2. 2
• Table of Contents
Macro and Social Dynamics
Brazil Financial System: Key Features
3. For the first time in a long period, we are living in a truly DUAL WORLD
Need for PUBLIC SECTOR MATURE MARKETS
to adjust large fiscal have started to
deficits behave like
mature markets…
LOW HIGH i.e., not growing…
Leverage
HIGH MATURE
MARKETS
Need for
PRIVATE …and EMERGING
SECTOR to MARKETS have started to
deleverage behave like emerging
markets… i.e., delivering
Balanced
LOW DIFFERENTIAL GROWTH…
EMERGING
MARKETS
4. Brazil took its macro fundamentals to a new level…
Inflation under control
FHC 1 FHC 2 Lula 1 Lula 2
Investiment Grade
916.4%
22.5%
12.5%
9.6% 8.9% 7.7% 9.3% 7.6%
5.2% 6.0% 5.7% 3.1% 4.5% 5.9% 4.3% 5.3% 5.0%
1.7%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E
Interest Rates Reduction GDP (Annual Real Growth %)
Selic Taxa Nominal (%)
Selic Taxa Real (%)
18 18
7.6
6.1
13 13 14 5.1 4.5
11.75
12 11 10.75
9
8 7 6.75
6 5.5
5
-0.2
2004 2005 2006 2007 2008 2009 2010E 2011E 2007 2008 2009 2010E 2011E
Source: IPCA-IBGE, The Brazilian Central Bank
Projections: FOCUS- The Brazilian Central Bank
4
5. … with less macroeconomic volatility and showing resilience to the
international crisis…
Duration in months of the Brazilian economic expansion and contraction periods
Largest Most brief
expansion period contraction
48 8 36 25 22 13 61 21
28 20 30 9 16 9 8 6
Feb83 Oct88 Dec91 Sep95 Feb99 Sep01 Jun03 Jan09
Jan87 May89 Nov94 Sep97 Nov00 Sep02 Jun08 Oct10
Oct80 Feb87 Jun89 Dec94 Oct97 Dec00 Oct02 Jul08
Jan83 Sep88 Nov91 Aug95 Jan99 Aug01 Mai03 Dec08
Source: The Brazilian Central Bank
6. Unemployment at historic lows….
Annual Average Unemployment Rate(%)
11.5
9.8 10.0
9.3
7.9 8.1
6.7
2004 2007 2010E
Source: FGV-CPS; IBGE PNAD 2008
Projection: Santander Economic Research
7. 7
Social dynamics leverages growth…
Favorable Demographic Transiction1 Social Mobility Trends2
∆abc= 36 ∆abc= 29
200
90% 31
20
Demographic 13
80% Bonus 150
Millions of People
66 +44.0%
70% +19.0%
95
113
60% 100
50% 47
50 44
40% 40
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 49
29
16
0
Population in Active Ages= 15-64 years 2003 2009 2014*
Dependence Ratio E D C A/B
Sources: 1 - IBGE
2 - Ministry of Finance; * estimated
8. Leading to more access to banking services…
More 24 million people
had access to bank “Cadastro Positivo”
Milion (Positive credit list)
120
An information system that
108.8
allows banks to know about the
100 creditworthiness of a person
84.0 and the likelihood that this
80
person will pay his or her debts.
60
30%
It’s possible that over
26 million Brazilians
40
will be included in
20 the banking
sector, according to Serasa
0
research.
Jul.05 Sep.09
Source: The Brazilian Central Bank, SERASA
9. 9
• Table of Contents
Macro and Social Dynamics
Brazil Financial System: Key Features
10. Brazilian Financial System
Well Capitalized – BIS Ratio High Profitability - ROE
20% 18.5% 17.8%
17.4% 17.3% 17.2% 23.7%
16.4% 21.8% 21.7%
16%
18.8%
12%
Legal Requirement = 11% 15.5% 16.2%
Basel Committee = 8%
8%
4%
0%
2004 2005 2006 2007 2008 jul/09 2005 2006 2007 2008 2009 Jun 10
Banking Sector Consolidation – % on
Balance of Reserve Requirements
Assets of the 5 largest Banks
R$ Billons
350
77.8%
73.6% 75.5% 300
250
57.3% 59.1% 59.0%
200
150
100
50
0
Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Jun 10
Securities Cash
11. Deposit market highly regulated: High reserve requirements
and mandatory lending
-
Reserve Earmarked
Free Funding
requirements Loans
Demand Pricing
51% 31% 18%
Deposits regulated
Pricing
Savings 30% 65% 5%
regulated
Free
Time Deposits 23% 77%
Competition
Source: The Brazilian Central Bank
12. Although credit growth has been robust in the last years, credit
penetration is still relatively low
Total Loans to GDP
50%
45%
40% Russian Presidential
Crisis Elections
35%
9/11 &
Energy Crisis
30% Subprime
Crisis
25% México
Crisis
Asian
20% Crisis
Real Free Argentina
Float Crisis
15%
10%
Sep-06
Sep-93
Sep-94
Sep-95
Sep-96
Sep-97
Sep-98
Sep-99
Sep-00
Sep-01
Sep-02
Sep-03
Sep-04
Sep-05
Sep-07
Sep-08
Sep-09
Sep-10
Mar-04
Mar-94
Mar-95
Mar-96
Mar-97
Mar-98
Mar-99
Mar-00
Mar-01
Mar-02
Mar-03
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Source: The Brazilian Central Bank
13. Total Loans – Banking System
Public vs. Private Banks (YoY) Loans per Type of Ownership
26.1%
Foreign
Banks
18% Public
Banks
18.3% Private 42%
Banks
40%
Mar-08
Mar-09
Mar-10
Jun-08
Jun-09
Jun-10
Dec-07
Sep-08
Dec-08
Dec-09
Sep-07
Sep-09
Sep-10
Public Banks Private and Foreign Banks
Source: The Brazilian Central Bank
14. 14
Resilient Spreads – Corporate x Individuals
60
50
40
30 28.0
24.1
20
18.4
10
0
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Sep-10
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
May-05
May-06
May-07
May-08
May-09
May-10
Corporate Individuals Total
Source: The Brazilian Central Bank
18. Cashing in on the unique environment in Brazil
The banking sector has a big opportunity
The triple Multiplier
Differential GDP growth
X (not involved in the excesses
of the past cycle)
Increased bancarisation
X (development of middle classes)
Sound Financial System
X (Low leverage, conservative,
good profitability, supervision)
19. Investor Relations (Brazil)
2,235 Juscelino Kubitschek Avenue - 10º floor
São Paulo | SP | Brazil | 04543-011
Phone. 55 11 3553-3300
Fax. 55 11 3553-7797
e-mail: ri@santander.com.br
