2009AnnuAlRepoRtto see beyond,one must be Ableto view
About thisAnnuAl RepoRtto see beyond,one must be Ableto viewTo see beyond, it is not enough to look. One must be able to view.To see beyond the next step, one must often retreat and attentively look aroundto view the right opportunity to move on.To see beyond, it is not enough to look. One must have keen eyesight andeagerness to discover, and boldness to explore all possibilities.The Arrastão Project students have once more been our source of inspiration to prepare this report. The youngparticipants in the photography workshops of Arrastão have been gradually developing a keener perception of theworld and their work has been teaching us to see beyond. Our own perception is also sharpened with each projectthat they undertake. They show us new possibilities and teach us not to feel satisfied with just looking. They prompt usto step back, look again, reconsider and view from different angles, so that we can glimpse through a new perspectiveand see it as a unique scene. They entice us to see the manifold possibilities in a new image, from a new angle...In 2009, we faced challenges that led us to the same reflection on our business. The economic situation also promptedus to step back, challenged us to enhance our processes and controls and is enabling us to see the various possibilitiesto improve the scene and to assure the progress of BIM’s business in the long term.Those considerations led us to propose a new task to the youths of the Arrastão Project. Sponsored by the IndusvalMultistock Sustainability Institute, during their summer vacation, those students and their teachers were invited toattend creativity workshops. The purpose was to take pictures of São Paulo City − its nature, architecture and people− to be printed in black and white receiving a colored interference by utilizing drawing, painting, recycling, graffiti andDIY techniques, they currently use in Arrastão Project’s Fashion and Design, Communication and Youth Educationgroups. In addition to promoting greater involvement of all Project groups, this challenge was intended to showthat creativity and intelligence allow us to see beyond. We just have to be able to view from new angles, to identifyopportunities, and to transform the reality shown in the pictures.This project, involving 33 young students and seven teachers, was made possible by the designers from TheMediaGroup,our partner in the development of this report. These professionals volunteered their time and expertise to develop theidea and to structure and lead the creativity workshops, with a view to sharpening their perception more and moreand making those youths to see the opportunities that life offers us.We thank all youths, educators and volunteers that took part in this project for their effort and inspiration. Theyconfirmed our belief that one must be able to view to move beyond.
CoRpoRAtepRoFileBanco Indusval Multistock (BIM) is a commercial bank based in São Paulo, with 42 years’experience in the financial market. It focuses on credit products both in Brazilian and foreigncurrencies, oriented to medium-sized companies with annual revenues chiefly betweenR$20 million and R$500 million.BIM has 333 employees who provide prompt and quality services. The Bank holds a creditportfolio composed of over 660 companies and offers a wide range of products designed to meetthe specific needs of this market niche. Among other distinct features, the Bank develops financingstructures suitable for medium-sized companies, including the involvement of international bodiessuch as the IFC (International Finance Corporation) and IDB (InterAmerican Development Bank).In order to offer competitive services and customized products, BIM has 11 branches strategicallylocated in areas with a larger number of medium-sized companies in Brazil, plus one branchlocated abroad and the subsidiary Indusval Corretora de Valores, which acts as an intermediary inoperations on the Securities, Commodities and Futures Exchange (BM&FBOVESPA).BIM closed 2009 with R$2.7 billion total assets, a R$1.7 billion credit portfolio, R$432.7 millionshareholders’ equity and a 22.53% Basel Index. A publicly-traded financial institution, the Bank hasbeen listed on Level 1 of Corporate Governance at the São Paulo Stock Exchange since July 2007,and has voluntarily adhered to the additional practices included in the rules for companies listedon the Novo Mercado segment.
mAinindiCAtoRsConsolidated – R$ million 2005 2006 2007c 2008 2009ResultsFinancial Intermediation Result 57.7 69.2 129.2 200.1 94.3Operating Result 23.0 30.5 61.0 110.9 1.1Net Profit 19.5 23.6 45.4 71.8 12.8balance sheetCredit Portfolio 384.6 644.0 1,255.2 1,723.0 1,635.9 Credit Portfolio incl. Guarantees and Letters of Credit 417.0 691.0 1,329.0 1,793.7 1,698.7Cash and short-term interbank Investments 105.1 161.1 264.0 110.9 357.2Marketable Securities and Derivatives 234.2 261.2 649.1 331.5 725.0Total Assets 772.4 1,120.6 2,211.2 2,225.4 2,730.5Total Deposits 331.9 526.4 810.4 824.9 1.273.2Foreign Currency Borrowings 72.4 164.1 229.7 487.4 377.4Local Currency Borrowings 0.0 0.0 0.0 128.2 0.0Local Onlending 0.0 0.0 0.0 159.6 142.6Shareholders’ Equity 136.3 149.7 406.7 448.5 432.7performanceReturn on Average Equity 14.9% 16.5% 16.3% 16.8% 2.9%Return on Average Assets 2.6% 2.5% 2.7% 3.2% 0.5%Net Interest Margin (NIM) (a) 11.1% 9.8% 9.3% 9.5% 7.9%NPL / Total Credit Portfolio(b) 2.5% 1.2% 1.4% 2.7% 5.9%Basel Index 30.4% 22.5% 33.2% 24.0% 22.5%Efficiency Ratio(d) 59.0% 56.3% 63.0% 46.4% 52.3%operating indicatorsNumber of Employees 198 255 331 329 333Number of Branches 1 5 11 11 12Capital marketTotal Number of Shares 31,296,247 31,296,247 43,000,001 43,000,001 42,475,101Common Shares (IDVL3) 16,948,594 16,948,594 27,000,000 27,000,000 27,000,000Preferred Shares (IDVL4) 14,347,653 14,347,653 16,000,001 16,000,001 15,475,101Treasury Shares 1,591,879 1,591,779 0 510,500 427,000Outstanding Shares (e) 29,704,368 29,704,468 43,000,001 42,489,501 42,048,101Shares in Free Float (f) - - 22,620,381 21,753,273 21,145,842Free Float (%) (g) - - 52.6% 50.6% 49.8%Net Earnings per share (R$) 0.63 0.76 1.05 1.71 0.30Book Value per Share (R$) 4.59 5.04 9.46 10.56 10.29Shareholder Remuneration (R$ `000) (h) 11.446 10.167 15.858 25.470 27.009Remuneration per Share (R$) 0.36573 0.32486 0.36879 0.59943 0.64234Market Value (R$ `000) n/a n/a 838.500 169.533 348.579(a) NIM = Net Interest Margin = (Gross Result from Financial Intermediation – Prov. for Doubt. Debtors)/average interest earning assets.(b) NPL (Non-Performing Loans) – Total outstanding of contracts with one of the installments overdue for more than 60 days.(c) Excluding the non-recurring IPO expenses of R$9.7 million (net of taxes) net profit in the period would total R$55.1 million, leading to a 19.8% ROAE, 3.3% ROAA, 9.3% NIM and 54.6% Efficiency Ratio.(d) Ratio between Operating Expenses and Operating Income. A fall in this index shows improved performance.(e) All the shares in the Company’s capital stock minus treasury shares.(f) Outstanding Shares minus those held by Controlling Group and Management.(g) Free Float over total shares.(h) Interest on Equity + dividends, when applicable.
CReditsContent, text and translation:Investor Relations DepartmentGlobal RI Consultoria de Relações com InvestidoresGraphic design:TheMediaGroupPictures:Cover and Inner Pictures: all the pictures came from the “Ver Além” project,developed by the Projeto Arrastão young participants, as described on the backcover of this Annual Report.Management (page 5):Daniel Rosa, professional photographerPrinting:Gráfica BrasporPublication Date: April 15, 2010.
2009 2 Message from the President Adjustment to the new economic reality, with focus onannual enhancement of internal controls and risk managementreport 8 Corporate Governance Agility, transparency and ethics permeate the decision-making processto see beyond, 14 Strategic Managementone must be An ongoing search for efficiency, quality and safetyable to view 22 Economic Environment Recovery of economic activity in 2010 28 Markets Predominance of medium-sized companies in regions with greater economic activity 30 Products and Services Closeness to customers brings a better understanding of their needs 42 Economic and Financial Performance Results in line with the situation and aiming at business perpetuity 52 Capital Markets A commitment to the highest Governance standards and respect for shareholders 60 People Management Commitment and competence reflected in its main asset 64 Intangible Assets Experience and knowledge under a powerful brand 66 Sustainability Commitment to improvement in each of the pillars of sustainability 70 Annual Social Report 72 Financial Statements 111 Corporate Information
message fromthe presidentadjustmentto the neweconomic reality,with focus onenhancementof internalcontrols and riskmanagementmanoel felix cintra netoPresident of the Executive Board In 2009, we faced great challenges but that helped us to learn many lessons, to become stronger and more resilient. The economic crisis that was triggered in the USA, in late 2008 spread worldwide and quickly deteriorated both the international and the domestic economic situation. As a result, we had to forgo short-term profitability to ensure the sustainability of our operations in the long run. Our 16-years’ experience in middle market and in particular our Executive Officers’ and Board of Directors’ vision of the future were both essential for this process. This learning experience and the maintenance of the decision to privilege longetivity in detriment of immediate return was only possible due to the Bank’s corporate governance structure. Aware of the need to adapt to the new situation, we decided to introduce conservative measures to preserve our assets and liquidity from further deterioration. We strengthened our operation guarantee system, diversified our customer base and funding sources and adopted stricter lending and risk management policies.
03The adverse economic situation impacted in particular While we slowed down business growth, we started focusingour target business segment of medium-sized companies, on strengthening the Bank. As an athlete crouching tomore directly affected by flagging economic activity and concentrate his strength before a leap, we stepped back andlower credit supply. Consequently, delinquency rates rose, prepared for the economic recovery. In spite of the challengingand we decided to increase our provisions for loan losses environment, we invested in new technological platformsabove the usual requirements. We were fully aware that this which will provide greater security and more efficient controls,decision would impact our 2009 results; nevertheless, this enhanced our risk management system and automated internalmeasure is entirely consistent with the economic situation, controls to make our operations swifter, safer and moreour conservative management and, above all, our goal to efficient. We also increased our cash liquidity and extendedensure business perpetuity. Thus, credit operations stood the maturity profile of our liabilities through funding operationsat about R$1.7 billion throughout the year. There was an with longer maturities, thus ensuring soundness and stability.ensuing drop in income from financial intermediation, which Furthermore, we established a strategic partnership at Indusvalfell to R$407.5 million and, as a consequence, our net profit Corretora, which will allow that subsidiary to increase itsamounted to R$12.8 million. operations consistently. With those measures, we are prepared to seize new market opportunities based on the ethics, responsibility and transparency principles which have always served as guidelines for our business. We believe that the economic recovery and lower delinquency/default rates will naturally lead to a growth in our credit portfolio composed of medium-sized companies and to improving operating results.
04That is the reason why we chose “To see beyond, one must 01be able to view” as the theme for our 2009 Annual Report. Manoel Felix Cintra NetoIn a year marked by instability, we seek to “see beyond” the President of the Executive Boardshort-term results and draft the outline of a new BIM − with 02a better structure and a quicker decision-making process, as Luiz Masagão Ribeirowell as more modern and stricter in terms of credit extension Superintendent Officerand risk control. We challenge our readers to sharpen their 03perception and not focus on the 2009 financial results only, Carlos Ciampolinibut to view the possibilities going forward. Executive Officer 04We were only able to overcome the difficulties and challenges Ziro Murata Juniorexperienced in 2009 and maintain business sustainability CFO and Investor Relations Officerwith the support of our shareholders, customers, partners 05and especially our employees, who proved resilience, Gilberto L. dos Santos Lima Filhocommitment and competence throughout the year and Treasury Officer – SPBwhom we sincerely thank. 06 Roberto Carlos de C. Almeida Commercial Officer 07 Gilmar Melo de Azevedo Commercial Officer 08 Katia Aparecida Rocha Moroni International Department Officer 09 Eliezer Lizardo Ribeiro da Silva Credit Officer
“the best use of capital is not to makemoney, but to make money in order toimprove life.”Henry FordSeen by (photo) Gisele Eduardo dos Santos, 17 years old and Vamires Santana dos Santos, 16 years oldViewed by (colored interference) Paula Gonzalez, 26 years old
corporategovernanceagility,transparency andethics permeatethe decision-making processBIM believes that an appropriate corporate governance model Even though BIM shares are listed on BM&FBOVESPA’s Levelhelps make its business sustainable, increases its credibility and 1 of Corporate Governance, the Bank adopts additionaladds value to the Bank and all its stakeholders. The Bank greatly practices, such as the use of the Arbitrage Chamber for issuesvalues the disclosure of transparent information, business related to the capital markets; 100% tag along rights, whichethics, responsible corporate management, as well as fair and is a guarantee that minority shareholders may choose to sellopen communication. Moreover, the Bank constantly seeks to their shares at the same price per share as the controllingimprove its decision-making process and risk management, as shareholder if the Bank’s control is sold; over 20% ofwell as its operational strategies and internal controls. independent members in its Board of Directors; and over 25% of free float. Moreover, BIM offers the same remuneration forBanco Indusval Multistock has a Code of Ethics aligned with common and preferred shares. The only reason why Indusvalits internal culture and beliefs. It includes guidelines and Multistock is not listed on BM&FBOVESPA’s highest corporatepractices to be followed by all employees while performing governance segment – the Novo Mercado – is that its capitaltheir duties. The ethical issues in the Code include professional stock does not consist of common shares in its entirety.confidentiality, personal responsibility, and conflicts of interest,among other aspects. This Code was revised in 2009 to BIM’s corporate management is based on the synergy amongensure even stricter ethical principles in conducting the Bank’s its Board of Directors, Executive Board and the Committeesactivities. Throughout the year, all employees were trained assisting them.so that they would incorporate into their day-to-day routinethe principles in Indusval Multistock companies’ Code of Ethicsand be fully committed to its guidelines.
09GoVERNANCE StRuCtuRE Members of the Board of Directors Term running until the 2011 Annual General MeetingBoard of Directors Luiz Masagão Ribeiro – ChairmanThe Board of Directors is the top governing body. It is Manoel Felix Cintra Neto – Vice Chairmanresponsible for outlining strategic guidelines and general Antonio Geraldo da Rocha – Directorpolicies, besides guiding and supervising the Executive Board’s Carlos Ciampolini – Directoractivities. It also ensures that all financial information posted is Maria Cecília C. Ciampolini – Directoraccurate, chooses independent auditors and oversees internal Júlio dos Santos Oliveira Júnior – External Directoraudit. The Board is composed of renowned executives with Mário Fukumitsu – External Directorvast professional experience in different strategic fields for the Adroaldo Moura da Silva – Independent DirectorBank’s management, so that decisions are based on different Wladimir Antônio Puggina – Independent Directorpoints of view. Fiscal BoardAt year-end 2009, the Board of Directors consisted of ninemembers, two of whom − over 20% − were independent. The Fiscal Board was not established in 2009. The Bank’s BylawsBoard members meet four times a year as a rule. Special provide for the establishment of the Fiscal Board by decisionmeetings are held whenever required. Each Director has joint of the Annual General Meeting or upon shareholders’ request.two-year term, and re-election is permitted. When established, it must be composed of a minimum of three and a maximum of five members who are elected by the Annual General Meeting and can be ousted by the same body.
10Executive Board Cash Committee The Cash Committee controls the Bank’s liquidity and meets onAt the close of 2009, BIM’s Executive Board consisted of nine a weekly basis. It also analyzes cash flow projections for Treasurymembers with a joint two-year term. Re-election by the Board activities, and discusses new funding alternatives, transactionsof Directors is permitted. All officers of the Executive Board are and operating limits. It is composed of five members: the Bank’shighly experienced in the financial market, so as to ensure efficient President, the Chief Executive Officer, the Treasury Officersmanagement of operations. (Proprietary Position and Cash Management) and the Officer in charge of the activities of the brokerage house and theThe Executive Board is responsible for managing the Bank, international area.enforcing the guidelines and policies outlined by the Boardof Directors, and overseeing all business activities and Credit Committeeoverall operations. Vital for the Bank’s everyday activities, the Credit Committee outlines credit risk management policies and approvesCommittees credit limits extended to customers. It is composed of seven members as follows: President, CEO, CommercialBanco Indusval Multistock’s management includes six committees: (2), Treasury, International and Credit Officers. The Credit Committee meets regularly on a weekly basis, but it canRemuneration and Benefit Committee meet at any time − also electronically − to assess changes orThe Remuneration and Benefit Committee consists of at least exceptions related to formal details and guarantee coverage inthree members, independent or not, elected annually by the pre-approved credit limits.Board of Directors. It meets twice a year, at the end of eachsemester. Special meetings are held whenever needed. It Compliance and Internal Audit Committeeexists to support the Board of Directors in issues related to This Committee meets on a monthly basis and consistsofficer remuneration. of six members: Chief Executive Officer; the Brokerage House Officer; the Risk, Compliance and Information SafetyAmong other duties, it regularly revises the remuneration Superintendent; the Accounting and Control Superintendent;and benefits offered to the Executive Board to attract, retain, and the coordinators for the internal control and audit areas.motivate and remunerate those executives appropriately. This Committee’s duties include, among others, establishingIt also recommends changes in remuneration and benefit operating policies and rules; outlining strategies to promoteamounts to the Board of Directors and manages incentive the practice of internal controls, risk mitigation and complianceplans, such as the Stock Options Programs and Pension Plans. with legal requirements; systematically monitoring the Bank’s activities to assess the effectiveness of the internal control systems in fulfilling legal requirements; and analyzing any suspected cases of money laundering. It also helps the Board of Directors monitor the accounting practices adopted in preparing the financial statements.
11Information technology and Safety Committee ombudsmanIt is responsible for the information technology andinformation safety policies. It is also responsible for discussing Responding directly to the Board of Directors, the Ombudsmanand planning activities and investments to ensure sustainable serves as a direct communication channel between the Bankand safe operation development and establishing rules for and its customers and ensures strict compliance with legal andinformation use to ensure its protection and guaranteeing regulatory requirements concerning consumer rights. It can bemanagers’, employees’, and service providers’ compliance accessed by Internet at www.indusval.com.br > “Ombudsman”,with policies and procedures, among other duties. This or by phone at 0800-704-0418 (option 2).Committee also outlines the procedures for the BusinessContinuity Plan (BCP). It meets on a monthly basis and consistsof nine members: the Chief Executive Officer; the Brokerage the internalHouse Officer; the Risk, Compliance and Information SafetySuperintendent; the IT Superintendent; the Administrative committees supportSuperintendent; the IT Systems Development Manager, theIT Project Manager, the IT Infrastructure Manager and the and assist corporateControlling Department Manager.Legal CommitteeThis Committee consists of the Chief Executive Officer, the Legal management, aiming at enhancingSuperintendent, the Loan Recovery Manager and the externalLegal Advisor, and meets on a monthly basis to analyze and internal controls,discuss legal and regulatory rules for the Bank’s operations andany legal issues related to its institutional aspects. It is responsible risk managementfor analyzing and recommending legal structures that ensureproducts and operations are formally perfect. In addition, it sets and strategiescollection and loan recovery policies and strategies.
“the sustainable leader must beconnected to changes, sensitive tothe environment, able to interpretthe market signals and anticipatethem, thus finding opportunities andoutlining his own business strategy.”Cledorvino BeliniSeen by (photo) Roseane Rodrigues Carvalho, 17 years old and thamella Ferreira dos Santos, 16 years oldViewed by (colored interference) thais Crisitina Bispo de Lima, 16 years old
strategicmanagementan ongoingsearch forefficiency,quality andsafetyAbove all, Banco Indusval Multistock’s management seeks to Banco Indusval Multistock also sought for other financingensure the sustainability of the Bank’s operations. Consequently, sources, extended its funding operation terms and workedBIM, in view of the 2009 turbulence, introduced measures in the management of the maturity matching of its assets andto preserve its liquidity and risk management and continued liabilities to allow Management to plan the next steps anddeveloping the areas that will serve as the basis for the expansion reassure investors about the Bank’s solid condition.of activities going forward. During the year, financial, materialand human resources were used with a view to improving risk After a period of uncertainty, medium-sized companies,control models and internal processes, as well as expanding those which were most severely affected by the creditand upgrading our technological infrastructure. Thus, the Bank crunch, clearly show that they will play a prominent rolereviewed its internal processes and controls and invested in in the economic rebound, with lower delinquency/defaultIT systems and infrastructure whereas it maintained its credit ratios. Business, however, is expected to recover slowly,operations at stable levels. mainly for exporting companies, which had to change their focus to the Brazilian market or seek new untapped markets.The decision to maintain credit portfolio volumes stable mayseem a regression at first sight. Nevertheless, the Bank’s Since BIM focuses on the middle market, its strategy is to diversifyManagement considered it a strategic retreat in order to adapt its credit portfolio in industries with great potential for expansionto the macroeconomic scene and the industry situation and and low current exposure. However, it pursues a conservativeprepare for renewed growth later, based on the belief that approach toward new operations. As a result, professionals withBrazilian economic activity would recover at some point. solid relationships with customers from the industries in which the Bank plans to have a stronger presence have been hired to implement this strategy. The Bank is also considering increasing its product portfolio to enhance its customer service and seek new market niches.
15ADMINIStRAtIVE MANAGEMENt Based on this idea of intelligent processes, there was a major improvement in 2009 in the access to information, systems andThe administrative management initiatives in 2009 focused on processes to make business management − including creditimproving internal processes and controls as a result of a review risk, market and operating management − nimbler and moreof work flows that had started in the previous year. Several accurate. Our Intranet became, therefore, a real Business Portalstages in administrative routines were redesigned, duties were with organized applications to be used by managers.reassigned and methods were reorganized to enhance internalcontrols. In addition, training was given to speed up the adoption Throughout the year, a new and innovative Operations andof new methods. Payments System (OPS) was also designed and introduced for the treasury and financial departments. It reduces failure risk andThis improvement was based on the expansion of the provides more information about operations and financial flows,workflow system, considered the pillar of administrative thus bringing efficiency to the decision-making process. All thosemanagement since it aligns administrative routines and enhanced processes provide better structured and more strategicprocesses with control systems. This program allows business management. Thus, the Bank became nimbler and safermapping these processes, automating tasks and optimizing the since the business departments now work in greater harmonyorganization of work stages. As a result, security is improved, with the support and control teams.and the leaner, nimbler structure brings efficiency, productivityand quality gains. This tool allowed for the development ofspecific “intelligent processes” for the credit area, thus helpingimprove internal controls and speeding up credit analysis.
16Another major improvement was that the Supplies department Technological restructuring will allow Indusval Corretora tonow manages material resources. In addition to being in charge of increase its operations, tap into new markets and receivepurchases and maintenance, it now manages all the changes in the the Execution Broker Qualification Seal, which attests to theBank’s physical structure. During the course of the year, it focused qualification of its professionals, processes and systems. Inmainly on sustainability, both in economic terms, resulting in cost addition, these upgraded systems are compatible with the newreduction, and environmental terms, with lower consumption communications network being introduced by BM&FBOVESPAand recycling. In 2009, BIM also built the new facilities for Indusval to supplement the existing technology.Corretora and consolidated its ten branches, located in areas witha larger number of medium-sized businesses, in addition to its IT management is essential for the Bank to find new systemsheadquarters and a branch outside Brazil. which can enhance its management quality and make it possible to implement these new methods in different strategic areas.Besides its ombudsman, the Bank has two other areas to Jointly with other departments, the IT department introducedsupport external relationships: commercial customer service, and consolidated important systems in 2009, which providedresponsible for solving problems with contracts, money orders stricter control over operations, speedier processes and aand collection, among others, and providing support for the safer information flow. The highlights of these systems includecommercial operations in the São Paulo headquarters and the the Operations and Payments System (OPS), the Guaranteewhole branch network; and Customer Service, whose teams Management System (GMS) and the Verisign Identity Protectionare trained to respond to customers’ requests and contribute to (VIP) project.improving BIM’s processes and services. Customer service can beaccessed by Internet at www.indusval.com.br > “Contact us”, or The Operations and Payments System records and processesby phone at 0800-704-0418 (option 1). operations from the issue to the settlement of an order. In turn, the Guarantee Management System was developed internally soIt Infrastructure that the Bank can verify the formal details, availability and valuationand Management of the assets given as guarantee in credit operations more efficiently. In addition to these major advances, the IT and Information SafetyIn order to lay the groundwork for growth in coming years and departments worked hard on the VIP project, which increased ourcontinuously improve its safety and management systems, the Bank computer network safety and reduced operating risks with bettermade significant investments in its IT structure. After a thorough random individual passwords. The Bank also invested in state-of-evaluation of suppliers and products, the Bank established new the-art email and information recording safety systems that makepartnerships in very favorable terms, which allowed for upgrading, information access and data transmission faster.expanding and standardizing the IT infrastructure, includinginformation and telecommunication systems. The technological advance included data virtualization. All the systems are based on cutting-edge remote connectivity platforms;The new technological solutions, which required investments therefore, it is possible to access information from different hardwareof about R$1.7 million in the year, resulted in greater voice installed in different places in a safer manner. A global trend,and data transmission capacity at lower costs and substantially virtualization offers total flexibility and perfectly safe connectionsbetter quality, safety and performance. Consequently, the Bank since users (employees) can access all data from any terminal withwas able to offer new services, highlighting Indusval Corretora, virtual authentication. As a result, no data are transferred to thewhich is now able to operate 24 hours, seven days a week. In computer in use so that no one else can have access to confidentialthe first quarter of 2010, it will be able to transmit operation information. The system also allows for the reduction in costs andorders automatically with new high-frequency resources. consumption, in addition to preventing data loss in case of a failure.
17Accounting and Control The Bank has tools to identify and map all the risks to which it is exposed, assess them accurately, adopt mitigating measuresThe Accounting and Control Department made great progress in and manage any changes and situations that may affect its2009. The investments in professional training and development business and results. It pursues conservative policies in termsof new methods and processes resulted in major improvements of risk exposure, in compliance with the guidelines and limitsregarding the preparation of financial statements, as well as established by Senior Management. Risk management is amaintenance and organization of the Bank’s managerial data. concern involving all activities and is not only restricted to one department or process. It is based on a holistic view aiming atAs a result, Accounting and Controls now produces even more the Bank’s perpetuity. As a result, all employees are trained,reliable historical data and can collect the information made attend lectures and have all the means to identify any possibleavailable for BIM’s departments, the market, shareholders, risks. Both training programs and systems are continuouslybusiness partners and rating agencies more quickly. monitored for flaws, in a constant search for perfection.New accounting rules – Throughout the year, the Accordingly, the Bank in 2009 improved risk controls, hiredprofessionals from Accounting and Controls also worked hard experienced professionals, reviewed training programs,to put into practice the accounting principles required for developed new tools to make information safer and adoptedthe Bank to start introducing the IFRS (International Financial specialized systems that make its structure increasingly nimblerReporting Standard), pursuant to Law No. 11,638. The and safer.IFRS principles include a number of international accountingconcepts published and reviewed by the IASB (InternationalAccounting Standards Board). They have been followed in theEuropean Union since 2005 and will be introduced in Brazilas of 2010. To that end, the Bank has certified professionalsand trained managers to adopt these principles in preparing itsfinancial statements.RISK MANAGEMENtEfficient risk management is essential for the sustainable growthof any financial institution and even more relevant after theglobal financial crisis. Banco Indusval Multistock considers riskmanagement a strategic matter, since it involves issues such asbusiness continuity even under adverse operational conditions,compliance, money laundering prevention, information safetyand financial system safety, all essential for business continuity.
18operational Risk Throughout the year, BIM’s Compliance Agents remained alert to prevent and minimize likely losses due to flawed, defectiveOperational risks are the probability of losses resulting from or inadequate internal processes and systems, as well asinternal processes; inadequate or faulty people or systems, inappropriate people or external events, pursuant to Resolutionproblems with contracts or due to external events. BIM has No. 3,380 of the National Monetary Council. In addition, BCPpolicies and control mechanisms to promote accurate operating was also tested to ensure that operations would continue inrisk assessment and monitors those risks continuously, which cases of minimal or total contingency.ensures that they are mitigated on a permanent basis and inemergency situations. Moreover, an innovative technology in Latin America, the VIP (Verisign Identity Protection) project, was introduced in 2009BIM adopts an Operational Risk Management System (ORMS), to improve passwords to access the Bank’s computer network,which follows the main current standards, such as the Committee which is significantly safer. Employees must now type, inof Sponsoring Organizations of the Treadway Commission addition to the usual network password, a random code shown(COSO) and Control Objectives of Information and Related in display cards or smartphones to access their computers. InTechnology (COBIT), which include business and technology 2010, the VIP technology will be extended to Internet Bankingaspects. Since BIM considers operating risk management a key and Home Broker customers.factor in the value-adding process, it fosters a risk preventionculture among its staff by providing tools, disseminating policies Credit Riskand introducing corporate methods. Managing this risk, connected to the possibility of customerIn an ongoing effort to employ the best practices in the market, insolvency, requires different assessment and control tools. BIMBIM follows the guidelines of the New Basel Capital Accord, uses methods, systems and processes to rate each borrowerknown as Basel II, in compliance with the schedule set by the and evaluate the structure of the guarantees involved in eachCentral Bank of Brazil (BACEN). In 2010, a more sophisticated operation in a thorough manner. Customer risk ratings, basedoperating risk management tool will be introduced, the on Resolution No. 2,682 of the National Monetary Council, areAlternative Standardized Approach (ASA), which improves the based on a mathematical model. The Credit Committee canAllocation of Capital for Operating Risk. only make them more restrictive.To ensure information integrity and business continuity, BIM’s Customer economic and financial performance, as well asBusiness Continuity Plan (BCP) includes fully-equipped facilities guarantees, is regularly monitored. Special systems trackbased in a different address, with workstations, as well as volumes, liquidity and potential shortages on a daily basis,telephone and other systems, so that operations can continue in in the case of guarantees in the form of receivables. Thesespite of any type of contingencies in the Bank’s headquarters. In systems have been reviewed since 2009 to improve andaddition, all servers are hosted at a telephone company, and data accelerate the process of pricing, valuation and availabilityare replicated by other servers hosted at BIM’s headquarters. mainly of guarantees other than receivables so that they canThe Bank also has redundant links (double connections), an be formally accepted of refused.additional resource to ensure business continuity in the eventof contingencies.
19The approved credit lines are revised every six months. As a Market Riskresult, customer performance is continuously monitored, alsoby the Credit Committee. Market Risk is related to the possibility of losses due to fluctuations in economic and financial variables, such as interest,The international crisis affected the global economic activity and forex rates, and stock and commodity prices.especially medium-sized companies. However, the Bank gainedconsiderable knowledge from it, mainly in terms of credit analysis The aspects connected to the market and liquidity are managedmethods, stricter controls and formal details of operations. In with the use of software, and risks are carefully monitored and2010, a new credit risk calculation model will be introduced. It will assessed in compliance with the regulatory bodies’ rules andbe an additional tool to determine appropriate capital allocation, recommendations. The main model adopted by the Bank is thein compliance with the Basel II Capital Accord. calculation of VaR (Value at Risk), a statistical measure for the probability of a maximum loss of the value of the Bank’s portfolioLiquidity Risk in normal market conditions, within a given time frame. BIM also uses other tools, such as: 1) VaR Stress, which calculatesThe Liquidity Risk results from mismatches in the cash flows of a the risk of potential losses under worst-case market scenarios;financial institution, which, as a result, may not be able to settle its 2) Gap Analysis, a graphic representation by risk factor of cashobligations with its cash and cash equivalents, albeit temporarily. flows shown in market values recorded on maturity dates, andTo avoid this risk, BIM continuously monitors and analyzes used to determine risk exposure at a certain point in time; 3)its liquidity, in accordance with the established guidelines and Results Analysis, monitoring of the Bank’s results compared to aadequate reserve requirement levels. This procedure is based benchmark; and 4) Capital Allocation, to ensure that the Bank ison statistical, economic and financial projection models for the able to withstand the impact of unexpected losses, which allowsassets and liabilities that have an impact on cash flow and on business continuity in adverse situations and serves as a basis toboth local and foreign currency reserves. measure operation yields vis-a-vis risks.The Bank adopts a conservative liquidity risk management policy Our Market Risk monitoring system is able to performand seeks to maintain a minimum cash reserve − monitored calculations for Basel II, as well as the portion of currencyon a daily basis − corresponding to 20% of its total deposits. exchange, interest, commodity and stock portfolios and the riskThroughout 2009, cash reserves remained over 50% of total involved in them. At the close of 2009, the Bank’s overall VaRdeposits due to the turbulence in the economy. Our liquidity stood at R$1.06 million, as calculated by the parameter model,risk management practices improved considerably, which with a confidence interval of 95.0%.proved particularly important during the crisis.
“out of confusion, find simplicity.from discord, find harmony. in themiddle of difficulty lies opportunity.”Albert EinsteinSeen by (photo) Lílian Rosa dos Santos, 17 years old and André Guilherme, 16 years oldViewed by (colored interference) Paula Gonzalez, 26 years old
economicenvironmentrecovery ineconomicactivity in 2010Expectations for the economy in 2009 were impacted by the It was a bad year for the economy; however, the Brazilianunfolding of the economic crisis that had been triggered in 2008. economy proved stronger and more resilient. On a quarterlyThe year began with great uncertainty, which eventually made the basis, a downturn was observed in the first three quarters of 2009.economic downturn even more severe. Even though a recovery In the fourth quarter, however, that trend reversed, in whichstarted in the last two quarters of 2009, economic activity did economic activity rose by a surprising 4.3%. Those data heightennot return to the pre-crisis levels. Thus, Brazil’s Gross Domestic the expectation of a rebound in economic activity throughoutProduct (GDP) fell by 0.2% in 2009, the sharpest drop since 1992, 2010, mainly in the services and industry sectors, which increasedwhen it had decreased by 0.5%. That poor performance was by 4.6% and 4.0% respectively in the last quarter of 2009. On themainly impacted by a 5.5% decline in industrial activity and of 5.2% other hand, agriculture has not yet recovered, and a 4.6% dropin agriculture. That impact would have been even worse had it not was recorded in the period.been for higher public spending, which rose by 3.7%, and higheremployment rates as of the second quarter of the year, which ledto a 4.1% increase in family consumption. economic indicators 2008 2009 change GDP variation – measured by IBGE 5.1% (0.2%) (5.3) p.p. IPCA – inflation rate measured by IBGE 5.90% 4.26% (1.64) p.p. Exchange Rate (US$/R$) 33.1% (25.3) (58.4) p.p. Selic – interest basic rate 12.5% 9.9% (2.6) p.p.
23 gdp evolution – quarter on quarter percentage change8.0%7.0%6.0%5.0%4.0%3.0%2.0%1.0%0.0%-1.0%-2.0%-3.0% 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09Source: Brazilian Institute for Geography and Statistics (IBGE)The 25.3% appreciation of the real over the US dollar made US$ 24.6 billion at the close of 2009, 1.4% less than in 2008.Brazilian exports less competitive, which, coupled with the According to the Ministry of Development, Industry and Foreigncredit crunch and the downturn in the major economies Trade, Brazilian exports totaled US$153.0 billion, down 22.7%worldwide, affected the Brazilian trade balance. For the first year-over-year. That was the sharpest drop since those datatime since 2002, the trade flow was lower in relation to the started being recorded in 1950.previous year. Nevertheless, the trade balance was positive by
24Although the appreciation of the real benefits imports, the As a result, companies manufacturing goods for exports, mainlydecrease in economic activity and investments led to a drop agricultural and mineral commodities, experienced some ofin Brazilian imports which, in line with the trend observed in their most difficult challenges in the last few years. In addition tomany countries, fell by 25.3% in relation to 2008 and totaled declining prices and an unfavorable exchange rate, the demandUS$127.6 billion. and credit supply fell, which severely affected the ability of companies in these two industries to settle their obligations.Throughout the year, the Brazilian Federal Governmentintroduced tax incentives and increased liquidity aimed at CREDIt IN BRAZILexpanding credit supply and boosting consumption andproduction. The basic interest rate was repeatedly reduced and The demand for credit from individuals was distinct from thatclosed 2009 at 8.75%, the lowest historic level ever. White of corporations in Brazil in 2009. That is largely explainedgoods, construction materials and vehicles were granted an by the Brazilian Federal Government’s measures to boostexcise tax (IPI) exemption or reduction. Even though these consumption, such as tax incentives, which led to a stablemeasures had a positive effect on the economy as a whole, demand for credit from individuals, mainly for mortgages andthey focused on domestic consumption. With the unfavorable car financing.exchange rate, exporters and agricultural producers received noincentives to counteract the impact of the crisis. corporate loans by contract amount . R$ billion Up to R$ 100,000 From R$ 100,000 to R$ 10 million Over R$ 10 million 788 757 770 726 737 748 686 696 693 694 699 697 696 706 639 665 608 582 591 552 567 508 508 517 539 46.2% 44.1% 402339 39.6% 37.7% 16.3% 16.1%Dec Dec Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec05 06 07 08 09Source: Central Bank of Brazil (BACEN)
25Lower industrial production led to a decrease in corporate The increased difficulty for large companies to raise fundscredit, which fell by 4.4% in 2009, according to the Serasa abroad and in the stock market during economic crisesExperian Indicator, which measures this type of demand in explains such move. They, as a result, resort to BrazilianBrazil. That drop came to 6.7% in the first half of 2009 alone, banks, mainly development banks, and have an edgesince that was when the impact of the crisis was most strongly over other companies due to their lower credit risk.felt in Brazil. The same survey also shows that the sharpest drop Consequently, medium-sized companies were faced withwas recorded in the industrial sector, with a 5.4% decline in a flagging demand, less liquid receivables and tighter creditrelation to 2008. standards; therefore, many of them had problems settling their obligations in 2009.The negative effect of the appreciation of the real against theUS dollar was particularly strong in the Brazilian regions where Delinquency/Defaultexports-oriented agribusiness accounts for a large share ofeconomic activity. In the South Region, economic activity Middle-market companies have fewer funding optionsdecreased by 6.9% in 2009 whereas it dropped by 4.8% in the and depend on credit to finance their activities. They are,Center-West Region. consequently, quite vulnerable to fluctuations in economic activity and credit crunches because their paying capacity isWhen corporation size is considered, the survey shows quickly affected during economic downturn periods, leading tothat demand for credit decreased by 4.5% among very higher default rates.small and small businesses and by 4.8% among medium-sized companies, BIM’s target market. On the other hand, BACEN’s data shows that corporate default rates leveled offdemand for bank credit from large corporations rose by in October and started falling, albeit slightly, as of November.5.2% in 2009. The industries that recovered more quickly were trade, services and manufacturing of goods for the domestic market. DomesticThe Central Bank of Brazil (BACEN)’s data shows a similar consumption was mainly driven by stable wages, consumersituation. BACEN does not disclose credit volumes by credit supply and the anti-crisis measures introduced by theborrower size, but only by single contract amounts. Large Brazilian Federal Government, which increased the share ofcompanies usually borrow higher amounts per contract state-run banks in the granting of credit, also in special terms,and, in contrast, small businesses borrow lower volumes. and created tax incentives for certain industries, mainly durableAs a consequence, contracts between R$100 thousand goods manufacturing.and R$10 million, which is the medium range disclosedby BACEN, are correlated to middle market operations.Thus, BACEN’s data are in line with those contained in theSerasa Experian report, showing that the demand for creditincreased among large corporations and decreased amongmedium-sized companies.
“one must wish to move forward,but, to that end, he must viewnew horizons, remain true to hisprinciples and be full of energy,confidence, daring and creativity.”Viviane DuarteSeen by (photo) Erick Henrique Angelo, 16 years old and Felipe trindade, 16 years oldViewed by (colored interference) Roberta Silva de Souza, 17 years old
marketspredominanceof medium-sizedcompanies inregions withgreater economicactivityBanco Indusval Multistock focuses its activities on granting credit sized companies depend on bank loans mainly to meet theirto medium-sized companies (middle market), mainly those cash flow requirements. As they have more pressing needs,which post annual sales chiefly between R$20 million and R$500 middle market companies have a high demand for productsmillion, employ over 200 people on average, and require bank such as working capital, discount of trade notes and receivables,financing to fund their activities. About 60% of the Brazilian as well as services for payment and receipts.middle market companies are located in the SoutheasternRegion, 20% in the Southern Region and the remainder in the A large number of these companies have been exporting part ofNorthern, Northeastern and Mid-Western Regions. their production over the last few years in view of the economic stability, falling interest rates and exports incentives. As aThese companies typically resort to several banks for the result, there has been a growing demand for foreign exchangefunds that they need for their activities since they only have products, especially for trade finance, among them.access to lower credit lines and shorter maturities than largecorporations. Although comparatively less heavily leveragedthan their counterparts in other countries, Brazilian medium-
29 business focusBanco Indusval Multistock has a wide range of products andservices especially designed for this market niche. It offers, in on medium-sizedaddition, products for larger companies that can also meet theirgrowing businesses’ needs. Of the customers in its loan portfolio, companies, which55.6% are in the manufacturing industry, 22.8% in the servicesegment, 11.6% in commerce and only 9.8% are individuals. have specific needs93.5% of BIM’s credit operations were oriented to the middlemarket in 2009, and 67.0% of its funds were allocated to loan and require creditoperations and discounts of receivables. products mainlyWith an agile structure and prompt customer service providedby skilled professionals, the Bank is able to offer customized geared to theirproducts and services adapted to each company’s particularfeatures and catering to its specific needs. Consequently, BIM business turnoverstands out for its efficient and quick credit approval process.The largest share of operations (39.0%) is currently gearedto customers’ very short term needs (up to 90 days) and73.8% of all contracts mature in no more than 360 days.
products andservicescloseness tocustomersbrings a betterunderstanding oftheir needsCREDIt oPERAtIoNS in local and foreign currency, also comprise the Bank’s credit risk exposure although to a lesser extent. Banco Indusval Multistock’s credit portfolio totaled approximately R$1.7 billion at the close of credit operations . in R$ million 2009, having remained stable throughout the year in spite of the Guarantees and Letters of Credit deductions, write-offs and renegotiations carried out during that Trade Finance period. It consists of about 660 customers. Loans and Financing in Local Currency The Bank adopts conservative policies for credit granting and CAGR 1,793.7 the risks posed by these operations. At year-end 2009, 86.5% 42.1% 1,698.7 of the credit portfolio was among the highest ratings (AA-C) and 1,329.0 83.0% of the operations involving medium-sized companies were supported by real guarantees. 691.0 The global economic downturn and the severe credit crunch led to higher default rates, mainly among medium-sized companies. 417.0 According to BACEN data, the corporate default rate started falling slightly only as of November and closed 2009 at 2.0 percentage points above that recorded at year-end 2008. The following chart 2005 2006 2007 2008 2009 shows the 60 and 90-day default rate curves for Banco Indusval Multistock’s credit portfolio versus the default rates estimated for small and medium-sized companies (SMEs) in loans overdueBIM’s credit portfolio includes mainly loans and financing in local over 90 days. Those estimates were based on BACEN’s data forcurrency − basically, financing for routine operational activities of corporate default rates, weighted by the volume of credit grantedmedium-sized companies in the domestic market − and in foreign to large companies and the historical default rates of small andcurrency for trade finance. Guarantees or Letters of Credit, both medium-sized companies.
31 delinquency rate . % NPL 60 days – BIM NPL 90 days – BIM Delinquency Rate SME – 90 days 8% 7% 6% 5% 4% 3% 2% 1% 0% Dec Dec Mar Jun Sep Dec Mar Jun Sep Dec 2006 2007 2008 2009Source: BIMIn compliance with its policy to revise all credit lines every supplementary provisions, in addition to those determined by the180 days, the Bank reviewed its whole customer base during regulatory body. Provisions increased from R$70.3 million as atthe year and re-rated each customer’s risk in view of the new December 31, 2008 to R$133.4 million at the close of 2009, anmacroeconomic situation. That procedure had an impact on 89.8% rise. That amount corresponds to 8.2% of the total creditAllowance for Loan Losses and resulted in the creation of portfolio, above the 4.1% recorded in the previous year.
32credit portfolio breakdown at the end of 2009by segment 4.4% Other Retail 2.1% 93.5% Middle Marketby economic activity Individuals 10% Services 22% 56% Industry Commerce 12%by industry 2.8% Financial Services Oil Byproducts and Biofuels 16.7% Other 2.8% 20.8% Food, beverage Chemical and Pharmaceutical 3.0% and tobacco Education 3.4% 13.9% Agribusiness Textile and Leather 3.6% 9.7% Civil Construction Individuals 3.8% Financial Institutions 4.4% 5.1% Metallurgy Transport and Logistics 4.9% 5.0% Automotive 2.6% Northby region Mid-West 13.1% 2.9% Northeast 19.2% South 62.3% Southeast
33credit portfolio breakdown at the end of 2009by customer concentration Other 26.8% 18.9% 10 largest 61to160 23.8% 30.6% 11to 60by type of operation 5% Other Guarantees 4% Trade Finance 17% 67% Loans and BNDES Onleding 7% Discountsby maturity Over 360 days 26.1% 39.1% Up to 90 days From 181 to 360 days 15% 19.8% From 91 to 180 days Vehicles 2% 17% Aval onby collateral Property 9% Promissory Notes Monitored Pledge 12% 6% Pledge Securities and Times Deposits 4% 51% Receivablesby risk rating D – H 11% 30% A C 30% 29% B
34Loans and Financing in Guarantees: the Bank rapidly grants Letters of Guarantee forLocal Currency its customers to support them in their operations.As at December 31, 2009, loans and financing in local currency BNDES (Brazilian Social and Economic Developmentamounted to R$1.3 billion, equivalent to 82.1% of the credit Bank) onlending financing lines:portfolio, a 7.6% drop compared with the previous year. FiNamE – Financing for the production and sale of newConsidering the credit recovery process, which includes equipment and machinery.renegotiations, discounts and write-offs, the slight change in the BNDES Exim – Financing for the production and exports ofportfolio reflects our teams’ effort, which generated enough goods and services, as well as for selling them abroad.operations to maintain volumes practically stable, mainly in the Special Credit Program (PEC) – This working capitalsecond half. The Credit Portfolio in local currency recorded financing program was designed to boost companies’a Compound Annual Growth Rate (CAGR) of about 43.6% competitiveness in the segments of manufacturing, trading andbetween 2005 and 2009, with a sharp rise since 2007. services, except those related to civil construction.Main Products: Other services: Checking Accounts, Collection and Internet Banking.Working Capital:Loans – Loan Agreements, with funds available for use bycorporate customers in their operational activities.Discount of receivables − Funds released quickly throughdiscounts of trade notes, credit instruments and receivables. Overdraft accounts − Funds promptly made available through lines and contracts previously approved and signed. Compror – For inventory purchases.Credit to Production Chains: these credit operations aredesigned to benefit our customers’ production chains throughagreements with large companies maintaining sustainablerelationships with their suppliers and to offer funding support byconfirming our customers’ receivables. Besides providing accessto a type of credit on which these companies would individuallybe subject to volume and maturity restrictions, these operationsoffer great potential to develop prospective relationship withnew small and medium-sized customers.
35Foreign trade Funding for ForeignFinancing operations trade FinancingBIM’s Trade Finance Portfolio, according to its accounting The Bank has partnerships with multilateral bodies andrecords in reais, amounted to R$293.3 million at the close of Correspondent Banks to expand its credit lines and loan portfolio.2009 and recorded a CAGR of 43.5% p.a. between 2005 and The first partnership, established with the International Finance2009. The CAGR in US Dollar terms is 44.8%, with a US$174 Corporation (IFC) in 2006, has allowed the Bank to offer foreignmillion portfolio in 2009, which exceeded the amount of US$30 trade finance to small and medium-sized companies within themillion at the close of 2005. Global Trade Finance Program (GTFP), and greatly benefited the relationship with correspondent banks.Despite weak international markets, export financingaccounted for the largest share of the Trade Finance portfolio The Bank’s responsible and transparent operations with IFCin 2009 and accounted for 90% of overall operations. The led BIM to form a new partnership with the InteramericanBank has a highly skilled, experienced team able to provide Development Bank (IDB) in 2007, within the Trade Financeprompt and customized advisory services and monitor all Facilitation Program (TFFP). Geared to Latin American andinternational operations. Caribbean companies, TFFP promotes their growth as a means to boost foreign trade. This partnership proved particularlyMain Products and Services: important during the period of turbulence in international markets, when IFC and IDB maintained their credit lines. aCC/aCE – Pre- (ACC) and Post-shipment (ACE) Exports Financing. The Bank expanded its international relations and established import Financing − These financing lines for raw materials, partnerships with over 40 correspondent banks in Europe; products and equipment purchased abroad allow access to Asia, and North, Central and South Americas, all crucial for alternatives, in terms of variety, quality and prices, to those found foreign trade finance. Credit lines granted by international in the domestic market. correspondent banks are currently the main funding source for international Guarantees − In the form of Import or BIM’s exports and imports financing portfolio. Stand-by Letters of Credit. Spot Fx − Purchase and sale of different foreign currencies. Structured operations international Collection Operations − Both in imports and exports. The Bank has been developing structured operations since Fund remittance abroad − Investments or cash reserves 2004, based on the combination of two factors. First, new for individuals and legal entities. market opportunities were identified. Besides, the Bank’s customer base included companies with high enough credit rating and the right profile to attract investors. Tapping into its market expertise, the Bank started structuring financing operations for medium-sized customers, both in local and foreign currency, thus allowing them to raise larger amounts of funds at lower rates.
36Before the crisis worsened in late 2008, there was a steady agribusiness Credit Rights Certificates (aCRC): securitiesdemand for operations backed by corporate debts, an issued to finance agribusiness. Issuers are exempt from the Taxalternative that lost its appeal for investors when they began on Financial Transactions (IOF). In view of that specific purpose,resorting to safer government bonds for capital protection. In guarantees must be based on agribusiness receivables.view of the liquidity crunch late in the year, investors startedshowing interest mainly in assets backed by exports receivables. Export Prepayment Operations (EPO): foreignAlthough still incipient, this is a promising activity that can start currency funding instruments for longer-term export financing,growing in 2010, mainly among banks with BIM’s profile: with more significant guarantees, including pledge of goods andstructured, nimble and able to find good business opportunities. export receivables among others.BIM’s branch on the Cayman Islands was opened in 2009. It Export Credit Note (ECN): local currency fundingwill conduct the structured operations in foreign currency, instruments to finance exports. Issuers are IOF-exempt, butthus providing a direct channel between the Bank and foreign must prove that the export operation was duly performed.investors. Another distinct feature that attracts prospectiveinvestors is that BIM takes a share of the risk involved in all its BIM also structures operations in specific niches, such as advisorystructured operations. This shows that it firmly believes that the services for customers seeking strategic or financial investors forbusiness is safely structured. As it is responsible for structuring their companies through operations of shareholding nature; andoperations and controlling credit guarantees, BIM continuously debt instrument issues structured with receivables from the realmonitors the liquidity of the guarantees and the economic and estate industry (Real Estate Credit Note – RECN), which hasfinancial performance of the borrowers. It regularly produces been expanding significantly in Brazil.and distributes monitoring reports to deal holders.The Bank is presently prepared to structure the following an agile bankfinancial operations among others: structured toBank Credit Note (BCN): credit securities issued toa financial institution and easily traded on the secondary understand and meetmarket. They can be backed by different types of guarantees,such as: pledge of goods, sale of property and assignment of the customers’ needsreceivables among others.
37treasury and Funding operations loan volume . in R$ millionThe Treasury’s main role is to control the Bank’s liquidity and Foreign currencyexecute its funding and fund allocation strategy, devised by Local currencythe Cash Committee, which sets the guidelines for funding,performance and operating limits, always in compliance withthe market risk and liquidity management policies. As a result, it 1.793,2is also responsible for mitigating the risks of mismatching interest 1.600,0rates, currencies and maturities. It also offers appropriatesolutions to meet customers’ needs for hedging operations toprotect against fluctuations in forex and interest rates, among 1.040,1other financial assets. 690,5In accordance with its liquidity management policy, the Bank maintains 404,3at least 20% of total deposits as free cash to ensure greater safetyfor itself and its investors. That percentage remained above 50%throughout 2009 and stood at about 55% at year-end, in line withBIM’s conservative policy and in view of the economic turbulence. 2005 2006 2007 2008 2009At the close of 2009, total funding recorded a 12.1% increase incomparison to the close of the previous year and amounted to R$1.8billion, 79.0% of which in local currency.Funding in local currency corresponds mainly to Deposits,accounting for 71.0% of the Bank’s total funding. Worth of note funding . in %are Time Deposits, involving the issue of Bank Certificates ofDeposits (CDBs), which accounted for 37.1% of total fundingas at December 31, 2009. On the same date, Time Depositswith Special Guarantee (DPGEs) comprised 28.2% of total Foreign Currencyfunding. Introduced in April 2009 by the National Monetary Borrowings 21.1% 8.0% LocalCouncil, DPGEs were essential to maintain medium-sized banks’ Onlendingliquidity since an increased risk perception among investors due 37.1% Time Interbank Deposits 2.8% depositsthe international crisis led to a “fly to quality” migration of funds,mainly to government bonds and larger financial groups. Since 28.2% Time Deposits Demand deposits 2.2% with SpecialDPGEs are guaranteed by the Credit Guarantor Fund up to Guarantee (DPGE) 0.6% Agribusiness Credit Bills
38R$20 million, they allowed small and medium-sized banks to raise BRoKERAGE HouSEfunds, especially from institutional investors, at a cost compatiblewith their operations, for terms of two, three or even five years, In 2009, Banco Indusval Multistock started restructuring andwith pre-determined maturities. In addition to ensuring stable modernizing its subsidiary, the brokerage firm Indusval S.A.liquidity levels, this alternative allowed the Bank to extend funding Corretora de Títulos e Valores Mobiliários (Indusval Corretora),maturities − as yet only possible in external funding − and which operates in all markets of the Securities, Commodities andbetter plan its cash liquidity due to the need to maintain financial Futures Exchange (BM&FBOVESPA). The mark in this processinvestments until their final maturities. was the strategic partnership established on June 1st, 2009 between BIM and Serendipity Holding Financeira Ltda., whichForeign sources accounted for 21.0% of total funding in now holds 48.84% of Indusval Corretora’s total capital stock.2009. Trade Finance comprised 14.9% of this amount. The Serendipity is controlled by Luis Fernando Monteiro de Gouvêa,remaining 6.1% corresponds to the balance of the October the majority shareholder of Comercial Asset Management, and2008 syndicated loan, jointly with IFC (International Finance by Alexandre Atherino, a former partner and, up to 2008, theCorporation), and is allocated directly to financing working Planning and Strategy Officer of Fator Corretora.capital in local currency. The exposure of this loan to forex andinterest rate fluctuations is covered through hedging operations. The Bank’s goal with this partnership is to increase the profitability of Indusval Corretora’s activity in a sustainable manner in theAnother funding source that complements BIM’s product long term, based on the new partner’s sound, business-orientedportfolio is onlending of BNDES funds to corporate customers. management. The ongoing restructuring process has alreadyIt accounted for 8% of total funding at the close of 2009. produced its first results, such as a wider range of products and services and a higher BM&FBOVESPA ranking. The Brokerage Firm ranked 52nd on BM&F’s general ranking at the close of 2008 and moved up to 44th at the close of 2009. The new strategic management is seeking to increase Indusval Corretora’s customer base among institutional and qualified individual investors, and target the small investor market. With that in mind, the Firm is hiring new teams with market expertise; in addition, it is introducing business management tools and operating platforms for trading in the Stock and Derivatives markets geared to institutional and qualified individual investors, as well as a new homebroker system, which will be accessed through the Brokerage House’s new website. The new site, still in the design phase, will offer resources that allow performing transactions through the Internet, and bring more information and tools to help users make investment decisions.