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Risk Management Report - Pilar III 4Q15
RISK MANAGEMENT REPORT
PILLAR III
BANCO DO BRASIL S.A.
4th Quarter 2015
Risk Management Report – Pillar III – 4Q15 3
Sumary
Banco do Brasil ...................................................................................................................................................... 11
1. Objective ................................................................................................................................................. 12
2. Introduction ............................................................................................................................................. 13
3. Governance ............................................................................................................................................. 14
3.1. Relevant Risks ........................................................................................................................................ 14
3.2. Corporate Risk Governance .................................................................................................................... 15
3.3. Risk Management Process ..................................................................................................................... 17
3.4. Reports .................................................................................................................................................... 17
4. Prudential Conglomerate ......................................................................................................................... 18
4.1. Balance Sheet ......................................................................................................................................... 18
4.2. Composition of the Prudential Conglomerate .......................................................................................... 23
4.3. Composition of the Disclosed Balance Sheet .......................................................................................... 25
5. Risk Management ................................................................................................................................... 27
5.1. Credit Risk ............................................................................................................................................... 27
5.1.1. Management Objectives ..................................................................................................................... 27
5.1.2. Credit Policy ....................................................................................................................................... 28
5.1.3. Management Strategies ..................................................................................................................... 29
5.1.4. Credit Risk Management Processes .................................................................................................. 29
5.1.5. Communication and Information Processes ....................................................................................... 30
5.1.5.1. Communication process for internal clients ................................................................................... 30
5.1.5.2. Communication process for external clients .................................................................................. 31
5.1.6. Measurement Systems ....................................................................................................................... 31
5.1.6.1. Concentration ................................................................................................................................ 31
5.1.6.2. Regulatory Capital Requirement .................................................................................................... 31
5.1.6.3. Stress Test..................................................................................................................................... 32
5.1.7. Mitigation Policy.................................................................................................................................. 32
5.1.8. Processes for Monitoring the Effectiveness of Mitigators ................................................................... 32
5.1.9. Exposure to Credit Risk ...................................................................................................................... 32
5.1.10. Acquisition, Sale or Transfer of Financial Assets ............................................................................... 43
5.1.11. Securities (TVM) operations derived from securitization processes ................................................... 44
5.1.12. Exposure to counterparty credit risks ................................................................................................. 45
5.1.13. Mitigating instruments ......................................................................................................................... 47
5.2. Market and Liquidity Risks ...................................................................................................................... 49
5.2.1. Management Objectives ..................................................................................................................... 49
5.2.2. Management Policies and Strategies ................................................................................................. 49
5.2.3. Hedge Policies.................................................................................................................................... 52
5.2.4. Risk measuring systems and communication and information processes .......................................... 52
5.2.5. Market Risk Management Structure ................................................................................................... 54
5.2.6. Market Risk Management Process ..................................................................................................... 55
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5.2.7. Negotiable Portfolios .......................................................................................................................... 57
5.2.8. Non-negotiable Portfolios ................................................................................................................... 58
5.2.9. Liquidity Risk Management Structure ................................................................................................. 60
5.2.10. Liquidity Risk Management Process ................................................................................................... 62
5.3. Operational Risk ...................................................................................................................................... 63
5.3.1. Management Objectives ..................................................................................................................... 63
5.3.2. Operational Risk Policy ...................................................................................................................... 64
5.3.3. Management Processes and Strategies ............................................................................................. 64
5.3.4. Communication and Information Processes ....................................................................................... 65
5.3.5. Measurement Systems ....................................................................................................................... 65
5.3.6. Operational Risk Mitigation ................................................................................................................. 65
5.3.7. Control of Operational Risk ................................................................................................................ 66
5.4. Strategy Risk ........................................................................................................................................... 66
5.4.1. Management Objectives ..................................................................................................................... 66
5.4.2. Management Model ............................................................................................................................ 67
5.4.3. Management Structure ....................................................................................................................... 67
5.4.4. Management Processes ..................................................................................................................... 68
5.4.5. Information and Communication Processes ....................................................................................... 68
5.5. Reputational Risk .................................................................................................................................... 68
5.5.1. Management Objectives ..................................................................................................................... 68
5.5.2. Management Model ............................................................................................................................ 68
5.5.3. Management Structure ....................................................................................................................... 69
5.5.4. Management Processes ..................................................................................................................... 70
5.5.5. Information and Communication Processes ....................................................................................... 70
5.6. Environmental Risk ................................................................................................................................. 70
5.6.1. Management Objectives ..................................................................................................................... 70
5.6.2. Management Model ............................................................................................................................ 71
5.6.3. Management Structure ....................................................................................................................... 71
5.6.4. Management Processes ..................................................................................................................... 72
5.6.5. Environmental Responsibility Policy ................................................................................................... 72
5.6.6. Information and Communication Processes ....................................................................................... 73
5.7. Complementary Pension Fund Entities and Private Health Insurance Plan Operators for Employees Risk
(EFPPS Risk) ..................................................................................................................................................... 73
5.7.1. Management Objectives ..................................................................................................................... 73
5.7.2. Management Model ............................................................................................................................ 73
5.7.3. Management Structure ....................................................................................................................... 73
5.7.4. Management Processes ..................................................................................................................... 74
5.7.5. Information and Communication Processes ....................................................................................... 75
6. Shareholdings ......................................................................................................................................... 76
6.1. Entities Linked to Banco do Brasil (ELBB) Assessment .......................................................................... 77
7. Capital ..................................................................................................................................................... 77
7.1. Capital Management ............................................................................................................................... 77
Risk Management Report – Pillar III – 4Q15 5
7.1.1. Capital Management Structure ........................................................................................................... 77
7.2. Referential Equity (RE) Details ................................................................................................................ 79
7.3. Minimum Required Reference Equity (MRRE) ........................................................................................ 83
7.4. Capital Adequacy Ratio ........................................................................................................................... 85
7.5. Assessment of Sufficiency and Adequacy of Reference Equity (PR) ...................................................... 86
7.6. Leverage Ratio ........................................................................................................................................ 87
Risk Management Report – Pillar III – 4Q15 6
List of Tables
Table 1 - Prudential Balance Sheet x Disclosed Balance Sheet ........................................................................... 19 Table 2 - Composition of the Prudential Conglomerate ......................................................................................... 23 Table 3 - Composition of the Disclosed Balance Sheet ......................................................................................... 25 Table 4 - Concentration of the ten and of the hundred largest customers in relation to the total of transactions with credit granting feature ............................................................................................................................................ 33 Table 5 - Credit risk average exposure .................................................................................................................. 33 Table 6 - PJ credit risk exposure by geographic regions ....................................................................................... 34 Table 7 - PF credit risk exposure by geographic regions ....................................................................................... 35 Table 8 - Credit risk exposure of the prudential conglomerate, by economic sector.............................................. 36 Table 9 - Credit risk exposure of the agribusiness portfolio, segregated by economic sector and businesses portfolio (PJ) - 4Q15 .............................................................................................................................................. 37 Table 10 - Credit risk exposure of the agribusiness portfolio, segregated by economic sector and businesses portfolio (PJ) - 3Q15 .............................................................................................................................................. 37 Table 11 - Credit risk exposure of the agribusiness portfolio, segregated by economic sector and businesses portfolio (PJ) - 2Q15 .............................................................................................................................................. 38 Table 12 - Credit risk exposure of PF and PJ portfolios by maturity of the transactions - 4Q15 ............................ 38 Table 13 - Credit risk exposure of PF and PJ portfolios by maturity of the transactions - 3Q15 ............................ 39 Table 14 - Credit risk exposure of PF and PJ portfolios by maturity of the transactions - 2Q15 ............................ 39 Table 15 - Amount of overdue transactions by geographical regions .................................................................... 40 Table 16 - Amount of overdue transactions, segregated by economic sector - 4Q15 ........................................... 41 Table 17 - Amount of overdue transactions, segregated by economic sector - 3Q15 ........................................... 41 Table 18 - Amount of overdue transactions, segregated by economic sector - 2Q15 ........................................... 42 Table 19 - Write-off transactions by economic sector ............................................................................................ 42 Table 20 - Total allowances for loan and lease losses in the quarter and variations ............................................. 43 Table 21 - Credit risk exposure by FPR ................................................................................................................. 43 Table 22 - Loss operations assigned, with substantial transfer of risks and benefits............................................. 44 Table 23 - Value of the portfolio granted with co-obligation, recorded in the off balance sheet ............................. 44 Table 24 - Balance of exposures acquired WITH retention of risks and benefits by the transferor........................ 44 Table 25 - Balance of exposures acquired WITHOUT retention of risks and benefits by the transferor ................ 44 Table 26 - Value of the exposures derived from acquiring FIDC and CRI ............................................................. 45 Table 27 - Notional value of contracts to be liquidated in clearing house liquidation systems, in which the clearing house acts as central counterparty ........................................................................................................................ 46 Table 28 - Notional value of contracts subject to counterparty credit risk in which clearing houses do not act as central counterparty, Segmented in uncollateralized agreements and collateralized agreements ........................ 46 Table 29 - Positive gross value of the respective contracts, including derivatives, loans to settle, assets loans and repurchase agreements, disregarded the positive values related to compensation agreements defined in CMN Resolution nº 3,263/05 .......................................................................................................................................... 46 Table 30 - The value of collaterals that cumulatively meet the requirements of paragraph VII, Art.9, of Bacen Circular n° 3,678/13 ............................................................................................................................................... 47 Table 31 - The value of collaterals that cumulatively meet the requirements of paragraph VII, Art.9, of Bacen Circular nº 3,678/13: .............................................................................................................................................. 47 Table 32 - Collateral coverage............................................................................................................................... 48 Table 33 - Mitigated value of exposure, weighted by the respective weighting factor ........................................... 49 Table 34 - Derivative financial instruments in the country and abroad, by market risk factor, with and without a central counterpart - 4Q15 ..................................................................................................................................... 50 Table 35 - Derivative financial instruments in the country and abroad, by market risk factor, with and without a central counterpart - 3Q15 ..................................................................................................................................... 50 Table 36 - Derivative financial instruments in the country and abroad, by market risk factor, with and without a central counterpart - 2Q15 ..................................................................................................................................... 51 Table 37 - Derivative financial instruments in the country and abroad, by market risk factor, with and without a central counterpart - 1Q15 ..................................................................................................................................... 51 Table 38 - Derivative financial instruments in the country and abroad, by market risk factor, with and without a central counterpart - 4Q14 ..................................................................................................................................... 51 Table 39 - Negotiable Portfolio by relevant market risk factor, divided into positions purchased and positions sold. .............................................................................................................................................................................. 58 Table 40 - Impact on the result or on the assessment of the value of the institution due to shocks in interest rates segmented by risk factor – Value at Risk methodology ......................................................................................... 60 Table 41 - Impact on the result or on the assessment of the institution value due to the shocks in interest rates, segmented by risk factor – Economic Value of Equity methodology ..................................................................... 60 Table 42 - Operational losses monitoring by loss events category ........................................................................ 66 Table 43 - Shareholdings – Banking Book ............................................................................................................ 76 Table 44 - Hybrid Capital and Debt Instruments .................................................................................................... 80 Table 45 - Hybrid Capital and Debt Instruments authorized to compose RE ......................................................... 80 Table 46 - Total Subordinated Debts ..................................................................................................................... 81
Risk Management Report – Pillar III – 4Q15 7
Table 47 - Reference Equity (RE) Details .............................................................................................................. 82 Table 48 - Regulatory Adjustments ....................................................................................................................... 83 Table 49 - Capital Minimun Requirements in relation to RWA ............................................................................... 84 Table 50 - Required Minimun Reference Equity .................................................................................................... 85 Table 51 - Basel Ratio (Total Capital Ratio) and PR margin ................................................................................. 86 Table 52 - Commom model of information disclosure on Leverage Ratio ............................................................. 88 Table 53 - Comparative summary between Disclosed Financial Statements and Leverage Ratio ........................ 88
Risk Management Report – Pillar III – 4Q15 8
List of Figures
Figure 1 - Regulatory Capital Indicators ................................................................................................................ 12 Figure 2 - Risk Management Governance Structure ............................................................................................. 16 Figure 3 - Risk and Capital Management Structure and Process .......................................................................... 17 Figure 4 - Credit risk management ........................................................................................................................ 27 Figure 5 - Credit risk management structure ......................................................................................................... 30 Figure 6 - Market risk management structure ........................................................................................................ 54 Figure 7 - Management Process ........................................................................................................................... 57 Figure 8 - Liquidity Risk Management ................................................................................................................... 61 Figure 9 - Strategy Risk Management ................................................................................................................... 67 Figure 10 - Reputational Risk Management .......................................................................................................... 70 Figure 11 - Environmental Risk Management........................................................................................................ 72 Figure 12 - EFPPS Risk Management ................................................................................................................... 74 Figure 13 - Organizational Structure involved in the capital and risk management ............................................... 78
List of Charts
Chart 1 - Phases of the operational risk management process ............................................................................. 64 Chart 2 - Strategy risk management activities ....................................................................................................... 66 Chart 3 - Reputational risk management activities ................................................................................................ 68 Chart 4 - Environmental Risk Management Activities ............................................................................................ 71 Chart 5 - EFPPS Risk Management Activities ....................................................................................................... 73 Chart 6 - Criteria and parameters for classification of the capital condition ........................................................... 87
Risk Management Report – Pillar III – 4Q15 9
Abbreviations Glossary
ACP Core Capital Additional
Audit Internal Audit
Bacen Central Bank of Brazil
CA Board of Directors
CD Board of Officers
CF Supervisory Board
Coaud Auditting Committee
Coger Accounting Directorship
CEGC Capital Management Executive Committee
CERC Credit Risk Executive Committee
CERML Market and Liquidity Executive Committee
CERO Internal Controls and Operational Risk Committee
CSGAP Asset-Liabilities and Liquidity Superior Committee
CSRG Global Risk Superior Committee
Dicoi Internal Controls Directorship
Dicre Credit Directorship
Difin Finance Directorship
Dined Digital Business Directorship
Dirao Operational Assets Reestructuring Directorship
Dirco Controlling Directorship
Diref Employees and Sponsored Entities Relationship Directorship
Direm Brand Strategy Directorship
Diris Risk Management Directorship
Disin Institutional Security Directorship
DRL Availability of Free Resources Indicator
ECBB Banco do Brasil Corporative Strategy
ELBB Banco do Brasil Linked (Related) Entities
EMLI Liquidity Maximum Requirement Intraday
Fampe Endorsement for Micro and Small Enterprises Fund
FGI Investment Guarantee Fund
FGO Operations Guarantee Fund
FPR Risk Weighting Factor
Funproger Generation of Employement and Earnings Guarantee Fund
HIBP IBP projected mismatching minimum time horizon
HICNI ICNI projected mismatching minimum time horizon
HICP ICP projected mismatching minimum time horizon
IB Capital Adequacy Ratio
IBA Amplified Capital Ratio (IB ascertained by considering the capital necessity for Pillar l and Pillar ll risks)
IBP Prudential minimum Capital Ratio (Minimum IB defined by management)
IBR Minimum Regulatory Capital Ratio
Icaap Internal Capital Adequacy Assessment Process
ICNI Tier I Capital Ratio
ICP Core Capital Ratio
Icred90 Credit as of 90 days default ratio
IDS Subordinate Debt Instrument
IHCD Capital and Debt Hybrid Instruments
Iprov Provisioning Ratio (PCLD balance over the portfolio balance)
MCC Capital Contingency Measures
MCL Liquidity Contingency Measures
MP Prudential Margin in reais equivalent to the difference between the IBP and the IBR
PCC Capital Contingency Plan
PR Reference Equity
PRE Required Reference Equity (nomenclature changed for PRMR as of the changes made by CMN Resolution 4,193/13)
PRMR Minimum Required Reference Equity to cover Pillar I risks
PRMRA Amplified Minimum Required Reference Equity (corresponding to the required capital sum for Pillars I and II risks)
RL Liquidity Reserve
RSPL Shareholder Equity Return
RWA Risk-Weighted Assets
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RWAACS Risk Weighted Assets for the Shares Market Risk exposures
RWACAM Risk Weighted Assets for the Exchange Market Risk exposures
RWACIRB Risk Weighted Assets for the Credit Risk ascertained by internal models based approach
RWACOM Risk Weighted Assets for the Commodities Market Risk exposures
RWACPAD Risk Weighted Assets for the Credit Risk ascertained by standardized approach
RWAJUR Risk Weighted Assets for the Interest Rate Market Risk exposures
RWAMINT Risk Weighted Assets for the Market Risk ascertained by internal models
RWAMPAD Risk Weighted Assets for the Market Risk ascertained by standardized approach
RWAOPAD Risk Weighted Assets for the Operational Risk ascertained by standardized approach
Vicri Risk Management and Internal Controls Vice-President
Risk Management Report – Pillar III – 4Q15 11
Banco do Brasil
Banco do Brasil (BB) has the biggest servicing network in the country and abroad among the Brazilian financial institutions. Present in almost all Brazilian municipalities, BB makes more than 67 thousand servicing locations available in the Brazilian territory. Through its own network and agreements with other institutions, BB provides its services in 105 countries with correspondent banks and in 23 countries with dependencies. Founded in 1808, BB is a mixed-capital company that is controlled by the Union and has been listed in BM&FBOVESPA New Market, which is a segment that gathers the companies with the best corporative governance practices.
As one of the main economic and social development agent, as well as public policies executor in the country, BB supports agribusiness, infrastructure, small and micro companies and the foreign trade, by acting in a responsible way to promote social inclusion by means of labor and income generation.
Our belief, “a good world for everyone requires a public spirit in each one of us”, based on the constant search for the conciliation of the necessities and interests of the Bank and all its relationship public. In that sense, the individual and collective dimensions are considered, by acting as a market bank, doing social businesses or as a protagonist of the country development.
Mission: “Market bank with a public spirit. Being a competitive and profitable bank, by acting with a public spirit in each one of its actions along with all the society.”
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1. Objective
The current report aims to disclose the information related to risk management, to the measurement of the amount of Risk Weighted Assets (RWA) and to the Reference Equity (PR), in accordance with Circular nº 3,678, published by the Central Bank of Brazil (Bacen) on 10.31.2013, and it is aligned with the guidelines of Pillar III of Basel II. This report includes information about structures, processes and risk and capital management policies of Banco do Brasil (BB).
The measurement of PR and RWA considers the consolidation scope of the Prudential Conglomerate1, in accordance with the Financial Institutions Chart of Accounts (Cosif), which covers financial institutions, consortium-managing companies, payment institutions, companies that acquire operations or that direct or indirectly have credit risk and investment funds in which the conglomerate considerably holds risks and benefits.
Main Regulatory Indicators
BB Prudential Conglomerate main risks and capital indicators are shown below, considering the position of the previous three quarters:
Figure 1 - Regulatory Capital Indicators
1 Prudential Regulation Details on the link: http://www.bcb.gov.br/?REGPRUDENCIAL
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2. Introduction
Banking system sustainability is indissolubly linked to risk-management and capital policies and mechanisms. The methods of identifying, assessing, controlling, mitigating and monitoring risk safeguard financial institutions in adverse situations and provide support for the generation of positive results that are recurring in the long run. Banco do Brasil (BB) considers essential risk and capital management to the process of decision-making, providing optimization of risk-return ratio to the operations.
Brazil’s participation in the Basel Committee on Banking Supervision stimulates the timely implementation of international prudential norms.
Changes in the global financial environment, such as market integration through globalization, the emergence of new transactions and products, increasing technological sophistication and new regulations have made financial activities and their risks more and more complex.
Additionally, the lessons learned from financial disasters reinforce the main need for risk management in the banking industry.
Those factors influence regulatory agencies and financial institutions to invest in risk management, seeking to strengthen their financial health.
In line with that perspective, BB has invested in the continuous improvement of its risk-management process and practices, in line with international market benchmarks of regulation and supervision.
BB remains continuously aligned with the best management practices, among which, the risk management architecture with multidimensional scope whose specificities are described in this report.
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3. Governance
3.1. Relevant Risks
BB has a process of identification of risks that will be part of the risks inventory and for the definition of corporate set of relevant risks. That process is quite important for the risks and capital management, as well as for the business management, since it seeks to identify which risks should be managed by the Institution.
BB`s risks inventory and the corporate set of relevant risks are annually revised, considering the risks incurred by the several business segments explored by the Bank or by its subsidiaries, which can affect Banco do Brasil`s Prudential Conglomerate Reference Equity (PR).
The risks below are part of Banco do Brasil`s Prudential Conglomerate Relevant Risks Corporate Range:
Market Risk – possibility of financial or economic losses resulting from the fluctuation of market values of positions held by the financial institution.
Liquidity Risk – possibility of imbalances between tradable assets and liabilities - "mismatches" between payments and receipts - which can affect the institution’s payment ability, taking into account the different currencies and settlement terms of its rights and obligations.
Banking Book Interest Rate Risk – defined as the risk related to the fluctuations of the operations interest rates that are not classified in the trading portfolio (trading book).
Credit Risk – possibility of losses associated with the non-fulfillment by a borrower or a counterparty of their corresponding financial obligations according to negotiated terms, the devaluation of a loan agreement due to a drop in the borrower’s risk rating, a decline in gains or earnings, benefits granted in renegotiation, and recovery costs.
Counterparty Credit Risk – defined as the possibility of a certain counterparty not fulfilling its obligations related to the settlement of transactions that involve trading financial assets, including those related to the settlement of financial derivatives.
Credit Concentration Risk – defined as a possibility of credit losses arising from significant exposure to counterparty, a risk factor or groups of counterparties related by common characteristics.
Operational Risk – possibility of losses due to failures, deficiencies, or improper internal processes, people and systems or external events. That includes the possibility of losses arising from legal risk.
Strategy Risk – possibility of losses arising from adverse changes in the business environment, or use of inappropriate assumptions in decision making.
Reputational Risk – possibility losses associated with the negative perception about the Institution by its customers, counterparties, shareholders, investors, government agencies, community or supervisors, which can adversely affect the sustainability of the business.
Environmental Risk – possibility of losses arising from social and environmental impacts resulting from administrative and business practices of BB.
Risk Management Report – Pillar III – 4Q15 15
Shareholdings (Participations) Risk – possibility of losses resulting from exposures in the societal participations.
Complementary Pension Fund Entities and Private Health Insurance Plan Operators for Employees Risk – possibility of negative impact derived from the mismatching between actuarial liabilities and assets in the entities sponsored by complementary pension fund and private health insurance plan operators for employees.
Model Risk – possibility of losses derived from the inadequate development or use of models, as a result of the inaccuracy or insufficiency of data or the incorrect formulation in its construction.
Underwriting Risk - possibility of losses that are contrary to the sponsored society, associated, directly or indirectly, to technical and actuarial bases used for the calculations of prizes, contributions and technical provisions derived from the supervised societies operations.
3.2. Corporate Risk Governance
The risk-governance model adopted by BB involves a superior committee and executive committee structure, with the participation of many units at the Bank, addressing the following issues:
a) separation of duties: business versus risk;
b) specific structure for risk management;
c) defined management process;
d) decisions in several hierarchical levels;
e) clear rules and authority structure; and
f) reference to best management practices.
The setting for the committees related to risk management is:
a) Credit Risk Executive Committee (CERC);
b) Market and Liquidity Executive Committee (CERML);
c) Internal Controls and Operational Risk Executive Committee (CERO);
d) Global Risk Superior Committee (CSRG).
The figure below represents the governance structure of the Bank’s risk management:
Risk Management Report – Pillar III – 4Q15 16
Figure 2 - Risk Management Governance Structure
All decisions related to risk management are made jointly and in accordance with BB’s guidelines and rules.
BB’s risk governance is centralized in the Global Risk Superior Committee (CSRG), composed by members of the Board of Officers (CD), whose main purpose is to establish strategies for risk management, appropriate overall risk-exposure limits to capital allocation in light of risks.
The Risk Management Directorship (Diris) is responsible for managing credit, market and liquidity risks and the Operational Risk Unit (URO) is responsible for managing the operational risk. These structures are subordinated to the Office of the Vice-President for Internal Controls and Risk Management (Vicri).
BB has also established the Executive Committee of Capital Management (CEGC), which duties are concentrated in the capital planning in light of the risks and business strategy, supporting the CSRG in related matters. The institutional responsible for capital management is the Controlling Directorship (Dirco).
The figure below demonstrates the decision-making flow of topics related to risk and capital management:
Risk Management Report – Pillar III – 4Q15 17
Figure 3 - Risk and Capital Management Structure and Process
Decisions are reported to participating units through documents that objectively express the position taken by the Senior Management, guaranteeing application throughout the Bank.
3.3. Risk Management Process
The risk management process involves a continuous flow of information, according to the following phases:
a) Planning: collection and analysis of data and preparation of proposals;
b) Decision: proposals are considered and deliberated in a collegiate way, at the competent levels and communicated to the intervening areas;
c) Execution: the intervening areas implement the decisions taken;
d) Follow-up: check on the compliance of the decisions and report about it to the executive committees of risks and CSRG.
3.4. Reports
Risk-management reports support decision-making processes about risk in the Risk Executive Committees, the Global Risk Superior Committee (CSRG), the Board of Officers (CD), and the Board of Directors (CA). The reports produced periodically have managerial qualitative and quantitative information and subsidize the dissemination of information to the market, as the Management Report, the Performance Analysis Report, and this Risk Management Report.
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4. Prudential Conglomerate
The CMN Resolution nº 4,192, published on March 01, 2013, in its 3rd article, item ll, establishes that, from January 01, 2015, the calculation of Reference Equity (RE) must be performed in consolidated bases for institutions that belong to the Prudential Conglomerate.
In addition, on March 31, 2013, the CMN Resolution nº 4,280 was published and it settled the preparation, disclosure and remittance of the Consolidated Financial Statements of the Prudential Conglomerate.
According to CMN Resolution nº 4,280, the financial institutions and other institutions authorized by Bacen, must prepare the financial statements in a consolidated basis, including data relative to the following entities, either located in Brazil or abroad, over which the institution has direct or indirect control:
a) financial institutions;
b) other institutions authorized by Bacen;
c) consortium administrators;
d) payment institutions;
e) companies that perform the acquisition of credit operations, including real estate, or credit rights, like factoring companies, securitization companies and exclusive purpose societies;
f) other legal entities domiciled in Brazil that have, as an exclusive objective, an equity interest in the entities mentioned in items a through f.
The Resolution determines that the investment of funds in which the entities that compose the Prudential Conglomerate, under any form, take or retain substantial risks and benefits, and the equity interests of the institutions in which there is shared control must be consolidated proportionally to the interest held by the institution.
4.1. Balance Sheet
Until September 30, 2015, Banco do Brasil consolidated its balance sheet including the components of assets, liabilities, revenues and expenses of some of its associated companies, in accordance to Bacen determination, and also of its joint ventures, proportionately to their participation, in accordance with the article 3º of CMN Resolution No 2,723/2000 (Economic and Financial Conglomerate).
Considering the repeal of the Economic and Financial Conglomerate by the CMN Resolution No 4,403/2015, the Financial Statements of December 31, 2015 were elaborated in accordance with the article 249 of the Law 6,404/1976 and CPC 36 – Consolidated Balance Sheets, including the components of assets, liabilities, revenues and expenses of the subsidiaries of Banco do Brasil.
As follows, there is the composition of the Prudential Balance Sheet compared to the Balance Sheet of the disclosed Financial Statements, as well as the reference values in the "Attachment 1 - Composition of the Reference Equity".
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Table 1 - Prudential Balance Sheet x Disclosed Balance Sheet
4Q15
In thousands of Reais Reference in RE
Prudential Conglomerate
Disclosed Financial Statments
ASSETS
CURRENT ASSETS AND LONG-TERM-RECEIVABLES 1,374,893,862 1,369,026,029
Cash and Cash Equivalents 18,189,391 18,054,422
Short-term Interbank Investments 352,833,628 352,741,787
Open market investments 303,640,060 303,530,816
Interbank deposits 49,193,568 49,210,971
Securities and Derivative Financial Instruments 116,897,785 117,285,050
Own portfolio 87,204,641 91,621,713 Funding instruments issued by institution authorized by Banco Central do
Brasil (r) 2,607 --
Other 87,202,034 --
Subject to repurchase agreements 22,166,101 18,197,562
Pledged in guarantee 4,103,743 4,103,743
Derivative financial instruments 3,423,300 3,362,032
Interbank accounts 65,408,415 65,408,415
Payments and receipts pending settlement 7,252 7,252
Restricted deposits 63,361,420 63,361,420
Deposits with Banco Central do Brasil 60,810,918 60,810,918
National Treasury - rural credits resources 54,304 54,304
National Housing Finance System 2,496,198 2,496,198
Interbank onlendings 358,136 358,136
Correspondent banks 1,681,607 1,681,607
Interdepartmental Accounts 597,676 597,676
Internal transfers of funds 597,676 597,676
Loan Operations 627,834,821 627,877,787
Public sector 51,645,176 78,812,142
Private sector 608,346,295 581,222,295
Loan operations linked to assignment 333,291 333,291
(Allowance for loan losses) (32,489,941) (32,489,941)
Leasing Transactions 346,337 825,789
Private sector 395,383 874,835
(Allowance for leasing transactions losses) (49,046) (49,046)
Other Receivables 192,311,434 185,738,476
Receivables from guarantees honored 397,550 397,550
Foreign exchange portfolio 21,420,122 21,420,122
Accrued Income 2,830,435 2,820,834
Securities trading 1,653,164 1,653,164
Specific credits 334,604 334,604
Sundry 167,978,231 161,429,415
Tax credits 42,385,541 -- Resulting from tax losses and negative basis of social contribution on net
income (g) 1,559,544 --
Resulting from temporary differences 40,825,997 --
Excess of 10% from Common Equity Tier 1 Capital (i1) 10,722,402 --
Excess of 15% from Common Equity Tier 1 Capital (k) 2,511,797 --
Tax credits resulting from temporary differences not deducted from RE (t) 4,983,145 --
Tax credits resulting from temporary differences for loan losses 22,608,653 --
Other 125,592,690 --
(Allowance for other losses) (2,302,672) (2,317,213)
Other Assets 474,375 496,627
Assets not for own use and materials in stock 299,214 332,533
(Allowance for impairment) (117,589) (120,940)
Prepaid expenses 292,750 285,034
Risk Management Report – Pillar III – 4Q15 20
4Q15
In thousands of Reais Reference in RE
Prudential Conglomerate
Disclosed Financial Statments
PERMANENT ASSETS 28,705,283 32,102,728
Investments 10,985,364 15,452,248
Investments in subsidiaries and associates 10,772,642 15,281,217
Domestic 10,447,741 15,100,387
Goodwill (e1) 722,834 --
Investments 9,724,907 --
Investments in insurance companies 4,171,124 --
Excess of 15% from Common Equity Tier 1 Capital (j1) 1,397,878 --
Investments not deducted from RE (s) 2,773,246 --
Other Investments 5,553,783 -- Funding instruments issued by institution authorized for Banco Central
do Brasil deducted from PR (j2) 1,282,938 --
Other 4,270,845 --
Abroad 324,901 180,830
Goodwill (e2) 59,164 --
Other 265,737 --
Other investments 267,069 225,300
(Accumulated impairment) (54,347) (54,269)
Property and equipment 7,487,361 7,323,034
Land and buildings 6,790,495 6,796,594
Other property and equipment 9,791,810 9,336,493
(Accumulated depreciation) (9,094,944) (8,810,053)
Property and equipment by leases (1) 782,419 --
Leased assets 871,144 --
(Accumulated depreciation) (88,725) --
Intangible 9,432,808 9,310,872
Intangible assets 17,821,977 17,543,048
Goodwill (e3) 4,961,028 --
Other Intangible assets 12,860,949 --
Constituted from October 1, 2013 (f1) 7,683,370 --
Constituted before October 1, 2013 (f2) (m1) 5,177,579 --
(Accumulated amortization) (8,389,169) (8,232,176)
Goodwill Amortization (e4) (3,053,413) --
Other Amortization (5,335,756) --
Intangible assets amortization constituted from October 1, 2013 (f3) (1,817,788) --
Intangible assets amortization constituted before October 1, 2013 (f4) (m2) (3,517,968) --
Deferred 17,331 16,574
Organization and expansion costs (l1) 1,588,601 1,588,601
Losses on leases to amortize 2,569 --
(Accumulated amortization of Deferred) (l2) (1,572,027) (1,572,027)
(Accumulated amortization - losses on leases) (1,812) --
TOTAL ASSETS 1,403,599,145 1,401,128,757 (1) Leasing transactions were considered based on the financial method, and the amounts were reclassified from the heading of leased assets to the heading of leasing transactions, after deduction of residual amounts received in advance.
Risk Management Report – Pillar III – 4Q15 21
4Q15
In thousands of Reais Reference in RE
Prudential Conglomerate
Disclosed Financial Statments
LIABILITIES CURRENT LIABILITIES AND LONG-TERM LIABILITIES 1,323,725,516 1,319,133,376
Deposits 464,253,639 464,419,718
Demand deposits 66,518,218 66,549,760
Savings deposits 151,845,281 151,845,281
Interbank deposits 41,482,548 41,482,547
Time deposits 204,407,592 204,542,130
Securities Sold Under Repurchase Agreements 337,327,385 333,521,648
Own portfolio 72,685,877 68,880,140
Third-party portfolio 264,641,508 264,641,508
Funds from Acceptance and Issuance of Securities 185,593,532 188,561,492
Bonds backed by real estate, mortgage and other credits 155,050,412 155,050,412
Debentures 479,284 --
Foreign securities 30,052,512 33,499,756
Certificates of structured operations 11,324 11,324
Interbank Accounts 30,621 30,621
Receipts and payments pending settlement 34 34
Correspondent banks 30,587 30,587
Interdepartmental Accounts 5,438,786 5,438,786
Thrid-party funds in transit 5,438,146 5,438,146
Internal transfers of funds 640 640
Borrowings 31,446,404 29,655,360
Domestic loans - other institutions 953,932 38,494
Foreign borrowing 30,492,472 29,616,866
Domestic Onlending - Official Institutions 90,065,408 90,065,408
National Treasury 178,145 178,145
BNDES 37,981,403 37,981,403
Caixa Econômica Federal 19,690,627 19,690,627
Finame 29,981,346 29,981,346
Other institutions 2,233,887 2,233,887
Foreign Onlending 10,298 10,298
Foreign Onlending 10,299 10,298
Derivative Financial Instruments 3,289,174 3,289,172
Derivative Financial Instruments 3,289,174 3,289,172
Other Liabilities 206,270,269 204,140,873
Billing and collection of taxes and contributions 398,229 398,229
Foreign exchange portfolio 15,599,940 15,599,940
Shareholders and statutory distributions 1,100,846 1,588,380
Taxes and social security 20,767,034 19,934,158
Deferred tax liabilities deducted of the deferred tax assets value (i2) 2,159,315 --
Other 18,607,719 --
Securities trading 1,877,458 671,761
Financial and development funds 15,002,524 15,002,524
Special operations 2,187 2,187
Subordinated debts 54,017,756 54,017,756 In accordance with regulations preceding the CMN Resolution No.4,192/2013 as
Tier II (FCO) 22,994,912 -- In accordance with regulations preceding the CMN Resolution No.4,192/2013 as
Tier II (q) (v) 30,714,230 --
Other Subordinated debts 308,614 --
Equity and debt hybrid securities 7,866,507 7,866,508 In accordance with regulations preceding the CMN Resolution No.4,192/2013 as
Additional Tier 1 Capital (o) (u) 5,661,090 --
Other 2,205,417 --
Debt instruments eligible as capital 27,293,303 27,293,304
Instruments eligible as Additional Tier 1 Capital (n) 21,375,495 --
Instruments eligible as Tier II 5,917,808 --
Instruments considered in RE after applying reducer (p) 5,786,606 --
Value of REdisregarded due to application of the reducer 131,202 --
Other liabilities 62,344,485 61,766,126
Risk Management Report – Pillar III – 4Q15 22
4Q15
In thousands of Reais Reference in RE
Prudential Conglomerate
Disclosed Financial Statments
DEFERRED INCOME 459,208 459,208
Shareholder's Equity 79,414,421 81,536,173
Capital (a1) 60,000,000 60,000,000
Local residents 47,321,901 47,321,901
Domiciled abroad 12,678,099 12,678,099
Instrument Qualifying as Common Equity Tier 1 Capital (a2) 8,100,000 8,100,000
Capital Reserves (c1) 14,326 14,326
Revaluation Reserves (c2) 2,730 2,730
Profit Reserves (b1) 29,031,090 29,031,090
Accumulated Other Comprehensive Income (c3) (17,042,671) (17,042,671)
(Treasury Shares) (h) (1,697,380) (1,697,380)
Noncontrolling Interests (d) 1,006,326 3,128,078
TOTAL LIABILITIES 1,403,599,145 1,401,128,757
Risk Management Report – Pillar III – 4Q15 23
4.2. Composition of the Prudential Conglomerate
The institutions included in the prudential balance sheet consolidation scope are in the table as follows:
Table 2 - Composition of the Prudential Conglomerate
4Q15 3Q15 2Q15 1Q15
R$ thousand Activity Total Assets Equity Total Assets Equity Total Assets Equity Total Assets Equity
Financial Institutions
Banco do Brasil S.A. - Agências no País e no Exterior
(1) Banking 1,562,878,366 77,558,546 1,560,592,358 79,580,256 1,503,040,371 78,200,101 1,510,926,199 79,026,033
Banco do Brasil - AG (2) Banking 83,380,566 1,099,669 84,282,843 1,201,577 65,120,082 941,202 66,794,338 924,480
BB Leasing Company Ltd. (2) Leasing 120 -- 724 601 142,006 140,973 146,947 146,941
BB Leasing S.A. - Arrendamento Mercantil (2) Leasing 56,471,664 4,167,683 54,677,598 4,131,895 52,770,818 4,059,273 51,321,638 4,042,749
BB Securities Asia Pte. Ltd. (2) Broker 18,320 16,907 19,559 18,728 16,578 15,730 18,380 17,742
Banco do Brasil Securities LLC. (2) Broker 219,313 217,967 220,438 219,200 171,870 170,639 175,966 175,139
BB Securities Ltd. (2) Broker 585,836 178,480 648,595 179,643 514,099 159,402 561,919 163,776
BB USA Holding Company, Inc. (2) Holding 922 841 974 861 779 672 765 695
Brasilian American Merchant Bank (2) Banking 8,994,247 1,717,478 11,718,790 1,756,829 6,113,844 1,414,596 9,992,917 1,455,640
Banco do Brasil Americas (2) Banking 1,429,879 177,866 1,244,886 177,427 875,493 134,385 903,877 145,298
Besc Distribuidora de Títulos e Valores Mobiliários S.A.
(2) Asset
Management 7,478 7,186 7,422 7,258 7,452 7,180 7,324 7,233
Banco Patagonia S.A. (2) Banking 19,043,396 2,452,367 22,236,094 3,095,948 17,713,773 2,306,194 16,408,598 2,647,118
BB Banco de Investimento S.A. (2) Investment Bank 6,575,763 2,884,548 6,377,964 3,103,624 6,294,758 2,858,693 6,061,152 3,191,789
BB Gestão de Recursos-Distribuidora de Títulos e Valores Mobiliários S.A.
(2) Asset
Management 1,263,763 131,629 1,111,138 339,619 961,239 131,633 595,824 311,965
Consortium Manager
BB Administradora de Consórcios S.A. (2) Consortium 367,273 167,522 328,930 220,033 344,196 167,522 264,629 211,227
Payment Institutions
BB Administradora de Cartões de Crédito S.A. (2) Service Rendering 132,820 18,973 132,198 34,189 107,446 29,462 104,595 23,861
Companhia Brasileira de Soluções e Serviços CBSS - Alelo
(3) Service Rendering 4,795,040 1,399,204 4,276,465 1,411,533 3,896,384 1,266,851 3,779,654 1,131,377
Cielo S.A. (3) Service Rendering 24,278,650 6,385,958 22,920,428 6,149,893 22,260,627 5,363,999 21,978,331 4,989,047
Braspag Tecnologia em Pagamento Ltda. (3) (6) Service Rendering 37,666 30,220 34,715 29,595 33,346 29,177 -- --
Paggo Soluções e Meios de Pagamentos S.A. (3) (6) Service Rendering 466 127 35,962 35,622 39,778 39,438 -- --
Cateno Gestão de Contas de Pagamento S.A. (3) (6) (7) Service Rendering 12,670,737 12,094,830 12,589,502 12,117,471 12,487,370 12,150,019 -- --
Aliança Pagamentos e Participações Ltda. (3) (6) Service Rendering 25,845 25,845 29,931 29,931 32,730 32,730 -- --
Stelo S.A (3) (6) Service Rendering 63,604 38,030 67,381 45,884 75,157 56,443 -- --
Merchant E-Solutions, Inc. (3) (6) Service Rendering 1,333,477 607,554 1,605,536 607,892 1,303,734 445,964 -- --
Risk Management Report – Pillar III – 4Q15 24
4Q15 3Q15 2Q15 1Q15
R$ Thousand Activity Total Assets Equity Total Assets Equity Total Assets Equity Total Assets Equity
Securitization Companies Ativos S.A. Securitizadora de Créditos Financeiros
(2) Credits Acquisition 1,206,341 1,056,467 1,199,770 1,088,797 1,134,413 1,045,981 1,169,689 1,009,091
Companhia Brasileira de Securitização - Cibrasec
(4) Credits Acquisition -- -- -- -- -- -- 134,475 74,179
BB Asset Management Ireland Limited (2) Credits Acquisition 2,918 2,468 -- -- -- -- -- --
Other Institutions (5) Investment Fund -- -- -- -- -- -- -- --
Fundo Fenix (5) Investment Fund 1,286,448 1,286,195 -- -- -- -- -- --
Fundo Compesa (5) Investment Fund 143,351 143,268 -- -- -- -- -- --
Fundo BB FIA BDR Nível I (5) Investment Fund 10,154 10,141 -- -- -- -- -- --
BB Elo Cartões Participações S.A. (2) (6) Holding 6,233,470 5,739,921 9,598,503 5,932,905 9,395,954 5,728,570 -- --
Elo Holding Financeira S.A. (3) (6) Holding 239 174 230 169 228 171 -- --
Farly Participações Ltda. (3) (6) Holding 383,473 350,123 374,924 350,118 366,804 350,118 -- --
(1) Leader Institution. (2) Subsidiaries. (3) Joint ventures, proportionately included in consolidation. (4) Company excluded from the Prudential Conglomerate from 06.30.2015, in accordance to Bacen’s Regulation.
(5) Company included in the consolidation of the Prudential Conglomerate from 12.31.2015.
(6) Company included in the consolidation of the Prudential Conglomerate from 06.30.2015.
(7) Banco do Brasil has joint control of Cielo, which controls Cateno. The percentage of participation of the Bank in Cateno takes into account its direct participation in the BB Elo, as well as indirect interest in Cielo through BB Banco de Investimento.
Risk Management Report – Pillar III – 4Q15 25
4.3. Composition of the Disclosed Balance Sheet
As follows, the institutions included in the scope of consolidation of the disclosed balance sheet, segregated by business segments, are shown:
Table 3 - Composition of the Disclosed Balance Sheet
4Q15 3Q15 2Q15 1Q15
R$ Thousand Activity Total Assets Equity Total Assets Equity Total Assets Equity Total Assets Equity
Banking Segment
Banco do Brasil S.A. - Agências no País e no Exterior
(1) Banking 1,562,878,366 77,558,546 1,560,592,358 79,580,256 1,503,040,371 78,200,101 1,510,926,199 79,026,033
Banco do Brasil - AG (2) Banking 83,380,566 1,099,669 84,282,843 1201,577 65,120,082 941,202 66,794,338 924,480
BB Leasing Company Ltd. (2) Leasing 120 - 724 601 142,006 140,973 146,947 146,941
BB Leasing S.A. - Arrendamento Mercantil (2) Leasing 56,471,664 4,167,683 54,677,598 4,131,895 52,770,818 4,059,273 51,321,638 4,042,749
BB Securities Asia Pte. Ltd. (2) Broker 18,320 16,907 19,559 18,728 16,578 15,730 18,380 17,742
Banco do Brasil Securities LLC. (2) Broker 219,313 217,967 220,438 219,200 171,870 170,639 175,966 175,139
BB Securities Ltd. (2) Broker 585,836 178,480 648,595 179,643 514,099 159,402 561,919 163,776
BB USA Holding Company, Inc. (2) Holding 922 841 974 861 779 672 765 695
Brasilian American Merchant Bank (2) Banking 8,994,247 1,717,478 11,718,790 1,756,829 6,113,844 1,414,596 9,992,917 1,455,640
Banco do Brasil Americas (2) Banking 1,429,879 177,866 1,244,886 177,427 875,493 134,385 903,877 145,298
Besc Distribuidora de Títulos e Valores Mobiliários S.A.
(2) Asset Management 7,478 7,186 7,422 7,258 7,452 7,180 7,324 7,233
Banco Patagonia S.A. (2) Banking 19,043,396 2,452,367 22,236,094 3,095,948 17,713,773 2,306,194 16,408,598 2,647,118
Banco Votorantim S.A. (3) Banking -- -- 110,542,988 7,777,684 103,475,851 7,847,067 105,734,915 7,678,712
Investment Segment
BB Banco de Investimento S.A. (2) Investment Bank 6,575,763 2,884,548 6,377,964 3,103,624 6,294,758 2,858,693 6,061,152 3,191,789
Kepler Weber S.A. (3) Industry -- -- 843,390 479,264 815,130 471,899 863,904 488,402
Companhia Brasileira de Securitização - Cibrasec
(4) Credits Acquisition -- -- 120,270 75,540 121,889 74,748 134,475 74,179
Neoenergia S.A. (3) Energy -- -- 11,061,027 9,774,639 10,892,742 9,875,390 10,823,733 9,855,146
Fund Management Segment
BB Gestão de Recursos-Distribuidora de Títulos e Valores Mobiliários S.A.
(2) Asset Management 1,263,763 131,629 1,111,138 339,619 961,239 131,633 595,824 311,965
Insurance, Private Pension Fund and Capitalization Segment
BB Seguridade Participações S.A. (2) Holding 7,937,073 6,286,500 6,959,161 6,953,530 7,688,188 5,951,310 6,472,821 6,466,178
BB Cor Participações S.A. (2) Holding 827,288 61,749 427,997 427,832 790,537 61,767 401,270 401,181
BB Corretora de Seguros e Administradora de Bens S.A.
(2) Broker 2,768,782 34,984 2,279,025 401,073 2,621,456 35,001 2,073,110 389,100
BB Seguros Participações S.A. (2) Holding 7,037,672 5,846,113 6,399,054 6,388,318 6,752,143 5,742,105 5,914,853 5,912,157
BB Mapfre SH1 Participações S.A. (3) Holding -- -- 12,900,573 2,222,711 12,466,600 1,897,508 12,084,651 1,610,379
Brasildental Operadora de Planos Odontológicos S.A.
(3) Service Rendering -- -- 9,226 2,018 8,498 2,606 3,015 2,052
Companhia de Seguros Aliança do Brasil (3) Insurance Company -- -- 11,756,618 1,730,781 10,987,957 1,724,947 10,895,700 1,666,068
Mapfre Vida S.A. (3) Insurance Company -- -- 1,267,198 509,793 1,259,550 487,059 1,296,893 496,247
Risk Management Report – Pillar III – 4Q15 26
4Q15 3Q15 2Q15 1Q15
R$ Thousand Activity Total Assets Equity Total Assets Equity Total Assets Equity Total Assets Equity
Insurance, Private Pension Fund and Capitalization Segment Brasilprev Seguros e Previdência S.A. (3) Pension/Insurance -- -- 141,123,735 2,214,206 134,330,981 1,856,307 122,986,990 1,478,428
Brasilcap Capitalização S.A. (3) Capitalization -- -- 13,420,725 351,345 13,408,516 323,091 12,862,183 258,501
Mapfre BB SH2 Participações S.A. (3) Holding -- -- 14,812,912 3,197,715 14,185,850 1,539,371 14,064,914 1,492,371
Aliança do Brasil Seguros S.A. (3) Insurance Company -- -- 3,318,693 3,316,288 1,306,501 213,030 1,362,715 193,700
Brasilveículos Companhia de Seguros (3) Insurance Company -- -- 3,550,436 575,297 3,459,479 581,869 3,347,489 531,000
Mapfre Seguros Gerais S.A. (3) Insurance Company -- -- 12,414,899 2,212,153 12,064,074 2,150,066 11,827,869 2,120,237
BB Mapfre Assistência S.A. (3) Service Rendering -- -- 11,118 4,138 11,633 3,444 11,511 2,812
Votorantim Corretora de Seguros S.A. (3) Broker -- -- 236,160 177,350 178,466 139,586 261,053 101,298
Seguradora Brasileira de Crédito à Exportação - SBCE
(4) Insurance Company -- -- 80,219 25,129 76,658 22,844 75,998 21,715
IRB - Brasil Resseguros S.A. (3) Reinsurer -- -- 14,786,640 3,113,930 13,674,544 3,030,868 13,404,588 2,781,464
Payment Methods Segment
BB Administradora de Cartões de Crédito S.A. (2) Service Rendering 132,820 18,973 132,198 34,189 107,446 29,462 104,595 23,861
BB Elo Cartões Participações S.A. (2) Holding 6,233,470 5,739,921 9,598,503 5,932,905 9,395,954 5,728,570 9,162,338 5,534,133
Cateno Gestão de Contas de Pagamento S.A. (3) Service Rendering -- -- 12,589,502 12,117,471 12,488,129 12,150,758 12,226,265 12,025,272
Elo Participações S.A. (3) Holding -- -- 1,541,625 1,538,551 1,409,301 1,408,487 1,363,043 1,275,013
Companhia Brasileira de Soluções e Serviços CBSS - Alelo
(3) Service Rendering -- -- 4,276,465 1,411,533 3,896,384 1,266,851 3,779,654 1,131,377
Elo Serviços S.A. (3) Service Rendering -- -- 108,913 55,065 107,551 56,229 88,008 50,094
Cielo S.A. (3) Service Rendering -- -- 22,920,428 6,149,893 22,260,627 5,363,999 21,978,331 4,989,047
Tecnologia Bancária S.A. - Tecban (4) Service Rendering -- -- 1,211,385 378,186 1,049,487 352,985 949,505 369,135
Other Segments Ativos S.A. Securitizadora de Créditos Financeiros
(2) Credits Acquisition 1,206,341 1,056,467 1,199,770 1,088,797 1,134,413 1,045,981 1,169,689 1,009,091
Ativos S.A. Gestão de Cobrança e Recuperação de Crédito
(2) Credits Acquisition 11,109 6 4,774 2.798 5 5 5 5
BB Administradora de Consórcios S.A. (2) Consortium 367,273 167,522 328,930 220,033 344,196 167,522 264,629 211,227
BB Tur Viagens e Turismo Ltda. (2) (5) Tourism 41,138 12,165 41,501 12,872 44,807 14,058 42,664 13,312
BB Asset Management Ireland Limited (2) Credits Acquisition 2,918 2,468 -- -- -- -- -- --
BB Tecnologia e Serviços S.A. (2) IT 454,209 221,253 446,376 234,777 401,829 228,693 403,166 221,899
(1) Leader Institution. (2) Subsidiaries. (3) Joint venture, excluded from the consolidation scope from December 31,2015, according to CMN Resolution No. 4,403/2015. (4) Associated companies, excluded from the consolidation scope from December 31,2015, according to CMN Resolution No. 4,403/2015. (5) The Financial Statements refers to november/2015.
Risk Management Report – Pillar III – 4Q15 27
5. Risk Management
5.1. Credit Risk
5.1.1. Management Objectives
Banco do Brasil’s Prudential Conglomerate credit risk is managed according to best market practices and follows the banking supervision and regulatory rules. It seeks to identify, assess, control, and mitigate the risk exposures, monitor the management process, contribute to maintain the bank’s health and solvency, and ensure the interests of the shareholders.
Credit risk management in the Conglomerate involves the Credit Policy, the Risk Appetite and Tolerance Statement, strategies, processes, procedures and credit risk management systems, as the following figure shows:
Figure 4 - Credit risk management
Note: CA = Board of Directors; CSRG = Global Risk Superior Committee; CERC = Credit Risk Executive Committee; Dicre = Credit Directorship; Dirao = Asset Restructuring Directorship; Diris = Risk Management Directorship, URO = Operational Risk Unit.
The main strategic committees involved in credit risk management are:
Board of Directors (CA)
Banco do Brasil S.A Board of Directors (CA) defines the Bank and its subsidiaries general business. The Board has, in the manner provided by law and the Statute, strategic, guiding, elective and monitoring assignments, not covering operating and executive functions. The composition and management term of the Council is defined by the Bank's bylaws. The Board of Directors shall decide on policies, corporate strategy, investment plan, master plan and the Bank’s general budget.
Global Risk Superior Committee – CSRG
Purposes:
a) to set credit risk management strategy;
Risk Management Report – Pillar III – 4Q15 28
b) to determine global limits to credit risk exposure;
c) to approve the risk factors that will make up the documents and reports to be submitted to regulatory agencies and other institutions;
Credit Risk Executive Committee – CERC
Purposes:
To approve:
a) the implementation of actions that enable the loan portfolio management;
b) the loans portfolio risk mitigatory actions and instruments;
c) contingency plans regarding credit and social and environmental risk management;
d) specific limits to credit risk exposures;
e) models, methodologies, criteria and parameters for credit risk management; the process of collecting and recovering debts;
f) to assess the internal validations result and define, whenever necessary, corrective measures for models of credit risk management;
To analyse and propose to CSRG the:
a) credit risk management strategy;
b) global limits to credit risk exposures;
To monitor the:
a) measures implemented to mitigate the risk in the loan portfolio management;
b) development of Allowance for Loan and Lease Losses (ALLL), submitting it to the attention of CSRG;
c) recommendations and guidelines resolved by the Committee.
In accordance with CMN Decision nº 3,721/09, the credit risk management structure of Banco do Brasil was approved, composed by Global Risk Superior Committee (CSRG), Credit Risk Executive Committee (CERC), Credit Directorship (Dicre), Operational Asset Restructuring Directorship (Dirao), Risk Management Directorship (Diris) and Controlling Directorship (Dirco).
That credit risk management structure is compatible with the nature of transactions, the complexity of products and services, and it is proportional to the size of the credit-risk exposure incurred by Banco do Brasil.
As Diris is in charge of overall risk management and does not have any ties with the management of third-party resources administration or with the fulfillment of transactions subject to credit risk, the CA pointed out the Director of the Risk Management Directorship as responsible for BB’s credit risk management before Bacen.
5.1.2. Credit Policy
Banco do Brasil’s credit policy contains strategic guidelines to direct credit-risk management actions in the prudential conglomerate. It is approved by the Board of Directors and reviewed every year. It applies to all businesses that involve credit risk
Risk Management Report – Pillar III – 4Q15 29
and is available to all employees. It is expected that the Subsidiaries, Affiliates and Investment companies define their paths from these guidelines, taking into account the specific needs and legal and regulatory issues to which they are subject.
The credit policy is divided into four blocks: General Aspects, Credit Risk Taking, Credit Collections and Recovery, and Credit Risk Management. Each block contains a comprehensive set of statements which encompasses all stages of credit-risk management at Banco do Brasil. Important topics addressed in Banco do Brasil’s credit policy are listed below:
a) concept of credit risk;
b) separation of duties;
c) joint decisions;
d) risk appetite;
e) risk limits;
f) client rating;
g) conditions for risk taking;
h) guidelines for credit collections and recovery;
i) capital planning;
j) allowance and capital levels;
k) stress tests.
5.1.3. Management Strategies
Aligned with the objectives of credit risk management, the Board of Directors (CA) establishes the Credit Policy and the Risk Appetite and Tolerance of Banco do Brasil, which covers guidelines for credit risk and are previously analyzed by the Global Risk Superior Committee (CSRG) and the Credit Risk Executive Committee (CERC).
As of the guidelines approved by the CA, the credit-risk management strategies, described below are defined and aim to guide the actions in the operational level:
a) approving credit risk management models;
b) setting goals for timely payment, recovery, maximum loss, and quality of the loan portfolio;
c) setting risk and concentration limits; and
d) keeping appropriate levels of allowances and capital.
5.1.4. Credit Risk Management Processes
According to Banco do Brasil’s credit risk management structure, the Credit (Dicre), Operational Asset Restructuring (Dirao) and Risk Management (Diris) Directorships are responsible for implementing strategic decisions approved by the CA, CSRG and CERC, keeping exposure in the risk levels set by the Executive Management.
The main attributions of the areas that are part of the credit risk management structure are shown in the figure as follows:
Risk Management Report – Pillar III – 4Q15 30
Figure 5 - Credit risk management structure
The processes and procedures of the credit risk management structure are validated and performed by two internal units at different points in time, a fact that ensures the adequate separation of duties and the independence of work. The Compliance Directorship (Dicoi) is responsible for validating the prudential conglomerate’s risk determination and measurement models and the bank’s internal control system. Internal Audit (Audit) periodically evaluates credit risk management processes to verify whether they are consistent with the strategic guidelines, credit policy, and regulatory and internal rules.
5.1.5. Communication and Information Processes
The disclosure of credit risk information is a continual and ongoing process whose premises considered when selecting and disclosing information include best practices, banking laws, users` needs, the Bank’s interests, confidentiality, and relevance of the information.
The communication of information on credit risk management is provided to internal and external clients, according to the following processes:
5.1.5.1. Communication process for internal clients
The operational units of the credit risk management structure permanently communicate risk exposure to upper management in order to monitor management actions and decision-making by the Senior Management.
The communication process involves several reports on credit risk management, which are produced periodically and are the result of analysis conducted by professionals from the units. They demonstrate the credit risk of all exposures or in certain portfolios, such as:
a) Presentation of the Bank’s credit portfolio X National Financial System;
b) Comparative BB Credit Portfolio x main competitors;
c) Credit Risk Panel; and
Risk Management Report – Pillar III – 4Q15 31
d) Stress testing.
5.1.5.2. Communication process for external clients
The operational units of the credit risk management structure produce information for external users and send it to the Investor Relations Unit (URI) that, as a practice of transparency, discloses the information to the market, as a transparent governance practice. That allows investors and interested parties to monitor risk-management actions and the evolution of credit risk, and to prove the Bank’s capital adequacy to cover all risks taken.
Information for external users is provided on a publicly accessible location, easily found on the bank’s website. The information is published in the following documents:
a) Performance Analysis Report;
b) Risk Management Report – Pillar III;
c) Reference Sheet;
d) Explanatory Notes to Financial Statements; and
e) Annual Report.
5.1.6. Measurement Systems
The credit risk measurement is made by means of several indicators: default, delays, portfolio quality, allowance for loans and lease losses, concentration, regulatory capital requirement, stress testing, among others, which reflect the Bank`s risk mitigation policy.
The quantity and nature of the operations, the diversity and complexity of our products and services, and the volume exposed to credit risk require systematic measurement of credit risk at Banco do Brasil. The Bank has enough databases and corporate system infrastructure to ensure comprehensive measurement of credit risk. Important mechanisms of credit risk management are highlighted below.
5.1.6.1. Concentration
The Bank has the credit portfolio concentration risk measurement process and monitoring. Besides the monitoring of the portfolio different segments concentration level indicators, ascertained according to the Herfindahl-Hirshman Ratio, the impact of concentration in the capital allocation for credit risk in an individual view (considering the portfolio as a whole) and in a sectorial one (considering groups segmented by product and size).
5.1.6.2. Regulatory Capital Requirement
The Bank measures the regulatory capital requirement for credit risk coverage through Regulatory Simplified Standardized Approach, whose procedures for calculating the potion of risk-weighted assets (RWA) regarding exposure to credit risk (RWACPAD) were released by the Bacen through Circular nº 3,644/13.
Those procedures were implemented in a proprietary system that determines the capital requirements quickly and securely, allowing timely evaluation of the bank’s solvency under the regulator’s rules. The Bank uses Regulatory Capital information to assess the efficiency of capital allocation and planning.
Risk Management Report – Pillar III – 4Q15 32
5.1.6.3. Stress Test
Banco do Brasil applies stress tests as a credit risk management tool. The purpose of those tests is to assess the resilience of the Institution to hypothetical loss events using stressed projections of macroeconomic and credit variables, with an emphasis on the impact assessment of the estimated reduction in profits, as well as the impacts on capital.
Stress tests are performed under different segments of the loan portfolio, from the simulation of hypothetical financial losses through econometric evaluation, based on corporate stress scenarios, and ad-hoc shocks on credit variables that consider the levels of risk set forth in CMN Resolution No. 2,682/99.
The use of stress testing as a management tool aims to provide a prospective risk assessment, in order to evaluate the adherence to the level of Banco do Brasil risk appetite, and promote the development of contingency plans and risk mitigation, which allows the supporting of capital and liquidity planning processes.
5.1.7. Mitigation Policy
Banco do Brasil is conservative towards credit risk. In conducting any business subject to credit risk, the bank’s general rule is to tie it to a mechanism that provides partial or complete hedging of risk incurred. In managing credit risk on the aggregate level, to keep exposure within the risk levels established by the Senior Management, the Bank has the prerogative to transfer or to share credit risk.
The use of credit risk mitigating instruments is stated in the Credit Policy, present in strategic decisions, and formalized in credit rules, reaching all levels of the organization and covering all stages of credit risk management.
Credit rules provide clear, comprehensive guidelines for the operational units. Among other aspects, the rules address ratings, requirements, choices, assessments, formalization, control, and reinforcement of guarantees, ensuring the adequacy and sufficiency of the mitigator throughout the transaction cycle.
5.1.8. Processes for Monitoring the Effectiveness of Mitigators
Monitoring the effectiveness of mitigators is part of the Bank’s credit risk management processes. We quote, as an example, monitoring exposures subject to credit risk, the risk ratings of loans, capital management, and credit collection and recovery.
The processes of monitoring credit risk exposure and rating loans risks produce important information for verifying the effectiveness of mitigating instruments. The low default ratio in certain segments of the credit portfolio and the lowest level of allowances in certain transactions may mean that the existence of guarantees tied to exposure reducing credit risk and capital requirements for its coverage.
5.1.9. Exposure to Credit Risk
The table below shows the concentration levels of the ten largest customers in relation to total transactions with credit granting feature.
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Table 4 - Concentration of the ten and of the hundred largest customers in relation to the total of transactions with credit granting feature
1st to 10th 1st ao 100th
4Q15 12.56% 26.84% 3Q15 12.62% 26.61% 2Q15 11.66% 25.80% 1Q15 11.40% 25.70% 4Q14 10.18% 24.24% 3Q14 10.36% 24.27% 2Q14 9.65% 23.16% 1Q14 10.56% 23.84% 4Q13 10.73% 23.80%
The following table shows credit risk average exposure of individual portfolios (PF) and businesses (PJ):
Table 5 - Credit risk average exposure
R$ million 4Q15 3Q15 2Q15 1Q15 4Q14
Exposure Balance * Average Balance Balance *
Average Balance Balance *
Average Balance Balance *
Average Balance Balance *
Average Balance
Individuals Agrobusiness 124,385 41,462 121,805 40,602 122,204 40,735 119,912 39,971 119,414 39,805 Mortgage 37,252 12,417 35,297 11,766 32,978 10,993 30,539 10,180 28,645 9,548 Payroll Loan 62,502 20,834 61,758 20,586 61,087 20,362 59,863 19,954 58,843 19,614 Auto Loans 8,407 2,802 8,849 2,950 9,498 3,166 10,164 3,388 10,608 3,536 Credit Cards 68,418 22,806 66,500 22,167 68,423 22,808 67,624 22,541 67,311 22,437 Others 53,559 17,853 52,807 17,602 51,223 17,074 49,571 16,524 48,603 16,201 Total Individuals 354,523 118,174 347,016 115,672 345,413 115,138 337,674 112,558 333,424 111,141
Companies - - - - - Agrobusiness 52,754 17,585 56,329 18,776 48,868 16,289 45,815 15,272 48,038 16,013 Investiments 90,001 30,000 93,288 31,096 92,020 30,673 93,115 31,038 90,552 30,184 Import/Export. 19,582 6,527 18,101 6,034 18,211 6,070 16,530 5,510 16,505 5,502 Working Capital 225,492 75,164 229,115 76,372 229,026 76,342 234,454 78,151 229,541 76,514 Others 185,957 61,986 181,993 60,664 169,284 56,428 173,047 57,682 165,889 55,296 Total Companies 573,787 191,262 578,826 192,942 557,409 185,803 562,960 187,653 550,526 183,509
Total 928,310 309,437 925,842 308,614 902,821 300,940 900,634 300,211 883,950 294,650
* Includes BB internal portfolio and loans to concede
The next table presents the credit risk exposure of the businesses portfolio (PJ), segregated by geographic regions in Brazil:
Risk Management Report – Pillar III – 4Q15 34
Table 6 - PJ credit risk exposure by geographic regions
R$ million 4Q15
Region Agribusiness Investments Import/Export. Working Capital Others
Midwest 1,343 23,475 461 16,791 7,325
Northeast 266 4,460 280 16,615 10,235
North 115 3,631 90 5,482 3,839
Southeast 42,741 40,767 15,718 148,460 102,949
South 8,289 11,906 3,020 25,051 16,295
Foreign - 5,762 13 13,094 45,314
Total 52,754 90,001 19,582 225,492 185,957
R$ million 3Q15
Region Agribusiness Investments Import/Export. Working Capital Others
Midwest 1,393 23,753 355 17,132 8,004
Northeast 248 4,529 285 16,410 10,259
North 88 3,713 83 6,612 2,734
Southeast 47,357 41,976 14,694 147,575 97,629
South 7,243 12,417 2,673 27,411 14,414
Foreign - 6,900 11 13,975 48,952
Total 56,329 93,288 18,101 229,115 181,993
R$ million 2Q15
Region Agribusiness Investments Import/Export. Working Capital Others
Midwest 1,391 24,328 331 17,402 6,847
Northeast 289 4,646 289 17,169 9,949
North 101 3,799 64 6,659 2,650
Southeast 39,540 41,025 14,638 144,098 96,259
South 7,547 12,758 2,880 28,679 13,475
Foreign - 5,464 8 15,020 40,104
Total 48,868 92,020 18,211 229,026 169,284
R$ million 1Q15
Region Agribusiness Investments Import/Export. Working Capital Others
Midwest 1,256 23,237 229 17,931 7,161
Northeast 296 4,849 231 17,846 10,465
North 139 3,913 56 6,883 2,555
Southeast 36,932 41,902 13,674 145,677 96,847
South 7,010 13,460 2,332 29,927 13,464
Foreign - 5,936 9 16,190 42,556
Total 45,633 93,297 16,530 234,454 173,047
The table below presents the credit risk exposure of the individuals portfolio (PF), segregated by geographic regions in Brazil:
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Table 7 - PF credit risk exposure by geographic regions
R$ million 4Q15
Region Agribusiness Mortgage Payroll Loans Auto Loans Credit Cards Others
Midwest 30,057 6,397 6,554 1,279 10,129 6,360
Northeast 8,444 6,864 15,470 2,000 12,160 9,852
North 6,743 1,321 4,812 761 3,659 3,205
Southeast 38,295 16,379 30,006 2,759 30,087 24,241
South 40,845 6,291 5,659 1,609 12,383 8,749
Foreign - - - - - 1,150
Total 124,385 37,252 62,502 8,407 68,418 53,559
R$ million 3Q15
Region Agribusiness Mortgage Payroll Loans Auto Loans Credit Cards Others
Midwest 28,698 6,113 6,509 1,349 9,816 6,042
Northeast 8,244 6,231 15,350 2,108 11,742 9,605
North 6,401 1,241 4,793 794 3,503 3,120
Southeast 38,081 15,679 29,504 2,909 29,440 24,180
South 40,381 6,034 5,601 1,689 12,000 8,572
Foreign - - - - - 1,287
Total 121,805 35,297 61,758 8,849 66,500 52,807
R$ million 2Q15
Region Agribusiness Mortgage Payroll Loans Auto Loans Credit Cards Others
Midwest 28,884 5,716 6,363 1,445 10,082 5,768
Northeast 8,342 5,516 15,156 2,250 12,052 9,154
North 6,297 1,145 4,748 833 3,591 2,990
Southeast 38,244 14,828 29,317 3,143 30,413 23,750
South 40,436 5,773 5,502 1,829 12,286 8,497
Foreign - - - - - 1,064
Total 122,204 32,978 61,087 9,498 68,423 51,223
R$ million 1Q15
Region Agribusiness Mortgage Payroll Loans Auto Loans Credit Cards Others
Midwest 28,727 5,230 6,182 1,512 9,931 5,542
Northeast 8,022 4,865 14,753 2,342 11,881 8,714
North 6,134 1,041 4,635 851 3,515 2,744
Southeast 37,312 13,921 28,971 3,321 30,118 23,026
South 39,898 5,482 5,322 1,955 12,179 8,356
Foreign - - - - - 1,189
Total 120,094 30,539 59,863 9,982 67,624 49,571
The next tables show the behavior of the total credit risk exposure, segregated by economic sector:
Risk Management Report – Pillar III – 4Q15 36
Table 8 - Credit risk exposure of the prudential conglomerate, by economic sector
R$ million 4Q15 2Q15 1Q15 4Q14
Government 46,665 40,452 41,646 36,936.54
Agribusiness - Animal Origin 16,904 16,452 15,138 16,280.05
Agribusiness - Vegetable Origin 41,222 39,748 40,414 40,731.45
Construction Specific Activities 18,782 18,013 18,631 19,080.51
Automotive 37,277 36,013 35,084 34,216.31
Beverages 2,757 2,498 2,124 2,128.32
Wholesale Trade and Industries 9,069 9,539 10,407 10,606.46
Retail Trade 24,731 25,038 26,501 25,369.77
Heavy Construction 9,281 9,980 10,380 10,686.77
Leather and Shoes 4,191 4,163 4,187 4,234.95
Other Activities 159 1,124 772 729.08
Electrical and Electronic Goods 12,584 12,785 13,364 14,498.82
Eletricity 42,528 41,654 41,091 38,773.83
Housing 30,650 29,981 29,522 29,066.12
Banks and Financial Services 35,650 30,765 33,528 31,967.43
Agricultural Consumables 14,372 13,320 13,555 13,309.99
Timber and Furniture 8,298 8,807 8,985 9,069.02
Metalw orking and Steel 48,762 46,798 48,520 46,925.59
Pulp and Paper 11,989 12,126 12,636 12,412.03
Oil and Gas 51,120 51,297 49,627 46,605.42
Chemicals 14,011 14,199 14,400 14,257.24
Services 32,651 32,851 32,029 33,062.15
Telecommunication 8,262 9,155 10,134 11,055.89
Textile and Garments 14,894 15,619 15,917 16,548.47
Transport 36,979 35,029 34,366 31,973.79
Individuals 354,523 345,413 337,674 333,423.87
Total(1) 928,311 902,821 900,634 883,950
(1)* Includes BB internal portfolio and loans to concede
The table below shows the behavior of the total credit risk exposure of the agribusiness portfolio, segregated by economic sector and businesses portfolio (PJ):
Risk Management Report – Pillar III – 4Q15 37
Table 9 - Credit risk exposure of the agribusiness portfolio, segregated by economic sector and businesses portfolio (PJ) - 4Q15
4Q15
Agribusiness Investments Import/Export Working Capital
Others
R$ million
Government - 9,230 0 33,752 3,682
Agribusiness - Animal Origin 5,215.73 1,274.98 2,491.05 4,978.01 2,943.86
Agribusiness -Vegetable Origin 13,620.72 6,407.17 5,004.46 9,485.54 6,703.92
Construction Specific Activities 160.62 3,358.48 430.28 6,616.48 8,216.07
Automotive 177.36 5,801.21 2,596.76 17,007.36 11,694.49
Beverages 88.62 359.22 371.99 1,089.32 847.52
Wholesale Trade and Industries 1,003.22 1,027.42 223.99 4,731.14 2,082.97
Retail Trade 890.69 1,955.22 31.78 12,549.07 9,304.56
Heavy Construction 0.37 929.82 21.68 3,309.43 5,019.97
Leather and Shoes - 303.30 422.15 2,005.61 1,459.75
Other Activities - 1.29 - 3.86 153.97
Electrical and Electronic Goods - 1,096.91 388.94 5,477.05 5,621.23
Eletricity 3,010.16 7,668.14 35.03 18,263.90 13,550.89
Housing 22.47 1,078.07 0.32 6,171.97 23,376.86
Banks and Financial Services 557.97 258.81 13.11 2,894.32 31,925.68
Agricultural Consumables 3,005.18 1,669.71 1,252.05 3,812.21 4,632.43
Timber and Furniture 407.78 1,250.42 305.03 4,029.85 2,304.85
Metalw orking and Steel 3,339.52 2,756.97 4,269.35 25,457.21 12,939.28
Pulp and Paper 2,402.07 1,041.32 252.39 5,301.25 2,992.38
Oil and Gas 17,509.28 3,487.91 609.97 16,772.87 12,739.74
Chemicals 29.41 1,519.93 374.85 6,731.51 5,355.23
Services 120.91 5,981.36 118.77 15,481.36 10,948.33
Telecommunication - 129.39 0.79 3,748.07 4,383.87
Textile and Garments 606.18 1,210.16 282.80 7,630.44 5,164.91
Transport 585.67 16,335.73 84.28 6,361.32 13,611.60
Total(1) 52,753.93 76,133.37 19,581.96 223,661.39 201,656.32
(1)* Includes BB internal portfolio and loans to concede
Table 10 - Credit risk exposure of the agribusiness portfolio, segregated by economic sector and businesses portfolio (PJ) - 3Q15
3Q15
Agribusiness Investments Import/Export Working Capital
Others
R$ million
Government 0.01 9,386 0 36,750 641
Agribusiness - Animal Origin 5,182.79 1,278.23 1,821.30 4,822.54 2,960.53
Agribusiness -Vegetable Origin 13,195.25 6,582.61 5,125.84 9,690.62 6,798.80
Construction Specific Activities 169.98 3,514.33 373.95 6,840.34 7,463.09
Automotive 216.68 6,258.61 2,290.74 16,148.25 12,395.60
Beverages 109.82 358.07 365.88 1,109.97 828.91
Wholesale Trade and Industries 925.92 1,112.31 180.46 4,933.61 2,024.10
Retail Trade 867.27 2,000.49 36.36 12,546.89 9,379.86
Heavy Construction 0.73 994.02 19.60 3,427.07 5,363.56
Leather and Shoes 312.96 379.14 2,068.13 1,476.60
Other Activities 1.23 8.13 409.61
Electrical and Electronic Goods 1,229.41 421.68 5,689.25 5,809.01
Eletricity 3,067.14 7,524.53 38.31 18,478.61 12,535.59
Housing 21.83 1,069.66 0.31 6,073.66 22,913.65
Banks and Financial Services 546.22 511.62 10.72 2,765.21 28,833.53
Agricultural Consumables 2,515.10 1,867.76 877.59 3,655.26 4,845.04
Timber and Furniture 570.42 1,317.42 287.73 4,139.77 2,319.97
Metalw orking and Steel 3,561.94 3,075.01 3,990.57 24,265.88 13,925.18
Pulp and Paper 2,372.31 1,109.06 348.84 5,454.92 2,950.62
Oil and Gas 21,608.87 3,710.04 765.49 17,137.62 13,793.48
Chemicals 103.20 1,587.33 362.36 6,897.45 5,600.93
Services 121.90 6,035.51 99.46 15,672.95 10,950.44
Telecommunication 142.22 0.31 4,266.74 4,577.72
Textile and Garments 573.53 1,376.77 180.45 7,801.57 5,559.97
Transport 597.72 16,685.79 123.41 6,427.05 13,927.43
Total(1) 56,328.65 79,040.98 18,100.62 227,071.63 198,283.92
(1)* Includes BB internal portfolio and loans to concede
Risk Management Report – Pillar III – 4Q15 38
Table 11 - Credit risk exposure of the agribusiness portfolio, segregated by economic sector and businesses portfolio (PJ) - 2Q15
2Q15
Agribusiness Investments Import/Export Working Capital
Others
R$ million
Government 0.01 9,205.10 0.17 30,726.42 520.70
Agribusiness - Animal Origin 5,744.19 1,318.23 2,136.32 4,727.89 2,525.64
Agribusiness -Vegetable Origin 13,196.79 6,697.00 5,084.28 9,287.43 5,482.12
Construction Specific Activities 169.67 3,574.72 343.67 7,112.16 6,812.35
Automotive 234.92 6,230.00 2,726.64 15,811.78 11,010.01
Beverages 135.64 363.54 319.73 1,060.71 618.86
Wholesale Trade and Industries 803.51 1,092.73 169.27 5,145.30 2,328.07
Retail Trade 911.06 2,008.52 24.21 12,549.95 9,543.78
Heavy Construction 0.76 1,058.18 18.93 3,562.13 5,339.72
Leather and Shoes - 313.37 398.15 2,105.45 1,346.44
Other Activities - 1.76 - 8.66 1,113.65
Electrical and Electronic Goods - 1,147.68 414.02 5,816.68 5,407.03
Eletricity 3,394.31 7,628.23 28.87 18,962.94 11,640.10
Housing 21.67 1,093.71 0.30 6,368.57 22,496.93
Banks and Financial Services 579.28 66.86 8.38 1,526.86 28,583.41
Agricultural Consumables 2,272.30 1,628.68 910.20 3,820.71 4,688.35
Timber and Furniture 789.76 1,330.52 262.20 4,245.89 2,179.11
Metalw orking and Steel 3,579.32 3,106.95 3,545.31 24,125.70 12,441.11
Pulp and Paper 2,362.24 1,118.12 378.56 5,440.30 2,826.90
Oil and Gas 13,227.37 3,679.78 586.29 20,746.27 13,057.61
Chemicals 111.99 1,588.91 324.62 7,004.06 5,169.36
Services 136.41 6,255.09 209.89 17,226.42 9,023.41
Telecommunication - 144.69 78.68 4,527.42 4,404.18
Textile and Garments 627.77 1,377.08 137.33 8,314.65 5,162.53
Transport 576.57 15,098.21 104.69 6,425.26 12,823.81
Total(1) 48,875.52 77,127.64 18,210.69 26,649.61 186,545.17
(1)* Includes BB internal portfolio and loans to concede
The next tables present the credit risk exposure of individual portfolios (PF) and businesses (PJ), segregated by maturity of the transactions:
Table 12 - Credit risk exposure of PF and PJ portfolios by maturity of the transactions - 4Q15
R$ million 4Q15
Exposure up to 6 months 6 months to 1 year 1 to 5 years Above 5 years
Agribusiness 16,163 25,180 30,837 52,205
Mortgage 16,284 549 905 50,680
Payroll Loan 455 1,318 27,754 32,975
Auto Loans 21 5 292 36,934
Credit Cards 191 593 7,400 222
Others 11,523 11,587 19,953 10,495
Total Individuals 44,638 39,232 87,140 183,512
Agribusiness 7,720 7,536 19,255 18,243
Investments 56,252 15,722 104,646 48,873
Import/Export. 13,186 5,621 774 -
Working Capital 5,259 3,247 27,915 53,580
Others 52,945 15,369 82,101 35,542
Total Companies 135,363 47,495 234,690 156,239
Total 180,001 86,728 321,831 339,751
Risk Management Report – Pillar III – 4Q15 39
Table 13 - Credit risk exposure of PF and PJ portfolios by maturity of the transactions - 3Q15
R$ million 3Q15
Exposure up to 6 months 6 months to 1 year 1 to 5 years Above 5 years
Agribusiness 21,262 14,472 34,275 51,796
Mortgage 16,930 441 938 48,191
Payroll Loan 432 1,173 28,710 31,442
Auto Loans 28 5 289 34,976
Credit Cards 189 576 7,854 230
Others 12,645 10,992 19,181 9,989
Total Individuals 51,486 27,659 91,246 176,624
Agribusiness 12,282 6,153 19,631 18,263
Investments 54,486 14,364 106,165 54,100
Import/Export. 10,560 6,733 808 -
Working Capital 6,211 3,038 29,471 54,569
Others 44,158 16,499 91,967 29,369
Total Companies 127,697 46,787 248,041 156,301
Total 179,183 74,446 339,287 332,926
Table 14 - Credit risk exposure of PF and PJ portfolios by maturity of the transactions - 2Q15
R$ million 2Q15
Exposure up to 6 months 6 months to 1 year 1 to 5 years Above 5 years
Agribusiness 28,828 15,435 25,442 52,499
Mortgage 17,744 439 708 49,532
Payroll Loan 448 1,109 29,465 30,065
Auto Loans 29 5 284 32,660
Credit Cards 221 523 8,513 242
Others 9,732 13,619 18,441 9,430
Total Individuals 57,001 31,130 82,854 174,428
Agribusiness 9,352 6,129 16,769 16,619
Investments 55,393 16,104 109,232 48,296
Import/Export. 11,371 5,962 878 -
Working Capital 5,491 2,902 28,935 54,691
Others 43,115 15,692 82,576 27,901
Total Companies 124,721 46,789 238,391 147,507
Total 181,723 77,919 321,244 321,935
The table below shows the amount of overdue transactions, gross of allowances and excluded the write-offs, segregated by geographical regions in Brazil:
Risk Management Report – Pillar III – 4Q15 40
Table 15 - Amount of overdue transactions by geographical regions
R$ million 4Q15
Region 15 to 60 days 61 to 90 days 91 to 180 days 181 to 360 days Above 360 days
Midwest 1,360.52 444.72 993.95 1,200.48 100.71 Northeast 1,448.86 482.62 1,189.24 1,307.90 125.14 North 470.74 160.43 378.15 398.25 43.84 Southeast 4,522.05 1,550.25 3,633.09 3,780.52 392.76 South 1,503.95 653.91 1,614.58 1,464.96 115.21 Foreign 55.31 0.37 73.91 33.08 57.41
TOTAL 9,361.44 3,292.30 7,882.92 8,185.19 835.07
R$ million 3Q15
Region 15 to 60 days 61 to 90 days 91 to 180 days 181 to 360 days Above 360 days
Midwest 1,485.05 479.05 973.31 1,030.99 83.28 Northeast 1,749.58 617.03 963.27 1,228.86 100.82 North 541.62 206.24 335.28 415.71 40.82 Southeast 4,537.36 2,037.97 3,040.48 3,841.28 397.09 South 1,804.43 829.66 1,230.36 1,386.09 108.91 Foreign 30.14 80.03 39.04 32.17 165.76
TOTAL 10,148.17 4,249.98 6,581.74 7,935.10 896.68
R$ million 2Q15
Region 15 to 60 days 61 to 90 days 91 to 180 days 181 to 360 days Above 360 days
Midwest 996.45 316.21 774.12 808.11 65.85 Northeast 1,118.72 382.46 928.38 1,043.98 83.34 North 376.44 124.91 304.98 368.10 35.65 Southeast 2,739.38 1,382.21 2,973.49 3,100.16 331.64 South 1,126.99 443.11 1,015.91 1,278.20 107.42 Foreign 3.49 42.37 6.87 7.55 169.99
TOTAL 6,361.47 2,691.28 6,003.76 6,606.11 793.90
R$ million 1Q15
Region 15 to 60 days 61 to 90 days 91 to 180 days 181 to 360 days Above 360 days
Midwest 1,206.65 367.21 634.17 783.96 81.23 Northeast 1,290.37 416.23 743.05 1,056.44 91.94 North 465.02 159.73 288.89 376.26 33.74 Southeast 4,023.64 1,443.57 2,580.86 3,292.06 305.67 South 1,334.82 476.02 1,040.45 1,340.67 105.15 Foreign 3,512.46 6.50 16.22 3.97 176.89
TOTAL 11,832.96 2,869.27 5,303.64 6,853.37 794.62
Below, the amount of overdue transactions, gross of allowances and excluded the write-offs of the Prudential Conglomerate, segregated by economic sector are presented:
Risk Management Report – Pillar III – 4Q15 41
Table 16 - Amount of overdue transactions, segregated by economic sector - 4Q15
R$ million 4Q15
Macro-sector 15 to 60 days 61 to 90 days 91 to 180 days 181 to 360 days Above 360 days
Government 0.32 0.04 - 0.27 . Agribusiness - Animal Origin 74.09 69.47 118.01 157.60 2.88 Agribusiness -Vegetable Origin 190.24 97.34 316.35 420.50 66.83 Construction Specific Activities 293.26 140.45 335.06 370.88 19.55 Automotive 308.91 264.34 373.10 408.75 20.23 Beverages 6.57 5.37 5.61 16.09 0.44 Wholesale Trade and Industries 111.82 59.05 179.14 182.03 10.21 Retail Trade 540.39 143.44 408.09 534.39 25.92 Heavy Construction 150.96 58.46 184.83 138.98 5.96 Leather and Shoes 42.86 15.98 59.75 69.23 2.02 Other Activities 0.01 . 0.70 0.20 . Electrical and Electronic Goods 211.08 67.90 228.63 237.30 11.56 Eletricity 77.56 3.31 127.37 14.83 - Housing 442.82 91.60 284.65 222.14 13.80 Banks and Financial Services 2.55 0.49 1.48 1.68 0.02 Agricultural Consumables 84.92 35.23 112.40 141.44 3.94 Timber and Furniture 175.67 62.60 203.46 205.83 12.63 Metalw orking and Steel 269.09 101.88 335.77 298.70 24.13 Pulp and Paper 73.13 33.21 78.74 73.11 3.74 Oil and Gas 159.26 58.45 154.39 231.49 7.80 Chemicals 119.60 55.87 145.07 181.76 7.42 Services 530.25 169.67 463.60 652.77 38.34 Telecommunication 24.65 15.54 31.19 47.18 1.32 Textile and Garments 224.61 122.23 383.29 360.15 23.97 Transport 603.10 107.99 319.01 347.23 18.91
Total 4,717.72 1,779.91 4,849.69 5,314.53 321.62
Table 17 - Amount of overdue transactions, segregated by economic sector - 3Q15
R$ million 3Q15
Macro-sector 15 to 60 days 61 to 90 days 91 to 180 days 181 to 360 days Above 360 days
Government 18.60 5.29 0.47 5.20 - Agribusiness - Animal Origin 68.95 67.80 151.05 92.66 4.14 Agribusiness -Vegetable Origin 331.70 91.53 416.16 411.77 68.28 Construction Specific Activities 336.13 159.63 286.50 305.05 14.64 Automotive 277.90 235.38 267.85 331.52 18.11 Beverages 7.02 3.17 16.15 7.82 0.11 Wholesale Trade and Industries 167.88 111.74 125.50 223.18 6.60 Retail Trade 435.44 189.42 379.45 528.09 24.59 Heavy Construction 238.44 79.15 76.07 154.33 10.21 Leather and Shoes 50.73 21.53 49.74 90.99 3.55 Other Activities 1.36 0.29 1.45 0.00 - Electrical and Electronic Goods 202.56 90.78 155.54 235.09 11.29 Eletricity 130.64 79.10 6.66 13.28 0.00 Housing 267.15 148.00 182.20 204.42 13.79 Banks and Financial Services 5.77 1.52 1.15 9.12 0.01 Agricultural Consumables 83.11 67.03 77.25 139.93 4.17 Timber and Furniture 215.41 93.50 141.04 188.50 6.94 Metalw orking and Steel 349.56 130.57 261.79 283.25 23.39 Pulp and Paper 92.98 37.14 55.70 81.14 6.14 Oil and Gas 201.41 258.78 138.93 189.23 18.26 Chemicals 133.00 110.61 110.43 180.98 9.93 Services 573.31 215.27 442.23 631.53 48.90 Telecommunication 35.72 15.50 32.93 32.00 1.39 Textile and Garments 385.28 148.83 270.38 345.85 25.03 Transport 351.53 193.44 250.71 319.45 121.89
Total 4,961.56 2,555.00 3,897.33 5,004.41 441.35
Risk Management Report – Pillar III – 4Q15 42
Table 18 - Amount of overdue transactions, segregated by economic sector - 2Q15
R$ million 2Q15
Macro-sector 15 to 60 days 61 to 90 days 91 to 180 days 181 to 360 days Above 360 days
Government 0.25 0.27 0.01 0.49 0.00 Agribusiness - Animal Origin 101.27 55.36 49.58 64.63 6.86
Agribusiness -Vegetable Origin 255.04 306.68 330.51 218.96 99.31
Construction Specific Activities 275.86 106.18 248.21 230.60 14.84
Automotive 211.66 101.72 251.28 287.38 16.26
Beverages 8.89 3.92 8.62 5.48 0.13
Wholesale Trade and Industries 95.63 61.17 151.50 152.17 6.10
Retail Trade 283.00 147.47 338.63 464.24 18.45
Heavy Construction 124.67 33.63 151.65 80.98 8.90
Leather and Shoes 45.46 23.78 55.50 69.86 2.64
Other Activities 0.91 0.57 0.06 0.19 0.00
Electrical and Electronic Goods 116.98 64.86 158.57 196.59 11.11
Eletricity 4.65 4.21 11.79 47.47 0.66
Housing 203.31 99.15 171.60 170.81 10.98
Banks and Financial Services 9.77 24.95 6.71 4.31 0.24
Agricultural Consumables 58.56 55.58 86.37 100.69 3.22
Timber and Furniture 126.06 58.70 148.81 150.92 6.98
Metalw orking and Steel 276.33 81.03 241.66 225.21 17.31
Pulp and Paper 58.54 22.52 59.39 73.48 5.02
Oil and Gas 127.39 48.92 144.35 156.86 5.77
Chemicals 85.37 47.98 132.71 135.03 7.33
Services 415.59 198.58 466.35 498.35 44.01
Telecommunication 21.88 18.40 22.79 33.65 0.96
Textile and Garments 184.91 142.48 247.85 298.70 29.41
Transport 280.64 101.64 263.78 219.66 98.73
Total 3,372.61 1,809.72 3,748.28 3,886.71 415.23
The following table shows the flow of write-off transactions, segmented by economic sector:
Table 19 - Write-off transactions by economic sector
R$ millions 4Q15 3Q15 2Q15 1Q15 4Q14 3Q14
Economic Sector (Write-off)
Government 0.00 0.48 0.05 0.60 0.22 0.02 Agribusiness - Animal Origin 61.75 22.77 62.53 26.51 22.31 30.29 Agribusiness - Vegetable Origin 398.47 157.70 190.00 236.95 175.78 87.03 Construction Specific Activities 148.32 149.44 151.30 176.29 101.88 101.67 Automotive 165.70 187.64 277.13 182.31 146.68 131.95 Beverages 1.29 5.79 24.38 1.08 4.47 6.88 Wholesale Trade and Industries 141.58 75.18 77.13 72.34 53.43 44.70 Retail Trade 306.33 230.39 253.78 232.94 139.71 134.01 Other Activities 67.04 9.74 11.44 7.37 5.50 23.16 Heavy Constructions 114.06 65.73 38.30 76.35 91.21 128.22 Leather and Shoes 67.37 33.90 42.36 38.16 47.33 21.82 Electrical and Electronic Goods 127.79 113.55 132.52 122.01 97.13 83.28 Eletricity 4.24 45.67 3.58 1.96 1.57 0.72 Housing 123.74 99.04 145.47 143.10 69.73 101.86 Agricultural Consumables 71.56 62.52 66.10 37.25 39.19 43.48 Timber and Furniture 93.74 104.84 105.78 125.27 104.85 58.55 Metalworking and Steel 212.27 153.67 301.05 183.99 114.04 133.87 Pulp and Paper 57.79 46.31 64.50 43.89 31.12 49.25 Oil and Gas 83.45 95.93 112.76 76.49 80.42 62.88 Chemicals 89.88 80.06 92.71 93.34 74.13 57.28 Services 351.95 296.54 339.63 342.75 234.16 217.95 Telecomunication 15.44 22.62 42.31 23.03 13.41 12.24 Textile and Garments 222.76 191.79 179.97 191.94 143.87 152.40 Transport 166.96 129.50 150.54 119.14 89.52 89.57
Total 3,093.48 2,380.82 2,865.32 2,555.06 1,881.68 1,773.08
Others
Individuals 1,618.23 1,504.64 1,542.34 1,538.07 1,467.92 1,480.96
Total 4,711.70 3,885.46 4,407.66 4,093.13 3,349.59 3,254.04
The table below shows the amount of allowances for loan and lease losses, segmented by economic sector and its quarterly variations:
Risk Management Report – Pillar III – 4Q15 43
Table 20 - Total allowances for loan and lease losses in the quarter and variations
R$ million
Macro-sector over 2Q15 4Q15 3Q15 2Q15 1Q15
Government (1.65) 2.44 4.08 4.59 5.60
Agribusiness - Animal Origin 41.76 516.74 474.98 379.29 330.10
Agribusiness -Vegetable Origin (182.55) 1,686.66 1,869.21 1,656.87 1,544.68
Construction Specific Activities 150.00 991.25 841.25 714.82 620.59
Automotive 238.54 1,084.46 845.93 746.73 797.18
Beverages 5.69 38.83 33.14 26.38 44.19
Wholesale Trade and Industries 12.59 548.31 535.72 471.09 379.90
Retail Trade 62.65 1,153.29 1,090.64 971.37 910.55
Heavy Construction 41.46 739.02 697.56 575.72 530.02
Leather and Shoes (18.34) 162.33 180.67 163.14 141.17
Other Activities (0.55) 0.88 1.42 1.06 279.59
Electrical and Electronic Goods 26.40 632.50 606.10 515.75 488.14
Eletricity 91.64 245.53 153.89 140.29 199.10
Housing 212.47 1,054.38 841.91 817.95 725.97
Banks and Financial Services 11.55 244.94 233.39 258.00 265.95
Agricultural Consumables 0.26 366.78 366.52 333.35 303.63
Timber and Furniture 61.82 531.53 469.71 417.83 377.39
Metalw orking and Steel 162.28 1,211.61 1,049.33 943.36 909.85
Pulp and Paper 5.87 218.35 212.48 201.01 206.73
Oil and Gas 526.24 1,665.51 1,139.26 898.74 482.26
Chemicals 34.58 442.72 408.14 362.88 345.91
Services 73.74 1,615.58 1,541.84 1,411.53 1,285.70
Telecommunication 54.60 171.60 117.00 109.08 109.71
Textile and Garments 112.79 963.98 851.20 758.56 705.27
Transport (14.18) 1,146.62 1,160.80 1,008.00 764.16
TOTAL 1,709.67 17,435.86 15,726.19 13,887.39 12,753.34
The behavior of credit risk exposure is presented below, considering settings of Bacen Circular nº 3,644/13, segmented by Risk-Weighting Factor (FPR), along with the average exposure of the quarters.
Table 21 - Credit risk exposure by FPR
R$ thousand
Exposure by Risk Factor 4Q15(2) 3Q15(2) 2Q15(2) 1Q15(2) 4Q14
0% 248,185 125,778 122,526 318,574 291,704 20% 876,308 865,551 862,847 782,019 682,264 35% 31,487,012 29,486,208 27,969,776 25,573,560 24,127,350 50% 12,763,883 12,359,860 13,893,193 13,451,805 11,405,370 75% 265,417,200 267,063,032 268,399,817 265,931,221 265,719,692 85% 207,042,329 205,993,651 209,703,156 210,216,529 200,625,913 100% 158,309,255 165,579,253 138,583,055 147,341,130 143,611,142
Total(1) 676,144,173 681,473,333 659,534,370 663,614,840 646,463,436
Average Exposure in the Quarter(1) 677,783,063 670,493,636 660,103,802 652,610,580 636,882,557
(1) Includes loans, leasing, commitments after applying the conversion factor, credits to release and guarantees rendered. (2) According to CMN Resolution 4,193/2013, since 01.01.2015 the calculation of RWA applies to institutions of the prudential conglomerate.
5.1.10. Acquisition, Sale or Transfer of Financial Assets
It is BB’s policy to assign credits from non-performing loans, recorded in losses and for which the bank has full risk, after all collection procedures defined in the collections and credit-recovery process have been exhausted, and the selected transactions have reached the savings point, that is, the cost-benefit ratio, does not justify keeping the transactions under collections at the commercial bank.
Credit assignment is also used punctually to dispose of specific credits, when such an operation is considered a viable alternative for its recovery, even if partial.
Risk Management Report – Pillar III – 4Q15 44
Below, we show the flow of operations assigned with substantial transfer of risks and benefits.
Table 22 - Loss operations assigned, with substantial transfer of risks and benefits
R$ thousands 4Q15 3Q15 2Q15 1Q15 4Q14
Operation Quantity (in thousands) 768 502 274 - 1,173 Value 2,284,388 990,919 922,977 - 3,484,849
Observation: The data refers to credit assigments ceded to Ativos S.A. Write-off Portfolio Values
BB has no exposure in the following categories:
a) exposures assigned with no substantial transfer or retention of risks and benefits;
b) exposures assigned with substantial retention of risks and benefits; and
c) exposures assigned in the last 12 months with substantial retention of risks and benefits, which were written off as losses.
Below, the value of the portfolio granted with a co-obligation, recorded in the off balance sheet, not in the Assets:
Table 23 - Value of the portfolio granted with co-obligation, recorded in the off balance sheet
R$ thousands 4Q15 3Q15 2Q15 1Q15
Risk Retention in Loan operations - Operations written off 5,454 5,919 5,969 6,034
The procedures to acquire financial assets are similar to the standard adopted by the assignment of claims market, which covers the assessment of assigning institution credit risk, the acquired operations and the corresponding debtors. The financial assets acquisitions aim to increase the Bank`s credit portfolio diversification.
In compliance with the CMN Resolution nº 3,533 and the related norms, as of January 2012, the accounting registrations started being made by considering the substantial transfer or retention of the acquired financial assets risks and benefits.
Table 24 - Balance of exposures acquired WITH retention of risks and benefits by the transferor
R$ million 4Q15 3Q15 2Q15 1Q15 4Q14
a) By type of exposure 15,691 16,281 17,258 16,682 16,498
Physical Person - Payroll Loan 1,830 2,042 2,374 2,862 3,512
Physical Person - Vehicles 13,861 14,239 14,884 13,820 12,986
b) By type of transferor 15,691 16,281 17,258 16,682 16,498
Financial Institutions 15,691 16,281 17,258 16,682 16,498
Table 25 - Balance of exposures acquired WITHOUT retention of risks and benefits by the transferor
R$ million 4Q15 3Q15 2Q15 1Q15 4Q14
a) By type of exposure 9 15 19 24 30
Physical Person - Payroll Loan 1 2 2 2 2
Physical Person - Vehicles 8 13 17 22 28
b) By type of transferor 9 15 19 24 30
Financial Institutions 9 15 19 24 30
5.1.11. Securities (TVM) operations derived from securitization processes
The securities acquired by BB are classified in the following categories:
a) category I - securities for trading - securities acquired with the intent of actively and frequently trading must be registered here;
b) category II - securities available for sale - securities that do not fall under categories I or III must be registered here; and
Risk Management Report – Pillar III – 4Q15 45
c) category III - securities held to maturity – securities, except non-redeemable shares, which the institution has the intent and financial capacity to keep in its portfolio until maturity must be registered here.
As follows, the exposures due to TVM operations derived from securitization processes are shown:
a) types of securities:
i) Receivables Investment Funds (FIDC): resource pool that allots most of its net assets to be applied in receivables. These are the rights and securities representing rights arising from operations carried out in the financial, commercial, industrial and real-estate, mortgage, financial leasing, and service-provision sectors, as well as other financial assets and investment modes admitted under the terms of CVM Instructions nos 356/01 and 444/06; and
ii) Real Estate Receivables Certificates (CRI): these are fixed-income securities backed by real estate credits - counter installments flows of payments to purchase real estate properties or rent - issued by securitization companies.
b) type of credit backing the issue:
i) FIDC: vehicles financing, company cash flow receivables, debentures, promissory notes, bank credit certificates, bank credit bill certificates, real estate credit certificates, real estate letters of credit, export and other credit rights credit bills; and
ii) CRI: real estate loans.
c) type of security:
i) FIDC and CRI = senior quota.
Table 26 - Value of the exposures derived from acquiring FIDC and CRI
R$ thousand 4Q15 3Q15 2Q15 1Q15 4Q14
FIDC 7 1,684,101 8 1,699,154 8 1,683,203 8 1,693,511.12 7 1,627,714.08
CRI - category II 10 468,782 10 490,024 10 479,316 11 483,505.32 11 486,490.95
CRI - category III 3 111,854 2 141,183 3 173,564 3 130,560.11 3 152,075.79
TOTAL 20 2,264,738 20 2,330,362 21 2,336,083 22 2,307,576.54 21 2,266,281
Note: Information includes BB branches in Brazil and abroad (BB-Multiple Bank).
5.1.12. Exposure to counterparty credit risks
Banco do Brasil admits assuming counterparty credit risks with clients who have been previously analyzed by the risk calculation methodology, with a credit limit applicable to their profile established, subject to the existence of a sufficient operational margin to cover such operations.
In this way, the counterparty credit risk exposures fall in line with other exposures in the customer’s loans on the credit limit assigned to it.
These types of operations affect the client’s credit risk according to the estimated value of the counterparty credit risk exposure in the event of a default, applicable credit risk mitigators being taken into consideration, such as the adjacent asset issuer risk, the volatility of the asset, deposited collaterals, the percentage subtracted from the assets
Risk Management Report – Pillar III – 4Q15 46
used as collateral (haircut), and the rules for additional collateral margin calls, according to the characteristics of the operation performed.
In operations conducted via Clearing Houses (Clearings), there is a risk transfer, where the value of the operations is reflected in the credit limit of the Clearing House.
For operations that are subject to the counterparty credit risk, Banco do Brasil follows what is quoted by Bacen Circular n° 3,068/01, considering the risk as a parameter for the calculation of the market value adjustment of such exposures, affecting the result of the period or in an account apart from the Net Equity, according to the classification of the exposure.
Below is the notional value of contracts subject to counterparty credit risk to be liquidated in clearing house liquidation systems, in which clearing houses acts as central counterparty.
Table 27 - Notional value of contracts to be liquidated in clearing house liquidation systems, in which the clearing house acts as central counterparty
R$ thousand Stock Market Negotiation Counterparty 4Q15 3Q15 2Q15 1Q15 4Q14
Futures Contracts 17,268,653 3,212,353 25,468,478 22,213,959 14,885,592
Purchase commitments B 17,268,653 3,212,353 25,468,478 22,213,959 14,885,592
Options Market 10,481,653 8,289 9,387,166 26,966,394 24,583,462
Short Position B 10,481,653 8,289 9,387,166 26,966,394 24,583,462
Note: Counterpart = (B) Stock Market
In the next table, the notional value of the contracts subject to the counterparty credit risk, in which there’s no work of the clearing houses as central counterparty is shown, segmented in uncollateralized agreements and collateralized agreements.
Table 28 - Notional value of contracts subject to counterparty credit risk in which clearing houses do not act as central counterparty, Segmented in uncollateralized agreements and collateralized agreements
R$ thousand Without guarantees 4Q15 3Q15 2Q15 1Q15 4Q14
Derivatives Operations 19,798,457 17,535,711 17,634,230 17,545,581 18,786,358 Currency Operations 236,783 202,272 178,728 795,384 1,995,017
With guarantees 4Q15 3Q15 2Q15 1Q15 4Q14
Derivatives Operations 11,297,695 5,789,478 10,920,774 13,139,259 12,644,330 Currency Operations 6,921 2,027,410 1,051,877 10,434 134,663 Repos 615,182,891 595,567,049 639,733,994 627,698,796 554,142,838
The following table shows the positive gross value of contracts subject to counterparty credit risk, including derivatives, outstanding operations, asset loans and repo transactions, disregarding the positive values from compensation agreements, as set forth in CMN Resolution nº 3,263/05.
Table 29 - Positive gross value of the respective contracts, including derivatives, loans to settle, assets loans and repurchase agreements, disregarded the positive values related to compensation agreements defined in CMN Resolution nº 3,263/05
R$ thousand 4Q15 3Q15 2Q15 1Q15 4Q14
Total Gross Positive Value 3,364,605 4,865,992 1,832,510 2,729,977 4,529,774 Derivative Financial Instruments 3,362,032 4,835,009 1,822,874 2,683,121 1,493,161 Currency Operations 489 122 44 13,170 - Repos 2,084 30,861 9,592 33,686 3,036,613
Next, the positive gross collateral received in operations subject to credit risk that cumulatively attends the following requirements, as art.9, section VII, of the Central Bank Circular nº 3,678/13:
a) be kept or held in custody by the institution itself;
Risk Management Report – Pillar III – 4Q15 47
b) whose exclusive purpose is to guarantee operations to which they are linked;
c) are subject to movement, exclusively, by order from the depositary institution; and
d) are immediately available to the depositary institution in the event default by the debtor or need for its realization.
Table 30 - The value of collaterals that cumulatively meet the requirements of paragraph VII, Art.9, of Bacen Circular n° 3,678/13
R$ thousand 4Q15 3Q15 2Q15 1Q15 4Q14
Internalized Resources 331,121,387 315,915,157 334,079,972 324,338,121 291,462,196 Brazilian Governement Securities 240,566,321 231,616,490 252,958,892 249,100,517 263,872,089
Total 571,687,708 547,531,647 587,038,865 573,438,638 555,334,286
According to the classification of types of collaterals accepted by Bacen, we have identified those that cumulatively meet the conditions established in Bacen Circular nº 3,678/13, considering the value committed as a collateral to the linked operation for the purpose of collaterals calculation.
As follows, the global exposure to the counterparty credit risk is shown, net of compensation agreements effects and the collaterals received.
Table 31 - The value of collaterals that cumulatively meet the requirements of paragraph VII, Art.9, of Bacen Circular nº 3,678/13
R$ thousand Counterparty Credit Risk 4Q15(3) 3Q15(3) 2Q15(3) 1Q15(3) 4Q14
Guarantees Rendered Value 571,687,708 547,531,647 587,038,865 573,438,638 555,334,286 Global Exposure(1) 119,058,500 120,986,448 105,539,859 106,036,733 45,908,497
(1) Net of the effects from the guarantees value. (2) According to CMN Resolution 4,193/2013, since 01.01.2015 the calculation of RWA applies to institutions of the prudential conglomerate.
5.1.13. Mitigating instruments
When accepting guarantees in loans, preference is given to guarantees which help the operation self-liquidate.
In order to accept a guaranty, the maximum value considered is reached by applying a certain percentage on the value of the goods or right. Below, the percentages used are shown:
Risk Management Report – Pillar III – 4Q15 48
Table 32 - Collateral coverage
Asset Coverage (%)
Credit rights
- Receipt for bank deposit 100%
- Certificate of bank deposit (1) 100%
- Saving deposits 100%
- Fixed income investiment founds 100%
PledgeAgreement – cash collateral(2) 100%
- Standby letter od credit 100%
- Others 80%
Guerantee Funds
- Guarantee Fund for Generation of Employment and Income (Funproger) 100%
- Guarantee Fund for Micro and Small Business (Fampe) 100%
- Guarantee Fund for Operations (FGO) 100%
- Guarantee Fund for Investments (FGI) 100%
- Others 100%
Guarantee(3) 100%
Credit insurance 100%
PledgeAgreement – securities(4) 77%
Offshore Funds - BB Fund(5) 77%
Livestock(6) 70%
PledgeAgreement - cashcollateral(7) 70%
Others (8) 50%
(1)Except the ones possessing swap agreement
(2) In the same currency of the operation.
(3) Provided by a banking institution taht has a credit limit at the bank, with sufficient margin to suport the co-obligation.
(4) Contract of deposit / Transfer of Customer funds
(5) Exclusive or retail.
(6) Excpet in Rural Product Notes Transactions (CPR).
(7) Celebrated in a different currency of the operations supported and wich have no hedding mechanism.
(8) According to certain characteristics, real state, vehicle, machinery and equipment can be received with highest percentage of guarantee.
The credit rights guarantees represented by financial investments must be internalized at the Bank and are blocked by the institution. This blockage must remain until the operation is concluded. When the financial investment matures, the Bank may, at its discretion, use it to liquidate the balance of remaining installments, with no notice or notification to the assignor/borrower.
Besides credit assignment or credit rights assignment clauses, the credit instrument, for linked mitigators, the credit instrument has a guarantee reinforcement clause to ensure, for the duration of the operation, the coverage percentage agreed on when it was contracted.
The fund guarantees, such as the Guarantee Fund for Generation of Employment and Earnings (Funproger), Operations Guarantee Fund (FGO), Investments Guarantee Fund (FGI) and the Endorsement for Micro and Small Enterprises Fund (Fampe) are used as collaterals by Banco do Brasil, mitigating the risks of operations. Overall, the fund guarantees have the following characteristics:
a) maximum coverage percentage limits when using the fund to back operations, according to the type of operation: Investment or Working Capital;
b) target market, according to the billing or the client’s risk;
c) whether or not a counter guarantee was given;
d) maximum limits on the amount of resources that constitute the Fund’s Net Worth (Leverage Ratio); and
Risk Management Report – Pillar III – 4Q15 49
e) limits for accrued losses, or, the Stop Loss Limits.
Guarantee fund managers keep up with whether an operation falls under the funds’ rules before granting them in guarantees, as well as manage guarantee operations and fund assets, freezing the use of these funds in guarantee operations, if necessary, before the amount of linked resources surpasses the leverage established for each fund.
Considering the credit risk mitigating instruments defined in articles 36 to 39 of Bacen Circular nº 3,644/13, the following table shows the total mitigated value in terms of exposure, weighted by risk factor, and segmented by type and FPR mitigator.
Table 33 - Mitigated value of exposure, weighted by the respective weighting factor
R$ thousand 4Q15 3Q15 2Q15 1Q15 4Q14
Total(1) Mitigator 50,048,816 51,448,134 47,547,350 45,380,967 41,885,245
Guarantee given by the National Treasury or the Banco Central do Brasil
0% 39,383,471 40,788,407 35,323,764 33,354,798 30,019,755
Guarantee given by Guarantee Funds 0% - - 1,638,636 1,531,050 1,628,348
Guarantee given by Guarantee Funds 50% 3,670,804 3,493,132 3,492,153 3,550,775 3,558,687
Deposits held by the institution itself 0% 1,088,224 1,257,405 1,281,769 1,256,609 1,209,427 Guarantee from financial institutions 50% 263,229 321,737 345,177 417,391 391,430
Payroll Discount Transfers(2) 50% 5,643,087 5,587,452 5,465,851 5,270,343 5,077,550
(1) Total value mitigated by the instruments defined in articles 36 and 39 of BACEN Circular 3.644/2013 for exposures in loans, leasing, commitments after applying the conversion factor, credits to release and guarantees rendereds.
(2) Credit risk mitigation instrument represented by payroll discount transfers was established by BACEN Circular 3,714, which became effective on Aug /14.
5.2. Market and Liquidity Risks
5.2.1. Management Objectives
The objective of Banco do Brasil’s market and liquidity risk management process is to identify, assess, monitor, and control risks related to each individual institution, and to the prudential conglomerate, as well as identify and accompany the risks associated with the rest of the companies that are part of the economic and financial consolidation.
Aligned with the best market practices, the Bank regularly uses procedures that enable managing the market and liquidity risks of its positions, taking internal and external economic scenarios into consideration in order to minimize possible effects on the net financials.
5.2.2. Management Policies and Strategies
The Bank has established policies and strategies for managing market and liquidity risks, and to manage derivative financial instruments. These policies and strategies determine the Company’s operating guidelines in these risks management process.
Additionally, the market and liquidity risks management process uses mechanisms set forth in regulatory systems which detail the operational procedures that are necessary to implement the organizational decisions concerning the Company’s business and activities and to meet legal, as well as regulatory and oversight bodies’ requirements.
It is relevant to mention that, for the market and liquidity risks management, systems are used to guarantee that positions registered in negotiable and non-negotiable portfolios are measured, monitored, and controlled, as are operations aimed at meeting the hedge objectives established.
Risk Management Report – Pillar III – 4Q15 50
At the Bank, the derivative financial instruments are used for hedging own positions, meeting the clients` needs and for intentional positions making, considering limits, competence and procedures that were previously established.
The tables below represent the total exposure to derivative financial instruments by category of market risk factor, segmented into positions bought and sold in the following way:
a) Derivative financial instrument transactions carried out with a central counterpart, subdivided into those in Brazil and those abroad; and
b) Derivative financial instrument transactions carried out without a central counterpart, subdivided into those in Brazil and those abroad.
Table 34 - Derivative financial instruments in the country and abroad, by market risk factor, with and without a central counterpart - 4Q15
Table 35 - Derivative financial instruments in the country and abroad, by market risk factor, with and without a central counterpart - 3Q15
R$ thousand 4Q15
Risk Factor Brazil Abroad Consolidated-BB
Reference
valueCost value Market value
Reference
valueCost value Market value
Reference
valueCost value Market value
Long position 17,662,585 2,721,902 3,277,079 4,236,087 32,343 84,953 21,898,672 2,754,245 3,362,032
Interest rates Stock market 1,042,332 -- -- -- -- -- 1,042,332 -- --
Counter 1,415,196 35,985 15,600 -- -- -- 1,415,196 35,985 15,600
Exchange rates Stock market 13,022,811 1,358,628 1,744,654 -- -- -- 13,022,811 1,358,628 1,744,654
Counter 2,121,268 1,325,940 1,511,528 4,236,087 32,343 84,953 6,357,355 1,358,283 1,596,481
Share price Stock market -- -- -- -- -- -- -- -- --
Counter -- -- -- -- -- -- -- -- --
Commodities price Stock market 27,160 -- -- -- -- -- 27,160 -- --
Counter 33,818 1,349 5,297 -- -- -- 33,818 1,349 5,297
Short position 21,371,217 (1,677,384) (1,723,806) 18,491,193 (1,312,127) (1,565,366) 39,862,410 (2,989,510) (3,289,172)
Interest rates Stock market 6,933,110 (251,801) (284,900) -- -- -- 6,933,110 (251,801) (284,900)
Counter 427,827 (8,669) (6,864) -- -- -- 427,827 (8,669) (6,864)
Exchange rates Stock market 7,370,908 (507,647) (305,300) 1,163,896 -- -- 8,534,804 (507,647) (305,300)
Counter 6,530,654 (902,850) (1,118,949) 17,327,297 (1,312,127) (1,565,366) 23,857,951 (2,214,976) (2,684,315)
Share price Stock market -- -- -- -- -- -- -- -- --
Counter -- -- -- -- -- -- -- -- --
Commodities price Stock market 83,979 (1,126) (137) -- -- -- 83,979 (1,126) (137)
Counter 24,739 (5,291) (7,656) -- -- -- 24,739 (5,291) (7,656)
Net position (3,708,631) 4,399,286 5,000,884 (14,255,106) 1,344,470 1,650,319 (17,963,738) 5,743,755 6,651,204
Negotiation location
R$ thousand 3Q15
Risk Factor Brazil Abroad Consolidated-BB
Reference
valueCost value Market value
Reference
valueCost value Market value
Reference
valueCost value Market value
Long position 63,606,232 6,559,562 6,333,360 5,464,682 133,271 200,391 69,070,914 6,692,833 6,533,751
Interest rates Stock market 18,792,783 -- -- -- -- -- 18,792,783 -- --
Counter 8,140,092 557,151 605,299 -- -- -- 8,140,092 557,151 605,299
Exchange rates Stock market 15,972,572 302,206 423,847 -- -- -- 15,972,572 302,206 423,847
Counter 19,656,587 5,656,892 5,236,835 5,464,682 133,271 200,391 25,121,269 5,790,163 5,437,226
Share price Stock market 989,000 32,111 50,188 -- -- -- 989,000 32,111 50,188
Counter -- -- -- -- -- -- -- -- --
Commodities price Stock market 7,148 -- -- -- -- -- 7,148 -- --
Counter 48,050 11,202 17,191 -- -- -- 48,050 11,202 17,191
Short position 67,922,467 (5,515,118) (5,382,398) 13,927,241 (965,140) (1,224,191) 81,849,708 (6,480,258) (6,606,589)
Interest rates Stock market 36,176,438 (460,288) (504,944) 1,191,709 -- -- 37,368,147 (460,288) (504,944)
Counter 2,870,260 (573,552) (556,074) -- -- -- 2,870,260 (573,552) (556,074)
Exchange rates Stock market 13,563,063 (389,130) (943,425) -- -- -- 13,563,063 (389,130) (943,425)
Counter 14,237,562 (4,057,919) (3,329,403) 12,735,533 (965,140) (1,224,191) 26,973,095 (5,023,059) (4,553,594)
Share price Stock market 1,004,772 (27,215) (40,382) -- -- -- 1,004,772 (27,215) (40,382)
Counter -- -- -- -- -- -- -- -- --
Commodities price Stock market 51,240 (203) (18) -- -- -- 51,240 (203) (18)
Counter 19,131 (6,811) (8,152) -- -- -- 19,131 (6,811) (8,152)
Net position (4,316,235) 12,074,680 11,715,758 (8,462,559) 1,098,411 1,424,582 (12,778,794) 13,173,091 13,140,340
Negotiation location
Risk Management Report – Pillar III – 4Q15 51
Table 36 - Derivative financial instruments in the country and abroad, by market risk factor, with and without a central counterpart - 2Q15
Table 37 - Derivative financial instruments in the country and abroad, by market risk factor, with and without a central counterpart - 1Q15
Table 38 - Derivative financial instruments in the country and abroad, by market risk factor, with and without a central counterpart - 4Q14
R$ thousand 2Q15
Risk Factor Brazil Abroad Consolidated-BB
Reference
valueCost value Market value
Reference
valueCost value Market value
Reference
valueCost value Market value
Long position 58,404,630 2,340,013 2,454,131 5,006,018 100,634 116,466 63,410,648 2,440,647 2,570,597
Interest rates Stock market 18,326,938 588 -- -- -- -- 18,326,938 588 --
Counter 10,557,370 420,159 451,180 -- -- -- 10,557,370 420,159 451,180
Exchange rates Stock market 16,225,886 168,919 91,528 -- -- -- 16,225,886 168,919 91,528
Counter 12,964,007 1,738,160 1,897,513 5,006,018 100,634 116,466 17,970,025 1,838,794 2,013,979
Share price Stock market 302,050 5,055 4,141 -- -- -- 302,050 5,055 4,141
Counter -- -- -- -- -- -- -- -- --
Commodities price Stock market 770 -- -- -- -- -- 770 -- --
Counter 27,609 7,132 9,769 -- -- -- 27,609 7,132 9,769
Short position 59,137,146 (3,002,785) (2,868,399) 9,770,821 (751,539) (972,917) 68,907,967 (3,754,324) (3,841,316)
Interest rates Stock market 32,701,292 (699,168) (739,473) 242,795 -- -- 32,944,087 (699,168) (739,473)
Counter 3,236,924 (321,630) (299,713) -- -- -- 3,236,924 (321,630) (299,713)
Exchange rates Stock market 9,852,625 (284,534) (357,374) -- -- -- 9,852,625 (284,534) (357,374)
Counter 12,662,465 (1,668,708) (1,447,693) 9,528,026 (751,539) (972,917) 22,190,491 (2,420,247) (2,420,610)
Share price Stock market 610,025 (15,104) (11,704) -- -- -- 610,025 (15,104) (11,704)
Counter -- -- -- -- -- -- -- -- --
Commodities price Stock market 37,265 -- -- -- -- -- 37,265 -- --
Counter 36,550 (13,641) (12,442) -- -- -- 36,550 (13,641) (12,442)
Net position (732,516) 5,342,798 5,322,530 (4,764,803) 852,173 1,089,383 (5,497,319) 6,194,971 6,411,913
Negotiation location
R$ thousand 1Q15
Risk Factor Brazil Abroad Consolidated-BB
Reference
valueCost value Market value
Reference
valueCost value Market value
Reference
valueCost value Market value
Long position 76,127,357 3,509,888 3,617,359 3,737,836 109,042 160,694 79,865,193 3,618,930 3,778,053
Interest rates Stock market 37,500,498 7,769 -- -- -- -- 37,500,498 7,769 --
Counter 10,410,088 406,220 438,394 -- -- -- 10,410,088 406,220 438,394
Exchange rates Stock market 11,571,856 202,467 301,586 -- -- -- 11,571,856 202,467 301,586
Counter 16,484,483 2,881,788 2,863,966 3,737,836 109,042 160,694 20,222,319 2,990,830 3,024,660
Share price Stock market 92,200 3,634 3,164 -- -- -- 92,200 3,634 3,164
Counter -- -- -- -- -- -- -- -- --
Commodities price Stock market 15,799 -- -- -- -- -- 15,799 -- --
Counter 52,433 8,010 10,249 -- -- -- 52,433 8,010 10,249
Short position 86,566,790 (4,332,824) (4,403,589) 12,263,408 (980,773) (1,212,960) 98,830,198 (5,313,597) (5,616,549)
Interest rates Stock market 58,681,564 (1,320,630) (1,398,732) 865,859 -- -- 59,547,423 (1,320,630) (1,398,732)
Counter 3,599,582 (534,596) (527,239) 22,610 -- -- 3,622,192 (534,596) (527,239)
Exchange rates Stock market 11,189,796 (243,315) (580,266) -- -- -- 11,189,796 (243,315) (580,266)
Counter 12,686,121 (2,214,286) (1,878,898) 11,374,939 (980,773) (1,212,960) 24,061,060 (3,195,059) (3,091,858)
Share price Stock market 158,144 (2,830) (2,046) -- -- -- 158,144 (2,830) (2,046)
Counter -- -- -- -- -- -- -- -- --
Commodities price Stock market 198,522 (3,526) (3,966) -- -- -- 198,522 (3,526) (3,966)
Counter 53,061 (13,641) (12,442) -- -- -- 53,061 (13,641) (12,442)
Net position (10,439,433) 7,842,712 8,020,948 (8,525,572) 1,089,815 1,373,654 (18,965,005) 8,932,527 9,394,602
Negotiation location
R$ thousand 4Q14
Risk Factor Brazil Abroad Consolidated-BB
Reference
valueCost value Market value
Reference
valueCost value Market value
Reference
valueCost value Market value
Long position 67,229,115 1,909,062 2,116,407 3,670,627 65,687 96,649 70,899,742 1,974,749 2,213,056
Interest rates Stock market 30,784,848 7,769 -- -- -- -- 30,784,848 7,769 --
Counter 9,961,848 293,469 401,076 -- -- -- 9,961,848 293,469 401,076
Exchange rates Stock market 8,418,618 132,529 120,051 -- -- -- 8,418,618 132,529 120,051
Counter 17,741,899 1,460,039 1,566,530 3,670,627 65,687 96,649 21,412,526 1,525,726 1,663,179
Share price Stock market 259,500 9,942 12,253 -- -- -- 259,500 9,942 12,253
Counter -- -- -- -- -- -- -- -- --
Commodities price Stock market 6,088 -- -- -- -- -- 6,088 -- --
Counter 56,314 5,314 16,497 -- -- -- 56,314 5,314 16,497
Short position 78,391,964 (2,789,580) (2,707,014) 10,971,458 (577,070) (730,908) 89,363,422 (3,366,650) (3,437,922)
Interest rates Stock market 56,227,092 (1,498,295) (1,405,061) 712,179 -- -- 56,939,271 (1,498,295) (1,405,061)
Counter 3,896,271 (422,179) (473,000) 53,049 -- -- 3,949,320 (422,179) (473,000)
Exchange rates Stock market 6,669,482 (210,401) (297,794) -- -- -- 6,669,482 (210,401) (297,794)
Counter 10,918,120 (643,306) (521,854) 10,206,230 (577,070) (730,908) 21,124,350 (1,220,376) (1,252,762)
Share price Stock market 366,350 (7,058) (4,920) -- -- -- 366,350 (7,058) (4,920)
Counter -- -- -- -- -- -- -- -- --
Commodities price Stock market 291,342 (4,386) (2,165) -- -- -- 291,342 (4,386) (2,165)
Counter 23,307 (3,955) (2,220) -- -- -- 23,307 (3,955) (2,220)
Net position (11,162,849) 4,698,642 4,823,421 (7,300,831) 642,757 827,557 (18,463,680) 5,341,399 5,650,978
Negotiation location
Risk Management Report – Pillar III – 4Q15 52
5.2.3. Hedge Policies
With respect to hedging policies adopted for market and liquidity risks management, the objectives to be achieved with hedging operations on a consolidated basis are defined, assuring the individual effectiveness of each transaction, subject to the regulations of each jurisdiction.
5.2.4. Risk measuring systems and communication and information processes
The market and liquidity risk measuring process makes use of corporate systems and of the Riskwatch application. The infrastructure of information technology associated with this process is installed in Brasília (DF).
The main objectives of the Riskwatch application are to:
a) consolidate management information of the Bank, ascertaining and providing information for market and liquidity risk management and for assets and liabilities management;
b) provide market and liquidity risk measurements (products/cash flows by currency and index), as well as assets and liabilities management.
Riskwatch functions that deserve special emphasis are:
a) the calculation of market risk indicators, such as Value-at-Risk (parametric and nonparametric), duration, yield;
b) the elaboration of cash flow reports, either consolidated or by product, marked to market or nominal;
c) the determination of the portfolio sensitivity to the fluctuations in national and international interest rates;
d) the calculation of the theoretical result of portfolios after the application of historical and stress scenarios; and
e) the elaboration of the reports on the mismatching of maturities, rates, indexes and currencies.
At the Bank, the own positions are segregated in Trading Portfolio and Non-Trading Portfolio. The criterion to classify the operations in the Trading Portfolio is defined by CSRG, which also sets, in the sphere of the Prudential Conglomerate, the policy for the classification of operations in the Trading Portfolio, which states that the own position transactions carried out with the intention of being traded or destined to the portfolio hedge, for which there is the intention of being traded prior to their contractual period, observing normal market conditions, and that are not nonnegotiable, are classified in the Trading Portfolio.
Transactions with own positions not classified in the Trading Portfolio are considered components of the Non-Trading Portfolio. The own positions held by companies that are not part of the Prudential Conglomerate are not subject to the classification in the Trading Portfolio.
For the market risk management process, the Bank makes use of a structure of management groups and books, both for the domestic area and for the international area, with specific objectives and limits of exposure to risks.
Risk Management Report – Pillar III – 4Q15 53
Regarding the limits of exposure to market risks, the CSRG establishes the following classification criteria:
Global limits: applied to the Trading and Banking Book Portfolios, to the set of transactions subject to capital requirements and to the interest rate risk in the Banking Book Portfolio (RTJBB) and approved by CSRG, The main metrics used for management are Value-at-Risk (VaR), stress and financial volume.
Specific limits: applied to the management groups and books of the Trading and Banking Book Portfolios or to both Portfolios, to the market risk factors of transactions subject to capital requirements and to the market risk factors sensitive to the interest rate risk in the Banking Book Portfolio (risk factors of RTJBB) and approved by the CERML, The main metrics used for management are Value-at-Risk and stress.
Operational limits: applied to transactions that make up the management groups and books, enabling the disclosure of the effective risk level of assumed exposures and aiming to ensure compliance with the strategies and the global and specific limits established, They are defined and approved by Diris presenting as main metrics the Value-at-Risk and operating bands of exposure to market risks.
Diris reports the consumption of the specific and operational limits to the managers of the groups and books of the Trading and Banking Book Portfolios daily. It reports the consumption of overall limits to the strategic committees monthly, through the Market and Liquidity Risk Management Report and Risks Panel.
In case limits are exceeded, Diris, responsible for controlling and monitoring the portfolio, issues a document called "Limit Exceeding Form". The managers of groups and books should submit their reasons for exceeding limits and specify the deadline for regularization. In turn, the hierarchical level with the authority to manage the case should issue an opinion on the manager's pronouncement. The team responsible for monitoring the limit is responsible for keeping track of the categorization actions.
For liquidity risk management, the measurements and report terms of management tools adopted in the liquidity risk management process are performed in accordance to the models and methodologies approved by the strategic risk committees, according to item 6.2.10.
The communication of the Bank market and liquidity risk management to Senior Management occurs in the ordinary meetings of the strategic risk committees, as it happens to the “Risk Panel” and “Market and Liquidity Risk Management Report”.
Diris produces information destined to the external audience and sends it to Investors Relations Unit (URI) for disclosure to the market.
The information destined to external audience is available on internet for public access. That information is published in the following documents:
a) Performance Analysis Report;
b) Risk Management Report – Pillar III;
c) Reference Form;
d) Explanatory Notes to Financial Statements; and
e) Annual Report.
Risk Management Report – Pillar III – 4Q15 54
5.2.5. Market Risk Management Structure
The CMN Resolution nº 3,464/07 states the implementation of the market risk management structure, compatible with the nature of operations, the complexity of products and the dimension of the institution's market risk exposure.
The Risk Management Directorship (Diris), which reports to the Office of the Vice - President for Internal Controls and Risk Management (Vicri), is responsible for managing market risks.
The governance model adopted by BB is organized in a superior risk committee and executive committees structure, with the participation of several areas of the institution.
All decisions related to risk management are made as a collegiate and in accordance with the guidelines and internal rules.
The figure below shows the structure of BB's market risk management:
Figure 6 - Market risk management structure
The main strategic committees involved in market risk management are:
Board of Directors (CA)
Banco do Brasil S.A. Board of Directors (CA) defines the general guidelines of the business of the Bank and its subsidiaries. The Board has, in the manner provided by law and the Statute, strategic, guiding, elective and monitoring assignments, not covering operating and executive functions. The composition and management term of the Council is defined by the Bank's bylaws. The Board of Directors shall decide on:
a) Specific policies for market risk management;
b) Policy of the use of financial derivative instruments; and
c) Risk Appetite and Tolerance Statement.
Global Risk Superior Committee (CSRG):
Risk Management Report – Pillar III – 4Q15 55
Purposes:
a) To set a market risk management strategy;
b) To determine global limits to market risk exposure;
c) To approve the risk factors that will make up the documents and reports to be submitted to regulatory agencies and other institutions.
Market and Liquidity Risk Executive Committee (CERML):
To approve:
a) Models, methodologies, criteria and parameters for market, liquidity and actuarial risks;
b) Specific limits to market and actuarial risk exposures;
c) The contingency plans regarding market, liquidity and actuarial risk management;
d) To assess the internal validations results and specify, whenever necessary, corrective measures for models of market, liquidity and actuarial risk management.
To analyze and propose to CSRG:
a) The global limits to Market risk exposures;
b) The market risk management strategy;
c) To monitor the recommendations and guidelines resolved by the Committee.
Asset-Liability and Liquidity Management Superior Committee (CSGAP)
Purposes:
a) To set assets and liabilities management strategy;
b) To set guidelines for treasury operations, subject to the overall limits set by the Global Risk Superior Committee;
c) To monitor the recommendations and guidelines resolved by the Committee.
5.2.6. Market Risk Management Process
Banco do Brasil uses statistical and simulation methods to analyze the market risk of its exposures. Among the metrics used in the application of those methods, we highlight the following:
a) Sensitivities;
b) Value at Risk (VaR); and,
c) Stress.
Sensitivity metrics simulate the effects in the value of exposures resulting from variations in the level of market risk factors.
VaR is a metric used to estimate the potential loss under routine market conditions, dimensioned in monetary values daily, under a confidence interval and time frame.
The risk factors used in VaR metrics to measure the market risk of exposures are classified into the following categories:
Risk Management Report – Pillar III – 4Q15 56
a) interest rates;
b) exchange rates;
c) share prices; and,
d) commodity prices.
The VaR metrics performance is monthly evaluated by a backtesting process.
Finally, BB uses stress metrics resulting from simulations on the behavior of its exposures subject to market risks under extreme conditions, such as financial crises and economic shocks. The objective of stress tests is to calculate the impact of events which are plausible, but very unlikely to occur, on regulatory requirements. Stress tests include exposure simulations, retrospective, based on historical series of shocks to market risk factors, and prospective, based on projections of economic and financial scenarios.
The models used to measure market risk and backtesting models are subject to a validation process by Dicoi, which is an area segregated from the ones that are responsible for the development and for the use of the models.
In turn, the independent validation process of models is subjected to independent evaluation, conducted by Internal Auditing (Audit).
The process of market risk management involves continuous flow of information, according to the phases in the chapter “Risk Management Process”.
The next figure illustrates the process of market risk management:
Risk Management Report – Pillar III – 4Q15 57
Figure 7 - Management Process
5.2.7. Negotiable Portfolios
In the Bank`s market risk management process, the own positions are divided into Negotiable Portfolios and Non-negotiable Portfolios. Through a Resolution issued by the Global Risk Superior Committee (CSRG), a policy for the classification of operations in the negotiable portfolio is stipulated. That document defines the Negotiable Portfolio, in Banco do Brasil, its Wholly-Owned Subsidiaries and the ones that are Prudential Conglomerate Controlled, which covers all operations in own positions carried out with the intent of negotiation, or destined to the hedge of the negotiable portfolio, for which there is the intention of being negotiated before their contractual deadline, given normal market conditions, and which are not non-negotiable.
The Negotiable Portfolio is divided into groups and books, always observing the internal rules, approved by the Market and Liquidity Risk Executive Committee (CERML) and by the Global Risk Superior Committee (CSRG), which establish the objectives, the composition, the financial limits and market risk limits for each group or book.
The main types of limits used for the market risk management are: Value at Risk (VaR) and stress tests.
In the case of the Negotiable Book VaR limits, aiming to evidence the level of the market risk that is generated by the exposures and the corresponding impact on the
Risk Management Report – Pillar III – 4Q15 58
capital requirement for its coverage, the VaR and Stressed VaR metrics are considered.
For measuring the VaR of the Negotiable Portfolio, Banco do Brasil adopts the Historical Simulation technique, and the following parameters:
a) Total VaR: (VaR + Stressed VaR) x Multiplier, where:
i) VaR: the potential expected loss considering a series of 252 daily shocks (business days), a confidence level of 99% and a holding period of 10 business days (Central Bank of Brazil, Circular 3,568/11);
ii) Stressed VaR: the potential expected loss considering series of daily shocks under stress scenarios within 12 month periods starting at January 2nd, 2004, a confidence level of 99% and a holding period of 10 business days (Central Bank of Brazil, Circular 3,568/11); and
iii) Multiplier: M, as defined by Central Bank of Brazil, Circular 3,568/11.
The following table shows the total value of the Negotiable Portfolio by relevant market risk factor, divided into positions purchased and positions sold:
Table 39 - Negotiable Portfolio by relevant market risk factor, divided into positions purchased and positions sold.
R$ thousand
Risk Factor 4Q15 3Q15 2Q15 1Q15 4Q14
Prefixed purchased 687,132 1,311,866 1,834,615 3,016,353 6,178,207 sold 662,630 1,297,211 1,104,651 3,769,088 4,481,286 CDI/TMS/FACP purchased 68,588 65,393 483,816 473,412 1,117,235 sold - 500,298 - - -
Price index purchased 31,244 28,282 26,725 702,552 33,489
sold - - - - Foreign currency /gold purchased 3,597,205 5,351,574 5,122,875 3,374,230 2,322,212 sold 308,972 894,099 306,145 783,873 117,211
Shares purchased - - - 387 - sold - - - - -
Note: Patagônia Bank included.
5.2.8. Non-negotiable Portfolios
The Financial Conglomerate own position operations not classified under the Negotiable Portfolio are considered components of the Non-negotiable Portfolio. It`s noticeable that the own positions held by the companies that are not a part of the Financial Conglomerate cannot be classified under the Negotiable Portfolio.
In accordance with best market practices and the requirements of regulators, the Bank sets policies for managing market risk, including interest rate risk transactions classified in the non-negotiable portfolio. These policies are in accordance with the strategic guidelines of the institution and the general objectives of the management process and predict:
a) control of exposures by setting limits; b) portfolio management considering the best risk-return relationship and the
internal and external scenarios; c) performing operations to reduce the risks arising from changes in market value
or cash flows of the assets and liabilities;
Risk Management Report – Pillar III – 4Q15 59
d) management of foreign exchange exposure to minimize the effects on the outcome of the institution;
e) assessment of impacts on exposures during the creation or modification of products and services; and
f) performing monthly stress testing of interest rate exposures.
The Non Negotiable Portfolio (Banking Book) is divided into groups and book, observing the internal rules approved by the Market and Liquidity Risk Executive Committee (CERML) and by the Global Risk Superior Committee (CSRG), which establish the objectives, the composition, the financial limits and the market risk limits for each group or book.
Banco do Brasil uses the Economic Value of Equity (EVE) metric, in order to calculate banking book interest rate risk.
EVE consists in estimating the variation of the economic value of assets, liabilities and derivative instruments of the Institution, comparing the value that was obtained through the use of domestic interest rate shock scenario with the value that was calculated in the current rates scenario.
Among other aspects, it is relevant to highlight that the EVE calculating metric:
a) includes all the operations that are sensitive to the variation of interest rates and uses risk measuring techniques and financial concepts that are widely accepted;
b) considers data relevant to rates, deadlines, prices, optionalities and other information that was adequately specified;
c) requires the definition of adequate premises to turn positions into cash flows;
d) measures the sensitivity to changes in the temporal structure of interest rates, between different rate structures and premises;
e) is integrated in the daily practices of risk management;
f) allows the simulation of market extreme conditions (stress tests);
g) enables stimulating the Reference Equity (PR) compatible to the risks according to the CMN Resolution nº 4,193/13.
In order to deal with the products that do not have a defined maturity, Banco do Brasil adopts statistical and econometric methods, from the literature to analyze temporal series, more specifically the methods called ARIMA (Autoregressive, Integrated and Moving Averages). Such methods assume the hypothesis that a retrospective behavior of the variations that are observed in the balances are important information for the prediction of the future behavior of the cash flow bailouts (random variable of interest) of the balances of funding products that are under a reference. So, those methods assume as feasible the possibility of future occurrence of fluctuations of balances (financial amount of partial bailouts) with a range that is similar to the ones that are observed in the historical series.
The tables below show the impact on the result or on the value assessment of the institution due to shocks in interest rates segmented by risk factors:
Risk Management Report – Pillar III – 4Q15 60
Table 40 - Impact on the result or on the assessment of the value of the institution due to shocks in interest rates segmented by risk factor – Value at Risk methodology
R$ thousand Hypothetical result
Risk Factor-Interest Rate 4Q15 3Q15 2Q15 1Q15 4Q14
Prefixed 4,438,180 5,021,405 3,932,953 3,646,601 4,879,369 US$ Dollar 2,504,032 2,245,663 1,818,284 1,834,959 1,542,784 Euro 128,289 144,106 71,604 74,861 163,563 Swiss Franc 35,875 35,329 29,945 28,589 20,897 Yen 6,594 6,506 3,233 3,665 50,458 Pound Sterling 4,644 5,376 2,095 2,333 86,469 TR 3,373,413 2,305,127 1,352,465 2,120,624 2,497,374 TJLP 33,182 37,010 36,338 28,492 31,123 TBF 1,282 1,285 1,229 1,370 1,348 IPCA 96,438 31,823 39,134 39,869 34,185 IGP-M 88,562 87,222 76,725 77,641 75,909 INPC 169,423 164,315 131,256 127,280 119,880 Others 554,109 1,116,806 457,807 308,889 256,075
Table 41 - Impact on the result or on the assessment of the institution value due to the shocks in interest rates, segmented by risk factor – Economic Value of Equity methodology
R$ thousand Hypothetical Results (EVE)
Risk Factor-Interest Rate 4Q15
Prefixed (5,857,583) US Dollar (86,256) Euro 1,691 TR 2,663,526 TJLP (23,345) TBF 1,794 INPC (213,028) Other (279,944)
5.2.9. Liquidity Risk Management Structure
CMN Resolution nº 4,090/12 addresses the implementation of liquidity risk management structure, observing the operations nature, the complexity of products and the Institution´s dimension of market risk exposure.
The Risk Management Directorship (Diris), subordinated to the Vice - Presidency of Internal Controls and Risk Management, is responsible for the liquidity risk management of Banco do Brasil SA.
The risk governance model adopted by BB is organized in risk superior committee and executive committees structure, with the participation of several areas of the Institution.
All the decisions related to risk management are made as a collegiate and in accordance with the guidelines and internal rules.
Liquidity risk management held by the Bank in Diris is applied to the following managerial visions:
a) Banco do Brasil’s National Currency Liquidity;
b) Banco do Brasil’s Foreign Currency Liquidity; and
c) Liquidity of each Liquidity Center and Banco do Brasil’s branches abroad.
The figure below shows Banco do Brasil S.A. liquidity risk management structure:
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Figure 8 - Liquidity Risk Management
The strategic committees involved in the liquidity risk management with their corresponding purposes are described below:
Board of Directors (CA)
Banco do Brasil S.A. Board of Directors defines the general business of the Bank and its subsidiaries.
The Board has, in the manner provided by law and the Statute, strategic, guiding, elective and monitoring assignments, not covering operating and executive functions.
The composition and management term of the Council is defined by the Bank's bylaws.
The Board of Directors shall decide on:
a) Specific policies for the management of liquidity risk; and
b) Risk appetite and tolerance Statement.
Global Risk Superior Committee (CSRG):
Purposes:
a) To set liquidity risk management strategy;
b) To determine global limits to liquidity risk exposure;
c) To decide on minimum reserves of liquidity and liquidity contingency plans;
d) To approve the risk factors that will make up the documents and reports to be submitted to regulatory agencies and other institutions;
Market and Liquidity Risk Executive Committee (CERML):
To approve:
a) Models, methodologies, criteria and parameters for liquidity risks;
b) The contingency plans regarding liquidity risk management;
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c) To assess the internal validations results and specify, whenever necessary, corrective measures for models of liquidity risk management;
To analyze and propose to CSRG:
a) The minimum reserve and the global limits to liquidity risks;
b) The contingency plans for liquidity;
c) The liquidity risk management strategy;
d) To monitor the recommendations and guidelines resolved by the Committee.
Asset-Liability and Liquidity Management Superior Committee (CSGAP)
Purposes:
a) To set liquidity management strategy;
b) To set guidelines for treasury operations, subject to the overall limits set by the Global Risk Superior Committee;
c) To set guidelines for liquidity management of the Conglomerate;
d) To monitor the recommendations and guidelines resolved by the Committee.
5.2.10. Liquidity Risk Management Process
Banco do Brasil maintains liquidity levels suitable to the Institution’s commitments in Brazil and abroad, as a result of its broad and diversified base of depositors, the quality of its assets, the capillarity of its network of external offices and of its access to international capital markets. The strict liquidity risk control is in line with the Liquidity Risk Policy established for the Conglomerate, meeting the requirements of national banking oversight, as well as of the other countries in which the Bank operates.
The process of managing liquidity risk involves continuous flow of information, following the steps listed in the section of the risk management process.
Banco do Brasil’s liquidity risk management segregates the liquidity in Reais from the liquidity in Foreign Currencies. So, the following instruments are used:
a) Liquidity Projections;
b) Stress test;
c) Liquidity Risk Limits; and,
d) Liquidity Contingency Plan.
The liquidity risk management instruments are regularly monitored and reported to the institutions’ Strategic Committees.
The Liquidity Projections allow a prospective assessment of the effect of the mismatching between fundings and investments, in order to identify situations that could compromise the liquidity of the Institution, taking into account both budgetary planning and market conditions.
Periodically, Liquidity Projections are assessed under alternative and stress scenarios. If the result of any of these liquidity projection scenarios remain below the adopted liquidity level limit, then the previously established Contingency Measures Potential is put into effect, in order to recover the Institutions’ liquidity.
Furthermore, Banco do Brasil uses the following metrics for Liquidity Risk limits:
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a) Liquidity Reserve (RL);
b) Liquidity Cushion; and
c) Availability of Free Resources Indicator (DRL).
Liquidity Reserve is the metric used in short-term liquidity risk management. It is the minimum level of high liquidity assets the Bank must maintain, compatible with the risk exposure arising from the nature of its operations and market conditions. The Liquidity Reserve methodology is used as a parameter to identify a liquidity contingency and to activate the Liquidity Contingency Plan, being monitored daily.
The Liquidity Cushion limit aims to monitor the daily observed liquidity under stressed conditions, as a complement to the liquidity monitoring observed and projected in market normal conditions, given by the definition and Liquidity Reserve methodology.
The Availability of Free Resources indicator (DRL), used in planning and in the execution of its annual budget, is intended to ensure a balance between funding and the investment of resources in the commercial portfolio and ensure liquidity financing with stable resources.
The DRL limit used to guide the execution and planning of the budget, according to the funding and investment goals, is defined annually by the Global Risk Superior Committee (CSRG), and its monitoring occurs on a monthly basis.
The Liquidity Contingency Plan, on its turn, establishes procedures and responsibilities to be adopted on liquidity stress situations. In that case, one or more contingency measures may be adopted so that the institution can assure its payment capacity. The potential of liquidity contingency measures is verified monthly.
The processes and procedures of the liquidity risk management structure are validated and performed by two internal units at different points in time, a fact that ensures the adequate separation of duties and the independence of work. The Compliance Directorship (Dicoi) is responsible for validating the Prudential Conglomerate risk measurement models and the Bank’s internal control system. The Internal Audit (Audit) periodically evaluates credit risk management processes to verify whether they are consistent with the strategic guidelines, liquidity policy, and regulatory and internal rules.
5.3. Operational Risk
5.3.1. Management Objectives
The operational risk management at BB aims to identify, assess, mitigate, control and monitor the exposure to operational risks inherent to the Bank’s processes, products and services, its subsidiaries and the wholly owned subsidiaries and the ones that are controlled by the Prudential Conglomerate.
The functions and activities related to the management of that risk was centralized in the Operational Risk Unit (URO), whereas the Risk Management Directorship (Diris) is responsible for the calculation of the values of capital allocation to cover risks.
The responsible for Banco do Brasil`s operational risk management before the Central Bank of Brazil (Bacen) is the Risk Management Director.
The Compliance Directorship (Dicoi) is responsible for the 2nd line of defense that includes, among other activities, control and compliance assessment and risk
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management models validation. The Board of Directors (CA) is responsible for the disclosed information on the operational risk management structure.
The Internal Audit (Audit) is responsible for verifying operational risk management and its structure.
In order to fulfill strategies and policies set up for the operational risk, and meeting the regulatory requirements, activities related to phases of management, are summarized in the following chart:
Chart 1 - Phases of the operational risk management process
Management Phase Summary of Activities
Identification Consists of identify and classify the operational risk events which ones the Bank is exposed, indicating incidence areas, causes an potentials finance impacts associated to organization’s processes, products and services.
Assessment It is the quantification of the operational risk exposure with the objective of to assess the impact in the Bank business. Consist; also, of the qualitative assess of the identified risks, analyzing their probability to happen and their impact, determining the risk tolerance level.
Control Consists of register the behavior of operational risks, limits, indicators and operational loss events, as well as to implement mechanisms, to ensure that the limits and operational risk indicators remain within desired levels.
Mitigation Consists of create and implement mechanisms to modify the risk, with the objective to reduce the operational losses by removing the cause of the risk, changing the probability of occurrence or changing the risk events consequences.
Monitoring The objective is identifying operational risk management process deficiencies so that the weaknesses detected are reported to the Board. It is the feedback phase of the operational risk management process, which it is possible to detect weaknesses in the previous phases.
5.3.2. Operational Risk Policy
The Operational Risk Policy, reviewed and approved annually by the Board of Directors (CA), contains guidance for the Bank’s units, intended to ensure the effectiveness of the operational risk management model and it is expected that the Subsidiaries, Affiliates and investments Companies define their directions based on these guidelines, considering the specific needs, legal and regulatory issues to which they are subject.
The Bank also has other policies that make up the list of policies associated to the management of the operational risk, such as the Prevention and Combat against Money Laundering, Terrorism Financing and Corruption; Business Continuity Management; the Bank Relationship with Suppliers; Legal Risk Management; and Information Security and Operational Risk Management.
5.3.3. Management Processes and Strategies
Banco do Brasil performs the operational risk management, segregating the functions of risk and business managements, in compliance with good risk management practices, regulations and guidelines for supervision and bank regulation.
The current Corporate Strategy and Master Plan of the Bank, approved by the Board of Directors (CA), has defined indicators and targets linked to corporate objectives, in order to reduce operational losses.
Strategic management takes place in the Global Risk Superior Committee (CSRG), composed by the President and Vice - Presidents, whose purpose is to establish guidelines, as well as to define global limits to risk exposure.
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Banco do Brasil defines Global Operational Loss Limit, which is based on the maximum amount of losses for the period of one year. That limit is in line with the strategy of reducing operational losses and with the values established in the institution's budget.
The Bank also uses Specific Limits of Operational Losses per managers of products, services and channels in order to involve several areas in the operational risk mitigation.
In order to speed up the management process, issues related to operational risk are deliberated in the Executive Committee of Internal Controls and Operational Risk (CERO).
The consumption of the Global and Specific Limits are reported monthly to the CSRG and CERO. The behavior of operational losses, mitigation and diagnosis of major losses incurred are also detailed.
The proposition/adoption of measures to keep the risk parameters (exposure, limits etc.) are also among the assignments of CERO within the maximum exposure defined by the CSRG.
The Bank has a Forum called “Integrated Management Forum of Operational and Legal Risks” - subordinated to CERO - with the objective of contributing with the reduction of operational losses by identifying, evaluating and proposing mitigating actions.
5.3.4. Communication and Information Processes
Monthly, the consumption of global and specific limits is reported to the members of CSRG and CERO. The behavior of operational losses, as well as the main operational risks that were identified are detailed.
Monthly, the operational losses position, as well as the lawsuits and the specific limits of their areas are communicated to the managers of processes, products and services. This information are designed to allow the identification of operational risks and their causes for generating proposals for mitigating actions.
Regarding the risk culture dissemination, the internal controls and operational risk certification is continuously revised, as well as the courses related to operational risk management. Those trainings are available on Corporate University (UniBB) website for the whole staff of the Institution.
5.3.5. Measurement Systems
The Bank uses a model based on the Alternative Standardized Approach (ASA) to calculate capital for operational risk.
The capital portion value for operational risk corresponds to the Referential Equity (PR) consumption for operational risk coverage. This metric monitoring is defined by strategic committees - CSRG and CERO.
As for the management of the provision for contingent demands, the Bank uses a methodology based on statistical techniques, which ensures greater stability and accuracy in estimating disbursement to cover losses that result from lawsuits.
5.3.6. Operational Risk Mitigation
The Units that manage processes, products, and services, based on the operational risks highlighted in the risk identification step and the decisions issued by the CSRG
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or CERO, must develop and implement action plans and instruments to mitigate such risks.
The action plans are registered in a specific tool that allows the monitoring and the reporting of the implemented measures.
The Bank also acts in the analysis of security incidents - physical and virtual channels - with continuous monitoring, seeking to inhibit attacks and retrieve values. Actions are developed to mitigate operational losses with electronic fraud and measures are developed to suppress criminal activities related to external theft.
Aiming to prevent, correct or inhibit weaknesses or deficiencies, which may generate risks, the Bank may issue Technical Risk Recommendation (RTR), so that the manager presents an action plan, aimed at mitigating operational risk, and strengthening the culture of risk management.
5.3.7. Control of Operational Risk
The Bank monitors the behavior of the risks, limits, indicators and operational loss events in order to ensure that the values remain within the desired levels.
The following table presents the monitoring of the operational losses of the Bank held by categories of risk events, in percentage terms. It is noteworthy that the Bank considers the constitutions / reversals of provisions - especially for contingent liabilities - total calculated in operational losses for the categories: Labor Issues, Business Failures and Failures in Processes:
Table 42 - Operational losses monitoring by loss events category
4Q15 3Q15 2Q15 1Q15 4Q14
Business Failures -0.92% 69.70% 24.2% 81.9% 68.3% Labor Issues 61.61% 19.10% 46.35% 3.50% 13.09% Processes Failures 10.83% 5.90% 2.92% 5.40% 8.16% External Fraud and Theft 25.66% 5.10% 25.42% 8.70% 8.79% Internal Fraud 2.07% 0.20% 0.60% 0.30% 0.79% Damage to Physical Assets 0.32% 0.00% 0.49% 0.20% 0.49% Systems Failures 0.44% 0.00% 0.01% 0.00% 0.37% Disruption of Activities 0.00% 0.00% 0.00% 0.00% 0.00%
Total 100.0% 100.0% 100.0% 100.0% 100.0%
5.4. Strategy Risk
5.4.1. Management Objectives
The strategy risk management at BB aims to identify, assess, control, mitigate and monitor the risk associated to adverse changes in the business environment or the use of inadequate premises in decision making.
The table below shows a summary of the management activities listed in the previous paragraph:
Chart 2 - Strategy risk management activities
Management Phase Summary of Activities
Identification It consists of recognizing and classifying the strategy risk which the Bank is subject to.
Assessment It consists of dimensioning, in a quantitative and qualitative way, the potencial effect of the strategy risk, which enables to determine the risk tolerance level.
Control It is the register and report of the behavior of strategic variables to guarantee the maintenance of the exposure according to the established tolerance level.
Mitigation It consists of creating and implementing mechanisms to reduce the impact of adverse changes.
Monitoring It consists of verifying the adequacy and effectiveness of a strategy risk management model.
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5.4.2. Management Model
In the strategy risk management model, the directorships involved provide the necessary information for management, so the risk area can identify exposure, by guiding decisions in a risk situation.
The Bank`s way of acting is based on the policies and processes approved by the Senior Management and the risk report and control is made periodically and the results are communicated to the competent instance.
5.4.3. Management Structure
The strategy risk management structure segregates the risk management process from the Strategy management corporate processes at Banco do Brasil, by evidencing the responsibility of the areas involved, aiming to guarantee the sustainable feedback to shareholders, in risk conditions.
The Risk Management Directorship, subordinated to the Vice-Presidency of Internal Controls and Risk Management (Vicri), is responsible for the strategy risk management, acting to identify, assess, control, mitigate and monitor the risk.
The Brand Strategy Directorship (Direm) coordinates the process with the Bank Strategic Units, aiming to mitigate the impacts of adverse changes that affect Banco do Brasil`s Corporate Strategy.
The Controlling Directorship (Dirco) provides the necessary information to the risk area periodically, so the consumption of limits and strategy risk control are ascertained.
The other strategic, operational and tactical units of the Bank work on mitigating actions, in their corresponding acting spheres in order to minimize adverse impacts, aiming to reduce Strategy risks.
The risks governance model adopted by BB involves a superior and executive committees structure, with the participation of several areas in the Institution.
Figure 9 - Strategy Risk Management
The main committees involved in strategy risk management are:
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a) Board of Directors (CA); b) Global Risk Superior Committee (CSRG); c) Executive Committee of Internal Controls and Operational Risk (CERO).
5.4.4. Management Processes
For the development of the Corporate Strategy, the Bank adopts the analysis of macroeconomic scenarios and the financial industry as a practice, by aiming to improve the assessment of the opportunities and threats in the market and mitigate erroneous strategic decisions risks.
The Bank underlies the strategy risk, by considering the possibility of losses derived from adverse changes in the business environment or the usage of inadequate assumptions in the strategic decision taking.
Diris periodically monitors indicators that reflect the level of strategy risk incurred by the institution, as well as it works on the control by means of previously established tolerance levels, in order to guarantee that the risk remains within the desired level. The objective of that process is to promote the proactive management in decision taking, in the following dimensions: Bank, Business Segments and Strategic Movements.
5.4.5. Information and Communication Processes
The communication of the risks incurred by the Bank to the Senior Management takes place in the monthly ordinary meetings of the superior and executive strategic risk committees. The values ascertained for the indicators and the situation regarding the risk limits are reported in a specific committee.
5.5. Reputational Risk
5.5.1. Management Objectives
The reputational risk management at BB aims to identify, assess, control, mitigate and monitor the risk that comes from the negative perception about the institution on the stakeholders` part which can adversely affect the business sustainability.
The following chart shows a summary of the management actions listed in the previous paragraph.
Chart 3 - Reputational risk management activities
Management Phase Summary of Activities
Identification It consists of recognizing and classifying the reputational risk which the Bank is subject to.
Assessment It consists of dimensioning, in a quantitative and qualitative way, the potencial effect of the reputational risk, which enables to determine the risk tolerance level.
Control It is the register and report of the behavior of reputational variables to guarantee the maintenance of the exposure according to the established tolerance level.
Mitigation It consists of creating and implementing mechanisms to reduce the impact of adverse changes.
Monitoring It consists of verifying the adequacy and effectiveness of a reputational risk management model.
5.5.2. Management Model
In the reputational risk management model, the directorships involved provide the necessary information for management, so the risk area can identify exposure, by guiding decisions in a risk situation.
The Bank`s way of acting is based on the policies and processes approved by the Senior Management and the risk report and control is made periodically and the results are communicated to the competent instances.
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5.5.3. Management Structure
The reputational risk management structure segregates the risk management process from the Strategy management corporate processes at Banco do Brasil, by evidencing the responsibility of the areas involved, aiming to guarantee the sustainable feedback to shareholders, in risk conditions.
Diris, subordinated to the Vice-Presidency of Internal Controls and Risk Management (Vicri), is responsible for the reputational risk management, acting to identify, assess, control, mitigate and monitor the risk.
The Brand Strategy Directorship (Direm), assisted by the risk area, coordinates the process with the Bank Strategic Units, aiming to mitigate the impacts of adverse changes that affect Banco do Brasil`s reputation. In addition, it periodically provides the values of the indicators of the brand management and satisfaction level for the risk area to ascertain the limits consumption and control the risk.
The Institutional Security Directorship (Disin) provides the indicators related to communication quality to the Board of Financial Activities Control (Coaf).
The Digital Business Directorship (Dined) provides the indicators related to BB brand in social media.
The Press Unit provides the indicators related to the communication and promotion for the risk area to ascertain the consumption of the limits and to control the reputational risk.
The External Ombudsman informs Bacen Ranking, the quantity indicators and the solution of the complaints at the Ombudsman to send them to the risk area for ascertaining the consumption of the limits and controlling the risk.
The Investor Relations Unit provides the assessment of rating agencies and sends market analyts reports.
The other strategic, operational and tactical units of the Bank work on mitigating actions, in their corresponding acting spheres in order to minimize adverse impacts, aiming to reduce Reputational risk.
The risks governance model adopted by BB involves a superior and executive committees structure, with the participation of several areas in the Institution.
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Figure 10 - Reputational Risk Management
The strategic committees involved in the reputational risk management are the same ones for the strategy risk: Board of Directors, Global Risk Superior Committee and Executive Committee for Internal Controls and Operational Risk.
5.5.4. Management Processes
The Bank underlies the reputational risk management, by considering the possibility of losses derived from the negative perception on the institution by clients, counterparts, shareholders, investors, governmental departments, the community or supervisors that can adversely affect the business sustainability.
Diris periodically monitors indicators that reflect the level of reputational risk incurred by the institution, as well as works on the control by means of previously established tolerance levels in order to guarantee that the risk remains within the desired level. The objective of that process is to promote the proactive management in decision taking, in the categories of Business, Relations, Controls and Compliance.
5.5.5. Information and Communication Processes
The communication of the risks incurred by the Bank to the Senior Management takes place in the monthly ordinary meetings of the superior and executive strategic risk committees. The values ascertained for the indicators and the situation regarding the risk limits are reported in a specific committee.
5.6. Environmental Risk
5.6.1. Management Objectives
The environmental risk management at BB aims to identify, classify, assess, control, mitigate and monitor the risk that comes from the exposure to the environmental harms generated by Banco do Brasil`s activities.
The chart below summarizes the management activities listed in the previous paragraph:
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Chart 4 - Environmental Risk Management Activities
Management Phase Summary of Activities
Identification It consists of recognizing and classifying the environmental risk which the Bank is subject to.
Assessment It consists of dimensioning, in a quantitative and qualitative way, the potencial effect of the environmental risk, which enables to determine the risk tolerance level.
Control It is the register and report of the behavior of environmental variables to guarantee the maintenance of the exposure according to the established tolerance level.
Mitigation It consists of creating and implementing mechanisms to reduce the impact of adverse changes.
Monitoring It consists of verifying the adequacy and effectiveness of an environmental risk management model.
5.6.2. Management Model
In the environmental risk management model, the directorships involved provide the necessary information for management, so the risk area can identify exposure, by guiding decisions in a risk situation.
The Bank`s way of acting is based on the policies and processes approved by the Senior Management and the risk report and control is made periodically and the results are communicated to the competent instances.
5.6.3. Management Structure
The management structure segregates the risk management process from the other corporative processes at the Bank, describing the processes and inputs that are necessary for the environmental risk management.
Diris is responsible for the environmental risk entire process, by acting to identify, classify, assess, control, mitigate and monitor the risk, with reports to the Senior Management.
The Credit Directorship (Dicre), assisted by Diris, identifies, classifies, assesses and controls the environmental risk events in the credit operations granting.
The Operational Risk Unit (URO), assisted by Diris, is responsible for identifying, classifying and controlling the environmental risk events in the process of operational losses, by sending them, on a regular basis, to Diris for the control of risk limits consumption.
Direm, assisted by Diris, identifies and classifies the environmental risk events in the brand management and Corporative Strategy definition.
The Supplies and Shared Services Directorship (Disec), assisted by Diris, is responsible for the identification, classification, assessment and the control of the environmental risk events in the process of purchasing, hiring and logistic resources management.
The Infrastructure Services Unit (USI), assisted by Diris, identifies, classifies and controls the environmental risk events in the water and electric energy consumption process.
In the new acquisitions and strategic partnerships prospection processes, the Linked Entities Governance Unit (UGE) consults Diris about the environmental risk assessment.
The other strategic, tactic and operational units of the Bank work on mitigating actions in their corresponding acting spheres, in order to minimize adverse impacts, aiming to reduce the environmental risk.
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The risk governance model that is adopted by BB involves the structure of superior and executive committees, with the participation of several areas in the Institution.
Figure 11 - Environmental Risk Management
The strategic committees involved in the environmental risk management are:
a) CA; b) CSRG; and c) CERC.
5.6.4. Management Processes
The Bank underlies the social-environmental risk management, by considering the possibility of losses derived from the exposure to social-environmental damage caused by its activities, as well as segregates this risk in the categories: social and environmental.
Diris manages this risk in the dimensions: credit operations, operational losses, strategy risk, reputational risk and administrative activities, in order to show the social-environmental impact on the processes of granting and operating loans and financing, operational losses, strategy definition, brand, businesses and operations support management.
The Bank has processes that contribute for the implementation of social-environmental responsibility actions. Some examples are: Dow Jones Sustainability Index, 21 Agenda, the Stakeholders` Panel, Sustainability for Executives Forum, Equator Principles and International Finance Corporation (IFC) Performance Standards.
5.6.5. Environmental Responsibility Policy
In compliance with CMN Resolution nº 4,327, dated 04.25.2014 and the SARB Regulation n.14, dated 08.28.2014 (Self – regulation of Brazilian Banks Federation - Febraban), the environmental responsibility policy permeates activities related to the risk management.
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The Bank adopts a risk management structure that aims to identify, classify, assess, monitor, mitigate and control the environmental risk. The Bank also has an environmental responsibility governance structure and environmental risk management which is compatible to its size, business type, the complexity of the products and services, and the relations established with the interested public.
5.6.6. Information and Communication Processes
The communication of the risks incurred by the Bank to the Senior Management takes place in the superior and executive risk committees monthly ordinary meetings.
5.7. Complementary Pension Fund Entities and Private Health Insurance Plan
Operators for Employees Risk (EFPPS Risk)
5.7.1. Management Objectives
The EFPPS risk management at BB aims to identify, assess, control, mitigate and monitor the risk associated to the complementary pension fund entities and private health insurance plan operators for employees.
The chart below summarizes the management activities listed in the previous paragraph.
Chart 5 - EFPPS Risk Management Activities
Management Phase Summary of Activities
Identification It consists of recognizing and classifying the risk of sponsored entities the Bank is subject to.
Assessment It consists of dimensioning, in a quantitative and qualitative way, the potential effect of the risk, which enables to determine the risk tolerance level.
Control It consists of registering and reporting the behavior of variables that affects the mismatching between the actuarial liability and the asset.
Mitigation It consists of assisting Diref(1) with the risk reduction, by means of alternative objectives that minimize the potential impact of adverse changes.
Monitoring It consists of verifying the adequacy and effectiveness of EPPS risk management model.
(1) Employees and Sponsored Entities Relationship Directorship
5.7.2. Management Model
In the EFPPS risk management model, the directorships involved provide the necessary information for management, so the risk area can identify exposure, by guiding decisions in a risk situation.
The Bank`s way of acting is based on the policies and processes approved by the Senior Management, the risk report and control is made periodically and the results are communicated to the competent instances.
5.7.3. Management Structure
The EFPPS risk management structure segregates the risk management from the corporative processes at Banco do Brasil, by establishing the responsibility of the areas that are involved.
Diris is responsible for the EFPPS risk management, aiming to identify, assess, control, mitigate and monitor the risk.
The Employees and Sponsored Entities Relationship Directorship (Diref) recognizes and classifies the risk events in its processes related to health plans and pension, provides indicators to monitor the control of the risk limits consumption by Diris, and guides the sponsored entities aiming to mitigate the impacts of the mismatching between actuarial liabilities and assets at these entities of the Bank.
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The Brand Strategy Directorship (Direm) informs Diris about the changes in the conglomerate plans of functions and eventual mergers or acquisitions that include pension funds or private health plans to employees operators.
The Personnel Management Directorship (Dipes) informs Diris about the personnel movements (encouraged dismissal or retirement programs) that are not in Banco do Brasil`s Corporative Strategy (ECBB).
The other strategic, tactical and operational units of the Bank work on mitigation actions, in their corresponding working spheres, in order to minimize adverse impacts, aiming to reduce the EFPPS risk impact.
The risks governance model adopted by BB involves the structure of superior and executive committees, with the participation of several areas of the Institution.
Figure 12 - EFPPS Risk Management
The strategic committees involved in the EFPPS risk management are:
a) Board of Directors (CA);
b) Global Risk Superior Committee (CSRG);
c) Market and Liquidity Risks Executive Committee (CERML).
5.7.4. Management Processes
The Bank underlies the EFPPS risk management, by considering the possibility of a negative impact derived from the mismatching between complementary pension fund entities and private health insurance plan operators for employees assets and actuarial liabilities.
Diris manages this risk in the dimensions: sponsoring company, pension funds and health insurance plans, in order to assess the negative impact that is consolidated in the Bank equity capital and the actuarial, financial and economical balance of pension fund plans that is defined in the sponsored health insurance plans.
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5.7.5. Information and Communication Processes
The report to the Senior Management about the risks incurred by the Bank takes place at the monthly ordinary meetings of the risks superior and executive strategic committees.
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6. Shareholdings
Banco do Brasil S.A. has a wide diversity of businesses, products, services and clients. Because of the organizational nature, strategic option or legal and regulatory requirements, the operationalization of its businesses and processes is distributed between the Multiple Bank and its Related Entities (ELBB), located in Brazil and abroad, under several organizational and judicial forms.
Below is the equity holdings not classified in the trading portfolio, segregated by business segments:
Table 43 - Shareholdings – Banking Book
4Q15 3Q15 2Q15 1Q15
R$ thousand
% of Total
Shares
Book Value of Equity Interests
Value of Capital
Requirement (1) (2)
% of Total
Shares
Book Value of Equity Interests
Value of Capital
Requirement(1) (2)
% of Total
Shares
Book Value of Equity Interests
Value of Capital
Requirement(1) (2)
% of Total
Shares
Book Value of Equity Interests
Value of Capital
Requirement (1) (2)
Banking Segment
Banco Votorantim S.A. (3) 50.00% 3,828,153 699,934 50.00% 3,874,027 -- 50.00% 3,900,003 -- 50.00% 3,804,661 --
Investment Segment
Kepler Weber S.A. (3) 17.46% 87,391 9,313 17.46% 83,662 8,902 17.46% 82,394 8,763 17.46% 85,275 9,080
Neoenergia S.A. (3) 11.99% 1,168,345 128,518 11.99% 1,156,323 127,196 11.99% 1,168,686 128,555 11.99% 1,166,259 128,288 Insurance, Private Pension Fund and Capitalization Segment
BB Seguridade Participações S.A. (4) 66.25% 4,168,774 854,421 66.25% 4,606,713 1,137,227 66.25% 3,942,743 1,030,140 66.25% 4,283,843 1,122,213
Seguradora Brasileira de Crédito à Exportação - SBCE
(5) 12.09% 2,351 482 12.09% 3,038 750 12.09% 2,727 712 12.09% 2,625 688
Payment Methods Segment
Cateno Gestão de Contas de Pagamento S.A. (6) 50.11% -- -- 50.11% -- -- 50.13% -- -- 50.13% 3,954,735 435,021
Cielo USA Inc. (3) (8) 28.72% 144,807 15,929 28.72% 338,450 37,230 28.76% 265,073 29,158 28.75% 276,673 30,434
Tecnologia Bancária S.A. - Tecban (5) (8) 12.52% 49,206 5,413 12.52% 47,347 5,208 12.52% 47,755 5,253 13.53% 49,759 5,473
Other Segments
Ativos S.A. Gestão de Cobrança e Recuperação de Crédito
(4) 100.00% 6 1 100.00% 2,798 308 100.00% 5 1 100.00% 5 1
BB Tur Viagens e Turismo Ltda. (4) 100.00% 12,165 1,338 100.00% 12,872 1,416 100.00% 14,058 1,546 100.00% 13,312 1,464
BB Tecnologia e Serviços S.A. (4) 99.98% 221,209 24,333 99.97% 232,369 25,561 99.97% 227,740 25,051 99.97% 220,754 24,283
Cadam S.A. (5) 21.64% 17,724 1,505 21.64% 15,861 1,300 21.64% 17,462 1,477 21.64% 19,342 1,683
Cia Hidromineral Piratuba (5) 14.26% 2,847 313 15.44% 2,715 299 15.44% 2,666 293 15.44% 2,624 289
Estruturadora Brasileira de Projetos - EBP (5) 11.11% 6,345 698 11.11% 6,496 715 11.11% 6,566 722 11.11% 6,573 723
Provision for investments (7) (6,770) (6,770) (6,770) (6,770)
(1) Value for the minimum capital requirement for equity interests registered in the fixed assets and included in the calculation of risk-weighted assets regarding exposure to credit risk (RWACPAD) under Central Bank Circular No. 3,644/2013. (2) According to Resolution CMN No. 4,442/2015, from november/2015, the methodology of calculating the deduction of the investment in Banco Votorantim S.A. was modified. This way, R$ 1,282,938 thousand were integrally deductec from the Referential Equity and R$ 2,545,215 thousand were risk-weighted at 250%. (3) Joint venture, evaluated by the equity method. (4) Subsidiaries, evaluated by the equity method. (5) Associated companies, evaluated by the equity method. (6) Company included in the consolidation of the Prudential Conglomerate from 06.30.2015. Banco do Brasil has joint control of Cielo, which controls Cateno. The percentage of participation of the Bank in Cateno takes into account its direct participation in the BB Elo, as well as indirect interest in Cielo through BB Banco de Investimento. (7) Unrealized, but acknowledged losses, referring to companies Cadam S.A. and Kepler Weber S.A., whose value is computed in the calculation of Common Equity. (8) Companies which are not classified as “Payment Institutions”.
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6.1. Entities Linked to Banco do Brasil (ELBB) Assessment
The current regulation imposes that the operational, market, credit and liquidity risks management framework must identify, evaluate, control, mitigate and monitor the risks associated to each institution individually and the prudential conglomerate, as well as to identify and monitor the risks associated to other companies controlled by members of the prudential conglomerate.
In line with the current regulation, the Bank evaluates the ELBB risk management practices and issues guidelines to those companies on the adequacy of risk management and its alignment with the practices adopted by the Institution.
The assessments are carried out through the information provided by the companies (questionnaires and documentary evidences), videoconferencing and technical visits, which are analyzed qualitatively (structure, policies, instruments and risk management process) and quantitatively (operational losses, provisions for contingent claims, judicial deposits and exposure to credit, market, liquidity risk and other information that is considered relevant).
At the end of the assessments, reports are prepared, which are sent to BB governance areas, for submission to the companies or their directors appointed by the Bank to consider the issued guidelines and take the necessary actions.
In the next evaluating cycle, evidences that the companies have followed the previously issued guidelines are required, and the Bank assesses the situation of compliance. The actions that are still being taken to reach compliance will continue to be monitored in BB assessments through completion. Missed guidelines are replicated in the next evaluating cycle, along with new guidelines.
7. Capital
7.1. Capital Management
7.1.1. Capital Management Structure
Banco do Brasil`s capital management consists of a continuous process of planning, assessment, control and monitoring of the capital which is necessary to cover the relevant risks of the company and bear the capital requirements made by the regulator, or the ones internally defined by the Institution, and considered in the strategic planning and budget, aiming to optimize its allocation and structure.
The capital management process is carried out based on the Bank`s Senior Management policies and strategies and permeates several areas, in the Institution`s many levels of governance, which comprises the Board of Directors, the Executive Board, the Strategic Committees, Directorships and the Capital Forum.
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Figure 13 - Organizational Structure involved in the capital and risk management
Banco do Brasil defined the Risk Management (Diris), Controlling (Dirco), Finance (Difin) and Accounting (Coger) Directorships as members of its capital management structure. BB`s Board of Directors designated the Controlling Director as responsible for the Capital Management before Bacen.
The areas that were defined in the capital management structure are collective or individually responsible for:
a) Identification of relevant risks;
b) Assessment of the capital required to bear them;
c) Projection of risk and capital indicators;
d) Calculation of the Referential Equity (PR);
e) Elaboration of the capital plan and contingency plan and;
f) Evaluating capital sources and its restoration.
g) Icaap (Internal Capital Adequacy Assessment Process), Stress Tests, and Managerial Reports, and
h) Capital Management Policy.
In order to support Capital Management, BB calculates the Core Capital Ratio (ICP), Tier I Capital Ratio (ICNI), Capital Adequacy Ratio (IB). Besides that, BB has instituted the Prudential Capital Adequacy Ratio (IBP) that represents the Bank's guideline to keep the IB two points above the minimum regulatory ratio.
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The CMN Resolution nº 3,988/11 established the need for Internal Capital Adequacy Assessment Process (Icaap), which the Risk Management Directorship (Diris) is responsible for. At BB, the Internal Controls Directorship (Dicoi), the independent area of capital management structure, is responsible for the validation of the Icaap, whereas Audit assesses the capital management process yearly.
BB constituted a technical forum to assist capital management, named Capital Forum, which has members from the areas of the capital management structure (Dirco, Diris, Difin and Coger). The Forum meets monthly, and has as main activities: the analysis of the capital requirement behavior; the impacts on the capital indicator that are derived from the regulatory changes; the projections of capital and risk tolerance indicators; the assumptions, the projections and the impacts that are relevant to the capital indicators and the stress tests that are applied to the referred indicators.
Quarterly reports are elaborated and sent to the Board of Directors and the Executive Board, aiming to present the evolution of the Bank`s capital indicators, the comparison of the realized values to the projected values in the Capital Plan and the prospect for the next periods.
Banco do Brasil`s capital management structure enables the monitoring and the control of the capital held by the Institution, the assessment of capital necessity to cover the risks the institution is subject to and the planning of goals and capital necessity, considering the strategic objectives of the Institution. So, BB adopts prospective position, anticipating the capital necessity derived from changes in the market conditions.
7.2. Referential Equity (RE) Details
Tier I
Common Equity Tier I Capital
The Common Equity Tier I Capital of Banco do Brasil is composed by Shareholders’ Equity and income accounts and it is deducted from Regulatory Adjustments.
On August 28, 2014, the Hybrid Instrument in the amount of R$ 8,100,000 thousand, was authorized by Bacen to compose the Common Equity Tier I Capital of the Bank.
Regulatory Adjustments
The Regulatory Adjustments are deductions from the Common Equity Tier I Capital of elements that can degrade its quality due to their low liquidity, difficulty to evaluate or reliance on future profits to be realized.
From January/15, the percentage of deduction of prudential adjustments listed below increased to 40%:
a) goodwill;
b) intangible assets constituted from October 1, 2013;
c) actuarial assets related to defined benefit pension funds net of deferred tax liabilities;
d) non-controlling interest;
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e) investments, directly or indirectly, greater than 10% of the capital of unconsolidated entities similar to financial institutions, and insurance companies, reinsurance companies, capitalization companies and open pension entities (superior investments);
f) tax credits resulting from temporary differences that rely on the generation of future taxable profits or revenues for its realization;
g) tax credits resulting from tax loss of excess depreciation;
h) tax credits resulting from tax losses and negative basis of social contribution on net income.
According to CMN Resolution nº 4,192/13, these deductions will be gradually implemented, 20% per year, from 2014 to 2018, with the exception of deferred assets and funding instruments issued by institutions authorized to operate by Bacen which have already been fully deducted since October 2013.
Additional Tier I Capital
Hybrid Capital and Debt Instruments that meet the CMN Resolution nº 4,192/13 requirements can make up Tier I, as long as they are authorized by Bacen.
Table 44 - Hybrid Capital and Debt Instruments 4Q15 3Q15 2Q15 1Q15
R$ thousand Issued Value Remuneration
p.a.
Date of Funding
Book Value Book Value Book Value Book Value
Perpetual Bonds USD 1,500,000 8.50% 10/2009 5,936,898 6,168,806 4,717,759 4,979,817
USD 1,750,000
9.25% 01 e
03/2012
6,632,211
7,379,962
5,510,658
5,966,393
USD 2,000,000 6.25% 01/2013 7,876,005 8,138,335 6,387,329 6,569,507 USD 2,500,000 9.00% 06/2014 8,541,012 10,104,890 7,716,115 8,147,019
Total 28,986,126 31,791,993 24,331,861 25,662,736
Table 45 - Hybrid Capital and Debt Instruments authorized to compose RE
4Q15 3Q15 2Q15 1Q15
R$ thousand Issued Value
Value authorized to compose RE
Remuneration p.a.
Issue Date
Value
considered in RE
Value
considered in RE
Value
considered in RE
Value
considered in RE
Perpetual Bonds USD 1,500,000 1,450,000 8.50% 10/2009 5,661,090 5,759,690 2,073,544 2,073,544
USD 1,750,000 1,675,000
9.25% 01 and
03/2012
5,368,275
6,653,435
5,195,682
5,372,394
USD 2,000,000 1,950,000
6.25% 01/2013 7,613,190
7,745,790
6,048,705
6,254,430
USD 2,500,000 2,450,000 9.00% 06/2014 8,394,030 9,731,890 7,599,655 7,858,130
Total 27,036,585 29,890,805 20,917,586 21,558,498
The amount of R$ 29,986,126 thousand of Perpetual Bonds, R$ 27,036,585 thousand makes up the RE on December 31, 2015, being the amount of R$ 21,375,495 thousand in accordance with CMN Resolution No. 4,192/2013.
The amount of R$ 5,661,090 thousand, which makes up the RE on December 31, 2015, does not meet the requirements of CMN Resolution No. 4,192/2013, so that it should meet the requirements specified in the article 28 of this Resolution.
To learn more about the composition of Additional Tier I Capital consult the “Attachment 2 – Referential Equity’s Participant Instruments".
Tier II
Subordinated Debt Instruments that meet the CMN Resolution nº 4,192/13 requirements can make up Tier II, as long as they are authorized by Bacen
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Table 46 - Total Subordinated Debts
4Q15 4Q15 3Q15 3Q15 2Q15 2Q15 1Q15 1Q15
R$ Thousand Issued Value Date of
Funding Maturity Book Value
Current value and with the
dacay factor (1) Book Value
Value authorized and with the dacay
factor
Book Value
Value authorized and with the dacay
factor
Book Value
Value authorized and with the dacay
factor
Subordinated Debts issued before Resolution 4,192/2013
FCO – Fundo Constitucional do Centro-Oeste 22,994,912 22,994,912 22,047,638 22,047,638 21,627,115 21,627,115 21,075,691 21,075,691
Subordinated CDs issued in the Country -- -- 1,815,238 -- 1,752,102 -- 1,698,140 --
R$ 1,000,000 2009 2015 -- -- 1,815,238 -- 1,752,102 -- 1,698,140 --
Subordinated Financial Bills 19,470,135 7,830,189 18,792,359 3,989,501 18,202,735 4,151,563 17,537,275 4,759,798
R$ 1,000,000 2010 2016 1,852,172 -- 1,786,916 -- 1,722,733 -- 1,667,934 --
R$ 2,055,100 2011 2017 3,387,610 677,522 3,265,558 866,189 3,145,610 1,039,623 3,043,286 1,215,971
R$ 4,844,900 2012 2018 7,152,153 2,860,861 6,916,485 2,766,594 6,761,662 2,768,336 6,467,899 3,114,805
R$ 215,000 2012 2019 317,168 190,301 305,640 183,384 294,315 176,589 284,655 227,724
R$ 4,680,900 2013 2019 6,536,599 3,921,959 6,301,092 -- 6,069,646 -- 5,872,203 --
R$ 150,500 2012 2020 224,433 179,546 216,668 173,334 208,769 167,015 201,298 201,298
Subordinated Debt Abroad
11,552,711 11,244,096 11,600,598 11,439,936 9,185,934 8,933,472 9,361,309 9,237,312
USD 660,000 2010 2021 2,630,575 2,537,730 2,640,653 2,581,930 2,089,201 2,016,235 2,131,403 2,084,810
USD 1,500,000 2011 2022 5,937,676 5,817,258 5,968,023 5,918,578 4,726,767 4,621,831 4,815,278 4,779,026
USD 750,000 2012 2023 2,984,460 2,889,108 2,991,922 2,939,428 2,369,966 2,295,406 2,414,628 2,373,476
Subordinated Debts issued in accordance to Resolution 4,192/2013 Subordinated Financial Bills
5,917,807
5,786,606
5,695,371
5,569,004 5,496,459 5,458,898 5,291,352 5,291,352
R$ 377,100 2014 2020 453,485 362,790 436,726 349,380 420,271 420,271 107,821 107,821
R$ 163,523 2014 2020 202,528 162,022 195,103 156,082 187,809 150,248 480,017 480,017
R$ 1,594,580 2014 2021 1,899,302 1,899,302 1,828,488 1,828,488 1,758,982 1,758,982 1,751,670 1,751,670
R$ 2,273,806 2014 2021 2,847,744 2,847,744 2,742,019 2,742,019 2,638,237 2,638,237 2,497,893 2,497,893
R$ 400,000 2014 2022 514,748 514,748 493,035 493,035 491,160 491,160 453,951 453,951
Total Subordinated Debts 59,935,565 47,855,803 59,951,204 43,046,079 56,264,345 40,171,048 54,963,767 40,364,153
Subordinated Debts issued before December 31, 2012, applying on it the decay factor due to maturity date (current value)
19,074,285 15,429,437 13,085,035 13,997,110
Subordinated Debts issued before December 31, 2012, applying on it the limit of 30% (value that compose RE)
11,058,322 11,058,322 11,058,322 11,058,322
Subordinated Debts issued after December 31, 2012, applying on it the decay factor due to maturity date (Basel III)
5,786,606 5,569,004 5,458,898 5,291,352
(1) Since December, 2015, subordinated financial bills issued in 2013 are part of the calculation of the current value as determined by the Bacen
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On December 31, 2015, Subordinated Debt totalized R$ 59,935,565 thousand. Of this amount, R$ 39,839,840 thousand makes up the Reference Equity, of which:
1 - R$ 22,994,912 thousand are related to the resources of the Fundo Constitucional do Centro Oeste – FCO, and integrally compose the RE.
2 - R$ 5,786,606 thousand are related to the Subordinated Debt authorized in accordance with CMN Resolution nº 4,192/2013 - Financial Bills, and integrally compose the RE.
3 – According to article 29 of the Resolution nº 4,192/2013, for the subordinated debt instruments that not meet the requirements of the Resolution, it should be considered the lower value between:
a) Current balance of subordinated debt on December 31, 2015, applying on it the decay by the time lapse due to maturity date which resulted on R$ 19,074,285
thousand.
b) Balance of subordinated debts that made up the RE on December 31, 2012 (R$ 15,797,603 thousand) applying on it the limit of 10% per year from 2013 to 2022, according to article 28 of the Resolution nº 4,192/13 which resulted on R$ 11,058,322 thousand. This value was utilized in the RE.
To learn more about the composition of Tier II (Subordinated Debt Instruments), check the “Attachment 2 – Referential Equity Participant Instruments ".
Table 47 - Reference Equity (RE) Details
4Q15 3Q15 2Q15 1Q15
In thousands of Reais Prudential Prudential Prudential Prudential
RE - Referential Equity 135,551,196 136,633,692 127,991,067 128,704,988
Tier I 95,713,963 97,961,673 89,853,356 91,297,640
Common Equity Tier 1 Capital 68,677,378 68,070,868 68,935,770 69,739,142
Shareholders' Equity 71,314,421 73,367,572 72,534,473 73,315,647
Instrument Qualifying as Common Equity Tier 1 Capital 8,100,000 8,100,000 8,100,000 8,100,000
Regulatory adjustments (10,737,043) (13,396,704) (11,698,703)
(11,676,505) Additional Tier 1 Capital 27,036,585 29,890,805 20,917,586 21,558,498
Hybrid instruments authorized in accordance with CMN Resolution No. 4,192/13 21,375,495 24,131,115 18,844,042 19,484,955 Hybrid instruments authorized in accordance with regulations preceding the CMN
Resolution No. 4,192/13 (1) 5,661,090 5,759,690 2,073,544 2,073,543
Tier II 39,837,233 38,672,019 38,137,711 37,407,348
Subordinated Debt Qualifying as Capital 39,839,840 38,674,964 38,144,335 37,425,368 Subordinated Debt authorized in accordance with CMN Resolution No. 4,192/13 -
Financial Bills 5,786,606 5,569,004 5,458,898 5,291,355
Subordinated Debt authorized in accordance with regulations preceding the CMN Resolution No. 4,192/13
34,053,234 33,105,960 32,685,437 32,134,013
Funds obtained from the FCO (2) 22,994,912 22,047,638 21,627,115 21,075,691
Funds raised in Financial Bills and CD (3) 11,058,322 11,058,322 11,058,322 11,058,322
Deduction from Tier II (2,607) (2,945) (6,624) (18,020)
Funding instruments issued by financial institution (2,607) (2,945) (6,624) (18,020)
(1) On December 31, 2015, based on the orientation of Bacen, it was considered the balance of the hybrid capital and debt instrument authorized by Bacen to compose the Tier 1 Capital of the Referential Equity according CMN Resolution 3,444/07 and do not meet the relevant entry criteria, also related with the orientation established on article 28, sections I to X of CMN Resolution 4,192/13.
(2) According to CMN Resolution No. 4,192/13, balances of the FCO are eligible to compose the RE. (3) It was considered the balance of subordinated debt instruments that composed the RE in December 31, 2012, applying on it the decay of 30%, as determined by CMN Resolution No. 4,192/13.
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Table 48 - Regulatory Adjustments
4Q15 3Q15 2Q15 1Q15
R$ mil Prudential Prudential Prudential Prudential
Tax credits resulting from temporary differences that rely on the generation of future taxable profits or revenues for its realization (amount above 10% threshold) (1)
(3,425,235) (3,187,264) (1,990,274) (619,575)
Significant investments and tax credits resulting from temporary differences that rely on the generation of future taxable profits or revenues for their realization (amount exceeding the 15% threshold)(1) (2)
(2,846,808) (635,389) (290,712) (358,945)
Intangible assets constituted after October 2013 (1) (2,346,233) (2,148,484) (2,095,283) (2,048,234)
Goodwill (1) (3) (1,075,845) (1,154,659) (1,245,653) (1,343,455)
Tax credits resulting from tax losses and negative base for social contribution on net income (1)
(561,777) (502,401) (463,682) (499,011)
Non-controlling interests (1) (402,531) (508,162) (378,534) (434,493)
Tax credits resulting from tax loss of excess depreciation (1) (62,040) (65,052) (68,743) (72,129)
Deferred assets (4) (16,574) (19,460) (22,639) (25,686)
Funding instruments issued by financial institutions (2) (4) -- (3,874,027) (3,900,003) (3,804,661)
Actuarial assets related to defined benefit pension funds net of deferred tax liabilities
-- (1,301,806) (1,243,180) (2,470,316)
Total (10,737,043) (13,396,704) (11,698,703) (11,676,505)
(1) Regulatory Adjustments subject to phase-in, according to the CMN Resolution No. 4,192/13. (2) According to Resolution CMN No. 4,442/15, from November/2015, the methodology of deduction of the investment in Banco Votorantim S.A. was modified. This way, R$ 1,282,938 thousand were integrally deducted from the Referential Equity and R$ 2,545,215 thousand were risk-weighted at 250%. (3) The base value for calculating the goodwill is composed of: R$ 781,998 thousand in the investment line and R$ 1,907,615 thousand in the intangible assets line. The value in Intangible assets refers to the goodwill paid for the acquisition of Banco Nossa Caixa, merged in November/09. (4) Regulatory Adjustments that are being fully computed since October, 2013, in accordance with CMN Resolution No. 4,192/13.
For further information on the composition of the Reference Equity (PR), see the “Attachment 1 – Composition of the Reference Equity”.
7.3. Minimum Required Reference Equity (MRRE)
The Minimum Required Reference Equity (MRRE) is the equity required (capital volume required) of institutions, conglomerates, and other institutions authorized to operate by Bacen, to face the risks to which they are exposed due to the activities they are involved in, and it is definied by CMN Resolution nº 4,193/13.
The MRRE, corresponds to the application of the factor "F" to the amount of RWA, with:
a) 11% of RWA, from 10.01.2013 to 12.31.2015;
b) 9.875% from RWA 01.01.2016 to 12.31.2016,
c) 9.25% of RWA from 01.01.2017 to 31.12.2017;
d) 8.625% of RWA from 01.01.2018 to 31.12.2018; and
e) 8% of the RWA from 01.01.2019.
In determining the amount of risk-weighted assets (RWA), we consider the sum of the following portions:
a) RWACPAD concerning credit risk exposures subject to the calculation of capital requirements under the standardized approach;
b) RWAMPAD concerning market risk exposures subject to the calculation of capital requirements under the standardized approach, and,
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c) RWAOPAD on the calculation of the capital requirement for operational risk under the standardized approach.
The scope of consolidation used as a basis for the verification of operational limits considers the Financial Conglomerate, from 10.01.2013 thru 12.31.2014, and the Prudential Conglomerate, defined by the CMN Resolution nº 4,280/13, as of 01.01.2015.
On 09.30.2015, the limits of Core Capital and Tier I Capital are observed in accordance with the implanting schedule of new capital requirements, which extends from October/13 thru January/19 according to the following table:
Table 49 - Capital Minimun Requirements in relation to RWA
In the following table, the MRRE segregated by Credit, Market and Operational Risks is shown.
out/13 jan/14 jan/15 jan/16 jan/17 jan/18 jan/19
a) Common Equity Capital 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5%
b) Additional Common Equity Capital (b.1 + b.2 + b.3) 0% 0% 0% 1.25% 3% 4.75% 7%
b.1) Conservation - Capital Buffer 0% 0% 0% 0.625% 1.25% 1.875% 2.5%
b.2) Countercyclical - Capital Buffer (upper limit) 0% 0% 0% 0.625% 1.25% 1.875% 2.5%
b.3) Domestic Systemically Important Banks - Capital Buffer (upper limit) 0% 0% 0% 0% 0.5% 1% 2%
c) Requirements A + B 4.5% 4.5% 4.5% 5.75% 7.5% 9.25% 11.5%
d) Minimum Tier I Capital 5.5% 5.5% 6% 6% 6% 6% 6%
e) Requirements D + B 5.5% 5.5% 6% 7.25% 9% 10.75% 13%
f) Minimum Total Capital 11% 11% 11% 9.875% 9.25% 8.625% 8%
g) Requirements F + B 11% 11% 11% 11.125% 12.25% 13.375% 15%
Indicator
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Table 50 - Required Minimun Reference Equity
7.4. Capital Adequacy Ratio
In compliance with the recommendations of the Basel Committee on Banking Supervision, Bacen established operational limits to be observed by financial institutions, among which the Total Capital Ratio (IB), the Core Capital Ratio (ICP) and the Tier I Capital Ratio stand (ICNI) out.
The Capital Adequacy Ratio was determined according to the criteria established by CMN Resolutions nº 4,192/13 and nº 4,193/13, which refer to the calculation of the Referential Equity (RE) and Minimum Reference Equity Required (MRER) in relation to Risk Weighted Assets (RWA), respectively.
Bacen has determined that financial institutions must permanently maintain, a Referential Equity (PR) value higher than the MRER value. Complementarily, CMN Resolution nº 4,193/13 established minimum requirements for core capital (4.5% of RWA) and Tier I (5.5% of RWA until 12.31.2014 and 6%, as of 01.01.2015).
The following table show the evolution of the ratio (IB), Core Capital Index (PCI), Tier I Capital Ratio (ICNI), the RBAN portion and the margin of compatibility of PR:
R$ thousand 4Q15 3Q15 2Q15 1Q15 4Q14
RWACPAD 785,773,084 782,969,960 749,291,147 753,727,844 734,716,021
2% 3,853 17,905 6,204 2,567 392
20% 3,502,759 4,330,717 3,532,252 3,619,422 7,534,545
35% 11,020,454 10,320,173 9,789,421 8,950,746 8,444,573
50% 15,795,998 16,002,739 17,517,793 18,151,121 17,044,092
75% 206,872,125 205,286,096 204,647,964 202,964,292 203,654,427
85% 177,490,641 173,757,327 171,123,910 176,222,367 152,691,687
100% 335,359,047 334,920,485 310,524,291 310,393,134 314,009,607
250% 25,754,017 25,526,575 25,850,914 26,152,178 26,638,381
300% 2,807,179 2,553,539 2,395,909 2,570,130 3,518,881
1.250% 4,783,923 7,627,210 2,844,317 3,535,806 602,206
2,383,088 2,627,194 1,058,172 1,166,079 577,231
RWAOPAD 36,389,090 36,389,090 30,116,897 30,116,897 39,712,004
Asset Management 1,334,949 1,334,949 634,230 634,230 1,115,551
Commercial 21,336,753 21,336,753 18,201,214 18,201,214 15,860,595
Retail Brokerage 47,824 47,824 21,222 21,222 44,602
Corporate Finance 11,846,917- 11,846,917- 3,975,398- 3,975,398- 1,907,520-
Trading and Sales 6,319,595 6,319,595 1,748,490 1,748,490 10,229,334
Payments and Settlements 5,037,811 5,037,811 2,609,070 2,609,070 4,557,642
Financial Agent Services 1,526,400 1,526,400 674,985 674,985 986,798
Retail 12,632,675 12,632,675 10,203,084 10,203,084 8,825,002
RWAMPAD 18,346,766 24,231,284 11,648,889 19,584,874 11,545,497
122,140 96,790 281,073 299,507 286,542
2,262,166 4,523,154 3,793,613 3,280,390 2,863,103
34,649 34,983 36,711 480,401 38,541
- - - - -
- - - - -
4,649 572 39,488 36,011 26,883
15,923,161 19,575,784 7,498,004 15,488,565 8,330,427
Risk Weighted Assets (RWA) (1) 840,508,940 843,590,334 791,056,934 803,429,614 785,973,521
Minimum Referential Equity Requirement (MRER) (2) 92,455,983 92,794,937 87,016,263 88,377,258 86,457,087
Foreign currency coupons - RWAJUR[2]
Price index coupons - RWAJUR[3]
Interest rate coupons - RWAJUR[4]
Share price fluctuations - RWAACS
Op
era
tio
nal R
isk
Mark
et
Ris
k
Prefixed interest rate, in reais - RWAJUR[1]
(1) According to CM N Resolution 4,193/2013, since 01.01.2015 the calculation of RWA applies to institutions of the prudential conglomerate.
(2) According to CM N Resolution 4,193/2013, corresponds to the application of the factor "F" to the amount of RWA, with "F" equals to 11%of RWA, from 10.01.2013 to 12.31.2015; 9.875% from RWA 01.01.2016 to
12.31.2016, 9.25% of RWA from 01.01.2017 to 31.12.2017; 8.625% of RWA from 01.01.2018 to 31.12.2018, and 8% of the RWA from 01.01.2019.
Cre
dit
Ris
k
Credit Value Adjustment (CVA)
Commodity price fluctuations - RWACOM
Exchange rate fluctuations - RWACAM
Risk Management Report – Pillar III – 4Q15 86
Table 51 - Basel Ratio (Total Capital Ratio) and PR margin
7.5. Assessment of Sufficiency and Adequacy of Reference Equity (PR)
Banco do Brasil annually prepares and reviews its capital planning considering a minimum time horizon of 36 months and linking the matter to the business and economic guidelines from its Corporate Strategy, aiming to ensure that its capital is sufficient to support, beyond relevant risks, the business growth.
The Capital Plan covers all entities, located in Brazil and abroad, which integrate Banco do Brasil`s Prudential Conglomerate, taking into account what is read in the CMN Resolution nº 4,280/13.
In order to subside the elaboration of the Capital Plan, PR and RWA projections based on premises that were discussed in the Capital Forum and on the variables from the current Corporate Budget are made. Besides that, simulations of an adverse behavior of a set of variables that result into a severe impact on the solvency of the Bank, but which shows a non-zero probability of happening, are made.
The Capital Plan aims to Project the capital requirement for the coverage of relevant risks aligned with the current Corporative Strategy and the corresponding capital generation, so it guarantees the Institution solvency ratios, by also considering the stress scenarios, without compromising its result, being approved by the Board of Officers (CD) and the Board of Directors (CA) of BB.
The Capital Contingency Plan aims to ensure the alignment of the Bank to regulatory and prudential capital levels if the sources of capital defined in the Capital Plan are insufficient or not viable or in the occurrence of unanticipated events.
The monitoring of the Capital Plan operation is made by the Capital Forum monthly and reported to the Senior Management. In that monitoring, the projections and the necessities of strategy realignment are assessed, considering the values that are realized, eventual regulatory changes and the businesses expectancies.
In that context, the Bank assesses the projections based on the limits of each indicator and the deadline for any breach, as shown below:
4Q15 3Q15 2Q15 1Q15 4Q14 3Q14
Referential Equity (RE) (R$ thousand) (1) 135,551,196 136,633,692 127,991,067 128,704,988 126,588,485 123,713,046
Tier I (R$ thousand) 95,713,963 97,961,673 89,853,356 91,297,640 89,538,218 88,810,291
Core Capital (R$ thousand) 68,677,378 68,070,868 68,935,770 69,739,142 71,035,684 71,554,347
Minimum Referential Equity Requirements (MRER) (R$ thousand) (2) 92,455,983 92,794,937 87,016,263 88,377,258 86,457,087 84,853,320
Risk Weighted Assets (RWA) (R$ thousand) (3) 840,508,940 843,590,334 791,056,934 803,429,614 785,973,521 771,393,819
Capital Adequacy Ratio 16.13% 16.20% 16.18% 16.02% 16.11% 16.04%
Tier I Ratio 11.39% 11.61% 11.36% 11.36% 11.39% 11.51%
Core Capital Ratio 8.17% 8.07% 8.71% 8.68% 9.04% 9.28%
3,793,146 3,715,814 3,225,330 2,480,502 3,459,809 3,324,429
Compatibility Margin of RE (RE - MRER - RBAN) (R$ thousand) 39,302,066 40,122,941 37,749,475 37,847,229 36,671,589 35,535,297
(2) According to CM N Resolution 4,193/2013, corresponds to the application of the factor "F" to the amount of RWA, with "F" equal to 11%of RWA, from 10.01.2013 to 12.31.2015; 9.875% from RWA 01.01.2016 to 12.31.2016, 9.25%
of RWA from 01.01.2017 to 31.12.2017; 8.625% of RWA from 01.01.2018 to 31.12.2018, and 8% of the RWA from 01.01.2019.
(3) According to CM N Resolution 4,193/2013, since 01.01.2015 the calculation of RWA applies to institutions of the prudential conglomerate.
Interest rate risk of operations not classified under negotiable
portfolio (RBAN) (R$ thousand)
(1) According to CM N Resolution 4,192/2013.
Risk Management Report – Pillar III – 4Q15 87
Chart 6 - Criteria and parameters for classification of the capital condition
Capital Index Period of noncompliance (months)
From 31st month 25 to 30 19 to 24 13 to 18 7 to 12 0 to 6
Common Equity Tier I Index SURVAILLANCE ALERT CRITICAL
Tier I Index SURVAILLANCE ALERT CRITICAL
Basel Prudential Index SURVAILLANCE ALERT CRITICAL
According to the chart above, the projections indicate that when extrapolating Basel Prudential Index (IBP) - currently at 13% - or another indicator of capital, the Company will have enough time to promote strategic changes to avoid its extrapolation.
The capital status is monitored and reported in the Capital Forum monthly and when the Capital Critical Status happens, it must be reported to the strategic risk committees that are linked to the capital management structure (CEGC and CSRG), which contains, whenever necessary, suggestions on capital contingency measures to be adopted.
Finally, for the capital management process, the Bank uses an indicator named Risk Adjusted Return (RAR), which aims to ensure the sustainability of BB`s growth in the long run, as well as to improve the Bank`s capital allocation, prioritizing the growth of businesses that generate profit in a way that is consistent to the capital consumption.
7.6. Leverage Ratio
In October 2015, Bacen Circular No. 3.748 came into effect and established the leverage ratio calculation methodology (RA), defined as the rate between Tier I capital and the total exposure of the institution. The RA aims to prevent excessive leverage of financial institutions and the consequent increase in systemic risk, with undesirable impacts on the economy. For the data base of December 2015 the RA calculated was X,X. As provided in that Circular, the Common Model of disclosing the information about the Levarage Ratio and the Comparative Summary of the published Financial Statements and the Leverage Ratio.
Risk Management Report – Pillar III – 4Q15 88
Table 52 - Commom model of information disclosure on Leverage Ratio
R$ thousand 4Q15
Items accounted in the Balance Sheet
Equity items other than derivative financial instruments, securities received on loan and resale to settle in repos
1,113,128,122
Adjustments related to equity items deducted from Tier 1 Capital (12,493,828)
Total exposures accounted in the Balance Sheet 1,100,634,294
Transactions with derivative financial instruments --
Gross positive value with derivative financial instruments 3,423,300
Potential future gains from transactions 1,322,126
Adjustment related to given guarantees on derivative financial instruments --
Adjustment related to the provided daily collateral margin --
Derivatives on behalf of clients where there is no contractual obligation to refund in case of bankrupcy or default of the entities responsible for the settlement system
--
Adjusted notional value in credit derivatives --
Adjustment under the adjusted notional value in credit derivatives --
Total exposures related to derivative financial instruments 4,745,426
Repurchase Agreements and Lending of Securities --
Transactions with repurchase agreements and securities lending 38,305,387
Adjustment related to repurchases agreements and creditors for securities lending --
Value related to the counterparty credit risk 8,784,895
Value related to the counterparty credit risk in intermediation transactions 55,735,680
Total exposures related to repurchase agreements and securities lending (sum of lines 12 to 15) 102,825,961
Items not accounted in the Balance Sheet --
Reference value of transactions not accounted in the Balance Sheet 166,882,250
Adjustement related to the application of specific CCF to transactions no accounted in the Balance Sheet (112,881,710)
Total Exposures not accounted in the Balance Sheet 54,000,539
Capital and Total Exposure
Tier 1 95,713,963
Total Exposure 1,262,206,221
Leverage Ratio
Basel III Leverage Ratio 7.58%
Table 53 - Comparative summary between Disclosed Financial Statements and Leverage Ratio
R$ thousand 4Q15
Total Assets according to Disclosed Financial Statements 1,401,128,757
Adjustment resulting from accounting consolidation differences 2,470,388
Adjustment related to accounted assets that were donated, or transferred, with substantial transfer of risks and benefits
(14,360)
Adjustment related to adjusted notional value and potential future gains on derivatives financial instruments
1,322,126.13
Adjustment related to repurchase agreements and securities lending (200,814,098)
Adjustment related to transactions not accounted in the total assets of the prudential conglomerate 54,000,539.32
Other Adjustments 4,112,868.80
Total Exposure 1,262,206,221