Banco Modal S.A. Semiannual Update. Summary Rating Rationale. Exhibit 2 Rating Scorecard - Key Financial Ratios. 0.3% Capital:

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1 CREDIT OPINION 1 May 217 Banco Modal S.A. Semiannual Update Update Summary Rating Rationale RATINGS Banco Modal S.A. Domicile Rio de Janeiro, Rio de Janeiro, Brazil Long Term Debt Not Assigned Type Not Assigned Outlook Not Assigned Long Term Deposit B1 Type LT Bank Deposits - Fgn Curr Outlook Stable Please see the ratings section at the end of this report for more information. The ratings and outlook shown reflect information as of the publication date. Banco Modal S.A.'s (Modal) baseline credit assessment (BCA) of reflects its improved capital position, particularly after the capital injection, which enhanced the loss absorption capacity of its common equity. It also takes into consideration the reducing reliance on market funds given its efforts to increasingly obtain granular deposits through its own digital platform and third-party brokers. At the same time, the BCA incorporates the potential risks of earnings fluctuation arising from the still gradually recovering operating environment, although the bank has been showing signs of profitability improvement. Also, asset risk could be negatively pressured by the lagging effects from economic contraction in the last years, particularly considering the high borrower concentration of its loan portfolio, and by the large exposure to merchant banking investments. The deposit and senior debt ratings of B1 derive from Modal's BCA of, and does not benefit from parental and government support uplift given Moody's assessment of low probability of support, based on the bank's modest market share in the domestic deposits. Exhibit 2 Rating Scorecard - Key Financial Ratios Banco Modal S.A. (BCA: ) Median -rated banks Contacts 12% 7% Alcir Freitas Senior Credit Officer alcir.freitas@moodys.com 1% 6% Farooq Khan Analyst farooq.khan@moodys.com 4% Aaron Freedman Associate Managing Director aaron.freedman@moodys.com 5% 8% 4% 6% 2% 3% 2% 1.9% % Asset Risk: Problem Loans/ Gross Loans 1% 14.3% 59.6% %.3% Capital: Profitability: Net Funding Structure: Liquid Resources: Liquid Tangible Common Income/ Tangible Market Funds/ Banking Assets/Tangible Equity/Risk-Weighted Assets Tangible Banking Assets Banking Assets Assets 11.2% Solvency Factors (LHS) Source: Moody's Financial Metrics Liquidity Factors (RHS)

2 Credit Strengths Improved capitalization following the conversion of Tier 2 debt into common equity Recovering profitability, although the trend may be challenged by market conditions and merchant banking investments Adequate liquidity management and lowering reliance on market funds Credit Challenges Profitability may be pressured by the still gradually recovering operating environment Asset risk weighted by the single name concentration, market risk and non-banking investments Rating Outlook The stable outlook on its ratings reflects our expectation that the potential negative pressures that could come from asset risk and profitability are appropriately counterbalanced by its capital position and adequate liquidity management. Factors that Could Lead to an Upgrade Modal s ratings could be upgraded if it is able to consistently improve its profitability and reduce earnings volatility, while decreasing its exposure to risky merchant investments and maintaining its capital position around current levels. Factors that Could Lead to a Downgrade The bank s ratings could face downward pressure if its recent improvements to capital and profitability prove unsustainable and/or the bank encounters problems with its merchant investments. Key Indicators Exhibit 3 Banco Modal S.A. (Consolidated Financials) [1] Total Assets (BRL billion) Total Assets (USD billion) Tangible Common Equity (BRL billion) Tangible Common Equity (USD billion) Problem Loans / Gross Loans (%) Tangible Common Equity / Risk Weighted Assets (%) Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) Net Interest Margin (%) PPI / Average RWA (%) Net Income / Tangible Assets (%) Cost / Income Ratio (%) Market Funds / Tangible Banking Assets (%) Liquid Banking Assets / Tangible Banking Assets (%) Gross Loans / Due to Customers (%) Avg [1] All figures and ratios are adjusted using Moody's standard adjustments [2] Basel III - fully-loaded or transitional phase-in; LOCAL GAAP [3] Compound Annual Growth Rate (%). Any interim period amounts presented are assumed to be fiscal year end amounts for calculation purposes [4] Simple average of periods presented [5] Simple average of Basel III periods presented Source: Moody's Financial Metrics This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on for the most updated credit rating action information and rating history. 2 1 May 217

3 Detailed Rating Considerations The assessment takes into account Modal's Prudencial Conglomerate financial statements, which includes Banco Modal S.A. and its subsidiaries, as well as Modal Administradora de Recursos Ltda. ASSET RISK INFLUENCED BY CREDIT ENVIRONMENT AND MERCHANT BANKING INVESTMENTS The score for asset risk reflects the bank s market risk exposure, the inherent borrower concentration of its loan book and the relevant non-lending credit risk, represented by its merchant banking investments. Total credit risk exposure, including loans, private securities and guarantees, grew by only 4.7% in the last twelve months ended December 216. While guarantees shrank by 18% in this period, we note that the exposure through private securities and loans increased substantially, by 28% and 31% respectively. Modals loan book and private securities remain focused primarily on commercial corporate transactions to support its investment banking activity. Also, it remains short term in nature, as about two thirds matures in less than one year. Modal's problem loan ratio was equivalent to 1.8% in December 216, and experienced a volatility in the last years, which reflects the fact that its loan book is somewhat concentrated, and also, the negative pressures arising from economic environment. The loan loss reserves represented 73.1% of problem loans in December 216, and could require additional provisions if the situation of problematic borrowers continue or the guarantees received in loan exposures are not sufficient. Given the lagging effects from the economic contraction in the last years, Modal's asset risk could face challenges. Modal holds a representative volume allocated to merchant banking investments, with an aggregate book value of about BRL175 million in December 216, net of minority interest, being equivalent to 49% of its tangible common equity. In the last years, the fair value assessment of these investments resulted in gains that are accounted directly in the bank s shareholders equity. Although the impairment analysis of these investments is carried out each six months to one year, the continued success and future valuation of these investments is difficult to forecast with any certainty, as they are mostly in non-financial private companies with limited transparency. ENHANCED CAPITAL POSITION IS EXPECTED TO REMAIN STABLE The ba1 capital score incorporates the enhanced loss absorption capacity of its common equity arising from the conversion of Tier 2 debt, and the expectation that capital ratios will remain around current levels. Moody's capital measure, represented by the tangible common equity to risk-weighted assets (TCE/RWA) was equivalent to 11.2% in December 216, which meaningfully increased from the 7.6% in 215, following the BRL 12 million Tier 2 debt conversion into capital. The capital injection coupled with earnings retention have jointly offset the consumption arising from activity growth, evidenced by the 16% growth in risk-weighted assets in the twelve months ended in December 216. Modal also reports adequate regulatory capital, evidenced by the common equity Tier 1 (CET1) ratio of 15.% in December 216, from 11.9% in December 215. Going forward, the trend of Modal s capital position will be directly linked to its ability to generate capital with internal results in order to support the ongoing activity growth. PROFITABILITY IS SHOWING SIGNS OF IMPROVEMENT BUT COULD FACE ADVERSITIES UNDER THE GRADUALLY RECOVERING ENVIRONMENT The caa1 score captures the improving trend of profitability, and also, the relevant historical earnings generation recorded as unrealized gains. At the same time, it incorporates the potential challenges arising from the adverse environment in its target markets and merchant banking investments. Modal s profitability is showing signs of improvement after recording net losses in 214. The bank s new business model, which targets primarily corporate and investment banking focused on middle market and large infrastructure companies, as well as asset management, has started to deliver the benefits that were expected when it was initially adopted in 212. However, the bank has yet to demonstrate that it can continue to deliver positive results in a sustainable manner, while the business environment for investment banking remains challenging and the bank remains highly exposed to merchant banking investments. 3 1 May 217

4 After rising to a reasonably healthy.8% in 215, the reported net income to tangible assets fell to.5% in 216, at the Prudencial Conglomerate level, net of minority stakes. In 216, the bank's net income has meaningfully recovered in the second half of the year, supported by lower provisions for loan losses and foreign exchange gains related to the repatriation of financial assets that were invested abroad, as part of the Repatriation Law. We also note that Modal historically records relevant volumes of unrealized gains that were equivalent to.1% of tangible assets in 215 and.46% in the 216. The current unrealized gains are mainly related to the positive evaluation on merchant banking investments and securities. The unrealized gains and losses are just incorporated into our profitability assessment when they become effectively realized. Therefore, the bank's stock of unrealized gains may benefit its future results if they are realized at current levels. DECLINING RELIANCE ON MARKET FUNDS AND MAINTENANCE OF LARGE VOLUMES OF LIQUID RESOURCES The combined liquidity score of ba1 captures the banks lowering reliance on market funds as well as the large volume of liquid assets. Modal has been gradually reducing its reliance on market funds, confidence-sensitive investors, and deposits taken via third-party brokers, by increasingly obtaining granular deposits through its proprietary brokerage platform. While this unit still represents just a small portion of its total funding, the bank s market funds are partially offset by its large amount of liquid assets, and the favorable duration of assets versus liabilities. In the end of 215, Modal started the operations of its own digital brokerage platform, which purpose is mainly to build a granular deposit base. As of December 216, about 17% of the bank s time deposits came from this platform, therefore reducing its reliance on market funds. The bank is also obtaining increasing volumes of granular deposits through third-party brokers, which positively reduces the reliance on confidence-sensitive large investors, but also exposes the bank to the commercial strategy of intermediaries. In this context, Modal s time deposits and deposit-like instruments (including LCIs and LCAs) have jointly increased by 73% in the last 12 months ended in December 216, to BRL1.7 billion. At the same time, the bank reduced its dependence on the more expensive DPGE funding, which shrank by 47% in the same period, to BRL 37 million. Modal holds a large amount liquid resources even after deducting the illiquid investments from its securities portfolio, mainly including the merchant banking investments, and also, other instruments with lower liquidity, such as debentures. The bank also maintains a favorable tenor gap in the maturity of its assets and liabilities. MODAL'S BCA IS SUPPORTED BY BRAZIL'S MODERATE MACRO PROFILE Brazil's Moderate macro profile reflects the country's large and diversified economy, while the combination of ongoing economic recession and the difficult political scenario increases challenges to Brazilian banks' operating environment. The pace of loan growth has reduced significantly in the last year and tightening monetary policy allowed banks to raise lending rates, which has relieved part of the earnings pressure arising from asset risks. Public banks hold a 56% share of Brazil's loan market, which is reflected in the adjustment for industry structure. Capital and funding remain adequate, and exposure to international capital markets will remain low. External vulnerability is also limited by Brazil's sizeable international reserves, which reduce the country's sensitivity to external shocks, such as sudden stops in capital flows. Notching Considerations Government Support We believe there is a low likelihood of government support for Modal's rated deposits given its modest market share of deposits in Brazil. Counterparty Risk Assessment CR Assessments are opinions of how counterparty obligations are likely to be treated if a bank fails and are distinct from debt and deposit ratings in that they (1) consider only the risk of default rather than both the likelihood of default and the expected financial loss suffered in the event of default and (2) apply to counterparty obligations and contractual commitments rather than debt or deposit instruments. The CR assessment is an opinion of the counterparty risk related to a bank's covered bonds, contractual performance obligations (servicing), derivatives (e.g., swaps), letters of credit, guarantees and liquidity facilities. 4 1 May 217

5 Modal's CR Assessment is positioned at Ba3(cr), which is one-notch above the bank's Adjusted BCA of, and, therefore, above the deposit rating of the bank, reflecting Moody's view that its probability of default is lower at the operating obligations than of deposits. Modal's CR Assessment does not benefit from government support, as the government support is not incorporated in the bank's deposit ratings. About Moody's Bank Scorecard Our Scorecard is designed to capture, express and explain in summary form our Rating Committee's judgment. When read in conjunction with our research, a fulsome presentation of our judgment is expressed. As a result, the output of our Scorecard may materially differ from that suggested by raw data alone (though it has been calibrated to avoid the frequent need for strong divergence). The Scorecard output and the individual scores are discussed in rating committees and may be adjusted up or down to reflect conditions specific to each rated entity. 5 1 May 217

6 Rating Methodology and Scorecard Factors Exhibit 4 Banco Modal S.A. Macro Factors Weighted Macro Profile Moderate Factor 1% Historic Macro Ratio Adjusted Score Credit Trend Assigned Score Key driver #1 Key driver #2 Non lending credit risk Solvency Asset Risk Problem Loans / Gross Loans 1.9% baa1 Single name concentration Capital TCE / RWA 11.2% ba1 ba1 Risk-weighted capitalisation Profitability Net Income / Tangible Assets.3% caa1 Expected trend Combined Solvency Score Liquidity Funding Structure Market Funds / Tangible Banking Assets ba1 14.3% baa2 ba3 Market funding quality Liquid Resources Liquid Banking Assets / Tangible Banking Assets 59.6% a3 baa1 Quality of liquid assets Combined Liquidity Score Financial Profile Business Diversification Opacity and Complexity Corporate Behavior Total Qualitative Adjustments Sovereign or Affiliate constraint: Scorecard Calculated BCA range Assigned BCA Affiliate Support notching Adjusted BCA Instrument class Counterparty Risk Assessment Deposits baa1 Loss Given Failure notching 1 ba1 ba Ba2 ba3-b2 Additional Preliminary Rating Notching Assessment ba3 (cr) Government Support notching Local Currency Rating Ba3 (cr) B1 Foreign Currency Rating -B1 Source: Moody's Financial Metrics Ratings Exhibit 5 Category BANCO MODAL S.A. Outlook Bank Deposits NSR Bank Deposits Baseline Credit Assessment Adjusted Baseline Credit Assessment Counterparty Risk Assessment Moody's Rating Stable B1/NP Baa2.br/BR-3 Ba3(cr)/NP(cr) Source: Moody's Investors Service 6 1 May 217

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8 Contacts Alcir Freitas Senior Credit Officer CLIENT SERVICES Aaron Freedman Associate Managing Director Rafael B Amaral Associate Analyst rafael.amaral@moodys.com 8 1 May 217 Farooq Khan Analyst farooq.khan@moodys.com M. Celina Vansetti Managing Director Banking celina.vansetti-hutchins@moodys.com Americas Asia Pacific Japan EMEA