20-F 1 bbdform20f_2016.htm FORM 20-F bbdform20f_2016.htm - Generated by SEC Publisher for SEC Filing  


 
 

Table of Contents

 

PRESENTATION OF FINANCIAL AND OTHER INFORMATION 4
FORWARD-LOOKING STATEMENTS 5
PART I 6
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 6
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE 6
ITEM 3. KEY INFORMATION 6
3.A. SELECTED FINANCIAL DATA 6
3.B. CAPITALIZATION AND INDEBTEDNESS 9
3.C. REASONS FOR THE OFFER AND USE OF PROCEEDS 9
3.D. RISK FACTORS 9
ITEM 4. INFORMATION ON THE COMPANY 23
4.A. HISTORY AND DEVELOPMENT OF THE COMPANY 23
4.B. BUSINESS OVERVIEW 27
4.C. ORGANIZATIONAL STRUCTURE 111
4.D. PROPERTY, PLANTS AND EQUIPMENT 111
ITEM 4A. UNRESOLVED STAFF COMMENTS 111
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 111
5.A. OPERATING RESULTS 111
5.B. LIQUIDITY AND CAPITAL RESOURCES 136
5.C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES 149
5.D. TREND INFORMATION 149
5.E. OFF-BALANCE SHEET ARRANGEMENTS 149
5.F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS 149
5.G. SAFE HARBOR 149
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 149
6.A. BOARD OF DIRECTORS AND BOARD OF EXECUTIVE OFFICERS 149
6.B. COMPENSATION 161
6.C. BOARD PRACTICES 161
6.D. EMPLOYEES 165
6.E. SHARE OWNERSHIP 166
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 167
7.A. MAJOR SHAREHOLDERS 167
7.B. RELATED PARTY TRANSACTIONS 170
7.C. INTERESTS OF EXPERTS AND COUNSEL 171
ITEM 8. FINANCIAL INFORMATION 171
8.A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION 172
8.B. SIGNIFICANT CHANGES 173
ITEM 9. THE OFFER AND LISTING 173
9.A. OFFER AND LISTING DETAILS 173
9.B. PLAN OF DISTRIBUTION 176
9.C. MARKETS 176
9.D. SELLING SHAREHOLDERS 178
9.E. DILUTION 178
9.F. EXPENSES OF THE ISSUE 178
ITEM 10. ADDITIONAL INFORMATION 178
10.A. SHARE CAPITAL 178
10.B. MEMORANDUM AND ARTICLES OF ASSOCIATION 178
10.C. MATERIAL CONTRACTS 186
10.D. EXCHANGE CONTROLS 186
10.E. TAXATION 187
10.F. DIVIDENDS AND PAYING AGENTS 192
10.G. STATEMENT BY EXPERTS 192
10.H. DOCUMENTS ON DISPLAY 193
10.I. SUBSIDIARY INFORMATION 193
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 193
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 196
12.A. DEBT SECURITIES 196
12.B. WARRANTS AND RIGHTS 196

 


 
 
 
 

Table of Contents


PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Form 20-F 

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

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

All references herein to "real," "reais" or "R$" refer to the Brazilian Real, the official currency of Brazil. References herein to "U.S. dollars," "dollar" and "US$" refer to United States dollars, the official currency of the United States of America (USA).

Our audited consolidated financial statements as of and for the years ended December 31, 2016, 2015 and 2014 and the corresponding notes, which are included under "Item 18. Financial Statements" of this annual report, were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

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

Some data related to economic sectors presented in this annual report was obtained from the following sources: B3, or (“’B3”, ex-BM&FBOVESPA); Brazilian Association of Credit Card Companies and Services (Associação Brasileira das Empresas de Cartão de Crédito e Serviços), or ("ABECS"); Brazilian Association of Leasing Companies (Associação Brasileira de Empresas de Leasing), or ("ABEL"); Brazilian Association of Financial and Capital Markets Entities (Associação Brasileira das Entidades dos Mercados Financeiros e de Capitais), or ("ANBIMA"); Brazilian Health Insurance Authority (Agência Nacional de Saúde Suplementar), or ("ANS"); Central Bank; Brazilian Bank of Economic and Social Development (Banco Nacional de Desenvolvimento Econômico e Social), or ("BNDES"); National Association of Private Pension Plans and Life (Federação Nacional de Previdência Privada e Vida), or ("FENAPREVI"); Getulio Vargas Foundation (Fundação Getulio Vargas), or ("FGV"); and Private Insurance Superintendence (Superintendência de Seguros Privados), or ("SUSEP").

Certain figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.

References in this annual report to the “common shares” and “preferred shares” are to our common shares and preferred shares, respectively, and together our "shares." References to “preferred share ADSs” in this annual report are to preferred share American Depositary Shares, each representing one preferred share. The preferred share ADSs are evidenced by preferred share American Depositary Receipts, or preferred share ADRs, issued pursuant to an Amended and Restated Deposit Agreement, dated as of July 22, 2009, by and among us, The Bank of New York Mellon, as depositary, and the holders and beneficial owners of preferred share ADSs evidenced by preferred share ADRs issued thereunder (the Preferred Share ADS Deposit Agreement).

References to "common share ADSs" in this annual report are related to common share American Depositary Shares, with each common share ADS representing one common share. The common share ADSs are evidenced by common share American Depositary Receipts, or common share ADRs, issued pursuant to a Deposit Agreement dated as of March 13, 2012, by and among us, The Bank of New York Mellon, as depositary, and the holders and beneficial owners of common share ADSs evidenced by common share ADRs issued thereunder (the "Common Share ADS Deposit Agreement" and, together with the “Preferred Share ADS Deposit Agreement,” the "Deposit Agreements").

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

Throughout this annual report, we may indicate that certain information is available at different websites operated by us. None of the information on the websites referred to or mentioned in this annual report is part of or is incorporated by reference herein.

 

4 Form 20-F – December 2016


 
 

Table of Contents

FORWARD‑LOOKING STATEMENTS 
Form 20-F 

FORWARD‑LOOKING STATEMENTS

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

·      current weakness in Brazilian macroeconomic conditions;

·      global economic conditions;

·      economic, political and business conditions in Brazil and in the other markets in which we operate;

·      risks of lending, credit, investments and other activities;

·      our level of capitalization;

·      cost and availability of funds;

·      higher levels of delinquency by borrowers, credit delinquency and other delinquency events leading to higher impairment of loans and advances;

·      the synergies of the business that we acquired from HSBC Bank Brasil and HSBC Serviços e Participações (“HSBC Brasil”);

·      loss of customers or other sources of income;

·      our ability to execute our investment strategies and plans as well as to maintain and improve our operating performance;

·      our revenues from new products and businesses;

·      adverse claims, legal or regulatory disputes or proceedings;

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

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

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

·      changes by the Central Bank and others in laws and regulations, applicable to us and our activities, including, but not limited to, those affecting tax matters.

Words such as "believe," "expect," "continue," "understand," "estimate," "will," "may," "anticipate," "should," "intend," and other similar expressions identify forward‑looking statements. These statements refer only to the date on which they were made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or any other event.

In light of these risks and uncertainties, the forward‑looking statements, events and circumstances discussed in this annual report may not be accurate, and our actual results and performance could differ materially from those anticipated in our forward-looking statements. Investors should not make investment decisions based solely on the forward-looking statements in this annual report.

 

5 Bradesco


 
 

Table of Contents


PART I

Form 20-F 

PART I

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

 

3.A. Selected Financial Data

We present below our selected financial data derived from our consolidated financial statements as of and for the years ended December 31, 2016, 2015, 2014, 2013 and 2012, which have been prepared in accordance with International Financial Reporting Standards (IFRS) and audited by KPMG Auditores Independentes, an independent registered public accounting firm. The data as of and for the years ended December 31, 2016, 2015 and 2014, is derived from our consolidated financial statements included in this annual report. The data for the years ended December 31, 2013 and 2012 is derived from our consolidated financial statements, which are not included herein.

The following selected financial data should be read together with the "Presentation of Financial and Other Information" and "Item 5. Operating and Financial Review and Prospects."

Selected Financial Data

Year ended December 31,

US$ in
thousands (1)

R$ in thousands

2016

2016

2015

2014

2013

2012

Data from the Consolidated Statement of Income

 

 

 

 

 

 

Interest and similar income

46,616,707

147,700,375

127,048,252

103,893,096

90,682,625

83,031,854

Interest and similar expenses

(28,732,921)

(91,037,386)

(71,412,210)

(53,847,329)

(41,382,142)

(39,646,131)

Net interest income

17,883,786

56,662,989

55,636,042

50,045,767

49,300,483

43,385,723

Fee and commission income

6,419,987

20,341,087

17,856,873

16,759,980

14,535,723

12,757,131

Fee and commission expenses

(11)

(36)

(36,203)

(20,724)

(36,041)

(36,391)

Net fee and commission income

6,419,976

20,341,051

17,820,670

16,739,256

14,499,682

12,720,740

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

5,176,988

16,402,770

(8,252,055)

(1,933,003)

(5,790,089)

2,110,112

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

(423,368)

(1,341,400)

(671,810)

(991,894)

(6,100,782)

1,895,974

Net gains/(losses) on foreign currency transactions

47,581

150,757

(3,523,095)

(1,244,680)

(1,093,597)

(1,087,595)

Income from insurance and pension plans

1,311,628

4,155,763

5,497,505

5,411,845

6,933,680

1,413,016

Impairment of loans and advances

(4,844,804)

(15,350,278)

(14,721,152)

(10,291,386)

(9,623,870)

(11,451,383)

Personnel expenses

(5,366,678)

(17,003,783)

(14,058,047)

(13,667,639)

(12,354,418)

(11,559,002)

Other administrative expenses

(5,097,072)

(16,149,563)

(13,721,970)

(12,971,521)

(12,151,537)

(11,803,989)

Depreciation and amortization

(1,154,656)

(3,658,413)

(2,942,003)

(2,932,687)

(2,740,830)

(2,488,182)

Other operating income/(expenses)

(4,419,948)

(14,004,162)

(12,988,553)

(10,223,083)

(7,622,240)

(8,674,178)

Income before income taxes and equity in the earnings of associates

9,533,434

30,205,731

8,075,532

17,940,975

13,256,482

14,461,236

Equity in the earnings of associates and joint ventures

536,462

1,699,725

1,528,051

1,389,816

1,062,687

980,212

Income before income taxes

10,069,895

31,905,456

9,603,583

19,330,791

14,319,169

15,441,448

Income tax and social contribution

(4,391,090)

(13,912,730)

8,634,322

(3,914,313)

(1,833,031)

(4,089,754)

Net income for the year

5,678,805

17,992,726

18,237,905

15,416,478

12,486,138

11,351,694

Attributable to shareholders

 

 

 

 

 

 

Controlling

5,647,724

17,894,249

18,132,906

15,314,943

12,395,920

11,291,570

Non-controlling interest

31,081

98,477

104,999

101,535

90,218

60,124

(1) Amounts stated in U.S. dollars have been translated from Brazilian reais at an exchange rate of R$3.1684 per US$1.00, the Central Bank exchange rate on March 31, 2017. Such translations should not be construed as a representation that the Brazilian real amounts presented were or could be converted into U.S. dollars at that rate.

 

6 Form 20-F – December 2016


 
 

Table of Contents

3.A. Selected Financial Data 
Form 20-F 

 

Year ended December 31,

R$, except for number of shares

2016

2015

2014

2013

2012

Data on Earnings and Dividends per Share (1)

 

 

 

 

 

Earnings per share (2)

 

 

 

 

 

Common

3.08

3.12

2.63

2.13

1.94

Preferred

3.39

3.43

2.90

2.34

2.14

Dividends/interest on equity per share (3)

 

 

 

 

 

Common

1.20

1.04

0.87

0.71

0.66

Preferred

1.32

1.14

0.95

0.77

0.74

Weighted average number of outstanding shares (1)

 

 

 

 

 

Common

2,772,719,242

2,772,869,466

2,772,974,845

2,772,974,845

2,773,099,754

Preferred

2,759,659,133

2,761,742,636

2,766,171,153

2,767,521,040

2,769,983,714

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

(2) None of our outstanding liabilities are exchangeable for or convertible into equity securities. Therefore, our diluted earnings per share do not differ from our earnings per share. Accordingly, our basic and diluted earnings per share are equal in all periods presented; and

(3) Holders of preferred shares are entitled to receive dividends per share in an amount 10.0% greater than the dividends per share paid to common shareholders. For purposes of calculating earnings per share according to IFRS, we used the same criteria adopted for dividends per share. For a description of our two classes of shares. see "Item 10.B. Memorandum and Articles of Association."

 

Year ended December 31,

In US$

2016

2015

2014

2013

2012

Dividends/interest on equity per share (1)

 

 

 

 

 

Common

0.37

0.27

0.33

0.30

0.32

Preferred

0.41

0.29

0.36

0.33

0.36

(1) Amounts stated in U.S. dollars have been translated from Brazilian reais at the exchange rate disclosed by the Central Bank at the end of each fiscal year.

 

7 Bradesco


 
 

Table of Contents


3.A. Selected Financial Data

Form 20-F 

 

As of December 31,

US$ in
thousands (1)

R$ in thousands

2016

2016

2015

2014

2013

2012

Data from the Consolidated Statement of Financial Position

 

 

 

 

 

 

Assets

 

 

 

 

 

 

Cash and balances with banks

22,899,461

72,554,651

72,091,764

65,430,300

67,450,363

59,901,564

Financial assets held for trading

67,270,498

213,139,846

159,623,449

78,498,311

96,092,523

111,838,502

Financial assets available for sale

35,702,106

113,118,554

117,695,450

120,961,734

67,838,411

81,522,130

Investments held to maturity

13,572,159

43,002,028

40,003,560

25,071,031

23,069,026

3,715,673

Financial assets pledged as collateral

49,011,039

155,286,577

144,489,921

152,612,689

117,740,225

106,133,299

Loans and advances to banks

29,932,501

94,838,136

35,620,410

72,974,619

78,719,723

92,459,347

Loans and advances to customers, net of impairment

115,926,977

367,303,034

344,868,464

328,064,004

304,121,334

269,021,320

Non-current assets held for sale

498,348

1,578,966

1,247,106

1,006,461

832,546

532,973

Investments in associates and joint ventures

2,210,194

7,002,778

5,815,325

3,983,780

3,392,847

3,121,386

Property and equipment, net of accumulated depreciation

2,650,270

8,397,116

5,504,435

4,700,518

4,501,967

4,524,827

Intangible assets and goodwill, net of accumulated amortization

4,985,963

15,797,526

7,409,635

7,529,915

8,220,739

7,617,873

Taxes to be offset

2,437,574

7,723,211

6,817,427

6,130,191

5,293,116

5,294,566

Deferred income tax assets

14,239,636

45,116,863

45,397,879

28,388,183

25,661,079

17,913,529

Other assets

14,887,757

47,170,370

40,118,697

35,099,280

35,367,715

35,943,635

Total assets

376,224,484

1,192,029,656

1,026,703,522

930,451,016

838,301,614

799,540,624

Liabilities

 

 

 

 

 

 

Deposits from banks

95,209,785

301,662,682

293,903,391

279,940,227

243,100,373

220,943,354

Deposits from customers

73,459,137

232,747,929

194,510,100

210,031,505

216,218,057

210,774,263

Financial liabilities held for trading

4,240,525

13,435,678

19,345,729

3,315,573

1,826,382

4,049,982

Funds from securities issued

47,690,297

151,101,938

109,850,047

85,030,399

57,883,068

51,552,093

Subordinated debt

16,604,931

52,611,064

50,282,936

35,821,666

35,885,003

34,851,714

Insurance technical provisions and pension plans

68,122,712

215,840,000

170,940,940

146,559,220

130,329,023

118,768,720

Other provisions

5,773,390

18,292,409

15,364,317

13,864,401

13,752,577

21,021,109

Current income tax liabilities

672,354

2,130,286

2,781,104

3,602,333

3,082,976

3,288,688

Deferred income tax liabilities

556,416

1,762,948

772,138

808,178

799,824

3,091,667

Other liabilities

30,603,937

96,965,515

78,038,058

69,185,709

63,321,405

59,852,644

Total liabilities

342,933,483

1,086,550,449

935,788,760

848,159,211

766,198,688

728,194,234

Equity

 

 

 

 

 

 

Share capital

16,128,014

51,100,000

43,100,000

38,100,000

38,100,000

30,100,000

Treasury shares

(139,034)

(440,514)

(431,048)

(298,015)

(269,093)

(197,301)

Capital reserves

11,354

35,973

35,973

35,973

35,973

35,973

Profit reserves

15,789,615

50,027,816

49,920,020

43,765,349

34,122,503

34,189,383

Additional paid-in capital

22,250

70,496

70,496

70,496

70,496

70,496

Other comprehensive income

(125,839)

(398,708)

(4,002,724)

(659,501)

(1,102,887)

6,396,736

Retained earnings

1,548,851

4,907,381

2,096,710

1,153,439

927,314

542,422

Equity attributable to controlling shareholders

33,235,211

105,302,444

90,789,427

82,167,741

71,884,306

71,137,709

Non-controlling interest

55,789

176,763

125,335

124,064

218,620

208,681

Total equity

33,291,001

105,479,207

90,914,762

82,291,805

72,102,926

71,346,390

Total liabilities and equity

376,224,484

1,192,029,656

1,026,703,522

930,451,016

838,301,614

799,540,624

(1) Amounts stated in U.S. dollars have been translated from Brazilian reais at an exchange rate of R$3.1684 per US$ 1.00, the Central Bank exchange rate on March 31, 2017. Such translations should not be construed as a representation that the Brazilian real amounts presented have been or could be converted into U.S. dollars at that rate.

 

Exchange Rate Information

Over the past years, the exchange rate between the real and the U.S. dollar has experienced significant variation:

In 2012, the real depreciated 8.9% against the U.S. dollar, reaching R$2.0435 as of December 31, 2012. In 2013, the real depreciated 14.6% against the U.S. dollar, reaching R$2.3426 as of December 31, 2013. In 2014, the real depreciated 13.4% against the U.S. dollar, reaching R$2.6562 as of December 31, 2014. In 2015, the real depreciated 47.0% against the U.S. dollar, reaching R$3.9048 as of December 31, 2015. In 2016, the real appreciated 16.5% against the U.S. dollar, reaching R$3.2591 as of December 31, 2016.

On March 31, 2017, the exchange rate was R$3.1684 per US$1.00, a 2.8% appreciation of the real against the U.S. dollar, when compared to December 31, 2016. Under the current floating exchange-rate system, the real may be subject to fluctuations and depreciation or appreciation against the U.S. dollar and other currencies.

The following table sets forth the period‑end, average and high and low selling rates reported by the Central Bank at closing, for the periods and dates indicated:

8 Form 20-F – December 2016


 
 

Table of Contents

3.A. Selected Financial Data 
Form 20-F 

 

Closing Selling Rate for U.S. dollars – R$ per US$1.00

Period

Period-End

Average (1)

High (1)

Low (1)

2012

2.0435

1.9524

2.1074

1.7092

2013

2.3426

2.1641

2.3725

1.9754

2014

2.6562

2.3586

2.6562

2.2025

2015

3.9048

3.3314

3.9729

2.6562

2016

 

 

 

 

October

3.1811

3.5135

4.0428

3.1811

November

3.3967

3.5038

4.0428

3.1811

December

3.2591

3.4849

4.0428

3.1811

2017

 

 

 

 

January

3.1270

3.1931

3.2591

3.1270

February

3.0993

3.1618

3.2591

3.0993

March

3.1684

3.1635

3.2591

3.0993

(1) Average, high and low month end rates from December of the previous period.

Source: Central Bank.

 

3.B. Capitalization and Indebtedness

Not applicable.

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

Not applicable.

3.D. Risk Factors

Macroeconomic risks

The current weakness in Brazilian macroeconomic conditions and the market perception of certain economic and political risks alongside uncertainties relating to Brazil, including high-profile anti-corruption investigations, may have a material adverse effect on our financial condition and on the results of operations.

The vast majority of our operations are conducted in Brazil and, accordingly, our results are significantly impacted by macroeconomic conditions in Brazil. In prior years, we have benefited from Brazil’s stable economic environment and the relatively strong annual growth of the Brazilian GDP. However, starting in 2013, GDP growth in Brazil began to decelerate as a result of a variety of factors including: mismanagement of public accounts, a weakening of the Brazilian real, the persistent inflation and the increasing level of the current account deficit.

The decrease in primary results (difference between the government income and expenses, excluding interest income and interest expenses) in recent years and the increase in net public sector debt significantly contributed to a further deterioration in macroeconomic conditions of Brazil. Thus, the increase in unemployment rates, as a result of macroeconomic conditions, created risks to banking activities (especially due to the possibility of increased default rates for individuals and corporations). Moreover, high inflation rates may lead to an increase in the basic interest rates of our financial assets, which may impact our operations.

However, in 2016, the domestic scenario was marked by major adjustments. Inflation began a path of convergence towards targets (and ended below the cap at the end of last year) and the Central Bank managed to achieve an important step in inflation expectations for the coming three years. Regarding taxes, the adjustment proposed by the Government is expected to have an effect in the medium to long term. In approving the Proposed Constitutional Amendment (“PEC”), which restrains public spending, it is expected that the desired fiscal balance will lead to a stabilization of the debt/GDP ratio. Currently, the government is proposing a pension reform, which may aim to guarantee the solvency of pensions in the long term and the availability of the limit for public spending. Even though the country’s greatest challenge continues to be economic growth, there is an expectation that there will be gradual growth quarter on quarter in 2017.

In 2014, the Brazilian Federal Police and the Prosecution Office commenced a series of anti-corruption investigations called "Operation Car Wash" ("Operação Lava Jato") in which, among other matters, certain officers and employees of Petróleo Brasileiro S.A. ("Petrobras"), a Brazilian state-controlled company, were accused of accepting illegal payments in order to wrongly influence commercial decisions of Petrobras. During the course of 2014, 2015 and 2016, these anti-corruption investigations have become wide-ranging and have given rise to various criminal proceedings involving not only senior officers and employees of Petrobras but also senior officers of companies in Brazil, notably in the  construction sector and some politicians. In the U.S., the SEC and the Department of Justice are also conducting their own investigations into a number of these allegations. The high-profile nature of these investigations may have momentarily harmed the reputation of Brazil, which could reduce investor confidence, making it more difficult for companies located in Brazil to obtain financing. We cannot predict how long the anti-corruption investigations will continue, or how significant the effects of the anti-corruption investigations may be for the Brazilian economy. If uncertainty surrounding the Brazilian economy continues, or if there is a material reduction in investor confidence as a result of these investigations, the results of our operations may be adversely affected.

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Form 20-F 

In addition, our subsidiary Banco Bradesco BBI S.A. (“Bradesco BBI”) is a party to certain legal and administrative proceedings filed against Petrobras and other defendants, due to its role as underwriter in a note offering of Petrobras. We or our subsidiaries may become a party to other legal and/or administrative proceedings against Petrobras or other companies which have not yet been filed. A negative outcome of these ongoing legal proceedings or any new legal proceedings may harm our reputation and may adversely affect our financial condition and our results of operations.

On December 2, 2015, the Brazilian House of Representatives opened impeachment proceedings against President Dilma Rousseff, alleging non-compliance with the fiscal responsibility law. The Brazilian House of Representatives and the Brazilian Senate voted in favor of the admissibility of the impeachment proceedings on April 17, 2016 and on May 12, 2016, respectively. Due to the favorable vote of the Senate, President Rousseff was removed from the presidency for up to 180 days to defend herself in her impeachment trial. During the 180-day trial period, the Vice-President of Brazil acted as President. On August 10, 2016, the Brazilian Senate approved the report of its special impeachment committee which recommended that President Dilma Rousseff should be brought to trial by the upper house of the Brazilian legislature. On August 31, 2016, President Dilma Rousseff was found guilty, losing her mandate, and Vice-President Michel Temer took office for the remainder of the term until January 1, 2019.  However, the resolution of the political and economic crisis in Brazil still depends on the outcome of the “Lava Jato” investigation and on the approval of reforms that are being promoted by the new President. Further, the initial mandate by Ms. Rousseff and Mr. Temer following the general election in 2014 is under review by the Superior Election Tribunal (Tribunal Superior Eleitoral). The Superior Election Tribunal has not yet set a date for a further hearing. If the Superior Election Tribunal sets a date prior to the next general election and decides against Ms. Rousseff and Mr. Temer, Mr. Temer could be removed from office, leading to further political and economic instability.

 The continuation of any of, or combination of, these factors may lead to a further slowdown in GDP growth, which may have an adverse effect on our financial condition and our results of operations.

The government exercises influence over the Brazilian economy, and Brazilian political and economic conditions have a direct impact on our business.

Our financial condition and results of operations are substantially dependent on Brazil’s economy, which in the past has been characterized by frequent and occasionally drastic intervention by the government and volatile economic cycles.

In the past, the Brazilian government has often changed monetary, fiscal, taxation and other policies to influence the course of Brazil’s economy. We have no control over, and cannot predict, what measures or policies the government may take in response to the current or future Brazilian economic situation or how government intervention and government policies will affect the Brazilian economy and our operations and revenues.

Our operations, financial condition and the market price of our shares, preferred share ADSs and common share ADSs may be adversely affected by changes in certain policies related to exchange controls, tax and other matters, as well as factors such as:

·      exchange rate fluctuations;

·      base interest rate fluctuations;

·      domestic economic growth;

·      political, social or economic instability;

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·      monetary policies;

·      tax policy and changes in tax regimes;

·      exchange controls policies;

·      liquidity of domestic financial, capital and credit markets;

·      our customers' capacity to meet their other obligations with us;

·      decreases in wage and income levels;

·      increases in unemployment rates;

·      macroprudential measures;

·      inflation;

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

·      other political, diplomatic, social and economic developments within and outside of Brazil that affect the country.

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

Historically, the country’s political scenario has influenced the performance of the Brazilian economy and political crises have affected the confidence of investors and the general public, which resulted in economic deceleration and heightened volatility in the securities issued abroad by companies based in Brazil.

Currency exchange variations may have an adverse effect on the Brazilian economy and on our results and financial condition.

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

As of December 31, 2016, the net exposure in relation to our assets and liabilities denominated in, or indexed to, foreign currencies (primarily U.S. dollars) was 4.3% of our total assets. If the Brazilian currency devaluates or depreciates, we risk losses on our liabilities denominated in, or indexed to, foreign currencies, such as our U.S. dollar denominated long term debt and foreign currency loans, and experience gains on our monetary assets denominated in or indexed to foreign currencies, as the liabilities and assets are translated into reais. Accordingly, if our liabilities denominated in, or indexed to, foreign currencies significantly exceed our monetary assets denominated in, or indexed to, foreign currencies, including any financial instruments entered into for hedging purposes, a large devaluation or depreciation of the Brazilian currency could materially and adversely affect our financial results and the market price of our shares, preferred share ADSs and common share ADSs, even if the value of the liabilities has not changed in their originated currency. In addition, our lending operations depend significantly on our capacity to match the cost of funds indexed to the U.S. dollar with the rates charged to our customers. A significant devaluation or depreciation of the U.S. dollar may affect our ability to attract customers on such terms or to charge rates indexed to the U.S. dollar.

Conversely, when the Brazilian currency appreciates, we may incur losses on our monetary assets denominated in, or indexed to, foreign currencies, mainly, the U.S. dollar, and we may experience decreases in our liabilities denominated in, or indexed to, foreign currencies, as the liabilities and assets are translated into reais. Therefore, if our monetary assets denominated in, or indexed to, foreign currencies significantly exceed our liabilities denominated in, or indexed to, foreign currencies, including any financial instruments entered into for hedging purposes, a large appreciation of the Brazilian currency could materially and adversely affect our financial results even if the value of the monetary assets has not changed in their originated currency.

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Form 20-F 

If Brazil experiences substantial inflation in the future, our revenues and our ability to access foreign financial markets may be reduced.

Brazil has, in the past, experienced extremely high rates of inflation. Inflation and governmental measures to combat inflation had significant negative effects on the Brazilian economy and contributed to increased economic uncertainty in Brazil and heightened volatility in the Brazilian securities markets, which may have an adverse effect on us.

The memory of, and potential for inflation, is still present, despite the monetary stability achieved in the mid-1990s, which intensified after 1999 as a result of the adoption of inflation targeting norms. There are still concerns that inflation levels might rise again in the future. Current economic policy in Brazil is premised on a monetary regime which the Central Bank oversees in order to assure that the effective rate of inflation keeps in line with a predetermined and previously announced target. In 2016, Brazil’s rates of inflation reached 6.3%, 10.7% in 2015 and 6.4% in 2014, as measured by the Extended Consumer Price Index - “IPCA” (Índice Nacional de Preços ao Consumidor Amplo).

Government measures to combat inflation have often included maintaining a tight monetary policy with high interest rates, thereby restricting the availability of credit and reducing economic growth. As a result, interest rates have fluctuated significantly. Increases in the base interest rate (SELIC) set by the Central Bank Committee on Monetary Policy (Comitê de Política Monetária - COPOM) may have an adverse effect on us by reducing demand for our credit, and increasing our cost of funds, domestic debt expense and the risk of customer default. Decreases in the SELIC rate may also have an adverse effect on us by decreasing the interest income we earn on our interest-earning assets and lowering our revenues and margins.

Future government actions, including the imposition of taxes, intervention in the foreign exchange market and actions to adjust or fix the value of the real, as well as any GDP growth different from expected levels may trigger increases in inflation. If Brazil experiences fluctuations in rates of inflation in the future, our costs and net margins may be affected and, if investor confidence lags, the price of our securities may fall. Inflationary pressures may also affect our ability to access foreign financial and capital markets and may lead to counter-inflationary policies that may have an adverse effect on our business, financial condition, results of operations and the market value of our shares, preferred share ADSs and common share ADSs.

Changes in base interest rates by the COPOM may materially adversely affect our margins and results of operations.

The COPOM establishes the base interest rates for the Brazilian banking system (SELIC). The base interest rate was 13.75%, 14.25% and 11.75% per annum (“p.a.”) as of December 31, 2016, 2015 and 2014, respectively. Changes in the base interest rate may adversely affect our results of operations as we have assets and liabilities indexed to the SELIC. At the same time, high base interest rates may increase the likelihood of customer delinquency, due to the deceleration in the economic activity. Similarly, low base interest rates may increase the leverage of borrowers, generating additional risk to financial system.

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

Developments and the perception of risk in Brazil and other countries, especially emerging market countries, may adversely affect the market price of Brazilian securities, including our shares, preferred share ADSs and common share ADSs.

The market value of securities of Brazilian companies is affected to varying degrees by economic and market conditions in other countries, including other Latin American and emerging market countries. Although economic conditions in these countries may differ significantly from economic conditions in Brazil, investors' reactions to developments in these other countries may have an adverse effect on the market value of securities of issuers based in Brazil. Crises in other emerging market countries may diminish investor interest in securities of issuers based in Brazil, including ours, which could adversely affect the market price of our shares, preferred share ADSs and common share ADSs.

A U.K. exit from the European Union could adversely impact global economic or market conditions.

On June 23, 2016, the U.K. electorate voted in a general referendum in favor of the U.K.´s exit from the European Union (so-called “Brexit”). On March 29, 2017, the U.K. gave formal notice under Article 50 of the Treaty on European Union of its intention to leave the European Union. The announcement of Brexit caused significant volatility in global stock markets and currency exchange rate fluctuations. The on-going process of negotiations between the U.K. and the European Union will determine the future terms of the U.K’s relationship with the European Union, including access to European Union markets, either during a transitional period or more permanently.  Brexit could lead to potentially divergent  laws and regulations as the U.K. determines which E.U. laws to replace or replicate. Uncertainty regarding the terms of Brexit, and its eventual effects once implemented, could adversely affect European or global economic or market conditions and investor confidence.  This could, in turn, adversely affect our business and/or the market value of our shares, preferred share ADSs and common share ADSs.

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3.D. Risk Factors 
Form 20-F 

Our investments in debts issued by the Brazilian government expose us to additional risks associated with Brazil.

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

 

Risks relating to us and the Brazilian banking industry

We may be subject to negative consequences of the Operation Zealots investigation, including the filing of a class-action suit.

On May 31, 2016, we became aware that the Federal Police of Brazil had indicted three members of our Diretoria Executiva, within the so-called "Operação Zelotes” or “Operation Zealots,” which investigates the alleged improper performance of members of the Federal Administrative Tax Court (Conselho Administrativo de Recursos Fiscais – "CARF"). On July 28, 2016, the Federal Public Prosecution Office pressed charges against three officers of our Diretoria Executiva and a former member of our Board of Directors. The charges were received for processing by the Judge of the Tenth Federal District Court of the Federal District of Brazil. On April 4, 2017 we announced that we had been subpoenaed by the General Internal Affairs of the Ministry of Finance. The executives have already submitted their respective defenses in the criminal proceeding and moved to dismiss the charges against them.
 Our Management conducted an internal evaluation of the records and documents related to the indictment and found no evidence of any unlawful conduct by our representatives. We are cooperating with the competent authorities and regulators in Brazil and abroad and are providing any information and documents they request.
 Following news reports of the indictment as part of Operation Zealots, a putative class-action lawsuit was filed in the US District Court for the Southern District of New York on June 3, 2016 asserting claims under Sections 10(b) and 20(a) of the U.S. Securities Exchange Act of 1934. On October 21, 2016, the Court-appointed Lead Plaintiff submitted an Amended Class Action Complaint naming us and the three members of our Diretoria Executiva who were indicted. The lawsuit alleges that investors who purchased our preferred ADSs between April 30, 2012 and July 27, 2016 suffered damages due to a supposed violation of U.S. securities laws. We accepted service in the Class Action and, on December 23, 2016, filed a motion to dismiss the complaint. Because the lawsuit is in a preliminary stage, it is not possible at present to estimate the exposure and not enough elements are available to conduct a risk assessment.

We were also summoned by the internal affairs committee of the Brazilian Ministry of Finance to follow an Administrative Procedure to Determine Liability (Processo Administrativo de Responsabilização).

This procedure, which carries the possibility of a fine being levied against us and/or inclusion of our name in public lists which may in turn restrict our ability to conduct business with state-owned entities, is at the evidentiary stage.

 Developments in the criminal proceeding against our officers may result in negative publicity for us, and we cannot predict what conclusion the Courts and other authorities may come to in connection with this investigation/proceeding. A conclusion adverse to our Diretoria Executiva and/or us could result in legal exposure and other penalties for us and our current or former officers and employees and could negatively affect our reputation, financial condition and results of operations.
 

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Form 20-F 

We may be subject to negative consequences from the “Operation Greenfield” investigation.

The Federal Police is conducting an investigation called "Operação Greenfield," or "Operation Greenfield," into allegations of fraud involving certain pension funds. Our wholly-owned subsidiaries BEM - Distribuidora de Títulos e Valores Mobiliários Ltda. ("BEM") and BRAM - Bradesco Asset Management S.A. Distribuidora de Títulos e Valores Mobiliários ("BRAM"), as well as two of their managers were mentioned by the Federal Police in relation to Operation Greenfield as they were responsible for the administration and management of an Equity Investment Fund, named Fundo de Investimento em Participações - FIP Enseada. In the course of the investigation, the Federal Court authorized the seizing of a number of documents, and blocked the assets of BEM. In order to have its assets unblocked, BEM, together with BRAM signed a commitment, which was approved by the Tenth Federal Court of the Federal District, to release their assets in exchange for the provision of guarantees totaling R$104 million. BEM and BRAM did not acknowledge any civil or criminal liability by entering into this commitment. Under the commitment, the managers and officers of BEM and BRAM committed to provide any clarifications to the authorities responsible for conducting this investigation, regardless of a formal subpoena. Additionally, internal evaluations indicate that there were no illegal conduct in the activities. The ongoing Operation Greenfield investigation may result in negative publicity for us and our subsidiaries, and we cannot predict what conclusion the Federal Police and other competent authorities, especially the Federal Public Prosecution Office may come to in connection with this investigation. A conclusion adverse to BEM and BRAM, or their managers, could negatively affect our reputation, financial condition and results of operations.

 

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3.D. Risk Factors 
Form 20-F 

We may not be able to capture the expected synergies from the business acquired from HSBC Brasil.

In July 2016, we concluded the acquisition of HSBC Brasil. In October 2016, an Extraordinary General Meeting of our shareholders approved the spin-off of HSBC Brasil and the integration of its staff and operational and technological platforms, resulting in the replacement of the HSBC brand in its then-existing service network with the Bradesco brand in its place.  As a result, we started to operate with a unified platform (branches, ATMs and systems), to which all customers have access.

The acquisition of HSBC Brasil was the largest that we have ever undertaken. Given the scale of the acquisition, we cannot be certain that we will be able to fully realize all financial synergies, expected growth opportunities or other benefits that we expect from this acquisition.

We may experience increases in our level of past due loans as our loans and advances portfolio becomes more seasoned.

Our loans and advances to customers portfolio has grown over recent years. Any corresponding rise in our level of non-performing loans and advances may lag behind the rate of loan growth, as loans typically do not have due payments for a short period of time after their origination. Levels of past due loans are normally higher among our individual clients than our corporate clients.

As of December 31, 2016, our provision for the impairment of loans and advances decreased by 2.6% when compared to December 31, 2015, while our portfolio of loans and advances to customers grew by 5.9% over that same period. We emphasize that this growth in our portfolio of loans and advances is related to the acquisition of the operations of HSBC Brasil.

As of December 31, 2015, our provision for impairment of loans and advances increased by 20.5% when compared to December 31, 2014, while our portfolio of loans and advances to customers grew by 6.1% over that same period.

Our delinquency ratios, calculated based on information prepared in accordance with accounting practices adopted in Brazil (“BR GAAP”), which is defined as the total operations overdue for over ninety days in relation to the total portfolio of loans and advances, evolved to 5.5% in 2016, compared to 4.1% in 2015 and 3.5% in 2014.

Rapid loan growth may also reduce our ratio of non-performing loans to total loans until growth slows or the portfolio becomes more seasoned. Adverse economic conditions and a slower growth rate for our loans and advances to customers may result in increases in our impairment of loans and advances, charge-offs and our ratio of non-performing loans and advances to total loans and advances, which may have an adverse effect on our business, financial condition and results of operations.

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

Volatility and uncertainties in the credit and capital markets have generally decreased liquidity, with increased costs of funding for financial institutions and corporations. These conditions may impact our ability to replace, in a cost effective and/or timely manner, maturing liabilities and/or access funding to execute our growth strategy.

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Form 20-F 

Part of our funding originates from repurchase agreements, which are largely guaranteed by Brazilian government securities. This type of operation is generally short-term and volatile in terms of volume, as it is directly impacted by market liquidity. As these operations are typically guaranteed by Brazilian government securities, the value and/or perception of value of the Brazilian government securities may be significant for the availability of funds. For example, if the quality of the Brazilian government securities used as collateral is adversely affected, due to the worsening credit risk, the cost of these operations could increase, making this source of funding inefficient for us. For further information about funding in the open market, see “Item 4.B. Business Overview – Other funding sources.”

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

The increasingly competitive environment in the Brazilian bank and insurance industries may negatively affect our business prospects.

The markets for financial, banking and insurance services in Brazil are highly competitive. We face significant competition in all of our principal areas of operation from other large banks and insurance companies, both public and private based in Brazil and internationally.

Competition has increased as a result of consolidations among financial institutions in Brazil and as a result of regulations by the National Monetary Committee (“CMN”), that facilitate customers' ability to switch business between banks. The increased competition may materially and adversely affect us by, among other things, limiting our ability to retain our existing consumer base, increasing our customer base and expanding our operations, reducing our profit margins on banking and other services and products we offer, and limiting investment opportunities.

The increased competition may negatively affect our business results and prospects by, among other things:

·      limiting our ability to increase our customer base and expand our operations;

·      reducing our profit margins in the banking, insurance, leasing and other services and products offered by us; and

·      increasing competition for foreign investment opportunities.

Losses on our investments in financial assets held for trading and available for sale may have a significant impact on our results of operations and are not predictable.

The value of certain of our investments in financial assets may decline significantly due to volatile financial markets and may fluctuate over short periods of time. As of December 31, 2016, investments in financial assets held for trading and available for sale represented 27.4% of our assets, and realized gains and losses or unrealized gains and losses for financial assets held for trading and available for sale have had and may continue to have a significant impact on the results of our operations. The amounts of such gains and losses, which we record when investments in financial assets are sold, or in certain limited circumstances when they are recognized at fair value, may fluctuate considerably from period to period. The level of fluctuation depends, in part, upon the fair value of the financial assets, which in turn may vary considerably, and our investment policies. We cannot predict the amount of realized gain or loss for any future period, and we believe that variations from period to period have no practical analytical value. Furthermore, any gains on our investment portfolio may not continue to contribute to net income at levels consistent with recent periods, and we may not successfully realize the appreciation in our consolidated investment portfolio or any portion thereof.

We may incur losses associated with counterparty exposures.

We face the possibility that a counterparty will be unable to honor its contractual obligations. These counterparties may default on their obligations due to bankruptcy, lack of liquidity, operational failure or other reasons. This risk may arise, for example, as a result of entering into swap or other derivative contracts under which counterparties have obligations to make payments to us, executing currency or other trades that fail to settle at the required time due to non-delivery by the counterparty or systems failure by clearing agents, exchanges, clearing houses or other financial intermediaries. Such counterparty risk is more acute in complex markets where the risk of failure of counterparties is higher.

Our trading activities and derivatives transactions may produce material losses.

We engage in the trading of securities, buying debt and equity securities principally to sell them in the near term with the objective of generating profits on short-term differences in price. These investments could expose us to the possibility of material financial losses in the future, as securities are subject to fluctuations in value, which may generate losses. In addition, we enter into derivatives transactions, mainly, to manage our exposure to interest rate and exchange rate risk. Such derivatives transactions are designed to protect us against increases or decreases in exchange rates or interest rates.

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Form 20-F 

The government regulates the operations of Brazilian financial institutions and insurance companies. Changes in existing laws and regulations or the imposition of new laws and regulations may negatively affect our operations and revenues.

Brazilian banks and insurance companies are subject to extensive and continuous regulatory review by the government. We have no control over government regulations, which govern all facets of our operations, including the imposition of:

·      minimum capital requirements;

·      compulsory deposit/reserve requirements;

·      fixed assets investment limitations;

·      lending limits and other credit restrictions;

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

·      accounting and statistical requirements;

·      minimum coverage;

·      mandatory provisioning policies;

·      limits and other restrictions on rates; and

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

The regulatory structure governing banks and insurance companies based in Brazil is continuously evolving. Existing laws and regulations could be amended, the manner in which laws and regulations are enforced or interpreted could change, and new laws or regulations could be adopted. Such changes could materially adversely affect our operations and our revenues.

In particular, the government has historically enacted regulations affecting financial institutions in an effort to implement its economic policies. These regulations are intended to control the availability of credit and reduce or increase consumption in Brazil. These changes may adversely affect us because our returns on compulsory deposits are lower than those we obtain on our other investments. Regulations issued by the Central Bank are not subject to a legislative process. Therefore those regulations can be enacted and implemented in a very short period of time, thereby affecting our activities in sudden and unexpected ways.

A majority of our common shares are held, directly and indirectly, by one shareholder and none of our board members are independent; accordingly, their interests may conflict with those of our other investors.

As of December 31, 2016, Fundação Bradesco directly and indirectly held 56.8% of our common shares. As a result, Fundação Bradesco has the power, among other things, to prevent a change in control of our company, even if a transaction of that nature would be beneficial to our other shareholders, as well as to approve related party transactions or corporate reorganizations. Under the terms of Fundação Bradesco’s by-laws, members of our Diretoria Executiva, or of our Board of Executive Officers that have been working with us for more than ten years serve as members of the Board of Trustees of Fundação Bradesco. The Board of Trustees has no other members.

Our Board of Directors has 8 members, none of whom are considered independent in accordance with the criteria included in Brazilian Corporate Law, which provides that only individuals may be appointed to a company's board of directors. Accordingly, there is no legal or statutory provision requiring us to have independent directors. As a result, the interests of our Board of Directors may not always be in line with the interests of our common shareholders and these holders do not have the same protections they would have if most of the directors were independent. Furthermore, our directors are associated to Fundação Bradesco and circumstances may arise in which the interests of Fundação Bradesco, and its associates, conflict with our other investors’ interests.

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Form 20-F 

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

Changes in regulations regarding reserve and compulsory deposit requirements may reduce operating margins.

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

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

·      a portion of our compulsory deposits with the Central Bank do not bear interest; and

·      a portion of our compulsory deposits must finance a federal housing program, the Brazilian rural sector, low income customers and small enterprises under a program referred to as a "microcredit program."

Rules related to compulsory deposits have been changed from time to time by the Central Bank, as described in "Item 4.B. Business Overview - Deposit-taking activities."

As of December 31, 2016, our compulsory deposits in connection with demand, savings and time deposits and additional compulsory deposits were R$58.0 billion. Reserve requirements have been used by the Central Bank to control liquidity as part of monetary policy in the past, and we have no control over their imposition. Any increase in the compulsory deposit requirements may reduce our ability to lend funds and to make other investments and, as a result, may adversely affect us. For further information on compulsory deposits, see "Item 4.B. Business Overview- Deposit - taking activities."

Changes in taxes and other fiscal assessments may adversely affect us.

The government regularly enacts reforms to the tax and other assessment regimes to which we and our customers are subject. Such reforms include changes in the rate of assessments and, occasionally, enactment of temporary taxes, the proceeds of which are earmarked for designated governmental purposes. The effects of these changes and any other changes that result from enactment of additional tax reforms have not been, and cannot be, quantified. There can be no assurance that these reforms will not, once implemented, have an adverse effect upon our business. Furthermore, such changes may produce uncertainty in the financial system, increasing the cost of borrowing and contributing to the increase in our non-performing portfolio of loans and advances.

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

Article 192 of the Brazilian Constitution, enacted in 1988, established a 12.0% p.a. ceiling on bank loan interest rates. However, since the enactment of the Brazilian Constitution, this rate had not been enforced, as the regulation regarding the ceiling was pending. The understanding that this ceiling is not yet in force has been confirmed by Súmula Vinculante No. 7, a final binding decision enacted in 2008 by the Brazilian Supreme Court ("STF"), in accordance with such Court’s prior understanding on this matter. Since 1988, several attempts were made to regulate the limitation on loan interest, and especially bank loan interest rates, but none of them were implemented nor have been confirmed by Brazilian superior courts.

On May 29, 2003, Constitutional Amendment No. 40 (EC 40/03) was enacted and revoked all subsections and paragraphs of Article 192 of the Brazilian constitution. This amendment allows the Brazilian Financial System, to be regulated by specific laws for each sector of the system rather than by a single law relating to the system as a whole.

With the enactment of Law No. 10,406/02 (or the “Civil Code”), unless the parties to a loan have agreed to use a different rate, in principle the interest rate ceiling has been pegged to the base rate charged by the National Treasury Office (Tesouro Nacional). There is currently an uncertainty as to whether such base rate which is referred to in the Civil Code is: (i) the Special Clearing and Settlement System (Sistema Especial de Liquidação e Custódia) rate, which we call the “SELIC” rate, the base interest rate established by COPOM, which was 13.75% p.a. as of December 31, 2016 and 14.25% p.a. as of December 31, 2015; or (ii) the 12.0% p.a. rate established in Article 161, paragraph 1, of Law No. 5,172, of October 25, 1966, as amended (“Brazilian Tax Code”), which is the default interest rate due when taxes are not paid on time.

Any substantial increase or decrease in the interest rate ceiling could have a material effect on the financial condition, results of operations or prospects of financial institutions based in Brazil, including us.

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3.D. Risk Factors 
Form 20-F 

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.

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

The results of our operations significantly depend upon the extent to which our actual claims are consistent with the assumptions we used to assess our potential future policy and claim liabilities and to price our insurance products. We seek to limit our responsibility and price our insurance products based on the expected payout of benefits, calculated using several factors, such as assumptions for investment returns, mortality and morbidity rates, expenses, persistency, and certain macroeconomic factors, such as inflation and interest rates. These assumptions may deviate from our prior experience, due to factors beyond our control such as natural disasters (floods, explosions and fires), man-made disasters (riots, gang or terrorist attacks) or changes in mortality and morbidity rates as a result of advances in medical technology and longevity, among others. Therefore, we cannot determine precisely the amounts that we will ultimately pay to settle these liabilities, when these payments will need to be made, or whether the assets supporting our policy liabilities, together with future premiums and contributions, will be sufficient for payment of these liabilities. These amounts may vary from the estimated amounts, particularly when those payments do not occur until well in the future, which is the case with certain of our life insurance products. Accordingly, the establishment of the related provisions is inherently uncertain and our actual losses usually deviate, sometimes substantially, from such estimated amounts. To the extent that actual claims are less favorable than the underlying assumptions used in establishing such liabilities, we may be required to increase our provisions, which may have an adverse effect on our financial condition and results of operations.

We are liable for claims of our customers if our reinsurers fail to meet their obligations under the reinsurance contracts.

The purchase of reinsurance does not hold us harmless against our liability towards our clients if the reinsurer fails to meet its obligations under the reinsurance contracts. As a result, reinsurers' insolvency or failure to make timely payments under these contracts could have an adverse effect on us, given that we remain liable to our policyholders.

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

We constantly invest in the improvement and evolution of the safety controls, resilience, continuity and management of our information technology systems and as a result have created an environment with a high capacity to process data for our operating systems and our financial and accounting systems. Taking into account all external factors, including events which are wholly or partially beyond our control, such as: cyber-attacks, protests which could prevent individuals from entering our buildings, changes to the regulatory framework, electrical or telecommunications outages, systems failures, resulting from human error or not, or other events involving third parties and suppliers, our information technology systems could suffer shortages or become unavailable for a given period of time.

Due to the nature of our operations and the global context, where there is an ever-increasing integration among platforms, dependency on technology and on the internet, a higher exposure to viruses, malicious software and other forms of cyber-attacks is expected, ill intentioned or not, which may unexpectedly impair the operation and integrity of our systems that manage and store sensitive and/or confidential information for our business and operations.

We and other financial institutions, including governmental institutions, have already experienced attacks on our information technology systems. Due to the controls we have in place, we have not experienced any material loss of data from these attacks to date, neither from a material perspective, nor from a data information perspective.  However, considering the use of new technologies, the increasing dependency on the internet and the changing and sophisticated nature of attacks, it is not possible to predict all the means that will be used by ill-intentioned individuals or organizations, which could impact our capacity to effectively foresee and/or avoid all attacks in the future. 

As a result, all the risks mentioned above could result in customer attrition, regulatory fines, penalties or intervention, reimbursement or other administrative penalties.

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3.D. Risk Factors

Form 20-F 

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

The Brazilian Supreme Court (“STF”), which is the highest court in Brazil and is responsible for judging constitutional matters, is currently deciding on whether savings account holders have the right to obtain adjustments for inflation related to their deposits due to the economic plans Cruzado, Bresser, Verão, Collor I and Collor II, implemented in the 1980s and 1990s, before the Plano Real, in 1994. The trial began in November 2013, but was recently interrupted. According to the institutions representing the account holders, banks misapplied the monetary adjustments when those economic plans were implemented, and should be required to indemnify the account holders for the non-adjustment of those amounts.

Although so far no final decision has been given by the STF, the Supreme Court recently gave a ruling on an individual case, in the sense that the sentences on class actions proposed by associations questioning inflationary purges only benefit consumers who: (i) were associated with the associations at the time of filing of the class action; and (ii) had authorized the filing of the class action. This reduced the number of beneficiaries in class actions because, until then, it was understood that these decisions should benefit all consumers affected by the practices (i.e., all consumers that are current account holders and that had suffered losses related to inflationary purges, were or were not associated with the association, plaintiff of the class action).

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

We cannot predict the outcome of this case. However, depending on the decision by the STF, banks (including ourselves) might incur material costs which could cause losses for us.

Our risk management structure may not be fully effective.

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

We may face significant challenges in possessing and realizing value from collateral with respect to loans in default.

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

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

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

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

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3.D. Risk Factors 
Form 20-F 

In addition, there are practical limits on the ability of preferred share ADS and common share ADS holders to exercise any vote due to the additional procedural steps involved in communicating with such holders. For example, our shareholders will either be notified directly or through notification published in Brazilian newspapers and will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. In contrast, preferred share ADS holders and common share ADS holders will not receive notice directly from us and cannot vote in person at the meeting. Instead, in accordance with the Deposit Agreements, the depositary bank will, if authorized and directed by us, send any notice of meetings of holders received by it from us to holders of preferred share ADSs and common share ADSs, together with a statement as to the manner in which voting instructions may be given by holders. To exercise any such ability to vote, preferred share ADS and common share ADS holders must then instruct the depositary bank how to vote with the shares represented by their preferred share ADSs or common share ADSs. Because of this extra step involving the depositary bank, if and when we authorize and direct the depositary bank to mail voting information to preferred share ADS holders and common share ADS holders, the process for voting will take longer for preferred share ADS and common share ADS holders than for holders of our shares. Preferred share ADSs and common share ADSs for which the depositary bank does not receive voting instructions in good time will not be able to vote at a meeting.

Under Brazilian corporate law, holders of preferred shares have limited voting rights, accordingly, holders of preferred share ADSs will have similar limitations on their ability to vote.

Under Brazilian corporate law (Law No. 6,404/76, as amended by Law No. 9,457/97 and Law No. 10,303/01, which we refer to collectively as "Brazilian Corporate Law") and our Bylaws, holders of our preferred shares are not entitled to vote at our shareholders' meetings, except in limited circumstances (see "Item 10.B. Memorandum and Articles of Association – Organization – Voting Rights," for further information on voting rights of our shares). As such, in contrast to holders of common shares, holders of preferred shares are not entitled to vote on corporate transactions, including any proposed merger or consolidation with other companies, among other things.

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

The relative volatility and illiquidity of the Brazilian securities markets may substantially limit your ability to sell shares underlying the preferred share ADSs and common share ADSs at the price and time you desire.

Investing in securities that trade in emerging markets, such as Brazil, often involves greater risk than investing in securities of issuers in more developed countries, and these investments are generally considered more speculative in nature. The Brazilian securities market is substantially smaller and less liquid than major securities markets, such as the United States, and may be more volatile. Although you are entitled to withdraw our shares, underlying the preferred share ADSs and common share ADSs from the depositary bank at any time, your ability to sell our shares underlying the preferred share ADSs and common share ADSs at a price and time acceptable to you may be substantially limited. There is also significantly greater concentration in the Brazilian securities market than in major securities markets such as the United States or other countries. The ten largest companies in terms of market capitalization, according to B3, accounted for 54.8% of the aggregate market capitalization.

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

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

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3.D. Risk Factors

Form 20-F 

Pursuant to our Bylaws, our preferred shares are entitled to dividends 10.0% higher than those of our common shares. Although under our current Bylaws we are obligated to pay our shareholders at least 30.0% of our annual adjusted net income, the shareholders attending our annual general shareholders’ meeting may decide to suspend this mandatory distribution of dividends if the Board of Directors advises that payment of the dividend is not compatible with our financial condition. Neither our Bylaws nor Brazilian law specify the circumstances in which a distribution would not be compatible with our financial condition, and our controlling shareholders have never suspended the mandatory distribution of dividends. However, Brazilian law provides that a company need not pay dividends if such payment would endanger the existence of the company or harm its normal course of operations.

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

As a holder of preferred share ADSs and common share ADSs you will have fewer and less well‑defined shareholders' rights than in the United States and certain other jurisdictions.

Our corporate affairs are governed by our Bylaws and Brazilian Corporate Law, which may differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States or in certain other jurisdictions outside Brazil. Under Brazilian Corporate Law, you and the holders of our shares may have fewer and less well‑defined rights to protect your interests relative to actions taken by our Board of Directors or the holders of our common shares than under the laws of other jurisdictions outside Brazil.

Although Brazilian Corporate Law imposes restrictions on insider trading and price manipulation, the Brazilian securities markets are not as highly regulated and supervised as the U.S. securities markets or markets in certain other jurisdictions. In addition, in Brazil, self‑dealing and the preservation of shareholder interests may be less heavily regulated and what regulations are in place may not be as strictly enforced in Brazil as in the United States, which could potentially disadvantage you as a holder of our shares underlying preferred share ADSs and common share ADSs. For example, compared to Delaware general corporation law, Brazilian Corporate Law and practices have less detailed and well‑established rules and judicial precedents relating to review of management decisions under duty of care and duty of loyalty standards in the context of corporate restructurings, transactions with related parties, and sale-of-business transactions. In addition, shareholders in Delaware companies must hold 5.0% of the outstanding share capital of a corporation to have valid standing to bring shareholder derivative suits, while shareholders in companies based in Brazil do not normally have valid standing to bring a class action.

It may be difficult to bring civil liability causes against us or our directors and executive officers.

We are organized under the laws of Brazil, and all of our directors and executive officers reside outside the United States. In addition, a substantial portion of our assets and most or all of the assets of our directors and executive officers are located in Brazil. As a result, it may be difficult for investors to effect service of process within the United States or other jurisdictions outside of Brazil on such persons or to enforce judgments against them, including any based on civil liabilities under the U.S. federal securities laws.

If we issue new shares or our shareholders sell shares in the future, the market price of your preferred share ADSs and common share ADSs may be reduced.

Sales of a substantial number of shares, or the belief that this may occur, could decrease the market price of our shares, preferred share ADSs and common share ADSs, by diluting their value. If we issue new shares or our existing shareholders sell the shares they hold, the market price of our shares and therefore the market price of our preferred share ADSs and common share ADSs, may decrease significantly.

The payments on the preferred share ADSs and common share ADSs may be subject to U.S. withholding under FATCA.

The United States has enacted rules, commonly referred to as “FATCA,” that generally impose a new reporting and withholding regime with respect to certain U.S. source payments (including interest and dividends), gross proceeds from the disposition of property that can produce U.S. source interest and dividends and certain payments made by entities that are classified as financial institutions under FATCA. The United States has entered into an intergovernmental agreement regarding the implementation of FATCA with Brazil (the “IGA”). Under the current terms and conditions of the IGA, we do not expect payments made on or with respect to the preferred share ADSs or common share ADSs to be subject to withholding under FATCA. However, significant aspects of when and how FATCA will apply remain unclear, and no assurance can be given that withholding under FATCA will not become relevant with respect to payments made on or with respect to the preferred share ADSs or common share ADSs in the future. Prospective investors should consult their own tax advisors regarding the potential impact of FATCA. For more information about FATCA, see "Item 4.B. Business Overview-Regulation and Supervision."

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ITEM 4. INFORMATION ON THE COMPANY 
Form 20-F 

You may be unable to exercise preemptive rights relating to our shares.

You will not be able to exercise preemptive rights relating to our shares underlying your preferred share ADSs and common share ADSs unless a registration statement under the Securities Act is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. Similarly, we may from time to time distribute rights to our shareholders. The depositary bank will not offer rights to you as a holder of the preferred share ADSs and common share ADSs unless the rights are either registered under the Securities Act or are subject to an exemption from the registration requirements.

We are not obligated to file a registration statement with respect to the shares or other securities relating to these rights, and we cannot assure you that we will file any such registration statement. Accordingly, you may receive only the net proceeds from the sale by the depositary bank of the rights received in respect of the shares represented by your preferred share ADSs and common share ADSs or, if the preemptive rights cannot be sold, they will be allowed to lapse. You may also be unable to participate in rights offerings by us, and your holdings may be diluted as a result.

If you exchange your preferred share ADSs or common share ADSs for their underlying shares, you risk losing Brazilian tax advantages and the ability to remit foreign currency abroad.

Brazilian law requires that parties obtain registration with the Central Bank in order to remit foreign currencies, including U.S. dollars, abroad. The Brazilian custodian for the shares must obtain the necessary registration with the Central Bank for payment of dividends or other cash distributions relating to the shares or after disposal of the shares. If you exchange your preferred share ADSs or common share ADSs for the underlying shares, however, you may only rely on the custodian's certificate for five business days from the date of exchange. Thereafter, you must obtain your own registration in accordance with the rules of the Central Bank and the CVM, in order to obtain and remit U.S. dollars abroad after the disposal of the shares or the receipt of distributions relating to the shares. If you do not obtain a certificate of registration, you may not be able to remit U.S. dollars or other currencies abroad and may be subject to less favorable tax treatment on gains with respect to the shares. For more information, see "Item 10.D. Exchange Controls."

If you attempt to obtain your own registration, you may incur expenses or suffer delays in the application process, which could delay your receipt of dividends or distributions relating to the shares or the return of your capital in a timely manner. The custodian's registration and any certificate of foreign capital registration you may obtain may be affected by future legislative changes. Additional restrictions applicable to you, to the disposal of the underlying shares or to the repatriation of the proceeds from disposal may be imposed in the future.

 

ITEM 4. INFORMATION ON THE COMPANY

 

4.A. History and Development of the Company

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

We were founded in 1943 as a commercial bank under the name "Banco Brasileiro de Descontos S.A." In 1948, we began a period of aggressive expansion, which led to our becoming the largest private‑sector (non‑government‑controlled) commercial bank in Brazil by the end of the 1960s. We expanded our activities nationwide during the 1970s and became well established in both urban and rural markets in Brazil. In 1988 we merged with our real estate finance, investment bank and consumer credit subsidiaries to become a multiple service bank and changed our name to “Banco Bradesco S.A.”

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4.A. History and Development of the Company

Form 20-F 

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

Currently, we are one of the largest banks in Brazil in terms of total assets. We offer a wide range of banking and financial products and services in Brazil and abroad to individuals, large, mid‑sized, small and micro enterprises and major local and international corporations and institutions. Our products and services comprise of banking operations such as loans and advances and deposit‑taking, credit card issuance, purchasing consortiums, insurance, leasing, payment collection and processing, pension plans, asset management and brokerage services.

As of December 31, 2016, we had, on a consolidated basis:

·   R$1.2 trillion in total assets;

·   R$392.1 billion in total loans and advances to customers;

·   R$234.2 billion in total deposits;

·   R$105.5 billion in equity, including non-controlling interest;

·   R$215.8 billion in technical reserves for our insurance and pension plan business;

·   R$57.2 billion in foreign trading financing;

·   45.7 million insurance policyholders;

·   26.8 million checking account holders;

·   62.1 million savings accounts;

·   3.0 million capitalization bonds holders;

·   2.6 million pension plan holders;

·   2,037 Brazilian corporate groups and multinational companies in Brazil as ”Corporate” customers;

·   an average of 35.6 million daily transactions, including 1.3 million in our 5,314 branches and 34.3 million through Digital Channels, such as Bradesco Celular, Internet, Automatic Teller Machines, or ATMs, and telephone (Fone Fácil);

·      a nationwide network consisting of 5,314 branches and 4,834 service centers and electronic in-company service centers, 36,119 active ATMs of our own network, and 19,991 available ATMs under the Banco24Horas brand for cash withdrawals, account balance information, obtaining statements and, take out loans, perform collections, transfers between Bradesco accounts,  DOC/TED (types of bank transfer), pre-paid card and “proof of life” to INSS (physical proof of the existence of the old age pensioner or survivor to maintain the right to the social benefit). As of December 31, 2016, we had 108,793 employees. For more information on our employees, see “Item 6.D. Employees;” and

·   a total of three branches and eleven subsidiaries located in New York, London, the Cayman Islands, Tokyo, Buenos Aires, Luxembourg, Hong Kong and Mexico.

 

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4.A. History and Development of the Company 
Form 20-F 

Recent acquisitions

In July, 2016, we announced to the market the acquisition of 100% of the share capital of HSBC Brasil.

In July 2015, we signed a purchase contract for the acquisition of 100% of the share capital of HSBC Brasil. The acquisition was approved by the Central Bank in December 2015 and by the Administrative Council for Economic Defense (“CADE”) in June 2016, subject to an Agreement on Concentration Control, and therefore approved by all relevant regulatory bodies. The purchase was completed in July 2016, for R$16 billion. In October 2016, an Extraordinary General Meeting of our shareholders approved the spin-off of HSBC Brasil and the integration of its staff and operational and technological platforms, resulting in the replacement of the HSBC brand in its then-existing service network and providing greater synergy in its operations.

With the acquisition, we will take over all operations of HSBC in Brazil, including retail, insurance and asset management, as well as all branches and clients. The acquisition allows us to gain in scale and optimize our platforms, while increasing national coverage, consolidating our leadership in the number of branches in several states, and strengthening our presence in the high-income segment. The acquisition will also enable us to expand our operations, increasing the range of products that are offered in Brazil, especially in the insurance, credit card and asset management segments.

In January 2014, Bradesco Saúde S.A. (“Bradesco Saúde”) concluded a transaction to indirectly acquire a 6.5% interest in the equity and voting capital of Odontoprev S.A., disclosed to the market in October 2013. As a result of this acquisition, Bradesco Saúde raised its interest in the equity and voting capital of Odontoprev S.A. (“Odontoprev”), from 43.5% to approximately 50.0%. Odontoprev was already being consolidated based on control obtained through its shareholders agreement.

Other strategic alliances

In October 2016, we announced that Bradesco Seguros S.A. (“Bradesco Seguros”) and Swiss Re Corporate Solutions Ltd. (“Swiss Re Corso”) signed a deal where Swiss Re Corporate Solutions Brasil Seguros (“Swiss Re Corporate Solutions Brasil”) will assume the P&C (“Property and Casualty”) insurance and transport operations of Bradesco Seguros in order to pursue the commercialization of Large Risk Insurance, and Bradesco Seguros will hold 40.0% in Swiss Re Corporate Solutions Brasil.

In July 2014, we, together with Banco do Brasil, Itaú Unibanco, Banco Santander, HSBC Brasil, Caixa Econômica Federal (“Caixa”) and Banco Citibank, signed a new shareholders’ agreement with Tecban, which establishes the consolidation of their external customer-service network by the Banco24horas Network. This agreement was approved by the relevant regulatory agencies and became effective in November 2014.

In July 2014, we announced the formalization of a strategic partnership with IBM Indústria Máquinas e Serviços Ltda. (“IBM”). Following execution of this agreement, the hardware and software supporting activities, currently provided by Scopus Tecnologia Ltda. (“Scopus Serviços”), will now be provided by IBM, which will take over the operational structure of Scopus Serviços and all supporting and maintenance agreements signed between Scopus Serviços and their other customers.

The information technology solution and innovation advisory activities currently developed by Scopus Serviços will now be served by Scopus Soluções em TI S.A., (“Scopus Soluções”) whose capital stock will continue to be fully held by us, which, in turn, will continue to hold the ownership of the Scopus brand.

In May 2014, we, together with, Banco do Brasil incorporated a company named Livelo S.A. (“LIVELO”), whose purpose is to develop a coalition rewards program, enabling customers to earn and redeem points from a number of partners.

In April 2014, we, together with Banco do Brasil, via our joint venture Companhia Brasileira de Soluções e Serviços (“CBSS”), and in partnership with Cielo, created the company STELO S.A. (“STELO”), an electronic payment company responsible for managing, operating and exploring the payment facilitator industry geared towards e-commerce, as well towards digital portfolio businesses.

BRAM has developed important alliances with internationalization as part of its strategy, expanding the number of fund platforms through which its investment funds are distributed in the European, Latin American and Asian markets. Through personal management and investment advisory agreements, we have offered Brazilian investors the opportunity to invest in global equity funds, with a focus on the U.S., Europe, Latin America (excluding Brazil) and Asia. In the United States, by means of its BRAM US LLC subsidiary, BRAM has been marketing fixed income and floating rate income funds; with Latin American assets directed at US investors since the end of 2013. In Europe, BRAM offers overseas investors funds domiciled in Luxemburg with different strategies under the Bradesco Global Funds family, launched in 2009. In Japan, Mitsubishi Kosukai UFJ Asset Management (“MUKAM”), our partner, offers Fixed Income Funds and Equity Funds managed by BRAM since 2008 to retail investors wishing to invest in the Brazilian market.

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4.A. History and Development of the Company

Form 20-F 

Business strategy

The key elements of our strategy are: (i) consolidating and expanding our position as one of the leading financial institutions and insurance providers in Brazil; (ii) maximizing shareholder value; and (iii) maintaining high corporate responsibility and sustainability standards.

We intend to pursue the following strategies to reach these goals:

Consolidate and build upon our service network and brand as one of the leading financial institutions and insurance providers in Brazil, which offers a complete portfolio of products and services to all levels of society.

We believe that our position as one of the leading financial institutions in Brazil, with a presence in all Brazilian regions through a broad network of distribution channels and with exposure to individuals of all income levels as well as large, mid‑sized and small businesses, will allow us to maintain the organic growth strategy. We will also continue to expand the insurance, pension and capitalization bonds business segment, in order to consolidate our leadership in this sector. As part of this strategy, we intend to increase the sales of our traditional banking, insurance, pension and capitalization bonds products through our wide branch network, our internet distribution services and other distribution channels. We are committed to investing significantly in our IT platform to support such growth. In addition, we intend to continue to leverage our relationships with corporate clients and high-income individuals to further develop our investment banking, private banking and asset management operations through Bradesco BBI, Banco Bradesco Europa, Bradesco Securities and other subsidiaries in Brazil and other key financial centers such as London, New York, Hong Kong and Tokyo.

Maintain asset quality and operational risk levels.

We are focused on sustainable growth to ensure our standards in relation to our asset quality and risk levels. We intend to maintain the quality of our loan portfolio by continuously improving our delinquency risk models, ensuring better results in credit granting and appropriate provisions for incurred losses. Our strategy involves maintaining our existing policy for our insurance business of careful evaluation of risk spreads through robust actuarial analysis, while entering into reinsurance agreements with well-known reinsurers to reduce exposure to large risks.

With respect to risk management, we intend to continue our integrated approach that utilizes a centralized method for identifying, measuring, controlling, monitoring and mitigating credit, market, liquidity and operational risks. We intend to continue to use specialized risk management committees in relation to the adoption of institutional policies, operational guidelines and the establishment of limits for risk exposure in accordance with best international practices, with the aim of maintaining operational risk levels within adequate boundaries.

Complement organic growth with strategic alliances and pursue selective acquisitions.

To complement our organic growth strategy, we constantly seek opportunities for strategic alliances and selective acquisitions to consolidate our position as one of the leading financial institutions in Brazil and to expand our presence in growth markets such as consumer financing, investment banking, broker dealing and insurance. The acquisition of HSBC Brasil was the largest ever in our history and we expect an expansion of our operations, in particular, of profitable businesses and with low capital needs. In addition, we believe our strategic partnership with Banco do Brasil and Caixa in relation to credit, debit and pre-paid cards for checking account holders and non-account holders is an example of such a growth opportunity. Similarly, our merger with Odontoprev S.A. has increased our presence in the segment of dental care plans enabling us to consolidate our leadership position in the insurance market. We will continue to focus on asset quality, potential operating synergies, sale and acquisition of know-how to maximize return for our shareholders.

Focus on corporate responsibility and sustainability as core principles of our business.        

We believe that corporate responsibility and sustainability are fundamental to our operations and have incorporated the following three principles into our overall strategy: a sustainable financial position, responsible management and investments in social and environmental projects. We are always seeking to develop and incorporate sustainable finance concepts into the process of designing and managing our products and services and in our relationships with clients and suppliers. We believe our admission to the sustainability indexes of both the New York Stock Exchange and B3 represents strong recognition of our success in implementing sustainability principles. As part of this strategy, we will continue to apply social-environmental risk analysis in financing and investment activities in accordance with international practices, including the Equator Principles which we signed up to in 2004. Corporate responsibility has always been one of our core principles as evidenced by the significant investments we have made in education since 1956 through Fundação Bradesco, which is present in every state in Brazil and the Federal District, with 40 schools primarily located in regions of high socioeconomic deprivation. Fundação Bradesco offers quality formal education, free of charge, to children and young people from early childhood to high school as well as professional high school education for young people and adults, as well as initial and continuing education for employment and income.  

26 Form 20-F – December 2016


 
  

Table of Contents

4.B. Business Overview 
Form 20-F 

 

4.B. Business Overview

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

The data for these segments was compiled from reports prepared for Management to assess performance and make decisions on allocating funds for investments and other purposes. Management uses various data, including financial data in conformity with BR GAAP and non-financial metrics compiled on different bases. For further information on differences between the results on a consolidated basis and by segment, see "Item 5.A. Operating Results - Results of operations for the year ended December 31, 2016 compared with the year ended December 31, 2015” and "Item 5.A. Operating Results - Results of operations for the year ended December 31, 2015 compared with the year ended December 31, 2014.”

As of December 31, 2016, according to the sources cited in parentheses below, we were:

·      one of the leading banks in terms of savings deposits, with R$97.1 billion, accounting for 14.4% of Brazil's total savings deposits (Central Bank);

·      one of the leaders in BNDES onlendings, with R$7.7 billion in disbursements (BNDES);

·      the leader in volume of bank payment processing and collection services in Brazil (Central Bank);

·      one of the leaders in automobile financing loans, with a market share of 13.8% (Central Bank);

·      the leading bank in benefit payments from the INSS, with over 10.2 million INSS retirees, beneficiaries and other pensioners, accounting for 30.1% of the total number of INSS beneficiaries (INSS);

·      one of the leaders in leasing operations in Brazil, with an outstanding amount of R$2.8  billion; through our subsidiary Bradesco Leasing S.A. Arrendamento Mercantil, or “Bradesco Leasing” (ABEL);

·      Brazil’s largest private fund and investment manager, through our subsidiary BRAM, with R$609.7 billion in assets under management (ANBIMA), taking into account managed portfolios;

·      industry leader in third-party asset management, with R$567.9 billion in managed assets, in addition to R$188.6 billion in assets managed though our subsidiary and BEM, specialized in trust, custody and controllership of asset management services (ANBIMA);

·      the leader in number of outstanding purchasing consortium quotas, through our subsidiary Bradesco Administradora de Consórcios Ltda., or “Bradesco Consórcios,” with 1,334,239 quotas in three segments, including: (i) automobiles, with 1,032,064 quotas; (ii) real estate, with 248,218 quotas, and (iii) trucks/tractors/machinery and equipment, with 53,957 quotas (Central Bank); and

·      the largest company operating in the Brazilian insurance market, operating in all lines of this segment, with a 25.4% market share (SUSEP/ANS), through Grupo Bradesco Seguros, which mainly comprises: Bradesco Seguros S.A., or “Bradesco Seguros” and its subsidiaries: (i) Bradesco Vida e Previdência S.A., or “Bradesco Vida e Previdência;” (ii) Bradesco Capitalização S.A., or “Bradesco Capitalização;” (iii) Bradesco Auto/RE Companhia de Seguros S.A., or “Bradesco Auto/RE;” and (iv) Bradesco Saúde S.A., or “Bradesco Saúde.” The Group’s total revenues in 2016 were R$71.4 billion in insurance premiums, pension plan contributions and capitalization bond income.

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4.B. Business Overview

Form 20-F 

The main awards and acknowledgments that we received in 2016 are as follows:

·      the most valuable brand in Brazil in the last 10 years, according to the ranking published by IstoÉ Dinheiro magazine in partnership with consultancy firm Kantar Vermeer, a division of the British WPP group;

·      the bank is in the ranking of the 25 Most Valuable Brazilian Brands of 2016 (Interbrand, a consultancy specialized in brands);

·      Bradesco BBI was awarded the title of best investment bank of Brazil in 2016 in the 17th edition of "Best Investment Banks of the world" (Global Finance magazine);

·      best manager in short-term funds and shares (FGV);

·      leading the rankings for large companies most featured in editions of the yearbook "Valor Carreira," considered, 12 times out of the 14 editions on the workplace, the best in people management (Valor Econômico newspaper in partnership with Aon-Hewitt);

·      voted, for the fifth consecutive time, as the "best bank in the country," and Bradesco BBI was recognized for the second time as the "best investment bank in Brazil" in the edition of "Awards for Excellence 2016" (Euromoney magazine);

·      awarded “Best Bank of the Year” in efinance 2016 (Executivos Financeiros magazine), with 14 awards;

·      BRAM received from Standard & Poor's the level AMP-1 (very strong), which is the highest in the scale of quality management of S&P Global Ratings;

·      featured in the "Global Finance 2016" awards, receiving two awards: “Receba Fácil,” in the Trade Finance category and “Novo Net Empresa” for cell phones, in the Transaction Services (Global Finance magazine) category;

·      for the 17th time, it was part of the list of “150 Melhores Empresas para Trabalhar no Brasil” ("150 Best Companies to Work For in Brazil"), (Época magazine, in partnership with the Great Place to Work Institute);

·      awarded for the 1st time the Premios Latinoamérica Verde, in the Sustainable Finance category, with a case of Financial Inclusion and Sustainable Development in the Amazon. The prize, promoted by CAF – Development Bank of Latin America;

·      best profitability and payment of dividends, in the banking sector, to shareholders in Latin America and in the USA (preferred shares), leading, again, the ranking of dividend yield;

·      largest private-sector business group award (Grandes Grupos yearbook/Valor Econômico newspaper);

·      led the growth in “Market Value” among all financial institutions listed on the Stock Exchange (Economatica / Exame);

·      winner of the 18th annual Abrasca award with the “Best Annual Report,” in the “Public Company” category – companies with revenues equal to or greater than R$3 billion;”

·      leader of the “Folha Top of Mind’ survey, in the “Top Finances” category, as one of the most remembered brands in savings, health insurance, insurance, and credit cards (Datafolha);

·      featured in the “The Best in Personnel Management” survey (Valor Econômico newspaper with technical support from Aon); and

·      leader of the financial sector list in the “The Best Companies for the Consumer” award, in the categories “Banks, Banks and Financial Services – Cards and Insurance” (Época magazine).

Revenues per business segment

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

28 Form 20-F – December 2016


 
 

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4.B. Business Overview 
Form 20-F 

 

Years Ended December 31,

R$ in thousands

2016

2015

2014

Banking

 

 

 

Interest and similar income from loans and advances (1)

77,141,672

69,877,296

62,634,879

Fees and commissions

20,696,785

19,195,003

17,570,839

Insurance and pension plans

 

 

 

Premiums retained from insurance and pension plans

65,027,122

58,760,780

50,454,983

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

 

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

We do not break down our revenues by geographic regions within Brazil, and less than 3.0% of our revenues come from international operations. For more information on our international operations, see "International banking services."

Banking

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

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

 

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4.B. Business Overview

Form 20-F 

The following table shows selected financial data for our banking segment for the periods indicated.

 

Year ended December 31,

Banking - R$ in thousands

2016

2015

2014

Statement of Income data

 

 

 

Net interest income

49,156,109

46,934,849

43,034,717

Impairment of loans and advances

(18,829,460)

(16,479,985)

(10,432,347)

Other income/(expenses) (1)

(13,034,164)

(31,200,150)

(21,285,902)

Income before income taxes

17,292,485

(745,286)

11,316,468

Income tax and social contribution

(7,995,420)

12,621,169

(771,896)

Net income for the year

9,297,065

11,875,883

10,544,572

Net income attributable to controlling shareholders

9,293,766

11,874,609

10,532,724

Net income attributable to non-controlling interest

3,299

1,274

11,848

Statement of Financial Position data

 

 

 

Total assets

921,916,290

894,579,942

872,867,916

Selected results of operations data

 

 

 

Interest and similar income

 

 

 

Loans and advances to banks

8,689,347

8,031,038

8,569,988

Loans and advances to customers

68,452,325

61,846,258

54,064,891

Financial assets

35,709,708

32,283,414

24,899,632

Compulsory deposits with the Central Bank

5,667,516

4,587,412

4,277,351

Other financial interest income

66,210

58,905

46,598

Interest and similar expenses

 

 

 

Deposits from banks

(30,542,950)

(31,212,421)

(26,429,261)

Deposits from customers

(15,462,989)

(12,392,644)

(11,903,447)

Funds from securities issued

(17,124,503)

(11,597,283)

(6,703,975)

Subordinated debt

(6,298,555)

(4,669,830)

(3,787,060)

Net interest income

49,156,109

46,934,849

43,034,717

Net fee and commission income

20,696,785

19,195,003

17,570,839

Note: Inter segment transactions have not been eliminated.

(1) For additional information, see "Item 5.A. Operational Results".

 

 

30 Form 20-F – December 2016


 
  

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4.B. Business Overview 
Form 20-F 

Products and banking services

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

·      deposit-taking with clients, including checking accounts, savings accounts and time deposits;

·      loans and advances (individuals and companies, housing loans, microcredit, onlending BNDES/Finame, rural credit, leasing, among others);

·      credit cards, debit cards and pre-paid cards;

·      cash management solutions;

·      public authority solutions;

·      asset management;

·      services related to capital markets and investment banking activities;

·      intermediation and trading services;

·      capital markets solutions;

·      international banking services;

·      import and export financing; and

·      consortiums.

Deposit-taking with clients

We offer a variety of deposit products and services to our customers mainly through our branches, including:

·      Non-interest-bearing checking accounts, such as:

- Easy Account (Conta Fácil) – Target market: Individuals and companies that have a checking account and a savings account under the same bank account number, using the same card for both accounts;

- Click Account (Click Conta) – Target market: checking accounts for young people from 11 to 17 years of age, with exclusive website and debit card, automatic pocket money service and free online courses, among other benefits; and

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

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

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

As of December 31, 2016, we had 26.8 million checking account holders, 25.2 million of which were individual account holders and 1.6 million of which were corporate account holders. As of the same date, we had 62.1 million savings accounts.

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

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4.B. Business Overview

Form 20-F 

 

December 31,

R$ in thousands, except %

2016

2015

2014

Deposits from customers

 

 

 

 

 

 

Demand deposits

32,521,234

14.0%

23,012,068

11.8%

32,086,299

15.3%

Reais

30,936,451

13.3%

21,122,202

10.9%

31,113,116

14.8%

Foreign currency

1,584,783

0.7%

1,889,866

1.0%

973,183

0.5%

Savings deposits

97,088,828

41.7%

91,878,765

47.2%

92,154,815

43.9%

Reais

97,088,828

41.7%

91,878,765

47.2%

92,154,815

43.9%

Time deposits

103,137,867

44.3%

79,619,267

40.9%

85,790,391

40.8%

Reais

87,286,295

37.5%

53,932,917

27.7%

56,998,851

27.1%

Foreign currency

15,851,572

6.8%

25,686,350

13.2%

28,791,540

13.7%

Total

232,747,929

100.0%

194,510,100

100.0%

210,031,505

100.0%

 

 

32 Form 20-F – December 2016


 
  

Table of Contents

4.B. Business Overview 
Form 20-F 

Loans and advances to customers

The following table shows loans and advances to customers broken down by type of product and period:

December 31,

R$ in thousands

2016

2015

2014

Loans and advances to individuals outstanding by type of operation

 

 

 

Other loans and advances to individuals

84,165,325

80,070,794

79,827,931

Housing loans

60,458,038

48,114,515

40,103,169

Onlending BNDES/Finame

35,816,560

38,158,108

42,168,754

Other corporate loans and advances

107,951,154

107,047,136

102,310,327

Rural loans

14,422,799

13,710,274

17,057,992

Leasing

2,738,611

3,072,777

4,319,149

Credit cards

37,407,733

30,943,428

28,072,447

Import and export financings

49,123,653

49,206,636

35,336,912

Total

392,083,873

370,323,668

349,196,681

 

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

December 31,

2016

2015

2014

Borrower size

 

 

 

Largest borrower

2.3%

2.8%

2.0%

10 largest borrowers

8.5%

9.2%

6.9%

20 largest borrowers

12.6%

13.3%

10.0%

50 largest borrowers

18.5%

19.5%

14.2%

100 largest borrowers

23.0%

23.8%

17.8%

 

Other loans and advances to individuals

Our significant volume of individual loans enables us to avoid concentration on any individual loans on the performance of our portfolio and helps build customer loyalty. They consist primarily of:

·      personal loans with pre-approved overdraft facilities to be obtained through our branches, ATM network, call center, mobile and internet banking, with average repayment terms in four months with an average interest rate of 8.1% per month as of December 31, 2016. It also includes payroll-deductible loans to INSS pension plan beneficiaries and retirees and public servants and private sector employees;

·      vehicle financings with average repayment terms of 12 months with an average interest rate of 1.7% per month as of December 31, 2016; and

·      overdraft loans on checking accounts - "cheque especial," with average repayment terms of one month, at interest rates varying from 12.7% to 13.6% per month as of December 31, 2016.

As of December 31, 2016, we had outstanding personal loans, vehicle financings, and overdraft loans totaling R$84.2 billion, or 21.5% of our portfolio of loans and advances to customers.

Banco Bradesco Financiamentos ("Bradesco Financiamentos") offers direct-to-consumer credit through our extensive network of correspondents in Brazil, which includes retailers and dealers of light and heavy vehicles and motorcycles and payroll-deductible loans to the public and private sectors in Brazil.

Under the “Bradesco Promotora” brand, we offer payroll-deductible loans to INSS retirees and pensioners and public-sector employees (federal, state and municipal), military personnel and private-sector companies sponsoring plans, and other aggregated products (insurance, cards and others).

Housing loans

As of December 31, 2016, we had 162.6 thousand active financing contracts under mortgage or fiduciary disposal of real estate. The aggregate outstanding amount of our housing loans amounted to R$60.5 billion, representing 15.4% of our portfolio of loans and advances to customers.

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

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4.B. Business Overview

Form 20-F 

Financing for the acquisition of residential real estate has a maximum term of up to 30 years and annual interest rates of 10.7% to 12.0% per annum, plus TR, while commercial real estate has a maximum term of up to ten years and annual interest rates of 13.0% to 15.0% p.a. plus TR.

Financing for construction, also known as the Businessman Plan, has a construction term of up to 36 months and interest rate of 12.0% to 16.0% per annum, plus TR, and a six-month grace period for the realization of transfers to borrowers. However, if the debt is not paid in full through the transfer of loans to the buyers of the units after construction is finished, the remaining balance must be paid by the builder within 36 months and at TR plus 16.0% to 18.0% per annum.

Central Bank regulations require us to provide at least 65.0% of the balance of savings accounts in the form of housing loans; 24.5% in compulsory deposit requirement and 5.5% in additional compulsory deposit requirement. The remaining balance should be allocated to cash and cash equivalents and/or other operations according to regulations in force.

BNDES onlending/FINAME

The government has certain products and programs to provide government-funded long-term loans with below-market or subsidized interest rates, focusing on economic development. We are structuring agents of BNDES funds, which is the development bank of the Brazilian government.  We then on-lend these funds to borrowers in several sectors of the economy. We determine the spread on some of the loans based on the borrowers' credit. Although we bear the risk for these BNDES and FINAME onlending transactions, these transactions are always secured.

According to BNDES, in 2016, we disbursed R$7.7 billion, 46.2% of which was loaned to micro, small and medium-sized companies. Our BNDES onlending portfolio totaled R$35.8 billion as of December 31, 2016, and accounted for 9.1% of our portfolio of loans and advances to customers at that date.

Other corporate loans and advances

 

We provide traditional loans for the ongoing needs of our corporate customers. As of December 31, 2016, we had R$108.0 billion of outstanding other local commercial loans, accounting for 27.5% of our portfolio of loans and advances to customers. We offer a range of loans to our corporate customers based in Brazil, including:

·      short-term loans of 29 days or less;

·      working capital loans to cover our customers' cash needs;

·      guaranteed checking accounts and corporate overdraft loans;

·      discounting trade receivables, promissory notes, checks, credit card and supplier receivables, etc.;

·      financing for purchase and sale of goods and services; and

·      investment lines for acquisition of assets and machinery.

These lending products generally bear interest at a rate of 1.7% to 13.2% per month.

In addition to these loans, we also offer guarantees, which are a contractual commitment, in which we guarantee the fulfillment of the obligations to our customers (debtors) before third parties (beneficiaries).

Rural credit

We extend loans to the agricultural sector financed by compulsory deposits, or the Amount Subject to Compulsory Deposit Requirement (“VSR”), BNDES onlendings and our own funds, in accordance with Central Bank regulations. As of December 31, 2016, we had R$14.4 billion in outstanding rural credit, representing 3.7% of our portfolio of loans and advances to customers. In accordance with Central Bank regulations, loans arising from compulsory deposits are paid a fixed rate. The annual fixed rate was 9.5%, on average, as of December 31, 2016. Repayment of these loans generally coincides with agricultural harvest and principal is due when a crop is sold. For BNDES onlending for rural investment the term is no more than ten years with repayments on a semi-annual or annual basis. As security for such loans, we generally obtain a mortgage on the land where the agricultural activities being financed are conducted.

Since July 2012, Central Bank regulations require us to use at least 34.0% of the annual average (from June through May) of our VSR to provide loans to the agricultural sector.

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4.B. Business Overview 
Form 20-F 

Leasing

According to ABEL, as of December 31, 2016, our leasing companies were among the sector leaders, with a 19.7% market share. According to this source, the aggregate discounted present value of the leasing portfolios in Brazil as of December 31, 2016 was R$14.1 billion.

As of December 31, 2016, we had 20,094 outstanding leasing agreements totaling R$2.7 billion, representing 0.7% of our portfolio of loans and advances to customers.

The Brazilian leasing market is dominated by financial institutions, including companies affiliated with Brazilian and foreign manufacturers. Brazilian lease contracts generally relate to motor vehicles, computers, industrial machinery and other equipment.

Most of our leasing operations are financial (as opposed to operational). Our leasing operations primarily involve the leasing of trucks, cranes, aircraft, ships and heavy machinery. As of December 31, 2016, 50.7% of our outstanding leasing operations were for vehicles.

We conduct our leasing operations through our primary leasing subsidiary, Bradesco Leasing and also through Bradesco Financiamentos.

We obtain funding for our leasing operations primarily by issuing debentures and other securities in the domestic market.

As of December 31, 2016, Bradesco Leasing had R$101.9 billion of debentures outstanding in the domestic market. These debentures will mature in 2032 and bear monthly interests at the interbank interest rate (“CDI rate”).

Terms of leasing agreements

Financial leases represent a source of medium and long-term financing for Brazilian customers. Under Brazilian law, the minimum term of financial leasing contracts is 24 months for transactions relating to products whose average life of five years or less, and 36 months for transactions for those with an average useful life of five years or more. There is no legal maximum term for leasing contracts. As of December 31, 2016, the remaining average maturity of contracts in our lease portfolio was approximately 57 months.

Targeted Production Microcredit

We offer a product named “targeted production microcredit” to formal and informal entrepreneurs, in accordance with Central Bank regulations requiring banks to use 2.0% of their cash deposits to provide microcredit loans. As of December 31, 2016, we had 10,009 microcredit loans outstanding, totaling R$23.4 million.

In accordance with Central Bank regulations, consumer microcredit operations are charged up to a maximum effective interest rate of 2.0% per month. However, microcredit loans for certain types of business or specific products (“microcrédito produtivo orientado”) have a maximum effective interest rate of up to 4.0% per month. The CMN requires that the maximum amount loaned to a borrower be limited to (i) R$2,000 for low income individuals in general (consumer microcredit); (ii) R$5,000 for individuals or legal entities engaged in a productive activity of professional, commercial or industrial nature, provided that the sum of the value of the operation and the balance of other credit operations does not exceed R$40,000; and (iii) R$15,000 for our microcrédito produtivo orientado transactions. In addition, microcredit loans may not be for less than 120 days, and the origination fee must be up to 2.0% of the loan value for individuals and up to 3.0% for microentrepreneurs[...].

Credit cards

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

We earn revenues from our credit card operations through:

·      fees on purchases carried out in commercial establishments;

·      issuance fees and annual fees;

·      interest on credit card balances;

·      interest and fees on cash withdrawals through ATMs; and

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4.B. Business Overview

Form 20-F 

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

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

·      cards issued for use restricted to Brazil;

·      credit cards accepted nationwide and internationally;

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

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

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

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

·      private label credit cards, which we only offer to customers of retailers, designed to increase business and build customer loyalty for the corresponding retailer, which may or may not have a restriction on making purchases elsewhere, among others.

We hold 50.01% of the shares of Elopar, an investment holding company which investments include Alelo (benefit cards, pre-paid and money card), Livelo (coalition loyalty program), Stelo (digital portfolio for online purchases), as well as participations in Elo Serviços (brand) and Banco CBSS and Ibi Promotora (stores for sales of cards, personal credit, consigned credit and other products). We hold 30.06% of the shares of Cielo S.A.

We also have a card business unit abroad, Bradescard Mexico, which has a partnership with C&A and also with Suburbia stores of the Walmex Group and the LOB and Bodega Aurrera store chains.

With the acquisition of HSBC Brasil, our credit card portfolio was expanded, consolidating our position in the domestic financial market.

As of December 31, 2016, we had several partners with whom we offered co-branded, affinity and private label/hybrid credit cards. These relationships have allowed us to integrate our relationships with our customers and offer our credit card customers banking products, such as financing and insurance.

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

 

 

In millions

2016

2015

2014

Volume traded - R$

159,172.5

140,063.8

131,999.9

Number of transactions

1,784.0

1,530.3

1,423.4

 

Import and Export Financing

For information on Import and Export Financing, see "Item 4.B. Business Overview – Foreign branches and subsidiaries.”

Cash Management Solutions

Management of accounts payable and receivable - In order to meet the cash management needs of our customers in both public and private sectors, we offer many solutions for managing accounts payable and receivable, supported by our network of branches, bank correspondents and electronic channels, all of which aim to improve speed and security for customer data and transactions. The solutions provided include: (i) receipt and payment services and (ii) resource management, enabling our customers to pay suppliers, salaries, and taxes and other levies to governmental or public entities. These solutions, which can also be customized, facilitate our customers' day-to-day tasks and help to generate more business. We also earn revenues from fees and investments related to collection and payment processing services and, also by funds in transit received up to its availability to the related recipients.

Solutions for receipts and payments - In 2016, we processed 1.6 billion receipts, for the payment of taxes, utility bills (such as water, electricity, telephone and gas), checks custody service, identified deposits and credit orders via our credit order by teleprocessing system “OCT.” In 2016, the number of documents processed through virtual means (Pag-For Bradesco, Net Empresa and Online Tax Payment) was 862 million.

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4.B. Business Overview 
Form 20-F 

Global Cash Management - Global Cash Management aims at structuring solutions to foreign companies operating in the Brazilian market and Brazilian companies making business in the international market. By way of customized solutions, partnerships with international banks and access to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network, we offer products and services for carrying out the cash management of these companies.

Niche Markets - We operate in various niche markets, such as education, health, condominiums, country clubs, expeditors and driving schools, transportation, franchising, and religion, among others, where our clients have the support of a specialized team with the mission of structuring custom solutions that add value to their business.

As an example, the Franchising & Business niche has a team of franchising specialists that, through their relationship with franchising companies, identify opportunities for financing and providing services to all franchisees and their employees. The partnership with the franchise networks occurs through structured commercial activities in synergy with the managing departments, commercial segments, and affiliated companies. The focus on the peculiarities of this sector creates a competitive and sustainable position by structuring appropriate solutions and, in particular, through the strategy of providing differentiated and specialized service. We have approximately 400 agreements in place with franchising companies, generating numerous opportunities to open new current accounts and leveraging business with the respective franchisees.

Another important feature in this area is the support we provide towards the development of Local Production Arrangements (“APLs”), by providing service to businesses and assistance to these clients. Participating in an APL strengthens the companies, because together they can form an articulated and important group for local development, allowing for greater competitive and sustainable advantages for micro and small businesses. Currently, we service 417 APLs throughout the country.

 

Public authority solutions

We have a specific area dedicated to serving public administration, which offers specialized services aimed at identifying business opportunities and structuring customized solutions to entities and bodies of the Executive, Legislative and Judiciary branches at federal, state and municipal levels, in addition to independent governmental agencies, public foundations, state-owned and mixed companies, the armed forces (army, navy and air force) and the auxiliary forces (federal and state police forces).

Our exclusive website developed for our customers (www.bradescopoderpublico.com.br) offers corporate solutions for federal, state and municipal governments for payments, receipts, human resources and treasury services. The website also features exclusive facilities for public employees and the military, showing all of our products and services for our customers.

Our relationships with such public authorities are developed and maintained by specialized business managers located in distribution platforms throughout the country, which can be identified on our website.

In 2016, we took part in bidding processes sponsored by the Brazilian government and were successful in 95.0% of these processes. Furthermore, we continue to be leaders in payments of INSS benefits, with more than 10.1 million retirees and pensioners.

Asset management and administration

BRAM manages third-party funds through:

·      mutual funds;

·      individual and corporate investment portfolios;

·      pension funds, including assets guaranteeing the technical provisions of Bradesco Vida e Previdência;

·      insurance companies, including assets guaranteeing the technical provisions of Bradesco Seguros; and

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

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4.B. Business Overview

Form 20-F 

Management of funds and portfolios - On December 31, 2016, BRAM managed 1,235 funds and 210 portfolios, providing services to 3.0 million investors. Among its biggest customers are all the main segments of Bradesco, like Prime, Corporate, Private, Varejo (Retail), Bradesco Empresas (for more information on our segmentation, see “Segmentation of clients”) and Grupo Bradesco Seguros, in addition to institutional investors in Brazil and abroad, and various family offices.

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

Equity under Management by Type of Investment
as of December 31,

R$ in thousands

2016

2015

Investment Funds

 

 

Fixed income

519,945,330

364,942,372

Variable income

7,108,509

2,956,294

Third party share funds

42,432,619

27,917,866

Total

569,486,458

395,816,532

Managed Portfolios

 

 

Fixed income

33,083,205

32,797,032

Variable income

7,097,555

4,896,936

Total

40,180,760

37,693,968

Overall Total

609,667,218

433,510,500

 

As of December 31,

2016

2015

Number

Quotaholders

Number

Quotaholders

Investment Funds

1,235

3,005,799

927

2,672,593

Managed Portfolios

210

210

146

95

Overall Total

1,445

3,006,009

1,073

2,672,688

 

Administration of funds and portfolios - On December 31, 2016, BEM and us administered 2,656 funds and 306 portfolios, providing services to 3.0 million investors. These funds comprise a wide group of fixed-income, non-fixed income, investments abroad and multimarket funds, among others.

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

38 Form 20-F – December 2016


 
  

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4.B. Business Overview 
Form 20-F 

Equity under Administration by Type of Investment
as of December 31

R$ in thousands

2016

2015

Investment Funds

 

 

Fixed income

669,657,368

485,125,394

Variable income

31,389,907

21,295,410

Third party share funds

7,710,418

3,922,457

Total

708,757,693

510,343,261

Managed Portfolios

 

 

Fixed income

33,083,205

32,797,032

Variable income

7,097,555

4,896,936

Third party share funds

7,550,131

2,246,577

Total

47,730,891

39,940,545

Overall Total

756,488,584

550,283,806

 

As of December 31,

2016

2015

Number

Quotaholders

Number

Quotaholders

Investment Funds

2,656

3,034,787

2,054

2,710,988

Managed Portfolios

306

1,188

320

1,138

Overall Total

2,962

3,035,975

2,374

2,712,126

 

Our products are mostly distributed through our branch network, banking service by phone and the Internet (www.bradesco.com.br - investments).

Services related to capital markets and investment banking activities

As our investment bank, “Bradesco BBI” originates and executes mergers and acquisitions, and originates, structures, syndicates and distributes fixed-income and equity capital market transactions in Brazil and abroad.

In 2016, Bradesco BBI advised customers on 283 transactions across a range of investment banking products, totaling R$209.8 billion.

Equities and public offerings - Bradesco BBI coordinates and places public offerings of shares in local and international capital markets and intermediates public tender offers. Bradesco BBI ended 2016 with a significant presence in the IPOs and Follow-ons by Brazilian issuers. Bradesco BBI participated as coordinator and joint bookrunner in eight offers, which represented an aggregate volume of R$9.1 billion; Coordinator for the cancellation of DASA’s registration (deal value of R$837.1 million); Coordinator for the takeover of Tempo Participações (deal value of R$318.2 million); Bookrunner in the follow-on of Rumo Logística  (deal value of R$2.6 billion); Bookrunner in the re-IPO of Energisa (deal value of R$1.5 billion); Coordinator for the cancellation of Évora’s registration (deal value of R$110.9 million); Bookrunner in the follow-on of CVC (deal value of R$1.2 billion); Coordinator for the takeover of Alpargatas (deal value of R$499.5 million); and leading Coordinator of SANEPAR bid (deal value of R$2.0 billion).

Fixed income - After having been engaged in a number of transactions throughout the year of 2016, Bradesco BBI closed in 2016 in a strong position in fixed income operations. For the year ending December 31, 2016, Bradesco BBI was the market leader in terms of value, according to ANBIMA’s origination and distribution fixed income ranking. In the period, it coordinated 89 domestic-market offerings totaling more than R$21.8 billion. In the international broker-dealer market, Bradesco BBI is continuously expanding its presence. In 2016, it acted as “joint bookrunner” for 13 bond issues. In 2016, Bradesco BBI won “The Best Investment Bank” in Brazil Award by Euromoney magazine and by Global Finance, in addition to being elected the most innovative bank by The Banker.

Structured operations - Bradesco BBI offers customized financial solutions for its customers in terms of their needs such as: investments, acquisitions, corporate reorganization, share repurchase, improved financial ratios, capital structure streamlining, and assets and risk segregation, by offering a number of funding tools to companies. Additionally, Bradesco BBI has a strong presence in the acquisition finance segment and in securitization (CRIs - Certificates of Real Estate Receivables, CRAs - Certificates of Agribusiness Receivables and FIDCs – Fundos de Investimento em Direitos Creditórios). In 2016, Bradesco BBI also held a leading position in the securitization ranking published by ANBIMA, as a result of structuring 25 operations with a total value of R$4.1 billion.

39 Bradesco


 
 

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4.B. Business Overview

Form 20-F 

Mergers and acquisitions - Bradesco BBI provides advisory services to important customers in merger, acquisition, including corporate sale transactions, private placements, forming joint ventures, financial and corporate restructuring, and privatizations. In 2016, Bradesco BBI was rated as the leader in the ranking of mergers and acquisitions in Brazil, as disclosed by ANBIMA. During the year, Bradesco BBI advised on 17 transactions with a disclosed value of R$70.3 billion.

Project finance - Bradesco BBI has a solid background as financial advisor and structuring agent for a number of projects involving project and corporate finance, seeking to optimize financing solutions for projects across various industries through both credit and capital markets. As of December 31, 2016, Bradesco BBI was involved in providing financial advice and structuring for approximately 154 projects totaling R$108.7 billion in investments.

Intermediation and trading services

Bradesco S.A. CTVM, or "Bradesco Corretora," operates in the financial market, and has as its objective the mediation of the purchase and sale of shares, commodities futures contracts, financial assets, indexes, options, share rental, and forward contracts, in the primary and secondary market. It also offers a wide range of products such as Investment Clubs, government securities through Tesouro Direto (Treasury Direct), and is admitted to negotiations in B3 and in the organized over-the-counter market, which are tailored to the needs of high net-worth individuals, major corporations and institutional investors.

In 2016, Bradesco Corretora traded R$171.0 billion in the B3 equities market and the exchange ranked it 7th in Brazil in terms of total trading volume.

In addition, in the same period, Bradesco Corretora traded 25.4 million futures, terms, swaps and options totaling R$2.2 trillion on the B3. In 2016, Bradesco Corretora ranked 14th in the Brazilian market, in relation to the number of futures contracts, terms, swaps and options executed.

Bradesco Corretora was awarded by B3, within the Operational Qualifying Program (PQO), four excellence seals (Carrying Broker, Agro Broker, Retail Broker and Execution Broker), indicating the high quality of its future market transactions. Bradesco Corretora is also certified by CETIP (Clearing House for the Custody and Financial Settlement of Securities, currently “B3”).

Bradesco Corretora offers its clients the possibility to trade securities on the Internet through its "Home Broker" service. In 2016, "Home Broker" trading totaled R$14.6 billion, or 1.9% of all Internet transactions on B3, and Bradesco Corretora was the 15th largest Internet trader in the Brazilian market.

Bradesco Corretora has a full range of services in investment analysis with coverage of the main sectors and companies of the Brazilian market. With a team of 33 analysts, it is composed of sector specialists who fairly disclose their opinions to the customers by way of follow-up reports and instruction guides, with a wide range of projections and comparison multiples. Bradesco Corretora also has a team of its own economists dedicated to the customers' specific demands, focused on the stock market. Over 500 reports, in English and Portuguese, are forwarded on a monthly basis to the most important investors domiciled in Brazil, the United States, Europe and Asia.

Bradesco Corretora also operates through Bradesco Corretora offices located throughout Brazil. This is another service channel, where certified professionals guide clients interested in performing the purchase and sale of shares and other products.

Bradesco Corretora offers its services as a representative of non-resident investors for transactions in the financial and capital markets, in accordance with CMN Resolution No. 4,373/14. For more details of CMN Resolution No. 4,373/14, see "Item 10.D. Exchange Controls."

Capital markets solutions

In 2016, we were one of the main providers of capital markets services and we maintained our leadership position in the domestic market according to the ANBIMA’s ranking of custody of assets.

Among the main services we offer in this segment, we highlight: qualified custody of securities for investors and issuers, administrators of investment funds, clubs and managed portfolios; bookkeeping of securities (shares, BDRs - Brazilian Depositary Receipts, quotas of investment funds, CRIs - Certificates of Real Estate Receivables and debentures); custody of shares backed by DR - Depositary Receipts, loan of shares, liquidating bank, depositary (Escrow Account - Trustee), clearing agent, tax and legal representation for non-resident investors, and fiduciary administration for investment funds.

We have twelve Quality Management System ISO 9001:2008 certifications and three data protection GoodPriv@cy certifications. We also hold an ISAE 3402 (International Standard on Assurance Engagements) certification, which comprises assurance reports on controls at a service organization under international standards. These certifications expand the structures of controls, increasing the level of effectiveness and quality of processes.

40 Form 20-F – December 2016


 
 

Table of Contents

4.B. Business Overview 
Form 20-F 

As of December 31, 2016, the set of the services provided by us, which we call “Bradesco Custódia” was composed of:

·      custody and controllership services for investment funds and managed portfolios involving:

·           R$1.3 trillion in client assets under custody;

·           R$1.9 trillion in total shareholders’ equity of investment funds and managed portfolios which used our controllership services; and

·           R$83.4 billion in market value, related to 23 ADR programs and 4 GDR (Global Depositary Receipts) programs.

·       fiduciary administration for third party funds:

·           R$298.3 billion total shareholders’ equity of third-party investment funds under fiduciary administration by BEM.

·      securities bookkeeping:

·           242 member companies of the Bradesco Book-entry Stock System, with 4.3 million shareholders;

·           327 companies with 441 issues in the Bradesco’s Book-Entry debentures system (value of R$319.7 billion);

·           681 investment funds in the Bradesco Book-Entry Wuotas System (value of R$71.1 billion); and

·           we managed 36 BDR (Brazilian Depositary Receipts) programs, with a market value of R$2.1 billion.

·      depositary (Escrow Account)

·           10,882 contracts, with a financial volume of R$15.2 billion.

In December 2014, the CVM issued Instruction No. 555/14 which regulates the establishment, management, operation, and disclosure of information on investment funds, fully repealing Instruction No. 409/04. Said Instruction came into effect in October 2015 and granted an adaptation period of regulations of pre-existing funds until June 2016. In this period, several investment funds were adapted, managed by BEM and by us.

In March 2015, the CVM published Instruction No. 558/15, which repealed Resolution No. 142/92 and Instructions Nos. 306/99, 364/02, and 448/07. This Instruction establishes the minimum requirements for the professional exercise of securities portfolio management and came into effect in January 2016with a transitional period expiring in June 2016. As a result of the provisions of this standard, in accordance with our governance policies, we established that BRAM would be responsible for managing funds and that we would be responsible for the provision of fiduciary management services and BEM.

In July 2016, the CVM issued Instruction No. 577/16, which amends the Accounting Plan of Investment Funds (“COFI”), as an appendix of Instruction No. 438/06, from July 2006. This instruction came into effect on its date of issue, applied to the fiscal years beginning in or after January 2017. As a result of the provisions of this instruction, all existing assets in investment fund portfolios regulated by Instruction No. 555/14 are evaluated at fair value.

In August 2016, the CVM amended the rules governing private equity investment funds by issuing Instructions Nos. 578/16 and 579/16, which deal respectively with the establishment, operation, management, and preparation and disclosure of the financial statements of these funds. These standards fully repeal Instructions Nos. 209/94, 225/94, 236/95, 253/96, 278/98, 363/02, 368/02, 391/03, 406/04, 453/07, 460/07, 496/11, 501/11, 535/13, 540/13, and some provisions of Instructions Nos. 435/06, 450/07, and 498/11. According to Instruction No. 578/16, private equity funds may invest in overseas funds, acquire simple debenture, and make an advance for future capital increase. Pre-existing funds must adapt their regulations by August 2017 or earlier, in the event of a public or restricted offer of shares. The Instruction No. 579/16 came into effect on its date of issue, applied to the accounting periods beginning in or after January 2017. The main change introduced by this instruction is the concept of an investment entity, determining that funds classified under this condition must evaluate their assets at fair value, and the appraisal report may be drafted by the manager. If it is not an investment entity, assets are to be evaluated according to the equity method of accounting.

41 Bradesco


 
 

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4.B. Business Overview

Form 20-F 

International banking services

As a private commercial bank, we offer a wide range of international services, such as foreign trade finance and foreign currency loans, foreign exchange operations and international sureties, lines of credit and banking. As of December 31, 2016, our international banking services included:

Branches:

·      one in New York City;

·      one in the Cayman Islands; and

·      one in London.

Subsidiaries:

·      one in London: Bradesco Securities U.K., named "Bradesco Securities U.K.;"

·      one in the Cayman Islands: Cidade Capital Markets Ltd., or "Cidade Capital Markets;"

·      one in Argentina: Banco Bradesco Argentina S.A., or "Bradesco Argentina;"

·      one in Luxembourg: Banco Bradesco Europa S.A., or "Bradesco Europe;"

·      one in Japan: Bradesco Services Co. Ltd., or "Bradesco Services Japan;"

·      one in Mexico: Bradescard México, Sociedad de Responsabilidad Limitada, or "Bradescard México;"

·      two in Hong Kong: (i) Bradesco Trade Services Ltd. or "Bradesco Trade;" and (ii) Bradesco Securities Hong Kong or "Bradesco Hong Kong;" and

·      three in New York: (i) Bradesco Securities Inc. or “Bradesco Securities U.S.;” (ii) Bradesco North America LLC or “Bradesco North America;” and (iii) BRAM US LLC.

Our international and foreign exchange department in Brazil coordinates our international transactions with support from 30 operational units specializing in foreign exchange and trade businesses located at major exporting and importing areas nationwide.

Revenues from Brazilian and foreign operations

The table below breaks down revenues (interest and similar income, and fee and commission income) from our Brazilian and foreign operations for the periods shown:

For the years ended December 31,

2016

2015

2014

R$ in thousands

%

R$ in thousands

%

R$ in thousands

%

Brazilian operations

164,975,062

98.2%

141,487,792

97.6%

118,500,386

98.2%

Overseas operations

3,066,400

1.8%

3,417,333

2.4%

2,152,690

1.8%

Total

168,041,462

100.0%

144,905,125

100.0%

120,653,076

100.0%

 

Foreign branches and subsidiaries

Our foreign branches and subsidiaries principally provide financing in foreign currency (particularly foreign trade finance operations) to Brazilian and non-Brazilian customers. Total assets of the foreign branches, excluding intra-group transactions, were R$56.6 billion, as of December 31, 2016, denominated in currencies other than the real.

Funding required for financing or Brazilian foreign trade is primarily obtained from the international financial community, through credit lines granted by correspondent banks abroad. We issued debt securities in international capital markets as an additional source of funding, which amounted to US$1.9 billion in 2016.

The following is a brief description of our subsidiaries abroad:

Bradesco Europa - Through its unit in Luxembourg and its branch in London, it is also dedicated to providing additional services to clients of the private banking segment. As of December 31, 2016, its total assets were R$11.7 billion.

Bradesco Argentina - It was set up with the purpose of granting financing, largely to companies based in Brazil with local establishments and, to a lesser extent, to companies based in Argentina doing business with Brazil. As of December 31, 2016, Bradesco Argentina had R$145.8 million in assets.

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Table of Contents

4.B. Business Overview 
Form 20-F 

Cidade Capital Markets – In February 2002, Bradesco acquired Cidade Capital Markets in Grand Cayman, through to the acquisition of its parent company in Brazil, Banco Cidade. As of December 31, 2016, Cidade Capital Markets had R$134.2 million in assets.

Bradesco Securities (U.S., U.K. and H.K.) - Bradesco Securities, our wholly owned subsidiary, is a broker dealer in the United States, England and Hong Kong:

·      Bradesco Securities U.S. focuses on facilitating the purchase and sale of shares, primarily in the form of ADRs and common shares. It is also an authorized dealer in bonds, commercial paper and deposit certificates, among other securities, and may provide investment advisory services. As of December 31, 2016, Bradesco Securities U.S. had assets of R$113.8 million;

·      Bradesco Securities U.K. focuses on the intermediation of equities and fixed income operations for Brazilian companies with global institutional investors. As of December 31, 2016, Bradesco Securities U.K. had assets of R$26.8 million; and

·      Bradesco Securities H.K. focuses on the trading of ADRs and public and private securities issued by Brazilian companies to global institutional investors. As of December 31, 2016, Bradesco Securities H.K. had assets of R$19.9 million.

BRAM U.S. LLC It manages funds and portfolios of investments dedicated to American investors. On December 31, 2016, its assets totaled R$600 thousand.

Bradesco North America LLC – It serves as a holding company for our investments in non-bank businesses in the United States. As of December 31, 2016, its total assets were R$2.5 million.

Bradesco Services Japan – It was incorporated to provide support and specialized services to the Brazilian community in Japan, including remittances to Brazil and advice regarding investments within Brazil.

Bradesco Trade Services – A non-financial institution and a subsidiary of our branch in the Cayman Islands, which we incorporated in Hong Kong in January 2007, in partnership with the local Standard Chartered Bank.

Bradescard Mexico – The business cards unit maintains a partnership with the chain of C&A stores, and also with the Suburbia stores, of the Walmex Group, and with the chains of LOB and Bodega Aurrera stores. As of December 31, 2016, its assets totaled R$630.5 million.

Banking operations in the United States

In January 2004, the United States Federal Reserve Bank authorized us to operate as a financial holding company in the United States. As a result, we may do business in the United States directly or through a subsidiary, and, among other activities, may sell insurance products and certificates of deposit, provide underwriting services, act as advisors on private placements, provide portfolio management and merchant banking services and manage mutual fund portfolios.

Import and export financing

Our Brazilian foreign-trade related business consists of export and import finance.

In import financing/refinancing, we directly transfer funds in foreign currency to foreign exporters, pegging the payment in local currency by Brazilian importers. In export finance, exporters obtain advances in reais on closing an export forex contract for future receipt of foreign currency on the contract due date. Export finance arrangements prior to shipment of goods are known locally as Advances on Exchange Contracts or "ACCs," and the sums advanced are used to manufacture goods or provide services for export. If advances are paid after goods or services have been delivered, they are referred to as Advances on Export Contracts, or "ACEs."

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

Our foreign trade portfolio is funded primarily by credit lines from correspondent banks. We maintain relations with various American, European, Asian and Latin American financial institutions for this purpose, using our network of approximately 1,503 correspondent banks abroad, 62 of which extended credit/guarantee lines as of December 31, 2016.

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4.B. Business Overview

Form 20-F 

 

As of December 31, 2016, our international unit had a balance of R$45.8 billion in export financing and R$7.4 billion and R$3.9 billion in import financing and international guarantees. The volume of our foreign exchange contracts for exports reached US$29.2 billion in 2016. In the same period, the volume of our foreign exchange contracts for imports reached US$18.2 billion. In 2016, based on Central Bank data, we reached a 16.6% market share of trade finance for Brazilian exports and 14.5% for imports.

 

44 Form 20-F – December 2016


 
 

Table of Contents

4.B. Business Overview 
Form 20-F 

The following table shows the composition of our foreign trade asset portfolio as of December 31, 2016. This portfolio includes operations with and without credit features and off-balance sheet operations:

2016

R$ in thousands

Export financing

 

Advance on foreign exchange contracts – undelivered bills

8,531,125

Advance on foreign exchange contracts – delivered bills

589,599

Export prepayment

14,129,917

Onlending of funds borrowed from BNDES/EXIM

4,161,375

Proex - Rate Equalization Program

39,670

NCE/CCE (Exports Credit Note/Exports Credit Certificates)

18,371,223

Total export financing

45,822,909

Import financing

 

Import financing – foreign currency

4,463,449

Exchange discounted in advance for import credit

2,644,269

Import credit opened

329,015

Total import financing

7,436,733

International guarantees

3,912,721

Total foreign trade portfolio

57,172,363

 

Foreign exchange products

In addition to import and export financing, our customers have access to a range of services and foreign exchange products such as:

·      WEB exchange contracts;

·      collecting import and export receivables;

·      cross border money transfers;

·      advance payment for exports;

·      accounts abroad in foreign currency;

·      domestic currency account for foreign domiciled customers;

·      cash holding in other countries;

·      structured foreign currency transactions: through our overseas units;

·      foreign loans to customers (Decree-Law No. 4,131/62);

·      working capital loans abroad;

·      service agreements – receiving funds from individuals abroad via money orders;

·      prepaid cards with foreign currency (individual and corporate customers);

·      purchasing and selling of foreign currency paper money and traveler’s checks;

·      cashing checks denominated in foreign currency; and

·      clearance certificate (international financial capacity certificate).

Consortia

In Brazil, persons or entities that wish to acquire certain goods may set up a group known as a "consortium.” Consortia in Brazil are made up of pooled funds for the purpose of financing an acquisition. Consortia that are formed for the purchase of real estate, vehicles, trucks/tractors/machines and equipment, have a fixed term and quota, both previously determined by its members, and are run by an administrator.

Bradesco Administradora de Consórcios and Kirton Administradora de Consórcio administer groups of consortia and, as of December 31, 2016, registered total sales of 1,334,239 outstanding quotas; net income of R$1.1 billion; and fees from consortiums of R$1.5 billion. Both companies also administer a total volume of transactions of over R$63.3 billion.

45 Bradesco


 
 

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4.B. Business Overview

Form 20-F 

Insurance, pension plans and capitalization bonds

We offer a range of products and services to our clients, including life, health, accident and vehicles and property insurance, both to individuals and companies; supplementary pension plans, individual and corporate, as well as the capitalization securities, through our extensive distribution network.

The following table shows selected financial data for our insurance, pension plans and capitalization bonds segment for the periods indicated.

As of and for the year ended December 31,

Insurance, pension plans and capitalization bonds - R$ in thousands

2016

2015

2014

Statement of Income data

 

 

 

Net interest income

5,374,229

5,973,694

4,556,146

Other income and expenses (1)

4,190,317

2,539,976

2,742,922

Income before income taxes

9,564,546

8,513,670

7,299,068

Income tax and social contribution

(3,915,822)

(3,192,918)

(2,843,493)

Net income for the year

5,648,724

5,320,752

4,455,575

Net income attributable to controlling interest

5,550,662

5,215,765

4,354,752

Net income attributable to non-controlling interest

98,062

104,987

100,823

Statement of Financial Position data

 

 

 

Total assets

266,642,197

209,789,872

181,949,261

Selected results of operations data

 

 

 

Income from insurance and pension plans

 

 

 

Written premiums

62,470,571

55,920,681

47,745,885

Pension plan contributions

3,679,922

3,795,219

3,724,762

Coinsurance premiums ceded

(70,862)

(88,612)

(135,728)

Premiums returned

(746,244)

(522,309)

(525,895)

Reinsurance premiums

(306,265)

(344,199)

(354,041)

Premiums retained from insurance and pension plans

65,027,122

58,760,780

50,454,983

Changes in the insurance technical provisions and pension plans

(32,781,918)

(28,286,039)

(24,008,174)

Retained claims

(24,542,433)

(21,724,043)

(18,143,688)

Selling expenses for insurance and pension plans

(3,547,008)

(3,254,551)

(2,892,373)

Income from insurance and pension plans

4,155,763

5,496,147

5,410,748

Note: Inter segment transactions have not been eliminated.

(1) For additional information, see "Item 5.A. Operational Results".

 

Insurance products and services

We offer insurance products through different segments, which we refer to collectively as "Grupo Bradesco Seguros." Grupo Bradesco Seguros is leader in the Brazilian insurance market and is present in all regions of the country. It comprises the following companies: Bradesco Auto/RE, Bradesco Capitalização, Bradesco Saúde/Dental, and Bradesco Vida e Previdência, which allows for a wide range of operations in the insurance market. The products offered in the company’s portfolio, divided by segments or client profile, in our service channels are:

·      life and personal accident insurance;

·      health insurance;

·      automobiles, property/casualty and liability insurance;

·      reinsurance;

·      pension plans; and

·      capitalization bonds.

 

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Form 20-F 

Life and personal accident insurance

We offer life and personal accident insurance, as well as insurance against miscellaneous events, such as job loss, through our subsidiary Bradesco Vida e Previdência. As of December 31, 2016, there were 32.0 million life insurance policyholders.

Health insurance

The health insurance policies cover medical/hospital expenses. We offer health insurance policies through Bradesco Saúde and its subsidiaries for small, medium or large companies wishing to provide benefits for their employees.

On December 31, 2016, Bradesco Saúde and its subsidiary Mediservice Administradora de Planos de Saúde S.A (Mediservice) had more than 4.1 million beneficiaries covered by company plans and individual/family plans. Approximately 141 thousand companies in Brazil pay into plans provided by Bradesco Saúde and its subsidiaries, including 43 of the top 100 largest companies in the country.

Bradesco Saúde currently has one of the largest networks of providers of health services in Brazil. As of December 31, 2016, it included 10,221 laboratories, 15,673 specialized clinics, 12,499 physicians and 1,752 hospitals located throughout the country.

Automobiles, property/casualty and liability insurance

We provide automobile, property/casualty and liability insurance through our subsidiary Bradesco Auto/RE. Our automobile insurance covers losses arising from vehicle theft, damage to the passenger and third-party injury. Retail property/casualty insurance is for individuals, particularly those with residential and/or equipment related risks and small- and medium-sized companies whose assets are covered by multi-risk business insurance.

Of the various property/casualty lines for individuals, our residential note ("Bilhete Residencial") is a relatively affordable and highly profitable product. For corporate customers, Bradesco Auto/RE offers Bradesco Seguro Empresarial (business insurance), which is adapted to meet our customers' and business needs. For corporate property/casualty and liability insurance, Bradesco Auto/RE has a specialized team that provides large business groups with services and products tailor-made to the specific needs of each policyholder. Top sellers in this segment are insurance policies for aeronautics, transportation, engineering, named operational and oil risks.

As of December 31, 2016, Bradesco Auto/RE had 1.5 million insured automobiles and 1.7 million property/casualty policies and notes, making it one of Brazil’s main insurers.

Reinsurance

Insurance companies must operate with reinsurers registered with SUSEP. In January 2007, Brazil's Congress enacted Supplementary Law No. 126/07, which abolished IRB-Brasil Re's monopoly and allowed three types of reinsurers referred to as "local," "admitted" and "occasional," thus opening up Brazil's reinsurance market for competition. Reinsurers classified as admitted and eventual, with their head office abroad, must meet specific minimum requirements, as provided for in legislation in force.

Under the same supplementary law, IRB-Brasil RE was recognized as a local reinsurer and authorized to continue its operations and make any required adjustments in due course.

As of the end of 2007, National Council of Private Insurance (CNSP - Conselho Nacional de Seguros Privados) and SUSEP issued a number of normative instructions containing rules for reinsurance, retrocession and intermediation business, based mainly on CNSP Resolution No. 168/07.

Through Decree No. 6,499/08, the President of Brazil set maximum limits for the ceding of premiums to reinsurance companies in each calendar year. For local insurers, such maximum limit was 10.0% of premiums, and for local reinsurers, 50.0% of premiums. In the case of local insurers, CNSP Resolution No. 203/09 raised the limit for local insurers from 10.0% to 25.0% in the case of guarantees for public obligations and oil risks and CNSP Resolution No.194/08, to up to 100%, in the case of nuclear risks.

CNSP Resolution No. 241/11 was introduced so to enable the transfer of certain risks associated with reinsurance or retrocession operations with reinsurers not authorized by SUSEP.

CNSP Resolution No. 322/15, as endorsed with amendments made by CNSP Resolution No. 325/15, which amended article 14 of CNSP Resolution No. 168/07, such that the maximum currently allowed limit for which an insurer or reinsurance company based in Brazil may transfer risks to related companies or to companies headquartered abroad, belonging to the same financial conglomerate was 20.0% until December 2016, increasing to 30.0% from January 2017, then increasing the rate annually up to 75.0% beginning in January 2020. In addition, article 15, which provides for minimum compulsory contracting of 40.0%, of the transfer of reinsurance, with local reinsurers, was amended so as to provide an annual and gradual reduction of up to 15.0%, beginning in January 2020.

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4.B. Business Overview

Form 20-F 

On December 31, 2016 there were 131 reinsurers authorized to operate in the Brazilian market, including IRB-Brasil RE and Lloyd's of London, and 25 reinsurance brokerage firms had the required authorization to intermediate reinsurance and retrocession operations.

In 2016, the Grupo Bradesco Seguros paid approximately R$306 million in reinsurance premiums. Almost all property and casualty lines, except for the automobile line, have reinsurance protection and the majority of them feature proportional and non-proportional plans per risk and/or event.

Senior Management is responsible for the reinsurance purchase policy and the approval of reinsurers with whom agreements are entered into. In addition to minimum legal and regulatory requirements, Senior Management considers certain other key parameters when choosing such partners, thus minimizing the credit risks inherent in the operation, such as: minimum rating A- (or equivalent) from rating agencies, except for local reinsurers and shareholders’ equity consistent with the amounts ceded. Accordingly, our reinsurance purchase policy is designed to operate within its automatic contractual capabilities, therefore preventing the frequent purchases of optional agreements and higher exposures to the credit risk.

A significant portion of automatic and optional agreements (proportional and non-proportional) is transferred to IRB - Brasil RE. Certain admitted reinsurers participate with a lower individual percentage, but all of them hold capital and a rating higher than those minimum set forth by applicable Brazilian legislation.

Pension plans

We have managed individual and corporate pension plans since 1981 through our wholly-owned subsidiary Bradesco Vida e Previdência, which is now the leading pension plan manager in Brazil, as measured by investment portfolio and technical provision criteria, based on information published by Fenaprevi and SUSEP.

Bradesco Vida e Previdência offers and manages a range of individual and group pension plans. Our largest individual plans in terms of contributions known as VGBL and PGBL are exempted from withholding taxes on income generated by the fund portfolio.

As of December 31, 2016, Bradesco Vida e Previdência accounted for 27.0% of the pension plan and VGBL market in terms of contributions, according to SUSEP. As of the same date, Bradesco Vida e Previdência accounted for 29.7% of all supplementary pension plan assets under management, 28.5% of VGBL, 25.3% of PGBL and 48.0% of traditional pension plans, according to Fenaprevi.

Brazilian law currently permits the existence of both "open" and "closed" private pension entities. "Open" private pension entities are those available to all individuals and legal entities wishing to join a benefit plan by making regular contributions. "Closed" private pension entities are those available to discrete groups of people such as employees of a specific company or a group of companies in the same sector, professionals in the same field, or members of a union. Private pension entities grant benefits on the basis of periodic contributions from their members, or their employers, or both.

We manage pension and VGBL plans covering 2.6 million participants, 65.1% of whom have individual plans, and the remainder of whom are covered by company plans. The company’s plans account for 22.0% of technical reserves.

Under VGBL and PGBL plans, participants are allowed to make contributions either in installments or in lump-sum payments. Participants in pension plans may deduct the amounts contributed to PGBL up to 12.0% of the participant's taxable income when making their annual tax declaration. Under current legislation, redemptions and benefits are subject to withholding tax. VGBL plan participants may not deduct their contributions when declaring income tax. At the time of redemption, or when benefits are paid out, tax will be levied on these benefits, pursuant to current legislation.

VGBL and PGBL plans may be acquired by companies in Brazil for the benefit of their employees. In 2016, Bradesco Vida e Previdência managed R$129.7 billion in VGBL and R$25.5 billion in PGBL plans. Bradesco Vida e Previdência also managed R$28.0 billion in pension plans.

Bradesco Vida e Previdência also offers pension plans for corporate customers that are in most cases negotiated and adapted to the specific needs for this type of customer.

Bradesco Vida e Previdência earns revenues primarily from:

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4.B. Business Overview 
Form 20-F 

·      pension and PGBL plan contributions, life insurance and personal accidents premiums and VGBL premiums;

·      revenues from management fees charged to participants in accordance with mathematical provisions; and

·      interest income.

Capitalization bonds

Bradesco Capitalização is the leader among private sector capitalization bond companies, according to SUSEP and offers its customers capitalization bonds with the option of a lump-sum or monthly contributions. Plans vary in value (from R$10 to R$50,000), form of payment, contribution period, and periodicity of draws for cash prizes of up to R$5.0 million (net premiums). Plans are adjusted based on the Reference Rate (TR) plus approximately 0.5% per month over the value of the mathematical provision, which may be redeemed by the shareholder at the end of the grace period. As of December 31, 2016, we had around 7.1 million "traditional" capitalization bonds and around 12.1 million incentive capitalization bonds. Given that the purpose of the incentive capitalization bonds is to add value to the products of a partner company or even to provide an incentive for its customer to avoid delinquency, the plans are for short terms and grace periods with low unit sales value. At the end of 2016, Bradesco Capitalização had approximately 19.3 million capitalization bonds and 3.0 million customers.

The investment grade rating of Bradesco Capitalização on a domestic scale is "brAA-," assigned by Standard & Poor's rating agency.

Distribution channels of insurance products, pension plans and capitalization bonds

We sell our insurance products, pension plans and capitalization bonds through our website, through brokers based in our network of bank branches, and brokers throughout Brazil, all of whom are compensated on a commission basis. Our capitalization bonds are offered through our branches, the Internet, our call center, ATMs and external distribution channels.

The following table shows the distribution of sales of these products through our branches and outside our branches:

 

% of total sales, per product

2016

2015

2014

Insurance products

 

 

 

Sales through the branches

38.3%

38.0%

36.0%

Sales outside the branches

61.7%

62.0%

64.0%

Pension plans products

 

 

 

Sales through the branches

89.2%

87.9%

86.6%

Sales outside the branches

10.8%

12.1%

13.4%

Capitalization bonds

 

 

 

Sales through the branches

92.7%

87.0%

83.0%

Sales outside the branches

7.3%

13.0%

17.0%

 

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4.B. Business Overview

Form 20-F 

Distribution channels

The following table shows our main distribution channels as of the dates indicated below:

Distribution Channels (1) - Units

2016

2015

2014

Service Stations (2)

60,610

65,851

75,176

Branches

5,314

4,507

4,659

PAs - Service Points (3)

3,821

3,511

3,486

PAEs - ATMs located on a company´s premises

1,013

736

1,145

External ATM Network - Bradesco (4) (5)

186

627

1,344

Banco24Horas Network (4)

10,972

11,721

12,450

Bradesco Expresso (Banking Correspondents)

38,430

43,560

50,006

Bradesco Promotora de Vendas

797

1,175

2,073

Losango Customer Service Points

63

-

-

Branches/Subsidiaries abroad

14

14

13

ATMs

56,110

50,467

48,682

Bradesco Network

36,119

31,527

31,089

Banco24horas Network

19,991

18,940

17,593

(1) We offer products and services also through digital channels such as: (i) contact center; (ii) mobile app; and (iii) internet banking;

(2) The decrease is related to: (i) the migration of “External ATM Network– Bradesco” to “Banco24Horas Network”; (ii) the deactivation of ATMs from “Banco24Horas Network”; and (iii) the reduction of Bradesco Expresso Network;

(3) PA (Service Points): a result of the consolidation of PAB (Banking Service Branch), PAA (Advanced Service Branch) and Exchange Branches, according to CMN Resolution No. 4,072/12;

(4) Including overlapping ATMs within Bradesco´s own network and Banco24Horas network; and

(5) This decrease is related to the sharing of external network ATMs by the Banco24Horas network ATMs.

 

Partnerships with retail companies – Bradesco Expresso

“Bradesco Expresso” enables us to expand our share of the correspondent bank segment through partnerships with supermarkets, drugstores, grocery stores, department stores and other retail chains. These companies provide basic banking services like the receipt of utility bills, payment vouchers, withdrawals from current and savings accounts and social security benefits, and deposits, among others. The services are provided by employees at the relevant establishments, while decisions regarding granting of credit or opening of accounts are made by us.

The main services we offer through Bradesco Expresso are:

·      receipt and submission of account application form;

·      receipt and submission of loans, financing and credit card application form;

·      withdrawals from checking accounts and savings accounts;

·      Social Security National Service (INSS) benefit payments;

·      checking accounts, savings accounts and INSS balance statements;

·      receipt of utility bills, bank charges and taxes; and

·      prepaid mobile refill.

As of December 31, 2016, the Bradesco Expresso network totaled 38,430 service stations, of which 6,797 were new service stations, with an average of 39.3 million monthly transactions or 1.9 million transactions per business day.

Digital channels

The digital channels offer mobility and independence to customers so that they may expand their businesses with us.

Our challenge is to make the banking experience even more convenient, quick, and secure so that our diverse public can choose where they wish to access our new banking services, and also, to attract new people to our digital solutions.

Mobile devices have become a tool that is part of people’s day-to-day lives, which reinforces our role of constantly creating new possibilities in the channel and, thus, engage our clients to make easier and more secure transactions through Bradesco Celular.

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4.B. Business Overview 
Form 20-F 

In addition to traditional and consolidated service channels, such as Automatic Teller Machines (ATMs), telephone service, and Internet Banking, clients have access to an extensive portfolio of products and services through Bradesco Celular, available from the most simple to the most sophisticated devices.

Below is a brief description of our digital channels:

Social Networks - Since 2004, we have had a strong presence on Social Networks, monitoring our brand and our products and services, providing service to clients and non-clients 24 hours a day, seven days a week, with a 5-minute response time and a dedicated team, specialized in social media.

We have a relationship with digital content creators in Brazil, such as bloggers, vloggers, and other publishers 2.0. The goal of this activity is to open a direct dialogue with them and their audiences, significantly expanding the dissemination of products, services, and channels, and above all, to encourage the production of digital content in Brazil, strengthening this ecosystem and enhancing our profile in these networks.

Bradesco Celular - Our presences on mobile phones has been growing exponentially. Through apps for individuals and legal entities, we make payment transactions, transfers, balance inquiries, loans, and many other conveniences available. Clients that access their accounts through their mobile phone are not charged by their data package due to an agreement made with Brazil’s major mobile network operators.

Products and services available through Bradesco Celular include:

·      Check Deposit via Mobile: revolutionary in Brazil, this service allows customers to deposit checks in a simple and innovative manner, through the capture of images by their smartphone cameras;

·      Security Key (M-Token) integrated with the mobile device: is a security device store inside the phone that generates random combinations for the validation of transactions made through our digital channels;

·      Payment with a barcode reader: to pay a bill, clients access our application and position the camera on the barcode, automatically accessing relevant payment information;

·      Touch ID AND Fingerprint: the functionality is available on our apps for iPhones and Android with a digital reader. It allows the client to associate their digital finger-print to the four-digit password and to the security key, enabling faster and more practical access to the account using these apps;

·      Bradesco Net Empresa Celular (Bradesco Net Company Mobile Banking): allows legal entities to manage their corporate banking at anytime and anywhere;

·      DDA Authorization via SMS: service that enables paying or scheduling payments registered in the DDA by simply replying to an SMS;

·      SMS Pay Bradesco: clients can pay or schedule utility bills of affiliated networks by replying via SMS;

·      InfoCelular: sending alerts via SMS with information on current and savings accounts, as chosen by the client; and

·      SMS Banking: through interactive messages, enables the client to make balance enquiries, check latest entries, credit limits, and refill prepaid mobile phones.

Internet - We were the first financial institution in Brazil to have an electronic address on the worldwide web and provide financial services to our clients through this channel, transforming our websites into important sources of information for clients and non-clients.

We divide our communication platform into two main areas of access and dissemination of content:

·      Bradesco Institutional Website: simplified content and language adapted for digital media which provides clients and the public at large a wide range of information on various financial products and services. Currently, we have 40 institutional websites, where  the public at large has access to content that is easy to access and locate, where they can clarify doubts ranging from how to open a checking account, services available in our branch network and remote channels, guidance on security, disclosure of social and environmental actions, specific investor publications, content on financial education, simulators, and responsible credit, among others; and

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4.B. Business Overview

Form 20-F 

·      Bradesco Internet Banking for Financial Services: our web portal includes 15 transactional sites, that enable banking transactions for our account holders, in a “secure access” environment that enables the execution of services and financial transactions. We provide various products and services that enable our clients to conveniently, quickly, and securely conduct operations such as the payment of bills, transfers between accounts, payment of taxes and obtaining personal credit, among others.

Currently, we own the “banco.bradesco” domain, making us one of the few Brazilian companies to own a top-level domain, or generic top-level domain ("gTLDs"), an initiative of the Internet Corporation for Assigned and Numbers ("ICANN"), a body responsible for internet protocols and which regulates addresses on the worldwide web. Our new website addresses makes the access to our content more practical and intuitive.

Self-service - Our self-service channel provides convenience to clients, promotes the migration of services and transactions from the branch environment, and enables the marketing of our products with the challenge of consolidation as a business channel.

Present throughout all regions of Brazil, there are 36,119 active ATMs in our network, 24,194 of which are contactless (79% of the points) and 58% of the points in branches with touchscreen, in addition to 19,991 ATMs in the Banco24Horas network, allowing our customer to make withdrawals, check balances, obtain statements, contract loans, pay bills, make transfers between Bradesco accounts and utilize DOC/TED, Prepaid Card, and Prova de Vida INSS (Proof of Life).

We have highly advanced security technology in our Automatic Teller Machines: biometric reading that identifies customers and authenticates ATM transactions works through a sensor/invisible light beam that captures the image of the vascular pattern of the palm of the hand.

The biometric reading enables our customers to, for example, carry out transactions without a card, by simply using the palm of their hand and their six-digit password, which represents convenience and speed in service without giving up security. In our own network it is possible to carry out all transactions without a card, while the Banco24Horas network currently only allows making withdrawals and checking balances without a card.

This security and speed resulted in a partnership with the INSS, allowing our retirees and pensioners to carry out the “Prova de Vida (Proof of Life)” automatically through the use of biometrics on ATM machines belonging to our network and to the Banco24Horas network, without the need to present a document to a teller, thus speeding up the process. Biometrics is available in 100% of ATM machines belonging to our own network and those of the Banco24Horas network.

Telephone services - Fone Fácil (Contact Center) - Fone Fácil Bradesco allows clients to bank by telephone, which can be accessed by choosing electronic service or personalized service.

In the electronic service, we provide a sophisticated service system powered by voice command, which provides clients the experience of doing what they want to do through simple voice commands, without the need for listening to various service options and having to choose them by typing the option on the telephone. The client can request the desired service directly.

In the personalized service, on the other hand, clients can rely on our financial specialists and digital convergence agents 24 hours a day, seven days a week, specializing in relations and business.

Through this channel we offer our main financial services, such as payments, transfers between Bradesco accounts, DOC/TED, investments, credit contracting, support and registration of the security device in the mobile phone, among others.

By calling Fone Fácil, clients can access other relationship centers, such as for credit cards, private pensions, and capitalization, credit, private and internet banking, among others.

In 2016, 94.0% of our banking transactions were performed through digital channels. The table below shows the number of operations carried out through digital channels:

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4.B. Business Overview 
Form 20-F 

Year ended December 31,

In millions of transactions

% Change

2016

2015

Internet Individuals + Companies - with WebTA (1)

4,847

4,585

5.7%

ATMs

1,985

1,982

0.2%

Mobile Banking (Bradesco Celular)

5,446

3,664

48.6%

Telephone Banking (Fone Fácil)

231

278

(16.9)%

Total

12,509

10,509

19.0%

(1) WebTA is an internet file transmission service, to the Bank, carried out by corporate customers using Net Empresa.

 

Segmentation of Clients

We operate a model of client segmentation, which groups certain clients of the same profile together, thus furthering our ability to provide personalized service to our clients, in accordance with their needs.

Our five segments offer a range of products and differentiated services that are tailored to companies and individuals. We present below our segmentation of clients:

Client Segmentation

Corporations

Bradesco Corporate - Large companies, with annual revenues of more than R$250 million

Bradesco Empresas - Midsized companies, with annual revenues between R$30 million and R$250 million

Bradesco Varejo (Empresas e Negócios) - Small companies, with annual revenues of up to R$ 30 million

Individuals

Bradesco Private Bank - Clients with availability for investments as from R$5.0 million

Bradesco Prime - individuals with monthly income from R$10 thousand or availability of investment from R$100 thousand

Varejo Exclusive - Clients with a monthly income between R$4 thousand and R$9,999.99, or availability of investment from R$40 thousand.

Varejo Classic - Clients with a monthly income of up to R$ 3,999.99 or availability of investment of less than R$40 thousand.

 

Bradesco Corporate

The Corporate segment is responsible for serving 2,037 business groups in a range of large corporations and institutional investors (revenues over R$250.0 million/year). Its offices are located in the main financial centers, offering customized services with a global reach. Bradesco Corporate counts on a highly skilled team to fulfill customers´ needs through a wide portfolio of products, structured solutions and financial services.

Bradesco Empresas

Bradesco Empresas serves companies with annual revenues between R$30 million and R$250 million across its 70 business units located strategically in Brazil, in several Brazilian capitals. In addition to these units, it still has 98 “Office Spaces” in other strategic locations, not covered by Bradesco Empresas, in environments with specialized structures for the service of economic groups with a turnover of more than R$15 million/year and two High Middle I and High Middle II structures that serve clients with annual revenues of at least R$200 million, located in the capital of São Paulo.

Bradesco Empresas offers business management products such as loans and advances, financing, investments, foreign trade, hedging transactions, cash management and structured transactions in capital markets to ensure good results and customer satisfaction.

Bradesco Private Bank

The sole purpose of Bradesco Private Bank is to advise high net-worth individuals, family-owned holding companies and investment companies with a high net availability for investments.

Through its open architecture model, it offers tailored products and services, including banking, advisory services, local and international asset allocation and portfolio management, as well as advice on choosing the best vehicles and investment structures for the perpetuation of the family’s estate. In addition, the client can access our entire structure, including credit, investment banking, brokerage, insurance, and pensions, among others.

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Form 20-F 

Currently, Bradesco Private Bank has 15 offices located in: São Paulo, Rio de Janeiro, Belo Horizonte, Blumenau, Brasília, Campinas, Cuiabá, Curitiba, Fortaleza, Goiânia, Manaus, Porto Alegre, Recife, Ribeirão Preto and Salvador, thus ensuring nation-wide presence, in addition to the support of the units abroad located in Cayman, New York and Luxembourg.

Bradesco Varejo

The focus of Bradesco Varejo are individuals with a monthly income of up to R$10 thousand and legal entities with annual revenues of up to R$30 million. Individual customers with monthly incomes up to R$3,999.99 or amounts available for investments below R$40,000 are classified as being part of the “Classic” customer designation and individual customers with monthly incomes from R$4,000 to R$10,000 or amounts available for investments from R$40,000 are classified as being part of the “Exclusive” customer designation. Companies with annual revenues of up to R$30 million are classified as being part of the “Empresas e Negócios” designation. The retail area provides customized services with adequate financial solutions for each profile.

The Bradesco Varejo service network comprises 4,911 branches, 3,749 service stations, 1,012 electronic service stations and 38,430 Bradesco Expresso units, in addition to thousands of ATMs

The customer service network offers products and services in remote places, of difficult access and also in regions with large concentrations of people with lower purchasing power, for example the Communities of Rocinha, Cidade de Deus, Rio das Pedras, Complexo do Alemão, Gardênia Azul, Cantagalo, Turano, Santa Marta, Mangueira, Chapéu Mangueira and Vila Kennedy in Rio de Janeiro; Heliópolis and Paraisópolis in São Paulo; besides the two boats: “Voyager III” and “Voyager V,” which provide banking services to riverside communities in the Amazon region. This service is increasing access to banking services for those people who would otherwise have little or no access to banking services, thus increasing social mobility.

Bradesco Prime

Bradesco Prime operates in the segment of individuals and has a service network of 308 branches and 905 strategically positioned "Bradesco Prime Spaces" (581 with a differentiated environment). The Prime segment offers the following benefits to our clients:

·       personalized services provided by relationship managers: Experienced and skilled professionals providing full financial advisory services Certified by ANBIMA, each customer relationship manager manages a reduced client portfolio;

·       exclusive facilities: Bradesco Prime customers have access to their own network of exclusive branches offering convenience and privacy to tend to their business affairs. It also counts on "Bradesco Prime Spaces," a reserved and distinctive environment installed at Bradesco Varejo branches that fully maintains the segment's value proposition. Additionally, customers count on a wide network of branches throughout Brazil, including ATMs – Bradesco Network and Banco24Horas; and

·       exclusive products and services: Bradesco Prime offers a variety of products and services, such as internet banking (bradescoprime.com.br), call center (Fone Fácil Bradesco Prime), online advisors and investment funds, credit solutions with distinct rates, a diversified portfolio of insurance, pension plans and credit cards.

Present in all Brazilian capitals, Bradesco Prime has been, throughout its existence, investing in technology, in the improvement of the relationship with clients and in the training of its professionals. It established a prominent position in the Brazilian market of banking services for high-income clients and has consolidated its position as the largest provider of services for these clients, with strategically positioned service stations throughout Brazil.

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4.B. Business Overview 
Form 20-F 

Main subsidiaries

The following is a simplified chart containing our main subsidiaries in the activities of financial and insurance services and our voting interest as of December 31, 2016. With the exception of Bradesco Argentina, Bradesco Europa, Bradesco Grand Cayman Branch and Bradesco New York Branch, the other significant subsidiaries are Brazilian entities. For more information in relation to the consolidation of our significant subsidiaries, see Note 2b of our consolidated financial statements in "Item 18. Financial Statements."

 

 

 

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4.B. Business Overview

Form 20-F 

Corporate risk management process

Risk management is of great strategic importance to us due to the increasing complexity of services and products and the globalization of our business. The market’s dynamism encourages Bradesco to engage in the continuous improvement of this activity.

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

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

Risk and Capital Management Structure

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

We have a committee named Integrated Risk Management and Capital Allocation Committee (COGIRAC), which is responsible for advising the Board of Directors on the performance of its roles in the management and control of risks and capital.

The committee is assisted by the Capital Management Executive Committee and the executive committees for risk management of: (i) Credit; (ii) Market and Liquidity; (iii) Operational and Socioenvironmental; and (iv) Grupo Bradesco Seguros and BSP Empreendimentos Imobiliários. There are also the Executive Products and Services Committee, and executive committees for our business units, whose tasks include suggesting limits for exposure to their related risks and devising mitigation plans to be submitted to COGIRAC and the Board of Directors.

Credit risk

Credit risk is the possibility of losses associated with a borrower’s or counterparty’s failure to comply with their respective financial obligations under agreed terms, as well as the depreciation of loan agreements resulting from deterioration in the borrower's risk rating, the reduction in gains or remunerations, including benefits granted in renegotiations, recovery costs and other amounts related to the counterparty’s non-compliance with financial obligations.

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

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

In order not to compromise the quality expected from the portfolio, committees monitor all relevant aspects of the process of lending, concentration, collateral requirements, maturities, and other aspects.

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

Credit Risk Management Process

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

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

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

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

In addition to the committee meetings, the business area holds monthly meetings with officers and heads of products and segments to ensure they are informed about the evolution of the portfolio of loans and advances, delinquency, adequacy of levels of losses by reducing the recoverable value of loans and advance payments, credit recovery, gross and net losses, portfolio limits and concentrations, and other items. This information is also monthly reported to the Audit Committee.

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

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

Market Risk

Market risk is the possibility of a loss of income due to fluctuations in prices and interest rate of the financial instruments resulting from mismatched maturities, currencies and indices of our asset and liability operations.

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

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

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

In line with corporate governance and in order to preserve and strengthen our management of market and liquidity risks, as well as to meet the requirements of CMN Resolution No. 3,464/07, the Board of Directors approved the Market and Liquidity Risk Management Policy, which is reviewed at least annually by the relevant committees and the Board of Directors itself, providing the main operational guidelines for accepting, controlling and managing market risk.

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

·      classification of operations;

·      reclassification of operations;

·      trading in government or private securities;

·      use of derivatives; and

·      hedge.

Market Risk Management Process

Our market risk management process is run on a corporate wide basis, and involving several areas with specific purposes, ensuring an efficient structure, with market risk measurement and control carried out on a centralized and independent basis. This process allowed us to be the first financial institution in the country authorized by the Brazilian Central Bank to use, since January 2013, its in-house models of market risk to check the need of regulatory capital. The management process, approved by the Board of Directors, is also reassessed at least annually by the relevant committees and the Board of Directors itself.

Definition of limits

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

 

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Trading portfolio: comprises all operations involving financial instruments, including derivatives, held-for-trading or used to hedge other instruments in our own portfolio, which have no trading restrictions. Held-for-trading operations are those destined for resale, to obtain benefits from actual or expected price variations, or for arbitrage.

The trading portfolio is monitored by limits of:

·      Value at Risk (VaR);

·      stress;

·      results; and

·      financial exposure/concentration.

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

The banking portfolio is monitored by limits related to the interest rate risk.

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

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

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

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

Liquidity risk

Liquidity risk is represented by the possibility of the institution failing to effectively comply with its obligations, without affecting its daily operations and incurring significant losses, as well as the possibility of the institution to fail to trade a position at market price, due to its larger size as compared to the volume usually traded or in view of any market interruption.

Understanding and monitoring this risk is crucial, especially for us to be able to settle transactions in a timely and secure manner.

Liquidity Risk Management Process

We manage our liquidity risk process on a group-wide basis. This process involves a number of areas with specific responsibilities, ensuring an efficient structure, and the liquidity risk is measured and controlled on a centralized and independent basis, with daily monitoring of available funds, compliance with minimum liquidity levels, and contingency planning for high-stress situations.

Our policy for risk management and market liquidity, approved by the Board of Directors, is mainly aimed at ensuring the existence of standards, criteria and procedures to guarantee the establishment of the Minimum Liquidity Reserve (“RML”), as well as the strategy and action plans for liquidity crisis situations. The policy and controls we established fully comply with CMN Resolution No. 4,090/12.

Our approved criteria and procedures determine the minimum liquidity reserve to be maintained on a daily basis and the types of assets considered as available funds. Additionally, we determine instruments for management of liquidity in normal and crisis scenarios, with strategies to be followed in each case.

Our liquidity risk is managed by the Treasury Department, based on the positions provided by the back-office controls positions, which provides liquidity information to our Management and monitors compliance with established limits. The Integrated Risk Control Department is responsible for the methodology of measurement of liquidity reserve requirements, control over limits established by type of currency and company (including for non-financial companies), reviewing policies, standards, criteria and procedures, and drafting reports for new recommendations.

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Liquidity risk is monitored daily by business and control areas and at meetings of the Treasury Executive Committee for Asset Liability Management, which controls liquidity reserves and maturity and currency mismatches. Additionally, monitoring activity is also conducted by COGIRAC.

In addition to the in-house control and monitoring methodology, as of October 2015, we began to measure and report to the Central Bank on the Short-Term Liquidity Ratio (“LCR”), in accordance with CMN Resolution No. 4,401/15 and the Central Bank Circular Letter No. 3,749/15.

Operational Risk

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

Operational Risk Management Process

We carry out operational risk process throughout the organization. This involves a number of areas, with specific responsibilities, thus ensuring an efficient structure, and operational risk is measured and controlled on a centralized and independent basis. Accordingly, the following procedures are carried out:

·      identifying, assessing, and monitoring the operational risks inherent in our activities, as well as those related to new products/services and their adequacy to procedures and controls;

·      mapping and addressing records of operational losses to make up an internal data base;

·       ensuring the integrity of data from losses collected and provide analyses that offer quality information to several business areas/branches, aimed at improving operational risk management;

·      measuring, controlling and reporting increased operational losses by way of assessing the effectiveness of the mitigating measures of business areas/branches;

·       evaluating, together with managers, the indicators, scenarios, and external data from operating losses in order to incorporate/adjust any processes and controls, as well as to quantify the impact on economic capital;

·      assessing and calculating capital needs in connection with the operational risk in regulatory capital and economic visions; and

·      preparing reports on the operational risk for submission to the Committees, to the Diretoria Executiva and related areas.

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

Operational risk is primarily controlled and followed up by an independent area, Integrated Risk Control Department is supported by a number of areas that integrate the management process of this risk.

The Integrated Risk Control Department is responsible for the coordination of the Internal Control and Operational Risk Commission (“CIRO”), which reports to CEROS. This commission is aimed at analyzing the behavior of the operational losses of the business areas/branches, the efficiency and effectiveness of the processes and controls adopted, the provision methodologies and their impact on the management of operational risk and evaluate indicators, scenarios, and external data from operating losses in order to incorporate/adjust eventually, processes and controls.

The Integrated Risk Control Department is the advisory unit of CEROS, whose objective is to advise the Diretoria Executiva on the performance of his duties relating to the management of operating risk, business continuity, socio-environmental risks, and conduct risk. The relevant issues debated in this instance are reported to COGIRAC, which reports to the Board of Directors.

The governance process is approved by the Board of Directors and reviewed at least once a year.

Internal controls and compliance

The efficacy of our internal controls is supported by trained professionals, well-defined and implemented processes, and by technology compatible with business needs.

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The internal control methodology is based in the criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organization of the Treadway Commission (“COSO”), and is also in line with the guidelines established by the Information Systems Audit and Control Association (“ISACA”) through the Control Objectives for Information and Related Technology (“COBIT 5”), and with the procedures described by the Public Company Accounting Oversight Board (“PCAOB”) for analysis of t