abc brasil - annual report 2006

Plantation of sugar cane

Plan

tati

on o

f sug

ar c

aneGeographically speaking, ABC’s business area is subdivided into various offices designed to

develop a relationship and create business opportunities with the companies in their region. The

bank is physically present in São Paulo, Rio de Janeiro, and Campinas, from where the bank covers

the neighboring areas. Operations with large companies in São Paulo are still prevailing; however,

ABC has gradually conquered clients in the middle-sized company segment and enlarged its

regional and industrial diversification.

The Cayman Branch, inaugurated in May 2001, is fully operational and leads the international

financing activities conducted by Banco ABC Brasil.

The decision-making process in the bank is supported by committees which meet regularly to

deliberate on credit, treasury, investment and administrative issues. ABC has formed a committee

with the specific purpose of establishing credit limits. They meet at least once a week and the

members are: the person in charge of the clients for whom the limits are being proposed; the person

in charge of the credit analysis department, and the bank directors, who have to unanimously

approve the granting of credit lines to these clients. Market risks are analyzed on a daily basis and

revised weekly, and the financial committee is the maximum authority in case of mismatches and

arbitrations in general concerning the establishment of said limits.

Yello

w Ip

êChart at 31 December, 2006

0,1%(Golden Share)

83,88% 16,12%

99,99%

99,99%

00,001%

99,99% 99.99%

99,99%99,70%

100%

99,99%

0,00054%

Paulista Ltd.

(Investment)Bahamas

ABC Cayman Banking Ltd

(banking)

Cayman IslandsMarsau Overseas Ltd

(trading)Brazil

Marsau AssetManagement Financial

Services Ltd.

(Brazil)

Arab BankingCorporation (B.SC.)

(Banking)Bahrain

Marsau Uruguay Holdings S.A.

(Investiment) Uruguay

CaymanIslandsBranch

Marsau Comercial Exportadora

e Importadora, S.A.

(Trading)Brazil

Marsau Overseas Ltda

(Trading)Uruguay


(Ilha da Madeira Branch)

Minority

Shareholders

ABC Brasil Administração e

Participações Limitada

(Intermediation)Brazil

Banco ABC Brasil S.A.

(Banking)Brazil

ABC Brasil DTVM S.A.

(Brokerage)Brazil

Audit Committee

AdministrativeExecutive Director

Marco Antôniode Oliveira

Internal AuditPresident

Tito Enrique da Silva NetoCredit Analysis

Legal

Human Resource

Back Office

Middle Office

Risk Control / Compliance

Financial Controls

Information Technology

Marketing

General Services

Capital Markets

Int'l CorrespondentBanks

Local Interbanking

Anwar Ali Al MudhafRamez Abou RizkAsaf MohyuddinTito Enrique da Silva Neto

ChairmanVice Chairman

MemberMember

Board of Directors

International andCorporate Finance

Vice President

Anis Chacur

Financial Vice President

Sérgio Lulia

CommercialVice President

José Eduardo Laloni

Small&MediumEnterprises

Vice President

Gustavo Lanhoso

I.T. and ControlsExecutive Director

Products

Trade Finance & Products

Development

Private Banking

Economic Analysis

Local Trading

Internacional Trading

Pricing and Liquidity

Interior BranchMG Platform

SP I Platform

Middle Market

Retail Banking

RJ Branch- RJ/ NE Platform- South Platform

SP II Platform

Plant of Marimbondo / Minas Gerais

Introduction

Banco ABC Brasil, controlled by Arab Banking Corporation (ABC) and with a branch on the

Cayman Islands, is a multiple bank licensed to operate with commercial, investment, financial,

housing loan and exchange portfolios.

Our supporting structure includes a securities dealer and an administration and services company.

Due to their synergetic operations, these companies can cover a broad spectrum of financial

intermediation activities focused on Brazilian interests, adding to the financial services offered

worldwide by the controlling company.

Arab Banking Corporation is an international bank headquartered in Bahrain, and its stocks are

exchange-traded. ABC is structured to maintain a professional management and be clearly focused

on international markets. Via its own presence or that of its subsidiaries, ABC has operations in 15

countries, which provides the bank with a significant level of portfolio diversification and

generation of business opportunities for its clients. ABC’s business strategy concentrates on the

international relationships in the Arab world, particularly the investment projects originating from

or directed to this region.

ABC Brasil’s major line of business is the financial intermediation of operations involving credit

risk analysis and assumption, complemented by corporate financing operations structured mostly

for capital markets. ABC offers arbitrage services for the markets, fees and currencies arising from

its clients’ and its own operations. The conservative profile adopted by the bank poses little risk for

its credit and treasury business.

ABC also relies on a private banking unit designed to capture high-income clients, offering this

larger group of qualified investors the bank’s operational know-how, i.e. salary and

pension-deducted loan operations in order to extend the bank’s public reach. In all its line of

products ABC has a significant share of operations involving counterparts overseas who act mostly

as offerors of the resources for the financing of Brazilian companies. This makes ABC very

attractive to those clients demanding sophisticated solutions to both local and international needs.

The bank’s main target public is the large and middle-sized Brazilian corporations, notably those in

the process of investing or internationally active. Among its investor clients ABC can rely on the

support of institutional investors and a significant number of foreign banks which, together with its

corporate investors, provide the bank with a stable and diversified source of funds for its business.

Organizacional Structure

Plantation of sugar canePl

anta

tion

of s

ugar

can

eGeographically speaking, ABC’s business area is subdivided into various offices designed to

develop a relationship and create business opportunities with the companies in their region. The

bank is physically present in São Paulo, Rio de Janeiro, and Campinas, from where the bank covers

the neighboring areas. Operations with large companies in São Paulo are still prevailing; however,

ABC has gradually conquered clients in the middle-sized company segment and enlarged its

regional and industrial diversification.

The Cayman Branch, inaugurated in May 2001, is fully operational and leads the international

financing activities conducted by Banco ABC Brasil.

The decision-making process in the bank is supported by committees which meet regularly to

deliberate on credit, treasury, investment and administrative issues. ABC has formed a committee

with the specific purpose of establishing credit limits. They meet at least once a week and the

members are: the person in charge of the clients for whom the limits are being proposed; the person

in charge of the credit analysis department, and the bank directors, who have to unanimously

approve the granting of credit lines to these clients. Market risks are analyzed on a daily basis and

revised weekly, and the financial committee is the maximum authority in case of mismatches and

arbitrations in general concerning the establishment of said limits.

Yello

w Ip

êChart at 31 December, 2006

0,1%(Golden Share)

83,88% 16,12%

99,99%

99,99%

00,001%

99,99% 99.99%

99,99%99,70%

100%

99,99%

0,00054%

Paulista Ltd.

(Investment)Bahamas

ABC Cayman Banking Ltd

(banking)

Cayman IslandsMarsau Overseas Ltd

(trading)Brazil

Marsau AssetManagement Financial

Services Ltd.

(Brazil)

Arab BankingCorporation (B.SC.)

(Banking)Bahrain

Marsau Uruguay Holdings S.A.

(Investiment) Uruguay

CaymanIslandsBranch

Marsau Comercial Exportadora

e Importadora, S.A.

(Trading)Brazil


(Trading)Uruguay


(Ilha da Madeira Branch)

Minority

Shareholders

ABC Brasil Administração e

Participações Limitada

(Intermediation)Brazil

Banco ABC Brasil S.A.

(Banking)Brazil

ABC Brasil DTVM S.A.

(Brokerage)Brazil

Audit Committee

AdministrativeExecutive Director

Marco Antôniode Oliveira

Internal AuditPresident

Tito Enrique da Silva NetoCredit Analysis

Legal

Human Resource

Back Office

Middle Office

Risk Control / Compliance

Financial Controls

Information Technology

Marketing

General Services

Capital Markets

Int'l CorrespondentBanks

Local Interbanking

Anwar Ali Al MudhafRamez Abou RizkAsaf MohyuddinTito Enrique da Silva Neto

ChairmanVice Chairman

MemberMember

Board of Directors

International andCorporate Finance

Vice President

Anis Chacur

Financial Vice President

Sérgio Lulia

CommercialVice President

José Eduardo Laloni

Small&MediumEnterprises

Vice President

Gustavo Lanhoso

I.T. and ControlsExecutive Director

Products

Trade Finance & Products

Development

Private Banking

Economic Analysis

Local Trading

Internacional Trading

Pricing and Liquidity

Interior BranchMG Platform

SP I Platform

Middle Market

Retail Banking

RJ Branch- RJ/ NE Platform- South Platform

SP II Platform

Plant of Marimbondo / Minas Gerais

Introduction

Banco ABC Brasil, controlled by Arab Banking Corporation (ABC) and with a branch on the

Cayman Islands, is a multiple bank licensed to operate with commercial, investment, financial,

housing loan and exchange portfolios.

Our supporting structure includes a securities dealer and an administration and services company.

Due to their synergetic operations, these companies can cover a broad spectrum of financial

intermediation activities focused on Brazilian interests, adding to the financial services offered

worldwide by the controlling company.

Arab Banking Corporation is an international bank headquartered in Bahrain, and its stocks are

exchange-traded. ABC is structured to maintain a professional management and be clearly focused

on international markets. Via its own presence or that of its subsidiaries, ABC has operations in 15

countries, which provides the bank with a significant level of portfolio diversification and

generation of business opportunities for its clients. ABC’s business strategy concentrates on the

international relationships in the Arab world, particularly the investment projects originating from

or directed to this region.

ABC Brasil’s major line of business is the financial intermediation of operations involving credit

risk analysis and assumption, complemented by corporate financing operations structured mostly

for capital markets. ABC offers arbitrage services for the markets, fees and currencies arising from

its clients’ and its own operations. The conservative profile adopted by the bank poses little risk for

its credit and treasury business.

ABC also relies on a private banking unit designed to capture high-income clients, offering this

larger group of qualified investors the bank’s operational know-how, i.e. salary and

pension-deducted loan operations in order to extend the bank’s public reach. In all its line of

products ABC has a significant share of operations involving counterparts overseas who act mostly

as offerors of the resources for the financing of Brazilian companies. This makes ABC very

attractive to those clients demanding sophisticated solutions to both local and international needs.

The bank’s main target public is the large and middle-sized Brazilian corporations, notably those in

the process of investing or internationally active. Among its investor clients ABC can rely on the

support of institutional investors and a significant number of foreign banks which, together with its

corporate investors, provide the bank with a stable and diversified source of funds for its business.

Organizacional Structure

2006Financial Statements

Vitória Régia / Amazonas

Environmental value

Operating in the Brazilian market for almost two decades via Banco ABC Brasil, Arab Banking Corporation is

an international bank that acknowledges our country’s natural resources as a legacy to the world and sees

Brazil as a key player in the world’s urgent efforts towards environmental conservation.

Our country plays a crucial role in the environmental scenario since we are host to the planet’s largest

biodiversity reserve, second largest forest coverage and 12% of the Earth’s fresh water, i.e. Brazil has a

huge potential to become an environmentally sustainable economy.

Banco ABC Brasil conducts its activities in this atmosphere of development, generating business

operations for the country, supporting and actively participating in its progress in compliance with the

bank’s responsible and ethical corporate behavior. We believe that a broader spectrum of opportunities

based on sustainable growth principles is a natural path to a safe and long-term economic advance.

Tito Enrique da Silva Neto

Contents

Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Audited Financial Statements

Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Statements of Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Statements of Shareholders’ Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Statements of Changes in Cash Position. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Plat

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Ratings 2004 2005 2006National - Long Term A A AA-National - Short Term F1 F1 F1+Externo - Long Term - BB- BBExterno - Short Term - B B

4 BANCO ABC BRASIL S.A.HIGHLIGHTS

6C

SN/

Side

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o

The Board of Directors and ShareholdersBanco ABC BRASIL S.A.

We have audited the balance sheet of Banco ABC BRASIL S.A. and the consolidated balance sheets of Banco ABCBRASIL S.A. and its subsidiaries as of December 31, 2006 and 2005, and the related statements of income, shareholders’equity and changes in cash position for the years then ended, expressed in Brazilian reais (not presented herewith).These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinionon these financial statements.

We conducted our audits in accordance with auditing standards applicable in Brazil which comprised: (a) the planningof our work, taking into consideration the materiality of balances, the volume of transactions and the accounting andinternal control systems of the Bank; (b) the examination, on a test basis, of the evidence and records supporting theamounts and disclosures in the financial statements, and; (c) an assessment of the accounting practices used andsignificant estimates made by management, as well as an evaluation of the overall financial statement presentation.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position ofBanco ABC BRASIL S.A. and the consolidated financial position of Banco ABC BRASIL S.A. and its subsidiaries atDecember 31, 2006 and 2005, and the results of their operations, changes in their shareholders’ equity and changes intheir cash position for the years then ended, in conformity with the accounting practices adopted in Brazil.

We have also reviewed the translation of the financial statements for the years ended December 31, 2006 and 2005into U.S. dollars. In our opinion, this translation from Brazilian reais to U.S. dollars was properly done on the basisdescribe in Note 2.

São Paulo, January 26, 2007

ERNST & YOUNGAuditores Independentes S.S.

Flávio Serpejante Peppe Luiz Carlos NanniniPartner Partner

7BANCO ABC BRASIL S.A.REPORT OF INDEPENDENT AUDITORS

Bank ConsolidatedASSETS 2006 2005 2006 2005Current Assets 1,321,756 819,241 1,327,306 819,274

Cash and banks 2,954 4,447 2,954 4,447Interbank investments 114,244 39,959 114,244 39,959

Money market investments 36,506 7,779 36,506 7,779Interbank deposits 77,738 32,180 77,738 32,180

Marketable securities and derivative financial instruments 378,498 142,935 383,990 142,935Own portfolio 157,008 97,309 162,487 97,309Linked to repurchase agreements 32,845 - 32,845 -Derivative financial instruments 152,881 12,855 152,894 12,855Linked to guarantees given 35,764 32,771 35,764 32,771

Interbank accounts 4,180 - 4,180 -Unsettled payments and receipts 2 - 2 -Reserve requirements – Central Bank deposits 4,178 - 4,178 -

Lending operations 616,108 495,759 616,108 495,759Loans – Public sector 1,022 15,470 1,022 15,470Loans – Private sector 623,599 486,429 623,599 486,429Allowance for loan losses (8,513) (6,140) (8,513) (6,140)

Other credits 205,372 136,111 205,430 136,144Foreign exchange portfolio 193,408 110,220 193,408 110,220Interest receivable 641 494 641 494Trading account 2,765 2,400 2,765 2,400Other 11,374 24,096 11,432 24,129Allowance for losses on other credits (2,816) (1,099) (2,816) (1,099)

Other assets 400 30 400 30Other assets 25 18 25 18Prepaid expenses 375 12 375 12

Noncurrent Assets 434,448 401,848 434,716 402,625Interbank investments 4,848 - 4,848 -

Interbank deposits 4,848 - 4,848 -Marketable securities and derivative financial instruments 23,786 100,783 23,786 100,783

Own portfolio 21,778 14,209 21,778 14,209Derivative financial instruments 2,008 86,574 2,008 86,574

Lending operations 388,925 290,341 388,925 290,341Loans – Public sector 4,504 8,462 4,504 8,462Loans – Private sector 387,927 284,931 387,927 284,931Allowance for loan losses (3,506) (3,052) (3,506) (3,052)

Other credits 14,877 9,242 15,145 9,387Foreign exchange portfolio 3,158 - 3,158 -Interest receivable 101 85 101 85Other 12,193 9,410 12,461 9,555Allowance for losses on other credits (575) (253) (575) (253)

Other assets 2,012 1,482 2,012 2,114Other assets 1,495 1,482 1,495 2,114Prepaid expenses 517 - 517 -

Permanent 10,528 10,485 4,491 4,335Investments 8,014 7,959 673 570

Investments in subsidiaries and affiliates – Domestic 7,460 7,482 - -Other investments 554 477 673 570

Fixed assets, net 1,923 1,826 3,210 3,039Cost 4,431 3,704 6,310 5,421Accumulated depreciation (2,508) (1,878) (3,100) (2,382)

Deferred charges, net 591 700 608 726Organization and expansion costs 1,014 923 1,044 951Accumulated amortization (423) (223) (436) (225)

Total Assets 1,766,732 1,231,574 1,766,513 1,226,234

8 BANCO ABC BRASIL S.A.Balance SheetsDecember 31, 2006 and 2005(In thousands of U.S. dollars)

Bank ConsolidatedLIABILITIES AND SHAREHOLDERS’ EQUITY 2006 2005 2006 2005Current liabilities 1,085,869 756,131 1,085,008 750,216

Deposits 462,018 367,301 461,076 361,281Demand deposits 32,305 12,834 32,210 12,791Interbank deposits 9,285 11,598 9,285 6,004Time deposits 420,399 342,863 419,552 342,480Other deposits 29 6 29 6

Money market funding 32,754 - 32,754 -Own portfolio 32,754 - 32,754 -

Acceptance and issuance of securities 7,044 9,071 7,044 9,071Securities issued abroad 7,044 9,071 7,044 9,071

Interbranch accounts 29,551 1,491 29,551 1,491Third-party portfolio 29,551 1,491 29,551 1,491

Borrowings 196,236 201,112 196,236 201,112Local borrowings – Other institutions 7,666 4,701 7,666 4,701Foreign borrowings 188,570 196,411 188,570 196,411

Onlending in Brazil – government agencies 52,951 37,300 52,951 37,300BNDES 10,393 11,986 10,393 11,986FINAME 42,558 25,314 42,558 25,314

Derivative financial instruments 88,229 57,781 88,229 57,781Derivative financial instruments 88,229 57,781 88,229 57,781

Other liabilities 217,086 82,075 217,167 82,180Collection of taxes 250 76 250 76Foreign exchange portfolio 159,514 58,111 159,514 58,111Social and statutory - 9,950 - 9,950Taxes and social security 37,153 4,674 37,214 4,758Trading account 860 1,149 860 1,149Other 19,309 8,115 19,329 8,136

Noncurrent liabilities 474,521 304,353 475,163 304,928Deposits 272,412 162,050 272,412 162,050

Time deposits 272,412 162,050 272,412 162,050Acceptance and issuance of securities - 7,000 - 7,000

Securities issued abroad - 7,000 - 7,000Borrowings 39,208 29,439 39,208 29,439

Foreign borrowings 39,208 29,439 39,208 29,439Onlending in Brazil – government agencies 127,283 66,610 127,283 66,610

BNDES 32,206 24,250 32,206 24,250FINAME 95,077 42,360 95,077 42,360

Derivative financial instruments 17,218 6,150 17,218 6,150Derivative financial instruments 17,218 6,150 17,218 6,150

Other liabilities 18,400 33,104 19,042 33,679Foreign exchange portfolio 3,074 - 3,074 -Social and statutory 7,177 134 7,177 134Taxes and social security 2,606 27,951 2,619 27,951Other 5,543 5,019 6,172 5,594

Deferred income 1,096 1,040 1,096 1,040Deferred income 1,096 1,040 1,096 1,040

Shareholders’ equity 205,246 170,050 205,246 170,050Capital: 116,206 100,790 116,206 100,790

Foreign residents 110,346 100,790 110,346 100,790Capital increase – Foreign residents 5,860 - 5,860 -Capital reserve 154 110 154 110

Income reserve 10,071 7,896 10,071 7,896Adjustment to market value – securities and derivatives 530 1,134 530 1,134Retained earnings 78,285 60,120 78,285 60,120

Total liabilities and shareholders’ equity 1,766,732 1,231,574 1,766,513 1,226,234

See accompanying notes.

9

Bank Consolidated2006 2005 2006 2005

Income from financial intermediation 182,887 126,267 182,989 126,133Lending operations 147,791 118,890 147,791 118,890Marketable securities 31,725 14,125 31,998 14,125Losses on derivative financial instruments (2,906) (5,558) (3,077) (5,692)Foreign exchange operations 6,247 (1,190) 6,247 (1,190)Compulsory investments 30 - 30 -

Expenses from financial intermediation (107,296) (64,297) (106,552) (63,261)Funding expenses (84,863) (66,016) (84,119) (64,980)Borrowings and onlendings (18,265) 1,320 (18,265) 1,320Reversal (provision) for loan losses (4,168) 399 (4,168) 399

Gross income from financial intermediation 75,591 61,970 76,437 62,872

Other operating (expenses) income (35,575) (26,592) (36,361) (27,465)Income from services rendered 11,764 8,899 11,764 8,899Personnel expenses (25,422) (18,509) (25,993) (19,070)Other administrative expenses (17,484) (9,351) (17,641) (9,441)Taxes (1,911) (2,993) (1,971) (3,057)Equity picked-up in subsidiaries (47) 164 - -Other operating income 1,457 2,409 1,464 2,415Other operating expenses (3,932) (7,211) (3,984) (7,211)

Income from operations 40,016 35,378 40,076 35,407

Nonoperating expenses (195) (80) (311) (80)

Income before taxes and profit sharing 39,821 35,298 39,765 35,327

Income and social contribution taxes (8,948) (8,452) (8,892) (8,481)Provision for income tax (3,695) (10,985) (3,740) (11,049)Provision for social contribution tax (1,356) (4,142) (1,356) (4,142)Deferred tax credits (3,897) 6,675 (3,796) 6,710

Profit sharing (2,342) (1,762) (2,342) (1,762)

Net income for the year 28,531 25,084 28,531 25,084

Net income per share - Number of shares – 1,140,553 25.01 22.64(1,107,988 at December 31, 2005)


10 BANCO ABC BRASIL S.A.STATEMENTS OF INCOMEYears ended December 31, 2006 and 2005(In thousands of U.S. dollars, except net income per share)

Income Adjustment toreserve market value

Capital Capital Legal securities and RetainedCapital increase reserve reserve derivatives earnings Total

Balances at December 31, 2004, as reported 83,658 2,498 83 5,857 1,810 45,526 139,432Translation adjustment 11,213 334 11 785 242 6,102 18,687Adjusted balances at December 31, 2004 94,871 2,832 94 6,642 2,052 51,628 158,119

Adjustment to market value – securities and derivatives - - - - (918) - (918)Restatement of membership certificates - - 16 - - - 16Capitalization 5,919 (5,919) - - - - -Net income for the year - - - - - 25,084 25,084Interest on capital - - - - - (15,338) (15,338)Capital increase - 3,087 - - - - 3,087Legal reserve - - - 1,254 - (1,254) -

Balances at December 31, 2005 100,790 - 110 7,896 1,134 60,120 170,050Translation adjustment 9,556 - 11 748 107 5,700 16,122Adjusted balances at December 31, 2005 110,346 - 121 8,644 1,241 65,820 186,172

Capital increase - 5,860 - - - - 5,860Adjustment to market value – securities and derivatives - - - - (711) - (711)Restatement of membership certificates - - 33 - - - 33Net income for the year - - - - - 28,531 28,531Interest on capital - - - - - (14,639) (14,639)Legal reserve - - - 1,427 - (1,427) -

Balances at December 31, 2006 110,346 5,860 154 10,071 530 78,285 205,246


11BANCO ABC BRASIL S.A.STATEMENTS OF SHAREHOLDERS’ EQUITY

Years ended December 31, 2006 and 2005(In thousands of U.S. dollars)


SOURCE OF FUNDS 445,020 338,378 449,953 338,405Adjusted net income 29,284 25,448 29,291 25,653

Net income for the year 28,531 25,084 28,531 25,084Depreciation and amortization 706 528 760 569Equity picked -up in subsidiaries 47 (164) - -

Adjustment to market value – securities and derivatives (711) (918) (711) (918)Changes in deferred income (43) 178 (43) 178

Capital increase 5,860 3,087 5,860 3,087

Third party funds from 410,630 310,583 415,556 310,405Increase in liabilities 409,913 190,383 415,541 190,262

Deposits 154,893 140,164 160,541 139,998Money market funding 32,754 - 32,754 -Interbranch accounts 27,918 1,491 27,918 1,491Borrowings and onlendings 49,507 17,138 49,507 17,138Derivative financial instruments 35,455 22,209 35,456 22,209Other liabilities 109,386 9,381 109,365 9,426

Decrease in assets - 119,690 - 119,633Interbank investments - 112,442 - 112,442Interbank accounts - 420 - 420Other credits - 6,828 - 6,771

Disposal of assets and investments 15 510 15 510Premises and equipment 15 510 15 510

Dividends received 702 - - -

USE OF FUNDS 446,936 338,028 451,869 338,055Interest on capital 14,639 15,338 14,639 15,338Additions to 483 1,089 483 1,089

Investments 16 4 16 4Premises and equipment 467 1,085 467 1,085

Deferred charges 3 974 3 1,001Increase in assets 421,261 308,221 426,194 308,221

Interbank investments 75,345 - 75,345 -Marketable securities and derivative financial instruments 135,460 115,251 140,952 115,251Interbank accounts 4,180 - 4,180 -Lending operations 144,404 192,689 144,404 192,689Other credits 61,116 - 61,249 -Other assets 756 281 64 281

Decrease in liabilities 10,550 12,406 10,550 12,406Acceptance and issuance of securities 10,550 12,406 10,550 12,406

Increase (decrease) in cash (1,916) 350 (1,916) 350

Changes in cash positionCash and banks:

Beginning of yearAs reported 4,447 3,614 4,447 3,614Translation adjustment 423 483 423 483Adjusted balances 4,870 4,097 4,870 4,097

End of year 2,954 4,447 2,954 4,447

Increase (decrease) in cash (1,916) 350 (1,916) 350


12 BANCO ABC BRASIL S.A.STATEMENTS OF CHANGES IN CASH POSITIONYears ended December 31, 2006 and 2005(In thousands of U.S. dollars)

BANCO ABC BRASIL S.A.NOTES TO FINANCIAL STATEMENTS

December 31, 2006 and 2005(In thousands of U.S. dollars)

13

1. Operations

The Bank is a subsidiary of The Arab Bank Corporation, based in Bahrain. In Brazil, the Bank is engaged in banking and related

lending activities, including foreign exchange and services that commercial banks, investment banks and credit, financial and

investment institutions are allowed to provide, through their respective portfolios and in accordance with legal provisions and

regulatory requirements.

The Bank’s operations are conducted through branches in Brazil and abroad through an overseas branch located in Georgetown,

Grand Cayman Islands.

2. Financial Statements Presentation, Consolidation Criteria and Summary ofSignificant Account Practices

I - Financial statement presentation and consolidation criteria

The financial statements (Bank and consolidated) have been prepared in accordance with accounting practices adopted in Brazil

and Central Bank of Brazil (BACEN) instructions and standards. The consolidated financial statements include the accounts of the

Bank and those of the following subsidiaries for which the direct and indirect ownership interest as of December 31, 2006 and 2005

is equivalent to approximately 100%:

ABC BRASIL Distribuidora de Títulos e Valores Mobiliários S.A.

ABC BRASIL Administração e Participações Ltda.

The accounting practices followed to record operations and evaluate assets of the Bank, including the operations conducted by its

foreign branch, and its consolidated subsidiaries have been consistently applied. Investments, rights, obligations and transactions

between consolidated entities have been eliminated.

The U.S. dollar amounts are presented solely for the convenience of the foreign readers and represent the translation of the local

currency amounts into U.S. dollars at the balance sheet date exchange rate of R$ 2.1380 and R$ 2.3407 per US$ 1.00 as of

December 31, 2006 and 2005, respectively. This translation should not be considered as being a representation that amounts

expressed in Brazilian currency actually represent or have been or could be converted into U.S. dollars.

II - Significant accounting practices

The significant accounting practices are summarized as follows:

a) Asset valuation criteriaInterbank investments, loans and other rights, except for marketable securities and derivative financial instruments, are stated

at cost plus exchange rate variance, monetary adjustment and contractual interest. Allowances are recognized for adjustment

to realizable value when the net realizable value is lower.

Marketable securities and derivative financial instruments are classified in accordance with the management intent and are

recorded as follows:

- Trading securities: are acquired for the purpose of being actively and frequently traded. They are adjusted to market value

with the related gain or loss recognized directly in income.

BANCO ABC BRASIL S.A.NOTES TO FINANCIAL STATEMENTS - CONTINUEDDecember 31, 2006 and 2005(In thousands of U.S. dollars)

14

- Held to maturity: marketable securities for which the Bank has the intent and ability to maintain in portfolio to

maturity are stated at cost, plus income earned reflected in income.

- Available for sale: marketable securities which are not classified as either trading securities or held to maturity are

adjusted to market value; the difference between the amounts updated based on the yield curve of the security and

market value is recorded in a separate caption in shareholders’ equity, net of tax effects and transferred to operating

results, when effectively realized, through the definitive sale of the respective securities.

- Derivative financial instruments: adjusted to market value with the related gain or loss recognized in income.

The allowance for loan losses or doubtful accounts is recognized in an amount considered sufficient to cover potential

losses on the Bank’s loan portfolio, based on past experience, an assessment of delinquent accounts and collateral risks,

as well as specific terms and conditions of the operations.

Investments in subsidiaries are carried under the equity method in proportion to the Bank’s ownership interest; other

investments are stated at cost, less a reserve, where applicable, to cover permanent losses.

Fixed assets are stated at cost, less depreciation, where applicable, provided under the straight- line method over the

estimated useful lives of the assets.

Deferred charges are stated at cost less accumulated amortization.

b) Liability valuation criteriaObligations, charges and calculable or known risks, including taxes on income for the year, are stated at the amounts

updated through the balance sheet date.

Foreign-currency obligations are remeasured into local currency at the exchange rates prevailing on the balance sheet

date, disclosed by the Central Bank of Brazil (BACEN). Liabilities subject to monetary adjustment based on contractual

clauses are stated at the amounts updated through the balance sheet date.

c) Classification of current and noncurrent /long - term assets and liabilitiesOperating assets and liabilities with maturities or effective possibility of settlement up to one year from the balance sheet

date are classified as current and those with later maturities or effective possibility of settlement are classified as

noncurrent/long term.

d) Recognition of revenues and expensesRevenues and expenses, including income, charges, monetary or exchange variations at inflation indices or exchange

rates applicable to current and noncurrent/long term assets and liabilities, are recognized on the accrual basis. Income

and expenses also include the effects of asset adjustments to market or realizable value. Interest on past-due loan

installments outstanding for over 60 days is recognized only when the respective amount is received.

Deferred income and social contribution taxes on temporary differences arising from nontaxable or nondeductible

income and expenses, the future additions or exclusions of which are authorized by tax legislation, are also determined

on the accrual basis.

e) Contingent assets and liabilities and legal, tax and social security liabilitiesThe recognition, measurement and disclosure of contingent assets and liabilities, and legal liabilities take place according

to the criteria described below:

- Contingent assets – are not recognized in the financial statements, except when there is evidence providing guarantee

of their realization, on which further appeals can no longer be filed.

- Contingent liabilities – are recognized in the financial statements when, based on the opinion of legal advisors and Bank

management, the risk of loss of a legal or administrative proceeding is regarded as probable, with a probable outflow of

funds for settling the liabilities, and when the amounts involved may be measured with sufficient accuracy. Contingent

liabilities classified by legal advisors as possible losses are only disclosed in notes, whereas those classified as remote

losses do not require provision or disclosure.

- Legal liabilities – tax and social security – refer to lawsuits aiming to challenge the legality and constitutionality of certain

taxes and contributions. The amount in question is quantified, recorded and restated on a monthly basis.

3. Interbank Investments

Money market investments are backed by government securities and have one-day maturities. Interbank deposits maturities

until September, 2008.

4. Marketable Securities and Derivative Financial Instruments

a) Marketable SecuritiesAt December 31, 2006 and 2005, the classification securities are as follows:

Bank andBank Consolidated consolidated2006 2006 2005

Yield curve Market value Yield curve Market value Market value

Trading securitiesEurobonds 10,206 10,248 10,206 10,248 4,911National treasury notes – “NTN-B” 20,840 21,840 20,840 21,840 -National treasury bill - - 5,474 5,479 -Subtotal - Trading securities 31,046 32,088 36,520 37,567 4,911Securities available for saleFinancial treasury bills - - - - 16,490National treasury bill 159,624 160,327 159,624 160,327 72,698Time deposits 2,441 2,426 2,441 2,426 1,079National treasury notes - “NTN - B” - - - - 29,418Central bank notes - “NBC-E” - - - - 5,975Debentures 7,395 7,412 7,395 7,412 5,857Eurobonds 35,627 35,725 35,627 35,725 7,861Others 9,417 9,417 9,417 9,417 -Subtotal - Securities available for sale 214,504 215,307 214,504 215,307 139,378Total 245,550 247,395 251,024 252,874 144,289

At December 31, 2006, the unrealized gains on securities classified as available for sale reached US$803 (US$1,719 in

2005), which are recorded in shareholders' equity under “Mark to market – marketable securities and derivatives”, net of

tax effect, amounting to US$530 (US$1,134 in 2005).

15

The Bank’s portfolio at December 31, 2006 classified by maturity or effective possibility of settlement, are as follows:

Bank2006

Up to 1 1 to 3 3 to 6 6 to 12 1 to 3 Over 3month months months months years years Total

Trading securitiesEurobonds 10,248 - - - - - 10,248National treasury notes–“NTN-B” 21,840 - - - - - 21,840Subtotal – Trading securities 32,088 - - - - - 32,088Securities available for saleNational treasury bill 160,327 - - - - - 160,327Time deposits 464 1,962 - - - - 2,426Debentures - - - 252 893 6,267 7,412Eurobonds 12,386 81 595 8,045 12,594 2,024 35,725Others - - 9,417 - - - 9,417Subtotal – Securities available for sale 173,177 2,043 10,012 8,297 13,487 8,291 215,307Total – 2006 205,265 2,043 10,012 8,297 13,487 8,291 247,395Total – 2005 125,091 1,914 28 3,047 3,748 10,461 144,289

The consolidated includes National Treasury Bills of subsidiary ABC BRASIL Distribuidora de Títulos e Valores Mobiliários

S.A., totaling US$ 5,479, with maturity on April 1, 2007.

b) Derivative financial instruments

The Bank operates in the derivatives market to hedge against market price variances and reduce exposure to risk related

to foreign currency and interest rates of its assets and liabilities and cash flows contracted under compatible terms, rates

and amounts. The Bank also conducts operations for normal trading.

The operations are under the custody of the Futures and Commodities Exchange (BM&F) or the Clearinghouse for the

Custody and Financial Settlement of Securities (CETIP).

The market values of these derivative financial instruments are determined based on quotations disclosed by specialized

stock exchanges and, in certain cases, when there is no liquidity or market quotation, estimates of present values and

other pricing techniques are used.

The bases adopted for determining market prices are as follows:

- Futures: stock exchange quotations;

- Options: determined based on the criteria set forth in the contracts.

- Swaps: cash flows for each contract are discounted to present value, in accordance with the respective interest rate

curves, obtained based on BM&F prices;

Differentials and adjustments to derivative financial instruments are recorded in the respective balance sheet accounts

and recognized in the result of operations. At December 31, 2006 and 2005, they are adjusted to market value and the

notional value of financial instruments is recorded in memorandum accounts, as follows:


16

Bank2006 2005

Cost - Receivable/Notional received Market Market

value (Payable/paid) value valueFUTURES CONTRACTS 507,593 - - -Purchase commitments 238,485 - - -

Interbank market 77,765 - - -Foreign currency 160,720 - - -

Sales commitments 269,108 - - -Interbank market 181,792 - - -Foreign currency 87,316 - - -

ASSET POSITION 1,112,354 153,659 154,889 99,429Swap contracts 93,909 814 1,494 5,247

Interbank market 12,018 472 619 4,727Foreign currency - - - 517Fixed rates 70,433 219 463 3Others 11,458 123 412 -

Options contracts 686,927 537 1,087 55Purchase commitments 561 8 1 55

Others 561 8 1 55Sales commitments 686,366 529 1,086 -

Others 686,366 529 1,086 -Other financial instruments 331,518 152,308 152,308 94,127

Non-deliverable forwards (NDF) 327,113 143,361 143,361 85,923Others 4,405 8,947 8,947 8,204

LIABILITIES POSITION 717,284 (84,348) (105,447) (63,931)Swap contracts 465,182 (5,641) (25,351) (13,201)

Interbank market 449,287 (5,483) (25,159) (2,994)Foreign currency 3,488 (129) (142) (10,195)Fixed rates 12,407 (29) (50) (12)

Options contracts 134,160 (67,138) (68,527) (42,397)Purchase commitments 112,418 (47,181) (48,034) -

Others 112,418 (47,181) (48,034) -Sales commitments 21,742 (19,957) (20,493) (42,397)

Others 21,742 (19,957) (20,493) (42,397)Other financial instruments 117,942 (11,569) (11,569) (8,333)

Non-deliverable forwards (NDF) 113,536 (2,240) (2,240) (1,139)Others 4,406 (9,329) (9,329) (7,194)

The consolidated as of December 31, 2006 includes options transactions, of subsidiary ABC BRASIL Distribuidora de Títulos

e Valores Mobiliários S.A., the assets (sale commitment) totaling US$ 13 and the liabilities (purchase commitment) totaling

US$ 1, with maturity dates October 1, 2007 and May 15, 2007, respectively.

17

Derivative financial instruments by maturity, as of December 31, 2006 and 2005, are as follows:

Bank2006 2005

Up to 1 1 to 3 3 to 6 6 to 12 1 to 3 Over 3month months months months years years Total Total

Memorandum accountsFutures contracts 128,609 183,682 23,866 32,756 138,680 - 507,593 268,416Swap contracts 106,158 58,604 20,792 214,372 51,789 107,376 559,091 374,846Option contracts 71,221 109,471 14,289 5,040 621,066 - 821,087 175,829Other financial

instruments 2,277 111,846 5,856 316,358 13,123 - 449,460 762,911Total - 2006 308,265 463,603 64,803 568,526 824,658 107,376 2,337,231 -Total – 2005 274,613 349,277 72,450 101,968 783,694 - - 1,582,002

- Asset positionSwap contracts 315 202 663 214 100 - 1,494 5,247Options 56 11 1 - 1,019 - 1,087 55Other financial

instruments 3,151 1,769 3,338 143,161 889 - 152,308 94,127Total - 2006 3,522 1,982 4,002 143,375 2,008 - 154,889 -Total - 2005 4,339 704 3,056 4,756 86,574 - - 99,429

- Liability positionSwap contracts (2,549) (6) (56) (8,914) (3,298) (10,528) (25,351) (13,201)Options (5,400) (47,772) (8,214) (4,212) (2,929) - (68,527) (42,397)Other financial

instruments (2,318) (3,712) (3,523) (1,553) (463) - (11,569) (8,333)Total - 2006 (10,267) (51,490) (11,793) (14,679) (6,690) (10,528) (105,447) -Total - 2005 (6,268) (15,182) (19,651) (16,680) (6,150) - - (63,931)

Gains (losses), net, on derivative financial instruments for the year ended December 31, 2006 and 2005, are as follows:

Bank2006 2005

Gains Losses Total TotalSwaps 14,941 (38,447) (23,506) (6,481)Futures 111,620 (130,378) (18,758) (38,193)Options 8,757 (11,871) (3,114) (1,143)Non-deliverable forwards (NDF) currency swaps 64,681 (22,209) 42,472 40,259Total 199,999 (202,905) (2,906) (5,558)

Consolidated results with derivative financial instruments, at December 31 includes net loss of US$ 171 (US$ 134 in2005) consisting of expenses with futures transactions totaling US$ 241 (US$ 134 in 2005), income from swaptransactions reaching US$ 59 and income from options totaling US$ 11.

5. Interbank Accounts

Unsettled payments and receipts to clearing houses and Central Bank deposits are primarily represented by compulsory

deposits on funding through demand deposits and foreign exchange operations. No interest income results from these deposits.

18 BANCO ABC BRASIL S.A.NOTES TO FINANCIAL STATEMENTS - CONTINUEDDecember 31, 2006 and 2005(In thousands of U.S. dollars)

6. Lending OperationsLoans and other credits are as follows:

Bank and consolidated2006 2005

Private sectorFinancial Manu- Public

intermediaries facturing Commercial Services Individuals sector Total TotalLoansLoans 2,034 107,315 106,655 216,158 12,488 - 444,650 410,264Loans – others - - - - 6,736 - 6,736 -Financing – BNDES/Finame - 78,794 16,076 49,808 2,975 5,526 153,179 94,568Financing - Export - - - 5,859 - - 5,859 -Foreign onlendings - 23,100 3,132 4,992 828 - 32,052 34,051Foreign currency loans 12,029 65,047 14,800 26,989 3,543 - 122,408 114,206Discounted receivables - 1,546 1,143 5,750 - - 8,439 13,365Direct consumer credit 28,675 - - - - - 28,675 10,722Secured accounts - 55,490 12,032 29,692 113 - 97,327 48,199Loans with intervention - - 10,996 - - - 10,996 3,863Acquisition of accounts receivable 80,459 - - - - - 80,459 55,914Financing – Rural - 6,144 - 6,011 14,117 - 26,272 10,140Subtotal – Loans 123,197 337,436 164,834 345,259 40,800 5,526 1,017,052 795,292Other creditsAdvances on export contracts

and interest - 26,173 27,452 19,294 - - 72,919 53,609Receivables from export

contracts - 310 - - - - 310 12,883Notes receivable - 1,130 74 65 622 - 1,891 863Subtotal - Other credits - 27,613 27,526 19,359 622 - 75,120 67,355Total – 2006 123,197 365,049 192,360 364,618 41,422 5,526 1,092,172 -

Total – 2005 67,368 328,888 145,881 274,382 22,196 23,932 - 862,647

Bank and consolidated2006

MaturitiesPast-due

Up to 1 1 to 3 3 to 6 6 to 12 1 to 3 Over 3 after 15month months months months years years days Total

LoansLoans 29,537 77,737 78,051 101,549 134,535 23,129 112 444,650Loans – Others 269 580 822 1,395 3,321 311 38 6,736Financing – BNDES/Finame 4,767 6,968 13,151 22,791 72,385 33,117 - 153,179Financing – Export - 305 433 926 3,703 492 - 5,859Foreign onlendings 6,685 10,930 8,095 6,181 161 - - 32,052Foreign currency loans 16,316 9,217 20,276 33,875 35,664 6,427 633 122,408Discounted receivables 2,207 466 213 5,553 - - - 8,439Direct consumer credit 1,351 2,460 3,377 6,488 14,987 12 - 28,675Secured accounts 20,427 44,112 31,262 470 - - 1,056 97,327Loans with intervention 1,680 2,696 2,993 3,627 - - - 10,996Acquisition of accounts receivable 3,345 6,147 9,225 18,264 39,430 4,048 - 80,459Financing – Rural 450 1,491 1,237 2,345 11,128 9,581 40 26,272Subtotal – Loans 87,034 163,109 169,135 203,464 315,314 77,117 1,879 1,017,052Other creditsAdvances on export contracts and interest 22,703 26,460 12,956 10,201 46 - 553 72,919Receivables from export contracts 52 103 155 - - - - 310Notes receivable 71 128 74 261 725 35 597 1,891Subtotal - Other credits 22,826 26,691 13,185 10,462 771 35 1,150 75,120Total - 2006 109,860 189,800 182,320 213,926 316,085 77,152 3,029 1,092,172

Total - 2005 103,867 139,911 139,381 182,939 244,134 49,593 2,822 862,647

19

Credit risk concentration is as follows:


% of % of% of shareholders’ % of shareholders’

Balance portfolio equity Balance portfolio equityMain debtor 22,454 2.06 10.94 20,255 2.35 11.9110 main debtors 164,264 15.04 80.03 151,490 17.56 89.0920 main debtors 265,252 24.29 129.24 237,953 27.58 139.93

7. Allowance for Loan and Other Credit Losses

As of December 31, 2006 and 2005, the portfolio of loans and other assets, and the allowance for losses, are as follows:


Total operationsLevel of Normal Total

Risk rating allowance (%) course Past due Total Allowance operations AllowanceAA - 63,202 - 63,202 - 74,701 -

A 0,5% 445,479 - 445,479 2,227 278,247 1,390B 1,0% 443,490 177 443,667 4,437 374,172 3,741C 3,0% 126,936 60 126,996 3,810 129,228 3,876D 10,0% 8,159 3 8,162 816 4,186 419E 30,0% 62 5 67 20 1,344 403F 50,0% 400 26 426 213 74 37G 70,0% 62 890 952 666 58 41H 100,0% 1,353 1,868 3,221 3,221 637 637

Total 1,089,143 3,029 1,092,172 15,410 862,647 10,544

Changes in the allowance for loan and other credit losses for the years ended December 31, 2006 and 2005, are as follows:

Bank and consolidated2006 2005Other

Loans credits Total TotalBalance, beginning of the year 9,192 1,352 10,544 9,652Translations adjustment 2,259 1,909 4,168 (399)Provisions (reversal) (305) - (305) -Write-offs 873 130 1,003 1,291Balance, end of the year 12,019 3,391 15,410 10,544

As of December 31, 2006, renegotiated loans amount to US$ 2,415 (US$ 1,761 in 2005) Bank and Consolidated. Loans

renegotiated during the year ended December 31, 2006 amount to US$ 1,480 (US$ 854 in 2005).

The amount of recovered credits, previously offset in provision, in the year ended December 31, 2006 was US$ 696

(US$ 208 in 2005).


8. Other credits

a) The foreign exchange asset portfolio is as follows:


Foreign exchange purchased 150,144 80,829Receivables from foreign exchange sold 83,228 28,870Advances received (38,226) (832)Income receivable from advances on exchange contracts 1,420 1,353Total 196,566 110,220

b) The trading account in current assets is substantially represented by receivables from the settlement of operations for financial

assets registered on stock exchanges.

c) Other credits - other are as follows:


Receivables from export contracts 311 12,883 311 12,883Tax credits (Note 18) 7,181 10,072 7,361 10,144Debtors for guarantee deposits 1,646 1,812 1,646 1,816Income tax available for offset 11,354 7,680 11,431 7,731Notes receivable 1,892 863 1,892 863Others 1,183 196 1,252 247Total 23,567 33,506 23,893 33,684

9. Investments

ABC BRASILDistribuidora ABC BRASIL

de Títulos e AdministraçãoValores e Participações

Mobiliários S.A. Ltda. 2006 2005Total Total

Social Capital 2,853 2,634Shareholders’ equity 5,678 1,782Net income (loss) 150 (197)Number of common shares owned 4,712,064 -Number of preferred shares owned 4,712,064 -Number of quotas - 5,631,814Ownership interest (%) 100 99.99Book value 5,678 1,782 7,460 7,482Equity pick-up in subsidiaries 150 (197) (47) 164

21

As of December 31, 2006 and 2005, related-party transactions are as follows:

Income /(Expenses)Assets /(Liabilities) Year

2006 2005 2006 2005Marketable securities and derivative instruments, net 116,283 81,654 24,825 44,897Demand deposits (688) (1,062) - -Interbank deposits - (5,594) (681) (957)Time deposits (75,775) (58,241) (5,129) (2,891)Dividends and interest on capital (7,177) (10,084) (15,086) (15,337)Other liabilities (1,085) (17) (7,980) (1,782)

The above amounts refer to Bank transactions with subsidiaries and related companies. The rates used by the Bank in

operations with related parties approximate usual market rates and conditions prevailing at the date of the transactions.

10. Overseas Branch

The balances of the assets and liabilities not eliminated in the consolidation process carried out by the foreign branch at

December 31, 2006 and 2005 are as follows :

2006 2005AssetsCash and banks 1,014 582Interbank investments 53,960 28,976Marketable securities and derivative financial instruments 55,911 22,712Lending operations 130,555 148,983Allowance for loan losses (1,643) (1,029)Other credits 1,641 2,346Other assets 83 6Total 241,521 202,576

LiabilitiesDemand deposits 458 893Time deposits 89,991 89,755Acceptance and issuance of securities (Note 13) 7,044 16,071Foreign borrowings 203,577 199,527Derivative financial instruments 35,059 10,432Other liabilities 12,332 5,769Total 348,461 322,447

11. Premises and equipament

They are depreciated using the straight- line method at the following annual rates:

- Furniture and fixtures and communication and security equipment - 10%;

- Vehicles and EDP equipment - 20%.


12. Deposits and Money Market Funding

Interbank, time deposits and money market funding are made at prevailing market rates, with maturities as follows:


Without Up to 3 3 to 12 1 to 3 Over 3maturity months months years years Total Total Total Total

Demand deposits 32,305 - - - - 32,305 12,834 32,210 12,791Interbank deposits - 6,501 2,784 - - 9,285 11,598 9,285 6,004Time deposits - 228,032 192,367 260,483 11,929 692,811 504,913 691,964 504,530Other deposits 29 - - - - 29 6 29 6Money market funding - 32,754 - - - 32,754 - 32,754 -Total – 2006 32,334 267,287 195,151 260,483 11,929 767,184 - 766,242 -

Total – 2005 12,839 221,572 132,890 150,383 11,667 - 529,351 - 523,331

13. Acceptance and Issuance of Securities

Represents promissory notes issued through the Cayman branch, with market interest rates and maturities to December 2007.

14. Borrowings and Onlendings

Domestic and foreign borrowing and onlending obligations, by maturity, are as follows:


Up to 3 3 to12 1 to 3 Over 3months months years years Total Total

Borrowings:Domestic 5,277 2,389 - - 7,666 4,701Foreign 86,129 102,441 38,208 1,000 227,778 225,850

Onlending – Domestic:BNDES 1,901 8,492 19,512 12,694 42,599 36,236FINAME 11,265 31,293 64,674 30,403 137,635 67,674

Total – 2006 104,572 144,615 122,394 44,097 415,678 -

Total – 2005 60,782 177,630 73,087 22,962 - 334,461

Foreign borrowings represent funds obtained in the international market for application in commercial foreign exchange

operations in connection with export and import financing. These obligations are subject to exchange rate variances and

interest at rates prevailing in the international market and are adjusted for exchange rate variance plus financial charges

incurred through the balance sheet date.

Special funds and programs managed by government institutions, which are onlent to final borrowers in Brazil, are adjusted

based on official indices and financial charges incurred through the balance sheet date.

23

15. Other liabilities

a) The foreign exchange liabilities portfolio is as follows:


Foreign exchange sold 82,655 28,926Payables for foreign exchange purchased 151,431 82,036Advances on exchange contracts (71,498) (52,256)Advances on foreign currency - (595)Total 162,588 58,111

b) The taxes and social security are as follows:


Income and social contribution taxes payable 3,720 - 3,761 63Deferred income and socialcontribution tax (note 18) 30,913 27,652 30,917 27,652Taxes payable 3,724 4,589 3,740 4,610Provision for fiscal risks 1,402 384 1,415 384Total 39,759 32,625 39,833 32,709

c) The other liabilities - other are as follows:


Accruals 17,743 7,928 17,768 7,953Other domestic creditors 2,988 1,442 2,988 1,442Reserve for contingent liabilities 4,116 3,760 4,745 4,335Payables 5 4 - -Total 24,852 13,134 25,501 13,730

16. Other operating income

The total amount of other operating income – Bank and consolidated, presented in the statement of income at December 31,

2006 are US$ 1,457 and US$ 1,464, respectively, which are basically represented by interest and updating of assets (US$ 557),

reversal of provisions (US$ 376), interest expenses recovers (US$ 60) and other income (US$ 471). At December 31, 2005, the

amounts of US$ 2,409 and US$ 2,415, Bank and consolidated, respectively, were basically represented by interest and updating

of assets (US$ 732), commissions (US$ 1,189), reversal of provisions (US$ 296), interest expenses recovers (US$ 70) and other

income (US$ 128).

17. Other operating expenses

The total amount of other operating expenses – Bank and consolidated, presented in the statement of income at December 31,

2006 are US$ 3,932 and US$ 3,984, respectively, which were represented by monetary variance of foreign investment (US$

1,307), financial intermediation commissions (US$ 595), provision for contingencies (US$ 487), interest and updating calculated

on taxes (US$ 511), tax amnesty (US$ 714) and other expenses (US$ 370). At December 31, 2005, the amount of US$ 7,211 was

represented by monetary variance of foreign investment (US$ 3,602), financial intermediation commissions (US$ 459), provision

for contingencies (US$ 2,862), interest and updating calculated on taxes (US$ 125) and other expenses (US$ 163).


18. Income and Social Contribution Tax

As established by BACEN Resolution N° 3,059/2002, the Bank recorded the net balance tax credits and liabilities based on

the matching of forecast realization or payment maturity dates. The net balance of such credits and liabilities on December

31, 2006 and 2005 is show as follows:


Other credits – sundry – tax credits (Note 8.c) 7,181 10,072 7,361 10,144Other tax and social security liabilities (Note 15.b) (30,913) (27,652) (30,917) (27,652)

(23,732) (17,580) (23,556) (17,508)

The consolidated financial statements include a credit related to tax losses carryforwards of US$ 175 (US$ 72 in 2005),

which is estimated to be realized over the year 2007.

The nature and origin of tax credits and deferred tax liabilities, as well as the changes occurred therein during the period

are stated as follows:

Translation12/31/2005 adjustment Additions Writeoffs 12/31/2006

Tax credits – Banka) Temporary differences:

Exchange losses 2,277 216 3,708 (5,104) 1,097Allowance for doubtful accounts 3,672 348 13,181 (11,626) 5,575Adjustment to market value of securities and derivative instruments 2,297 217 13,108 (827) 14,795 Adjustment to market value of market futures 1,806 172 2,168 (4,004) 142

b) Social contribution – Art. 18 of PM No. 2158-35 23 2 - - 25c) Mark to market value – available for sale securities 39 3 21 (54) 9d) Loss from foreign agency 7,159 679 322 (2,412) 5,748e) Loss carryforward – social contribution 1,588 151 - (1,659) 80

18,861 1,788 32,508 (25,686) 27,471Deferred tax liabilities – Banka) Temporary differences:

Exchange gains (4,788) (453) (4,875) 8,613 (1,503)Adjustment to market value of securities and derivative instruments (29,179) (2,766) (19,834) 2,433 (49,346)Adjustment to market value of market futures (1,508) (143) (1,067) 2,647 (71)

b) Mark to market value – available for sale securities (623) (60) (913) 1,313 (283)c) Deferred PIS/Cofins (343) (33) - 376 -

(36,441) (3,455) (26,689) 15,382 (51,203)Net balance (17,580) (1,667) 5,819 (10,304) (23,732)

The realization of credits and deferred tax liabilities existing as December 31, 2006, based on the history of profitability and

estimated realization, is shown as follows:

Year Assets Liabilities Net2007 25,035 (50,094) (25,059)2008 1,652 (1,071) 5812009 372 (36) 3362010 130 (2) 1282011 282 - 282

Total 27,471 (51,203) (23,732)Present value - Selic 24,201 (45,614) (21,413)

There is no pending litigation regarding the amounts of tax credits and deferred tax liabilities.

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Expenses with income and social contribution taxes for the years ended December 31, 2006 and 2005 are calculated

as follows:


Income before taxation less profit sharing 37,479 33,536 37,423 33,565Total income and social contribution taxes - 25% and 9% 12,743 11,402 12,724 11,412Nondeductible expenses net of nontaxable revenues (3,984) (7,719) (3,980) (7,719)Equity pickup 16 (56) - -Interest on capital (Note 20) (4,978) (5,215) (4,978) (5,215)Tax loss carryforwards - 1,588 - 1,588Other amounts (77) - (106) (37)Total income and social contribution tax – current 3,720 - 3,660 29

Deferred taxesTax liabilities set up in the year 25,776 36,192 25,780 36,192Tax liabilities realized in the year (13,693) (21,844) (13,693) (21,844)Tax credits set up in the year (32,487) (32,780) (32,487) (32,780)Tax credits realized in the year 25,632 26,884 25,632 26,884Total deferred taxes 5,228 8,452 5,232 8,452

Total income and social contribution taxes 8,948 8,452 8,892 8,481

19. Contingent assets and liabilities and legal, tax and social securityliabilities

The criteria of recognition and base of measurement for determining the contingent assets and liabilities in which the Bankand its subsidiaries are involved, as a result of their usual activities, take into account a detailed study of legal actions andadministrative proceedings, and are based on the professional opinion of lawyers in charge of those proceedings.

a) Contingent assets: No contingent assets are recorded in the books. However, the Bank is claiming in court the refund ofoverpaid amounts of Social Contribution Tax on Gross Revenue for Social Security Financing (COFINS) since they werepaid in excess of the amounts established by Complementary Law No. 7/70, as well as the refund of amounts referred toSocial Contribution Tax on Net Profit (CSLL) according to Constitutional Amendment No. 1 dated March 1, 1994, wherethe tax fairness is claimed. Success in those proceedings is considered possible.

b) Tax risks: the Bank is involved in proceedings whose loss is regarded as possible by company management and legaladvisors. Provisions have not been set up for those proceedings. The most significant of them are as follows :

PIS – US$ 303 (US$ 321 in the consolidated). With relation to the period July 1997 through December 1999, there arequestionings concerning the collection starting date and the tax base determined by the Provisory Measures containedin the regulations, which are not consistent with Constitutional Amendment No. 17 dated November 22, 1997. Regardingthe following period, the constitutionality of the tax base provided for in Law No. 9718 dated November 27, 1998 is beingquestioned.

COFINS – US$ 2,993 (US$ 3,031 in the consolidated). Also the constitutionality of the tax base according to Law 9718dated November 27, 1998 is being questioned. During 2006, partial provisions were set up totaling US$ 1,018 in the Bankand US$ 1,031 in the consolidated (US$ 384 in 2005 for the Bank and the consolidated), totaling US$ 1,402 in the Bankand US$ 1,415 in the consolidated.

CSLL / Legal entity without employees – US$ 3,236 in the consolidated. Writ of Mandamus aiming at the nonpayment ofthis contribution.


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c) Contingent liabilities: the Bank has a provision for contingent liabilities regarded by company management as probable

losses. Such provisions basically refer to the right of tax offsets performed by the Bank and questioned tax authorities.

In 2006, the amount allocated to provision for other contingent liabilities totaling US$ 3,181 in the Bank and US$ 3,810

in the consolidated, the same balance as in 2005.

d) Labor accruals: individual analyses of the possible loss amount are performed considering the present stage of the

proceeding, the position of Court with relation to the subject in question and the opinion of external and internal legal

advisors. The amount pointed out as probable loss risk based on a reliable estimate is entirely accrued. In 2006, the

provision for labor risks totaled US$ 935 in the Bank and in the consolidated, the same balance as in 2005.

e) Civil provisions : the Bank is not involved in civil suits which represent significant amounts, and according to the expectations

of company management and legal advisors the possibility of success in the proceedings in progress is considerable.

20. Shareholders ’ Equity

Capital is represented by 1,140,553 common shares (1,107,988 in 2005) without par value. Shareholders are entitled to an

annual minimum dividend equal to 25% of adjusted net income, in accordance with corporate law and the Bank’s bylaws.

During the years ended December 31, 2006 and 2005, resolutions by Shareholders approved distribution of dividends and

interest on capital as per the amounts set forth below:

Reduction of expensesInterest on on income tax and

Date of Resolution capital social contribution06/30/2006 7,745 2,63412/31/2006 6,894 2,344

Total – 2006 14,639 4,97803/31/2005 3,632 1,23512/30/2005 11,706 3,980Total – 2005 15,338 5,215

The Extraordinary General Shareholders’ Meeting held on December 31, 2006 approved a capital increase through

capitalization of interest accrued as of that date (US$ 6,894), net of taxes levied thereon, in the amount of US$ 5,860, with the

issuance of 32,565 new shares. This increase was approved by Central Bank of Brazil at January 23, 2007.

Interest on capital is calculated on shareholders’ equity and limited to the TJLP (Brazilian long-term interest rate), contingent

upon the existence of profits computed before the interest deduction or retained earnings and profit reserves, in an amount

equal to or twice that amount.

21. Guarantees and responsibilitiesBank and consolidated

2006 2005Guarantees provided on behalf of clients (a) 263,621 240,511Important credit facilities 5,755 9,680

(a) Guarantees provided on behalf of clients are subject to financial charges and counterguarantees by the respective beneficiaries.

22. Operating limits – Basel agreement

Shareholders’ equity is compatible with the financial conglomerate’s assets weighted in accordance with the risk criteria

established by BACEN Resolution No, 2,099, dated August 17, 1994 and additional rules. The ratio of shareholders ’ equity to

the weighted assets as of December 31, 2006, is 13.86% (14.28% in 2005). Risk-weighted assets are shown in the table below:

Risk-weighted assetsRisk-weighting factors 2006 2005

Reduced risk 20%: 11,829 862Reduced risk 50%: 270,942 10,960Normal risk 100%: 1,083,600 1,097,040Special risk 300% (tax credits): 21,544 30,216Total 1,387,915 1,139,078Risk factor 11% 11%

152,671 125,29920% credit risk on swap operations 8,788 6,123Market risk – currency exposure - -Market risk - fixed rate 1,383 1,290Required shareholders’ equity 162,842 132,712Consolidated shareholders’ equity as of December 31 205,246 170,050

Accountant

Adilson Joaquim Pereira


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The Board of DirectorsChairman Anwar Ali Al Mudhaf

Vice Chairman Ramez Abou Rizk

Member of the Board Asaf Mohyddin

Member of the Board Tito Enrique Silva Neto

President and Chief ExecutivesChef Executive Officer Tito Enrique Silva Neto

Executive Vice-President Anis Chacur Neto

Executive Vice-President José Eduardo Cintra Laloni

Executive Vice-President Gustavo Arantes Lanhoso

Executive Vice-President Sérgio Lulia Jacob

Executive Director Marco Antônio de Oliveira

Banco ABC BRASIL S.A.

CNPJ: 28.195.667/0001-06

São Paulo, SP, BrazilAv. Presidente Juscelino Kubitschek, 1.400/4º 04543-000

Tel.: (0XX11) 3170 2000 Fax: (0XX11) 3170 2001

Rio de Janeiro, RJ, BrazilAv. Ataulfo de Paiva, 482/6º 22440-33

Tel.: (0XX21) 2512 9000 Fax: (0XX21) 2422 3395

Campinas, SP, BrazilAv. Selma Parada, 201 Ed. II Cj. 211 13091-901

Tel.: (0XX19) 3207 1000 Fax: (0XX19) 3207 1112

Cayman Island

Internet: www.abcbrasil.com.br

abc brasil - annual report 2006

Documents

credit limits

cayman branch

bankingbrazilabc brasil

arab banking corporation

bank directors

financial committee

credit analysis department

conquered clients