation of such amount(s): [ ] per Note of [ ] Specified Denomination (iii) If redeemable in part: 199

200 (a) Minimum nominal amount to be redeemed: (b) Maximum nominal amount to be redeemed: [ ] [ ] (iv) Notice period 2 : [ ] 23. Put Option (Condition 7(f)): [Applicable/Not Applicable] (If not applicable, delete the remaining sub-paragraphs of this paragraph) (i) Optional Redemption Date(s): [ ] (ii) Optional Redemption Amount(s) of each Note and method, if any, of calculation of such amount(s): (iii) Description of any other Noteholders option: (iv) Deposit period (if other than as set out in the Conditions): [ ] per Note of [ ] Specified Denomination [ ] [ ] (v) Notice period 2 : [ ] 24. Final Redemption Amount of each Note: [[ ] per Note of [ ] Specified Denomination/Other/See Appendix] (i) Alternative Payment Mechanism (Condition 8(a) and (b)): [ ] (ii) Long Maturity Note (Condition 8(e)): [Applicable/Not Applicable] 25. Early Redemption Amount: (i) Early Redemption Amount(s) of each Note payable on redemption for taxation reasons (Condition 7(c)) or on an Event of Default (Condition 10) and/or the method of calculating the same (if required or if different from that set out in the Conditions): [ ] (ii) Original Withholding Level (Condition 7(c)): [ ] 2 If setting notice periods which are different to those provided in the terms and conditions, issuers are advised to consider the practicalities of distribution of information through intermediaries, for example clearing systems and custodians, as well as any other notice requirements which may apply, for example as between the issuer and the principal paying agent, or trustee. 200

201 (iii) Unmatured Coupons to become void (Condition 8(e)): [Yes/No/Not Applicable] GENERAL PROVISIONS APPLICABLE TO THE NOTES 26. Form of Notes: [Bearer Notes/Registered Notes] [delete as appropriate] Bearer Notes (i) Temporary or Permanent Global Note: [Temporary Global Note exchangeable for a Permanent Global Note which is exchangeable for definitive Bearer Notes in the limited circumstances specified in the Permanent Global Note] [Permanent Global Note exchangeable for definitive Bearer Notes in the limited circumstances specified in the Permanent Global Note] (ii) Exchange Date in respect of Temporary Global Note: (iii) Applicable TEFRA exemption: [Not Applicable/specify date] [C Rules/D Rules/Not Applicable] Registered Notes (iv) DTC Global Notes, European Global Notes or individual Definitive Registered Notes: 27. Financial Centre(s) (Condition 8(a)(iii)) or other special provisions relating to payment dates: 28. Talons for future Coupons to be attached to definitive Bearer Notes (and dates on which such Talons mature): 29. Details relating to Partly Paid Notes: amount of each payment comprising the Issue Price and date on which each payment is to be made and consequences (if any) of failure to pay, including any right of the Issuer to forfeit the Notes and interest due on late payment: [DTC Restricted Global Note and/or DTC Unrestricted Global Note/European Unrestricted Global Note available on Issue Date] [European Restricted Global Note and/or European Unrestricted Global Note available or Issue Date] [Individual Definitive Registered Notes available on Issue Date] [Not Applicable /Give details. Note that this item relates to the date and place of payment, and not interest period end dates, to which items 17(ii), 18(iii) and 20(vi) relates] [Yes/No. If yes, give details] [Not Applicable /give details] (If applicable, complete terms MUST be set out in this Pricing Supplement) 30. Details relating to Installment Notes: [Not Applicable /give details] (If applicable, complete terms MUST be set out in this Pricing Supplement) 201

202 31. Redenomination, renominalisation and reconventioning provisions: [Not Applicable /The provisions annexed to this Pricing Supplement apply] 32. Consolidation provisions (Condition 16): [Not Applicable /The provisions annexed to this Pricing Supplement apply] 33. Other terms or special conditions: [Not Applicable /give details] DISTRIBUTION 34. (i) If syndicated, names of Managers: [Not Applicable /give details] (ii) Stabilising Manager (if any): [Not Applicable /give details] (iii) Commissions and Concessions: [ ] 35. If non-syndicated, name of Dealer: [Not Applicable /give details] 36. Additional selling restrictions: [Not Applicable /give details] OPERATIONAL INFORMATION 37. (i) ISIN: [ ] (ii) CUSIP: [ ] (iii) CINS: [ ] (iv) Other: [ ] 38. Common Code: [ ] 39. Any clearing system(s) other than Euroclear, Clearstream, Luxembourg and DTC and the relevant identification number(s): [Not Applicable/give name(s) and number(s)] 40. Delivery: Delivery [against/free of] payment 41. Principal Paying Agent: [The Bank of New York Mellon Trust (Japan), Ltd.] 42. Discharge and indemnity provision (Condition 8(h)) [Applicable / Not Applicable] 43. Additional Agent(s) (if any): [ ] [LISTING APPLICATION This Pricing Supplement comprises the final terms required to list the issue of Notes described herein pursuant to the U.S.$3,000,000,000 Global Medium Term Note Programme of Banco ABC Brasil S.A. acting through its principal office in Brazil or its Cayman Islands Branch as specified in the relevant Pricing Supplement] 202

203 [STABILISING In connection with the issue of the Notes, [insert name of Stabilising Manager] (the Stabilising Manager ) (or persons acting on behalf of the Stabilising Manager) may over-allot Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilising Manager (or persons acting on behalf of the Stabilising Manager) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the Notes is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of the Notes and 60 days after the date of the allotment of the Notes. Any stabilisation action or over allotment shall be conducted in accordance with applicable law.] RESPONSIBILITY The Issuer accepts responsibility for the information contained in this Pricing Supplement which, when read together with the Offering Memorandum referred to above, contain all information that is material in the context of the Notes. [MATERIAL ADVERSE CHANGE STATEMENT There has been no significant change in the financial or trading position of the Issuer and its subsidiaries (taken as a whole) since [insert date of last audited accounts or interim accounts (if later)] and no material adverse change in the financial position or prospects of the Issuer and its subsidiaries (taken as a whole) since [insert date of last published annual accounts].] Signed on behalf of the Issuer: By: Duly authorised signatory By: Duly authorised signatory 203

204 ISSUER Banco ABC Brasil S.A. (acting through its principal office in Brazil) Avenida Pres. Juscelino Kubitschek º andar , São Paulo, SP Brazil Banco ABC Brasil S.A. (acting through its Cayman Islands Branch) Cayman Islands Branch 190 Elgin Avenue Grand Cayman KY Cayman Islands TRUSTEE The Bank of New York Mellon 101 Barclay Street Floor 4E New York, NY United States of America PRINCIPAL PAYING AGENT The Bank of New York Mellon Trust (Japan), Ltd. Fukoku Seimei Building, 6F 2-2-2, Uchisaiwai-cho, Chiyoda-ku, Tokyo Japan PAYING AGENT AND REGISTRAR, EXCHANGE AGENT, NEW YORK PAYING TRANSFER AGENT AGENT AND The Bank of New York Mellon (Ireland) Ltd. TRANSFER AGENT Hanover Building The Bank of New York Mellon Windmill Lane 101 Barclay Street Floor 4 E Dublin 2 New York, NY Republic of Ireland United States of America CALCULATION AGENT, LONDON PAYING AGENT AND TRANSFER AGENT The Bank of New York Mellon One Canada Square London E14 5AL United Kingdom 204

205 FORM, CLEARING AND SETTLEMENT Bearer Notes Bearer Notes of each Tranche of a Series will initially be represented by a Temporary Global Note or by a Permanent Global Note (together, a Global Note ), each without coupons, which will be deposited with a common depositary on behalf of Euroclear and Clearstream, Luxembourg on the relevant Issue Date. Interests in the Temporary Global Note will be exchanged in whole or in part for interests in a Permanent Global Note representing Bearer Notes of the relevant Tranche, not earlier than 40 days after the later of the commencement of the offering of the relevant Tranche and the relevant Issue Date, upon certification as to non-u.s. beneficial ownership. Each Temporary Global Note, Permanent Global Note and any Definitive Note, Talon and Coupon will bear the following legend: ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(A) OF THE INTERNAL REVENUE CODE OF The sections of the Code referred to in the legend provides that a United States taxpayer, with certain exceptions, will not be permitted to deduct any loss, and will not be eligible for capital gains treatment with respect to any gain, realised on any sale, exchange or redemption of Bearer Notes or any related Coupons. Summary of Provisions Relating to Bearer Notes while in Global Form Each Permanent Global Note will contain provisions which apply to the Bearer Notes while they are in global form, some of which modify the effect of the terms and conditions of the Notes set out in this document. The following is a summary of certain of those provisions: (a) Exchange: A Temporary Global Note is exchangeable in whole or in part for interests in the Permanent Global Note representing Bearer Notes not earlier than 40 days after the later of the commencement of the offering of the relevant Tranche and the relevant Issue Date, upon certification as to non-u.s. beneficial ownership in the form set out in the Temporary Global Note. A Permanent Global Note is exchangeable in whole but not in part (free of charge to the holder) for Definitive Notes if the Permanent Global Note is held on behalf of a clearing system and such clearing system is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so, by such holder giving notice to the London Issuing and Paying Agent. If so specified in the relevant Pricing Supplement, a Temporary Global Note or a Permanent Global Note is exchangeable in whole or in part for Registered Notes in accordance with its terms. On or after any Exchange Date (as defined below), the holder of the Permanent Global Note may surrender the Permanent Global Note to or to the order of the London Issuing and Paying Agent. In exchange for the Permanent Global Note, the relevant Issuer will deliver, or procure the delivery of, an equal aggregate nominal amount of duly executed and authenticated Definitive Notes (having attached to them all coupons and talons in respect of interest which has not already been paid on the Permanent Global Note), security printed in accordance with any applicable legal and stock exchange requirements and in or substantially in the form set out in Schedule 1 to the Trust Deed and/or (if so specified in the relevant Pricing supplement) Registered Notes. On exchange of the Permanent Global Note, the relevant Issuer will, if the holder so requests, procure that it is cancelled and returned to the holder. Exchange Date means a day falling not less than 40 days after that on which the notice requiring exchange is given and on which banks are open for business in the city in which the specified office of the Principal Paying Agent is located. 205

206 (b) (c) (d) (e) (f) (g) Payments: No payments will be made on the Temporary Global Note unless exchange for an interest in the Permanent Global Note is improperly withheld or refused. Payments of principal and interest in respect of Bearer Notes represented by the Permanent Global Note will be made against presentation for endorsement and, if no further payment falls to be made in respect of the Bearer Notes, surrender of the Permanent Global Note to or to the order of the London Paying Agent or such other Paying Agent as shall have been notified to the Noteholders for such purpose. A record of each payment so made will be endorsed in the appropriate schedule to the Permanent Global Note, which endorsement will be prima facie evidence that such payment has been made in respect of the Bearer Notes. Notices: So long as the Bearer Notes are represented by a Global Note and such Global Note is held on behalf of a clearing system, notices to Noteholders may be given by delivery of the relevant notice to that clearing system for communication by it to entitled accountholders. Notices to the holders of Bearer Notes will be valid if published in a daily newspaper having general circulation in London or, if any such publication is not practicable, in another leading daily English language newspaper having general circulation in Europe. It is expected that such publication will be made in the Financial Times in London. Notices will, if published more than once in the same manner, be deemed to have been given on the date of the first publication and will, if published more than once in a different manner, be deemed to have been given on the date of the last publication. Prescription: Claims against the relevant Issuer in respect of principal and interest in respect of a Global Note will become void unless such Global Note is presented for payment within a period of 10 years (in the case of principal) and five years (in the case of interest) from the appropriate Relevant Date (as defined in the Conditions). Meetings: The holder of a Global Note will be treated as being two persons for the purposes of any quorum requirements of a meeting of Noteholders and, at any such meeting, as having one vote in respect of each minimum Specified Denomination of Notes for which such Global Note may be exchanged. Purchase and cancellation: Cancellation of any Bearer Note required by the Conditions to be cancelled following its purchase will be effected by reduction in the nominal amount of the relevant Global Note and evidenced by the appropriate notation in the relevant schedule to such Global Note. Foreign Currency Constraint: If the Foreign Currency Constraint provisions are specified in the Pricing Supplement as being applicable, paragraphs (i) and (ii) of Condition 7(f) will apply to the definitive Notes only, and the provisions set out in paragraph 1 below (if the Permanent Global Note is specified on its face as representing the Currency Constraint Notes) or the provisions set out in paragraph 2 below (if the Permanent Global Note is specified on its face as representing the Exchanged Notes in respect of which the Currency Constraint Notes may be exchanged) shall apply: If a Foreign Currency Constraint shall have occurred, the Issuer shall give to the London Paying Agent within five São Paulo business days (as defined below) after such event, a certificate signed by two Directors of the Issuer certifying the existence of the Foreign Currency Constraint. As soon as practicable thereafter, the Issuer shall give notice of such certification and its contents, in accordance with Condition 18, and shall immediately appoint a Paying Agent with a specified office in São Paulo, Brazil (the Brazilian Paying Agent ) such appointment to be notified to the Noteholders in the notice of the occurrence of the Foreign Currency Constraint. In this event any Noteholder may, for a period of 30 days after the date of publication of such notice (the Election Period ), elect to exchange its interests in the Permanent Global Note for an equivalent nominal amount in the Specified Currency representing its interests in the Permanent Global Note representing the Exchanged Notes (as defined below) (such exchange, the Currency Constraint Exchange ) and transfer such interests through Euroclear, Clearstream, Luxembourg and/or any Alternative Clearing System to or to the order of the Brazilian Paying Agent. The Brazilian Paying Agent shall hold such transferred interests for the account of the transferring Noteholder only, and such Noteholder may not transfer or otherwise dispose of such transferred interests and the Brazilian Paying Agent will treat such Noteholder as the owner of the Exchanged Notes throughout the period of existence of the Foreign Currency Constraint. In order for such an election to be effective, the Brazilian Paying Agent, the London Paying 206

207 Agent and the Issuer must receive a duly completed notice of election substantially in the form contained in the Agency Agreement (appropriately completed by such Noteholder within the time limits described above). All duly completed and valid notices of election received within the Election Period shall, on receipt, be deemed to have been received on the first day of the Election Period. On the second day after the conclusion of the Election Period that is a business day in both (x) São Paulo and London, the Permanent Global Note representing the Exchanged Notes will be issued by the Issuer and delivered to or to the order of the Brazilian Paying Agent on behalf of those Noteholders who validly elected during the Election Period to exchange their interests in the Permanent Global Note for an equivalent nominal amount in the Specified Currency representing its interests in the Permanent Global Note representing the Exchanged Notes (the Exchange Date ). Exchanged Notes means Notes with terms and conditions identical to the terms and conditions of the Notes represented by the Permanent Global Note save that: (i) (ii) (iii) all payments due in respect of such Exchanged Notes shall be made by the Issuer, to the extent permitted by Brazilian law, in the lawful currency of Brazil when due (a Due Date ) or, where a Due Date occurs before the Exchange Date, as soon as practicable after the Exchange Date and without any additional amount in compensation for late payment; the amount of any payment due in respect of such Exchanged Notes shall be that amount in the lawful currency of Brazil, as determined by the Brazilian Paying Agent, having regard to this paragraph (ii), which would be required to purchase the amount of such payment in the Specified Currency at the rate of exchange on the São Paulo business day immediately prior to the Due Date (or, where the Due Date precedes the Exchange Date, on the São Paulo business day immediately prior to the date of payment), (A) if the Specified Currency is U.S. dollars, as shown on the Central Bank of Brazil computer information system under the title SISBACEN PTAX-800, Option 5-L or (B) if the Specified Currency is a currency other than U.S. dollars, at the corresponding rate for the applicable Specified Currency (the Corresponding Rate ), the source of which Corresponding Rate will be specified in the applicable Pricing Supplement. If no such rate of exchange is available, the applicable rate of exchange shall be an average of the Brazilian currency exchange rates on such São Paulo business day for the purchase of the Specified Currency notified to the Brazilian Paying Agent by three leading Brazilian banks selected by the Brazilian Paying Agent in its discretion; and all payments in respect of the Exchanged Notes shall be made by transfer to a Brazilian currency account maintained by the payee with a branch in São Paulo, Brazil. Foreign Currency Constraint means any law, regulation, directive or communication imposed or issued by the Government of Brazil or the Central Bank of Brazil or any other competent authority in Brazil imposing foreign exchange controls or other restrictions or any refusal to act or delay in acting by any such party, which has the effect of prohibiting, preventing or delaying the remittance of the Specified Currency (whether in respect of principal, interest, additional amounts payable pursuant to the Conditions or otherwise) to or by the Principal Paying Agent in respect of the Notes represented by the Permanent Global Note when due. São Paulo business day means a day other than a Saturday or Sunday on which commercial banks and foreign exchange markets are open for business in São Paulo, Brazil. Each election which has become effective (as set forth above) shall be irrevocable. No transfers of Exchanged Notes may be made other than as provided below after the termination of the Foreign Currency Constraint. However, Clearstream, Luxembourg, Euroclear and/or any Alternative Clearing System will not monitor any transfers of Exchanged Notes or block any transfer thereof. In addition, Noteholders, by electing to receive the lawful currency of Brazil, waive their right to receive payments in respect of the Exchanged Notes and related Coupons through Clearstream, Luxembourg, 207

208 Euroclear and/or any Alternative Clearing System since these payments will be made in Brazil by the Brazilian Paying Agent. On termination of the Foreign Currency Constraint, Exchanged Notes shall be exchanged for an equivalent nominal amount of the Notes represented by the Permanent Global Note provided that, prior to such exchange, all payments due under the Conditions of the Notes represented by the Permanent Global Note and the conditions of the Exchanged Notes shall have been made by the Issuer. Such exchange will occur as a result of the Brazilian Paying Agent exchanging interests in the Permanent Global Note representing the Exchanged Notes for interests in the Permanent Global Note and transferring those interests back to the account of the Noteholder(s) which had originally elected to make the Currency Constraint Exchange. Upon a Foreign Currency Constraint occurring, the Issuer shall immediately appoint a Paying Agent with a specified office in São Paulo, Brazil (the Brazilian Paying Agent ) who will hold the Exchanged Notes represented by the Permanent Global Note for the account of the Noteholders only and will treat the Noteholders as the owners of the Exchanged Notes represented by the Permanent Global Note throughout the period of the existence of the Foreign Currency Constraint. No transfers of the Exchanged Notes represented by the Permanent Global Note may be made other than as provided below after the termination of the Foreign Currency Constraint. However, Euroclear, Clearstream, Luxembourg, and/or any Alternative Clearing System will not monitor any transfers of the Exchanged Notes represented by the Permanent Global Note or block any transfer thereof. In addition, the Noteholders waive their right to receive payments in respect of the Exchanged Notes represented by the Permanent Global Note through Euroclear, Clearstream, Luxembourg, and/or any Alternative Clearing System. All payments which become due during the period in which a Foreign Currency Constraint is in effect will be made, to the extent permitted by laws and regulations of Brazil, in the lawful currency of Brazil by the Issuer when due (the Due Date ) (or, where the Due Date occurs before the date (the Exchange Date ) on which interests in a Global Note representing the original Currency Constraint Notes were exchanged for equivalent interests in the Permanent Global Note (such exchange, the Currency Constraint Exchange ), as soon as practicable following such Exchange Date and without any additional amount in compensation for late payment), to an account in the lawful currency of Brazil maintained by or on behalf of the Brazilian Paying Agent with a bank in São Paulo, Brazil. The Brazilian Paying Agent will thereafter make payment to Noteholders by transfer to an account in the lawful currency of Brazil maintained by each such Noteholder with a bank in São Paulo, Brazil (as specified by each such Noteholder in the notice of election delivered by each such Noteholder to any Paying Agent prior to, and for the purpose of effecting, the Currency Constraint Exchange). The amount of any such payment shall be that amount in the lawful currency of Brazil, as determined by the Brazilian Paying Agent, having regard to the provisions of this paragraph, which would be required to purchase the amount of such payment in the Specified Currency at the rate of exchange on the São Paulo business day immediately prior to the Due Date (or, where the Due Date precedes the Exchange Date, on the São Paulo business day immediately prior to the date of payment), (A) if the Specified Currency is U.S. dollars, as shown on the Central Bank of Brazil computer information system under the title SISBACEN PTAX-800, Option 5-L or (B) if the Specified Currency is a currency other than U.S. dollars, at the corresponding rate for the applicable Specified Currency (the Corresponding Rate ), the source of which Corresponding Rate will be specified in the applicable Pricing Supplement. If no such rate of exchange is available, the applicable rate of exchange shall be an average of the Brazilian currency exchange rates on such São Paulo business day for the purchase of the Specified Currency notified to the Brazilian Paying Agent by three leading Brazilian banks selected by the Brazilian Paying Agent in its discretion. Exchanged Notes means Notes represented by the Permanent Global Note with terms and conditions identical to the terms and conditions of the Notes for which the Exchanged Notes were exchanged save that payments shall be made in accordance with the provisions of this paragraph

209 Foreign Currency Constraint means any law, regulation, directive or communication imposed or issued by the Government of Brazil or the Central Bank of Brazil or any other competent authority in Brazil imposing foreign exchange controls or other restrictions or any refusal to act or delay in acting by any such party, which has the effect of prohibiting, preventing or delaying the remittance of the Specified Currency (whether in respect of principal, interest, additional amounts payable pursuant to the Conditions or otherwise) to or by the Principal Paying Agent in respect of the original Notes which were exchanged for the Exchanged Notes represented by the Permanent Global Note when due. São Paulo business day means a day other than a Saturday or Sunday on which commercial banks and foreign exchange markets are open for business in São Paulo, Brazil. On termination of the Foreign Currency Constraint, the Exchanged Notes represented by the Permanent Global Note shall be exchanged for an equivalent amount of the Notes represented by the Global Note representing the original Notes provided that, prior to such exchange, all payments due under the conditions of the Notes represented by the Global Note representing the original Notes and Conditions of the Exchanged Notes represented by the Permanent Global Note shall have been made by the Issuer. Such exchange will occur as a result of the Brazilian Paying Agent exchanging interests in the Permanent Global Note for interests in the Global Note representing the original Notes and transferring those interests back to the account of the Noteholder(s) which had originally elected to make the Currency Constraint Exchange. (h) Call option: The Issuer s call option in Condition 6(e) (Redemption at the option of the Issuer) may be exercised by the relevant Issuer giving notice to the Noteholders in accordance with Condition 6(e) (Redemption at the option of the Issuer) and such notice shall not be required to contain the certificate numbers of Notes drawn for redemption in the case of a partial redemption of Notes and accordingly no drawing of Notes for redemption shall be required. (i) Put option: The Noteholders put option in Condition 6(f) (Redemption at the option of Noteholders) may be exercised by the holder of a Global Note giving notice to the London Paying Agent of the nominal amount of Bearer Notes in respect of which the option is exercised and presenting the Global Note for endorsement of exercise within the time limits specified in Condition 6(f) (Redemption at the option of Noteholders). Registered Notes Registered Notes of each Tranche of a Series which are sold in an offshore transaction within the meaning of Regulation S ( Unrestricted Notes ) will initially be represented by interests in either a European Unrestricted Global Note or a DTC Unrestricted Global Note, in each case without interest coupons and (i) in the case of a European Unrestricted Global Note, deposited with a common depositary for, and registered in the name of a common nominee of, Clearstream, Luxembourg and Euroclear on its Issue Date; or (ii) in the case of a DTC Unrestricted Global Note, deposited with a custodian for, and registered in the name of a nominee of, DTC on its Issue Date. Registered Notes of such Tranche resold pursuant to Rule 144A ( Restricted Notes ) will initially be represented by either a European Restricted Global Note or a DTC Restricted Global Note, in each case without interest coupons and (i) in the case of a European Restricted Global Note, deposited with a common depositary for, and registered in the name of a common nominee of, Clearstream, Luxembourg and Euroclear on its Issue Date; or (ii) in the case of a DTC Restricted Global Note, deposited with a custodian for, and registered in the name of a nominee of, DTC on its Issue Date. Any DTC Restricted Global Note will bear a legend applicable to purchasers who purchase the Registered Notes pursuant to Rule 144A as described under Transfer Restrictions. 209

210 U.S. Dollar Equivalent For the purpose of calculating the U.S. dollar equivalent of the nominal amount of Notes outstanding under the Programme from time to time, the U.S. dollar equivalent of Notes denominated in another currency shall be determined, at the discretion of the relevant Issuer, either as of the date of agreement to issue such Notes (the Agreement Date ) or on the preceding day on which commercial banks and foreign exchange markets are open for business in London, in either case on the basis of the Exchange Rate on the relevant date of calculation applied to the aggregate nominal of such Notes. As used herein, the Exchange Rate means the spot rate for the sale of U.S. dollars against the purchase of such other relevant currency in the London foreign exchange market as quoted by any leading bank selected by the relevant Issuer at its discretion on the Agreement Date or on the preceding day on which commercial banks and foreign exchange markets are open for business in London. The U.S. dollar equivalent of any Zero Coupon Note and any other Note issued at a discount shall be calculated, in relation to the Specified Currency, in the manner specified above and with the Exchange Rate so determined to apply in respect of any other U.S. dollar equivalent determination for the same Notes and, in relation to the nominal amount, by reference to the amortisation yield formula as specified in the Conditions applicable to such Notes as of the same dates as specified in the preceding paragraph or, if no formula is so specified, the nominal amount of the Notes. The U.S. dollar equivalent of a Note issued at a premium shall be calculated in the manner specified above by reference to the net proceeds received by the relevant Issuer from the relevant issue of Notes. Book-Entry Ownership Bearer Notes We will make applications to Clearstream, Luxembourg and Euroclear for acceptance in their respective book-entry systems in respect of any Bearer Series of Notes. In respect of Bearer Notes, a Temporary Global Note and/or a Permanent Global Note without coupons will be deposited with a common depositary for Clearstream, Luxembourg and Euroclear. Each Temporary Global Note or Permanent Global Note will have an ISIN number and a Common Code. Transfers of interests in a Temporary Global Note or a Permanent Global Note will be made in accordance with the normal Euromarket debt securities operating procedures of Clearstream, Luxembourg and Euroclear. Registered Notes We will make applications to Clearstream, Luxembourg and Euroclear for acceptance in their respective book-entry systems in respect of the Notes to be represented by a European Unrestricted Global Note or a European Restricted Global Note. Each European Unrestricted Global Note or European Restricted Global Note (as the case may be) will have an ISIN number and a Common Code. We and the Dealer or Dealers with respect to a Tranche of Notes will make application to DTC for acceptance in its book-entry settlement system of the Notes represented by each DTC Restricted Global Note or DTC Unrestricted Global Note. Each DTC Restricted Global Note will have a CUSIP number and each DTC Unrestricted Global Note will have a CINS number. Each DTC Restricted Global Note and each European Restricted Global Note will be subject to restrictions on transfer contained in a legend appearing on the front of such Note, as set out under Transfer Restrictions. In certain circumstances, as described below in Transfers of Registered Notes, transfers of interests in a DTC Restricted Global Note or a European Restricted Global Note may be made as a result of which such legend is no longer applicable. The custodian with whom the DTC Restricted Global Note or DTC Unrestricted Global Note is deposited (the Custodian ) and DTC will electronically record the nominal amount of the Restricted Notes held within the DTC system. In the case of Notes represented by a DTC Unrestricted Global Note, until the expiration of 40 days after the later of the commencement of the offering and the Issue Date of a Tranche of Notes, investors in Notes of 210

211 such Series may hold their interests in a DTC Unrestricted Global Note only through Clearstream, Luxembourg or Euroclear. Thereafter, investors may additionally hold such interests directly through DTC, if they are participants in such system, or indirectly through organisations which are participants in DTC. Euroclear and Clearstream, Luxembourg will hold interests in a DTC Unrestricted Global Note on behalf of their accountholders through customers securities accounts in Euroclear or Clearstream, Luxembourg s respective names on the books of their respective depositaries, which in turn will hold such interests in a DTC Unrestricted Global Note in customers securities accounts in the depositaries names on the books of DTC. The Bank of New York Mellon will initially act as depositary for Euroclear and The Bank of New York Mellon will initially act as depositary for Clearstream, Luxembourg. Investors may hold their interests in a DTC Restricted Global Note directly through DTC if they are participants in the DTC system, or indirectly through organisations which are participants in such system. Investors in Notes represented by a European Restricted Global Note or a European Unrestricted Global Note may hold their interests in such Note only through Euroclear or Clearstream, Luxembourg. Payments of the principal of, and interest on, each DTC Restricted Global Note or DTC Unrestricted Global Note registered in the name of DTC s nominee will be to or to the order of its nominee as the registered owner of such DTC Restricted Global Note or DTC Unrestricted Global Note. We expect that the nominee, upon receipt of any such payment, will immediately credit DTC participants accounts with payments in amounts proportionate to their respective beneficial interests in the nominal amount of the relevant DTC Restricted Global Note or DTC Unrestricted Global Note as shown on the records of DTC or the nominee. We also expect that payments by DTC participants to owners of beneficial interests in such DTC Restricted Global Note or DTC Unrestricted Global Note held through such DTC participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such DTC participants. None of us, the Trustee or any Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of ownership interests in any DTC Restricted Global Notes or DTC Unrestricted Global Note or for maintaining, supervising or reviewing any records relating to such ownership interests. All Registered Notes will initially be in the form of (i) a DTC Restricted Global Note and either a DTC Unrestricted Global Note or a European Unrestricted Global Note; or (ii) a European Restricted Global Note and/or a European Unrestricted Global Note. Individual Definitive Registered Notes will only be available, in the case of Unrestricted Notes, in amounts specified in the applicable Pricing Supplement, and, in the case of Restricted Notes, in amounts of U.S.$250,000 (or its equivalent in other currencies rounded upwards as agreed between us and the relevant Dealer(s)), or higher integral multiples of U.S.$1,000, in certain limited circumstances described below. Individual Definitive Registered Notes Registration of title to Registered Notes in a name other than a depositary or its nominee for Clearstream, Luxembourg and Euroclear or for DTC will not be permitted unless (i) in the case of DTC Restricted Global Notes and DTC Unrestricted Global Notes, DTC notifies us that it is no longer willing or able to properly discharge its responsibilities as depositary with respect to the DTC Restricted Global Notes and DTC Unrestricted Global Notes, or ceases to be a clearing agency registered under the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act ), or is at any time no longer eligible to act as such and we are unable to locate a qualified successor within 90 days of receiving notice of such ineligibility on the part of DTC; (ii) in the case of European Unrestricted Global Notes and European Restricted Global Notes, Euroclear or Clearstream, Luxembourg is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so, or (iii) the Trustee has instituted or has been directed to institute any judicial proceeding in a court to enforce the rights of the Noteholders under the Notes and the Trustee has been advised by counsel that in connection with such proceeding it is necessary or appropriate for the Trustee to obtain possession of the Notes. In such circumstances, we will cause sufficient individual Definitive Registered Notes to be executed and delivered to the Registrar for completion, authentication and despatch to the relevant Noteholder(s). A person having an interest in a Registered Global Note must provide the Registrar with: 211

212 (i) (ii) a written order containing instructions and such other information as we and the Registrar may require to complete, execute and deliver such individual Definitive Registered Notes; and in the case of a DTC Restricted Global Note or a European Restricted Global Note only, a fully completed and signed certification substantially to the effect that the exchanging holder is not transferring its interest at the time of such exchange, or, in the case of a simultaneous resale pursuant to Rule 144A, a certification that the transfer is being made in compliance with the provisions of Rule 144A. Individual Definitive Registered Notes issued pursuant to this paragraph (ii) shall bear the legends applicable to transfers pursuant to Rule 144A. Transfers of Registered Notes Transfers of interests in Registered Global Notes within DTC, Euroclear and Clearstream, Luxembourg will be in accordance with the usual rules and operating procedures of the relevant clearing system. The laws of some states in the United States require that certain persons take physical delivery in definitive form of securities. Consequently, the ability to transfer interests in a DTC Restricted Global Note to such persons may be limited. Because DTC can only act on behalf of participants, who in turn act on behalf of indirect participants, the ability of a person having an interest in a DTC Restricted Global Note or DTC Unrestricted Global Note to pledge such interest to persons or entities that do not participate in DTC, or otherwise take actions in respect of such interest, may be affected by the lack of a physical certificate in respect of such interest. Until the expiration of 40 days after the later of the commencement of the offering of a Series of Notes and the Issue Date therefor, beneficial interests in a DTC Unrestricted Global Note for such Series may be held only through Euroclear or Clearstream, Luxembourg. Transfers may be made at any time by a holder of an interest in a DTC Unrestricted Global Note to a transferee who wishes to take delivery of such interest through a DTC Restricted Global Note for the same Series of Notes provided that any such transfer made on or prior to the expiration of the distribution compliance period (as referred to in Subscription and Sale ) relating to the Notes represented by such DTC Unrestricted Global Note will only be made upon receipt by the Registrar or any Transfer Agent of a written certificate from the transferor of such interest to the effect that such transfer is being made to a person whom the transferor reasonably believes is a qualified institutional buyer within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities law of any state of the United States or any other jurisdiction. Thereafter, the Registrar will make the appropriate entries in the Register. Transfers at any time by a holder of any interest in the DTC Restricted Global Note to a transferee who takes delivery of such interest through a DTC Unrestricted Global Note will only be made upon delivery to the Registrar or any Transfer Agent of a certificate setting forth compliance with the provisions of Regulation S and giving details of the account at Euroclear or Clearstream, Luxembourg, as the case may be, and DTC to be credited and debited, respectively, with an interest in the relevant DTC Global Notes. Beneficial interests in a European Unrestricted Global Note may be held only through Euroclear or Clearstream, Luxembourg. Transfers may be made at any time by a holder of an interest in a DTC Unrestricted Global Note or a European Unrestricted Global Note to a transferee who wishes to take delivery of such interest through the DTC Restricted Global Note or the European Restricted Global Note (as the case may be) for the same Series of Notes provided that any such transfer made on or prior to the expiration of the distribution compliance period (as referred to in Subscription and Sale ) relating to the Notes represented by such DTC Unrestricted Global Note or European Unrestricted Global Note (as the case may be) will only be made upon receipt by the Registrar or any Transfer Agent of a written certificate from the transferor of such interest to the effect that such transfer is being made to a person whom the transferor reasonably believes is a qualified institutional buyer within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities law of any state of the United States or any other jurisdiction. Any such transfer made thereafter of the Notes represented by such DTC Unrestricted Global Note or European Unrestricted Global Note (as the case may be) will only be made upon request through (i) Clearstream, Luxembourg or Euroclear by the holder of an interest in the European Unrestricted Global Note or (ii) through DTC by the holder of an interest in the DTC Unrestricted Global Note, to the Principal Paying Agent and receipt 212

213 by the Principal Paying Agent of details of that account at DTC to be credited with the relevant interest in the DTC Restricted Global Note or details of the account at Euroclear or Clearstream, Luxembourg to be credited with the relevant interest in the European Restricted Global Note, as the case may be. Transfers at any time by a holder of any interest in the DTC Restricted Global Note or a European Restricted Global Note to a transferee who takes delivery of such interest through a DTC Unrestricted Global Note or a European Unrestricted Global Note will only be made upon delivery to the Registrar or any Transfer Agent of a certificate setting forth compliance with the provisions of Regulation S and giving details of the account at DTC, Euroclear or Clearstream, Luxembourg, as the case may be, to be credited and debited, respectively, with an interest in the relevant Registered Global Notes. Subject to compliance with the transfer restrictions applicable to the Registered Notes described above and under Transfer Restrictions, cross-market transfers between DTC, on the one hand, and directly or indirectly through Clearstream, Luxembourg or Euroclear accountholders, on the other, will be effected by the relevant clearing system in accordance with its rules and through action taken by the Custodian, the Registrar and the Transfer Agent. On or after the Issue Date for any Series, transfers of Notes of such Series between accountholders in Clearstream, Luxembourg and Euroclear and transfers of Notes of such Series between participants in DTC will generally have a settlement date three business days after the trade date (T+3). The customary arrangements for delivery versus payment will apply to such transfers. Cross-market transfers between accountholders in Clearstream, Luxembourg or Euroclear and DTC participants will need to have an agreed settlement date between the parties to such transfer. Because there is no direct link between DTC, on the one hand, and Clearstream, Luxembourg and Euroclear, on the other, transfers of interests in the relevant Registered Global Notes will be effected through the Transfer Agent and the Registrar receiving instructions (and where appropriate, certification) from the transferor and arranging for delivery of the interests being transferred to the credit of the designated account for the transferee. Transfers will be effected on the later of (i) three business days after the trade date for the disposal of the interest in the relevant Registered Global Note resulting in such transfer and (ii) two business days after receipt by the Transfer Agent or the Registrar, as the case may be, of the necessary certification or information to effect such transfer. In the case of cross-market transfers, settlement between Euroclear or Clearstream, Luxembourg accountholders and DTC participants cannot be made on a delivery versus payment basis. The securities will be delivered on a free delivery basis and arrangements for payment must be made separately. For a further description of restrictions on transfer of Registered Notes, see Transfer Restrictions. DTC has advised us that it will take any action permitted to be taken by a holder of Registered Notes (including, without limitation, the presentation of DTC Restricted Global Notes and DTC Unrestricted Global Notes for exchange as described above) only at the direction of one or more participants in whose account with DTC interests in DTC Restricted Global Notes or DTC Unrestricted Global Notes are credited and only in respect of such portion of the aggregate nominal amount of the relevant DTC Restricted Global Note or DTC Unrestricted Global Note as to which such participant or participants has or have given such direction. However, in the circumstances described above, DTC will surrender the relevant DTC Restricted Global Note or DTC Unrestricted Global Note for exchange for individual Definitive Registered Notes (which will, in the case of Restricted Notes, bear the legend applicable to transfers pursuant to Rule 144A). DTC has advised us as follows: DTC is a limited purpose trust company organised under the laws of the State of New York, a banking organisation organised under the laws of the State of New York, a member of the U.S. Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code and a clearing agency registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. Direct participants include securities brokers and dealers, banks, trust 213

214 companies, clearing corporations and certain other organisations. Indirect access to DTC is available to others, such as banks, securities brokers, dealers and trust companies, that clear through or maintain a custodial relationship with a DTC direct participant, either directly or indirectly. Although DTC, Clearstream, Luxembourg and Euroclear have agreed to the foregoing procedures in order to facilitate transfers of beneficial interests in the Registered Global Notes among participants and accountholders of DTC, Clearstream, Luxembourg and Euroclear, they are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. None of us, the Trustee or any Agent will have any responsibility for the performance by DTC, Clearstream, Luxembourg or Euroclear or their respective direct or indirect participants or accountholders of their respective obligations under the rules and procedures governing their operations. While a DTC Restricted Global Note or DTC Unrestricted Global Note is lodged with DTC or the Custodian, Restricted Notes represented by individual Definitive Registered Notes will not be eligible for clearing or settlement through DTC, Clearstream, Luxembourg or Euroclear. If any Series of Notes represented by one or more Registered Global Notes contains a foreign currency constraint provision, as more fully set out in the Terms and Conditions of the Notes and in the applicable Pricing Supplement, upon the occurrence of a Foreign Currency Constraint (as defined in the Terms and Conditions of the Notes), notice of such event shall be given to the Noteholders by the Registrar through DTC and/or Euroclear and/or Clearstream, Luxembourg. Exchanges of interests in the Registered Global Note(s) representing the original Notes for interests in the Registered Global Note(s) representing the Exchanged Notes (as defined in the Terms and Conditions of the Notes) will be made in accordance with the Terms and Conditions of the Notes. The Registrar will prepare one or more Registered Global Notes which will represent the Exchanged Notes and will obtain a new CINS and/or ISIN number for the Exchanged Notes. The Registered Global Note(s) representing the original Notes and the Registered Global Note(s) representing the Exchanged Notes will be marked down and up respectively upon exchange in accordance with the Terms and Conditions of the Notes. Interests in the DTC Restricted Global Note representing the Exchanged Notes will be held in the account of the DTC Participant for the Brazilian Paying Agent on behalf of the Noteholders. Interests in the Regulation S Global Note representing the Exchanged Notes will be held in the account of the Euroclear and/or Clearstream, Luxembourg accountholder for the Brazilian Paying Agent on behalf of the Noteholders. Payments in respect of the Exchanged Notes will be made by the Brazilian Paying Agent outside DTC, Euroclear and Clearstream, Luxembourg in accordance with the Terms and Conditions of the Notes. Holders of Exchanged Notes may not transfer their interest in such Exchanged Notes except in connection with the termination of the Foreign Currency Constraint. On termination of the Foreign Currency Constraint, interests in the Registered Global Note(s) representing the Exchanged Notes will be exchanged for interests in the Registered Global Note(s) representing the original Notes and such interests in the Registered Global Note(s) representing the original Notes will be transferred back to the original accounts in DTC, Euroclear and Clearstream, Luxembourg from which they were originally transferred, all in accordance with the Terms and Conditions of the Notes. The Registered Global Note(s) representing the Exchanged Notes will be marked down to zero and the Registered Global Note(s) representing the original Notes will be marked back up to the original aggregate nominal amount of the Series. Pre-issue Trades Settlement It is expected that delivery of Notes will be made against payment therefor on the relevant Issue Date, which could be more than three business days following the date of pricing. Under Rule 15c6-1 of the U.S. Securities and Exchange Commission under the Exchange Act, trades in the United States secondary market generally are required to settle within three business days (T+3), unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade Notes in the United States on the date of pricing or the next succeeding business day until the relevant Issue Date will be required, by virtue of the fact that the Notes initially will settle beyond T+3, to specify an alternate settlement cycle at the time of any such trade to prevent a failed settlement. Settlement procedures in other countries will vary. Purchasers of Notes may be affected by such local 214

215 settlement practices and purchasers of Notes who wish to trade Notes between the date of pricing and the relevant Issue Date should consult their own adviser. 215

216 TAXATION PROSPECTIVE PURCHASERS OF THE NOTES OR COUPONS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISERS AS TO THE CONSEQUENCES OF PURCHASING THE NOTES, INCLUDING, WITHOUT LIMITATION, THE CONSEQUENCES OF THE RECEIPT OF INTEREST AND THE SALE, REDEMPTION OR REPAYMENT OF THE NOTES OR COUPONS. The following is a general description of certain Brazilian tax considerations relating to the Notes. It does not purport to be a complete analysis of all tax considerations relating to the Notes. Prospective purchasers of the Notes should consult their tax advisers as to the consequences under the tax laws of the country of which they are resident for tax purposes and the tax laws of Brazil of acquiring, holding and disposing of Notes and receiving payments of interest, principal and/or other amounts under the Notes. This summary is based upon the law as in effect on the date of this Offering Memorandum and is subject to any change in law that may take effect after such date. Brazil Tax consequences in Brazil are different if the Notes are issued by us acting through our principal office in Brazil or issued through our Cayman Islands Branch. If payment of income is made to a Non-Resident Holder with respect to Notes issued through our Cayman Islands Branch, based on the fact that they are considered to be domiciled outside of Brazil for tax purposes, such payment will not generally be subject to withholding or deduction with respect to Brazilian income tax or any other taxes, duties, assessments or governmental charges in Brazil, provided that such payments are made with resources held by such entities outside of Brazil. Interest, fees, commissions (including any original issue discount and any redemption premium) and any other income treated by Brazilian law as similar to interest payable by a Brazilian obligor to an individual, entity, trust or organisation domiciled outside Brazil in respect of debt obligations derived from the issuance by a Brazilian issuer of international debt securities previously registered with the Central Bank, such as the Notes, are currently subject to income tax withheld at source. The rate of withholding income tax is generally 15.0%, unless a lower rate is provided for in an applicable tax treaty between Brazil and the other country where the beneficiary is domiciled. Notwithstanding the above, it is possible that income tax withheld at source may be tax creditable in the country where the recipient is domiciled, in accordance with the applicable tax regulations of such country. According to Normative Ruling No. 252 of December 3, 2002 ( Normative Ruling No. 252/02 ), in the event that the beneficiary of such payments is domiciled in a tax haven jurisdiction, such payments of interest, fees, commissions (including any original issue discounts and any redemption premiums) and any other income are also subject to withholding with respect to Brazilian income tax at the general rate of 15%. There is a risk, however, that the tax authorities may modify current laws or apply the rate of 25% to beneficiaries domiciled in tax haven jurisdictions, especially if the relevant average term of the Notes is less than 96 months, in light of article 8 of Law No. 9,779 of January 19, A tax haven jurisdiction is deemed to be a jurisdiction which does not impose any tax on income or which imposes such tax at a maximum effective rate lower than 20%, or where the laws impose restrictions on the disclosure of ownership composition or securities ownership or do not allow for the identification of the effective beneficiary of the income attributed to non-residents. A lower withholding rate may be applicable in the event that a tax treaty exists between Brazil and the country where the effective beneficiary of the payment is domiciled. Brazil and Japan are signatories to a treaty (the Japan Treaty ) for the avoidance of double taxation. Under the Japan Treaty, payments of interest to entities incorporated in Japan (or a branch thereof) or other types of income deemed similar to income from borrowed funds under Brazilian tax law will be subject to a Brazilian withholding tax rate of 12.5%. We believe and intend to take the position for tax purposes that, as long as such payments are made by the Issuer to a Japanese paying agent pursuant to the terms and conditions of the Notes of each Series and provided further that such Japanese paying agent is a tax resident of Japan and is qualified for the treaty benefits under the Notes, interest (including any original issue discount) will likely be subject to Brazilian tax at a rate of 12.5% pursuant to the Japan Treaty. For this purpose, the Principal Paying Agent 216

217 must be granted discharge powers and be authorised to receive payments on behalf of the holders of the Notes, which would release the Brazilian debtor from the payment obligations. If the Issuer is not able to rely on the treaty to make the payments, or the payments are not made by us to the Principal Paying Agent any such payments will be subject to the Brazilian withholding tax at the rates referred to in the preceding paragraph. According to Law No. 10,833/03, of December 30, 2003, gains assessed on the sale or other disposal of assets located in Brazil may be subject to tax in Brazil, regardless of whether the sale or disposal is made by a non-resident holder to a resident or person domiciled in Brazilian or to a non-resident. If the Notes are issued abroad, by our Cayman Islands branch, we believe that gains on the sale or other disposal of the Notes made outside Brazil by a nonresident holder, other than a branch or a subsidiary of a Brazilian resident, would not fall within the definition of assets located in Brazil for the purpose of Law No. 10,833/03 and consequently would not be subject to Brazilian taxes. However, considering the general and unclear scope of Law No. 10,833/03 and the absence of judicial court rulings in respect thereto, it is unpredictable whether such interpretation would ultimately prevail in the courts of Brazil. If this interpretation does not prevail, gains realized by a non-resident holder from the sale or disposition of the Notes may be subject to income tax in Brazil at a rate of 15% or 25% if the non-resident is located in a tax haven jurisdiction. On June 24, 2008, Law No. 11,727 was enacted, introducing the concept of a privileged tax regime. Under this new law, a privileged tax regime is considered to apply to a jurisdiction that meets any of the following requirements: (i) it does not tax income or taxes income at a maximum rate lower than 20%; (ii) it grants tax advantages to a nonresident entity or individual (a) without requiring substantial economic activity in the jurisdiction of such non-resident entity or individual or (b) to the extent such non-resident entity or individual does not conduct substantial economic activity in the jurisdiction of such non-resident entity or individual; (iii) it does not tax income generated abroad, or imposes tax on income generated abroad at a maximum rate lower than 20%, or (iv) it restricts the ownership disclosure of assets and ownership rights or restricts disclosure about the execution of economic transactions. In addition, on June 4, 2010, Brazilian tax authorities enacted Normative Ruling No. 1,037 listing (i) the countries and jurisdictions considered as tax haven jurisdictions (explained above) and (ii) the privileged tax regimes, which definition is provided by Law No. 11,727, of June 23, Although we believe that the best interpretation of the current tax legislation should lead to the conclusion that the above mentioned privileged tax regime concept (which is broader in scope than the tax haven jurisdictions concept) should apply solely for purposes of Brazilian transfer pricing and thin capitalization rules, we cannot assure you that the Brazilian tax authorities will not, as a result of subsequent legislation or interpretations by the Brazilian tax authorities regarding of the definition of a privileged tax regime, attempt to apply the privileged tax regime concept to payments made by us on the notes to certain Non- Resident Holders, in which case such payments could, in certain circumstances, be subject to withholding at a rate of 25% (absent an applicable tax treaty providing otherwise). Generally, there are no stamp, transfer or other similar taxes in Brazil with respect to the transfer, assignment or sale of the Notes outside Brazil nor any inheritance, gift or succession tax applicable to the ownership, transfer or disposal of the Notes, except for gift and inheritance taxes imposed by some Brazilian States on gifts and bequests by individuals or entities not domiciled or residing in Brazil to individuals or entities domiciled or residing within such States. Pursuant to Decree No. 6,306, of December 14, 2007 (as amended from time to time), the conversion of Brazilian reais into foreign currency and on the conversion of foreign currency into Brazilian reais are subject to the tax on foreign exchange transactions ( IOF/Exchange ). Currently, the IOF/Exchange rate is 0.38% for most transfers of foreign currency into reais. According to Section 15-A, IX, of the Decree No. 6,306, the settlement of exchange transactions in connection with foreign financing or loans (including the notes), for both inflow and outflow of proceeds into and from Brazil, are subject to IOF/Exchange at a zero percent rate. However, the IOF/Exchange rate is 6% for the conversion of foreign currency into Brazilian currency in connection with foreign loans with a minimum average term equal to or lower than 360 days (foreign loans or notes with an average term of more than 360 days which are partially or fully redeemed in a period of less than 360 days from their issuance are subject to the IOF/Exchange at the rate of 6% rate plus applicable fines and interest). However, the federal government may increase the current IOF/Exchange rate at any time, up to a maximum rate of 25%. Any such new rate would only apply to future foreign exchange transactions. 217

218 The Cayman Islands The following is a discussion on certain Cayman Islands income tax consequences of an investment in the Notes. The discussion is a general summary of present law, which is subject to prospective and retroactive change. It is not intended as tax advice, does not consider any investor s particular circumstances, and does not consider tax consequences other than those arising under Cayman Islands law. Under existing Cayman Islands laws, payments of interest and principal on the Notes will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of interest and principal or a dividend or capital to any holder of the Notes, as the case may be, nor will gains derived from the disposal of the Notes be subject to Cayman Islands income or corporation tax. The Cayman Islands currently have no income, corporation or capital gains tax and no estate duty, inheritance tax or gift tax. No stamp duty is payable in respect of the issue of the Notes. The Notes themselves will be stampable if they are executed in or brought into the Cayman Islands. An instrument of transfer in respect of a Note is stampable if executed in or brought into the Cayman Islands. We applied for and received an undertaking from the Governor-in-Cabinet of the Cayman Islands that, in accordance with Section 6 of the Tax Concessions Law (2011 Revision) of the Cayman Islands, for a period of 20 years from the date of the undertaking, no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations shall apply to the Issuer or its operations and, in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable (i) on our shares, debentures or other obligations or (ii) by way of the withholding in whole or in part of a payment of dividend or other distribution of income or capital by us to our members or a payment of principal or interest or other sums due under a debenture or any other of our obligations. European Union Savings Directive (Directive 2003/48/EC) Under EC Council Directive 2003/48/EC on the taxation of savings income, each Member State is required to provide to the tax authorities of another Member State details of payments of interest or other similar income paid by a person within its jurisdiction to, or collected by such a person for, an individual resident or certain limited types of entity established in that other Member State. However, for a transitional period, Austria and Luxembourg may instead apply a withholding system in relation to such payments, deducting tax at rates rising over time to 35%. The transitional period is to terminate at the end of the first full fiscal year following agreement by certain non-eu countries to the exchange of information relating to such payments. Luxembourg has announced that it will no longer apply the withholding tax system as from January 1, 2015 and will provide details of payments of interest (or similar income) as from this date. A number of non-eu countries, and certain dependent or associated territories of certain Member States including the Cayman Islands, have adopted similar measures (either provision of information or transitional withholding) in relation to payments made by a person within its jurisdiction to, or collected by such a person for, an individual resident or certain limited types of entity established in a Member State. In addition, the Member States have entered into provision of information or transitional withholding arrangements with certain of those dependent or associated territories in relation to payments made by a person in a Member State to, or collected by such a person for, an individual resident or certain limited types of entity established in one of those territories. The European Commission has proposed certain amendments to the Directive, which may, if implemented, amend or broaden the scope of the requirements described above. Investors who are in doubt as to their position should consult their professional advisers. 218

219 United States Federal Income Taxation Considerations TO ENSURE COMPLIANCE WITH UNITED STATES TREASURY DEPARTMENT CIRCULAR 230, HOLDERS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF UNITED STATES FEDERAL TAX ISSUES IN THIS OFFERING MEMORANDUM IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON, BY HOLDERS FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON HOLDERS UNDER THE UNITED STATES INTERNAL REVENUE CODE; (B) SUCH DISCUSSION IS INCLUDED HEREIN BY THE ISSUER IN CONNECTION WITH THE PROMOTION OR MARKETING (WITHIN THE MEANING OF CIRCULAR 230) BY THE ISSUER OF THE NOTES; AND (C) HOLDERS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR. The following is a summary of certain material U.S. federal income tax consequences of the purchase, ownership and disposition of the Notes by a U.S. holder (as defined below). This summary does not address the material U.S. federal income tax consequences of every type of Note which may be issued under the Programme, and the relevant Pricing Supplement may contain additional or modified disclosure concerning the material U.S. federal income tax consequences relevant to such type of Note as appropriate. The summary deals only with Notes that will be purchased by U.S. holders and held as capital assets. This summary is based upon United States laws, including the Code, U.S. Treasury Regulations ( Treasury Regulations ) (final, proposed and temporary) promulgated thereunder, rulings, judicial decisions and administrative pronouncements, all as currently in effect, and all of which are subject to change or changes in interpretation, possibly on a retroactive basis. The summary is included herein for general information only, and there can be no assurance that the IRS will take a similar view of the U.S. federal income tax treatment of an investment in the Notes as described herein. In particular, this summary does not purport to deal with persons in special tax situations, such as U.S. expatriates, persons subject to the alternative minimum tax, financial institutions, insurance companies, regulated investment companies, dealers in securities or currencies, traders in securities electing to mark their investments to market, taxexempt entities, banks, persons holding Notes as a hedge against currency risks or as a position in a straddle for tax purposes, persons owning (directly, indirectly or by attribution) 10% or more of the outstanding share capital or voting power of the Issuer, persons whose functional currency is not the U.S. dollar or persons that purchase Notes for a price other than the respective issue prices of the Notes (except where otherwise specifically noted). Moreover, this summary deals only with Notes with a term less than 30 years, and does not address the tax treatment to U.S. holders of bearer Notes. This summary does not address any U.S. federal tax laws (such as the estate tax or gift tax) other than U.S. federal income tax laws. Bearer Notes are not being offered to U.S. holders. A U.S. holder who owns a bearer Note may be subject to limitations under U.S. federal income tax laws, including the limitations provided in sections 165(j) and 1287(a) of the Code. Prospective purchasers of Notes should consult the relevant Pricing Supplement for any additional discussion of tax consequences that may be relevant to that particular issue and are urged to consult their own tax advisors in determining the particular U.S. federal, state, local and any other tax consequences to them of the purchase, ownership and disposition of Notes. As used herein, the term U.S. holder means a beneficial owner of a Note that is (i) a citizen or individual resident of the United States for U.S. federal income tax purposes, (ii) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organised in or under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust, if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or the income of which is otherwise subject to U.S. federal income taxation regardless of its source. 219

220 If a partnership (or an entity treated as a partnership for U.S. federal income tax purposes) holds Notes, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. A partner in a partnership that holds Notes is urged to consult its own tax advisor regarding the specific tax consequences of the purchase, ownership and disposition of the Notes. For purposes of this summary, a Foreign Currency Note means a Note on which all payments which a U.S. holder is entitled to receive are denominated in, or determined by reference to, a single Foreign Currency. For this purpose, Foreign Currency means a currency or currency unit other than U.S. dollars. U.S. Currency Notes Payments of Interest Except as described below under Original Issue Discount, payments of interest on a Note (including additional amounts paid with respect to withholding tax on such Note, if any, and withholding tax on payments of such additional amounts) generally will be taxable to a U.S. holder as foreign source ordinary interest income at the time such payments are received or are accrued in accordance with the U.S. holder s method of tax accounting. Effect of Brazilian Withholding Taxes As discussed in Taxation Brazil, payments of interest in respect of the Notes are subject to Brazilian withholding taxes. As discussed under Terms and Conditions of the Notes Taxation, the Issuer is liable for the payment of additional amounts to U.S. holders so that U.S. holders receive the same amounts they would have received had no Brazilian withholding taxes been imposed. For U.S. federal income tax purposes, U.S. holders will be treated as having actually received the amount of Brazilian taxes withheld by the Issuer with respect to a Note, and as then having actually paid over the withheld taxes to the Brazilian taxing authorities. As a result of this rule, the amount of interest income included in gross income for U.S. federal income tax purposes by a U.S. holder with respect to a payment of interest may be greater than the amount of cash actually received (or receivable) by the U.S. holder from the Issuer with respect to the payment. Subject to certain limitations, a U.S. holder will generally be entitled to a credit against its U.S. federal income tax liability, or a deduction in computing its U.S. federal taxable income, for Brazilian income taxes withheld by the Issuer; provided that, if a U.S. holder elects to deduct Brazilian taxes for any taxable year, such U.S. holder must deduct, rather than credit, all foreign taxes for such taxable year. For purposes of the foreign tax credit limitation, foreign source income is classified in one of two baskets, and the credit for foreign taxes on income in any such basket is limited to U.S. federal income tax allocable to that income. Interest and OID on the Notes generally will be attributable to the passive income basket. In certain circumstances a U.S. holder may be unable to claim foreign tax credits (and may instead be allowed deductions) for Brazilian taxes imposed on a payment of interest if the U.S. holder has not held the Notes for at least 16 days during the 31-day period beginning on the date that is 15 days before the date on which the right to receive the payment arises. Since a U.S. holder may be required to include OID on the Notes in its gross income in advance of any withholding of Brazilian income taxes from payments attributable to the OID (which would generally occur only when the Note is repaid or redeemed), a U.S. holder may not be entitled to a credit or deduction for these Brazilian income taxes in the year the OID is included in the U.S. holder s gross income, and may be limited in its ability to credit or deduct in full the Brazilian taxes in the year those taxes are actually withheld by the Issuer. The rules for foreign tax credits are complex and prospective purchasers should consult their own tax advisers concerning the foreign tax credit implications to them of the payment of any Brazilian taxes. Original Issue Discount The following summary is a general discussion of the material U.S. federal income tax consequences to U.S. holders of the ownership and disposition of Notes issued with OID ( Discount Notes ) under applicable Treasury Regulations (the OID Regulations ). This summary does not discuss Notes that are characterised as contingent payment debt instruments for U.S. federal income tax purposes, which are subject to special provisions with respect to the U.S. federal income tax treatment of OID. A Note, other than a Note with a term of one year or less (a Short-Term Note ), will be treated as issued with OID if the amount by which the Note s stated redemption price at maturity exceeds its issue price is more than a de minimis 220

221 amount. Generally, a Note s issue price will be the first price at which a substantial amount of Notes included in the issue of which the Note is a part is sold to persons other than bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents, or wholesalers. The stated redemption price at maturity of a Note is the sum of all payments provided by the Note other than qualified stated interest payments. In general, under a de minimis exception, a Note is not treated as issued with OID if the amount by which its stated redemption price at maturity exceeds its issue price is less than the de minimis amount of ¼ of 1% of its stated redemption price at maturity multiplied by the number of complete years to its maturity date from its original issue date (or its weighted average maturity if the Note is an installment obligation). The term qualified stated interest generally means stated interest that is unconditionally payable in cash or property (other than debt instruments of the Issuer) at least annually at a single fixed rate of interest or a variable rate (in the circumstances described below under Variable Rate Notes ). In addition, under the OID Regulations, if a Note bears interest for one or more initial accrual periods at a rate below the rate applicable for the remaining term of such Note (e.g., Notes with teaser rates or interest holidays), and if the greater of either the resulting foregone interest on such Note or any true discount on such Note (i.e., the excess of the Note s stated principal amount over its issue price) equals or exceeds a specified de minimis amount as determined under the OID Regulations, then the stated interest on the Note would be treated as OID rather than qualified stated interest. A U.S. holder of a Discount Note must include OID in income as ordinary interest income for U.S. federal income tax purposes as it accrues generally under a constant yield method in advance of receipt of the cash payments attributable to such income, regardless of such U.S. holder s regular method of tax accounting. In general, the amount of OID included in income by the initial U.S. holder of a Discount Note is the sum of the daily portions of OID with respect to such Discount Note for each day during the taxable year (or portion of the taxable year) on which the U.S. holder held the Discount Note. The daily portion of OID on any Discount Note is determined by allocating to each day in any accrual period a ratable portion of the OID allocable to that accrual period. Accrual periods may be of any length and may vary in length over the term of the Discount Note, provided that each accrual period is no longer than one year and each scheduled payment of principal or interest occurs either on the final day or first day of an accrual period. The amount of OID allocable to each accrual period generally is equal to the difference between (i) the product of the Discount Note s adjusted issue price at the beginning of the accrual period and the Discount Note s yield to maturity (determined on the basis of compounding at the close of each accrual period and appropriately adjusted to take into account the length of the particular accrual period) and (ii) the amount of any qualified stated interest payments allocable to such accrual period. The adjusted issue price of a Discount Note at the beginning of any accrual period is the sum of the issue price of the Discount Note plus the amount of OID allocable to all prior accrual periods minus the amount of any prior payments on the Discount Note that were not qualified stated interest payments. Under these rules, U.S. holders generally will have to include in taxable income increasingly greater amounts of OID in successive accrual periods. Acquisition Premium A U.S. holder that purchases a Discount Note for an amount less than or equal to the sum of all amounts payable on the Note after the purchase date, other than payments of qualified stated interest, but in excess of its adjusted issue price (any such excess being acquisition premium ) and that does not make the election described below under Election to Treat All Interest as Original Issue Discount, is permitted to reduce the daily portions of OID by a fraction, the numerator of which is the excess of the U.S. holder s adjusted basis in the Note immediately after its purchase over the Note s adjusted issue price, and the denominator of which is the excess of the sum of all amounts payable on the Note after the purchase date, other than payments of qualified stated interest, over the Note s adjusted issue price. Amortizable Bond Premium A U.S. holder that purchases a Note for more than the sum of all amounts payable on the Note after the purchase date, other than payments of qualified stated interest, may elect to amortise the bond premium. If a U.S. holder makes such an election, the amount of interest on the Note otherwise required to be included in the U.S. holder s income will be reduced each year by the amount of amortizable bond premium allocable to such year on a constant yield to maturity basis (except to the extent Treasury Regulations may provide otherwise). If a Note is redeemable prior to maturity, the amount of amortizable bond premium will be determined with reference to the amount payable on the earlier 221

222 redemption date if such determination results in a smaller premium attributable to the period ending on the earlier redemption date. The election to amortise bond premium cannot be revoked without the consent of the IRS. Amortised bond premium will reduce the U.S. holder s tax basis in the Note by the amount of the premium amortised in any year. An election to amortise bond premium will thereafter apply to bond premium on certain other debt instruments that the U.S. holder then owns or thereafter acquired at a premium, and the election may have different tax consequences depending on when the debt instruments were issued or acquired. Special rules apply to (a) certain Notes payable in or by reference to a foreign currency, discussed below under Foreign Currency Notes, and (b) certain Notes with contingent interest payments. A U.S. holder that does not elect to take bond premium (other than acquisition premium) into account currently will recognise a loss when the Note matures as described below in Sale, Retirement or other Taxable Disposition of U.S. Currency Notes. A U.S. holder should consult its own tax advisor before making an election to amortise bond premium. Market Discount A Note, other than a Short-Term Note, generally will be treated as purchased at a market discount (a Market Discount Note ) if the Note s stated redemption price at maturity or, in the case of a Discount Note, the Note s revised issue price, exceeds the amount for which the U.S. holder purchased the Note by at least 0.25% of the Note s stated redemption price at maturity or revised issue price, respectively, multiplied by the number of complete years to the Note s maturity (or, in the case of a Note that is an installment obligation, the Note s weighted average maturity). If this excess is not sufficient to cause the Note to be a Market Discount Note, then the excess constitutes de minimis market discount. For this purpose, the revised issue price of a Note generally equals its issue price, increased by the amount of any OID that has accrued on the Note and decreased by the amount of any payments previously made on the Note that were not qualified stated interest payments. Any gain recognised on the maturity or disposition of a Market Discount Note (including any payment on a Note that is not qualified stated interest) will be treated as ordinary income to the extent that the gain does not exceed the accrued market discount on the Note. Alternatively, a U.S. holder of a Market Discount Note may elect to include market discount in income currently over the life of the Note. This election shall apply to all debt instruments with market discount acquired by the electing U.S. holder on or after the first day of the first taxable year to which the election applies. This election may not be revoked without the consent of the IRS. A U.S. holder of a Market Discount Note that does not elect to include market discount in income currently will generally be required to defer deductions for interest on borrowings incurred to purchase or carry a Market Discount Note that is in excess of the interest and OID on the Note includible in the U.S. holder s income, to the extent that this excess interest expense does not exceed the portion of the market discount allocable to the days on which the Market Discount Note was held by the U.S. holder. Market discount will accrue on a straight-line basis unless the U.S. holder elects to accrue the market discount on a constant-yield method. This election applies only to the Market Discount Note with respect to which it is made and is irrevocable. Prospective purchasers are urged to consult their own tax advisors if such purchasers purchase a Note at a discount or premium from the Note s issue price. In this event, the Notes so purchased may be subject to special U.S. federal income tax rules relating to the treatment of market discount or acquisition or bond premium. Election to Treat All Interest as Original Issue Discount A U.S. holder may elect to include in gross income all interest that accrues on a note using the constant yield method discussed above under Original Issue Discount, with certain modifications. For purposes of this election, interest includes stated interest, OID, de minimis OID, market discount, de minimis market discount and unstated interest, as adjusted by any amortizable bond premium or acquisition premium. Generally, this election will apply only to the Note with respect to which it is made and must be made for the taxable year in which the U.S. holder acquired the Note. However, if a Note subject to an election has amortizable bond premium, the U.S. holder will be deemed to have made an election to apply amortizable bond premium against interest for all debt instruments with amortizable bond premium, other than debt instruments the interest on which is excludible from gross income, that such U.S. holder holds as of the beginning of the taxable year to which the election applies or any taxable year thereafter. Additionally, if a U.S. holder makes the election for a Market Discount Note, such U.S. holder will be treated as having made the election discussed above under Market Discount to include market discount in income currently over the life of all debt instruments that such U.S. holder currently owns or later 222

223 acquires. A U.S. holder may not revoke any election to apply the constant yield method to all interest on a Note or the deemed elections with respect to amortizable bond premium or Market Discount Notes without the consent of the IRS. U.S. holders are urged to consult their own tax advisors regarding the advisability of making this election. Variable Rate Notes A Note that provides for a variable rate of interest (a Variable Rate Note ) may qualify as a variable rate debt instrument if the conditions described below are met. In the event a Variable Rate Note qualifies as a variable rate debt instrument then payments of interest on such Variable Rate Note are treated as described above under Payments of Interest. Under the OID Regulations, Variable Rate Notes are subject to special rules whereby a Variable Rate Note will qualify as a variable rate debt instrument if: a) such Variable Rate Note s issue price does not exceed the total noncontingent principal payments by more than the lesser of: i).015 multiplied by the product of the total noncontingent principal payments and the number of complete years to maturity from the issue date, or ii) 15% of the total noncontingent principal payments; and b) such Variable Rate Note provides for stated interest, compounded or paid at least annually, only at: i) one or more qualified floating rates, ii) a single fixed rate and one or more qualified floating rates, iii) a single objective rate, or iv) a single fixed rate and a single objective rate that is a qualified inverse floating rate. A Variable Rate Note provides for stated interest at a qualified floating rate if: a) variations in the value of the rate can reasonably be expected to measure contemporaneous variations in the cost of newly borrowed funds in the currency in which such Variable Rate Note is denominated; or b) the rate is equal to such a rate multiplied by either: i) a fixed multiple that is greater than 0.65 but not more than 1.35, or ii) a fixed multiple greater than 0.65 but not more than 1.35, increased or decreased by a fixed rate; and iii) the value of the rate on any date during the term of such Variable Rate Note is set no earlier than three months prior to the first day on which that value is in effect and no later than one year following that first day. If such Variable Rate Note provides for two or more qualified floating rates that are within 0.25 percentage points of each other on the issue date or can reasonably be expected to have approximately the same values throughout the term of such Variable Rate Note, the qualified floating rates together constitute a single qualified floating rate. A Variable Rate Note will not have a qualified floating rate, however, if the rate is subject to certain restrictions (including caps, floors, governors, or other similar restrictions) unless such restrictions are fixed throughout the term of such Variable Rate Note or are not reasonably expected to significantly affect the yield on such Variable Rate Note. A Variable Rate Note provides for stated interest at a single objective rate if: a) the rate is not a qualified floating rate, b) the rate is determined using a single, fixed formula that is based on objective financial or economic information that is not within the control of or unique to the circumstances of Banco ABC or a related party, and c) the value of the rate on any date during the term of such Variable Rate Note is set no earlier than three months prior to the first day on which that value is in effect and no later than one year following that first day. 223

224 A Variable Rate Note will not provide for stated interest at an objective rate, however, if it is reasonably expected that the average value of the rate during the first half of such Variable Rate Note s term will be either significantly less than or significantly greater than the average value of the rate during the final half of such Variable Rate Note s term. An objective rate as described above is a qualified inverse floating rate if: a) the rate is equal to a fixed rate minus a qualified floating rate; and b) the variations in the rate can reasonably be expected to inversely reflect contemporaneous variations in the cost of newly borrowed funds. A Variable Rate Note will also be treated as providing for stated interest at a single qualified floating rate or an objective rate if interest on such Variable Rate Note is stated at a fixed rate for an initial period of one year or less followed by either a qualified floating rate or an objective rate for a subsequent period, and either: a) the fixed rate and the qualified floating rate or objective rate have values on the issue date of such Variable Rate Note that do not differ by more than 0.25% or b) the value of the qualified floating rate or objective rate is intended to approximate the fixed rate. In general, if a Variable Rate Note provides for stated interest at a single qualified floating rate or objective rate, or one of those rates after a single fixed rate for an initial period (as set forth herein), interest on such Variable Rate Note will be accounted for as described above under Payments of Interest. In this case, the amount of OID, if any, is determined by using, in the case of a qualified floating rate or qualified inverse floating rate, the value as of the issue date of the qualified floating rate or qualified inverse floating rate, or, for any other objective rate (other than a qualified inverse floating rate), a fixed rate that reflects the yield reasonably expected for such Variable Rate Note. If a Variable Rate Note constitutes a variable rate debt instrument but does not provide for stated interest at a single qualified floating rate or a single objective rate, and also does not provide for interest payable at a fixed rate other than a single fixed rate for an initial period, a U.S. holder generally must determine the interest and OID accruals on such Variable Rate Note by: a) determining a fixed rate substitute for each variable rate provided under such Variable Rate Note, b) constructing the equivalent fixed rate debt instrument, using the fixed rate substitute described above, c) determining the amount of qualified stated interest and OID with respect to the equivalent fixed rate debt instrument, and d) adjusting for actual variable rates during the applicable accrual period. When a U.S. holder determines the fixed rate substitute for each variable rate provided under a Variable Rate Note, it generally will use the value of each variable rate as of the issue date of such Variable Rate Note or, for an objective rate that is not a qualified inverse floating rate, a rate that reflects the reasonably expected yield on such Variable Rate Note. If a Variable Rate Note provides for stated interest either at one or more qualified floating rates or at a qualified inverse floating rate, and also provides for stated interest at a single fixed rate other than at a single fixed rate for an initial period, a U.S. holder generally must determine interest and OID accruals by using the method described in the previous paragraph. However, a Variable Rate Note will be treated, for purposes of the first three steps of the determination, as if such Variable Rate Note had provided for a qualified floating rate, or a qualified inverse floating rate, rather than the fixed rate. The qualified floating rate, or qualified inverse floating rate, that replaces the fixed rate must be such that the fair market value of such Variable Rate Note as of the issue date approximates the fair market value of an otherwise identical debt instrument that provides for the qualified floating rate, or qualified inverse floating rate, rather than the fixed rate. If a Variable Rate Note (such as a Note the payments on which are determined by reference to an index) does not qualify as a variable rate debt instrument under the OID Regulations, then the Variable Rate Note would be treated as a contingent payment debt obligation under applicable Treasury Regulations (the CPDI Regulations ). The CPDI Regulations generally require a U.S. holder of such an instrument to include future contingent and noncontingent interest payments in income as such interest accrues based upon a projected payment schedule, whether or not the U.S. 224

225 holder has actually received any such payment. Additionally, the CPDI Regulations provide special rules that would affect the character of any gain or loss upon the sale or exchange of a contingent payment debt instrument. The U.S. federal income tax treatment of any Variable Rate Notes or other Notes that are treated as contingent payment debt obligations will be more fully described in the applicable Pricing supplement. Short-Term Notes In general, an individual or other cash basis U.S. holder of a Short-Term Note is not required to accrue OID (as specially defined below for the purposes of this paragraph) for U.S. federal income tax purposes unless it elects to do so (but may be required to include any stated interest in income as the interest is received). Accrual basis U.S. holders and certain other U.S. holders are required to accrue OID on Short-Term Notes on a straight-line basis or, if the U.S. holder so elects, under the constant-yield method (based on daily compounding). In the case of a U.S. holder not required and not electing to include OID in income currently, any gain realised on the sale or retirement of the Short- Term Note will be ordinary income to the extent of the OID accrued on a straight-line basis (unless an election is made to accrue the OID under the constant-yield method) through the date of sale or retirement. U.S. holders who are not required and do not elect to accrue OID on Short-Term Notes will be required to defer deductions for interest on borrowings allocable to Short-Term Notes in an amount not exceeding the deferred income until the deferred income is realised. For purposes of determining the amount of OID subject to these rules, all interest payments on a Short-Term Note are included in the Short-Term Note s stated redemption price at maturity (i.e., all payments of interest are OID). A U.S. holder may elect to determine OID on a Short-Term Note as if the Short-Term Note had been originally issued to the U.S. holder at the U.S. holder s purchase price for the Short-Term Note. This election shall apply to all obligations with a maturity of one year or less acquired by the U.S. holder on or after the first day of the first taxable year to which the election applies, and may not be revoked without the consent of the IRS. Sale, Retirement or Other Taxable Disposition of U.S. Currency Notes Generally, upon the sale, retirement or other taxable disposition of a Note, a U.S. holder will recognise taxable gain or loss equal to the difference between the amount realised on the sale, retirement or other taxable disposition (other than amounts representing accrued and unpaid qualified stated interest, which is taxable as interest) and such U.S. holder s adjusted tax basis in the Note. A U.S. holder s adjusted tax basis in a Note generally equals the cost of the Note, increased by the amount of any OID and de minimis OID (and market discount if an election has been made to include currently) included in the U.S. holder s income with respect to the Note and decreased by the amount of any payments that are not qualified stated interest. Except to the extent described above under Original Issue Discount Market Discount or Original Issue Discount Short Term Notes, or below under Foreign Currency Notes, any gain or loss recognised on a sale, retirement or other taxable disposition of a Note, other than amounts attributable to accrued and unpaid interest, will be U.S. source gain or loss and generally will be treated as long-term capital gain or loss if at the time of the sale, retirement or other taxable disposition, the Note was held for more than one year. In the case of a U.S. holder who is an individual (or other non-corporate U.S. holder), long term capital gains, if any, generally will be subject to U.S. federal income taxation at preferential rates. The deductibility of capital losses is subject to significant limitations. Gain realised by a U.S. holder on the sale, retirement or other taxable disposition of a Note generally will be treated as U.S. source income. Consequently, if Brazilian withholding tax is imposed on such gain, the U.S. holder will not be able to use the corresponding foreign tax credit, unless the holder has other foreign-source income of the appropriate type in respect of which the credit may be used. The U.S. foreign tax credit rules are very complex and your ability to credit foreign taxes may be subject to various limitations. Accordingly, prospective investors should consult their own advisors with respect to the application of these rules to their particular circumstances. Optional Redemption In general, if a Note provides for an alternative payment schedule or schedules applicable upon the occurrence of a contingency or contingencies and the timing and amounts of the payments that comprise each payment schedule are known as of the issue date of such Note a U.S. holder must determine the yield and maturity of such Note by assuming that the payments will be made according to the payment schedule, if any, that is significantly more likely than not to occur. 225

226 Notwithstanding the general rules for determining yield and maturity, if either a U.S. holder or the Issuer has an unconditional option or options that, if exercised, would require payments to be made on such Note under an alternative payment schedule or schedules, then (i) in the case of an option or options that the Issuer may exercise, the Issuer will be deemed to exercise or not exercise an option or combination of options in the manner that minimises the yield on such Note and (ii) in the case of an option or options that a U.S. holder may exercise, it will be deemed to exercise or not exercise an option or combination of options in the manner that maximises the yield on such Note. If both a U.S. holder and the Issuer hold options described in the preceding sentence, those rules will apply to each option in the order in which they may be exercised. If a contingency, including the exercise of an option, actually occurs or does not occur contrary to an assumption made according to the above rules, then except to the extent that a portion of a Note is repaid as a result of this change in circumstances and solely to determine the amount and accrual of OID, a U.S. holder must redetermine the yield and maturity of such Note by treating such Note as having been retired and reissued on the date of the change in circumstances for an amount equal to such Note s adjusted issue price on that date. Substitution of Issuer The terms of the Notes provide that, in certain circumstances, the obligations of the Issuer under the Notes may be assumed by another entity. Any such assumption might be treated for U.S. federal income tax purposes as a deemed disposition of Notes by a U.S. holder in exchange for new notes issued by the new obligor. As a result of this deemed disposition, a U.S. holder could be required to recognise capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the issue price of the new notes (as determined for U.S. federal income tax purposes) and the U.S. holder s tax basis in the Notes. U.S. holders should consult their tax advisers concerning the U.S. federal income tax consequences to them of a change in obligor with respect to the Notes. Foreign Currency Notes As used herein, Foreign Currency means a currency or currency unit other than U.S. dollars. The discussion below relates to the Notes the payment of which is denominated in, or determined by reference to, a single Foreign Currency. Interest Cash Method A U.S. holder who uses the cash method of accounting for U.S. federal income tax purposes and who receives a payment of interest on a Note (other than OID, the treatment of which is described below under Interest Accrual Method ) will be required to include in income the U.S. dollar value of the Foreign Currency payment, based on the spot exchange rate on the date of receipt, regardless of whether the payment is in fact converted to U.S. dollars at that time. A cash method U.S. holder generally will not realise exchange gain or loss on the receipt of the interest payment but may have exchange gain or loss attributable to a subsequent disposition of the Foreign Currency so received which will be U.S. source ordinary income or loss. Interest Accrual Method A U.S. holder who uses the accrual method of accounting for U.S. federal income tax purposes, or who otherwise is required to accrue interest prior to receipt, will be required to include in income the U.S. dollar value of the amount of interest income that has accrued and is otherwise required to be taken into account with respect to a Foreign Currency Note during an accrual period. The U.S. dollar value of such accrued income will be determined by translating such income at the average rate of exchange in effect for the interest accrual period or, with respect to an accrual period that spans two taxable years, at the average rate for the partial period within the U.S. holder s taxable year. The average rate of exchange for an interest accrual period (or partial period) is the simple average of the spot exchange rates for each business day of such period or other average rate for the period that is reasonably derived and consistently applied by the U.S. holder. A U.S. holder may elect, however, to translate such accrued interest income at the spot rate on the last day of the interest accrual period, or the last day of the accrual period in that taxable year in the case of a partial accrual period. If the last day of the interest accrual period is within five business days of the date of receipt of the accrued interest, a U.S. holder may translate such interest at the spot rate on the date of receipt. The above election will apply to all debt obligations held by the U.S. holder at the beginning of the first taxable year to 226

227 which the election applies and may not be revoked without the consent of the IRS. U.S. holders should consult their own tax advisors as to the advisability of making the above election. A U.S. holder will recognise exchange gain or loss (which will be treated as U.S. source ordinary income or loss) with respect to accrued interest on the date such interest is received, and which generally will not be treated as an adjustment to interest income or expense. The amount of ordinary income or loss so recognised will equal the difference, if any, between the U.S. dollar value of the Foreign Currency payment received (determined on the basis of the spot rate on the date such payment is received) in respect of the accrual period and the U.S. dollar value of interest income that has accrued during such accrual period (as determined above), regardless of whether such U.S. holder actually converts the payment into U.S. dollars. Original Issue Discount In the case of a Discount Note that is also a Foreign Currency Note, a U.S. holder must determine OID allocable to each accrual period in units of the Foreign Currency using the constant yield method described in U.S. Currency Notes Original Issue Discount above. Accrued OID is translated into U.S. dollars and the U.S. holder will recognise Foreign Currency gain or loss on the accrued OID in the same manner as described above in Interest Accrual Method. Such U.S. holder may recognise U.S. source exchange gain or loss (taxable as ordinary income or loss) when it receives an amount attributable to OID in connection with a payment of interest or the sale, retirement or other taxable disposition of such Note. U.S. holders are urged to consult their own tax advisors regarding the interplay between the application of the OID and foreign currency exchange gain or loss rules. Amortizable Bond Premium (including Acquisition Premium) Bond premium (including acquisition premium) on a Note that is denominated in, or determined by reference to, a Foreign Currency will be computed in units of the Foreign Currency, and any such bond premium that is taken into account currently will reduce interest income in units of the Foreign Currency. On the date bond premium offsets interest income, a U.S. holder may recognise U.S. source exchange gain or loss (taxable as ordinary income or loss) measured by the difference between the spot rate in effect on that date and on the date the Notes were acquired by the U.S. holder. A U.S. holder that does not elect to take bond premium (other than acquisition premium) into account currently will recognise a market loss when the Note matures, as described below in Sale, Retirement or Other Taxable Disposition of Foreign Currency Notes. Market Discount Market Discount on a Note that is denominated in, or determined by reference to, a Foreign Currency, will be accrued in the foreign currency. If the U.S. holder elects to include market discount in income currently, the accrued market discount will be translated into U.S. dollars at the average exchange rate for the accrual period (or portion thereof within the U.S. holder s taxable year). Upon the receipt of an amount attributable to accrued market discount, the U.S. holder may recognise U.S. source exchange gain or loss (which will be taxable as ordinary income or loss) determined in the same manner as for accrued interest or OID. A U.S. holder that does not elect to include market discount in income currently will recognise, upon the disposition or maturity of the Note, the U.S. dollar value of the amount accrued, calculated at the spot rate on that date, and no part of this accrued market discount will be treated as exchange gain or loss. Sale, Retirement or Other Taxable Disposition of Foreign Currency Notes As discussed above under Sale, Retirement or Other Taxable Disposition of U.S. Currency Notes, a U.S. holder will generally recognise gain or loss on the sale, retirement, or other taxable disposition of a Note equal to the difference between the amount realised on the sale, retirement or other taxable disposition and its adjusted tax basis in the Note. A U.S. holder s initial tax basis in a Foreign Currency Note will be the U.S. dollar value of the Foreign Currency amount paid for such Foreign Currency Note, determined on the date of such purchase. If a Foreign Currency Note is traded on an established securities market, a cash basis U.S. holder (or, upon election, an accrual basis U.S. holder) will determine the U.S. dollar value of the amount paid by translating the Foreign Currency payment at the spot rate on the settlement date of the purchase. (If an accrual basis taxpayer makes such an election, the election must be applied consistently to all debt instruments from year to year and cannot be revoked without the consent of the IRS.) The amount of any subsequent adjustments to such holder s tax basis will be the U.S. dollar value of the Foreign Currency 227

228 amount of the adjustment, determined as discussed herein. A U.S. holder s adjusted tax basis in a Foreign Currency Note generally will equal the cost of the Foreign Currency Note to such holder, increased by the amount of any OID and de minimis OID (and market discount if an election has been made to include currently) previously included in income by the holder with respect to such Foreign Currency Note and reduced by any payments that are not qualified stated interest previously received by the holder. If a U.S. holder receives Foreign Currency on a sale, retirement or other taxable disposition of a Foreign Currency Note, the amount realised will be based on the U.S. dollar value of the Foreign Currency on: a) the date of disposition, if it is a cash basis taxpayer and the relevant Foreign Currency Notes are not traded on an established securities market, as defined in the applicable Treasury Regulations; b) the date of disposition, if it is an accrual basis taxpayer that does not elect to use the settlement date; or c) the settlement date for the sale, if it is a cash basis taxpayer, or an accrual basis taxpayer that so elects, and the relevant Foreign Currency Notes are traded on an established securities market, as defined in the applicable Treasury Regulations. (If an accrual basis taxpayer makes such an election, the election must be applied consistently to all debt instruments from year to year and cannot be revoked without the consent of the IRS.) Except as discussed in the following paragraph with respect to exchange gains or losses, any gain or loss recognised upon the sale, retirement or other taxable disposition of a Foreign Currency Note generally will be capital gain or loss, except to the extent attributable to accrued but unpaid interest and market discount or attributable to changes in the exchange rates as described below and will be treated as long-term capital gain or loss if at the time of sale, retirement or other taxable disposition the Foreign Currency Note was held for more than one year. If the U.S. holder is an individual (or other non-corporate U.S. holder), any long-term capital gain, if any, generally will be subject to U.S. federal income taxation at preferential rates. The deductibility of capital losses is subject to significant limitations. Gain realised by a U.S. holder on the sale, retirement or other taxable disposition of a Note generally will be treated as U.S. source income. Consequently, if Brazilian withholding tax is imposed on such gain, the U.S. holder will not be able to use the corresponding foreign tax credit, unless the holder has other foreign-source income of the appropriate type in respect of which the credit may be used. The U.S. foreign tax credit rules are very complex and your ability to credit foreign taxes may be subject to various limitations. Accordingly, prospective investors should consult their own advisors with respect to the application of these rules to their particular circumstances. Gain or loss realised upon the sale, retirement or other taxable disposition of a Foreign Currency Note that is attributable to fluctuations in currency exchange rates will constitute exchange gain or loss and will be taxable as U.S. source ordinary income or loss. Such foreign exchange gain or loss will be recognised only to the extent of the total gain or loss realised by the U.S. holder on the sale, retirement or other taxable disposition. A U.S. holder generally will have a tax basis in any Foreign Currency received as interest or on the sale, retirement or other taxable disposition of a Foreign Currency Note equal to the U.S. dollar value of such Foreign Currency on the dates described above in Interest-Cash Method, Interest-Accrual Method and Sale, Retirement or Other Taxable Disposition of Foreign Currency Notes. Any exchange gain or loss realised by a U.S. holder on a subsequent conversion or other disposition of Foreign Currency, generally, will be treated as ordinary income or loss. If a Note is issued in circumstances where interest payments on the Note are denominated in or determined by reference to one currency and the principal portion of the Note may be denominated in or determined by reference to another currency ( Dual Currency Notes ), the applicable Pricing Supplement will discuss the material U.S. federal income tax consequences in respect of these features to holders. Foreign Currency Constraint There are no Treasury Regulations, published rulings or judicial decisions specifically addressing the effect of a Foreign Currency Constraint on the Notes. The Issuer believes that an election or the failure to so elect to request payment in the lawful currency of Brazil (as provided in Terms and Conditions of the Notes Foreign Currency Constraint ) should not be considered to result in a deemed sale or exchange of the Notes for U.S. federal income tax purposes, potentially resulting in recognition of gains or losses. There can be no assurance that the IRS will agree with this determination. U.S. holders should consult their own tax advisors in this regard. 228

229 Foreign Source Income For U.S. foreign tax credit purposes, qualified stated interest, OID, and any additional amounts paid with respect to a Note will be treated as foreign source income, subject to various classifications and other limitations. The rules relating to computing foreign tax credits or deducting foreign taxes are extremely complex, and U.S. holders are urged to consult their own tax advisors regarding the availability of U.S. foreign tax credits with respect to any Brazilian taxes withheld from payment. Tax Return Disclosure Requirement A U.S. holder may be required to report a sale, retirement or other taxable disposition of its Notes (or, in the case of an accrual basis U.S. holder, a payment of accrued interest) on IRS Form 8886 (Reportable Transaction Disclosure Statement) if it recognises a foreign exchange loss that exceeds U.S.$50,000 in a single taxable year from a single transaction, if such U.S. holder is an individual or trust, or higher amounts for other non-individual U.S. holders. U.S. holders are urged to consult their own tax advisors in this regard. Certain individual U.S. holders are required to report information with respect to their investment in Notes not held through an account with a U.S. financial institution to the IRS. Investors who fail to report required information could become subject to substantial penalties. Prospective investors are encouraged to consult with their own tax advisors regarding the possible implications of this reporting requirement on their investment in the Notes. Medicare Contribution Tax on Unearned Income U.S. holders that are individuals or estates, or trusts that do not fall into a special class of trusts that are exempt from such tax (as well as certain foreign estates and trusts), are subject to a 3.8% tax on the lesser of (1) such holder s net investment income for the relevant taxable year and (2) the excess of such holder s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals will be between $125,000 and $250,000, depending on the individual s circumstances). A holder s net investment income will generally include its gross interest income and its net gains from the disposition of the Notes, unless such interest or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). If you are a holder that is an individual, estate or trust, you are urged to consult your own tax advisor regarding the applicability of this tax to your income and gains in respect of your investment in the Notes. U.S. Information Reporting and Backup Withholding Payments of principal, premium, if any, and interest (including OID) on, and proceeds from the sale, retirement or other taxable disposition of the Notes may be subject to information reporting to the IRS and possibly backup withholding. Backup withholding of U.S. federal income tax at a current rate of 28% may apply to payments made in respect of the Notes to holders who fail to make any required certification or who are not exempt recipients and who fail to provide certain identifying information (such as the holder s taxpayer identification number). Payments made in respect of the Notes to a U.S. holder must be reported to the IRS, unless the U.S. holder is an exempt recipient or otherwise establishes an exemption. U.S. persons who are required to establish their exempt status, generally, must provide an IRS Form W-9. Any amounts withheld under the backup withholding rules from a payment to a U.S. holder would be allowed as a refund or a credit against such U.S. holder s U.S. federal income tax, provided that the required information is furnished to the IRS in a timely manner. THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER S PARTICULAR SITUATION. HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN U.S. FEDERAL INCOME OR OTHER TAX LAWS. 229

230 CERTAIN ERISA AND OTHER U.S. CONSIDERATIONS The U.S. Employee Retirement Income Security Act of 1974, as amended ( ERISA ) imposes fiduciary standards and certain other requirements on employee benefit plans (as defined in Section 3(3) of ERISA) that are subject to Title I of ERISA, including collective investment funds, separate accounts, and other entities or accounts whose underlying assets are treated as assets of such plans pursuant to the U.S. Department of Labour plan assets regulation, 29 CFR Section (as modified by Section 3(42) of ERISA) (collectively, ERISA Plans ), and on those persons who are fiduciaries with respect to ERISA Plans. Investments by ERISA Plans are subject to ERISA s general fiduciary requirements, including the requirement of investment prudence and diversification and the requirement that an ERISA Plan s investments be made in accordance with the documents governing the plan. The prudence of a particular investment will be determined by the responsible fiduciary of an ERISA Plan by taking into account the ERISA Plan s particular circumstances and all of the facts and circumstances of the investment including, but not limited to, the matters discussed in Risk Factors and the fact that in the future there may be no market in which the fiduciary will be able to sell or otherwise dispose of the Notes. In addition, Section 406 of ERISA and Section 4975 of the Code prohibit certain transactions involving the assets of an ERISA Plan (as well as those plans that are not subject to ERISA but which are subject to Section 4975 of the Code, such as individual retirement accounts (together with ERISA Plans, Plans )) and certain persons (referred to as parties in interest or disqualified persons ) having certain relationships to such Plans, unless a statutory or administrative exemption or exception applies to the transaction. In particular, a sale or exchange of property or an extension of credit between a Plan and a party in interest or disqualified person may constitute a prohibited transaction. A party in interest or disqualified person who engages in a prohibited transaction may be subject to excise taxes or other penalties and liabilities under ERISA and Section 4975 of the Code. Except as otherwise provided for in a Pricing Supplement, Plans may acquire Notes (or interests in Notes). Prohibited transactions within the meaning of Section 406 of ERISA or Section 4975 of the Code may arise if the Notes are acquired by a Plan with respect to which we, the Arrangers or the Dealers or any of their respective affiliates are a party in interest or a disqualified person, unless the Notes are acquired pursuant to and in accordance with an applicable exemption or exception. Certain exemptions from the prohibited transaction provisions of Section 406 of ERISA and Section 4975 of the Code may apply depending in part on the type of Plan fiduciary making the decision to acquire a Note and the circumstances under which that decision is made. There can be no assurance that any of these class exemptions or any other exemption will be available with respect to any particular transaction involving the Notes or that, if an exemption is available, it will cover all aspects of any particular transaction. EXCEPT AS OTHERWISE PROVIDED IN A PRICING SUPPLEMENT, BY ITS PURCHASE AND HOLDING OF A NOTE (OR ANY INTEREST THEREIN), EACH PURCHASER AND EACH TRANSFEREE WILL BE DEEMED TO HAVE REPRESENTED AND WARRANTED EITHER THAT (A) IT IS NOT AND FOR SO LONG AS IT HOLDS A NOTE (OR ANY INTEREST HEREIN) WILL NOT BE (i) AN EMPLOYEE BENEFIT PLAN AS DEFINED IN SECTION 3(3) OF ERISA THAT IS SUBJECT TO TITLE I OF ERISA, (ii) A PLAN AS DEFINED IN AND SUBJECT TO SECTION 4975 OF THE CODE, (iii) ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE, OR ARE DEEMED TO INCLUDE, THE ASSETS OF ANY SUCH EMPLOYEE BENEFIT PLAN OR PLAN OR (iv) A GOVERNMENTAL PLAN OR OTHER EMPLOYEE BENEFIT PLAN WHICH IS SUBJECT TO ANY FEDERAL, STATE OR LOCAL LAW THAT IS SUBSTANTIALLY SIMILAR TO THE PROVISIONS OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE OR (B) ITS PURCHASE AND HOLDING OF A NOTE (OR ANY INTEREST THEREIN) WILL NOT CONSTITUTE OR RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE (OR, IN THE CASE OF SUCH A GOVERNMENTAL OR OTHER EMPLOYEE BENEFIT PLAN, OR VIOLATION OF ANY SUBSTANTIALLY SIMILAR PROVISIONS OF ANY FEDERAL, STATE OR LOCAL LAW). Governmental plans and certain church plans, while not subject to the fiduciary responsibility provisions of ERISA or the provisions of Section 4975 of the Code, may nevertheless be subject to state or other federal laws that are substantially similar to the foregoing provisions of ERISA and the Code. Fiduciaries of any such plans should consult with their counsel before purchasing Notes. 230

231 The foregoing discussion is general in nature and not intended to be all-inclusive. Any Plan fiduciary that proposes to cause a Plan to purchase Notes should consult with its counsel regarding the applicability of the fiduciary responsibility and prohibited transaction provisions of ERISA and Section 4975 of the Code to such an investment, and to confirm that such investment will not constitute or result in a prohibited transaction or any other violation of an applicable requirement of ERISA or the Code. The sale of Notes to a Plan is in no respect a representation by us, the Arranger or the Dealers that such an investment meets all relevant legal requirements with respect to investments by Plans generally or any particular Plan, or that such an investment is appropriate for Plans generally or any particular Plan. 231

232 SUBSCRIPTION AND SALE The following is subject to change in the applicable Pricing Supplement. In addition, the Dealers who have agreed to purchase Notes of a Series from us will be specified in the applicable Pricing Supplement. Notes may be sold from time to time by us to or through any one or more of the Dealers. The arrangements under which the Notes may from time to time be agreed to be sold by us to and purchased by the Dealers as principal or through the Dealers, as agents, are set out in the Dealer Agreement dated January 28, 2011, as amended and supplemented on March 20, 2013 (as amended from time to time, the Dealer Agreement ), and made between us and the Dealers. Any such agreement for the sale of Notes will, inter alia, make provision for the form and terms and conditions of the relevant Notes, the price at which such Notes will be purchased by the Dealers and the commissions or other agreed deductibles (if any) payable or allowable by us in respect of such purchase. The Dealer Agreement makes provision for resignation of existing Dealers and the appointment of additional Dealers either generally in respect of the Programme or in relation only to a particular Tranche of Notes. United States of America (a) The Notes have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S under the Securities Act ( Regulation S ) or pursuant to an exemption from the registration requirements of the Securities Act. Each Dealer will represent that it has offered and sold, and agrees that it will offer and sell, Notes of any Series (i) as part of their distribution at any time and (ii) otherwise until 40 days after the completion of the distribution of an identifiable tranche of which such Notes are a part, as determined and certified to the Principal Paying Agent by the relevant Dealer (or, in the case of a sale of an identifiable tranche of Notes to or through more than one relevant Dealer, by each of such relevant Dealers as to the Notes of such identifiable tranche purchased by or through it, in which case the Trustee shall notify each such relevant Dealer when all such relevant Dealers have so certified), only in accordance with Rule 903 of Regulation S or Rule 144A under the Securities Act ( Rule 144A ) as set forth below. Accordingly, neither it, its affiliates nor any persons acting on its or their behalf have engaged or will engage in any directed selling efforts in the United States with respect to Notes, and it and they have complied and will comply with the offering restrictions requirement of Regulation S. Each Dealer and its affiliates will also agree that, at or prior to confirmation of sale of Notes (other than a sale pursuant to Rule 144A), it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Notes from it during the distribution compliance period a confirmation or notice to substantially the following effect: THE SECURITIES COVERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE SECURITIES ACT ), AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (I) AS PART OF THEIR DISTRIBUTION AT ANY TIME OR (II) OTHERWISE UNTIL 40 DAYS AFTER THE COMPLETION OF THE DISTRIBUTION OF AN IDENTIFIABLE TRANCHE OF WHICH SUCH NOTES ARE A PART, EXCEPT IN EITHER CASE IN ACCORDANCE WITH REGULATION S OR RULE 144A UNDER THE SECURITIES ACT. TERMS USED ABOVE HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. Terms used in this paragraph (a) have the meanings given to them by Regulation S. (b) In respect of Notes that are expressed in the applicable Pricing Supplement to be subject to the C Rules (as defined below), the following applies: Under U.S. Treas. Reg (c)(2)(i)(C) or any applicable successor regulations under Section 4701 of the Code (the C Rules ), the Notes in bearer form must be issued and delivered outside the United States and its possessions in connection with their original issuance. Each Dealer will represent and agrees that it has not offered, sold or delivered and will not offer, sell or deliver, directly or indirectly, Notes in bearer form within the 232

233 United States or its possessions in connection with their original issuance. In connection with the original issuance of Notes in bearer form, each Dealer will represent that it has not communicated, and will not communicate, directly or indirectly, with a prospective purchaser if either of them is within the United States or its possessions and will not otherwise involve its U.S. office in the offer or sale of Notes in bearer form. Terms used in this paragraph have the meanings given to them by the Code and regulations promulgated thereunder, including the C Rules. (c) In respect of Notes that are expressed in the applicable Pricing Supplement to be subject to the D Rules (as defined below), the following applies: (i) (ii) except to the extent permitted under U.S. Treas. Reg (c)(2)(i)(D) or such successor regulations intended to be issued under Section 4701of the Code, in accordance with U.S. Internal Revenue Service Notice (the D Rules ), each Dealer will (a) represent that it has not offered or sold, and agrees that during a 40-day restricted period it will not offer or sell, Notes in bearer form to a person who is within the United States or its possessions or to a United States person, and (b) represent that it has not delivered and agrees that it will not deliver within the United States or its possessions definitive Notes that are sold during the restricted period; each Dealer will represent that it has and agrees that throughout the restricted period it will have in effect procedures reasonably designed to ensure that its employees or agents who are directly engaged in selling Notes in bearer form are aware that such Notes may not be offered or sold during the restricted period to a person who is within the United States or its possessions or to a United States person, except as permitted by the D Rules; (iii) if a Dealer is a United States person, such Dealer will represent that it is acquiring the Notes for purposes of resale in connection with their original issuance and if it retains Notes for its own account, it will only do so in accordance with the requirements of U.S. Treas. Reg (c)(2)(i)(D)(6) or the applicable successor regulations under Section 4701 Code; and (iv) with respect to each affiliate that acquires from an affiliated Dealer Notes in bearer form for the purpose of offering or selling such Notes during the restricted period, such Dealer either (a) will repeat and confirm the representations and agreements contained in paragraphs (i), (ii) and (iii) above on such affiliate s behalf or (b) will agree that it will obtain from such affiliate for our benefit the representations and agreements contained in paragraphs (i), (ii) and (iii) above. Terms used in this paragraph have the meanings given to them by the Code and regulations promulgated thereunder, including the D Rules. (d) Notwithstanding the foregoing restrictions on offers, sales and deliveries in the United States or to U.S. persons, any Dealer in respect of sales pursuant to Rule 144A may offer, sell and deliver Notes in registered form (i) as part of their distribution at any time and (ii) otherwise until 40 days after the completion of the distribution of an identifiable tranche of which such Notes are a part, as determined and certified to the Principal Paying Agent by the relevant Dealer (or in the case of an identifiable tranche of Notes to or through more than one Dealer, by each of such Dealers as to the Notes of such identifiable tranche purchased by or through it, in which case the Trustee shall notify each such Dealer when all such Dealers have so certified), in the United States to qualified institutional buyers (as such term is defined in Rule 144A under the Securities Act), and in compliance with the requirements of Rule 144A under the Securities Act. In connection with each such sale of Notes pursuant to Rule 144A under the Securities Act, (i) neither the relevant Dealer nor any person acting on its behalf will engage in any form of general solicitation or general advertising (as those terms are used in Rule 502(c) under the Securities Act) and (ii) the relevant Dealer will deliver an Offering Memorandum to each qualified institutional buyer purchasing a Note or Notes from it pursuant to Rule 144A. 233

234 This Offering Memorandum has been prepared by us for use in connection with the offer and sale of the Notes outside the United States to non-u.s. persons and for the resale of the Notes in the United States and for the listing of Notes on the Irish Stock Exchange. We and the Dealers reserve the right to reject any offer to purchase, in whole or in part, for any reason, or to sell less than the number of Notes which may be offered pursuant to Rule 144A. This Offering Memorandum does not constitute an offer to any person in the United States or to any U.S. person other than any QIB within the meaning of Rule 144A to whom an offer has been made directly by one of the Dealers or an affiliate of one of the Dealers. Distribution of this Offering Memorandum by any non-u.s. person outside the United States or by any QIB in the United States to any U.S. person or to any other person within the United States, other than any QIB and those persons, if any, retained to advise such non-u.s. person or QIB with respect thereto, is unauthorised and any disclosure without our prior written consent of any of its contents to any such U.S. person or other person within the United States, other than any QIB and those persons, if any, retained to advise such non-u.s. person or QIB, is prohibited. European Economic Area In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State ), each Dealer has represented, warranted and agreed, and each further Dealer appointed under the Programme will be required to represent, warrant and agree, that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date ) it has not made and will not make an offer of Notes which are the subject of the offering contemplated by the Offering Memorandum as completed by the final terms in relation thereto to the public in that Relevant Member State except that it may, with effect from and including the Relevant Implementation Date, make an offer of such Notes to the public in that Relevant Member State: (a) (b) (c) (d) if the final terms in relation to the Notes specify that an offer of those Notes may be made other than pursuant to Article 3(2) of the Prospectus Directive in that Relevant Member State (a Non-exempt Offer ), following the date of publication of a prospectus in relation to such Notes which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, provided that any such prospectus has subsequently been completed by the final terms contemplating such Non-exempt Offer, in accordance with the Prospectus Directive, in the period beginning and ending on the dates specified in such prospectus or final terms, as applicable; at any time to any legal entity which is a qualified investor as defined in the Prospectus Directive; at any time to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by the Issuer for any such offer; or at any time in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of Notes referred to in (b) to (d) above shall require the Issuer or any Dealer to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive. For the purposes of this provision, the expression an offer of Notes to the public in relation to any Notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe the Notes, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/EC (and any amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State) and 234

235 includes any relevant implementing measure in each Relevant Member State and the expression 2020 PD Amending Directive means Directive 2010/73/EU. United Kingdom Each Dealer has represented, warranted and agreed, and each further Dealer appointed under the Programme will be required to represent, warrant and agree, that: (a) in relation to any Notes which have a maturity of less than one year, (i) it is a person whose ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its business and (ii) it has not offered or sold and will not offer or sell any Notes other than to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or as agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses where the issue of the Notes would otherwise constitute a contravention of Section 19 of the Financial Services and Markets Act 2000 (the FSMA ) by the Issuer; (b) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of any Notes in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and (c) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom. Brazil The Notes have not been and will not be issued nor publicly placed, distributed, offered or negotiated in the Brazilian capital markets. Neither we nor the issuance of the Notes have been or will be registered with the CVM. Any public offering or distribution, as defined under Brazilian laws and regulations, of the Notes in Brazil is not legal without prior registration under Law No. 6,385, of December 7, 1976, as amended, and Instruction No. 400, issued by the CVM on December 29, 2003, as amended. Documents relating to the offering of the Notes, as well as information contained therein, may not be supplied to the public in Brazil (as the offering of the Notes is not a public offering of securities in Brazil), nor be used in connection with any offer for subscription or sale of the Notes to the public in Brazil. Therefore, each of the Dealers has represented, warranted and agreed that it has not offered or sold, and will not offer or sell, the Notes in Brazil, except in circumstances which do not constitute a public offering, placement, distribution or negotiation of securities in the Brazilian capital markets regulated by Brazilian legislation. Persons wishing to offer or acquire the Notes within Brazil should consult with their own counsel as to the applicability of registration requirements or any exemption therefrom. Cayman Islands Each Dealer has agreed that it has not offered or sold, and will not offer whether directly or indirectly or sell, any Notes to the public in the Cayman Islands. Notes may be issued to ordinary non-resident and exempted companies of the Cayman Islands. Each Dealer has agreed to comply with any direction of the Registrar of Companies in and for the Cayman Islands prohibiting (a) the sale of Notes in the Cayman Islands or (b) any invitation in the Cayman Islands to subscribe for the Notes. Japan The Notes have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law ). Accordingly, each Dealer represents and agrees that it has not, directly or indirectly, offered or sold and will not, directly or indirectly, offer or sell any Notes in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or any entity organised under the laws of Japan) or to others for re-offering or re-sale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan except pursuant to an exemption from the registration 235

236 requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and other relevant laws and regulations of Japan. General Other than with respect to the admission to listing, trading and/or quotation by such one or more listing authorities, stock exchanges and/or quotation systems as may be specified in the relevant Pricing Supplement, no action has been or will be taken in any jurisdiction by the Dealers or us that would permit a public offering of any of the Notes, or possession or distribution of this Offering Memorandum, or any part thereof including any Pricing Supplement, or any other offering or publicity material relating to the Notes, in any country or jurisdiction where action for that purpose is required. Each Dealer has agreed and each further Dealer appointed under the Programme will be required to agree that it will comply with all applicable laws and regulations in each jurisdiction in which it acquires, offers, sells, or delivers Notes or has in its possession or distributes this Offering Memorandum, or any part thereof including any Pricing Supplement, or any such other material, in all cases at its own expense. Each Dealer has agreed and each further Dealer appointed under the Programme will be required to agree that it will also procure that no obligations are imposed on us in any such jurisdiction as a result of any of the foregoing actions (except to the extent that such actions are our actions). We will have no responsibility for, and each Dealer has agreed and each further Dealer appointed under the Programme will be required to agree that it will obtain any consent, approval or permission required by it for, the acquisition, offer, sale or delivery by it of Notes under the laws and regulations in force in any jurisdiction to which it is subject or in or from which it may make any acquisition, offer, sale or delivery. No Dealer is authorised to make any representation or use any information in connection with the issue, offering and sale of the Notes other than as contained in this Offering Memorandum, including the applicable Pricing Supplement, and any other information or document supplied. Selling restrictions may be supplemented or modified with our agreement and the agreement of the relevant Dealers. Any such supplement or modification will be set out in the relevant Pricing Supplement (in the case of a supplement or modification relevant only to a particular Tranche of Notes) or (in any other case) in a supplement to this Offering Memorandum. Purchasers of the Notes may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase in addition to the purchase price. 236

237 TRANSFER RESTRICTIONS Rule 144A Notes Each purchaser of Restricted Notes pursuant to Rule 144A, by accepting delivery of this Offering Memorandum, will be deemed to have represented, agreed and acknowledged that: (1) It is (a) a qualified institutional buyer within the meaning of Rule 144A ( QIB ), (b) acquiring such Restricted Notes for its own account or for the account of a QIB and (c) aware, and each beneficial owner of such Restricted Notes has been advised, that the sale of such Restricted Notes to it is being made in reliance on Rule 144A. (2) It understands that the Restricted Notes have not been and will not be registered under the Securities Act and may not be offered, sold, pledged or otherwise transferred except (a) in accordance with Rule 144A to a person that it and any person acting on its behalf reasonably believe is a QIB purchasing for its own account or for the account of a QIB, (b) in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S or (c) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available), in each case in accordance with any applicable securities laws of any state of the United States. (3) Except as otherwise provided in a Pricing Supplement, it is deemed to represent by its purchase and holding that either (A) it is not and for so long as it holds a Note (or any interest therein) will not be (i) an employee benefit plan as defined in Section 3(3) of the U.S. Employee Retirement Income Security Act of 1974, as amended ( ERISA ) that is subject to Title I of ERISA, (ii) a plan as defined in and subject to Section 4975 of the Code, (iii) any entity whose underlying assets include, or are deemed to include, the assets of any such employee benefit plan subject to ERISA or other plan subject to Section 4975 of the Code, or (iv) a governmental or other employee benefit plan which is subject to any U.S. federal, state or local law, that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of the Code, or (B) its purchase and holding of the Notes (or any interest therein) will not constitute or result in a prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or, in the case of such a governmental or other employee benefit plan, a violation of any such substantially similar U.S. federal, state or local law) for which an exemption is not available. (4) It understands that such Restricted Notes, unless we determine otherwise in compliance with applicable law, will bear a legend to the following effect: THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE SECURITIES ACT ) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) IN ACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT TO A PERSON THAT THE HOLDER AND ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVE IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT OR (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALES OF THIS NOTE. EXCEPT AS OTHERWISE PROVIDED IN A PRICING SUPPLEMENT, BY ITS PURCHASE AND HOLDING OF THIS NOTE (OR ANY INTEREST HEREIN), THE PURCHASER OR HOLDER WILL BE DEEMED TO HAVE REPRESENTED AND AGREED THAT EITHER (A) IT IS NOT AND FOR SO LONG AS IT HOLDS THIS NOTE (OR ANY INTEREST HEREIN) WILL NOT BE (I) AN EMPLOYEE BENEFIT 237

238 PLAN AS DEFINED IN SECTION 3(3) OF THE U.S. EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ( ERISA ) THAT IS SUBJECT TO TITLE I OF ERISA, (II) A PLAN AS DEFINED IN AND SUBJECT TO SECTION 4975 OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE CODE ), (III) ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE, OR ARE DEEMED TO INCLUDE, THE ASSETS OF ANY SUCH EMPLOYEE BENEFIT PLAN SUBJECT TO ERISA OR OTHER PLAN SUBJECT TO SECTION 4975 OF THE CODE, OR (IV) A GOVERNMENTAL OR OTHER EMPLOYEE BENEFIT PLAN WHICH IS SUBJECT TO ANY U.S. FEDERAL, STATE OR LOCAL LAW, THAT IS SUBSTANTIALLY SIMILAR TO THE PROVISIONS OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE, OR (B) ITS PURCHASE AND HOLDING OF THIS NOTE (OR ANY INTEREST HEREIN) WILL NOT CONSTITUTE OR RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE (OR, IN THE CASE OF SUCH A GOVERNMENTAL OR OTHER EMPLOYEE BENEFIT PLAN, A VIOLATION OF ANY SUCH SUBSTANTIALLY SIMILAR U.S. FEDERAL, STATE, OR LOCAL LAW) FOR WHICH AN EXEMPTION IS NOT AVAILABLE. (5) We, the Registrar, the Dealers and their affiliates, and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements. If it is acquiring any Restricted Notes for the account of one or more QIBs, it represents that it has sole investment discretion with respect to each such account and that it has full power to make the foregoing acknowledgements, representations and agreements on behalf of each such account. (6) It understands that the Restricted Notes offered in reliance on Rule 144A will be represented by the DTC Restricted Global Note. Before any interest in the DTC Restricted Global Note may be offered, sold, pledged or otherwise transferred to a person who takes delivery in the form of an interest in the Regulation S Global Note, it will be required to provide a Transfer Agent with a written certification (in the form provided in the Agency Agreement) as to compliance with applicable securities laws. Prospective purchasers are hereby notified that sellers of the Notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. Regulation S Notes Each purchaser of Unrestricted Notes (or any interest therein) outside the United States pursuant to Regulation S and each subsequent purchaser of such Unrestricted Notes in resales prior to the expiration of the distribution compliance period, by accepting delivery of this Offering Memorandum and the Notes, will be deemed to have represented, agreed and acknowledged that: (1) It is, or at the time Unrestricted Notes are purchased will be, the beneficial owner of such Unrestricted Notes and (a) it is not a U.S. person and it is located outside the United States (within the meaning of Regulation S) and (b) it is not our affiliate or a person acting on behalf of such an affiliate. (2) It understands that such Unrestricted Notes have not been and will not be registered under the Securities Act and that, prior to the expiration of the distribution compliance period, it will not offer, sell, pledge or otherwise transfer such Unrestricted Notes except (a) in accordance with Rule 144A under the Securities Act to a person that it and any person acting on its behalf reasonably believe is a QIB purchasing for its own account or the account of a QIB or (b) in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S, in each case in accordance with any applicable securities laws of any State of the United States. (3) Except as otherwise provided in a Pricing Supplement, it is deemed to represent by its purchase and holding that either (A) it is not and for so long as it holds a Note (or any interest therein) will not be (i) an employee benefit plan as defined in Section 3(3) of the U.S. Employee Retirement Income Security Act of 1974, as amended ( ERISA ) that is subject to Title I of ERISA, (ii) a plan as defined in and subject to Section 4975 of the Code, (iii) any entity whose underlying assets include, or are deemed to include, the assets of any such employee 238

239 benefit plan subject to ERISA or other plan subject to Section 4975 of the Code, or (iv) a governmental or other employee benefit plan which is subject to any U.S. federal, state or local law, that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of the Code, or (B) its purchase and holding of the Notes (or any interest therein) will not constitute or result in a prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or, in the case of such a governmental or other employee benefit plan, a violation of any such substantially similar U.S. federal, state or local law) for which an exemption is not available. (4) It understands that such Unrestricted Notes, unless otherwise determined by us in accordance with applicable law, will bear a legend to the following effect: THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE SECURITIES ACT ) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT. EXCEPT AS OTHERWISE PROVIDED IN A PRICING SUPPLEMENT, BY ITS PURCHASE AND HOLDING OF THIS NOTE (OR ANY INTEREST HEREIN), THE PURCHASER OR HOLDER WILL BE DEEMED TO HAVE REPRESENTED AND AGREED THAT EITHER (A) IT IS NOT AND FOR SO LONG AS IT HOLDS THIS NOTE (OR ANY INTEREST HEREIN) WILL NOT BE (I) AN EMPLOYEE BENEFIT PLAN AS DEFINED IN SECTION 3(3) OF THE U.S. EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ( ERISA ) THAT IS SUBJECT TO TITLE I OF ERISA, (II) A PLAN AS DEFINED IN AND SUBJECT TO SECTION 4975 OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE CODE ), (III) ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE, OR ARE DEEMED TO INCLUDE, THE ASSETS OF ANY SUCH EMPLOYEE BENEFIT PLAN SUBJECT TO ERISA OR OTHER PLAN SUBJECT TO SECTION 4975 OF THE CODE, OR (IV) A GOVERNMENTAL OR OTHER EMPLOYEE BENEFIT PLAN WHICH IS SUBJECT TO ANY U.S. FEDERAL, STATE OR LOCAL LAW, THAT IS SUBSTANTIALLY SIMILAR TO THE PROVISIONS OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE, OR (B) ITS PURCHASE AND HOLDING OF THIS NOTE (OR ANY INTEREST HEREIN) WILL NOT CONSTITUTE OR RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE (OR, IN THE CASE OF SUCH A GOVERNMENTAL OR OTHER EMPLOYEE BENEFIT PLAN, A VIOLATION OF ANY SUCH SUBSTANTIALLY SIMILAR U.S. FEDERAL, STATE, OR LOCAL LAW) FOR WHICH AN EXEMPTION IS NOT AVAILABLE. (5) We, the Registrar, the Dealers and their affiliates, and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements. (6) It understands that the Unrestricted Notes offered in reliance on Regulation S will be represented by the Regulation S Global Note. Prior to the expiration of the distribution compliance period, before any interest in the Regulation S Global Note may be offered, sold, pledged or otherwise transferred to a person who takes delivery in the form of an interest in the Regulation S Global Note, it will be required to provide a Transfer Agent with a written certification (in the form provided in the Agency Agreement) as to compliance with applicable securities laws. (7) Delivery of the Unrestricted Notes may be made against payment therefor on or about a date which will occur more than three business days after the date of pricing of the Unrestricted Notes. Pursuant to Rule 15c6-1 under the U.S. Securities Exchange Act of 1934 (the Exchange Act ), trades in the secondary market generally are required to settle in three business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade Unrestricted Notes on the date of pricing or the next succeeding business day will be required, by virtue of the fact that the Unrestricted Notes may initially settle on or about a date which will occur more than three business days after the date of pricing of the Unrestricted Notes to specify an alternate settlement cycle at the time of any such trade to prevent a failed settlement. Purchasers of 239

240 Unrestricted Notes who wish to trade Unrestricted Notes on the date of pricing or the next succeeding business day should consult their own adviser. 240

241 LEGAL MATTERS The validity of the Notes will be passed upon for the Dealers by Clifford Chance LLP, English legal advisers and special United States counsel to the Dealers. The validity of the Notes will also be passed upon for us by Proskauer Rose LLP, our English legal advisers and special United States counsel. The validity of the issuance of the Notes and certain matters in connection with Brazilian law will be passed upon for the Dealers by Pinheiro Neto Advogados, the Dealers Brazilian counsel. The validity of the issuance of the Notes and certain other matters in connection with Brazilian law will also be passed upon for us by Machado, Meyer, Sendacz e Opice Advogados, our Brazilian legal advisers. The validity of the issuance of the Notes through our Cayman Islands Branch and certain other matters in connection with Cayman Islands law will also be passed upon for us by Maples and Calder, Cayman Islands legal advisers to the Issuer. 241

242 INDEPENDENT ACCOUNTANTS The individual and consolidated financial statements of Banco ABC Brasil S.A. as of and for the years ended December 31, 2013, 2012 and 2011 included in this Offering Memorandum have been audited by Ernst & Young, independent accountants, as stated in their reports appearing herein. Ernst & Young is duly registered with the CFC, with the Regional Accounting Councils (Conselhos Regionais de Contabilidade) of several Brazilian states, including the State of São Paulo and with the CVM. 242

243 GENERAL INFORMATION (1) The Bearer Notes and Registered Notes represented by a Regulation S Global Note have been accepted for clearance through Euroclear and Clearstream, Luxembourg. The Common Code for each Bearer Series of Notes, together with the relevant ISIN number and the CUSIP number for each Tranche of Registered Notes, will be contained in the Pricing Supplement relating thereto. In addition, we will make an application with respect to any Restricted Notes of a Registered Series to be accepted for trading in book-entry form by DTC. Acceptance by DTC of Restricted Notes of each Tranche of a Registered Series will be confirmed in the applicable Pricing Supplement. (2) The establishment of the Programme and the execution of all documents in connection therewith was authorised by our board of executive officers on January 3, 2011 and the update of the Programme and the execution of all documents in connection therewith was authorised by our board of executive officers on March 11, All consents, approvals, authorisations and other orders of all regulatory authorities under the laws of Brazil have been given for the establishment of the Programme, the issue of Notes under the Programme and the execution of the Dealer Agreement, Agency Agreement and Trust Deed and are in full force and effect, provided that, where we are acting through our principal office in Brazil, an issuance of Notes under the Programme may be made subject to Central Bank authorisation procedures including: (i) the electronic registration of the financial terms and conditions of the Notes in the RDE-ROF Module of the Central Bank of Brazil; (ii) the registration in the ROF of the relevant schedule of payments; (iii) the obtaining of further authorisations from the Central Bank to make payments outside Brazil other than scheduled payments of principal, interest, commissions, fees and expenses as contemplated by the ROF; and (iv) any necessary amendments or revalidations to the ROF and schedules of payments. (3) Neither the Issuer nor any of its subsidiaries is or has been involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Issuer aware) over the past 12 months, which may have, or have had in the recent past, significant effects on the Issuer s or the Group s financial position or profitability. (4) Save as disclosed herein, there has been no significant change in our financial or trading position or the financial or trading position of the Group and no material adverse change in our prospects or the prospects of the Group since December 31, (5) We are a corporation incorporated in Brazil. Neither we nor any of our directors and executive officers are residents of the United States, and all or a substantial portion of our assets and such persons are located outside the United States. It may not be possible for investors to effect service of process within the United States upon us or such persons or to enforce against any of them in United States courts judgments obtained in United States courts predicated upon the civil liability provisions of the federal securities laws of the United States. (6) For so long as the Programme remains in effect or any Notes shall be outstanding, physical copies of the following documents may be inspected during normal business hours at the specified offices of any Paying Agent or Transfer Agent: (a) the constitutive documents of Banco ABC Brasil S.A.; (b) the Offering Memorandum and any Pricing Supplement relating to Notes which are admitted to listing, trading and/or quotation by any listing authority, stock exchange and/or quotation system (a Pricing Supplement relating to an unlisted Note will only be available for inspection by a holder of such Note and such holder must produce evidence satisfactory to the Paying Agent or Transfer Agent, as the case may be, as to its holding of Notes and identity); (c) the Agency Agreement; 243

244 (d) the Trust Deed; (e) the Dealer Agreement; (f) the most recent publicly available audited consolidated annual financial statements of Banco ABC Brasil S.A. beginning with such financial statements as of and for the years ended December 31, 2013, 2012 and In addition, copies of the items listed in (a) and (f) above will be provided free of charge at the specified offices of the Paying Agents and Transfer Agents upon oral or written request. (7) We have agreed to furnish to investors upon request such information as may be required by Rule 144A(d)(4). (8) Application has been made for this Offering Memorandum to be approved by the Irish Stock Exchange. Application has been made to list Notes issued under the Programme on the Global Exchange Market of the Irish Stock Exchange. However, Notes may be issued under the Programme which will not be listed on the Irish Stock Exchange or any other stock exchange, listing authority and/or quotation system or which will be listed on such stock exchange, listing authority and/or quotation system as the relevant Dealers and ourselves may agree. Expenses relating to the admission to trading are estimated to be EUR1,500. (9) We were registered with the Central Bank on August 3, 1989 under registration number /89. Our purpose, as set out in our constitutive documents, is to operate as a multiple service bank, including trade, investment, real estate, financing and investment operations and foreign exchange portfolios. 244

245 INDEX TO FINANCIAL STATEMENTS Page no. Audited Consolidated Financial Statements as of and for the years ended December 31, 2013 and 2012 Banco ABC Brasil S.A. and its subsidiaries prepared in accordance with Brazilian GAAP Report of Independent Auditors... F-3 Consolidated Balance Sheets as of December 31, 2013 and F-5 Consolidated Income Statements for the years ended December 31, 2013 and F-7 Statements of Changes in Shareholders Equity for the years ended December 31, 2013 and F-8 Consolidated Statements of Cash Flows for years ended December 31, 2013 and F-9 Consolidated Statements of Value Added for years ended December 31, 2013 and F-10 Notes to the Consolidated Financial Statements as of and for the years ended December 31, 2013 and F-11 Audited Consolidated Financial Statements as of and for the years ended December 31, 2012 and 2011 Banco ABC Brasil S.A. and its subsidiaries prepared in accordance with Brazilian GAAP Report of Independent Auditors... F-53 Consolidated Balance Sheets as of December 31, 2012 and F-55 Consolidated Income Statements for the years ended December 31, 2012 and F-57 Statements of Changes in Shareholders Equity for the years ended December 31, 2012 and F-58 Consolidated Statements of Cash Flows for the years ended December 31, 2012 and F-59 Consolidated Statement of Value Added for the years ended December 31, 2012 and F-60 Notes to the Consolidated Financial Statements as of and for the years ended December 31, 2012 and F-61 F-1

246 Audited Financial Statements Banco ABC BRASIL S.A. December 31, 2013 and 2012 with Independent Auditor s Report F-2

247 A free translation from Portuguese into English of Independent Auditor s Report on financial statements prepared in Brazilian currency in accordance with accounting practices adopted in Brazil applicable to institutions authorized to operate by Central Bank of Brazil Independent Auditor s Report To the Directors and Shareholders of Banco ABC Brasil S.A. We have audited the financial statements of Banco ABC Brasil S.A. and the consolidated financial statements of Banco ABC Brasil S.A. and subsidiaries, which comprise the balance sheets as at December 31, 2013, and the related statements of income, of changes in shareholders equity and of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management's responsibility for the financial statements The management of Banco ABC Brasil S.A. and subsidiaries is responsible for the preparation and fair presentation of the financial statements in accordance with the accounting practices adopted in Brazil applicable to institutions authorized to operate by Central Bank of Brazil (BACEN), as well as for such internal control as management determines is necessary to enable the preparation of these financial statements that are free from material misstatement, whether due to fraud or error. Auditor's responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Brazilian and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures selected to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the preparation and fair presentation of the financial statements of Banco ABC Brasil S.A. and the consolidated financial statements of Banco ABC Brasil S.A. and subsidiaries in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal controls of Banco ABC Brasil S.A. and subsidiaries. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. Ernst & Young 1 F-3

248 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Banco ABC Brasil S.A., and the consolidated financial position of Banco ABC Brasil S.A. and subsidiaries as at December 31, 2013, and their financial performance and cash flows for year then ended in accordance with the accounting practices adopted in Brazil applicable to institutions authorized to operate by Central Bank of Brazil. Statements of value added We have also audited the statements of value added (SVA), unconsolidated and consolidated, for the year ended December 31, 2013, the presentation of which is required by Brazilian corporation law for publicly-held companies. These statements have been subject to the same auditing procedures previously described and, in our opinion, are fairly presented, in all material respects, in relation to the overall financial statements. Other matters These financial statements were prepared within the special purpose to be included in an offering memorandum of the Bank and were prepared in accordance with accounting practices adopted in Brazil applicable to institutions accredited by the Central Bank of Brazil. The information related to the reconciliation of Equity and Net Income under Brazilian GAAP and IFRS, which was presented as supplemental information of the financial statements issued on February 4, 2014 (footnote 28), was excluded of these financial statements once the presentation of this information is not required by the Central Bank of Brazil. Sao Paulo, February 4, ERNST & YOUNG Auditores Independentes S.S. CRC-2SP015199/O-6 Eduardo Wellichen Renato Nantes Accountant CRC-1SP184050/O-6 Accountant CRC-1RJ115529/0-7-S-SP Ernst & Young 2 F-4

249 A free translation from Portuguese into English of financial statements prepared in Brazilian currency in accordance with accounting practices adopted in Brazil applicable to institutions authorized to operate by Central Bank of Brazil BANCO ABC BRASIL S.A. Balance sheets December 31, 2013 and 2012 (In thousands of reais) Notes Bank Consolidated Assets Current assets 12,038,859 9,703,905 12,160,928 9,783,783 Cash and banks 175,347 87, ,347 87,523 Interbank investments 4 2,403,404 1,886,332 2,403,404 1,886,332 Money market investments 584,011 1,184, ,011 1,184,858 Interbank deposits 535, , , ,097 Foreign investments 1,284, ,377 1,284, ,377 Marketable securities and derivative instruments 5 1,606,688 1,206,008 1,721,707 1,278,744 Own portfolio 1,102, ,927 1,217, ,663 Linked to guarantees given 298, , , ,755 Linked to repurchase agreement 83,117-83,117 - Derivative financial instruments 122,364 91, ,364 91,326 Interbank accounts 6 62, ,892 62, ,892 Interbank onlendings 59, ,164 59, ,164 Reserve requirements Central Bank Deposits 3,102 6,728 3,102 6,728 Lending operations 5,329,990 4,616,623 5,329,990 4,616,623 Loans - public sector 7 128,289 73, ,289 73,328 Loans - private sector 7 5,314,050 4,661,268 5,314,050 4,661,268 Allowance for loan losses 8 (112,349) (117,973) (112,349) (117,973) Other credits 2,434,866 1,726,081 2,441,916 1,733,223 Foreign exchange portfolio 9.a 1,858,846 1,222,104 1,858,846 1,222,104 Receivables 10,639 10,390 10,639 10,390 Trading and intermediation of securities 9.b 56,297 34,363 56,297 34,363 Sundry 9.c 524, , , ,031 Allowance for losses on other credits 8 (15,264) (13,665) (15,264) (13,665) Other assets 26,016 34,446 26,016 34,446 Other assets 23,035 33,046 23,035 33,046 Prepaid expenses 2,981 1,400 2,981 1,400 Noncurrent assets 5,042,004 3,608,800 5,077,139 3,676,904 Marketable securities and derivative instruments 5 1,223, ,719 1,258, ,791 Own portfolio 463, , , ,231 Linked to guarantees given 465,600 42, ,600 42,456 Derivative financial instruments 293, , , ,104 Lending operations 3,643,620 2,908,456 3,643,620 2,908,456 Loans - public sector 7-127, ,778 Loans - private sector 7 3,704,935 2,826,285 3,704,935 2,826,285 Allowance for loan losses 8 (61,315) (45,607) (61,315) (45,607) Other credits 173, , , ,009 Receivables 4, , Sundry 9.c 179, , , ,798 Allowance for losses on other credits 8 (10,819) (4,770) (10,819) (4,770) Other assets 2,265 3,648 2,265 3,648 Temporary investments 1,042 1,436 1,042 1,436 Prepaid expenses 1,223 2,212 1,223 2,212 Permanent assets 168, ,229 21,678 22,439 Investments 147, , Investments in subsidiaries and affiliates - Domestic , , Other investments Fixed assets 11 12,967 15,392 12,967 15,392 Other fixed assets 26,931 26,873 26,931 26,873 Accumulated depreciation (13,964) (11,481) (13,964) (11,481) Deferred charges Organization and expansion costs 4,390 4,390 4,390 4,390 Accumulated amortization (4,361) (4,249) (4,361) (4,249) Intangible 11 8,330 6,494 8,330 6,494 Intangible assets 18,950 15,024 18,950 15,024 Accumulated amortization (10,620) (8,530) (10,620) (8,530) Total assets 17,249,226 13,472,934 17,259,745 13,483,126 Ernst & Young 3 F-5

250 BANCO ABC BRASIL S.A. Balance sheets December 31, 2013 and 2012 (In thousands of reais) Notes Bank Consolidated Liabilities and equity Current liabilities 10,754,056 8,151,126 10,764,250 8,161,318 Deposits 12 3,391,715 3,398,028 3,391,566 3,397,808 Demand deposits 42,547 46,529 42,398 46,309 Interbank deposits 419,122 1,006, ,122 1,006,027 Time deposits 2,930,046 2,345,472 2,930,046 2,345,472 Money market funding 112, ,496 - Linked to repurchase agreement 112, ,496 - Funds from acceptance and issue of securities 13 2,057,402 1,134,830 2,057,402 1,134,830 Real estate, mortgage, credit an similar notes 2,052,510 1,134,830 2,052,510 1,134,830 Securities issued abroad 4,892-4,892 - Interbranch accounts 27,544 31,581 27,544 31,581 Third party funds in transit 27,544 31,581 27,544 31,581 Borrowings 14 2,473,423 1,666,342 2,473,423 1,666,342 Foreign borrowings 2,473,423 1,666,342 2,473,423 1,666,342 Onlendings in Brazil government agencies , , , ,916 BNDES 414, , , ,393 FINAME 333, , , ,332 Other institutions 31,384 26,191 31,384 26,191 Derivative financial instruments 5 142,488 71, ,488 71,985 Derivative financial instruments 142,488 71, ,488 71,985 Other liabilities 1,770,030 1,100,444 1,780,373 1,110,856 Collection of taxes 336 2, ,967 Foreign exchange portfolio 15.a 1,514, ,486 1,514, ,486 Social and statutory 54,763 65,311 54,763 65,311 Taxes and social security 15.b 110, , , ,450 Trading and intermediation of securities 12,183 1,428 12,183 1,428 Subordinated debts 15.c 16,808 22,997 16,808 22,997 Sundry 15d 60,933 51,202 60,957 51,217 Noncurrent liabilities 4,547,639 3,617,029 4,547,964 3,617,029 Deposits , , , ,929 Interbank deposits 13,105 59,908 13,105 59,908 Time deposits 157, , , ,021 Funds from acceptance and issue of securities 13 1,697,318 1,163,669 1,697,318 1,163,669 Real estate, mortgage, credit an similar notes 1,472,118 1,163,669 1,472,118 1,163,669 Securities issued abroad 225, ,200 Borrowings 14-4,133-4,133 Foreign borrowings - 4,133-4,133 Onlendings in Brazil government agencies 14 1,564,803 1,106,387 1,564,803 1,106,387 BNDES 621, , , ,473 FINAME 935, , , ,914 Other institutions 8,285-8,285 - Derivative financial instruments 5 20,173 5,681 20,173 5,681 Derivative financial instruments 20,173 5,681 20,173 5,681 Other liabilities 1,094,528 1,004,230 1,094,853 1,004,230 Taxes and social security 15.b 57,897 59,272 58,222 59,272 Social and statutory Subordinated debts 15.c 1,034, ,014 1,034, ,014 Sundry 15.d 2,140 1,944 2,140 1,944 Deferred income 30,009 25,306 30,009 25,306 Deferred income 30,009 25,306 30,009 25,306 Equity 25 1,917,522 1,679,473 1,917,522 1,679,473 Capital: 1,113,920 1,041,900 1,113,920 1,041,900 Brazilian residents 487, , , ,500 Foreign residents 626, , , ,400 Capital reserve 11,739 2,410 11,739 2,410 Income reserves 827, , , ,957 Equity valuation adjustment (2,634) 2,803 (2,634) 2,803 Treasury shares (33,076) (12,597) (33,076) (12,597) Total Liabilities 17,249,226 13,472,934 17,259,745 13,483,126 Ernst & Young 4 F-6

251 BANCO ABC BRASIL S.A. Income statements Years ended December 31, 2013 and 2012 and six-month period ended December 31, 2013 (In thousands of reais, except net earnings per share) Notes Bank Consolidated 2nd Half Year Year Income from financial intermediation 822,726 1,543,484 1,325,109 1,558,354 1,339,461 Lending operations 510, , , , ,160 Marketable securities 207, , , , ,905 Gain (losses) on derivative financial instruments 5b 33, , , , ,685 Foreign exchange operations 57, ,890 (15,382) 122,890 (15,382) Income from receivables acquired 14,031 26,006 13,093 26,006 13,093 Expenses from financial intermediation (586,604) (1,132,116) (933,650) (1,132,116) (933,650) Funding expenses (358,570) (657,622) (651,599) (657,622) (651,599) Borrowings and onlendings (183,427) (381,665) (171,233) (381,665) (171,233) Allowance for loan losses 8 (44,892) (92,753) (111,122) (92,753) (111,122) Allowance for loan losses Exchange rate variation on credit assignment operations 285 (76) 304 (76) 304 Gross income from financial intermediation 236, , , , ,811 Other operating income (expenses) (31,940) (19,760) (49,357) (29,507) (58,876) Income from services rendered 16 79, , , , ,403 Personnel expenses (73,425) (140,661) (130,349) (140,900) (130,584) Other administrative expenses 17 (42,194) (78,182) (71,555) (78,362) (71,488) Taxes (22,581) (40,936) (38,062) (41,371) (38,487) Equity pick-up in subsidiaries 10 4,783 8,884 8, Other operating income 18 40, ,923 51, ,919 51,257 Other operating expenses 19 (18,401) (26,715) (6,450) (26,720) (6,977) Operating Income 204, , , , ,935 Non-operating Income (1,250) (1,771) (6,611) (1,819) (6,611) Income before taxes and profit sharing 202, , , , ,324 Income and social contribution taxes 20 (16,577) (39,472) (56,413) (44,547) (61,246) Provision for income tax (5,192) (18,548) (69,182) (21,971) (72,455) Provision for social contribution tax (8,210) (17,346) (43,639) (18,998) (45,199) Deferred tax credits (3,175) (3,578) 56,408 (3,578) 56,408 Variable compensation (42,859) (82,102) (52,459) (82,102) (52,459) Net income for the six-month period / year 143, , , , ,619 Net earnings per share in Brazilian Reais 143,914,331 shares (138,629,799 in 2012) , See accompanying notes. Ernst & Young 5 F-7

252 BANCO ABC BRASIL S.A. Statements of changes in shareholders equity Years ended December 31, 2013 and 2012 and six-month period ended December 31, 2013 (In thousands of reais) Capital Capital Reserve Legal Reserve Income reserves Dividends equalization Share buyback Equity valuation adjustment Retained earnings Treasury shares Total Balances at December 31, ,004, , ,828 55, (10,997) 1,499,606 Adjustment to market value securities , ,481 Acquisition of treasury shares (1,600) (1,600) Net income for the year , ,619 Interest on equity capital (86,872) - (86,872) Capital increase 37, ,500 Allocation Legal reserve , (11,331) - - Constitution of reserve - Management remuneration - 1, ,739 Constitution of reserve , (128,416) - - Balances at December 31, ,041,900 2,410 74, ,244 55,000 2,803 - (12,597) 1,679,473 Adjustment to market value securities (5,437) - - (5,437) Acquisition of treasury shares (20,479) (20,479) Net income for the period , ,263 Capital increase 72, ,020 Interest on equity capital (85,647) - (85,647) Allocation Legal reserve , (13,413) - - Constitution of reserve - Management remuneration - 9, ,329 Constitution of reserve , (169,203) - - Balances at December 31, ,113,920 11,739 88, ,447 55,000 (2,634) - (33,076) 1,917,522 Balances at June 30, ,078,190 7,442 80, ,244 55,000 (1,033) 75,797 (17,392) 1,794,199 Adjustment to market value securities (1,601) - - (1,601) Acquisition of treasury shares (15,684) (15,684) Net income for the period , ,496 Interest on equity capital (42,915) - (42,915) Capital increase 35, ,730 Allocation Legal reserve - - 7, (7,175) - - Constitution of reserve - Management remuneration - 4, ,297 Constitution of reserve , (169,203) - - Balances at December 31, ,113,920 11,739 88, ,447 55,000 (2,634) - (33,076) 1,917,522 See accompanying notes. Ernst & Young 6 F-8

253 BANCO ABC BRASIL S.A. Cash flow statements indirect method Years ended December 31, 2013 and 2012 and six-month period ended December 31, 2013 (In thousands of reais) Bank Consolidated 2nd Half Year Year Operating activities Adjusted net income for the six-month period / year 184, , , , ,873 Net income for the six-month period / year 143, , , , ,619 Adjustment to net income: 41,334 90, ,742 99, ,254 Depreciation and amortization 3,061 6,158 5,858 6,158 5,858 Equity pick-up in subsidiaries (4,783) (8,884) (8,512) - - Income (loss) on disposal of assets not used in banking operations 4,195 4,875 2,171 4,875 2,171 Loss on disposal fixed assets and intangibles Provision for impairment of assets not of own use (3,021) (3,272) 4,358 (3,272) 4,358 Provision for impairment of tax incentives Allowance for loan losses 44,607 92, ,818 92, ,818 Provision for contingent liabilities 2,457 7,666 (1,518) 7,666 (1,518) Provision for other liabilities (3,605) (3,827) - (3,827) - Mark-to-market marketable securities and derivatives (1,601) (5,437) 2,481 (5,437) 2,481 Changes in assets and liabilities (1,687,748) (3,151,299) (745,508) (3,160,266) (754,068) (Increase)/Decrease in interbank investments (677,900) (725,304) 318,176 (725,304) 318,176 (Increase) /Decrease in marketable securities and derivative financial instruments (assets/liabilities) 165,988 (971,998) (479,675) (981,344) (490,040) (Increase)/ Decrease in lending operations (1,197,966) (1,541,360) (510,049) (1,541,360) (510,049) (Increase)/ Decrease in other credits and assets 475,537 (753,692) (1,139,489) (753,569) (1,136,995) (Increase) / Decrease in interbank accounts (assets/liabilities) 27,594 84,344 (40,342) 84,344 (40,342) (Decrease) Increase in interbranch accounts 507 (4,037) 6,515 (4,037) 6,515 (Increase)/ Decrease in other liabilities (486,729) 756,045 1,095, ,301 1,095,207 (Decrease) in deferred income 5,221 4,703 3,460 4,703 3,460 Cash flow used in operating activities (1,502,918) (2,792,873) (403,147) (2,792,944) (403,195) Investing activities Acquisition of investments - (5) - (5) 1 Acquisition of fixed assets and intangibles (3,560) (5,855) (7,810) (5,855) (7,810) Acquisition of assets not used in banking operations (6,341) (10,347) (24,234) (10,347) (24,234) Disposal of fixed assets for own use and intangible assets Disposal of assets not used in banking operations 18,306 20,353 8,548 20,353 8,548 Establishment of reserves - Management remuneration 4,297 9,329 1,739 9,329 1,739 Cash flow used in investing activities 12,933 13,873 (21,668) 13,873 (21,667) Financing activities (Decrease) /Increase in deposits (97,161) (168,425) 414,931 (168,354) 414,978 (Decrease)/ Increase in money market funding (12.101) 112, ,496 - Increase /(Decrease) in liabilities for borrowings and onlending 758,722 1,292,406 (77,527) 1,292,406 (77,527) Increase in acceptance and issue of securities 569,592 1,456,221 1,366,869 1,456,221 1,366,869 (Decrease) Treasury shares (15,684) (20,479) (1,600) (20,479) (1,600) Capital increase 35,730 72,020 37,500 72,020 37,500 Interest on equity capital (42,915) (85,647) (86,872) (85,647) (86,872) Cash from financing activities 1,196,183 2,658,592 1,653,301 2,658,663 1,653,348 Increase in cash and cash equivalents (293,802) (120,408) 1,228,486 (120,408) 1,228,486 Cash and cash equivalents At the beginning of the six-month period / year 2,053,882 1,880, ,002 1,880, ,002 At the end of the six-month period / year 1,760,080 1,760,080 1,880,488 1,760,080 1,880,488 (293,802) (120,408) 1,228,486 (120,408) 1,228,486 See accompanying notes. Ernst & Young 7 F-9

254 BANCO ABC BRASIL S.A. Statements of value added Years ended December 31, 2013 and 2012 and six-month period ended December 31, 2013 (In thousands of reais) Bank Consolidated 2nd Half Year Year Determination of value added Income 897,997 1,708,505 1,402,838 1,723,371 1,417,303 Income from financial intermediation 822,726 1,543,484 1,325,109 1,558,354 1,339,461 Income from services rendered 79, , , , ,403 Set-up of allowance for loan losses (44,607) (92,829) (110,818) (92,829) (110,818) Other operating income 40, ,923 51, ,919 51,257 Expenses from financial intermediation (541,997) (1,039,287) (822,832) (1,039,287) (822,832) Assets acquired from third parties (53,722) (90,512) (69,242) (90,744) (69,702) Data Processing and Telecommunications (5,516) (11,093) (10,126) (11,154) (10,188) Services provided by third parties (3,268) (5,855) (5,111) (5,535) (4,813) Financial services (6,995) (13,466) (12,829) (13,480) (12,842) Specialized technical services (4,869) (8,890) (7,929) (9,134) (7,986) Travel expenses (2,370) (4,110) (4,011) (4,110) (4,011) Promotions and public relations (642) (1,668) (1,976) (1,668) (1,976) Other operating expenses (18,401) (26,715) (6,450) (26,720) (6,977) Non-operating income (1,250) (1,771) (6,611) (1,819) (6,611) Other administrative expenses (10,411) (16,944) (14,199) (17,124) (14,298) Retained earnings (3,061) (6,158) (5,857) (6,158) (5,857) Depreciation and amortization (3,061) (6,158) (5,857) (6,158) (5,857) Net value added 299, , , , ,912 Equity pickup in subsidiaries 4,783 8,884 8, Total value added to be distributed 304, , , , ,912 Distribution of value added 304, , , , ,912 Salaries and social charges 103, , , , ,793 Direct compensation 47,776 89,902 81,893 90,058 82,043 Benefits 8,218 17,327 19,125 17,354 19,161 Social charges - FGTS 4,343 7,876 6,395 7,891 6,407 Training 616 1,289 1,723 1,289 1,723 Profit sharing 42,859 82,102 52,459 82,102 52,459 Taxes, charges and compulsory contributions 51, , , , ,983 Federal 49, , , , ,087 State Municipal 1,784 3,549 3,307 3,555 3,314 Remuneration of third party capital 5,062 9,998 9,517 9,998 9,517 Rent 5,062 9,998 9,517 9,998 9,517 Remuneration of shareholders 143, , , , ,619 Interest on equity capital 42,915 85,647 86,872 85,647 86,872 Retained profit 100, , , , ,747 See accompanying notes. Ernst & Young 8 F-10

255 BANCO ABC BRASIL S.A. Notes to the financial statements December 31, 2013 and 2012 (In thousands of reais) 1. Operations The Bank is a publicly traded corporation and a subsidiary of The Arab Banking Corporation, based in Bahrain. In Brazil, the Bank is engaged in asset and liability operations inherent to multiple bank activities, being authorized to operate with commercial, foreign exchange, investment, credit and financing and housing financing portfolios. The Bank s operations are conducted through branches in Brazil and abroad through an overseas branch located in Georgetown, Grand Cayman Islands (Note 22). 2. Financial statements presentation, consolidation criteria and significant accounting practices I Financial statements presentation and consolidation criteria The financial statements (individual and consolidated) were prepared in accordance with accounting practices adopted in Brazil, in light of accounting guidelines contained in Law No. 6,404/76 with amendments introduced by Law No. 11,638/07 and 11,941/09 and the standards and instructions of the Central Bank of Brazil (BACEN) and the Brazilian Securities and Exchange Commission (CVM). The consolidated financial statements include the financial statements of Banco ABC BRASIL S.A. and those of the subsidiaries ABC BRASIL Distribuidora de Títulos e Valores Mobiliários S.A. and ABC BRASIL Administração e Participações Ltda., for which the direct and indirect ownership interest as of December 31, 2013, is equivalent to approximately 100%. These financial statements were approved by the Board of Directors on February 04, The accounting practices adopted to record operations and assess the Bank s assets, including operations conducted by the overseas branch and its consolidated subsidiaries were consistently applied, and investments, rights, obligations and transactions between consolidated entities have been eliminated. In accordance with the convergence process to international accounting standards, certain standards and interpretations were issued by Brazilian FASB (CPC), which will be applicable to financial institutions only when approved by BACEN. The accounting pronouncements already approved by BACEN are: Resolution No. 3,566/08 Impairment of assets; Resolution No. 3,604/08 Cash flow statement; Resolution No. 3,750/09 Related party disclosure; Resolution No. 3,823/09 Provisions, contingent liabilities and contingent assets; Ernst & Young 9 F-11

256 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 2. Financial statements presentation, consolidation criteria and significant accounting practices (Continued) Resolution No. 3,973/11 Subsequent events; Resolution No. 3,989/11 Share-based payments; Resolution No. 4,007/11 Accounting policies, change in estimates and correction of errors; and Resolution No. 4,144/12 Pronouncement basic conceptual. The preparation of the financial statements (individual and consolidated) in accordance with accounting practices adopted in Brazil, applicable to institutions authorized to operate by the Central Bank of Brazil, require that management use assumptions and professional judgment in determining amounts and in recording of accounting estimates, such as the allowance for loan losses, deferred income tax, provision for contingencies and valuation of derivative instruments receivable and payable. Settlement of these transactions involving these estimates may result in amounts different from those estimated, due to the uncertainties related to the determination process. II Significant accounting practices Significant accounting practices are summarized as follows: a) Asset valuation criteria Interbank investments, loans and other rights, except for marketable securities and derivative financial instruments, are stated at cost of acquisition, of investment or release, plus exchange rate variation, monetary restatement and contractual interest. Allowances are recognized for adjustment to realizable value when market value is lower. Marketable securities and derivative financial instruments are classified in accordance with management s intention to hold them in the portfolio, or their availability for sale, and are recorded as follows: Trading securities: are acquired for the purpose of being actively and frequently traded. They are adjusted to market value with the related gain or loss recognized directly in the statements of income for the period. Held to maturity: marketable securities for which the Bank has the intent and ability to maintain in portfolio to maturity are stated at cost, plus earnings reflected in the statements of income for the period. Permanent losses are recognized in P&L for the year. Ernst & Young 10 F-12

257 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 2. Financial statements presentation, consolidation criteria and significant accounting practices (Continued) II Significant accounting practices--(continued) a) Asset valuation criteria--continued Available for sale: marketable securities which cannot be classified as either trading securities or as held to maturity are adjusted to market value. The difference between the amounts restated by the yield curve of the security and market value is recorded under a separate account in shareholders equity, net of tax effects, and transferred to the statements of income for the period when effectively realized. Derivative financial instruments: marked to market against P&L for the period. Forward operations are recorded at final contracted value, less the difference between such value and cash value of the asset or right. This difference is recognized as income or expenses based on the agreement effective terms. Option transactions are recorded at the value of premiums paid or received through effective exercise thereof reduction restated at market value. They are then written off as a decrease or increase in asset or right cost, for the effective exercise thereof, or as income or expenses if not exercised. Futures transactions are recorded at daily adjustment values, allocated as income or expenses. Swap operations are recorded at the value of the receivables-payables difference, which is allocated as income or expenses; Operations with other derivative financial instruments are recorded based on the agreement characteristics. The allowance for loan losses is recognized at an amount considered sufficient to cover potential losses on the Bank s loan portfolio, based on past experience, assessment of delinquent accounts and collateral risks, as well as specific terms and conditions of the operations, in conformity with BACEN Resolution No. 2,682/99. Investments in subsidiaries are stated by the equity method in proportion to the Bank s ownership interest; other investments are stated at cost of acquisition, less a reserve, where applicable, to cover permanent losses. Ernst & Young 11 F-13

258 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 2. Financial statements presentation, consolidation criteria and significant accounting practices (Continued) II Significant accounting practices (Continued) Assets and rights, classified under fixed assets in use are stated at cost of acquisition, less depreciation, where applicable, provided under the straight line method using rates that take the useful lives of the assets into consideration. Deferred charges are stated at cost less accumulated amortization computed under the straight line method. Intangible assets are stated at cost of acquisition, less amortization, where applicable, provided under the straight-line method over the estimated useful lives of the assets, as from the date these were made available for use. b) Cash and cash equivalents Cash and cash equivalents, as established in CMN Resolution No. 3,604/08 include cash, bank deposits, short-term highly liquid investments, with insignificant risks of changes in value, with maturity equal to or less than 90 days. c) Liability valuation criteria Obligations, charges and measurable or known risks, including income taxes for the period are stated at the amounts updated through to the balance sheet date. Foreign-currency obligations are translated into local currency at the exchange rate in force on the balance sheet date as disclosed by the Central Bank of Brazil. Liabilities subject to monetary restatement based on contractual clauses are stated at amounts updated through to the balance sheet date. d) Hedge Accounting Considering the exposure to currency risk and the conditions of loan market abroad through long-term subordinated debt instruments, the Bank has selected some derivative financial instruments to total hedge (fair value hedge) the principal amounts of loans taken out and related interest due. In order to equalize the effects of mark to market of the derivative financial instruments selected for hedge purposes to market, the principal hedged amount, plus interest due, is stated at fair value and also mark to market. Ernst & Young 12 F-14

259 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 2. Financial statements presentation, consolidation criteria and significant accounting practices (Continued) II Significant accounting practices (Continued) The variation in the fair value of hedge derivatives is recognized in the income statement. However, the variation in the fair value of the hedged item attributed to the hedged risk is accounted for as part of its book value, also recognized in the statement of income for the year. When a hedge instrument matures or is sold, cancelled or exercised, or when it does not meet hedge accounting requirements, the hedge strategy ends. The objectives of this operation and the hedging strategy for such risks during the entire operation are duly documented, together with the assessment, both at the beginning of the hedge transaction and on an ongoing basis, confirming that derivative financial instruments of the hedging operations are highly effective in the offset of variations in the fair value (mark to market) of the hedged item. A hedge instrument is considered highly effective when the variation in the fair value or cash flow of the coverage risk during the hedging period reduces 80% to 125% of the risk variation. The fair value of the derivative financial instruments used as hedge, as well as the market value of the loan subject to hedge, are disclosed in notes 5.b and 15.c respectively. Other financial instruments and exposures of trading books and banking books do not follow a specific hedge accounting policy. Risks to which such portfolios are mitigated by diverse financial instruments (Note 5.b). e) Classification of current and noncurrent/long-term assets and liabilities Operating assets and liabilities with maturities or effective possibility of settlement up to one year from the balance sheet date are classified as current while those with maturity or effective possibility of settlement after this date are classified as noncurrent. f) Recognition of revenues and expenses Revenues and expenses, including income, charges, monetary or exchange variances of inflation indices or official exchange rates applicable to current and noncurrent/long-term assets and liabilities, are recognized on accrual basis. Income and expenses also include the effects of asset adjustments to market or realizable value. Interest on past-due loan installments outstanding for over 60 days is recognized only when the respective amount is received. Ernst & Young 13 F-15

260 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 2. Financial statements presentation, consolidation criteria and significant accounting practices (Continued) II Significant accounting practices (Continued) Deferred income and social contribution taxes on temporary differences arising from nontaxable or nondeductible income and expenses, the future additions or exclusions of which are authorized by tax legislation, are also determined on the accrual basis. g) Contingent assets, contingent liabilities and legal, tax and social security liabilities The recognition, measurement and disclosure of contingent assets and liabilities, and legal liabilities take place according to the criteria described below: Contingent assets are not recognized in the financial statements, except when there is evidence providing guarantee of their realization, on which further appeals can no longer be filed. Contingent liabilities are recognized in the financial statements when, based on the opinion of legal advisors and the Bank s management, the risk of loss of a legal or administrative proceeding is regarded as probable, with a probable outflow of funds for settling the liabilities, and when the amounts involved may be measured with sufficient accuracy. Contingent liabilities classified by legal advisors as possible losses are only disclosed in notes, whereas those classified as remote losses do not require provision or disclosure. Legal liabilities tax and social security refer to lawsuits aiming to challenge the legality and constitutionality of certain taxes and contributions. h) Impairment of non-financial assets An impairment loss is recognized if the book value of an asset, or its cashgenerating unit, exceeds its recoverable amount. An impairment loss is recognized in profit or loss. Ernst & Young 14 F-16

261 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 2. Financial statements presentation, consolidation criteria and significant accounting practices (Continued) II Significant accounting practices (Continued) i) Income and Social Contribution Taxes Income tax is calculated at 15%, with a 10% surtax on taxable income in excess of R$ 240 for the year, adjusted by additions and exclusions prescribed by legislation. Social contribution tax is calculated on net income adjusted as allowed by ruling legislation at 15%. Pursuant to Law No /09, changes in the criteria to recognize revenues, costs and expenses computed upon calculation of net income for the year, introduced by Law No /07 and articles 37 and 38 of referred Law No /09, shall not be effective for the purpose of computing taxable profit of legal entities who opt for the Transition Tax Regime (RTT); for tax purposes, the accounting methods and criteria effective for the year ended December 31, 2007 (Note 20) should be taken into consideration. j) Earnings per share Earnings per share is calculated by dividing the profit attributable to shareholders of the Company by the number of shares outstanding during the period, excluding shares purchased by the Company and held as treasury shares. 3. Cash and equivalents Cash and cash equivalent components: Bank and consolidated Cash and banks 175,347 87,523 Interbank investments 1,584,733 1,792,965. Foreign investments 1,284, ,377. Other investments with maturity equal to or less than 90 days 300,685 1,441,588 Total cash and cash equivalents 1,760,080 1,880, Interbank investments Money market investments are backed by government securities and foreign investments have one-day maturities. Interbank deposits mature through December, Ernst & Young 15 F-17

262 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 5. Marketable securities and derivative financial instruments a) Marketable securities The classification of marketable securities at December 31, 2013 and December 31, 2012 is as follows: Bank Consolidated Bank Consolidated Cost Balance Cost Balance Balance Balance Trading securities Financial treasury bills 232, , , , Eurobonus 35,061 34,858 35,061 34,858 26,882 26,882 National Treasury Notes - NTN - B 10,964 10,962 10,964 10,962 10,953 10,953 National Treasury Notes - NTN - A (a) ,841 58,841 Bank deposit certificates 19,003 19,003 19,003 19, Debentures 100,465 95, ,465 95,151 20,439 20,439 Subtotal Trading securities 398, , , , , ,115 Securities available for sale Financial treasury bills 17,792 17,806 17,792 17, , ,767 National treasury bills 182, , , , Eurobonus 26,545 26,695 26,545 26,695 22,847 22,847 National Treasury Notes - NTN - B 23,172 21,686 23,172 21,686 38,200 38,200 National Treasury Notes - NTN - A (a) 62,663 58,635 62,663 58, Bank deposit certificates ,625 86,625 20, ,950 Debentures 478, , , , , ,670 Promissory notes 158, , , , , ,113 Rural Product bills 83,481 83,287 83,481 83,287 62,810 62,810 Foreign government bonds 505, , , , , ,633 Subtotal Securities available for sale 1,538,458 1,534,080 1,626,676 1,622,286 1,337,182 1,477,990 Held to maturity National treasury bills (b) 486, , , , Subtotal Securities available for sale 486, , , , Total 2,423,528 2,413,628 2,573,695 2,563,782 1,454,297 1,595,105 (a) (b) The administration decided to reclassify these titles from category Trading securities for Securities available for sale category in accordance with the conditions of liquidity of these assets. There were no effects on the results. Securities classified as held to maturity are valued at amortized cost. If they were valued at market value, perform on December 31, 2013, negative adjustment of R$ 19,338. At December 31, 2013, unrealized results on securities classified as available for sale totaled a gain of R$ 4,390 (R$ 4,672 gain in 2012), which is recorded in equity under the account Equity valuation adjustment net of tax effects, amounting to R$ 2,634 (R$ 2,803 in 2012). Ernst & Young 16 F-18

263 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 5. Marketable securities and derivative financial instruments (Continued) a) Marketable securities - Continued The Bank s portfolios at December 31, 2013, classified by maturity or effective possibility of settlement, are as follows Bank 2013 Up to 1 Month 1 to 3 months 3 to 6 months 6 to 12 Months 1 to 3 years Over 3 years Total Trading securities Financial treasury bills , ,734 Eurobonus ,714 23,144 34,858 National Treasury Notes - NTN - B , ,962 Bank deposits certificate , ,003 Debentures ,085 79,066 95,151 Subtotal Trading securities ,965 27, , ,708 Securities available for sale Financial treasury bills ,806 17,806 Nationall treasury bills , ,808 Eurobonus 18,742 1,195 1,278-1,745 3,735 26,695 National Treasury Notes - NTN - B ,686 21,686 National Treasury Notes - NTN - A ,635 58,635 Debentures - 43,576-36, , , ,920 Promissory notes 78,571 79, ,216 Rural product bills 10,050-27,168 10,612 34,457-83,287 Foreign government bonds , ,027 Subtotal Securities available for sale 107, ,416 28, , , ,474 1,534,080 Held to maturiry Financial treasury bills , , ,840 Subtotal held to maturity , , ,840 Total , ,416 28, , , ,610 2,413,628 Total , ,923 50, , , ,026 1,454,297 Ernst & Young 17 F-19

264 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 5. Marketable securities and derivative financial instruments (Continued) a) Marketable securities - Continued Consolidated 2013 Up to 1 Month 1 to 3 months 3 to 6 months 6 to 12 months 1 to 3 years Over 3 years Total Trading securities Financial treasury bills , ,682 Eurobonus ,714 23,144 34,858 National Treasury Notes - NTN - B , ,962 Bank deposits certificate , ,003 Debentures ,085 79,066 95,151 Subtotal Trading securities ,965 27, , ,656 Securities available for sale Financial treasury bills ,806 17,806 Nationall treasury bills , ,389 Eurobonus 18,742 1,195 1,278-1,745 3,735 26,695 National Treasury Notes - NTN - B ,686 21,686 National Treasury Notes - NTN - A ,635 58,635 Bank deposits certificate 1,814 5,010 8,143 36,523 35,135-86,625 Debentures - 43,576-36, , , ,920 Promissory notes 78,571 79, ,216 Rural product bills 10,050-27,168 10,612 35,457-83,287 Foreign government bonds , ,027 Subtotal Securities available for sale 109, ,426 36, , , ,474 1,622,286 Held to maturiry Financial treasury bills , , ,840 Subtotal held to maturity , , ,840 Total , ,426 36, , , ,558 2,563,782 Total , ,700 86, , , ,026 1,595,105 The Bank has securities linked to security of its operations as follows Operation type Linked securities Loans funding LFT - 114,119 Derivative - BMF e CBLC NTN /LTN 577, ,036 Exchange BMF LFT / CDB 167,187 78,246 Agribusiness credit bills funding CPR 19,104 62,810 Total 763, ,211 b) Derivative financial instruments The Bank operates in the derivatives market to hedge against market price variances and to reduce currency and exchange rate risks of its assets and liabilities and cash flows contracted under compatible terms, rates and amounts. Ernst & Young 18 F-20

265 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 5. Marketable securities and derivative financial instruments (Continued) b) Derivative financial instruments (Continued) Derivatives are used as a risk transfer tool aimed to cover Banking Book and Trading Book portfolio positions. In addition, highly liquid derivatives traded on stock exchanges are used, within strict limits and with regular review, in order to manage Trading Book portfolio exposures. In order to manage risks arising therefrom, internal limits for global exposure and by portfolio have been set, which are monitored on a daily basis. Considering the likelihood of existing limits that have been exceeded due to not anticipated issues, management has defined internal policies that require that realigning conditions be immediately defined. These risks are monitored by a function independent from the operating functions and are reported to top management on a daily basis. Risk exposure is based on the Value at Risk (VaR) calculation over a time horizon of one year through historical simulation with a confidence level of 99% and retention periods from one-day to trading portifolio and twenty-one days for non trading portifolio. Besides the exposure controls and VaR, the Bank also conducts tests of sensitivity analysis to assess the impact of changes in interest rates on the portfolio. Derivatives operations have a counterparty credit limit set according to the customer s profile and are reviewed periodically by credit committees with participation from senior management. The operations are under the custody of the Futures and Commodities Exchange (BM&FBovespa) or the Clearinghouse for the Custody and Financial Settlement of Securities (CETIP) as well as the Chicago Stock Exchange. The market values of these derivative financial instruments are determined based on quotations disclosed by specialized stock exchanges and, in certain cases, when there is no liquidity or market quotation, estimates of present values and other pricing techniques are used. The bases adopted for determining market prices are as follows: - Futures: stock exchange quotations; - Options: determined based on the criteria set forth in the contracts; Ernst & Young 19 F-21

266 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) - Swaps: cash flows for each contract are discounted to present value, in accordance with the respective interest rate curves, obtained based on BM&FBovespa prices; - Forward: the future value of the transaction discounted to present value as rates obtained at BM&FBovespa grants or reference stock exchange market. Ernst & Young 20 F-22

267 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 5. Marketable securities and derivative financial instruments (Continued) b) Derivative financial instruments (Continued) Differentials and adjustments to derivative financial instruments are recorded in the respective balance sheet accounts, and matched against the result of operations. They are adjusted to market value and the notional value of financial instruments is recorded in memorandum accounts, as follows: Bank and consolidated Derivatives held for trading Notional value Cost Receivable /received (Payable/paid) Marked to market adjustment Market Value Notional Value Market value Future contracts 8,466, ,903,579 - Purchase commitments 3,178, ,998 - Interbank market 2,129, ,673 - Foreign currency 1,049, ,422 - Others ,903 - Sales commitments 5,288, ,296,581 - Interbank market 3,348, ,239 - Foreign currency 1,939, ,342 - Asset position 1,938, ,765 22, ,994 2,871, ,376 Swap contracts 500,575 22,705 11,565 34, ,249 30,665 Interbank market 295,906 2,896 7,046 9, ,313 4,673 Foreign currency 140,832 16,065 3,061 19, ,692 15,660 Fixed rates 10, ,679 2,943 Others 53,060 3,129 1,411 4,540 87,565 7,389 Options contracts 12,103 3,673 (581) 3,092 1,484, Purchase commitments 103 3,390 (582) 2,808 1,484, Financial assets ,467,000 - Foreign currency 103 3,390 (582) 2,808 17, Interbank market Sale commitment 12, Foreign currency 12, Other financial instruments 1,425, ,387 11, , ,085 73,360 Foreign currency 1,004,268 96,883 11, , ,258 69,451 Others financial assets 421,250 7, , ,827 3,909 Ernst & Young 21 F-23

268 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 5. Marketable securities and derivative financial instruments (Continued) b) Derivative financial instruments (Continued) Notional value Bank and consolidated Cost Receivable Marked to /received market (Payable /paid) adjustment Market value Notional value Market value Liability position 1,889,500 (152,601) (10,060) (162,661) 2,616,222 (77,666) Swap contracts 369,535 (26,167) (1,232) (27,399) 230,752 (7,013) Interbank market 44, (887) (867) 12,315 (136) Foreign currency 274,053 (23,625) 24 (23,601) 49,110 (1,023) Fixed rates 15,606 (193) 32 (161) 103,645 (870) Others 35,493 (2,369) (401) (2,770) 65,682 (4,984) Options contracts 122,448 (4,211) 657 (3,554) 1,534,802 (734) Purchase commitments 32,502 (3,639) 253 (3,386) 1,502,316 (435) Financial assets ,468,000 - Foreign currency 32,502 (3,639) 253 (3,386) 34,269 (435) Interbank market Sales commitments 89,946 (572) 404 (168) 32,486 (299) Foreign currency 89,946 (572) 404 (168) 32,486 (299) Other financial instruments 1,397,517 (122,223) (9,485) (131,708) 850,668 (69,919) Foreign currency 1,085,908 (115,184) (9,479) (124,663) 721,985 (66,942) Others financial assets 311,609 (7,039) (6) (7,045) 128,683 (2,977) Ernst & Young 22 F-24

269 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 5. Marketable securities and derivative financial instruments (Continued) b) Derivative financial instruments (Continued) To mitigate the risks of the operation to capture the subordinated debt of US$ 300 million (note 15.c), the management decided to designate financial instruments shown below to hedge a portion of the principal amount and value of the a portion contractual interest. Bank and consolidated 2013 Derivatives used as fair value hedge Notional value Curve Yield Market value MTM Hedge instruments Swap contracts 647, , ,098 77,065 Foreign currency US dollar (1) 647, , ,098 77,065 Subject to hedge Subordinate loan (Note 15.c) 712,906 (712,906) (635,841) (77,065) Foreign currency US dollar (1) 712,906 (712,906) (635,841) (77,065) (1) Update amounts at the balance sheet date. Bank and consolidated 2012 Derivatives used as fair value hedge Notional value Curve Yield Market value MTM Hedge instruments Swap contracts 647, , , ,364 Foreign currency US dollar (1) 647, , , ,364 Subject to hedge Subordinate loan (Note 15.c) 621,538 (621,538) (730,902) (109,364) Foreign currency US dollar (1) 621,538 (621,538) (730,902) (109,364) (1) Update amounts at the balance sheet date. Considering that cash flows (Principal and Interests) of the hedged item (subordinated debt) and cash flows of designated swaps are identical, effectiveness expected from the time such hedge instruments are designated and during the transaction was in conformity with the provisions set forth by the Central Bank of Brazil. Ernst & Young 23 F-25

270 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 5. Marketable securities and derivative financial instruments (Continued) b) Derivative financial instruments (Continued) Derivative financial instruments by maturity, as of December 31, 2013 and 2012, are as follows: Up to 1 month 1 to 3 months 3 to 6 months Bank and consolidated to 12 months 1 to 3 years Over 3 years Total Total Off Balance Futures contracts 2,891,984 1,337, ,286 1,754,061 1,538, ,811 8,466,916 1,903,579 Swap contracts 205 4,600 8,040 44,400 77, ,551 1,454,457 Option contracts 44,909 34, , , , ,762 1,517,566 3,019,565 Other financial instruments 447, , , , ,954 5,592 2,823,035 1,660,753 Total ,384,985 2,323,111 1,098,556 2,754,616 2,164,635 1,216,165 12,942,068 - Total ,060,971 1,192, , , , ,479-8,038,354 - Asset position Swap contracts 1, ,640 4,053 15, , , ,719 Option contracts 2, , Other financial instruments 7,096 17,648 68,685 11,616 10, ,632 73,360 Total ,506 18,580 76,325 15,953 26, , ,092 - Total ,615 39,758 32,709 14,244 10, , ,430 - Liability position Swap contracts (56) (1,717) (5,907) (4,605) (14,258) (856) (27,399) (7,013) Option contracts (2,768) (16) - (617) (153) - (3,554) (734) Other financial instruments (11,447) (21,419) (73,561) (20,375) (4,417) (489) (131,708) (69,919) Total 2013 (14,271) (23,152) (79,468) (25,597) (18,828) (1,345) (162,661) Total 2012 (5,348) (38,188) (22,873) (5,576) (3,875) (1,806) - (77,666) Gains (losses) on derivative financial instruments for the year ended December 31, 2013 and 2013 are as follows: Bank and consolidated Gains Losses Net Net Bank and consolidated Swaps 182,499 (157,494) 25, ,337 Futures 1,970,423 (1,922,714) 47,709 (21,178) Options 4,601 (3,053) 1,548 (187) Non-deliverable forwards (NDF) 531,868 (504,392) 27,476 (79,287) Total 2,689,391 (2,587,653) 101, ,685 Ernst & Young 24 F-26

271 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 5. Marketable securities and derivative financial instruments (Continued) b) Derivative financial instruments (Continued) Risk sensitivity analysis in financial instrument operations In accordance with CVM Rule No. 475/08, the Bank disclosed a sensitivity analysis to all types of market risk stemming from financial instruments considered significant by management. The table below sets out the most probable scenario in management s assessment and two additional scenarios. The probable scenario considers prices in contracts and, where applicable, indicators from various external sources or pricing models adopted to calculate the fair value of financial instruments at the balance sheet date. Scenario II considers a 25% deterioration in risk variables in view of the nature of financial instrument risk. Scenario III considers a 50% deterioration in the same variables. Exposure Probable Scenario Scenario II Scenario III i) Interest rate Net exposure to fixed interest rates (Pjur1) 5,771 7,700 9,832 Net exposure of currency coupons (Pjur2) 35,863 36,355 37,232 Net exposure of index coupons (Pjur3) 7,946 8,781 9,732 Total interest rate exposure (Note 26) 49,580 52,836 56,796 ii) Foreign exchange rate Total exposure purchased at exchange rates 2,258 5,646 11,291 i) Interest rates: According to criteria established by the Central Bank of Brazil through Resolution No. 3,464/07 and Circular No. 3,354/07 financial instruments classified under trading books represent exposure that would have an impact on an organization s income by mark to market or when realized or settled. Financial instruments indexed to interest rates pose potential risk from market fluctuations. These risks are managed through a methodology set out by the Central Bank of Brazil and the result of this analysis is considered when determining the minimum capital base required of financial institutions. In order to comply with CVM Rule No. 475/08, regarding risk sensitivity, it was utilized, in the scenario analysis required in this regulation, the amount of the minimum capital requirement for interest rate exposure as of December 31, Ernst & Young 25 F-27

272 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 5. Marketable securities and derivative financial instruments (Continued) b) Derivative financial instruments (Continued) ii) Foreign exchange rate: Net exposure to exchange rates is regulated by the Central Bank of Brazil through Resolution No. 3,490/07 and Circular No. 3,568/11. These procedures set the maximum level of exposure at 30% of capital base. The risk exposure calculation criteria as set out by the Central Bank of Brazil and in accordance with CVM Rule No. 475/08 were taken into account in the scenario analysis of net exposure at December 31, iii) Banking Book: These refer to operations that are not classified in the trading book, resulting from Bank business lines and their possible hedge instruments. Measurement and valuation of interest rate risk of banking book operations are regulated by the Central Bank of Brazil through Circular No. 3365/07 that sets criteria and assumptions to gauge the degree of risk including stress tests whose results could indicate how much regulatory capital is required to cover such risks. Results of these procedures having no relevance on accounting practices regarding the recording and valuation of banking book operations are reported to the Central Bank of Brazil and at December 31, 2012 an exposure of R$ 54,698 was stated, which also takes into account interest rate risk of the aforementioned banking book in alternative scenarios according to methodologies set out by the regulatory body. In order to carry out a risk sensitivity analysis, foreign exchange mismatch risk in the banking book is considered in the foreign exchange rate position as set out in item II. 6. Interbank accounts Interbank accounts at December 31, 2013 and 2012, are as follows: Bank and consolidated Compulsory demand deposits 3,102 6,307 Interbank onlendings 59, ,164 Compulsory microfinance , ,892 Ernst & Young 26 F-28

273 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 7. Lending operations, guarantees and responsibilities Loans, other credits, guarantees and responsibilities are as follows: Bank and consolidated 2013 December Private Sector 2012 Financial intermediaries Industry Commercial Services Individuals Public sector Total Total Loans Loans 114, , ,211 2,154,690 92, ,289 4,216,859 3,401,037 Financing BNDES/Finame - 869, , ,553 24,644-1,820,260 1,792,619 Export Finance - 701,733 86, , ,967-1,164,844 1,042,352 Onlending of foreign funding 4,699 19,098 7,733 94, , ,582 Foreign currency loans 2, , , , , ,049 Financing with intervenience 33, , ,491 Secured accounts - 55,534 55, , , ,290 Acquisition of receivables 42, ,528 99,091 Financing rural and agribusiness - 60, , , ,747 67,176 Other financing ,206-2,206 13,972 Subtotal loans 198,293 3,330,805 1,818,917 3,380, , ,289 9,147,274 7,688,659 Other receivables Advances on export contracts and interest (a) - 66, , , , ,744 Notes and loans receivable - 167,620 33,664 30,416 5, , ,222 Credits linked to transfer operations (b) 3,990 71,709 54,770 63, , ,897 Other ,362 Subtotal Other receivables 3, , , ,093 5, , ,225 Subtotal Loans and other credits 202,283 3,636,289 2,064,882 3,582, , ,289 9,909,921 8,480,884 Guarantees and responsibilities Guarantees provided on behalf of clients (c) 2,370,193 1,153,096 2,029,261 1,281,021 60,860 97,765 6,992,196 6,220,603 Import credit facilities ,536 Confirmed export credits Subtotal Guarantees and responsibilities 2,370,193 1,153,096 2,029,261 1,281,021 60,860 97,765 6,992,196 6,232,380 Total December ,572,476 4,789,385 4,094,143 4,863, , ,054 16,902,117 - Total December ,075,286 5,382,273 4,463,706 2,184, , ,924-14,713,264 (a) The balance comprises advance of R$ 323,936 (R$ 442,382 in 2012), demonstrated reducing Other liabilities (Note 15.a) plus R$ 7,917 (R$ 11,724 in 2012) of income receivable related to such advances presented in Other credits (Note 9.a). (b) The balance of R$ 193,979 ( R$ 201,897 in 2012) refers to credits related to operations acquired in assignment shown in Other receivables (note 9.c). (c) The guarantees provided on behalf of clients are subject to charges and counter-guarantees by its beneficiaries. No losses are expected on these operations. Ernst & Young 27 F-29

274 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 7. Lending operations, guarantees and responsibilities (Continued) Loans, guarantees and responsibilities, by maturity, are as follows: Up to 1 month 1 to 3 months 3 to 6 months Bank and consolidated 2013 Maturities 6 to 12 months 1 to 3 years Over 3 years Overdue after 15 days Total Loans 663,851 1,284,612 1,352,623 2,105,786 2,935, ,457 35,467 9,147,274 Other credits 214, , ,339 69,270 25,631 24,723 3, ,647 Subtotal Loans and other credits 878,145 1,515,308 1,546,962 2,175,056 2,961, ,180 39,161 9,909,921 Guarantees and responsibilities 604, ,598 1,824,980 2,794, ,143 14,411-6,992,196 Total ,483,126 2,344,906 3,371,942 4,969,139 3,885, ,591 39,161 16,902,117 Total ,190,101 1,980,693 3,048,671 4,590,803 3,297, ,798 35,443 14,713,264 In the year ended December 31, 2013, credit assignment operations, without coobrigation, were carried out under Resolution No /01 of the Central Bank of Brazil, in the amount of R$ 26,366 (R$ 14,875 in 2012). The effect of such operations on P&L for the year of 2013 was (R$ 1,410) (R$ 525 in 2012). Credit risk concentration is as follows: Balance Bank and consolidated % of portfolio (1) Balance % of portfolio (1) Main debtor 455, , main debtors 3,240, ,818, main debtors 4,701, ,182, (1) Total portfolio taking the balances of guarantees and responsibilities into consideration Ernst & Young 28 F-30

275 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 8. Allowance for loan and other credit losses At December 31, 2013 and 2012, there were no provisions for guarantees. The portfolio of loans and other assets, and the allowance for loan and other credit losses, at December 31,2013 and 2012, are as follows: Risk rating Level of allowance Bank and consolidated 2013 Total operations Allowance Normal course Past due Total Res AA - 487, ,759 - A 0.5% 3,553,510-3,553,510 17,768 B 1.0% 4,553, ,553,870 45,539 C 3.0% 993,510 1, ,457 29,864 D 10.0% 195,675 3, ,859 19,886 E 30.0% 21,203 10,832 32,035 9,610 F 50.0% 16,623 2,300 18,923 9,461 G 70.0% 5, ,296 4,407 H 100.0% 43,516 19,696 63,212 63,212 Total 9,870,760 39,161 9,909, ,747 Risk rating Level of allowance Bank and consolidated 2012 Total operations Allowance Normal course Past due Total Res AA - 532, ,272 - A 0.5% 3,014,161-3,014,161 15,071 B 1.0% 3,608, ,609,026 36,090 C 3.0% 1,045,217 2,709 1,047,926 31,438 D 10.0% 161,264 2, ,320 16,332 E 30.0% 26,625 1,612 28,237 8,471 F 50.0% 8,929 1,707 10,636 5,318 G 70.0% 18,488 1,547 20,035 14,024 H 100.0% 29,709 25,562 55,271 55,271 Total 8,445,441 35,443 8,480, ,015 Ernst & Young 29 F-31

276 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 8. Allowance for loan and other credit losses (Continued) Changes in the allowances for loan and other credit losses for the years ended December 31, 2013 and 2012 were as follows: Loans Bank and consolidated Other credits Total Total Balances at the beginning of the year 163,580 18, , ,122 Set up 85,171 7,582 92, ,122 Classified as deferred income (344) Loans written off as losses (75,390) (463) (75,853) (61,885) Balances at the end of the year 173,664 26, , ,015 At December 31, 2013, the total balance of renegotiated loans amounted to R$ 304,286 (R$ 177,019 in 2012) and the loans transactions renegotiated over the year ended December 31, 2012 amounted to R$ 194,616 (R$ 143,962 in 2012). The amount of loans recovered during the year ended December 31, 2013, previously offset against the provision, was R$ 23,053 (R$ 9,531 in 2012). 9. Other credits a) The balance of the foreign exchange portfolio is as under: Bank and consolidated Foreign exchange purchased to be settled (CCL) 726, ,004 Allowance for exchange variation of CCL (474) (398) Rights on foreign exchange sale 1,133, ,992 Advances received (8,062) (5,218) Income receivable from advances on exchange 7,917 11,724 Total 1,858,846 1,222,104 b) Trading and intermediation of securities account is substantially represented by receivables from the settlement of operations with financial assets recorded on stock exchanges. Ernst & Young 30 F-32

277 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 9. Other credits (Continued) c) The breakdown of other sundry credits is as follows: Bank Consolidated Tax credits (Note 20) 140, , , ,758 Guarantee deposit debtors 92,329 87,227 97,433 92,339 Taxes and contributions to be offset 37,338 39,398 39,259 41,395 Taxes and contributions recoverable Securities and loans receivable 238, , , ,563 Credits linked to credit assignment operations(1) 193, , , ,897 Other 770 3, ,848 Total 703, , , ,829 (1) In accordance with Resolution No /08 of the Central Bank of Brazil, from January 2012 onwards the loan transactions with recourse are being shown in specific accounts within other credit. 10. Investments ABC BRASIL Distribuidora de Títulos e Valores Mobiliários S.A. ABC BRASIL Administração e Participações Ltda Total Total Capital 49,600 55,632 Equity 73,941 72,744 Income for the year 3,853 5,031 Number of common shares owned 24,980,054 - Number of preferred shares owned 24,980,055 - Number of shares owned - 55,631,814 Ownership interest (%) Book value 73,941 72, , ,808 Equity pickup 3,853 5,031 8,884 8,512 Ernst & Young 31 F-33

278 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 11. Fixed, deferred and intangible assets Fixed assets are depreciated using the straight line method at the following annual rates: installations, furniture, communication and security systems - 10%; Such rates represent fairly the economic useful life of assets. In compliance to Resolution No. 3,617/08 of the Central Bank of Brazil, up to September 2008, organizational and expansion expenses, represented by leasehold improvements, were recorded as deferred asset and amortization thereof were based on lease agreements expiration date. Intangible assets correspond to acquisition and development of computer software and operating systems, amortized under the straight-line method at annual rate of 20%. Ernst & Young 32 F-34

279 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 12. Deposits Interbank, time deposits and money market funding are made at prevailing market rates, with maturities as follows: Without maturity Up to 3 months Bank Consolidated to 12 1 to 3 Over 3 months years years Total Total Total Total Demand deposits 42, ,547 46,529 42,398 46,309 Interbank deposits - 170, ,920 13, ,227 1,065, ,227 1,065,935 Time deposits - 1,130,669 1,799, ,507 10,205 3,087,758 2,618,493 3,087,758 2,618,493 Total ,547 1,300,871 2,048, ,612 10,205 3,562,532-3,562,383 - Total ,529 1,628,784 1,722, ,040 3,889-3,730,957-3,730, Acceptance and issuance of securities Funds from acceptances and issue of securities are traded at market interest rates and mature as follows: Up to 3 months 3 to 12 months Bank and Consolidated to 3 Up to 3 years years Total Total Real estate credit bill 105, ,879 5,460 1, , ,055 Agribusiness credit bills 662, ,928 18,072-1,117, ,454 Financial bills 79, ,336 1,443,109 3,705 2,150,519 1,188,990 Securities issued abroad (1) 4, , ,092 - Total ,259 1,205,143 1,691,841 5,477 3,754,720 - Total , ,993 1,163, ,298,499 (1) At March 22, 2013, the Bank has realized funding through senior notes issued in value of R$ 250 million, with maturity on March, 2016 and interest annual of 8.50%, payable semiannually Ernst & Young 33 F-35

280 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 14. Borrowings and onlendings Borrowings and onlendings by maturity are as follows: Bank and consolidated Up to 3 3 to 12 1 to 3 Over months months years 3 years Total Total Borrowings: Foreign 962,850 1,510, ,473,423 1,670,475 Onlendings Domestic: BNDES 111, , , ,955 1,035, ,866 FINAME 84, , , ,953 1,268,796 1,042,246 Other institutions 14,393 16,991 8,285-39,669 26,191 Total ,172,648 2,079,733 1,039, ,908 4,817,184 - Total ,383 1,704, , ,663-3,524,778 Foreign borrowings represent funds obtained on the international market for use in commercial foreign exchange operations related to import and export financing as well as onlendings and financing in foreign currencies, These liabilities are subject to exchange rate variance as well as interest rates on the international market and are restated by exchange rate variation plus financial charges incurred through to the balance sheet date. Domestic onlending liabilities are represented by funds and special programs managed by government institutions which are passed onto final borrowers and are adjusted based on official indices and financial charges up to the balance sheet date. 15. Other liabilities a) The foreign exchange liability portfolio is as follows: Bank and consolidated Foreign exchange sold 1,282, ,795 Foreign exchange purchase liabilities 555, ,073 Advances on foreign exchange contracts (323,936) (442,382) Total 1,514, ,486 Ernst & Young 34 F-36

281 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 15. Other liabilities (Continued) b) Tax and social security balances are as follows Bank Consolidated Provision for income and social contribution taxes on 51,022 83,673 56,097 income 88,504 Taxes and contributions on profit payable Taxes and contributions payable 48, ,169 54, ,384 Provisiom for deferred income and social contribution 54,881 61,107 54,881 taxes (Note 20) 61,107 Provision for other deferred taxes Provision for civil and tax risks 12,895 5,848 12,943 5,897 Total 168, , , ,722 c) Subordinated debts The composition of the balance of subordinated debt at December 31, 2013 and 2012 are composed as follows: Bank and Consolidated i) Subordinated debts subject to Hedge accounting Subordinated Notes (US$ 300 milions) 779, ,621 Subtotal 779, ,621 ii) Others Subordinated debts Subordinated Bank Deposit Certificates - 8,335 Financial bills 22,394 19,454 Subordinated Notes (US$ 100 milions) 248, ,601 Subtotal 271, ,390 Total Subordinated debts 1,050, ,011 The composition of the balance of subordinated debt from issuing of subordinated notes abroad at December 31, 2013 and 2012 are composed as follows: Bank and Consolidated Subordinated debts subject to Hedge accounting Subordinated Notes (US$ 300 milions) Principal amount 702, ,050 Accrued interest 12,606 10,997 Discount subject to hedge accounting (2,480) (2,509) Subtotal 712, ,538 Discount not subject to hedge accounting (4,961) (5,017) Deferred fund-raising expenses (6.803) (7.891) Deferred hedge accounting P&L 1,403 1,627 Adjustment to market value ( Hedge Accounting ) Notes 2.II.d and 5.b 77, ,364 Total 779, ,621 Ernst & Young 35 F-37

282 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 15. Other liabilities (Continued) Bank and Consolidated Others Subordinated debts Subordinated Notes (US$ 100 milions) Principal amount 234, ,350 Goodwill 11,380 11,509 Deferred fund-raising expenses (862) (923) Accrued interest 4,202 3,665 Total 248, ,601 Funds raised abroad, subject to hedged accounting structure of US$ 300 million maturing in April 2020 and annual interest rate of 7.875%, paid on a semiannual basis. On October 9, 2012, the bank raised funds through the issuance of additional Subordinated Notes abroad in the amount of US$ 100 million, with same maturity and interest rates. Goodwill and discount for raising funds, and direct expenses, are deferred throughout the maturities of the respective notes. Borrowings through the issuance of financial bills with subordination clause mature in April 2021 (14,435), and in April 2017 (R $ 7,959) with annual interest of 8.6% and 9.1%, respectively. All borrowings under subordinated debt are authorized by the Central Bank of Brazil under Resolution No /2007 to compose the level II Reference Equity Bank - PR, except for the value of goodwill related to the other subordinated debt of R$ 11,380. d) Sundry liabilities Bank Consolidated Allowance for payments to be settled 58,182 42,718 58,232 42,758 Sundry domestic creditors 185 6, ,342 Provision for contingent liabilities 4,680 4,061 4,680 4,061 Payables Total 63,073 53,146 63,097 53,161 Ernst & Young 36 F-38

283 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 16. Income from services rendered Income from services rendered, for the year ended December 31, 2013 and 2012, is composed as follows: Bank and consolidated Income from guarantees given 118, ,158 Fees related to credit operations 6,100 4,086 Collection fees 10,538 9,001 Bank fees 7,234 5,155 Income from commissioning and security placement 14,469 14,951 Income from other services Total 156, , Other administrative expenses Other administrative expenses in the year ended as of December 31, 2013 and 2012 are composed as follows: Bank Consolidated Third party services 5,855 5,111 5,535 4,813 Financial system services 13,466 12,829 13,480 12,842 Rentals 9,998 9,517 9,998 9,517 Specialist technical services 8,890 7,929 9,134 7,986 Data processing 8,009 6,716 8,009 6,716 Communication 3,084 3,410 3,145 3,472 Travel expenses 4,110 4,011 4,110 4,011 Depreciation and amortization 6,158 5,857 6,158 5,857 Promotions and public relations 1,668 1,976 1,668 1,976 Publications Philanthropic contributions 1,336 1,642 1,376 1,662 Transportation 2,212 2,028 2,212 2,028 Asset maintenance and conservation 1,462 1,243 1,462 1,243 Water, electricity and gas Materials Insurance Advertising and publicity 1, , Condominium 1,818 1,821 1,818 1,821 Legal fees 1,645 1,473 1,645 1,473 Other 4,423 3,863 4,516 3,916 Total 78,182 71,555 78,362 71,488 Ernst & Young 37 F-39

284 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 18. Other operating income The breakdown of other operating income, for the year ended December 31, 2013 and 2012 are as follows: Bank Consolidated Interests and monetary correction of assets 5,929 5,730 5,929 5,836 Reversal of provision - 1,518-1,518 Recovery of charges and expenses Recovery of contingencies 19,146-19,146 - Result of amnesty 6,253-6,253 - Exchange variation 66,762 38,248 66,762 38,248 Other 2,352 5,338 2,348 5,345 Total 100,923 51, ,919 51, Other operating expenses Other operating expenses for the year ended December 31, 2013 and 2012 are as follows: Bank Consolidated Set-up (reversal) of provisions 17,443-17,443 - Commissioning linked to operations 1,879 1,939 1,879 1,939 Discounts granted 4,543 3,344 4,543 3,344 Other expenses 2,850 1,167 2,855 1,694 Total 26,715 6,450 26,720 6, Income and social contributions taxes The nature and origin of tax credits and deferred tax liabilities, as well as the changes occurred therein during the year are stated as follows: Writeoffs Additions Deferred tax assets Temporary differences: Allowance for loan losses 75,521 92,673 (87,964) 80,230 Adjustment to market value - securities and derivatives 48,550 8,901 (15,775) 41,676 Unrealized gains (losses) on futures market 3, (2,679) 1,109 Others ,911 (1,815) 13,576 Adjustment to market value available for sale securities 179 4,103 (179) 4, , ,367 (108,412) 140,694 Deferred tax liabilities Temporary differences: Adjustments market value securities and derivatives (55,355) (10,410) 20,217 (45,548) Unrealized gains (losses) on futures market (177) (3,960) 165 (3,972) Adjustment to market value available for sale securities (2,048) (1,703) 1,400 (2,351) Adjustment resulting from the transition tax regime RTT (1) (3,527) (3,010) (61,107) (16,073) 22,299 (54,881) Net balance 75,632 96,294 (86,113) 85,813 (1) see note 2.II.i) on accounting practices. Ernst & Young 38 F-40

285 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 20. Income and social contributions taxes (Continued) The consolidated financial statements include further to the amounts presented in the table above, (i) temporary differences with allowances for loan losses and others amounting to R$ 19 (R$ 20 in 2012) and (ii) adjustment to market value securities avaible for sale R$ 4. The net balance of deferred tax assets and liabilities is stated as follows: Bank Consolidated Other credits - sundry - tax credits (Note 9.c) 140, , , ,758 Other liabilities provision for deferred taxes and contributions (Note 15.b) (54,881) (61,107) (54,881) (61,107) 85,813 75,632 85,836 75,651 The realization of deferred tax assets and liabilities at December 31, 2013 based on the history of profitability and estimated realization is stated as follows: Bank Consolidated Year Assets Liabilities Net Net ,658 (8,219) 35,439 35, ,160 (4,906) 36,254 36, ,794 (2,841) 5,953 5, ,805 (1,904) 3,901 3, ,622 (1,089) Under 5 years 39,655 (35,922) 3,733 3,733 Total 140,694 (54,881) 85,813 85,836 Present Value - Selic 107,669 (35,915) 71,754 71,775 Ernst & Young 39 F-41

286 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 20. Income and social contributions taxes (Continued) Expenses with income and social contribution taxes for the years ended December 31, 2013 and 2012 are calculated as follows: Bank Consolidated Income before taxation less profit sharing 307, , , ,865 Total income and social contributions taxes 123, , , ,105 Net income from write-offs and write-ups of deferred liabilities net of tax credits 2,951 24,034 2,951 24,034 Nontaxable revenues/expenses net of nondeductible expenses (31,303) (13,715) (34,821) (17,110) Equity pick up in subsidiaries (3,554) (3,402) - - Interest on equity capital (34,259) (34,749) (34,259) (34,749) Amnesty effects Law No /09 (4,990) - (4,990) - Other amounts (9,516) (4,934) (9,606) (5,001) Total income and social contribution taxes current 42,423 80,447 47,498 85,279 Deferred taxes and contributions Tax liabilities set up in the year 14,370 41,300 14,370 41,300 Tax liabilities realized in the year (20,899) (8,927) (20,899) (8,926) Tax credits set up in the year (104,655) (136,210) (104,655) (136,210) Tax credits realized in the year 108,233 79, ,233 79,803 Total deferred taxes and contributions (2,951) (24,034) (2,951) (24,033) Total income and social contribution taxes 39,472 56,413 44,547 61, Related parties a) Subsidiaries and related companies The amounts below refer to the Bank s transactions with subsidiaries and related companies. These operations were carried out under normal market conditions and rates of the dates of the respective transactions. For the year ended December 31, 2013 and 2012, transactions between related parties are as follows: Ernst & Young 40 F-42

287 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 21. Related parties--continued Transactions / Related parties Relationship Maturity Assets / (Liabilities) Income / (Expenses) Period Assets / (Liabilities) Income / (Expenses) Period Demand deposits - ABC BRASIL Adm. e Participações Ltda. Subsidiary No maturity (70) - (87) - - ABC BRASIL DTVM S.A. Subsidiary No maturity (79) - (133) - - Marsau Comercial Exp. e Importadora Ltda. Related No maturity (81) - (143) - (230) - (363) - Time deposits and Funds from acceptance and issue of securities - Marsau Uruguay Holdings Sociedad Anonima Shareholder 01/20/2014 (1,035) (5) (927) (22) - Arab Banking Corporation (ABC) Holding 12/16/2014 (258,396) (698) Key of management Sundry (25,572) (825) (35,731) (1,129) (285,003) (1,528) (36,658) (1,151) Borrowings - Arab Banking Corporation (ABC) Holding 07/07/2014 (167,707) (7,167) (464,471) (6,781) Dividends and interest on equity capital - Marsau Uruguay Holdings Sociedad Anonima Shareholder 02/08/2013 (51,272) - (52,368) - Other liabilities - ABC BRASIL Adm. e Participações Ltda. - Prestação de serviços Subsidiary 01/08/2013 (26) (324) (25) (300) b) Fees of key members of management In 2012, the Bank defined a new Compensation Plan addressing rules and directives on payment of fixed and variable remuneration applicable to Board of Directors members and statutory officers and, at the discretion of a specific committee, to other executives with relevant positions and functions, observing the provisions of National Monetary Council Resolution No. 3921/10. The new plan has the following objectives: (i) align Banco ABC s management compensation practices with the risk management policy; (ii) avoid behavior that increases risk exposure above limits considered prudent in terms of the short, medium and long term strategies adopted by Banco ABC; (iii) create instruments to retain and attract talent to key Bank roles; and (iv) adapt the compensation policy to standards established in Resolution No. 3921/10. The compensation referred to in the plan takes into account: (i) the Bank s current and potential risks; (ii) the Bank s overall income, particularly recurring profit realized (net accounting income for the period adjusted by unearned income net of the effects of controllable non-recurring events); (iii) the ability to generate cash flow; (iv) the economic environment in which the Bank operates and its trends; (v) the long-term sustainable financial bases and future payment adjustments due to the risks assumed, the variations in the cost of capital and liquidity projections; (vi) the individual performance of managers based on contractual goals agreed with Ernst & Young 41 F-43

288 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 21. Related parties--continued each manager as provided in profit sharing and filed at the Bank s headquarters; (vii) the performance of business units; and (viii) the relation between individual manager s performance, the performance of particular business units and the performance of the Bank as a whole. Variable remuneration shall be calculated as follows a) Up to 50% (fifty percent) of the amount determined in variable remuneration is immediately paid in cash on payment of profit sharing; and b) A minimum of 50% (fifty percent) of the amount determined for variable remuneration shall be deferred and paid in preferred shares of the Bank observing that the number of shares to be allocated to managers shall be determined through dividing the amount corresponding to deferred variable remuneration, net of withholding tax, by the unit share price. The delivery of shares relating to deferred variable remuneration allocated to managers shall only take place if, in the applicable period of deferment there is no (i) significant reduction in recurring profit realized, or (ii) losses posted by the institution or business unit, or (iii) evidence of errors in accounting and/ or management practices that affect the income calculated in the variable remuneration rights acquisition period. The total compensation of key members of management for the for the years ended December 31, 2013 and 2012 is composed as follows: Fixed remuneration 15,636 13,731 Variable remuneration 27,224 24,436 Total short-term benefits 42,860 38,167 Share-based compensation 16,807 2,392 Total long-term benefits 16,807 2,392 Total 59,667 40,559 Ernst & Young 42 F-44

289 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 21. Related parties Continued c) Summary of changes in the compensation plan: In according to the compensation plan actions cited in note 21.b, shares were granted to executives eligible for settlement at the end of the vesting period as shown below: Distribution Vesting period Balance on 12/31/2012 New entries Converted into shares Cancelled Balance on 12/31/2013 1º 08/30/ /29/ , ,283 10,939-1º 08/30/ /29/ , ,222 1º 08/30/ /29/ , ,222 2º 02/08/ /08/ , ,245 2º 02/08/ /08/ , ,245 2º 02/08/ /08/ , ,245 3º 08/30/ /29/ , ,442 3º 08/30/ /29/ , ,442 3º 08/30/ /29/ , ,442 Total 741,666 1,622, ,283 10,939 2,116, Overseas branch The transactions with third parties carried out by the overseas branch at December 31, 2013 and 2012 are as follows: US$ R$ US$ R$ Assets Cash and banks 2,848 6,672 34,505 70,511 Interbank investments 75, , , ,222 Marketable securities and derivative financial instruments 68, ,395 58, ,131 Lending operations - net 762,818 1,786, , ,804 Other receivables, amounts and assets 5,771 13,519 6,541 13,367 Total 914,928 2,143, ,201 1,439,035 Liabilities Demand deposits Time deposits 363, , , ,460 Foreign borrowings 531,272 1,244, ,833 1,180,802 Derivative financial instruments 30,804 72,161 25,752 52,624 Other liabilities Total 925,523 2,168, ,315 1,604,791 Ernst & Young 43 F-45

290 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 23. Profit sharing An allowance for profit sharing was established based on the Variable Compensation Program set up by Banco ABC BRASIL S.A. and its employees, that takes into consideration activities developed by the Bank in various areas, the degree of responsibility, the degree of influence on earnings, as well as qualitative and quantitative targets set with individual Bank employees. 24. Contingent assets and liabilities and legal, fiscal and social security obligations The Bank and its subsidiaries are involved in judicial and administrative proceedings of tax, labor and civil nature, both as plaintiff or claimer. Note 2.II.g) explains the criteria for recognizing and measuring these suits and proceedings. In the year ended December, it was transitioned into judge two action in favor to the bank as described below: Social Investment Fund ("FINSOCIAL") It was a final action requiring the right to compensate for the collected values in aliquot exceeding 0.5% of FINSOCIAL. The updated value of deposits with entitled to compensation of R$ 7,447 (R$ 4,122 net of tax) demonstrated in note 18. Corporate Income Tax (IRPJ) on remittance of interest on borrowings Transitioned into judge action contesting the incidence of income tax withheld at source on remittance of interest of abstractions ("Fixed Rate Notes"). The updated value of deposits held by the Bank account with the right to compensation is R$ 11,699 (R$ 6,476 net of tax) demonstrated in note 18. The Bank adhered to the tax amnesty of Federal Government program, as described below: Amnesty program Law /2009 e MP 470/2009 Considering terms and advantages provided by the tax amnesty program established by Brazil s Federal Government, through Law No /09 and MP 470/2009, the Bank s management and its legal advisors reassessed how convenient it would be to enter the referred to program. As a result, it has been decided that several proceedings filed by the Bank would be ended. Major proceedings included in the amnesty program were: i) Offset of taxes acquired from third parties with other taxes, ii) Social Contribution Tax on Gross Revenue for Social Security Financing ( COFINS ) Law No. 9718/98, iii) Social Contribution Tax on Net Profit ( CSLL ) equality the rate 8%, iv) Social Contribution Tax on Gross Revenue for Social Ernst & Young 44 F-46

291 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 24. Contingent assets and liabilities and legal, fiscal and social security obligations (Continued) Integration Program ( PIS ), v) Corporate Income Tax (IRPJ) Non-existing tax loss, and vi) Social Contribution Tax on Net Profit ( CSLL ) Non-employer entity. Amnesty program Law /2013 e MP 627/2013 Considering the new amnesty under Law /2013 and MP 627/2013, the Bank's management and its legal advisors opted for withdrawal of installments under Law /2009 and adherence to the amnesty in relation to the debts of PIS and COFINS - Law 9.718/98 and full payment of the remaining debts previously included in the installment. Even within this new amnesty, there was adherence of the values discussed in the case concerning the Tax on Financial Transactions - IOF inflow of foreign currency that occurred in The income from the new amnesty was R$ 6,253 demonstrated in note 18. See below major lawsuits and proceedings whose likelihood of an unfavorable outcome had been rated as possible: Corporate Income Tax (IRPJ) and Social Contribution Tax (CSLL) related to nontaxation of retained earnings of a foreign subsidiary In 2001, the Bank filed a petition for writ of mandamus seeking a preliminary injunction that ensured the right not to add to its P&L figures, for the purposes of determination of IRPJ and CSLL, retained earnings that were never actually made available by ABC BRASIL Banking Ltd, upon the divestiture of interest in that company. Currently the decision at first jurisdiction level is favorable. Total contingency corresponds to R$ 9,030 with chances of loss assessed as possible. Service Tax ( ISS ) These are judicial proceedings involving ISS payment, mainly in connection with guarantees given (collateral signature and surety) referring to the period from 1994 to 2013, corresponding to R$ 31,380. Social Security s Charges ( INSS ) The Bank is currently a defendant in a lawsuit related to payment of pension charges, mainly on profit sharing related to 2006 to 2008 exercises, amounting to R$ 31,561. Ernst & Young 45 F-47

292 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 24. Contingent assets and liabilities and legal, fiscal and social security obligations (Continued) Unauthorized payment Refers to payment of COFINS without fines, as established in article 63 of Law No 9430/96. Awaiting appeal decision. Amount demanded totals R$ 2,833. Labor In December 31, 2013, the Bank was defendant in 31 labor claims in progress, whose contingency amounted to R$ 4,680. A provision was set up for total contingency value, considering the likelihood of unfavorable outcomes of the referred to claims. Civil In December 31, 2013, the Bank and its subsidiaries were plaintiffs and defendants in civil claims amounting to R$ 28,474. Below, we summarize key claims in which the Bank and its subsidiaries are defendants, and whose likelihood of unfavorable outcomes had been rated as possible. a) claim aiming the payment of sale price differences of securities offered to settle loans, whose discussed amount totals R$ 11,223. Through the date, the first level decision is favorable to the Bank; b) claim involving the request for annulment of a debt in the current account of a company guaranteeing a loan transaction. The contingency amounts to R$ 12,870 and the likelihood of loss was rated as possible Changes in provisions Bank Consolidated Labor Tax Civil Labor Tax Civil At the beginning of the year 4,061 5, ,061 5, Set up 3,739 8,250-3,739 8,250 - Reversal (479) (446) - (479) (446) - Write-off (2,641) (757) - (2,641) (757) - At the end of the year 4,680 12, ,680 12, Ernst & Young 46 F-48

293 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 25. Equity a) Capital Capital comprises 147,232,649 registered and uncertified shares (140,412,400 in 2012), without par value, of which 73,697,646 common shares (70,237,948 in 2012) and 73,535,003 preferred shares (70,174,452 in 2012). b) Dividends and interest on equity capital As established in the Bank s articles of incorporation, shareholders are entitled to an annual dividend of not less than 25% of net income adjusted as provided for in applicable law. Such dividend can, alternatively, be distributed in the form of interest on equity capital. For the year ended December 31, 2013 and 2012 shareholders resolved to distribute interest on equity capital, calculated according with established by Law 9249/95, as follows: Resolution approval date Interest on equity capital Reduction in expenses with income and social contributions taxes 06/27/ ,041 16,816 12/26/ ,606 17,443 Total ,647 34,259 06/29/ ,174 17,670 12/28/ ,698 17,079 Total ,872 34,749 Interest on equity is calculated on net equity accounts and limited to the long-term interest rate, conditioned to the existence of profit calculated before deduction or retained subscription earnings and income reserves in amount equal or two times higher its amount. c) Capital increase At March 21, 2013, was approved by the Central Bank of Brazil capital increase in the amount of R$ 36,290 corresponding to the issuance of 3,434,698 new shares, being 1,740,218 common shares and 1,694,480 preferred shares through the use of credit from interest on equity and cash subscription as resolved by the Board of Directors on December 28, At September 10, 2013, was approved by the Central Bank of Brazil capital increase in the amount of R$ 35,730 corresponding to the issuance of 3,385,551 new shares, being 1,719,480 common shares and 1,666,071 preferred shares through the use of credit from interest on equity and cash subscription as resolved by the Board of Directors on August 26, Ernst & Young 47 F-49

294 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 25. Equity (Continued) At December 26, 2013, the Board of Directors decided on a proposal to distribute interest on equity amounting to R$ 43,606 gross, which represents R$ 0.30 gross per common and preferred share. The Board of Directors also decided on a Company capital increase amounting up to R$ 37,065 for private subscription with the use of credit from interest on equity approved. d) Destination of earnings i) Income reserve - dividend equalization At the Annual and Special Shareholders Meetings held on April 30, 2008, the shareholders approved the creation of the account Income Reserve for Dividend Equalization, to which the retained earnings account balance is allocated, the latter of which is set up to maintain the shareholder payment flow. ii) Income reserve Repurchase of shares The reserve for repurchase of shares is set up to support the possible opening, after approval by the Board of Directors, of the program for repurchase of the Institution s shares, should market conditions indicate such possibility. e) Treasury shares In 2013, based on authorization of the Board of Directors to acquire shares of Company for holding in treasury, 1,772,000 preferred shares were repurchased. In December 31, 2013 the total value of shares repurchased in treasury is R$ 33,076 equivalent to 3,318,318 preferred shares (R$ 12,597 equivalent to 1,782,601 preferred shares in 2012).The average cost per share repurchased treasury is R$ 9.97 Changes in treasury shares Bank and consolidated At the beginning of the quarter 1,782,601 Shares acquired 1,772,000 Shares delivered (236,283) At the end of the quarter 3,318,318 Ernst & Young 48 F-50

295 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2013 and 2012 (In thousands of reais) 26. Operational limits The Basel Accord The Central Bank of Brazil, through Resolution No /13 and 4.178/13, instituted the determination of the reference equity on a consolidated basis for the financial conglomerate and by Resolution No /13 instituted calculating the minimum equity required for reference the Risk Weighted Assets (RWA), both with effect from October The capital adequacy ratio for December 31, 2013 calculated based on the financial conglomerate is 14.77% and 14.83% would be based on economic and financial conglomerate (15.89% in 2012). The table below shows the calculation of the minimum equity required for the reference risk weighted assets (RWA) by the new formula: Credit risk 1,828,710 1,633,298 Foreing exchange 22,583 - Interest rate 49,580 17,547 Commodities 739 7,799 Operating risk 81,097 75,952 Shares Required capital base (PRE) 1,982,709 1,735,380 Reference equity (PR) 2,662,677 2,507,282 Excess of equity in relation to limit 679, , Other information Offset and settlement of liabilities agreement the Bank has an agreement on the offset and settlement of liabilities under the Brazilian National Financial System, in accordance with CMN Resolution No. 3263/05, resulting in added guarantees of settlement of their assets with financial institutions that are party to the agreement. The total assets included in this agreement as of December 31, 2013 amount to R$ 48,197 (R$ 397,821 in 2012). Ernst & Young 49 F-51

296 Audited Financial Statements Banco ABC BRASIL S.A. December 31, 2012 and 2011 with Independent Auditor s Report F-52

297 A free translation from Portuguese into English of Independent Auditor s Report on financial statements prepared in Brazilian currency in accordance with accounting practices adopted in Brazil applicable to institutions authorized to operate by Central Bank of Brazil Independent Auditor s Report To the Directors and Shareholders of Banco ABC Brasil S.A. We have audited the financial statements of Banco ABC Brasil S.A. and the consolidated financial statements of Banco ABC Brasil S.A. and subsidiaries, which comprise the balance sheet as at December 31, 2012, and the related statements of income, of changes in shareholders equity and of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management's responsibility for the financial statements The management of Banco ABC Brasil S.A. and subsidiaries is responsible for the preparation and fair presentation of the financial statements in accordance with the accounting practices adopted in Brazil applicable to institutions authorized to operate by Central Bank of Brazil (BACEN), as well as for such internal control as management determines is necessary to enable the preparation of these financial statements that are free from material misstatement, whether due to fraud or error. Auditor's responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Brazilian and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures selected to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the preparation and fair presentation of the financial statements of Banco ABC Brasil S.A. and the consolidated financial statements of Banco ABC Brasil S.A. and subsidiaries in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal controls of Banco ABC Brasil S.A. and subsidiaries. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. Ernst & Young Terco 1 F-53

298 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Banco ABC Brasil S.A., and the consolidated financial position of Banco ABC Brasil S.A. and subsidiaries as at December 31, 2012, and their financial performance and cash flows for year then ended in accordance with the accounting practices adopted in Brazil applicable to institutions authorized to operate by Central Bank of Brazil. Statements of value added We have also audited the statements of value added (SVA), unconsolidated and consolidated, for the year ended December 31, 2012, the presentation of which is required by Brazilian corporation law for publicly-held companies. These statements have been subject to the same auditing procedures previously described and, in our opinion, are fairly presented, in all material respects, in relation to the overall financial statements. São Paulo, January 30, ERNST & YOUNG TERCO Auditores Independentes S.S. CRC-2SP015199/O-6 Rodrigo De Paula Accountant CRC-1SP224036/O-8 Eduardo Wellichen Accountant CRC-1SP184050/O-6 Ernst & Young Terco 2 F-54

299 A free translation from Portuguese into English of financial statements prepared in accordance with accounting practices adopted in Brazil applicable to institutions authorized to operate by Central Bank of Brazil BANCO ABC BRASIL S.A. Balance sheets December 31, 2012 and 2011 (In thousands of reais) Notes Bank Consolidated Assets Current assets 9,703,905 7,226,247 9,783,783 7,291,202 Cash and banks 87,523 21,201 87,523 21,201 Interbank investments 4 1,886,332 1,042,344 1,886,332 1,042,344 Money market investments 1,184, ,157 1,184, ,157 Interbank deposits 350, , , ,130 Foreign investments 351, , , ,057 Marketable securities and derivative instruments 5 1,206,008 1,009,909 1,278,744 1,065,193 Own portfolio 676, , , ,449 Linked to guarantees given 437, , , ,568 Derivative financial instruments 91,326 94,176 91,326 94,176 Interbank accounts 6 146, , , ,550 Interbank onlendings 140,164 53, ,164 53,585 Reserve requirements Central Bank Deposits 6,728 52,965 6,728 52,965 Lending operations 4,616,623 4,359,958 4,616,623 4,359,958 Loans - public sector 7 73,328-73,328 - Loans - private sector 7 4,661,268 4,436,128 4,661,268 4,436,128 Allowance for loan losses 8 (117,973) (76,170) (117,973) (76,170) Other credits 1,726, ,789 1,733, ,460 Credits and aval credits Foreign exchange portfolio 9.a 1,222, ,266 1,222, ,266 Receivables 10,390 7,731 10,390 7,731 Trading and intermediation of securities 9.b 34,363 23,092 34,363 23,092 Sundry 9.c 472, , , ,807 Allowance for losses on other credits 8 (13,665) (13,317) (13,665) (13,317) Other assets 34,446 18,496 34,446 18,496 Other assets 33,046 17,360 33,046 17,360 Prepaid expenses 1,400 1,136 1,400 1,136 Noncurrent assets 3,608,800 3,123,876 3,676,904 3,199,036 Marketable securities and derivative instruments 5 566, , , ,842 Own portfolio 297, , , ,490 Linked to guarantees given 42,456 18,517 42,456 18,517 Derivative financial instruments 227,104 98, ,104 98,835 Lending operations 2,908,456 2,765,890 2,908,456 2,765,890 Loans - public sector 7 127, , Loans - private sector 7 2,826,285 2,802,902 2,826,285 2,802,902 Allowance for loan losses 8 (45,607) (37,952) (45,607) (37,952) Other credits 129,977 54, ,009 54,627 Receivables 981 1, ,068 Trading and intermediation of securities 9.b Sundry 9.c 133,766 59, ,798 59,149 Allowance for losses on other credits 8 (4,770) (5,683) (4,770) (5,683) Other assets 3,648 4,677 3,648 4,677 Temporary investments 1,436 1,436 1,436 1,436 Prepaid expenses 2,212 3,241 2,212 3,241 Permanent assets 160, ,861 22,439 20,577 Investments 138, , Investments in subsidiaries and affiliates - Domestic , ,302 - Other investments Fixed assets 11 15,392 15,044 15,392 15,044 Other fixed assets 26,873 23,327 26,873 23,327 Accumulated depreciation (11,481) (8,283) (11,481) (8,283) Deferred charges Organization and expansion costs 4,390 4,390 4,390 4,390 Accumulated amortization (4,249) (3,895) (4,249) (3,895) Intangible 11 6,494 4,626 6,494 4,626 Intangible assets 15,024 11,057 15,024 11,057 Accumulated amortization (8,530) (6,431) (8,530) (6,431) Total assets 13,472,934 10,499,984 13,483,126 10,510,815 Ernst & Young Terco 3 F-55

300 BANCO ABC BRASIL S.A. Balance sheets (Continued) December 31, 2012 and 2011 (In thousands of reais) Notes Bank Consolidated Liabilities and equity Current liabilities 8,151,126 6,546,252 8,161,318 6,557,083 Deposits 12 3,398,028 2,859,640 3,397,808 2,859,373 Demand deposits 46, ,496 46, ,229 Interbank deposits 1,006, ,247 1,006, ,247 Time deposits 2,345,472 1,994,897 2,345,472 1,994,897 Funds from acceptance and issue of securities 13 1,134, ,220 1,134, ,220 Real estate, mortgage, credit an similar notes 1,134, ,220 1,134, ,220 Interbranch accounts 31,581 25,066 31,581 25,066 Third party funds in transit 31,581 25,066 31,581 25,066 Borrowings 14 1,666,342 1,415,125 1,666,342 1,415,125 Foreign borrowings 1,666,342 1,415,125 1,666,342 1,415,125 Onlendings in Brazil government agencies , , , ,364 BNDES 416, , , ,772 FINAME 305, , , ,027 Other institutions 26,191 44,565 26,191 44,565 Derivative financial instruments 5 71,985 89,319 71,985 89,319 Derivative financial instruments 71,985 89,319 71,985 89,319 Other liabilities 1,100, ,518 1,110, ,616 Collection of taxes 2,967 3,140 2,967 3,140 Foreign exchange portfolio 15.a 759,486 64, ,486 64,368 Social and statutory 65,311 28,820 65,311 28,820 Taxes and social security 15.b 197, , , ,393 Trading and intermediation of securities 1, , Subordinated debts 15.c 22,997 10,094 22,997 10,094 Sundry 15d 51,202 57,054 51,217 57,086 Noncurrent liabilities 3,617,029 2,432,280 3,617,029 2,432,280 Deposits , , , ,386 Interbank deposits 59, ,763 59, ,763 Time deposits 273, , , ,623 Funds from acceptance and issue of securities 13 1,163,669 70,410 1,163,669 70,410 Real estate, mortgage, credit an similar notes 1,163,669 70,410 1,163,669 70,410 Borrowings 14 4,133 5,688 4,133 5,688 Foreign borrowings 4,133 5,688 4,133 5,688 Onlendings in Brazil government agencies 14 1,106,387 1,269,129 1,106,387 1,269,129 BNDES 369, , , ,255 FINAME 736, , , ,224 Other institutions - 1,650-1,650 Derivative financial instruments 5 5,681 3,887 5,681 3,887 Derivative financial instruments 5,681 3,887 5,681 3,887 Other liabilities 1,004, ,780 1,004, ,780 Taxes and social security 15.b 59,272 25,192 59,272 25,192 Subordinated debts 15.c 943, , , ,170 Sundry 15.d 1,944 1,418 1,944 1,418 Deferred income 25,306 21,846 25,306 21,846 Deferred income 25,306 21,846 25,306 21,846 Equity 1,679,473 1,499,606 1,679,473 1,499,606 Capital: 1,041,900 1,004,400 1,041,900 1,004,400 Brazilian residents 457, , , ,936 Foreign residents 584, , , ,464 Capital reserve 2, , Income reserves 644, , , ,210 Equity valuation adjustment 2, , Treasury shares (12,597) (10,997) (12,597) (10,997) Total Liabilities 13,472,934 10,499,984 13,483,126 10,510,815 See accompanying notes. Ernst & Young Terco 4 F-56

301 BANCO ABC BRASIL S.A. Income statements Years ended December 31, 2012 and 2011 and six-month period ended December 31, 2012 (In thousands of reais, except net earnings per share) Notes Bank Consolidated 2nd Half Year Year Income from financial intermediation 673,352 1,325,109 1,213,536 1,339,461 1,230,500 Lending operations 447, , , , ,426 Marketable securities 131, , , , ,041 Gain (losses) on derivative financial instruments 5b 78, , , , ,889 Foreign exchange operations 7,112 (15,382) (76,856) (15,382) (76,856 Income from receivables acquired 9,710 13,093-13,093 Expenses from financial intermediation (451,931) (933,650) (749,558) (933,650) (749,682 Funding expenses (316,548) (651,599) (539,025) (651,599) (539,025 Borrowings and onlendings (76,945) (171,233) (158,109) (171,233) (158,233 Allowance for loan losses 8 (58,831) (111,122) (51,722) (111,122) (51,722 Allowance for loan losses Exchange rate variation on credit assignment operations (702) 304 (702 Gross income from financial intermediation 221, , , , ,818 Other operating income (expenses) (38,863) (49,357) (64,550) (58,876) (75,499 Income from services rendered 16 75, , , , ,365 Personnel expenses (67,153) (130,349) (113,692) (130,584) (113,962 Other administrative expenses 17 (36,238) (71,555) (64,865) (71,488) (64,935 Taxes (19,854) (38,062) (39,767) (38,487) (40,283 Equity pick-up in subsidiaries 3,874 8,512 10,393 - Other operating income 18 7,858 51,144 27,029 51,257 27,332 Other operating expenses 19 (3,312) (6,450) (9,013) (6,977) (9,016 Operating Income 182, , , , ,319 Non-operating Income (1,871) (6,611) (5,980) (6,611) (5,876 Income before taxes and profit sharing 180, , , , ,443 Income and social contribution taxes 20 (36,673) (56,413) (88,013) (61,246) (94,008 Provision for income tax (34,480) (69,182) (67,035) (72,455) (70,707 Provision for social contribution tax (22,908) (43,639) (41,039) (45,199) (42,871 Deferred tax credits 20,715 56,408 20,061 56,408 19,570 Variable compensation (29,319) (52,459) (69,398) (52,459) (69,398 Net income for the six-month period / year 114, , , , ,037 Net earnings per share in Brazilian Reais 138,629,799 shares (134,013,539 in 2011) See accompanying notes. Ernst & Young Terco 5 F-57

302 F-58

303 BANCO ABC BRASIL S.A. Cash flow statements indirect method Years ended December 31, 2012 and 2011 and six-month period ended December 31, 2012 (In thousands of reais) Bank Consolidated 2nd Half Year Year Operating activities Adjusted net income for the six-month period / year 177, , , , ,652 Net income for the six-month period / year 114, , , , ,037 Adjustment to net income: 62, ,742 59, ,254 69,615 Depreciation and amortization 2,961 5,858 4,837 5,858 4,882 Equity pick-up in subsidiaries (3,874) (8,512) (10,393) - - Income (loss) on disposal of assets not used in banking operations 1,270 2,171 (240) 2,171 (240) Loss on disposal fixed assets and intangibles (106) Provision for impairment of assets not of own use 604 4,358 6,404 4,358 6,404 Allowance for loan losses 58, ,818 52, ,818 52,424 Provision for contingent liabilities 1,342 (1,518) 5,906 (1,518) 5,906 Mark-to-market marketable securities and derivatives 2,158 2, , Changes in assets and liabilities 695,412 (745,508) (438,889) (754,068) (451,493) Decrease in interbank investments 299, ,176 16, ,176 16,777 (Increase) in marketable securities and derivative financial instruments (assets/liabilities) (2,103) (479,675) (336,840) (490,040) (349,656) (Increase) decrease in lending operations 21,885 (510,049) (137,665) (510,049) (137,665) (Increase) in other credits and assets (353,665) (1,139,489) (70,074) (1,136,995) (71,420) (Increase) decrease in interbank accounts (assets/liabilities) 59,468 (40,342) (25,696) (40,342) (25,696) (Decrease) increase in interbranch accounts 3,089 6,515 (12,586) 6,515 (12,586) Increase in other liabilities 662,185 1,095, ,989 1,095, ,547 Increase in deferred income 5,447 3,460 2,206 3,460 2,206 Cash flow used in operating activities 873,006 (403,147) (143,569) (403,195) (145,841) Investing activities Acquisition of investments Acquisition of fixed assets and intangibles (4,635) (7,810) (9,123) (7,810) (9,123) Acquisition of assets not used in banking operations (2,545) (24,234) (17,486) (24,234) (17,486) Disposal of fixed assets for own use and intangible assets ,499 Disposal of assets not used in banking operations 6,655 8,548 2,676 8,548 2,676 Establishment of reserves 1,739 1,739-1,739 - Capital raising 37,500 37,500-37,500 - Cash flow used in investing activities 38,717 15,832 (23,881) 15,833 (21,434) Financing activities Increase in deposits 52, , , , ,340 (Decrease) in liabilities for borrowings and onlending (669,456) (77,527) (129,820) (77,527) (129,820) Increase in acceptance and issue of securities 424,345 1,366, ,441 1,366, ,441 Treasury shares - (1,600) (4,139) (1,600) (4,139) Interest on equity capital (42,390) (86,872) (80,555) (86,872) (80,555) Cash from financing activities (234,693) 1,615, ,442 1,615, ,267 Increase in cash and cash equivalents 677,030 1,228, ,992 1,228, ,992 Cash and cash equivalents At the beginning of the six-month period / year 1,203, , , , ,010 At the end of the six-month period / year 1,880,488 1,880, ,002 1,880, , ,030 1,228, ,992 1,228, ,992 See accompanying notes. Ernst & Young 7 F-59

304 BANCO ABC BRASIL S.A. Statements of value added Years ended December 31, 2012 and 2011 and six-month period ended December 31, 2012 (In thousand of reais) Bank Consolidated 2nd Half Year Year Determination of value added Income 698,734 1,402,838 1,313,506 1,417,303 1,330,773 Income from financial intermediation 673,352 1,325,109 1,213,536 1,339,461 1,230,500 Income from services rendered 75, , , , ,365 Set-up of allowance for loan losses (58,438) (110,818) (52,424) (110,818) (52,424) Other operating income 7,858 51,144 27,029 51,257 27,332 Expenses from financial intermediation (393,493) (822,832) (697,134) (822,832) (697,258) Assets acquired from third parties (33,287) (69,242) (67,013) (69,702) (66,937) Data Processing and Telecommunications (4,981) (10,126) (8,723) (10,188) (8,778) Services provided by third parties (2,665) (5,111) (5,899) (4,813) (5,660) Financial services (6,380) (12,829) (10,596) (12,842) (10,607) Specialized technical services (4,527) (7,929) (8,288) (7,986) (8,336) Travel expenses (2,136) (4,011) (3,602) (4,011) (3,602) Promotions and public relations (565) (1,976) (2,631) (1,976) (2,631) Other operating expenses (3,312) (6,450) (9,013) (6,977) (9,016) Non-operating income (1,871) (6,611) (5,980) (6,611) (5,876) Other administrative expenses (6,850) (14,199) (12,281) (14,298) (12,431) Retained earnings (2,961) (5,857) (4,838) (5,857) (4,882) Depreciation and amortization (2,961) (5,857) (4,838) (5,857) (4,882) Net value added 268, , , , ,696 Equity pickup in subsidiaries 3,874 8,512 10, Total value added to be distributed 272, , , , ,696 Distribution of value added 272, , , , ,696 Salaries and social charges 85, , , , ,186 Direct compensation 42,836 81,893 74,407 82,043 74,591 Benefits 9,809 19,125 15,070 19,161 15,099 Social charges - FGTS 3,207 6,395 5,763 6,407 5,775 Training 471 1,723 1,323 1,723 1,323 Profit sharing 29,319 52,459 69,398 52,459 69,398 Taxes, charges and compulsory contributions 67, , , , ,466 Federal 65, , , , ,781 State Municipal 1,913 3,307 3,490 3,314 3,496 Remuneration of third party capital 5,173 9,517 8,007 9,517 8,007 Rent 5,173 9,517 8,007 9,517 8,007 Remuneration of shareholders 114, , , , ,037 Interest on equity capital 42,390 86,872 80,555 86,872 80,555 Retained profit 72, , , , ,482 See accompanying notes. Ernst & Young 8 F-60

305 BANCO ABC BRASIL S.A. Notes to the financial statements December 31, 2012 and 2011 (In thousands of reais) 1. Operations The Bank is a publicly-traded corporation and a subsidiary of The Arab Banking Corporation, based in Bahrain. In Brazil, the Bank is engaged in asset and liability operations inherent to multiple bank activities, being authorized to operate with commercial, foreign exchange, investment, credit and financing, and housing financing portfolios. The Bank s operations are conducted through branches in Brazil and abroad through an overseas branch located in Georgetown, Grand Cayman Islands (Note 22). 2. Financial statements presentation, consolidation criteria and significant accounting practices I Financial statements presentation and consolidation criteria The financial statements (individual and consolidated) were prepared in accordance with accounting practices adopted in Brazil, in light of accounting guidelines contained in Law No. 6404/76 with amendments introduced by Law No /07 and 11941/09, and the standards and instructions of the Central Bank of Brazil (BACEN). The consolidated financial statements include the financial statements of Banco ABC BRASIL S.A. and those of the subsidiaries ABC BRASIL Distribuidora de Títulos e Valores Mobiliários S.A. and ABC BRASIL Administração e Participações Ltda., for which the direct and indirect ownership interest as of December 31, 2012, is equivalent to approximately 100%. These financial statements were approved by the Board of Directors on January 30, The accounting practices adopted to record operations and assess the Bank s assets, including operations conducted by the overseas branch and its consolidated subsidiaries were consistently applied, and investments, rights, obligations and transactions between consolidated entities have been eliminated. In accordance with the convergence process to international accounting standards, certain standards and interpretations were issued by Brazilian FASB (CPC), which will be applicable to financial institutions only when approved by BACEN. The accounting pronouncements already approved by BACEN are: Resolution No. 3566/08 Impairment of assets; Resolution No. 3604/08 Cash flow statement; Resolution No. 3750/09 Related party disclosure; Resolution No. 3823/09 Provisions, contingent liabilities and contingent assets; Ernst & Young 9 F-61

306 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2012 and 2011 (In thousands of reais) 2. Financial statements presentation, consolidation criteria and significant accounting practices (Continued) Resolution No. 3973/11 Subsequent events; Resolution No. 3989/11 Share-based payments; Resolution No. 4007/11 Accounting policies, change in estimates and correction of errors; and Resolution No. 4144/12 Pronouncement basic concepts. The preparation of the financial statements (individual and consolidated) in accordance with accounting practices adopted in Brazil, applicable to institutions authorized to operate by the Central Bank of Brazil, require that management use assumptions and professional judgment in determining amounts and in recording of accounting estimates, such as the allowance for loan losses, deferred income tax, provision for contingencies and valuation of derivative instruments receivable and payable. Settlement of these transactions involving these estimates may result in amounts different from those estimated, due to the uncertainties related to the determination process. II Significant accounting practices Significant accounting practices are summarized as follows: a) Asset valuation criteria Interbank investments, loans and other rights, except for marketable securities and derivative financial instruments, are stated at cost of acquisition, of investment or release, plus exchange rate variation, monetary restatement and contractual interest. Allowances are recognized for adjustment to realizable value when market value is lower. Marketable securities and derivative financial instruments are classified in accordance with management s intention to hold them in the portfolio, or their availability for sale, and are recorded as follows: Trading securities: are acquired for the purpose of being actively and frequently traded. They are adjusted to market value with the related gain or loss recognized directly in the statements of income for the period. Held to maturity: marketable securities for which the Bank has the intent and ability to maintain in portfolio to maturity are stated at cost, plus earnings reflected in the statements of income for the period. Permanent losses are recognized in P&L for the year. Ernst & Young 10 F-62

307 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2012 and 2011 (In thousands of reais) 2. Financial statements presentation, consolidation criteria and significant accounting practices (Continued) II Significant accounting practices--(continued) a) Asset valuation criteria--continued Available for sale: marketable securities which cannot be classified as either trading securities or as held to maturity are adjusted to market value. The difference between the amounts restated by the yield curve of the security and market value is recorded under a separate account in shareholders equity, net of tax effects, and transferred to the statements of income for the period when effectively realized. Derivative financial instruments: marked to market against P&L for the period. Forward operations are recorded at final contracted value, less the difference between such value and cash value of the asset or right. This difference is recognized as income or expenses based on the agreement effective terms. Option transactions are recorded at the value of premiums paid or received through effective exercise thereof reduction restated at market value. They are then written off as a decrease or increase in asset or right cost, for the effective exercise thereof, or as income or expenses if not exercised. Futures transactions are recorded at daily adjustment values, allocated as income or expenses. Swap operations are recorded at the value of the receivables-payables difference, which is allocated as income or expenses; Operations with other derivative financial instruments are recorded based on the agreement characteristics. The allowance for loan losses is recognized at an amount considered sufficient to cover potential losses on the Bank s loan portfolio, based on past experience, assessment of delinquent accounts and collateral risks, as well as specific terms and conditions of the operations, in conformity with BACEN Resolution No Investments in subsidiaries are stated by the equity method in proportion to the Bank s ownership interest; other investments are stated at cost of acquisition, less a reserve, where applicable, to cover permanent losses. Ernst & Young 11 F-63

308 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2012 and 2011 (In thousands of reais) 2. Financial statements presentation, consolidation criteria and significant accounting practices (Continued) II Significant accounting practices (Continued) Assets and rights, classified under fixed assets in use are stated at cost of acquisition, less depreciation, where applicable, provided under the straight line method using rates that take the useful lives of the assets into consideration. Deferred charges are stated at cost less accumulated amortization computed under the straight line method. Intangible assets are stated at cost of acquisition, less amortization, where applicable, provided under the straight-line method over the estimated useful lives of the assets, as from the date these were made available for use. b) Cash and cash equivalents Cash and cash equivalents, as established in CMN Resolution No. 3604/08 include cash, bank deposits, short-term highly liquid investments, with insignificant risks of changes in value, with original maturity equal to or less than 90 days. c) Liability valuation criteria Obligations, charges and measurable or known risks, including income taxes for the period are stated at the amounts updated through to the balance sheet date. Foreign-currency obligations are translated into local currency at the exchange rate in force on the balance sheet date as disclosed by the Central Bank of Brazil. Liabilities subject to monetary restatement based on contractual clauses are stated at amounts updated through to the balance sheet date. d) Hedge Accounting Considering the exposure to currency risk and the conditions of debt market abroad through long-term subordinated debt instruments, the Bank has selected derivative financial instruments to hedge (fair value hedge) the principal and interest on debts taken out. In order to equalize the effects of mark to market of the derivative financial instruments selected for hedging purposes, the debt, plus interest due, are also stated at fair value. Ernst & Young 12 F-64

309 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2012 and 2011 (In thousands of reais) 2. Financial statements presentation, consolidation criteria and significant accounting practices (Continued) II Significant accounting practices (Continued) The variation in the fair value of hedge derivatives is recognized in the income statement. However, the variation in the fair value of the hedged item attributed to the hedged risk is accounted for as part of its book value, also recognized in the statement of income for the year. When a hedge instrument matures or is sold, cancelled or exercised, or when it does not meet hedge accounting requirements, the hedge strategy ends. The objectives of this operation and the hedging strategy for such risks during the entire operation are duly documented, together with the assessment, both at the beginning of the hedge transaction and on an ongoing basis, confirming that derivative financial instruments of the hedging operations are highly effective in the offset of variations in the fair value (mark to market) of the hedged item. A hedge instrument is considered highly effective when the variation in the fair value or cash flow of the coverage risk during the hedging period reduces 80% to 125% of the risk variation. The fair value of the derivative financial instruments used as hedge, as well as the market value of the loan subject to hedge, are disclosed in notes 5.b and 15.c respectively. Other financial instruments and exposures of trading books and banking books do not follow a specific hedge accounting policy. Risks to which such portfolios are mitigated by diverse financial instruments (Note 5.b). e) Classification of current and noncurrent/long-term assets and liabilities Operating assets and liabilities with maturities or effective possibility of settlement up to one year from the balance sheet date are classified as current and those with later maturities or effective possibility of settlement are classified as noncurrent/long-term. f) Recognition of revenues and expenses Revenues and expenses, including income, charges, monetary or exchange variances of inflation indices or official exchange rates applicable to current and noncurrent/long-term assets and liabilities, are recognized on accrual basis. Income and expenses also include the effects of asset adjustments to market or realizable value. Interest on past-due loan installments outstanding for over 60 days is recognized only when the respective amount is received. Ernst & Young 13 F-65

310 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2012 and 2011 (In thousands of reais) 2. Financial statements presentation, consolidation criteria and significant accounting practices (Continued) II Significant accounting practices (Continued) Deferred income and social contribution taxes on temporary differences arising from nontaxable or nondeductible income and expenses, the future additions or exclusions of which are authorized by tax legislation, are also determined on the accrual basis. g) Contingent assets, contingent liabilities and legal, tax and social security liabilities The recognition, measurement and disclosure of contingent assets and liabilities, and legal liabilities take place according to the criteria described below: Contingent assets are not recognized in the financial statements, except when there is evidence providing guarantee of their realization, on which further appeals can no longer be filed. Contingent liabilities are recognized in the financial statements when, based on the opinion of legal advisors and the Bank s management, the risk of loss of a legal or administrative proceeding is regarded as probable, with a probable outflow of funds for settling the liabilities, and when the amounts involved may be measured with sufficient accuracy. Contingent liabilities classified by legal advisors as possible losses are only disclosed in notes, whereas those classified as remote losses do not require provision or disclosure. Legal liabilities tax and social security refer to lawsuits aiming to challenge the legality and constitutionality of certain taxes and contributions. h) Impairment of non-financial assets An impairment loss is recognized if the book value of an asset, or its cashgenerating unit, exceeds its recoverable amount. An impairment loss is recognized in profit or loss. i) Income and Social Contribution Taxes Income tax is calculated at 15%, with a 10% surtax on taxable income in excess of R$ 240 for the year, adjusted by additions and exclusions prescribed by Ernst & Young 14 F-66

311 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2012 and 2011 (In thousands of reais) 2. Financial statements presentation, consolidation criteria and significant accounting practices (Continued) II Significant accounting practices (Continued) legislation. Social contribution tax is calculated on net income adjusted as allowed by ruling legislation at 15%. Pursuant to Law No /09, changes in the criteria to recognize revenues, costs and expenses computed upon calculation of net income for the year, introduced by Law No /07 and articles 37 and 38 of referred Law No /09, shall not be effective for the purpose of computing taxable profit of legal entities who opt for the Transition Tax Regime (RTT); for tax purposes, the accounting methods and criteria effective for the year ended December 31, 2007 (Note 20) should be taken into consideration. 3. Cash and equivalents Cash and cash equivalent components: Bank and consolidated Cash and banks 87,523 21,201 Interbank investments 1,792, ,801 -Foreign investments 351, ,057 -Other investments with original maturity equal to or less than 90 days 1,441, ,744 Total cash and cash equivalents 1,880, , Interbank investments Money market investments are backed by government securities and foreign investments have one-day maturities. Interbank deposits mature through November, Ernst & Young 15 F-67

312 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2012 and 2011 (In thousands of reais) 5. Marketable securities and derivative financial instruments a) Marketable securities As of December 31, 2012 and 2011 the classification of marketable securities is stated as follows: Bank Consolidated Bank Consolidated Cost Market Cost Market Market Market Trading securities Financial treasury bills ,159 24,159 Eurobonus 26,012 26,882 26,012 26,882 21,001 21,001 National Treasury Notes - NTN - B 10,578 10,953 10,578 10, National Treasury Notes - NTN - A 51,086 58,841 51,086 58,841 47,489 47,489 Debentures 20,342 20,439 20,342 20, Publicly-held company shares Subtotal Trading securities 108, , , ,115 92,715 92,715 Securities available for sale Financial treasury bills 617, , , , , ,172 Eurobonus 23,081 22,847 23,081 22,847 8,595 8,595 National Treasury Notes - NTN - B 36,614 38,200 36,614 38,200 38,402 38,402 Bank deposit certificates 20,196 20, , ,950 24, ,502 Debentures 294, , , , , ,696 Promissory notes 175, , , ,113 74,942 74,942 Rural Producer s bills 62,250 62,810 62,250 62, Government securities issued in other countries 102, , , , Subtotal Securities available for sale 1,332,510 1,337,182 1,473,318 1,477,990 1,022,865 1,153,309 Total 1,440,528 1,454,297 1,581,336 1,595,105 1,115,580 1,246,024 At December 31, 2012, unrealized results on securities classified as available for sale totaled a gain of R$ 4,672 (R$ 537 gain in 2011), which is recorded in equity under the account Equity valuation adjustment net of tax effects, amounting to R$ 2,803 (R$ 322 in 2011). Ernst & Young 16 F-68

313 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2012 and 2011 (In thousands of reais) 5. Marketable securities and derivative financial instruments (Continued) a) Marketable securities - Continued Considering maturity, the portfolio at December 31, 2012 is broken down as follows: Bank 2012 Up to 1 Month 1 to 3 months 3 to 6 months 6 to 12 months 1 to 3 years Over 3 years Total Trading securities Eurobonus ,882 26,882 National Treasury Notes - NTN - B ,953-10,953 National Treasury Notes - NTN - A ,841 58,841 Debentures ,439 20,439 Subtotal Trading securities , , ,115 Securities available for sale Financial treasury bills - 39, , ,649 Eurobonus 5,881-9,165-6,268 1,533 22,847 National Treasury Notes - NTN - B , ,131 38,200 Bank deposit certificates , ,260 Debentures - - 2,776 4, , , ,670 Promissory notes - 83,569-91, ,113 Rural Producer s bills 20, ,607 9,850 62,810 Government securities issued in other countries , ,633 Subtotal Securities available for sale 26, ,923 50, , , ,864 1,337,182 Total , ,923 50, , , ,026 1,454,297 Total ,285 65, , ,156 91,142 1,115,580 Consolidated 2012 Up to 1 Month 1 to 3 months 3 to 6 months 6 to 12 months 1 to 3 years Over 3 years Total Trading securities Eurobonus ,882 26,882 National Treasury Notes - NTN - B ,953-10,953 National Treasury Notes - NTN - A ,841 58,841 Debentures ,439 20,439 Subtotal Trading securities , , ,115 Securities available for sale Financial treasury bills - 54, , ,767 Eurobonus 5,881-9,165-6,268 1,533 22,847 National Treasury Notes - NTN - B , ,131 38,200 Bank deposit certificates 1,629 1,655 56,025 6,569 68, ,950 Debentures - - 2,776 4, , , ,670 Promissory notes - 83,569-91, ,113 Rural Producer s bills 20, ,607 9,850 62,810 Government securities issued in other countries , ,633 Subtotal Securities available for sale 27, ,700 86, , , ,864 1,477,990 Total , ,700 86, , , ,026 1,595,105 Total ,525 31,606 68, , , ,902 1,246,024 Ernst & Young 17 F-69

314 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2012 and 2011 (In thousands of reais) 5. Marketable securities and derivative financial instruments (Continued) a) Marketable securities - Continued The Bank has securities linked as collateral of its operations as follows Operation type Linked securities 2012 MTM 2011 MTM Loans funding LFT 114,119 - Derivative - BMF e CBLC LFT / NTN /CDB 225, ,616 Exchange BMF LFT 78,246 26,469 Agribusiness credit bills funding CPR 62,810 - Total 480, ,085 b) Derivative financial instruments The Bank operates in the derivatives market to hedge against market price variances and to reduce currency and exchange rate risks of its assets and liabilities and cash flows contracted under compatible terms, rates and amounts. Derivatives are used as a risk transfer tool aimed to cover Banking Book and Trading Book portfolio positions. In addition, highly liquid derivatives traded on stock exchanges are used, within strict limits and with regular review, in order to manage Trading Book portfolio exposures. In order to manage risks arising therefrom, internal limits for overall exposure and by portfolio have been set, which are monitored on a daily basis. Considering the likelihood of existing limits that have been exceeded due to not anticipated issues, management has defined internal policies that require that realigning conditions be immediately defined. These risks are monitored by a function independent from the operating functions and are reported to top management on a daily basis. Risk exposure is based on the Value at Risk (VaR) calculation over a time horizon of one year through historical simulation of one-day periods and a level of probability of 99%. Derivatives operations have a counterparty credit limit set according to the customer s profile and are reviewed periodically by credit committees with participation from senior management. The operations are under the custody of the Futures and Commodities Exchange (BM&FBovespa) or the Clearinghouse for the Custody and Financial Settlement of Securities (CETIP) as well as the Chicago Stock Exchange. Ernst & Young 18 F-70

315 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2012 and 2011 (In thousands of reais) 5. Marketable securities and derivative financial instruments (Continued) b) Derivative financial instruments (Continued) The market values of these derivative financial instruments are determined based on quotations disclosed by specialized stock exchanges and, in certain cases, when there is no liquidity or market quotation, estimates of present values and other pricing techniques are used. The bases adopted for determining market prices are as follows: - Futures: stock exchange quotations; - Options: determined based on the criteria set forth in the contracts; - Swaps: cash flows for each contract are discounted to present value, in accordance with the respective interest rate curves, obtained based on BM&FBovespa prices; - Forward: the future value of the transaction discounted to present value as rates obtained at BM&FBovespa or stock exchange of reference. Ernst & Young 19 F-71

316 F-72

317 F-73

318 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2012 and 2011 (In thousands of reais) 5. Marketable securities and derivative financial instruments (Continued) b) Derivative financial instruments (Continued) Seeking to mitigate the risks from the subordinated debt of US$ 300 million (note 15.c), management designated the derivatives financial instruments shown below to hedge the foreign exchange exposure on its principal amount and contractual interest. Bank and consolidated 2012 Derivatives used as fair value hedge Notional value Curve Yield Market value MTM Hedge instruments Swap contracts 647, , , ,364 Foreign currency US dollar (1) 647, , , ,364 Subject to hedge Subordinate loan (Note 15.c) 621,538 (621,538) (512,174) (109,364) Foreign currency US dollar (1) 621,538 (621,538) (512,174) (109,364) Bank and consolidated 2011 Derivatives used as fair value hedge Notional value Curve Yield Market value MTM Hedge instruments Swap contracts 647,456 56,215 84,033 27,818 Foreign currency US dollar (1) 647,456 56,215 84,033 27,818 Subject to hedge Subordinate loan (Note 15.c) 570,213 (570,213) (598,031) (27,818) Foreign currency US dollar (1) 570,213 (570,213) (598,031) (27,818) (1) Amounts updated through the balance sheet date. Considering that cash flows (Principal and Interests) of the hedged item (Subordinated Debt) and cash flows of designated swaps are identical, effectiveness expected from the time such hedge instruments are designated and during the transaction was in conformity with the provisions set forth by the Central Bank of Brazil. Ernst & Young 22 F-74

319 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2012 and 2011 (In thousands of reais) 5. Marketable securities and derivative financial instruments (Continued) b) Derivative financial instruments (Continued) Derivative financial instruments by maturity, as of December 31, 2012 and 2011, are as follows: Up to 1 month 1 to 3 months 3 to 6 months Bank and consolidated to 12 months 1 to 3 years Over 3 years Total Total Off Balance Futures contracts 734, , , , , ,754 1,903,579 2,070,352 Swap contracts 26,003 62, , , , ,725 1,454,457 1,296,665 Option contracts 2,935,079 31,962 33,623 18, ,019, ,708 Other financial instruments 365, , , ,891 30,788-1,660, ,960 Total ,060,971 1,192, , , , ,479 8,038,354 - Total , , , , ,392 1,222,370-4,965,685 - Asset position Swap contracts ,428 5,344 10, , , ,584 Option contracts Other financial instruments 4,381 38,850 21,051 8, ,360 88,972 Total ,615 39,758 32,709 14,244 10, , ,430 - Total ,066 39,340 5,324 10,446 11,206 87, ,011 - Liability position Swap contracts (227) (310) (388) (805) (3,477) (1,806) (7,013) (4,603) Option contracts - (330) (274) (130) - - (734) (973) Other financial instruments (5,121) (37,548) (22,211) (4,641) (398) - (69,919) (87,630) Total (5,348) (38,188) (22,873) (5,576) (3,875) (1,806) (77,666) - Total (43,199) (37,030) (5,745) (3,345) (3,177) (710) - (93,206) Gains (losses) on derivative financial instruments for the year ended December 31, 2012 and 2011 are as follows: Bank and Bank and consolidated consolidated Gains Losses Net Net Swaps 407,402 (181,065) 226, ,729 Futures 826,040 (847,218) (21,178) (47,677) Options 6,609 (6,796) (187) 2,843 Non-deliverable forwards (NDF) 123,329 (202,616) (79,287) 23,994 Total 1,363,380 (1,237,695) 125, ,889 Ernst & Young 23 F-75

320 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2012 and 2011 (In thousands of reais) 5. Marketable securities and derivative financial instruments (Continued) b) Derivative financial instruments (Continued) Risk sensitivity analysis in financial instrument operations In accordance with CVM Rule No. 475/08, the Bank disclosed a sensitivity analysis to all types of market risk stemming from financial instruments considered significant by management. The table below sets out the most probable scenario in management s assessment and two additional scenarios. The probable scenario considers prices in contracts and, where applicable, indicators from various external sources or pricing models adopted to calculate the fair value of financial instruments at the balance sheet date. Scenario II considers a 25% deterioration in risk variables in view of the nature of financial instrument risk. Scenario III considers a 50% deterioration in the same variables. Exposure Probable Scenario Scenario II Scenario III i) Interest rate Net exposure to fixed interest rates (Pjur1) 7,027 12,609 18,293 Net exposure of currency coupons (Pjur2) 4,392 4,618 4,849 Net exposure of index coupons (Pjur3) 2,699 3,646 4,521 Total interest rate exposure (Note 26) 14,118 20,873 27,663 ii) Foreign exchange rate Total exposure purchased at exchange rates 4,852 12,130 24,260 i) Interest rates: According to criteria established by the Central Bank of Brazil through Resolution No. 3464/07 and Circular No. 3354/07 financial instruments classified under trading books represent exposure that would have an impact on an organization s income by mark to market or when realized or settled. Financial instruments indexed to interest rates pose potential risk from market fluctuations. These risks are managed through a methodology set out by the Central Bank of Brazil and the result of this analysis is considered when determining the minimum capital base required of financial institutions. In order to comply with CVM Rule No. 475/08, regarding risk sensitivity, it was utilized, in the scenario analysis required in this regulation, the amount of the minimum capital requirement for interest rate exposure as of December 31, Ernst & Young 24 F-76

321 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2012 and 2011 (In thousands of reais) 5. Marketable securities and derivative financial instruments (Continued) b) Derivative financial instruments (Continued) ii) Foreign exchange rate: Net exposure to exchange rates is regulated by the Central Bank of Brazil through Resolution No. 3490/07 and Circular No. 3568/11. These procedures set the maximum level of exposure at 30% of capital base. The risk exposure calculation criteria as set out by the Central Bank of Brazil and in accordance with CVM Rule No. 475/08 were taken into account in the scenario analysis of net exposure at December 31, iii) Banking Book: These refer to operations that are not classified in the trading book, resulting from Bank business lines and their possible hedge instruments. Measurement and valuation of interest rate risk of banking book operations are regulated by the Central Bank of Brazil through Circular No. 3365/07 that sets criteria and assumptions to gauge the degree of risk including stress tests whose results could indicate how much regulatory capital is required to cover such risks. Results of these procedures having no relevance on accounting practices regarding the recording and valuation of banking book operations are reported to the Central Bank of Brazil and at December 31, 2012 an exposure of R$ 26,944 was stated, which also takes into account interest rate risk of the aforementioned banking book in alternative scenarios according to methodologies set out by the regulatory body. In order to carry out a risk sensitivity analysis, foreign exchange mismatch risk in the banking book is considered in the foreign exchange rate position as set out in item II. 6. Interbank accounts Interbank accounts at December 31, 2012 and 2011, are as follows: Bank and consolidated Compulsory demand deposits 6,307 50,925 Interbank onlendings 140,164 53,585 Compulsory microfinance 421 2, , ,550 Ernst & Young 25 F-77

322 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2012 and 2011 (In thousands of reais) 7. Lending operations, guarantees and responsibilities Loans, other credits, guarantees and responsibilities are as follows: Bank and consolidated Private sector Financial intermediaries Industry Commercial Services Individuals Public sector Total Total Loans Loans 39, , ,922 1,214,012 78, ,106 3,401,037 2,514,350 Financing BNDES/Finame - 1,046, , ,108 19,982-1,792,619 2,080,527 Export finance - 719, ,402 42, ,926-1,042, ,887 Onlending of foreign funding - 40,810 27,888 61, , ,948 Foreign currency loans 17, , ,638 3, , ,180 Financing with intervenience 103, , ,350 Secured accounts 3, ,159 93, ,604 13, , ,079 Acquisition of receivables 99, , ,147 Financing rural and agribusiness - 24,526 34,828 4,158 3,664-67, ,445 Other financing , ,972 17,057 Subtotal - Loans 263,864 3,403,635 1,963,473 1,567, , ,106 7,688,659 7,239,970 Other receivables Advances on export contracts and interest (a) - 236, ,271 6, , ,080 Notes and loans receivable - 99,224 15,721 17,949 3, ,222 23,942 Credits linked to credit assignment operations (b) 18, ,858 39,041 24, ,897 - Importing finance (a) - - 1,362 1,362 - Other Subtotal Other receivables 18, , ,395 48,774 3, , ,903 Subtotal Loans and other receivable 282,428 3,858,799 2,229,868 1,616, , ,106 8,480,884 7,673,873 Guarantees and responsibilities Guarantees provided on behalf of clients (c) 1,792,617 1,520,495 2,225, ,369 37,023 76,818 6,220,603 5,161,786 Import credit facilities - 2,979 8, ,536 17,600 Confirmed export credits ,509 Subtotal Guarantees and responsibilities 1,792,858 1,523,474 2,233, ,369 37,023 76,818 6,232,380 5,180,895 Total ,075,286 5,382,273 4,463,706 2,184, , ,924 14,713,264 - Total ,900,701 5,151,264 4,188,897 1,263, ,348 76,298-12,854,768 (a) (b) (c) The balance comprises advance of R$ 442,382 (R$ 400,026 in 2011), demonstrated reducing Other liabilities (Note 15.a) plus R$ 11,724 (R$ 9,054 in 2011) of income receivable related to such advances presented in Other credits (Note 9.a). The balance of R$ 201,897 refers to credits related to operations acquired in assignment shown in Other receivables (note 9.c). The guarantees provided on behalf of clients are subject to charges and counter-guarantees. Those operations are recorded in control accounts. No losses are expected on these operations. Ernst & Young 26 F-78

323 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2012 and 2011 (In thousands of reais) 7. Lending operations, guarantees and responsibilities (Continued) Loans, guarantees and responsibilities, by maturity, are as follows: Up to 1 month 1 to 3 months Bank and consolidated 2012 Maturities 3 to 6 months 6 to 12 months 1 to 3 years Over 3 years Overdue after 15 days Total Loans 594,141 1,079,173 1,367,424 1,660,942 2,459, ,956 32,916 7,688,659 Other credits 217, , , ,692 18,917 19,062 2, ,225 Subtotal Loans and other credits 811,582 1,274,015 1,543,168 1,824,634 2,478, ,018 35,443 8,480,884 Guarantees and responsibilities 378, ,678 1,505,503 2,766, ,731 55,780-6,232,380 Total ,190,101 1,980,693 3,048,671 4,590,803 3,297, ,798 35,443 14,713,264 Total ,103,626 1,779,369 2,421,977 3,765,373 3,171, ,503 22,816 12,854,768 Over the year ended December 31, 2012, credit assignment operations, without coobrigation, were carried out under Resolution No /01 of the Central Bank of Brazil, in the amount of R$ 14,875 (R$ 36,563 in 2011). The effect of such operations on P&L for the year of 2012 was R$ 525 (R$ 488 in 2011). Credit risk concentration is as follows: Bank and consolidated Balance % of portfolio (1) Balance % of portfolio (1) Main debtor 465,497 3,16 432,017 3,36 10 main debtors 2,818,105 19,15 2,262,135 17,64 20 main debtors 4,182,815 28,43 3,436,227 26,73 (1) Total portfolio including guarantees given and responsibilities. Ernst & Young 27 F-79

324 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2012 and 2011 (In thousands of reais) 8. Allowance for loan and other credit losses At December 31, 2012 and 2011, the portfolio of loans and other assets, and the allowance for loan and other credit losses, are as follows: Risk rating Level of allowance Bank and consolidated 2012 Total operations Allowance Normal course Past due Total Res AA - 532, ,272 - A 0.5% 3,014,161-3,014,161 15,071 B 1.0% 3,608, ,609,026 36,090 C 3.0% 1,045,217 2,709 1,047,926 31,438 D 10.0% 161,264 2, ,320 16,332 E 30.0% 26,625 1,612 28,237 8,471 F 50.0% 8,929 1,707 10,636 5,318 G 70.0% 18,488 1,547 20,035 14,024 H 100.0% 29,709 25,562 55,271 55,271 Total 8,445,441 35,443 8,480, ,015 Risk rating Level of allowance Bank and consolidated 2011 Total operations Allowance Normal course Past due Total Res AA - 815, ,277 - A 0.5% 2,886,922-2,886,922 14,435 B 1.0% 3,000, ,001,102 30,011 C 3.0% 785,309 3, ,432 23,653 D 10.0% 57,294 3,574 60,868 6,087 E 30.0% 65,886 2,340 68,226 20,468 F 50.0% 19,459 3,368 22,827 11,413 G 70.0% 8,661 1,886 10,547 7,383 H 100.0% 11,304 8,368 19,672 19,672 Total 7,651,057 22,816 7,673, ,122 Ernst & Young 28 F-80

325 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2012 and 2011 (In thousands of reais) 8. Allowance for loan and other credit losses (Continued) Changes in the allowances for loan and other credit losses for the years ended December 31, 2012 and 2011 were as follows: Loans Bank and consolidated Other credits Total Total Balances at the beginning of the year 114,122 19, , ,942 Set up 86,995 24, ,122 51,722 Classified as deferred income - (344) (344) (194) Loans written off as losses (37,537) (24,348) (61,885) (42,348) Balances at the end of the year 163,580 18, , ,122 At December 31, 2012, the balance of renegotiated loans amounted to R$ 177,019 (R$ 123,221 in 2011) and the loans transactions renegotiated over the year ended December 31, 2012 amounted to R$ 143,962 (R$ 86,789 in 2011). The amount of loans recovered during the year ended December 31, 2012, previously offset against the provision, was R$ 9,531 (R$ 5,971 in 2011). 9. Other credits a) The balance of the foreign exchange portfolio is as under: Bank and consolidated Foreign exchange purchased to be settled (CCL) 587, ,308 Allowance for exchange variation of CCL (398) (702) Rights on foreign exchange sale 628,992 33,092 Advances received (5,218) (6,486) Income receivable from advances on exchange 11,724 9,054 Total 1,222, ,266 b) Trading and intermediation of securities account is substantially represented by receivables from the settlement of operations with financial assets recorded on stock exchanges. Ernst & Young 29 F-81

326 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2012 and 2011 (In thousands of reais) 9. Other credits (Continued) c) The breakdown of other sundry credits is as follows: Bank Consolidated Tax credits (Note 20) 136,739 80, ,758 80,448 Guarantee deposit debtors 87,227 49,658 92,339 57,564 Taxes and contributions to be offset 39,398 40,991 41,395 42,698 Taxes and contributions recoverable Securities and loans receivable 137,563 24, ,563 24,698 Sales of shares - 3,382-3,382 Credits linked to credit assignment operations(1) 201, ,897 - Other 3,802 9,030 3,848 9,067 Total 606, , , ,956 (1) In accordance with Resolution No /08 of the Central Bank of Brazil, from January 2012 onwards the loan transactions with recourse are being shown in specific accounts within other credit. 10. Investments ABC BRASIL Distribuidora de Títulos e Valores Mobiliários S.A. ABC BRASIL Administração e Participações Ltda Total Total Capital 49,600 55,632 Equity 70,088 67,720 Income for the year 3,610 4,902 Number of common shares owned 24,980,054 - Number of preferred shares owned 24,980,055 - Number of shares owned - 55,631,814 Ownership interest (%) Book value 70,088 67, , ,302 Equity pickup 3,610 4,902 8,512 10,393 Ernst & Young 30 F-82

327 BANCO ABC BRASIL S.A. Notes to the financial statements (Continued) December 31, 2012 and 2011 (In thousands of reais) 11. Fixed, deferred and intangible assets Fixed assets are depreciated using the straight line method at the following annual rates: installations, furniture, communication and security systems - 10%. Such rates represent fairly the economic useful life of assets. In compliance to Resolution No of the Central Bank of Brazil, up to September 2008, organizational and expansion expenses, represented by leasehold improvements, were recorded as deferred asset and amortization thereof were based on lease agreements expiration date. Intangible assets correspond to acquisition and development of computer software and operating systems, amortized under the straight-line method at annual rate of 20%. Ernst & Young 31 F-83

328 F-84