BANIF BANCO INTERNACIONAL DO FUNCHAL, S.A. (incorporated with limited liability in Portugal) as Issuer

Transcription

1 FOURTH SUPPLEMENT DATED 19 DECEMBER 2011 TO THE BASE PROSPECTUS DATED 22 FEBRUARY 2011, AS SUPPLEMENTED BY THE SUPPLEMENTS TO THE BASE PROSPECTUS DATED 12 APRIL 2011, 12 JULY 2011 AND 12 OCTOBER 2011 BANIF BANCO INTERNACIONAL DO FUNCHAL, S.A. (incorporated with limited liability in Portugal) as Issuer BANIF FINANCE, LTD. (incorporated with limited liability in the Cayman Islands) as Issuer BANIF BANCO INTERNACIONAL DO FUNCHAL, S.A., ACTING THROUGH ITS SUCURSAL FINANCEIRA EXTERIOR (EXTERNAL FINANCIAL BRANCH) (incorporated with limited liability in Portugal) as Issuer and as Guarantor of Notes issued by Banif Finance, Ltd. EUR 2,500,000,000 Euro Medium Term Note Programme This fourth supplement (the Fourth Supplement ) to the Base Prospectus dated 22 February 2011 (the Base Prospectus ) constitutes a supplement to the Base Prospectus for the purposes of Article 16 of Directive 2003/71/EC (the "Prospectus Directive") and Article 13 of Part II of the Luxembourg act dated 10 July 2005 relating to prospectuses for securities (the Prospectus Act ) and is prepared in connection with the EUR 2,500,000,000 Euro Medium Term Note Programme (the Programme ) for the issue of Senior Notes, Dated Subordinated Notes, Undated Subordinated Notes and Undated Subordinated Notes with Conditional Interest established by Banif Banco Internacional do Funchal, S.A. ( Banif ), Banif Finance Ltd. ( Banif Finance ) and Banif Banco Internacional do Funchal, S.A. acting through its External Financial Branch (Sucursal Financeira Exterior) ( Banif Madeira ). Terms defined in the Base Prospectus have the same meaning when used in this Fourth Supplement. This Fourth Supplement is supplemental to, and should be read in conjunction with, the Base Prospectus and the Supplements to the Base Prospectus dated 12 April 2011, 12 July 2011 and 12 October Each of Banif, Banif Finance and Banif Madeira accepts responsibility for the information contained in this Fourth Supplement. To the best of the knowledge of each of Banif, Banif Finance and Banif Madeira (who have taken all reasonable care to ensure that such is the case), the information contained in this Fourth Supplement is in accordance with the facts and does not omit anything likely to affect the import of such information. 0. SUMMARY OF THE PROGRAMME - 1 -

2 The paragraphs Issuers and Risk Factors under Summary of the Programme on page 1 of the Base Prospectus, as supplemented, shall be deleted and be replaced with the following paragraphs: 0.1. Issuers: Banif Banco Internacional do Funchal, S.A., Banif Finance, Ltd. and Banif Banco Internacional do Funchal, S.A., acting through its Sucursal Financeira Exterior (External Financial Branch) Banif Banco Internacional do Funchal, S.A. is a bank incorporated in Portugal (with commercial registry and tax payer number ) on 1 April, 2002 for an unlimited duration and with limited liability (societies anonym). The share capital of Banif is 780,000,000 and is represented by 156,000,000 book-entry registered (nominativas) shares with the nominal value of 5 each. The bank offers a comprehensive range of products and services, for both personal and corporate clients, which is constantly adjusted to market needs. Firmly committed to a financial partnership with its customers, the bank is currently the market leader in Madeira and is established with Portuguese residents in Venezuela, South Africa and Brazil, providing a personalised service of increasing quality and a full range of products. Banif is wholly owned by Banif Comercial SGPS, S.A., a subsidiary of the Banif Financial Group, whose parent company is Banif SGPS, S,A,. The main shareholder of Banif SGPS, S.A. is the undivided estate of late Horácio da Silva Roque (the Herança Indivisa de Horácio da Silva Roque ). As of 31 December 2010, the Banif Financial Group had a countrywide geographical coverage, with 601 points of sale worldwide and leadership positions in Madeira and Azores (572 points of sale as at 30 June 2011). As of 30 June 2011, Banif s total number of employees reached 2,605, which corresponds to a -4.2% decrease against the first half of Banif Finance, Ltd. was incorporated in the Cayman Islands (with registered number ) on 6 August 2003 for an unlimited duration and with limited liability as an exempted company under the laws of the Cayman Islands. Banif Finance has no subsidiaries. Banif Finance's sole business activity is to participate in capital markets transactions, through the issuance of securities, to provide Banif Financial Group funding

3 Banif Finance is controlled by Numberone SGPS, Lda,, a subsidiary of Banif. Numberone SGPS, Ltd and Banif, together own 100% of the voting shares of Banif Finance. All issued ordinary shares of Banif are fully paid as at the present date Risk Factors: There are certain factors which may affect the Issuers ability to fulfil their obligations under Notes issued under the Programme. These are set out under Risk Factors below and include risks relating to the Issuer s and in addition, the risks factors relating to the Notes issued under the Programme. Risk Factors relating to Banif Factors that may affect Banif ability to fulfil its obligations under Notes to be issued by Banif under the Programme: Economic activity Banif s performance, results of operations and financial conditions might be adversely influenced by the level and cyclical nature of business activity in Portugal, which is in turn affected by both domestic and international economic and political events. Portuguese economy- Banif s performance, results of operations and financial conditions are dependent on the strength of the Portuguese economy and, to a lesser extent, that of the European Union. Financial system Conditions in the global financial markets and the macroeconomic context of the countries in which Banif operates generally influence the performance of Banif. Banking markets Intense competition in all areas of Banif s operation can have an adverse effect on the Issuer s operating results. Risk of sovereign rating downgrade An adverse impact on the rating of the Portuguese Republic may result in negative side effects on Portuguese banks, and might lead to further rating downgrades of Banif, and hence on its financial results. Risk of a Banif s rating downgrade Future rating downgrades of Banif could increase its cost of funding and, ultimately, result in the funding markets becoming inaccessible to Banif. Soundness of other financial institutions Banif is exposed to many different counterparties in the normal course of its business, which can expose Banif to credit risk in the event of default of a counterparty or when the collateral it holds fails to cover its exposure

4 Credit risk Risk arising from changes in credit quality and the repayment of loans and amounts due from borrowers and counterparties are inherent in a wide range of Banif s businesses. Market Risk Banif faces the risk of possible losses resulting from an adverse change in the value of financial instruments due to fluctuations in interest rates, foreign exchange rates, share prices or commodity prices. Liquidity Risk The inability of Banif to anticipate and provide for unforeseen decreases or changes in funding sources could have consequences on Banif s ability to meet its obligations when they fall due. Interest Rate Risk Banif is subject to the risk of interest rate fluctuations, which may from time to time impact negatively upon Banif s operating results. Operational Risk The Bank faces the risk of losses or of a negative impact resulting from inadequate or negligent application of internal procedures, or from people behaviour, information systems,external events non-compliance with regulations in force or legal action. Risks associated with the implementation of its risk management policies Although Banif has implemented risk management policies for each of the risks that it is exposed to, such policies may not be fully effective. Regulatory Compliance Risk Banif operates in a highly regulated industry and the regulatory laws governing the activity of Banif may change at any time in ways which may have an adverse effect on its business, nor can Banif predict the timing or form of any future regulatory initiatives. Risks associated with the ability to maintain Banif s client portfolio The success of Banif depends largely on its ability to maintain its client portfolio and provide it with a diversified range of competitive and high quality products and services. The potential inability of Banif to do so could have an adverse effect on Banif s financial situation and results. International Financial Reporting Standards The International Financial Reporting Standards ( IFRS ) are adopted by Banif for reporting periods. However, the IFRS are different from the accounting principles in Portugal, and their implementation may have a significant effect on the presentation of Banif s future financial statements. Risks associated with the increasing use of sophisticated IT systems Banking activities are highly dependent on sophisticated IT systems, which are vulnerable to a number of problems and require frequent updates. Any significant interruption to Banif s IT systems can have an - 4 -

5 extremely adverse effect on its activities, results and financial condition. Risks relating to Banif s shareholding structure Banif s shares are 100% owned by Banif Comercial SGPS, S.A., whose parent company of Banif SGPS,S.A.. The major shareholder of Banif SGPS, S.A. is the Herança Indivisa de Horácio da Silva Roque which holds, directly and indirectly, approximately a per cent. of the voting rights of Banif SGPS, S,A, and has the ability to exercise significant influence over or determine the outcome of certain shareholder actions. Risk Factors relating to Banif Finance Banif Finance Ltd is a funding vehicle of Banif. Therefore any failure by Banif to pay amounts outstanding under any intragroup loans made by Banif Finance to Banif would affect Banif Finance s ability to meet its payment obligations under the issued Notes. Risk Factors relating to the Notes issued under the Programme A wide range of Notes may be issued under the Programme. A number of these Notes may have features which contain particular risks for potential investors. Set out below is a description of the most common such features: Notes may not be a suitable investment for all investors Each potential investor in the Notes must determine the suitability of that investment in light of their own circumstances. Notes subject to optional redemption by the Issuer An optional redemption feature is likely to limit the market value of the Notes. Partly-paid Notes For Notes where the issue price is payable in more than one instalment, failure to pay any subsequent instalment when due could result in an investor losing all of his investment. Variable rate Notes with a multiplier or other leverage factor Such Notes can be volatile investments, especially if they are structured to include multipliers or other leverage factors, or caps or floors, or any combination of those features or other similar related features. Fixed/Floating Rate Notes Such Notes may bear interest at a rate that the relevant Issuer may elect to convert from a fixed rate to a floating rate or from a floating rate to a fixed rate

6 Index Linked Notes and Dual Currency Notes the market price of such Notes may be volatile and interest may not be payable thereunder; the amount of principal payable at redemption may be less than the nominal of such Notes or even zero; a Relevant Factor may be subject to significant fluctuations that may not correlate with changes in interest rates, currencies or other indices; if a Relevant Factor is applied to Notes in conjunction with a multiplier greater than one or which contains some other leverage factor, the effect of changes in the Relevant Factor on interest payable will be magnified. Notes issued at a substantial discount or premium The market value of Notes of this type tends to fluctuate more in relation to general changes in interest rates than do prices for conventional interest-bearing securities. Each Issuer s obligations under Subordinated Notes are subordinated In the event of bankruptcy or winding-up of the relevant Issuer, the relevant Noteholders claims shall be subordinated in right of payment to the claims of all unsubordinated creditors of the relevant Issuer. Under certain conditions, principal or interest may not be due on Undated Subordinated Notes with Conditional Interest Any deferral of interest payments will likely have an adverse effect on the market price of the Undated Subordinated Notes with Conditional Interest. As a result of the interest deferral provision, the market price of Undated Subordinated Notes with Conditional Interest may be more volatile than debt securities not subject to such deferrals and issued at discount or with non conditional interest, and may be more sensitive generally to adverse changes in Banif s financial condition. There are certain risks relating to the Notes generally, such as modification and waivers, EU Savings Directive and change of law. Investments in Interbolsa Notes will be subject to Interbolsa procedures and Portuguese law with respect to the form and transfer of Interbolsa Notes, payments on Interbolsa Notes and Portuguese tax rules. Holders of Interbolsa Notes must ensure that they comply with all procedures to ensure the correct tax treatment of their Interbolsa Notes

7 1. RISK FACTORS RISK FACTORS RELATING TO BANIF 1.1. Economic Activity The following sentence of the second paragraph under Economic Activity on page 7 of the Base Prospectus, as supplemented: If the economic activity continues to grow at such a slow pace, Banif may face difficulties in accomplishing its growth strategy and the financial condition and results of Banif may be adversely affected. shall be deleted, and replaced with the following paragraph: Therefore, adverse changes affecting the Portuguese economy would likely have a significant adverse impact on its loan portfolio and, as a result, on Banif s financial condition, cash flows, results of operations, as well as the performance of the Banif Financial Group as a whole. The third paragraph under Economic Activity on page 7 of the Base Prospectus, as supplemented, shall be deleted and replaced with the following paragraphs: To a lesser extent, performance, results of operations and financial condition of the Banif Financial Group are also affected by the economic conditions and levels of economic activity in other countries where it operates, such as Brazil, the United States of America, Malta, Spain, the United Kingdom and Hong Kong. A downturn in the economy of any of these countries, particularly Portugal, could lead to an increase in defaults by the customers of the Banif Financial Group on the loans advanced to them. In addition, protracted economic declines could reduce the overall level of economic activity in the market, thereby reducing the ability of the Banif Financial Group to collect deposits and forcing it to satisfy its liquidity requirements by resorting to the more expensive capital markets as a result. A continued downturn in the Portuguese economy will have a material adverse effect on the business of the Banif Financial Group. The ability of the Banif Financial Group to grow may be restricted by slower growth in the banking markets in which it operates Portuguese Economy The following paragraphs shall be inserted in page 7 of the Base Prospectus, as supplemented, under new section Portuguese Economy after the risk factor related to Banif under Economy Activity : As a financial institution whose core business is banking (taking deposits and using them to grant loans) in Portugal, the state of the Portuguese economy affects the performance of Banif. Consequently, Banif is particularly exposed to macroeconomic and other factors that affect growth in the Portuguese market - 7 -

8 as well as to the credit risk of its Portuguese private and corporate banking customers. After constant economic growth during the years of , the rate of growth of the Portuguese economy started to slow down in This reduction was intensified by the simultaneous slowdown of the world economy. Following the start of the financial crisis in 2007, the crisis in both confidence and liquidity has led to a fall in demand in investment and production. Following the failed attempt by the Portuguese government to enact measures to reduce its deficit that led to the resignation of the Prime Minister in March 2011, the Portuguese government requested financial assistance from the member states of the European Union ( EU ) through the European Financial Stability Facility ( EFSF ) and the International Monetary Fund ( IMF ) in April On 5th May, 2011, the Portuguese government, with the support of the main Portuguese political parties, agreed to a stabilisation programme, jointly supported by the IMF and the EU (the Stabilisation Programme ). The Stabilisation Programme provides financial support of 78 billion for a period of three years in the form of a cooperative package of IMF and EU funding, including a 26 billion three-year loan under the IMF s extended fund facility at an interest rate based on the Special Drawing Rights rate published by the IMF (expected to be 3.25 per cent. for the first three years and 4.25 per cent. thereafter), with the remaining 52 billion in funding being provided by the EU at an interest rate expected to be between 5.5 per cent. and 6.0 per cent. On 10th May, 2011, the European Commission approved the Stabilisation Programme and, on 16th May, 2011, EU finance ministers approved the Stabilisation Programme. The funding will be subject to quarterly reviews of conditionality for the duration of the Stabilisation Programme. As part of the Stabilisation Programme, the Portuguese government has committed to implement measures to decrease expenses and increase revenues that could potentially reduce the public sector deficit to below 5.9 per cent. of GDP in 2011, to below 4.5 per cent. of GDP in 2012 and to below 3.0 per cent. of GDP in In addition, the Stabilisation Programme is intended to put the government debt to GDP ratio on a downward path as of 2013, maintain fiscal consolidation over the medium-term up to a balanced budgetary position, notably by containing growth in expenditure and support competitiveness by means of a budget-neutral adjustment of the tax structure. The Stabilisation Programme contains structural measures and policy guidelines designed to boost the country s competitiveness and improve Portugal s growth rates in the medium term with a view to repaying the country s large debt burden. Specifically, the programme includes measures intended to, among other things: increase revenues, in part through the increase of tax rates for goods and services; improve the flexibility of the labour market; reduce the level of pensions for certain government employees; and improve the competitiveness of Portuguese goods and services. Despite the implementation of the above measures and the Portuguese government s commitment to implement the Stabilisation Programme, there can - 8 -

9 be no guarantee regarding the extent to which the programme s fiscal targets will be met or the impact of the programme s austerity measures on economic activity. The implementation of structural reforms may meet considerable opposition from labour unions and the general public in Portugal, which could put pressure on the future Portuguese government s ability to meet the requirements of such measures. Also, any of the above measures, when enacted, could have a material adverse effect on the Portuguese economy, at least in the short term, which in turn could have a material adverse impact on Banif s business, financial condition or results of operation. As the Stabilisation Plan is implemented, tensions relating to Portuguese public finances or negative financial contagion from events outside may continue to affect the liquidity and profitability of the financial system in Portugal, resulting in: lower market values for Portuguese government debt; limited liquidity for the Portuguese banking system and a reliance on external funding; increased competition for, and thus cost of, customer deposits; limited credit extension to customers; and a deterioration of credit quality. A failure to successfully implement the provisions of the Stabilisation Programme and to attain its fiscal targets may lead to the termination of financial support from the IMF and the EU, which would create the conditions for a credit event with respect to Portugal s government debt. Even if the Stabilisation Programme is successfully implemented, it is uncertain whether it will achieve the set targets. A failure of these measures may exacerbate current negative macroeconomic conditions in Portugal and may prolong the recession. In such a case, the market reaction may be negative and business activity may deteriorate, which may have a material adverse effect on Banif s business, financial condition and results of operations. Neither is it certain whether the success of the Stabilisation Programme will enable the Portuguese economy to grow sufficiently to ease Portugal s financing constraints. Any further significant deterioration of global economic conditions, including the credit profile of other EU countries, or the creditworthiness of Portuguese or international banks, or changes to the Eurozone, may give rise to concerns regarding the ability of Portugal to meet its funding needs. Following the austerity measures implemented in Portugal in accordance with the Stabilisation Programme, the Portuguese government expects the Portuguese economy to shrink by 3.0 per cent. In 2012 so that it would remain in recession throughout Banif cannot predict with any certainty whether the Stabilisation Programme or other rescue plans will be successful, the effect that they may have on the euro currency or the European Monetary Union, or the effect that they may have on Banif s business, results of operations, cash flows and financial condition. Accordingly, the uncertainties resulting from the Portuguese Republic s economic crisis and the receipt and implementation of any assistance through the Stabilisation Programme, and related market reaction, have had, and may continue to have, a material adverse effect on Banif s business, results of operations and financial condition

10 Since the start of 2011, the long-term debt ratings of the Portuguese Republic have been downgraded a number of times. In March 2011, Standard & Poor s downgraded the long-term debt rating of the Portuguese Republic to BBB-, in July 2011, Moody s downgraded the long-term debt rating of the Portuguese Republic to Ba2 and in November 2011, Fitch downgraded the long-term debt rating of the Portuguese Republic to BB+, Since then, a number of Portuguese banks have also been downgraded. The downgrading of the long-term debt rating of the Portuguese Republic has been driven by the reluctance and delay that the Portuguese Republic has shown in resorting to external assistance. As a result, the Portuguese Republic has lost credibility regarding its public budget and debt consolidation, which have led the Portuguese Republic to experience difficulties in accessing external funding. The rating agencies future outlook for the Portuguese Republic is dependent on the effective implementation of the Stabilisation Programme in order to reduce the public deficit to 3.0 per cent. of GDP by Further deterioration in its public finances could lead to a further downgrade of the Portuguese Republic s long-term credit rating. This would increase the cost of risk for the Portuguese Republic, with negative side effects on the cost of risk for Portuguese banks and their results. Any downgrade of the Portuguese Republic s long-term debt rating to below investment grade level by all rating agencies could impact on a Portuguese bank s funding base, although such a risk could be mitigated if the ECB continues to consider Portuguese debt as eligible collateral for ECB liquidity purposes, in the same way as it did with Greece and Ireland. Either way, the downgrade of the long-term credit rating of the Portuguese Republic would result in increased haircuts to any eligible collateral and consequently a reduction in the pool of assets that might be considered eligible collateral. Lately, the possibility of a Greek default and the contagion effect it may have on other EU economies such as Ireland, Portugal, Spain and Italy continues to create market instability. It is possible that the EU may fall back into recession at some time during the remaining months of 2011, which would exert additional pressure on the Portuguese economy. The prevailing economic conditions in the Portuguese market have led to a reduction in credit and a reduction in demand for financial products and services in the markets in general. Combined with a deterioration in the quality of financial assets available, these factors have had, and are expected to have, an adverse effect on the financial condition and results of Banif Financial system The following paragraphs shall be incorporated after the third paragraph under Financial System on page 8 of the Base Prospectus as supplemented: The performance of Banif is generally influenced by conditions in the global financial system. In particular, the global financial system has faced difficult conditions since August 2007 and the financial markets have had particularly

11 negative performances after the declarations of insolvency of several international financial institutions since September This situation has caused disruptions in the financial markets worldwide, in relation to liquidity and funding in the international banking system. Furthermore, this situation in turn has put significant pressure on the core business of many investment banks, commercial banks, and insurance companies worldwide. In response to the instability and lack of liquidity in the market, some countries, including some members of the European Union and the United States, have intervened by injecting liquidity and capital into the system with the goal of stabilising the financial markets and, in some cases, with the aim of preventing the insolvency of financial institutions. Despite the measures, the volatility in the capital markets has continued at an extraordinary level compared to the past. Furthermore, the second half of 2010 was marked by the deterioration of European sovereign risk. In addition to investors fears, there emerged uncertainty about the potential impact of the sovereign risk crisis on the European financial sector, which affected in particular the economies in the periphery of the Euro Zone. These developments have created an unfavorable environment for banking activity generally. The current economic environment creates challenges for Banif and may adversely affect its business, financial condition and results of operations. On 6 April 2011, the Portuguese Government announced that it has formally addressed a financial assistance request to the European Commission for access to financing from the European Financial Stability Facility and the International Monetary Fund. Such financial assistance will require the adoption of a programme which is expected to imply the adoption of further economic restrictive measures that may cause a recession or a lower economic growth in the near future. On 17 May 2011, the Portuguese Finance Minister, on behalf of the Portuguese Government, and the Governor of the Bank of Portugal, on behalf of the Bank of Portugal, have jointly addressed Letters of Intent ( LoI ) to the representatives of the International Monetary Fund (the IMF ), the Eurogroup, the Council of the European Union, the European Commission and the European Central Bank, attaching the Memorandum of Economic and Financial Policies ( MEFP ) and the Technical Memorandum of Understanding ( TMoU ), as agreed with the Portuguese Government. The LoI expressed the request of the Portuguese Government for financial assistance in the amount of Euro 78 billion, for the period from2011 to 2014, of which Euro 26 billion are expected to be provided by the IMF under its Extended Fund Facility, and Euro 52 billion by the European Financial Stability Mechanism (the EFSM ) and the European Financial Stability Facility (the EFSF ). The measures set out in the MEFP and the TMoU are aimed at the restoration of competitiveness of the Portuguese economy, the strengthening of fiscal policies (which includes the goal of reduction of Portuguese public deficit in the short term to 5.9% of GDP by the end of 2011, 4.5% of GDP by the end of 2012 and 3.0% of GDP by the end of 2013) and the stabilisation of the Portuguese financial system. The measures aimed at the stabilisation of the Portuguese financial system include, inter alia:

12 (i) the facilitation of the issuance of government guaranteed bank bonds in an amount of up to Euro 35 billion; (ii) a balanced and orderly deleveraging of the banking sector; (iii) the requirement that the Bank of Portugal ensures that Portuguese banking groups reach a Core Tier I capital ratio of 9% by the end of 2011 and 10% by the end of 2012, or a higher capital ratio if so deemed necessary by the Bank of Portugal. To this effect, the Portuguese Government will benefit from a Euro 12 billion facility from the EU and the IMF for the capitalisation of Portuguese banks in a way that preserves the control of the management of the banks by their non-state owners during a first phase and allow them the option of buying back the government s stake). In this context, the Bank of Portugal has published its Aviso 3/2011 of 17 May requiring Portuguese financial groups to attain the aforementioned capital ratio levels; and (iv) increase of efficiency of supervisory function by the Bank of Portugal, including the implementation of revised criteria for disclosure on non-performing loans, increased focus on on-site inspections and verification of data accuracy with technical assistance from the IMF, in the context of the data verification exercise for the new solvency assessment framework. Despite the commitment of the Portuguese Government on the accomplishment of the measures set out in the MEFP and the TMoU, there is no assurance that such measures will be accomplished or that they will have the expected positive impact. The circumstances mentioned above may cause a general slowdown in the business of Banif, an increase in the cost of funding, higher volatility in the value of the bank s proprietary portfolio, lower results from credit operations, higher credit impairment and heightened liquidity constraints. Numerous banks worldwide have been and are being supported in part by various rescue plans and other types of support by their home country governments. The Banif Financial Group is uncertain as to how much longer governmental support will be needed to keep these banks solvent and whether governments will have the means or the political will to continue this support. Any failure of government support to continue could result in more bank failures and heightened lack of confidence in the global banking system, thus increasing the challenges faced by Banif and by Banif Financial Group, as a whole, and other financial institutions. In addition, external intervention from the EU and the IMF might involve a reorganisation of the Portuguese banks. Whilst this may erode their deposit base and negatively impact upon their financing needs, it might also provide the conditions necessary to ensure that Portuguese banks have access to regular funding during the Stabilisation Programme (although the funding requirements originally anticipated may not be enough). This external intervention might also require Portuguese banks to comply with regulatory capital ratios that result in the recapitalisation of Portuguese banks. The Bank of Portugal has already implemented higher minimum core tier 1 ratios for Portuguese banks in December 2011 and December 2012 to 9 per cent. and 10 per cent. respectively. There might also be difficulties in resuming the market s financing when the Stabilisation Programme has finished

13 The Bank of Portugal announced on the 16th December 2011 the first global results of the Special Inspections Programme (SIP) undertake as part of the measures and actions agreed by the Portuguese authorities for its financial systems under the Programme of Economic and Financial Assistance agreed with the IMF /EU / ECB in May This Inspections Programme covered the eight largest Portuguese banking groups, including Rentipar Financeira Group, the entity that consolidates Banif Financial Group, and had the objective of validating, as of 30 June 2011, credit risk data used in the valuation of these groups financial strength, through an independent valuation of their loan portfolios, and the adequacy of their risk management policies and procedures, as well as confirming the calculation of their capital requirements for credit risk. The aggregate impact of these results on the analysis of the Group s solvency, as of 30 June 2011, as per the overall impairment allowances recorded at this date, is null, and therefore the Tier 1 ratio would be maintained in 7.2 per cent. This exercise focused on the valuation of credits amounting to EUR 11.9 billion of Banif Financial Group portfolio covering 96% of the Group s total credit portfolio. This valuation concluded that there is a need to reinforce the value of the impairment registered in the Group s consolidated financial statements account by EUR 90 million. This amount represents 0.8% of the analysed global credit portfolio and 15.7% in the value of impairments accounted in relation to that portfolio. In the context of the SIP it was also noted that there was the need to adjust the value of the risk weighted assets ( RWA ) corresponding to an increase of 0.3% on the total amount calculated for that date. It is noted that the regulatory changes applicable after the reference date of the SIP, in particular the changes in the legislation (CRD III), to be implemented by the end of 2011, will result in a reduction in value of Risk Weighted Assets equivalent to 1.4% based on data as at 30 June The effect of the changes registered after 30 June 2011 have not been taken into consideration in the estimated impact of SIP on the Tier 1 ratio. With regard to opportunities for improved policies and procedures to manage credit risk, the inspection resulted in a reduced set of recommendations whose implementation will be realized by the Banif Financial Group in the short-term. Additionally, the Banif Financial Group informs that as of 30 September 2011, the Group constituted additional impairments for the aforementioned credits amounting to EUR 20 million. Until the end of year 2011, the Banif Financial Group has in course several initiatives in order to minimize the impact of the difference, namely through the regularization and/or the reinforcement of guarantees of a significant stack of the total amount of the evaluated

14 operations. At the end of 2011, the Group plans to go ahead with the necessary impairment reinforcements in order to comply with the necessary additional reinforcements. It is estimated that regulatory amendments referred to above, applicable to the calculation of the risk weighted assets, will correspond to an improvement of the Tier 1 ratio of 0.1 percentage points. Uncertainty remains high for the remainder of 2011 and is likely to carry on into 2012, with signs of slowdown being apparent as national governments start to withdraw the financial stimuli that they introduced in the past as a response to the economic crisis. Job creation continues to be moderate in developed countries and the high levels of inflation in developing countries has led to their central banks maintaining high interest rates as a counter-measure. In general, developments relating to the current economic conditions and unfavourable financial environment, including those potential developments outlined above, could have a material adverse effect on the Banif Financial Group s business, financial condition and results of operations Risk of a Sovereign rating downgrade The last paragraph under Risk of a Sovereign rating downgrade on page 8 of the Base Prospectus as supplemented shall be replaced with the following paragraphs: In April 2010, Standard & Poor s downgraded the rating of the Portuguese Republic to A- and in July 2010 Moody s downgraded the rating of the Portuguese Republic to A1. The rating agencies concerns were justified by the lack of significant and credible measures to control the Portuguese budget deficit on behalf of the Government, when public debt is approaching 100 per cent. of GDP and by the lack of consensus between the Government and the opposition on measures to be implemented for public finance consolidation in order to achieve the necessary convergence with countries of similar rating. The rating agencies outlook on the Portuguese Republic is dependent on the measures included in the Stability and Growth Programme and on the feasibility and credibility of the plan to reduce the public deficit to 3 per cent. of the GDP by 2013, as part of the measures agreed with the EU and the IMF. In March 2011 Standard & Poor s downgraded the rating of the Portuguese Republic to BBB- ; in April 2011 and in July 2011 Moody s downgraded the rating of the Portuguese Republic to Baa1 and to Ba2 respectively; and in April 2011 Fitch downgraded the rating of the Portuguese Republic to BBB-. On 5 July 2011, Moody s downgraded the rating of the Portuguese Republic to Ba2. On 24 November 2011, Fitch downgraded the rating of the Portuguese Republic to BB+. The rating agencies concerns were justified by the lack of significant and credible measures to control the Portuguese deficit on behalf of the Government, when public debt kept growing and by the lack of consensus between the Government and the opposition on measures to be implemented

15 for public finance consolidation in order to achieve the necessary convergence with countries with similar ratings. The rating agencies outlook on the Portuguese Republic will be highly dependent on the ability of the government to take the measures and meet the targets included in the bailout program, namely to reduce the public deficit to 3 per cent of the GDP by The rating of the Portuguese Republic further downgraded again in the future in the event of a continued deterioration in public finances resulting from poor economy activity or from the measures proposed by Government being perceived as insufficient. Accordingly, an adverse impact on the Portuguese Republic may result in negative side effects on Portuguese banks and companies in general and hence on their financial results. In the past, downgrades of the rating of the Portuguese Republic have led to the rating downgrade of Banif and it is most likely that the evolution of Banif s rating continues to be affected by the sovereign rating of its home country and by the developments in the domestic economy. Information on the ratings granted to Banif are available on the CMVM s website ( under the section Material Information through the following link: %22%5D%5C%20%0A Soundness of other financial institutions The following paragraphs shall be inserted in page 9 of the Base Prospectus, as supplemented, under Soundness of other financial institutions after the risk factor related to Banif under Risk of a Banif s rating downgrade : Banif is exposed to many different counterparties in the normal course of its business; hence its exposure to counterparties in the financial services industry is significant. This exposure can arise through trading, lending, deposit-taking, clearance and settlement and numerous other activities and relationships. These counterparties include institutional clients, brokers and dealers, commercial banks, investment banks and mutuals. Many of these relationships expose Banif to credit risk in the event of default of a counterparty or client. In addition, Banif s credit risk may be exacerbated when the collateral it holds cannot be realised at, or is liquidated at prices not sufficient to recover, the full amount of the loan or derivative exposure it is due to cover, which could in turn affect Banif ability to meet its payments under the Notes. Many of the hedging and other risk management strategies utilised by Banif also involve transactions with financial services counterparties. The insolvency of these counterparties may impair the effectiveness of Banif hedging and other risk management strategies, which could in turn affect Banif s ability to meet its payments under the Notes and may have a material adverse effect on the each of Banif s financial condition and results of operations Market Risk The following paragraphs shall be incorporated after the paragraph under Market Risk on page 9 of the Base Prospectus as supplemented:

16 Banif currently engages in various treasury activities for its own account, including placing euro and foreign currency-denominated deposits in the interbank market and trading in the primary and secondary markets for government securities. Proprietary trading includes taking positions in the fixed income and equity markets using both cash and derivative products and financial instruments. Although Banif s level of engagement in such activities is limited, proprietary trading involves a degree of risk. Future proprietary trading results will in part depend on market conditions and Banif could incur significant losses, which could adversely affect its financial condition and results of operations. Market turmoil and economic recession could materially adversely affect the liquidity, businesses and/or financial conditions of Banif s borrowers, which could in turn further increase Banif s non-performing loan ratios, impair Banif s loan and other financial assets and result in decreased demand for borrowings in general Liquidity Risk The following paragraphs shall be incorporated after the fourth paragraph under Liquidity Risk on page 9 of the Base Prospectus as supplemented: The pressure exerted by Portuguese and international markets, in relation to the excessive indebtedness of countries and institutions, has driven the cost of funding up and made it more difficult for financial institutions to obtain loans at longer maturities. This has meant that financial institutions have had to redesign their liquidity management policies and financing policies. Levels of current and structural liquidity needs according to the amounts and maturity of commitments assumed and funds in the portfolio are monitored by identifying liquidity gaps. Policies of obtaining funding, from clients, in the financial market and from the European Central Bank have made it possible to mitigate the impacts of the general decrease in liquidity levels in the financial system. According to the current context of the financial markets, Banif maintains a permanent oversight of its current liquidity position, not just by way of the indicators contained in the provisions issued by the supervisory authorities, but also using in-house indicators oriented towards more efficient daily management Interest Rate Risk The paragraph under Interest Rate Risk on page 10 of the Base Prospectus, as supplemented, shall be deleted and replaced with the following paragraphs: Banif is subject to the risks typical of banking activities, such as interest rate fluctuations. Interest rate risk may be defined as the impact on shareholders equity or on net interest income due to an adverse change in market interest rates. As is the case with other banks in Portugal, Banif, and especially its banking and corporate operations segment, is particularly exposed to differentials between the interest rates payable by it on deposits and the interest

17 rates that it is able to charge on loans to customers and other banks. This exposure stems from the fact that, in the Portuguese market, loans typically have variable interest rates, whereas the interest rates applicable to deposits are usually fixed for periods that may vary between three months and three years. As a result, Portuguese banks, including Banif, frequently experience difficulties in adjusting the interest rates that they pay for deposits in line with market interest rate changes. This trend is reinforced by intense competition in the sector. The current low interest rate environment puts pressure on a bank s deposit spread. If Banif is unable to adjust interest on deposits in line with the changes in market interest rates on loans, or if the monitoring procedures are unable to adequately manage interest rate risk, its interest income could rise less or decline more than its interest expense, in which case Banif s results could be negatively affected Operational Risk The paragraph under Operational Risk on pages 10 and 11 of the Base Prospectus, as supplemented, shall be deleted and replaced with the following paragraph: In the ordinary course of Banif s business and as a result of Banif s organisational structure, Banif is subject to certain operational risks, including interruption of service, errors, fraud, omissions, delays in providing services and risk management requirements. Banif continually monitors these risks by means of, among other things, advanced administrative and information systems and insurance coverage in respect of certain operational risks. Any failure to execute Banif s risk management and control policies successfully could materially adversely affect Banif s financial condition and results of operations Risks relating to Banif s shareholding structure The following paragraphs shall be inserted in page 12 of the Base Prospectus, as supplemented, under Risks relating to Banif s shareholding structure after the risk factor related to Banif under Risks associated with the increasing use of sophisticated IT systems : Banif s shares are 100% owned by Banif Comercial SGPS, SA, a sub-holding company of the Banif Financial Group, whose parent company is Banif SGPS, S.A,. The major shareholder of Banif SGPS, S.A. is the Herança Indivisa de Horácio da Silva Roque which holds, directly and indirectly, approximately a per cent. of the voting rights of Banif SGPS, S,A, and has the ability to exercise significant influence over or determine the outcome of certain shareholder actions

18 2. INFORMATION INCORPORATED BY REFERENCE The following information shall be also deemed to be incorporated in page 22, and to form part of, the Base Prospectus, as supplemented under Information Incorporated by Reference : 2.1. The "10 annual management report" presenting the Audited consolidated financial statements and auditors' report of BANIF SGPS, SA in respect of the year ended 31 December 2010, including: (a) Balance Sheet (page 222) (b) Income Statement (page 224) (c) Statements of changes in shareholders' funds (page 226) (d) Cash flow statement as at 31 December 2010 and 2009 (page 227) (e) Accounting policies and selected explanatory notes (page 229 to 351) (f) Auditors' Report (page 479 to 484); 2.2. The "10 annual management report" presenting the Audited unconsolidated financial statements and auditors' report of BANIF SA in respect of the year ended 31 December 2010, including: (a) Balance Sheet (page 186) (b) Income Statement (page 187) (c) Statements of changes in shareholders' funds (page 188) (d) Accounting policies and explanatory notes (page109 to 189) (f) Auditors' report (page 274 to 276); 2.3. Audited unconsolidated financial statements and auditors' report of Banif Finance in respect of the year ended 31 December 2010, including: (a) Balance Sheet (page 9) (b) Income Statement (page 10) (c) Statements of changes in shareholders' funds (page 12) (d) Cash flow statement as at 31 December 2010 and 2009 (page 13) (e) Accounting policies and explanatory notes (page 15 to 33) (f) Auditors' report (page 34 to 35); 2.4. Unaudited unconsolidated financial statements of Banif Banco Internacional do Funchal, S.A. Sucursal Financeira Exterior in respect of the year ended 31 December 2010, including: (a) Balance Sheet (page 2) (b) Income Statement (page 3)

19 (c) Statements of changes in shareholders' funds (page 4) (d) Cash flow statement as at 31 December 2010 and 2009 (page 5). 3. DESCRIPTION OF THE ISSUERS AND THE GUARANTOR The organisational structure of the Banif Financial Group as at 30 September 2010 under Banif Banco Internacional do Funchal, S.A. on page 87 of the Base Prospectus, as supplemented, shall be deleted and replaced with the organisational structure of the Group as at 30 September 2011 as set below: 3.1. Banif Banco Internacional do Funchal, S.A. The organisational structure of the Banif Financial Group is set out below (as at 30 September 2011):

20 - 20 -

21 3.2. Main Activities and Recent Developments The paragraphs under Main Activities and Recent Developments on page 88 of the Base Prospectus as supplemented shall be replaced by the following paragraphs: Incorporated on 1st April 2002 considering the current organizational structure, Banif is today a well established bank in the Portuguese financial sector, with a nationwide network of branches, organised in accordance with the concept of modern points of sale, and an e-banking system which is increasingly being taken up by customers and potential customers. The bank offers a comprehensive range of products and services, for both personal and corporate clients, which is constantly adjusted to market needs. Firmly committed to a financial partnership with its customers, the bank is currently the market leader in Madeira and is established with Portuguese residents in Venezuela, South Africa and Brazil, providing a personalised service of increasing quality and a full range of products. Banif operates in Mainland Portugal, in the Madeira Autonomous Region and in the Azores Autonomous Region. The business activity of the Madeira commercial department is focused on pursuing the strategic aim of maintaining business growth and consolidating Banif s leadership in the regional market. In Madeira, Banif has approximately 25 percent market share (source: Annual Report of Banif) of the local commercial and retail banking market, operates through a distribution network of 38 branches (13 of which in Funchal) and concentrates on relationship banking through three commercial divisions: (i) retail banking; (ii) corporate and small and medium sized corporations; (iii) high net worth individuals and institutional clients. In Madeira, Banif offers a wide range of products and services, such as mortgage loans, consumer loans, debit and credit cards, CGT (treasury accounts for small business), deposit and savings products, insurance business, corporate lending and project lending. Banif s customer base in Madeira accounts for approximately 105,000 active clients

22 Before the merger known as Banco Banif e Comercial dos Açores, S.A, Banif has positioned itself in the Azores as the reference bank for corporate and individuals. With a total number of 46 points of sales, Banif has approximately 38% market share in deposits and 35% market share in credit, being for that reason the most representative bank in the region (source: Annual Report of Banif). The commercial activity of the bank is divided into five different networks: Branch network: provides investments alternatives and credit products to individuals; Private banking: offers different financial products to middle level income individuals; Corporate Centers Network: delivers banking products and financial advisory to companies; Non Residents Network: provides financial services to the Azorean community, through its international network; and Brokers Network: origination of mortgage loans and consumer loans. In Mainland Portugal, Banif also supports two main market segments: (i) retail banking for individuals and small businesses; and (ii) corporate banking, which provides services to small and medium sized corporations (turnover greater than 1 million p.a. with an average turnover of 4 million p.a.). The retail banking division was created in 1998 and it currently serves approximately 293,000 active clients. Its 312 branches in Mainland Portugal have been organised into Sales Centers aimed at marketing Banif Financial Group s products and services. Front and back office operations within the branches are limited to the provision of basic cash transaction services, thereby releasing approximately 80 per cent of staff to support marketing and customer service. Alongside with these Sales Centers, the distribution channels of the retail banking of Banif in Mainland Portugal also incorporate: a private banking unit named Banif Privado specialised in providing services to high networth individuals and institutional investors (17 high net worth individuals centers); a call centre located in Oporto (39 call center operators); a promoter s network (1,152 individuals); and online banking (internet banking). The corporate banking division was created in 1993 and it currently serves 5,500 customers from a network of 13 corporate centers and 7 extensions. The unit has 45 business managers. Credit analysts are centralized and report to the global risk management division and integrate credit committees

23 Points of Sale (as at 30 June 2011) The Banif Financial Group has a countrywide geographical coverage, with 572 points of sale worldwide and leadership positions in Madeira and Azores, as at 30 of June 2011 (601 points of sale as at 31 of December 2010). Employees As of 30 June 2011, Banif s total number of employees reached 2,605, which corresponds to a -4.2% decrease against the first half of Boards and Officers of Banif Official Auditors The representative of the Official Auditors of Banif under Boards and Officers of Banif on page 90 of the Base Prospectus, as supplemented, shall be deleted and replaced as follows: Ernst & Young & Associados S.R.O.C., S.A., represented by Ana Rosa Ribeiro Salcedas Montes Pinto (ROC nr. 1230) List of the Offices held in other companies by members of the Board of Directors and of the Supervisory Board of Banif The list of the offices held in other companies by members of the Board of Directors and of the Supervisory Board of Banif under Boards and Officers of Banif on page 91 onwards of the Base Prospectus, as supplemented, shall be replaced with the following as set below: Board of Directors Joaquim Filipe Marques dos Santos (a) Companies in the Rentipar Financeira SGPS, S.A. Group (i) Chairman of the Board of Directors Banif - SGPS, SA Banif Banco Internacional do Funchal, S.A. Banif - Banco de Investimento, SA Banif Go, Instituição Financeira de Crédito, SA Banif - Banco Internacional do Funchal (Brasil), SA

24 Banif - Banco de Investimento (Brasil), SA Banif International Holdings, Ltd Banif - Investimentos SGPS, SA Banif (Açores) - Sociedade Gestora de Participações Sociais, SA Banif Comercial SGPS, SA Banco Mais, SA Banif Imobiliária, SA Banif Brasil (Holdings), SA (ii) Chairman of the Supervisory Board Banif Plus Bank Co, Ltd (iii) Chairman of the General Meeting and Member of the Remuneration Committee BCN - Banco Caboverdiano de Negócios, SA (as representative of Banif SGPS, SA) (iv) Chairman of the General Meeting Banif Banco Internacional do Funchal (Brasil), SA Banif Banco de Investimento (Brasil), SA (v) Member of the Remuneration committee Banif Açor Pensões, Sociedade Gestora de Fundos de Pensões, SA (as representative of Banif - Banco Internacional do Funchal, SA) Banif Gestão de Activos - Sociedade Gestora de Fundos de Investimento Mobiliário, SA Banif Capital - Sociedade de Capital de Risco, SA b) Other entities (i) Chairman of the Board of Directors Companhia de Seguros Açoreana, SA (ii) Chairman of the Board of Directors and Chairman of the General Meeting Centaurus Realty Group - Investimentos Imobiliários, SA (iii) Advisor Conselho Económico e Social (CES) (as representative of Associação Portuguesa de Bancos)

25 (iv) Member of the Council of Governors St. Dominic s International School

26 Carlos David Duarte de Almeida a) Companies in the Rentipar Financeira SGPS, SA Group (i) Chairman of the Board of Directors Banif Forfaiting Company, Ltd Banif Finance (USA) Corp. Banif Financial Services, Inc. Banif Trading, Inc. Banif Holding (Malta), Ltd. BanifServ - Empresa de Serviços, Sistemas e Tecnologias de Informação, ACE Banif Finance, Ltd. Banif Banco Internacional do Funchal (Cayman), Ltd. Banif International Bank, Ltd. (ii) Vice-Chairman of the Board of Directors Banif - SGPS, SA Banif International Holdings, Ltd Banif Imobiliária, SA Banif Banco Internacional do Funchal (Brasil), SA (iii) Member of the Board of Directors Banif Comercial SGPS, SA Banif - Banco de Investimento (Brasil) SA Banif (Açores) - Sociedade Gestora de Participações Sociais, SA Banif Investimentos SGPS, SA Banif Bank (Malta), PLC Banif Plus Bank Company, Ltd. b) Other entities (i) Vice-Chairman of the Board of Directors Centaurus Realty Group - Investimentos Imobiliários, SA (ii) Member of the Board The Portuguese Association of Banks (as representative of Banif - Banco Internacional do Funchal, SA)

27 António Manuel Rocha Moreira a) Companies in the Rentipar Financeira SGPS, SA Group (i) Chairman of the Board of Directors Banif Rent Aluguer, Gestão e Comércio de Veículos Automóveis, SA (ii) Vice-Chairman of the Board of Directors BCN - Banco Caboverdiano de Negócios, SA Banco Mais, SA (iii) Member of the Board of Directors Banif - SGPS, SA Banif Comercial SGPS, SA Banif Go, Instituição Financeira de Crédito, SA Banif (Açores) - Sociedade Gestora de Participações Sociais, SA Banif International Bank, Ltd Banif Plus Bank Company Limited (iiv) Member of the Remuneration committee Investaçor, SGPS, SA (as representative of Banif - Banco Internacional do Funchal, SA) b) Other entities (i) Chairman of the Supervisory Board Zon TV Cabo Madeirense, SA, (as representative of Banif - Banco Internacional do Funchal, SA) Manuel Isidoro Martins Vaz a) Companies in the Rentipar Financeira SGPS, SA Group (i) Chairman of the Board of Directors Banieuropa Holding, SL (ii) Member of the Board of Directors Banif Go, Instituição Financeira de Crédito, SA Banif Rent - Aluguer, Gestão e Comércio de Veículos Automóveis, SA Banif Imobiliária, SA

28 b) Other entities (i) Member of the Board of Directors Banca Pueyo, SA José Marques de Almeida a) Companies in the Rentipar Financeira SGPS, SA Group (i) Member of the Board of Directors Banif - SGPS, SA Rentipar Financeira SGPS, SA (ii) Chairman of the General Meeting Banif Comercial SGPS, SA Banif Go, Instituição Financeira de Crédito, SA Banif Rent - Aluguer, Gestão e Comércio de Veículos Automóveis, SA b) Other entities (i) Chairman of the Board of Directors Vestiban - Gestão e Investimentos, SA (ii) Chairman of the General Meeting Rentipar Investimentos, SGPS, SA Rentiglobo SGPS, SA Renticapital - Investimentos Financeiros, SA Rentipar Indústria SGPS, SA Soil, SGPS, S.A. José António Machado de Andrade a) Companies in the Rentipar Financeira SGPS, SA Group (i) Member of the Management Board Numberone, SGPS, Lda b) Other entities (i) Member of the Board of Directors Zon Tv Cabo Madeirense, SA (as representative of Banif - Banco Internacional do Funchal, SA)

29 João Manuel da Silva Machado dos Santos a) Companies in the Rentipar Financeira SGPS, SA Group (i) Member of the Board of Directors BanifServ - Empresa de Serviços, Sistemas e Tecnologias de Informação, ACE (ii) Chairman of the General Meeting Banif (Açores) SGPS, SA b) Other entities (i) Member of the Board of Directors SIBS, SGPS, SA (as representative of Banif - Banco Internacional do Funchal, SA) SIBS Forward Payment Solutions, SA (as representative of Banif - Banco Internacional do Funchal, SA) (ii) Member of the Advisory Board ECS Sociedade de Capital de Risco, SA, Entidade Gestora do FCR, Fundo de Recuperação Diogo António Rodrigues da Silveira a) Companies in the Rentipar Financeira SGPS, SA Group (i) Member of the Board of Directors Banif - SGPS, SA Banif Imobiliária, SA b) Other entities (i) Chairman of the Executive Committee Companhia de Seguros Açoreana, SA (ii) Member of the Advisory Board Reditus SGPS, SA (iii) Member of the Board of Directors Associação Portuguesa de Seguradores (as representative of Companhia de Seguros Açoreana, SA)

30 (iv) Partner Firma Shilling Capital Partners, SGPS João Paulo Pereira Marques de Almeida a) Companies in the Rentipar Financeira SGPS, SA Group (i) Member of the Board of Directors BanifServ - Empresa de Serviços, Sistemas e Tecnologias de Informação, ACE Banif Finance, Ltd Vitor Manuel Farinha Nunes a) Companies in the Rentipar Financeira SGPS, SA Group (i) Member of the Board of Directors Banif Mais, SGPS, SA Banco Mais, SA Tecnicrédito ALD - Aluguer de Automóveis, SA Banif Plus Bank Company, Ltd TCC Investments Luxembourg, SARL Banif SGPS, S.A. Banif Rent Aluguer, Gestão e Comércio de Veículos Automóveis, S.A. (ii) Manager Margem - Mediação de Seguros, Lda b) Other entities (i) Sole Member of the Board of Directors FN Participações, SGPS, SA (ii) Manager Core Investimentos, Consultoria e Serviços, Lda Nuno José Roquette Teixeira a) Companies in the Rentipar Financeira SGPS, SA Group (i) Member of the Board of Directors Banif - SGPS, SA

31 Banieuropa Holding, SL Banif Finance, Ltd Banif - Banco de Investimento (Brasil), SA Banif Securities, Inc Banif - Banco de Investimento, SA Banif Banco Internacional do Funchal (Cayman), Ltd. (ii) Member of the Remuneration committee Banif Imobiliária, SA Banif Gestão de Activos Sociedade Gestora de Fundos de Investimento Mobiliário, SA Banif Capital Sociedade de Capital de Risco, SA b) Other entities (i) Member of the Board of Directors Companhia de Seguros Açoreana, SA (ii) Member of the Management Board APC - Associação Portuguesa de Sociedade Corretoras Financeiras de Corretagem Audit Board Fernando Mário Teixeira de Almeida (a) Companies in the Rentipar Financeira SGPS, S.A. Group (i) Chairman of the Audit Board Banif - SGPS, SA Banif Comercial SGPS, SA Banif - Banco de Investimento, SA b) Other entities (i) Chairman of the Audit Board Companhia de Seguros Açoreana, SA (ii) Chairman of the General Meeting Advancer - Soluções de Gestão, SA

32 António Ernesto Neto da Silva a) Companies in the Rentipar Financeira SGPS, SA Group (i) Member of the Audit Board Banif - SGPS, SA Banif Comercial SGPS, SA b) Other entities (i) Chairman of the Board of Directors Deimos Engenharia, SA (ii) Director-General Financetar Sociedade de Serviços Financeiros, Empresariais e imobiliários, SA José Lino Tranquada Gomes a) Companies in the Rentipar Financeira SGPS, SA Group (i) Member of the Audit Board Banif - SGPS, SA Banif Comercial SGPS, SA b) Other entities (i) Manager Tranquada Gomes & Coito Pita - Sociedade de Advogados, RL Imolapeira - Imobiliária da Madeira, Lda Netanarium - Consultadoria e Gestão, Unipessoal, Lda (ii) Vice-Chairman of the General Meeting Cooperativa Agrícola do Funchal 3.4. Credit Risk The following items under Credit Risk on page 99 onwards of the Base Prospectus, as supplemented, shall be deleted and replaced as follows: Internal rating models for corporate lending The information on the internal rating models for corporate lending under Internal Risk Scoring Systems on page 100 and onwards of the Base

33 Prospectus, as supplemented, shall be updated as at 31 of December 2010, as follows: The Bank's portfolios in its main business segments, as at 31 December 2010, have the following structure, in terms of credit quality: The global amount of credit in default at the end of 2010, considering capital and interest (including securitised credit), came to million euros, of which million euros had been in default for more than 90 days (versus million euros at the end of 2009). The distribution of balances of credit overdue for more than 90 days across the various segments is shown below:

34 The decrease in overdue credit in the housing credit portfolio between 2009 and 2010 includes the effect of the loan transfer operations carried out in the course of the year. As far as credit quality is concerned, indicators of non-performing loans and provisioning efforts, as at 31 December 2010, were as follows: Standardised loans housing credit, personal loans, credit to small businesses and revolving credit are granted on the basis of admission scoring models and regularly assessed in a collective manner with behavioural scores; each portfolio is monitored in terms of credit risk and credit quality. It is also important to mention that, framed within the goal of making the credit risk management model more robust, various initiatives were launched in 2010 that will be completed in In this context the following are worth noting: Revision of the operating model for loans and forms for analysing nonstandardised credit proposals from companies and sole traders to reorganise their contents and include new information, in particular to achieve greater alignment between the high-level objectives set out for the Bank's risk profile and the actions carried out by its employees on a daily basis; Also with the objective of providing the various parties involved in the lending process with a greater amount of relevant information for correct decision-taking, an operation rating model is being implemented, to be applied to non-standardised credit proposals from companies and sole traders; Development of an application that will make it possible to simulate consumption of regulatory capital for new credit operations, in light of the growing importance of careful use of resources as strategic to the Bank's business as its own funds are

35 Analysis of Credit Risk The analysis of credit risk under Analysis of Credit Risk on page 103 and onwards of the Base Prospectus, as supplemented, shall be updated as at 31 of December 2010, as follows: Exposure to credit risk, as at 31 December 2010, framed within the various accounting items, compared with the previous year, is shown below: As regards exposure to credit risk by segment, in accordance with Basel II, the figures as at 31 December 2010 show the following distribution: The segments SMEs and Residential are the most significant, representing 25 per cent. and 26 per cent. respectively of total exposure to credit risk

36 The figure show for the segment Institutions includes approximately 84 per cent. of credit granted to entities of the Banif Financial Group. (a) Structure of lending portfolio Considering the policy of portfolio diversification, as at 31 December 2010 the breakdown of credit to clients by sector was as follows: The segment Services represents 23 per cent. of total maximum exposure in 2010, considering that it also includes amounts relating to exposures of real estate activities Collateral Management The information under Collateral Management on page 105 of the Base Prospectus, as supplemented, shall be updated as at 31 of December 2010, as follows: As at 31 December 2010, the covering effect of mitigation measures is as shown below:

37 Exposure to Markets and Exposure to Markets by Sector The information under Exposure to Markets and Exposure to Markets by Sector on page 106 and onwards of the Base Prospectus, as supplemented, shall be updated as at 31 of December 2010, as follows: Exposure to Markets As at 31 December 2010, exposure to credit risk by geographical area is as shown on the following chart. It is greatest in the Portuguese market, which represents 94 per cent. of exposure: Exposure to Markets by Sector As at 31 December 2010, the European market accounted for almost all credit granted to private individuals and financial institutions and insurers. Moreover, credit granted to the services, financial institutions and private individuals sectors represented 70 per cent. of exposure in the European market

38 3.5. Market Risk Management of Market Risk The information on interest rate sensitivity analysis under Management of Market Risk on pages 107 and 108 of the Base Prospectus, as supplemented, shall be updated as at 31 of December 2010, as follows: In the year in question, interest rate stress tests were carried out on the banking portfolio, on the basis of the methodologies envisaged in Bank of Portugal Instruction no. 19/2005 and Instruction no. 32/2009. The magnitude of the simulated impacts is not considered significant. The information on analysis of exchange rate sensitivity under Management of Market Risk on page 109 of the Base Prospectus, as supplemented, shall be deleted and replaced by the following information updated as at 31 of December 2010, as follows: Exchange rate risk represents the risk that the value of financial positions expressed in foreign currency will fluctuate due to changes in interest rates. Banif monitors its exposure to exchange rate risk by means of daily checks on the global exposure of the open positions taken in various currencies, and adopts global hedging strategies to ensure that those positions remain within the limits defined at a higher level. The greatest exposure is on the portfolio of credit granted to clients and is centered on the US dollar, as shown in the table below, which sets out exposures to exchange rate risk by currency: