1. THE BRAZILIAN DOMESTIC (“NATIONAL”) FINANCIAL SYSTEM “SFN” – an overview Federal Constitution sets the rules for operations and regulation of the Brazilian Financial System Federal Constitution sets the rules for operations and regulation of the Brazilian Financial System Specific laws for Banking, Insurance, Capital Markets Specific laws for Banking, Insurance, Capital Markets Major entity of the SFN: Major entity of the SFN: - National Monetary Council – “CMN” - Formulates the policy for Currency and Credit aiming at financial stability and social and economic development. Present composition: Present composition: Minister of Finance and its chairman Minister of Finance and its chairman Minister of Planning Minister of Planning Governor of Central Bank Governor of Central Bank

2. THE BRAZILIAN DOMESTIC (“NATIONAL”) FINANCIAL SYSTEM “SFN” – an overview Regulators and Supervisors of the SFN (governmental agencies) For the Banking Industry - - Central Bank of Brazil For the Capital Markets - Brazilian Securities and Exchange Commission “CVM” For the Insurance Industry - Superintendency of Private Insurance “SUSEP” For the Pension Funds Industry (Institutional Investors) - Superintendency for Complementary Pensions (Private Employee Benefit Programs) “SPC”

3. THE BRAZILIAN DOMESTIC (“NATIONAL”) FINANCIAL SYSTEM “SFN” – an overview CENTRAL BANK OF BRAZIL - MAIN DUTIES: REGULATION, AUTHORIZATION, SUPERVISION - LENDER OF LAST RESORT - IS CUSTODIAN OF COUNTRY’S INT’L. RESERVES - MANAGES CURRENCY ISSUANCE – LIQUIDITY LEVELS OF THE ECONOMY - SETS OUT THE BASIC INTEREST RATE OF THE ECONOMY – INFLATION CONTROL / TARGET - BOARD NOMINATIONS SUBJECT TO SENATE APPROVAL - NO FIXED TERM OF OFFICE - GOVERNOR: MINISTERIAL STATUS - NO SELF REGULATION IN VIRTUALLY ANY ASPECT OF THE BANKING ACTIVITY

4. THE BRAZILIAN DOMESTIC (“NATIONAL”) FINANCIAL SYSTEM “SFN” – an overview THE BRAZILIAN SECURITIES COMMISSION: - - MAIN DUTIES: REGULATION, AUTHORIZATION, SUPERVISION - - DIFFERENT FROM CENTRAL BANK: MARKET DEVELOPMENT - BOARD NOMINATIONS SUBJECT TO SENATE APPROVAL - - FIXED TERM OF OFFICE - - ALLOWS SELF REGULATION

5. THE BRAZILIAN DOMESTIC (“NATIONAL”) FINANCIAL SYSTEM “SFN” – an overview Credit granted in Brazil totalled 31.6% of GDP in 2005 This volume is very small – for instance, in relation to their respective GDP’s the following are the equivalent volumes of credit granted in some other countries: Chile – 70% South Korea – 93% USA – 146% Portugal – 140% Issues for discussion: - Interest rate x credit demand by the public sector - Interest rate x legal risk - Interest rate x consumer financial ‘capacity’ - - Banking industry ‘ concentration’ x market competition

6. ANALYSIS OF THE SPREAD IN THE BRAZILIAN BANKING INDUSTRY AND COMPARISON WITH THE CONSOLIDATED “VALUE ADDED” STATEMENT OF BRAZILIAN BANKS BRAZILIAN FEDERATION OF BANKS – FEBRABAN and RESEARCH FOUNDATION FIPECAFI FIPECAFI - FUNDAÇÃO INSTITUTO DE PESQUISAS CONTÁBEIS ATUARIAIS E FINANCEIRAS

7. 1 SPREAD BANKING INDUSTRY

8.  Research based upon Financial Statements  Sample of 11 Banks:  State owned  Large domestic private banks  Large foreign owned banks  Small domestic private banks  Sample x Industry  75,8% of Total Assets  76,4% of Credit outstanding / granted SPREAD BANKING INDUSTRY 1st Semester 2005 2

9. SPREAD of the Banking Industry – our Model 5

10. MAJOR FINDINGS Corporations (PJ) and Individuals (PF) PJPFTOTAL Interest Revenue from Credit Operations 100,0%100,0%100,0% Funding costs - 50,8% - 29,6% - 38,0% Gross Margin 49,2%70,4%62,0% Direct Margin 34,6%46,0%41,5% Net Margin 5,3%10,0%8,1% 6

11. SPREADS Corporations (PJ) and Individuals (PF) PJPFTOTAL Total Capital Lent (Principal) 100,0%100,0%100,0 Interest Revenue from Credit Operations 9,4%16,5%12,7% Funding Costs - 4,8% - 4,9% - 4,8% Gross Spread Gross Spread4,6%11,6%7,9% Direct (Variable) Spread Direct (Variable) Spread3,2%7,6%5,3% Net Spread Net Spread0,5%1,6%1,0% 8

12. 10 DVA VALUE ADDED ANALYSIS – BRAZILIAN BANKIING INDUSTRY

13.  All Brazilian Commercial and Universal Banks, Leasing Co’s., Finance Co’s, and Investment Banks  Value added generated by: - Credit Operations - Credit Operations - Treasury Operations – Bond Trading - Treasury Operations – Bond Trading - Fees from Services rendered - Fees from Services rendered VALUE ADDED STATEMENT “DVA” BRAZIL CONSOLIDATED 11

14. DVA – 1st SEMESTER 2005 From Credit Oper. From Treasury Serv.Fees SOURCES Interest Revenue100%100% ( - ) Accrual for Bad Debts - 13% Service Fees 100% (-) Deprec., Amortiz. And other - 24% - 7% - 51% Value Added Value Added64%93%49% USES/DISTRIBUTION Interest Paid36%74% Compensation (labor costs)10%3%22% Taxes8%7%15% Net Income9%9%12% Value Distributed Value Distributed64%93%49% 12